<PAGE>
As filed with the Securities and Exchange Commission on January 26, 1996
1933 Act File No. 2-38613
1940 Act File No. 811-2031
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 41
AND
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 26
MFS SERIES TRUST V
(Exact Name of Registrant as Specified in Charter)
500 Boylston, Street, Boston, Massachusetts 02116
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code: (617) 954-5000
Stephen E. Cavan, Massachusetts Financial Services Company
500 Boylston Street, Boston, Massachusetts 02116
(Name and Address of Agent for Service)
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
It is proposed that this filing will become effective (check appropriate box)
|_| immediately upon filing pursuant to paragraph (b)
|X| on January 28, 1996 pursuant to paragraph (b)
|_| 60 days after filing pursuant to paragraph (a)(i)
|_| on [date] pursuant to paragraph (a)(i)
|_| 75 days after filing pursuant to paragraph (a)(ii)
|_| on [date] pursuant to paragraph (a)(ii) of rule 485.
If appropriate, check the following box:
|_| this post-effective amendment designates a new effective date for a
previously filed post-effective amendment
Pursuant to Rule 24f-2, the Registrant has registered an indefinite number of
its Shares of Beneficial Interest, (without par value), under the Securities Act
of 1933. The Registrant filed a Rule 24f-2 Notice for its fiscal year ended
September 30, 1995 on November 16, 1995.
- --------------------------------------------------------------------------------
<PAGE>
MFS SERIES TRUST V
MFS TOTAL RETURN FUND
MFS RESEARCH FUND
CROSS REFERENCE SHEET
(Pursuant to Rule 404 showing location in Prospectus and/or Statement of
Additional Information of the responses to the Items in Parts A and B of Form
N-1A)
STATEMENT OF
ITEM NUMBER ADDITIONAL
FORM N-1A, PART A PROSPECTUS CAPTION INFORMATION CAPTION
- ----------------- ------------------ -------------------
1 (a),(b) Front Cover Page *
2 (a) Expense Summary *
(b),(c) * *
3 (a) Condensed Financial Information *
(b) * *
(c) Information Concerning Shares *
of the Fund - Performance
Information
(d) Condensed Financial Information *
4 (a) The Fund; Investment Objectives *
and Policies
(b),(c) Investment Objectives and Policies *
5 (a) The Fund; Management of the *
Fund - Investment Adviser
(b) Front Cover Page; Management *
of the Fund - Investment
Adviser; Back Cover Page
(c) Management of the Fund *
(d) * *
(e) Back Cover Page *
(f) Expense Summary; Condensed *
Financial Information
(g) Investment Objectives and Policies *
5A (a),(b) ** **
6 (a) Information Concerning Shares *
of the Fund - Description of
Shares, Voting Rights and
Liabilities; Information Concerning
Shares of the Fund - Redemptions
and Repurchases; Information
Concerning Shares of the Fund -
Purchases
(b),(c),(d) * *
(e) Shareholder Services *
(f) Information Concerning Shares *
of the Fund - Dividends and
Capital Gain Distributions;
Shareholder Services -
Distribution Options
(g) Information Concerning Shares *
of the Fund - Tax Status;
Information Concerning Shares
of the Fund - Dividends and
Capital Gain Distributions
7 (a) Front Cover Page; Management *
of the Fund - Distributor; Back
Cover Page
(b) Information Concerning Shares *
of the Fund - Purchases
(c) Information Concerning Shares *
of the Fund - Purchases;
Information Concerning Shares
of the Fund - Exchanges;
(d) Front Cover Page; Information *
Concerning Shares of the Fund -
Purchases
(e) Information Concerning Shares *
of the Fund - Distribution Plans;
Expense Summary
(f) Information Concerning Shares *
of the Fund - Distribution Plans
8 (a) Information Concerning Shares *
of the Fund - Redemptions and
Repurchases; Information
Concerning Shares of the Fund -
Purchases
(b),(c),(d) Information Concerning Shares *
of the Fund - Redemptions and
Repurchases
9 * *
10 (a),(b) * Front Cover Page
11 * Front Cover Page
12 The Fund Definitions
13 (a),(b),(c) * Investment Objectives;
Policies and Restrictions
(d) * *
14 (a),(b) * Management of the Fund -
Trustees and Officers
(c) * *
15 (a) * *
(b),(c) * Management of the Fund -
Trustees and Officers
16 (a) Management of the Fund - Management of the Fund -
Investment Adviser Investment Adviser;
Management of the Fund -
Trustees and Officers
(b) Management of the Fund - Management of the Fund -
Investment Adviser Investment Adviser
(c) * *
(d) * Management of the Fund -
Investment Adviser
(e) * Portfolio Transactions and
Brokerage Commissions
(f) Information Concerning Distribution Plans
Shares of the Fund -
Distribution Plans
(g) * *
(h) * Management of the Fund -
Custodian; Independent
Auditors and Financial
Statements; Back Cover
Page
(i) * Management of the Fund -
Shareholder Servicing
Agent
17 (a) * Portfolio Transactions and
Brokerage Commissions
(b) * *
(c) * Portfolio Transactions and
Brokerage Commissions
(d) * *
(e) * Portfolio Transactions and
Brokerage Commissions
18 (a) Information Concerning Description of Shares
Shares of the Fund - Voting Rights and
Description of Shares, Liabilities
Voting Rights and
Liabilities
(b) * *
19 (a) Information Concerning Shareholder Services
Shares of the Fund -
Purchases; Shareholder
Services
(b) Information Concerning Management of the Fund -
Shares of the Fund - Principal Underwriter;
Net Asset Value; Determination of Net
Information Concerning Asset Value and
Shares of the Fund - Performance - Net Asset
Purchases Value
(c) * *
20 * Tax Status
21 (a) * Management of the Fund -
Principal Underwriter;
Distribution Plans
(b) * Management of the Fund -
Principal Underwriter;
Distribution Plans
(c) * *
22 (a) * *
(b) * Determination of Net Asset
Value and Performance
23 * Independent Auditors
and Financial Statements
- -----------------------------
*Not Applicable
**Contained in Annual Report
<PAGE>
PROSPECTUS
February 1, 1996
MFS(R) TOTAL Class A Shares of Beneficial Interest
RETURN FUND Class B Shares of Beneficial Interest
(A member of the MFS Family of Funds(R)) Class C Shares of Beneficial Interest
- -----------------------------------------------------------------------
Page
----
1. Expense Summary ................................................. 2
2. The Fund ........................................................ 3
3. Condensed Financial Information ................................. 4
4. Investment Objectives and Policies .............................. 5
5. Management of the Fund .......................................... 13
6. Information Concerning Shares of the Fund ....................... 15
Purchases ................................................... 15
Exchanges ................................................... 18
Redemptions and Repurchases ................................. 19
Distribution Plans .......................................... 21
Distributions ............................................... 23
Tax Status .................................................. 23
Net Asset Value ............................................. 23
Description of Shares, Voting Rights and Liabilities ........ 23
Performance Information ..................................... 24
7. Shareholder Services ............................................ 24
Appendix A ...................................................... A-1
Appendix B ...................................................... B-1
Appendix C ...................................................... C-1
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 TOTAL RETURN FUND
500 Boylston Street, Boston, Massachusetts 02116 (617) 954-5000
The primary investment objective of the MFS Total Return Fund (the "Fund") is to
obtain above-average income (compared to a portfolio entirely invested in equity
securities) consistent with prudent employment of capital. The Fund's secondary
objective is to take advantage of opportunities for growth of capital and
income. Generally, at least 25% of the Fund's assets are invested in fixed
income securities and at least 40% and no more than 75% of the Fund's assets
will be invested in equity securities (see "Investment Objectives and
Policies"). The Fund is a diversified series of MFS Series Trust V (the
"Trust"), an open-end investment company. The minimum initial investment
generally is $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.
INVESTMENT PRODUCTS ARE NOT INSURED BY THE FDIC OR ANY OTHER GOVERNMENT AGENCY,
AND ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR GUARANTEED BY, ANY FINANCIAL
INSTITUTION. SHARES OF MUTUAL FUNDS ARE SUBJECT TO INVESTMENT RISKS, INCLUDING
POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED, AND WILL FLUCTUATE IN VALUE. YOU
MAY RECEIVE MORE OR LESS THAN YOU PAID WHEN YOU REDEEM YOUR SHARES.
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 (the "SAI"), dated February 1,
1996, as amended or supplemented from time to time, which contains more detailed
information about the Trust and the Fund. The SAI is incorporated into this
Prospectus by reference. See page 26 for a further description of the
information set forth in the SAI. A copy of the SAI 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>
1. EXPENSE SUMMARY
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------- ------- -------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Initial Sales Charge Imposed on Purchases of Fund Shares
(as a percentage of offering price) ............................. 4.75% 0.00% 0.00%
Maximum Contingent Deferred Sales Charge (as a percentage of
original purchase price or redemption proceeds, as applicable) .. See Below(1) 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 ................................................... 0.35%(2) 1.00%(3) 1.00%(3)
Other Expenses .................................................... 0.23% 0.32% 0.28%
---- ---- ----
Total Operating Expenses .......................................... 0.97% 1.71% 1.67%
- ----------
<FN>
(1) Purchases of $1 million or more are not subject to an initial sales charge;
however, a Contingent Deferred Sales Charge ("CDSC") of 1% will be imposed
on such purchases in the event of certain redemption transactions within 12
months following such purchases. See "Information Concerning Shares of the
Fund -- Purchases" below.
(2) 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
"Information Concerning Shares of the Fund -- Distribution Plans" below. The
0.35% per annum distribution/service fee is reduced to 0.25% per annum for
shares purchased prior to October 1, 1989. Distribution expenses paid under
this Plan, together with the initial sales charge, may cause long-term
shareholders to pay more than the maximum sales charge that would have been
permissible if imposed entirely as an initial sales charge.
(3) 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 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 "Information Concerning Shares of the Fund --
Distribution Plans" below. Distribution expenses paid under these Plans,
together with any CDSC payable upon redemption of Class B shares, may cause
long-term shareholders to pay more than the maximum sales charge that would
have been permissibie if imposed entirely as an initial sales charge.
</TABLE>
EXAMPLE OF EXPENSES
-------------------
An investor would pay the following dollar amounts of expenses on a $1,000
investment in the Fund, assuming (a) 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 ............... $ 57 $ 57 $ 17 $ 17
3 years .............. 77 84 54 53
5 years .............. 99 113 93 91
10 years .............. 161 182(2) 182(2) 198
- ----------
(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
The Fund is a diversified series of 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 Fund and its predecessor have been in
business since 1970. The Trust presently consists of two series, each of which
represents a portfolio with separate investment objectives and policies. Shares
of the Fund are continuously sold to the public and the Fund then uses the
proceeds to buy 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 CDSC in the case of certain purchases of $1 million or more)
and 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 subject to a CDSC and a Distribution Plan providing for an
annual distribution fee and service fee which are greater than the Class A
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 subject to a
Distribution Plan providing for an annual distribution fee and service fee which
are equal to the Class B 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. Massachusetts Financial Services Company, a Delaware corporation ("MFS" or
the "Adviser"), 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 the Fund's operations. The Adviser manages the portfolio from
day to day in accordance with the Fund's investment objectives 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 Fund also offers to
buy back (redeem) its shares from its shareholders at any time at net asset
value, less any applicable CDSC.
<PAGE>
3. CONDENSED FINANCIAL INFORMATION
The following information has been audited for at least the latest five fiscal
years of the Fund and 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 SAI in reliance upon the report of the Fund's
independent auditors given upon their authority, as experts in accounting and
auditing. The Fund's current independent auditors are Deloitte & Touche LLP.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
CLASS A
-------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA (FOR A
SHARE OUTSTANDING
THROUGHOUT EACH PERIOD):
Net asset value --
beginning of period $12.80 $13.70 $12.42 $11.82 $10.25 $11.58 $10.13 $11.47 $ 9.77 $ 8.73
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from investment
operations<F3> --
Net investment
income<F1> ...... $ 0.64 $ 0.54 $ 0.45 $ 0.65 $ 0.67 $ 0.64 $ 0.65 $ 0.62 $ 0.56 $ 0.60
Net realized and
unrealized gain
(loss) on
investments and
foreign currency
transactions .... 1.64 (0.69) 1.74 0.75 1.57 (1.25) 1.71 (1.07) 2.07 1.91
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from
investment
operations .... $ 2.28 $(0.15) $ 2.19 $ 1.40 $ 2.24 $(0.61) $ 2.36 $(0.45) $ 2.63 $ 2.51
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less distributions
declared to
shareholders --
From net investment
income<F5> ...... $(0.61) $(0.54) $(0.59) $(0.66) $(0.61) $(0.66) $(0.63) $(0.60) $(0.56) $(0.59)
In excess of net
investment
income<F3> ...... -- -- -- -- -- -- -- -- -- --
From net realized
gain on
investments and
foreign currency
transactions .... (0.01) (0.10) (0.32) (0.14) (0.06) (0.06) (0.28) (0.08) (0.36) (0.88)
In excess of net
realized gain on
investments and
foreign currency
transactions .... -- (0.11) -- -- -- -- -- -- -- --
From paid-in
capital ......... -- -- -- -- -- -- -- (0.21) (0.01) --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions
declared to
shareholders .. $(0.62) $(0.75) $(0.91) $(0.80) $(0.67) $(0.72) $(0.91) $(0.89) $(0.93) $(1.47)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value --
end of period ..... $14.46 $12.80 $13.70 $12.42 $11.82 $10.25 $11.58 $10.13 $11.47 $ 9.77
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN<F2> .... 18.36% (1.07)% 18.32% 12.26% 22.25% (5.59)% 23.46% (3.93)% 26.81% 28.45%
RATIOS (TO AVERAGE NET
ASSETS)/SUPPLEMENTAL
DATA:<F1>
Expenses<F6> ...... 0.87% 0.85% 0.84% 0.84% 0.87% 0.85% 0.72% 0.71% 0.63% 0.67%
Net investment
income .......... 4.82% 4.26% 4.51% 5.40% 5.89% 5.71% 5.97% 6.06% 5.05% 5.67%
PORTFOLIO TURNOVER .. 102% 91% 95% 84% 74% 50% 53% 52% 58% 94%
NET ASSETS AT END OF
PERIOD (000,000
OMITTED) .......... $2,242 $1,857 $1,702 $1,198 $ 909 $ 707 $ 628 $ 508 $ 551 $ 309
<FN>
<F1> The distributor waived a portion of its distribution fee for the periods indicated. If this fee had been incurred by the
Fund, the net investment income per share and ratios would have been:
Net investment
income .......... $0.63 $ 0.52 -- -- -- -- -- -- -- --
Ratios (to average net assets):
Expenses<F6> .... 0.97% 0.95% -- -- -- -- -- -- -- --
Net investment
income ........ 4.72% 4.16% -- -- -- -- -- -- -- --
- ----------
<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> Per share data for the periods subsequent to September 30, 1993 is based on average shares outstanding.
<F4> For the year ended September 30, 1993, the per share distribution in excess of net investment income on Class A shares was
$0.0035.
<F5> For the years ended September 30, 1992 and 1991, $0.0508 and $0.0596, respectively, of per share distributions from net
investment income have been redesignated as distributions from capital gains.
<F6> For fiscal years ending after September 1, 1995, the Fund's expenses are calculated without reduction for fees paid
indirectly.
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS -- CONTINUED
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------------------------------
1995 1994 1993<F1> 1995 1994<F2>
------ ------ ------ ------ ------
CLASS B CLASS C
------- -------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD):
Net asset value -- beginning of period .... $12.80 $13.70 $13.53 $12.80 $12.92
------ ------ ------ ------ ------
Income from investment operations<F4> --
Net investment income ................... $ 0.53 $ 0.39 $ 0.06 $ 0.54 $ 0.08
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions .......................... 1.64 (0.65) 0.16 1.66 (0.13)
------ ------ ------ ------ ------
Total from investment operations ...... $ 2.17 $(0.26) $ 0.22 $ 2.20 $(0.00)
------ ------ ------ ------ ------
Less distributions declared to shareholders --
From net investment income .............. $(0.50) $(0.43) $(0.05) $(0.50) $(0.07)
From net realized gain on investments and
foreign currency transactions ......... (0.01) (0.10) -- (0.01) --
In excess of net realized gain on
investments and foreign currency
transactions .......................... -- (0.11) -- -- --
------ ------ ------ ------ ------
Total distributions declared to
shareholders ........................ $(0.51) $(0.64) $(0.05) $(0.51) $(0.07)
------ ------ ------ ------ ------
Net asset value -- end of period .......... $14.46 $12.80 $13.70 $14.49 $12.80
====== ====== ====== ====== ======
TOTAL RETURN .............................. 17.46% (1.93)% 15.24%<F3> 17.66% (0.41)%
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA:
Expenses<F5> ............................ 1.71% 1.70% 1.75%<F3> 1.67% 1.76%<F3>
Net investment income ................... 3.97% 3.45% 3.98%<F3> 4.14% 4.08%<F3>
PORTFOLIO TURNOVER ........................ 102% 91% 95% 102% 91%
NET ASSETS AT END OF PERIOD (000,000 OMITTED) $1,005 $843 $532 $23 $1
- ----------
<FN>
<F1> For the period from commencement of offering of Class B shares, August 23, 1993 to September 30, 1993.
<F2> For the period from commencement of offering of Class C shares, August 1, 1994 to September 30, 1994.
<F3> Annualized.
<F4> Per share data for the periods subsequent to September 30, 1993 is based on average shares outstanding.
<F5> For fiscal years ending after September 1, 1995, the Fund's expenses are calculated without reduction for fees paid
indirectly.
</TABLE>
<PAGE>
4. INVESTMENT OBJECTIVES AND POLICIES
INVESTMENT OBJECTIVES -- The Fund's primary investment objective is to obtain
above-average income (compared to a portfolio entirely invested in equity
securities) consistent with the prudent employment of capital. While current
income is the primary objective, the Fund believes that there should also be a
reasonable opportunity for growth of capital and income, since many securities
offering a better than average yield may also possess growth potential. Thus, in
selecting securities for its portfolio, the Fund considers each of these
objectives. Under normal market conditions, at least 25% of the Fund's assets
will be invested in fixed income securities and at least 40% and no more than
75% of the Fund's assets will be invested in equity securities. Any investment
involves risk and there can be no assurance that the Fund will achieve its
investment objectives.
INVESTMENT POLICIES -- The Fund's policy is to invest in a broad list of
securities, including short-term obligations. The list may be diversified not
only by companies and industries, but also by type of security. Fixed income
securities and equity securities (which include: common and preferred stocks;
securities such as bonds, warrants or rights that are convertible into stock;
and depositary receipts for those securities) may be held by the Fund. Some
fixed income securities may also have a call on common stock by means of a
conversion privilege or attached warrants. The Fund may vary the percentage of
assets invested in any one type of security in accordance with the Adviser's
interpretation of economic and money market conditions, fiscal and monetary
policy and underlying security values. The Fund's debt investments may consist
of both "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 securities that are
unrated or are in the lower rating categories (rated Ba or lower by Moody's or
BB or lower by S&P or Fitch) (commonly known as "junk bonds") including up to
20% of its net assets in nonconvertible fixed income securities that are in
these lower rating categories and comparable unrated securities (see "Risk
Factors -- Lower Rated Bonds" below). Generally, most of the Fund's long-term
debt investments will consist of "investment grade" securities. See Appendix B
to this Prospectus for a description of these ratings and Appendix C for a chart
showing the Fund's holdings of fixed income securities broken down by rating
category as of the end of its most recent fiscal year. 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.
U.S. GOVERNMENT SECURITIES: The Fund may also invest in U.S. Government
securities, including: (1) U.S. Treasury obligations, which differ only in their
interest rates, maturities and times of issuance: U.S. Treasury bills
(maturities of one year or less); U.S. Treasury notes (maturities of one to ten
years); and U.S. Treasury bonds (generally maturities of greater than ten
years), all of which are backed by the full faith and credit of the U.S.
Government; and (2) obligations issued or guaranteed by U.S. Government agencies
or instrumentalities, some of which are backed by the full faith and credit of
the U.S. Treasury, e.g., direct pass-through certificates of the Government
National Mortgage Association ("GNMA"); some of which are supported by the right
of the issuer to borrow from the U.S. Government, e.g., obligations of Federal
Home Loan Banks; and some of which are backed only by the credit of the issuer
itself, e.g., obligations of the Student Loan Marketing Association.
MORTGAGE PASS-THROUGH SECURITIES: The Fund may invest in mortgage pass-through
securities. Mortgage pass-through securities are securities representing
interests in "pools" of mortgage loans. Monthly payments of interest and
principal by the individual borrowers on mortgages are passed through to the
holders of the securities (net of fees paid to the issuer or guarantor of the
securities) as the mortgages in the underlying mortgage pools are paid off.
Payment of principal and interest on some mortgage pass-through securities (but
not the market value of the securities themselves) may be guaranteed by the full
faith and credit of the U.S. Government (in the case of securities guaranteed by
GNMA); or guaranteed by U.S. Government-sponsored corporations (such as the
Federal National Mortgage Association or the Federal Home Loan Mortgage
Corporation, which are supported only by the discretionary authority of the U.S.
Government to purchase the agency's obligations). Mortgage pass-through
securities may also be issued by non-governmental issuers (such as commercial
banks, savings and loan institutions, private mortgage insurance companies,
mortgage bankers and other secondary market issuers). See the SAI for a further
discussion of these securities.
ZERO COUPON BONDS, DEFERRED INTEREST BONDS AND PIK BONDS: Fixed income
securities that the Fund may invest in also include zero coupon bonds, deferred
interest bonds and bonds on which the interest is payable in kind ("PIK bonds").
Zero coupon and deferred interest bonds are debt obligations which are issued or
purchased at a significant discount from face value. The discount approximates
the total amount of interest the bonds will accrue and compound over the period
until maturity or the first interest payment date at a rate of interest
reflecting the market rate of the security at the time of issuance. While zero
coupon bonds do not require the periodic payment of interest, deferred interest
bonds provide for a period of delay before the regular payment of interest
begins. PIK bonds are debt obligations which provide that the issuer thereof
may, at its option, pay interest on such bonds in cash or in the form of
additional debt obligations. Such investments benefit the issuer by mitigating
its need for cash to meet debt service, but also require a higher rate of return
to attract investors who are willing to defer receipt of such cash. Such
investments may experience greater volatility in market value due to changes in
interest rates than debt obligations which make regular payments of interest.
The Fund will accrue income on such investments for tax and accounting purposes,
as required, which is distributable to shareholders and which, because no cash
is received at the time of accrual, may require the liquidation of other
portfolio securities to satisfy the Fund's distribution obligations.
FOREIGN SECURITIES: The Fund may invest up to 20% (and generally expects to
invest between 5% and 20%) of its total assets in foreign securities which are
not traded on a U.S. exchange (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 SAI for further
discussion of foreign securities and the holding of foreign currency, as well as
the associated risks.
EMERGING MARKET SECURITIES: Consistent with the Fund's objective and policies,
the Fund may invest in securities of issuers whose principal activities are
located in emerging market countries. Emerging market countries include any
country determined by the Adviser to have an emerging market economy, taking
into account a number of factors, including whether the country has a low- to
middle-income economy according to the International Bank for Reconstruction and
Development, the country's foreign currency debt rating, its political and
economic stability and the development of its financial and capital markets. The
Adviser determines whether an issuer's principal activities are located in an
emerging market country by considering such factors as its country of
organization, the principal trading market for its securities and the source of
its revenues and assets. The issuer's principal activities generally are deemed
to be located in a particular country if: (a) the scurity is issued or
guaranteed by the government of that country or any of its agencies, authorities
or instrumentalities; (b) the issuer is organized under the laws of, and
maintains a principal office in, that country; (c) the issuer has its principal
securities trading market in that country; (d) the issuer derives 50% or more of
its total revenues from goods sold or services performed in that country; or (e)
the issuer has 50% or more of its assets in that country.
BRADY BONDS: The Fund may invest in Brady Bonds, which are securities created
through the exchange of existing commercial bank loans to public and private
entities in certain emerging markets for new bonds in connection with debt
restructurings under a debt restructuring plan introduced by former U.S.
Secretary of the Treasury, Nicholas F. Brady (the "Brady Plan"). Brady Plan debt
restructurings have been implemented to date in Argentina, Brazil, Bulgaria,
Costa Rica, Dominican Republic, Ecuador, Jordan, Mexico, Nigeria, Panama, the
Philippines, Poland, Uruguay and Venezuela. Brady Bonds have been issued only
recently, and for that reason do not have a long payment history. Brady Bonds
may be collateralized or uncollateralized, are issued in various currencies (but
primarily the U.S. dollar) and are actively traded in over-the-counter secondary
markets. U.S. dollar-denominated, collateralized Brady Bonds, which may be fixed
rate bonds or floating-rate bonds, are generally collateralized in full as to
principal by U.S. Treasury zero coupon bonds having the same maturity as the
bonds. Brady Bonds are often viewed as having three or four valuation
components: the collateralized repayment of principal at final maturity; the
collateralized interest payments; the uncollateralized interest payments; and
any uncollateralized repayment of principal at maturity (these uncollateralized
amounts constituting the "residual risk"). In light of the residual risk of
Brady Bonds and the history of defaults of countries issuing Brady Bonds with
respect to commercial bank loans by public and private entities, investments in
Brady Bonds may be viewed as speculative.
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
such as changes in exchange rates and more limited information about foreign
issuers.
REPURCHASE AGREEMENTS: The Fund may enter into repurchase agreements in order to
earn 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 SAI, the Fund has adopted certain procedures intended to
minimize risk.
LENDING OF SECURITIES: The Fund may seek to increase its income by lending
portfolio securities. Such loans will usually be made only to member firms (and
subsidiaries thereof) of the New York Stock Exchange and to member banks of the
Federal Reserve System, and would be required to be secured continuously by
collateral in cash, U.S. Government securities or an irrevocable letter of
credit maintained on a current basis at an amount at least equal to the market
value of the securities loaned. The Fund will continue to collect the equivalent
of interest on the securities loaned and will also receive either interest
(through investment of cash collateral) or a fee (if the collateral is U.S.
Government securities).
"WHEN-ISSUED" SECURITIES: The Fund may purchase securities on a "when-issued" or
on a "forward delivery" basis, which means that the securities will be delivered
to the Fund at a future date usually beyond customary settlement time. The
commitment to purchase a security for which payment will be made on a future
date may be deemed a separate security. The Fund does not pay for the securities
until received, and does not start earning interest on the securities until the
contractual settlement date. In order to invest its assets immediately, while
awaiting delivery of securities purchased on such bases, the Fund will normally
invest in cash, short-term money market instruments and high quality debt
securities.
INDEXED SECURITIES: The Fund may invest in indexed securities whose value is
linked to foreign currencies, interest rates, commodities, indices, or other
financial indicators. Most indexed securities are short to intermediate term
fixed-income securities whose values at maturity or interest rates rise or fall
according to the change in one or more specified underlying instruments. Indexed
securities may be positively or negatively indexed (i.e., their value may
increase or decrease if the underlying instrument appreciates), and may have
return characteristics similar to direct investments in the underlying
instrument or to one or more options on the underlying instrument. Indexed
securities may be more volatile than the underlying instrument itself.
MORTGAGE "DOLLAR ROLL" TRANSACTIONS: The Fund may enter into mortgage "dollar
roll" transactions with selected banks and broker-dealers pursuant to which the
Fund sells mortgage-backed securities for delivery in the future (generally
within 30 days) and simultaneously contracts to repurchase substantially similar
(same type, coupon and maturity) securities on a specified future date. The Fund
will only enter into covered rolls. A "covered roll" is a specific type of
dollar roll for which there is an offsetting cash position or a cash equivalent
security position which matures on or before the forward settlement date of the
dollar roll transaction.
LOAN PARTICIPATIONS AND OTHER DIRECT INDEBTEDNESS: The Fund may invest a portion
of its assets in "loan participations." By purchasing a loan participation, the
Fund acquires some or all of the interest of a bank or other lending institution
in a loan to a corporate borrower. Many such loans are secured, and most impose
restrictive covenants which must be met by the borrower. These loans are made
generally to finance internal growth, mergers, acquisitions, stock repurchases,
leveraged buy-outs and other corporate activities. Such loans may be in default
at the time of purchase. The Fund may also purchase trade or other claims
against companies, which generally represent money owed by the company to a
supplier of goods or services. These claims may also be purchased at a time when
the company is in default. Certain of the loan participations acquired by the
Fund may involve revolving credit facilities or other standby financing
commitments which obligate the Fund to pay additional cash on a certain date or
on demand.
The highly leveraged nature of many such loans may make such loans especially
vulnerable to adverse changes in economic or market conditions. Loan
participations and other direct investments may not be in the form of securities
or may be subject to restrictions on transfer, and only limited opportunities
may exist to resell such instruments. As a result, the Fund may be unable to
sell such investments at an opportune time or may have to resell them at less
than fair market value. For a further discussion of loan participations and the
risks related to transactions therein, see the SAI.
SWAPS AND RELATED TRANSACTIONS: As one way of managing its exposure to different
types of investments, the Fund may enter into interest rate swaps, currency
swaps and other types of available swap agreements, such as caps, collars and
floors. Swaps involve the exchange by the Fund with another party of cash
payments based upon different interest rate indices, currencies, or other prices
or rates, such as the value of mortgage prepayment rates. For example, in the
typical interest rate swap, the Fund might exchange a sequence of cash payments
based on a floating rate index for cash payments based on a fixed rate. Payments
made by both parties to a swap transaction are based on a principal amount
determined by the parties.
The Fund may also purchase and sell caps, floors and collars. In a typical cap
or floor agreement, one party agrees to make payments only under specified
circumstances, usually in return for payment of a fee by the counterparty. For
example, the purchase of an interest rate cap entitles the buyer, to the extent
that a specified index exceeds a predetermined interest rate, to receive
payments of interest on a contractually-based principal amount from the
counterparty selling such interest rate cap. The sale of an interest rate floor
obligates the seller to make payments to the extent that a specified interest
rate falls below an agreed-upon level. A collar arrangement combines elements of
buying a cap and selling a floor.
Swap agreements will tend to shift the Fund's investment exposure from one type
of investment to another. For example, if the Fund agreed to exchange payments
in dollars for payments in foreign currency, in each case based on a fixed rate,
the swap agreement would tend to decrease the Fund's exposure to U.S. interest
rates and increase its exposure to foreign currency and interest rates. Caps and
floors have an effect similar to buying or writing options. Depending on how
they are used, swap agreements may increase or decrease the overall volatility
of the Fund's investments and its share price and yield.
Swap agreements are sophisticated hedging instruments that typically involve a
small investment of cash relative to the magnitude of risks assumed. As a
result, swaps can be highly volatile and may have a considerable impact on the
Fund's performance. Swap agreements are subject to risks related to the
counterparty's ability to perform, and may decline in value if the
counterparty's creditworthiness deteriorates. The Fund may also suffer losses if
it is unable to terminate outstanding swap agreements or reduce its exposure
through offsetting transactions.
Swaps, caps, floors and collars are highly specialized activities which involve
certain risks. See the SAI for risks involved in these activities.
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 liquid and thus not subject to the Fund's limitation on investing
not more than 15% of its net assets in illiquid investments. 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 decreasing the level of liquidity 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 15%
limitation on investments in illiquid investments, 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.
CORPORATE ASSET-BACKED SECURITIES: The Fund may invest in corporate asset-
backed securities. These securities, issued by trusts and special purpose
corporations, are backed by a pool of assets, such as credit card or automobile
loan receivables, representing the obligations of a number of different parties.
Corporate asset-backed securities present certain risks. For instance, in the
case of credit card receivables, these securities may not have the benefit of
any security interest in the related collateral. See the SAI for further
information on these securities.
OPTIONS ON SECURITIES: The Fund may write (sell) covered put and call options on
securities and purchase put and call options on securities. The Fund will write
such options for the purpose of increasing its return and/or to protect the
value of its portfolio. In particular, where the Fund writes an option which
expires unexercised or is closed out by the Fund at a profit, it will retain the
premium paid for the option, which will increase its gross income and will
offset in part the reduced value of a portfolio security in connection with
which the option may have been written or the increased cost of portfolio
securities to be acquired. In contrast, however, if the price of the security
underlying the option moves adversely to the Fund's position, the option may be
exercised and the Fund will be required to purchase or sell the security at a
disadvantageous price, resulting in losses which may only be partially offset by
the amount of the premium. The Fund may also write combinations of put and call
options on the same security, known as "straddles." Such transactions can
generate additional premium income but also present increased risk.
The Fund may purchase put or call options in anticipation of declines in the
value of portfolio securities or increases in the value of securities to be
acquired. In the event that such declines or increases occur, the Fund may be
able to offset the resulting adverse effect on its portfolio, in whole or in
part, through the options purchased. The risk assumed by the Fund in connection
with such transactions is limited to the amount of the premium and related
transaction costs associated with the option, although the Fund may be required
to forfeit such amounts in the event that the prices of securities underlying
the options do not move in the direction or to the extent anticipated.
The Fund may also enter into options on the yield "spread," or yield
differential, between two securities, a transaction referred to as a "yield
curve" option, for hedging and non-hedging (an effort to increase current
income) purposes. In contrast to other types of options, a yield curve option is
based on the difference between the yields of designated securities rather than
the actual prices of the individual securities, and is settled through cash
payments. Accordingly, a yield curve option is profitable to the holder if this
differential widens (in the case of a call) or narrows (in the case of a put),
regardless of whether the yields of the underlying securities increase or
decrease. Yield curve options written by the Fund will be covered as described
in the SAI. The trading of yield curve options is subject to all the risks
associated with trading other types of options, as discussed below under "Risk
Factors" and in the SAI. In addition, such options present risks of loss even if
the yield on one of the underlying securities remains constant, if the spread
moves in a direction or to an extent which was not anticipated.
OPTIONS ON STOCK INDICES: The Fund may write (sell) covered call and put options
and purchase call and put options on stock indices. The Fund may write options
on stock indices for the purpose of increasing its gross income and to protect
its portfolio against declines in the value of securities it owns or increases
in the value of securities to be acquired. When the Fund writes an option on a
stock index, and the value of the index moves adversely to the holder's
position, the option will not be exercised, and the Fund will either close out
the option at a profit or allow it to expire unexercised. The Fund will thereby
retain the amount of the premium, which will increase its gross income and
offset part of the reduced value of portfolio securities or the increased cost
of securities to be acquired. Such transactions, however, will constitute only
partial hedges against adverse price fluctuations, since any such fluctuations
will be offset only to the extent of the premium received by the Fund for the
writing of the option. In addition, if the value of an underlying index moves
adversely to the Fund's option position, the option may be exercised, and the
Fund will experience a loss which may only be partially offset by the amount of
the premium received.
The Fund may also purchase put or call options on stock indices in order,
respectively, to hedge its investments against a decline in value or to attempt
to reduce the risk of missing a market or industry segment advance. The Fund's
possible loss in either case will be limited to the premium paid for the option,
plus related transaction costs.
OPTIONS ON FOREIGN CURRENCIES: The Fund may also purchase and write options on
foreign currencies ("Options on Foreign Currencies") for the purpose of
protecting against declines in the dollar value of portfolio securities and
against increases in the dollar cost of securities to be acquired. As in the
case of other types of options, however, the writing of an Option on Foreign
Currency will constitute only a partial hedge, up to the amount of the premium
received, and the Fund may be required to purchase or sell foreign currencies at
disadvantageous exchange rates, thereby incurring losses. The purchase of an
Option on Foreign Currency may constitute an effective hedge against
fluctuations in exchange rates although, in the event of rate movements adverse
to the Fund's position, it may forfeit the entire amount of the premium paid for
the option plus related transaction costs. The Fund may also choose to, or be
required to, receive delivery of the foreign currencies underlying Options on
Foreign Currencies it has entered into. Under certain circumstances, such as
where the Adviser believes that the applicable exchange rate is unfavorable at
the time the currencies are received or the Adviser anticipates, for any other
reason, that the exchange rate will improve, the Fund may hold such currencies
for an indefinite period of time. See "Investment Objectives and Policies --
Foreign Securities" in the SAI for information on the risks associated with
holding foreign currency.
FUTURES CONTRACTS: The Fund may enter into contracts for the purchase or sale
for future delivery of fixed income securities or foreign currencies or
contracts based on indices of securities or currencies (including any index of
U.S. or foreign securities) as such instruments become available for trading
("Futures Contracts"). Such transactions will be entered into for hedging
purposes, in order to protect the Fund's current or intended investments from
the effects of changes in interest or exchange rates or declines in a securities
market, as well as for non-hedging purposes, to the extent permitted by
applicable law. The Fund will incur brokerage fees when it purchases and sells
Futures Contracts, and will be required to maintain margin deposits. In
addition, Futures Contracts entail risks. Although the Adviser believes that use
of such contracts will benefit the Fund, if its investment judgment about the
general direction of interest or exchange rates or a securities market is
incorrect, the Fund's overall performance may be poorer than if it had not
entered into any such contract and the Fund may realize a loss. The Fund will
not enter into any Futures Contract if immediately thereafter the value of
securities and other obligations underlying all such Futures Contracts would
exceed 50% of the value of its total assets.
OPTIONS ON FUTURES CONTRACTS: The Fund may purchase and write options on Futures
Contracts ("Options on Futures Contracts") for hedging purposes or for
non-hedging purposes to the extent permitted by applicable law. Purchases of
Options on Futures Contracts may present less risk in hedging the Fund's
portfolio than the purchase or sale of the underlying Futures Contracts since
the potential loss is limited to the amount of the premium plus related
transaction costs, although it may be necessary to exercise the option to
realize any profit, which results in the establishment of a futures position.
The writing of Options on Futures Contracts, however, does not present less risk
than the trading of Futures Contracts and will constitute only a partial hedge,
up to the amount of the premium received. In addition, if an option is
exercised, the Fund may suffer a loss on the transaction.
FORWARD CONTRACTS: The Fund may enter into forward foreign currency exchange
contracts for the purchase or sale of a fixed quantity of a foreign currency at
a future date ("Forward Contracts"). The Fund may enter into Forward Contracts
for hedging purposes as well as for non-hedging purposes (i.e., speculative
purposes). By entering into transactions in Forward Contracts, for hedging
purposes, the Fund may be required to forego the benefits of advantageous
changes in exchange rates and, in the case of Forward Contracts entered into for
non-hedging purposes, the Fund may sustain losses which will reduce its gross
income. Such transactions, therefore, could be considered speculative. Forward
Contracts are traded over-the-counter and not on organized commodities or
securities exchanges. As a result, Forward Contracts operate in a manner
distinct from exchange-traded instruments, and their use involves certain risks
beyond those associated with transactions in Futures Contracts or options traded
on exchanges. The Fund may choose to, or be required to, receive delivery of the
foreign currencies underlying Forward Contracts it has entered into. Under
certain circumstances, such as where the Adviser believes that the applicable
exchange rate is unfavorable at the time the currencies are received or the
Adviser anticipates, for any other reason, that the exchange rate will improve,
the Fund may hold such currencies for an indefinite period of time. The Fund may
also enter into a Forward Contract on one currency to hedge against risk of loss
arising from fluctuations in the value of a second currency (referred to as a
"cross hedge") if, in the judgment of the Adviser, a reasonable degree of
correlation can be expected between movements in the values of the two
currencies. The Fund has established procedures consistent with statements of
the SEC and its staff regarding the use of Forward Contracts by registered
investment companies, which requires use of segregated assets or "cover" in
connection with the purchase and sale of such contracts. See "Investment
Objective and Policies -- Foreign Securities" in the SAI for information on the
risks associated with holding foreign currency.
RISK FACTORS --
LOWER RATED BONDS: The Fund may invest in fixed income securities rated Baa
by Moody's or BBB by S&P or Fitch 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 securities rated Ba or lower by Moody's or BB or
lower by S&P or Fitch and comparable unrated securities (commonly known as "junk
bonds") to the extent described above. No minimum rating standard is required by
the Fund. 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 and 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 (although 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 issuers 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, and judgment may at times play a greater role in
valuing these securities than in the case of investment grade fixed income
securities. Changes in the value of securities subsequent to their acquisition
will not affect cash income or yield to maturity to the Fund but will be
reflected in the net asset value of shares of the Fund. See the SAI for more
information on lower rated securities.
OPTIONS, FUTURES CONTRACTS AND FORWARD CONTRACTS: Although the Fund will
enter into transactions in options, Futures Contracts, Options on Futures
Contracts and Options on Foreign Currencies for hedging purposes, such
transactions nevertheless involve certain risks. For example, a lack of
correlation between the instrument underlying an option or Futures Contract and
the assets being hedged, or unexpected adverse price movements, could render the
Fund's hedging strategy unsuccessful and could result in losses. The Fund also
may enter into transactions in options, Futures Contracts, Options on Futures
Contracts and Forward Contracts for other than hedging purposes, which involves
greater risk. In particular, such transactions may result in losses for the Fund
which are not offset by gains on other portfolio positions, thereby reducing
gross income. In addition, foreign currency markets may be extremely volatile
from time to time. There also can be no assurance that a liquid secondary market
will exist for any contract purchased or sold, and the Fund may be required to
maintain a position until exercise or expiration, which could result in losses.
The SAI contains a description of the nature and trading mechanics of options,
Futures Contracts, Options on Futures Contracts, Forward Contracts and Options
on Foreign Currencies, and includes a discussion of the risks related to
transactions therein.
Transactions in Forward Contracts may be entered into only in the
over-the-counter market. Futures Contracts and Options on Futures Contracts may
be entered into on U.S. exchanges regulated by the Commodity Futures Trading
Commission and on foreign exchanges. In addition, the securities underlying
options, Futures Contracts and Options on Futures Contracts traded by the Fund
will include both domestic and foreign securities.
EMERGING MARKET SECURITIES: The risks of investing in foreign securities may
be intensified in the case of investments in emerging markets. Securities of
many issuers in emerging markets may be less liquid and more volatile than
securities of comparable domestic issuers. Emerging markets also have different
clearance and settlement procedures, and in certain markets there have been
times when settlements have been unable to keep pace with the volume of
securities transactions, making it difficult to conduct such transactions.
Delays in settlement could result in temporary periods when a portion of the
assets of the Fund is uninvested and no return is earned thereon. The inability
of the Fund to make intended security purchases due to settlement problems could
cause the Fund to miss attractive investment opportunities. Inability to dispose
of portfolio securities due to settlement problems could result in losses to the
Fund due to subsequent declines in value of the portfolio security, a decrease
in the level of liquidity in the Fund portfolio, or if the Fund has entered into
a contract to sell the security, in possible liability to the purchaser. Certain
markets may require payment for securities before delivery and in such markets
the Fund bears the risk that the securities will not be delivered and that the
Fund's payments will not be returned. Securities prices in emerging markets can
be significantly more volatile than in the more developed nations of the world,
reflecting the greater uncertainties of investing in less established markets
and economies. In particular, countries with emerging markets may have
relatively unstable governments, present the risk of nationalization of
businesses, restrictions on foreign ownership, or prohibitions of repatriation
of assets, and may have less protection of property rights than more developed
countries. The economies of countries with emerging markets may be predominantly
based on only a few industries, may be highly vulnerable to changes in local or
global trade conditions, and may suffer from extreme and volatile debt burdens
or inflation rates. Local securities markets may trade a small number of
securities and may be unable to respond effectively to increases in trading
volume, potentially making prompt liquidation of substantial holdings difficult
or impossible at times. Securities of issuers located in countries with emerging
markets may have limited marketability and may be subject to more abrupt or
erratic price movements.
Certain emerging markets may require governmental approval for the repatriation
of investment income, capital or the proceeds of sales of securities by foreign
investors. In addition, if a deterioration occurs in an emerging market's
balance of payments or for other reasons, a country could impose temporary
restrictions on foreign capital remittances. The Fund could be adversely
affected by delays in, or a refusal to grant, any required governmental approval
for repatriation of capital, as well as by the application to the Fund of any
restrictions on investments.
Investment in certain foreign emerging market debt obligations may be
restricted or controlled to varying degrees. These restrictions or controls
may at times preclude investment in certain foreign emerging market debt
obligations and increase the expenses of the Fund.
----------------
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 the other investment company clients
of MFD 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
"Portfolio Transactions and Brokerage Commissions" in the SAI. For the fiscal
year ended September 30, 1995, the Fund had a portfolio turnover rate in excess
of 100%. Transaction costs incurred by the Fund and the realized capital gains
and losses of the Fund may be greater than that of a fund with a lesser
portfolio turnover rate.
The portfolio will be managed actively with respect to the Fund's fixed income
securities and the asset allocations modified as the Adviser deems necessary.
Although the Fund does not intend to seek short-term profits, fixed income
securities in its portfolio will be sold whenever the Adviser believes it is
appropriate to do so without regard to the length of time the particular asset
may have been held.
With respect to its equity securities, the Fund does not intend to trade in
securities for short-term profits and anticipates that such securities
ordinarily will be held for one year or longer. However, the Fund will effect
trades whenever it believes that changes in its portfolio securities are
appropriate.
----------------
The investment objectives and policies described above, including investing in
Options, Options on Foreign Currency, Futures Contracts, Options on Futures
Contracts and Forward Contracts, are not fundamental and may be changed without
shareholder approval. A change in the Fund's investment objectives may result in
the Fund having investment objectives different from the objectives which the
shareholder considered appropriate at the time of investment in the Fund.
The SAI 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 SAI may be changed without
shareholder approval unless indicated otherwise (see "Investment Restrictions"
in the SAI). The Fund's investment limitations, policies and rating 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 January 18, 1985 (the "Advisory Agreement"). The
Adviser provides the Fund with overall investment advisory and administrative
services, as well as general office facilities. David M. Calabro, a Vice
President of the Adviser, Geoffrey L. Kurinsky, a Senior Vice President of the
Adviser, Judith N. Lamb, a Vice President of the Adviser, Lisa B. Nurme, a Vice
President of the Adviser, and Maura A. Shaughnessy, a Vice President of the
Adviser, are the Fund's portfolio managers. Mr. Calabro is the head of this
portfolio management team and a manager of the common stock portion of the
Fund's portfolio. Mr. Calabro has been employed by the Adviser since 1992 and
served as an analyst and sector portfolio manager with Fidelity Investments
prior to that time. Mr. Kurinsky, the manager of the Fund's fixed income
securities, has been employed by the Adviser since 1987. Ms. Lamb, the manager
of the Fund's convertible securities, has been employed by the Adviser since
1992 and served as an analyst with Fidelity Investments prior to that time. Ms.
Nurme, a manager of the common stock portion of the Fund's portfolio, has been
employed by the Adviser since 1987. Ms. Shaughnessy, also a manager of the
common stock portion of the Fund's portfolio, has been employed by the Adviser
since 1991 and served as an analyst with Harvard Management Company prior to
that time. Subject to such policies as the Trustees may determine, the Adviser
makes investment decisions for the Fund. 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 other than gains from the sale of securities. The
applicable percentages are reduced as assets and income reach the following
levels:
ANNUAL RATE OF MANAGEMENT FEE BASED ANNUAL RATE OF MANAGEMENT FEE BASED
ON AVERAGE DAILY NET ASSETS ON GROSS INCOME
- ----------------------------------- -----------------------------------
..25% of the first $200 million 3.57% of the first $14 million
..212% of average daily net assets 3.04% of gross income in excess
in excess of $200 million of $14 million
For the Fund's fiscal year ended September 30, 1995, MFS received management
fees under the Advisory Agreement of $11,256,389 (of which $6,210,710 was based
on average daily net assets and $5,045,679 on gross income), equivalent, on an
annualized basis, to 0.39% 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") and to MFS(R)/Sun Life Series Trust, MFS
Institutional Trust, MFS Union Standard Trust, MFS Variable Insurance Trust, MFS
Municipal Income Trust, MFS Government Markets Income Trust, MFS Multimarket
Income Trust, MFS Intermediate Income Trust, MFS Charter Income Trust, MFS
Special Value 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 various fixed/variable annuity contracts. MFS and
its wholly-owned subsidiary, MFS Asset Management, Inc., also 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 $42.2 billion on behalf of approximately 1.8 million investor
accounts as of December 31, 1995. As of such date, the MFS organization
managed approximately $20.6 billion of assets in fixed income securities. MFS
is a wholly owned subsidiary of Sun Life of Canada (U.S.) which in turn is a
wholly owned 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 U.S. 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 officers of the Trust.
MFS has established a strategic alliance with Foreign & Colonial Management Ltd.
("Foreign & Colonial"). Foreign & Colonial is a subsidiary of two of the world's
oldest financial services institutions, the London-based Foreign & Colonial
Investment Trust PLC, which pioneered the idea of investment management in 1868,
and HYPO-BANK (Bayerische Hypotheken-und Weschsel-Bank AG), the oldest publicly
listed bank in Germany, founded in 1835. As part of this alliance, the portfolio
managers and investment analysts of MFS and Foreign & Colonial will share their
views on a variety of investment related issues, such as the economy, securities
markets, portfolio securities and their issuers, investment recommendations,
strategies and techniques, risk analysis, trading strategies and other portfolio
management matters. MFS will have access to the extensive international equity
investment expertise of Foreign & Colonial, and Foreign & Colonial will have
access to the extensive U.S. equity investment expertise of MFS. One or more MFS
investment analysts are expected to work for an extended period with Foreign &
Colonial's portfolio managers and investment analysts at their offices in
London. In return, one or more Foreign & Colonial employees are expected to work
in a similar manner at MFS' Boston offices.
In certain instances there may be securities which are suitable for the Fund's
portfolio as well as for portfolios of other clients of MFS or clients of
Foreign & Colonial. Some simultaneous transactions are inevitable when several
clients receive investment advice from MFS and Foreign & Colonial, particularly
when the same security is suitable for more than one client. While in some cases
this arrangement could have a detrimental effect on the price or availability of
the security as far as the Fund is concerned, in other cases, however, it may
produce increased investment opportunities for the Fund.
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
dealer and other financial institutions ("dealers") having a selling agreement
with MFD. Dealers may also charge their customers fees relating to investments
in the Fund.
The Fund offers three classes of shares (Class A, B and C shares) which bear
sales charges and distribution fees in different forms and amounts, as described
below:
CLASS A SHARES: Class A shares are generally offered at net asset value plus an
initial sales charge, but in certain cases are offered at net asset value
without an initial sales charge but subject to a CDSC.
PURCHASES SUBJECT TO INITIAL SALES CHARGE. Class A shares are offered at
net asset value plus an initial sales charge as follows:
SALES CHARGE* AS
PERCENTAGE OF:
-------------------------------- DEALER ALLOWANCE
NET AMOUNT AS A PERCENTAGE
AMOUNT OF PURCHASE OFFERING PRICE INVESTED OF OFFERING PRICE
- ------------------ -------------- ----------- -----------------
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** None** See Below**
- ----------
*Because of rounding in the calculation of offering price, actual sales charges
may be more or less than those calculated using the percentages above.
**A CDSC will apply to such purchases, as discussed below.
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 4% and MFD retains approximately
3/4 of 1% of the public offering price. The sales charge may vary depending on
the number of shares of the Fund as well as certain other MFS Funds owned or
being purchased, the existence of an agreement to purchase additional shares
during a 13-month period (or 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 Purchase privileges by which the sales
charge may be reduced is set forth in the SAI.
PURCHASES SUBJECT TO A CDSC (but not subject to an initial sales charge). In
the following two circumstances, Class A shares are also offered at net asset
value without an initial sales charge but subject to a CDSC, equal to 1% of the
lesser of the value of the shares redeemed (exclusive of reinvested dividend and
capital gain distributions) or the total cost of such shares, in the event of a
share redemption within 12 months following the purchase:
(i) on investments of $1 million or more in Class A shares; and
(ii) on investments in Class A shares by certain retirement plans subject to
the Employee Retirement Income Security Act of 1974, as amended, if the
sponsoring organization demonstrates to the satisfaction of MFD that either
(a) the employer has at least 25 employees or (b) the aggregate purchases by
the retirement 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.
In the case of such purchases, MFD will pay a commission to dealers as follows:
1% 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 purchase) for
purposes of determining the level of commissions to be paid during the period
with respect to such account. In addition, with respect to sales to retirement
plans under the second circumstance described above, MFD may pay a commission,
on sales in excess of $5 million to certain retirement plans, of 1% 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.
See "Redemptions and Repurchases -- Contingent Deferred Sales Charge" for
further discussion of the CDSC.
WAIVERS OF INITIAL SALES CHARGE AND CDSC. In certain circumstances, the
initial sales charge imposed upon purchases of Class A shares and the CDSC
imposed upon redemptions of Class A shares is waived. These circumstances are
described in Appendix A to this Prospectus.
CLASS B SHARES: Class B shares are offered at net asset value without an initial
sales charge but subject to a CDSC upon redemption 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%
The CDSC imposed is assessed against the lesser of the value of the shares
redeemed (exclusive of reinvested dividends and capital gain distributions) or
the total cost of such shares. No CDSC is assessed against shares acquired
through the automatic reinvestment of dividends or capital gain distributions.
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 payable under the Fund's Class B Distribution Plan (see
"Distribution Plans" below) at a rate equal to 0.25% of the purchase price of
such shares. Therefore, the total amount paid to a dealer upon the sale of Class
B shares is 4% of the purchase price of the shares (commission rate of 3.75%
plus a service fee equal to 0.25% of the purchase price).
See "Redemptions and Repurchases -- Contingent Deferred Sales Charge" for
further discussion of the CDSC.
WAIVERS OF CDSC. In certain circumstances, the CDSC imposed upon
redemption of Class B shares is waived. These circumstances are described in
Appendix A to this Prospectus.
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. See "Distribution Plans" below. 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 Sections 401(a) or 403(b) of the Internal Revenue Code of 1986,
as amended (the "Code"), if the retirement plan and/or the sponsoring
organization subscribe to the MFS FUNDamental 401(k) Plan or another similar
recordkeeping program made available by the Shareholder Servicing Agent.
GENERAL: The following information applies to purchases of all classes of the
Fund's shares.
MINIMUM INVESTMENT. 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 a $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.
RIGHT TO REJECT PURCHASE ORDERS/MARKET TIMING. 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 shares 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.
DEALER CONCESSIONS. Dealers may receive different compensation with respect
to sales of Class A, Class B and Class C shares. In addition, 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. 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 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. 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.
Other concessions may be offered to the extent not prohibited by state laws or
any self-regulatory agency, such as the NASD.
SPECIAL INVESTMENT PROGRAMS. 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.
RESTRICTIONS ON ACTIVITIES OF NATIONAL BANKS. 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. 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 in respect of Shareholders who invested in the Fund through a
national bank. 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.
------------------------
A shareholder whose shares are held in the name of, or controlled by, a 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.
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 received by the Fund (i.e., an
established account) may be exchanged for shares of the same class of any of the
other MFS Funds at net asset value (if available for sale). In addition, Class C
shares may be exchanged for shares of the MFS Money Market Fund at net asset
value. Shares of one class may not be exchanged for shares of any other class.
EXCHANGES AMONG MFS FUNDS (EXCLUDING MFS MONEY MARKET FUNDS): No initial sales
charges or CDSC will be imposed in connection with an exchange from shares of an
MFS Fund to shares of any other MFS Fund, except with respect to exchanges from
an MFS money market fund to another MFS Fund which is not an MFS money market
fund (discussed below). With respect to an exchange involving shares subject to
a CDSC, the CDSC will be unaffected by the exchange and the holding period for
purposes of calculating the CDSC will carry over to the acquired shares.
EXCHANGES FROM AN MFS MONEY MARKET FUND: Special rules apply with respect to the
imposition of an initial sales charge or a CDSC for exchanges from an MFS money
market fund to another MFS Fund which is not an MFS money market fund. These
rules are described under the caption "Exchanges" in the Prospectuses of those
MFS money market funds.
EXCHANGES INVOLVING THE MFS FIXED FUND: Class A shares of any MFS Fund held by
certain qualified retirement plans may be exchanged for units of participation
of the MFS Fixed Fund (a bank collective investment fund) (the "Units"), and
Units may be exchanged for Class A shares of any MFS Fund. With respect to
exchanges between Class A shares subject to a CDSC and Units, the CDSC will
carry over to the acquired shares or Units and will be deducted from the
redemption proceeds when such shares or Units are subsequently redeemed,
assuming the CDSC is then payable (the period during which the Class A shares
and the Units were held will be aggregated for purposes of calculating the
applicable CDSC). In the event that a shareholder initially purchases Units and
then exchanges into Class A shares subject to an initial sales charge of an MFS
Fund, the initial sales charge shall be due upon such exchange, but will not be
imposed with respect to any subsequent exchanges between such Class A shares and
Units with respect to shares on which the initial sales charge has already been
paid. In the event that a shareholder initially purchases Units and then
exchanges into Class A shares subject to a CDSC of an MFS Fund, the CDSC period
will commence upon such exchange, and the applicability of the CDSC with respect
to subsequent exchanges shall be governed by the rules set forth above in this
paragraph.
GENERAL: Exchanges will be made only 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
($50 in the case 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 the Shareholder Servicing Agent) or all
the shares in the account. 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 (generally, 4:00 p.m., Eastern time) (the "Exchange"),
the exchange will occur on that day if all the requirements set forth above have
been complied with at that time and subject to the Fund's right to reject
purchase orders. 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 dealers or
the Shareholder Servicing Agent. A shareholder should read the prospectus of the
other MFS Fund and consider the differences in objectives, policies and
restrictions 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 -- General -- Right to Reject
Purchase Orders/ Market Timing."
REDEMPTIONS AND REPURCHASES
A shareholder may withdraw all or any portion of the value of his account on any
date on which the Fund is open for business by redeeming shares at their net
asset value (a redemption) or by selling such shares to the Fund through a
dealer (a repurchase). Certain redemptions and repurchases are, however, subject
to a CDSC. See "Contingent Deferred Sales Charge" below. Because the net asset
value of shares of the account fluctuates, 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 or repurchase will normally be available within seven
days, except 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.
REDEMPTION BY MAIL: Each shareholder may 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
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
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"
will 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 in "good
order" by the Shareholder Servicing Agent, 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 described above 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 such Exchange is restricted or to
the extent otherwise permitted by the 1940 Act if an emergency exists. See "Tax
Status" below.
REDEMPTION BY TELEPHONE: Each shareholder may redeem an amount from his account
by telephoning the Shareholder Servicing Agent 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 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 and the amount of any income tax
required to be withheld, are mailed by check to the designated account, without
charge, if the redemption proceeds do not exceed $1,000, and are wired in
federal funds to the designated account if the redemption proceeds exceed
$1,000. 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.
REPURCHASE THROUGH A DEALER: If a shareholder desires to sell his shares through
his 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 BEFORE THE CLOSE OF BUSINESS ON THE SAME DAY, THE
SHAREHOLDER WILL RECEIVE THE NET ASSET VALUE CALCULATED ON THAT DAY, REDUCED BY
THE AMOUNT OF ANY APPLICABLE CDSC AND THE AMOUNT OF ANY INCOME TAX REQUIRED TO
BE WITHHELD.
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 purchases by
certain retirement plans 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 of shares 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 or purchases by certain
retirement plans 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 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 of shares will be
calculated as set forth in "Purchases" above.
The applicability of a CDSC will be unaffected by exchanges or transfers of
registration, except as described in Appendix A hereto.
GENERAL: The following information applies to redemptions and repurchases of
all classes of the Fund's shares.
SIGNATURE GUARANTEE. In order to protect shareholders against fraud, 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.
REINSTATEMENT PRIVILEGE. 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 SAI regarding this privilege.
IN-KIND DISTRIBUTIONS. Subject to 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
securities (instead of cash) from the Fund's portfolio. The securities
distributed in such a distribution 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 received a distribution in-kind, the shareholder could incur
brokerage or transaction charges when converting the securities to cash.
INVOLUNTARY REDEMPTIONS/SMALL ACCOUNTS. 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 if at any time the total investment in such
account drops below $500 because of redemptions, except in the case of accounts
being 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 --
General -- Minimum Investment." 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.
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 "Distribution Plans"), after having concluded that there is a
reasonable likelihood that the Distribution Plans would benefit the Fund and its
shareholders.
In certain circumstances, the fees described below have not yet been imposed or
are being waived. These circumstances are described below under the heading
"Current Level of Distribution and Service Fees."
FEATURES COMMON TO EACH DISTRIBUTION PLAN: The Distribution Plans have certain
common features, as described below.
SERVICE FEES. Each Distribution Plan provides that the Fund may pay MFD a
service fee of up to 0.25% of the average daily net assets attributable to the
class of shares to which the Distribution Plan relates (i.e., Class A, Class B
or Class C shares, as appropriate) (the "Designated Class") annually in order
that MFD may pay expenses on behalf of the Fund relating to the servicing of
shares of the Designated Class. The service fee is used by MFD to compensate
dealers which enter into a sales agreement with MFD in consideration for all
personal services and/or account maintenance services rendered by the dealer
with respect to shares of the Designated Class owned by investors for whom such
dealer is the dealer or holder of record. MFD may from time to time reduce the
amount of the service fees paid for shares sold prior to a certain date. Service
fees may be reduced for a 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 each 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.
DISTRIBUTION FEES. Each Distribution Plan provides that the Fund may pay MFD
a distribution fee based on the average daily net assets attributable to the
Designated Class as partial consideration for distribution services performed
and expenses incurred in the performance of MFD's obligations under its
distribution agreement with the Fund. See "Management of the Fund --
Distributor" in the SAI. The amount of the distribution fee paid by the Fund
with respect to each class differs under the Distribution Plans, as does the use
by MFD of such distribution fees. Such amounts and uses are described below in
the discussion of the separate Distribution Plans. While the amount of
compensation received by MFD in the form of distribution fees during any year
may be more or less than the expense incurred by MFD under its distribution
agreement with the Fund, the Fund is not liable to MFD for any losses MFD may
incur in performing services under its distribution agreement with the Fund.
OTHER COMMON FEATURES. Fees payable under each Distribution Plan are charged
to, and therefore reduce, income allocated to shares of the Designated Class.
The Distribution Plans have substantially identical provisions with respect to
their operating policies and their initial approval, renewal, amendment and
termination.
FEATURES UNIQUE TO EACH DISTRIBUTION PLAN: The Distribution Plans have certain
features that are unique to each class of shares, as described below.
CLASS A DISTRIBUTION PLAN. Class A shares are generally offered with an
initial sales charge, a substantial portion of which is paid to or retained by
the dealer making the sale (and the remainder of which is paid to MFD). See
"Purchases -- Class A Shares" above. In addition to the initial sales charge,
the dealer also generally receives the ongoing 0.25% per annum service fee, as
discussed above.
The distribution fee paid to MFD under the Class A Distribution Plan is equal,
on an annual basis, to 0.10% of the Fund's average daily net assets attributable
to Class A shares. As noted above, MFD may use the distribution fee to cover
distribution-related expenses incurred by it under its distribution agreement
with the Fund, including commissions to dealers and payments to wholesalers
employed by MFD (e.g., MFD pays commission to dealers with respect to purchases
of $1 million or more of Class A shares which are sold at net asset value but
which are subject to a 1% CDSC for one year after purchase). See "Purchases --
Class A Shares" above. In addition, to the extent that the aggregate service and
distribution fees paid under the Class A Distribution Plan do 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 such distribution-related expenses or other
distribution-related expenses.
CLASS B DISTRIBUTION PLAN. Class B shares are offered at net asset value
without an initial sales charge but subject to a CDSC. See "Purchases -- Class B
Shares" above. MFD will advance to dealers the first year service fee described
above at a rate equal to 0.25% of the purchase price of such shares and, as
compensation therefore, MFD may retain the service fee paid by the Fund with
respect to such shares for the first year after purchase. Dealers will become
eligible to receive the ongoing 0.25% per annum service fee with respect to such
shares commencing in the thirteenth month following purchase.
Under the Class B Distribution Plan, the Fund pays MFD a distribution fee equal,
on an annual basis, to 0.75% of the Fund's average daily net assets attributable
to Class B shares. As noted above, this distribution fee may be used by MFD to
cover its distribution-related expenses under its distribution agreement with
the Fund (including the 3.75% commission it pays to dealers upon purchase of
Class B shares, as described under "Purchases -- Class B Shares" above).
CLASS C DISTRIBUTION PLAN. Class C shares are offered at net asset value
without a sales charge or a CDSC. See "Purchases -- Class C shares" above.
Unlike the case with respect to the sale of Class A and Class B shares, where
the dealer retains a portion of the initial sales charge (Class A shares) or
receives an up-front payment from MFD (Class B shares), a dealer who sells Class
C shares does not receive any initial payment, but instead receives distribution
and service fees equal, on an annual basis, to 1% of the Fund's average daily
net assets attributable to Class C shares owned by investors for whom the dealer
is the holder or dealer of record.
This ongoing 1% fee is comprised of the 0.25% per annum service fee paid to MFD
under the Class C Distribution Plan (which MFD in turn pays to dealers), as
discussed above, and a distribution fee paid to MFD (which MFD also in turn pays
to dealers) under the Class C Distribution Plan equal, on an annual basis, to
0.75% of the Fund's average daily net assets attributable to Class C shares.
CURRENT LEVEL OF DISTRIBUTION AND SERVICE FEES: The Fund's Class A, Class B and
Class C distribution and service fees for its current fiscal year are 0.35%,
1.00% and 1.00% per annum, respectively. The 0.35% per annum Class A
distribution/service fee is reduced to 0.25% per annum for shares purchased
prior to October 1, 1989.
DISTRIBUTIONS
The Fund intends to declare as dividends daily and pay to its shareholders as
dividends monthly substantially all of its net investment income (dividends will
only accrue on shares for which payment has been received). Dividends generally
are distributed on the first business day of the month. 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 the 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
any 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 the dividends and capital gain distributions they
receive 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. Shortly after the end of each calendar year, each shareholder will
be sent 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 gain, the portion representing
interest on U.S. Government obligations, 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.
Fund distributions will reduce the Fund's net asset value per share.
Shareholders who buy shares shortly before the Fund makes a distribution of net
capital gains or net short-term capital gains may thus pay the full price for
the shares and then effectively receive a portion of the purchase price back as
a taxable distribution.
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
that 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 treaty.
The Fund is also required in certain circumstances to apply backup withholding
at a rate 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 been subject to
30% withholding. 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 liabilities attributable to the class from the value of
the Fund's 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 SAI. 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 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 and
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 SAI).
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 that class.
Shares have no pre-emptive or conversion rights (except as set forth 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) existed
and the Trust itself is unable to meet its obligations.
PERFORMANCE INFORMATION
From time to time, the Fund will provide yield, current distribution rate and
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. Yield
quotations are based on the annualized net investment income per share allocated
to each class of the Fund over a 30-day period stated as a percent of the
maximum public offering price of that class on the last day of that period.
Yield calculations for Class B shares assume no CDSC is paid. The current
distribution rate for each class is generally based upon the total amount of
dividens per share paid by the Fund to shareholders of that class during the
past 12 months and is computed by dividing the amount of such dividends by the
maximum public offering price of that class at the end of such period. Current
distribution rate calculations for Class B shares assume no CDSC is paid. The
current distribution rate differs from the yield calculation because it may
include distributions to shareholders from sources other than dividends and
interest, such as premium income from option writing, short-term capital gains,
and return of invested capital, and is calculated over a different period of
time. Total rate of return quotations will reflect the average annual percentage
change over stated periods in the value of an investment in each 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 the CDSC, and
which will thus be higher. All performance quotations are based on historical
performance and are not intended to indicate future performance. Yield reflects
only net portfolio income as of a stated period of time and current distribution
rate reflects only the rate of distributions paid by the Fund over a stated
period of time, while 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 yield, current distribution rate and total rate of return, see the SAI. For
further information about the Fund's performance for the fiscal year ended
September 30, 1995, 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 information regarding
the tax status of reportable dividends and distributions for that year (see "Tax
Status" above).
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 last business day of the quarter. 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 shareholders'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 SAI) anticipates purchasing $100,000 or more of Class A shares
of the Fund alone or in combination with shares of any class 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 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 any class 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
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 the same class of shares of
the 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 monthly or quarterly
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 if
such fund is available for sale. 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 or Class A shares of MFS Cash
Reserve Fund will be subject to any applicable sales charge. For federal and
(generally) state income tax purposes, an exchange 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 SAI 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 charge 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.
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 adviser before establishing any of the tax-deferred retirement
plans described above.
------------------------
The Fund's SAI, dated February 1, 1996, contains more detailed information about
the Trust and the Fund, including, but not limited to, information related to
(i) investment objectives, policies and restrictions, (ii) Trustees, officers
and investment adviser, (iii) portfolio transactions and brokerage commissions,
(iv) Distribution Plans, (v) the method used to calculate performance quotations
of the Fund, and (vi) various services and privileges provided by the Fund for
the benefit of its shareholders, including additional information with respect
to the exchange privilege.
<PAGE>
APPENDIX A
WAIVERS OF SALES CHARGES
This Appendix sets forth the various circumstances in which all applicable sales
charges are waived (Section I), the initial sales charge and the contingent
deferred sales charge ("CDSC") for Class A shares is waived (Section II), and
the CDSC for Class B shares is waived (Section III).
I. WAIVERS OF ALL APPLICABLE SALES CHARGES
In the following circumstances, the initial sales charge imposed on
purchases of Class A shares and the CDSC imposed on certain redemptions of
Class A shares and on redemptions of Class B shares, as applicable, is
waived:
1. DIVIDEND REINVESTMENT
* Shares acquired through dividend or capital gain reinvestment; and
* Shares acquired by automatic reinvestment of distributions of
dividends and capital gains of any MFS Fund pursuant to the
Distribution Investment Program.
2. CERTAIN ACQUISITIONS/LIQUIDATIONS
* Shares acquired on account of the acquisition or liquidation of
assets of other investment companies or personal holding companies.
3. AFFILIATES OF AN MFS FUND/CERTAIN DEALERS. Shares acquired by:
* Officers, eligible directors, employees (including retired employees)
and agents of MFS, Sun Life or any of their subsidiary companies;
* Trustees and retired trustees of any investment company for which MFD
serves as distributor;
* Employees, directors, partners, officers and trustees of any sub-
adviser to any MFS Fund;
* Employees or registered representatives of dealers and other
financial institution ("dealers") which have a sales agreement with
MFD;
* Certain family members of any such individual and their spouses
identified above and certain trusts, pension, profit-sharing or other
retirement plans for the sole benefit of such persons, provided the
shares are not resold except to an MFS Fund; and
* Institutional Clients of MFS or AMI.
4. INVOLUNTARY REDEMPTIONS (CDSC WAIVER ONLY)
* Shares redeemed at an MFS Fund's direction due to the small size of a
shareholder's account. See "Redemptions and Repurchases -- General --
Involuntary Redemptions/Small Accounts" in the Prospectus.
5. RETIREMENT PLANS (CDSC WAIVER ONLY). Shares redeemed on account of
distributions made under the following circumstances:
INDIVIDUAL RETIREMENT ACCOUNTS ("IRA'S")
* Death or disability of the IRA owner.
SECTION 401(A) PLANS ("401(A) PLANS") AND SECTION 403(B) EMPLOYER
SPONSORED PLANS ("ESP PLANS")
* Death, disability or retirement of Plan participant;
* Loan from Plan (repayment of loans, however, will constitute new
sales for purposes of assessing sales charges);
* Financial hardship (as defined in Treasury Regulation Section 1.401
(k)-1(d)(2), as amended from time to time);
* Termination of employment of Plan participant (excluding, however, a
partial or other termination of the Plan);
* Tax-free return of excess Plan contributions;
* To the extent that redemption proceeds are used to pay expenses (or
certain participant expenses) of the Plan (e.g., participant account
fees), provided that the Plan sponsor subscribes to the MFS
FUNDamental 401(k) Plan or another similar recordkeeping system made
available by the Shareholder Servicing Agent; and
* Distributions from a Plan that has invested its assets in 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 Plan first invests its
assets in one or more of the MFS Funds. The sales charges will be
waived in the case of a redemption of all of the Plan's shares in all
MFS Funds (i.e., all the assets of the Plan invested in the MFS Funds
are withdrawn), unless immediately prior to the redemption, the
aggregate amount invested by the Plan in shares of the MFS Funds
(excluding the reinvestment of distributions) during the prior four
years equals 50% or more of the total value of the Plan's assets in
the MFS Funds, in which case the sales charges will not be waived.
SECTION 403(B) SALARY REDUCTION ONLY PLANS ("SRO PLANS")
* Death or disability of Plan participant.
6. CERTAIN TRANSFERS OF REGISTRATION (CDSC WAIVER ONLY). Shares
transferred:
* To an IRA rollover account where any sales charges with respect to
the shares being reregistered would have been waived had they been
redeemed; and
* From a single account maintained for a 401(a) Plan to multiple
accounts maintained by the Shareholder Servicing Agent on behalf of
individual participants of such Plan, provided that the Plan sponsor
subscribes to the MFS FUNDamental 401(k) Plan or another similar
recordkeeping system made available by the Shareholder Servicing
Agent.
II. WAIVERS OF CLASS A SALES CHARGES
In addition to the waivers set forth in Section I above, in the following
circumstances the initial sales charge imposed on purchases of Class A
shares and the contingent deferred sales charge imposed on certain
redemptions of Class A shares is waived:
1. INVESTMENT OF REDEMPTION PROCEEDS FROM UNAFFILIATED MUTUAL FUNDS
* Shares acquired through the investment of redemption proceeds from
another open-end management investment company not distributed or
managed by MFD or its affiliates if: (i) the investment is made
through a dealer and appropriate documentation is submitted to MFD;
(ii) the redeemed shares were subject to an initial sales charge or
deferred sales charge (whether or not actually imposed); (iii) the
redemption occurred no more than 90 days prior to the purchase of
Class A shares; and (iv) the MFS Fund, MFD or its affiliates have not
agreed with such company or its affiliates, formally or informally,
to waive sales charges on Class A shares or provide any other
incentive with respect to such redemption and sale.
2. WRAP ACCOUNT INVESTMENTS
* Shares acquired by investments through certain dealers which have
entered into an agreement with MFD which includes a requirement that
such shares be sold for the sole benefit of clients participating in
a "wrap" account or a similar program under which such clients pay a
fee to such dealer.
3. INVESTMENT BY INSURANCE COMPANY SEPARATE ACCOUNTS
* Shares acquired by insurance company separate accounts.
4. RETIREMENT PLANS
ADMINISTRATIVE SERVICES ARRANGEMENTS
* Shares acquired by retirement plans whose third party administrators,
or dealers have entered into an administrative services agreement
with MFD or one of its affiliates to perform certain administrative
services, subject to certain operational and minimum size
requirements specified from time to time by MFD or one or more of its
affiliates.
REINVESTMENT OF DISTRIBUTIONS FROM QUALIFIED RETIREMENT PLANS
* Shares acquired through the automatic reinvestment in Class A shares
of Class A or Class B distributions which constitute required
withdrawals from qualified retirement plans.
Shares redeemed on account of distributions made under the following
circumstances:
IRA'S
* Distributions made on or after the IRA owner has attained the age of
59 1/2 years old; and
* Tax-free returns of excess IRA contributions.
401(A) PLANS
* Distributions made on or after the Plan participant has attained the
age of 59 1/2 years old; and
* Certain involuntary redemptions and redemptions in connection with
certain automatic withdrawals from a Plan.
ESP PLANS AND SRO PLANS
* Distributions made on or after the Plan participant has attained the
age of 59 1/2 years old.
III. WAIVERS OF CLASS B SALES CHARGES
In addition to the waivers set forth in Section I above, in the following
circumstances the CDSC imposed on redemptions of Class B shares is waived:
1. SYSTEMATIC WITHDRAWAL PLAN
* Systematic Withdrawal Plan redemptions with respect to up to 10% per
year of the account value at the time of establishment.
2. DEATH OF OWNER
* Shares redeemed on account of the death of the account owner if the
shares are held solely in the deceased individual's name or in a
living trust for the benefit of the deceased individual.
3. DISABILITY OF OWNER
* Shares redeemed on account of the disability of the account owner if
shares are held either solely or jointly in the disabled individual's
name or in a living trust for the benefit of the disabled individual
(in which case a disability certification form is required to be
submitted to the Shareholder Servicing Agent.).
4. RETIREMENT PLANS. Shares redeemed on account of distributions made
under the following circumstances:
IRA'S, 401(A) PLANS, ESP PLANS AND SRO PLANS
* Distributions made on or after the IRA owner or the Plan participant,
as applicable, has attained the age of 70 1/2 years old, but only
with respect to the minimum distribution under applicable Internal
Revenue Code ("Code") rules.
SAR-SEP PLANS
* Distributions made on or after the SAR-SEP Plan participant has
attained the age of 70 1/2 years old, but only with respect to the
minimum distribution under applicable Code rules;
* Death or disability of a SAR-SEP Plan participant.
<PAGE>
APPENDIX B
DESCRIPTION OF BOND RATINGS
The ratings of Moody's, S&P and Fitch represent their opinions as to the quality
of various debt instruments. IT SHOULD BE EMPHASIZED, HOWEVER, THAT RATINGS ARE
NOT ABSOLUTE STANDARDS OF QUALITY. CONSEQUENTLY, DEBT INSTRUMENTS WITH THE SAME
MATURITY, COUPON AND RATING MAY HAVE DIFFERENT YIELDS WHILE DEBT INSTRUMENTS OF
THE SAME MATURITY AND COUPON WITH DIFFERENT RATINGS MAY HAVE THE SAME YIELD.
MOODY'S INVESTORS SERVICE, INC.
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa: Bonds which are rated Baa are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
ABSENCE OF RATING: Where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies that
are not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer available
reasonable up-to-date data to permit a judgment to be formed; if a bond is
called for redemption; or for other reasons.
NOTE: Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa to B. The modifier 1 indicates that the company ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the company ranks in the
lower end of its generic rating category.
STANDARD & POORS RATINGS GROUP
AAA: Debt rated "AAA" has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA: Debt rated "AA" has a strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.
A: Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated "BBB" is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB: Debt rated "BB" has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.
B: Debt rated "B" has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The "B" rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied "BB" or "BB-"
rating.
CCC: Debt rated "CCC" has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The "CCC" rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"B" or "B-" rating.
CC: The rating "CC" is typically applied to debt subordinated to senior debt
that is assigned an actual or implied "CCC" rating.
C: The rating "C" is typically applied to debt subordinated to senior debt which
is assigned an actual or implied "CCC-" debt rating. The "C" rating may be used
to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.
CI: The rating "CI" is reserved for income bonds on which no interest is being
paid.
D: Debt rated "D" is in payment default. The "D" rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The "D" rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
PLUS (+) OR MINUS (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
categories.
NR: Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
FITCH INVESTORS SERVICE, INC.
AAA: Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal which is unlikely to be affected by reasonably foreseeable events.
AA: Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated "AAA". Because bonds rated in the "AAA" and
"AA" categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated "F-l +".
A: Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB: Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
BB: Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B: Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin safety
and the need for reasonable business and economic activity throughout the life
of the issue.
CCC: Bonds have certain identifiable characteristics which if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC: Bonds are minimally protect. Default in payment of interest and/or principal
seems probable over time.
C: Bonds are in imminent default in payment of interest or principal.
PLUS (+) MINUS (-): Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the "AAA" category.
NR: Indicates that Fitch does not rate the specific issue.
CONDITIONAL: A conditional rating is premised on the successful completion of a
project or the occurrence of a specific event.
SUSPENDED: A rating is suspended when Fitch deems the amount of information
available from the issuer to be inadequate for rating purposes.
WITHDRAWN: A rating will be withdrawn when an issue matures or is called or
refinanced and at Fitch's discretion when an issuer fails to furnish proper and
timely information.
FITCHALERT: Ratings are placed on FitchAlert to notify investors of an
occurrence that is likely to result in a rating change and the likely direction
of such change. These are designated as "Positive", indicating a potential
upgrade, "Negative", for potential downgrade, or "Evolving", where ratings may
be lowered, FitchAlert is relatively short-term, and should be resolved within
12 months.
DUFF & PHELPS CREDIT RATING CO.
AAA: Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA: Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated "AAA". Because bonds rated in the "AAA" and
"AA" categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated "D-1+".
A: Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB: Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
BB: Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business, and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B: Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC: Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
PLUS (+) OR MINUS (-): Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within a rating category. Plus and
minus signs, however, are not used in the "AAA" category.
NR: Indicates that Duff & Phelps does not rate the specific issue.
DUFF & PHELPS SHORT-TERM RATINGS
D-1+: Highest certainty of timely payment. Short-term liquidity, including
internal operation factors and/or access to alternative sources of funds, is
outstanding and safety is just below risk-free U.S. Treasury short-term
obligations.
D-1: Very high certainty of timely payment. Liquidity factors are excellent and
supported by good fundamental protection factors. Risk factors are minor.
D-1-: High certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are very small.
D-2: Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.
D-3: Satisfactory liquidity and other protection factors qualify issues as to
investment grade. Risk factors are larger and subject to more variation.
Nevertheless, timely payment is expected.
D-4: Speculative investment characteristics. Liquidity is not sufficient to
insure against disruption in debt service. Operating factors and market access
may be subject to a high degree of variation.
D-5: Issuer failed to meet scheduled principal and/or interest payments.
<PAGE>
APPENDIX C
MFS TOTAL RETURN FUND
PORTFOLIO COMPOSITION CHART
FOR FISCAL YEAR ENDED SEPTEMBER 30, 1995
The table below shows the percentages of the Fund's assets at September 30, 1995
invested in bonds assigned to the various rating categories by S&P, Moody's
(provided only for bonds not rated by S&P), Fitch (provided only for bonds not
rated by S&P or Moody's) and Duff & Phelps Credit Rating Co. (provided only for
bonds not rated by S&P, Moody's or Fitch) and in unrated bonds determined by MFS
to be of comparable quality. For split rated bonds, the higher of S&P or Moody's
is used.
COMPILED
RATING RATINGS TOTAL
------ -------- -----
AAA/Aaa 10.23% 10.23%
AA/Aa 1.54 1.54
A/A 2.74 2.74
BBB/Baa 13.44 13.44
BB/Ba 5.92 5.92
B/B 2.02 2.02
CCC/Caa -- --
CC/Ca -- --
C/C -- --
Default -- --
----- -----
TOTAL 35.89% 35.89%
The chart does not necessarily indicate what the composition of the Fund's
portfolio will be in subsequent years. Rather, the Fund's investment objective,
policies and restrictions indicate the extent to which the Fund may purchase
securities in the various categories.
<PAGE>
Investment Adviser
Massachusetts Financial Services Company
500 Boylston Street, Boston, MA 02116
(617) 954-5000
(800) 637-8730
Distributor
MFS Fund Distributors, Inc.
500 Boylston Street
Boston, MA 02116
(617) 954-5000
Custodian
Investors Bank and Trust Company
89 South Street
Boston, MA 02110
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) 637-8730
Mailing Address:
P.O. Box 2281
Boston, MA 02107-9906
Independent Auditors
Deloitte & Touche LLP
125 Summer Street
Boston, MA02110
[LOGO] M F S (R)
THE FIRST NAME IN MUTUAL FUNDS
MFS(R) TOTAL RETURN FUND
500 Boylston Street
Boston, MA 02116
[LOGO] M F S (R)
THE FIRST NAME IN MUTUAL FUNDS
MFS(R) TOTAL RETURN FUND
Prospectus
February 1, 1996
MTR-1 2/96/600M 15/215/315
<PAGE>
[LOGO]
THE FIRST NAME IN MUTUAL FUNDS
MFS(R) TOTAL STATEMENT OF
RETURN FUND ADDITIONAL INFORMATION
(A Member of the MFS Family of Funds(R)) February 1, 1996
- --------------------------------------------------------------------------------
Page
----
1. Definitions ........................................................ 2
2. Investment Objectives, Policies and Restrictions ................... 2
3. Management of the Fund ............................................. 12
Trustees ......................................................... 13
Officers ......................................................... 13
Investment Adviser ............................................... 13
Custodian ........................................................ 14
Shareholder Servicing Agent ...................................... 14
Distributor ...................................................... 14
4. Portfolio Transactions and Brokerage Commissions ................... 15
5. Shareholder Services ............................................... 16
Investment and Withdrawal Programs ............................... 16
Exchange Privilege ............................................... 18
Tax-Deferred Retirement Plans .................................... 19
6. Tax Status ......................................................... 19
7. Determination of Net Asset Value and Performance ................... 20
8. Distribution Plans ................................................. 22
9. Description of Shares, Voting Rights and Liabilities ............... 23
10. Independent Auditors and Financial Statements ...................... 24
Appendix A ......................................................... A-1
MFS TOTAL RETURN FUND
A Series of MFS Series Trust V
500 Boylston Street, Boston, Massachusetts 02116
(617) 954-5000
This Statement of Additional Information (the "SAI") sets forth information
which may be of interest to investors but which is not necessarily included in
the Fund's Prospectus, dated February 1, 1996. This SAI should be read in
conjunction with the Prospectus, a copy of which may be obtained without charge
by contacting the Shareholder Servicing Agent (see last page for address and
phone number).
THIS SAI IS NOT A PROSPECTUS AND IS AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE
INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS.
<PAGE>
1. DEFINITIONS
"Fund" -- MFS Total Return Fund, a series of
MFS Series Trust V (the "Trust"), a
Massachusetts business trust. The
Trust was known as Massachusetts
Financial Total Return Trust until
August 3, 1992.
"MFS" or the "Adviser" -- Massachusetts Financial Services
Company, a Delaware corporation.
"MFD" -- MFS Fund Distributors, Inc., a
Delaware corporation.
"Prospectus" -- The Prospectus of the Fund, dated
February 1, 1996, as amended or
supplemented from time to time.
2. INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
INVESTMENT OBJECTIVES. The Fund's primary investment objective is to obtain
above-average income (compared to a portfolio invested entirely in equity
securities) consistent with the prudent employment of capital. While current
income is the primary objective, the Fund believes that there should also be a
reasonable opportunity for growth of capital and income, since many securities
offering a better than average yield may also possess growth potential. Thus, in
selecting securities for its portfolio, the Fund considers each of these
objectives. Any investment involves risk and there can be no assurance that the
Fund will achieve its investment objectives.
INVESTMENT POLICIES. The Prospectus contains a discussion of the Fund's policies
with respect to investments in various types of securities and the risks
involved in such investments. Some of these policies are discussed further
below.
LOAN PARTICIPATIONS AND OTHER DIRECT INDEBTEDNESS: The Fund may purchase loan
participations and other direct claims against a borrower. In purchasing a loan
participation, the Fund acquires some or all of the interest of a bank or other
lending institution in a loan to a corporate borrower. Many such loans are
secured, although some may be unsecured. Such loans may be in default at the
time of purchase. Loans that are fully secured offer the Fund more protection
than an unsecured loan in the event of non-payment of scheduled interest or
principal. However, there is no assurance that the liquidation of collateral
from a secured loan would satisfy the corporate borrower's obligation, or that
the collateral can be liquidated.
These loans are made generally to finance internal growth, mergers,
acquisitions, stock repurchases, leveraged buy-outs and other corporate
activities. Such loans are typically made by a syndicate of lending
institutions, represented by an agent lending institution which has negotiated
and structured the loan and is responsible for collecting interest, principal
and other amounts due on its own behalf and on behalf of the others in the
syndicate, and for enforcing its and their other rights against the borrower.
Alternatively, such loans may be structured as a novation, pursuant to which the
Fund would assume all of the rights of the lending institution in a loan, or as
an assignment, pursuant to which the Fund would purchase an assignment of a
portion of a lender's interest in a loan either directly from the lender or
through an intermediary. The Fund may also purchase trade or other claims
against companies, which generally represent money owed by the company to a
supplier of goods or services. These claims may also be purchased at a time when
the company is in default.
Certain of the loan participations acquired by the Fund may involve revolving
credit facilities or other standby financing commitments which obligate the Fund
to pay additional cash on a certain date or on demand. These commitments may
have the effect of requiring the Fund to increase its investment in a company at
a time when the Fund might not otherwise decide to do so (including at a time
when the company's financial condition makes it unlikely that such amounts will
be repaid). To the extent that the Fund is committed to advance additional
funds, it will at all times hold and maintain in a segregated account cash or
other high grade debt obligations in an amount sufficient to meet such
commitments.
The Fund's ability to receive payments of principal, interest and other amounts
due in connection with these investments will depend primarily on the financial
condition of the borrower. In selecting the loan participations and other direct
investments which the Fund will purchase, the Adviser will rely upon its (and
not that of the original lending institution's) own credit analysis of the
borrower. As the Fund may be required to rely upon another lending institution
to collect and pass on to the Fund amounts payable with respect to the loan and
to enforce the Fund's rights under the loan, an insolvency, bankruptcy or
reorganization of the lending institution may delay or prevent the Fund from
receiving such amounts. In such cases, the Fund will evaluate as well the
creditworthiness of the lending institution and will treat both the borrower and
the lending institution as an "issuer" of the loan participation for purposes of
certain investment restrictions pertaining to the diversification of the Fund's
portfolio investments. The highly leveraged nature of many such loans may make
such loans especially vulnerable to adverse changes in economic or market
conditions. Investments in such loans may involve additional risks to the Fund.
For example, if a loan is foreclosed, the Fund could become part owner of any
collateral, and would bear the costs and liabilities associated with owning and
disposing of the collateral. In addition, it is conceivable that under emerging
legal theories of lender liability, the Fund could be held liable as a
co-lender. It is unclear whether loans and other forms of direct indebtedness
offer securities law protections against fraud and misrepresentation. In the
absence of definitive regulatory guidance, the Fund relies on the Adviser's
research in an attempt to avoid situations where fraud or misrepresentation
could adversely affect the Fund. In addition, loan participations and other
direct investments may not be in the form of securities or may be subject to
restrictions on transfer, and only limited opportunities may exist to resell
such instruments. As a result, the Fund may be unable to sell such investments
at an opportune time or may have to resell them at less than fair market value.
To the extent that the Adviser determines that any such investments are
illiquid, the Fund will include them in the investment limitations described
below.
MORTGAGE PASS-THROUGH SECURITIES: The Fund may invest in mortgage pass-through
securities. Mortgage pass-through securities are securities representing
interests in "pools" of mortgage loans. Monthly payments of interest and
principal by the individual borrowers on mortgages are passed through to the
holders of the securities (net of fees paid to the issuer or guarantor of the
securities) as the mortgages in the underlying mortgage pools are paid off. The
average lives of mortgage pass-throughs are variable when issued because their
average lives depend on prepayment rates. The average life of these securities
is likely to be substantially shorter than their stated final maturity as a
result of unscheduled principal prepayments. Prepayments on underlying mortgages
result in a loss of anticipated interest, and all or part of a premium if any
has been paid, and the actual yield (or total return) to the Fund may be
different than the quoted yield on the securities. Mortgage prepayments
generally increase with falling interest rates and decrease with rising interest
rates. Like other fixed income securities, when interest rates rise the value of
a mortgage pass-through security generally will decline; however, when interest
rates are declining, the value of mortgage pass-through securities with
prepayment features may not increase as much as that of other fixed-income
securities.
Payment of principal and interest on some mortgage pass-through securities (but
not the market value of the securities themselves) may be guaranteed by the full
faith and credit of the U.S. Government (in the case of securities guaranteed by
the Government National Mortgage Association ("GNMA"); or guaranteed by agencies
or instrumentalities of the U.S. Government (such as the Federal National
Mortgage Association ("FNMA") or the Federal Home Loan Mortgage Corporation,
("FHLMC") which are supported only by the discretionary authority of the U.S.
Government to purchase the agency's obligations). Mortgage pass-through
securities may also be issued by non-governmental issuers (such as commercial
banks, savings and loan institutions, private mortgage insurance companies,
mortgage bankers and other secondary market issuers). Some of these mortgage
pass-through securities may be supported by various forms of insurance or
guarantees.
Interests in pools of mortgage-related securities differ from other forms of
debt securities, which normally provide for periodic payment of interest in
fixed amounts with principal payments at maturity or specified call dates.
Instead, these securities provide a monthly payment which consists of both
interest and principal payments. In effect, these payments are a "pass-through"
of the monthly payments made by the individual borrowers on their mortgage
loans, net of any fees paid to the issuer or guarantor of such securities.
Additional payments are caused by prepayments of principal resulting from the
sale, refinancing or foreclosure of the underlying property, net of fees or
costs which may be incurred. Some mortgage pass-through securities (such as
securities issued by the GNMA) are described as "modified pass-through." These
securities entitle the holder to receive all interests and principal payments
owed on the mortgages in the mortgage pool, net of certain fees, at the
scheduled payment dates regardless of whether the mortgagor actually makes the
payment.
The principal governmental guarantor of mortgage pass-through securities is the
GNMA. GNMA is a wholly-owned U.S. Government corporation within the Department
of Housing and Urban Development. GNMA is authorized to guarantee, with the full
faith and credit of the U.S. Government, the timely payment of principal and
interest on securities issued by institutions approved by GNMA (such as savings
and loan institutions, commercial banks and mortgage bankers) and backed by
mortgage pools of Federal Housing Administration-insured or Veterans
Administration-guaranteed. These guarantees, however, do not apply to the market
value or yield of mortgage pass-through securities. GNMA securities are often
purchased at a premium over the maturity value of the underlying mortgages. This
premium is not guaranteed and will be lost if prepayment occurs.
Government-related guarantors (i.e., whose guarantees are not backed by the full
faith and credit of the U.S. Government) include the FNMA and the FHLMC. FNMA is
a government-sponsored corporation owned entirely by private stockholders. It is
subject to general regulation by the Secretary of Housing and Urban Development.
FNMA purchases conventional residential mortgages (i.e., mortgages not insured
or guaranteed by any governmental agency) from a list of approved
seller/servicers which include state and federally-chartered savings and loan
associations, mutual savings banks, commercial banks, credit unions and mortgage
bankers. Pass-through securities issued by FNMA are guaranteed as to timely
payment by FNMA of principal and interest.
FHLMC is also a government-sponsored corporation owned by private stockholders.
FHLMC issues Participation Certificates ("PCs") which represent interests in
conventional mortgages (i.e., not federally insured or guaranteed) from FHLMC's
national portfolio. FHLMC guarantees timely payment of interest and ultimate
collection of principal regardless of the status of the underlying mortgage
loans.
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers also create
pass-through pools of mortgage loans. Such issuers may also be the originators
and/or servicers of the underlying mortgage-related securities. Pools created by
such non-governmental issuers generally offer a higher rate of interest than
government and government-related pools because there are no direct or indirect
government or agency guarantees of payments in the former pools. However, timely
payment of interest and principal of mortgage loans in these pools may be
supported by various forms of insurance or guarantees, including individual
loan, title, pool and hazard insurance and letters of credit. The insurance and
guarantees are issued by governmental entities, private insurers and the
mortgage poolers. There can be no assurance that the private insurers or
guarantors can meet their obligations under the insurance policies or guarantee
arrangements. The Fund may also buy mortgage-related securities without
insurance or guarantees.
SECURITIES LENDING: The Fund may seek to increase its income by lending fixed
income portfolio securities. Such loans will usually be made only to member
banks of the Federal Reserve System and to member firms (or subsidiaries
thereof) of the New York Stock Exchange and would be required to be secured
continuously by collateral in cash, U.S. Government securities or an irrevocable
letter of credit maintained on a current basis at an amount at least equal to
the market value of the securities loaned. The Fund would have the right to call
a loan and obtain the securities loaned at any time on customary industry
settlement notice (which will usually not exceed five days). During the
existence of a loan, the Fund would continue to receive the equivalent of the
interest paid by the issuer on the securities loaned and would also receive
compensation based on investment of cash collateral. The Fund would not,
however, have the right to vote any securities having voting rights during the
existence of the loan, but would call the loan in anticipation of an important
vote to be taken among holders of the securities or of the giving or withholding
of their consent on a material matter affecting the investment. As with other
extensions of credit, there are risks of delay in recovery or even loss of
rights in the collateral should the borrower of the securities fail financially.
However, the loans would be made only to firms deemed by the Adviser to be of
good standing, and when, in the judgment of the Adviser, the consideration which
could be earned currently from securities loans of this type justifies the
attendant risk. If the Adviser determines to lend securities, it is not intended
that the value of the securities loaned would exceed 30% of the value of the
Fund's total assets. The Fund did not lend any of its portfolio securities
during its fiscal year ended September 30, 1995.
REPURCHASE AGREEMENTS: The Fund may enter into repurchase agreements with
sellers who are member firms (or subsidiaries thereof) of the New York Stock
Exchange or members of the Federal Reserve System, recognized primary U.S.
Government securities dealers or institutions which the Adviser has determined
to be of comparable creditworthiness. The securities that the Fund purchases and
holds through its agent are U.S. Government securities, the values of which are
equal to or greater than the repurchase price agreed to be paid by the seller.
The repurchase price may be higher than the purchase price, the difference being
income to the Fund, or the purchase and repurchase prices may be the same, with
interest at a standard rate due to the Fund together with the repurchase price
on repurchase. In either case, the income to the Fund is unrelated to the
interest rate on the U.S. Government securities.
The repurchase agreement provides that in the event the seller fails to pay the
price agreed upon on the agreed upon delivery date or upon demand, as the case
may be, the Fund will have the right to liquidate the securities. If, at the
time the Fund is contractually entitled to exercise its right to liquidate the
securities, the seller is subject to a proceeding under the bankruptcy laws or
its assets are otherwise subject to a stay order, the Fund's exercise of its
right to liquidate the securities may be delayed and result in certain losses
and costs to the Fund. The Fund has adopted and follows procedures which are
intended to minimize the risks of repurchase agreements. For example, the Fund
only enters into repurchase agreements after the Adviser has determined that the
seller is creditworthy, and the Adviser monitors that seller's creditworthiness
on an ongoing basis. Moreover, under such agreements, the value of the
securities (which are marked to market every business day) is required to be
greater than the repurchase price, and the Fund has the right to make margin
calls at any time if the value of the securities falls below the agreed upon
margin.
"WHEN-ISSUED" SECURITIES: When the Fund commits to purchase a security on a
"when-issued" or "forward delivery" basis, it will set up procedures consistent
with the General Statement of Policy of the Securities and Exchange Commission
(the "SEC") concerning such purchases. Since that policy currently recommends
that an amount of the Fund's assets equal to the amount of the purchase be held
aside or segregated to be used to pay for the commitment, the Fund will always
have cash, short-term money market instruments or high quality debt securities
sufficient to cover any commitments or to limit any potential risk. However,
although the Fund does not intend to make such purchases for speculative
purposes and intends to adhere to the provisions of the SEC policy, purchases of
securities on such basis may involve more risk than other types of purchases.
For example, the Fund may have to sell assets which have been set aside in order
to meet redemptions. Also, if the Fund determines it necessary to sell the
"when-issued" or "forward delivery" securities before delivery, it may incur a
loss because of market fluctuations since the time the commitment to purchase
such securities was made.
INDEXED SECURITIES: The Fund may purchase securities whose prices are indexed to
the prices of other securities, securities indices, currencies, precious metals
or other commodities, or other financial indicators. Indexed securities
typically, but not always, are debt securities or deposits whose value at
maturity or coupon rate is determined by reference to a specific instrument or
statistic. Gold-indexed securities, for example, typically provide for a
maturity value that depends on the price of gold, resulting in a security whose
price tends to rise and fall together with gold prices. Currency-indexed
securities typically are short-term to intermediate-term debt securities whose
maturity values or interest rates are determined by reference to the values of
one or more specified foreign currencies, and may offer higher yields than U.S.
dollar-denominated securities of equivalent issuers. Currency-indexed securities
may be positively or negatively indexed; that is, their maturity value may
increase when the specified currency value increases, resulting in a security
that performs similarly to a foreign-denominated instrument, or their maturity
value may decline when foreign currencies increase, resulting in a security
whose price characteristics are similar to a put on the underlying currency.
Currency-indexed securities may also have prices that depend on the values of a
number of different foreign currencies relative to each other.
The performance of indexed securities depends to a great extent on the
performance of the security, currency, or other instrument to which they are
indexed, and may also be influenced by interest rate changes in the U.S. and
abroad. At the same time, indexed securities are subject to the credit risks
associated with the issuer of the security, and their values may decline
substantially if the issuer's creditworthiness deteriorates. Recent issuers of
indexed securities have included banks, corporations, and certain U.S.
Government agencies.
MORTGAGE "DOLLAR ROLL" TRANSACTIONS: As described in the Prospectus, the Fund
may enter into mortgage "dollar roll" transactions pursuant to which it sells
mortgage-backed securities for delivery in the future and simultaneously
contracts to repurchase substantially similar securities on a specified future
date. During the roll period, the Fund foregoes principal and interest paid on
the mortgage-backed securities. The Fund is compensated for the lost interest by
the difference between the current sales price and the lower price for the
future purchase (often referred to as the "drop") as well as by the interest
earned on the cash proceeds of the initial sale. The Fund may also be
compensated by receipt of a commitment fee.
FOREIGN SECURITIES: The Fund may invest up to 20% (and generally expects to
invest between 5% and 20%) of its total assets in foreign securities (not
including American Depositary Receipts). As discussed in the Prospectus,
investing in foreign securities generally represents a greater degree of risk
than investing in domestic securities due to possible exchange rate
fluctuations, less publicly available information, more volatile markets, less
securities regulation, less favorable tax provisions, war or expropriation. As a
result of its investments in foreign securities, the Fund may receive interest
or dividend payments, or the proceeds of the sale or redemption of such
securities, in the foreign currencies in which such securities are denominated.
Under certain circumstances, such as where the Adviser believes that the
applicable exchange rate is unfavorable at the time the currencies are received
or the Adviser anticipates, for any other reason, that the exchange rate will
improve, the Fund may hold such currencies for an indefinite period of time.
While the holding of currencies will permit the Fund to take advantage of
favorable movements in the applicable exchange rate, such strategy also exposes
the Fund to risk of loss if exchange rates move in a direction adverse to the
Fund's position. Such losses could reduce any profits or increase any losses
sustained by the Fund from the sale or redemption of securities and could reduce
the dollar value of interest or dividend payments received.
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. ADRs may be sponsored or
unsponsored. A sponsored ADR is issued by a depository which has an exclusive
relationship with the issuer of the underlying security. An unsponsored ADR may
be issued by any number of U.S. depositories. Under the terms of most sponsored
arrangements, depositories agree to distribute notices of shareholder meetings
and voting instructions, and to provide shareholder communications and other
information to the ADR holders at the request of the issuer of the deposited
securities. The depository of an unsponsored ADR, on the other hand, is under no
obligation to distribute shareholder communications received from the issuer of
the deposited securities or to pass through voting rights to ADR holders in
respect of the deposited securities. The Fund may invest in either type of ADR.
Although the U.S. investor holds a substitute receipt of ownership rather than
direct stock certificates, the use of the depositary receipts in the United
States can reduce costs and delays as well as potential currency exchange and
other difficulties. The Fund may purchase securities in local markets and direct
delivery of these ordinary shares to the local depository of an ADR agent bank
in the foreign country. Simultaneously, the ADR agents create a certificate
which settles at the Fund's custodian in five days. The Fund may also execute
trades on the U.S. markets using existing ADRs. A foreign issuer of the security
underlying an ADR is generally not subject to the same reporting requirements in
the United States as a domestic issuer. Accordingly the information available to
a U.S. investor will be limited to the information the foreign issuer is
required to disclose in its own country and the market value of an ADR may not
reflect undisclosed material information concerning the issuer of the underlying
security. ADRs may also be subject to exchange rate risks if the underlying
foreign securities are denominated in foreign currency.
CORPORATE ASSET-BACKED SECURITIES: The Fund may invest in corporate asset-
backed securities. These securities, issued by trusts and special purpose
corporations, are backed by a pool of assets, such as credit card and automobile
loan receivables, representing the obligations of a number of different parties.
Corporate asset-backed securities present certain risks. For instance, in the
case of credit card receivables, these securities may not have the benefit of
any security interest in the related collateral. Credit card receivables are
generally unsecured and the debtors are entitled to the protection of a number
of state and federal consumer credit laws, many of which give such debtors the
right to set off certain amounts owed on the credit cards, thereby reducing the
balance due. Most issuers of automobile receivables permit the servicers to
retain possession of the underlying obligations. If the servicer were to sell
these obligations to another party, there is a risk that the purchaser would
acquire an interest superior to that of the holders of the related automobile
receivables. In addition, because of the large number of vehicles involved in a
typical issuance and technical requirements under state laws, the trustee for
the holders of the automobile receivables may not have a proper security
interest in all of the obligations backing such receivables. Therefore, there is
the possibility that recoveries on repossessed collateral may not, in some
cases, be available to support payments on these securities.
Corporate asset-backed securities are often backed by a pool of assets
representing the obligations of a number of different parties. To lessen the
effect of failures by obligors to make payments on underlying assets, the
securities may contain elements of credit support which fall into two
categories: (i) liquidity protection and (ii) protection against losses
resulting from ultimate default by an obligor on the underlying assets.
Liquidity protection refers to the provision of advances, generally by the
entity administering the pool of assets, to ensure that the receipt of payments
on the underlying pool occurs in a timely fashion. Protection against losses
resulting from ultimate default ensures payment through insurance policies or
letters of credit obtained by the issuer or sponsor from third parties. The Fund
will not pay any additional or separate fees for credit support. The degree of
credit support provided for each issue is generally based on historical
information respecting the level of credit risk associated with the underlying
assets. Delinquency or loss in excess of that anticipated or failure of the
credit support could adversely affect the return on an instrument in such a
security.
SWAPS AND RELATED TRANSACTIONS: The Fund may enter into interest rate swaps,
currency swaps and other types of available swap agreements, such as caps,
collars and floors.
Swap agreements may be individually negotiated and structured to include
exposure to a variety of different types of investments or market factors.
Depending on their structure, swap agreements may increase or decrease the
Fund's exposure to long or short-term interest rates (in the U.S. or abroad),
foreign currency values, mortgage securities, corporate borrowing rates, or
other factors such as securities prices or inflation rates. Swap agreements can
take many different forms and are known by a variety of names. The Fund is not
limited to any particular form or variety of swap agreement if MFS determines it
is consistent with the Fund's investment objective and policies.
The Fund will maintain cash or appropriate liquid assets with its custodian to
cover its current obligations under swap transactions. If the Fund enters into a
swap agreement on a net basis (i.e., the two payment streams are netted out,
with the Fund receiving or paying as the case may be, only the net amount of the
two payments), the Fund will maintain cash or liquid assets with its Custodian
with a daily value at least equal to the excess, if any, of the Fund's accrued
obligations under the swap agreement over the accrued amount the Fund is
entitled to receive under the agreement. If the Fund enters into a swap
agreement on other than a net basis, it will maintain cash or liquid assets with
a value equal to the full amount of the Fund's accrued obligations under the
agreement.
The most significant factor in the performance of swaps, caps, floors and
collars is the change in the specific interest rate, currency or other factor
that determines the amount of payments to be made under the arrangement. If MFS
is incorrect in its forecasts of such factors, the investment performance of the
Fund would be less than what it would have been if these investment techniques
had not been used. If a swap agreement calls for payments by the Fund, the Fund
must be prepared to make such payments when due. In addition, if the
counterparty's creditworthiness declined, the value of the swap agreement would
be likely to decline, potentially resulting in losses. If the counterparty
defaults, the Fund's risk of loss consists of the net amount of payments that
the Fund is contractually entitled to receive. The Fund anticipates that it will
be able to eliminate or reduce its exposure under these arrangements by
assignment or other disposition or by entering into an offsetting agreement with
the same or another counterparty.
RISKS OF INVESTING IN LOWER RATED BONDS: The Fund may invest in fixed income
securities rated Baa by Moody's Investors Service, Inc. ("Moody's") or BBB by
Standard & Poor's Ratings Group ("S&P") or Fitch Investors Service, Inc.
("Fitch") 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 rated Ba or lower by Moody's
or BB or lower by S&P or Fitch and comparable unrated securities (commonly known
as "junk bonds") to the extent described in the Prospectus. No minimum rating
standard is required by the Fund. 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 and
because 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 (and the outlook for economic growth), short-term
corporate and industry developments and the market's perception of their credit
quality (especially during times of adverse publicity) to a greater extent than
higher rated securities which react primarily to fluctuations in the general
level of interest rates (although these lower rated fixed income securities are
also affected by changes in interest rates). In the past, economic downturns or
an increase in interest rates have, under certain circumstances, caused a higher
incidence of default by the issuers of these securities and may do so in the
future, especially in the case of highly leveraged issuers. The prices for these
securities may be affected by legislative and regulatory developments. The
market for these lower rated fixed income securities may be less liquid than the
market for investment grade fixed income securities. Furthermore, the liquidity
of these lower rated securities may be affected by the market's perception of
their credit quality. Therefore, the Adviser's judgment may at times play a
greater role in valuing these securities than in the case of investment grade
fixed income securities, and it also may be more difficult during times of
certain adverse market conditions to sell these lower rated securities to meet
redemption requests or to respond to changes in the market.
While the Adviser may refer to ratings issued by established credit rating
agencies, it is not the Fund's policy to rely exclusively on ratings issued by
these rating agencies, but rather to supplement such ratings with the Adviser's
own independent and ongoing review of credit quality. To the extent the Fund
invests in these lower rated securities, the achievement of its investment
objectives may be more dependent on the Adviser's own credit analysis than in
the case of a fund investing in higher quality fixed income securities. These
lower rated securities may also include zero coupon bonds, deferred interest
bonds and bonds on which interest is payable in kind ("PIK Bonds") which are
described in the Prospectus.
OPTIONS ON SECURITIES: The Fund may write (sell) covered call and put options on
securities and purchase call and put options on securities. The Fund may write
options on securities for the purpose of increasing its return on such
securities and for hedging purposes.
A call option written by the Fund is covered if the Fund owns the security
underlying the call or has an absolute and immediate right to acquire such
security without additional cash consideration (or for additional cash
consideration held in a segregated account by its custodian) upon conversion or
exchange of other securities held in its portfolio. A call option is also
covered if a Fund holds a call on the same security and in the same principal
amount as the call written where the exercise price of the call held (a) is
equal to or less than the exercise price of the call written or (b) is greater
than the exercise price of the call written if the difference is maintained by
the Fund in cash or high grade government securities in a segregated account
with its custodian. A put option written by the Fund is covered if the Fund
maintains cash or high grade government securities with a value equal to the
exercise price in a segregated account with its custodian, or else holds a put
on the same security and in the same principal amount as the put written where
the exercise price of the put held (i) is equal to or greater than the exercise
price of the put written or (ii) is less than the exercise price of the put
written if the difference is maintained by the Fund in cash or high grade
government securities in a segregated account with its custodian. Put and call
options written by the Fund may also be covered in such other manner as may be
in accordance with the requirements of the exchange on which, or the
counterparty with which, the option is traded, and applicable laws and
regulations.
Effecting a closing transaction in the case of a written call option will permit
the Fund to write another call option on the underlying security with either a
different exercise price or expiration date or both, or in the case of a written
put option will permit the Fund to write another put option to the extent that
the exercise price thereof is secured by deposited cash or short-term
securities. Such transactions permit the Fund to generate additional premium
income, which will partially offset declines in the value of portfolio
securities or increases in the cost of securities to be acquired. Also,
effecting a closing transaction will permit the proceeds from the concurrent
sale of any securities subject to the option to be used for other investments of
the Fund, provided that another option on such security is not written. If the
Fund desires to sell a particular security from its portfolio on which it has
written a call option, it will effect a closing transaction in connection with
the option prior to or concurrent with the sale of the security.
The Fund will realize a profit from a closing transaction if the premium paid in
connection with the closing of an option written by the Fund is less than the
premium received from writing the option, or if the premium received in
connection with the closing of an option purchased by the Fund is more than the
premium paid for the original purchase. Conversely, the Fund will suffer a loss
if the premium paid or received in connection with a closing transaction is more
or less, respectively, than the premium received or paid in establishing the
option position. Because increases in the market price of a call option will
generally reflect increases in the market price of the underlying security, any
loss resulting from the closing out of a call option previously written by the
Fund is likely to be offset in whole or in part by appreciation of the
underlying security owned by the Fund.
The Fund may write options in connection with buy-and-write transactions; that
is, the Fund may purchase a security and then write a call option against that
security. The exercise price of the call option the Fund determines to write
will depend upon the expected price movement of the underlying security. The
exercise price of a call option may be below ("in-the-money"), equal to ("at-
the-money") or above ("out-of-the-money") the current value of the underlying
security at the time the option is written. If the call options are exercised in
such transactions, the Fund's maximum gain will be the premium received by it
for writing the option, adjusted upwards or downwards by the difference between
the Fund's purchase price of the security and the exercise price, less related
transaction costs. If the options are not exercised and the price of the
underlying security declines, the amount of such decline will be offset in part,
or entirely, by the premium received.
The writing of covered put options is similar in terms of risk/return
characteristics to buy-and-write transactions. Put options could be used by the
Fund in the same market environments that call options would be used in
equivalent buy-and-write transactions.
The Fund may write combinations of put and call options on the same security, a
practice known as a "straddle." By writing a straddle, the Fund undertakes a
simultaneous obligation to sell and purchase the same security in the event that
one of the options is exercised. If the price of the security subsequently rises
sufficiently above the exercise price to cover the amount of the premium and
transaction costs, the call will likely be exercised and the Fund will be
required to sell the underlying security at a below market price. This loss may
be offset, however, in whole or in part, by the premiums received on the writing
of the two options. Conversely, if the price of the security declines by a
sufficient amount, the put will likely be exercised. The writing of straddles
will likely be effective, therefore, only where the price of a security remains
stable and neither the call nor the put is exercised. In an instance where one
of the options is exercised, the loss on the purchase or sale of the underlying
security may exceed the amount of the premiums received.
By writing a call option, the Fund limits its opportunity to profit from any
increase in the market value of the underlying security above the exercise price
of the option. By writing a put option, the Fund assumes the risk that it may be
required to purchase the underlying security for an exercise price above its
then current market value, resulting in a capital loss unless the security
subsequently appreciates in value. The writing of options on securities will be
undertaken by the Fund for purposes in addition to hedging, and could involve
certain risks which are not present in the case of hedging transactions.
Moreover, even where options are written for hedging purposes, such transactions
will constitute only a partial hedge against declines in the value of portfolio
securities or against increases in the value of securities to be acquired, up to
the amount of the premium.
The Fund also may purchase put and call options on securities. Put options would
be purchased to hedge against a decline in the value of securities held in the
Fund's portfolio. If such a decline occurs, the put options will permit the Fund
to sell the underlying securities at the exercise price, or to close out the
options at a profit. By using put options in this way, the Fund will reduce any
profit it might otherwise have realized in the underlying security by the amount
of the premium paid for the put option and related transaction costs. The Fund
may purchase call options to hedge against an increase in the price of
securities that the Fund anticipates purchasing in the future. If such an
increase occurs, the call option will permit the Fund to purchase the securities
at the exercise price or to close out the option at a profit. The premium paid
for a call or put option plus any transaction costs will reduce the benefit, if
any, realized by the Fund upon exercise of the option, and, unless the price of
the underlying security rose or declined sufficiently, the option may expire
worthless to the Fund.
OPTIONS ON STOCK INDICES: The Fund may write (sell) covered call and put options
on stock indices and purchase call and put options on stock indices for the
purpose of increasing its gross income and to protect its portfolio against
declines in the value of securities it owns or increases in the value of
securities to be acquired.
The Fund may cover call options on stock indices by owning securities whose
price changes, in the opinion of the Adviser, are expected to be similar to
those of the index, or by having an absolute and immediate right to acquire such
securities without additional cash consideration (or for additional cash
consideration held in a segregated account by its custodian) upon conversion or
exchange of other securities in its portfolio. Nevertheless, where the Fund
covers a call option on a stock index through ownership of securities, such
securities may not match the composition of the index and, in that event, the
Fund will not be fully covered and could be subject to risk of loss in the event
of adverse changes in the value of the index. A Fund may also cover call options
on stock indices by holding a call on the same index and in the same principal
amount as the call written where the exercise price of the call held (a) is
equal to or less than the exercise price of the call written or (b) is greater
than the exercise price of the call written if the difference is maintained by
the Fund in cash or high grade government securities in a segregated account
with its custodian. The Fund may cover put options on stock indices by
maintaining cash or high grade government securities with a value equal to the
exercise price in a segregated account with its custodian, or else by holding a
put on the same security and in the same principal amount as the put written
where the exercise price of the put held (a) is equal to or greater than the
exercise price of the put written or (b) is less than the exercise price of the
put written if the difference is maintained by the Fund in cash or high grade
government securities in a segregated account with its custodian. Put and call
options on stock indices written by the Fund may also be covered in such other
manner as may be in accordance with the rules of the exchange on which, or the
counterparty with which, the option is traded, and applicable laws and
regulations.
The Fund will receive a premium from writing a put or call option, which
increases the Fund's gross income in the event the option expires unexercised or
is closed out at a profit. If the value of an index on which the Fund has
written a call option falls or remains the same, the Fund will realize a profit
in the form of the premium received (less transaction costs) that could offset
all or a portion of any decline in the value of the securities it owns. If the
value of the index rises, however, the Fund will realize a loss in its call
option position, which will reduce the benefit of any unrealized appreciation in
the Fund's stock investments. By writing a put option, the Fund assumes the risk
of a decline in the index. To the extent that the price changes of securities
owned by a Fund correlate with changes in the value of the index, writing
covered put options on indices will increase the Fund's losses in the event of a
market decline, although such losses will be offset in part by the premium
received for writing the option.
The purchase of call options on stock indices may be used by the Fund to attempt
to reduce the risk of missing a broad market advance, or an advance in an
industry or market segment, at a time when the Fund holds uninvested cash or
short-term debt securities awaiting investment. When purchasing call options for
this purpose, the Fund will also bear the risk of losing all or a portion of the
premium paid, and related transaction costs, if the value of the index does not
rise. The purchase of call options on stock indices when the Fund is
substantially fully invested is a form of leverage, up to the amount of the
premium and related transaction costs, and involves risks of loss and of
increased volatility similar to those involved in purchasing calls on securities
the Fund owns.
The Fund also may purchase put options on stock indices to hedge its investments
against a decline in value. By purchasing a put option on a stock index, the
Fund will seek to offset a decline in the value of securities it owns through
appreciation of the put option. If the value of the Fund's investments does not
decline as anticipated, or if the value of the option does not increase, the
Fund's loss will be limited to the premium paid for the option, plus related
transaction costs. The success of this strategy will largely depend on the
accuracy of the correlation between the changes in value of the index and the
changes in value of the Fund's security holdings.
YIELD CURVE OPTIONS: The Fund may also enter into options on the "spread," or
yield differential, between two fixed income securities, in transactions
referred to as "yield curve" options. In contrast to other types of options, a
yield curve option is based on the difference between the yields of designated
securities, rather than the prices of the individual securities, and is settled
through cash payments. Accordingly, a yield curve option is profitable to the
holder if this differential widens (in the case of a call) or narrows (in the
case of a put), regardless of whether the yields of the underlying securities
increase or decrease.
Yield curve options may be used for the same purposes as other options on
securities. Specifically, the Fund may purchase or write such options for
hedging purposes. For example, the Fund may purchase a call option on the yield
spread between two securities, if it owns one of the securities and anticipates
purchasing the other security and wants to hedge against an adverse change in
the yield spread between the two securities. The Fund may also purchase or write
yield curve options for other than hedging purposes (i.e., in an effort to
increase its current income) if, in the judgment of the Adviser, the Fund will
be able to profit from movements in the spread between the yields of the
underlying securities. The trading of yield curve options is subject to all of
the risks associated with the trading of other types of options. In addition,
however, such options present risk of loss even if the yield of one of the
underlying securities remains constant, if the spread moves in a direction or to
an extent which was not anticipated. Yield curve options written by the Fund
will be "covered". A call (or put) option is covered if the Fund holds another
call (or put) option on the spread between the same two securities and maintains
in a segregated account with its custodian cash or cash equivalents sufficient
to cover the Fund's net liability under the two options. Therefore, the Fund's
liability for such a covered option is generally limited to the difference
between the amount of the Fund's liability under the option written by the Fund
less the value of the option held by the Fund. Yield curve options may also be
covered in such other manner as may be in accordance with the requirements of
the counterparty with which the option is traded and applicable laws and
regulations. Yield curve options are traded over-the-counter and because they
have been only recently introduced, established trading markets for these
securities have not yet developed.
The staff of the SEC has taken the position that purchased over-the-counter
options and assets used to cover written over-the-counter options are illiquid
and, therefore, together with other illiquid securities, cannot exceed a certain
percentage of the Fund's assets (the "SEC illiquidity ceiling"). Although the
Adviser disagrees with this position, the Adviser intends to limit the Fund's
writing of over-the-counter options in accordance with the following procedure.
Except as provided below, the Fund intends to write over-the-counter options
only with primary U.S. Government securities dealers recognized by the Federal
Reserve Bank of New York. Also, the contracts which the Fund has in place with
such primary dealers will provide that the Fund has the absolute right to
repurchase an option it writes at any time at a price which represents the fair
market value, as determined in good faith through negotiation between the
parties, but which in no event will exceed a price determined pursuant to a
formula in the contract. Although the specific formula may vary between
contracts with different primary dealers, the formula will generally be based on
a multiple of the premium received by the Fund for writing the option, plus the
amount, if any, of the option's intrinsic value (i.e., the amount that the
option is in-the-money). The formula may also include a factor to account for
the difference between the price of the security and the strike price of the
option if the option is written out-of- money. The Fund will treat all or a part
of the formula price as illiquid for purposes of the SEC illiquidity ceiling.
The Fund may also write over-the-counter options with non-primary dealers,
including foreign dealers, and will treat the assets used to cover these options
as illiquid for purposes of such SEC illiquidity ceiling.
OPTIONS ON FOREIGN CURRENCIES: The Fund may purchase and write put and call
options on foreign currencies ("Options on Foreign Currencies") for the purpose
of protecting against declines in the dollar value of foreign portfolio
securities and against increases in the dollar cost of foreign securities to be
acquired. For example, a decline in the dollar value of a foreign currency in
which portfolio securities are denominated will reduce the dollar value of such
securities, even if their value in the foreign currency remains constant. In
order to protect against such diminutions in the value of portfolio securities,
the Fund may purchase put Options on the Foreign Currency. If the value of the
currency did decline, the Fund would have the right to sell such currency for a
fixed amount in dollars and would thereby offset, in whole or in part, the
adverse effect on its portfolio which otherwise would have resulted.
Conversely, where a rise in the dollar value of a currency in which securities
to be acquired are denominated is projected, thereby increasing the cost of such
securities, the Fund may purchase call options thereon. The purchase of such
options could offset, at least partially, the effects of the adverse movements
in exchange rates. As in the case of other types of options, however, the
benefit to the Fund deriving from purchases of Options on Foreign Currencies
would be reduced by the amount of the premium and related transaction costs. In
addition, where currency exchange rates do not move in the direction or to the
extent anticipated, the Fund could sustain losses on transactions in Options on
Foreign Currencies which would require it to forego a portion or all of the
benefits of advantageous changes in such rates.
The Fund may write Options on Foreign Currencies for the same types of hedging
purposes. For example, where the Fund anticipates a decline in the dollar value
of foreign-denominated securities due to adverse fluctuations in exchange rates
it may, instead of purchasing a put option, write a call option on the relevant
currency. If the expected decline occurred, the option would most likely not be
exercised, and the diminution in value of portfolio securities would be offset
by the amount of the premium received less related transaction costs. As in the
case of other types of options, therefore, the writing of Options on Foreign
Currencies will constitute only a partial hedge.
FUTURES CONTRACTS: The Fund may enter into contracts for the purchase or sale
for future delivery of fixed income securities or foreign currencies or
contracts based on indices of securities of currencies (including any index of
U.S. or foreign securities) as such instruments become available for trading
("Futures Contracts"). A Futures Contract is a bilateral agreement providing for
the purchase and sale of a specified type and amount of a financial instrument,
or foreign currency, or for the making and acceptance of a cash settlement, at a
stated time in the future for a fixed price. By its terms, a Futures Contract
provides for a specified settlement date on which, in the case of the majority
of foreign currency futures contracts, the currency or the contract are
delivered by the seller and paid for by the purchaser, or on which, in the case
of stock index futures contracts and certain foreign currency futures contracts,
the difference between the price at which the contract was entered into and the
contract's closing value is settled between the purchaser and seller in cash.
Futures contracts differ from options in that they are bilateral agreements,
with both the purchaser and the seller equally obligated to complete the
transaction. Futures Contracts call for settlement only on the expiration date
and cannot be "exercised" at any other time during their term.
The purchase or sale of a Futures Contract differs from the purchase or sale of
a security or the purchase of an option in that no purchase price is paid or
received. Instead, an amount of cash or cash equivalents, which varies but may
be as low as 5% or less of the value of the contract, must be deposited with the
broker as "initial margin." Subsequent payments to and from the broker, referred
to as "variation margin," are made on a daily basis as the value of the index or
instrument underlying the Futures Contract fluctuates, making positions in the
Futures Contract more or less valuable -- a process known as "marking to the
market."
Purchases or sales of stock index futures contracts may be used to attempt to
protect a Fund's current or intended stock investments from broad fluctuations
in stock prices. For example, a Fund may sell stock index futures contracts in
anticipation of or during a market decline to attempt to offset the decrease in
market value of the Fund's securities portfolio that might otherwise result. If
such decline occurs, the loss in value of portfolio securities may be offset, in
whole or part, by gains on the futures position. When a Fund is not fully
invested in the securities market and anticipates a significant market advance,
it may purchase stock index futures contracts in order to gain rapid market
exposure that may, in part or entirely, offset increases in the cost of
securities that the Fund intends to purchase. As such purchases are made, the
corresponding positions in stock index futures contracts will be closed out. In
a substantial majority of these transactions, the Fund will purchase such
securities upon termination of the futures position, but under unusual market
conditions, a long futures position may be terminated without a related purchase
of securities.
As noted in the Prospectus, the Fund may purchase and sell foreign currency
futures contracts for hedging purposes, to attempt to protect its current or
intended investments from fluctuations in currency exchange rates. Such
fluctuations could reduce the dollar value of portfolio securities denominated
in foreign currencies, or increase the cost of foreign-denominated securities to
be acquired, even if the value of such securities in the currencies in which
they are denominated remains constant. A Fund may sell futures contracts on a
foreign currency, for example, where it holds securities denominated in such
currency and it anticipates a decline in the value of such currency relative to
the dollar. In the event such decline occurs, the resulting adverse effect on
the value of foreign-denominated securities may be offset, in whole or in part,
by gains on the futures contracts.
Conversely, a Fund could protect against a rise in the dollar cost of foreign-
denominated securities to be acquired by purchasing futures contracts on the
relevant currency, which could offset, in whole or in part, the increased cost
of such securities resulting from a rise in the dollar value of the underlying
currencies. Where a Fund purchases futures contracts under such circumstances,
however, and the prices of securities to be acquired instead decline, the Fund
will sustain losses on its futures position which could reduce or eliminate the
benefits of the reduced cost of portfolio securities to be acquired.
OPTIONS ON FUTURES CONTRACTS: The Fund may write or purchase options to buy or
sell Futures Contracts ("Options on Futures Contracts"), for hedging purposes or
for non-hedging purposes, to the extent permitted by applicable law. The writing
of a call Option on a Futures Contract constitutes a partial hedge against
declining prices of the securities or other instruments required to be delivered
under the terms of the Futures Contract. If the futures price at expiration of
the option is below the exercise price, the Fund will retain the full amount of
the option premium, less related transaction costs, which provides a partial
hedge against any decline that may have occurred in the Fund's portfolio
holdings. The writing of a put Option on a Futures Contract constitutes a
partial hedge against increasing prices of the securities or other instruments
required to be delivered under the terms of the Futures Contract. If the futures
price at expiration of the option is higher than the exercise price, the Fund
will retain the full amount of the option premium, less related transaction
costs, which provides a partial hedge against any increase in the price of
securities which the Fund intends to purchase. If a put or call option the Fund
has written is exercised, the Fund will incur a loss which will be reduced by
the amount of the premium it receives. Depending on the degree of correlation
between changes in the value of its portfolio securities and changes in the
value of its futures positions, the Fund's losses from existing Options on
Futures Contracts may to some extent be reduced or increased by changes in the
value of portfolio securities.
The Fund may cover the writing of call Options on Futures Contracts (a) through
purchases of the underlying Futures Contract, (b) through ownership of the
instrument, or instruments included in the index, underlying the Futures
Contract, or (c) through the holding of a call on the same Futures Contract and
in the same principal amount as the call written where the exercise price of the
call held (i) is equal to or less than the exercise price of the call written or
(ii) is greater than the exercise price of the call written if the difference is
maintained by the Fund in cash and high grade government securities in a
segregated account with its custodian. The Fund may cover the writing of put
Options on Futures Contracts (a) through sales of the underlying Futures
Contract, (b) through segregation of cash or cash equivalents in an amount equal
to the value of the security or index underlying the Futures Contract, or (c)
through the holding of a put on the same Futures Contract and in the same
principal amount as the put written where the exercise price of the put held (i)
is equal to or greater than the exercise price of the put written or (ii) is
less than the exercise price of the put written if the difference is maintained
by the Fund in cash or high grade government securities in a segregated account
with its custodian. Put and call Options on Futures Contracts written by the
Fund may also be covered in such other manner as may be in accordance with the
rules of the exchange on which, or the counterparty with which, the option is
traded, and applicable laws and regulations. Upon the exercise of a call Option
on a Futures Contract written by the Fund, the Fund will be required to sell the
underlying Futures Contract which, if the Fund has covered its obligation
through the purchase of such Contract, will serve to liquidate its futures
position. Similarly, where a put Option on a Futures Contract written by the
Fund is exercised, the Fund will be required to purchase the underlying Futures
Contract which, if the Fund has covered its obligation through the sale of such
Contract, will close out its futures position.
The Fund may purchase Options on Futures Contracts for hedging purposes as an
alternative to purchasing or selling the underlying Futures Contracts. For
example, where a decrease in the value of portfolio securities is anticipated as
a result of a projected market-wide decline or changes in interest or exchange
rates, the Fund could, in lieu of selling Futures Contracts, purchase put
options thereon. In the event that such decrease occurs, it may be offset, in
whole or part, by a profit on the option. Conversely, where it is projected that
the value of securities to be acquired by the Fund will increase prior to
acquisition, due to a market advance or changes in interest or exchange rates,
the Fund could purchase call Options on Futures Contracts, rather than
purchasing the underlying Futures Contracts.
In order to assure that the Fund will not be deemed to be a "commodity pool" for
purposes of the Commodity Exchange Act, regulations of the Commodities Futures
Trading Commission (the "CFTC") require that the Fund enter into transactions in
Futures Contracts and Options on Futures Contracts only (i) for bona fide
hedging purposes (as defined in CFTC regulations), or (ii) for non-hedging
purposes, provided that the aggregate initial margin and premiums on such
non-hedging positions does not exceed 5% of the liquidation value of the Fund's
assets. In addition, the Fund must comply with the requirements of various state
securities laws in connection with such transactions.
FORWARD CONTRACTS: The Fund may enter into forward foreign currency exchange
contracts for the purchase or sale of a specific currency at a future date at a
price set at the time of the contract (a "Forward Contract"). The Fund may enter
into Forward Contracts for hedging purposes as well as for non-hedging purposes.
The Fund may also enter into Forward Contracts for "cross-hedging" as noted in
the Prospectus. Transactions in Forward Contracts entered into for hedging
purposes will include forward purchases or sales of foreign currencies for the
purpose of protecting the dollar value of securities denominated in a foreign
currency or protecting the dollar equivalent of interest or dividends to be paid
on such securities. By entering into such transactions, however, the Fund may be
required to forego the benefits of advantageous changes in exchange rates. The
Fund may also enter into transactions in Forward Contracts for other than
hedging purposes which presents greater profit potential but also involves
increased risk. For example, if the Adviser believes that the value of a
particular foreign currency will increase or decrease relative to the value of
the U.S. dollar, the Fund may purchase or sell such currency, respectively,
through a Forward Contract. If the expected changes in the value of the currency
occur, the Fund will realize profits which will increase its gross income. Where
exchange rates do not move in the direction or to the extent anticipated,
however, the Fund may sustain losses which will reduce its gross income. Such
transactions, therefore, could be considered speculative.
The Fund has established procedures consistent with statements by the SEC and
its staff regarding the use of Forward Contracts by registered investment
companies, which require the use of segregated assets or "cover" in connection
with the purchase and sale of such contracts. In those instances in which the
Fund satisfies this requirement through segregation of assets, it will maintain,
in a segregated account cash, cash equivalents or high grade debt securities,
which will be marked to market on a daily basis, in an amount equal to the value
of its commitments under Forward Contracts.
RISK FACTORS: IMPERFECT CORRELATION OF HEDGING INSTRUMENTS WITH THE FUND'S
PORTFOLIO -- The Fund's ability effectively to hedge all or a portion of its
portfolio through transactions in options, Futures Contracts, and Forward
Contracts will depend on the degree to which price movements in the underlying
index or instrument correlate with price movements in the relevant portion of
the Fund's portfolio. Because the securities in the Fund's portfolio will most
likely not be the same as those securities underlying a stock index, the
correlation between movements in the portfolio and in the securities underlying
the index will not be perfect. The trading of Futures Contracts and options
entails the additional risk of imperfect correlation between movements in the
futures or option price and the price of the underlying index or obligation. The
anticipated spread between the prices may be distorted due to the differences in
the nature of the markets, such as differences in margin requirements, the
liquidity of such markets and the participation of speculators in such markets.
In this regard, trading by speculators in options and Futures Contracts has in
the past occasionally resulted in market distortions, which may be difficult or
impossible to predict, particularly near the expiration of such contracts. It
should be noted that Futures Contracts or options based upon a narrower index of
securities, such as those of a particular industry group, may present greater
risk than options or Futures Contracts based on a broad market index, because a
narrower index is more susceptible to rapid and extreme fluctuations as a result
of changes in the value of a small number of securities. The trading of Options
on Futures Contracts also entails the risk that changes in the value of the
underlying Futures Contracts will not be fully reflected in the value of the
option. Further, with respect to options on securities, options on stock indices
and Options on Futures Contracts, the Fund is subject to the risk of market
movements between the time that the option is exercised and the time of
performance thereunder. In writing a covered call option on a security, index or
Futures Contract, the Fund also incurs the risk that changes in the value of the
instruments used to cover the position will not correlate closely with changes
in the value of the option or underlying index or instrument.
The Fund will invest in a hedging instrument only if, in the judgment of its
Adviser, there would be expected to be a sufficient degree of correlation
between movements in the value of the instrument and movements in the value of
the relevant portion of the Fund's portfolio for such hedge to be effective.
There can be no assurance that the Adviser's judgment will be accurate.
It should also be noted that the Fund may enter into transactions in options,
futures contracts, options on futures contracts and forward contracts not only
for hedging purposes, but also for non-hedging purposes, including the purpose
of increasing its return on portfolio securities. As a result, in the event of
adverse market movements, the Fund might be subject to losses, which would not
be offset by increases in the value of portfolio securities or declines in the
cost of securities to be acquired. In addition, the method of covering an option
employed by the Fund may not fully protect it against risk of loss and, in any
event, the Fund could suffer losses on the option position which might not be
offset by corresponding portfolio gains.
With respect to the writing of straddles on securities, the Fund incurs the risk
that the price of the underlying security will not remain stable, that one of
the options written will be exercised and that the resulting loss will not be
offset by the amount of the premiums received.
POTENTIAL LACK OF A LIQUID SECONDARY MARKET -- Prior to exercise or expiration,
a futures or option position can only be terminated by entering into a closing
purchase or sale transaction. This requires a secondary market for such
instruments on the exchange on which the initial transaction was entered into.
While the Fund will enter into options or futures positions only if there
appears to be a liquid secondary market therefor, there can be no assurance that
such a market will exist for any particular contracts at any specific time. In
that event, it may not be possible to close out a position held by the Fund, and
the Fund could be required to purchase or sell the instrument underlying an
option, make or receive a cash settlement or meet ongoing variation margin
requirements. Under such circumstances, if the Fund had insufficient cash
available to meet margin requirements, it might be necessary to liquidate
portfolio securities at a time when it would be disadvantageous to do so. The
inability to close out options and futures positions, therefore, could have an
adverse impact on the Fund's ability effectively to hedge its portfolios, and
could result in trading losses. The liquidity of a secondary market in a Futures
Contract or options thereon may also be adversely affected by "daily price
fluctuation limits," established by exchanges, which limit the amount of
fluctuation in the price of a contract during a single trading day. The trading
of Futures Contracts and options is also subject to the risk of trading halts,
suspensions, exchange or clearing house equipment failures, government
intervention, insolvency of a brokerage firm or clearing house or other
disruptions of normal trading activity, which could at times make it difficult
or impossible to liquidate existing positions or to recover excess variation
margin payments.
MARGIN -- Because of low initial margin deposits made upon the opening of a
futures position and the writing of an option, such transactions involve
substantial leverage. As a result, relatively small movements in the price of
the contract can result in substantial unrealized gains or losses. Because the
Fund would engage in the purchase or sale of Futures Contracts and the writing
of Options on Futures Contracts solely for hedging purposes, however, and would
purchase and write options on securities and stock indices in part for hedging
purposes, any losses incurred in connection therewith should, if the hedging
strategy is successful, be offset, in whole or in part, by increases in the
value of securities held by the Fund or decreases in the prices of securities
the Fund intends to acquire. Where the Fund writes options on securities or
options on stock indices for other than hedging purposes, the margin
requirements associated with such transactions could expose the Fund to greater
risk.
TRADING AND POSITION LIMITS -- The exchanges on which Futures Contracts and
options are traded may impose limitations governing the maximum number of
positions on the same side of the market and involving the same underlying
instrument which may be held by a single investor, whether acting alone or in
concert with others (regardless of whether such contracts are held on the same
or different exchanges or held or written in one or more accounts or through one
or more brokers). In addition, the CFTC and the various contract markets have
established limits referred to as "speculative position limits" on the maximum
net long or net short position which any person may hold or control in a
particular futures or option contract. An exchange may order the liquidation of
positions found to be in violation of these limits and it may impose other
sanctions or restrictions. The Adviser does not believe that these trading and
position limits will have any adverse impact on the strategies for hedging the
portfolio of the Fund.
RISK OF OPTIONS ON FUTURES CONTRACTS -- The amount of risk the Fund assumes when
it purchases an Option on a Futures Contract is the premium paid for the option,
plus related transaction costs. In order to profit from an option purchased,
however, it may be necessary to exercise the option and to liquidate the
underlying Futures Contract, subject to the risks of the availability of a
liquid offset market described herein. The writer of an Option on a Futures
Contract is subject to the risks of commodity futures trading, including the
requirement of initial and variation margin payments, as well as the additional
risk that movements in the price of the option may not correlate with movements
in the price of the underlying index or Futures Contract.
ADDITIONAL RISKS OF TRANSACTIONS NOT CONDUCTED ON EXCHANGES -- Transactions in
Forward Contracts are subject to all of the correlation, liquidity and other
risks outlined above. In addition, however, such transactions are subject to the
risk of governmental actions affecting trading in or the prices of currencies
underlying such contracts, which could restrict or eliminate trading and could
have a substantial adverse effect on the value of positions held by the Fund. In
addition, the value of such positions could be adversely affected by a number of
other complex political and economic factors applicable to the countries issuing
the underlying currencies. Further, unlike trading in most other types of
instruments, there is no systematic reporting of last sale information with
respect to the foreign currencies underlying contracts thereon. As a result, the
available information on which trading systems will be based may not be as
complete as the comparable data on which the Fund makes investment and trading
decisions in connection with other transactions. Moreover, because the foreign
currency market is a global, 24- hour market, events could occur on that market
which would not be reflected in the forward markets until the following day,
thereby preventing the Fund from responding to such events in a timely manner.
Settlements of exercises of Forward Contracts generally must occur within the
country issuing the underlying currency, which in turn requires traders to
accept or make delivery of such currencies in conformity with any United States
or foreign restrictions and regulations regarding the maintenance of foreign
banking relationships, fees, taxes or other charges.
Forward Contracts, and over-the-counter options on securities, are not traded on
exchanges regulated by the CFTC or the SEC, but through financial institutions
acting as market-makers. In an over-the-counter trading environment, many of the
protections afforded to exchange participants will not be available. In
addition, over-the-counter transactions can only be entered into with a
financial institution willing to take the opposite side, as principal, of the
Fund's position unless the institution acts as broker and is able to find
another counterparty willing to enter into the transaction with the Fund. Where
no such counterparty is available, it will not be possible to enter into a
desired transaction. There also may be no liquid secondary market in the trading
of over-the-counter contracts, and the Fund could be required to retain options
purchased or written, or Forward Contracts entered into, until exercise,
expiration or maturity. This in turn could limit the Fund's ability to profit
from open positions or to reduce losses experienced, and could result in greater
losses. Further, over-the-counter transactions are not subject to the
performance guarantee of an exchange clearing house, and the Fund will therefore
be subject to the risk of default by, or the bankruptcy of, the financial
institution serving as its counterparty.
While Forward Contracts are not presently subject to regulation by the CFTC, the
CFTC may in the future assert or be granted authority to regulate such
instruments. In such event, the Fund's ability to utilize Forward Contracts in
the manner set forth above could be restricted.
The Fund has adopted the additional restriction that it will not enter into a
Futures Contract if, immediately thereafter, the value of securities and other
obligations underlying all such Futures Contracts would exceed 50% of the value
of the Fund's total assets. Moreover, the Fund will not purchase put and call
options if, as a result, more than 5% of its total assets would be invested in
such options.
When the Fund purchases a Futures Contract, an amount of cash and cash
equivalents will be deposited in a segregated account with the Fund's custodian
so that the amount so segregated will at all times equal the value of the
Futures Contract, thereby insuring that the leveraging effect of such Futures
Contract is minimized.
INVESTMENT RESTRICTIONS. The Fund has adopted the following restrictions which
cannot be changed without the approval of the holders of a majority of the
Fund's shares (which, as used in this Statement of Additional Information, means
the lesser of (i) more than 50% of the outstanding shares of the Trust (or a
class or series, as applicable), or (ii) 67% or more of the outstanding shares
of the Trust (or a class or series, as applicable) present at a meeting if
holders of more than 50% of the outstanding shares of the Trust (or a class or
series, as applicable) are represented at such meeting in person or by proxy):
The Fund may not:
(1) Borrow amounts in excess of 5% of its gross assets (taken at the lower
of cost or market value), and then only as a temporary measure for
extraordinary or emergency purposes;
(2) Pledge, mortgage or hypothecate an amount of assets which (taken at
market value) exceeds 33 1/3% of its gross assets taken at the lower of cost
or market value. For the purpose of this restriction, collateral arrangements
with respect to options on securities, stock indices and foreign currencies
("Options"), Futures Contracts, Options on Futures Contracts, Forward
Contracts, and payments of initial and variation margin in connection
therewith are not considered a pledge of assets;
(3) Underwrite securities issued by other persons except insofar as the Fund
may technically be deemed an underwriter under the Securities Act of 1933 in
selling a portfolio security;
(4) Concentrate its investments in any particular industry, but if it is
deemed appropriate for the attainment of its investment objectives, up to 25%
of its assets, at market value at the time of each investment, may be invested
in any one industry;
(5) Purchase or sell real estate (including limited partnership interests
but excluding securities of companies, such as real estate investment trusts,
which deal in real estate or interests therein) or mineral leases, commodities
or commodity contracts (except for Options, Futures Contracts, Options on
Futures Contracts and Forward Contracts) in the ordinary course of its
business. The Fund reserves the freedom of action to hold and to sell real
estate or mineral leases, commodities or commodity contracts acquired as a
result of the ownership of securities. The Fund will not purchase securities
for the purpose of acquiring real estate or mineral leases, commodities or
commodity contracts (except for Options, Futures Contracts, Options on Futures
Contracts and Forward Contracts);
(6) Make loans to other persons except through the lending of its portfolio
securities and by entering into repurchase agreements (see the discussion
above under the caption "Investment Policies"). Not more than 10% of the
Fund's total assets will be invested in repurchase agreements maturing in more
than seven days. The Fund may purchase a portion of an issue of debt
securities of types commonly distributed privately to financial institutions.
For these purposes the purchase of short-term commercial paper or a portion of
an issue of debt securities which are part of an issue to the public shall not
be considered the making of a loan;
(7) Purchase the securities of any issuer if such purchase, at the time
thereof, would cause more than 5% of its total assets (taken at market value)
to be invested in the securities of such issuer, other than U.S.
Government securities;
(8) Purchase voting securities of any issuer if such purchase, at the time
thereof, would cause more than 10% of the outstanding voting securities of
such issuer to be held by the Fund; or purchase securities of any issuer if
such purchase at the time thereof would cause the Fund to hold more than 10%
of any class of securities of such issuer. For this purpose all indebtedness
of an issuer shall be deemed a single class and all preferred stock of an
issuer shall be deemed a single class;
(9) Invest for the purpose of exercising control or management;
(10) Purchase securities issued by any other investment company or
investment trust except by purchase in the open market where no commission or
profit to a sponsor or dealer results from such purchase other than the
customary broker's commission, or except when such purchase, though not made
in the open market, is part of a plan of merger or consolidation, provided,
however, that the Fund shall not purchase the securities of any investment
company or investment trust if such purchase at the time thereof would cause
more than 10% of the Fund's total assets (taken at market value) to be
invested in the securities of such issuer, and provided, further, that the
Fund shall not purchase securities issued by any open-end investment company;
(11) Invest more than 5% of its assets in companies which, including
predecessors, have a record of less than three years" continuous operation;
(12) Purchase or retain in its portfolio any securities issued by an issuer
any of whose officers, directors, trustees or security holders is an officer
or Trustee of the Trust, or is an officer or director of the Adviser, if after
the purchase of the securities of such issuer by the Fund one or more of such
persons owns beneficially more than 1/2 of 1% of the shares or securities, or
both, all taken at market value, of such issuer, and such persons owning more
than 1/2 of 1% of such shares or securities together own beneficially more
than 5% of such shares or securities, or both, all taken at market value;
(13) Purchase any securities on margin except that the Fund may obtain such
short-term credit as may be necessary for the clearance of purchases and sales
of securities and except that the Fund may make margin deposits in connection
with Options, Futures Contracts, Options on Futures Contracts and Forward
Contracts;
(14) Sell any security which the Fund does not own unless by virtue of its
ownership of other securities the Fund has at the time of sale a right to
obtain securities without payment of further consideration equivalent in kind
and amount to the securities sold and provided that if such right is
conditional the sale is made upon the same conditions; or
(15) Purchase or sell any put or call options or any combination thereof,
provided, that this shall not prevent the purchase, ownership, holding or sale
of warrants where the grantor of the warrants is the issuer of the underlying
securities or the writing, purchasing and selling of puts, calls or
combinations thereof with respect to securities, foreign currencies, indices
of securities and Futures Contracts.
As a matter of non-fundamental policy, the Fund may not invest in securities
(other than repurchase agreements maturing in seven days or less) which are
subject to legal or contractual restrictions on resale or for which there is no
readily available market (unless the Board of Trustees has determined that such
securities are liquid based upon trading markets for the specific security) if
more than 15% of the Fund's assets (taken at market value) would be invested in
such securities. The Fund also may not invest more than 5% of the value of the
Fund's net assets, valued at the lower of cost or market, in warrants. Included
within such amount, but not to exceed 2% of the value of the Fund's net assets,
may be warrants which are not listed on the New York or American Stock Exchange.
Warrants acquired by the Fund in units or attached to Securities may be deemed
to be without value.
These investment restrictions 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.
3. MANAGEMENT OF THE FUND
The Board of Trustees provides broad supervision over the affairs of the Fund.
The Adviser is responsible for the management of the Fund's assets, and the
officers of the Trust are responsible for the Fund's operations. The Trust's
officers and Trustees are listed below, together with their principal
occupations during the past five years. (Their titles may have varied during
that period.)
TRUSTEES
A. KEITH BRODKIN,* Chairman and President
Massachusetts Financial Services Company, Chairman
RICHARD B. BAILEY*
Private investor; Massachusetts Financial Services Company, Former Chairman
(prior to September 30, 1991); Cambridge Bancorp, Director; Cambridge Trust
Company, Director
PETER G. HARWOOD
Private Investor
Address: 211 Lindsay Pond Road, Concord, Massachusetts
J. ATWOOD IVES
Eastern Enterprises (diversified holding company), Chairman and Chief Executive
Officer (since December 1991); General Cinema Corporation, Vice Chairman and
Chief Financial Officer (prior to December 1991); The Neiman Marcus Group,
Inc., Vice Chairman and Chief Financial Officer (prior to February 1992)
Address: 9 Riverside Road, Weston, Massachusetts
LAWRENCE T. PERERA
Hemenway & Barnes (attorneys), Partner
Address: 60 State Street, Boston, Massachusetts
WILLIAM J. POORVU
Harvard University Graduate School of Business Administration, Adjunct
Professor; CBL & Associates Properties, Inc. (a real estate investment trust),
Director; The Baupost Fund (a registered investment company), Vice Chairman
(since November 1993), Chairman and Trustee (prior to November 1993)
Address: Harvard Business School, Soldier's Field Road, Cambridge,
Massachusetts
CHARLES W. SCHMIDT
Private investor; Raytheon Company (diversified electronics manufacturer),
Senior Vice President (prior to December 1990); OHM Corporation, Director; The
Boston Company, Director; Boston Safe Deposit and Trust Company, Director;
Mohawk Paper Company, Director
Address: 30 Colpitts Road, Weston, Massachusetts
ARNOLD D. SCOTT,* Senior Executive Vice President and Secretary
Massachusetts Financial Services Company
JEFFREY L. SHAMES,* President
Massachusetts Financial Services Company
ELAINE R. SMITH
Independent Consultant; Brigham and Women's Hospital, Executive Vice President
and Chief Operating Officer (prior to September 1992)
Address: Weston, Massachusetts
DAVID B. STONE
North American Management Corp. (investment advisers), Chairman and Director;
Eastern Enterprises, Director
Address: Ten Post Office Square, Suite 300, Boston Massachusetts
OFFICERS
W. THOMAS LONDON,* Treasurer
Massachusetts Financial Services Company, Senior Vice President
STEPHEN E. CAVAN,* Secretary and Clerk
Massachusetts Financial Services Company, Senior Vice President, General
Counsel and Assistant Secretary
JAMES R. BORDEWICK, JR.,* Assistant Secretary
Massachusetts Financial Services Company, Vice President and Associate General
Counsel
JAMES O. YOST,* Assistant Treasurer
Massachusetts Financial Services Company, Vice President
- ----------
*"Interested persons" (as defined in the Investment Company Act of 1940, as
amended (the "1940 Act")) of the Adviser whose address is 500 Boylston Street,
Boston, Massachusetts 02116.
Each Trustee and officer holds comparable positions with certain MFS
affiliates or with certain other funds of which MFS or a subsidiary of MFS is
the investment adviser or distributor. Mr. Brodkin, the Chairman of MFD,
Messrs. Shames and Scott, Directors of MFD, and Mr. Cavan, the Secretary of
MFD, hold similar positions with certain other MFS affiliates. Mr. Bailey is a
Director of Sun Life Assurance Company of Canada (U.S.) ("Sun Life of Canada
(U.S.)"), the corporate parent of MFS.
The Fund pays the compensation of non-interested Trustees and Mr. Bailey who
currently receive a fee of $5,500 per year plus $250 per meeting and $225 per
committee meeting attended, together with such Trustee's out-of-pocket expenses.
The Trust has adopted a retirement plan for non-interested Trustees and Mr.
Bailey. Under the plan, a Trustee will retire upon reaching age 73 and if the
Trustee has completed at least five years of service, he would be entitled to
annual payments during his lifetime of up to 50% of such Trustee's average
annual compensation (based on the three years prior to his retirement) depending
on his length of service. A Trustee may also retire prior to age 73 and receive
reduced payments if he has completed at least five years of service. Under the
plan, a Trustee (or his beneficiaries) will also receive benefits for a period
of time in the event the Trustee is disabled or dies. These benefits will also
be based on the Trustee's average annual compensation and length of service.
There is no retirement plan provided by the Trust for Messrs. Brodkin, Scott and
Shames. The Fund will accrue its allocable share of compensation expenses each
year to cover current year's service and amortize past service cost.
Set forth in Appendix A hereto is certain information concerning the cash
compensation paid to the Trustees and benefits accrued, and estimated benefits
payable, under the retirement plan.
As of December 31, 1995, all Trustees and officers as a group owned less than 1%
of the Fund's shares outstanding.
The Declaration of Trust provides that the Trust will indemnify the Trustees and
officers against liabilities and expenses incurred in connection with litigation
in which they may be involved because of their offices with the Trust, unless,
as to liabilities to the Trust or its shareholders, it is finally adjudicated
that they engaged in willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in their offices, or with respect to
any matter unless it is adjudicated that they did not act in good faith in the
reasonable belief that their actions were in the best interest of the Trust. In
the case of a settlement, such indemnification will not be provided unless it
has been determined pursuant to the Declaration of Trust, that such officers or
Trustees have not engaged in willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in their offices.
INVESTMENT ADVISER
MFS and its predecessor organizations have a history of money management dating
from 1924. MFS is a wholly owned subsidiary of Sun Life of Canada (U.S.), which
in turn is a wholly owned subsidiary of Sun Life Assurance Company of Canada
("Sun Life").
The Adviser manages the Fund pursuant to an Investment Advisory Agreement, dated
January 18, 1985 (the "Advisory Agreement"). The Adviser provides the Fund with
overall investment advisory and administrative services, as well as general
office facilities. Subject to such policies as the Trustees may determine, the
Adviser makes investment decisions for the Fund. For these services and
facilities, the Adviser receives a management fee, computed and paid monthly, on
the basis of a formula based upon a percentage of the Fund's average daily net
assets plus a percentage of its gross income (i.e., income other than gains from
the sale of securities). The applicable percentages are reduced as assets and
income reach the following levels:
ANNUAL RATE OF MANAGEMENT FEE ANNUAL RATE OF MANAGEMENT FEE
BASED ON AVERAGE DAILY NET ASSETS BASED ON GROSS INCOME
- ------------------------------------ --------------------------------
..25% of the first $200 million 3.57% of the first $14 million
..212% of average daily net assets in 3.04% of gross income in excess
excess of $200 million of $14 million
For the Fund's fiscal year ended September 30, 1993, MFS received management
fees under the Advisory Agreement of $5,664,368 (of which $3,191,802 was based
on average daily net assets and $2,472,566 on gross income), equivalent on an
annualized basis, to 0.39% of the Fund's average daily net assets. For the
Fund's fiscal year ended September 30, 1994, MFS received management fees under
the Advisory Agreement of $9,315,310 (of which $5,365,312 was based on average
daily net assets and $3,949,998 on gross income), equivalent, on an annualized
basis, to 0.37% of the Fund's average daily net assets. For the Fund's fiscal
year ended September 30, 1995, MFS received management fees under the Advisory
Agreement of $11,256,389 (of which $6,210,710 was based on average daily net
assets and $5,045,679 on gross income), equivalent on an annualized basis, to
0.39% of the Fund's average daily net assets. In order to comply with the
expense limitations of certain state securities commissions, the Adviser will
reduce its management fee or otherwise reimburse the Fund for any expenses,
exclusive of interest, taxes and brokerage commissions, incurred by the Fund in
any fiscal year to the extent such expenses exceed the most restrictive of such
state expense limitations. The Adviser will make appropriate adjustments to such
reimbursements in response to any amendment or rescission of the various state
requirements. Any such adjustment would not become effective until the beginning
of the Fund's next fiscal year following the date of such amendments or the date
on which such requirements become no longer applicable.
The Fund pays all of the Fund's expenses (other than those assumed by MFS or
MFD), including: governmental fees; interest charges; taxes; membership dues in
the Investment Company Institute allocable to the Fund; fees and expenses of
independent auditors, of legal counsel, and of any transfer agent, registrar or
dividend disbursing agent of the Fund; expenses of repurchasing and redeeming
shares; expenses of preparing, printing and mailing share certificates,
shareholder reports, notices, proxy statements and reports to governmental
officers and commissions; brokerage and other expenses connected with the
execution, recording and settlement of portfolio security transactions;
insurance premiums; fees and expenses of Investors Bank & Trust Company, the
Fund's custodian, for all services to the Fund, including safekeeping of funds
and securities and maintaining required books and accounts; expenses of
calculating the net asset value of shares of the Fund; and expenses of
shareholder meetings. Expenses relating to the issuance, registration and
qualification of shares of the Fund and the preparation, printing and mailing of
prospectuses for such purposes are borne by the Fund except that its
Distribution Agreement with MFD, the Fund's Distributor, requires MFD to pay for
prospectuses that are to be used for sales purposes. Expenses of the Trust which
are not attributable to a specific series are allocated among the series in a
manner believed by management of the Trust to be fair and equitable. For a list
of the Fund's expenses, including the compensation paid to the Trustees who are
not officers of MFS during the fiscal year ended September 30, 1995, see
"Financial Statements -- Statement of Operations" in the Annual Report to
shareholders. Payment by the Fund of brokerage commissions for brokerage and
research services of value to the Adviser in serving its clients is discussed
under the caption "Portfolio Transactions and Brokerage Commissions."
MFS pays the compensation of the Trust's officers and of any Trustee who is an
officer of MFS. The Adviser also furnishes at its own expense all necessary
administrative services, including office space, equipment, clerical personnel,
investment advisory facilities, and all executive and supervisory personnel
necessary for managing the Fund's investments, effecting its portfolio
transactions, and, in general, administering its affairs.
The Advisory Agreement will remain in effect until August 1, 1996, and will
continue in effect thereafter only if such continuance is specifically approved
at least annually by the Board of Trustees or by vote of a majority of the
Fund's outstanding voting securities (as defined under "Investment
Restrictions") and, in either case, by a majority of the Trustees who are not
parties to the Advisory Agreement or interested persons of any such party. The
Advisory Agreement terminates automatically if it is assigned and may be
terminated without penalty by vote of a majority of the Fund's shares (as
defined in "Investment Restrictions") or by either party on not more than 60
days" nor less than 30 days' written notice. MFS may render services to others
and neither the Adviser nor its personnel shall be liable for any error of
judgment or mistake of law or for any loss arising out of any investment or for
any act or omission in the execution and management of the Fund, except for
willful misfeasance, bad faith or gross negligence in the performance of its or
their duties or by reason of reckless disregard of its or their obligations and
duties under the Advisory Agreement.
CUSTODIAN
Investors Bank & Trust Company (the "Custodian") is the custodian of the Fund's
assets. The Custodian's responsibilities include safekeeping and controlling the
Fund's cash and securities, handling the receipt and delivery of securities,
determining income and collecting interest and dividends on the Fund's
investments, maintaining books of original entry for portfolio and fund
accounting and other required books and accounts, and calculating the daily net
asset value of shares of each class of the Fund. The Custodian does not
determine the investment policies of the Fund or decide which securities the
Fund will buy or sell. The Fund may, however, invest in securities of the
Custodian and may deal with the Custodian as principal in securities
transactions.
SHAREHOLDER SERVICING AGENT
MFS Service Center, Inc. (the "Shareholder Servicing Agent"), a wholly owned
subsidiary of MFS, is the Fund's shareholder servicing agent, pursuant to a
Shareholder Servicing Agreement, effective August 1, 1985 (the "Agency
Agreement") with the Trust. The Shareholder Servicing Agent's responsibilities
under the Agency Agreement include administering and performing transfer agent
functions and keeping records in connection with the issuance, transfer and
redemption of each class of shares of the Fund. For these services, the
Shareholder Servicing Agent will receive a fee calculated as a percentage of the
average daily net assets of each class of shares at an effective annual rate of
up to 0.15%, up to 0.22% and up to 0.15% attributable to Class A, Class B and
Class C shares, respectively. In addition, the Shareholder Servicing Agent will
be reimbursed by the Fund for certain expenses incurred by the Shareholder
Servicing Agent on behalf of the Fund. State Street Bank and Trust Company, the
dividend and distribution disbursing agent, has contracted with the Shareholder
Servicing Agent to administer and perform certain dividend and distribution
disbursing functions for the Fund.
DISTRIBUTOR
MFD, a wholly owned subsidiary of MFS, serves as distributor for the continuous
offering of shares of the Fund pursuant to a Distribution Agreement, dated as of
January 1, 1995 (the "Distribution Agreement"). Prior to January 1, 1995, MFS
Financial Services, Inc. ("FSI"), another wholly owned subsidiary of MFS, was
the Fund's distributor. Where this SAI refers to MFD in relation to the receipt
or payment of money with respect to a period or periods prior to January 1,
1995, such reference shall be deemed to include FSI, as the predecessor in
interest to MFD.
CLASS A SHARES: MFD acts as agent in selling Class A shares of the Fund to
dealers. The public offering price of Class A shares of the Fund is their net
asset value next computed after the sale plus a sales charge which varies based
upon the quantity purchased. The public offering price of a Class A share of the
Fund is calculated by dividing net asset value of a Class A share by the
difference (expressed as a decimal) between 100% and the sales charge percentage
of offering price applicable to the purchase (see "Purchases" in the
Prospectus). The sales charge scale set forth in the Prospectus applies to
purchases of Class A shares of the Fund alone or in combination with shares of
all classes of certain other funds in the MFS Family of Funds (the "MFS Funds")
and other funds (as noted under Right of Accumulation) by any person, including
members of a family unit (e.g., husband, wife and minor children) and bona fide
trustees, and also applies to purchases made under the Right of Accumulation or
a Letter of Intent (see "Investment and Withdrawal Programs" in this SAI). A
group might qualify to obtain quantity sales charge discounts (see "Investment
and Withdrawal Programs").
Class A shares of the Fund may be sold at their net asset value to certain
persons or in certain circumstances as described in the Prospectus. Such sales
are made without a sales charge to promote good will with employees and others
with whom MFS, MFD and/or the Fund have business relationships, and because the
sales effort, if any, involved in making such sales is negligible.
MFD allows discounts to dealers (which are alike for all dealers) from the
applicable public offering price of the Class A shares. Dealer allowances
expressed as a percentage of offering price for all offering prices are set
forth in the Prospectus (see "Purchases" in the Prospectus). The difference
between the total amount invested and the sum of (a) the net proceeds to the
Fund and (b) the dealer commission is the commission paid to the distributor.
Because of rounding in the computation of offering price, the portion of the
sales charge paid to the distributor may vary and the total sales charge may be
more or less than the sales charge calculated using the sales charge expressed
as a percentage of the offering price or as a percentage of the net amount
invested as listed in the Prospectus. In the case of the maximum sales charge,
the dealer retains 4% and MFD retains approximately 3/4 of 1% of the public
offering price. In addition, MFD, on behalf of the Fund, will pay a commission
to dealers who initiate and are responsible for purchases of $1 million or more
as described in the Prospectus.
CLASS B AND CLASS C SHARES: MFD acts as agent in selling Class B and Class C
shares of the Fund to dealers. The public offering price of Class B and Class C
shares is their net asset value next computed after the sale (see "Purchases" in
the Prospectus).
GENERAL: Neither MFD nor dealers are permitted to delay the placement of orders
to benefit themselves by a price change. On occasion, MFD may obtain brokers
loans from various banks, including the Custodian for the MFS Funds, to
facilitate the settlement of sales of shares of the Fund to dealers. MFD may
benefit from its temporary holding of funds paid to it by investment dealers for
the purchase of Fund shares.
During the Fund's fiscal year ended September 30, 1995, MFD and dealers and
certain other financial institutions received net commissions of $862,946 and
$4,972,643, respectively (as their concession on gross commissions of
$5,835,589) for selling Class A shares of the Fund. The Fund received
$339,269,433 representing the aggregate net asset value of such shares. During
the Fund's fiscal year ended September 30, 1994, MFD and dealers and certain
other financial institutions received net commissions of $1,855,403 and
$9,829,248, respectively (as their concession on gross commissions of
$11,684,651), for selling Class A shares of the Fund. The Fund received
$429,939,786 representing the aggregate net asset value of such shares. During
the Fund's fiscal year ended September 30, 1993, MFD and dealers and certain
other financial institutions received net commissions of $2,106,993 and
$10,770,824, respectively (as their concession on gross commissions of
$12,877,817), for selling Class A shares of the Fund. The Fund received
$433,299,454 representing the aggregate net asset value of such shares.
During the Fund's fiscal year ended September 30, 1995, the Contingent Deferred
Sales Charge ("CDSC") imposed on redemption of Class B shares was $1,756,259.
During the Fund's fiscal year ended September 30, 1994, the CDSC imposed on
redemption of Class B shares was $1,093,613. During the period from August 23,
1993 through September 30, 1993, the CDSC imposed on redemption of Class B
shares was $63,460.
The Distribution Agreement will remain in effect until August 1, 1996, and will
continue in effect thereafter only if such continuance is specifically approved
at least annually by the Board of Trustees or by vote of a majority of the
Trust's shares (as defined in "Investment Restrictions") and, in either case, by
a majority of the Trustees who are not parties to the Distribution Agreement or
interested persons of any such party. The Distribution Agreement terminates
automatically if it is assigned and may be terminated without penalty by either
party on not more than 60 days' nor less than 30 days' notice.
4. PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
Specific decisions to purchase or sell securities for the Fund are made by a
portfolio committee consisting of persons who are employees of the Adviser and
who are appointed and supervised by its senior officers. Changes in the Fund's
investments are reviewed by the Board of Trustees. Members of the Fund's
portfolio committee may serve other clients of the Adviser or any subsidiary of
the Adviser in similar capacities.
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. The Adviser attempts to achieve this result by selecting
broker-dealers to execute portfolio transactions on behalf of the Fund and other
clients of the Adviser on the basis of their professional capability, the value
and quality of their brokerage services, and the general level of their
brokerage commissions. In the case of securities traded in the over-the-counter
market (where no stated commissions are paid but the prices include a dealer's
markup or markdown), the Adviser normally seeks to deal directly with the
primary market-makers, unless, in its opinion, best execution is available
elsewhere. In the case of securities purchased from underwriters, the cost of
such securities generally includes a fixed underwriting commission or
concession. From time to time, soliciting dealer fees are available to the
Adviser on the tender of the Fund's portfolio securities in so-called tender or
exchange offers. Such soliciting dealer fees are in effect recaptured for the
Fund by the Adviser. At present no other recapture arrangements are in effect.
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 as a factor in
the selection of broker-dealers to execute the Fund's portfolio transactions.
Under the Advisory Agreement and as permitted by Section 28(e) of the Securities
Exchange Act of 1934, the Adviser may cause the Fund to pay a broker-dealer
which provides brokerage and research services to the Adviser an amount of
commission for effecting a securities transaction for the Fund in excess of the
amount other broker-dealers would have charged for the transaction if the
Adviser determines in good faith that the greater commission is reasonable in
relation to the value of the brokerage and research services provided by the
executing broker-dealer viewed in terms of either a particular transaction or
the Adviser's overall responsibilities to the Fund or to its other clients. Not
all of such services are useful or of value in advising the Fund.
The term "brokerage and research services" includes: advice as to the value of
securities, the advisability of investing in, purchasing, or selling securities,
and the availability of securities or of purchasers or sellers of securities;
furnishing analyses and reports concerning issues, industries, securities,
economic factors and trends, portfolio strategy and the performance of accounts;
and effecting securities transactions and performing functions incidental
thereto such as clearance and settlement.
Although commissions paid on every transaction will, in the judgment of the
Adviser, be reasonable in relation to the value of the brokerage services
provided, commissions exceeding those which another broker might charge may be
paid to broker-dealers who were selected to execute transactions on behalf of
the Fund and the Adviser's other clients in part for providing advice as to the
availability of securities or of purchasers or sellers of securities and
services in effecting securities transactions and performing functions
incidental thereto such as clearance and settlement.
Broker-dealers may be willing to furnish statistical, research and other factual
information or services ("Research") to the Adviser for no consideration other
than brokerage or underwriting commissions. Securities may be bought or sold
from time to time through such broker-dealers on behalf of the Fund. The Trust's
Trustees (together with the Trustees of the other MFS Funds) have directed the
Adviser to allocate a total of $23,100 of commission business from the MFS Funds
to the Pershing Division of Donaldson, Lufkin & Jenrette as consideration for
the annual renewal of the Lipper Directors' Analytical Data Service (which
provides information useful to the Trustees in reviewing the relationship
between the Fund and the Adviser).
The Adviser's investment management personnel attempt to evaluate the quality of
Research provided by brokers. The Adviser sometimes uses evaluations resulting
from this effort as a consideration in the selection of brokers to execute
portfolio transactions. However, the Adviser is unable to quantify the amount of
commissions set forth below which were paid as a result of such Research because
a substantial number of transactions were effected through brokers which provide
Research but which were selected principally because of their execution
capabilities.
The management fee that the Fund pays to the Adviser will not be reduced as a
consequence of the Adviser's receipt of brokerage and research services. To the
extent the Fund's portfolio transactions are used to obtain such services, the
brokerage commissions paid by the Fund will exceed those that might otherwise be
paid by an amount which cannot be presently determined. Such services would be
useful and of value to the Adviser in serving both the Fund and other clients
and, conversely, such services obtained by the placement of brokerage business
of other clients would be useful to the Adviser in carrying out its obligations
to the Fund. While such services are not expected to reduce the expenses of the
Adviser, the Adviser would, through use of the services, avoid the additional
expenses which would be incurred if it should attempt to develop comparable
information through its own staff.
For the Fund's fiscal years ended September 30, 1993, 1994 and 1995, total
brokerage commissions of $333,792, $670,133 and $1,333,734 respectively, were
paid. Not all of the Fund's transactions are equity security transactions which
involve the payment of brokerage commissions. During the Fund's fiscal year
ended September 30, 1995, the Fund owned securities issued by Bear, Stearns &
Co. which securities had a value of $3,665,556 at the end of such fiscal year,
by Dean Witter Reynolds, Inc., which securities had a value of $12,701,025 at
the end of such fiscal year, by Goldman Sachs & Co., which securities had a
value of $2,542,650 at the end of such fiscal year and by Lehman Brothers, Inc.
which securities had a value of $10,869,333 at the end of such fiscal year. Each
of these entities are regular broker dealers of the Fund.
In certain instances there may be securities which are suitable for the Fund's
portfolio as well as for that of one or more of the other clients of the Adviser
or any subsidiary of the Adviser. Investment decisions for the Fund and for such
other clients are made with a view to achieving their respective investment
objectives. It may develop that a particular security is bought or sold for only
one client even though it might be held by, or bought or sold for, other
clients. Likewise, a particular security may be bought for one or more clients
when one or more other clients are selling that same security. Some simultaneous
transactions are inevitable when several clients receive investment advice from
the same investment adviser, particularly when the same security is suitable for
the investment objectives of more than one client. When two or more clients are
simultaneously engaged in the purchase or sale of the same security, the
securities are allocated among clients in a manner believed to be equitable to
each. It is recognized that in some cases this system could have a detrimental
effect on the price or volume of the security as far as the Fund is concerned.
In other cases, however, the Fund believes that its ability to participate in
volume transactions will produce better executions for the Fund.
5. SHAREHOLDER SERVICES
INVESTMENT AND WITHDRAWAL PROGRAMS -- The Fund makes available the following
programs designed to enable shareholders to add to their investment or withdraw
from it with a minimum of paper work. These are described below and, in certain
cases, in the Prospectus. 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 described
below) anticipates purchasing $100,000 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 in the case of purchases of $1
million or more), the shareholder may obtain Class A shares of the Fund at the
same reduced sales charge as though the total quantity were invested in one lump
sum by completing the Letter of Intent section of the Fund's Account Application
or filing a seperate Letter of Intent application (available from the
Shareholder Servicing Agent) within 90 days of the commencement of purchases.
Subject to acceptance by MFD and the conditions mentioned below, each purchase
will be made at a public offering price applicable to a single transaction of
the dollar amount specified in the Letter of Intent application. The shareholder
or his dealer must inform MFD that the Letter of Intent is in effect each time
shares are purchased. The shareholder makes no commitment to purchase additional
shares, but if his purchases within 13 months (or 36-months in the case of
purchases of $1 million or more) plus the value of shares credited toward
completion of the Letter of Intent do not total the sum specified, he will pay
the increased amount of the sales charge as described below. Instructions for
issuance of shares in the name of a person other than the person signing the
Letter of Intent application must be accompanied by a written statement from the
dealer stating that the shares were paid for by the person signing such Letter.
Neither income dividends nor capital gain distributions taken in additional
shares will apply toward the completion of the Letter of Intent. Dividends and
distributions of other MFS Funds automatically reinvested in shares of the Fund
pursuant to the Distribution Investment Program will also not apply toward
completion of the Letter of Intent.
Out of the shareholder's initial purchase (or subsequent purchases if
necessary), 5% of the dollar amount specified in the Letter of Intent
application shall be held in escrow by the Shareholder Servicing Agent in the
form of shares registered in the shareholder's name. All income dividends and
capital gain distributions on escrowed shares will be paid to the shareholder or
to his order. When the minimum investment so specified is completed (either
prior to or by the end of the 13-month period or 36-month period, as
applicable), the shareholder will be notified and the escrowed shares will be
released.
If the intended investment is not completed, the Shareholder Servicing Agent
will redeem an appropriate number of the escrowed shares in order to realize
such difference. Shares remaining after any such redemption will be released by
the Shareholder Servicing Agent. By completing and signing the Account
Application or separate Letter of Intent application, the shareholder
irrevocably appoints the Shareholder Servicing Agent his attorney to surrender
for redemption any or all escrowed shares with full power of substitution in the
premises.
RIGHT OF ACCUMULATION: A shareholder qualifies for cumulative quantity
discounts on the purchase of Class A shares when that shareholder's new
investment, together with the current offering price value of all the 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 (see "Purchases" in the
Prospectus for the sales charges on quantity purchases). For example, if a
shareholder owns shares valued at $75,000 and purchases an additional $25,000 of
Class A shares of the Fund, the sales charge for the $25,000 purchase would be
at the rate of 4% (the rate applicable to single transactions of $100,000). A
shareholder must provide the Shareholder Servicing Agent (or his investment
dealer must provide MFD) with information to verify that the quantity sales
charge discount is applicable at the time the investment is made. The current
offering price value of an investor's holdings of Class C shares will apply
toward cumulative quantity discounts on purchases of Class A shares. See the
prospectus for further information on the Right of Accumulation.
DISTRIBUTION INVESTMENT PROGRAM: Distributions of dividends and capital gains
made by the Fund with respect to a particular class of shares may be
automatically invested in shares of the same class of one of the other MFS
Funds, if shares of the fund are available for sale. Such investments will be
subject to additional purchase minimums. Distributions will be invested at net
asset value (exclusive of any sales charge) and will not be subject to any CDSC.
Distributions will be invested at the close of business on the payable date for
the distribution. A shareholder considering the Distribution Investment Program
should obtain and read the prospectus of the other fund and consider the
differences in objectives and policies before making any investment.
SYSTEMATIC WITHDRAWAL PLAN: A shareholder may direct the Shareholder Servicing
Agent to send him (or anyone he designates) regular periodic payments 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 generally
are limited to 10% of the value of the account at the time of the establishment
of the SWP. SWP payments are drawn from the proceeds of share redemptions (which
would be a return of principal and, if reflecting a gain, would be taxable).
Redemptions of Class B shares will be made in the following order: (i) any "Free
Amount"; (ii) to the extent necessary, any "Reinvested Shares"; and (iii) to the
extent necessary, the "Direct Purchase" subject to the lowest CDSC (as such
terms are defined in "Contingent Deferred Sales Charge" in the Prospectus). The
CDSC will be waived in the case of redemptions of Class B shares pursuant to a
SWP, but will not be waived in the case of SWP redemptions of Class A shares
which are subject to a CDSC. To the extent that redemptions for such periodic
withdrawals exceed dividend income reinvested in the account, such redemptions
will reduce and may eventually exhaust the number of shares in the shareholder's
account. All dividend and capital gain distributions for an account with a SWP
will be reinvested in full and fractional shares of the Fund at the net asset
value in effect at the close of business on the record date for such
distributions. To initiate this service, shares having an aggregate value of at
least $5,000 either must be held on deposit by, or certificates for such shares
must be deposited with, the Shareholder Servicing Agent. With respect to Class A
shares, maintaining a withdrawal plan concurrently with an investment program
would be disadvantageous because of the sales charges included in share
purchases and the imposition of a CDSC on certain redemptions. The shareholder
may deposit into the account additional shares of the Fund, change the payee or
change the dollar amount of each payment. The Shareholder Servicing Agent may
charge the account for services rendered and expenses incurred beyond those
normally assumed by the Fund with respect to the liquidation of shares. No
charge is currently assessed against the account, but one could be instituted by
the Shareholder Servicing Agent on 60 days' notice in writing to the shareholder
in the event that the Fund ceases to assume the cost of these services. The Fund
may terminate any SWP for an account if the value of the account falls below
$5,000 as a result of share redemptions (other than as a result of a SWP) or an
exchange of shares of the Fund for shares of another MFS Fund. Any SWP may also
be terminated at any time by either the shareholder or the Fund.
INVEST BY MAIL: Additional investments of $50 or more may be made at any time
by mailing a check payable to the Fund directly to the Shareholder Servicing
Agent. The shareholder's account number and the name of his investment dealer
must be included with each investment.
GROUP PURCHASES: A bona fide group and all of its members may be treated as a
single purchaser and, under the Right of Accumulation (but not a Letter of
Intent), obtain quantity sales charge discounts on the purchase of Class A
shares if the group (1) gives its endorsement or authorization to the investment
program so it may be used by the investment dealer to facilitate solicitation of
the membership, thus effecting economies of sales effort; (2) has been in
existence for at least six months and has a legitimate purpose other than to
purchase mutual fund shares at a discount; (3) is not a group of individuals
whose sole organizational nexus is as credit cardholders of a company,
policyholders of an insurance company, customers of a bank or broker-dealer,
clients of an investment adviser or other similar groups; and (4) agrees to
provide certification of membership of those members investing money in the MFS
Funds upon the request of MFD.
AUTOMATIC EXCHANGE PLAN: Shareholders having account balances of at least
$5,000 in any MFS Fund may exchange their shares for the same class of shares of
other MFS Funds (if available for sale) (and, in the case of Class C shares, for
shares of MFS Money Market Fund) under the Automatic Exchange Plan. The
Automatic Exchange Plan provides for automatic exchanges of funds from the
shareholder's account in a MFS Fund for investment in 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 effective on the seventh day of
each month or of every third month, depending whether monthly or quarterly
exchanges are elected by the shareholder. If the seventh day of the month is not
a business day, the transaction will be processed on the next business day.
Generally, the initial exchange will occur after receipt and processing by the
Shareholder Servicing Agent of an application in good order. Exchanges will
continue to be made from a shareholder's account in any MFS Fund, as long as the
balance of the account is sufficient to complete the exchanges. Additional
payments made to a shareholder's account in such MFS Fund will extend the period
that exchanges will continue to be made under the Automatic Exchange Plan.
However, if additional payments are added to an account subject to the Automatic
Exchange Plan shortly before an exchange is scheduled, such funds may not be
available for exchanges until the following month; therefore, care should be
used to avoid inadvertently terminating the Automatic Exchange Plan through
exhaustion of the account balance.
No transaction fee for exchanges will be charged in connection with 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. Changes in amounts to be
exchanged to each fund, the funds to which exchanges are to be made and the
timing of exchanges (monthly or quarterly), or termination of a shareholder's
participation in the Automatic Exchange Plan will be made after instructions in
writing or by telephone (an "Exchange Change Request") are received by the
Shareholder Servicing Agent in proper form (i.e., if in writing -- signed by the
record owner(s) exactly as shares of the MFS Fund are registered; if by
telephone -- proper account identification is given by the dealer or shareholder
of record). Each Exchange Change Request (other than termination of
participation in the program) must involve at least $50. Generally, if an
Exchange Change Request is received before the close of business on the last
business day of a month, the Exchange Change Request will be effective for the
following month's exchange.
A shareholder's right to make additional investments in any of the MFS Funds, to
make exchanges of shares from one MFS Fund to another and to withdraw from an
MFS Fund, as well as a shareholder's other rights and privileges, are not
affected by a shareholder's participation in the Automatic Exchange Plan.
The Automatic Exchange Plan is part of the Exchange Privilege. For additional
information regarding the Automatic Exchange Plan including the treatment of any
CDSC, see "Exchange Privilege" below.
REINSTATEMENT PRIVILEGE: Shareholders of the Fund and shareholders of the
other MFS Funds (except MFS Money Market Fund, MFS Government Money Market Fund
and holders of Class A shares of MFS Cash Reserve Fund in the case where the
shares of such funds are acquired through direct purchase or reinvested
dividends) 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 the fund are available for sale) at net asset value (without a sales
charge) and, if applicable, with credit for any CDSC paid. In the case of
proceeds reinvested in shares of MFS Money Market Fund, MFS Government Money
Market Fund and Class A shares of MFS Cash Reserve Fund, the shareholder has the
right to exchange the acquired shares for shares of another MFS Fund at net
asset value pursuant to the exchange privilege described below. Such a
reinvestment must be made within 90 days of the redemption and is limited to the
amount of the redemption proceeds. If the shares credited for any CDSC paid are
then redeemed within six years of their initial purchase in the case of Class B
shares or within 12 months of the initial purchase of certain Class A shares, a
CDSC will be imposed upon redemption. Although redemptions and repurchases of
shares are taxable events, a reinvestment within a certain period of time in the
same fund may be considered a "wash sale" and may result in the inability to
recognize currently any loss realized on the original redemption for federal
income tax purposes. Please see your tax adviser for further information.
EXCHANGE PRIVILEGE -- Subject to the requirements set forth below, some or all
of the shares for which payment has been received 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.
Exchanges will be made only after instructions in writing or by telephone (an
"Exchange Request") are received for an established account by the Shareholder
Servicing Agent.
Each Exchange Request must be 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 the Shareholder Servicing Agent). Each
exchange involves the redemption of the shares of the Fund to be exchanged and
the purchase at net asset value (i.e., without a sales charge) of shares of the
same class of the other MFS Fund. Any gain or loss on the redemption of the
shares exchanged is reportable on the shareholder's federal income tax return,
unless both the shares received and the shares surrendered in the exchange are
held in a tax-deferred retirement plan or other tax-exempt account. No more than
five exchanges may be made in any one Exchange Request by telephone. If the
Exchange Request is received by the Shareholder Servicing Agent 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 of the requirements set forth
above have been complied with at that time. However, payment of the redemption
proceeds by the Fund, and thus purchase of shares of the other MFS Fund, may be
delayed for up to seven days if the Fund determines that such a delay would be
in the best interest of all its shareholders. Investment dealers which have
satisfied criteria established by MFD may also communicate a shareholder's
Exchange Request to MFD by facsimile subject to the requirements set forth
above.
No CDSC is imposed on exchanges among the MFS Funds, although liability for the
CDSC is carried forward to the exchanged 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.
Additional information with respect to any of the MFS Funds, including a copy of
its current prospectus, may be obtained from investment dealers or the
Shareholder Servicing Agent. A shareholder considering an exchange should obtain
and read the prospectus of the other MFS Fund and consider the differences in
objectives and policies before making any exchange. Shareholders in the other
MFS Funds (except holders of shares of MFS Money Market Fund, MFS Government
Money Market Fund and Class A shares of MFS Cash Reserve Fund acquired through
direct purchase and dividends reinvested prior to June 1, 1992) have the right
to exchange their shares for shares of the Fund, subject to the conditions, if
any, set forth in their respective prospectuses. In addition, unitholders of the
MFS Fixed Fund (a bank collective investment fund) have the right to exchange
their units (except units acquired through direct purchases) for shares of the
MFS Funds, subject to the conditions, if any, imposed upon such unitholders by
the MFS Fixed Fund.
Any state income tax advantages for investment in shares of each state- specific
series of MFS Municipal Series Trust may only benefit residents of such states.
Investors should consult their own tax advisers to be sure this is an
appropriate investment, based on their residency and each state's income tax
laws.
The exchange privilege (or any aspect of it) may be changed or discontinued and
is subject to certain limitations (see "Purchases" in the Prospectus).
TAX-DEFERRED RETIREMENT PLANS -- Shares of the Fund may be purchased by all
types of tax-deferred retirement plans. MFD makes available through investment
dealers plans and/or custody agreements for the following:
Individual Retirement Accounts (IRAs) (for individuals and their non- employed
spouses who desire to make limited contributions to a tax-deferred retirement
program and, if eligible, to receive a federal income tax deduction for
amounts contributed);
Simplified Employee Pension (SEP-IRA) Plans;
Retirement Plans Qualified under Section 401(k) of the Internal Revenue Code
of 1986 (the "Code"), as amended;
403(b) Plans (deferred compensation arrangements for employees of public
school systems and certain non-profit organizations); and
Certain other qualified pension and profit-sharing plans.
The plan documents provided by MFD designate a trustee or custodian (unless
another trustee or custodian is designated by the individual or group
establishing the plan) and contain specific information about the plans. Each
plan provides that dividends and distributions will be reinvested automatically.
For further details with respect to any plan, including fees charged by the
trustee, custodian or MFD, tax consequences and redemption information, see the
specific documents for that plan. Plan documents other than those provided by
MFD may be used to establish any of the plans described above. Third party
administrative services, available for some corporate plans, may limit or delay
the processing of transactions.
Investors should consult with their tax adviser before establishing any of the
tax-deferred retirement plans described above.
6. TAX STATUS
The Fund has elected to be treated and intends to qualify each year as a
"regulated investment company" under Subchapter M of the Code, by meeting all
applicable requirements of Subchapter M, including requirements as to the nature
of the Fund's gross income, the amount of Fund distributions, and the
composition and holding period of the Fund's portfolio assets. Because the Fund
intends to distribute all of its net investment income and net realized capital
gains to shareholders in accordance with the timing requirements imposed by the
Code, it is not expected that the Fund will be required to pay any federal
income or excise taxes, although the Fund's foreign-source income may be subject
to foreign withholding taxes. If the Fund should fail to qualify as a "regulated
investment company" in any year, the Fund would incur a regular corporate
federal income tax upon its taxable income and Fund distributions would
generally be taxable as ordinary dividend income to shareholders.
Shareholders of the Fund normally will have to pay federal income taxes, and any
state or local taxes, on the dividends and capital gain distributions they
receive from the Fund. Dividends from ordinary income and any distributions from
net short-term capital gains (whether paid in cash or reinvested in additional
shares), are taxable to shareholders as ordinary income for federal income tax
purposes. A portion of the Fund's ordinary income dividends (but none of its
distributions of capital gains) is normally eligible for the dividends received
deduction for corporations if the recipient otherwise qualifies for that
deduction with respect to its holding of Fund shares. Availability of the
deduction for particular corporate shareholders is subject to certain
limitations, and deducted amounts may be subject to the alternative minimum tax
and result in certain basis adjustments. Distributions of net capital gains
(i.e., the excess of net long-term capital gains over net short-term capital
losses), whether paid in cash or reinvested in additional shares, are taxable to
the Fund's shareholders as long-term capital gains for federal income tax
purposes regardless of how long they have owned shares in the Fund. Fund
dividends declared in October, November or December that are payable to
shareholders of record in such a month, and that are paid the following January
will be taxable to the shareholders as if received on December 31 of the year in
which they are declared.
Any dividend or distribution of net capital gains or net short-term capital
gains will have the effect of reducing the per share net asset value of shares
in the Fund by the amount of the dividend or distribution. Shareholders
purchasing shares shortly before the record date of any such distribution may
thus pay the full price for the shares and then effectively receive a portion of
the purchase price back as a taxable distribution.
In general, any gain or loss realized upon a taxable disposition of shares of
the Fund by a shareholder that holds such shares as a capital asset will be
treated as a long-term capital gain or loss if the shares have been held for
more than twelve months and otherwise as a short-term capital gain or loss.
However, any loss realized upon a disposition of shares in the Fund held for six
months or less will be treated as a long-term capital loss to the extent of any
distributions of net capital gain made with respect to those shares. Any loss
realized upon a redemption of shares may also be disallowed under rules relating
to wash sales. Gain may be increased (or loss reduced) upon a redemption of
Class A shares of the Fund within ninety days after their purchase followed by
any purchase (including purchases by exchange or by reinvestment) without
payment of an additional sales charge on Class A shares of the Fund or of
another MFS Fund (or any other shares of an MFS Fund generally sold subject to a
sales charge).
The Fund's current dividend and accounting policies will affect the amount,
timing and character of distributions to shareholders, and may, under certain
circumstances, make an economic return of capital taxable to shareholders. The
Fund's investment in zero coupon securities, securities calling for deferred
interest, PIK bonds, or certain securities purchased at a market discount will
cause it to realize income prior to the receipt of cash payments with respect to
those securities. In order to distribute this income and avoid a tax on the
Fund, the Fund may be required to liquidate portfolio securities that it might
otherwise have continued to hold, potentially resulting in additional taxable
gain or loss to the Fund.
The Fund's transactions in options, Futures Contracts, and Forward Contracts
will be subject to special tax rules that may affect the amount, timing, and
character of Fund income and distributions to shareholders. For example, certain
positions held by the Fund on the last business day of each taxable year will be
marked to market (i.e., treated as if closed out) on that day, and any gain or
loss associated with the positions will be treated as 60% long-term and 40%
short-term capital gain or loss. Certain positions held by the Fund that
substantially diminish its risk of loss with respect to other positions in its
portfolio may constitute "straddles," and may be subject to special tax rules
that would cause deferral of Fund losses, adjustments in the holding periods of
Fund securities, and conversion of short-term into long-term capital losses.
Certain tax elections exist for straddles that may alter the effects of these
rules. The Fund will limit its activities in options, Futures Contracts, Forward
Contracts and swaps and related transactions to the extent necessary to meet the
requirements of Subchapter M of the Code.
Special tax considerations apply with respect to foreign investments of the
Fund. Foreign exchange gains and losses realized by the Fund will generally be
treated as ordinary income and losses. Use of foreign currencies for non-
hedging purposes and investment by the Fund in certain "passive foreign
investment companies" may be limited in order to avoid a tax on the Fund.
Investment income received by the Fund from sources within foreign countries may
be subject to foreign income taxes withheld at the source; the Fund does not
expect to be able to pass through to shareholders foreign tax credits with
respect to such foreign taxes. The United States has entered into tax treaties
with many foreign countries that may entitle the Fund to a reduced rate of tax
or an exemption from tax on such income; the Fund intends to qualify for treaty
reduced rates where available. It is impossible to determine the effective rate
of foreign tax in advance since the amount of the Fund's assets to be invested
within various countries is not known.
Dividends and certain other payments to persons who are not citizens or
residents of the United States or U.S. entities ("Non-U.S. Persons") are
generally subject to U.S. tax withholding at a rate of 30%. The Fund intends to
withhold U.S. federal income tax at the rate of 30% on taxable dividends and
other payments made to Non-U.S. Persons that are subject to such withholding,
regardless of whether a lower treaty rate may be permitted. Any amounts
overwithheld may be recovered by such persons by filing a claim for refund with
the U.S. Internal Revenue Service within the time period appropriate to such
claims. Distributions received from the Fund by Non-U.S. Persons may also be
subject to tax under the laws of their own jurisdiction. The Fund is also
required in certain circumstances to apply backup withholding at a rate of 31%
on taxable dividends and redemption proceeds paid to any shareholder (including
a Non-U.S. Person) who does not furnish to the Fund certain information and
certifications or who is otherwise subject to backup withholding. Backup
withholding will not, however, be applied to payments that have been subject to
30% withholding.
As long as it qualifies as a regulated investment company under the Code, the
Fund will not be required to pay Massachusetts income or excise taxes.
Distributions of the Fund which are derived from interest on obligations of the
U.S. Government and certain of its agencies and instrumentalities (but generally
not from capital gains realized upon the disposition of such obligations) may be
exempt from state and local taxes in certain states. The Fund intends to advise
shareholders of the extent if any, to which distributions consist of such
interest. Shareholders are urged to consult their tax advisors regarding the
possible exclusion of such portion of their dividends for state and local income
tax purposes as well as regarding the tax consequences of an investment in the
Fund.
7. DETERMINATION OF NET ASSET VALUE AND PERFORMANCE
NET ASSET VALUE
The net asset value per share of each class of the Fund is determined each day
during which the Exchange is open for trading. (As of the date of this SAI, the
Exchange is open for trading every weekday except for the following holidays or
the day on which they are observed: New Year's Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.) 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.
Bonds and other fixed income securities (other than short-term obligations) in
the Fund's portfolio are valued on the basis of valuations furnished by a
pricing service which utilizes both dealer-supplied valuations and electronic
data processing techniques which take into account appropriate factors such as
institution-size trading in similar groups of securities, yield, quality, coupon
rate, maturity, type of issue, trading characteristics and other market data,
without exclusive reliance upon exchange or over-the-counter prices, since such
valuations are believed to reflect more accurately the fair value of such
securities. Forward Contracts will be valued using a pricing model taking into
consideration market data from an external pricing source. Use of the pricing
service has been approved by the Trust's Board of Trustees. All other
securities, futures contracts and options in the Fund's portfolio (other than
short-term obligations) for which the principal market is one or more securities
or commodities exchanges (whether domestic or foreign) will be valued at the
last reported sale price or at the settlement price prior to the determination
(or if there has been no current sale, at the closing bid price) on the primary
exchange on which such securities, futures contracts or options are traded; but
if a securities exchange is not the principal market for securities, such
securities will, if market quotations are readily available, be valued at
current bid prices, unless such securities are reported on the NASDAQ system, in
which case they are valued at the last sale price or, if no sales occurred
during the day, at the last quoted bid price. Short-term obligations with a
remaining maturity in excess of 60 days will be valued based upon dealer
supplied valuations. Other short-term obligations are valued at amortized cost,
which constitutes fair value as determined by the Board of Trustees. Portfolio
securities for which there are no such quotations or valuations are valued at
fair value as determined in good faith by or at the direction of the Board of
Trustees.
Generally, trading in foreign securities is substantially completed each day at
various times prior to the close of regular trading on the Exchange.
Occasionally, events affecting the values of such securities may occur between
the times at which they are determined and the close of regular trading on the
Exchange which will not be reflected in the computation of the Fund's net asset
value unless the Trustees deem that such event would materially affect the net
asset value in which case an adjustment would be made.
All investments and assets are expressed in U.S. dollars based upon current
currency exchange rates. A share's net asset value is effective for orders
received by the dealer prior to its calculation and received by MFD in its
capacity as the Fund's distributor, or its agent, the shareholder servicing
agent, prior to the close of that business day.
The Trustees review the appropriateness of the time of day as of which the net
asset value is computed.
PERFORMANCE INFORMATION
TOTAL RATE OF RETURN: The Fund will calculate its total rate of return for each
class of shares for certain periods by determining the average annual compounded
rates of return over those periods that would cause an investment of $1,000
(made with all distributions reinvested and reflecting the CDSC or the maximum
public offering price) to reach the value of that investment at the end of the
periods. The Fund may also calculate (i) a total rate of return, which is not
reduced by the CDSC (4% maximum for Class B shares) and therefore may result in
a higher rate of return, (ii) a total rate of return assuming an initial account
value of $1,000, which will result in a higher rate of return since the value of
the initial account will not be reduced by the maximum sales charge (currently
4.75% on Class A shares) and/or (iii) total rates of return which represent
aggregate performance over a period or year-by-year performance, and which may
or may not reflect the effect of the maximum or other sales charge or CDSC.
Prior to October 1, 1989, the maximum sales charge on Class A shares was 7.25%.
On October 1, 1989, the maximum sales charge on Class A shares was lowered to
4.75%, a sales charge on reinvested dividends was eliminated and a Distribution
Plan (described below) pursuant to Rule 12b-1 under the 1940 Act was implemented
with respect to Class A shares. The Fund's average annual total rate of return
for Class A shares reflecting the current maximum sales charge (4.75%) on an
initial investment for the one-year, five-year and ten-year periods ended
September 30, 1995 was, respectively, 12.72%, 12.61% and 12.87%. The Fund's
average annual total rate of return for Class A shares not giving effect to the
sales charge on the initial investment for the one-year, five-year and ten-year
periods ended September 30, 1995 was, respectively, 18.36%, 13.71% and 13.42%.
The Fund's average annual total rate of return for Class B shares, reflecting
the CDSC, for the one-year period ended September 30, 1995 and for the period
from commencement of operations of Class B Shares on August 23, 1993 to
September 30, 1995 was 13.46% and 6.45%, respectively. The Fund's average annual
total rate of return for Class B shares, not giving effect to the CDSC, for the
one-year period ended September 30, 1995 and for the period from commencement of
operations of Class B Shares on August 23, 1993 to September 30, 1995 was 17.46%
and 7.77%, respectively. The Fund's average annual total rate of return for
Class C shares for the one year period ended September 30, 1995 and for the
period from commencement of operations of Class C Shares on August 1, 1994 to
September 30, 1995 was 17.66% and 14.58%, respectively.
PERFORMANCE RESULTS: The performance results for Class A shares below, based on
an assumed initial investment of $10,000 in Class A shares cover the period from
January 1, 1986 through December 31, 1995 for Class A shares. It has been
assumed that dividends and capital gain distributions were reinvested in
additional shares. These performance results, as well as any total rate of
return quotations provided by the Fund, should not be considered as
representative of the performance of the Fund in the future since the net asset
value and public offering price of shares of the Fund will vary based not only
on the type, quality and maturities of the securities held in the Fund's
portfolio, but also on changes in the current value of such securities and on
changes in the expenses of the Fund. These factors and possible differences in
the methods used to calculate yields and total rates of return should be
considered when comparing the yield and total rate of return of the Fund to
yields and total rates of return published for other investment companies or
other investment vehicles. Total rate of return reflects the performance of both
principal and income. Current net asset value and account balance information
may be obtained by calling 1-800-MFS-TALK (637-8255).
MFS TOTAL RETURN FUND -- CLASS A
--------------------------------------------------------------
VALUE OF
VALUE OF REINVESTED VALUE OF
YEAR ENDED INITIAL $10,000 CAPITAL GAINS REINVESTED TOTAL
DECEMBER 31 INVESTMENT DISTRIBUTION DIVIDENDS VALUE
----------- --------------- ------------ --------- -----
1986 $ 9,922 $ 920 $ 570 $11,412
1987 9,376 1,317 1,122 11,815
1988 9,961 1,652 1,978 13,591
1989 11,265 2,294 3,166 16,725
1990 10,340 2,124 3,872 16,336
1991 11,742 2,742 5,384 19,868
1992 11,957 3,337 6,575 21,869
1993 12,989 3,849 8,343 25,181
1994 12,112 3,609 8,795 24,516
1995 14,031 5,280 11,803 31,114
EXPLANATORY NOTES: The results shown in the table assume that the initial
investment on January 1, 1986 has been reduced by the current maximum applicable
sales charge of 4.75%. No adjustment has been made for any income taxes payable
by shareholders.
YIELD: Any yield quotation for a class of shares of the Fund is based on the
annualized net investment income per share of that class over a 30-day period.
The yield for each class of shares of the Fund is calculated by dividing the net
investment income per share allocated to that class earned during the period by
the maximum offering price per share of that class of the Fund on the last day
of that period. The resulting figure is then annualized. Net investment income
per share of a class is determined by dividing (i) the dividends and interest
allocated to that class during the period, minus accrued expenses of that class
for the period, by (ii) the average number of shares of the class, entitled to
receive dividends during the period multiplied by the maximum offering price per
share on the last day of the period. The yield calculation for Class A shares
assumes a maximum sales charge of 4.75%. The yield calculations for Class B
shares assumes no CDSC is paid. The yield calculation for Class A shares for the
30-day period ended September 30, 1995 was 3.92% taking into account certain fee
waivers; without these waivers, the yield would have been 3.83%. The yield for
Class B and Class C shares for the 30-day period ended September 30, 1995, was
3.26% and 3.29%, respectively.
CURRENT DISTRIBUTION RATE: Yield, which is calculated according to a formula
prescribed by the SEC, is not indicative of the amounts which were or will be
paid to the Fund's shareholders. Amounts paid to shareholders of each class are
reflected in the "current distribution rate" for that class. The current
distribution rate for a class is computed by dividing the total amount of
dividends per share paid by the Fund to shareholders of that class during the
past 12 months by the maximum public offering price of that class at the end of
such period. Under certain circumstances, such as when there has been a change
in the amount of dividend payout, or a fundamental change in investment
policies, it might be appropriate to annualize the dividends paid over the
period such policies were in effect, rather than using the dividends during the
past 12 months. The current distribution rate differs from the yield computation
because it may include distributions to shareholders from sources other than
dividends and interest, such as premium income from option writing, short-term
capital gains and return of invested capital, and is calculated over a different
period of time. The Fund's current distribution rate calculation for Class A
shares assumes a maximum sales charge of 4.75%. The Fund's current distribution
rate calculation for Class B shares assumes no CDSC is paid. The current
distribution rate for Class A, Class B and Class C shares of the Fund for the
one year period ended September 30, 1995 was 4.08%, 3.52% and 3.55%
respectively.
GENERAL: From time to time the Fund may, as appropriate, quote Fund rankings or
reprint all or a portion of evaluations of fund performance and operations
appearing in various independent publications, including but not limited to the
following: Money, Fortune, U.S. News and World Report, Kiplinger's Personal
Finance, The Wall Street Journal, Barron's, Investors Business Daily, Newsweek,
Financial World, Financial Planning, Investment Advisor, USA Today, Pensions and
Investments, SmartMoney, Forbes, Global Finance, Registered Representative,
Institutional Investor, the Investment Company Institute, Johnson's Charts,
Morningstar, Lipper Analytical Services, Inc., CDA Wiesenberger, Shearson Lehman
and Salomon Bros. Indices, Ibbotson, Business Week, Lowry Associates, Media
General, Investment Company Data, The New York Times, Your Money, Strangers
Investment Advisor, Financial Planning on Wall Street, Standard and Poor's,
Individual Investor, The 100 Best Mutual Funds You Can Buy, by Gordon K.
Williamson, Consumer Price Index, and Sanford C. Bernstein & Co. Fund
performance may also be compared to the performance of other mutual funds
tracked by financial or business publications or periodicals.
From time to time, the Fund may discuss or quote its current portfolio manager
as well as other investment personnel, including such persons' views on: the
economy; securities markets; portfolio securities and their issuers; investment
philosophies, strategies, techniques and criteria used in the selection of
securities to be purchased or sold for the Fund; the Fund's portfolio holdings;
the investment research and analysis process; the formulation and evaluation of
investment recommendations; and the assessment and evaluation of credit,
interest rate, market and economic risks.
The Fund may also quote evaluations mentioned in independent radio or television
broadcasts.
From time to time the Fund may use charts and graphs to illustrate the past
performance of various indices such as those mentioned above and illustrations
using hypothetical rates of return to illustrate the effects of compounding and
tax-deferral.
The Fund may advertise examples of the effects of periodic investment plans,
including the principle of dollar cost averaging. In such a program, an investor
invests a fixed dollar amount in a fund at periodic intervals, thereby
purchasing fewer shares when prices are high and more shares when prices are
low. While such a strategy does not assure a profit or guard against a loss in a
declining market, the investor's average cost per share can be lower than if
fixed numbers of shares are purchased at the same intervals.
MFS FIRSTS: MFS has a long history of innovations.
-- 1924 -- Massachusetts Investors Trust is established
as the first open-end mutual fund in America.
-- 1924 -- Massachusetts Investors Trust is the first mutual fund
to make full public disclosure of its operations in shareholder
reports.
-- 1932 -- One of the first internal research departments is
established to provide in-house analytical capability for an
investment management firm.
-- 1933 -- Massachusetts Investors Trust is the first mutual fund
to register under the Securities Act of 1933 ("Truth in
Securities Act" or "Full Disclosure Act").
-- 1936 -- Massachusetts Investors Trust is the first mutual fund
to allow shareholders to take capital gain distributions either
in additional shares or in cash.
-- 1976 -- MFS(R) Municipal Bond Fund is among the first municipal
bond funds established.
-- 1979 -- Spectrum becomes the first combination fixed/ variable
annuity with no initial sales charge.
-- 1981 -- MFS(R) World Governments Fund is established as
America's first globally diversified fixed-income mutual fund.
-- 1984 -- MFS(R) Municipal High Income Fund is the first open-end
mutual fund to seek high tax-free income from lower-rated
municipal securities.
-- 1986 -- MFS(R) Managed Sectors Fund becomes the first mutual
fund to target and shift investments among industry sectors for
shareholders.
-- 1986 -- MFS(R) Municipal Income Trust is the first closed-end,
high-yield municipal bond fund traded on the New York Stock
Exchange.
-- 1987 -- MFS(R) Multimarket Income Trust is the first
closed-end, multimarket high income fund listed on the New York
Stock Exchange.
-- 1989 -- MFS(R) Regatta becomes America's first non-qualified
market-value-adjusted fixed/variable annuity.
-- 1990 -- MFS(R) World Total Return Fund is the first
global balanced fund.
-- 1993 -- MFS(R) World Growth Fund is the first global emerging
markets fund to offer the expertise of two sub-advisers.
-- 1993 -- MFS becomes money manager of MFS(R) Union Standard
Trust, the first Trust to invest in companies deemed to be
union-friendly by an Advisory Board of senior labor officials,
senior managers of companies with significant labor contracts,
academics and other national labor leaders or experts.
8. DISTRIBUTION PLANS
The Trustees have adopted separate Distribution Plans for Class A, Class B and
Class C shares (the "Distribution Plans") 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 each Distribution Plan would benefit the Fund and
the respective class of shareholders. The Distribution Plans are designed to
promote sales, thereby increasing the net assets of the Fund. Such an increase
may reduce the Fund's expense ratio to the extent the Fund's fixed costs are
spread over a larger net asset base. Also, an increase in net assets may lessen
the adverse effects that could result were the Fund required to liquidate
portfolio securities to meet redemptions. There is, however, no assurance that
the net assets of the Fund will increase or that the other benefits referred to
above will be realized.
The Distribution Plans are described in the Prospectus under the caption
"Distribution Plans," which is incorporated herein by reference. The following
information supplements this Prospectus discussion.
SERVICE FEES: With respect to the Class A Distribution Plan, no service fees
will be paid: (i) to any dealer who is the holder or dealer of record for
investors who own Class A shares having an aggregate net asset value less than
$750,000, or such other amount as may be determined from time to time by MFD
(MFD, however, may waive this minimum amount requirement from time to time); or
(ii) to any insurance company which has entered into an agreement with the Fund
and MFD that permits such insurance company to purchase Class A shares from the
Fund at their net asset value in connection with annuity agreements issued in
connection with the insurance company's separate accounts. Dealers may from time
to time be required to meet certain other criteria in order to receive service
fees.
With respect to the Class B Distribution Plan, except in the case of the first
year service fee, no service fees will be paid to any securities dealer who is
the holder or dealer of record for investors who own Class B shares having an
aggregate net asset value of less than $750,000 or such other amount as may be
determined by MFD from time to time. MFD, however, may waive this minimum amount
requirement from time to time. Dealers may from time to time be required to meet
certain other criteria in order to receive service fees.
MFD or its affiliates shall be entitled to receive any service fee payable under
any 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.
DISTRIBUTION FEES: The purpose of distribution payments to MFD under the
Distribution Plans is to compensate MFD for its distribution services to the
Fund. MFD pays commissions to dealers as well as 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 cost necessary to provide
distribution-related services, or personnel, travel, office expenses and
equipment.
DISTRIBUTION AND SERVICE FEES PAID DURING THE FUND'S LAST FISCAL YEAR: During
the fiscal year ended September 30, 1995, the Fund paid the following
Distribution Plan expenses:
AMOUNT OF AMOUNT OF AMOUNT OF
DISTRIBUTION DISTRIBUTION DISTRIBUTION
AND SERVICE AND SERVICE AND SERVICE
FEES PAID FEES RETAINED FEES RECEIVED
DISTRIBUTION PLANS BY FUND BY MFD BY DEALERS
- ------------------ ------- ------------- ----------
Class A Distribution Plan $4,948,765 $ 703,057 $4,245,708
Class B Distribution Plan $9,013,390 $6,858,242 $2,155,148
Class C Distribution Plan $ 79,034 $ 535 $ 78,499
GENERAL: Each of the Distribution Plans will remain in effect until August 1,
1996, and will continue in effect thereafter only if such continuance is
specifically approved at least annually by vote of both the Trustees and a
majority of the Trustees who are not "interested persons" or financially
interested parties of such Plan ("Distribution Plan Qualified Trustees"). Each
of the Distribution Plans also requires that the Fund and MFD each shall provide
the Trustees, and the Trustees shall review, at least quarterly, a written
report of the amounts expended (and purposes therefor) under such Plan. Each of
the Distribution Plans may be terminated at any time by vote of a majority of
the Distribution Plan Qualified Trustees or by vote of the holders of a majority
of the respective class of the Fund's shares (as defined in "Investment
Restrictions"). All agreements relating to any of the Distributions Plans
entered into between the Fund or MFD and other organizations must be approved by
the Board of Trustees, including a majority of the Distribution Plan Qualified
Trustees. Agreements under any of the Distribution Plans must be in writing,
will be terminated automatically if assigned, and may be terminated at any time
without payment of any penalty, by vote of a majority of the Distribution Plan
Qualified Trustees or by vote of the holders of a majority of the respective
class of the Fund's shares. None of the Distribution Plans may be amended to
increase materially the amount of permitted distribution expenses without the
approval of a majority of the respective class of the Fund's shares (as defined
in "Investment Restrictions") or may be materially amended in any case without a
vote of the Trustees and a majority of the Distribution Plan Qualified Trustees.
The selection and nomination of Distribution Plan Qualified Trustees shall be
committed to the discretion of the non-interested Trustees then in office. No
Trustee who is not an "interested person" has any financial interest in any of
the Distribution Plans or in any related agreement.
9. DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional Shares of Beneficial Interest (without par value) of one or
more separate series and to divide or combine the shares of any series into a
greater or lesser number of shares without thereby changing the proportionate
beneficial interests in that series. The Trustees have currently authorized
shares of the Fund and one other series. The Declaration of Trust further
authorizes the Trustees to classify or reclassify any series of shares into one
or more classes. Pursuant thereto, the Trustees have authorized the issuance of
three classes of shares of each of the Trust's two series, Class A shares, Class
B shares and Class C shares. Each share of a class of the Fund represents an
equal proportionate interest in the assets of the Fund allocable to that class.
Upon liquidation of the Fund, shareholders of each class of the Fund are
entitled to share pro rata in the Fund's net assets allocable to such class
available for distribution to shareholders. The Trust reserves the right to
create and issue additional series or classes of shares, in which case the
shares of each class of a series would participate equally in the earnings,
dividends and assets allocable to that class of the particular series.
Shareholders are entitled to one vote for each share held and may vote in the
election of Trustees and on other matters submitted to meetings of shareholders.
Although Trustees are not elected annually by the shareholders, shareholders
have, under certain circumstances, the right to remove one or more Trustees in
accordance with the provisions of section 16(c) of the 1940 Act. No material
amendment may be made to the Declaration of Trust without the affirmative vote
of a majority of the Trust shares (as defined in "Investment Restrictions") or
by an instrument in writing without a meeting, signed by a majority of Trustees
and consented to by the holders of not less than a majority of the shares
outstanding and entitled to vote. Shares have no pre-emptive or conversion
rights (except as described in the Prospectus under "Purchases -- Conversion of
Class B Shares"). Shares are fully paid and non-assessable. The Trust may enter
into a merger or consolidation, or sell all or substantially all of its assets
(or all or substantially all of the assets belonging to any series of the
Trust), if approved by the vote of the holders of two-thirds of the Trust's
outstanding shares voting as a single class, or of the affected series of the
Trust, as the case may be, except that if the Trustees of the Trust recommend
such merger, consolidation or sale, the approval by vote of the holders of a
majority of the Trust's or the affected series' outstanding shares (as defined
in "Investment Restrictions") will be sufficient. The Trust or any series of the
Trust may also be terminated (i) upon liquidation and distribution of its
assets, if approved by the vote of the holders of two-thirds of its outstanding
shares, or (ii) by the Trustees by written notice to the shareholders of the
Trust or the affected series. If not so terminated the Trust will continue
indefinitely.
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 Declaration of Trust contains an express disclaimer of shareholder
liability for acts, obligations or affairs of the Trust and provides for
indemnification and reimbursement of expenses out of the Trust property for any
shareholder held personally liable for the obligations of the Trust. The
Declaration of Trust also provides that the Trust shall maintain appropriate
insurance (for example, fidelity bonding and errors and omissions insurance) for
the protection of the Trust, its shareholders, Trustees, officers, employees and
agents covering possible tort and other liabilities. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which both inadequate insurance existed and the
Trust itself was unable to meet its obligations.
The Declaration of Trust further provides that obligations of the Trust are not
binding upon the Trustees individually but only upon the property of the Trust
and that the Trustees will not be liable for any action or failure to act, but
nothing in the Declaration of Trust protects a Trustee against any liability to
which he would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his office.
10. INDEPENDENT AUDITORS AND FINANCIAL STATEMENTS
Deloitte & Touche LLP are the Fund's independent auditors, providing audit
services, tax return preparation, and assistance and consultation with respect
to the preparation of filings with the SEC.
The Portfolio of Investments at September 30, 1995, the Statement of Assets and
Liabilities at September 30, 1995, the Statement of Operations for the year
ended September 30, 1995, the Statement of Changes in Net Assets for each of the
two years in the period ended September 30, 1995, the Notes to Financial
Statements and the Independent Auditors' Report, each of which is included in
the Annual Report to shareholders of the Fund, are incorporated by reference
into this SAI and have been so incorporated in reliance upon the report of
Deloitte & Touche LLP, independent auditors, as experts in accounting and
auditing. A copy of the Annual Report accompanies this SAI.
<PAGE>
<TABLE>
<CAPTION>
APPENDIX A
TRUSTEE COMPENSATION TABLE
RETIREMENT BENEFIT ESTIMATED TOTAL TRUSTEE FEES
TRUSTEE FEES ACCRUED AS PART OF CREDITED YEARS FROM FUND AND
TRUSTEE FROM FUND\1/ FUND EXPENSE\1/ OF SERVICE\2/ FUND COMPLEX\3/
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Richard B. Bailey $8,483 $1,116 8 $263,815
A. Keith Brodkin --0-- --0-- N/A --0--
Peter G. Harwood 9,658 736 5 111,366
J. Atwood Ives 9,233 1,100 17 101,356
Lawrence T. Perera 8,808 2,922 26 102,546
William Poorvu 9,658 2,955 25 111,366
Charles W. Schmidt 9,233 2,802 20 105,411
Arnold D. Scott --0-- --0-- N/A --0--
Jeffrey L. Shames --0-- --0-- N/A --0--
Elaine R. Smith 9,233 1,093 27 105,411
David B. Stone 9,858 2,575 14 115,521
\1/ For fiscal year ended September 30, 1995.
\2/ Based on normal retirement age of 73
\3/ For calendar year 1995. All Trustees receiving compensation served as Trustees of 20 funds within the MFS fund complex (having
aggregate net assets at December 31, 1995, of approximately $17.5 billion) except Mr. Bailey, who served as Trustee of 60
funds within the MFS fund complex (having aggregate net assets at December 31, 1995, of approximately $30.1 billion).
<CAPTION>
ESTIMATED ANNUAL BENEFITS PAYABLE BY FUND UPON RETIREMENT\4/
YEARS OF SERVICE
------------------------------------------------------------------------
AVERAGE TRUSTEE FEES 3 5 7 10 OR MORE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 7,635 $1,145 $1,909 $2,672 $3,818
8,275 1,241 2,069 2,896 4,138
8,915 1,337 2,229 3,120 4,458
9,555 1,433 2,389 3,344 4,778
10,195 1,529 2,549 3,568 5,098
10,835 1,625 2,709 3,792 5,418
\4/ Other funds in the MFS fund complex provide similar retirement benefits to the Trustees.
</TABLE>
<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 AUDITORS
Deloitte & Touche LLP
125 Summer Street, Boston, MA 02110
MFS(R) TOTAL
RETURN FUND
500 BOYLSTON STREET
BOSTON, MA 02116
[LOGO]
THE FIRST NAME IN MUTUAL FUNDS
[Recycle Logo] Printed on recycled paper.
MTR-13-2/96/500 15/215/315
[Front Cover]
[MFS logo]
[Photo of train tracks]
Annual Report for
Year Ended
September 30, 1995
MFS(R) Total Return Fund
<PAGE>
[Back Cover]
MFS(R) Total
Return Fund
500 Boylston Street
Boston, MA 02116
[MFS logo--25th anniversary medallion]
Bulk Rate
U.S. Postage
P A I D
Permit #55638
Boston, MA
MTR-2 11/95 285M 15/215/315
<PAGE>
MFS(R) TOTAL RETURN FUND
Trustees
A. Keith Brodkin* - Chairman and President
Richard B. Bailey* - Private Investor;
Former Chairman and Director
(until 1991), Massachusetts Financial
Services Company
Peter G. Harwood - Private Investor
J. Atwood Ives - Chairman and Chief
Executive Officer, Eastern
Enterprises
Lawrence T. Perera - Partner,
Hemenway & Barnes
William J. Poorvu - Adjunct Professor,
Harvard University Graduate School of
Business Administration
Charles W. Schmidt - Private Investor
Arnold D. Scott* - Senior Executive Vice
President, Director and Secretary,
Massachusetts Financial Services Company
Jeffrey L. Shames* - President and Director,
Massachusetts Financial Services Company
Elaine R. Smith - Independent Consultant
David B. Stone - Chairman, North
American Management Corp.
(investment adviser)
Investment Adviser
Massachusetts Financial Services Company
500 Boylston Street
Boston, MA 02116-3741
Distributor
MFS Fund Distributors, Inc.
500 Boylston Street
Boston, MA 02116-3741
Investor Service
MFS Service Center, Inc.
P.O. Box 2281
Boston, MA 02107-9906
Head of the Portfolio Team
David M. Calabro*
Treasurer
W. Thomas London*
Assistant Treasurer
James O. Yost*
Secretary
Stephen E. Cavan*
Assistant Secretary
James R. Bordewick, Jr.*
Custodian
Investors Bank & Trust Company
Auditors
Deloitte & Touche llp
-----------------------------------------------------------------------------
[BOXED TEXT]
[(NUMBER 1 DALBAR) LOGO]
For the second year in a row,
MFS earned a #1 ranking in
DALBAR, Inc.'s Broker/
Dealer Survey, Main Office
Operations Service Quality
category. The firm achieved a
3.49 overall score--on a scale of 1 to 4--in
the 1995 survey. A total of 71 firms respond-
ed, offering input on the quality of service
they receive from 36 mutual fund companies
nationwide. The survey contained questions
about service quality in 17 categories, including
"knowledge of phone service contacts,"
"accuracy of transaction processing," and
"overall ease of doing business with the firm."
(Source: 1995 DALBAR Survey)
-----------------------------------------------------------------------------
*Affiliated with the Investment Adviser
<PAGE>
Letter to Shareholders
Dear Shareholders:
As has been the case for several quarters, we are managing the Fund in a
conservative manner due to high stock market valuations. As of September 30,
1995, 8% of the Fund's assets was invested in cash and cash equivalents, 47%
in common stocks, 9% in convertibles, and 36% in bonds. This compares to
October 1, 1994, when 21% was invested in cash and cash equivalents. Early in
1995, we reduced the cash position and increased the weighting in bonds.
Throughout the year, we continued to increase the bond weighting,
concentrating on longer-term corporate issues. This allowed us to increase
the monthly dividend throughout the year. For the year ended September 30,
1995, Class A shares provided a total return of +18.36%, Class B shares
+17.46% and Class C shares +17.66%. All these returns assume the reinvestment
of distributions but exclude the effects of any sales charges. A discussion
of our strategy for the Fund may be found in the Portfolio Performance and
Strategy section of this letter.
Economic Outlook
Moderate, but sustainable growth appears to be the hallmark of the economic
expansion's fifth year. After slowing earlier in the summer, consumer
spending and homebuying were making modest gains by September 30, although
consumer spending was still showing areas of weakness. Businesses, meanwhile,
continued to work off excess inventories and reduce factory output. At the
same time, overseas economies, particularly those of Germany and Japan, have
not recovered as expected, limiting U.S. export growth. However, we believe
the Federal Reserve Board's consistent and, so far, successful efforts to
fight inflation seem to be giving consumers and businesses enough confidence
to help maintain 2-1/2% to 3% real (adjusted for inflation) growth in gross
domestic product, at least through 1995.
Interest Rates
Although the Federal Reserve implemented a one-quarter percentage point
decrease in short-term interest rates in July, the effects of its seven rate
increases, which began in early 1994 and ended in February of this year, are
still being felt throughout the economy. While there have been some increases
in commodity prices, companies have not been able to pass along most of those
higher costs. This was partly due to the need to keep fighting for market
share, and also because wages and benefits of U.S. workers are still growing
at a pace that is near or perhaps below the inflation rate, limiting consumer
buying power. At the end of July, the nation's employment cost index had
risen at a rate of just 2.8% over the previous year, helping to contain cost
pressures. At the same time, the bond markets have apparently become
convinced that
1
<PAGE>
Letter to Shareholders - continued
economic growth will be contained for the near future, allowing long-term
interest rates to decline slightly. Although previous monetary easing by the
Federal Reserve has been followed by additional rate reductions, prospects
for further decreases in the current environment are uncertain. Still, with
long-term government bonds yielding approximately 6.5%, in an environment of
2-1/2% to 3% inflation, real rates of return in the fixed-income markets
remain relatively attractive.
Stock Market
After a nearly 30% increase through most of 1995 in the Standard & Poor's 500
Composite Index (the S&P 500), a popular, unmanaged index of common stock
performance, the stock market became somewhat volatile in the last few weeks
before September 30 due to concerns about slow earnings growth for corporate
America. Most of this volatility took place in technology and cyclical
stocks. While we see a deceleration of corporate earnings growth as the
inevitable consequence of traditional business cycles, we remain encouraged
by the high absolute level of profitability among U.S. companies. Also,
companies' increasing emphasis on cost-containment, coupled with their
growing use of technology, have helped keep them competitive and reasonably
profitable. Finally, we have been watching with interest the recent series of
corporate mergers in such industries as banking, entertainment, health care
and consumer products. Unlike previous merger waves, which were often
intended to build conglomerates of loosely related or unrelated businesses,
this year's mergers of similar companies seem to be more rationally based on
the goals of helping the merged companies reduce costs and, in general, be
more competitive. Looking ahead, we believe these factors, along with a
stabilizing interest rate environment and a continuation of favorable
earnings reports, will help maintain the stock market's long-term positive
momentum.
Portfolio Performance and Strategy
Following a soft 1994, the stock market has rocketed ahead in 1995. U.S.
companies increased profits by 20% or more and stock prices followed. In
addition, low inflation and falling interest rates added to the
attractiveness of financial services assets. The Fund continues to seek good
values in the energy, financial services and telecommunications sectors. We
have reduced our technology weighting and continue to be cautious in the more
economically sensitive sectors.
Our equity weighting continues to be somewhat below normal. While we
believe corporate profits will likely remain at high absolute levels, the
rate of earnings growth is clearly decelerating. Meanwhile, valuations are
still above historical levels and the dividend yield on the S&P 500 is just
2.5%.
2
<PAGE>
Letter to Shareholders - continued
While the overall market will inevitably pause and correct at some point, we
remain quite positive on the long-term outlook for equities. We will use any
correction to increase our equity positions.
Over the past six months, our major changes in the portfolio were to
increase the bond weighting from 31% to 36% and increase the equity position
from 44% to 47%. Bonds continue to look attractive due to the weakening
economy and our generally positive outlook for inflation. Our high weighting
in bonds allowed us to increase the dividend significantly during 1995. While
the Fund's average monthly dividend was $0.045 per share for the year ended
September 30, 1994, for the year ended September 30, 1995, the average
monthly dividend stood at $0.051 per share.
We appreciate your support and welcome any questions or comments you may
have.
Respectfully,
/s/ A. Keith Brodkin
- ------------------------------------
A. Keith Brodkin
Chairman and President
October 12, 1995
/s/ David Calabro
- ------------------------------------
David Calabro
(on behalf of the
MFS Total Return Team)
Portfolio Managers' Profiles
David Calabro, Vice President; Geoffrey L. Kurinsky, Senior Vice President;
Judith N. Lamb, Vice President; Lisa B. Nurme, Vice President; and Maura A.
Shaughnessy, Vice President, are the Fund's portfolio managers. Mr. Calabro
is the head of this portfolio management team and a manager of the common
stock portion of the Fund's portfolio. Mr. Calabro has been employed by MFS
since 1992. Mr. Kurinsky, the manager of the Fund's fixed-income securities,
has been employed by MFS since 1987. Ms. Lamb, the manager of the Fund's
convertible securities, has been employed by MFS since 1992. Ms. Nurme, a
manager of the common stock portion of the Fund's portfolio, has been
employed by MFS since 1987. Ms. Shaughnessy, also a manager of the common
stock portion of the Fund's portfolio, has been employed by MFS since 1991.
3
<PAGE>
Tax Form Summary
In January 1996, shareholders will be mailed a Tax Form Summary reporting the
federal tax status of all distributions paid during the calendar year 1995.
For the year ended September 30, 1995, the amount of distributions from
income eligible for the 70% dividends-received deduction for corporations
came to 39%.
Federal Income Tax Information on Distributions
For the year ended September 30, 1995, distributions from long-term capital
gains were $2,145,562.
Performance
The information below and on the following page illustrates the historical
performance of MFS Total Return Fund Class A shares in comparison to various
market indicators. Class A results reflect the deduction of the 4.75% maximum
sales charge. Benchmark comparisons are unmanaged and do not reflect any fees
or expenses. You cannot invest in an index. All results reflect the
reinvestment of all dividends and capital gains.
Class B shares were offered effective August 23, 1993. Information on Class B
share performance appears on the next page.
Class C shares were offered effective August 1, 1994. Information on Class C
share performance appears on the next page.
-----------------------------------------------------------------------------
Growth of a Hypothetical $10,000 Investment
(For the 5-Year Period Ended September 30, 1995)
[Line graph representing the growth of a $10,000 investment for the five-year
period ended September 30, 1995. The graph is scaled from $5,000 to $30,000 in
$5,000 segments. The years are marked in 12-month segments from 1990 to 1995.
There are four lines drawn to scale. One is a solid line representing MFS Total
Return Fund (Class A), a second line of short dashes represents the S&P 500, a
third line of very-short dashes represents the Lehman Brothers Gov't/Corporate
Bond Index, and a fourth line of medium-short dashes represents the Consumer
Price Index.]
MFS Total Return Fund (Class A) $18,112
S&P 500 $22,115
Lehman Brothers Gov't/Corporate Bond Index $16,026
Consumer Price Index $11,545
-----------------------------------------------------------------------------
4
<PAGE>
- -----------------------------------------------------------------------------
Growth of a Hypothetical $10,000 Investment
(For the 10-Year Period Ended September 30, 1995)
[Line graph representing the growth of a $10,000 investment for the ten-year
period ended September 30, 1995. The graph is scaled from $0 to $5,000 in
$10,000 segments. The years are marked in 12-month segments from 1985 to 1995.
There are four lines drawn to scale. One is a solid line representing MFS Total
Return Fund (Class A), a second line of short dashes represents the S&P 500, a
third line of very-short dashes represents the Lehman Brothers Gov't/Corporate
Bond Index, and a fourth line of medium-short dashes represents the Consumer
Price Index.]
MFS Total Return Fund (Class A) $33,552
S&P 500 $44,171
Lehman Brothers Gov't/Corporate Bond Index $25,819
Consumer Price Index $14,143
-----------------------------------------------------------------------------
Average Annual Total Returns
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MFS Total Return Fund (Class A) including 4.75%
sales charge +12.72% +9.68% +12.61% +12.87%
-------------------------------------------------------------------------------------------------
MFS Total Return Fund (Class A) at net asset
value +18.36% +11.47% +13.71% +13.42%
-------------------------------------------------------------------------------------------------
MFS Total Return Fund (Class B) with CDSC* +13.46% -- -- +6.45%+
-------------------------------------------------------------------------------------------------
MFS Total Return Fund (Class B) without CDSC +17.46% -- -- +7.77%+
-------------------------------------------------------------------------------------------------
MFS Total Return Fund (Class C) +17.66% -- -- +14.58%#
-------------------------------------------------------------------------------------------------
Average balanced fund +19.04% +10.75% +13.63% +12.30%
-------------------------------------------------------------------------------------------------
Lehman Brothers Government Corporate Bond Index +14.35% +6.90% +9.89% +9.95%
-------------------------------------------------------------------------------------------------
Standard & Poor's 500 Composite Index +29.71% +14.96% +17.20% +16.01%
-------------------------------------------------------------------------------------------------
Consumer Price IndexS. +2.54% +2.73% +2.91% +3.53%
=================================================================================================
</TABLE>
*These returns reflect the current maximum Class B contingent deferred sales
charge (CDSC) of 4%.
+For the period from the commencement of offering of Class B shares, August
23, 1993 to September 30, 1995.
#For the period from the commencement of offering of Class C shares, August
1, 1994 to September 30, 1995.
Class C shares have no initial sales charge or CDSC but, along with Class B
shares, have higher annual fees and expenses than Class A shares.
S.The Consumer Price Index is a popular measure of change in prices.
++The Lehman Index is an unmanaged, market-value weighted index of U.S.
Treasury and government agency securities (excluding mortgage-backed
securities) and investment-grade debt obligations of domestic corporations.
5
<PAGE>
Average Annual Total Returns - continued
In the table on the previous page, we have included the average annual total
returns of all balanced funds (including the Fund) tracked by Lipper
Analytical Services, Inc. (an independent firm which rates mutual fund
performance) for the applicable time periods (190, 84, 59 and 30 funds for
the 1-, 3-, 5- and 10-year periods ended September 30, 1995, respectively).
Because these returns do not reflect any applicable sales charges, we have
also included the Fund's results at net asset value (no sales charge) for
comparison.
All results are historical and, therefore, are not an indication of future
results. The principal value and income return of an investment in a mutual
fund will vary with changes in market conditions, and shares, when redeemed,
may be worth more or less than their original cost. All Class A results
reflect the applicable expense subsidy which is explained in the Notes to
Financial Statements. Had the subsidy not been in effect, the results would
have been less favorable.
Objectives and Policies
The Fund's primary objective is to provide above-average current income
(compared to a portfolio entirely invested in equity securities) consistent
with prudent employment of capital. As a secondary objective, the Fund seeks
opportunities for growth of capital and income because many securities that
offer a better-than-average yield may possess growth potential.
The Fund's investment policies are to vary its investments in types of
securities in accordance with its interpretation of economic and money market
conditions, fiscal and monetary policies and underlying security values.
Generally, at least 40% of the Fund's assets is invested in equity
securities. The Fund's debt securities may include non-investment-grade
bonds. The Fund may also invest in foreign securities.
6
<PAGE>
Portfolio of Investments - September 30, 1995
Non-Convertible Bonds - 35.2%
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted) Value
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Banks and Credit Companies - 1.9%
ABN Amro Global, 7.25s, 2005 $ 11,500 $11,821,655
Banco Central, 8.25s, 2004 2,260 2,379,238
Banco Central, 7.5s, 2005 5,000 5,011,000
Banponce Financial Corp., 7.72s, 2000 1,500 1,549,395
Capital One Bank, 8.125s, 2000 2,605 2,736,135
Chase Manhattan Corp., 8.8s, 2000 5,440 5,613,808
Coastal Bancorp, Inc., 10s, 2002 1,380 1,352,400
Den Danske Bank, 7.25s, 2005## 5,000 5,022,350
First USA Corp., 7.65s, 2003 12,790 12,856,764
Riggs National Corp., 8.5s, 2006 11,350 11,860,750
Sovereign Bancorp, Inc., 6.75s, 2000 2,590 2,518,775
--------------
$62,722,270
- ---------------------------------------------------------------------------------------------------
Corporate Asset Backed - 1.5%
Chase Manhattan Credit Card Master Trust, Floating
Rate, 2001 $ 30,000 $30,000,000
Merrill Lynch Home Equity Loan, 91-1, "B", 9.3s, 2016+ 3,800 3,923,500
Merrill Lynch Mortgage Investors, Inc., 9.7s, 2010 482 495,193
Merrill Lynch Mortgage Investors, Inc., 8.9s, 2011 2,319 2,468,171
Merrill Lynch Mortgage Investors, Inc., 9s, 2011 997 1,028,802
Merrill Lynch Mortgage Investors, Inc., 9.25s, 2011 363 374,428
Merrill Lynch Mortgage Investors, Inc., 8.227s, 2021+ 4,000 3,024,640
Standard Credit Card Master Trust, Floating Rate, 2000 6,140 6,145,710
--------------
$47,460,444
- ---------------------------------------------------------------------------------------------------
Financial Institutions - 1.8%
Alex Brown, Inc., 7.625s, 2005 $ 6,640 $ 6,782,030
General Motors Acceptance Corp., 7.4s, 2025 9,500 9,454,210
Goldman Sachs Group, 7.25s, 2005 2,530 2,542,650
K Mart Funding Corp., 8.8s, 2010 5,550 5,950,765
Lehman Brothers Holdings, Inc., 7.375s, 2007 5,500 5,625,895
Lehman Brothers, Inc., 7.125s, 2002 5,250 5,243,438
Leucadia National Corp., 8.25s, 2005 1,000 1,003,400
Navistar Financial Corp., 9.5s, 1996 4,935 5,009,025
Phoenix Re Corp., 9.75s, 2003 1,000 1,040,000
RHG Finance Corp., 8.875s, 2005 5,000 4,995,050
Salton Sea Funding Corp., 7.37s, 2005## 5,250 5,267,850
Salton Sea Funding Corp., 7.84s, 2010## 5,250 5,248,215
--------------
$58,162,528
- ---------------------------------------------------------------------------------------------------
Foreign - U.S. Dollar Denominated - 2.2%
Banco Santander S.A., 7.875s, 2005 $ 6,000 $ 6,325,020
Financiera Energetica Nacional S.A., 6.625s, 1996## 5,360 5,319,800
Hanson Overseas, 6.75s, 2005 7,715 7,698,035
Hidroelectrica Alicura, 8.375s, 1999## 6,244 5,619,600
Korea Electric Power Corp., 7.75s, 2013 20,675 21,037,640
Ocensa, 9.35s, 2005## 3,500 3,517,500
Petronas Malaysia, 6.875s, 2003## 1,000 1,002,080
</TABLE>
7
<PAGE>
Portfolio of Investments - continued
Non-Convertible Bonds - continued
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted) Value
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Foreign - U.S. Dollar Denominated - continued
Province of Ontario, 7s, 2005 $ 7,880 $ 8,027,758
Province of Quebec, 8.8s, 2003 3,500 3,890,705
Province of Saskatchewan, 9.375s, 2020 500 615,135
Republic of Argentina, Floating Rate, 2023 1,000 573,750
Republic of Argentina, 5s, 2023 2,000 960,000
Republic of Colombia, 8.75s, 1999 3,640 3,776,500
Republic of Greece, 9.75s, 1999 3,070 3,330,612
--------------
$71,694,135
- ---------------------------------------------------------------------------------------------------
Industrials - 11.5%
Building - 0.2%
American Standard, Inc., 0s to 1998, 10.5s to 2005 $ 1,750 $ 1,421,875
Black & Decker Corp., 8.44s, 1999 1,690 1,785,823
Nortek, Inc., 9.875s, 2004 500 453,750
Owens Corning Fiberglass Corp., 8.875s, 2002 1,390 1,510,291
Owens Corning Fiberglass Corp., 9.9s, 2015## 2,500 2,757,092
USG Corp., 9.25s, 2001 250 264,375
--------------
$ 8,193,206
- ---------------------------------------------------------------------------------------------------
Chemicals - 0.1%
Koppers Industries, Inc., 8.5s, 2004 $ 2,000 $ 1,865,000
NL Industries, Inc., 11.75s, 2003 750 791,250
--------------
$ 2,656,250
- ---------------------------------------------------------------------------------------------------
Consumer Goods and Services - 0.1%
ADT Operations, Inc., 9.25s, 2003 $ 1,000 $ 1,042,500
Sealy Corp., 9.5s, 2003 1,000 990,000
Westpoint Stevens, Inc., 9.375s, 2005 2,000 1,945,000
--------------
$ 3,977,500
- ---------------------------------------------------------------------------------------------------
Containers - 0.3%
Container Corp. of America, 10.75s, 2002 $ 750 $ 789,375
Container Corp. of America, 9.75s, 2003 250 251,250
Owens-Illinois, Inc., 9.75s, 2004 4,500 4,612,500
Stone Container Corp., 9.875s, 2001 1,900 1,876,250
Stone Container Corp., 10.75s, 2002 2,100 2,178,750
--------------
$ 9,708,125
- ---------------------------------------------------------------------------------------------------
Entertainment - 0.9%
Time Warner, Inc., 7.75s, 2005 $ 4,382 $ 4,406,276
Time Warner, Inc., 9.125s, 2013 15,000 16,280,550
Time Warner, Inc., 9.15s, 2023 8,000 8,680,880
--------------
$29,367,706
- ---------------------------------------------------------------------------------------------------
Food and Beverage Products - 1.4%
Borden, Inc., 9.875s, 1997 $ 4,500 $ 4,744,485
Borden, Inc., 9.2s, 2021 7,900 8,599,703
Borden, Inc., 7.875s, 2023 3,500 3,330,670
Canandaigua Wine, Inc., 8.75s, 2003 2,700 2,673,000
Coca-Cola Bottling Group Southwest, Inc., 9s, 2003 1,000 990,000
</TABLE>
8
<PAGE>
Portfolio of Investments - continued
Non-Convertible Bonds - continued
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted) Value
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Industrials - continued
Food and Beverage Products - continued
Nabisco, Inc., 7.55s, 2015 $ 9,160 $ 9,114,566
RJR Nabisco, Inc., 8s, 2000 2,500 2,533,700
RJR Nabisco, Inc., 8.75s, 2005 4,255 4,292,359
RJR Nabisco, Inc., 8.75s, 2007 10,000 9,958,000
--------------
$46,236,483
- ---------------------------------------------------------------------------------------------------
Forest and Paper Products - 0.9%
Avenor, Inc., 9.375s, 2004 $ 5,350 $ 5,855,147
Brascan, 7.375s, 2002 6,000 5,992,500
Canadian Pacific Forest, 10.25s, 2003 3,700 4,170,529
Georgia-Pacific Corp., 9.875s, 2021 8,215 9,265,206
Georgia-Pacific Corp., 8.125s, 2023 1,550 1,562,974
Georgia Pacific Corp., 8.625s, 2025 3,190 3,377,636
--------------
$30,223,992
- ---------------------------------------------------------------------------------------------------
Medical and Health Technology and Services - 0.1%
OrNda Healthcorp, 12.25s, 2002 $ 2,250 $ 2,486,250
- ---------------------------------------------------------------------------------------------------
Metals and Minerals - 0.3%
ASARCO, Inc., 8.5s, 2025 $ 7,000 $ 7,547,260
Kaiser Aluminum & Chemical Corp., 9.875s, 2002 1,000 1,000,000
--------------
$ 8,547,260
- ---------------------------------------------------------------------------------------------------
Oils - 1.9%
Enron Corp., 7.125s, 2007 $ 7,000 $ 7,144,340
Gulf Canada Resources Ltd., 9.25s, 2004 1,000 990,000
Louisiana Land & Exploration, 7.65s, 2023 13,520 13,261,903
Noram Energy Corp., 7.5s, 2000 10,750 10,819,122
Oryx Energy Co., 6.23s, 1995 5,000 4,998,050
Oryx Energy Co., 9.3s, 1996 14,650 14,819,208
USX-Marathon Group, 8.875s, 1997 5,000 5,210,250
Union Texas Petroleum Holdings, 8.5s, 2007 5,340 5,871,597
--------------
$63,114,470
- ---------------------------------------------------------------------------------------------------
Pollution Control - 0.1%
Laidlaw, Inc., 8.75s, 2025 $ 3,040 $ 3,383,915
- ---------------------------------------------------------------------------------------------------
Precious Metals and Minerals - 0.2%
Santa Fe Pacific Gold, 8.375s, 2005 $ 5,250 $ 5,240,182
- ---------------------------------------------------------------------------------------------------
Printing and Publishing - 0.9%
News America Holdings, Inc., 7.45s, 2000 $ 3,400 $ 3,483,436
News America Holdings, Inc., 7.5s, 2000 1,700 1,745,985
News America Holdings, Inc., 10.125s, 2012 10,000 11,639,700
News America Holdings, Inc., 9.5s, 2024 3,000 3,529,920
Valassis Inserts, 9.375s, 1999 7,499 7,621,684
--------------
$28,020,725
- ---------------------------------------------------------------------------------------------------
Restaurants and Lodging
Four Seasons Hotels, Inc., 9.125s, 2000## $ 1,000 $ 973,750
- ---------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
Portfolio of Investments - continued
Non-Convertible Bonds - continued
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted) Value
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Industrials - continued
Special Products and Services - 0.2%
Eagle Industries, Inc., 0s, 2003 $ 500 $ 390,000
IMC Fertilizer Group, 9.25s, 2000 4,000 4,120,000
Mark IV Industries, Inc., 8.75s, 2003 400 408,000
OSI Specialties, Inc., 9.25s, 2003 500 545,000
--------------
$ 5,463,000
- ---------------------------------------------------------------------------------------------------
Steel - 0.1%
AK Steel Holdings Corp., 10.75s, 2004 $ 2,000 $ 2,137,500
Weirton Steel Corp., 10.75s, 2005## 1,750 1,618,750
--------------
$ 3,756,250
- ---------------------------------------------------------------------------------------------------
Stores - 1.1%
Dayton-Hudson Corp., 9s, 2021 $ 10,000 $ 11,508,900
Eckerd (Jack) Corp., 9.25s, 2004 500 526,250
Finlay Enterprises, Inc., 12s, 2005 1,500 1,035,000
Finlay Fine Jewelry, 10.625s, 2003 1,000 990,000
K Mart Corp., 8.125s, 2006 5,490 5,696,040
K Mart Corp., 8.99s, 2010 4,000 4,169,156
K Mart Corp., 9.35s, 2020 13,000 13,016,250
--------------
$ 36,941,596
- ---------------------------------------------------------------------------------------------------
Supermarkets - 0.4%
Kroger Co., 8.5s, 2003 $ 750 $ 776,250
Kroger Co., 9.25s, 2005 4,250 4,568,750
Purity Supreme, Inc., 11.75s, 1999 750 819,375
Safeway Stores, Inc., 9.65s, 2004 4,000 4,440,000
Stop & Shop Cos., Inc., 9.75s, 2002 1,700 1,853,000
--------------
$ 12,457,375
- ---------------------------------------------------------------------------------------------------
Telecommunications - 1.7%
MFS Communications, Inc., 0s, 2004 $ 2,850 $ 2,158,875
Paging Network, Inc., 8.875s, 2006 3,000 2,917,500
Rogers Cablesystems Ltd., 9.625s, 2002 350 360,500
TCI Communications, Inc., 8.75s, 2015 6,749 7,042,379
Tele Communications, Inc., 7.38s, 2001 5,250 5,317,252
Tele Communications, Inc., 9.8s, 2012 4,760 5,418,546
Tele Communications, Inc., 9.25s, 2023 15,741 16,529,782
USA Mobile Communication, 9.5s, 2004 500 465,000
Viacom, Inc., 7.75s, 2005 15,000 15,289,800
--------------
$ 55,499,634
- ---------------------------------------------------------------------------------------------------
Other - 0.6%
FHP International Corp., 7s, 2003 $ 3,000 $ 2,961,630
McDonnell Douglas Co., 9.25s, 2002 8,380 9,423,394
Raytheon Co., 7.375s, 2025 3,550 3,518,866
Rouse Co., 8.5s, 2003 4,000 4,240,480
--------------
$ 20,144,370
- ---------------------------------------------------------------------------------------------------
Total Industrials $376,392,039
- ---------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
Portfolio of Investments - continued
Non-Convertible Bonds - continued
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted) Value
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Insurance - 0.3%
CCP Insurance, Inc., 10.5s, 2004 $ 4,180 $ 4,475,024
Travelers Group, Inc., 7.875s, 2025 5,200 5,418,504
--------------
$ 9,893,528
- ---------------------------------------------------------------------------------------------------
Transportation - 1.0%
Delta Air Lines, Inc., 9.75s, 2021 $ 3,680 $ 4,140,846
Delta Air Lines, Inc., 10.375s, 2022 5,000 5,977,800
Jet Equipment Trust, 10.91s, 2006## 7,489 8,443,204
Jet Equipment Trust, 9.71s, 2014## 2,000 2,104,780
Jet Equipment Trust, 10.69s, 2015## 1,250 1,398,275
Northwest Airlines Trust, 9.25s, 2014 3,901 4,432,948
Qantas Airways Ltd., 7.5s, 2003## 5,000 5,067,700
--------------
$31,565,553
- ---------------------------------------------------------------------------------------------------
U.S. Government Agencies - 2.6%
Federal National Mortgage Association - 2.1%
FNMA, 8.5s, 2003 $ 75 $ 77,350
FNMA, 8.5s, 2005 17,000 18,248,480
FNMA, 8.5s, 2005 163 168,717
FNMA, 8.5s, 2006 1,289 1,335,867
FNMA, 8.5s, 2007 74 76,353
FNMA, 9s, 2001 55 57,537
FNMA, 9s, 2002 5 5,366
FNMA, 9s, 2004 131 136,916
FNMA, 9s, 2005 543 567,912
FNMA, 9s, 2006 1,046 1,092,100
FNMA, 9.5s, 2024 4,043 4,274,074
FNMA, 9.5s, 2025 41,151 43,503,680
--------------
$69,544,352
- ---------------------------------------------------------------------------------------------------
Other - 0.5%
Resolution Funding Corp., Strips, 0s, 2020 $ 90,900 $16,478,352
- ---------------------------------------------------------------------------------------------------
Total U.S. Government Agencies $86,022,704
- ---------------------------------------------------------------------------------------------------
U.S. Government Guaranteed - 6.3%
Government National Mortgage Association
GNMA, 9s, 2017 $ 525 $ 552,970
- ---------------------------------------------------------------------------------------------------
Small Business Administration
SBA, 8.8s, 2000 $ 558 $ 615,979
- ---------------------------------------------------------------------------------------------------
U.S. Treasury Obligations - 6.3%
Stripped Principal Payments, 0s, 2020 $126,800 $24,038,744
U.S. Treasury Notes, 7.25s, 1996 89,500 90,855,070
U.S. Treasury Notes, 7.375s, 1997 46,500 47,858,730
U.S. Treasury Notes, 6.75s, 1999 13,500 13,833,315
U.S. Treasury Notes, 7.5s, 1999 900 947,673
U.S. Treasury Notes, 6.25s, 2000 4,285 4,323,822
U.S. Treasury Notes, 7.125s, 2000 12,375 12,893,141
U.S. Treasury Notes, 7.75s, 2000 1,500 1,597,035
</TABLE>
11
<PAGE>
Portfolio of Investments - continued
Non-Convertible Bonds - continued
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted) Value
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Government Guaranteed - continued
U.S. Treasury Obligations - continued
U.S. Treasury Notes, 7.25s, 2004 $ 6,500 $ 6,949,930
U.S. Treasury Notes, 7.875s, 2004 1,048 1,165,407
U.S. Treasury Bonds, 7.5s, 2024 1,575 1,752,928
--------------
$206,215,795
- ---------------------------------------------------------------------------------------------------
Total U.S. Government Guaranteed $207,384,744
- ---------------------------------------------------------------------------------------------------
Utilities - Electric - 4.9%
BVPS II Funding Corp., 8.33s, 2007 $ 7,500 $ 7,368,075
Central Maine Power Co., 7.98s, 1996 5,000 5,080,700
Central Maine Power Co., 7.45s, 1999 2,500 2,506,250
Cleveland Electric Illumination, 9.5s, 2005 3,950 3,955,530
Commonwealth Edison Co., 9.5s, 2016 5,245 5,505,991
Commonwealth Edison Co., 8.5s, 2022 3,000 3,147,090
Commonwealth Edison Co., 8.375s, 2023 14,630 15,239,632
First PV Funding Corp., 10.3s, 2014 3,310 3,363,788
First PV Funding Corp., 10.15s, 2016 13,493 13,493,000
Gulf States Utilities Co., 8.25s, 2004 4,750 5,071,432
Long Island Lighting Co., 8.75s, 1997 8,000 8,203,040
Long Island Lighting Co., 7.625s, 1998 5,400 5,493,366
Long Island Lighting Co., 8.9s, 2019 16,000 15,857,120
Long Island Lighting Co., 9.625s, 2024 2,500 2,559,375
Louisiana Power & Light Co., 10.67s, 2017 2,065 2,220,618
Louisiana Power & Light Co., 10.67s, 2017 1,000 1,075,360
Midland Cogeneration Venture Corp., 10.33s, 2002 3,458 3,561,319
Midland Funding Corp. II, "A", 11.75s, 2005 6,140 6,447,000
Niagara Mohawk Power Co., 9.25s, 2001 4,390 4,825,664
Niagara Mohawk Power Co., 6.875s, 2003 2,500 2,451,700
Niagara Mohawk Power Co., 8s, 2004 2,800 2,929,696
Niagara Mohawk Power Co., 9.75s, 2005 6,500 7,582,705
Niagara Mohawk Power Co., 7.75s, 2006 12,260 12,589,058
Niagara Mohawk Power Co., 8.75s, 2022 7,880 8,129,008
Ohio Edison Co., 7.375s, 2002 1,855 1,897,999
PNPP II Funding Corp., 8.51s, 2006 4,361 4,373,385
Texas & New Mexico Power Co., 12.5s, 1999 3,623 4,075,875
--------------
$159,003,776
- ---------------------------------------------------------------------------------------------------
Utilities - Gas - 1.1%
ANR Pipeline Co., 7s, 2005 $ 8,220 $ 8,464,463
California Energy Co., 0s, 2004 4,400 3,872,000
Coastal Corp., 10.375s, 2000 4,645 5,276,581
Northwest Pipeline Co., 9s, 2022 1,580 1,702,260
Panhandle Eastern Corp., 8.625s, 2025 3,765 4,053,700
Parker & Parsley Petroleum, 8.25s, 2007 3,070 3,181,288
Southern Union Co., 7.6s, 2024 9,500 9,420,010
Texas Eastern Corp., 9s, 1997 1,000 1,032,500
--------------
$ 37,002,802
- ---------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
Portfolio of Investments - continued
Non-Convertible Bonds - continued
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted) Value
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Utilities - Telephone - 0.1%
Century Telephone Enterprises, 8.25s, 2024 $ 4,400 $ 4,636,104
- ---------------------------------------------------------------------------------------------------
Total Non-Convertible Bonds (Identified Cost,
$1,085,097,487) $1,151,940,627
- ---------------------------------------------------------------------------------------------------
Convertible Bonds - 3.8%
- ---------------------------------------------------------------------------------------------------
Banks and Credit Companies - 0.2%
Bank of New York Co., Inc., 7.5s, 2001 $ 3,000 $ 7,061,250
- ---------------------------------------------------------------------------------------------------
Chemicals - 0.3%
Sandoz, 2s, 2002## $ 2,240 $ 1,818,208
Valhi, Inc., 0s, 1997 19,889 7,408,652
--------------
$ 9,226,860
- ---------------------------------------------------------------------------------------------------
Computer Software - Personal Computers - 0.1%
Altera Corp., 5.75s, 2002## $ 1,400 $ 1,967,000
- ---------------------------------------------------------------------------------------------------
Conglomerates - 0.1%
Cooper Industries, 7.05s, 2015 $ 3,000 $ 3,018,750
- ---------------------------------------------------------------------------------------------------
Consumer Goods and Services - 0.1%
Coleman Worldwide Corp., 0s, 1998 $ 6,250 $ 1,914,062
Fieldcrest Cannon Industries, 6s, 2012 3,000 2,527,500
--------------
$ 4,441,562
- ---------------------------------------------------------------------------------------------------
Electrical Equipment - 0.1%
National Semiconductor, 6.5s, 2002## $ 2,000 $ 2,000,000
- ---------------------------------------------------------------------------------------------------
Electronics - 0.3%
ADT Operations, Inc., 0s, 2010 $ 9,475 $ 4,133,469
VLSI Technology, Inc., 8.25s, 2005 4,600 4,646,000
--------------
$ 8,779,469
- ---------------------------------------------------------------------------------------------------
Entertainment - 0.1%
Time Warner, Inc., 8.75s, 2015 $ 2,742 $ 2,851,212
- ---------------------------------------------------------------------------------------------------
Financial Institutions
Mitsubishi Bank, 3s, 2002 $ 1,200 $ 1,200,000
- ---------------------------------------------------------------------------------------------------
Food and Beverage Products - 0.1%
Grand Metropolitan, 6.5s, 2000## $ 3,000 $ 3,393,750
- ---------------------------------------------------------------------------------------------------
Insurance - 0.4%
Equitable Cos., Inc., 6.125s, 2024 $ 10,500 $ 11,970,000
- ---------------------------------------------------------------------------------------------------
Machinery - 0.4%
Aktiebolaget, 0s, 2002## ECU 18,100 $ 13,653,509
- ---------------------------------------------------------------------------------------------------
Medical and Health Products - 1.1%
Alza Corp., 0s, 1999 $ 10,000 $ 3,850,000
Ciba-Geigy Corp., 6.25s, 2016## 1,600 1,584,000
Roche Holdings, Inc., 0s, 2008## 32,500 23,887,500
Roche Holdings, Inc., 0s, 2010## 19,770 7,932,712
---------------
$ 37,254,212
- ---------------------------------------------------------------------------------------------------
Pollution Control - 0.1%
U.S. Filter Corp., 6s, 2005## $ 2,000 $ 2,202,500
- ---------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
Portfolio of Investments - continued
Convertible Bonds - continued
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted) Value
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Real Estate Investment Trusts--0.2%
Liberty Property Trust, 8s, 2001 $ 6,000 $ 6,322,500
- ---------------------------------------------------------------------------------------------------
Special Products and Services - 0.1%
Cemex S.A., 4.25s, 1997## $ 5,500 $ 4,585,625
- ---------------------------------------------------------------------------------------------------
Stores
Federated Department Stores, 5s, 2003 $ 1,000 $ 1,000,000
Staples, Inc., 4.5s, 2000## 500 521,250
--------------
$ 1,521,250
- ---------------------------------------------------------------------------------------------------
Telecommunications - 0.1%
LDDS Communications, Inc., 5s, 2003 $ 1,000 $ 1,028,750
Turner Broadcasting Systems, Inc., 0s, 2007## 3,000 1,342,500
--------------
$ 2,371,250
- ---------------------------------------------------------------------------------------------------
Total Convertible Bonds (Identified Cost, $118,067,804) $123,820,699
- ---------------------------------------------------------------------------------------------------
Preferred Stocks - 0.9%
- ---------------------------------------------------------------------------------------------------
Shares
- ---------------------------------------------------------------------------------------------------
Aetna Capital LLC, 9.5% 200,000 $ 5,400,000
Bank United of Texas, "B", 9.6% 200,000 5,025,000
Boise Cascade Corp., "F", 9.4% 140,000 3,710,000
Conagra Capital, "A", 9% 200,000 5,375,000
Nevada Power Co., 9.9% 20,000 2,165,000
USX Capital LLC, 8.75% 376,800 9,325,800
- ---------------------------------------------------------------------------------------------------
Total Preferred Stocks (Identified Cost, $29,744,330) $ 31,000,800
- ---------------------------------------------------------------------------------------------------
Common Stocks - 47.2%
- ---------------------------------------------------------------------------------------------------
U.S. Stocks - 46.8%
Aerospace - 1.1%
Allied Signal, Inc. 100,000 $ 4,412,500
Lockheed Martin Corp. 96,000 6,444,000
United Technologies Corp. 277,424 24,517,346
--------------
$ 35,373,846
- ---------------------------------------------------------------------------------------------------
Airlines
Midwest Express Holdings* 13,500 $ 303,750
- ---------------------------------------------------------------------------------------------------
Apparel and Textiles - 0.1%
Springs Industries, Inc. 45,000 $ 1,766,250
- ---------------------------------------------------------------------------------------------------
Automotive - 2.1%
Daimler Benz, ADR 203,500 $ 10,098,688
Dana Corp. 200,000 5,775,000
Ford Motor Co. 525,677 16,361,697
General Motors Corp. 608,269 28,512,609
Goodyear Tire & Rubber Co. 178,000 7,008,750
--------------
$ 67,756,744
- ---------------------------------------------------------------------------------------------------
Banks and Credit Companies - 4.6%
Bank of Boston Corp. 383,500 $ 18,264,188
</TABLE>
14
<PAGE>
Portfolio of Investments - continued
Common Stocks - continued
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Issuer Shares Value
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Stocks - continued
Banks and Credit Companies - continued
Bank of New York, Inc. 165,000 $ 7,672,500
Chase Manhattan Corp. 396,200 24,217,725
Citicorp 165,400 11,702,050
Comerica, Inc. 50,000 1,818,750
Corestates Financial Corp. 150,000 5,493,750
First Bank System, Inc. 250,000 12,031,250
First Union Corp. 120,000 6,120,000
National City Corp. 580,000 17,907,500
NationsBank Corp. 350,000 23,537,500
Northern Trust Co. 420,000 19,320,000
Norwest Corp. 81,700 2,675,675
--------------
$150,760,888
- ---------------------------------------------------------------------------------------------------
Business Machines - 0.9%
Hewlett-Packard Co. 45,000 $ 3,751,875
Texas Instruments, Inc. 95,000 7,588,125
Xerox Corp. 135,000 18,140,625
--------------
$ 29,480,625
- ---------------------------------------------------------------------------------------------------
Cellular Telephones - 0.1%
AirTouch Communications, Inc.* 107,812 $ 3,301,743
- ---------------------------------------------------------------------------------------------------
Chemicals - 1.6%
Dow Chemical Co. 200,000 $ 14,900,000
du Pont (E.I.) de Nemours & Co. 180,000 12,375,000
Grace (W.R.) & Co. 373,900 24,957,825
--------------
$ 52,232,825
- ---------------------------------------------------------------------------------------------------
Conglomerates - 0.9%
Eastern Enterprises 350,000 $ 11,243,750
Textron, Inc. 250,000 17,062,500
--------------
$ 28,306,250
- ---------------------------------------------------------------------------------------------------
Consumer Goods and Services - 1.6%
Colgate-Palmolive Co. 151,900 $ 10,120,338
Gillette Co. 85,600 4,076,700
Philip Morris Cos., Inc. 410,400 34,268,400
Rubbermaid, Inc. 101,200 2,795,650
--------------
$ 51,261,088
- ---------------------------------------------------------------------------------------------------
Defense Electronics - 0.2%
Loral Corp. 135,900 $ 7,746,300
- ---------------------------------------------------------------------------------------------------
Electrical Equipment - 1.4%
Alcatel Alsthom Compagnie, ADR 330,000 $ 5,610,000
Emerson Electric Co. 100,000 7,150,000
General Electric Co. 215,372 13,729,965
Honeywell, Inc. 431,000 18,479,125
--------------
$ 44,969,090
- ---------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
Portfolio of Investments - continued
Common Stocks - continued
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Issuer Shares Value
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Stocks - continued
Electronics - 0.3%
AMP, Inc. 60,000 $ 2,310,000
Perkin-Elmer Corp. 230,000 8,193,750
--------------
$ 10,503,750
- ---------------------------------------------------------------------------------------------------
Financial Institutions - 1.1%
Bear Stearns Cos., Inc. 170,490 $ 3,665,556
Dean Witter Discover & Co., Inc. 225,796 12,701,025
Federal Home Loan Mortgage Corp. 215,000 14,861,875
Integra Financial Corp. 90,000 5,231,250
--------------
$ 36,459,706
- ---------------------------------------------------------------------------------------------------
Food and Beverage Products - 2.3%
Anheuser-Busch Cos., Inc. 130,000 $ 8,108,750
Campbell Soup Co. 27,500 1,396,942
CPC International, Inc. 235,000 15,510,000
Coca-Cola Co. 120,000 8,280,000
General Mills, Inc. 318,000 17,728,500
Kellog Co. 80,000 5,790,000
McCormick & Co. Inc. 41,700 995,588
PepsiCo, Inc. 355,000 18,105,000
--------------
$ 75,914,780
- ---------------------------------------------------------------------------------------------------
Forest and Paper Products - 0.8%
Bowater, Inc. 227,914 $ 10,626,490
Georgia-Pacific Corp. 34,500 3,018,750
Kimberly Clark Corp. 20,000 1,342,500
Scott Paper Co. 30,000 1,453,050
Weyerhaeuser Co. 220,000 10,037,500
--------------
$ 26,478,290
- ---------------------------------------------------------------------------------------------------
Insurance - 4.5%
Aetna Life & Casualty Co. 460,600 $ 33,796,525
Allstate Corp. 279,779 9,897,182
American General Corp. 400,000 14,950,000
CIGNA Corp. 324,800 33,819,800
Lincoln National Corp. 91,000 4,288,375
MBIA, Inc. 160,000 11,280,000
Reliastar Financial Corp. 275,000 11,171,875
Torchmark Corp. 125,000 5,265,625
Travelers, Inc. 286,269 15,208,041
UNUM Corp. 156,000 8,229,000
--------------
$147,906,423
- ---------------------------------------------------------------------------------------------------
Machinery - 0.5%
Caterpillar, Inc. 70,008 $ 3,981,705
Deere & Co., Inc. 86,000 6,998,250
Ingersoll Rand Co. 119,000 4,462,500
--------------
$ 15,442,455
- ---------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
Portfolio of Investments - continued
Common Stocks - continued
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Issuer Shares Value
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Stocks - continued
Medical and Health Products - 2.0%
American Home Products Corp. 260,000 $ 22,067,500
Baxter International, Inc. 257,300 10,581,463
Lilly (Eli) & Co. 205,000 18,424,375
SmithKline Beecham PLC, ADR 250,000 12,656,250
Warner Lambert Co. 30,000 2,857,500
--------------
$ 66,587,088
- ---------------------------------------------------------------------------------------------------
Metals and Minerals - 0.6%
Cyprus Amax Minerals 300,000 $ 8,437,500
Phelps Dodge Corp. 192,560 12,059,070
--------------
$ 20,496,570
- ---------------------------------------------------------------------------------------------------
Oil Services - 0.5%
Dresser Industries, Inc. 100,000 $ 2,387,500
Schlumberger Ltd. 222,512 14,518,908
--------------
$ 16,906,408
- ---------------------------------------------------------------------------------------------------
Oils - 5.9%
Amoco Corp. 324,500 $ 20,808,563
Atlantic Richfield Co. 102,300 10,984,463
British Petroleum PLC, ADR 207,922 18,687,032
Chevron Corp. 245,400 11,932,575
Exxon Corp. 270,836 19,567,901
Mobil Corp. 200,000 19,925,000
Occidental Petroleum Corp. 700,000 15,400,000
Royal Dutch Petroleum Co., ADR 260,000 31,915,000
Sun, Inc. 204,582 5,267,986
TOTAL S.A., ADR 343,000 10,332,875
USX-Marathon Group 799,400 15,788,150
Ultramar Corp. 280,000 6,650,000
YPF Sociedad Anonima, ADR 280,000 5,040,000
--------------
$192,299,545
- ---------------------------------------------------------------------------------------------------
Photographic Products - 0.6%
Eastman Kodak Co. 320,500 $ 18,989,625
- ---------------------------------------------------------------------------------------------------
Pollution Control - 0.2%
WMX Technologies, Inc. 200,000 $ 5,700,000
- ---------------------------------------------------------------------------------------------------
Precious Metals and Minerals - 0.1%
Freeport-McMoRan Copper & Gold, Inc. 156,483 $ 4,009,877
- ---------------------------------------------------------------------------------------------------
Railroads - 0.6%
CSX Corp. 164,000 $ 13,796,500
Illinois Central Corp. 120,000 4,695,000
--------------
$ 18,491,500
- ---------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
Portfolio of Investments - continued
Common Stocks - continued
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Issuer Shares Value
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Stocks - continued
Real Estate Investment Trusts - 1.4%
Beacon Properties Corp. 303,400 $ 6,485,175
Equity Residential Properties 54,000 1,626,750
Health Care Property Investors, Inc. 107,400 3,638,175
Hospitality Properties Trust 380,000 9,975,000
Kimco Realty Corp. 48,800 1,945,900
Meditrust Corp. 254,800 8,822,450
National Health Investors, Inc. 244,400 7,393,100
Oasis Residential 100,000 2,250,000
Omega Healthcare Investors 80,000 2,140,000
Storage Equities, Inc. 49,200 916,350
Sun Communities, Inc. 85,800 2,230,800
--------------
$47,423,700
- ---------------------------------------------------------------------------------------------------
Special Products and Services - 0.4%
Minnesota Mining & Manufacturing Co. 80,000 $ 4,520,000
Pennsylvania Enterprises, Inc. 105,000 3,622,500
Stanley Works 130,000 5,638,750
--------------
$13,781,250
- ---------------------------------------------------------------------------------------------------
Stores - 1.7%
Dayton-Hudson Corp. 122,100 $ 9,264,338
May Department Stores Co. 619,760 27,114,500
Penney (J.C.), Inc. 120,000 5,955,000
Sears, Roebuck & Co. 358,400 13,216,000
--------------
$55,549,838
- ---------------------------------------------------------------------------------------------------
Utilities - Electric - 1.9%
CMS Energy Corp. 300,000 $ 7,875,000
FPL Group, Inc. 420,000 17,167,500
General Public Utilities Co. 125,000 3,890,625
Pacific Gas & Electric Co. 300,600 8,980,425
PECO Energy Co. 350,000 10,018,750
Pinnacle West Capital Corp. 50,000 1,312,500
Portland General Electric Corp. 57,700 1,481,349
Rochester Gas & Electric Corp. 71,800 1,696,275
Texas Utilities Co. 60,000 2,092,500
Unicom Corp. 223,900 6,772,975
--------------
$61,287,899
- ---------------------------------------------------------------------------------------------------
Utilities - Gas - 3.3%
British Gas PLC, ADR 75,000 $ 3,131,250
Coastal Corp. 195,000 6,556,875
Enron Corp. 270,000 9,045,000
Pacific Enterprises 676,400 16,994,550
Panhandle Eastern Corp. 218,000 5,940,500
Questar Corp. 35,000 1,124,375
Sonat, Inc. 420,000 13,440,000
Tenneco, Inc. 350,000 16,187,500
</TABLE>
18
<PAGE>
Portfolio of Investments - continued
Common Stocks - continued
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Issuer Shares Value
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Stocks - continued
Utilities - Gas - continued
UGI Corp. 410,000 $ 8,456,250
Williams Cos., Inc. 720,012 28,080,468
--------------
$ 108,956,768
- ---------------------------------------------------------------------------------------------------
Utilities - Telephone - 3.5%
AT & T Corp. 409,000 $ 26,891,750
Ameritech Corp. 211,416 11,020,059
Frontier Corp. 199,600 5,314,350
GTE Corp. 422,000 16,563,500
MCI Communications Corp. 453,000 11,806,312
NYNEX Corp. 268,800 12,835,200
Pacific Telesis Group 150,000 4,612,500
SBC Communications, Inc. 126,600 6,963,000
Sprint Corp. 377,900 13,226,500
Tele Danmark, ADR 155,000 4,010,625
--------------
$ 113,243,796
- ---------------------------------------------------------------------------------------------------
Total U.S. Stocks (Identified Cost, $1,090,951,534) $1,529,688,667
- ---------------------------------------------------------------------------------------------------
Foreign Stocks - 0.4%
Spain - 0.2%
Iberdrola (Utilities - Electric) 750,000 $ 5,686,275
- ---------------------------------------------------------------------------------------------------
United Kingdom - 0.2%
National Power PLC (Utilities - Electric) 1,132,000 $ 4,049,051
PowerGen PLC (Utilities - Electric) 729,000 2,872,916
--------------
$ 6,921,967
- ---------------------------------------------------------------------------------------------------
Total Foreign Stocks (Identified Cost, $10,904,269) $ 12,608,242
- ---------------------------------------------------------------------------------------------------
Total Common Stocks (Identified Cost, $1,101,855,803) $1,542,296,909
- ---------------------------------------------------------------------------------------------------
Convertible Preferred Stocks - 5.0%
- ---------------------------------------------------------------------------------------------------
Agricultural Products - 0.2%
Case Corp., $4.50 70,000 $ 7,131,250
- ---------------------------------------------------------------------------------------------------
Apparel and Textiles - 0.1%
Owens Corning Capital LLC, 6.5%## 55,000 $ 3,245,000
- ---------------------------------------------------------------------------------------------------
Automotive - 0.3%
General Motors Corp., $3.25 140,000 $ 9,082,500
- ---------------------------------------------------------------------------------------------------
Banks and Credit Companies - 0.8%
Citicorp, 10.75% 100,000 $ 19,550,000
Washington Mutual, Inc., "D", $6.00 52,000 5,473,000
------------
$ 25,023,000
- ---------------------------------------------------------------------------------------------------
Business Services
ALCO Standard Corp., $5.04 15,000 $ 1,263,750
- ---------------------------------------------------------------------------------------------------
Construction Services - 0.1%
Southdown, Inc., "D", $2.875 48,700 $ 1,893,212
- ---------------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE>
Portfolio of Investments - continued
Convertible Preferred Stocks - continued
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Issuer Shares Value
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Entertainment - 0.1%
Bally Entertainment, 8% 195,000 $ 2,193,750
- ---------------------------------------------------------------------------------------------------
Financial Institutions - 0.5%
Advanta Corp., 6.75%* 30,000 $ 1,263,750
First Chicago Corp., "B", 5.75% 176,100 11,314,425
Merrill Lynch & Co., 6.50% 66,600 3,646,350
------------
$16,224,525
- ---------------------------------------------------------------------------------------------------
Food and Beverage Products - 0.2%
RJR Nabisco Holdings, "C", 9.25% 1,100,700 $ 7,429,725
- ---------------------------------------------------------------------------------------------------
Insurance - 0.2%
Allstate Corp., 6.76% 10,000 $ 426,250
St. Paul Capital LLC, 6% 101,700 5,949,450
------------
$ 6,375,700
- ---------------------------------------------------------------------------------------------------
Medical and Health Technology and Services
SCI Finance LLC, "A", $3.125 15,000 $ 1,049,025
- ---------------------------------------------------------------------------------------------------
Oil Services - 0.1%
Reading & Bates Corp., $1.625 95,200 $ 3,427,200
- ---------------------------------------------------------------------------------------------------
Oils - 0.6%
Atlantic Richfield Co., 9% 429,551 $10,953,550
Occidental Petroleum Corp., $3.875 140,000 8,050,000
------------
$19,003,550
- ---------------------------------------------------------------------------------------------------
Pollution Control - 0.3%
Browning-Ferris Industries, 7.25%* 275,000 $ 9,143,750
- ---------------------------------------------------------------------------------------------------
Precious Metals and Minerals - 0.3%
Freeport-McMoRan Copper & Gold, Inc., 7% 120,000 $ 3,300,000
Freeport-McMoRan Copper & Gold, Inc., 5% 200,000 5,150,000
------------
$ 8,450,000
- ---------------------------------------------------------------------------------------------------
Real Estate Investment Trusts - 0.2%
Catellus Development Corp., $3.75 13,200 $ 631,950
Oasis Residential, "A", 9% 70,000 1,811,250
Security Capital Pacific, "A", $1.75 164,000 3,956,500
Wellsford Residential Property Trust, "A", 7% 90,000 1,766,250
------------
$ 8,165,950
- ---------------------------------------------------------------------------------------------------
Special Products and Services - 0.2%
Ceridian Corp., 5.5% 68,000 $ 6,596,000
- ---------------------------------------------------------------------------------------------------
Steel - 0.2%
AK Steel Holdings Corp., 7% 216,500 $ 6,549,125
- ---------------------------------------------------------------------------------------------------
Utilities - Electric - 0.1%
Williams Cos., Inc., 7%## 58,000 $ 3,994,750
- ---------------------------------------------------------------------------------------------------
Utilities - Gas - 0.1%
Western Gas Resources, Inc., $2.625 61,000 $ 2,226,500
- ---------------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE>
Portfolio of Investments - continued
Convertible Preferred Stocks - continued
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Issuer Shares Value
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Utilities - Telephone - 0.4%
Cointel, 7%## 299,800 $ 14,727,675
- ---------------------------------------------------------------------------------------------------
Total Convertible Preferred Stocks (Identified Cost, $154,774,892) $ 163,195,937
-------------------------------------------------------------------------------------------------
</TABLE>
Short-Term Obligations - 7.9%
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Principal Amount
(000 Omitted)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
AT&T Corp., due 11/28/95 $ 7,400 $ 7,331,599
du Pont (E.I.) de Nemours & Co., due 10/25/95 15,000 14,941,041
Federal Farm Credit Bank, due 11/03/95 - 11/06/95 6,500 6,465,368
Federal Home Loan Bank, due 10/10/95 - 11/30/95 25,800 25,670,904
Federal Home Loan Mortgage Corp., due 10/20/95 - 11/20/95 84,093 83,676,574
Federal National Mortgage Assn., due 10/02/95 - 11/17/95 65,175 64,979,913
Ford Motor Credit Co., due 10/27/95 10,500 10,454,719
GTE South, due 10/04/95 7,800 7,795,016
Heinz (H.J.) Co., due 10/03/95 - 10/13/95 16,354 16,340,773
PepsiCo, Inc., due 10/03/95 12,300 12,294,168
Wal Mart Stores, due 11/21/95 7,400 7,339,073
- ---------------------------------------------------------------------------------------------------
Total Short-Term Obligations, at Amortized Cost $ 257,289,148
- ---------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $2,746,829,464) $3,269,544,120
Other Assets, Less Liabilities 1,164,726
- ---------------------------------------------------------------------------------------------------
Net Assets - 100.0% $3,270,708,846
- ---------------------------------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
## SEC Rule 144A security.
+ Restricted security.
ECU = Principal amount of security denominated in European Currency Units.
See notes to financial statements
21
<PAGE>
Financial Statements
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
September 30, 1995
- -----------------------------------------------------------------------------------------
<S> <C>
Assets:
Investments, at value (identified cost, $2,746,829,464) $3,269,544,120
Cash 16,688
Receivable for investments sold 48,388,417
Receivable for Fund shares sold 3,664,095
Interest and dividends receivable 29,056,870
Receivable from investment adviser 93,132
Other assets 58,151
-----------
Total assets $3,350,821,473
===========
Liabilities:
Distributions payable $ 1,667,599
Payable for investments purchased 69,267,792
Payable for Fund shares reacquired 7,245,963
Payable to affiliates -
Management fee 52,437
Shareholder servicing agent fee 24,598
Distribution fee 1,227,748
Accrued expenses and other liabilities 626,490
-----------
Total liabilities $ 80,112,627
-----------
Net assets $3,270,708,846
===========
Net assets consist of:
Paid-in capital $2,648,454,101
Unrealized appreciation on investments and translation of assets and
liabilities in foreign currencies 522,715,383
Accumulated undistributed net realized gain on investments and foreign
currency transactions 98,017,011
Accumulated undistributed net investment income 1,522,351
-----------
Total $3,270,708,846
===========
Shares of beneficial interest outstanding 226,115,458
===========
Class A shares:
Net asset value and redemption price per share
(net assets of $2,242,435,897 / 155,030,940 shares of beneficial
interest outstanding) $14.46
===========
Offering price per share (100/95.25) $15.18
===========
Class B shares:
Net asset value and offering price per share
(net assets of $1,005,413,281 / 69,507,266 shares of beneficial
interest outstanding) $14.46
===========
Class C shares:
Net asset value, offering price and redemption price
(net assets of $22,859,668 / 1,577,252 shares of beneficial interest
outstanding) $14.49
===========
</TABLE>
On sales of $100,000 or more, the offering price of Class A shares is
reduced. A contingent deferred sales charge may be imposed on redemptions of
Class A and Class B shares.
See notes to financial statements
22
<PAGE>
Financial Statements - continued
Statement of Operations
<TABLE>
<CAPTION>
<S> <C>
- -----------------------------------------------------------------------------------------
Year Ended September 30, 1995
- -----------------------------------------------------------------------------------------
Net investment income:
Income -
Interest $105,318,026
Dividends 59,076,808
Foreign taxes withheld (478,396)
-----------
Total investment income $163,916,438
-----------
Expenses -
Management fee $ 11,256,389
Trustees' compensation 101,257
Shareholder servicing agent fee (Class A) 2,237,146
Shareholder servicing agent fee (Class B) 1,822,990
Shareholder servicing agent fee (Class C) 11,855
Distribution and service fee (Class A) 6,927,348
Distribution and service fee (Class B) 9,013,390
Distribution and service fee (Class C) 79,034
Custodian fee 629,779
Postage 554,164
Printing 267,348
Auditing fees 79,600
Legal fees 22,496
Miscellaneous 1,717,103
-----------
Total expenses $ 34,719,899
Reduction of expenses by distributor (1,978,583)
Fees paid indirectly (227,012)
-----------
Net expenses $ 32,514,304
-----------
Net investment income $131,402,134
-----------
Realized and unrealized gain (loss) on investments:
Realized gain (identified cost basis) -
Investment transactions $120,747,175
Foreign currency transactions 39,733
-----------
Net realized gain on investments $120,786,908
-----------
Change in unrealized appreciation (depreciation) -
Investments $242,713,291
Translation of assets and liabilities in foreign
currencies (88,386)
-----------
Net unrealized gain on investments $242,624,905
-----------
Net realized and unrealized gain on investments and
foreign currency $363,411,813
-----------
Increase in net assets from operations $494,813,947
===========
</TABLE>
See notes to financial statements
23
<PAGE>
Financial Statements - continued
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Year Ended September 30, 1995 1994
<S> <C> <C>
- -----------------------------------------------------------------------------------------
Increase (decrease) in net assets:
From operations -
Net investment income $ 131,402,134 $ 100,428,299
Net realized gain (loss) on investments and
foreign currency transactions 120,786,908 (27,333,507)
Net unrealized gain (loss) on investments and
foreign currency translation 242,624,905 (106,132,819)
--------- -----------
Increase (decrease) in net assets from
operations $ 494,813,947 $ (33,038,027)
--------- -----------
Distributions declared to shareholders -
From net investment income (Class A) $ (91,296,492) $ (73,642,097)
From net investment income (Class B) (33,884,609) (22,924,892)
From net investment income (Class C) (302,945) (2,881)
From net realized gain on investments and
foreign currency transactions (Class A) (1,471,111) (13,216,281)
From net realized gain on investments and
foreign currency transactions (Class B) (672,401) (4,649,374)
From net realized gain on investments and
foreign currency transactions (Class C) (2,050) --
In excess of net realized gain on investments
and foreign currency transactions (Class A) -- (13,629,891)
In excess of net realized gain on investments
and foreign currency transactions (Class B) -- (4,794,879)
--------- -----------
Total distributions declared to shareholders $ (127,629,608) $ (132,860,295)
--------- -----------
Fund share (principal) transactions -
Net proceeds from sale of shares $ 620,581,586 $ 875,180,059
Net asset value of shares issued to shareholders
in reinvestment of distributions 108,185,007 109,317,882
Cost of shares reacquired (526,677,345) (351,427,892)
--------- -----------
Increase in net assets from Fund share
transactions $ 202,089,248 $ 633,070,049
--------- -----------
Total increase in net assets $ 569,273,587 $ 467,171,727
Net assets:
At beginning of period 2,701,435,259 2,234,263,532
--------- -----------
At end of period (including accumulated
undistributed (distributions in excess of) net
investment income of $(1,522,351) and
$(7,440,916), respectively) $3,270,708,846 $2,701,435,259
========= ===========
</TABLE>
See notes to financial statements
24
<PAGE>
Financial Statements - continued
Financial Highlights
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Year Ended September 30, 1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------
Class A
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value - beginning of period $12.80 $13.70 $12.42 $11.82 $10.25
------ ------ ---- ---- ------
Income from investment operations+++ -
Net investment income*** $ 0.64 $ 0.54 $ 0.45 $ 0.65 $ 0.67
Net realized and unrealized gain
(loss) on investments and foreign
currency transactions 1.64 (0.69) 1.74 0.75 1.57
------ ------ ---- ---- ------
Total from investment operations $ 2.28 $(0.15) $ 2.19 $ 1.40 $ 2.24
------ ------ ---- ---- ------
Less distributions declared to
shareholders -
From net investment income**** $(0.61) $(0.54) $(0.59) $(0.66) $(0.61)
In excess of net investment income++ -- -- -- -- --
From net realized gain on
investments and foreign currency
transactions (0.01) (0.10) (0.32) (0.14) (0.06)
In excess of net realized gain on
investments and foreign currency
transactions -- (0.11) -- -- --
------ ------ ---- ---- ------
Total distributions declared to
shareholders $(0.62) $(0.75) $(0.91) $(0.80) $(0.67)
------ ------ ---- ---- ------
Net asset value - end of period $14.46 $12.80 $13.70 $12.42 $11.82
====== ====== ==== ==== ======
Total return# 18.36% (1.07)% 18.32% 12.26% 22.25%
Ratios (to average net assets)/Supplemental data:***
Expenses## 0.87% 0.85% 0.84% 0.84% 0.87%
Net investment income 4.82% 4.26% 4.51% 5.40% 5.89%
Portfolio turnover 102% 91% 95% 84% 74%
Net assets at end of period
(000,000 omitted) $2,242 $1,857 $1,702 $1,198 $909
***The distributor waived a portion of its distribution fee for the periods
indicated. If this fee had been incurred by the Fund, the net investment income
per share and ratios would have been:
Net investment income $0.63 $ 0.52 -- -- --
Ratios (to average net assets):
Expenses## 0.97% 0.95% -- -- --
Net investment income 4.72% 4.16% -- -- --
</TABLE>
# 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.
+++ Per share data for the periods subsequent to September 30, 1993 is based
on average shares outstanding.
++ For the year ended September 30, 1993, the per share distribution in
excess of net investment income on Class A shares was $0.0035.
**** For the years ended September 30, 1992 and 1991, $0.0508 and
$0.0596, respectively, of per share distributions from net investment
income have been redesignated as distributions from capital gains.
## For fiscal years ending after September 1, 1995, the Fund's expenses are
calculated without reduction for fees paid indirectly.
See notes to financial statements
25
<PAGE>
Financial Statements - continued
Financial Highlights -- continued
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Year Ended September 30, 1990 1989 1988 1987 1986
- --------------------------------------------------------------------------------------------
Class A
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $11.58 $10.13 $11.47 $ 9.77 $ 8.73
---- ---- ---- ---- ------
Income from investment operations -
Net investment income $ 0.64 $ 0.65 $ 0.62 $ 0.56 $ 0.60
Net realized and unrealized gain
(loss) on investments and foreign
currency transactions (1.25) 1.71 (1.07) 2.07 1.91
---- ---- ---- ---- ------
Total from investment
operations $(0.61) $ 2.36 $(0.45) $ 2.63 $ 2.51
---- ---- ---- ---- ------
Less distributions declared to
shareholders -
From net investment income $(0.66) $(0.63) $(0.60) $(0.56) $(0.59)
From net realized gain on
investments and foreign currency
transactions (0.06) (0.28) (0.08) (0.36) (0.88)
From paid-in capital -- -- (0.21) (0.01) --
---- ---- ---- ---- ------
Total distributions declared to
shareholders $(0.72) $(0.91) $(0.89) $(0.93) $(1.47)
---- ---- ---- ---- ------
Net asset value - end of period $10.25 $11.58 $10.13 $11.47 $ 9.77
==== ==== ==== ==== ======
Total return# (5.59)% 23.46% (3.93)% 26.81% 28.45%
Ratios (to average net assets)/Supplemental data:
Expenses 0.85% 0.72% 0.71% 0.63% 0.67%
Net investment income 5.71% 5.97% 6.06% 5.05% 5.67%
Portfolio turnover 50% 53% 52% 58% 94%
Net assets at end of period
(000,000 omitted) $707 $628 $508 $551 $309
</TABLE>
# 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.
See notes to financial statements
26
<PAGE>
Financial Statements - continued
Financial Highlights -- continued
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Year Ended September 30, 1995 1994 1993* 1995 1994**
- --------------------------------------------------------------------------------------------
Class B Class C
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning
of period $12.80 $13.70 $13.53 $12.80 $12.92
------ ------ ------ ------ ------
Income from investment
operations++ -
Net investment income $ 0.53 $ 0.39 $ 0.06 $ 0.54 $ 0.08
Net realized and unrealized
gain (loss) on investments
and foreign currency
transactions 1.64 (0.65) 0.16 1.66 (0.13)
------ ------ ------ ------ ------
Total from investment
operations $ 2.17 $(0.26) $ 0.22 $ 2.20 $(0.05)
------ ------ ------ ------ ------
Less distributions declared to
shareholders -
From net investment income $(0.50) $(0.43) $(0.05) $(0.50) $(0.07)
From net realized gain on
investments and foreign
currency transactions (0.01) (0.10) -- (0.01) --
In excess of net realized
gain on investments and
foreign currency
transactions -- (0.11) -- -- --
------ ------ ------ ------ ------
Total distributions
declared to shareholders $(0.51) $(0.64) $(0.05) $(0.51) $(0.07)
------ ------ ------ ------ ------
Net asset value - end of
period $14.46 $12.80 $13.70 $14.49 $12.80
====== ====== ====== ====== ======
Total return 17.46% (1.93)% 15.24%+ 17.66% (0.41)%
Ratios (to average net
assets)/ Supplemental data:
Expenses## 1.71% 1.70% 1.75%+ 1.67% 1.76%+
Net investment income 3.97% 3.45% 3.98%+ 4.14% 4.08%+
Portfolio turnover 102% 91% 95% 102% 91%
Net assets at end of period
(000,000 omitted) $1,005 $843 $532 $23 $1
</TABLE>
* For the period from commencement of offering of Class B shares. August
23, 1993 to September 30, 1993.
** For the period from commencement of offering of Class C shares. August 1,
1994 to September 30, 1994.
+ Annualized.
++ Per share data for the periods subsequent to September 30, 1993 is based
on average shares outstanding.
## For fiscal years ending after September 1, 1995, the Fund's expenses are
calculated without reduction for fees paid indirectly.
See notes to financial statements
27
<PAGE>
Notes to Financial Statements
(1) Business and Organization
MFS Total Return Fund (the Fund) is a diversified series of MFS Series Trust
V (the Trust). The Trust is organized as a Massachusetts business trust and
is registered under the Investment Company Act of 1940, as amended, as an
open-end management investment company.
(2) Significant Accounting Policies
Investment Valuations - Equity securities listed on securities exchanges or
reported through the NASDAQ system are valued at last sale prices. Unlisted
equity securities or listed equity securities for which last sale prices are
not available are valued at last quoted bid prices. Debt securities (other
than short-term obligations which mature in 60 days or less), including
listed issues and forward contracts, are valued on the basis of valuations
furnished by dealers or by a pricing service with consideration to factors
such as institutional-size trading in similar groups of securities, yield,
quality, coupon rate, maturity, type of issue, trading characteristics and
other market data, without exclusive reliance upon exchange or
over-the-counter prices. Short-term obligations, which mature in 60 days or
less, are valued at amortized cost, which approximates market value.
Securities for which there are no such quotations or valuations are valued at
fair value as determined in good faith by or at the direction of the
Trustees.
Foreign Currency Translation - Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars based upon current exchange rates. Purchases
and sales of foreign investments, income and expenses are converted into U.S.
dollars based upon currency exchange rates prevailing on the respective dates
of such transactions. Gains and losses attributable to foreign currency
exchange rates on sales of securities are recorded for financial statement
purposes as net realized gains and losses on investments. Gains and losses
attributable to foreign exchange rate movements on income and expenses are
recorded for financial statement purposes as foreign currency transaction
gains and losses. That portion of both realized and unrealized gains and
losses on investments that results from fluctuations in foreign currency
exchange rates is not separately disclosed.
Forward Foreign Currency Exchange Contracts - The Fund may enter into forward
foreign currency exchange contracts for the purchase or sale of a specific
foreign currency at a fixed price on a future date. Risks may arise upon
entering into these contracts from the potential inability of counterparties
to meet the terms of their contracts and from unanticipated movements in the
value of a foreign currency relative to the U.S. dollar. The Fund will enter
into forward contracts for hedging purposes as well as for non-hedging
purposes. For hedging purposes, the Fund may enter into contracts to deliver
or receive foreign currency it will receive from or require for its normal
investment activities. It may also use contracts in a manner intended to
protect foreign currency-denominated securities from declines in value due to
unfavorable exchange rate movements. For non-hedging purposes, the Fund may
enter into contracts with the intent of changing the relative
28
<PAGE>
Notes to Financial Statements - continued
exposure of the Fund's portfolio of securities to different currencies to
take advantage of anticipated changes. The forward foreign currency exchange
contracts are adjusted by the daily exchange rate of the underlying currency
and any gains or losses are recorded for financial statement purposes as
unrealized until the contract settlement date.
Investment Transactions and Income - Investment transactions are recorded on
the trade date. Interest income is recorded on the accrual basis. All premium
and original issue discount are amortized or accreted for financial statement
and tax reporting purposes as required by federal income tax regulations.
Dividend income is recorded on the ex-dividend date for dividends received in
cash. Dividend and interest payments received in additional securities are
recorded on the ex-dividend or ex-interest date in an amount equal to the
value of the security on such date.
Fees Paid Indirectly - The Fund's custodian bank calculates its fee based on
the Fund's average daily net assets. This fee is reduced according to an
expense offset arrangement with State Street Bank, the dividend disbursing
agent, which provides for partial reimbursement of custody fees based on a
formula developed to measure the value of cash deposited by the Fund with the
custodian and with the dividend disbursing agent. This amount is shown as a
reduction of expenses on the Statement of Operations.
Tax Matters and Distributions - The Fund's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its net income,
including any net realized gain on investments. Accordingly, no provision for
federal income or excise tax is provided. The Fund files a tax return
annually using tax accounting methods required under provisions of the Code
which may differ from generally accepted accounting principles, the basis on
which these financial statements are prepared. Accordingly, the amount of net
investment income and net realized gain reported on these financial
statements may differ from that reported on the Fund's tax return, and
consequently, the character of distributions to shareholders reported in the
financial highlights may differ from that reported to shareholders on Form
1099-DIV. Foreign taxes have been provided for on interest and dividend
income earned on foreign investments in accordance with the applicable
country's tax rates and to the extent unrecoverable are recorded as a
reduction of investment income. Distributions to shareholders are recorded on
the ex-dividend or ex-interest date.
The Fund distinguishes between distributions on a tax basis and a financial
reporting basis and requires that only distributions in excess of tax basis
earnings and profits are reported in the financial statements as a return of
capital. Differences in the recognition or classification of income between
the financial statements and tax earnings and profits which result in
temporary over-distributions for financial statement purposes, are
classified as distributions in
29
<PAGE>
Notes to Financial Statements - continued
excess of net investment income or accumulated net realized gains. During the
year ended September 30, 1995, $3,045,179 was reclassified from accumulated
undistributed net realized gain on investments to accumulated undistributed
net investment income due to differences between book and tax accounting for
government-backed securities and currency transactions. This change had no
effect on the net assets or net asset value per share.
Multiple Classes of Shares of Beneficial Interest - The Fund offers Class A,
Class B, and Class C shares. The three classes of shares differ in their
respective shareholder servicing agent, distribution and service fees. All
shareholders bear the common expenses of the Fund pro rata based on the
average daily net assets of each class, without distinction between share
classes. Dividends are declared separately for each class. No class has
preferential dividend rights; differences in per share dividend rates are
generally due to differences in separate class expenses.
(3) Transactions with Affiliates
Investment Adviser - The Fund has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an effective annual rate
of 0.22% of average daily net assets and 3.09% of net investment income.
The Fund pays no compensation directly to its Trustees who are officers of
the investment adviser, or to officers of the Fund, all of whom receive
remuneration for their services to the Fund from MFS. Certain of the officers
and Trustees of the Fund are officers or directors of MFS, MFS Fund
Distributors, Inc. (MFD) and MFS Service Center, Inc. (MFSC). The Fund has an
unfunded defined benefit plan for all of its independent Trustees and Mr.
Bailey. Included in Trustees' compensation is a net periodic pension expense
of $27,090 for the year ended September 30, 1995.
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$862,946 for the year ended September 30, 1995, as its portion of the sales
charge on sales of Class A shares of the Fund.
The Trustees have adopted separate distribution plans for Class A, Class B
and Class C shares pursuant to Rule 12b-1 of the Investment Company Act of
1940 as follows:
The Class A distribution plan provides that the Fund will pay MFD up to 0.35%
per annum of its average daily net assets attributable to Class A shares in
order that MFD may pay expenses on behalf of the Fund related to the
distribution and servicing of its shares. These expenses include a service
fee to each securities dealer that enters into a sales agreement with MFD of
up to 0.25% per annum of the Fund's average daily net assets attributable to
Class A shares which are attributable to that securities dealer, a
distribution fee to MFD of up to 0.10% per annum of the Fund's average daily
net assets attributable to Class A shares, commissions to
30
<PAGE>
Notes to Financial Statements - continued
dealers and payments to MFD wholesalers for sales at or above a certain
dollar level, and other such distribution-related expenses that are approved
by the Fund. MFD retains the service fee for accounts not attributable to a
securities dealer which amounted to $703,057 for the year ended September 30,
1995. MFD is waiving the 0.10% distribution fee for an indefinite period.
Fees incurred under the distribution plan during the year ended September 30,
1995 were 0.25% of average daily net assets attributable to Class A shares on
an annualized basis.
The Class B and Class C distribution plans provide that the Fund will pay MFD
a distribution fee of 0.75% per annum, and a service fee of up to 0.25% per
annum, of the Fund's average daily net assets attributable to Class B and
Class C shares. MFD will pay to securities dealers that enter into a sales
agreement with MFD all or a portion of the service fee attributable to Class
B and Class C shares, and will pay to such securities dealers all of the
distribution fee attributable to Class C shares. The service fee is intended
to be additional consideration for services rendered by the dealer with
respect to Class B and Class C shares. MFD retains the service fee for
accounts not attributable to a securities dealer, which amounted to $97,899
and $535 for Class B and Class C shares, respectively, for the year ended
September 30, 1995. Fees incurred under the distribution plans during the
year ended September 30, 1995 were 1.00% of average daily net assets
attributable to Class B and Class C shares on an annualized basis.
A contingent deferred sales charge is imposed on shareholder redemptions of
Class A shares, on purchases of $1 million or more, in the event of a
shareholder redemption within twelve months following the share purchase. A
contingent deferred sales charge is imposed on shareholder redemptions of
Class B shares in the event of a shareholder redemption within six years of
purchase. MFD receives all contingent deferred sales charges.
Contingent deferred sales charges imposed during the year ended September 30,
1995 were $27,736 and $1,756,259 for Class A and Class B shares,
respectively.
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earns a
fee for its services as shareholder servicing agent. The fee is calculated as
a percentage of the average daily net assets of each class of shares at an
effective annual rate of up to 0.15%, up to 0.22%, and up to 0.15%
attributable to Class A, Class B, and Class C shares, respectively.
31
<PAGE>
Notes to Financial Statements - continued
(4) Portfolio Securities
Purchases and sales of investments, other than purchased option transactions
and short-term obligations, were as follows:
Purchases Sales
- --------------------------------------------------------------------------------
U.S. government securities $1,131,816,758 $1,213,055,715
============= =============
Investments (non-U.S. government securities) $1,875,901,630 $1,291,206,317
============= =============
The cost and unrealized appreciation or depreciation in value of the
investments owned by the Fund, as computed on a federal income tax basis, are
as follows:
Aggregate cost $2,746,941,281
=============
Gross unrealized appreciation $ 540,958,801
Gross unrealized depreciation 18,355,962
-------------
Net unrealized appreciation $ 522,602,839
=============
(5) Shares of Beneficial Interest
The Fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without par
value). Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Class A Shares Year Ended September 30, 1995 Year Ended September 30, 1994
--------------------------------- -----------------------------------
Shares Amount Shares Amount
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 27,571,191 $ 366,257,248 32,302,120 $ 426,179,879
Shares issued to
shareholders in
reinvestment of
distributions 5,805,766 77,216,013 6,185,236 80,887,784
Shares reacquired (23,436,000) (309,567,243) (17,636,558) (231,605,258)
------------- ------------- ------------- --------------
Net increase 9,940,957 $ 133,906,018 20,850,798 $ 275,462,405
============= ============= ============= ==============
Class B Shares Year Ended September 30, 1995 Year Ended September 30, 1994
--------------------------------- -----------------------------------
Shares Amount Shares Amount
- -----------------------------------------------------------------------------------------------
Shares sold 17,488,663 $ 232,234,181 33,915,337 $ 447,401,529
Shares issued to
shareholders in
reinvestment of
distributions 2,308,539 30,683,046 2,174,267 28,427,804
Shares reacquired (16,113,302) (214,915,122) (9,135,051) (119,551,014)
------------- ------------- ------------- --------------
Net increase 3,683,900 $ 48,002,105 26,954,553 $ 356,278,319
============= ============= ============= ==============
Class C Shares Year Ended September 30, 1995 Year Ended September 30, 1994
--------------------------------- -----------------------------------
Shares Amount Shares Amount
- -----------------------------------------------------------------------------------------------
Shares sold 1,619,700 $ 22,090,157 123,851 $ 1,598,651
Shares issued to
shareholders in
reinvestment of
distributions 20,825 285,948 178 2,294
Shares reacquired (163,091) (2,194,980) (24,211) (311,620)
------------- ------------- ------------- --------------
Net increase 1,477,434 $ 20,181,125 99,818 $ 1,289,325
============= ============= ============= ==============
</TABLE>
* For the period from commencement of offering of Class C shares, August 1,
1994 to September 30, 1994.
32
<PAGE>
Notes to Financial Statements - continued
(6) Line of Credit
The Fund entered into an agreement which enables it to participate with other
funds managed by MFS in an unsecured line of credit with a bank which permits
borrowings up to $350 million, collectively. Borrowings may be made to
temporarily finance the repurchase of Fund shares. Interest is charged to
each fund, based on its borrowings, at a rate equal to the bank's base rate.
In addition, a commitment fee, based on the average daily unused portion of
the line of credit, is allocated among the participating funds at the end of
each quarter. The commitment fee allocated to the Fund for the year ended
September 30, 1995 was $42,229.
(7) Financial Instruments
The Fund regularly trades financial instruments with off-balance sheet risk
in the normal course of its investing activities in order to manage exposure
to market risks such as interest rates and foreign currency exchange rates.
These financial instruments include written options, forward foreign currency
exchange contracts and futures contracts. The notional or contractual amounts
of these instruments represent the investment the Fund has in particular
classes of financial instruments and does not necessarily represent the
amounts potentially subject to risk. The measurement of the risks associated
with these instruments is meaningful only when all related and offsetting
transactions are considered. At September 30, 1995, the Fund did not hold any
of these financial instruments.
(8) Restricted Securities
The Fund may invest not more than 15% of its net assets in securities which
are subject to legal or contractual restrictions on resale. At September 30,
1995, the Fund owned the following restricted securities (constituting 4.75%
of net assets) which may not be publicly sold without registration under the
Securities Act of 1933 (the 1933 Act). The Fund does not have the right to
demand that such securities be registered. The value of these securities is
determined by valuations supplied by a pricing service or brokers or, if not
available, in good faith by or at the direction of the Trustees. Certain of
these securities may be offered and sold to "qualified institutional buyers"
under Rule 144A of the 1933 Act.
<TABLE>
<CAPTION>
Share/
Description Date of Acquisition Par Amount Cost Value
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Aktiebolaget, 0s, 2002+ 5/12/92-5/13/92 18,100,000 $12,152,460 $13,653,509
Altera Corp., 5.75s, 2002+ 6/16/95 1,400,000 1,400,000 1,967,000
Cemex S.A., 4.25s, 1997+ 9/28/94 5,500,000 5,500,000 4,585,625
Ciba-Geigy Corp., 6.25s, 2016+ 11/12/91-1/22/92 1,600,000 2,068,000 1,584,000
Cointel, 7%+ 2/24/94-2/24/95 299,800 20,809,350 14,727,675
Den Danske Bank, 7.25s, 2005+ 6/14/95 5,000,000 4,995,550 5,022,350
</TABLE>
+SEC Rule 144A restriction.
33
<PAGE>
Notes to Financial Statements - continued
Restricted Securities -- continued
<TABLE>
<CAPTION>
Share/
Description Date of Acquisition Par Amount Cost Value
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financiera Energetica Nacional S.A.,
6.625s, 1996+ 3/22/95-3/23/95 5,360,000 $ 5,209,062 $ 5,319,800
Four Seasons Hotels, Inc., 9.125s,
2000+ 6/23/93 1,000,000 959,100 973,750
Grand Metropolitan, 6.5s, 2000+ 4/19/95 3,000,000 3,000,000 3,393,750
Hidroelectrica Alicura, 8.375s, 1999+ 4/08/95 6,244,000 5,849,829 5,619,600
Jet Equipment Trust, 10.91s, 2006+ 4/07/95-4/18/95 7,488,695 7,941,794 8,443,204
Jet Equipment Trust, 9.71s, 2014+ 7/19/95 2,000,000 2,000,000 2,104,780
Jet Equipment Trust, 10.69s, 2015+ 4/07/95 1,250,000 1,250,000 1,398,275
Merrill Lynch Home Equity Loan, 91-1,
"B", 9.3s, 2016 12/16/92 3,800,000 3,814,250 3,923,500
Merrill Lynch Mortgage Investors, Inc.,
8.227s, 2021 6/22/94 4,000,000 2,772,500 3,024,640
National Semiconductor, 6.5s, 2002+ 9/22/95 2,000,000 2,000,000 2,000,000
Occidental Petroleum Corp., 7.75%+ 2/11/93 140,000 7,065,000 8,050,000
Ocensa, 9.35s, 2005+ 6/21/95 3,500,000 3,500,000 3,517,500
Owens Corning Capital LLC, 6.5%+ 9/06/95 55,000 3,180,622 3,245,000
Owens Corning Fiberglass Corp., 9.9s,
2015+ 4/05/95 2,500,000 2,500,000 2,757,092
Petronas Malaysia, 6.875s, 2003+ 6/22/93 1,000,000 1,000,000 1,002,080
Qantas Airways Ltd., 7.5s, 2003+ 6/24/93 5,000,000 4,998,820 5,067,700
Roche Holdings, Inc., 0s, 2008+ 9/16/93 32,500,000 17,660,890 23,887,500
Roche Holdings, Inc., 0s, 2010+ 4/12/95 19,770,000 7,263,843 7,932,712
Salton Sea Funding Corp., 7.37s, 2005+ 7/18/95 5,250,000 5,250,000 5,267,850
Salton Sea Funding Corp., 7.84s, 2010+ 7/18/95 5,250,000 5,250,000 5,248,215
Sandoz, 2s, 2002+ 9/28/95 2,240,000 1,818,208 1,818,208
Staples, Inc., 4.5s, 2000+ 9/12/95 500,000 500,000 521,250
Turner Broadcasting Systems, Inc., 0s,
2007+ 12/18/92-3/08/93 3,000,000 1,282,724 1,342,500
U.S. Filter Corp., 6s, 2005+ 9/13/95 2,000,000 2,000,000 2,202,500
Weirton Steel Corp., 10.75s, 2005+ 6/05/95 1,750,000 1,723,750 1,618,750
Williams Cos., Inc., 7%+ 4/03/95 58,000 2,900,000 3,994,750
-----------
$155,215,065
===========
</TABLE>
+SEC Rule 144A restriction.
34
<PAGE>
Independent Auditors' Report
To the Trustees of MFS Series Trust V and Shareholders of MFS Total Return
Fund:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of MFS Total Return Fund (one of the
series constituting MFS Series Trust V) as of September 30, 1995, the related
statement of operations for the year then ended, the statement of changes in
net assets for the years ended September 30, 1995 and 1994, and the financial
highlights for each of the years in the ten-year period ended September 30,
1995. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of the
securities owned at September 30, 1995 by correspondence with the custodian
and brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of MFS Total Return
Fund at September 30, 1995, the results of its operations, the changes in its
net assets, and its financial highlights for the respective stated periods in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
November 3, 1995
----------
This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by a current prospectus.
35
<PAGE>
MFS Investment Opportunities
Mutual Funds
The MFS Family of Funds(R), shown on the facing page, falls into the eight
general categories below. All offer full-time professional management, a
diversified portfolio, and a wide array of shareholder services.
Stock funds seek growth of capital rather than income through investments in
stocks.
Stock and bond funds seek current income and growth of capital through
investments in both stocks and bonds.
Bond funds seek current income through investments in debt securities.
World funds seek stock, balanced, and bond fund objectives through
investments in U.S. and foreign stocks and bonds.
Limited-maturity bond funds seek current income and preservation of capital
through investments in debt securities with remaining maturities of five
years or less.
National tax-free bond funds seek current income exempt from federal income
tax through investments in debt securities issued by states and
municipalities.(1)
State tax-free bond funds seek current income exempt from federal and state
income taxes through investments in debt securities issued by a single state
and its municipalities.(1)
Money market funds seek preservation of capital and current income through
investments in short-term debt securities.(2)
To determine which MFS fund may be appropriate for you, please contact your
financial adviser, who can help you relate these investment opportunities to
your financial goals. If you prefer, you may call MFS Investor Information
for literature(3) on MFS products and services: 1-800-637-2929, from 9 a.m.
to 5 p.m. Eastern time any business day (leave a message anytime).
(1) A small portion of the income may be subject to federal, state and/or
alternative minimum tax.
(2) Investments in money market funds are not issued or guaranteed by the
U.S. government and there is no assurance that the fund will be able to
maintain a stable net asset value.
(3) Including a prospectus containing more complete information including
charges and expenses. Read the prospectus carefully before investing.
36
<PAGE>
The MFS Family of Funds(R)
America's Oldest Mutual Fund Group
The members of the MFS Family of Funds are grouped below according to the
types of securities in their portfolios. For free prospectuses containing
more complete information, including the exchange privilege and all charges
and expenses, please contact your financial adviser or call MFS at
1-800-637-2929 any business day from 9 a.m. to 5 p.m. Eastern time (or, leave
a message any time). This material should be read carefully before investing
or sending money.
Stock
- --------------------------------------------
Massachusetts Investors Trust
Massachusetts Investors Growth Stock Fund
MFS(R) Capital Growth Fund
MFS(R) Emerging Growth Fund
MFS(R) Gold & Natural Resources Fund
MFS(R) Growth Opportunities Fund
MFS(R) Managed Sectors Fund
MFS(R) OTC Fund
MFS(R) Research Fund
MFS(R) Value Fund
Stock and Bond
- --------------------------------------------
MFS(R) Total Return Fund
MFS(R) Utilities Fund
Bond
- --------------------------------------------
MFS(R) Bond Fund
MFS(R) Government Mortgage Fund
MFS(R) Government Securities Fund
MFS(R) High Income Fund
MFS(R) Intermediate Income Fund
MFS(R) Strategic Income Fund
(formerly MFS(R) Income & Opportunity Fund)
- --------------------------------------------
Limited Maturity Bond
- --------------------------------------------
MFS(R) Government Limited Maturity Fund
MFS(R) Limited Maturity Fund
MFS(R) Municipal Limited Maturity Fund
World
- --------------------------------------------
MFS(R) World Asset Allocation Fund
MFS(R) World Equity Fund
MFS(R) World Governments Fund
MFS(R) World Growth Fund
MFS(R) World Total Return Fund
National Tax-Free Bond
- --------------------------------------------
MFS(R) Municipal Bond Fund
MFS(R) Municipal High Income Fund
(closed to new investors)
MFS(R) Municipal Income Fund
State Tax-Free Bond
- --------------------------------------------
Alabama, Arkansas, California, Florida,
Georgia, Louisiana, Maryland, Massachusetts,
Mississippi, New York, North Carolina,
Pennsylvania, South Carolina, Tennessee,
Texas, Virginia, Washington, West Virginia
Money Market
- --------------------------------------------
MFS(R) Cash Reserve Fund
MFS(R) Government Money Market Fund
MFS(R) Money Market Fund
- --------------------------------------------
<PAGE>
PROSPECTUS
February 1, 1996
MFS(R) RESEARCH Class A Shares of Beneficial Interest
FUND Class B Shares of Beneficial Interest
(A member of the MFS Family of Funds(R)) Class C Shares of Beneficial 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 ....................... 10
Purchases ................................................... 10
Exchanges ................................................... 13
Redemptions and Repurchases ................................. 14
Distribution Plans .......................................... 16
Distributions ............................................... 18
Tax Status .................................................. 18
Net Asset Value ............................................. 18
Description of Shares, Voting Rights and Liabilities ........ 19
Performance Information ..................................... 19
7. Shareholder Services ............................................ 19
Appendix A ...................................................... A-1
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.
INVESTMENT PRODUCTS ARE NOT INSURED BY THE FDIC OR ANY OTHER GOVERNMENT AGENCY,
AND ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR GUARANTEED BY, ANY FINANCIAL
INSTITUTION. SHARES OF MUTUAL FUNDS ARE SUBJECT TO INVESTMENT RISKS, INCLUDING
POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED, AND WILL FLUCTUATE IN VALUE. YOU
MAY RECEIVE MORE OR LESS THAN YOU PAID WHEN YOU REDEEM YOUR SHARES.
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 (the "SAI"), dated February 1,
1996, as amended or supplemented from time to time, which contains more detailed
information about the Trust and the Fund. The SAI is incorporated into this
Prospectus by reference. See page 21 for a further description of the
information set forth in the SAI. A copy of the SAI 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>
1. EXPENSE SUMMARY
CLASS A CLASS B CLASS 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(1) 4.00% 0.00%
ANNUAL OPERATING EXPENSES OF THE FUND (AS A
PERCENTAGE OF AVERAGE NET ASSETS):
Management Fees ........................ 0.41% 0.41% 0.41%
Rule 12b-1 Fees ........................ 0.35%(2) 1.00%(3) 1.00%(3)
Other Expenses ......................... 0.29% 0.37% 0.30%
---- ---- ----
Total Operating Expenses ............... 1.05% 1.78% 1.71%
- ----------
(1) Purchases of $1 million or more are not subject to an initial sales charge;
however, a Contingent Deferred Sales Charge ("CDSC") of 1% will be imposed
on such purchases in the event of certain redemption transactions within 12
months following such purchases. See "Information Concerning Shares of the
Fund -- Purchases" below.
(2) 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
"Information Concerning Shares of the Fund -- Distribution Plans" below. The
0.35% per annum distribution/service fee is reduced to 0.25% per annum for
shares purchased prior to March 1, 1991. Distribution expenses paid under
this Plan, together with the initial sales charge, may cause long-term
shareholders to pay more than the maximum sales charge that would have been
permissible if imposed entirely as an initial sales charge.
(3) 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 "Information
Concerning Shares of the Fund -- Distribution Plans". Distribution expenses
paid under these Plans, together with any CDSC payable upon redemption of
Class B shares, may cause long-term shareholders to pay more than the
maximum sales charge that would have been permissible if imposed entirely as
an initial sales charge.
EXAMPLE OF EXPENSES
-------------------
An investor would pay the following dollar amounts of expenses on a $1,000
investment in the Fund, assuming (a) 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 .................. $ 68 $ 58 $ 18 $ 17
3 years ................. 89 86 56 54
5 years ................. 112 116 96 93
10 years .................. 178 190(2) 190(2) 202
- ----------
(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
The Fund is a diversified series of 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 objectives
and policies. Shares of the Fund are continuously sold to the public and the
Fund then uses the proceeds to buy 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 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 Fund also offers to buy back
(redeem) its shares from its shareholders at any time at net asset value, less
any applicable CDSC.
<PAGE>
3. CONDENSED FINANCIAL INFORMATION
The following information has been audited for at least the latest five fiscal
years of the Fund and 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 SAI in reliance upon the report of the Fund's
independent auditors given upon their authority, as experts in accounting and
auditing. The Fund's current independent auditors are Deloitte & Touche LLP.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
CLASS A
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA (FOR A SHARE
OUTSTANDING THROUGHOUT
EACH PERIOD):
Net asset value --
beginning of period .... $12.59 $14.47 $12.18 $11.84 $ 9.62 $11.49 $10.20 $12.54 $10.42 $10.36
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from investment
operations<F3> --
Net investment
income<F5> ........... $ 0.08 $ 0.02 $ 0.11 $ 0.07 $ 0.27 $ 0.36 $ 0.39 $ 0.23 $ 0.19 $ 0.25
Net realized and
unrealized gain
(loss) on
investments .......... 2.99 1.01 3.15 1.27 2.21 (1.52) 2.30 (2.19) 4.43 2.50
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from
investment
operations ........ $ 3.07 $ 1.03 $ 3.26 $ 1.34 $ 2.48 $(1.16) $ 2.69 $(1.96) $ 4.62 $ 2.75
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less distributions declared
to shareholders --
From net investment
income ............... $(0.02) $(0.03) $(0.07) $ -- $(0.26) $(0.36) $(0.39) $(0.24) $(0.19) $(0.24)
In excess of net
realized gain on -- (0.01) -- -- -- -- -- -- -- --
From net realized
gain on investments .. (0.03) (2.87) (0.90) (1.00) -- (0.35)<F1> (1.01) (0.14) (2.31) (2.45)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions
declared to
shareholders ..... $(0.05) $(2.91) $(0.97) $(1.00) $(0.26) $(0.71) $(1.40) $(0.38) $(2.50) $(2.69)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value --
end of period ........ $15.61 $12.59 $14.47 $12.18 $11.84 $ 9.62 $11.49 $10.20 $12.54 $10.42
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Total return<F2> ......... 24.49% 7.72% 28.27% 11.79% 25.87% (12.73)% 26.91% (15.60)% 44.80% 26.65%
RATIOS (TO AVERAGE NET
ASSETS)/SUPPLEMENTAL
DATA<F5>:
Expenses<F4> ........... 0.95% 0.91% 0.90% 0.84% 0.95% 0.83% 0.88% 0.86% 0.73% 0.77%
Net investmentincome 0.58% 0.14% 0.36% 0.59% 2.48% 3.21% 3.48% 2.36% 1.51% 1.88%
PORTFOLIO TURNOVER ....... 94% 79% 93% 74% 177% 79% 99% 116% 101% 102%
NET ASSETS AT END OF
PERIOD (000 OMITTED) $507,784 $318,170 $294,019 $240,366 $231,316 $202,377 $251,857 $239,616 $321,050 $234,804
- ----------
<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 applicable sales charge (except for reinvested dividends prior to
October 1, 1989). If the charge had been included, the results would have been lower.
<F3> Per share data for the periods subsequent to September 30, 1993 is based on average shares outstanding.
<F4> For fiscal years ending after September 1, 1995, the Fund's expenses are calculated without reduction for fees paid
indirectly.
<F5> The distributor did not impose its distribution fee for the periods indicated. If this fee had been incurred by the Fund,
the net investment income per share and ratios would have been:
Net investment
income<F3> ......... $ 0.07 $ 0.01 -- -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
RATIOS (TO AVERAGE
NET ASSETS):
Expenses<F4> ...... 1.05% 1.01% -- -- -- -- -- -- -- --
Net investment
income .......... 0.48% 0.04% -- -- -- -- -- -- -- --
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS -- CONTINUED
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------------------------
1995 1994 1993<F2> 1995 1994<F3>
------ ------ ------ ------ ------
CLASS B CLASS C
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD):
Net asset value -- beginning of period $12.50 $14.47 $13.95 $12.51 $13.18
------ ------ ------ ------ ------
Income from investment operations<F5>
Net investment income (loss)(S)..... $(0.03) $(0.08) $(0.04) $(0.02) $(0.04)
Net realized and unrealized gain
(loss) on investments and
foreign currency transactions .... 2.96 1.00 0.56 2.96 0.62
------ ------ ------ ------ ------
Total from investment operations $ 2.93 $ 0.92 $ 0.52 $ 2.94 $ 0.58
------ ------ ------ ------ ------
Less distributions declared to shareholders --
From net investment income ......... $ --<F1> $(0.02) $ -- $ -- $ --
From net realized gain on investments (0.03) (2.87) -- (0.03) (1.25)
------ ------ ------ ------ ------
Total distributions declared to
shareholders ................. $(0.03) $(2.89) -- $(0.03) $(1.25)
------ ------ ------ ------ ------
Net asset value -- end of period ... $15.40 $12.50 $14.47 $15.42 $12.51
====== ====== ====== ====== ======
Total return ......................... 23.55% 6.91% 3.73% 23.58% 4.43%
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA:
Expenses<F6> ....................... 1.78% 1.82% 2.33%<F4> 1.71% 1.74%<F4>
Net investment income (loss) ....... (0.21)% (0.65)% (0.89)%<F4> (0.15)% (0.54%)<F4>
PORTFOLIO TURNOVER ................... 94% 79% 93% 94% 79%
NET ASSETS AT END OF PERIOD
(000 OMITTED) ...................... $178,117 $25,672 $ 447 $25,737 $4,821
- ----------
<FN>
<F1> For the year ended September 30, 1995, the per share distribution from net investment income was $0.00003.
<F2> For the period from the commencement of offering of Class B shares, September 7, 1993, to September 30, 1993.
<F3> For the period from the commencement of offering of Class C shares, January 3, 1994, to September 30, 1994.
<F4> Annualized.
<F5> Per share data for the periods subsequent to September 30, 1993 is based on average shares outstanding.
<F6> For fiscal years ending after September 1, 1995, the Fund's expenses are calculated without reduction for fees paid
indirectly.
</TABLE>
<PAGE>
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 industry groups (e.g., pharmaceuticals, retail and computer
software). The allocation by industry group is determined by the analysts acting
together as a group. Individual analysts are then responsible for selecting what
they view as the securities best suited to meet the Fund's investment objective
within their assigned industry group.
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 net 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 SAI. 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 SAI, the Fund has adopted certain procedures intended to
minimize 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,
an irrevocable letter of credit 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 0% and 20%) of its total assets in foreign
securities which are not traded on a U.S. exchange (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 SAI 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.
EMERGING MARKET SECURITIES: Consistent with the Fund's investment objective and
policies, the Fund may invest in securities of issuers whose principal
activities are located in emerging market countries. Emerging market countries
include any country determined by the Adviser to have an emerging market
economy, taking into account a number of factors, including whether the country
has a low- to middle-income economy according to the International Bank for
Reconstruction and Development, the country's foreign currency debt rating, its
political and economic stability and the development of its financial and
capital markets. The Adviser determines whether an issuer's principal activities
are located in an emerging market country by considering such factors as its
country of organization, the principal trading market for its securities and the
source of its revenues and assets. The issuer's principal activities generally
are deemed to be located in a particular country if: (a) the security is issued
or guaranteed by the government of that country or any of its agencies,
authorities or instrumentalities; (b) the issuer is organized under the laws of,
and maintains a principal office in, that country; (c) the issuer has its
principal securities trading market in that country; (d) the issuer derives 50%
or more of its total revenues from goods sold or services performed in that
country; or (e) the issuer has 50% of its assets in that country.
The risks of investing in foreign securities may be intensified in the case of
investments in emerging markets. Securities of many issuers in emerging markets
may be less liquid and more volatile than securities of comparable domestic
issuers. Emerging markets also have different clearance and settlement
procedures, and in certain markets there have been times when settlements have
been unable to keep pace with the volume of securities transactions, making it
difficult to conduct such transactions. Delays in settlement could result in
temporary periods when a portion of the assets of the Fund is uninvested and no
return is earned thereon. The inability of the Fund to make intended security
purchases due to settlement problems could cause the Fund to miss attractive
investment opportunities. Inability to dispose of portfolio securities due to
settlement problems could result in losses to the Fund due to subsequent
declines in value of the portfolio security, a decrease in the level of
liquidity in the Fund's portfolio, or, if the Fund has entered into a contract
to sell the security, in possible liability to the purchaser. Certain markets
may require payment for securities before delivery, and in such markets the Fund
bears the risk that the securities will not be delivered and that the Fund's
payments will not be returned. Securities prices in emerging markets can be
significantly more volatile than in the more developed nations of the world,
reflecting the greater uncertainties of investing in less established markets
and economies. In particular, countries with emerging markets may have
relatively unstable governments, present the risk of nationalization of
businesses, restrictions on foreign ownership, or prohibitions of repatriation
of assets, and may have less protection of property rights than more developed
countries. The economies of countries with emerging markets may be predominantly
based on only a few industries, may be highly vulnerable to changes in local or
global trade conditions, and may suffer from extreme and volatile debt burdens
or inflation rates. Local securities markets may trade a small number of
securities and may be unable to respond effectively to increases in trading
volume, potentially making prompt liquidation of substantial holdings difficult
or impossible at times. Securities of issuers located in countries with emerging
markets may have limited marketability and may be subject to more abrupt or
erratic price movements.
Certain emerging markets may require governmental approval for the repatriation
of investment income, capital or the proceeds of sales of securities by foreign
investors. In addition, if a deterioration occurs in an emerging market's
balance of payments or for other reasons, a country could impose temporary
restrictions on foreign capital remittances. The Fund could be adversely
affected by delays in, or a refusal to grant, any required governmental approval
for repatriation of capital, as well as by the application to the Fund of any
restrictions on investments.
Investment in certain foreign emerging market debt obligations may be restricted
or controlled to varying degrees. These restrictions or controls may at times
preclude investment in certain foreign emerging market debt obligations and
increase the expenses of the Fund.
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.
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 liquid and thus not subject to the Fund's limitation on investing
not more than 10% of its net assets in illiquid investments. 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 decreasing the level of liquidity 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 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
SAI.
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 the Fund.
The SAI 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 SAI may be changed without
approval of the shareholders of the Fund, unless indicated otherwise (see
"Investment Restrictions" in the SAI). 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:
ANNUAL RATE OF MANAGEMENT FEE ANNUAL RATE OF MANAGEMENT FEE
BASED ON AVERAGE DAILY NET ASSETS BASED ON GROSS INCOME
- --------------------------------------- ---------------------------------
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 3.6% of gross income in excess
in excess of $500 million of $10 million
For the fiscal year ended September 30, 1995, MFS received management fees of
$1,910,078 (of which $1,588,228 was based on average daily net assets and
$321,850 on gross income), equivalent, on an annualized basis, to 0.41% 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 various fixed/variable annuity contracts. MFS and
its wholly owned subsidiary, MFS Asset Management, Inc., also 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 $42.2 billion on behalf of over 1.8 million investor accounts as
of December 31, 1995. MFS is a wholly owned subsidiary of Sun Life of Canada
(U.S.) which in turn is a wholly owned 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.
MFS has established a strategic alliance with Foreign & Colonial Management Ltd.
("Foreign & Colonial"). Foreign & Colonial is a subsidiary of two of the world's
oldest financial services institutions, the London-based Foreign & Colonial
Investment Trust PLC, which pioneered the idea of investment management in 1868,
and HYPO-BANK (Bayerische Hypotheken-und Weschsel-Bank AG), the oldest publicly
listed bank in Germany, founded in 1835. As part of this alliance, the portfolio
managers and investment analysts of MFS and Foreign & Colonial will share their
views on a variety of investment related issues, such as the economy, securities
markets, portfolio securities and their issuers, investment recommendations,
strategies and techniques, risk analysis, trading strategies and other portfolio
management matters. MFS will have access to the extensive international equity
investment expertise of Foreign & Colonial, and Foreign & Colonial will have
access to the extensive U.S. equity investment expertise of MFS. One or more MFS
investment analysts are expected to work for an extended period with Foreign &
Colonial's portfolio managers and investment analysts at their offices in
London. In return, one or more Foreign & Colonial employees are expected to work
in a similar manner at MFS' Boston offices.
In certain instances there may be securities which are suitable for the Fund's
portfolio as well as for portfolios of other clients of MFS or clients of
Foreign & Colonial. Some simultaneous transactions are inevitable when several
clients receive investment advice from MFS and Foreign & Colonial, particularly
when the same security is suitable for more than one client. While in some cases
this arrangement could have a detrimental effect on the price or availability of
the security as far as the Fund is concerned, in other cases, however, it may
produce increased investment opportunities for the Fund.
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
dealer and other financial institutions ("dealers") having a selling agreement
with MFD. Dealers may also charge their customers fees relating to investments
in the Fund.
The Fund offers three classes of shares (Class A, B and C shares) which bear
sales charges and distribution fees in different forms and amounts, as described
below:
CLASS A SHARES: Class A shares are generally offered at net asset value plus an
initial sales charge, but in certain cases are offered at net asset value
without an initial sales charge but subject to a CDSC.
PURCHASES SUBJECT TO INITIAL SALES CHARGE. Class A shares are offered at
net asset value plus an initial sales charge as follows:
SALES CHARGE* AS
PERCENTAGE OF:
--------------------------- DEALER ALLOWANCE
NET AMOUNT AS A PERCENTAGE
AMOUNT OF PURCHASE OFFERING PRICE INVESTED OF OFFERING PRICE
- ------------------ -------------- ---------- -----------------
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** None** See Below**
- ----------
*Because of rounding in the calculation of offering price, actual sales charges
may be more or less than those calculated using the percentages above.
**A CDSC will apply to such purchases, as discussed below.
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. The sales charge may vary depending on
the number of shares of the Fund as well as certain other MFS Funds owned or
being purchased, the existence of an agreement to purchase additional shares
during a 13-month period (or 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 Purchase privileges by which the sales
charge may be reduced is set forth in the SAI.
PURCHASES SUBJECT TO A CDSC (but not subject to an initial sales charge). In
the following two circumstances, Class A shares are also offered at net asset
value without an initial sales charge but subject to a CDSC, equal to 1% of the
lesser of the value of the shares redeemed (exclusive of reinvested dividend and
capital gain distributions) or the total cost of such shares, in the event of a
share redemption within 12 months following the purchase:
(i) on investments of $1 million or more in Class A shares; and
(ii) on investments in Class A shares by certain retirement plans subject to
the Employee Retirement Income Security Act of 1974, as amended, if the
sponsoring organization demonstrates to the satisfaction of MFD that either
(a) the employer has at least 25 employees or (b) the aggregate purchases by
the retirement 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.
In the case of such purchases, MFD will pay a commission to dealers as follows:
1% 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 purchase) for
purposes of determining the level of commissions to be paid during the period
with respect to such account. In addition, with respect to sales to retirement
plans under the second circumstance described above, MFD may pay a commission,
on sales in excess of $5 million to certain retirement plans, of 1% 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.
See "Redemptions and Repurchases -- Contingent Deferred Sales Charge" for
further discussion of the CDSC.
WAIVERS OF INITIAL SALES CHARGE AND CDSC. In certain circumstances, the
initial sales charge imposed upon purchases of Class A shares and the CDSC
imposed upon redemptions of Class A shares is waived. These circumstances are
described in Appendix A to this Prospectus.
CLASS B SHARES: Class B shares are offered at net asset value without an initial
sales charge but subject to a CDSC upon redemption 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%
The CDSC imposed is assessed against the lesser of the value of the shares
redeemed (exclusive of reinvested dividends and capital gain distributions) or
the total cost of such shares. No CDSC is assessed against shares acquired
through the automatic reinvestment of dividends or capital gain distributions.
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 payable under the Fund's Class B Distribution Plan (see
"Distribution Plans" below) at a rate equal to 0.25% of the purchase price of
such shares. Therefore, the total amount paid to a dealer upon the sale of Class
B shares is 4% of the purchase price of the shares (commission rate of 3.75%
plus a service fee equal to 0.25% of the purchase price).
See "Redemptions and Repurchases -- Contingent Deferred Sales Charge" for
further discussion of the CDSC.
WAIVERS OF CDSC. In certain circumstances, the CDSC imposed upon
redemption of Class B shares is waived. These circumstances are described in
Appendix A to this Prospectus.
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. See "Distribution Plans" below. 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 Sections 401(a) or 403(b) of the Internal Revenue Code of 1986,
as amended (the "Code"), if the retirement plan and/or the sponsoring
organization subscribe to the MFS FUNDamental 401(k) Plan or another similar
recordkeeping program made available by the Shareholder Servicing Agent.
GENERAL: The following information applies to purchases of all classes of the
Fund's shares.
MINIMUM INVESTMENT. 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 a $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.
RIGHT TO REJECT PURCHASE ORDERS/MARKET TIMING. 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 shares 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.
DEALER CONCESSIONS. Dealers may receive different compensation with respect
to sales of Class A, Class B and Class C shares. In addition, 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. 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 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. 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.
Other concessions may be offered to the extent not prohibited by state laws or
any self-regulatory agency, such as the NASD.
SPECIAL INVESTMENT PROGRAMS. 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.
RESTRICTIONS ON ACTIVITIES OF NATIONAL BANKS. 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. 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 in respect of Shareholders who invested in the Fund through a
national bank. 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.
------------------------
A shareholder whose shares are held in the name of, or controlled by, a 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.
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 received by the Fund (i.e., an
established account) may be exchanged for shares of the same class of any of the
other MFS Funds at net asset value (if available for sale). In addition, Class C
shares may be exchanged for shares of the MFS Money Market Fund at net asset
value. Shares of one class may not be exchanged for shares of any other class.
EXCHANGES AMONG MFS FUNDS (EXCLUDING MFS MONEY MARKET FUNDS): No initial sales
charges or CDSC will be imposed in connection with an exchange from shares of an
MFS Fund to shares of any other MFS Fund, except with respect to exchanges from
an MFS money market fund to another MFS Fund which is not an MFS money market
fund (discussed below). With respect to an exchange involving shares subject to
a CDSC, the CDSC will be unaffected by the exchange and the holding period for
purposes of calculating the CDSC will carry over to the acquired shares.
EXCHANGES FROM AN MFS MONEY MARKET FUND: Special rules apply with respect to the
imposition of an initial sales charge or a CDSC for exchanges from an MFS money
market fund to another MFS Fund which is not an MFS money market fund. These
rules are described under the caption "Exchanges" in the Prospectuses of those
MFS money market funds.
EXCHANGES INVOLVING THE MFS FIXED FUND: Class A shares of any MFS Fund held by
certain qualified retirement plans may be exchanged for units of participation
of the MFS Fixed Fund (a bank collective investment fund) (the "Units"), and
Units may be exchanged for Class A shares of any MFS Fund. With respect to
exchanges between Class A shares subject to a CDSC and Units, the CDSC will
carry over to the acquired shares or Units and will be deducted from the
redemption proceeds when such shares or Units are subsequently redeemed,
assuming the CDSC is then payable (the period during which the Class A shares
and the Units were held will be aggregated for purposes of calculating the
applicable CDSC). In the event that a shareholder initially purchases Units and
then exchanges into Class A shares subject to an initial sales charge of an MFS
Fund, the initial sales charge shall be due upon such exchange, but will not be
imposed with respect to any subsequent exchanges between such Class A shares and
Units with respect to shares on which the initial sales charge has already been
paid. In the event that a shareholder initially purchases Units and then
exchanges into Class A shares subject to a CDSC of an MFS Fund, the CDSC period
will commence upon such exchange, and the applicability of the CDSC with respect
to subsequent exchanges shall be governed by the rules set forth above in this
paragraph.
GENERAL: Exchanges will be made only 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
($50 in the case 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 the Shareholder Servicing Agent) or all
the shares in the account. 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 (generally, 4:00 p.m., Eastern time) (the "Exchange"),
the exchange will occur on that day if all the requirements set forth above have
been complied with at that time and subject to the Fund's right to reject
purchase orders. 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 dealers or
the Shareholder Servicing Agent. A shareholder should read the prospectus of the
other MFS Fund and consider the differences in objectives, policies and
restrictions 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 -- General -- Right to Reject
Purchase Orders/ Market Timing."
REDEMPTIONS AND REPURCHASES
A shareholder may withdraw all or any portion of the value of his account on any
date on which the Fund is open for business by redeeming shares at their net
asset value (a redemption) or by selling such shares to the Fund through a
dealer (a repurchase). Certain redemptions and repurchases are, however, subject
to a CDSC. See "Contingent Deferred Sales Charge" below. Because the net asset
value of shares of the account fluctuates, 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 or repurchase will normally be available within seven
days, except 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.
REDEMPTION BY MAIL: Each shareholder may 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
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
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"
will 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 in "good
order" by the Shareholder Servicing Agent, 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 described above 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 such Exchange is restricted or to
the extent otherwise permitted by the 1940 Act if an emergency exists. See "Tax
Status" below.
REDEMPTION BY TELEPHONE: Each shareholder may redeem an amount from his account
by telephoning the Shareholder Servicing Agent 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 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 and the amount of any income tax
required to be withheld, are mailed by check to the designated account, without
charge, if the redemption proceeds do not exceed $1,000, and are wired in
federal funds to the designated account if the redemption proceeds exceed
$1,000. 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.
REPURCHASE THROUGH A DEALER: If a shareholder desires to sell his shares through
his 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 BEFORE THE CLOSE OF BUSINESS ON THE SAME DAY, THE
SHAREHOLDER WILL RECEIVE THE NET ASSET VALUE CALCULATED ON THAT DAY, REDUCED BY
THE AMOUNT OF ANY APPLICABLE CDSC AND THE AMOUNT OF ANY INCOME TAX REQUIRED TO
BE WITHHELD.
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 purchases by
certain retirement plans 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 of shares 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 or purchases by certain
retirement plans 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 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 of shares will be
calculated as set forth in "Purchases" above.
The applicability of a CDSC will be unaffected by exchanges or transfers of
registration, except as described in Appendix A hereto.
GENERAL: The following information applies to redemptions and repurchases of
all classes of the Fund's shares.
SIGNATURE GUARANTEE. In order to protect shareholders against fraud, 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.
REINSTATEMENT PRIVILEGE. 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 SAI regarding this privilege.
IN-KIND DISTRIBUTIONS. Subject to 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
securities (instead of cash) from the Fund's portfolio. The securities
distributed in such a distribution 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 received a distribution in-kind, the shareholder could incur
brokerage or transaction charges when converting the securities to cash.
INVOLUNTARY REDEMPTIONS/SMALL ACCOUNTS. 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 if at any time the total investment in such
account drops below $500 because of redemptions, except in the case of accounts
being 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 --
General -- Minimum Investment." 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.
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 "Distribution Plans"), after having concluded that there is a
reasonable likelihood that the Distribution Plans would benefit the Fund and its
shareholders.
In certain circumstances, the fees described below have not yet been imposed or
are being waived. These circumstances are described below under the heading
"Current Level of Distribution and Service Fees."
FEATURES COMMON TO EACH DISTRIBUTION PLAN: The Distribution Plans have certain
common features, as described below.
SERVICE FEES. Each Distribution Plan provides that the Fund may pay MFD a
service fee of up to 0.25% of the average daily net assets attributable to the
class of shares to which the Distribution Plan relates (i.e., Class A, Class B
or Class C shares, as appropriate) (the "Designated Class") annually in order
that MFD may pay expenses on behalf of the Fund relating to the servicing of
shares of the Designated Class. The service fee is used by MFD to compensate
dealers which enter into a sales agreement with MFD in consideration for all
personal services and/or account maintenance services rendered by the dealer
with respect to shares of the Designated Class owned by investors for whom such
dealer is the dealer or holder of record. MFD may from time to time reduce the
amount of the service fees paid for shares sold prior to a certain date. Service
fees may be reduced for a 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 each 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.
DISTRIBUTION FEES. Each Distribution Plan provides that the Fund may pay MFD
a distribution fee based on the average daily net assets attributable to the
Designated Class as partial consideration for distribution services performed
and expenses incurred in the performance of MFD's obligations under its
distribution agreement with the Fund. See "Management of the Fund --
Distributor" in the SAI. The amount of the distribution fee paid by the Fund
with respect to each class differs under the Distribution Plans, as does the use
by MFD of such distribution fees. Such amounts and uses are described below in
the discussion of the separate Distribution Plans. While the amount of
compensation received by MFD in the form of distribution fees during any year
may be more or less than the expense incurred by MFD under its distribution
agreement with the Fund, the Fund is not liable to MFD for any losses MFD may
incur in performing services under its distribution agreement with the Fund.
OTHER COMMON FEATURES. Fees payable under each Distribution Plan are charged
to, and therefore reduce, income allocated to shares of the Designated Class.
The Distribution Plans have substantially identical provisions with respect to
their operating policies and their initial approval, renewal, amendment and
termination.
FEATURES UNIQUE TO EACH DISTRIBUTION PLAN: The Distribution Plans have certain
features that are unique to each class of shares, as described below.
CLASS A DISTRIBUTION PLAN. Class A shares are generally offered pursuant to
an initial sales charge, a substantial portion of which is paid to or retained
by the dealer making the sale (the remainder of which is paid to MFD). See
"Purchases -- Class A Shares" above. In addition to the initial sales charge,
the dealer also generally receives the ongoing 0.25% per annum service fee, as
discussed above.
The distribution fee paid to MFD under the Class A Distribution Plan is equal,
on an annual basis, to 0.10% of the Fund's average daily net assets attributable
to Class A shares. As noted above, MFD may use the distribution fee to cover
distribution-related expenses incurred by it under its distribution agreement
with the Fund, including commissions to dealers and payments to wholesalers
employed by MFD (e.g., MFD pays commission to dealers with respect to purchases
of $1 million or more of Class A shares which are sold at net asset value but
which are subject to a 1% CDSC for one year after purchase). See "Purchases --
Class A Shares" above. In addition, to the extent that the aggregate service and
distribution fees paid under the Class A Distribution Plan do 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 such distribution-related expenses or other
distribution-related expenses.
CLASS B DISTRIBUTION PLAN. Class B shares are offered at net asset value
without an initial sales charge but subject to a CDSC. See "Purchases -- Class B
Shares" above. MFD will advance to dealers the first year service fee described
above at a rate equal to 0.25% of the purchase price of such shares and, as
compensation therefore, MFD may retain the service fee paid by the Fund with
respect to such shares for the first year after purchase. Dealers will become
eligible to receive the ongoing 0.25% per annum service fee with respect to such
shares commencing in the thirteenth month following purchase.
Under the Class B Distribution Plan, the Fund pays MFD a distribution fee equal,
on an annual basis, to 0.75% of the Fund's average daily net assets attributable
to Class B shares. As noted above, this distribution fee may be used by MFD to
cover its distribution-related expenses under its distribution agreement with
the Fund (including the 3.75% commission it pays to dealers upon purchase of
Class B shares, as described under "Purchases -- Class B Shares" above).
CLASS C DISTRIBUTION PLAN. Class C shares are offered at net asset value
without a sales charge or a CDSC. See "Purchases -- Class C shares" above.
Unlike the case with respect to the sale of Class A and Class B shares, where
the dealer retains a portion of the initial sales charge (Class A shares) or
receives an up-front payment from MFD (Class B shares), a dealer who sells Class
C shares does not receive any initial payment, but instead receives distribution
and service fees equal, on an annual basis, to 1% of the Fund's average daily
net assets attributable to Class C shares owned by investors for whom the dealer
is the holder or dealer of record.
This ongoing 1% fee is comprised of the 0.25% per annum service fee paid to MFD
under the Class C Distribution Plan (which MFD in turn pays to dealers), as
discussed above, and a distribution fee paid to MFD (which MFD also in turn pays
to dealers) under the Class C Distribution Plan equal, on an annual basis, to
0.75% of the Fund's average daily net assets attributable to Class C shares.
CURRENT LEVEL OF DISTRIBUTION AND SERVICE FEES: The Fund's Class A, Class B and
Class C distribution and service fees for its current fiscal year are 0.35%,
1.00% and 1.00% per annum, respectively. The 0.35% per annum Class A
distribution/service fee is reduced to 0.25% per annum for shares purchased
prior to March 1, 1991.
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 the 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 the dividends and capital gain distributions they
receive 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. Shortly after the end of each calendar year, each shareholder will
be sent 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.
Fund distributions will reduce the Fund's net asset value per share.
Shareholders who buy shares shortly before the Fund makes a distribution may
thus pay the full price for the shares and then effectively receive a portion of
the purchase price back as a taxable distribution.
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 treaty.
The Fund is also required in certain circumstances to apply backup withholding
at a rate 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 been subject to
30% withholding. 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 SAI. 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 SAI).
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 SAI. For further
information about the Fund's performance for the fiscal year ended September 30,
1995, 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 SAI) 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
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 if such fund is available for
sale. 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 SAI 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 SAI dated February 1, 1996, contains more detailed information about
the Fund, including, but not limited to, information related to (i) investment
objective, 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>
APPENDIX A
WAIVERS OF SALES CHARGES
This Appendix sets forth the various circumstances in which all applicable sales
charges are waived (Section I), the initial sales charge and the contingent
deferred sales charge ("CDSC") for Class A shares is waived (Section II), and
the CDSC for Class B shares is waived (Section III).
I. WAIVERS OF ALL APPLICABLE SALES CHARGES
In the following circumstances, the initial sales charge imposed on
purchases of Class A shares and the CDSC imposed on certain redemptions of
Class A shares and on redemptions of Class B shares, as applicable, is
waived:
1. DIVIDEND REINVESTMENT
* Shares acquired through dividend or capital gain reinvestment; and
* Shares acquired by automatic reinvestment of distributions of
dividends and capital gains of any MFS Fund pursuant to the
Distribution Investment Program.
2. CERTAIN ACQUISITIONS/LIQUIDATIONS
* Shares acquired on account of the acquisition or liquidation of
assets of other investment companies or personal holding companies.
3. AFFILIATES OF AN MFS FUND/CERTAIN DEALERS. Shares acquired by:
* Officers, eligible directors, employees (including retired employees)
and agents of MFS, Sun Life or any of their subsidiary companies;
* Trustees and retired trustees of any investment company for which MFD
serves as distributor;
* Employees, directors, partners, officers and trustees of any sub-
adviser to any MFS Fund;
* Employees or registered representatives of dealers and other
financial institution ("dealers") which have a sales agreement with
MFD;
* Certain family members of any such individual and their spouses
identified above and certain trusts, pension, profit-sharing or other
retirement plans for the sole benefit of such persons, provided the
shares are not resold except to an MFS Fund; and
* Institutional Clients of MFS or AMI.
4. INVOLUNTARY REDEMPTIONS (CDSC WAIVER ONLY)
* Shares redeemed at an MFS Fund's direction due to the small size of a
shareholder's account. See "Redemptions and Repurchases -- General --
Involuntary Redemptions/Small Accounts" in the Prospectus.
5. RETIREMENT PLANS (CDSC WAIVER ONLY). Shares redeemed on account of
distributions made under the following circumstances:
INDIVIDUAL RETIREMENT ACCOUNTS ("IRA'S")
* Death or disability of the IRA owner.
SECTION 401(A) PLANS ("401(A) PLANS") AND SECTION 403(B) EMPLOYER
SPONSORED PLANS ("ESP PLANS")
* Death, disability or retirement of Plan participant;
* Loan from Plan (repayment of loans, however, will constitute new
sales for purposes of assessing sales charges);
* Financial hardship (as defined in Treasury Regulation Section 1.401
(k)-1(d)(2), as amended from time to time);
* Termination of employment of Plan participant (excluding, however, a
partial or other termination of the Plan);
* Tax-free return of excess Plan contributions;
* To the extent that redemption proceeds are used to pay expenses (or
certain participant expenses) of the Plan (e.g., participant account
fees), provided that the Plan sponsor subscribes to the MFS
FUNDamental 401(k) Plan or another similar recordkeeping system made
available by the Shareholder Servicing Agent; and
* Distributions from a Plan that has invested its assets in 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 Plan first invests its
assets in one or more of the MFS Funds. The sales charges will be
waived in the case of a redemption of all of the Plan's shares in all
MFS Funds (i.e., all the assets of the Plan invested in the MFS Funds
are withdrawn), unless immediately prior to the redemption, the
aggregate amount invested by the Plan in shares of the MFS Funds
(excluding the reinvestment of distributions) during the prior four
years equals 50% or more of the total value of the Plan's assets in
the MFS Funds, in which case the sales charges will not be waived.
SECTION 403(B) SALARY REDUCTION ONLY PLANS ("SRO PLANS")
* Death or disability of Plan participant.
6. CERTAIN TRANSFERS OF REGISTRATION (CDSC WAIVER ONLY). Shares
transferred:
* To an IRA rollover account where any sales charges with respect to
the shares being reregistered would have been waived had they been
redeemed; and
* From a single account maintained for a 401(a) Plan to multiple
accounts maintained by the Shareholder Servicing Agent on behalf of
individual participants of such Plan, provided that the Plan sponsor
subscribes to the MFS FUNDamental 401(k) Plan or another similar
recordkeeping system made available by the Shareholder Servicing
Agent.
II. WAIVERS OF CLASS A SALES CHARGES
In addition to the waivers set forth in Section I above, in the following
circumstances the initial sales charge imposed on purchases of Class A
shares and the contingent deferred sales charge imposed on certain
redemptions of Class A shares is waived:
1. INVESTMENT OF REDEMPTION PROCEEDS FROM UNAFFILIATED MUTUAL FUNDS
* Shares acquired through the investment of redemption proceeds from
another open-end management investment company not distributed or
managed by MFD or its affiliates if: (i) the investment is made
through a dealer and appropriate documentation is submitted to MFD;
(ii) the redeemed shares were subject to an initial sales charge or
deferred sales charge (whether or not actually imposed); (iii) the
redemption occurred no more than 90 days prior to the purchase of
Class A shares; and (iv) the MFS Fund, MFD or its affiliates have not
agreed with such company or its affiliates, formally or informally,
to waive sales charges on Class A shares or provide any other
incentive with respect to such redemption and sale.
2. WRAP ACCOUNT INVESTMENTS
* Shares acquired by investments through certain dealers which have
entered into an agreement with MFD which includes a requirement that
such shares be sold for the sole benefit of clients participating in
a "wrap" account or a similar program under which such clients pay a
fee to such dealer.
3. INVESTMENT BY INSURANCE COMPANY SEPARATE ACCOUNTS
* Shares acquired by insurance company separate accounts.
4. RETIREMENT PLANS
ADMINISTRATIVE SERVICES ARRANGEMENTS
* Shares acquired by retirement plans whose third party administrators,
or dealers have entered into an administrative services agreement
with MFD or one of its affiliates to perform certain administrative
services, subject to certain operational and minimum size
requirements specified from time to time by MFD or one or more of its
affiliates.
REINVESTMENT OF DISTRIBUTIONS FROM QUALIFIED RETIREMENT PLANS
* Shares acquired through the automatic reinvestment in Class A shares
of Class A or Class B distributions which constitute required
withdrawals from qualified retirement plans.
Shares redeemed on account of distributions made under the following
circumstances:
IRA'S
* Distributions made on or after the IRA owner has attained the age of
59 1/2 years old; and
* Tax-free returns of excess IRA contributions.
401(A) PLANS
* Distributions made on or after the Plan participant has attained the
age of 59 1/2 years old; and
* Certain involuntary redemptions and redemptions in connection with
certain automatic withdrawals from a Plan.
ESP PLANS AND SRO PLANS
* Distributions made on or after the Plan participant has attained the
age of 59 1/2 years old.
III. WAIVERS OF CLASS B SALES CHARGES
In addition to the waivers set forth in Section I above, in the following
circumstances the CDSC imposed on redemptions of Class B shares is waived:
1. SYSTEMATIC WITHDRAWAL PLAN
* Systematic Withdrawal Plan redemptions with respect to up to 10% per
year of the account value at the time of establishment.
2. DEATH OF OWNER
* Shares redeemed on account of the death of the account owner if the
shares are held solely in the deceased individual's name or in a
living trust for the benefit of the deceased individual.
3. DISABILITY OF OWNER
* Shares redeemed on account of the disability of the account owner if
shares are held either solely or jointly in the disabled individual's
name or in a living trust for the benefit of the disabled individual
(in which case a disability certification form is required to be
submitted to the Shareholder Servicing Agent.).
4. RETIREMENT PLANS. Shares redeemed on account of distributions made
under the following circumstances:
IRA'S, 401(A) PLANS, ESP PLANS AND SRO PLANS
* Distributions made on or after the IRA owner or the Plan participant,
as applicable, has attained the age of 70 1/2 years old, but only
with respect to the minimum distribution under applicable Internal
Revenue Code ("Code") rules.
SAR-SEP PLANS
* Distributions made on or after the SAR-SEP Plan participant has
attained the age of 70 1/2 years old, but only with respect to the
minimum distribution under applicable Code rules;
* Death or disability of a SAR-SEP Plan participant.
<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 and Trust Company
89 South Street
Boston, MA 02110
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 Auditors
Deloitte & Touche LLP
125 Summer Street
Boston, MA02110
[LOGO] M F S (R)
THE FIRST NAME IN MUTUAL FUNDS
MFS(R) RESEARCH FUND
500 Boylston Street
Boston, MA 02116
[LOGO] M F S (R)
THE FIRST NAME IN MUTUAL FUNDS
MFS(R) RESEARCH FUND
Prospectus
February 1, 1996
MFR-1 2/96/321M 14/214/314
<PAGE>
[LOGO]
THE FIRST NAME IN MUTUAL FUNDS
MFS(R) RESEARCH STATEMENT OF
FUND ADDITIONAL INFORMATION
(A member of the MFS Family of Funds(R)) February 1, 1996
- --------------------------------------------------------------------------------
Page
----
1. Definitions ......................................................... 2
2. The Fund ............................................................ 2
3. Investment Objective, Policies and Restrictions ..................... 2
4. Management of the Fund .............................................. 4
Trustees ......................................................... 4
Officers ......................................................... 5
Investment Adviser ............................................... 5
Custodian ........................................................ 6
Shareholder Servicing Agent ...................................... 6
Distributor ...................................................... 6
5. Portfolio Transactions and Brokerage Commissions .................... 7
6. Shareholder Services ................................................ 8
Investment and Withdrawal Programs ............................... 8
Exchange Privilege ............................................... 10
Tax-Deferred Retirement Plans .................................... 11
7. Tax Status .......................................................... 11
8. Determination of Net Asset Value and Performance .................... 12
9. Distribution Plans .................................................. 14
10. Description of Shares, Voting Rights and Liabilities ................ 15
11. Independent Auditors and Financial Statements ....................... 15
Appendix A .......................................................... A-1
Appendix B .......................................................... B-1
MFS RESEARCH FUND
A Series of MFS Series Trust V
500 Boylston Street, Boston, Massachusetts 02116
(617) 954-5000
This Statement of Additional Information (the "SAI") sets forth information
which may be of interest to investors but which is not necessarily included in
the Fund's Prospectus, dated February 1, 1996. This SAI should be read in
conjunction with the Prospectus, a copy of which may be obtained without charge
by contacting the Shareholder Servicing Agent (see last page for address and
phone number).
THIS SAI IS NOT A PROSPECTUS AND IS AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE
INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS.
<PAGE>
1. DEFINITIONS
"Fund" -- MFS Research Fund, a series of MFS
Series Trust V, a Massachusetts
business trust (the "Trust"). The
Trust was known as Massachusetts
Financial Total Return Trust until
August 3, 1992 and as MFS Total
Return Fund until August 23, 1993.
The Fund reorganized as a series of
the Trust on September 7, 1993.
"MFS" or the "Adviser" -- Massachusetts Financial Services
Company, a Delaware corporation.
"MFD" -- MFS Fund Distributors, Inc., a
Delaware corporation.
"Prospectus" -- The Prospectus of the Fund, dated
February 1, 1996, as amended and
supplemented from time to time.
2. THE FUND
The Fund was known as "Massachusetts Financial Development Fund" until its name
was changed as of February 1, 1992. The predecessor of the Fund -- Massachusetts
Financial Development Fund, Inc. (the "Corporation") -- was incorporated under
the laws of The Commonwealth of Massachusetts in 1970. The Fund was reorganized
as a separate Massachusetts business trust on January 29, 1985, pursuant to an
Agreement and Plan of Reorganization, dated January 15, 1985. The Fund
reorganized as a series of the Trust on September 7, 1993. All references in
this SAI to the Fund's past activities are intended to include those of the
Corporation, unless the context indicates otherwise.
3. INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
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.
INVESTMENT POLICIES. The Prospectus contains a discussion of the Fund's policies
with respect to investments in various types of securities, including repurchase
agreements, and the risks involved in such investments. Some of these policies
are further described below.
SECURITIES LENDING: The Fund may seek to increase its income by lending
portfolio securities. Such loans will usually be made only to member banks of
the Federal Reserve System and to member firms (and subsidiaries thereof) of the
New York Stock Exchange and would be required to be secured continuously by
collateral in cash, U.S. Government securities or an irrevocable letter of
credit, maintained on a current basis at an amount at least equal to the market
value of the securities loaned. The Fund would have the right to call a loan and
obtain the securities loaned at any time on customary industry settlement notice
(which usually will not exceed five days). During the existence of a loan, the
Fund would continue to receive the equivalent of the interest or dividends paid
by the issuer on the securities loaned and would also receive compensation based
on investment of cash collateral. The Fund would not, however, have the right to
vote any securities having voting rights during the existence of the loan, but
would call the loan in anticipation of an important vote to be taken among
holders of the securities or of the giving or withholding of their consent on a
material matter affecting the investment. As with other extensions of credit
there are risks of delay in recovery or even loss of rights in the collateral
should the borrower of the securities fail financially. However, the loans would
be made only to entities deemed by the Adviser to be of good standing, and when,
in the judgment of the Adviser, the consideration which can be earned currently
from securities loans of this type justifies the attendant risk. If the Adviser
determines to make securities loans, it is not intended that the value of the
securities loaned would exceed 30% of the value of the Fund's total assets. The
Fund did not lend any of its portfolio securities during its fiscal year ended
September 30, 1995.
REPURCHASE AGREEMENTS: The Fund may enter into repurchase agreements with
sellers who are member firms (or subsidiaries thereof) of the New York Stock
Exchange or members of the Federal Reserve System, recognized primary U.S.
Government securities dealers or institutions which the Adviser has determined
to be of comparable creditworthiness. The securities that the Fund purchases and
holds through its agent are U.S. Government securities, the values of which are
equal to or greater than the repurchase price agreed to be paid by the seller.
The repurchase price may be higher than the purchase price, the difference being
income to the Fund, or the purchase and repurchase prices may be the same, with
interest at a standard rate due to the Fund together with the repurchase price
on repurchase. In either case, the income to the Fund is unrelated to the
interest rate on the U.S. Government securities.
The repurchase agreement provides that in the event the seller fails to pay the
price agreed upon on the agreed upon delivery date or upon demand, as the case
may be, the Fund will have the right to liquidate the securities. If at the time
the Fund is contractually entitled to exercise its right to liquidate the
securities, the seller is subject to a proceeding under the bankruptcy laws or
its assets are otherwise subject to a stay order, the Fund's exercise of its
right to liquidate the securities may be delayed and result in certain losses
and costs to the Fund. The Fund has adopted and follows procedures which are
intended to minimize the risks of repurchase agreements. For example, the Fund
only enters into repurchase agreements after the Adviser has determined that the
seller is creditworthy, and the Adviser monitors that seller's creditworthiness
on an ongoing basis. Moreover, under such agreements, the value of the
securities (which are marked to market every business day) is required to be
greater than the repurchase price, and the Fund has the right to make margin
calls at any time if the value of the securities falls below the agreed upon
margin.
FOREIGN SECURITIES: The Fund may invest up to 20% (and generally expects to
invest between 0% and 20%) of its total assets in foreign securities (not
including American Depositary Receipts). As discussed in the Prospectus,
investing in foreign securities generally represents a greater degree of risk
than investing in domestic securities, due to possible exchange rate
fluctuations, less publicly available information, more volatile markets, less
securities regulation, less favorable tax provisions, war or expropriation. As a
result of its investments in foreign securities, the Fund may receive interest
or dividend payments, or the proceeds of the sale or redemption of such
securities, in the foreign currencies in which such securities are denominated.
Under certain circumstances, such as where the Adviser believes that the
applicable exchange rate is unfavorable at the time the currencies are received
or the Adviser anticipates, for any other reason, that the exchange rate will
improve, the Fund may hold such currencies for an indefinite period of time.
While the holding of currencies will permit the Fund to take advantage of
favorable movements in the applicable exchange rate, such strategy also exposes
the Fund to risk of loss if exchange rates move in a direction adverse to the
Fund's position. Such losses could reduce any profits or increase any losses
sustained by the Fund from the sale or redemption of securities and could reduce
the dollar value of interest or dividend payments received.
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. ADRs may be sponsored or
unsponsored. A sponsored ADR is issued by a depository which has an exclusive
relationship with the issuer of the underlying security. An unsponsored ADR may
be issued by any number of U.S. depositories. Under the terms of most sponsored
arrangements, depositories agree to distribute notices of shareholder meetings
and voting instructions, and to provide shareholder communications and other
information to the ADR holders at the request of the issuer of the deposited
securities. The depository of an unsponsored ADR, on the other hand, is under no
obligation to distribute shareholder communications received from the issuer of
the deposited securities or to pass through voting rights to ADR holders in
respect of the deposited securities. The Fund may invest in either type of ADR.
Although the U.S. investor holds a substitute receipt of ownership rather than
direct stock certificates, the use of the depositary receipts in the United
States can reduce costs and delays as well as potential currency exchange and
other difficulties. The Fund may purchase securities in local markets and direct
delivery of these ordinary shares to the local depository of an ADR agent bank
in the foreign country. Simultaneously, the ADR agents create a certificate
which settles at the Fund's custodian in five days. The Fund may also execute
trades on the U.S. markets using existing ADRs. A foreign issuer of the security
underlying an ADR is generally not subject to the same reporting requirements in
the United States as a domestic issuer. Accordingly the information available to
a U.S. investor will be limited to the information the foreign issuer is
required to disclose in its own country and the market value of an ADR may not
reflect undisclosed material information concerning the issuer of the underlying
security. ADRs may also be subject to exchange rate risks if the underlying
foreign securities are denominated in foreign currency.
RISKS OF INVESTING IN LOWER RATED BONDS: The Fund may invest in fixed income
securities rated Baa by Moody's Investors Service, Inc. ("Moody's") or BBB by
Standard & Poor's Ratings Group ("S&P") or Fitch Investors Service, Inc.
("Fitch") 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 up to 10% of its net assets in securities rated Ba or
lower by Moody's or BB or lower by S&P or Fitch and comparable unrated
securities (commonly known as "junk bonds"). No minimum rating standard is
required by the Fund. 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 and because 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
(and the outlook for economic growth), short-term corporate and industry
developments and the market's perception of their credit quality (especially
during times of adverse publicity) to a greater extent than higher rated
securities which react primarily to fluctuations in the general level of
interest rates (although these lower rated fixed income securities are also
affected by changes in interest rates). In the past, economic downturns or an
increase in interest rates have, under certain circumstances, caused a higher
incidence of default by the issuers of these securities and may do so in the
future, especially in the case of highly leveraged issuers. The prices for these
securities may be affected by legislative and regulatory developments. The
market for these lower rated fixed income securities may be less liquid than the
market for investment grade fixed income securities. Furthermore, the liquidity
of these lower rated securities may be affected by the market's perception of
their credit quality. Therefore, the Adviser's judgment may at times play a
greater role in valuing these securities than in the case of investment grade
fixed income securities, and it also may be more difficult during times of
certain adverse market conditions to sell these lower rated securities to meet
redemption requests or to respond to changes in the market.
While the Adviser may refer to ratings issued by established credit rating
agencies, it is not the Fund's policy to rely exclusively on ratings issued by
these rating agencies, but rather to supplement such ratings with the Adviser's
own independent and ongoing review of credit quality. To the extent the Fund
invests in these lower rated securities, the 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 higher quality fixed income securities.
WARRANTS: The Fund will not invest more than 5% of its net assets, valued at the
lower of cost or market, in warrants. Included within such amount, but not to
exceed 2% of the value of its net assets, may be warrants which are not listed
on the New York or American Stock Exchange. Warrants acquired by the Fund in
units or attached to securities may be deemed to be without value.
THE POLICIES STATED ABOVE ARE NOT FUNDAMENTAL AND MAY BE CHANGED WITHOUT
SHAREHOLDER APPROVAL, AS MAY THE FUND'S INVESTMENT OBJECTIVE.
----------------
INVESTMENT RESTRICTIONS. The Fund has adopted the following restrictions which
cannot be changed without the approval of the holders of a majority of the
Fund's shares (which, as used in this SAI, means the lesser of (i) more than 50%
of the outstanding shares of the Trust (or a class or series, as applicable) or
(ii) 67% or more of the outstanding shares of the Trust (or a class or series,
as applicable) present at a meeting if holders of more than 50% of the
outstanding shares of the Trust (or a class or series, as applicable) are
represented at such meeting in person or by proxy):
The Fund may not:
(1) Borrow amounts in excess of 5% of its gross assets (taken at the lower
of cost or market value), and then only as a temporary measure for
extraordinary or emergency purposes;
(2) Pledge, mortgage or hypothecate an amount of assets which (taken at
market value) exceeds 15% of its gross assets (taken at the lower of cost or
market value);
(3) Underwrite securities issued by other persons except insofar as the Fund
may technically be deemed an underwriter under the Securities Act of 1933 in
selling a portfolio security;
(4) Concentrate its investments in any particular industry, but if it is
deemed appropriate for the attainment of its investment objectives, up to 25%
of its assets, at market value at the time of each investment, may be invested
in any one industry;
(5) Purchase or sell real estate (including limited partnership interests
but excluding securities of companies, such as real estate investment trusts,
which deal in real estate or interests therein) or mineral leases, commodities
or commodity contracts in the ordinary course of its business. The Fund
reserves the freedom of action to hold and to sell real estate or mineral
leases, commodities or commodity contracts acquired as a result of the
ownership of securities. The Fund will not purchase securities for the purpose
of acquiring real estate or mineral leases, commodities or commodity
contracts;
(6) Make loans to other persons except through the lending of its portfolio
securities and by entering into repurchase agreements. See the discussion
above under the caption "Investment Policies." Not more than 10% of the Fund's
total assets will be invested in repurchase agreements maturing in more than
seven days. Subject to the limitation set forth in paragraph 16 below, the
Fund may purchase a portion of an issue of debt securities of types commonly
distributed privately to financial institutions. For these purposes the
purchase of short-term commercial paper or a portion of an issue of debt
securities which are part of an issue to the public shall not be considered
the making of a loan;
(7) Purchase the securities of any issuer if such purchase, at the time
thereof, would cause more than 5% of its total assets (taken at market value)
to be invested in the securities of such issuer, other than U.S.
Government securities;
(8) Purchase voting securities of any issuer if such purchase, at the time
thereof, would cause more than 10% of the outstanding voting securities of
such issuer to be held by the Fund; or purchase securities of any issuer if
such purchase at the time thereof would cause the Fund to hold more than 10%
of any class of securities of such issuer. For this purpose all indebtedness
of an issuer shall be deemed a single class and all preferred stock of an
issuer shall be deemed a single class;
(9) Invest for the purpose of exercising control or management;
(10) Purchase securities issued by any other investment company or
investment trust except by purchase in the open market where no commission or
profit to a sponsor or dealer results from such purchase other than the
customary broker's commission, or except when such purchase, though not made
in the open market, is part of a plan of merger or consolidation, provided,
however, that the Fund shall not purchase the securities of any investment
company or investment trust if such purchase at the time thereof would cause
more than 10% of the Fund's total assets (taken at market value) to be
invested in the securities of such issuer, and provided, further, that the
Fund shall not purchase securities issued by any open-end investment company;
(11) Invest more than 5% of its assets in companies which, including
predecessors, have a record of less than three years' continuous operation;
(12) Purchase or retain in its portfolio any securities issued by an issuer
any of whose officers, directors, trustees or security holders is an officer
or Trustee of the Trust, or is an officer or director of the Adviser, if after
the purchase of the securities of such issuer by the Fund one or more of such
persons owns beneficially more than 1/2 of 1% of the shares or securities, or
both, all taken at market value, of such issuer, and such persons owning more
than 1/2 of 1% of such shares or securities together own beneficially more
than 5% of such shares or securities, or both, all taken at market value;
(13) Purchase any securities on margin except that the Fund may obtain such
short-term credit as may be necessary for the clearance of purchases and sales
of securities;
(14) Sell any security which the Fund does not own unless by virtue of its
ownership of other securities the Fund has at the time of sale a right to
obtain securities without payment of further consideration equivalent in kind
and amount to the securities sold and provided that if such right is
conditional the sale is made upon the same conditions;
(15) Purchase or sell any put or call options or any combination thereof,
provided, that this shall not prevent the purchase, ownership, holding or sale
of warrants where the grantor of the warrants is the issuer of the underlying
securities; or
(16) Invest in securities which are subject to legal or contractual
restrictions on resale, or for which there is no readily available market
(e.g., trading in the security is suspended, or, in the case of unlisted
securities, market makers do not exist or will not entertain bids or offers),
unless the Board of Trustees has determined that such securities are liquid
based upon trading markets for the specific security, if more than 10% of the
Fund's assets (taken at market value) would be invested in such securities.
APPLICABILITY OF RESTRICTIONS: These investment restrictions 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.
4. MANAGEMENT OF THE FUND
The Board of Trustees provides broad supervision over the affairs of the Fund.
The Adviser is responsible for the investment management of the Fund and the
officers of the Trust are responsible for its operations. The Trustees and
officers of the Trust are listed below, together with their principal
occupations during the past five years. (Their titles may have varied during
that period.)
TRUSTEES
A. KEITH BRODKIN,* Chairman and President
Massachusetts Financial Services Company, Chairman
RICHARD B. BAILEY*
Private investor; Massachusetts Financial Services Company, former Chairman
(prior to September 30, 1991); Cambridge Bancorp, Director; Cambridge Trust
Company, Director
PETER G. HARWOOD
Private Investor
Address: 211 Lindsay Pond Road, Concord, Massachusetts
J. ATWOOD IVES
Eastern Enterprises (diversified holding company), Chairman and Chief Executive
Officer (since December 1991); General Cinema Corporation, Vice Chairman and
Chief Financial Officer (prior to December 1991); The Neiman Marcus Group,
Inc., Vice Chairman and Chief Financial Officer (prior to February 1992)
Address: 9 Riverside Road, Weston, Massachusetts
LAWRENCE T. PERERA
Hemenway & Barnes (attorneys), Partner
Address: 60 State Street, Boston, Massachusetts
WILLIAM J. POORVU
Harvard University Graduate School of Business Administration, Adjunct
Professor; CBL & Associates Properties, Inc. (a real estate investment trust),
Director; The Baupost Fund (a registered investment company), Vice Chairman
(since November 1993), Chairman and Trustee (prior to November 1993)
Address: Harvard Business School, Soldiers Field Road, Cambridge,
Massachusetts
CHARLES W. SCHMIDT
Private investor; Raytheon Company (diversified electronics manufacturer),
Senior Vice President and Group Executive (prior to December 1990); OHM
Corporation, Director; The Boston Company, Director; Boston Safe Deposit and
Fund Company, Director; Mohawk Paper Company, Director
Address: 30 Colpitts Road, Weston, Massachusetts
ARNOLD D. SCOTT*
Massachusetts Financial Services Company, Senior Executive Vice President and
Secretary
JEFFREY L. SHAMES*
Massachusetts Financial Services Company, President
ELAINE R. SMITH
Independent Consultant; Brigham and Women's Hospital, Executive Vice President
and Chief Operating Officer (prior to September 1992)
Address: Weston, Massachusetts
DAVID B. STONE
North American Management Corp. (investment advisers), Chairman and Director;
Eastern Enterprises, Director
Address: 10 Post Office Square, Suite 300, Boston, Massachusetts
OFFICERS
W. THOMAS LONDON,* Treasurer
Massachusetts Financial Services Company, Senior Vice President
JAMES O. YOST,* Assistant Treasurer
Massachusetts Financial Services Company, Vice President
STEPHEN E. CAVAN,* Secretary and Clerk
Massachusetts Financial Services Company, Senior Vice President, General
Counsel and Assistant Secretary
JAMES R. BORDEWICK, JR.,* Assistant Secretary
Massachusetts Financial Services Company, Vice President and Associate General
Counsel
- ----------
*"Interested persons" (as defined in the Investment Company Act of 1940, as
amended ("1940 Act")) of the Adviser whose address is 500 Boylston Street,
Boston, Massachusetts 02116.
Each Trustee and officer holds comparable positions with certain MFS
affiliates or with certain other funds of which MFS or a subsidiary of MFS is
the investment adviser or distributor. Mr. Brodkin, the Chairman of MFD,
Messrs. Shames and Scott, Directors of MFD, and Mr. Cavan, the Secretary of
MFD hold similar positions with certain other MFS affiliates. Mr. Bailey is a
Director of Sun Life Assurance Company of Canada (U.S.) ("Sun Life of Canada
(U.S.)"), the corporate parent of MFS.
The Fund pays the compensation of non-interested Trustees and Mr. Bailey who
currently receive a fee of $2,500 per year plus $135 per meeting and $100 per
committee meeting attended, together with such Trustee's out-of-pocket expenses.
The Trust has adopted a retirement plan for non-interested Trustees and Mr.
Bailey. Under this plan, a Trustee will retire upon reaching age 73 and if the
Trustee has completed at least five years of service, he or she would be
entitled to annual payments during his lifetime of up to 50% of such Trustee's
average annual compensation (based on the three years prior to his retirement)
depending on his length of service. A Trustee may also retire prior to age 73
and receive reduced payments if he or she has completed at least five years of
service. Under the plan, a Trustee (or his or her beneficiaries) will also
receive benefits for a period of time in the event the Trustee is disabled or
dies. These benefits will also be based on the Trustee's average annual
compensation and length of service. There is no retirement plan provided by the
Trust for Messrs. Brodkin, Scott and Shames. The Fund will accrue its allocable
share of compensation expenses each year to cover current year's service and
amortize past service cost.
Set forth in Appendix B hereto is certain information concerning the cash
compensation paid to the Trustees and benefits accrued, and estimated benefits
payable, under the retirement plan.
As of December 31, 1995, all Trustees and officers as a group owned less than 1%
of the Fund's shares outstanding, not including 738,667 shares (which represent
approximately 1.38% of the outstanding shares of the Fund) owned of record by
certain employee benefit plans of MFS of which Messrs. Brodkin, Scott and Shames
are Trustees.
As of December 31, 1995, Nationwide Life Insurance Co., P.O. Box 182029,
Columbus, Ohio 43218-2029 was the record owner of 6.42% of the outstanding Class
A shares of the Fund. Merrill Lynch Pierce Fenner & Smith Inc., P.O. Box 45286,
Jacksonville, FL 32232-5286 was the record owner of 6.12% of the outstanding
Class A shares of the Fund, 8.13% of the outstanding Class B shares of the Fund
and 16.34% of the outstanding Class C shares of the Fund.
The Declaration of Trust provides that the Trust will indemnify its Trustees and
officers against liabilities and expenses incurred in connection with litigation
in which they may be involved because of their offices with the Trust, unless it
is finally adjudicated that they engaged in willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in their offices,
or with respect to any matter unless it is adjudicated that they did not act in
good faith in the reasonable belief that their actions were in the best
interests of the Trust. In the case of a settlement, such indemnification will
not be provided unless it has been determined pursuant to the Declaration of
Trust, that such officers or Trustees have not engaged in willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in
their offices.
INVESTMENT ADVISER
MFS and its predecessor organizations have a history of money management dating
from 1924. MFS is a wholly owned subsidiary of Sun Life of Canada (U.S.) which
in turn is a wholly owned subsidiary of Sun Life Assurance Company of Canada
("Sun Life").
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. Subject to such policies as the Trustees may determine, the
Adviser makes investment decisions for the Fund. For these services and
facilities, the Adviser receives a management fee computed and paid monthly on
the basis of a formula based upon a percentage of the Fund's average daily net
assets plus a percentage of its gross income (i.e. income other than gains from
the sale of securities). The applicable percentages are reduced as assets and
income reach the following levels:
ANNUAL RATE OF MANAGEMENT FEE ANNUAL RATE OF MANAGEMENT FEE
BASED ON AVERAGE DAILY NET ASSETS BASED ON GROSS INCOME
- ------------------------------------ --------------------------------
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 3.6% of gross income in excess
in excess of $500 million of $10 million
For the fiscal year ended September 30, 1993, MFS received management fees of
$1,067,433 (of which $916,138 was based on average daily net assets and $151,665
on gross income), equivalent on an annualized basis to 0.11% of the Fund's
average daily net assets. For the fiscal year ended September 30, 1994, MFS
received management fees of $1,217,986 (of which $151,240 was based on average
daily net assets and $1,066,746 on gross income), equivalent on an annualized
basis to .39% of the Fund's average daily net assets. For the fiscal year ended
September 30, 1995, MFS received management fees under the Fund's Investment
Advisory Agreement of $1,910,078 (of which $1,588,228 was based on average daily
net assets and $321,850 on gross income), equivalent on an annualized basis to
0.41% of the Fund's average daily net assets.
In order to comply with the expense limitations of certain state securities
commissions, the Adviser will reduce its management fee or otherwise reimburse
the Fund for any expenses, exclusive of interest, taxes and brokerage
commissions, incurred by the Fund in any fiscal year to the extent such expenses
exceed the most restrictive of such state expense limitations. The Adviser will
make appropriate adjustments to such reimbursements in response to any amendment
or recission of the various state requirements. Any such adjustment would not
become effective until the beginning of the Fund's next fiscal year following
the date of such amendments or the date on which such requirements become no
longer applicable.
The Fund pays its expenses (other than those assumed by MFS or MFD), including:
governmental fees; interest charges; taxes; membership dues in the Investment
Company Institute allocable to the Fund; fees and expenses of independent
auditors, of legal counsel, and of any transfer agent, registrar or dividend
disbursing agent of the Fund; expenses of repurchasing and redeeming shares;
expenses of preparing, printing and mailing share certificates, shareholder
reports, notices, proxy statements and reports to governmental officers and
commissions; brokerage and other expenses connected with the execution,
recording and settlement of portfolio security transactions; insurance premiums;
fees and expenses of Investors Bank & Trust Company, the Fund's custodian, for
all services to the Fund, including safekeeping of funds and securities and
maintaining required books and accounts; expenses of calculating the net asset
value of shares of the Fund; and expenses of shareholder meetings. Expenses
relating to the issuance, registration and qualification of shares of the Fund
and the preparation, printing and mailing of prospectuses for such purposes are
borne by the Fund except that its Distribution Agreement with MFD, the Fund's
principal underwriter, requires MFD to pay for prospectuses that are to be used
for sales purposes. Expenses of the Trust which are not attributable to a
specific series are allocated among the series in a manner believed by
management of the Trust to be fair and equitable. For a list of the Fund's
expenses, including the compensation paid to the Trustees who are not officers
of MFS, during the fiscal year ended September 30, 1995, see "Financial
Statements -- Statement of Operations" in the Annual Report to shareholders.
Payment by the Fund of brokerage commissions for brokerage and research services
of value to the Adviser in serving its clients is discussed under the caption
"Portfolio Transactions and Brokerage Commissions."
MFS pays the compensation of the Trust's officers and any Trustee who is an
officer of MFS. The Adviser also furnishes at its own expense all necessary
administrative services, including office space, equipment, clerical personnel,
investment advisory facilities, and all executive and supervisory personnel
necessary for managing the Fund's investments, effecting its portfolio
transactions, and, in general, administering its affairs.
The Advisory Agreement will remain in effect until August 1, 1996, and will
continue in effect thereafter only if such continuance is specifically approved
at least annually by the Board of Trustees or by vote of a majority of the
Fund's shares (as defined in "Investment Restrictions") and, in either case, by
a majority of the Trustees who are not parties to the Advisory Agreement or
interested persons of any such party. The Advisory Agreement terminates
automatically if it is assigned and may be terminated without penalty by vote of
a majority of the Fund's shares (as defined in "Investment Restrictions") or by
either party on not more than 60 days' nor less than 30 days' written notice.
The Advisory Agreement provides that neither the Adviser nor its personnel shall
be liable for any error of judgment or mistake of law or for any loss arising
out of any investment or for any act or omission in the execution and management
of the Fund, except for willful misfeasance, bad faith or gross negligence in
the performance of its or their duties or by reason of reckless disregard of its
or their obligations and duties under the Advisory Agreement.
CUSTODIAN
Investors Bank & Trust Company (the "Custodian") is the custodian of the Fund's
assets. The Custodian's responsibilities include safekeeping and controlling the
Fund's cash and securities, handling the receipt and delivery of securities,
determining income and collecting interest and dividends on the Fund's
investments, maintaining books of original entry for portfolio and fund
accounting and other required books and accounts, and calculating the daily net
asset value of each class of shares of the Fund. The Custodian does not
determine the investment policies of the Fund or decide which securities the
Fund will buy or sell. The Fund may, however, invest in securities of the
Custodian and may deal with the Custodian as principal in securities
transactions.
SHAREHOLDER SERVICING AGENT
MFS Service Center, Inc. (the "Shareholder Servicing Agent"), a wholly owned
subsidiary of MFS, is the Fund's shareholder servicing agent, pursuant to a
Shareholder Servicing Agreement, effective August 1, 1985 (the "Agency
Agreement"). The Shareholder Servicing Agent's responsibilities under the Agency
Agreement include administering and performing transfer agent functions and
keeping records in connection with the issuance, transfer and redemption of each
class of shares of the Fund. For these services, the Shareholder Servicing Agent
will receive a fee calculated as a percentage of the average daily net assets of
each class of shares at an effective annual rate of up to 0.15%, up to 0.22% and
up to 0.15% attributable to Class A, Class B and Class C shares, respectively.
In addition, the Shareholder Servicing Agent will be reimbursed by the Fund for
certain expenses incurred by the Shareholder Servicing Agent on behalf of the
Fund. State Street Bank and Trust Company, the dividend and distribution
disbursing agent of the Fund, has contracted with the Shareholder Servicing
Agent to administer and perform certain dividend and distribution disbursing
functions for the Fund.
DISTRIBUTOR
MFD, a wholly owned subsidiary of MFS, serves as distributor for the continuous
offering of shares of the Fund pursuant to a Distribution Agreement, dated
January 1, 1995 as amended and restated (the "Distribution Agreement"). Prior to
January 1, 1995, MFS Financial Services, Inc. ("FSI"), another wholly owned
subsidiary of MFS, was the Fund's distributor. Where this SAI refers to MFD in
relation to the receipt or payment of money with respect to a period or periods
prior to January 1, 1995, such reference shall be deemed to include FSI, as the
predecessor in interest to MFD.
CLASS A SHARES: MFD acts as agent in selling Class A shares of the Fund to
dealers. The public offering price of Class A shares of the Fund is their net
asset value next computed after the sale plus a sales charge which varies based
upon the quantity purchased. The public offering price of a Class A share of the
Fund is calculated by dividing the net asset value of a Class A share by the
difference (expressed as a decimal) between 100% and the sales charge percentage
of offering price applicable to the purchase (see "Purchases" in the
Prospectus). The sales charge scale set forth in the Prospectus applies to
purchases of Class A shares of the Fund alone or in combination with shares of
all classes of certain other funds in the MFS Family of Funds (the "MFS Funds")
and other funds (as noted under Right of Accumulation) by any person, including
members of a family unit (e.g., husband, wife and minor children) and bona fide
trustees, and also applies to purchases made under the Right of Accumulation or
a Letter of Intent (see "Investment and Withdrawal Programs" below). A group
might qualify to obtain quantity sales charge discounts (see "Investment and
Withdrawal Programs" in this SAI).
Class A shares of the Fund may be sold at their net asset value to certain
persons or in certain circumstances, as described in the Prospectus. Such sales
are made without a sales charge to promote good will with employees and others
with whom MFS, MFD and/or the Fund have business relationships, and because the
sales effort, if any, involved in making such sales is negligible.
MFD allows discounts to dealers (which are alike for all dealers) from the
applicable public offering price of the Class A shares. Dealer allowances
expressed as a percentage of offering price for all offering prices are set
forth in the Prospectus (see "Purchases" in the Prospectus). The difference
between the total amount invested and the sum of (a) the net proceeds to the
Fund and (b) the dealer commission is the commission paid to the distributor.
Because of rounding in the computation of offering price, the portion of the
sales charge paid to the distributor may vary and the total sales charge may be
more or less than the sales charge calculated using the sales charge expressed
as a percentage of offering price or as a percentage of the net amount invested
as listed in the Prospectus. 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 pays a commission on purchases of $1
million or more as described in the Prospectus.
CLASS B SHARES AND CLASS C SHARES: MFD acts as agent in selling Class B and
Class C shares of the Fund to dealers. The public offering price of Class B and
Class C shares is their net asset value next computed after the sale (see
"Purchases" in the Prospectus).
GENERAL: Neither MFD nor dealers are permitted to delay placing orders to
benefit themselves by a price change. On occasion, MFD may obtain brokers loans
from various banks, including the custodian banks for the MFS Funds, to
facilitate the settlement of sales of shares of the Fund to dealers. MFD may
benefit from its temporary holding of funds paid to it by investment dealers for
the purchase of Fund shares.
During the Fund's fiscal year ended September 30, 1995, MFD received net
commissions of $218,078 and dealers received net commissions of $3,222,518 (as
their concession on gross commissions of $3,440,596) for selling Class A shares
of the Fund; the Fund received $114,399,469 representing the aggregate net asset
value of such shares. During the Fund's fiscal year ended September 30, 1994,
MFD received net commissions of $50,210 and dealers received net commissions of
$469,118 (as their concession on gross commissions of $540,772) for selling
Class A shares of the Fund; the Fund received $31,765,695 representing the
aggregate net asset value of such shares. During the Fund's fiscal year ended
September 30, 1993, MFD received net commissions of $19,871 and dealers received
net commissions of $123,575 (as their concession on gross commissions of
$143,446) for selling Class A shares of the Fund; the Fund received $9,615,105
representing the aggregate net asset value of such shares.
During the Fund's fiscal year ended September 30, 1995, the Contingent Deferred
Sales Charge ("CDSC") imposed on redemption of Class B shares was $109,742.
During the Fund's fiscal year ended September 30, 1994, the CDSC imposed on
redemption of Class B shares was $7,566. During the period from September 7,
1993 through September 30, 1993, the CDSC imposed on redemption of Class B
shares was $0.
The Distribution Agreement will remain in effect until August 1, 1996, and will
continue in effect thereafter only if such continuance is specifically approved
at least annually by the Board of Trustees or by vote of a majority of the
Fund's outstanding voting securities and, in either case, by a majority of the
Trustees who are not parties to the Distribution Agreement or interested persons
of any such party. The Distribution Agreement terminates automatically if it is
assigned and may be terminated without penalty by either party on not more than
60 days' nor less than 30 days' notice.
5. PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
Specific decisions to purchase or sell securities for the Fund are made by a
portfolio committee consisting of persons who are employees of the Adviser and
who are appointed and supervised by its senior officers. Changes in the Fund's
investments are reviewed by the Board of Trustees. Members of the Fund's
portfolio committee may serve other clients of the Adviser or any subsidiary of
the Adviser in a similar capacity.
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. The Adviser attempts to achieve this result by selecting
broker-dealers to execute portfolio transactions on behalf of the Fund and other
clients of the Adviser on the basis of their professional capability, the value
and quality of their brokerage services, and the general level of their
brokerage commissions. In the case of securities traded in the over-the-counter
market (where no stated commissions are paid but the prices include a dealer's
markup or markdown), the Adviser normally seeks to deal directly with the
primary market makers, unless in its opinion, best execution is available
elsewhere. In the case of securities purchased from underwriters, the cost of
such securities generally includes a fixed underwriting commission or
concession. From time to time, soliciting dealer fees are available to the
Adviser on the tender of the Fund's portfolio securities in so-called tender or
exchange offers. Such soliciting dealer fees are in effect recaptured for the
Fund by the Adviser. At present no other recapture arrangements are in effect.
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 as a factor in
the selection of broker-dealers to execute the Fund's portfolio transactions.
Under the Advisory Agreement and as permitted by Section 28(e) of the Securities
Exchange Act of 1934, the Adviser may cause the Fund to pay a broker-dealer
which provides brokerage and research services to the Adviser an amount of
commission for effecting a securities transaction for the Fund in excess of the
amount other broker-dealers would have charged for the transaction if the
Adviser determines in good faith that the greater commission is reasonable in
relation to the value of the brokerage and research services provided by the
executing broker-dealer viewed in terms of either a particular transaction or
the Adviser's overall responsibilities to the Fund or to its other clients. Not
all of such services are useful or of value in advising the Fund.
The term "brokerage and research services" includes advice as to the value of
securities, the advisability of investing in, purchasing, or selling securities,
and the availability of securities or of purchasers or sellers of securities;
furnishing analyses and reports concerning issues, industries, securities,
economic factors and trends, portfolio strategy and the performance of accounts;
and effecting securities transactions and performing functions incidental
thereto such as clearance and settlement.
Although commissions paid on every transaction will, in the judgment of the
Adviser, be reasonable in relation to the value of the brokerage services
provided, commissions exceeding those which another broker might charge may be
paid to broker-dealers who were selected to execute transactions on behalf of
the Fund and the Adviser's other clients in part for providing advice as to the
availability of securities or of purchasers or sellers of securities and
services in effecting securities transactions and performing functions
incidental thereto such as clearance and settlement.
Broker-dealers may be willing to furnish statistical, research and other factual
information or services ("Research") to the Adviser for no consideration other
than brokerage or underwriting commissions. Securities may be bought or sold
from time to time through such broker-dealers on behalf of the Fund. The Trust's
Trustees (together with the Trustees of the other MFS Funds) have directed the
Adviser to allocate a total of $23,100 of commission business from the MFS Funds
to the Pershing Division of Donaldson, Lufkin & Jenrette as consideration for
the annual renewal of the Lipper Directors' Analytical Data Service (which
provides information useful to the Trustees in reviewing the relationship
between the Fund and the Adviser).
The Adviser's investment management personnel attempt to evaluate the quality of
Research provided by brokers. The Adviser sometimes uses evaluations resulting
from this effort as a consideration in the selection of brokers to execute
portfolio transactions. However, the Adviser is unable to quantify the amount of
commissions set forth below which were paid as a result of such Research because
a substantial number of transactions were effected through brokers which provide
Research but which were selected principally because of their execution
capabilities.
The management fee that the Fund pays to the Adviser will not be reduced as a
consequence of the Adviser's receipt of brokerage and research services. To the
extent the Fund's portfolio transactions are used to obtain such services, the
brokerage commissions paid by the Fund will exceed those that might otherwise be
paid, by an amount which cannot be presently determined. Such services would be
useful and of value to the Adviser in serving both the Fund and other clients
and, conversely, such services obtained by the placement of brokerage business
of other clients would be useful to the Adviser in carrying out its obligations
to the Fund. While such services are not expected to reduce the expenses of the
Adviser, the Adviser would, through use of the services, avoid the additional
expenses which would be incurred if it should attempt to develop comparable
information through its own staff.
For the Fund's fiscal years ended September 1995, 1994 and 1993, total brokerage
commissions of $1,333,734, $814,169 and $682,723, respectively were paid. During
the Fund's fiscal year ended September 30, 1995, the Fund did not acquire or
sell securities issued by affiliates of regular broker-dealers of the Fund.
In certain instances there may be securities which are suitable for the Fund's
portfolio as well as for that of one or more of the other clients of the Adviser
or any subsidiary of the Adviser. Investment decisions for the Fund and for such
other clients are made with a view to achieving their respective investment
objectives. It may develop that a particular security is bought or sold for only
one client even though it might be held by, or bought or sold for, other
clients. Likewise, a particular security may be bought for one or more clients
when one or more other clients are selling that same security. Some simultaneous
transactions are inevitable when several clients receive investment advice from
the same investment adviser, particularly when the same security is suitable for
the investment objectives of more than one client. When two or more clients are
simultaneously engaged in the purchase or sale of the same security, the
securities are allocated among clients in a manner believed to be equitable to
each. It is recognized that in some cases this system could have a detrimental
effect on the price or volume of the security as far as the Fund is concerned.
In other cases, however, the Fund believes that its ability to participate in
volume transactions will produce better executions for the Fund.
6. SHAREHOLDER SERVICES
INVESTMENT AND WITHDRAWAL PROGRAMS -- The Fund makes available programs designed
to enable shareholders to add to their investment 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 described
below) 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 investment
fund) within a 13-month period (or 36 month period, in the case of purchases of
$1 million or more), the shareholder may obtain Class A shares of the Fund at
the same reduced sales charge as though the total quantity were invested in one
lump sum by completing the Letter of Intent section of the Fund's Account
Application or filing a separate Letter of Intent application (available from
the Shareholder Servicing Agent) within 90 days of the commencement of
purchases. Subject to acceptance by MFD and the conditions mentioned below, each
purchase will be made at a public offering price applicable to a single
transaction of the dollar amount specified in the Letter of Intent application.
The shareholder or his dealer must inform MFD that the Letter of Intent is in
effect each time shares are purchased. The shareholder makes no commitment to
purchase additional shares, but if his purchases within 13 months (or 36 months
in the case of purchases of $1 million or more) plus the value of shares
credited toward completion of the Letter of Intent do not total the sum
specified, he will pay the increased amount of the sales charge as described
below. Instructions for issuance of shares in the name of a person other than
the person signing the Letter of Intent application must be accompanied by a
written statement from the dealer stating that the shares were paid for by the
person signing such Letter. Neither income dividends nor capital gain
distributions taken in additional shares will apply toward the completion of the
Letter of Intent. Dividends and distributions of other MFS Funds automatically
reinvested in shares of the Fund pursuant to the Distribution Investment Program
will also not apply toward completion of the Letter of Intent.
Out of the shareholder's initial purchase (or subsequent purchases if
necessary), 5% of the dollar amount specified in the Letter of Intent
application shall be held in escrow by the Shareholder Servicing Agent in the
form of shares registered in the shareholder's name. All income dividends and
capital gain distributions on escrowed shares will be paid to the shareholder or
to his order. When the minimum investment so specified is completed (either
prior to or by the end of the 13-month period or 36-month period, as
applicable), the shareholder will be notified and the escrowed shares will be
released.
If the intended investment is not completed, the Shareholder Servicing Agent
will redeem an appropriate number of the escrowed shares in order to realize
such difference. Shares remaining after any such redemption will be released by
the Shareholder Servicing Agent. By completing and signing the Account
Application or separate Letter of Intent application, the shareholder
irrevocably appoints the Shareholder Servicing Agent his attorney to surrender
for redemption any or all escrowed shares with full power of substitution in the
premises.
RIGHT OF ACCUMULATION: A shareholder qualifies for cumulative quantity
discounts on the purchase of Class A shares when that shareholder's 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 investment fund) reaches a discount level. See "Purchases" in
the Prospectus for the sales charges on quantity discounts. For example, if a
shareholder owns shares valued at public offering price at $37,500 and purchases
an additional $12,500 of Class A shares of the Fund, the sales charge for the
$12,500 purchase would be at the rate of 4.75% (the rate applicable to single
transactions of $50,000). A shareholder must provide the Shareholder Servicing
Agent (or his investment dealer must provide MFD) with information to verify
that the quantity sales charge discount is applicable at the time the investment
is made.
DISTRIBUTION INVESTMENT PROGRAM: Distributions of dividends and capital gains
made by the Fund with respect to a particular class of shares may be
automatically invested in shares of the same class of one of the other MFS Funds
if shares of such fund are available for sale. Such investments will be subject
to additional purchase minimums. Distributions will be invested at net asset
value (exclusive of any sales charge) and will not be subject to any CDSC.
Distributions will be invested at the close of business on the payable date for
the distribution. A shareholder considering the Distribution Investment Program
should obtain and read the prospectus of the other MFS fund and consider the
differences in objectives and policies before making any investment.
SYSTEMATIC WITHDRAWAL PLAN: A shareholder may direct the Shareholder Servicing
Agent to send him (or anyone he designates) regular periodic payments, based
upon the value of his account. Each payment under a Systematic Withdrawal Plan
("SWP") must be at least $100, except in certain limited circumstances. The
aggregate withdrawals of Class B shares in any year pursuant to a Plan generally
are limited to 10% of the value of the account at the time of the establishment
of the SWP. SWP payments are drawn from the proceeds of share redemptions (which
would be a return of principal and, if reflecting a gain, would be taxable).
Redemptions of Class B shares will be made in the following order: (i) any "Free
Amount"; (ii) to the extent necessary any "Reinvested Shares"; (iii) to the
extent necessary, the "Direct Purchase" subject to the lowest CDSC (as such
terms are defined in "Contingent Deferred Sales Charge" in the Prospectus). The
CDSC will be waived in the case of redemptions of Class B shares pursuant to a
SWP, but will not be waived in the case of SWP redemptions of Class A shares
which are subject to a CDSC. To the extent that redemptions for such periodic
withdrawals exceed dividend income reinvested in the account, such redemptions
will reduce and may eventually exhaust the number of shares in the shareholder's
account. All dividend and capital gain distributions for an account with a SWP
will be reinvested in full and fractional shares of the Fund at the net asset
value in effect at the close of business on the record date for such
distributions. To initiate this service, shares having an aggregate value of at
least $5,000 either must be held on deposit by, or certificates for such shares
must be deposited with, the Shareholder Servicing Agent. With respect to Class A
shares, maintaining a withdrawal plan concurrently with an investment program
would be disadvantageous because of the sales charges included in share
purchases and the imposition of a CDSC on certain redemptions. The shareholder
may deposit into the account additional shares of the Fund, change the payee or
change the dollar amount of each payment. The Shareholder Servicing Agent may
charge the account for services rendered and expenses incurred beyond those
normally assumed by the Fund with respect to the liquidation of shares. No
charge is currently assessed against the account, but one could be instituted by
the Shareholder Servicing Agent on 60 days' notice in writing to the shareholder
in the event that the Fund ceases to assume the cost of these services. The Fund
may terminate any SWP for an account if the value of the account falls below
$5,000 as a result of share redemptions (other than as a result of a SWP) or an
exchange of shares of the Fund for shares of another MFS Fund. Any SWP may be
terminated at any time by either the shareholder or the Fund.
INVEST BY MAIL: Additional investments of $50 or more may be made at any time
by mailing a check payable to the Fund directly to the Shareholder Servicing
Agent. The shareholder's account number and the name of his investment dealer
must be included with each investment.
GROUP PURCHASES: A bona fide group and all its members may be treated as a
single purchaser and, under the Right of Accumulation (but not a Letter of
Intent), obtain quantity sales charge discounts on the purchase of Class A
shares if the group (1) gives its endorsement or authorization to the investment
program so it may be used by the investment dealer to facilitate solicitation of
the membership, thus effecting economies of sales effort; (2) has been in
existence for at least six months and has a legitimate purpose other than to
purchase mutual fund shares at a discount; (3) is not a group of individuals
whose sole organizational nexus is as credit cardholders of a company,
policyholders of an insurance company, customers of a bank or broker-dealer,
clients of an investment adviser or other similar groups; and (4) agrees to
provide certification of membership of those members investing money in the MFS
Funds upon the request of MFD.
AUTOMATIC EXCHANGE PLAN: Shareholders having account balances of at least
$5,000 in any MFS Fund may exchange their shares for the same class of shares of
other MFS Funds (if available for sale) (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
monthly or quarterly 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 effective on the seventh day of
each month or of every third month, depending whether monthly or quarterly
exchanges are elected by the shareholder. If the seventh day of the month is not
a business day, the transaction will be processed on the next business day.
Generally, the initial exchange will occur after receipt and processing by the
Shareholder Servicing Agent of an application in good order. Exchanges will
continue to be made from a shareholder's account in any MFS Fund as long as the
balance of the account is sufficient to complete the exchanges. Additional
payments made to a shareholder's account will extend the period that exchanges
will continue to be made under the Automatic Exchange Plan. However, if
additional payments are added to an account subject to the Automatic Exchange
Plan shortly before an exchange is scheduled, such funds may not be available
for exchanges until the following month; therefore, care should be used to avoid
inadvertently terminating the Automatic Exchange Plan through exhaustion of the
account balance.
No transaction fee for exchanges will be charged in connection with 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. Changes in amounts to be
exchanged to each fund, the funds to which exchanges are to be made and the
timing of exchanges (monthly or quarterly), or termination of a shareholder's
participation in the Automatic Exchange Plan will be made after instructions in
writing or by telephone (an "Exchange Change Request") are received by the
Shareholder Servicing Agent in proper form (i.e., if in writing -- signed by the
record owner(s) exactly as shares are registered; if by telephone -- proper
account identification is given by the dealer or shareholder of record). Each
Exchange Change Request (other than termination of participation in the program)
must involve at least $50. Generally, if an Exchange Change Request is received
by telephone or in writing before the close of business on the last business day
of a month, the Exchange Change Request will be effective for the following
month's exchange.
A shareholder's right to make additional investments in any of the MFS Funds, to
make exchanges of shares from one MFS Fund to another and to withdraw from an
MFS Fund, as well as a shareholder's other rights and privileges are not
affected by a shareholder's participation in the Automatic Exchange Plan.
The Automatic Exchange Plan is part of the Exchange Privilege. For additional
information regarding the Automatic Exchange Plan, including the treatment of
any CDSC, see "Exchange Privilege" below.
REINSTATEMENT PRIVILEGE: Shareholders of the Fund and shareholders of the
other MFS Funds (except MFS Money Market Fund, MFS Government Money Market Fund
and holders of Class A shares of MFS Cash Reserve Fund in the case where such
shares are acquired through direct purchase or reinvested dividends) 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 the fund are
available for sale) at net asset value (without a sales charge) and, if
applicable, with credit for any CDSC paid. In the case of proceeds reinvested in
shares of MFS Money Market Fund, MFS Government Money Market Fund and Class A
shares of MFS Cash Reserve Fund, the shareholder has the right to exchange such
shares for shares of another MFS Fund at net asset value pursuant to the
exchange privilege described below. Such a reinvestment must be made within 90
days of the redemption and is limited to the amount of the redemption proceeds.
If the shares credited for any CDSC paid are then redeemed within six years of
the initial purchase for Class B shares (or within 12 months of the initial
purchase of certain Class A shares), a CDSC will be imposed upon redemption.
Although redemptions and repurchases of shares are taxable events, a
reinvestment within a certain period of time in the same fund may be considered
a "wash sale" and may result in the inability to recognize currently all or a
portion of a loss realized on the original redemption for federal income tax
purposes. Please see your tax advisor for further information.
EXCHANGE PRIVILEGE -- Subject to the requirements set forth below, some or all
of the shares for which payment has been received 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.
Exchanges will be made only after instructions in writing or by telephone (an
"Exchange Request") for an established account are received by the Shareholder
Servicing Agent.
Each Exchange Request must be 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 the Shareholder Servicing Agent). Each
exchange involves the redemption of the shares of the Fund to be exchanged and
the purchase at net asset value (i.e., without a sales charge) of shares of the
same class of the other MFS Fund. Any gain or loss on the redemption of the
shares exchanged is reportable on the shareholder's federal income tax return,
unless both the shares received and the shares surrendered are held in a
tax-deferred retirement plan or other tax-exempt account. No more than five
exchanges may be made in any one Exchange Request by telephone. If an Exchange
Request is received by the Shareholder Servicing Agent 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 restrictions set forth above have been
complied with at that time. However, payment of the redemption proceeds by the
Fund, and thus the purchase of shares of another MFS Fund, may be delayed for up
to seven days if the Fund determines that such a delay would be in the best
interest of all its shareholders. Investment dealers which have satisfied
criteria established by MFD may also communicate a shareholder's Exchange
Request to MFD by facsimile subject to the restrictions and requirements set
forth above.
No CDSC is imposed on exchanges among the MFS Funds, although liability for the
CDSC is carried forward to the exchanged 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.
Additional information with respect to any of the MFS Funds, including a copy of
its current prospectus, may be obtained from investment dealers or the
Shareholder Servicing Agent. A shareholder considering an exchange should obtain
and read the prospectus of the other MFS Fund and consider the differences in
objectives and policies before making any exchange. Shareholders of the other
MFS Funds (except shares of MFS Money Market Fund, MFS Government Money Market
Fund and Class A shares of MFS Cash Reserve Fund acquired through direct
purchase and dividends reinvested prior to June 1, 1992) have the right to
exchange their shares for shares of the Fund, subject to the conditions, if any,
set forth in their respective prospectuses. In addition, unitholders of the MFS
Fixed Fund (a bank collective investment fund) have the right to exchange their
units (except units acquired through direct purchases) for shares of the Fund,
subject to the conditions, if any, imposed upon such unitholders by the MFS
Fixed Fund.
Any state income tax advantages for investment in shares of each state- specific
series of MFS Municipal Series Trust may only benefit residents of such states.
Investors should consult with their own tax advisers to be sure this is an
appropriate investment, based on their residency and each state's income tax
laws.
The exchange privilege (or any aspect of it) may be changed or discontinued and
is subject to certain limitations (see "Purchases" in the Prospectus).
TAX-DEFERRED RETIREMENT PLANS -- Except as noted below, shares of the Fund may
be purchased by all types of tax-deferred retirement plans. MFD makes available
through investment dealers plans and/or custody agreements for the following:
Individual Retirement Accounts ("IRAs") (for individuals and their non-
employed spouses who desire to make limited contributions to a tax-deferred
retirement program and, if eligible, to receive a federal income tax deduction
for amounts contributed);
Simplified Employee Pension (SEP-IRA) Plans;
Retirement Plans Qualified under Section 401(k) of the Internal Revenue Code
of 1986, as amended (the "Code");
403(b) Plans (deferred compensation arrangements for employees of public
school systems and certain non-profit organizations); and
Certain qualified corporate pension and profit-sharing plans.
The plan documents provided by MFD designate a trustee or custodian (unless
another trustee or custodian is designated by the individual or group
establishing the plan) and contain specific information about the plans. Each
plan provides that dividends and distributions will be reinvested automatically.
For further details with respect to any plan, including fees charged by the
trustee, custodian or MFD, tax consequences and redemption information, see the
specific documents for that plan. Plan documents other than those provided by
MFD may be used to establish any of the plans described above. Third party
administrative services, available for some corporate plans, may limit or delay
the processing of transactions.
An investor should consult with his tax adviser before establishing any of the
tax-deferred retirement plans described above.
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.
7. TAX STATUS
The Fund has elected to be treated and intends to qualify each year as a
"regulated investment company" under Subchapter M of the Code, by meeting all
applicable requirements of Subchapter M, including requirements as to the nature
of the Fund's gross income, the amount of Fund distributions, and the
composition and holding period of the Fund's portfolio assets. Because the Fund
intends to distribute all of its net investment income and net realized capital
gains to shareholders in accordance with the timing requirements imposed by the
Code, it is not expected that the Fund will be required to pay any federal
income or excise taxes, although the Fund's foreign-source income may be subject
to foreign withholding taxes. If the Fund should fail to qualify as a "regulated
investment company" in any year, the Fund would incur a regular corporate
federal income tax upon its taxable income and Fund distributions would
generally be taxable as ordinary dividend income to shareholders.
Shareholders of the Fund normally will have to pay federal income taxes, and any
state or local taxes, on the dividends and capital gain distributions they
receive from the Fund. Dividends from ordinary income, and distributions from
net short-term capital gains (whether paid in cash or reinvested in additional
shares), are taxable to shareholders as ordinary income for federal income tax
purposes. A portion of the Fund's ordinary income dividends (but none of its
distributions of capital gains) is normally eligible for the dividends-received
deduction for corporations if the recipient otherwise qualifies for that
deduction with respect to its holding of Fund shares. Availability of the
deduction for particular corporate shareholders is subject to certain
limitations, and deducted amounts may be subject to the alternative minimum tax
and may result in certain basis adjustments. Distributions of net capital gains
(i.e., the excess of net long-term capital gains over net short-term capital
losses), whether paid in cash or reinvested in additional shares, are taxable to
the Fund's shareholders as long-term capital gains for federal income tax
purposes regardless of how long they have owned shares in the Fund. Fund
dividends declared in October, November or December that are payable to
shareholders of record in such a month, and that are paid the following January
will be taxable to shareholders as if received on December 31 of the year in
which they are declared.
Any dividend or distribution will have the effect of reducing the per share net
asset value of shares in the Fund by the amount of the dividend or distribution.
Shareholders purchasing shares shortly before the record date of any such
distribution may thus pay the full price for the shares and then effectively
receive a portion of the purchase price back as a taxable distribution.
In general, any gain or loss realized upon a taxable disposition of shares of
the Fund by a shareholder that holds such shares as a capital asset will be
treated as a long-term capital gain or loss if the shares have been held for
more than twelve months and otherwise as a short-term capital gain or loss.
However, any loss realized upon a disposition of shares in the Fund held for six
months or less will be treated as a long-term capital loss to the extent of any
distributions of net capital gain made with respect to those shares. Any loss
realized upon a redemption of shares may also be disallowed under rules relating
to wash sales. Gain may be increased (or loss reduced) upon a redemption of
Class A shares of the Fund within ninety days after their purchase followed by
any purchase (including purchases by exchange or by reinvestment) without
payment of an additional sales charge on Class A shares of the Fund or of
another MFS Fund (or any other shares of an MFS Fund generally sold subject to a
sales charge).
The Fund's current dividend and accounting policies will affect the amount,
timing and character of distributions to shareholders and may, under certain
circumstances, make an economic return of capital taxable to shareholders. The
Fund's investment in debt securities providing for deferred interest and certain
securities purchased at market discount will cause it to realize income prior to
the receipt of cash payments with respect to those securities. In order to
distribute this income and avoid a tax on the Fund, the Fund may be required to
liquidate portfolio securities that it might otherwise have continued to hold,
potentially resulting in additional taxable gain or loss to the Fund.
Special tax considerations apply with respect to foreign investments of the
Fund. Foreign exchange gains and losses realized by the Fund will generally be
treated as ordinary income and losses. The holding of foreign currencies and
investment by the Fund in certain "passive foreign investment companies" may be
limited in order to avoid a tax on the Fund.
Investment income received by the Fund from foreign securities may be subject to
foreign income taxes withheld at the source; the Fund does not expect to be able
to pass through to shareholders foreign tax credits with respect to such foreign
taxes. The United States has entered into tax treaties with many foreign
countries that may entitle the Fund to a reduced rate of tax or an exemption
from tax on such income; the Fund intends to qualify for treaty reduced rates
where available. It is impossible to determine the effective rate of foreign tax
in advance since the amount of the Fund's assets to be invested within various
countries is not known.
Dividends and certain other payments to persons who are not citizens or
residents of the United States or U.S. entities ("Non-U.S. Persons") are
generally subject to U.S. tax withholding at a rate of 30%. The Fund intends to
withhold U.S. federal income tax at the rate of 30% on taxable dividends and
other payments to Non-U.S. persons that are subject to such withholding,
regardless of whether a lower treaty rate may be permitted. Any amounts
overwithheld may be recovered by such persons by filing a claim for refund with
the U.S. Internal Revenue Service within the time period appropriate to such
claims. Distributions received from the Fund by Non-U.S. persons also may be
subject to tax under the laws of their own jurisdiction. The Fund is also
required in certain circumstances to apply backup withholding at a rate of 31%
on taxable dividends and redemption proceeds paid to any shareholder (including
a Non-U.S. Person) who does not furnish to the Fund certain information and
certifications or who is otherwise subject to backup withholding. Backup
withholding will not, however, be applied to payments that have been subject to
30% withholding.
As long as it qualifies as a regulated investment company under the Code, the
Fund will not be required to pay Massachusetts income or excise taxes.
8. DETERMINATION OF NET ASSET VALUE AND PERFORMANCE
NET ASSET VALUE
The net asset value per share of each class of the Fund is determined each day
during which the Exchange is open for regular trading. (As of the date of this
SAI, the Exchange is open for regular trading every weekday except for the
following holidays or days on which they are observed: New Year's Day;
Presidents' Day; Good Friday; Memorial Day; Independence Day; Labor Day;
Thanksgiving Day and Christmas Day.) 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. Equity securities in the Fund's portfolio are valued at the last
sale price on the exchange on which they are primarily traded or on the NASDAQ
system for unlisted national market issues, or at the last quoted bid price for
securities in which there were no sales during the day or for unlisted
securities not reported on the NASDAQ system.
Bonds and other fixed income securities in the Fund's portfolio are valued on
the basis of valuations furnished by a pricing service which utilizes both
dealer-supplied valuations and electronic data processing techniques which take
into account appropriate factors such as institution-size trading in similar
groups of securities, yield, quality, coupon rate, maturity, type of issue,
trading characteristics and other market data, without exclusive reliance upon
exchange or over-the-counter prices, since such valuations are believed to
reflect more accurately the fair value of such securities. Use of the pricing
service has been approved by the Trust's Board of Trustees. Short- term
obligations with a remaining maturity in excess of 60 days will be valued upon
dealer supplied valuations. Other short-term obligations are valued at amortized
cost, which constitutes fair value as determined by the Board of Trustees.
Portfolio securities for which there are no such quotations or valuations are
valued at fair value as determined in good faith by or at the direction of the
Board of Trustees.
PERFORMANCE INFORMATION
TOTAL RATE OF RETURN: The Fund will calculate its total rate of return for each
class of shares for certain periods by determining the average annual compounded
rates of return over those periods that would cause an investment of $1,000
(made with all distributions reinvested and reflecting the CDSC or the maximum
public offering price) to reach the value of that investment at the end of the
periods. The Fund may also calculate (i) a total rate of return, which is not
reduced by the CDSC (4% maximum for Class B shares purchased on and after
September 1, 1993) and therefore may result in a higher rate of return, (ii) a
total rate of return assuming an initial account value of $1,000, which will
result in a higher rate of return since the value of the initial account will
not be reduced by the maximum sales charge (currently 5.75% on Class A shares),
and/or (iii) total rates of return which represent aggregate performance over a
period or year-by-year performance, and which may or may not reflect the effect
of the maximum or other sales charge or CDSC. Prior to March 1, 1991, the
maximum sales charge on Class A shares was 7.25%. On March 1, 1991, the maximum
sales charge on Class A shares was lowered to 5.75%, the sales charge was
eliminated on reinvested dividends and a Distribution Plan pursuant to Rule
12b-1 under the 1940 Act was implemented with respect to Class A shares as
described below. The Fund's average annual total rate of return for Class A
shares reflecting the initial investment at the current maximum public offering
price (5.75%) for the one-year, five-year and ten-year periods ended September
30, 1995, was 17.32%, 17.96% and 14.92%, respectively. The Fund's average annual
total rate of return for Class A shares not giving effect to the sales charge on
the initial investment for the one-year, five-year and ten-year periods ended
September 30, 1995, was 24.49%, 19.37% and 15.60%, respectively. The Fund's
average annual total rate of return for Class B shares, reflecting the CDSC, for
the one-year period ended September 30, 1995 and for the period from
commencement of operations of Class B shares on September 7, 1993 to September
30, 1995 was 19.55% and 14.83%, respectively. The Fund's average annual total
rate of return for Class B shares, not giving effect to the CDSC, for the
one-year period ended September 30, 1995 and for the period from commencement of
operations of Class B shares on September 7, 1993 to September 30, 1995 was
23.55% and 16.49%, respectively. The Fund's average annual total rate of return
for Class C shares for the one-year period ended September 30, 1995 was 23.58%
and for the period from commencement of operations of Class C shares on January
3, 1994 to September 30, 1995 was 15.79%.
PERFORMANCE RESULTS: The performance results for Class A shares below, based on
an assumed initial investment of $10,000 in Class A shares, cover the period
from January 1, 1986 through December 31, 1995. It has been assumed that
dividends and capital gain distributions were reinvested in additional shares.
These performance results, as well as any total rate of return quotations
provided by the Fund, should not be considered as representative of the
performance of the Fund in the future since the net asset value and public
offering price of shares of the Fund will vary based not only on the type,
quality and maturities of the securities held in the Fund's portfolio, but also
on changes in the current value of such securities and on changes in the
expenses of the Fund. These factors and possible differences in the methods used
to calculate total rates of return should be considered when comparing the total
rate of return of the Fund to total rates of return published for other
investment companies or other investment vehicles. Total rate of return reflects
the performance of both principal and income. Current net asset value of shares
and account balance information may be obtained by calling 1-800-MFS-TALK
(637-8255).
MFS RESEARCH FUND -- CLASS A
------------------------------------------------------------
VALUE OF
VALUE OF REINVESTED VALUE OF
YEAR ENDED INITIAL $10,000 CAPITAL GAINS REINVESTED TOTAL
DECEMBER 31 INVESTMENT DISTRIBUTION DIVIDENDS VALUE
----------- ----------- ------------ ---------- -----
1986 $ 8,561 $ 2,025 $ 167 $10,753
1987 7,507 3,528 295 11,330
1988 7,924 3,944 629 12,497
1989 8,820 5,749 1,192 15,761
1990 7,814 5,467 1,533 14,814
1991 9,386 8,134 2,127 19,647
1992 9,661 9,873 2,301 21,835
1993 10,440 12,902 3,225 26,567
1994 9,457 13,746 3,367 26,570
1995 12,295 19,187 5,341 36,823
EXPLANATORY NOTES: The results assume that the initial investment on January 1,
1986 has been reduced by the current maximum applicable sales charge of 5.75%.
No adjustment has been made for any income taxes payable by shareholders.
GENERAL: From time to time each Fund may, as appropriate, quote Fund rankings or
reprint all or a portion of evaluations of fund performance and operations
appearing in various independent publications, including but not limited to the
following: Money, Fortune, U.S. News and World Report, Kiplinger's Personal
Finance, The Wall Street Journal, Barron's, Investors Business Daily, Newsweek,
Financial World, Financial Planning, Investment Advisor, USA Today, Pensions and
Investments, SmartMoney, Forbes, Global Finance, Registered Representative,
Institutional Investor, the Investment Company Institute, Johnson's Charts,
Morningstar, Lipper Analytical Services, Inc., CDA Wiesenberger, Shearson Lehman
and Salomon Bros. Indices, Ibbotson, Business Week, Lowry Associates, Media
General, Investment Company Data, The New York Times, Your Money, Strangers
Investment Advisor, Financial Planning on Wall Street, Standard and Poor's,
Individual Investor, The 100 Best Mutual Funds You Can Buy, by Gordon K.
Williamson, Consumer Price Index, and Sanford C. Bernstein & Co. Fund
performance may also be compared to the performance of other mutual funds
tracked by financial or business publications or periodicals.
From time to time, the Fund may discuss or quote its current portfolio manager
as well as other investment personnel, including such persons' views on: the
economy; securities markets; portfolio securities and their issuers; investment
philosophies, strategies, techniques and criteria used in the selection of
securities to be purchased or sold for the Fund; the Fund's portfolio holdings;
the investment research and analysis process; the formulation and evaluation of
investment recommendations; and the assessment and evaluation of credit,
interest rate, market and economic risks.
The Fund may also quote evaluations mentioned in independent radio or television
broadcasts.
From time to time the Fund may use charts and graphs to illustrate the past
performance of various indices such as those mentioned above and illustrations
using hypothetical rates of return to illustrate the effects of compounding and
tax-deferral.
The Fund may advertise examples of the effects of periodic investment plans,
including the principle of dollar cost averaging. In such a program, an investor
invests a fixed dollar amount in a fund at periodic intervals, thereby
purchasing fewer shares when prices are high and more shares when prices are
low. While such a strategy does not assure a profit or guard against a loss in a
declining market, the investor's average cost per share can be lower than if
fixed numbers of shares are purchased at the same intervals.
MFS FIRSTS: MFS has a long history of innovations.
-- 1924 -- Massachusetts Investors Trust is established
as the first open-end mutual fund in America.
-- 1924 -- Massachusetts Investors Trust is the first mutual fund
to make full public disclosure of its operations in shareholder
reports.
-- 1932 -- One of the first internal research departments is
established to provide in-house analytical capability for an
investment management firm.
-- 1933 -- Massachusetts Investors Trust is the first mutual fund
to register under the Securities Act of 1933 ("Truth in
Securities Act" or "Full Disclosure
Act").
-- 1936 -- Massachusetts Investors Trust is the first mutual fund
to allow shareholders to take capital gain distributions either
in additional shares or in cash.
-- 1976 -- MFS(R) Municipal Bond Fund is among the first municipal
bond funds established.
-- 1979 -- Spectrum becomes the first combination fixed/ variable
annuity with no initial sales charge.
-- 1981 -- MFS(R) World Governments Fund is established as
America's first globally diversified fixed-income mutual fund.
-- 1984 -- MFS(R) Municipal High Income Fund is the first open-end
mutual fund to seek high tax-free income from lower-rated
municipal securities.
-- 1986 -- MFS(R) Managed Sectors Fund becomes the first mutual
fund to target and shift investments among industry sectors for
shareholders.
-- 1986 -- MFS(R) Municipal Income Trust is the first closed-end,
high-yield municipal bond fund traded on the New York Stock
Exchange.
-- 1987 -- MFS(R) Multimarket Income Trust is the first
closed-end, multimarket high income fund listed on the New York
Stock Exchange.
-- 1989 -- MFS(R) Regatta becomes America's first non-qualified
market-value-adjusted fixed/variable annuity.
-- 1990 -- MFS(R) World Total Return Fund is the first
global balanced fund.
-- 1993 -- MFS(R) World Growth Fund is the first global emerging
markets fund to offer the expertise of two sub-advisers.
-- 1993 -- MFS becomes money manager of MFS(R) Union Standard
Trust, the first Trust to invest in companies deemed to be
union-friendly by an Advisory Board of senior labor officials,
senior managers of companies with significant labor contracts,
academics and other national labor leaders or experts.
9. DISTRIBUTION PLANS
The Trustees have adopted a Distribution Plan for each of Class A, Class B and
Class C shares (the "Distribution Plans") 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 each Distribution Plan would benefit the Fund and
the respective class of shareholders. The Distribution Plans are designed to
promote sales, thereby increasing the net assets of the Fund. Such an increase
may reduce the expense ratio to the extent the Fund's fixed costs are spread
over a larger net asset base. Also, an increase in net assets may lessen the
adverse effects that could result were the Fund required to liquidate portfolio
securities to meet redemptions. There is, however, no assurance that the net
assets of the Fund will increase or that the other benefits referred to above
will be realized.
The Distribution Plans are described in the Prospectus under the caption
"Distribution Plans," which is incorporated herein by reference. The following
information supplements this Prospectus discussion.
SERVICE FEES: With respect to the Class A Distribution Plan, no service fees
will be paid: (i) to any dealer who is the holder or dealer of record for
investors who own Class A shares having an aggregate net asset value less than
$750,000, or such other amount as may be determined from time to time by MFD
(MFD, however, may waive this minimum amount requirement from time to time); or
(ii) to any insurance company which has entered into an agreement with the Fund
and MFD that permits such insurance company to purchase Class A shares from the
Fund at their net asset value in connection with annuity agreements issued in
connection with the insurance company's separate accounts. Dealers may from time
to time be required to meet certain other criteria in order to receive service
fees.
With respect to the Class B Distribution Plan, except in the case of the first
year service fee, no service fees will be paid to any securities dealer who is
the holder or dealer of record for investors who own Class B shares having an
aggregate net asset value of less than $750,000 or such other amount as may be
determined by MFD from time to time. MFD, however, may waive this minimum amount
requirement from time to time. Dealers may from time to time be required to meet
certain other criteria in order to receive service fees.
MFD or its affiliates shall be entitled to receive any service fee payable under
any 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.
DISTRIBUTION FEES: The purpose of distribution payments to MFD under the
Distribution Plans is to compensate MFD for its distribution services to the
Fund. MFD pays commissions to dealers as well as 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 cost necessary to provide
distribution-related services, or personnel, travel, office expenses and
equipment.
DISTRIBUTION AND SERVICE FEES PAID DURING THE FUND'S LAST FISCAL YEAR: During
the fiscal year ended September 30, 1995, the Fund paid the following
Distribution plan expenses:
AMOUNT OF AMOUNT OF AMOUNT OF
DISTRIBUTION DISTRIBUTION DISTRIBUTION
AND SERVICE AND SERVICE AND SERVICE
FEES PAID FEES RETAINED FEES RECEIVED
DISTRIBUTION PLANS BY FUND BY MFD BY DEALERS
- ------------------ ------- ------------ --------------
Class A Distribution Plan $935,377 $175,008 $760,369
Class B Distribution Plan $807,085 $612,575 $194,510
Class C Distribution Plan $114,386 $ 1,558 $112,828
GENERAL: Each of the Distribution Plans will remain in effect until August 1,
1996, and will continue in effect thereafter only if such continuance is
specifically approved at least annually by vote of both the Trustees and a
majority of the Trustees who are not "interested persons" or financially
interested parties of such Plan ("Distribution Plan Qualified Trustees"). Each
of the Distribution Plans also requires that the Fund and MFD each shall provide
the Trustees, and the Trustees shall review, at least quarterly, a written
report of the amounts expended (and purposes therefor) under such Plan. Each of
the Distribution Plans may be terminated at any time by vote of a majority of
the Distribution Plan Qualified Trustees or by vote of the holders of a majority
of the respective class of the Fund's shares (as defined in "Investment
Restrictions"). All agreements relating to any of the Distributions Plans
entered into between the Fund or MFD and other organizations must be approved by
the Board of Trustees, including a majority of the Distribution Plan Qualified
Trustees. Agreements under any of the Distribution Plans must be in writing,
will be terminated automatically if assigned, and may be terminated at any time
without payment of any penalty, by vote of a majority of the Distribution Plan
Qualified Trustees or by vote of the holders of a majority of the respective
class of the Fund's shares. None of the Distribution Plans may be amended to
increase materially the amount of permitted distribution expenses without the
approval of a majority of the respective class of the Fund's shares (as defined
in "Investment Restrictions") or may be materially amended in any case without a
vote of the Trustees and a majority of the Distribution Plan Qualified Trustees.
The selection and nomination of Distribution Plan Qualified Trustees shall be
committed to the discretion of the non-interested Trustees then in office. No
Trustee who is not an "interested person" has any financial interest in any of
the Distribution Plans or in any related agreement.
10. DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES The Declaration of
Trust permits the Trustees to issue an unlimited number of full and fractional
Shares of Beneficial Interest (without par value) of one or more separate series
and to divide or combine the shares of any series into a greater or lesser
number of shares without thereby changing the proportionate beneficial interests
in that series. The Trustees have currently authorized shares of the Fund and
one other series. The Declaration of Trust further authorizes the Trustees to
classify or reclassify any series of shares into one or more classes. Pursuant
thereto, the Trustees have authorized the issuance of three classes of shares of
each series of the Trust (Class A, Class B and Class C shares). Each share of a
class of the Fund represents an equal proportionate interest in the assets of
the Fund allocable to that class. Upon liquidation of the Fund, the shareholders
of each class of the Fund are entitled to share pro rata in the net assets of
the Fund allocable to such class available for distribution to its shareholders.
The Trust reserves the right to create and issue additional classes or series of
shares, in which case the shares of each class would participate equally in the
earnings, dividends and assets allocable to that class of the particular series.
Shareholders are entitled to one vote for each share held and may vote in the
election of Trustees and on other matters submitted to meetings of shareholders.
Although Trustees are not elected annually by the shareholders, shareholders
have, under certain circumstances, the right to remove one or more Trustees. No
material amendment may be made to the Declaration of Trust without the
affirmative vote of the holders of a majority of the Trust's shares or by an
instrument in writing without a meeting, signed by a majority of Trustees and
consented to by the holders of more than 50% of the shares of the Fund
outstanding and entitled to vote. Shares have no preemptive or conversion rights
(except as described in "Purchases -- Conversion of Class B Shares" in the
Prospectus). Shares when issued are fully paid and non-assessable.
The Trust may enter into a merger or consolidation, or sell all or substantially
all of its assets (or all or substantially all of the assets belonging to any
series of the Trust), if approved by the vote of the holders of two-thirds of
the Trust's outstanding shares voting as a single class, or of the affected
series of the Trust, as the case may be, except that if the Trustees of the
Trust recommend such merger, consolidation or sale, the approval by vote of the
holders of a majority of the Trust's or the affected series' outstanding shares
(as defined in "Investment Objective, Policies and Restrictions -- Investment
Restrictions") will be sufficient. The Trust or any series of the Trust may also
be terminated (i) upon liquidation and distribution of its assets, if approved
by the vote of the holders of two-thirds of its outstanding shares, or (ii) by
the Trustees by written notice to the shareholders of the Trust or the affected
series. If not so terminated the Trust will continue indefinitely.
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 Declaration of Trust contains an express disclaimer of shareholder
liability for acts, obligations or affairs of the Trust and provides for
indemnification and reimbursement of expenses out of the Trust property for any
shareholder held personally liable for the obligations of the Fund. The
Declaration of Trust also provides that the Trust shall maintain appropriate
insurance (for example, fidelity bonding and errors and omissions insurance) for
the protection of the Trust, its shareholders, Trustees, officers, employees and
agents covering possible tort and other liabilities. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which both inadequate insurance existed and the
Trust itself was unable to meet its obligations.
The Declaration of Trust further provides that obligations of the Trust are not
binding upon the Trustees individually but only upon the property of the Trust
and that the Trustees will not be liable for any action or failure to act, but
nothing in the Declaration of Trust protects a Trustee against any liability to
which he would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his office.
11. INDEPENDENT AUDITORS AND FINANCIAL STATEMENTS
Deloitte & Touche LLP are the Fund's independent auditors, providing audit
services, tax return preparation, and assistance and consultation with respect
to the preparation of filings with the SEC.
The Portfolio of Investments at September 30, 1995, the Statement of Assets and
Liabilities at September 30, 1995, the Statement of Operations for the year
ended September 30, 1995, the Statement of Changes in Net Assets for each of the
two years in the period ended September 30, 1995, the Notes to Financial
Statements and the Independent Auditors' Report, each of which is included in
the Annual Report to shareholders of the Fund, are incorporated by reference
into this SAI and have been so incorporated in reliance upon the report of
Deloitte & Touche LLP, independent auditors, as experts in accounting and
auditing. A copy of the Annual Report accompanies this SAI.
<PAGE>
APPENDIX A
DESCRIPTION OF BOND RATINGS
The ratings of Moody's, S&P and Fitch represent their opinions as to the quality
of various bonds. IT SHOULD BE EMPHASIZED, HOWEVER, THAT RATINGS ARE NOT
ABSOLUTE STANDARDS OF QUALITY. CONSEQUENTLY, BONDS WITH THE SAME MATURITY,
COUPON AND RATING MAY HAVE DIFFERENT YIELDS WHILE BONDS OF THE SAME MATURITY AND
COUPON WITH DIFFERENT RATINGS MAY HAVE THE SAME YIELD.
MOODY'S
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa: Bonds which are rated Baa are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
ABSENCE OF RATING: Where no rating has been assigned or where a rating has
been suspended or withdrawn, it may be for reasons unrelated to the quality of
the issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted;
2. The issue or issuer belongs to a group of securities or companies that
are not rated as a matter of policy;
3. There is a lack of essential data pertaining to the issue or issuer;
4. The issue was privately placed, in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer available
reasonable up-to-date data to permit a judgment to be formed; if a bond is
called for redemption; or for other reasons.
NOTE: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's believes
possess the strongest investment attributes are designated by the symbols Aa 1,
A 1, Baa 1, Ba 1 and B 1.
S&P
AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay principal
and differ from the higher rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB: Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B: Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
CCC: Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating.
CC: The rating CC is typically applied to debt subordinated to senior debt
that is assigned an actual or implied CCC rating.
C: The rating C is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC- debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
CI: The rating CI is reserved for income bonds on which no interest is being
paid.
D: Debt rated D is in payment default. The "D" rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The "D" rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
PLUS (+) MINUS (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
categories.
NR: Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
FITCH
AAA: Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal which is unlikely to be affected by reasonably foreseeable events.
AA: Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated "AAA". Because bonds rated in the "AAA" and
"AA" categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated "F-l +".
A: Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB: Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
BB: Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B: Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin safety
and the need for reasonable business and economic activity throughout the life
of the issue.
CCC: Bonds have certain identifiable characteristics which if not remedied,
may lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC: Bonds are minimally protect. Default in payment of interest and/or
principal seems probable over time.
C: Bonds are in imminent default in payment of interest or principal.
PLUS (+) MINUS (-): Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the "AAA" category.
NR: Indicates that Fitch does not rate the specific issue.
CONDITIONAL: A conditional rating is premised on the successful completion
of a project or the occurrence of a specific event.
SUSPENDED: A rating is suspended when Fitch deems the amount of information
available from the issuer to be inadequate for rating purposes.
WITHDRAWN: A rating will be withdrawn when an issue matures or is called or
refinanced and at Fitch's discretion when an issuer fails to furnish proper and
timely information.
FITCHALERT: Ratings are placed on FitchAlert to notify investors of an
occurrence that is likely to result in a rating change and the likely direction
of such change. These are designated as "Positive", indicating a potential
upgrade, "Negative", for potential downgrade, or "Evolving", where ratings may
be lowered, FitchAlert is relatively short-term, and should be resolved within
12 months.
<PAGE>
<TABLE>
<CAPTION>
APPENDIX B
TRUSTEE COMPENSATION TABLE
RETIREMENT BENEFIT ESTIMATED TOTAL TRUSTEE FEES
TRUSTEE FEES ACCRUED AS PART OF CREDITED YEARS FROM FUND AND
TRUSTEE FROM FUND\1/ FUND EXPENSE\1/ OF SERVICE\2/ FUND COMPLEX\3/
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Richard B. Bailey $2,810 $ 593 8 $263,815
A. Keith Brodkin --0-- --0-- N/A --0--
Peter G. Harwood 3,220 314 5 111,366
J. Atwood Ives 3,060 605 17 101,356
Lawrence T. Perera 2,920 1,576 23 102,546
William Poorvu 3,220 1,572 25 111,366
Charles W. Schmidt 3,080 1,491 20 105,411
Arnold D. Scott --0-- --0-- N/A --0--
Jeffrey L. Shames --0-- --0-- N/A --0--
Elaine R. Smith 3,080 577 27 105,411
David B. Stone 3,290 1,370 14 115,521
\1/ For fiscal year ended September 30, 1995.
\2/ Based on normal retirement age of 73.
\3/ For calendar year 1995. All Trustees receiving compensation served as Trustees of 20 funds within the MFS fund complex (having
aggregate net assets at December 31, 1995, of approximately $17.5 billion) except Mr. Bailey, who served as Trustee of 70
funds within the MFS fund complex (having aggregate net assets at December 31, 1995, of approximately $30.1 billion).
<CAPTION>
ESTIMATED ANNUAL BENEFITS PAYABLE BY FUND UPON RETIREMENT\4/
YEARS OF SERVICE
------------------------------------------------------------------------
AVERAGE TRUSTEE FEES 3 5 7 10 OR MORE
- -------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C>
$2,530 $380 $633 $ 886 $1,265
2,750 413 688 963 1,375
2,970 446 743 1,040 1,485
3,190 479 798 1,117 1,595
3,410 512 853 1,194 1,705
3,630 545 908 1,271 1,815
\4/ Other funds in the MFS fund complex provide similar retirement benefits to the Trustees.
</TABLE>
<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 AUDITORS
Deloitte & Touche LLP
125 Summer Street, Boston, MA 02110
MFS(R)
RESEARCH
FUND
500 BOYLSTON STREET
BOSTON, MA 02116
Printed on recycled paper.
MFR-13-2/96/500 14/214/314
<PAGE>
MFS RESEARCH FUND
(A SERIES OF MFS SERIES TRUST V)
500 BOYLSTON STREET o BOSTON o MASSACHUSETTS 02116-3741
617 o 954-5000
November 22, 1995
VIA EDGAR
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, DC 20549
Re: MFS Series Trust V (File No. 811-2031), on Behalf of MFS Research Fund
Ladies and Gentlemen:
Pursuant to the requirements of Section 30(b) of the Investment Company Act of
1940 and Rule 30b2-1 thereunder, we hereby file a copy of the Annual Report to
Shareholders dated September 30, 1995 of MFS Research Fund.
Very truly yours,
LORRAINE K. GRIP
Lorraine K. Grip
Senior Production Editor
\lkg
<PAGE>
[LOGO] MFS [R] Annual Report for
THE FIRST NAME IN MUTUAL FUNDS Year Ended
September 31, 1995
MFS [R] Research Fund
[A photo of computer disks.]
<PAGE>
[LOGO] MFS [R] RESEARCH FUND
TRUSTEES
A. Keith Brodkin* - Chairman and President
Richard B. Bailey* - Private Investor;
Former Chairman and Director (until 1991),
Massachusetts Financial Services Company; Director, Cambridge Bancorp;
Director, Cambridge Trust Company
Peter G. Harwood - Private Investor
J. Atwood Ives - Chairman and Chief Executive Officer, Eastern Enterprises
Lawrence T. Perera - Partner,
Hemenway & Barnes
William J. Poorvu - Adjunct Professor,
Harvard University Graduate School of
Business Administration
Charles W. Schmidt - Private Investor
Arnold D. Scott* - Senior Executive Vice President, Director and Secretary,
Massachusetts Financial Services Company
Jeffrey L. Shames* - President and Director,
Massachusetts Financial Services Company
Elaine R. Smith - Independent Consultant
David B. Stone - Chairman, North American Management Corp.
(Investment Adviser)
INVESTMENT ADVISER
Massachusetts Financial Services Company
500 Boylston Street
Boston, MA 02116-3741
DISTRIBUTOR
MFS Fund Distributors, Inc.
500 Boylston Street
Boston, MA 02116-3741
TREASURER
W. Thomas London*
ASSISTANT TREASURER
James O. Yost*
SECRETARY
Stephen E. Cavan*
Assistant Secretary
JAMES R. BORDEWICK, JR.*
Custodian
Investors Bank & Trust Company
Auditors
Deloitte & Touche llp
INVESTOR INFORMATION
For MFS stock and bond market outlooks, call toll free: 1-800-637-4458 anytime
from a touch-tone telephone.
For information on MFS mutual funds, call your financial adviser or, for an
information kit, call toll free: 1-800-637-2929 any business day from 9 a.m. to
5 p.m. Eastern time (or leave a message anytime).
Investor Service
MFS Service Center, Inc.
P.O. Box 2281
Boston, MA 02107-9906
For general information, call toll free:
1-800-225-2606 any business day from
8 a.m. to 8 p.m. Eastern time.
For service to speech- or hearing-impaired, call toll free: 1-800-637-6576 any
business day from 9 a.m. to 5 p.m. Eastern time. (To use this service, your
phone must be equipped with a Telecommunications Device for the Deaf.)
For share prices, account balances and exchanges, call toll free: 1-800-MFS-TALK
(1-800-637-8255) anytime from a touch-tone telephone.
TOP-RATED SERVICE
For the second year in a row, MFS earned a #1 ranking in DALBAR Inc.'s
Broker-Dealer Survey, Main Office Operations Service Quality category. The firm
achieved a 3.49 overall score -- on a scale of 1 to 4 -- in the 1995 survey. A
total of 71 firms responded, offering input on the quality of service they
receive from 36 mutual fund companies nationwide. The survey contained questions
about service quality in 17 categories, including "knowledge of phone service
contacts," "accuracy of transaction processing," and "overall ease of doing
business with the firm."
SOURCE: 1995 Dalbar Survey
*Affiliated with the Investment Adviser
<PAGE>
LETTER TO SHAREHOLDERS
Dear Shareholders:
For the year ended September 30, 1995, Class A shares of the Fund experienced a
total return of +24.49%, Class B shares +23.55%, and Class C shares +23.58%,
while the Standard &Poor's 500 Composite Index (the S&P 500), a popular,
unmanaged index of common stock performance, reported a total return of +29.71%.
All of the Fund's returns assume the reinvestment of distributions but exclude
the effects of any sales charges. Strong performance by the technology and
financial services sectors helped the Fund during the year, although some of
those gains were offset by underperformance in the cellular telephone and health
care industries. A further discussion of our strategy for the Fund may be found
in the Portfolio Performance and Strategy section of this letter.
Economic Outlook
Moderate, but sustainable growth appears to be the hallmark of the economic
expansion's fifth year. After slowing earlier in the summer, homebuying was
making modest gains by September 30, although consumer spending was still
showing some areas of weakness. Businesses, meanwhile, continued to work off
excess in ventories and reduce factory output. At the same time, overseas
economies, particularly those of Germany and Japan, have not recovered as
expected, limiting U.S. export growth. However, we believe the Federal Reserve
Board's consistent and, so far, successful efforts to fight inflation seem to be
giving consume rs and businesses enough confidence to help maintain 2 1/2% to 3%
real (adjusted for inflation) growth in gross domestic product, at least through
1995.
Stock Market
For a number of growth sectors, such as technology, leisure and household
products, the longer-term outlook remains favorable, as do the prospects for
many small-company stocks because of their growth potential relative to larger
companies. Also, companies' increasing emphasis on cost-containment, coupled
with their growing use of technology, has helped keep them competitive and
reasonably profitable. Finally, we have been watching with interest the recent
series of corporate mergers in such industries as banking, entertainment, health
care and consumer products. Unlike previous merger waves, which were often
intended to build conglomerates of loosely related or unrelated businesses, this
year's mergers of similar companies seem to be more rationally based on the goal
of helping the merged companies reduce costs and, in general, be more
competitive. Looking ahead, we believe these factors, along with a stabilizing
interest rate environment and a continuation of favorable earnings reports, will
help maintain the stock market's long-term positive momentum.
1
<PAGE>
LETTER TO SHAREHOLDERS - continued
Portfolio Performance and Strategy
The underperformance of the Fund was primarily due to three factors. First, the
portfolio's holdings in the cellular telephone industry underperformed, due to
changing market conditions related to the acquisition of Lin
Broadcasting by AT&T. This acquisition caused a reassessment of the value of
cellular licenses, and the Fund's holdings in this sector have been reduced in
the past year. Second, the Fund's holdings in the health care sector, primarily
in health maintenance organizations, underperformed the market, due to increased
price competition in some regional markets. However, we increased the Fund's
holdings in this area, due to our confidence in the long-term growth potential
of the diversified and well-managed companies in this industry. Stocks purchased
in this category include United Healthcare and Pacificare. The third reason for
underperformance lies in the past year's stock market rally, which has been
concentrated in the largest-market capitalization companies (as represented by
the S&P 500), while the Fund is diversified among our committee of analysts' top
stock selections across all market capitalizations.
The Fund has been overweighted in the technology sector for the past 12
months and has benefited from the strong earnings of such companies as Intel,
Microsoft and Cadence Design. The financial services sector has benefited from
lower interest rates, strong earnings and improving valuations. In particular,
the Fund benefited from its holdings in PennCorp Financial, Advanta and Capital
One.
The Fund is currently overweighted in the technology, consumer staples and
health care sectors. We believe that selected companies in these groups will
continue to demonstrate strong earnings, despite the slowing economy. In
technology, our emphasis is on selected computer software companies, such as
Microsoft, Oracle and Informix, where we believe current profitability levels
are sustainable due to the proprietary nature of these companies' products. The
Fund is underweighted in the commodity-cyclical, automotive, transportation and
energy sectors, because we believe the slow economy will lead to earnings
disappointments for many of the companies in those groups.
2
<PAGE>
LETTER TO SHAREHOLDERS - continued
We appreciate your support and welcome any questions or
comments you may have.
Respectfully,
[A PHOTO OF A. KEITH BRODKIN, [A PHOTO OF KEVIN R. PARKE,
CHAIRMAN AND PRESIDENT] PORTFOLIO MANAGER]
/s/ A. Keith Brodkin /s/ Kevin R. Parke
A. Keith Brodkin Kevin R. Parke
Chairman and President Director of Research
October 12, 1995
The MFS Research Analysts are responsible for the day-to-day management of the
Fund under the general supervision of Mr. Parke.
TAX FORM SUMMARY
In January, 1996, shareholders will be mailed a Tax Form Summary reporting
the federal tax status of all distributions paid during the calendar year
1995.
For the year ended September 30, 1995, the amount of distributions from income
eligible for the 70% dividends-received deduction for corporations came to 100%.
Objective and Policies
The Fund's investment objective is to provide long-term growth of capital and
future income.
The Fund's policy is to invest a substantial proportion of its assets in 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. The Fund may also invest in foreign securities.
3
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO CONCENTRATION
Percent of Percent of
Five Largest Industries Net Assets Ten Largest Holdings Net Assets
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Consumer Goods And Services 9.6 United Healthcare Corp. 1.9
Insurance 6.8 McDonnell Douglas Corp. 1.9
Medical And Health Technology And Services 6.5 Xilinx, Inc. 1.8
Computer Software - Systems 6.2 Intel 1.8
Electronics 4.7 Medisense, Inc. 1.7
International Business Machines Corp. 1.7
Kimberly Clark Corp. 1.6
Oracle Systems Corp. 1.6
Colgate-Palmolive Co. 1.5
Loral Corp. 1.5
</TABLE>
PERFORMANCE
The information below and on the following page illustrates the historical
performance of MFSResearch Fund Class A shares in comparison to various
market indicators. Fund results in the graph reflect the deduction of the
5.75% maximum sales charge; benchmark comparisons are unmanaged and do not
reflect any fees or expenses. You cannot invest in an index. All results
reflect the reinvestment of all dividends and capital gains.
Class B shares were offered effective September 7, 1993. Information on Class B
share performance appears on the next page.
Please note that effective January 3, 1994, Class C shares were offered.
Information on Class C share performance appears on the next page.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the 5-Year Period Ended September 30, 1995)
[LINE GRAPH]
Line graph representing the growth of a $10,000 investment for the five-year
period ended September 30, 1995. The graph is scaled from $5,000 to $30,000 in
$5,000 segments. The years are marked in 12-month segments from 1990 to 1995.
There are three lines drawn to scale. One is a solid line representing MFS
Research Fund (Class A), a second line of short dashes represents the S&P 500,
and a third line of medium-short dashes represents the Consumer Price Index.
MFS Research Fund (Class A) $22,840
S&P 500 $22,115
Consumer Price Index $11,545
4
<PAGE>
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the 10-Year Period Ended September 30, 1995)
[LINE GRAPH]
Line graph representing the growth of a $10,000 investment for the ten-year
period ended September 30, 1995. The graph is caled from $0 to $50,000 in
$10,000 segments. The years are marked in 12-month segments from 1985 to 1995.
There are three lines drawn to scale. One is a solid line representing MFS
Research Fund (Class A), a second line of short dashes represents the S&P 500,
and a third line of medium-short dashes represents the Consumer Price Index.
MFS Research Fund (Class A) $44,171
S&P 500 $40,154
Consumer Price Index $14,143
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MFS Research Fund (Class A) Including
5.75% Sales Charge +17.32% +17.49% +17.96% +14.92%
MFS Research Fund (Class A) At Net
Asset Value +24.49% +19.82% +19.37% +15.60%
MFS Research Fund (Class B) With CDSC* +19.55% -- -- +14.83%**
MFS Research Fund (Class B) Without CDSC +23.55% -- -- +16.49%**
MFS Research Fund (Class C) +23.58% -- -- +15.79%#
Average Capital Appreciation Fund +25.22% +15.93% +17.83% +13.76%
Average Growth And Income Fund +23.06% +13.65% +15.95% +13.62%
Standard & Poor's 500 Composite Index +29.71% +14.96% +17.20% +16.01%
Consumer Price Index## +2.54% +2.73% +2.91% +3.53%
<FN>
*These returns reflect the current maximum Class B contingent deferred sales charge (CDSC) of 4%.
**For the period from the commencement of offering of Class B shares, September 7, 1993 to September 30, 1995.
#For the period from the commencement of offering of Class C shares, January 3, 1994 to September 30, 1995. Class C shares have no
initial sales charge or CDSC but, along with Class B shares, have higher annual fees and expenses than Class A shares.
##The Consumer Price Index is a popular measure of change in prices.
</FN>
</TABLE>
5
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS - continued
In the table on the previous page, we have included the average annual total
returns of all growth and income funds (including the Fund) (394, 241, 186 and
116 funds) as well as all capital appreciation funds (152, 98, 85 and 49 funds)
tracked by Lipper Analytical Services, Inc. (an independent firm which rates
mutual fund performance) for the 1-, 3-, 5- and 10-year periods ended September
30, 1995, respectively. Because these returns do not reflect any applicable
sales charges, we have also included the Fund's results at net asset value (no
sales charge) for comparison.
All results are historical and, therefore, are not an indication of future
results. The principal value and income return of an investment in a mutual fund
will vary with changes in market conditions, and shares, when redeemed, may be
worth more or less than their original cost. All Class A share results reflect
the applicable expense subsidy which is explained in the Notes to Financial
Statements. Had the subsidy not been in effect, the results would have been less
favorable. The subsidy may be rescinded by MFS at any time.
6
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS - September 30, 1995
Common Stocks - 96.5%
================================================================================
ISSUER SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
U.S. Common Stocks - 91.1%
Aerospace - 3.3%
Lockheed-Martin Corp. 105,800 $ 7,101,825
McDonnell Douglas Corp. 161,150 13,335,163
United Technologies Corp. 33,000 2,916,375
-----------
$23,353,363
- --------------------------------------------------------------------------------
Agricultural Products - 2.6%
AGCO Corp. 173,400 $ 7,889,700
Case Corp. 288,700 10,609,725
-----------
$18,499,425
- --------------------------------------------------------------------------------
Airlines
Midwest Express Holdings, Inc.* 4,500 $ 101,250
- --------------------------------------------------------------------------------
Apparel And Textiles - 2.3%
Deckers Outdoor Corp.* 135,600 $ 1,101,750
Nike, Inc., "B" 66,000 7,334,250
Nine West Group, Inc.* 172,300 7,839,650
-----------
$16,275,650
- --------------------------------------------------------------------------------
Automotive - 0.2%
Jason, Inc.*# 187,500 $ 1,370,625
- --------------------------------------------------------------------------------
Banks And Credit Companies - 2.0%
Chase Manhattan Corp. 134,100 $ 8,196,863
Northern Trust Co. 134,100 6,168,600
-----------
$14,365,463
- --------------------------------------------------------------------------------
Business Machines - 2.5%
Affiliated Computer Co.* 82,500 $ 2,413,125
International Business Machines Corp. 124,900 11,787,438
Motorola, Inc. 46,900 3,581,987
-----------
$17,782,550
- --------------------------------------------------------------------------------
Business Services - 2.2%
Ceridian Corp.* 208,200 $ 9,238,875
Interim Services, Inc.* 123,900 3,345,300
Technology Solutions Co.* 168,300 3,029,400
-----------
$15,613,575
- --------------------------------------------------------------------------------
Cellular Phones - 1.0%
Cellular Communications of Puerto Rico* 126,416 $ 3,855,688
Telephone & Data Systems, Inc. 73,300 3,078,600
-----------
$ 6,934,288
- --------------------------------------------------------------------------------
CHEMICALS - 2.8%
Air Products & Chemicals, Inc. 66,000 $ 3,440,250
Grace (W.R.) & Co. 152,600 10,186,050
Hanna (M.A.) Co. 77,850 2,053,294
Uniroyal Chemical Corp.* 430,800 3,877,200
-----------
$19,556,794
- --------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS - continued
Common Stocks - continued
================================================================================
ISSUER SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
U.S. Common Stocks - Continued
Computer Software - Personal Computers - 2.9%
Electronic Arts, Inc.* 162,700 $ 5,979,225
Learning Co.* 65,100 3,938,550
Microsoft Corp.* 100,600 9,104,300
Network Peripherals* 112,900 1,778,175
-----------
$20,800,250
- --------------------------------------------------------------------------------
Computer Software - Systems - 6.2%
Adobe Systems, Inc. 73,400 $ 3,798,450
Cadence Design Systems, Inc.* 254,100 9,973,425
Compaq Computer Corp.* 114,100 5,519,588
Compuware Corp.* 175,400 3,858,800
Informix Corp.* 237,700 7,725,250
Oracle Systems Corp.* 293,750 11,272,656
Sybase, Inc.* 62,100 1,994,962
-----------
$44,143,131
- --------------------------------------------------------------------------------
Construction Services - 0.9%
Champion International Corp. 120,500 $ 6,491,938
- --------------------------------------------------------------------------------
Consumer Goods And Services - 9.6%
Colgate-Palmolive Co. 160,700 $10,706,638
Duracell International, Inc. 163,300 7,328,087
Gillette Co. 177,200 8,439,150
Leggett & Platt, Inc. 76,200 1,876,425
Philip Morris Cos., Inc. 120,700 10,078,450
Procter & Gamble Co. 134,800 10,379,600
RJR Nabisco Holdings Corp. 230,540 7,463,733
Service Corporation International 116,300 4,550,238
Tyco International Ltd. 118,800 7,484,400
-----------
$68,306,721
- --------------------------------------------------------------------------------
Defense Electronics - 1.5%
Loral Corp. 189,200 $10,784,400
- --------------------------------------------------------------------------------
Electronics - 4.7
Intel Corp. 212,100 $12,752,512
LSI Logic Corp.* 65,400 3,776,850
National Semiconductor Corp.* 134,500 3,715,562
Xilinx, Inc.* 272,900 13,133,312
-----------
$33,378,236
- --------------------------------------------------------------------------------
Entertainment - 2.7%
Aztar Corp.* 624,400 $ 5,229,350
Boyd Gaming Corp.* 9,200 137,402
Harrah's Entertainment, Inc.* 242,000 7,078,500
Showboat, Inc. 281,500 6,087,438
Starsight Telecast, Inc.* 150,000 562,500
-----------
$19,095,190
- --------------------------------------------------------------------------------
Financial Institutions - 1.5%
Advanta Corp., "B" 148,000 $6,290,000
Integra Financial Corp. 74,600 4,336,125
-----------
$10,626,125
- --------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS - continued
Common Stocks - continued
================================================================================
ISSUER SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
U.S. Common Stocks - Continued
Food And Beverage Products - 4.5%
CPC International, Inc. 106,300 $ 7,015,800
Kellogg Co. 93,300 6,752,588
PepsiCo, Inc. 159,000 8,109,000
Pioneer Hi-Bred International, Inc. 129,800 5,970,800
Universal Foods Corp. 116,100 4,048,987
-----------
$31,897,175
- --------------------------------------------------------------------------------
Forest And Paper Products - 2.5%
International Paper Co. 140,400 $ 5,896,800
Kimberly Clark Corp. 174,400 11,706,600
-----------
$17,603,400
- --------------------------------------------------------------------------------
Insurance - 6.8%
AFLAC, Inc. 115,100 $ 4,776,650
American Re Corp. 153,100 5,894,350
CIGNA Corp. 70,200 7,309,575
Equitable of Iowa Cos 193,300 7,152,100
MBIA, Inc. 103,000 7,261,500
Penncorp Financial Group, Inc. 417,100 9,958,263
Travelers, Inc. 109,700 5,827,812
-----------
$48,180,250
- --------------------------------------------------------------------------------
Machinery - 0.5%
IDEX Corp. 18,000 $ 643,500
York International Corp. 74,100 3,121,463
-----------
$ 3,764,963
- --------------------------------------------------------------------------------
Medical And Health Products - 4.1%
Johnson & Johnson 40,100 $ 2,972,412
Medisense, Inc.* 500,400 12,072,150
Pfizer, Inc. 79,000 4,216,625
Uromed Corp.* 755,500 7,555,000
Zoll Medical Corp.* 208,100 1,950,938
-----------
$28,767,125
- --------------------------------------------------------------------------------
Medical And Health Technology And ServiceS - 6.5%
Community Health Systems* 90,100 $ 3,637,788
Integrated Health Services, Inc. 54,000 1,525,500
Living Centers of America* 96,300 3,201,975
Mariner Health Group, Inc.* 100,200 1,415,325
Pacificare Health Systems, Inc., "A"* 9,800 641,900
Pacificare Health Systems, Inc., "B"* 99,100 6,738,800
Renal Treatment Centers, Inc.* 134,000 4,958,000
St. Jude Medical, Inc.* 156,100 9,873,325
United Healthcare Corp. 286,500 14,002,687
-----------
$45,995,300
- --------------------------------------------------------------------------------
Oil Services - 0.5%
BJ Services Co.* 144,400 $3,646,100
- --------------------------------------------------------------------------------
Oils - 2.0%
Mitchell Energy & Development Corp. 268,300 $ 4,728,788
Mobil Corp. 96,300 9,593,887
-----------
$14,322,675
- --------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS - continued
Common Stocks - continued
================================================================================
ISSUER SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
U.S. Common Stocks - Continued
Pollution Control - 1.2%
WMX Technologies, Inc. 282,400 $ 8,048,400
Western Waste Industries* 36,400 728,000
------------
$ 8,776,400
- --------------------------------------------------------------------------------
Railroads - 1.1%
Wisconsin Central Transportation Corp.* 117,500 $ 7,843,125
- --------------------------------------------------------------------------------
Restaurants And Lodging - 2.3%
Applebee's International, Inc. 103,100 $ 2,809,475
Buffets, Inc.* 77,800 972,500
HFS, Inc.* 44,300 2,320,212
Hammons (John Q) Hotels, Inc.* 25,700 330,888
Lone Star Steakhouse and Saloon, Inc.* 67,000 2,747,000
Promus Hotel Corp.* 149,750 3,406,813
Quantum Restaurant Group, Inc.* 100,000 1,337,500
Sonic Corp.* 100,350 2,282,962
------------
$ 16,207,350
- --------------------------------------------------------------------------------
Special Products And Services - 2.4%
Intertape Polymer Group, Inc. 211,800 $ 6,195,150
Sphere Drake Holdings Ltd. 246,800 3,702,000
Stanley Works 164,300 7,126,513
------------
$ 17,023,663
- --------------------------------------------------------------------------------
Stores - 3.2%
Circuit City Stores, Inc. 203,000 $ 6,419,875
Dayton-Hudson Corp. 95,100 7,215,713
Lowe's Companies, Inc. 94,200 2,826,000
Office Depot, Inc.* 208,100 6,269,012
------------
$ 22,730,600
- --------------------------------------------------------------------------------
Telecommunications - 1.8%
Cabletron Systems, Inc.* 119,900 $ 7,898,412
Rogers Communications, Inc., "B"* 519,600 5,130,167
------------
$ 13,028,579
- --------------------------------------------------------------------------------
Utilities - Electric
Sithe Energies, Inc.* 24,200 $ 193,600
- --------------------------------------------------------------------------------
Utilities - Gas - 1.8%
Coastal Corp. 211,700 $ 7,118,412
Enron Corp. 179,400 6,009,900
------------
$ 13,128,312
- --------------------------------------------------------------------------------
Utilities - Telephone - 1.0%
MCI Communications Corp. 273,700 $ 7,133,306
- --------------------------------------------------------------------------------
Total U.S. Common Stocks (Identified Cost, $528,360,997) $647,720,897
- --------------------------------------------------------------------------------
Foreign Stocks - 5.4%
Denmark - 0.4%
Tele Danmark, ADR (Utilities - Telephone) 110,500 $ 2,859,188
- --------------------------------------------------------------------------------
Finland - 0.5%
Nokia, AB (Telecommunications Equipment) 48,800 $ 3,425,921
- --------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS - continued
Common Stocks - continued
================================================================================
ISSUER SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
Foreign Stocks - Continued
France - 0.8%
Pinault-Printemps (Retail) 27,000 $ 5,722,288
- --------------------------------------------------------------------------------
Italy - 0.7%
Telecom Italia (Telecommunications) 2,110,200 $ 2,761,197
Telecom Italia Mobile SpA (Telecommunications) 2,110,200 2,329,240
------------
$ 5,090,437
- --------------------------------------------------------------------------------
Malaysia - 0.5%
New Straits Times Press (Publishing) 1,280,000 $ 3,614,848
- --------------------------------------------------------------------------------
Sweden - 2.3%
Astra AB, Free Shares, "B"
(Medical and Health Products) 254,960 $ 8,964,904
Hennes & Mauritz, "B" (Retail) 116,900 7,513,351
------------
$ 16,478,255
- --------------------------------------------------------------------------------
United Kingdom - 0.2%
Invesco Fund Managers (Finance) 429,200 $ 1,498,466
- --------------------------------------------------------------------------------
Total Foreign Stocks (Identified Cost, $33,493,026) $ 38,689,403
- --------------------------------------------------------------------------------
Preferred Stocks - 0.3%
- --------------------------------------------------------------------------------
Cellular Communications, Inc., Cv.
(IDENTIFIED COST, $1,224,813) 44,000 $ 2,398,000
- --------------------------------------------------------------------------------
Total Common Stocks (Identified Cost, $563,078,836) $688,808,300
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Short-Term Obligations - 3.5%
- --------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
Federal Home Loan Bank, due 10/25/95 $ 7,000 $ 6,972,876
Federal National Mortgage Association, due 10/03/95 3,355 3,353,434
Federal National Mortgage Association, due 10/05/95 5,000 4,996,111
Ford Motor Credit, due 10/02/95 8,850 8,846,803
GTE South, Inc., due 10/04/95 1,045 1,044,333
- --------------------------------------------------------------------------------
Total Short-term Obligations, At Amortized Cost And Value $ 25,213,557
Total Investments (Identified Cost, $588,292,393) $714,021,857
Other Assets, Less Liabilities - (0.3%) (2,383,923)
- --------------------------------------------------------------------------------
NET ASSETS - 100.0% $711,637,934
- --------------------------------------------------------------------------------
<FN>
+ Restricted security.
* Non-income producing security.
# Security priced by management.
</FN>
</TABLE>
See notes to financial statements
11
<PAGE>
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
================================================================================
September 30, 1995
- --------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments, at value (identified cost, $588,292,393) $714,021,857
Cash 15,718
Receivable for investments sold 4,892,389
Receivable for Fund shares sold 5,257,943
Dividends and interest receivable 982,322
Other assets 5,160
------------
Total assets $725,175,389
Liabilities:
Payable for investments purchased $12,730,698
Payable for Fund shares reacquired 377,003
Payable to affiliates -
Management fee 14,270
Shareholder servicing agent fee 4,332
Distribution fee 220,828
Accrued expenses and other liabilities 190,324
------------
Total liabilities $13,537,455
------------
Net Assets $711,637,934
============
Net Assets Consist Of:
Paid-in capital $537,626,146
Unrealized appreciation on investments and translation of
assets and liabilities in foreign currencies 125,730,254
Accumulated undistributed net realized gain on investments
and foreign currency transactions 46,863,005
Accumulated undistributed net investment income 1,418,529
------------
Total $711,637,934
============
Shares of Beneficial Interest Outstanding 45,769,252
============
Class A Shares:
Net Asset Value And Redemption Price Per Share
(net assets of $507,783,815 / 32,534,587 shares of
beneficial interest outstanding) $15.61
======
Offering Price Per Share (100/94.25) $16.56
======
Class B Shares:
Net Asset Value And Offering Price Per Share
(net assets of $178,116,815 / 11,565,395 shares of
beneficial interest outstanding) $15.40
======
Class C Shares:
Net Asset Value, Offering Price And Redemption Price Per Share
(net assets of $25,737,304 / 1,669,270 shares of
beneficial interest outstanding) $15.42
======
</TABLE>
On sales of $50,000 or more, the offering price of Class A shares is reduced.
A contingent deferred sales charge may be imposed on redemptions of Class A and
Class B shares.
See notes to financial statements
12
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Statement of Operations
================================================================================
Year Ended September 30, 1995
- --------------------------------------------------------------------------------
<S> <C>
Net Investment Income:
Income -
Dividends $ 5,521,009
Interest 1,763,021
Foreign taxes withheld (108,803)
------------
Total investment income $ 7,175,227
------------
Expenses -
Management fee $ 1,910,078
Trustees' compensation 34,491
Shareholder servicing agent fee (Class A) 566,439
Shareholder servicing agent fee (Class B) 177,743
Shareholder servicing agent fee (Class C) 17,241
Distribution and service fee (Class A) 1,312,892
Distribution and service fee (Class B) 807,085
Distribution and service fee (Class C) 114,386
Custodian fee 210,356
Postage 58,944
Printing 55,127
Auditing fees 36,800
Legal fees 11,405
Miscellaneous 265,798
------------
Total expenses $ 5,578,785
Reduction of expenses by distributor (377,515)
Fees paid indirectly (31,373)
------------
Net expenses $ 5,169,897
------------
Net investment income $ 2,005,330
------------
Realized and Unrealized Gain (Loss)on Investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $ 47,491,369
Foreign currency transactions (36,682)
------------
Net realized gain on investments $ 47,454,687
------------
Change in unrealized appreciation -
Investments $ 68,894,140
Translation of assets and liabilities in foreign currencies 201
------------
Net unrealized gain on investments $ 68,894,341
------------
Net realized and unrealized gain on
investments and foreign currency $116,349,028
------------
Increase in net assets from operations $118,354,358
============
</TABLE>
See notes to financial statements
13
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
Year Ended September 30, 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Increase In Net Assets:
From operations -
Net investment income $ 2,005,330 $ 341,364
Net realized gain on investments and
foreign currency transactions 47,454,687 34,277,386
Net unrealized gain (loss) on investments
and foreign currency 68,894,341 (11,035,216)
---------- -----------
Increase in net assets from operations $118,354,358 $23,583,534
------------ -----------
Distributions declared to shareholders -
From net investment income (Class A) $ (481,316) $ (700,869)
From net investment income (Class B) (14,893) (1,857)
From net realized gain on investments and
foreign currency transactions (Class A) (820,736) (61,514,987)
From net realized gain on investments and
foreign currency transactions (Class B) (118,230) (2,437,162)
From net realized gain on investments and
foreign currency transactions (Class C) (16,120) (411,703)
In excess of net investment income (Class A) -- (72,504)
In excess of net investment income (Class B) -- (192)
----------- ------------
Total distributions declared
to shareholders $(1,451,295) $(65,139,274)
----------- ------------
Fund share (principal) transactions -
Net proceeds from sale of shares $353,872,982 $ 89,603,156
Net asset value of shares issued to
shareholders in reinvestment
of distributions 1,571,633 54,945,985
----------- ------------
Cost of shares reacquired (109,372,045) (48,796,609)
----------- ------------
Increase in net assets from
Fund share transactions $246,072,570 $ 95,752,532
----------- ------------
Total increase in net assets $362,975,633 $ 54,196,792
Net Assets:
At beginning of period 348,662,301 294,465,509
----------- ------------
At end of period (including accumulated
undistributed net investment income
(accumulated distributions in excess of
net investment income of $1,418,529 and
$(72,628), respectively) $711,637,934 $348,662,301
============ ============
</TABLE>
See notes to financial statements
14
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Financial Highlights
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended September 30, 1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------------
Class A
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $ 12.59 $ 14.47 $ 12.18 $ 11.84 $ 9.62
-------- -------- -------- -------- --------
Income from investment operations# -
Net investment income* $ 0.08 $ 0.02 $ 0.11 $ 0.07 $ 0.27
Net realized and unrealized gain on
investments and foreign currency
transactions 2.99 1.01 3.15 1.27 2.21
-------- -------- -------- -------- --------
Total from investment operations $ 3.07 $ 1.03 $ 3.26 $ 1.34 $ 2.48
-------- -------- -------- -------- --------
Less distributions declared to shareholders -
From net investment income $ (0.02) $ (0.03) $ (0.07) $ -- $ (0.26)
In excess of net realized gain on investments -- (0.01) -- -- --
From net realized gain on investments (0.03) (2.87) (0.90) (1.00) --
-------- -------- -------- -------- --------
Total distributions declared to
shareholders $ (0.05) $ (2.91) $ (0.97) $ (1.00) $ (0.26)
-------- -------- -------- -------- --------
Net asset value - end of period $ 15.61 12.59 $ 14.47 12.18 $ 11.84
-------- -------- -------- -------- --------
Total return++ 24.49% 7.72% 28.87% 11.79 25.87%
Ratios (to average net assets)/Supplemental data:
Expenses## 0.95% 0.91% 0.90% 0.84% 0.95%
Net investment income 0.58% 0.14% 0.36% 0.59% 2.48%
Portfolio turnover 94% 79% 93% 74% 177%
Net assets at end of period (000 omitted) $507,784 $318,170 $294,019 $240,366 $231,316
-------- -------- -------- -------- --------
<FN>
++Total returns for Class A shares do not include the applicable sales charge (except for reinvested dividends prior to October 1,
1989). If the charge had been included, the results would have been lower.
#Per share data for the periods subsequent to September 30, 1993 is based on average shares outstanding.
##For fiscal years ending after September 1, 1995, the Fund's expenses are calculated without reduction for fees paid indirectly.
*The distributor did not impose a portion of its distribution fees for the periods indicated. If this fee had been incurred by the
Fund, the net investment income per share and the ratios would have been:
Net investment income# $ 0.07 $ 0.01 -- -- --
Ratios (to average net assets):
Expenses## 1.05% 1.01% -- -- --
Net investment income 0.48% 0.04% -- -- --
</FN>
</TABLE>
See notes to financial statements
15
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Financial Highlights - continued
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended September 30, 1990 1989 1988 1987 1986
- ------------------------------------------------------------------------------------------------------------------------------------
Class A
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $ 11.49 $ 10.20 $ 12.54 $ 10.42 $ 10.36
Income from investment operations -
Net investment income $ 0.36 $ 0.39 $ 0.23 $ 0.19 $ 0.25
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions (1.52) 2.30 (2.19) 4.43 2.50
-------- -------- -------- ------ --------
Total from investment operations $ (1.16) $ 2.69 $ (1.96) $ 4.62 $ 2.75
-------- -------- -------- ------ --------
Less distributions declared to shareholders -
From net investment income $ (0.36) $ (0.39) $ (0.24) $ (0.19) $ (0.24)
From net realized gain on investments (0.35)* (1.01) (0.14) (2.31) (2.45)
-------- -------- -------- ------ --------
Total distributions declared to
shareholders $ (0.71) $ (1.40) $ (0.38) $(2.50) $ (2.69)
-------- -------- -------- ------ --------
Net asset value - end of period $ 9.62 $ 11.49 $ 10.20 $12.54 $ 10.42
======== ======== ======== ====== ========
Total return** (12.73)% 26.91% (15.60)% 44.80% 26.65%
Ratios (to average net assets)/Supplemental data:
Expenses 0.83% 0.88% 0.86% 0.73% 0.77%
Net investment income 3.21% 3.48% 2.36% 1.51% 1.88%
Portfolio turnover 79% 99% 116% 101% 102%
Net assets at end of period (000 omitted) $202,377 $251,857 $239,616 $321,050 $234,804
<FN>
* For the year ended September 30, 1990, the per share distribution from paid-in capital was $0.0009.
** Total returns for Class A shares do not include the applicable sales charge (except for reinvested dividends prior to October 1,
1989). If the charge had been included, the results would have been lower.
</FN>
</TABLE>
See notes to financial statements
16
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Financial Highlights - continued
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended September 30, 1995 1994 1993** 1995 1994***
- ------------------------------------------------------------------------------------------------------------------------------------
Class B Class C
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $ 12.50 $ 14.47 $ 13.95 $ 12.51 $ 13.18
-------- -------- -------- -------- --------
Income from investment operations# -
Net investment income (loss)+ $ (0.03) $ (0.08) $ (0.04) $ (0.02) $ (0.04)
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions 2.96 1.00 0.56 2.96 0.62
-------- -------- -------- -------- --------
Total from investment operations $2.93 $ 0.92 $ 0.52 $ 2.94 $ 0.58
-------- -------- -------- -------- --------
Less distributions declared to shareholders -
From net investment income $ -- $ (0.02) $ -- $ -- $ --
From net realized gain on investments (0.03) (2.87) -- (0.03) (1.25)
-------- -------- -------- -------- --------
Total distributions declared to
shareholders $ (0.03) $ (2.89) $ -- $ (0.03) $ (1.25)
-------- -------- -------- -------- --------
Net asset value - end of period $ 15.40 $ 12.50 $ 14.47 $ 15.42 $ 12.51
======== ======== ======== ======== ========
Total return 23.55% 6.91% 3.73% 23.58% 4.43%
======== ======== ======== ======== ========
Ratios (to average net assets)/Supplemental data:
Expenses## 1.78% 1.82% 2.33 1.71% 1.74%
Net investment income (loss) (0.21)% (0.65)% (0.89)% (0.15)% (0.54)%
Portfolio turnover 94% 79% 93% 94% 79%
Net assets at end of period (000 omitted) $178,117 $25,672 $447 $25,737 $4,821
<FN>
* For the year ended September 30, 1995, the per share distribution from net investment income was $0.00003.
** For the period from the commencement of offering of Class B shares, September 7, 1993, to September 30, 1993.
*** For the period from the commencement of offering of Class C shares, January 3, 1994, to September 30, 1994.
+ Annualized.
# Per share data for the periods subsequent to September 30, 1993 is based on average shares outstanding
## For fiscal years ending after September 1, 1995, the Fund's expenses are calculated without reduction for fees paid indirectly.
</FN>
</TABLE>
See notes to financial statements
17
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
MFS Research Fund (the Fund) is a diversified series of MFS Series Trust V (the
Trust). The Trust is organized as a Massachusetts business trust and is
registered under the Investment Company Act of 1940, as amended, as an open-end
management investment company.
(2) Significant Accounting Policies
INVESTMENT VALUATIONS - Equity securities listed on securities exchanges or
reported through the NASDAQ system are valued at last sale prices. Unlisted
equity securities or listed equity securities for which last sale prices are n
ot available are valued at last quoted bid prices. Debt securities (other than
short-term obligations which mature in 60 days or less), including listed issues
and forward contracts, are valued on the basis of valuations furnished by
dealers or by a pricing service with consideration to factors such as
institutional-size trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, trading characteristics and other market
data, without exclusive reliance upon exchange or over-the-counter prices.
Short-term obligations, which mature in 60 days or less, are valued at amortized
cost, which approximates market value. Non-U.S. dollar denominated short-term
obligations are valued at amortized cost as calculated in the base currency and
translated into U.S. dollars at the closing daily exchange rate. Securities for
which there are no such quotations or valuations are valued at fair value as
determined in good faith by or at the direction of the Trustees.
REPURCHASE AGREEMENTS - The Fund may enter into repurchase agreements with
institutions that the Fund's investment adviser has determined are creditworthy.
Each repurchase agreement is recorded at cost. The Fund requires that the
securities purchased in a repurchase transaction be transferred to the custodian
in a manner sufficient to enable the Fund to obtain those securities in the
event of a default under the repurchase agreement. The Fund monitors, on a daily
basis, the value of the securities transferred to ensure that the value,
including accrued interest, of the securities under each repurchase agreement is
greater than amounts owed to the Fund under each such repurchase agreement.
FOREIGN CURRENCY TRANSLATION - Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars based upon current exchange rates. Purchases and
sales of foreign investments, income and expenses are converted into U.S.
dollars based upon currency exchange rates prevailing on the respective dates of
such transactions. Gains and losses attributable to foreign currency exchange
rates on sales of securities are recorded for financial statement purposes as
net realized gains and losses on investments. Gains and losses att ributable to
foreign exchange rate movements on income and expenses are recorded for
financial statement purposes as foreign currency transaction gains and losses.
That portion of both realized and unrealized gains and losses on investments
that results from fluctuations in foreign currency exchange rates is not
separately disclosed.
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS - continued
Investment Transactions And Income - Investment transactions are recorded on the
trade date. Interest income is recorded on the accrual basis. All premium and
original issue discount are amortized or accreted for financial statement and
tax reporting purposes as required by federal income tax regulations. Dividend
income is recorded on the ex-dividend date for dividends received in cash.
Dividend payments received in additional securities are recorded on the
ex-dividend date in an amount equal to the value of the security on such date.
Fees Paid Indirectly - The Fund's custodian bank calculates its fee based on the
Fund's average daily net assets. The fee is reduced according to a fee
arrangement, which provides for custody fees to be reduced based on a formula
developed to measure the value of cash deposited with the custodian by the Fund.
This amount is shown as a reduction of expenses on the Statement of Operations.
Tax Matters And Distributions - The Fund's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its net income,
including any net realized gain on investments. Accordingly, no provision for
federal income or excise tax is provided. The Fund files a tax return annually
using tax accounting methods required under provisions of the Code which may
differ from generally accepted accounting principles, the basis on which these
financial statements are prepared. Accordingly, the amount of net investment
income and net realized gain reported on these financial statements may differ
from that reported on the Fund's tax return, and consequently, the character of
distributions to shareholders reported in the financial highlights may differ
from that reported to shareholders on Form 1099-DIV.
Foreign taxes have been provided for on interest and dividend income earned on
foreign investments in accordance with the applicable country's tax rates and to
the extent unrecoverable are recorded as a reduction of investment income.
Distributions to shareholders are recorded on the ex-dividend date. The Fund
distinguishes between distributions on a tax basis and a financial reporting
basis and requires that only distributions in excess of tax basis earnings and
profits are reported in the financial statements as a return of capital.
Differences in the recognition or classification of income between the financial
statements and tax earnings and profits which result in temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or accumulated net realized
gains. During the year ended September 30, 1995, $17,964 was reclassified from
accumulated undistributed net investment income to accumulated net realized gain
on investments, due to differences between book and tax accounting for currency
transactions. This change had no effect on the net assets or net asset value per
share.
Multiple Classes Of Shares Of Beneficial Interest - The Fund offers Class A,
Class B, and Class C shares. The three classes of shares differ in their
respective shareholder servicing agent, distribution and service fees. All
shareholders bear the common expenses of the Fund
19
<PAGE>
NOTES TO FINANCIAL STATEMENTS - continued
pro rata based on the average daily net assets of each class, without
distinction between share classes. Dividends are declared separately for each
class. No class has preferential dividend rights; differences in per share
dividend rates are generally due to differences in separate class expenses.
(3) Transactions with Affiliates
Investment Adviser - The Fund has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an effective annual rate of
0.34% of average daily net assets and 4.28% of investment income. The Fund pays
no compensation directly to its Trustees who are officers of the investment
adviser, or to officers of the Fund, all of whom receive remuneration for their
services to the Fund from MFS. Certain of the officers and Trustees of the Fund
are officers or directors of MFS, MFS Fund Distributors, Inc. (MFD) and MFS
Service Center, Inc. (MFSC). The Fund has an unfunded defined benefit plan for
all of its independent Trustees and Mr. Bailey. Included in Trustees'
compensation is a net periodic pension expense of $9,811 for the year ended
September 30, 1995.
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$218,078 for the year ended September 30, 1995, as its portion of the sales
charge on sales of Class A shares of the Fund. The Trustees have adopted
separate distribution plans for Class A, Class B and Class C shares pursuant to
Rule 12b-1 of the Investment Company Act of 1940 as follows:
The Class A distribution plan provides that the Fund will pay MFD up to 0.35%
per annum of its average daily net assets attributable to Class A shares in
order that MFD may pay expenses on behalf of the Fund related to the
distribution and servicing of its shares. These expenses include a service fee
to each securities dealer that enters into a sales agreement with MFD of up to
0.25% per annum of the Fund's average daily net assets attributable to Class A
shares which are attributable to that securities dealer, a distribution fee to
MFD of up to 0.10% per annum of the Fund's average daily net assets attributable
to Class A shares, commissions to dealers and payments to MFD wholesalers for
sales at or above a certain dollar level, and other such distribution-related
expenses that are approved by the Fund. MFD retains the service fee for accounts
not attributable to a securities dealer which amounted to $175,008 for the year
ended September 30, 1995. MFD is waiving the 0.10% distribution fee for an
indefinite period. Fees incurred under the distribution plan during the year
ended September 30, 1995 were 0.25% of average daily net assets attributable to
Class A shares on an annualized basis.
The Class B and Class C distribution plans provide that the Fund will pay MFD a
distribution fee of 0.75% per annum, and a service fee of up to 0.25% per annum,
of the Fund's average daily net assets attributable to Class B and Class C
shares. MFD will pay to securities dealers that enter into a sales agreement
with MFD all or a portion of the service
20
<PAGE>
NOTES TO FINANCIAL STATEMENTS - continued
fee attributable to Class B and Class C shares, and will pay to such securities
dealers all of the distribution fee attributable to Class C shares. The service
fee is intended to be additional consideration for services rendered by the
dealer with respect to Class B and Class C shares. MFD retains the service fee
for accounts not attributable to a securities dealer, which amounted to $6,633
and $1,558 for Class B and Class C shares, respectively, for the year ended
September 30, 1995. Fees incurred under the distribution plans during the year
ended September 30, 1995 were 1.00% of average daily net assets attributable to
Class B and Class C shares on an annualized basis.
A contingent deferred sales charge is imposed on shareholder redemptions of
Class A shares, on purchases of $1 million or more, in the event of a
shareholder redemption within twelve months following the share purchase. A
contingent deferred sales charge is imposed on shareholder redemptions of Class
B shares in the event of a shareholder redemption within six years of purchase.
MFD receives all contingent deferred sales charges. Contingent deferred sales
charges imposed during the year ended September 30, 1995 were $654 and $109,742
for Class A and Class B shares, respectively.
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earns a
fee for its services as shareholder servicing agent. The fee is calculated as a
percentage of the average daily net assets of each class of shares at an
effective annual rate of up to 0.15%, up to 0.22%, and up to 0.15% attributable
to Class A, Class B, and Class C shares, respectively.
(4) Portfolio Securities
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions and short-term obligations, aggregated
$662,260,814 and $421,920,228, respectively. The cost and unrealized
appreciation or depreciation in value of the investments owned by the Fund, as
computed on a federal income tax basis, are as follows:
<TABLE>
<CAPTION>
<S> <C>
Aggregate cost $ 588,802,903
=============
Gross unrealized appreciation $ 139,337,502
Gross unrealized depreciation (14,118,548)
-------------
Net unrealized appreciation $ 125,218,954
=============
</TABLE>
21
<PAGE>
NOTES TO FINANCIAL STATEMENTS - continued
(5) Shares of Beneficial Interest
The Fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Class A Shares Year Ended September 30,1995 Year Ended September 30,1994
---------------------------- ----------------------------
Shares Amount Shares Amount
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 12,798,218 $172,943,634 3,839,136 $ 51,599,673
Shares issued to shareholders in
reinvestment of distributions 119,182 1,423,980 4,069,118 52,350,489
Shares reacquired (5,659,542) (74,912,826) (2,955,596) (40,221,505)
---------- ------------ --------- ------------
Net increase 7,257,858 $ 99,454,788 4,952,658 $ 63,728,657
Class B Shares Year Ended September 30,1995 Year Ended September 30,1994
---------------------------- ----------------------------
Shares Amount Shares Amount
- -----------------------------------------------------------------------------------------------
Shares sold 11,678,569 $158,403,133 2,171,868 $ 29,076,136
Shares issued to shareholders in
reinvestment of distributions 11,368 135,681 183,200 2,292,393
Shares reacquired (2,178,275) (29,569,820) (332,192) (4,402,426)
---------- ------------ --------- ------------
Net increase 9,511,662 $128,968,994 2,022,876 $ 26,966,103
Class C Shares Year Ended September 30,1995 Year Ended September 30,1994+
---------------------------- ----------------------------
Shares Amount Shares Amount
- -----------------------------------------------------------------------------------------------
Shares sold 1,642,158 $22,526,215 673,209 $ 8,927,347
Shares issued to shareholders in
reinvestment of distributions 1,007 11,972 24,307 303,103
Shares reacquired (359,369) (4,889,399) (312,042) (4,172,678)
---------- ------------ --------- ------------
Net increase 1,283,796 $17,648,788 385,474 $ 5,057,772
<FN>
+For the period from the commencement of offering of Class C shares, January 3, 1994 to September 30, 1994.
</FN>
</TABLE>
(6) Line of Credit
The Fund entered into an agreement which enables it to participate with other
funds managed by MFS in an unsecured line of credit with a bank which permits
borrowings up to $350 million, collectively. Borrowings may be made to
temporarily finance the repurchase of Fund shares. Interest is charged to each
fund, based on its borrowings, at a rate equal to the bank's base rate. In
addition, a commitment fee, based on the average daily unused portion of the
line of credit, is allocated among the participating funds at the end of each
quarter. The commitment fee allocated to the Fund for the year ended September
30, 1995 was $4,511.
22
<PAGE>
NOTES TO FINANCIAL STATEMENTS - continued
(7) Restricted Security
The Fund may invest not more than 10% of its total net assets in securities
which are subject to legal or contractual restrictions on resale. At September
30, 1995, the Fund owned the following restricted security (constituting 0.19%
of total assets) which may not be publicly sold without registration under the
Securities Act of 1933 (the 1993 Act). The Fund does not have the right to
demand that such securities be registered. The value of this security is
determined by valuations supplied by a pricing service or brokers or, if not
available, in good faith or at the direction of the Trustees.
<TABLE>
<CAPTION>
Date of Share
Description Acquisition Amount Cost Value
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Jason, Inc. 1/21/94 187,500 $1,650,000 $1,370,625
</TABLE>
23
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees of MFS Series Trust V and Shareholders of MFS Research Fund:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of MFS Research Fund (a series of MFS Series Trust
V) as of September 30, 1995, the related statement of operations for the year
then ended, the statement of changes in net assets for the years ended September
30, 1995 and 1994, and the financial highlights for each of the years in the
ten-year period ended September 30, 1995. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned at
September 30, 1995 by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other auditing procedures.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of MFS Research Fund at
September 30, 1995, the results of its operations, the changes in its net
assets, and its financial highlights for the respective stated periods in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
November 3, 1995
- --------------------------------------------------------------------------------
This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by a current prospectus.
24
<PAGE>
IT'S EASY TO CONTACT US
MFS AUTOMATED INFORMATION
ACCOUNT INFORMATION:
Call 1-800-MFS-TALK (1-800-637-8255)
anytime.
MARKET OUTLOOK:
Call 1-800-637-4458 anytime for the MFS outlook
on the bond and stock markets.
MFS PERSONAL SERVICE
ACCOUNT SERVICE:
Call 1-800-225-2606 any business day
from 8 a.m. to 8 p.m. Eastern time.
PRODUCT INFORMATION:
Call 1-800-637-2929 any business day
from 9 a.m. to 5 p.m. Eastern time.
IRA SERVICE:
Call 1-800-637-1255 any business day
from 8 a.m. to 6 p.m. Eastern time.
SERVICE FOR THE HEARING-IMPAIRED:
Call 1-800-637-6576 any business day
from 9 a.m. to 5 p.m. Eastern time (TDD required).
MFS MAILING ADDRESSES
FOR PERSONAL ACCOUNTS:
MFS Service Center, Inc.
P.O. Box 2281
Boston, MA 02107-9906
FOR IRA ACCOUNTS:
MFS Service Center, Inc.
J.W. McCormack Station
P.O. Box 4501
Boston, MA 02101-9817
25
<PAGE>
A WORD ABOUT MFS PRODUCTS AND SERVICES
MAKING ADDITIONAL INVESTMENTS AT YOUR CONVENIENCE
There are several easy ways to make additional single investments of at least
$50:
o send a check with the lower portion of your account statement
o contact your financial adviser to purchase shares on your behalf
o wire additional investments through your bank; call us first for
instructions.
MAKING ADDITIONAL INVESTMENTS AUTOMATICALLY
By investing a set amount at regular intervals, over time you will buy more
shares when prices are low, and fewer shares when prices are high. Because
dollar cost averaging involves periodic purchases regardless of fluctuating
share prices, you should consider your financial ability to continue investing
in periods of low prices. MFS offers two dollar-cost-averaging programs. See the
prospectus for further details. Dollar cost averaging does not assure a profit
or avoid a loss.
THE AUTOMATIC INVESTMENT PLAN offers a simple way to make regular investments of
at least $50 through automatic withdrawals from your checking account.
THE AUTOMATIC EXCHANGE PLAN automatically exchanges shares from any MFS fund
with $5,000 or more into the same class of shares in up to four other MFS funds.
You choose the amounts of the exchanges (as little as $50) and their frequency.
<TABLE>
<CAPTION>
A Hypothetical Example of Automatic Monthly Investing Compounding at 8% a Year
Amount 5 Years 10 15 20 25
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 50 3,671 9,064 16,989 28,633 45,742
$ 75 5,506 13,596 25,483 42,950 68,613
$ 100 7,341 18,128 33,978 57,266 91,484
$ 200 14,683 36,257 67,956 114,532 182,968
</TABLE>
For illustration only. Not indicative of future performance of any MFS fund.
For applications or further information call 1-800-225-2606 any business day
from 8 a.m. to 8 p.m. Eastern time.
If you are a participant in a retirement plan, check with your plan sponsor
regarding the availability of these options.
26
<PAGE>
A FINANCIAL ADVISER CAN HELP YOU BE A BETTER INVESTOR
Financial advisers can be valuable resources for their clients, providing
ongoing education and guidance about investments, as well as a wide range of
services. Here are just some of the ways your financial adviser may be able to
help you be a better investor:
# Day-to-day monitoring of your portfolio
# Tax recordkeeping
# In-depth information on fund managers, their track records and their tenure
# Risk/reward analyses of current or potential holdings
# Asset allocation advice
# Construction of a detailed personal financial profile
# Order and confirmation processing
# Information on a fund group's range of shareholder services
# Portfolio adjustments based on lifestyle changes
# Assistance with business retirement planning
# Evaluation of lump-sum distribution options
# Recommendations on a selection of fund groups
# Specialized research and investment information not readily available to
individuals
# In-depth knowledge of markets and products, kept current by ongoing tracking
# Estate, tax, insurance, and business planning
# Help with possible savings on sales charges through breakpoints, rights of
accumulation, and letters of intent
27
<PAGE>
MFS INVESTMENT OPPORTUNITIES
MUTUAL FUNDS
The MFS Family of Funds, shown on the facing page, falls into the eight general
categories below. All offer full-time professional management, a diversified
portfolio, and a wide array of shareholder services.
STOCK FUNDS seek growth of capital rather than income through investments in
stocks.
STOCK AND BOND FUNDS seek current income and growth of capital through
investments in both stocks and bonds.
BOND FUNDS seek current income through investments in debt securities.
WORLD FUNDS seek stock, balanced, and bond fund objectives through investments
in U.S. and foreign stocks and bonds. Limited-maturity funds seek current income
and preservation of capital through investments in debt securities with
remaining maturities of five years or less.
NATIONAL TAX-FREE BOND FUNDS seek current income exempt from federal income tax
through investments in debt securities issued by states and municipalities.[1]
STATE TAX-FREE BOND FUNDS seek current income exempt from federal and state
income taxes through investments in debt securities issued by a single state and
its municipalities.[1]
MONEY MARKET FUNDS seek preservation of capital and current income through
investments in short-term debt securities.[2]
To determine which MFS fund may be appropriate for you, please contact your
financial adviser, who can help you relate these investment opportunities to
your financial goals. If you prefer, you may call MFS Investor Information for
literature[3] on MFS products and services: 1-800-637-2929, from 9 a.m. to
5 p.m. Eastern time any business day (leave a message anytime).
[1] A small portion of the income may be subject to federal, state and/or
alternative minimum tax.
[2] Investments in money market funds are not issued or guaranteed by the U.S.
government and there is no assurance that the fund will be able to maintain
a stable net asset value.
[3] Including a prospectus containing more complete information including
charges and expenses. Read the prospectus carefully before investing.
28
<PAGE>
THE MFS FAMILY OF FUNDS [Register mark]
America's Oldest Mutual Fund Group
The members of the MFS Family of Funds are grouped below according to the types
of securities in their portfolios. For free prospectuses containing more
complete information, including the exchange privilege and all charges and
expenses, please contact your financial adviser or call MFS at 1-800-637-2929
any business day from 9 a.m. to 5 p.m. Eastern time (or, leave a message any
time). This material should be read carefully before investing or sending money.
STOCK
================================================================================
Massachusetts Investors Trust
- --------------------------------------------------------------------------------
Massachusetts Investors Growth Stock Fund
- --------------------------------------------------------------------------------
MFS [R] Capital Growth Fund
- --------------------------------------------------------------------------------
MFS [R] Emerging Growth Fund
- --------------------------------------------------------------------------------
MFS [R] Gold & Natural Resources Fund
- --------------------------------------------------------------------------------
MFS [R] Growth Opportunities Fund
- --------------------------------------------------------------------------------
MFS [R] Managed Sectors Fund
- --------------------------------------------------------------------------------
MFS [R] OTC Fund
- --------------------------------------------------------------------------------
MFS [R] Research Fund
- --------------------------------------------------------------------------------
MFS [R] Value Fund
STOCK AND BOND
================================================================================
MFS [R] Total Return Fund
- --------------------------------------------------------------------------------
MFS [R] Utilities Fund
- --------------------------------------------------------------------------------
BOND
================================================================================
MFS [R] Bond Fund
- --------------------------------------------------------------------------------
MFS [R] Government Mortgage Fund
- --------------------------------------------------------------------------------
MFS [R] Government Securities Fund
- --------------------------------------------------------------------------------
MFS [R] High Income Fund
- --------------------------------------------------------------------------------
MFS [R] Intermediate Income Fund
- --------------------------------------------------------------------------------
MFS [R] Strategic Income Fund
(formerly MFS [R] Income & Opportunity Fund)
- --------------------------------------------------------------------------------
LIMITED MATURITY BOND
================================================================================
MFS [R] Government Limited Maturity Fund
- --------------------------------------------------------------------------------
MFS [R] Limited Maturity Fund
- --------------------------------------------------------------------------------
MFS [R] Municipal Limited Maturity Fund
- --------------------------------------------------------------------------------
WORLD
================================================================================
MFS [R] World Asset Allocation Fund
- --------------------------------------------------------------------------------
MFS [R] World Equity Fund
- --------------------------------------------------------------------------------
MFS [R] World Governments Fund
- --------------------------------------------------------------------------------
MFS [R] World Growth Fund
- --------------------------------------------------------------------------------
MFS [R] World Total Return Fund
- --------------------------------------------------------------------------------
NATIONAL TAX-FREE BOND
================================================================================
MFS [R] Municipal Bond Fund
- --------------------------------------------------------------------------------
MFS [R] Municipal High Income Fund
(closed to new investors)
- --------------------------------------------------------------------------------
MFS [R] Municipal Income Fund
- --------------------------------------------------------------------------------
STATE TAX-FREE BOND
================================================================================
Alabama, Arkansas, California, Florida, Georgia, Louisiana, Maryland,
Massachusetts, Mississippi, New York, North Carolina, Pennsylvania, South
Carolina, Tennessee, Texas, Virginia, Washington, West Virginia
- --------------------------------------------------------------------------------
MONEY MARKET
================================================================================
MFS [R] Cash Reserve Fund
- --------------------------------------------------------------------------------
MFS [R] Government Money Market Fund
- --------------------------------------------------------------------------------
MFS [R] Money Market Fund
- --------------------------------------------------------------------------------
<PAGE>
MFS [R] RESEARCH FUND BULK RATE
U.S. POSTAGE
P A I D
500 Boylston Street U.S. POSTAGE
Boston, MA 02116 BOSTON, MA
[DALBAR LOGO]
MFR-2 11/95/62.5M 14/214/314
<PAGE>
PART C
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
MFS TOTAL RETURN FUND
a) FINANCIAL STATEMENTS INCLUDED IN PARTS A AND B:
INCLUDED IN PART A OF THIS REGISTRATION STATEMENT:
For the ten years ended September 30, 1995:
Financial Highlights
INCLUDED IN PART B OF THIS REGISTRATION STATEMENT:
At September 30, 1995:
Portfolio of Investments*
Statements of Assets and Liabilities*
For the year ended September 30, 1995:
Statement of Operations*
For the two years ended September 30, 1995:
Statement of Changes in Net Assets*
MFS RESEARCH FUND
(a) FINANCIAL STATEMENTS INCLUDED IN PARTS A AND B:
INCLUDED IN PART A OF THIS REGISTRATION STATEMENT:
For the ten years ended September 30, 1995:
Financial Highlights
INCLUDED IN PART B OF THIS REGISTRATION STATEMENT:
At September 30, 1995:
Portfolio of Investments**
Statement of Assets and Liabilities**
For the year ended September 30, 1995:
Statement of Operations**
For the two years ended September 30, 1995:
Statement of Changes in Net Assets**
- -----------------------------
*Incorporated by reference to the Annual Report to Shareholders dated
September 30, 1995 filed with the SEC via EDGAR on December 7, 1995.
**Incorporated by reference to the Annual Report to Shareholders dated
September 30, 1995 filed with the SEC via EDGAR on December 7, 1995.
<PAGE>
(b) EXHIBITS:
1 Amended and Restated Declaration of Trust, dated December
21, 1994; filed herewith.
2 Amended and Restated By-Laws, dated December 21, 1994; filed
herewith.
3 Not Applicable
4 Form of Certificate representing ownership of the
Registrant's Class A, B and C Shares of Beneficial
Interest.(1)
5 (a) Investment Advisory Agreement for MFS Total Return Fund, a
series of the Trust, dated January 18, 1985; filed herewith.
(b) Amendment No. 1 to Investment Advisory Agreement, dated
November 19, 1985; filed herewith.
(c) Investment Advisory Agreement for MFS Research Fund, a
Series of the Trust, dated September 1, 1993; filed
herewith.
6 (a) Distribution Agreement between the Trust and MFS Fund
Distributors, Inc., dated January 1, 1995; filed herewith.
(b) Dealer Agreement between MFS Fund Distributors, Inc. and a
dealer, dated December 28, 1994 and the Mutual Fund
Agreement between MFD and a bank or NASD affiliate, dated
December 28, 1994. (2)
7 Retirement Plan for Non-Interested Person Trustees, dated
January 1, 1991; filed herewith.
8 (a) Custodian Contract between Registrant (formerly known as
Massachusetts Financial Total Return Trust) and Investors
Bank and Trust Company, dated October 1, 1991; filed
herewith.
(b) Amendment No. 1 to Custodian Contract, dated April 21, 1992;
filed herewith.
9 (a) Shareholder Servicing Agent Agreement between the Registrant
and Massachusetts Financial Service Center, Inc., dated
August 1, 1985; filed herewith.
(b) Amendment to Shareholder Servicing Agent Agreement, dated
December 28, 1993; filed herewith.
(c) Exchange Privilege Agreement, dated September 1, 1995. (3)
(d) Loan Agreement by and among the Banks named therein, the MFS
Funds named therein and The First National Bank of Boston
dated February 21, 1995. (4)
(e) Agreement and Plan of Reorganization dated January 15, 1985
between Registrant and Massachusetts Financial Development
Fund, Inc; filed herewith.
(f) Dividend Disbursing Agency Agreement dated February 1, 1986;
filed herewith.
10 Opinion and Consent of Counsel for the fiscal year ended
September 30, 1995 filed with Registrant's Rule 24f-2 Notice
on November 16, 1995.
11 Consent of Deloitte & Touche LLP - MFS Total Return Fund and
MFS Research Fund; filed herewith.
12 Not Applicable.
13 Not Applicable.
14 (a) Forms for Individual Retirement Account Disclosure Statement
as currently in effect. (5)
(b) Forms for MFS 403(b) Custodial Account Agreement as
currently in effect. (5)
(c) Forms for MFS Prototype Paired Defined Contribution Plans
and Trust Agreement as currently in effect. (5)
15 (a) Amended and Restated Distribution Plan for MFS Total Return
Fund, dated December 21, 1994 for Class A shares; filed
herewith.
(b) Distribution Plan for MFS Total Return Fund dated August 23,
1993, for Class B shares; filed herewith.
(c) Distribution Plan for MFS Total Return Fund dated July 20,
1994 for Class C shares; filed herewith.
(d) Distribution Plan for MFS Research Fund, dated September 1,
1993 for Class A shares; filed herewith.
(e) Distribution Plan for MFS Research Fund dated September 1,
1993, for Class B shares; filed herewith.
(f) Distribution Plan for MFS Research Fund dated December 28,
1993, for Class C shares; filed herewith.
16 Schedule of Computation for Performance Quotations - Average
Annual Total Rate of Return, Aggregate Total Rate of Return,
Standardized Yield and Current Distribution Rate. (2)
17 Not Applicable.
18 Not Applicable.
Power of Attorney dated September 21, 1994; filed herewith.
(1) Incorporated by reference to MFS Municipal Series Trust (File Nos. 2-92915
and 811-4096) Post-Effective Amendment No. 28 filed with the SEC on July 28,
1985.
(2) Incorporated by reference to MFS Municipal Series Trust (File Nos. 2-92915
and 811-4096) Post-Effective Amendment No. 26 filed with the SEC on February
22, 1995.
(3) Incorporated by reference to MFS Series Trust X (File Nos. 33-1657 and
811-4492) Post-Effective Amendment No. 13 filed with the SEC via EDGAR on
November 28, 1995.
(4) Incorporated by reference to Post-Effective Amendment No. 28 on Form N-2 for
MFS Municipal Income Trust (File No. 811-4841) filed with the SEC via EDGAR
on February 28, 1995.
(5) Incorporated by reference to MFS Series Trust IX (File Nos. 2-50409 and
811-2464) Post-Effective Amendment No. 32 filed with the SEC via EDGAR on
August 28, 1995.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Not applicable.
<PAGE>
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
FOR MFS TOTAL RETURN FUND
(1) (2)
TITLE OF CLASS NUMBER OF RECORD HOLDERS
Class A Shares of Beneficial Interest 140,013
(without par value) (as of December 31, 1995)
Class B Shares of Beneficial Interest 77,097
(without par value) (as of December 31, 1995)
Class C Shares of Beneficial Interest 1,794
(without par value) (as of December 31, 1995)
FOR MFS RESEARCH FUND
Class A Shares of Beneficial Interest 36,050
(without par value) (as of December 31, 1995)
Class B Shares of Beneficial Interest 21,044
(without par value) (as of December 31, 1995)
Class C Shares of Beneficial Interest 2,373
(without par value) (as of December 31, 1995)
ITEM 27. INDEMNIFICATION
Reference is hereby made to (a) Article V of Registrant's Declaration
of Trust amended and restated, December 21, 1994, filed herewith; (b) Section 9
of the Shareholder Servicing Agent Agreement filed herewith; and (c) the
undertaking of the Registrant regarding indemnification set forth in its
Registration Statement on Form S-5.
The Trustees and officers of the Registrant and the personnel of the
Registrant's investment adviser and distributor are insured under an errors and
omissions liability insurance policy. The Registrant and its officers are also
insured under the fidelity bond required by Rule 17g-1 under the Investment
Company Act of 1940.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
MFS serves as investment adviser to the following open-end Funds
comprising the MFS Family of Funds: Massachusetts Investors Trust, Massachusetts
Investors Growth Stock Fund, MFS Growth Opportunities Fund, MFS Government
Securities Fund, MFS Government Limited Maturity Fund, MFS Series Trust I (which
has eight series: MFS Managed Sectors Fund, MFS Cash Reserve Fund, MFS World
Asset Allocation Fund, MFS Aggressive Growth Fund, MFS Research Growth and
Income Fund, MFS Core Growth Fund, MFS Equity Income Fund and MFS Special
Opportunities Fund), MFS Series Trust II (which has four series: MFS Emerging
Growth Fund, MFS Capital Growth Fund, MFS Intermediate Income Fund and MFS Gold
& Natural Resources Fund), MFS Series Trust III (which has two series: MFS High
Income Fund and MFS Municipal High Income Fund), MFS Series Trust IV (which has
four series: MFS Money Market Fund, MFS Government Money Market Fund, MFS
Municipal Bond Fund and MFS OTC Fund), MFS Series Trust V (which has two series:
MFS Total Return Fund and MFS Research Fund), MFS Series Trust VI (which has
three series: MFS World Total Return Fund, MFS Utilities Fund and MFS World
Equity Fund), MFS Series Trust VII (which has two series: MFS World Governments
Fund and MFS Value Fund), MFS Series Trust VIII (which has two series: MFS
Strategic Income Fund and MFS World Growth Fund), MFS Series Trust IX (which has
three series: MFS Bond Fund, MFS Limited Maturity Fund and MFS Municipal Limited
Maturity Fund), MFS Series Trust X (which has four series: MFS Government
Mortgage Fund, MFS/Foreign & Colonial Emerging Markets Equity Fund, MFS/Foreign
& Colonial International Growth Fund and MFS/Foreign & Colonial International
Growth and Income Fund), and MFS Municipal Series Trust (which has 19 series:
MFS Alabama Municipal Bond Fund, MFS Arkansas Municipal Bond Fund, MFS
California Municipal Bond Fund, MFS Florida Municipal Bond Fund, MFS Georgia
Municipal Bond Fund, MFS Louisiana Municipal Bond Fund, MFS Maryland Municipal
Bond Fund, MFS Massachusetts Municipal Bond Fund, MFS Mississippi Municipal Bond
Fund, MFS New York Municipal Bond Fund, MFS North Carolina Municipal Bond Fund,
MFS Pennsylvania Municipal Bond Fund, MFS South Carolina Municipal Bond Fund,
MFS Tennessee Municipal Bond Fund, MFS Texas Municipal Bond Fund, MFS Virginia
Municipal Bond Fund, MFS Washington Municipal Bond Fund, MFS West Virginia
Municipal Bond Fund and MFS Municipal Income Fund) (the "MFS Funds"). The
principal business address of each of the aforementioned Funds is 500 Boylston
Street, Boston, Massachusetts 02116.
MFS also serves as investment adviser of the following no-load,
open-end Funds: MFS Institutional Trust ("MFSIT") (which has seven series), MFS
Variable Insurance Trust ("MVI") (which has twelve series) and MFS Union
Standard Trust ("UST") (which has two series). The principal business address of
each of the aforementioned Funds is 500 Boylston Street, Boston, Massachusetts
02116.
In addition, MFS serves as investment adviser to the following
closed-end Funds: MFS Municipal Income Trust, MFS Multimarket Income Trust, MFS
Government Markets Income Trust, MFS Intermediate Income Trust, MFS Charter
Income Trust and MFS Special Value Trust (the "MFS Closed-End Funds"). The
principal business address of each of the aforementioned Funds is 500 Boylston
Street, Boston, Massachusetts 02116.
Lastly, MFS serves as investment adviser to MFS/Sun Life Series Trust
("MFS/SL"), Sun Growth Variable Annuity Funds, Inc. ("SGVAF"), Money Market
Variable Account, High Yield Variable Account, Capital Appreciation Variable
Account, Government Securities Variable Account, World Governments Variable
Account, Total Return Variable Account and Managed Sectors Variable Account. The
principal business address of each is One Sun Life Executive Park, Wellesley
Hills, Massachusetts 02181.
MFS International Ltd. ("MIL"), a limited liability company organized
under the laws of the Republic of Ireland and a subsidiary of MFS, whose
principal business address is 41-45 St. Stephen's Green, Dublin 2, Ireland,
serves as investment adviser to and distributor for MFS International Fund
(which has four portfolios: MFS International Funds-U.S. Equity Fund, MFS
International Funds-U.S. Emerging Growth Fund, MFS International Funds-Global
Governments Fund and MFS International Funds-Charter Income Fund) (the "MIL
Funds"). The MIL Funds are organized in Luxembourg and qualify as an undertaking
for collective investments in transferable securities (UCITS). The principal
business address of the MIL Funds is 47, Boulevard Royal, L-2449 Luxembourg.
MIL also serves as investment adviser to and distributor for MFS
Meridian U.S. Government Bond Fund, MFS Meridian Charter Income Fund, MFS
Meridian Global Government Fund, MFS Meridian U.S. Emerging Growth Fund, MFS
Meridian Global Equity Fund, MFS Meridian Limited Maturity Fund, MFS Meridian
World Growth Fund, MFS Meridian Money Market Fund, MFS Meridian World Total
Return Fund and MFS Meridian U.S. Equity Fund (collectively the "MFS Meridian
Funds"). Each of the MFS Meridian Funds is organized as an exempt company under
the laws of the Cayman Islands. The principal business address of each of the
MFS Meridian Funds is P.O. Box 309, Grand Cayman, Cayman Islands, British West
Indies.
MFS International (U.K.) Ltd. ("MIL-UK"), a private limited company
registered with the Registrar of Companies for England and Wales whose current
address is 4 John Carpenter Street, London, England ED4Y 0NH, is involved
primarily in marketing and investment research activities with respect to
private clients and the MIL Funds and the MFS Meridian Funds.
MFS Fund Distributors, Inc. ("MFD"), a wholly owned subsidiary of MFS,
serves as distributor for the MFS Funds, MVI, UST and MFSIT.
Clarendon Insurance Agency, Inc. ("CIAI"), a wholly owned subsidiary
of MFS, serves as distributor for certain life insurance and annuity contracts
issued by Sun Life Assurance Company of Canada (U.S.).
MFS Service Center, Inc. ("MFSC"), a wholly owned subsidiary of MFS,
serves as shareholder servicing agent to the MFS Funds, the MFS Closed-End
Funds, MFSIT, MVI and UST.
MFS Asset Management, Inc. ("AMI"), a wholly owned subsidiary of MFS,
provides investment advice to substantial private clients.
MFS Retirement Services, Inc. ("RSI"), a wholly owned subsidiary of
MFS, markets MFS products to retirement plans and provides administrative and
record keeping services for retirement plans.
MFS
The Directors of MFS are A. Keith Brodkin, Jeffrey L. Shames, Arnold
D. Scott, John R. Gardner and John D. McNeil. Mr. Brodkin is the Chairman, Mr.
Shames is the President, Mr. Scott is a Senior Executive Vice President and
Secretary, Bruce C. Avery, William S. Harris, William W. Scott, Jr., and
Patricia A. Zlotin are Executive Vice Presidents, James E. Russell is a Senior
Vice President and the Treasurer, Stephen E. Cavan is a Senior Vice President,
General Counsel and an Assistant Secretary, Joseph W. Dello Russo is a Senior
Vice President and Chief Financial Officer, Robert T. Burns is a Vice President
and an Assistant Secretary of MFS, and Mary Kay Doherty is a Vice President and
Assistant Treasurer.
MASSACHUSETTS INVESTORS TRUST
MASSACHUSETTS INVESTORS GROWTH STOCK FUND
MFS GROWTH OPPORTUNITIES FUND
MFS GOVERNMENT SECURITIES FUND
MFS SERIES TRUST I
MFS SERIES TRUST V
MFS SERIES TRUST VI
MFS SERIES TRUST X
MFS GOVERNMENT LIMITED MATURITY FUND
A. Keith Brodkin is the Chairman and President, Stephen E. Cavan is
the Secretary, W. Thomas London is the Treasurer, James O. Yost, Vice President
of MFS, is the Assistant Treasurer, James R. Bordewick, Jr., Vice President and
Associate General Counsel of MFS, is the Assistant Secretary.
MFS SERIES TRUST II
A. Keith Brodkin is the Chairman and President, Leslie J. Nanberg,
Senior Vice President of MFS, is a Vice President, Stephen E. Cavan is the
Secretary, W. Thomas London is the Treasurer, James O. Yost is the Assistant
Treasurer, and James R. Bordewick, Jr., is the Assistant Secretary.
MFS GOVERNMENT MARKETS INCOME TRUST
MFS INTERMEDIATE INCOME TRUST
A. Keith Brodkin is the Chairman and President, Patricia A. Zlotin,
Executive Vice President of MFS and Leslie J. Nanberg, Senior Vice President of
MFS, are Vice Presidents, Stephen E. Cavan is the Secretary, W. Thomas London is
the Treasurer, James O. Yost is the Assistant Treasurer, and James R. Bordewick,
Jr., is the Assistant Secretary.
MFS SERIES TRUST III
A. Keith Brodkin is the Chairman and President, James T. Swanson,
Robert J. Manning, Cynthia M. Brown and Joan S. Batchelder, Senior Vice
Presidents of MFS, Bernard Scozzafava, Vice President of MFS, and Matthew
Fontaine, Assistant Vice President of MFS, are Vice Presidents, Sheila
Burns-Magnan and Daniel E. McManus, Assistant Vice Presidents of MFS, are
Assistant Vice Presidents, Stephen E. Cavan is the Secretary, W. Thomas London
is the Treasurer, James O. Yost is the Assistant Treasurer, and James R.
Bordewick, Jr., is the Assistant Secretary.
MFS SERIES TRUST IV
MFS SERIES TRUST IX
A. Keith Brodkin is the Chairman and President, Robert A. Dennis and
Geoffrey L. Kurinsky, Senior Vice Presidents of MFS, are Vice Presidents,
Stephen E. Cavan is the Secretary, W. Thomas London is the Treasurer, James O.
Yost is the Assistant Treasurer and James R. Bordewick, Jr., is the Assistant
Secretary.
MFS SERIES TRUST VII
A. Keith Brodkin is the Chairman and President, Leslie J. Nanberg and
Stephen C. Bryant, Senior Vice Presidents of MFS, are Vice Presidents, Stephen
E. Cavan is the Secretary, W. Thomas London is the Treasurer, James O. Yost is
the Assistant Treasurer and James R. Bordewick, Jr., is the Assistant Secretary.
MFS SERIES TRUST VIII
A. Keith Brodkin is the Chairman and President, Jeffrey L. Shames,
Leslie J. Nanberg, Patricia A. Zlotin, James T. Swanson and John D. Laupheimer,
Jr., Vice President of MFS, are Vice Presidents, Stephen E. Cavan is the
Secretary, W. Thomas London is the Treasurer, James O. Yost is the Assistant
Treasurer and James R. Bordewick, Jr., is the Assistant Secretary.
MFS MUNICIPAL SERIES TRUST
A. Keith Brodkin is the Chairman and President, Cynthia M. Brown and
Robert A. Dennis are Vice Presidents, David B. Smith, Geoffrey L. Schechter and
David R. King, Vice Presidents of MFS, are Vice Presidents, Daniel E. McManus,
Assistant Vice President of MFS, is an Assistant Vice President, Stephen E.
Cavan is the Secretary, W. Thomas London is the Treasurer, James O. Yost is the
Assistant Treasurer and James R. Bordewick, Jr., is the Assistant Secretary.
MFS VARIABLE INSURANCE TRUST
MFS UNION STANDARD TRUST
MFS INSTITUTIONAL TRUST
A. Keith Brodkin is the Chairman and President, Stephen E. Cavan is
the Secretary, W. Thomas London is the Treasurer, James O. Yost is the Assistant
Treasurer and James R. Bordewick, Jr., is the Assistant Secretary.
MFS MUNICIPAL INCOME TRUST
A. Keith Brodkin is the Chairman and President, Cynthia M. Brown and
Robert J. Manning are Vice Presidents, Stephen E. Cavan is the Secretary, W.
Thomas London is the Treasurer, James O. Yost, is the Assistant Treasurer and
James R. Bordewick, Jr., is the Assistant Secretary.
MFS MULTIMARKET INCOME TRUST
MFS CHARTER INCOME TRUST
A. Keith Brodkin is the Chairman and President, Patricia A. Zlotin,
Leslie J. Nanberg and James T. Swanson are Vice Presidents, Stephen E. Cavan is
the Secretary, W. Thomas London is the Treasurer, James O. Yost, Vice President
of MFS, is the Assistant Treasurer and James R. Bordewick, Jr., is the Assistant
Secretary.
MFS SPECIAL VALUE TRUST
A. Keith Brodkin is the Chairman and President, Jeffrey L. Shames,
Patricia A. Zlotin and Robert J. Manning are Vice Presidents, Stephen E. Cavan
is the Secretary, W. Thomas London is the Treasurer, and James O. Yost, is the
Assistant Treasurer and James R. Bordewick, Jr., is the Assistant Secretary.
SGVAF
W. Thomas London is the Treasurer.
MIL
A. Keith Brodkin is a Director and the Chairman, Arnold D. Scott and
Jeffrey L. Shames are Directors, Ziad Malek, Senior Vice President of MFS, is
the President, Thomas J. Cashman, Jr., a Senior Vice President of MFS, is a
Senior Vice President, Stephen E. Cavan is a Director, Senior Vice President and
the Clerk, James R. Bordewick, Jr. is a Director, Vice President and an
Assistant Clerk, Robert T. Burns is an Assistant Clerk, Joseph W. Dello Russo is
the Treasurer and James E. Russell is the Assistant Treasurer.
MIL-UK
A. Keith Brodkin is a Director and the Chairman, Arnold D. Scott,
Jeffrey L. Shames, and James R. Bordewick, Jr., are Directors, Stephen E. Cavan
is a Director and the Secretary, Ziad Malek is the President, Joseph W. Dello
Russo is the Treasurer, and Robert T. Burns is the Assistant Secretary.
MIL FUNDS
A. Keith Brodkin is the Chairman, President and a Director, Richard B.
Bailey, John A. Brindle and Richard W. S. Baker are Directors, Stephen E. Cavan
is the Secretary, W. Thomas London is the Treasurer, James O. Yost is the
Assistant Treasurer and James R. Bordewick, Jr., is the Assistant Secretary, and
Ziad Malek is a Senior Vice President.
MFS MERIDIAN FUNDS
A. Keith Brodkin is the Chairman, President and a Director, Richard B.
Bailey, John A. Brindle, Richard W. S. Baker, Arnold D. Scott and Jeffrey L.
Shames are Directors, Stephen E. Cavan is the Secretary, W. Thomas London is the
Treasurer, James R. Bordewick, Jr., is the Assistant Secretary, James O. Yost is
the Assistant Treasurer, and Ziad Malek is a Senior Vice President.
MFD
A. Keith Brodkin is the Chairman and a Director, Arnold D. Scott and
Jeffrey L. Shames are Directors, William W. Scott, Jr., an Executive Vice
President of MFS, is the President, Stephen E. Cavan is the Secretary, Robert T.
Burns is the Assistant Secretary, Joseph W. Dello Russo is the Treasurer, and
James E. Russell is the Assistant Treasurer.
CIAI
A. Keith Brodkin is the Chairman and a Director, Arnold D. Scott and
Jeffrey L. Shames are Directors, Cynthia Orcott is President, Bruce C. Avery is
the Vice President, Joseph W. Dello Russo is the Treasurer, James E. Russell is
the Assistant Treasurer, Stephen E. Cavan is the Secretary, and Robert T. Burns
is the Assistant Secretary.
MFSC
A. Keith Brodkin is the Chairman and a Director, Arnold D. Scott and
Jeffrey L. Shames are Directors, Joseph A. Recomendes, a Senior Vice President
of MFS, is Vice Chairman and a Director, Janet A. Clifford is the Executive Vice
President, Joseph W. Dello Russo is the Treasurer, James E. Russell is the
Assistant Treasurer, Stephen E. Cavan is the Secretary, and Robert T. Burns is
the Assistant Secretary.
AMI
A. Keith Brodkin is the Chairman and a Director, Jeffrey L. Shames,
and Arnold D. Scott are Directors, Thomas J. Cashman, Jr., is the President and
a Director, Leslie J. Nanberg is a Senior Vice President, a Managing Director
and a Director, George F. Bennett, Carol A. Corley, John A. Gee, Brianne Grady
and Kevin R. Parke are Senior Vice Presidents and Managing Directors, Joseph W.
Dello Russo is the Treasurer, James E. Russell is the Assistant Treasurer and
Robert T. Burns is the Secretary.
RSI
William W. Scott, Jr., Joseph A. Recomendes and Bruce C. Avery are
Directors, Arnold D. Scott is the Chairman and a Director, Douglas C. Grip, a
Senior Vice President of MFS, is the President, Joseph W. Dello Russo is the
Treasurer, James E. Russell is the Assistant Treasurer, Stephen E. Cavan is the
Secretary, Robert T. Burns is the Assistant Secretary and Sharon A. Brovelli is
a Senior Vice President.
In addition, the following persons, Directors or officers of MFS, have
the affiliations indicated:
A. Keith Brodkin Director, Sun Life Assurance Company of
Canada (U.S.), One Sun Life Executive Park,
Wellesley Hills, Massachusetts
Director, Sun Life Insurance and Annuity
Company of New York, 67 Broad Street, New
York, New York
John R. Gardner President and a Director, Sun Life Assurance
Company of Canada, Sun Life Centre, 150 King
Street West, Toronto, Ontario, Canada (Mr.
Gardner is also an officer and/or Director of
various subsidiaries and affiliates of Sun
Life)
John D. McNeil Chairman, Sun Life Assurance Company of
Canada, Sun Life Centre, 150 King Street
West, Toronto, Ontario, Canada (Mr. McNeil is
also an officer and/or Director of various
subsidiaries and affiliates of Sun Life)
Joseph W. Dello Russo Director of Mutual Fund Operations, The Boston
Company, Exchange Place, Boston,
Massachusetts (until August, 1994)
ITEM 29. DISTRIBUTORS
(a) Reference is hereby made to Item 28 above.
(b) Reference is hereby made to Item 28 above; the principal
business address of each of these persons is 500 Boylston Street, Boston,
Massachusetts 02116.
(c) Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
The accounts and records of the Registrant are located, in whole or in
part, at the office of the Registrant and the following locations:
NAME ADDRESS
Massachusetts Financial 500 Boylston Street
Services Company Boston, MA 02116
(investment adviser)
MFS Fund Distributors, Inc. 500 Boylston Street
(principal underwriter) Boston, MA 02116
Investors Bank & Trust 89 South Street
Company Boston, MA 02111
(custodian)
MFS Service Center, Inc. 500 Boylston Street
(transfer agent) Boston, Mass. 02116
ITEM 31. MANAGEMENT SERVICES
Not applicable.
ITEM 32. UNDERTAKINGS
(a) Not Applicable.
(b) Not Applicable.
(c) Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to trustees, officers and controlling
persons of the Registrant pursuant to the provisions set forth in Item 27 of
this Part C, or otherwise, the Registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a trustee, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being Registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(d) The registrant undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest annual report to
shareholders upon request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Post-Effective Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereto duly authorized, in the City of Boston and
The Commonwealth of Massachusetts on the 26th day of January, 1996.
MFS SERIES TRUST V
By: JAMES R. BORDEWICK, JR.
Name: James R. Bordewick, Jr.
Title: Assistant Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to its Registration Statement has been signed below by
the following persons in the capacities indicated on January 26, 1996.
SIGNATURE TITLE
A. KEITH BRODKIN* Chairman, President (Principal
A. Keith Brodkin Executive Officer) and Trustee
W. THOMAS LONDON* Treasurer (Principal Financial Officer
W. Thomas London and Principal Accounting Officer)
RICHARD B. BAILEY* Trustee
Richard B. Bailey
PETER G. HARWOOD* Trustee
Peter G. Harwood
J. ATWOOD IVES* Trustee
J. Atwood Ives
LAWRENCE T. PERERA* Trustee
Lawrence T. Perera
WILLIAM J. POORVU* Trustee
William J. Poorvu
CHARLES W. SCHMIDT* Trustee
Charles W. Schmidt
ARNOLD D. SCOTT* Trustee
Arnold D. Scott
JEFFREY L. SHAMES* Trustee
Jeffrey L. Shames
ELAINE R. SMITH* Trustee
Elaine R. Smith
<PAGE>
DAVID B. STONE* Trustee
David B. Stone
*By: JAMES R. BORDEWICK, JR.
Name: James R. Bordewick, Jr.
as Attorney-in-fact
Executed by James R. Bordewick, Jr. on
behalf of those indicated pursuant to a
Power of Attorney dated
September 21, 1994; filed herewith.
<PAGE>
POWER OF ATTORNEY
MFS SERIES TRUST V
The undersigned, Trustees and officers of MFS Series Trust V (the
"Registrant"), hereby severally constitute and appoint A. Keith Brodkin, W.
Thomas London, Stephen E. Cavan and James R. Bordewick, Jr., and each of them
singly, as true and lawful attorneys, with full power to them and each of them
to sign for each of the undersigned, in the names of, and in the capacities
indicated below, any Registration Statement and any and all amendments thereto
and to file the same with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission for the
purpose of registering the Registrant as a management investment company under
the Investment Company Act of 1940 and/or the shares issued by the Registrant
under the Securities Act of 1933 granting unto our said attorneys, and each of
them, acting alone, full power and authority to do and perform each and every
act and thing requisite or necessary or desirable to be done in the premises, as
fully to all intents and purposes as he or she might or could do in person,
hereby ratifying and confirming all that said attorneys or any of them may
lawfully do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned have hereunto set their hand on
this 21st day of September, 1994.
SIGNATURES TITLE(S)
/s/ A. KEITH BRODKIN Chairman of the Board; Trustee;
- ------------------------------------- and Principal Executive Officer
A. Keith Brodkin
/s/ RICHARD B. BAILEY Trustee
- -------------------------------------
Richard B. Bailey
/s/ PETER G. HARWOOD Trustee
- -------------------------------------
Peter G. Harwood
/s/ J. ATWOOD IVES Trustee
- -------------------------------------
J. Atwood Ives
/s/ LAWRENCE T. PERERA Trustee
- -------------------------------------
Lawrence T. Perera
/s/ WILLIAM J. POORVU Trustee
- -------------------------------------
William J. Poorvu
/s/ CHARLES W. SCHMIDT Trustee
- -------------------------------------
Charles W. Schmidt
/s/ ARNOLD D. SCOTT Trustee
- -------------------------------------
Arnold D. Scott
/s/ JEFFREY L. SHAMES Trustee
- -------------------------------------
Jeffrey L. Shames
/s/ ELAINE R. SMITH Trustee
- -------------------------------------
Elaine R. Smith
/s/ DAVID B. STONE Trustee
- -------------------------------------
David B. Stone
/s/ W. THOMAS LONDON Principal Financial and Accounting
- ------------------------------------- Officer
W. Thomas London
<PAGE>
<TABLE>
<CAPTION>
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION OF EXHIBIT PAGE NO.
<C> <S> <C>
1 Amended and Restated Declaration of Trust, dated December 21, 1994.
2 Amended and Restated By-Laws, dated December 21, 1994.
5 (a) Investment Advisory Agreement for MFS Total Return Fund,
a series of the Trust, dated January 18, 1985.
(b) Amendment No. 1 to Investment Advisory Agreement, dated
November 19, 1985.
(c) Investment Advisory Agreement for MFS Research Fund, a
Series of the Trust, dated September 1, 1993.
6 (a) Distribution Agreement between the Trust and MFS Fund
Distributors, Inc., dated January 1, 1995.
7 Retirement Plan for Non-Interested Person Trustees, dated
January 1, 1991.
8 (a) Custodian Contract between Registrant and Investors Bank
and Trust Company, dated October 1, 1991.
(b) Amendment No. 1 to Custodian Contract, dated April 21, 1992.
9 (a) Shareholder Servicing Agent Agreement between the Registrant and
Massachusetts Financial Service Center, Inc., dated August 1, 1985.
(b) Amendment to Shareholder Servicing Agent Agreement, dated December
28, 1993.
(e) Agreement and Plan of Reorganization dated January 15, 1985 between
Registrant and Massachusetts Financial Development Fund, Inc.
(f) Dividend Disbursing Agency Agreement dated February 1, 1986.
11 Consent of Deloitte & Touche LLP - MFS Total Return Fund
and MFS Research Fund.
15 (a) Amended and Restated Distribution Plan for MFS Total Return Fund,
dated December 21, 1994 for Class A shares.
(b) Distribution Plan for MFS Total Return Fund dated August 23, 1993,
for Class B shares.
(c) Distribution Plan for MFS Total Return Fund dated July 20, 1994 for
Class C shares.
(d) Distribution Plan for MFS Research Fund, dated September 1, 1993 for
Class A shares.
(e) Distribution Plan for MFS Research Fund dated September 1, 1993, for
Class B shares.
(f) Distribution Plan for MFS Research Fund dated December 28, 1993, for
Class C shares.
Power of Attorney dated September 21, 1994.
</TABLE>
EXHIBIT NO. 99.1(a)
MFS SERIES TRUST V
------------------
AMENDED AND RESTATED
DECLARATION OF TRUST
DECEMBER 21, 1994
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I -- NAME AND DEFINITIONS
Section 1.1 Name 1
Section 1.2 Definitions 2
ARTICLE II -- TRUSTEES
Section 2.1 Number of Trustees 3
Section 2.2 Term of Office of Trustees 3
Section 2.3 Resignation and Appointment of Trustees 4
Section 2.4 Vacancies 4
Section 2.5 Delegation of Power to Other Trustees 5
ARTICLE III -- POWERS OF TRUSTEES
Section 3.1 General 5
Section 3.2 Investments 5
Section 3.3 Legal Title 6
Section 3.4 Issuance and Repurchase of Securities 7
Section 3.5 Borrowing Money; Lending Trust Assets 7
Section 3.6 Delegation; Committees 7
Section 3.7 Collection and Payment 7
Section 3.8 Expenses 7
Section 3.9 Manner of Acting; By-Laws 7
Section 3.10 Miscellaneous Powers 8
Section 3.11 Principal Transactions 9
Section 3.12 Trustees and Officers as Shareholders 9
ARTICLE IV -- INVESTMENT ADVISER, DISTRIBUTOR AND TRANSFER AGENT
Section 4.1 Investment Adviser 10
Section 4.2 Distributor 10
Section 4.3 Transfer Agent 10
Section 4.4 Parties to Contract 11
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE V -- LIMITATIONS OF LIABILITY OF SHAREHOLDERS, TRUSTEES AND OTHERS
Section 5.1 No Personal Liability of Shareholders,
Trustees, etc. 11
Section 5.2 Non-Liability of Trustees, etc. 12
Section 5.3 Mandatory Indemnification 12
Section 5.4 No Bond Required of Trustees 14
Section 5.5 No Duty of Investigation; Notice in Trust
Instruments, etc. 14
Section 5.6 Reliance on Experts, etc. 15
ARTICLE VI -- SHARES OF BENEFICIAL INTEREST
Section 6.1 Beneficial Interest 15
Section 6.2 Rights of Shareholders 15
Section 6.3 Trust Only 15
Section 6.4 Issuance of Shares 16
Section 6.5 Register of Shares 16
Section 6.6 Transfer of Shares 16
Section 6.7 Notices 17
Section 6.8 Voting Powers 17
Section 6.9 Series Designation 18
Section 6.10 Class Designation 20
ARTICLE VII -- REDEMPTIONS
Section 7.1 Redemptions 20
Section 7.2 Suspension of Right of Redemption 21
Section 7.3 Redemption of Shares; Disclosure of Holding 21
ARTICLE VIII -- DETERMINATION OF NET ASSET VALUE,
NET INCOME AND DISTRIBUTIONS 22
ARTICLE IX -- DURATION; TERMINATION OF TRUST; AMENDMENT; MERGERS, ETC.
Section 9.1 Duration 22
Section 9.2 Termination of Trust 22
Section 9.3 Amendment Procedure 23
Section 9.4 Merger, Consolidation and Sale of Assets 24
Section 9.5 Incorporation 24
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE X -- REPORTS TO SHAREHOLDERS AND SHAREHOLDER COMMUNICATIONS 25
ARTICLE XI -- MISCELLANEOUS
Section 11.1 Filing 26
Section 11.2 Governing Law 26
Section 11.3 Counterparts 26
Section 11.4 Reliance by Third Parties 26
Section 11.5 Provisions in Conflict with Law or
Regulations 27
ANNEX A 28
ANNEX B 29
SIGNATURE PAGE 30
<PAGE>
AMENDED AND RESTATED
DECLARATION OF TRUST
OF
MFS SERIES TRUST V
500 Boylston Street
Boston, Massachusetts 02116
AMENDED AND RESTATED DECLARATION OF TRUST, made as of this 21st day of
December, 1994 by the Trustees hereunder.
WHEREAS, the Trust was established pursuant to a Declaration of Trust
dated November 7, 1984 for the investment and reinvestment of funds contributed
thereto; and
WHEREAS, the Trustees desire that the beneficial interest in the trust
assets continue to be divided into transferable Shares of Beneficial Interest
(without par value) issued in one or more series, as hereinafter provided; and
WHEREAS, the Declaration of Trust has been, from time to time, amended
in accordance with the provisions of the Declaration; and
WHEREAS, the Trustees now desire further to amend and to restate the
Declaration of Trust and hereby certify, as provided in Section 11.1 of the
Declaration, that this Amended and Restated Declaration of Trust has been
further amended and restated in accordance with the provisions of the
Declaration;
NOW THEREFORE, the Trustees hereby confirm that all money and property
contributed to the trust established hereunder shall be held and managed in
trust for the benefit of holders, from time to time, of the shares of Beneficial
Interest (without par value) issued hereunder and subject to the provisions
hereof.
ARTICLE I
NAME AND DEFINITIONS
Section 1.1 - Name. The name of the trust created hereby is the MFS
Series Trust V, the current address of which is 500 Boylston Street, Boston,
Massachusetts 02116.
Section 1.2 - Definitions. Wherever they are used herein, the following
terms have the following respective meanings:
(a) "By-Laws" means the By-Laws referred to in Section 3.9 hereof, as
from time to time amended.
(b) the terms "Commission," "Interested Person" and "Majority
Shareholder Vote" (the 67% or 50% requirement of the third sentence of Section
2(a)(42) of the 1940 Act, whichever may be applicable) have the meanings given
them in the 1940 Act, except to the extent that the Trustees have otherwise
defined "Majority Shareholder Vote" in conjunction with the establishment of any
series of Shares.
(c) "Declaration" means this Declaration of Trust as amended from time
to time. Reference in this Declaration of Trust to "Declaration," "hereof,"
"herein" and "hereunder" shall be deemed to refer to this Declaration rather
than the article or section in which such words appear.
(d) "Distributor" means the party, other than the Trust, to the
contract described in Section 4.2 hereof.
(e) "Investment Adviser" means a party furnishing services to the Trust
pursuant to any contract described in Section 4.1 hereof.
(f) the "1940 Act" means the Investment Company Act of 1940 and the
Rules and Regulations thereunder, as amended from time to time.
(g) "Person" means and includes individuals, corporations,
partnerships, trusts, associations, joint ventures and other entities, whether
or not legal entities, and governments and agencies and political subdivisions
thereof, whether domestic or foreign.
(h) "Shareholder" means a record owner of outstanding Shares.
(i) "Shares" means the units of interest into which the beneficial
interest in the Trust shall be divided from time to time, including the Shares
of any and all series which may be established by the Trustees, and includes
fractions of Shares as well as whole Shares.
(j) "Transfer Agent" means the party, other than the Trust, to a
contract described in Section 4.3 hereof.
(k) the "Trust" means MFS Series Trust V.
(l) the "Trust Property" means any and all property, real or personal,
tangible or intangible, which is owned or held by or for the account of the
Trust or the Trustees.
(m) the "Trustees" means the persons who have signed the Declaration,
so long as they shall continue in office in accordance with the terms hereof,
and all other persons who may from time to time be duly elected, qualified and
serving as Trustees in accordance with the provisions hereof, and reference
herein to a Trustee or the Trustees shall refer to such person or persons in
their capacity as trustees hereunder.
ARTICLE II
TRUSTEES
Section 2.1 - Number of Trustees. The number of Trustees shall be such
number as shall be fixed from time to time by a written instrument signed by a
majority of the Trustees, provided, however, that the number of Trustees shall
in no event be less than three (3) nor more than fifteen (15).
Section 2.2 - Term of Office of Trustees. Subject to the provisions of
Section 16(a) of the 1940 Act, the Trustees shall hold office during the
lifetime of this Trust and until its termination as hereinafter provided;
except:
(a) that any Trustee may resign his trust (without need for prior or
subsequent accounting) by an instrument in writing signed by him and delivered
to the other Trustees, which shall take effect upon such delivery or upon such
later date as is specified therein;
(b) that any Trustee may be removed (provided the aggregate number of
Trustees after such removal shall not be less than the number required by
Section 2.1 hereof) with cause, at any time by written instrument, signed by at
least two-thirds of the remaining Trustees, specifying the date when such
removal shall become effective;
(c) that any Trustee who requests in writing to be retired or who has
become incapacitated by illness or injury may be retired by written instrument
signed by a majority of the other Trustees, specifying the date of his
retirement; and
(d) a Trustee may be removed at any meeting of Shareholders by a vote
of two-thirds of the outstanding Shares. Upon the resignation or removal of a
Trustee, or his otherwise ceasing to be a Trustee, he shall execute and deliver
such documents as the remaining Trustees shall require for the purpose of
conveying to the Trust or the remaining Trustees any Trust Property held in the
name of the resigning or removed Trustee. Upon the incapacity or death of any
Trustee, his legal representative shall execute and deliver on his behalf such
documents as the remaining Trustees shall require as provided in the preceding
sentence.
Section 2.3 - Resignation and Appointment of Trustees. In case of the
declination, death, resignation, retirement, removal or inability of any of the
Trustees, or in case a vacancy shall, by reason of an increase in number, or for
any other reason, exist, the remaining Trustees shall fill such vacancy by
appointing such other person as they in their discretion shall see fit. Such
appointment shall be evidenced by a written instrument signed by a majority of
the Trustees in office. Any such appointment shall not become effective,
however, until the person named in the written instrument of appointment shall
have accepted in writing such appointment and agreed in writing to be bound by
the terms of the Declaration. Within twelve months of such appointment, the
Trustees shall cause notice of such appointment to be mailed to each Shareholder
at his address as recorded on the books of the Trustees. An appointment of a
Trustee may be made by the Trustees then in office and notice thereof mailed to
Shareholders as aforesaid in anticipation of a vacancy to occur by reason of
retirement, resignation or increase in number of Trustees effective at a later
date, provided that said appointment shall become effective only at or after the
effective date of said retirement, resignation or increase in number of
Trustees. The power of appointment is subject to the provisions of Section 16(a)
of the 1940 Act.
Section 2.4 - Vacancies. The death, declination, resignation,
retirement, removal or incapacity of the Trustees, or any one of them, shall not
operate to annul the Trust or to revoke any existing agency created pursuant to
the terms of this Declaration. Whenever a vacancy in the number of Trustees
shall occur, until such vacancy if filled as provided in Section 2.3, the
Trustees in office, regardless of their number, shall have all the powers
granted to the Trustees and shall discharge all the duties imposed upon the
Trustees by the Declaration. A written instrument certifying the existence of
such vacancy signed by a majority of the Trustees shall be conclusive evidence
of the existence of such vacancy.
Section 2.5 - Delegation of Power to Other Trustees. Any Trustee may,
by power of attorney, delegate his power for a period not exceeding six (6)
months at any one time to any other Trustee or Trustees; provided that in no
case shall less than two (2) Trustees personally exercise the powers granted to
the Trustees under the Declaration except as herein otherwise expressly
provided.
ARTICLE III
POWERS OF TRUSTEES
Section 3.1 - General. The Trustees shall have exclusive and absolute
control over the Trust Property and over the business of the Trust to the same
extent as if the Trustees were the sole owners of the Trust Property and
business in their own right, but with such powers of delegation as may be
permitted by the Declaration. The Trustees shall have power to conduct the
business of the Trust and carry on its operations in any and all of its branches
and maintain offices both within and without The Commonwealth of Massachusetts,
in any and all states of the United States of America, in the District of
Columbia, and in any and all commonwealths, territories, dependencies, colonies,
possessions, agencies or instrumentalities of the United States of America and
of foreign governments, and to do all such other things and execute all such
instruments as the Trustees deem necessary, proper or desirable in order to
promote the interests of the Trust although such things are not herein
specifically mentioned. Any determination as to what is in the interests of the
Trust made by the Trustees in good faith shall be conclusive. In construing the
provisions of the Declaration, the presumption shall be in favor of a grant of
power to the Trustees.
The enumeration of any specific power herein shall not be construed as
limiting the aforesaid power. Such powers of the Trustees may be exercised
without order of or resort to any court.
Section 3.2 - Investments. The Trustees shall have the power to:
(a) conduct, operate and carry on the business of an investment
company;
(b) subscribe for, invest in, reinvest in, purchase or otherwise
acquire, own, hold, pledge, sell, assign, transfer, exchange, distribute, lend
or otherwise deal in or dispose of U.S. and foreign currencies, any form of gold
and other precious metals, commodity contracts,
contracts for the future acquisition or delivery of fixed income or other
securities, and securities of every nature and kind, including, without
limitation, all types of bonds, debentures, stocks, negotiable or non-negotiable
instruments, obligations, evidences of indebtedness, certificates of deposit or
indebtedness, commercial paper, repurchase agreements, bankers' acceptances, and
other securities of any kind, issued, created, guaranteed or sponsored by any
and all Persons, including, without limitation, states, territories and
possessions of the United States and the District of Columbia and any political
subdivision, agency or instrumentality of any such Person, or by the U.S.
Government, any foreign government, any political subdivision or any agency of
instrumentality of the U.S. Government, any foreign government or any political
subdivision of the U.S. Government or any foreign government, or any
international instrumentality, or by any bank or savings institution, or by any
corporation or organization organized under the laws of the United States or of
any state, territory or possession thereof, or by any corporation or
organization organized under any foreign law, or in "when issued" contracts for
any such securities, or retain Trust assets in cash and from time to time change
the investments of the assets of the Trust; and to exercise any and all rights,
powers and privileges of ownership or interest in respect of any and all such
investments of every kind and description, including, without limitation, the
right to consent and otherwise act with respect thereto, with power to designate
one or more persons, firms, associations or corporations to exercise any of said
rights, powers and privileges in respect of any of said instruments.
The Trustees shall not be limited to investing in obligations maturing
before the possible termination of the Trust, nor shall the Trustees be limited
by any law limiting the investments which may be made by fiduciaries.
Section 3.3 - Legal Title. Legal title to all the Trust Property shall
be vested in the Trustees as joint tenants except that the Trustees shall have
power to cause legal title to any Trust Property to be held by or in the name of
one or more of the Trustees, or in the name of the Trust, or in the name of any
other Person or nominee, on such terms as the Trustees may determine. The right,
title and interest of the Trustees in the Trust Property shall vest
automatically in each Person who may hereafter become a Trustee. Upon the
resignation, removal or death of a Trustee he shall automatically cease to have
any right, title or interest in any of the Trust Property, and the right, title
and interest of such Trustee in the Trust Property shall vest automatically in
the remaining Trustees. Such vesting and cessation of title shall be effective
whether or not conveyancing documents have been executed and delivered.
Section 3.4 - Issuance and Repurchase of Securities. The Trustees shall
have the power to issue, sell, repurchase, redeem, retire, cancel, acquire,
hold, resell, reissue, dispose of, transfer, and otherwise deal in Shares and,
subject to the provisions set forth in Articles VII, VIII and IX and Section 6.9
hereof, to apply to any such repurchase, redemption, retirement, cancellation or
acquisition of Shares any funds or property of the Trust whether capital or
surplus or otherwise, to the full extent now or hereafter permitted by the laws
of The Commonwealth of Massachusetts governing business corporations.
Section 3.5 - Borrowing Money; Lending Trust Assets. The Trustees shall
have power to borrow money or otherwise obtain credit and to secure the same by
mortgaging, pledging or otherwise subjecting as security the assets of the
Trust, to endorse, guarantee, or undertake the performance of any obligation,
contract or engagement of any other Person and to lend Trust assets.
Section 3.6 - Delegation; Committees. The Trustees shall have power to
delegate from time to time to such of their number or to officers, employees or
agents of the Trust the doing of such things and the execution of such
instruments either in the name of the Trust or the names of the Trustees or
otherwise as the Trustees may deem expedient.
Section 3.7 - Collection and Payment. The Trustees shall have power to
collect all property due to the Trust; to pay all claims, including taxes,
against the Trust Property; to prosecute, defend, compromise or abandon any
claims relating to the Trust Property; to foreclose any security interest
securing any obligations, by virtue of which any property is owed to the Trust;
and to enter into releases, agreements and other instruments.
Section 3.8 - Expenses. The Trustees shall have the power to incur and
pay any expenses which in the opinion of the Trustees are necessary or
incidental to carry out any of the purposes of the Declaration, and to pay
reasonable compensation from the funds of the Trust to themselves as Trustees.
The Trustees shall fix the compensation of all officers, employees and Trustees.
Section 3.9 - Manner of Acting; By-Laws. Except as otherwise provided
herein or in the By-Laws, any action to be taken by the Trustees may be taken by
a majority of the Trustees present at a meeting of Trustees (a quorum being
present), including any meeting held by means of a conference telephone circuit
or similar communications equipment by means of which all persons participating
in the meeting can hear each other, or by written consents of all the Trustees.
The Trustees may adopt By-Laws not inconsistent with this Declaration to provide
for the conduct of the business of the Trust and may amend or repeal such
By-Laws to the extent such power is not reserved to the Shareholders.
Section 3.10 - Miscellaneous Powers. The Trustees shall have the power
to:
(a) employ or contract with such Persons as the Trustees may deem
desirable for the transaction of the business of the Trust;
(b) enter into joint ventures, partnerships and any other combinations
or associations;
(c) remove Trustees or fill vacancies in or add to their number, elect
and remove such officers and appoint and terminate such agents or employees as
they consider appropriate, and appoint from their own number, and terminate, any
one or more committees which may exercise some or all of the power and authority
of the Trustees as the Trustees may determine;
(d) purchase, and pay for out of Trust Property, insurance policies
insuring the Shareholders, Trustees, officers, employees, agents, investment
advisers, distributors, selected dealers or independent contractors of the Trust
against all claims arising by reason of holding any such position or by reason
of any action taken or omitted by any such Person in such capacity, whether or
not constituting negligence, or whether or not the Trust would have the power to
indemnify such Person against such liability;
(e) establish pension, profit-sharing, share purchase, and other
retirement, incentive and benefit plans for any Trustees, officers, employees or
agents of the Trust;
(f) to the extent permitted by law, indemnify any person with whom the
Trust has dealings, including the Investment Adviser, Distributor, Transfer
Agent and any dealer, to such extent as the Trustees shall determine;
(g) guarantee indebtedness or contractual obligations of others;
(h) determine and change the fiscal year of the Trust and the method by
which its accounts shall be kept; and
(i) adopt a seal for the Trust but the absence of such seal shall not
impair the validity of any instrument executed on behalf of the Trust.
Section 3.11 - Principal Transactions. Except in transactions permitted
by the 1940 Act, or any order of exemption issued by the Commission, the
Trustees shall not, on behalf of the Trust, buy any securities (other than
Shares) from or sell any securities (other than Shares) to, or lend any assets
of the Trust to, any Trustee or officer of the Trust or any firm of which any
such Trustee or officer is a member acting as principal, or have any such
dealings with the Investment Adviser, Distributor or Transfer Agent or with any
Interested Person of such Person; but the Trust may employ any such Person, or
firm or company in which such Person is an Interested Person, as broker, legal
counsel, registrar, transfer agent, dividend disbursing agent or custodian upon
customary terms.
Section 3.12 - Trustees and Officers as Shareholders. Except as
hereinafter provided, no officer, Trustee or Member of the Advisory Board of the
Trust, and no member, partner, officer, director or trustee of the Investment
Adviser or of the Distributor, and no Investment Adviser or Distributor of the
Trust, shall take long or short positions in the securities issued by the Trust.
The foregoing provision shall not prevent:
(a) The Distributor from purchasing Shares from the Trust if such
purchases are limited (except for reasonable allowances for clerical errors,
delays and errors of transmission and cancellation of orders) to purchases for
the purpose of filling orders for Shares received by the Distributor and
provided that orders to purchase from the Trust are entered with the Trust or
the Custodian promptly upon receipt by the Distributor of purchase orders for
Shares, unless the Distributor is otherwise instructed by its customer;
(b) The Distributor from purchasing Shares as agent for the account of
the Trust;
(c) The purchase from the Trust or from the Distributor of Shares by
any officer, Trustee or member of the Advisory Board of the Trust or by any
member, partner, officer, director or trustee of the Investment Adviser or of
the Distributor at a price not lower than the net asset value of the Shares at
the moment of such purchase, provided that any such sales are only to be made
pursuant to a uniform offer described in the Trust's current prospectus; or
(d) The Investment Adviser, the Distributor, or any of their officers,
partners, directors or trustees from purchasing Shares prior to the effective
date of the Registration Statement relating to the Shares under the Securities
Act of 1933, as amended.
ARTICLE IV
INVESTMENT ADVISER, DISTRIBUTOR AND TRANSFER AGENT
Section 4.1 - Investment Adviser. Subject to a Majority Shareholder
Vote, the Trustees may in their discretion from time to time enter into one or
more investment advisory or management contracts whereby a party to such
contract shall undertake to furnish the Trust such management, investment
advisory, statistical and research facilities and services, promotional
activities, and such other facilities and services, if any, as the Trustees
shall from time to time consider desirable and all upon such terms and
conditions as the Trustees may in their discretion determine. Notwithstanding
any provision of the Declaration, the Trustees may delegate to the Investment
Adviser authority (subject to such general or specific instructions as the
Trustees may from time to time adopt) to effect purchases, sales, loans or
exchanges of assets of the Trust on behalf of the Trustees or may authorize any
officer, employee or Trustee to effect such purchases, sales, loans or exchanges
pursuant to recommendations of the Investment Adviser (and all without further
action by the Trustees). Any such purchases, sales, loans or exchanges shall be
deemed to have been authorized by all of the Trustees.
Section 4.2 - Distributor. The Trustees may in their discretion from
time to time enter into a contract, providing for the sale of Shares whereby the
Trust may either agree to sell the Shares to the other party to the contract or
appoint such other party its sales agent for such Shares. In either case, the
contract shall be on such terms and conditions as the Trustees may in their
discretion determine not inconsistent with the provisions of this Article IV or
the By-Laws; and such contract may also provide for the repurchase or sale of
Shares by such other party as principal or as agent of the Trust and may provide
that such other party may enter into selected dealer agreements with registered
securities dealers to further the purpose of the distribution or repurchase of
the Shares.
Section 4.3 - Transfer Agent. The Trustees may in their discretion from
time to time enter into a transfer agency and shareholder service contract or
contracts whereby the other party or parties to such contract or contracts shall
undertake to furnish transfer agency and/or shareholder services. The contract
or contracts shall have such terms and conditions as the Trustees may in their
discretion determine not inconsistent with the Declaration or the By-Laws. Such
services may be provided by one or more Persons.
Section 4.4 - Parties to Contract. Any contract of the character
described in Section 4.1, 4.2 or 4.3 of this Article IV or any Custodian
contract, as described in the By-Laws, may be entered into with any Person,
although one or more of the Trustees or officers of the Trust may be an officer,
partner, director, trustee, shareholder, or member of such other party to the
contract, and no such contract shall be invalidated or rendered voidable by
reason of the existence of any such relationship; nor shall any Person holding
such relationship be liable merely by reason of such relationship for any loss
or expense to the Trust under or by reason of said contract or accountable for
any profit realized directly or indirectly therefrom, provided that the contract
when entered into was not inconsistent with the provisions of this Article IV or
the By-Laws. The same Person may be the other party to contracts entered into
pursuant to Sections 4.1, 4.2 and 4.3 above or Custodian contracts, and any
individual may be financially interested or otherwise affiliated with Persons
who are parties to any or all of the contracts mentioned in this Section 4.4.
ARTICLE V
LIMITATIONS OF LIABILITY OF SHAREHOLDERS,
TRUSTEES AND OTHERS
Section 5.1 - No Personal Liability of Shareholders, Trustees, etc. No
Shareholder shall be subject to any personal liability whatsoever to any Person
in connection with Trust Property or the acts, obligations or affairs of the
Trust. No Trustee, officer, employee or agent of the Trust shall be subject to
any personal liability whatsoever to any Person, other than the Trust or its
Shareholders, in connection with Trust Property or the affairs of the Trust,
save only that arising from bad faith, willful misfeasance, gross negligence or
reckless disregard for his duty to such Person; and all such Persons shall look
solely to the Trust Property for satisfaction of claims of any nature arising in
connection with the affairs of the Trust. If any Shareholder, Trustee, officer,
employee, or agent, as such, of the Trust, is made a party to any suit or
proceeding to enforce any such liability, he shall not, on account thereof, be
held to any personal liability. The Trust shall indemnify and hold each
Shareholder harmless from and against all claims and liabilities to which such
Shareholder may become subject by reason of his being or having been a
Shareholder, and shall reimburse such Shareholder for all legal and other
expenses reasonably incurred by him in connection with any such claim or
liability. The rights accruing to a Shareholder under this Section 5.1 shall not
exclude any other right to which such Shareholder may be lawfully entitled, nor
shall anything herein contained restrict the right of the Trust to indemnify or
reimburse a Shareholder in any appropriate situation even though not
specifically provided herein.
Section 5.2 - Non-Liability of Trustees, etc. No Trustee, officer,
employee or agent of the Trust shall be liable to the Trust, its Shareholders,
or to any Shareholder, Trustee, officer, employee, or agent thereof for any
action or failure to act (including without limitation the failure to compel in
any way any former or acting Trustee to redress any breach of trust) except for
his own bad faith, willful misfeasance, gross negligence or reckless disregard
of his duties.
Section 5.3 - Mandatory Indemnification.
(a) Subject to the exceptions and limitations contained in paragraph
(b) below:
(i) every person who is or has been a Trustee or officer of the Trust
shall be indemnified by the Trust to the fullest extent permitted by law against
all liability and against all expenses reasonably incurred or paid by him in
connection with any claim, action, suit or proceeding in which he becomes
involved as a party or otherwise by virtue of his being or having been a Trustee
or officer and against amounts paid or incurred by him in the settlement
thereof;
(ii) the words "claim," "action," "suit," or "proceeding" shall apply
to all claims, actions, suits or proceedings (civil, criminal or other,
including appeals), actual or threatened; and the words "liability" and
"expenses" shall include, without limitation, attorneys' fees, costs, judgments,
amounts paid in settlement, fines, penalties and other liabilities.
(b) No indemnification shall be provided hereunder to a Trustee or
officer:
(i) against any liability to the Trust or the Shareholders by reason of
a final adjudication by the court or other body before which the proceeding was
brought that he engaged in willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office;
(ii) with respect to any matter as to which he shall have been finally
adjudicated not to have acted in good faith in the reasonable belief that his
action was in the best interest of the Trust; or
(iii) in the event of a settlement involving a payment by a Trustee or
officer or other disposition not involving a final adjudication as provided in
paragraph (b) (i) or (b) (ii) above resulting in a payment by a Trustee or
officer, unless there has been either a determination that such Trustee or
officer did not engage in wilful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office by the
court or other body approving the settlement or other disposition or by a
reasonable determination, based upon a review of readily available facts (as
opposed to a full trial-type inquiry) that he did not engage in such conduct:
(A) by vote of a majority of the Disinterested Trustees acting on the
matter (provided that a majority of the Disinterested Trustees then in
office act on the matter); or
(B) by vote of a majority of the outstanding shares of the Trust not
including any shares owned by any affiliated person of the Trust; or
(C) by written opinion of independent counsel, provided, however, that
any shareholder may, by appropriate legal proceeding, challenge any
such determination by the Board of Directors, or by independent
counsel.
(c) The rights of indemnification herein provided may be insured
against by policies maintained by the Trust, shall be severable, shall not
affect any other rights to which any Trustee or officer may now or hereafter be
entitled, shall continue as to a Person who has ceased to be such Trustee or
officer and shall inure to the benefit of the heirs, executors and
administrators of such Person. Nothing contained herein shall affect any rights
to indemnification to which personnel other than Trustees and officers may be
entitled by contract or otherwise under law.
(d) Expenses of preparation and presentation of a defense to any claim,
action, suit or proceeding of the character described in paragraph (a) of this
Section 5.3 shall be advanced by the Trust prior to final disposition thereof
upon receipt of an undertaking by or on behalf of the recipient to repay such
amount if it is ultimately determined that he is not entitled to indemnification
under this Section 5.3, provided that either:
(i) such undertaking is secured by a surety bond or some other
appropriate security or the Trust shall be insured against losses arising out of
any such advances; or
(ii) a majority of the Disinterested Trustees acting on the matter
(provided that a majority of the Disinterested Trustees then in office act on
the matter) or an independent legal counsel in a written opinion, shall
determine, based upon a review of readily available facts (as opposed to a full
trial-type inquiry), that there is reason to believe that the recipient
ultimately will be found entitled to indemnification.
As used in this Section 5.3, a "Disinterested Trustee" is one (i) who
is not an "Interested Person" of the Trust (including anyone who has been
exempted from being an "Interested Person" by any rule, regulation or order of
the Commission), and (ii) against whom none of such actions, suits or other
proceedings or another action, suit or other proceeding on the same or similar
grounds is then or had been pending.
Section 5.4 - No Bond Required of Trustees. No Trustee shall be
obligated to give any bond or other security for the performance of any of his
duties hereunder.
Section 5.5 - No Duty of Investigation; Notice in Trust Instruments,
etc. No purchaser, lender, Transfer Agent or other Person dealing with the
Trustees or any officer, employee or agent of the Trust shall be bound to make
any inquiry concerning the validity of any transaction purporting to be made by
the Trustees or by said officer, employee or agent or be liable for the
application of money or property paid, loaned, or delivered to or on the order
of the Trustees or of said officer, employee or agent. Every obligation,
contract, instrument, certificate, Share, other security of the Trust or
undertaking, and every other act or thing whatsoever executed in connection with
the Trust shall be conclusively presumed to have been executed or done by the
executors thereof only in their capacity as Trustees under the Declaration or in
their capacity as officers, employees or agents of the Trust. Every written
obligation, contract, instrument, certificate, Share, other security of the
Trust or undertaking made or issued by the Trustees shall recite that the same
is executed or made by them not individually, but as Trustees under the
Declaration, and that the obligations of any such instrument are not binding
upon any of the Trustees or Shareholders individually, but bind only the trust
estate, and may contain any further recital which they or he may deem
appropriate, but the omission of such recital shall not operate to bind any of
the Trustees or Shareholders individually. The Trustees shall at all times
maintain insurance for the protection of the Trust Property, the Trust's
Shareholders, Trustees, officers, employees and agents in such amount as the
Trustees shall deem adequate to cover possible tort liability, and such other
insurance as the Trustees in their sole judgment shall deem advisable.
Section 5.6 - Reliance on Experts, etc. Each Trustee and officer or
employee of the Trust shall, in the performance of his duties, be fully and
completely justified and protected with regard to any act or any failure to act
resulting from reliance in good faith upon the books of account or other records
of the Trust, upon an opinion of counsel, or upon reports made to the Trust by
any of its officers or employees or by the Investment Adviser, the Distributor,
Transfer Agent, selected dealers, accountants, appraisers or other experts or
consultants selected with reasonable care by the Trustees, officers or employees
of the Trust, regardless of whether such counsel or expert may also be a
Trustee.
ARTICLE VI
SHARES OF BENEFICIAL INTEREST
Section 6.1 - Beneficial Interest. The interest of the beneficiaries
hereunder shall be divided into transferable Shares of Beneficial Interest
(without par value). The number of Shares authorized hereunder is unlimited. All
Shares issued hereunder including, without limitation, Shares issued in
connection with a dividend in Shares or a split of Shares, shall be fully paid
and non-assessable.
Section 6.2 - Rights of Shareholders. The ownership of the Trust
property of every description and the right to conduct any business hereinbefore
described are vested exclusively in the Trustees, and the Shareholders shall
have no interest therein other than the beneficial interest conferred by their
Shares, and they shall have no right to call for any partition or division of
any property, profits, rights or interests of the Trust nor can they be called
upon to assume any losses of the Trust or suffer an assessment of any kind by
virtue of their ownership of Shares. The Shares shall be personal property
giving only the rights specifically set forth in the Declaration. The Shares
shall not entitle the holder to preference, preemptive, appraisal, conversion or
exchange rights, except as the Trustees may determine with respect to any series
or class of Shares.
Section 6.3 - Trust Only. It is the intention of the Trustees to create
only the relationship of Trustee and beneficiary between the Trustees and each
Shareholder from time to time. It is not the intention of the Trustees to create
a general partnership, limited partnership, joint stock association,
corporation, bailment or any form or legal relationship other than a trust.
Nothing in the Declaration shall be construed to make the Shareholders, either
by themselves or with the Trustees, partners or members of a joint stock
association.
Section 6.4 - Issuance of Shares. The Trustees, in their discretion
may, from time to time without vote of the Shareholders, issue Shares, in
addition to the then issued and outstanding Shares and Shares held in the
treasury, to such party or parties and for such amount and type of
consideration, including cash or property, at such time or times, and on such
terms as the Trustees may deem best, and may in such manner acquire other assets
(including the acquisition of assets subject to, and in connection with the
assumption of liabilities) and businesses. In connection with any issuance of
Shares, the Trustees may issue fractional Shares. The Trustees may from time to
time divide or combine the Shares into a greater or lesser number without
thereby changing the proportionate beneficial interests in the Trust.
Contributions to the Trust may be accepted for, and Shares shall be redeemed as,
whole Shares and/or 1/1,000ths of a Share or integral multiples thereof.
Section 6.5 - Register of Shares. A register shall be kept at the
principal office of the Trust or at an office of the Transfer Agent which shall
contain the names and addresses of the Shareholders and the number of Shares
held by them respectively and a record of all transfers thereof. Such register
shall be conclusive as to who are the holders of the Shares and who shall be
entitled to receive dividends or distributions or otherwise to exercise or enjoy
the rights of Shareholders. No Shareholder shall be entitled to receive payment
of any dividend or distribution, nor to have notice given to him as herein or in
the By-Laws provided, until he has given his address to the Transfer Agent or
such other officer or agent of the Trustees as shall keep the said register for
entry thereon. It is not contemplated that certificates will be issued for the
Shares; however, the Trustees, in their discretion, may authorize the issuance
of Share certificates and promulgate appropriate rules and regulations as to
their use.
Section 6.6 - Transfer of Shares. Shares shall be transferable on the
records of the Trust only by the record holder thereof or by his agent thereunto
duly authorized in writing, upon delivery to the Trustees or the Transfer Agent
of a duly executed instrument of transfer, together with any certificate or
certificates (if issued) for such Shares and such evidence of the genuineness of
each such execution and authorization and of other matters as may reasonably be
required. Upon such delivery the transfer shall be recorded on the register of
the Trust. Until such record is made, the Shareholder of record shall be deemed
to be the holder of such shares for all purposes hereunder and neither the
Trustees nor any Transfer Agent or registrar nor any officer, employee or agent
of the Trust shall be affected by any notice of the proposed transfer.
Any person becoming entitled to any Shares in consequence of death,
bankruptcy, or incompetence of any Shareholder, or otherwise by operation of
law, shall be recorded on the register of Shares as the holder of such Shares
upon production of the proper evidence thereof to the Trustees or the Transfer
Agent; but until such record is made, the Shareholder of record shall be deemed
to be the holder of such Shares for all purposes hereunder and neither the
Trustees nor any Transfer Agent or registrar nor any officer or agent of the
Trust shall be affected by any notice of such death, bankruptcy or incompetence,
or other operation of law.
Section 6.7 - Notices. Any and all notices to which any Shareholder may
be entitled and any and all communications shall be deemed duly served or given
if mailed, postage prepaid, addressed to any Shareholder of record at his last
known address as recorded on the register of the Trust.
Section 6.8 - Voting Powers. The Shareholders shall have power to vote
only (i) for the election of Trustees as provided in Section 2.2 hereof, (ii)
with respect to any investment advisory or management contract as provided in
Section 4.1., (iii) with respect to termination of the Trust as provided in
Section 9.2 hereof, (iv) with respect to any amendment of the Declaration to the
extent and as provided in Section 9.3 hereof, (v) with respect to any merger,
consolidation or sale of assets as provided in Sections 9.4 hereof, (vi) with
respect to incorporation of the Trust to the extent and as provided in Section
9.5 hereof, (vii) to the same extent as the stockholders of a Massachusetts
business corporation as to whether or not a court action, proceeding or claim
should or should not be brought or maintained derivatively or as a class action
on behalf of the Trust of the Shareholders, and (viii) with respect to such
additional matters relating to the Trust as may be required by the Declaration,
the By-Laws or any registration of the Trust with the Commission (or any
successor agency) or any state, or as the Trustees may consider necessary or
desirable. Each whole Share shall be entitled to one vote as to any matter on
which it is entitled to vote and each fractional Share shall be entitled to a
proportionate fractional vote, except that Shares held in the treasury of the
Trust shall not be voted and that the Trustees may, in conjunction with the
establishment of any series of Shares, establish conditions under which the
several series shall have separate voting rights or no voting rights. There
shall be no cumulative voting in the election of Trustees. Until Shares are
issued, the Trustees may exercise all rights of Shareholders and may take any
action required by law, the Declaration or the By-Laws to be taken by
Shareholders. The By-Laws may include further provisions for Shareholders votes
and meetings and related matters.
Section 6.9 - Series Designation. The Trustees, in their discretion,
may authorize the division of Shares into two or more series, and the different
series shall be established and designated, and the variations in the relative
rights and preferences as between the different series shall be fixed and
determined by the Trustees; provided, that all Shares shall be identical except
that there may be variations so fixed and determined between different series as
to purchase price, right of redemption and the price, terms and manner of
redemption, special and relative rights as to dividends and on liquidation,
conversion rights, and conditions under which the several series shall have
separate voting rights. All references to Shares in this Declaration shall be
deemed to be shares of any or all series as the context may require.
If the Trustees shall divide the Shares of the Trust into two or more
series, the following provisions shall be applicable:
(a) The number of authorized shares and the number of shares of each
series that may be issued shall be unlimited. The Trustees may classify or
reclassify any unissued shares or any shares previously issued and reacquired of
any series into one or more series that may be established and designed from
time to time. The Trustees may hold as treasury shares (of the same or some
other series), reissue for such consideration and on such terms as they may
determine, or cancel any shares of any series reacquired by the Trust at their
discretion from time to time.
(b) The power of the Trustees to invest and reinvest the Trust Property
shall be governed by Section 3.2 of this Declaration with respect to any one or
more series which represents the interests in the assets of the Trust
immediately prior to the establishment of two or more series and the power of
the Trustees to invest and reinvest assets applicable to any other series shall
be as set forth in the instrument of the Trustees establishing such series which
is hereinafter described.
(c) All consideration received by the Trust for the issue or sale of
shares of a particular series, together with all assets in which such
consideration is invested or reinvested, all income, earnings, profits, and
proceeds thereof, including any proceeds derived from the sale, exchange or
liquidation of such assets, and any funds or payments derived from any
reinvestment of such proceeds in whatever form the same may be, shall
irrevocably belong to that series for all purposes, subject only to the rights
of creditors, and shall be so recorded upon the books of account of the Trust.
In the event that there are any assets, income, earnings, profits, and proceeds
thereof, funds, or payments which are not readily identifiable as belonging to
any particular series, the Trustees shall allocate them among any one or more of
the series established and designated from time to time in such manner and on
such basis as they, in their sole discretion, deem fair and equitable. Each such
allocation by the Trustees shall be conclusive and binding upon the shareholders
of all series for all purposes.
(d) The assets belonging to each particular series shall be charged
with the liabilities of the Trust in respect of that series and all expenses,
cost, charges and reserves attributable to that series, and any general
liabilities, expenses, costs, charges or reserves of the Trust which are not
readily identifiable as belonging to any particular series shall be allocated
and charged by the Trustees to and among any one or more of the series
established and designated from time to time in such manner and on such basis as
the Trustees in their sole discretion deem fair and equitable. Each allocation
of liabilities, expenses, costs, charges and reserves by the Trustees shall be
conclusive and binding upon the holders of all series for all purposes. The
Trustees shall have full discretion, to the extent not inconsistent with the
1940 Act, to determine which items shall be treated as income and which items as
capital; and each such determination and allocation shall be conclusive and
binding upon the Shareholders.
(e) The power of the Trustees to pay dividends and make distributions
shall be governed by Article VIII of this Trust with respect to any one or more
series which represents the interests in the assets of the Trust immediately
prior to the establishment of two or more series. With respect to any other
series, dividends and distributions on Shares of a particular series may be paid
with such frequency as the Trustees may determine, which may be daily or
otherwise, pursuant to a standing resolution or resolutions adopted only once or
with such frequency as the Trustees may determine, to the holders of Shares of
that series, from such of the income and capital gains, accrued or realized,
from the assets belonging to that series, as the Trustees may determine, after
providing for actual and accrued liabilities belonging to that series. All
dividends and distributions on Shares of a particular series shall be
distributed pro rata to the holders of that series in proportion to the number
of Shares of that series held by such holders at the date and time of record
established for the payment of such dividends or distributions.
The establishment and designation of any series of Shares shall be
effective upon the execution by a majority of the then Trustees of an instrument
setting forth such establishment and designation and the relative rights and
preferences of such series, or as otherwise provided in such instrument. At any
time that there are no Shares outstanding or any particular series previously
established and designated, the Trustees may by an instrument executed by a
majority of their number abolish that series and the establishment and
designation thereof. Each instrument referred to in this paragraph shall have
the status of an amendment to this Declaration.
The series of Shares established and designated pursuant to this
Section 6.9 and existing as of the date hereof are set forth in Annex A hereto.
Section 6.10 - Class Designation. The Trustees may, in their
discretion, authorize the division of Shares of the Trust (or any series of the
Trust) into one or more classes. All Shares of a class shall be identical with
each other and with the Shares of each other class of the Trust or the same
series of the Trust (as applicable), except for such variations between classes
as may be approved by the Board of Trustees and permitted by the 1940 Act or
pursuant to any exemptive order issued by the Securities and Exchange
Commission. The classes of Shares authorized pursuant to this Section 6.10 and
existing as of the date hereof are set forth in Annex B hereto.
ARTICLE VII
REDEMPTIONS
Section 7.1 - Redemptions. In case any Shareholder at any time desires
to dispose of his Shares, he may deposit his certificate or certificates
therefor, duly endorsed in blank or accompanied by an instrument of transfer
executed in blank, or if the Shares are not represented by any certificates, a
written request or other such form of request as the Trustees may from time to
time authorize, at the office of the Transfer Agent or at the office of any bank
or trust company, either in or outside of Massachusetts, which is a member of
the Federal Reserve System and which the said Transfer Agent has designated in
writing for that purpose, together with an irrevocable offer in writing in a
form acceptable to the Trustees to sell the Shares represented thereby to the
Trust at the net asset value thereof per share, determined as provided in the
By-Laws, next after such deposit. Payment for said shares shall be made to the
Shareholder within seven (7) days after the date on which the deposit is made,
unless (i) the date of payment is postponed pursuant to Section 7.2 hereof, or
(ii) the receipt, or verification of receipt, of the purchase price for the
Shares to be redeemed is delayed, in either of which event payment may be
delayed beyond seven (7) days.
Section 7.2 - Suspension of Right of Redemption. The Trust may declare
a suspension of the right of redemption or postpone the date of payment of the
redemption proceeds for the whole or any part of any period (i) during which the
New York Stock Exchange is closed other than customary weekend and holiday
closings, (ii) during which trading on the New York Stock Exchange is
restricted, (iii) during which an emergency exists as a result of which disposal
by the Trust of securities owned by it is not reasonably practicable or it is
not reasonably practicable for the Trust fairly to determine the value of its
net assets, or (iv) during any other period when the Commission may for the
protection of security holders of the Trust by order permit suspension of the
right of redemption or postponement of the date of payment of the redemption
proceeds, provided that applicable rules and regulations of the Commission shall
govern as to whether the conditions prescribed in (ii), (iii) or (iv) exist.
Such suspension shall take effect at such time as the Trust shall specify but
not later than the close of business on the business day next following the
declaration of suspension, and thereafter there shall be no right of redemption
or payment of the redemption proceeds until the Trust shall declare the
suspension at an end, except that the suspension shall terminate in any event on
the first day on which said stock exchange shall have reopened or the period
specified in (ii) or (iii) shall have expired (as to which, in the absence of an
official ruling by the Commission, the determination of the Trust shall be
conclusive). In the case of a suspension of the right of redemption, a
Shareholder may either withdraw his request for redemption or receive payment
based on the net asset value existing after the termination of the suspension.
Section 7.3 - Redemption of Shares; Disclosure of Holding. If the
Trustees shall, at any time and in good faith, be of the opinion that direct or
indirect ownership of Shares or other securities of the Trust has or may become
concentrated in any Person to an extent which would disqualify the Trust as a
regulated investment company under the Internal Revenue Code of 1986, as amended
(the "Code"), then the Trustees shall have the power by lot or other means
deemed equitable by them (i) to call for redemption by any such Person a number,
or principal amount, of Shares or other securities of the Trust sufficient to
maintain or bring the direct or indirect ownership of Shares or other securities
of the Trust into conformity with the requirements for such qualification, and
(ii) to refuse to transfer or issue Shares or other securities of the Trust to
any Person whose acquisition of the Shares or other securities of the Trust in
question would result in such disqualification. The redemption shall be effected
at the redemption price and in the manner provided in Section 7.1 hereof.
The holders of Shares or other securities of the Trust shall upon
demand disclose to the Trustees in writing such information with respect to
direct and indirect ownership of Shares or other securities of the Trust as the
Trustees deem necessary to comply with the provisions of the Code, or to comply
with the requirements of any other authority.
ARTICLE VIII
DETERMINATION OF NET ASSET VALUE,
NET INCOME AND DISTRIBUTIONS
The Trustees, in their absolute discretion, may prescribe and shall set
forth in the By-Laws or in a duly adopted vote of the Trustees such basis and
times for determining the per Share net asset value of the Shares or net income,
or the declaration and payment of dividends and distributions, as they may deem
necessary or desirable.
ARTICLE IX
DURATION; TERMINATION OF TRUST; AMENDMENT; MERGERS, ETC.
Section 9.1 - Duration. The Trust shall continue without limitation of
time but subject to the provisions of this Article IX.
Section 9.2 - Termination of Trust.
(a) The Trust may be terminated (i) by the affirmative vote of the
holders of not less than two-thirds of the Shares outstanding and entitled to
vote at any meeting of Shareholders, or (ii) by an instrument in writing,
without a meeting, signed by a majority of the Trustees and consented to by the
holders of not less than two-thirds of such Shares, or by such other vote as may
be established by the Trustees with respect to any series of Shares, or (iii) by
the Trustees by written notice to the Shareholders. Upon the termination of the
Trust:
(i) the Trust shall carry on no business except for the purpose of
winding up its affairs;
(ii) the Trustees shall proceed to wind up the affairs of the Trust and
all of the powers of the Trustees under this Declaration shall continue until
the affairs of the Trust shall have been wound up, including the power to
fulfill or discharge the contracts of the Trust, collect its assets, sell,
convey, assign, exchange, transfer or otherwise dispose of all or any part of
the remaining Trust Property to one or more persons at public or private sale
for consideration which may consist in whole or in part of cash, securities or
other property of any kind, discharge or pay its liabilities, and to do all
other acts appropriate to liquidate its business; provided, that any sale,
conveyance, assignment, exchange, transfer or other disposition of all or
substantially all the Trust Property shall require Shareholder approval in
accordance with Section 9.4 hereof; and
(iii) after paying or adequately providing for the payment of all
liabilities, and upon receipt of such releases, indemnities and refunding
agreements as they deem necessary for their protection, the Trustees may
distribute the remaining Trust Property, in cash or in kind or partly in cash
and partly in kind, among the Shareholders according to their respective rights.
(b) After termination of the Trust and distribution to the Shareholders
as herein provided, a majority of the Trustees shall execute and lodge among the
records of the Trust an instrument in writing setting forth the fact of such
termination, and the Trustees shall thereupon be discharged from all further
liabilities and duties hereunder, and the rights and interests of all
Shareholders shall thereupon cease.
Section 9.3 - Amendment Procedure.
(a) This Declaration may be amended by a Majority Shareholder Vote or
by any instrument in writing, without a meeting, signed by a majority of the
Trustees and consented to by the holders of not less than a majority of the
Shares outstanding and entitled to vote. The Trustees may also amend this
Declaration without the vote or consent of Shareholders to designate series in
accordance with Section 6.9 hereof, to change the name of the Trust, to supply
any omission, to cure, correct or supplement any ambiguous, defective or
inconsistent provision hereof, or if they deem it necessary to conform this
Declaration to the requirements of applicable federal laws or regulations or the
requirements of the regulated investment company provisions of the Code, as
amended, but the Trustees shall not be liable for failing so to do.
(b) No amendment may be made under this Section 9.3 which would change
any rights with respect to any Shares by reducing the amount payable thereon
upon liquidation of the Trust or by diminishing or eliminating any voting rights
pertaining thereto, except with the vote or consent of the holders of two-thirds
of the Shares outstanding and entitled to vote, or by such other vote as may be
established by the Trustees with respect to any series of Shares. Nothing
contained in this Declaration shall permit the amendment of this Declaration to
impair the exemption from personal liability of the Shareholders, Trustees,
officers, employees and agents of the Trust or to permit assessments upon
Shareholders.
(c) A certificate signed by a majority of the Trustees setting forth an
amendment and reciting that it was duly adopted by the Shareholders or by the
Trustees as aforesaid or a copy of the Declaration, as amended, and executed by
a majority of the Trustees, shall be conclusive evidence of such amendment when
lodged among the records of the Trust.
Notwithstanding any other provision hereof, until such time as a
registration statement under the Securities Act of 1933, as amended, covering
the first public offering of securities of the Trust shall have become
effective, this Declaration may be terminated or amended in any respect by the
affirmative vote of a majority of the Trustees or by an instrument signed by a
majority of the Trustees.
Section 9.4 - Merger, Consolidation and Sale of Assets. The Trust may
merge or consolidate with any other corporation, association, trust or other
organization or may sell, lease or exchange all or substantially all of the
Trust Property, including its good will, upon such terms and conditions and for
such consideration when and as authorized at any meeting of Shareholders called
for such purpose by the affirmative vote of the holders of not less than
two-thirds of the Shares outstanding and entitled to vote, or by an instrument
or instruments in writing without a meeting, consented to by the holders of not
less than two-thirds of such Shares, or by such other vote as may be established
by the Trustees with respect to any series of Shares; provided, however, that if
such merger, consolidation, sale, lease or exchange is recommended by the
Trustees, the vote or written consent of the holders of a majority of Shares
outstanding and entitled to vote, or such other vote or written consent as may
be established by the Trustees with respect to any series of Shares, shall be
sufficient authorization; and any such merger, consolidation, sale, lease or
exchange shall be deemed for all purposes to have been accomplished under and
pursuant to the statutes of The Commonwealth of Massachusetts.
Section 9.5 - Incorporation. With the approval of the holders of a
majority of the Shares outstanding and entitled to vote, or by such other vote
as may be established by the Trustees with respect to any series of Shares, the
Trustees may cause to be organized or assist in organizing a corporation or
corporations under the laws of any jurisdiction, or any other trust,
partnership, association or other organization to take over all of the Trust
Property or to carry on any business in which the Trust shall directly or
indirectly have any interest, and to sell, convey and transfer the Trust
Property to any such corporation, trust, partnership, association or
organization in exchange for the Shares or securities thereof or otherwise, and
to lend money to, subscribe for the Shares or securities of, and enter into any
contracts with any such corporation, trust, partnership, association or
organization in which the Trust holds or is about to acquire shares or any other
interest. The Trustees may also cause a merger or consolidation between the
Trust or any successor thereto and any such corporation, trust, partnership,
association or other organization if and to the extent permitted by law, as
provided under the law then in effect. Nothing contained herein shall be
construed as requiring approval of Shareholders for the Trustees to organize or
assist in organizing one or more corporations, trusts, partnerships,
associations or other organizations and selling, conveying or transferring a
portion of the Trust Property to such organization or entitles.
ARTICLE X
REPORTS TO SHAREHOLDERS AND SHAREHOLDER COMMUNICATIONS
The Trustees shall at least semi-annually submit to the Shareholders a
written financial report of the transactions of the Trust, including financial
statements which shall at least annually be certified by independent public
accountants.
Whenever ten or more Shareholders of record who have been such for at
least six months preceding the date of application, and who hold in the
aggregate either Shares having a net asset value of at least $25,000 or at least
1% of the Shares outstanding, whichever is less, shall apply to the Trustees in
writing, stating that they wish to communicate with other Shareholders with a
view to obtaining signatures to a request for a meeting of Shareholders for the
purpose of removing one or more Trustees pursuant to Section 2.2 hereof and
accompany such application with a form of communication and request which they
wish to transmit, the Trustees shall within five business days after receipt of
such application either (a) afford to such applicants access to a list of the
names and addresses of all Shareholders as recorded on the books of the Trust;
or (b) inform such applicants as to the approximate number of Shareholders of
record, and the approximate cost of mailing to them the proposed communication
and form of request. If the Trustees elect to follow the course specified in (b)
above, the Trustees, upon the written request of such applicants, accompanied by
a tender of the material to be mailed and of the reasonable expenses of mailing,
shall, with reasonable promptness, mail such material to all Shareholders of
record, unless within five business days after such tender the Trustees mail to
such applicants and file with the Commission, together with a copy of the
material to be mailed, a written statement signed by at least a majority of the
Trustees to the effect that in their opinion either such material contains
untrue statements of fact or omits to state facts necessary to make the
statements contained therein not misleading, or would be in violation of
applicable law, and specifying the basis of such opinion.
ARTICLE XI
MISCELLANEOUS
Section 11.1 - Filing. This Declaration, as amended, and any subsequent
amendment hereto shall be filed in the office of the Secretary of The
Commonwealth of Massachusetts and in such other place or places as may be
required under the laws of The Commonwealth of Massachusetts and may also be
filed or recorded in such other places as the Trustees deem appropriate. Each
amendment so filed shall be accompanied by a certificate signed and acknowledged
by a Trustee stating that such action was duly taken in a manner provided
herein, and unless such amendment or such certificate sets forth some later time
for the effectiveness of such amendment, such amendment shall be effective upon
its filing. A restated Declaration, integrating into a single instrument all of
the provisions of the Declaration which are then in effect and operative, may be
executed from time to time by a majority of the Trustees and shall, upon filing
with the Secretary of The Commonwealth of Massachusetts, be conclusive evidence
of all amendments contained therein and may thereafter be referred to in lieu of
the original Declaration and the various amendments thereto.
Section 11.2 - Governing Law. This Declaration is executed by the
Trustees and delivered in The Commonwealth of Massachusetts and with reference
to the laws thereof, and the rights of all parties and the validity and
construction of every provision hereof shall be subject to and construed
according to the laws of said Commonwealth.
Section 11.3 - Counterparts. This Declaration may be simultaneously
executed in several counterparts, each of which shall be deemed to be an
original, and such counterparts, together, shall constitute one and the same
instrument, which shall be sufficiently evidenced by any such original
counterpart.
Section 11.4 - Reliance by Third Parties. Any certificate executed by
an individual who, according to the records of the Trust appears to be a Trustee
hereunder, certifying to: (i) the number or identity of Trustees or
Shareholders, (ii) the due authorization of the execution of any instrument or
writing, (iii) the form of any vote passed at a meeting of Trustees or
Shareholders, (iv) the fact that the number of Trustees or Shareholders present
at any meeting or executing any written instrument satisfies the requirements of
this Declaration, (v) the form of any By-Laws adopted by or the identity of any
officers elected by the Trustees, or (vi) the existence of any fact or facts
which in any manner relate to the affairs of the Trust, shall be conclusive
evidence as to the matters so certified in favor of any Person dealing with the
Trustees and their successors.
Section 11.5 - Provisions in Conflict with Law or Regulations.
(a) The provisions of the Declaration are severable, and if the
Trustees shall determine, with the advice of counsel, that any of such
provisions is in conflict with the 1940 Act, the regulated investment company
provisions of the Code, as amended, or with other applicable laws and
regulations, the conflicting provision shall be deemed never to have constituted
a part of the Declaration; provided however, that such determination shall not
affect any of the remaining provisions of the Declaration or render invalid or
improper any action taken or omitted prior to such determination.
(b) If any provision of the Declaration shall be held invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall
attach only to such provision in such jurisdiction and shall not in any manner
affect such provision in any other jurisdiction or any other provision of the
Declaration in any jurisdiction.
<PAGE>
ANNEX A
Pursuant to Section 6.9 of the Declaration, the Trustees of the Trust
have established and designated two series of Shares (as defined in the
Declaration), such series to have the following special and relative rights:
1. The series are designated:
- MFS Research Fund
- MFS Total Return Fund
2. The series shall be authorized to invest in cash, securities,
instruments and other property as from time to time described
in the Trust's then currently effective registration statement
under the Securities Act of 1933 to the extent pertaining to
the offering of Shares of such series. Each Share of the
series shall be redeemable, shall be entitled to one vote or
fraction thereof in respect of a fractional share on matters
on which Shares of the series shall be entitled to vote, shall
represent a pro rata beneficial interest in the assets
allocated or belonging to the series, and shall be entitled to
receive its pro rata share of the net assets of the series
upon liquidation of the series, all as provided in Section 6.9
of the Declaration.
3. Shareholders of the series shall vote separately as a class on
any matter to the extent required by, and any matter shall be
deemed to have been effectively acted upon with respect to the
series as provided in Rule 18f-2, as from time to time in
effect, under the Investment Company Act of 1940, as amended,
or any successor rule, and by the Declaration.
4. The assets and liabilities of the Trust shall be allocated
among the previously established and existing series of the
Trust and this series as set forth in Section 6.9 of the
Declaration.
5. Subject to the provisions of Section 6.9 and Article IX of the
Declaration, the Trustees (including any successor Trustees)
shall have the right at any time and from time to time to
reallocate assets and expenses or to change the designation of
any series now or hereafter created, or to otherwise change
the special and relative rights of any such series.
<PAGE>
ANNEX B
Pursuant to Section 6.10 of the Declaration of Trust, the Trustees have
divided the shares of each series of the Trust to create three classes of
shares, within the meaning of Section 6.10, as follows:
1. The three classes of shares are designated "Class A Shares",
"Class B Shares" and "Class C Shares";
2. Class A Shares, Class B Shares and Class C Shares shall be
entitled to all the rights and preferences accorded to shares
under the Declaration; and
3. The purchase price of Class A Shares, Class B Shares and Class
C Shares, the method of determination of the net asset value
of Class A Shares, Class B Shares and Class C Shares, the
price, terms and manner of redemption of Class A Shares, Class
B Shares and Class C Shares, any conversion feature of the
Class B Shares, and the relative dividend rights of holders of
Class A Shares, Class B Shares and Class C Shares shall be
established by the Trustees of the Trust in accordance with
the Declaration and shall be set forth in the current
prospectus and statement of additional information of the
Trust or any series thereof, as amended from time to time,
contained in the Trust's registration statement under the
Securities Act of 1933, as amended.
4. Class A Shares, Class B Shares and Class C Shares shall vote
together as a single class except that shares of a class may
vote separately on matters affecting only that class and
shares of a class not affected by a matter will not vote on
that matter.
5. A class of shares of any series of the Trust may be terminated
by the Trustees by written notice to the Shareholders of the
class.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this instrument this
21st day of December, 1994.
A. KEITH BRODKIN CHARLES W. SCHMIDT
- ------------------------- -------------------------
A. Keith Brodkin Charles W. Schmidt
76 Farm Road 63 Claypit Hill Road
Sherborn, MA 01770 Wayland, MA 01778
RICHARD B. BAILEY ARNOLD D. SCOTT
- ------------------------- -------------------------
Richard B. Bailey Arnold D. Scott
63 Atlantic Avenue 20 Rowes Wharf
Boston, MA 02110 Boston, MA 02110
PETER G. HARWOOD JEFFREY L. SHAMES
- ------------------------- -------------------------
Peter G. Harwood Jeffrey L. Shames
211 Lindsay Pond Road 60 Brookside Road
Concord, MA 01742 Needham, MA 02192
J. ATWOOD IVES ELAINE R. SMITH
- ------------------------- -------------------------
J. Atwood Ives Elaine R. Smith
1 Bennington Road 75 Scotch Pine Road
Lexington, MA 02173 Weston, MA 02193
LAWRENCE T. PERERA DAVID B. STONE
- ------------------------- -------------------------
Lawrence T. Perera David B. Stone
18 Marlborough Street 50 Delano Road
Boston, MA 02116 Marion, MA 02736
WILLIAM J. POORVU
- -------------------------
William J. Poorvu
975 Memorial Drive
Cambridge, MA 02138
<PAGE>
EXHIBIT NO. 99.2
AMENDED AND RESTATED
BY-LAWS
OF
MFS SERIES TRUST V
DECEMBER 21, 1994
<PAGE>
AMENDED AND RESTATED
BY-LAWS
OF
MFS SERIES TRUST V
ARTICLE I
DEFINITIONS
The terms "Commission", "Declaration", "Distributor", "Investment
Adviser", "Majority Shareholder Vote", "1940 Act", "Shareholder", "Shares",
"Transfer Agent", "Trust", "Trust Property" and "Trustees" have the respective
meanings given them in the amended and restated Declaration of Trust of MFS
Series Trust V, dated December 21, 1994 as amended from time to time.
ARTICLE II
OFFICES
SECTION 1. PRINCIPAL OFFICE. Until changed by the Trustees, the
principal office of the Trust in The Commonwealth of Massachusetts shall be in
the City of Boston, County of Suffolk.
SECTION 2. OTHER OFFICES. The Trust may have offices in such other
places without as well as within the Commonwealth as the Trustees may from time
to time determine.
ARTICLE III
SHAREHOLDERS
SECTION 1. MEETINGS. Meetings of the Shareholders may be called at any
time by a majority of the Trustees and shall be called by any Trustee upon
written request of Shareholders holding in the aggregate not less than ten
percent (10%) of the outstanding Shares of the Trust having voting rights, if
shareholders of all series are required under the Declaration to vote in the
aggregate and not by individual series at such meeting, or of any series or
class if shareholders of such series or class are entitled under the Declaration
to vote by individual series or class, such request specifying the purpose or
purposes for which such meeting is to be called. Any such meeting shall be held
within or without The Commonwealth of Massachusetts on such day and at such time
as the Trustees shall designate.
SECTION 2. NOTICE OF MEETINGS. Notice of all meetings of Shareholders,
stating the time, place and purposes of the meeting, shall be given by the
Trustees by mail to each Shareholder entitled to vote at such meeting at his
address as recorded on the register of the Trust, mailed at least (ten) 10 days
and not more than (sixty) 60 days before the meeting. Only the business stated
in the notice of the meeting shall be considered at such meeting. Any adjourned
meeting may be held as adjourned without further notice. No notice need be given
to any Shareholder who shall have failed to inform the Trust of his current
address or if a written waiver of notice, executed before or after the meeting
by the Shareholder or his attorney thereunto authorized, is filed with the
records of the meeting.
SECTION 3. RECORD DATE FOR MEETINGS. For the purpose of determining the
Shareholders who are entitled to notice of and to vote at any meeting, or to
participate in any distribution, or for the purpose of any other action, the
Trustees may from time to time close the transfer books for such period, not
exceeding thirty (30) days, as the Trustees may determine; or without closing
the transfer books the Trustees may fix a date not more than sixty (60) days
prior to the date of any meeting of Shareholders or distribution or other action
as a record date for the determination of the persons to be treated as
Shareholders of record for such purpose.
SECTION 4. PROXIES. At any meeting of Shareholders, any holder of
Shares entitled to vote thereat may vote by proxy, provided that no proxy shall
be voted at any meeting unless it shall have been placed on file with the Clerk,
or with such other officer or agent of the Trust as the Clerk may direct, for
verification prior to the time at which such vote shall be taken. Pursuant to a
vote of a majority of the Trustees, proxies may be solicited in the name of one
or more Trustees or one or more of the officers of the Trust. When any Share is
held jointly by several persons, any one of them may vote at any meeting in
person or by proxy in respect of such Share, but if more than one of them shall
be present at such meeting in person or by proxy, and such joint owners or their
proxies so present disagree as to any vote to be cast, such vote shall not be
received in respect of such Share. A proxy purporting to be executed by or on
behalf of a Shareholder shall be deemed valid unless challenged at or prior to
its exercise, and the burden of proving invalidity shall rest on the challenger.
The placing of a Shareholder's name on a proxy pursuant to telephonic or
electronically transmitted instructions obtained pursuant to procedures
reasonably designed to verify that such instructions have been authorized by
such Shareholder shall constitute execution of such proxy by or on behalf of
such Shareholder. If the holder of any such Share is a minor or a person of
unsound mind, and subject to guardianship or to the legal control of any other
person as regards the charge or management of such Share, he may vote by his
guardian or such other person appointed or having such control, and such vote
may be given in person or by proxy. Any copy, facsimile telecommunication or
other reliable reproduction of a proxy may be substituted for or used in lieu of
the original proxy for any and all purposes for which the original proxy could
be used, provided that such copy, facsimile telecommunication or other
reproduction shall be a complete reproduction of the entire original proxy or
the portion thereof to be returned by the Shareholder.
SECTION 5. QUORUM, ADJOURNMENT AND REQUIRED VOTE. A majority of
outstanding Shares entitled to vote shall constitute a quorum at any meeting of
Shareholders, except that where any provision of law, the Declaration or these
By-laws permits or requires that holders of any series or class shall vote as a
series or class, then a majority of the aggregate number of Shares of that
series or class entitled to vote shall be necessary to constitute a quorum for
the transaction of business by that series or class. In the absence of a quorum,
a majority of outstanding Shares entitled to vote present in person or by proxy,
or, where any provision of law, the Declaration or these By-laws permits or
requires that holders of any series or class shall vote as a series or class, a
majority of outstanding Shares of that series or class entitled to vote present
in person or by proxy, may adjourn the meeting from time to time until a quorum
shall be present. Only Shareholders of record shall be entitled to vote on any
matter. Each full Share shall be entitled to one vote and fractional Shares
shall be entitled to a vote of such fraction. Except as otherwise provided any
provision of law, the Declaration or these By-laws, Shares representing a
majority of the votes cast shall decide any matter (i.e., abstentions and broker
non-votes shall not be counted) and a plurality shall elect a Trustee, provided
that where any provision of law, the Declaration or these By-Laws permits or
requires that holders of any series or class shall vote as a series or class,
then a majority of the Shares of that series or class cast on the matter shall
decide the matter (i.e., abstentions and broker non-votes shall not be counted)
insofar as that series or class is concerned.
SECTION 6. INSPECTION OF RECORDS. The records of the Trust shall be
open to inspection by Shareholders to the same extent as is permitted
shareholders of a Massachusetts business corporation.
SECTION 7. ACTION WITHOUT MEETING. Any action which may be taken by
Shareholders may be taken without a meeting if a majority of Shareholders
entitled to vote on the matter (or such larger proportion thereof as shall be
required by law, the Declaration or these By-Laws for approval of such matter)
consent to the action in writing and the written consents are filed with the
records of the meetings of Shareholders. Such consent shall be treated for all
purposes as a vote taken at a meeting of Shareholders.
ARTICLE IV
TRUSTEES
SECTION 1. MEETINGS OF THE TRUSTEES. The Trustees may in their
discretion provide for regular or stated meetings of the Trustees. Notice of
regular or stated meetings need not be given. Meetings of the Trustees other
than regular or stated meetings shall be held whenever called by the Chairman or
by any one of the Trustees at the time being in office. Notice of the time and
place of each meeting other than regular or stated meetings shall be given by
the Secretary or an Assistant Secretary, or the Clerk or an Assistant Clerk or
by the officer or Trustee calling the meeting and shall be mailed to each
Trustee at least two days before the meeting, or shall be telegraphed, cabled,
or wirelessed or sent by facsimile or other electronic means to each Trustee at
his business address, or personally delivered to him at least one day before the
meeting. Such notice may, however, be waived by any Trustee. Notice of a meeting
need not be given to any Trustee if a written waiver of notice, executed by him
before or after the meeting, is filed with the records of the meeting, or to any
Trustee who attends the meeting without protesting prior thereto or at its
commencement the lack of notice to him. A notice or waiver of notice need not
specify the purpose of any meeting. Except as provided by law the Trustees may
meet by means of a telephone conference circuit or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, which telephone conference meeting shall be deemed to have been held
at a place designated by the Trustees at the meeting. Participation in a
telephone conference meeting shall constitute presence in person at such
meeting. Any action required or permitted to be taken at any meeting of the
Trustees may be taken by the Trustees without a meeting if all the Trustees
consent to the action in writing and the written consents are filed with the
records of the Trustees' meetings. Such consents shall be treated as a vote for
all purposes.
SECTION 2. QUORUM AND MANNER OF ACTING. A majority of the Trustees
shall be present at any regular or special meeting of the Trustees in order to
constitute a quorum for the transaction of business at such meeting and (except
as otherwise required by law, the Declaration or these By-Laws) the act of a
majority of the Trustees present at any such meeting, at which a quorum is
present, shall be the act of the Trustees. In the absence of a quorum, a
majority of the Trustees present may adjourn the meeting from time to time until
a quorum shall be present. Notice of an adjourned meeting need not be given.
ARTICLE V
COMMITTEES AND ADVISORY BOARD
SECTION 1. EXECUTIVE AND OTHER COMMITTEES. The Trustees by vote of a
majority of all the Trustees may elect from their own number an Executive
Committee to consist of not less than three (3) Trustees to hold office at the
pleasure of the Trustees which shall have the power to conduct the current and
ordinary business of the Trust while the Trustees are not in session, including
the purchase and sale of securities and the designation of securities to be
delivered upon redemption of Shares of the Trust, and such other powers of the
Trustees as the Trustees may, from time to time, delegate to the Executive
Committee except those powers which by law, the Declaration or these By-Laws
they are prohibited from delegating. The Trustees may also elect from their own
number other Committees from time to time, the number composing such Committees,
the powers conferred upon the same (subject to the same limitations as with
respect to the Executive Committee) and the term of membership on such
Committees to be determined by the Trustees. The Trustees may designate a
chairman of any such Committee. In the absence of such designation a Committee
may elect its own Chairman.
SECTION 2. MEETING, QUORUM AND MANNER OF ACTING. The Trustees may:
(i) provide for stated meetings of any Committee,
(ii) specify the manner of calling and notice required for
special meetings of any Committee,
(iii) specify the number of members of a Committee required
to constitute a quorum and the number of members of a
Committee required to exercise specified powers
delegated to such Committee,
(iv) authorize the making of decisions to exercise
specified powers by written assent of the requisite
number of members of a Committee without a meeting,
and
(v) authorize the members of a Committee to meet by means
of a telephone conference circuit.
Each Committee shall keep regular minutes of its meetings and records
of decisions taken without a meeting and cause them to be recorded in a book
designated for that purpose and kept in the office of the Trust.
SECTION 3. ADVISORY BOARD. The Trustees may appoint an Advisory Board
to consist in the first instance of not less than three (3) members. Members of
such Advisory Board shall not be Trustees or officers and need not be
Shareholders. A member of such Advisory Board shall hold office for such period
as the Trustees may by resolution provide. Any member of such board may resign
therefrom by a written instrument signed by him which shall take effect upon
delivery to the Trustees. The Advisory Board shall have no legal powers and
shall not perform the functions of Trustees in any manner, such Advisory Board
being intended merely to act in an advisory capacity. Such Advisory Board shall
meet at such times and upon such notice as the Trustees may by resolution
provide.
ARTICLE VI
OFFICERS
SECTION 1. GENERAL PROVISIONS. The officers of the Trust shall be a
Chairman, a President, a Treasurer and a Clerk, who shall be elected by the
Trustees. The Trustees may elect or appoint such other officers or agents as the
business of the Trust may require, including one or more Vice Presidents, a
Secretary and one or more Assistant Secretaries, one or more Assistant
Treasurers, and one or more Assistant Clerks. The Trustees may delegate to any
officer or Committee the power to appoint any subordinate officers or agents.
SECTION 2. TERM OF OFFICE AND QUALIFICATIONS. Except as otherwise
provided by law, the Declaration or these By-Laws, the Chairman, the President,
the Treasurer and the Clerk shall hold office until his resignation has been
accepted by the Trustees or until his respective successor shall have been duly
elected and qualified, and all other officers shall hold office at the pleasure
of the Trustees. Any two or more offices may be held by the same person. Any
officer may be, but none need be, a Trustee or Shareholder.
SECTION 3. REMOVAL. The Trustees, at any regular or special meeting of
the Trustees, may remove any officer with or without cause by a vote of a
majority of the Trustees. Any officer or agent appointed by any officer or
Committee may be removed with or without cause by such appointing officer or
Committee.
SECTION 4. POWERS AND DUTIES OF THE CHAIRMAN. The Chairman may call
meetings of the Trustees and of any Committee thereof when he deems it necessary
and shall preside at all meetings of the Shareholders. Subject to the control of
the Trustees and any Committees of the Trustees, the Chairman shall at all times
exercise a general supervision and direction over the affairs of the Trust. The
Chairman shall have the power to employ attorneys and counsel for the Trust and
to employ such subordinate officers, agents, clerks and employees as he may find
necessary to transact the business of the Trust. The Chairman shall also have
the power to grant, issue, execute or sign such powers of attorney, proxies or
other documents as may be deemed advisable or necessary in furtherance of the
interests of the Trust. The Chairman shall have such other powers and duties as,
from time to time, may be conferred upon or assigned to him by the Trustees.
SECTION 5. POWERS AND DUTIES OF THE PRESIDENT. In the absence or
disability of the Chairman, the President shall perform all the duties and may
exercise any of the powers of the Chairman, subject to the control of the
Trustees. The President shall perform such other duties as may be assigned to
him from time to time by the Trustees or the Chairman.
SECTION 6. POWERS AND DUTIES OF VICE PRESIDENTS. In the absence or
disability of the President, the Vice President or, if there be more than one
Vice President, any Vice President designated by the Trustees shall perform all
the duties and may exercise any of the powers of the President, subject to the
control of the Trustees. Each Vice President shall perform such other duties as
may be assigned to him from time to time by the Trustees or the President.
SECTION 7. POWERS AND DUTIES OF THE TREASURER. The Treasurer shall be
the principal financial and accounting officer of the Trust. The Treasurer shall
deliver all funds of the Trust which may come into his hands to such custodian
as the Trustees may employ pursuant to Article X hereof. The Treasurer shall
render a statement of condition of the finances of the Trust to the Trustees as
often as they shall require the same and shall in general perform all the duties
incident to the office of Treasurer and such other duties as from time to time
may be assigned to him by the Trustees. The Treasurer shall give a bond for the
faithful discharge of his duties, if required to do so by the Trustees, in such
sum and with such surety or sureties as the Trustees shall require.
SECTION 8. POWERS AND DUTIES OF THE CLERK. The Clerk shall keep the
minutes of all meetings of the Shareholders in proper books provided for that
purpose; he shall have custody of the seal of the Trust; he shall have charge of
the Share transfer books, lists and records unless the same are in the charge of
the Transfer Agent. He or the Secretary shall attend to the giving and serving
of all notices by the Trust in accordance with the provisions of these By-Laws
and as required by law; and subject to these By-Laws, he shall in general
perform all duties incident to the office of Clerk and such other duties as from
time to time may be assigned to him by the Trustees.
SECTION 9. POWERS AND DUTIES OF THE SECRETARY. The Secretary, if any,
shall keep the minutes of all meetings of the Trustees. He shall perform such
other duties and have such other powers in addition to those specified in these
By-Laws as the Trustees shall from time to time designate. If there be no
Secretary or Assistant Secretary, the Clerk shall perform the duties of
Secretary.
SECTION 10. POWERS AND DUTIES OF ASSISTANT TREASURERS. In the absence
or disability of the Treasurer, any Assistant Treasurer designated by the
Trustees shall perform all the duties, and may exercise any of the powers, of
the Treasurer. Each Assistant Treasurer shall perform such other duties as from
time to time may be assigned to him by the Trustees. Each Assistant Treasurer
shall give a bond for the faithful discharge of his duties, if required to do so
by the Trustees, in such sum and with such surety or sureties as the Trustees
shall require.
SECTION 11. POWERS AND DUTIES OF ASSISTANT CLERKS. In the absence or
disability of the Clerk, any Assistant Clerk designated by the Trustees shall
perform all the duties, and may exercise any of the powers, of the Clerk. The
Assistant Clerks shall perform such other duties as from time to time may be
assigned to them by the Trustees.
SECTION 12. POWERS AND DUTIES OF ASSISTANT SECRETARIES. In the absence
or disability of the Secretary, any Assistant Secretary designated by the
Trustees shall perform all of the duties, and may exercise any of the powers, of
the Secretary. The Assistant Secretaries shall perform such other duties as from
time to time may be assigned to them by the Trustees.
SECTION 13. COMPENSATION OF OFFICERS AND TRUSTEES AND MEMBERS OF THE
ADVISORY BOARD. Subject to any applicable law or provision of the Declaration,
the compensation of the officers and Trustees and members of the Advisory Board
shall be fixed from time to time by the Trustees or, in the case of officers, by
any Committee or officer upon whom such power may be conferred by the Trustees.
No officer shall be prevented from receiving such compensation as such officer
by reason of the fact that he is also a Trustee.
ARTICLE VII
FISCAL YEAR
The fiscal year of the Trust shall begin on the first day of October in
each year and shall end on the last day of September in that year, provided,
however, that the Trustees may from time to time change the fiscal year.
ARTICLE VIII
SEAL
The Trustees shall adopt a seal which shall be in such form and shall
have such inscription thereon as the Trustees may from time to time prescribe.
ARTICLE IX
WAIVERS OF NOTICE
Whenever any notice is required to be given by law, the Declaration or
these By-Laws, a waiver thereof in writing, signed by the person or persons
entitled to such notice, whether before or after the time stated therein, shall
be deemed equivalent thereto. A notice shall be deemed to have been telegraphed,
cabled or wirelessed or sent by facsimile or other electronic means for the
purposes of these By-Laws when it has been delivered to a representative of any
telegraph, cable or wireless company with instruction that it be telegraphed,
cabled or wirelessed or when a confirmation of such facsimile having been sent,
or a confirmation that such electronic means has sent the notice being
transmitted, is generated. Any notice shall be deemed to be given at the time
when the same shall be mailed, telegraphed, cabled or wirelessed or when sent by
facsimile or other electronic means.
ARTICLE X
CUSTODIAN
SECTION 1. APPOINTMENT AND DUTIES. The Trustees shall at all times
employ a bank or trust company having a capital, surplus and undivided profits
of at least five million dollars ($5,000,000.00) as custodian with authority as
its agent, but subject to such restrictions, limitations and other requirements,
if any, as may be contained in the Declaration, these By-Laws and the 1940 Act:
(i) to hold the securities owned by the Trust and deliver
the same upon written order;
(ii) to receive and issue receipts for any monies due to
the Trust and deposit the same in its own banking
department or elsewhere as the Trustees may direct;
(iii) to disburse such funds upon orders or vouchers;
(iv) if authorized by the Trustees, to keep the books and
accounts of the Trust and furnish clerical and
accounting services; and
(v) if authorized to do so by the Trustees, to compute
the net income of the Trust;
all upon such basis of compensation as may be agreed upon between the Trustees
and the custodian. If so directed by a Majority Shareholder Vote, the custodian
shall deliver and pay over all Trust Property held by it as specified in such
vote.
The Trustees may also authorize the custodian to employ one or more
sub-custodians from time to time to perform such of the acts and services of the
custodian and upon such terms and conditions as may be agreed upon between the
custodian and such sub-custodian and approved by the Trustees, provided that in
every case such sub-custodian shall be a bank or trust company organized under
the laws of the United States or one of the states thereof and having capital,
surplus and undivided profits of at least five million dollars ($5,000,000.00)
or such foreign banks and securities depositories as meet the requirements of
applicable provisions of the 1940 Act or the rules and regulations thereunder.
SECTION 2. CENTRAL CERTIFICATE SYSTEM. Subject to such rules,
regulations and orders as the Commission may adopt, the Trustees may direct the
custodian to deposit all or any part of the securities owned by the Trust in a
system for the central handling of securities established by a national
securities exchange or a national securities association registered with the
Commission under the Securities Exchange Act of 1934, or such other person as
may be permitted by the Commission, or otherwise in accordance with the 1940
Act, pursuant to which system all securities of any particular class or series
of any issuer deposited within the system are treated as fungible and may be
transferred or pledged by bookkeeping entry without physical delivery of such
securities, provided that all such deposits shall be subject to withdrawal only
upon the order of the Trust or its custodian.
SECTION 3. ACCEPTANCE OF RECEIPTS IN LIEU OF CERTIFICATES. Subject to
such rules, regulations and orders as the Commission may adopt, the Trustees may
direct the custodian to accept written receipts or other written evidences
indicating purchases of securities held in book-entry form in the Federal
Reserve System in accordance with regulations promulgated by the Board of
Governors of the Federal Reserve System and the local Federal Reserve Banks in
lieu of receipt of certificates representing such securities.
SECTION 4. PROVISIONS OF CUSTODIAN CONTRACT. The substance of the
following provisions shall apply to the employment of a custodian pursuant to
this Article X and to any contract entered into with the custodian so employed:
(i) The Trustees shall cause to be delivered to the
custodian all securities owned by the Trust or to
which it may become entitled, and shall order the
same to be delivered by the custodian only upon
completion of a sale, exchange, transfer, pledge, or
other disposition thereof, and upon receipt by the
custodian of the consideration therefor or a
certificate of deposit or a receipt of an issuer or
of its Transfer Agent, all as the Trustees may
generally or from time to time require or approve, or
to a successor custodian; and the Trustees shall
cause all funds owned by the Trust or to which it may
become entitled to be paid to the custodian, and
shall order the same disbursed only for investment
against delivery of the securities acquired, or in
payment of expenses, including management
compensation, and liabilities of the Trust, including
distributions to Shareholders, or to a successor
custodian; provided, however, that nothing herein
shall prevent the custodian from paying for
securities before such securities are received by the
custodian or the custodian from delivering securities
prior to receiving payment therefor in accordance
with the payment and delivery customs of the market
in which such securities are being purchased or sold
.
(ii) In case of the resignation, removal or inability to
serve of any such custodian, the Trust shall promptly
appoint another bank or trust company meeting the
requirements of this Article X as successor
custodian. The agreement with the custodian shall
provide that the retiring custodian shall, upon
receipt of notice of such appointment, deliver the
funds and property of the Trust in its possession to
and only to such successor, and that pending
appointment of a successor custodian, or a vote of
the Shareholders to function without a custodian, the
custodian shall not deliver funds and property of the
Trust to the Trust, but may deliver all or any part
of them to a bank or trust company doing business in
Boston, Massachusetts, of its own selection, having
an aggregate capital, surplus and undivided profits
(as shown in its last published report) of at least
$5,000,000, as the property of the Trust to be held
under terms similar to those on which they were held
by the retiring custodian.
ARTICLE XI
SALE OF SHARES OF THE TRUST
The Trustees may from time to time issue and sell or cause to be issued
and sold Shares for cash or other property, which shall in every case be paid or
delivered to the Custodian as agent of the Trust before the delivery of any
certificate for such shares. The Shares, including additional Shares which may
have been repurchased by the Trust (herein sometimes referred to as "treasury
shares"), may not be sold at a price less than the net asset value thereof (as
defined in Article XII hereof) determined by or on behalf of the Trustees next
after the sale is made or at some later time after such sale.
No Shares need be offered to existing Shareholders before being offered
to others. No Shares shall be sold by the Trust (although Shares previously
contracted to be sold may be issued upon payment therefor) during any period
when the determination of net asset value is suspended by declaration of the
Trustees pursuant to the provisions of Article XII hereof. In connection with
the acquisition by merger or otherwise of all or substantially all the assets of
an investment company (whether a regulated or private investment company or a
personal holding company), the Trustees may issue or cause to be issued Shares
and accept in payment therefor such assets valued at not more than market value
thereof in lieu of cash, notwithstanding that the federal income tax basis to
the Trust of any assets so acquired may be less than the market value, provided
that such assets are of the character in which the Trustees are permitted to
invest the funds of the Trust.
The Trustees, in their sole discretion, may cause the Trust to redeem
all of the Shares of the Trust held by any Shareholder if the value of such
Shares is less than a minimum amount established from time to time by the
Trustees.
ARTICLE XII
NET ASSET VALUE OF SHARES
The term "net asset value" per Share of any class or series of Shares
shall mean: (i) the value of all assets of that series or class; (ii) less total
liabilities of such series or class; (iii) divided by the number of Shares of
such series or class outstanding, in each case at the time of such
determination, all as determine by or under the direction of the Trustees. Such
value shall be determined on such days and at such time as the Trustees may
determine. Such determination shall be made with respect to securities for which
market quotations are readily available, at the market value of such securities;
and with respect to other securities and assets, at the fair value as determined
in good faith by or pursuant to the direction of the Trustees, provided,
however, that the Trustees, without shareholder approval, may alter the method
of appraising portfolio securities insofar as permitted under the 1940 Act, and
the rules, regulations and interpretations thereof promulgated or issued by the
Securities and Exchange Commission or insofar as permitted by any order of the
Securities and Exchange commission. The Trustees may delegate any powers and
duties under this Article XII with respect to appraisal of assets and
liabilities. At any time the Trustees may cause the value per share last
determined to be determined again in a similar manner and may fix the time when
such predetermined value shall become effective.
ARTICLE XIII
DIVIDENDS AND DISTRIBUTIONS
SECTION 1. LIMITATIONS ON DISTRIBUTIONS. The total of distributions to
Shareholders of a particular series or class paid in respect of any one fiscal
year, subject to the exceptions noted below, shall, when and as declared by the
Trustees, be approximately equal to the sum of:
(i) the net income, exclusive of the profits or losses
realized upon the sale of securities or other
property, of such series or class for such fiscal
year, determined in accordance with generally
accepted accounting principles (which, if the
Trustees so determine, may be adjusted for net
amounts included as such accrued net income in the
price of Shares of such series or class issued or
repurchased), but if the net income of such series or
class exceeds the amount distributed by less than one
cent per share outstanding at the record date for the
final dividend, the excess shall be treated as
distributable income of such series or class for the
following fiscal year; and
(ii) in the discretion of the Trustees, an additional
amount which shall not substantially exceed the
excess of profits over losses on sales of securities
or other property allocated or belonging to such
series or class for such fiscal year.
The decision of the Trustees as to what, in accordance with generally accepted
accounting principles, is income and what is principal shall be final, and
except as specifically provided herein the decision of the Trustees as to what
expenses and charges of the Trust shall be charged against principal and what
against income shall be final, all subject to any applicable provisions of the
1940 Act and rules, regulations and orders of the Commission promulgated
thereunder. For the purposes of the limitation imposed by this Section 1, Shares
issued pursuant to Section 2 of this Article XIII shall be valued at the amount
of cash which the Shareholders would have received if they had elected to
receive cash in lieu of such Shares.
Inasmuch as the computation of net income and gains for federal income
tax purposes may vary from the computation thereof on the books, the above
provisions shall be interpreted to give to the Trustees the power in their
discretion to distribute for any fiscal year as ordinary dividends and as
capital gains distributions, respectively, additional amounts sufficient to
enable the Trust to avoid or reduce liability for taxes. Any payment made to
Shareholders pursuant to clause (ii) of this Section 1 shall be accompanied by a
written statement showing the source or sources of such payment, and the basis
of computation thereof.
SECTION 2. DISTRIBUTIONS PAYABLE IN CASH OR SHARES. The Trustees shall
have power, to the fullest extent permitted by the laws of The Commonwealth of
Massachusetts but subject to the limitation as to cash distributions imposed by
Section 1 of this Article XIII, at any time or from time to time to declare and
cause to be paid distributions payable at the election of any Shareholder of any
series or class (whether exercised before or after the declaration of the
distribution) either in cash or in Shares of such series, provided that the sum
of:
(i) the cash distribution actually paid to any
Shareholder, and
(ii) the net asset value of the Shares which that
Shareholder elects to receive, in effect at such time
at or after the election as the Trustees may specify,
shall not exceed the full amount of cash to which
that Shareholder would be entitled if he elected to
receive only cash.
In the case of a distribution payable in cash or Shares at the election of a
Shareholder, the Trustees may prescribe whether a Shareholder, failing to
express his election before a given time shall be deemed to have elected to take
Shares rather than cash, or to take cash rather then Shares, or to take Shares
with cash adjustment of fractions.
The Trustees, in their sole discretion, may cause the Trust to require
that all distributions payable to a shareholder in amounts less than such amount
or amounts determined from time to time by the Trustees be reinvested in
additional shares of the Trust rather than paid in cash, unless a shareholder
who, after notification that his distributions will be reinvested in additional
shares in accordance with the preceding phrase, elects to receive such
distributions in cash. Where a shareholder has elected to receive distributions
in cash and the postal or other delivery service is unable to deliver checks to
the shareholder's address of record, the Trustees, in their sole discretion, may
cause the Trust to require that such Shareholder's distribution option will be
converted to having all distributions reinvested in additional shares.
SECTION 3. STOCK DIVIDENDS. Anything in these By-Laws to the contrary
notwithstanding, the Trustees may at any time declare and distribute pro rata
among the Shareholders of any series or class a "stock dividend" out of either
authorized but unissued Shares of such series or class or treasury Shares of
such series or class or both.
ARTICLE XIV
DERIVATIVE CLAIMS
No Shareholder shall have the right to bring or maintain any court
action, proceeding or claim on behalf of the Trust or any series or class
thereof without first making demand on the Trustees requesting the Trustees to
bring or maintain such action, proceeding or claim. Such demand shall be excused
only when the plaintiff makes a specific showing that irreparable injury to the
Trust or any series or class thereof would otherwise result. Such demand shall
be mailed to the Clerk of the Trust at the Trust's principal office and shall
set forth in reasonable detail the nature of the proposed court action,
proceeding or claim and the essential facts relied upon by the Shareholder to
support the allegations made in the demand. The Trustees shall consider such
demand within 45 days of its receipt by the Trust. In their sole discretion, the
Trustees may submit the matter to a vote of Shareholders of the Trust or any
series or class thereof, as appropriate. Any decision by the Trustees to bring,
maintain or settle (or not to bring, maintain or settle) such court action,
proceeding or claim, or to submit the matter to a vote of Shareholders, shall be
made by the Trustees in their business judgment and shall be binding upon the
Shareholders. Any decision by the Trustees to bring or maintain a court action,
proceeding or suit on behalf of the Trust or any series or class thereof shall
be subject to the right of the Shareholders under Article VI, Section 6.8 of the
Declaration to vote on whether or not such court action, proceeding or suit
should or should not be brought or maintained.
ARTICLE XV
AMENDMENTS
These By-Laws, or any of them, may be altered, amended or repealed,
restated, or new By-Laws may be adopted:
(i) by Majority Shareholder Vote, or
(ii) by the Trustees,
provided, however, that no By-Law may be amended, adopted or repealed by the
Trustees if such amendment, adoption or repeal requires, pursuant to law, the
Declaration or these By-Laws, a vote of the Shareholders.
EXHIBIT NO. 99.5(a)
INVESTMENT ADVISORY AGREEMENT
THIS AGREEMENT, made this 18th day of January, 1985 by and between
Massachusetts income Development Fund, a Massachusetts business trust (the
"Fund") and Massachusetts Financial Services Company, a Delaware Corporation
(the "Adviser").
WITNESSETH:
WHEREAS, the Fund is engage in business as an open-end investment
company registered under the lnvestment. company Act of 1940;
WHEREAS, the Adviser is willing to provide business management services
to the Fund on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
of the parties hereto as herein set forth, the parties covenant and agree as
follows:
ARTICLE 1: DUTIES OF THE ADVISER. The Adviser shall provide the Fund
with such investment advice and supervision as the latter may from time to time
consider necessary for the proper management of its funds. The Adviser shall act
as Adviser to the Fund and as such shall furnish continuously an investment
program and shall determine from time to time what securities shall be
purchased, sold or exchanged and what portion of the assets of the Fund shall be
held uninvested, subject always to the restrictions of its Declaration of Trust,
dated November 7, 1984, and By-Laws, as amended from time to time (respectively,
the "Declaration" and the "By-Laws"), and to the provisions of the Investment
Company Act of 1940. The Adviser shall also make recommendations as to the
manner in which voting rights, rights to consent to corporate action and any
other rights pertaining to the Fund's portfolio securities shall be exercised.
Should the Trustees at any time, however, make any definite determination as to
investment policy and notify the Adviser thereof in writing, the Adviser shall
be bound by such determination for the period, if any, specified in such notice
or until similarly notified that such determination has been revoked. The
Adviser shall take, on behalf of the Fund, all actions which it deems necessary
to implement the investment policies determined as provided above, and in
particular to place all orders for the purchase or sale of portfolio securities
for the Fund's account with brokers or dealers selected by it, and to that end
the Adviser is authorized as the agent of the Fund to give instructions to the
Custodian of the Fund as to deliveries of securities and payments of cash for
the account of the Fund. In connection with the selection of such brokers or
dealers and the placing of such orders, the Adviser is directed to seek for the
Fund execution at the most favorable price by responsible brokerage firms at
reasonably competitive commission rates. In fulfilling this requirement the
Adviser shall not be deemed to have acted unlawfully or to have breached any
duty, created by this Agreement or otherwise, solely by reason of its having
caused the Fund to pay a broker or dealer an amount of commission for effecting
a securities transaction in excess of the amount of commission another broker or
dealer would have charged for effecting that transaction, if the Adviser
determined in good faith that such amount of commission was reasonable in
relation to the value of the brokerage and research services provided by such
broker or dealer, viewed in terms of either that particular transaction or the
Adviser's overall responsibilities with respect to the Fund and to other clients
of the Adviser as to which the Adviser exercised investment discretion.
ARTICLE 2: ALLOCATION OF CHARGES AND EXPENSES. The Adviser shall
furnish at its own expense investment advisory and administrative services,
office space, equipment and clerical personnel necessary for servicing the
investments of the Fund and maintaining its organization, and investment
advisory facilities and executive and supervisory personnel for managing the
investments and effecting the portfolio transactions of the Fund. The Adviser
shall arrange, if desired by the Fund, for Directors, officers and employees of
the Adviser to serve as Trustees, officers or agents of the Fund if duly elected
or appointed to such positions and subject to their individual consent and to
any limitations imposed by law. It is understood that the Fund will pay all of
its own expenses including, without limitation, compensation of Trustees not
affiliated with the Adviser, governmental fees, interest charges, taxes,
membership dues in the Investment Company Institute allocable to the Fund, fees
and expenses of independent auditors, of legal counsel and of any transfer
agent, registrar or dividend disbursing agent of the Fund, expenses of
repurchasing and redeeming shares, expenses of preparing, printing and mailing
stock certificates, prospectuses, shareholder reports, notices, proxy statements
and reports to governmental officers and commissions, brokerage and other
expenses connected with the execution of portfolio security transactions,
insurance premiums, fees and expenses of the custodian for all services to the
Fund, including safekeeping of funds and securities, keeping of books and
accounts and calculation of the net asset value of shares of the Fund, expenses
of shareholder meetings, and expenses relating to the issuance, registration and
qualification of shares of the Fund.
ARTICLE 3: COMPENSATION OF THE ADVISER. For the services to be rendered
and the facilities to be furnished as provided in Articles 1 and 2 above, the
Fund shall pay to the Adviser an investment advisory fee computed and paid
monthly at the annual rate .25% of the Fund's average daily net assets and 3.57%
of the Fund's gross income for the period, provided that:
(a) The annual rate applicable to average daily net assets in
excess of $200,000,000 shall be .212% of said excess;
(b) The annual rate applicable to gross income in excess of
$14,000,000 shall be 3.04% of said excess; and
(c) Within thirty days following the close of any fiscal year of
the Fund, the Adviser will pay to the Fund a sum equal to the
amount by which the aggregate expenses of the Fund incurred
during such fiscal year, but excluding interest, taxes and
brokerage commissions, exceed the lesser of either 25% of
gross income of the Fund for the preceding year or the sum of
(a) 1 1/2% of the average daily net assets of the preceding
year up to and including $40,000,000 and (b) 1% of any excess
of average daily net assets of the preceding year over
$40,000,000. The obligation of the Adviser to reimburse the
Fund for expenses incurred for any year may be terminated or
revised at any time by the Adviser without the consent of the
Fund by notice in writing from the Adviser to the Fund,
provided, however, that termination or revision of the
Adviser's obligation to reimburse for expenses is not to be
effective with respect to the fiscal year within which such
notice is given.
If the Adviser shall serve for less that the whole of any period specified in
this Article 3, the compensation to the Adviser shall be prorated.
ARTICLE 4: COVENANTS OF THE ADVISER. The Adviser agrees that it will
not deal with itself, or with the Trustees of the Fund or the Underwriter as
principals in making purchases or sales of securities or other property for the
account of the Fund, will not take a long or short position in the shares of the
Fund except as provided by the Declaration, and will comply with all other
provisions of the Declaration and By-Laws relative to the Adviser and its
Directors and officers.
ARTICLE 5: LIMITATION OF LIABILITY OF THE ADVISER. The Adviser shall
not be liable for any error of judgment or mistake of law or for any loss
arising out of any investment or for any act or omission in the execution and
management of the Fund, except for willful misfeasance, bad faith or gross
negligence in the performance of its duties, or by reason of reckless disregard
of its obligations and duties hereunder. As used in this Article 5, the term
"Adviser" shall include Directors, officers and employees of the Adviser as well
as the corporation itself.
ARTICLE 6: ACTIVITIES OF THE ADVISER. The services of the Adviser to
the Fund are not to be deemed to be exclusive, the Adviser being free to render
services to others. It is understood that Trustees, officers, and shareholders
of the Trust are or may be or become interested in the Adviser, as Directors,
officers, employees, or otherwise and that Directors, officers and employees of
the Adviser are or may become similarly interested in the Fund and that the
Adviser may be or become interested in the Fund as a shareholder or otherwise.
ARTICLE 7: DURATION, TERMINATION AND AMENDMENTS OF THIS AGREEMENT. This
Agreement shall become effective on the date of its execution and shall govern
the relations between the parties hereto thereafter, and shall remain in force
until August 1, 1995 on which date it will terminate unless its continuance
after August 1, 1995 is specifically approved at least annually (i) by the vote
of a majority of the Trustees of the Fund who are not interested persons of the
Fund or of the Adviser at a meeting specifically called for the purpose of
voting on such approval, and (ii) by the Trustees of the Fund, or by vote of a
majority of the outstanding voting securities of the Fund. The aforesaid
requirement that continuance of this Agreement be "specifically approved at
least annually" shall be construed in a manner consistent with the Investment
Company Act of 1940 and the Rules and Regulations thereunder.
This Agreement may be terminated at any time without the payment of any
penalty by the Trustees or by vote of a majority of the outstanding voting
securities of the Fund, or by the Adviser, on not more than sixty days' nor less
that thirty days' written notice to the other party. This Agreement shall
automatically terminate in the event of its assignment.
This Agreement may be amended only if such amendment is approved by
vote of a majority of the outstanding voting securities of the Fund.
The terms "vote of a majority of the outstanding voting securities",
"assignment", "affiliated person", and "interested persons", when used in this
Agreement, shall have the respective meanings specified in the Investment
Company Act of 1940 and the Rules and Regulations thereunder, subject, however,
to such exemptions as my be granted by the Securities and Exchange Commission
under said Act.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered in their names and on their behalf by the undersigned
officers thereunto duly authorized, and their respective seals to be hereto
affixed, all as of the day and year first written above.
MASSACHUSETTS INCOME
DEVELOPMENT FUND
By: ILLEGIBLE
------------------------
(Illegible)
Chairman and Trustee
MASSACHUSETTS FINANCIAL
SERVICES COMPANY
By: ILLEGIBLE
------------------------
(Illegible)
President
<PAGE>
EXHIBIT NO. 99.5(b)
AGREEMENT, made this 19th day of November, 1985, by and between
Massachusetts Income Development Fund, a Massachusetts business trust (the
"Fund"), and Massachusetts Financial Services Company, a Delaware corporation
("MFS").
WHEREAS, MFS acts as investment adviser to the Fund pursuant to an
Investment Advisory Agreement, dated the 18th day of January, 1985 (the
"Advisory Agreement"); and
WHEREAS, the Fund intends, and MFS has given permission to the Fund, to
change the name of the Fund, effective January 28, 1986, to "Massachusetts
Financial Total Return Trust;"
NOW THEREFORE, for good and valuable consideration, receipt of which is
hereby acknowledged, the Fund and MFS agree as follows:
MFS may permit other fund advisory clients to use the words
"Massachusetts Financial" in their names. The Fund agrees that if MFS shall for
any reason no longer serve as the investment adviser to the Fund, the Fund will
change its name so as to delete the words 'Massachusetts Financial."
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, and their
respective seals to be hereto affixed, all as of the date first above written.
The undersigned Trustee of the Fund has executed this Agreement not
individually, but as Trustee under the Declaration of Trust of the Fund, dated
November 7, 1984, and the obligations of this Agreement are not binding upon any
of the Trustees or shareholders of the Fund, individually, but bind only the
Trust estate.
MASSACHUSETTS INCOME
DEVELOPMENT FUND
By: RICHARD B. BAILEY
-------------------------
Richard B. Bailey
MASSACHUSETTS FINANCIAL
SERVICES COMPANY
By: H. ALDEN JOHNSON, JR.
-------------------------
H. Alden Johnson, Jr.
EXHIBIT NO. 99.5(c)
INVESTMENT ADVISORY AGREEMENT
INVESTMENT ADVISORY AGREEMENT, dated as of this 1st day of September,
1993 by and between MFS SERIES TRUST V, a Massachusetts business trust (the
"Trust") on behalf of MFS RESEARCH FUND, a series of the Trust (the "Fund"), and
Massachusetts Financial Services Company, a Delaware corporation (the
"Adviser").
WITNESSETH:
WHEREAS, the Trust is engaged in business as an open-end investment
company registered under the Investment Company Act of 1940; and
WHEREAS, the Adviser is willing to provide business management services
to the Fund on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
of the parties hereto as herein set forth, the parties covenant and agree as
follows:
ARTICLE 1: DUTIES OF THE ADVISER. The Adviser shall provide the Fund
with such investment advice and supervision as the latter may from time to time
consider necessary for the proper management of its funds. The Adviser shall act
as Adviser to the Fund and as such shall furnish continuously an investment
program and shall determine from time to time what securities shall be
purchased, sold or exchanged and what portion of the assets of the Fund shall be
held uninvested, subject always to the restrictions of the Trust's Declaration
of Trust, dated November 7, 1984, and By-Laws, as amended from time to time
(respectively, the "Declaration" and the "By-Laws"), and to the provisions of
the Investment Company Act of 1940. The Adviser shall also make recommendations
as to the manner in which voting rights, rights to consent to corporate action
and any other rights pertaining to the Fund's portfolio securities shall be
exercised. Should the Trustees at any time, however, make any definite
determination as to investment policy and notify the Adviser thereof in writing,
the Adviser shall be bound by such determination for the period, if any,
specified in such notice or until similarly notified that such determination has
been revoked. The Adviser shall take, on behalf of the Fund, all actions which
it deems necessary to implement the investment policies determined as provided
above, and in particular to place all orders for the purchase or sale of
portfolio securities for the Fund's account with brokers or dealers selected by
it, and to that end the Adviser is authorized as the agent of the Fund to give
instructions to the Custodian of the Fund as to deliveries of securities and
payments of cash for the account of the Fund. In connection with the selection
of such brokers or dealers and the placing of such orders, the Adviser is
directed to seek for the Fund execution at the most favorable price by
responsible brokerage firms at reasonably competitive commission rates. In
fulfilling this requirement the Adviser shall not be deemed to have acted
unlawfully or to have breached any duty, created by this Agreement or otherwise,
solely by reason of its having caused the Fund to pay a broker or dealer an
amount of commission for effecting a securities transaction in excess of the
amount of commission another broker or dealer would have charged for effecting
that transaction, if the Adviser determined in good faith that such amount of
commission was reasonable in relation to the value of the brokerage and research
services provided by such broker or dealer, viewed in terms of either that
particular transaction or the Adviser's overall responsibilities with respect to
the Fund and to other clients of the Adviser as to which the Adviser exercises
investment discretion.
ARTICLE 2: ALLOCATION OF CHARGES AND EXPENSES. The Adviser shall
furnish at its own expense investment advisory and administrative services,
office space, equipment and clerical personnel necessary for servicing the
investments of the Fund and maintaining its organization, and investment
advisory facilities and executive and supervisory personnel for managing the
investments and effecting the portfolio transactions of the Fund. The Adviser
shall arrange, if desired by the Trust, for Directors, officers and employees of
the Adviser to serve as Trustees, officers or agents of the Trust if duly
elected or appointed to such positions and subject to their individual consent
and to any limitations imposed by law. It is understood that the Fund will pay
all of its own expenses including, without limitation, compensation of Trustees
not affiliated with the Adviser, governmental fees, interest charges, taxes,
membership dues in the Investment Company Institute allocable to the Fund, fees
and expenses of independent auditors, of legal counsel and of any transfer
agent, registrar or dividend disbursing agent of the Fund, expenses of
repurchasing and redeeming shares, expenses of preparing, printing and mailing
stock certificates, prospectuses, shareholder reports, notices, proxy statements
and reports to governmental officers and commissions, brokerage and other
expenses connected with the execution of portfolio security transactions,
insurance premiums, fees and expenses of the custodian for all services to the
Fund, including safekeeping of funds and securities, keeping of books and
accounts and calculation of the net asset value of shares of the Fund, expenses
of shareholder meetings, and expenses relating to the issuance, registration and
qualification of shares of the Fund.
ARTICLE 3: COMPENSATION OF THE ADVISER. For the services to be rendered
and the facilities to be furnished as provided in Articles 1 and 2 above, the
Fund shall pay to the Adviser an investment advisory fee computed and paid
monthly at the annual rate .40% of the Fund's average daily net assets and 5.0%
of the Fund's gross income for the period, provided that:
(a) The annual rate applicable to average daily net assets in
excess of $100,000,000 shall be 32% of said excess;
(b) The annual rate applicable to gross income in excess of
$2,000,000 shall be 4% of said excess; and
(c) Within thirty days following the close of any fiscal year of
the Fund, the Adviser will pay to the Fund a sum equal to the
amount by which the aggregate expenses of the Fund incurred
during such fiscal year, but excluding interest, taxes and
brokerage commissions, exceed the sum of (a) 1 1/2% of the
average daily net assets of the preceding year up to and
including $40,000,000 and (b) 1% of any excess of average
daily net assets of the preceding year over $40,000,000. The
obligation of the Adviser to reimburse the Fund for expenses
incurred for any year may be terminated or revised at any time
by the Adviser without the consent of the Fund by notice in
writing from the Adviser to the Fund, provided, however, that
termination or revision of the Adviser's obligation to
reimburse for expenses is not to be effective with respect to
the fiscal year within which such notice is given.
If the Adviser shall serve for less that the whole of any period specified in
this Article 3, the compensation to the Adviser shall be prorated.
ARTICLE 4: COVENANTS OF THE ADVISER. The Adviser agrees that it will
not deal with itself, or with the Trustees of the Trust or the Underwriter as
principals in making purchases or sales of securities or other property for the
account of the Fund, will not take a long or short position in the shares of the
Fund except as provided by the Declaration, and will comply with all other
provisions of the Declaration and By-Laws relative to the Adviser and its
Directors and officers.
ARTICLE 5: LIMITATION OF LIABILITY OF THE ADVISER. The Adviser shall
not be liable for any error of judgment or mistake of law or for any loss
arising out of any investment or for any act or omission in the execution and
management of the Fund, except for willful misfeasance, bad faith or gross
negligence in the performance of its duties, or by reason of reckless disregard
of its obligations and duties hereunder. As used in this Article 5, the term
"Adviser" shall include Directors, officers and employees of the Adviser as well
as the corporation itself.
ARTICLE 6: ACTIVITIES OF THE ADVISER. The services of the Adviser to
the Fund are not to be deemed to be exclusive, the Adviser being free to render
services to others. The Adviser may permit other Fund clients to use the letters
"MFS" in their names. The Fund agrees that if the Adviser shall for any reason
no longer serve as the Adviser to the Fund, the Fund will change its name so as
to delete the letters "MFS". It is understood that Trustees, officers, and
shareholders of the Trust are or may be or become interested in the Adviser, as
Directors, officers, employees, or otherwise and that Directors, officers and
employees of the Adviser are or may become similarly interested in the Fund and
that the Adviser may be or become interested in the Fund as a shareholder or
otherwise.
ARTICLE 7: DURATION, TERMINATION AND AMENDMENTS OF THIS AGREEMENT. This
Agreement shall become effective on the date of its execution and shall govern
the relations between the parties hereto thereafter, and shall remain in force
until August 1, 1995 on which date it will terminate unless its continuance
after August 1, 1995 is specifically approved at least annually (i) by the vote
of a majority of the Trustees of the Trust who are not interested persons of the
Trust or of the Adviser at a meeting specifically called for the purpose of
voting on such approval, and (ii) by the Trustees of the Trust, or by vote of a
majority of the outstanding voting securities of the Fund. The aforesaid
requirement that continuance of this Agreement be "specifically approved at
least annually" shall be construed in a manner consistent with the Investment
Company Act of 1940 and the Rules and Regulations thereunder.
This Agreement may be terminated at any time without the payment of any
penalty by the Trustees or by vote of a majority of the outstanding voting
securities of the Fund, or by the Adviser, on not more than sixty days' nor less
that thirty days' written notice to the other party. This Agreement shall
automatically terminate in the event of its assignment.
This Agreement may be amended only if such amendment is approved by
vote of a majority of the outstanding voting securities of the Fund.
The terms "vote of a majority of the outstanding voting securities",
"assignment", "affiliated person", and "interested persons", when used in this
Agreement, shall have the respective meanings specified in the Investment
Company Act of 1940 and the Rules and Regulations thereunder, subject, however,
to such exemptions as my be granted by the Securities and Exchange Commission
under said Act.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered in their names and on their behalf by the undersigned,
thereunto duly authorized, and their respective seals to be hereto affixed, all
as of the day and year first written above. The undersigned Trustee of the Trust
has executed this Agreement not individually, but as Trustee under the
Declaration and the obligations of this Agreement are not binding upon any of
the Trustees or shareholders of the Trust, individually, but bind only the trust
estate applicable to the Fund.
MFS SERIES TRUST V on
behalf of MFS RESEARCH FUND
By: A. KEITH BRODKIN
------------------------
A. Keith Brodkin
Chairman and Trustee
MASSACHUSETTS FINANCIAL
SERVICES COMPANY
By: A. KEITH BRODKIN
------------------------
A. Keith Brodkin
Chairman
EXHIBIT NO. 99.6(a)
DISTRIBUTION AGREEMENT
DISTRIBUTION AGREEMENT, made this first day of January, 1995, by and
between MFS SERIES TRUST V, a Massachusetts business trust (the "Trust"), on
behalf of each series from time to time of the Trust (referred to individually
as a "Fund" and collectively as the "Funds") and MFS FUND DISTRIBUTORS, INC., a
Delaware corporation (the "Distributor");
NOW, THEREFORE, in consideration of the mutual promises and
undertakings herein contained, the parties hereto agree as follows:
1. The Trust grants to the Distributor the right, as agent of the
Trust, to sell Shares of Beneficial Interest, without par value, of the Funds
(the "Shares") upon the terms herein below set forth during the term of this
Agreement. While this Agreement is in force, the Distributor agrees to use its
best efforts to find purchasers for Shares.
The Distributor shall have the right, as agent of the Trust, to order
from the Trust the Shares needed, but not more than the Shares needed (except
for clerical errors and errors of transmission) to fill unconditional orders for
Shares placed with the Distributor by dealers, banks or other financial
institutions or investors as set forth in the current Prospectus and Statement
of Additional Information (collectively, the "Prospectus") relating to the
Shares. The price which shall be paid to the Trust for the Shares so purchased
shall be the net asset value used in determining the public offering price on
which such orders were based. The Distributor shall notify the Custodian of the
Trust, at the end of each business day, or as soon thereafter as the orders
placed with it have been compiled, of the number of Shares and the prices
thereof which have been ordered through the Distributor since the end of the
previous day.
The right granted to the Distributor to place orders for Shares with
the Trust shall be exclusive, except that said exclusive right shall not apply
to Shares issued in the event that an investment company (whether a regulated or
private investment company or a personal holding company) is merged or
consolidated with the Trust (or a Fund) or in the event that the Trust (or a
Fund) acquires by purchase or otherwise, all (or substantially all) the assets
or the outstanding shares of any such company; nor shall it apply to Shares
issued by the Trust (or a Fund) as a stock dividend or a stock split. The
exclusive right to place orders for Shares granted to the Distributor may be
waived by the Distributor by notice to the Trust in writing, either
unconditionally or subject to such conditions and limitations as may be set
forth in the notice to the Trust. The Trust hereby acknowledges that the
Distributor may render distribution and other services to other parties,
including other investment companies. In connection with its duties hereunder,
the Distributor shall also arrange for computation of performance statistics
with respect to the Trust and arrange for publication of current price
information in newspapers and other publications.
2. The Shares may be sold through the Distributor to dealers, banks and
other financial institutions having sales agreements with the Distributor, upon
the following terms and conditions:
The public offering price, i.e., the price per Share at which the
Distributor or dealers, banks or other financial institutions purchasing Shares
through the Distributor may sell Shares to the public, shall be the public
offering price as set forth in the current Prospectus relating to the Shares,
including a sales charge (where applicable) not to exceed the amount permitted
by Article III, Section 26 of the National Association of Securities Dealers,
Inc.'s Rule of Fair Practice, as amended from time to time. The Distributor
shall retain the sales charge (where applicable) less any applicable dealer or
comparable discount. If the resulting public offering price does not come out to
an even cent, the public offering price shall be adjusted to the nearer cent. In
addition, the Trust agrees that the Distributor may impose certain contingent
deferred sales charges (where applicable) in connection with the redemption of
Shares, not to exceed 6% of the net asset value of Shares, and the Distributor
shall retain (or receive from the Trust, as the case may be) all such contingent
deferred sales charges.
The Distributor may place orders for Shares at the net asset value for
such Shares (as established pursuant to paragraph l above) on behalf of such
purchasers and under such circumstances as the Prospectus describes, provided
that such sales comply with Rule 22d-1 under the Investment Company Act of 1940
or any exemptive order granted by the Securities and Exchange Commission. The
Distributor may also place orders for Shares at net asset value on behalf of
persons reinvesting the proceeds of the redemption or resale of Shares or shares
of other investment companies for which the Distributor acts as Distributor or
as otherwise provided in the current Prospectus.
The net asset value of Shares shall be determined by the Trust or by an
agent of the Trust, as of the close of regular trading of the New York Stock
Exchange on each business day on which said Exchange is open, in accordance with
the method set forth in the governing instruments (as hereinafter defined) of
the Trust. The Trust may also cause the net asset value to be determined in
substantially the same manner or estimated in such manner and as of such other
hour or hours as may from time to time be agreed upon in writing by the Trust
and Distributor. The Trust shall have the right to suspend the sale of Shares
if, because of some extraordinary condition, the New York Stock Exchange shall
be closed, or if conditions obtaining during the hours when the Exchange is open
render such action advisable, or for any other reasons deemed adequate by the
Trust.
3. The Trust agrees that it will, from time to time, take all necessary
action to register the offering and sale of Shares under the Securities Act of
l933, as amended (the "Act"), and applicable state securities laws.
The Distributor shall be an independent contractor and neither the
Distributor nor any of its directors, officers or employees as such, is or shall
be an employee of the Trust. It is understood that Trustees, officers and
shareholders of the Trust are or may become interested in the Distributor, as
Directors, officers and employees, or otherwise and that Directors, officers and
employees of the Distributor are or may become similarly interested in the Trust
and that the Distributor may be or become interested in the Trust as a
shareholder or otherwise. The Distributor is responsible for its own conduct and
the employment, control and conduct of its agents and employees and for injury
to such agents or employees or to others through its agents or employees. The
Distributor assumes full responsibility for its agents and employees under
applicable statutes and agrees to pay all employer taxes thereunder.
4. The Distributor covenants and agrees that, in selling Shares, it
will use its best efforts in all respects duly to conform with the requirements
of all state and federal laws and the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. (the "NASD") relating to the sale of
Shares, and will indemnify and hold harmless the Trust and each of its Trustees
and officers and each person, if any, who controls the Trust within the meaning
of Section 15 of the Act, against any loss, liability, damages, claim or expense
(including the reasonable cost of investigating or defending any alleged loss,
liability, damages, claim or expense and reasonable counsel fees incurred in
connection therewith), arising by reason of any person's acquiring any Shares,
which may be based upon the Act or any other statute or common law, on account
of any wrongful act of the Distributor or any of its employees (including any
failure to conform with any requirement of any state or federal law or the Rules
of Fair Practice of the NASD relating to the sale of Shares) or on the ground
that the registration statement or Prospectus as from time to time amended and
supplemented, includes an untrue statement of a material fact or omits to state
a material fact required to be stated therein or necessary in order to make the
statements therein not misleading, unless any such act, statement or omission
was made in reliance upon information furnished to the Distributor by or on
behalf of the Trust, provided, however, that in no case (i) is the indemnity of
the Distributor in favor of any person indemnified to be deemed to protect the
Trust or any such person against any liability to which the Trust or any such
person would otherwise be subject by reason of willful misfeasance, bad faith or
gross negligence in the performance of its or his duties or by reason of its or
his reckless disregard of its obligations and duties under this Agreement, or
(ii) is the Distributor to be liable under its indemnity agreement contained in
this paragraph with respect to any claim made against the Trust or any person
indemnified unless the Trust or such person, as the case may be, shall have
notified the Distributor in writing within a reasonable time after the summons
or other first legal process giving information of the nature of the claim shall
have been served upon the Trust or upon such person (or after the Trust or such
person shall have received notice of such service on any designated agent), but
failure to notify the Distributor of any such claim shall not relieve it from
any liability which it may have to the Trust or any person against whom such
action is brought otherwise than on account of its indemnity agreement contained
in this paragraph. The Distributor shall be entitled to participate, at its own
expense, in the defense, or, if it so elects, to assume the defense of any suit
brought to enforce any such liability, but, if the Distributor elects to assume
the defense, such defense shall be conducted by counsel chosen by it and
satisfactory to the Trust, or to its officers or Trustees, or to any controlling
person or persons, defendant or defendants in the suit. In the event that the
Distributor elects to assume the defense of any such suit and retain such
counsel, the Trust or such officers or Trustees or controlling person or
persons, defendant or defendants in the suit, shall bear the fees and expenses
of any additional counsel retained by them, but, in case the Distributor does
not elect to assume the defense of any such suit, it shall reimburse the Trust
and such officers and Trustees or controlling person or persons, defendant or
defendants in such suit, for the reasonable fees and expenses of any counsel
retained by them. The Distributor agrees promptly to notify the Trust of the
commencement of any litigation or proceedings against it in connection with the
issue and sale of any Shares.
Neither the Distributor nor any other person is authorized to give any
information or to make any representation on behalf of the Trust, other than
those contained in the registration statement or Prospectus filed with the
Securities and Exchange Commission under the Act (as said registration statement
or Prospectus may be amended or supplemented from time to time), covering the
Shares or other than those contained in periodic reports to shareholders of the
Trust.
5. The Trust will pay, or cause to be paid -
(i) all costs and expenses of the Trust, including fees and
disbursements of its counsel, in connection with the preparation and filing of
any required registration statement or Prospectus under the Act covering Shares
and all amendments and supplements thereto and any notices regarding the
registration of shares, and preparing and mailing to shareholders Prospectuses,
statements and confirmations and periodic reports (including the expense of
setting up in type any such registration statement, Prospectus or periodic
report);
(ii) the expenses (including auditing expenses) of
qualification of the Shares for sale, and, if necessary or advisable in
connection therewith, of qualifying the Trust as a dealer or broker, in such
states as shall be selected by the Distributor and the fees payable to each such
state with respect to shares sold and for continuing the qualification therein
until the Distributor notifies the Trust that it does not wish such
qualification continued;
(iii) the cost of preparing temporary or permanent
certificates for Shares;
(iv) all fees and disbursements of the transfer agent of the
Trust;
(v) the cost and expenses of delivering to the Distributor at
its office in Boston, Massachusetts, all Shares sold through it as Distributor
hereunder; and
(vi) all the federal and state issue and/or transfer taxes
payable upon the issue by or (in the case of treasury Shares) transfer from the
Trust of any and all Shares purchased through the Distributor hereunder.
The Distributor agrees that, after the Prospectus and periodic reports
have been set up in type, it will bear the expense (other than the cost of
mailing to shareholders of the Trust of printing and distributing any copies
thereof which are to be used in connection with the offering of Shares to
dealers, banks or other financial institutions or investors. The Distributor
further agrees that it will bear the expenses of preparing, printing and
distributing any other literature used by the Distributor or furnished by it for
use by dealers, banks or other financial institutions in connection with the
offering of the Shares for sale to the public and expenses of advertising in
connection with such offering. The Distributor will also bear the expense of
sending confirmations and statements to dealers, banks and other financial
institutions having sales agreements with the Distributor. Nothing in this
paragraph 5 shall be deemed to prohibit or conflict with any payment by the
Trust or any Fund to the Distributor pursuant to any Distribution Plan adopted
as in effect pursuant to Rule 12b-1 under the Investment Company Act of 1940.
6. The Trust hereby authorizes the Distributor to repurchase, upon the
terms and conditions set forth in written instructions given by the Trust to the
Distributor from time to time, as agent of the Trust and for its account, such
Shares as may be offered for sale to the Trust from time to time; provided the
Distributor shall have the right, as stated above in paragraph 2 of this
Agreement, to retain (or to receive from the Trust, as the case may be) a
deferred sales charge not to exceed 6% of the net asset value of the Shares so
repurchased.
(a) The Distributor shall notify in writing the Custodian of
the Trust, at the end of each business day, or as soon thereafter as the
repurchases have been compiled, of the number of Shares repurchased for the
account of the Trust since the last previous report, together with the prices at
which such repurchases were made, and upon the request of any Officer or Trustee
of the Trust shall furnish similar information with respect to all repurchases
made up to the time of the request on any day.
(b) The Trust reserves the right to suspend or revoke the
foregoing authorization at any time. Unless otherwise stated, any such
suspension or revocation shall be effective forthwith upon receipt of notice
thereof by an officer of the Distributor, by telegraph or by written notice from
the Trust. In the event that the authorization of the Distributor is, by the
terms of such notice, suspended for more than twenty-four hours or until further
notice, the authorization given by this paragraph 6 shall not be revived except
by action of a majority of the members of the Board of Trustees of the Trust.
(c) The Distributor shall have the right to terminate the
operation of this paragraph 6 upon giving to the Trust thirty days' written
notice thereof.
(d) The Trust agrees to authorize and direct the Custodian to
pay, for the account of the Trust, the purchase price of any Shares so
repurchased against delivery of the certificates, if any, in proper form for
transfer to the Trust or for cancellation by the Trust.
(e) The Distributor shall receive no commission in respect of
any repurchase of Shares under the foregoing authorization and appointment as
agent, except in connection with contingent deferred sales charge as provided in
the current Prospectus relating to the Shares.
(f) The Trust agrees to reimburse the Distributor, from time
to time upon demand, for any reasonable expenses incurred in connection with the
repurchase of Shares pursuant to this paragraph 6.
7. If, at any time during the existence of this Agreement, the Trust
shall deem it necessary or advisable in the best interests of the Trust that any
amendment of this Agreement be made in order to comply with the recommendations
or requirements of the Securities and Exchange Commission or other governmental
authority or to obtain any advantage under Massachusetts, any state or federal
tax laws, it shall notify the Distributor of the form of amendment which it
deems necessary or advisable and the reasons therefore. If the Distributor
declines to assent to such amendment, the Trust may terminate this Agreement
forthwith by written notice to the Distributor without payment of any penalty.
If, at any time during the existence of this Agreement, upon request by the
Distributor, the Trust fails (after a reasonable time) to make any changes in
its governing instruments or in its methods of doing business which are
necessary in order to comply with any requirements of federal or state laws or
regulations, laws or regulations of the Securities and Exchange Commission or of
a national securities association of which the Distributor is or may be a
member, relating to the sale of Shares, the Distributor may terminate this
Agreement forthwith by written notice to the Trust without payment of any
penalty.
8. The Distributor agrees that it will not take any long or short
positions in the Shares except as permitted by paragraphs l and 6 hereof.
Whenever used in this Agreement, the term "governing instruments" shall mean the
Declaration of Trust and the By-Laws of the Trust, as from time to time amended.
9. This Agreement shall become effective on January 1, 1995 and shall
continue in force until August 1, 1996 on which date it will terminate unless
its continuance after August 1, 1996, is specifically approved at least annually
(i) by the vote of a majority of the Board of Trustees of the Trust who are not
interested persons of the Trust or of the Distributor at a meeting specifically
called for the purpose of voting on such approval, and (ii) by the Board of
Trustees of the Trust or by vote of a majority of the outstanding voting
securities of that Fund. The aforesaid requirement that continuance of this
Agreement be "specifically approved at least annually" shall be construed in a
manner consistent with the Investment Company Act of l940 and the Rules and
Regulations thereunder.
This Agreement may be terminated as to any Fund at any time by either
party without payment of any penalty on not more than sixty days' or less than
thirty days' written notice to the other party.
10. This Agreement shall automatically terminate in the event of its
assignment.
11. The terms "vote of a majority of the outstanding voting
securities", "interested person" and "assignment" shall have the respective
meanings specified in the Investment Company Act of l940 and the Rules and
Regulations thereunder, subject, however, to such exemptions as may be granted
by the Securities and Exchange Commission under said Act.
12. This Agreement shall be governed by the laws of The Commonwealth of
Massachusetts.
13. A copy of the Declaration of Trust of the Trust is on file with the
Secretary of State of The Commonwealth of Massachusetts. The Distributor
acknowledges that the obligations of or arising out of this instrument are not
binding upon any of the Trust's trustees, officers, employees, agents or
shareholders individually, but are binding solely upon the assets and property
of the Trust. If this instrument is executed by the Trust on behalf of one or
more series of the Trust, the Distributor further acknowledges that the assets
and liabilities of each series of the Trust are separate and distinct and that
the obligations of or arising out of this instrument are binding solely upon the
assets or property of the series on whose behalf the Trust has executed this
instrument. If the Trust has executed this instrument on behalf of more than one
series of the Trust, the Distributor also agrees that the obligations of each
series hereunder shall be several and not joint, in accordance with its
proportionate interest hereunder, and the Distributor agrees not to proceed
against any series for the obligations of another series.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above.
MFS SERIES TRUST V
On behalf of MFS Total Return Fund
MFS Research Fund
By: W. THOMAS LONDON
------------------------------
W. Thomas London as officer
and not individually
MFS FUND DISTRIBUTORS, INC.
By: WILLIAM W. SCOTT, JR.
------------------------------
William W. Scott, Jr.
President
EXHIBIT NO. 99.7
MFS TOTAL RETURN FUND
RETIREMENT PLAN FOR NON-INTERESTED PERSON TRUSTEES
MFS Total Return Fund (the "Fund") has adopted this Retirement Plan for
Non-Interested Person Trustees (the "Plan"). The Plan has been established for
the purpose of providing certain benefits to eligible Independent Trustees of
the Fund, or their beneficiaries, after termination of the Independent Trustees'
services as such.
1. DEFINITIONS
The following terms shall have the following meanings:
Accrued Benefit: A benefit which is equal to the Normal
Retirement Benefit calculated using an Independent Trustee's
Years of Service and Annual Compensation as of the
determination date.
Actuarial Equivalent: A benefit equal in value, based on (a)
an interest rate equal to the immediate annuity rate published
by the Pension Guaranty Corporation for the January of the
Plan Year of calculation and (b) the 1983 Individual Annuity
Mortality Tables for Males.
Annual Compensation: The average of the total compensation
(retainer and meeting fees) received by an Independent Trustee
during each of the last three Plan Years preceding his
termination of services as such for which he served either as
an Independent Trustee or a Nonaffiliated Trustee for the
entire year; provided, that if an Independent Trustee served
as an Independent Trustee and/or a Nonaffiliated Trustee for
fewer than three full Plan Years prior to his termination of
services, there shall be taken into account his annualized
compensation for the one or more most recent partial Plan
Years (if any) for which he served as an Independent Trustee
or a Nonaffiliated Trustee that, when aggregated with his full
Plan Years, does not exceed three Plan Years.
Disability: Disability as defined in ss.22(e)(3) of the
Internal Revenue Code of 1986, as amended.
Independent Trustee: A Trustee of the Fund who is not an
"interested person" (as defined in Section 2(a)(19) of the
Investment Company Act of 1940, as amended) of the Fund,
Lifetime Advisers, Inc. ("Lifetime"), Massachusetts Financial
Services Company ("MFS") or MFS Financial Services, Inc.
("FSI").
Nonaffiliated Trustee: A Trustee of the Fund who has no
material business or professional relationship with the Fund,
Lifetime, MFS or FSI and who is subject to being declared an
"interested person" solely by reason of his relationship with
the Fund, Lifetime, MFS or FSI during the two most recently
completed fiscal years of the Fund.
Normal Retirement Benefit: An annual benefit at Normal
Retirement Date equal to 5% of an Independent Trustee's Annual
Compensation multiplied by the Independent Trustee's whole
Years of Service, up to a maximum of ten Years of Service,
payable in the Normal Form of Benefit, as defined in ss.3(g).
Normal Retirement Date: December 31 of the Plan Year in which
an Independent Trustee attains age 73.
Plan Year: January 1 through December 31.
Retirement: Termination of service of an Independent Trustee
after having completed at least Five Years of Service and
having attained age 62, other than: (1) any termination by
reason of death; (ii) any termination by reason of Disability,
provided that any Independent Trustee who suffers a Disability
and who has otherwise satisfied the requirements for
Retirement shall have the right to elect whether his
termination is by reason of Retirement or by reason of
Disability; or (iii) any termination resulting from the
Independent Trustee's willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the
conduct of the office of Independent Trustee ("Misconduct").
Year of Service: A Plan Year during which an Independent
Trustee completed at least six months of service as either a
Nonaffiliated Trustee or an Independent Trustee.
2. ELIGIBILITY
No Trustee of the Fund shall be eligible to participate in the
Plan or be entitled to any rights or benefits hereunder until
the Trustee becomes an Independent Trustee. Each individual
who completes any service as an Independent Trustee on or
after the Effective Date of this Plan, and who so elects in
such manner as the Committee determines from time to time,
will be eligible to participate in the Plan.
3. RETIREMENT DATE; AMOUNT OF BENEFIT
(a) Retirement. Each Independent Trustee shall retire on
that Independent Trustee's Normal Retirement Date, if
he has not previously ceased to perform services as
an Independent Trustee. Each retired Independent
Trustee is referred to as a "Retired Trustee".
(b) Normal Retirement Benefit. Upon an Independent
Trustee's Retirement on his Normal Retirement Date,
the Independent Trustee shall receive, commencing on
his Normal Retirement Date, his Normal Retirement
Benefit.
(c) Early Retirement Benefit. Upon an Independent
Trustee's Retirement prior to his Normal Retirement
Date, the Independent Trustee shall receive an Early
Retirement Benefit commencing on the Independent
Trustee's date of Retirement. The benefit payable on
an Independent Trustee's early Retirement shall be
his Accrued Benefit reduced by 5% for every year that
payment of an Early Retirement Benefit precedes that
Trustee's Normal Retirement Date.
(d) Deferred Termination Benefit. If an Independent
Trustee's service as such terminates, other than (i)
termination as a result of his Misconduct or (ii)
termination that constitutes termination by reason of
his Retirement, Disability or death, after he has
completed at least five Years of Service, he shall
receive, commencing on the date he attains age 62,
his Accrued Benefit reduced by 55%.
(e) Disability Benefit. If an Independent Trustee's
service as such terminates by reason of his
Disability and, if the Independent Trustee is
eligible for Retirement, he elects that his
termination be treated as being by reason of
Disability, he shall receive his Accrued Benefit paid
for the one hundred twenty (120) months immediately
following the month in which his service so
terminates. In the event the Independent Trustee dies
before he has received one hundred twenty (120)
payments, monthly payments in the same amount shall
be paid to his beneficiary until the number of
payments to the Independent Trustee plus the number
of payments to the beneficiary equal one hundred
twenty (120) payments.
(f) Death Benefit. Each Independent Trustee who elects to
participate in this Plan shall designate a
beneficiary in such form as the Committee approves
from time to time to receive any benefits payable
under this Plan in the event of his death. In the
event there is no validly designated beneficiary in
existence on the date of an Independent Trustee's
death, his beneficiary shall be his surviving spouse,
if any, or if none, his estate. The beneficiary of an
Independent Trustee who dies during service, and with
respect to whom benefit payments have not commenced,
shall be entitled to that Independent Trustee's
Accrued Benefit paid for the one hundred twenty (120)
months immediately following death.
(g) Form of Benefit. Except as otherwise provided in
thisss.3, benefits payable under this ss.3 shall be
payable in the form of a monthly annuity for the life
of the Independent Trustee, and, if the Independent
Trustee dies before he has received one hundred
twenty (120) payments, monthly payments in the same
amount shall be payable to his beneficiary until the
number of payments to the Independent Trustee plus
the number of payments to the beneficiary equal one
hundred twenty (120) payments (the "Normal Form of
Benefit"). However, notwithstanding any other
provision of this Section 3 to the contrary, if an
Independent Trustee's beneficiary is entitled to
payments under this Plan upon the Independent
Trustee's death, then (i) if the Independent
Trustee's beneficiary is his estate, the lump sum
Actuarial Equivalent present value of those payments
shall be paid to the estate in a single lump sum as
soon as administratively reasonable following the
Independent Trustee's death, and (ii) if the
Independent Trustee's beneficiary is other than his
estate, the Committee in its sole discretion may
direct that the Actuarial Equivalent value of those
payments be paid in such form other than the Normal
Form of Benefit (including without limitation a lump
sum) as it determines.
4. PAYMENT OF BENEFIT; ALLOCATION OF COSTS
The Fund is responsible for the payment of the benefits, as
well as all expenses of administration of the Plan, including
without limitation all accounting, legal and actuarial fees
and expenses. The obligations of the Fund to pay such benefits
and expenses will not be secured or funded in any manner, and
the obligations will not have any preference over the lawful
claims of the Fund's creditors and shareholders. The Fund
shall be under no obligation to segregate any assets for the
purpose of providing retirement benefits pursuant to this
Plan, and to the extent that any Independent Trustee or
beneficiary acquires a right to receive a benefit under the
Plan, such right shall be limited to that of a recipient of an
unfunded, unsecured promise to pay amounts in the future and
such person's position with respect to such amounts shall be
that of a general unsecured creditor of the Fund. To the
extent that the Fund consists of one or more separate
portfolios, costs and expenses will be allocated among the
portfolios by the Board of Trustees of the Fund (the "Board")
in a manner that is determined by the Board to be fair and
equitable under the circumstances.
5. ADMINISTRATION
(a) The Committee. Any question involving entitlement to
payments under or the interpretation or
administration of the Plan will be referred to a
committee (the "Committee") of Independent Trustees
designated by the Board. Except as otherwise provided
herein, the Committee will make all interpretations
and determinations necessary or desirable for the
Plan's administration, and such interpretations and
determinations will be final and conclusive.
(b) Powers of the Committee. The Committee will represent
and act on behalf of the Fund in respect of the Plan
and, subject to the other provisions of the Plan, the
Committee may adopt, amend or repeal by-laws or other
regulations, relating to the administration of the
Plan, the conduct of the Committee's affairs, its
rights or powers or the rights or powers of its
members or of the Board. The Committee will report to
the Board from time to time on its activities in
respect of the Plan. The Committee or persons
designated by it will cause such records to be kept
as may be necessary for the administration of the
Plan.
6. MISCELLANEOUS PROVISIONS
(a) Rights Not Assignable. The right to receive any
payment under the Plan may not be transferred,
assigned, pledged or otherwise alienated.
(b) Amendment, etc. The Committee, with the concurrence
of the Board, may at any time amend or terminate the
Plan or waive any provision of the Plan, provided
that no amendment, termination or waiver will impair
the rights of an Independent Trustee to receive upon
Retirement the payments which would have been made to
that Independent Trustee had there been no such
amendment, termination or waiver (based upon that
Independent Trustee's Years of Service to the date of
such amendment, termination or waiver) or the rights
of a former Independent Trustee or Retired Trustee to
receive any benefit due under the Plan, without the
consent of such present or former Independent Trustee
or Retired Trustee, as the case may be. A present or
former Independent Trustee or Retired Trustee may
elect to waive receipt of his benefit by so advising
the Committee.
Notwithstanding any provision of this Plan to the
contrary, however, in the event of the sale of all or
substantially all of the assets of the Fund, the
liquidation or dissolution of the Fund, or any merger
or other similar reorganization of the Fund that the
Fund does not survive:
(i) if although the Fund does not survive there
is a surviving entity, all rights and
benefits (including without limitation
those of Retired Trustees) under the Plan
shall cease upon consummation of such
transaction, unless, and only to the extent
that, the board of trustees (or other
similar governing body) of the surviving
entity agrees to assume the Plan and/or to
provide any such rights or benefits; and
(ii) if there is no surviving entity, the Board
shall have the right to take specific
action to terminate the Plan and/or to
cause any or all rights and benefits
(including without limitation those of
Retired Trustees) under the Plan to cease
as of the date of such event but, in the
absence of any such specific action, the
lump sum Actuarial Equivalent present value
of the Accrued Benefit of each present or
former Independent Trustee or Retired
Trustee (or beneficiary thereof) who on the
date of liquidation is receiving or
entitled to receive a benefit under the
Plan or would be entitled to receive a
benefit under the Plan based on his actual
or deemed termination of service as of the
date of such liquidation shall be paid to
such person.
(c) No Right to Re-election. Nothing in the Plan will
create any obligation on the part of the Board to
nominate any Independent Trustee for re-election.
(d) Vacancies. Although the Board will retain the right
to increase or decrease its size, it shall be the
general policy of the Board to replace each person
who ceases to serve as an Independent Trustee by
selecting a new Independent Trustee from candidates
duly proposed.
(e) Consulting. Each Retired Trustee may render such
services for the Fund, for such compensation, as may
be agreed upon from time to time by such Trustee and
the Board of the Fund.
(f) Construction. Whenever any masculine terminology is
used in this Plan, it shall be taken to include the
feminine, unless the context otherwise indicates. The
titles and headings included herein are for
convenience only and shall not be construed as in any
way affecting or modifying the text of this Plan,
which text shall control. This Plan shall be
construed and regulated in accordance with the laws
of The Commonwealth of Massachusetts, except to the
extent such state law is preempted by federal law.
(g) Effective Date. This Plan will become effective on
January 1, 1991 (the "Effective Date").
<PAGE>
EXHIBIT NO. 99.8(a)
CUSTODIAN AGREEMENT
Between
MASSACHUSETTS FINANCIAL TOTAL RETURN TRUST
and
INVESTORS BANK & TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
PAGE NO.
1. Bank Appointed Custodian 1
2. Definitions 1
I 2.1 Authorized Person 1
2.2 Security 1
2.3 Portfolio security 1
2.4 Officers' Certificate 1
2.5 Book-Entry System 2
2.6 Depository 2
3. Proper Instructions 2
4. Separate Accounts 2
5. Certification as to Authorized Persons 2
6. Custody of Cash and Securities of the Fund 2
6.1 Cash 2
(a) Purchase of Securities 3
(b) Redemptions 3
(c) Distributions and Expenses of Fund 3
(d) Payment in Respect of Securities 3
(e) Repayment of Loans 3
(f) Repayment of Cash 3
(g) Foreign Exchange Transactions 3
(h) Commodities 4
(i) Other Authorized Payments 4
(j) Termination 4
6.2 Securities 4
(a) Book-Entry System 5
(b) Use of a Depository 6
(c) Use of Book-Entry System for Commercial Paper 7
(d) Use of Bond Immobilization Programs 7
(e) Eurodollar CDs 8
6.3 Options and Futures Transactions 8
(a) Puts and Calls Traded on Securities Exchanges, NASDAQ 8
or Over-the Counter
(b) Puts, Calls and Futures Traded on Commodities Exchanges 8
(c) Segregated Account 9
<PAGE>
TABLE OF CONTENTS (Continued)
PAGE NO.
6.4 Segregated Account for "When Issued", "Forward Commitment" 9
and Reverse Repurchase Agreement Transactions
6.5 Interest Bearing Call or Time Deposits 10
7. Transfer of Securities 10
8. Redemptions 11
9. Merger, Dissolution, etc. of Fund 11
10. Actions of Bank Without Prior Authorization 12
11. Maintenance of Records; Fund Evaluation, Accounting Services 13
12. Concerning the Bank 14
12.1 Performance of Duties 14
12.2 Fees and Expenses of Bank 15
12.3 Advances by Bank 15
13. Termination 15
14. Notices 16
15. Amendments 17
16. Parties 17
17. Governing Law 17
18. Interpretive and Additional Provisions 17
19. Delegation of Certain Custodian Duties to Massachusetts 17
Financial Services Company ("MFS")
SIGNATURE PAGE 18
<PAGE>
CUSTODIAN AGREEMENT
AGREEMENT made as of this 1st. day of October, 1991 between
Massachusetts Financial Total Return Trust established as a Massachusetts
Business Trust under the laws of the Commonwealth of Massachusetts (the "Fund"),
and INVESTORS BANK & TRUST COMPANY ("Bank").
The Fund, an open end management investment company, desires to place
and maintain all of its portfolio securities and cash in the custody of the
Bank. The Bank has at least the minimum qualifications required by Section
17(f)(1) of the Investment Company Act of 1940 to act as custodian of the
portfolio securities and cash of the Fund, and has indicated its willingness to
so act, subject to the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements contained herein, the parties hereto agree as follows:
1. Bank appointed custodian. The Fund hereby appoints the Bank as
custodian of its portfolio securities and cash delivered to the Bank as
hereinafter described, and the Bank agrees to act as such upon the terms and
conditions hereinafter set forth.
2. Definitions. Whenever used herein, the terms listed below will have
the following meaning:
2.1 Authorized Person. Authorized Person will mean any of the
persons duly authorized to give Proper Instructions or otherwise act on behalf
of the Fund by appropriate resolution of the Board of Trustees of the Fund (the
"Board") or with respect to actions regarding transfers of securities and other
investment activities, those persons duly authorized by the investment adviser
of the Fund.
2.2 Security. The term security as used herein will have the
same meaning as when such term is used in the Securities Act of 1933 as amended,
including, without limitation, any note, stock, treasury stock, bond, debenture,
evidence of indebtedness, certificate of interest or participation in any profit
sharing agreement, collateral-trust certificate, preorganization certificate or
subscription, transferable share, investment contract, voting-trust certificate,
certificate of deposit for a security, fractional undivided interest in oil,
gas, or other mineral rights, any put, call, straddle, option, or privilege on
any security, certificate of deposit, or group or index of securities (including
any interest therein or based on the value thereof), or any put, call, straddle,
option, or privilege entered into on a national securities exchange relating to
a foreign currency, or, in general, any interest or instrument commonly known as
a "security", or any certificate of interest or participation in, temporary or
interim certificate for, receipt for, guarantee of, or warrant or right to
subscribe to, or option contract to purchase or sell any of the foregoing and
futures, forward contracts and options thereon.
2.3 Portfolio Security. Portfolio security will mean any
security owned by the Fund.
2.4 Officers' Certificate. Officers' Certificate will mean
unless otherwise indicated, any request, direction, instruction, or
certification in writing signed by any Authorized Person or Persons of the Fund
as the Fund shall designate to the Bank in writing from time to time.
2.5 Book-Entry System. Book-Entry System shall mean the Federal
Reserve-Treasury Department Book Entry System for United States government,
instrumentality and agency securities operated by the Federal Reserve Banks, its
successor or successors and its nominee or nominees.
2.6 Depository. Depository shall mean The Depository Trust
Company ("DTC"), or Participants Trust Company ("PTC"), both of which are
clearing agencies registered with the Securities and Exchange Commission under
Section 17A of the Securities Exchange Act of 1934, and their respective
successor or successors and nominee or nominees. The term "Depository" shall
further mean and include any other person authorized to act as a depository
under the Investment Company Act of 1940, its successor or successors and its
nominee or nominees, specifically identified in a certified copy of a resolution
of the Fund's Board.
3. Proper Instructions. Proper Instructions shall mean (i) instructions
regarding the purchase or sale of securities for the portfolio of the Fund, and
payments and deliveries in connection therewith, given by an Authorized Person
or Persons as designated by the Fund in writing from time to time, such
instructions to be given in such form and manner as the Bank and the Fund shall
agree upon from time to time, and (ii) instructions (which may be continuing
instructions) regarding other matters signed or initialed by such one or more
Authorized Persons. Oral instructions will be considered Proper Instructions if
the Bank reasonably believes them to have been given by an Authorized Person.
The Fund shall cause all oral instructions to be promptly confirmed in writing.
The Bank shall act upon and comply with any subsequent Proper Instruction which
modifies a prior instruction and the Bank shall make reasonable efforts to
detect any discrepancy between the original instruction and such confirmation
and to report such discrepancy to the Fund. Proper Instructions may include
communication effected directly between electro-mechanical or electronic devices
provided that the Fund and the Bank are satisfied that such procedures afford
adequate safeguards for the Fund's assets.
4. Separate Accounts. If the Fund has more than one series or
portfolio, the Bank will segregate the assets of the Fund into a Separate
Account for each such series or portfolio containing the assets of such series
or portfolio (and all investment earnings thereon), all as directed from time to
time by Proper Instructions.
5. Certification as to Authorized Persons. The Secretary or Assistant
Secretary of the Fund will at all times maintain on file with the Bank his
certification to the Bank, in such form as may be acceptable to the Bank, of (i)
the names and signatures of the Authorized Persons and (ii) the names of the
members of the Board, it being understood that upon the occurrence of any change
in the information set forth in the most recent certification on file (including
without limitation any person named in the most recent certification who is no
longer an Authorized Person as designated therein), the Secretary or Assistant
Secretary of the Fund will sign a new or amended certification setting forth the
change and the new, additional or omitted names or signatures. The Bank will be
entitled to rely and act upon any Officers' Certificate given to it by the Fund.
6. Custody of Cash and Securities. As custodian for the Fund, the Bank
will keep safely all of the portfolio securities delivered to the Bank, and will
deposit to the account of the Fund all of the cash of the Fund delivered to the
Bank, as set forth below.
6.1 Cash. The Bank will open and maintain a separate account or
accounts in the name of the Fund or, if directed by the Fund, in the name of the
Bank, as custodian of the Fund, subject only to draft or order by the Bank
acting pursuant to the terms of this Agreement. The Bank will hold in such
account or accounts as custodian, subject to the provisions hereof, all cash
received by it, including borrowed funds, for the account of the Fund. Upon
receipt by the Bank of Proper Instructions (which may be continuing
instructions) or in the case of payments for redemptions and repurchases of
outstanding shares of beneficial interest of the Fund, notification from the
Fund's transfer agent as provided in Section 8, requesting such payment,
designating the payee or the account or accounts to which the Bank will release
funds for deposit, and stating that it is for a purpose permitted under the
terms of this Section 6.1, specifying the applicable subsection, or describing
such purpose with sufficient particularity to permit the Bank to ascertain the
applicable subsection, the Bank will make payments of cash held for the accounts
of the Fund, insofar as funds are available for that Purpose only as permitted
in (a)-(j) below.
(a) Purchase of Securities: Upon the purchase of
securities for the Fund, against contemporaneous receipt of such securities by
the Bank registered in the name of the Fund or in the name of, or properly
endorsed and in form for transfer to, the Bank, or a nominee of the Bank, or
receipt for the account of the Bank through use of (1) the Book-Entry System
pursuant to Section 6.2(a)(3) below, (2) Depository pursuant to 6.2(b) below, or
(3) Book-Entry Paper pursuant to Section 6.2(c) below, each such payment to be
made at the purchase price shown in the Proper Instructions received by the Bank
before such payment is made;
(b) Redemptions: In such amount as may be necessary for
the repurchase or redemption of shares of beneficial interest of the Fund
offered for repurchase or redemption in accordance with Section 8 of this
Agreement;
(c) Distributions and Expenses of Fund: For the payment
on the account of the Fund of dividends or other distributions to shareholders
as may from time to time be declared by the Board, interest, taxes, management
or supervisory fees, distribution fees, fees of the Bank for its services
hereunder and reimbursement of the expenses and liabilities of the Bank as
provided hereunder, fees of any transfer agent, fees for legal, accounting, and
auditing services, or other operating expenses of the Fund;
(d) Payment in Respect of Securities: For payments in
connection with the conversion, exchange or surrender of Portfolio securities or
securities subscribed to by the Fund held by or to be delivered to the Bank;
(e) Repayment of Loans: To repay loans of money made to
the Fund, but, in the case of final payment, only upon redelivery to the Bank of
any Portfolio securities pledged or hypothecated therefor and upon surrender of
documents evidencing the loan;
(f) Repayment of Cash: To repay the cash delivered to
the Fund for the purpose of collateralizing the obligation to return to the Fund
Portfolio securities borrowed from the Fund but only upon redelivery to the Bank
of such borrowed Portfolio securities;
(g) Foreign Exchange Transactions: For payments in
connection with foreign exchange contracts or options to purchase and sell
foreign currencies for spot and future delivery which may be entered into by the
Bank on behalf of the Fund upon the receipt of Proper Instructions, such Proper
Instructions to specify the currency broker or banking institution (which may be
the Bank, or any other sub custodian or agent hereunder, acting as principal)
with which the contract or option is made, and the Bank shall have no duty with
respect to the selection of such currency brokers or banking institutions with
which the Fund deals or for their failure to comply with the terms of any
contract or option;
(h) Commodities: Upon the purchase of commodities for
the Fund, against contemporaneous receipt of such commodities by the Bank
registered in the name of the Fund or in the name of, or properly endorsed and
in form for transfer to, the Bank, or a nominee of the Bank;
(i) Other Authorized Payments: For other authorized
transactions of the Fund, or other obligations of the Fund incurred for proper
Fund purposes including, without limitation, payments in connection with any
tender offer by the Fund; provided that before making any such payment the Bank
will also receive an Officer's Certificate naming the person or persons to whom
such payment is to be made, and either describing the transaction for which
payment is to be made and declaring it to be an authorized transaction of the
Fund, or specifying the amount of the obligation for which payment is to be
made, setting forth the purpose for which such obligation was incurred and
declaring such purpose to be a proper corporate purpose; and
(j) Termination: Upon the termination of this Agreement
as hereinafter set forth pursuant to Section 9 and Section 13 of this Agreement.
The Bank is hereby authorized to endorse for collection
and collect on behalf of and in the name of the Fund all checks, drafts, or
other negotiable or transferable instruments or other orders for the payment of
money received by it for the account of the Fund.
6.2 Securities. Except as otherwise provided herein, the Bank as
custodian, will receive and hold pursuant to the provisions hereof, in a
separate account or accounts and physically segregated at all times from those
of other persons, any and all Portfolio securities which may now or hereafter be
delivered to it by or for the account of the Fund. All such Portfolio securities
will be held or disposed of by the Bank for, and subject at all times to, the
instructions of the Fund pursuant to the terms of this Agreement. Subject to the
specific provisions herein relating to Portfolio securities that are not
physically held by the Bank, the Bank will register all Portfolio securities
(unless otherwise directed by Proper Instructions or an Officers' Certificate),
in the name of a registered nominee of the Bank as defined in the Internal
Revenue Code and any Regulations of the Treasury Department issued thereunder,
and will execute and deliver all such certificates in connection therewith as
may be required by such laws or Regulations or under the laws of any State. The
Bank will ensure that the specific securities physically held by it hereunder
will be at all times identifiable and will exercise prudent care and use its
best efforts to the end that the other securities held by it hereunder will be
at all times identifiable.
The Bank will use the same care with respect to the
safekeeping of portfolio securities and cash of the Fund held by it as it uses
in respect of its own similar property (which will at minimum be reasonable
care) but it need not maintain any special insurance for the benefit of the
Fund. The Bank shall provide to the Fund, at least annually and upon request,
information relating to its insurance coverage. The Bank will also immediately
notify the Fund in the event any of its insurance coverage is materially
changed, cancelled or not renewed.
The Fund will from time to time furnish to the Bank
appropriate instruments to enable it to hold or deliver in proper form for
transfer, or to register in the name of its registered nominee, any securities
which it may hold for the account of the Fund and which may from time to time be
registered in the name of the Fund.
Neither the Bank nor any nominee of the Bank will vote
any of the portfolio securities held hereunder by or for the account of the
Fund, except in accordance with Proper Instructions or an Officers' Certificate.
The Bank will promptly execute and deliver, or cause to
be executed and delivered, to the Fund all notices, proxies and proxy soliciting
materials with respect to such securities, such proxies to be executed by the
registered holder of such securities (if registered otherwise than in the name
of the Fund), but without indicating the manner in which such proxies are to be
voted.
(a) Book-Entry System. Provided (i) the Bank has
received a certified copy of a resolution of the Board specifically approving
deposits of Fund assets in the Book-Entry System, and (ii) for each year
following such approval, the Board has reviewed and approved the arrangement and
has not delivered an Officer's Certificate to the Bank indicating that it has
withdrawn its approval:
1. The Bank may keep Securities of the Fund in the
Book-Entry System provided that such securities are represented in an account
("Account") of the Bank (or its agent) in such System which shall not include
any assets of the Bank (or such agent) other than assets held as a fiduciary,
custodian, or otherwise for customers.
2. The records of the Bank (and any such agent) with
respect to the Fund's participation in the Book-Entry System through the Bank
(or any such agent) will identify by book entry securities belonging to the Fund
which are included with other securities deposited in the Account and shall at
all times during the regular business hours of the Bank (or such agent) be open
for inspection by duly authorized officers, employees or agents of the Fund.
Where securities are transferred to the Fund's account, the Bank shall also, by
book entry or otherwise, identify as belonging to the Fund a quantity of
securities in fungible bulk of securities (i) registered in the name of the Bank
or its nominee, or (ii) shown on the Bank's account on the books of the Federal
Reserve Bank.
3. The Bank (or its agent) shall pay for securities
purchased for the account of the Fund or shall pay cash collateral against the
return of securities loaned by the Fund upon (i) receipt of advice from the
Book-Entry System that such Securities have been transferred to the Account, and
(ii) the making of an entry on the records of the Bank (or its agent) to reflect
such payment and transfer for the account of the Fund. The Bank shall send the
Fund a confirmation, as defined by Rule 17f-4 under the Investment Company Act
of 1940, of any transfers to or from the account of the Fund.
4. The Bank will promptly provide the Fund with any
report obtained by the Bank or its agent on the Book-Entry System's accounting
system, internal accounting control and procedures for safeguarding securities
deposited in the Book-Entry System. The Bank will provide the Fund and cause any
such agent to provide, at such times as the Fund may reasonably require, with
reports by independent public accountants on the accounting system, internal
accounting control and procedures for safeguarding securities, including
Securities deposited in the Book-Entry System, relating to the services provided
by the Bank or such agent under the Agreement.
5. Anything to the contrary in the Agreement
notwithstanding, the Bank shall be liable to the Fund for any loss or damage to
the Fund resulting from use of the Book-Entry System by reason of any
negligence, willful misfeasance or bad faith of the bank or any of its agents or
of any of its or their employees or from any negligent disregard by the Bank or
any such agent of its duty to enforce effectively such rights as it may have
against the Book-Entry System; at the election of the Fund, it shall be entitled
to be subrogated for the Bank in any claim against the Book-Entry System or any
other person which the Bank or its agent may have as a consequence of any such
loss or damage if and to the extent that the Fund has not been made whole for
any loss or damage.
(b) Use of a Depository. Provided (i) the Bank has
received a certified copy of a resolution of the Fund's Board specifically
approving deposits in DTC and PTC or other such Depository; (ii) the Bank
appoints any such depository its agent; and (iii) for each year following such
Board approval, the Board has reviewed and approved the arrangement and has not
delivered an Officer's Certificate to the Bank indicating that it has withdrawn
its approval:
1. The Bank may use a Depository to hold, receive,
exchange, release, lend, deliver and otherwise deal with the securities owned by
the Fund, including stock dividends, rights and other items of like nature, and
to receive and remit to the Bank on behalf of the Fund all income and other
payments thereon and to take all steps necessary and proper in connection with
the collection thereof, provided that such securities are held in an account of
the Bank (or its agent) in such Depository which shall not include any assets of
the Bank (or such agent) other than assets held as a fiduciary, custodian, or
otherwise for customers. The records of the Bank shall identify those securities
of the Trust held by the Depository.
2. Registration of the Fund's securities may be made
in the name of any nominee or nominees used by such Depository.
3. Payment for securities purchased and sold may be
made through the clearing medium employed by such Depository for transactions of
participants acting through it. Upon any purchase of securities for the account
of the Fund, payment will be made only upon delivery of the securities to or for
the account of the Fund and the Fund shall pay cash collateral against the
return of securities loaned by the Fund only upon delivery of the securities to
or for the account of the Fund; and upon any sale of securities for the account
of the Fund, delivery of the securities will be made only against payment
thereof or, in the event securities are loaned, delivery of securities will be
made only against receipt of the initial cash collateral to or for the account
of the Fund.
4. Anything to the contrary in the Agreement
notwithstanding, the Bank shall be liable to the Fund for any loss or damage to
the Fund resulting from use of a Depository by reason of any negligence, willful
misfeasance or bad faith of the Bank or any of its agents or of any of its or
their employees or from any negligent disregard by the Bank or any such agent of
its duty to enforce effectively such rights as it may have against a Depository.
At the election of the Fund, it shall be entitled to be subrogated for the Bank
in any claim against a Depository or any other person which the Bank or its
agent may have as a consequence of any such loss or damage if and to the extent
that the Fund has not been made whole for any loss or damage. In this
connection, with respect to the use of the Depository by the Bank, the Bank,
without cost to the Fund, shall ensure that: (i) the Depository obtains
replacement of any certificated security deposited with it in the event such
security is lost, destroyed, wrongfully taken or otherwise not available to be
returned to the Bank upon its request; (ii) any proxy materials received by
Depository with respect to securities of the Fund deposited with such Depository
are forwarded immediately to the Bank for prompt transmittal to the Fund; (iii)
such Depository immediately forwards to the Bank confirmation of any purchase or
sale of securities for the account of the Fund and of the appropriate book entry
made by such Depository to the Fund's account; (iv) such Depository prepares and
delivers to the Bank such records with respect to the performance of the Bank's
obligations and duties hereunder as may be necessary for the Fund to comply with
the record keeping requirements of Section 31(a) of the Act and Rule 31a
thereunder and such other rules and regulations relating to record keeping
requirements of the Fund as may be enacted from time to time; and (v) such
Depository delivers to the Bank and the Fund all internal accounting control
reports, whether or not audited by an independent public accountant, as well as
such other reports as the Fund may reasonably request in order to verify the
Fund's securities held by such Depository.
(c) Use of Book-Entry System for Commercial Paper.
Provided (i) the Bank has received a certified copy of a resolution of the Board
specifically approving participation in a system maintained by the Bank for the
holding of commercial paper in book-entry form ("Book Entry Paper") and (ii) for
each year following such approval the Board has reviewed and approved the
arrangements, upon receipt of Proper Instructions and upon receipt of
confirmation from an Issuer (as defined below) that the Fund has purchased such
Issuer's Book Entry Paper, the Bank shall issue and hold in book-entry form, on
behalf of the Fund, commercial paper issued by issuers with whom the Bank has
entered into a book-entry agreement (the "Issuers"). In maintaining its Book
Entry Paper System, the Bank agrees that:
1. The Bank will maintain all Book Entry Paper held
by the Fund in an account of the Bank that includes only assets held by it for
customers;
2. The records of the Bank with respect to the
Fund's purchase of Book Entry Paper through the Bank will identify, by book
entry, Commercial Paper belonging to the Fund which is included in the Book
Entry Paper System and shall at all times during the regular business hours of
the Bank be open for inspection by duly authorized officers, employees or agents
of the Fund.
3. (a) The Bank shall pay for Book Entry Paper
purchased for the account of the Fund upon contemporaneous (i) receipt of advice
from the Issuer that such sale of Book Entry Paper has been effected, and (ii)
the making of an entry on the records of the Bank to reflect such payment and
transfer for the account of the Fund.
(b) The Bank shall cancel such Book Entry Paper
obligation upon the maturity thereof upon contemporaneous (i) receipt of advice
that payment for such Book Entry Paper has been transferred to the Fund, and
(ii) the making of an entry on the records of the Bank to reflect such payment
for the account of the Fund .
4. The Bank shall transmit to the Fund a transaction
journal confirming each transaction in Book Entry Paper for the account of the
Fund on the next business day following the transaction;
5. The Bank will send to the Fund such reports on
its system of internal accounting control as the Fund may reasonably request
from time to time;
(d) Use of Bond Immobilization Programs. Provided (i)
the Bank has received a certified copy of a resolution of the Board specifically
approving the maintenance of portfolio securities in an immobilization program
operated by a bank which meets the requirements of Section 26(a)(1) of the
Investment Company Act of 1940, and (ii) for each year following such approval
the Board has reviewed and approved the arrangement and has not delivered an
officer's Certificate to the Bank indicating that it has withdrawn its approval,
the Bank shall enter into such immobilization program with such bank acting as a
sub custodian hereunder.
(e) Eurodollar CDs. Any Eurodollar CDs belonging to the
Fund may be physically held by the European branch of the U.S. banking
institution that is the issuer of such Eurodollar CD (a "European Branch"),
provided that such securities are identified on the books of the Bank as
belonging to the Fund and that the books of the Bank identify the European
branch holding such securities. Notwithstanding any other provision of this
Agreement to the contrary, except as stated in the first sentence of this
subparagraph (e), the Bank shall be under no other duty with respect to such
Eurodollar CDs belonging to the Fund, and shall have no liability to the Fund or
its shareholders with respect to the actions, inactions, whether negligent or
otherwise of such European Branch in connection with such Eurodollar CDs, except
for any loss or damage to the Fund resulting from the Bank's own negligence,
willful misfeasance or bad faith in the performance of its duties hereunder.
6.3 Options and Futures Transactions.
(a) Puts and Calls Traded on Securities Exchanges, NASDAQ or
Over-the-Counter.
1. The Bank shall take action as to put options
("puts") and call options ("calls") purchased or sold (written) by the Fund
regarding escrow or other arrangements in accordance with the provisions of any
agreement entered into upon receipt of Proper Instructions between the Bank, any
broker and, if necessary, the Fund. In the case of a call option written by the
Fund, the Bank will arrange for an escrow receipt to be issued when requested to
do so by the Fund.
2. Unless another agreement requires it to do so,
the Bank shall be under no duty or obligation to see that the Fund has deposited
or is maintaining adequate margin, if required, with any broker in connection
with any option, nor shall the Bank be under duty or obligation to present such
option to the broker for exercise unless it receives Proper Instructions from
the Fund. The Bank shall, however, comply with all Proper Instructions regarding
margin and exercise of options. The Bank shall have no responsibility for the
legality of any put or call purchased or sold on behalf of the Fund, the
propriety of any such purchase or sale, or the adequacy of any collateral
delivered to a broker in connection with an option or deposited to or withdrawn
from a Segregated Account as described in sub-paragraph c of this Section 6.3.
The Bank specifically, but not by way of limitation, shall not be under any duty
or obligation to: (i) periodically check or notify the Fund that the amount of
such collateral held by a broker or held in a Segregated Account as described in
sub-paragraph (c) of this Section 6.3 is sufficient to protect such broker of
the Fund against any loss; (ii) effect the return of any collateral delivered to
a broker, provided however, the Bank shall, upon expiration of an option, return
to the Fund any collateral held by the Bank relating to such option; or (iii)
advise the Fund that any option it holds, has or is about to expire. Such duties
or obligations shall be the sole responsibility of the Fund.
(b) Puts, Calls and Futures Traded on Commodities
Exchanges.
1. The Bank shall take action as to puts, calls and
futures contracts ("Futures") purchased or sold by the Fund in accordance with
the provisions of any agreement among the Fund, the bank and a Futures merchant
relating to compliance with the rules of the Commodity Futures Trading
Commission and/or any contract market, or any similar organization or
organizations, (including any foreign organization) regarding account deposits
in connection with transactions by the Fund.
2. The responsibilities and liabilities of the Bank
as to Futures, puts and calls traded on commodities exchanges, any Futures
Commission Merchant account and the Segregated Account shall be limited as set
forth in sub-paragraph (a)(2) of this Section 6.3 as if such sub-paragraph
referred to Futures Commission Merchants rather than brokers, and Futures and
puts and calls thereon instead of options.
(c) Segregated Account.
The Bank shall upon receipt of Proper Instructions
establish and maintain a Segregated Account or Accounts for and on behalf of the
Fund, into which Account or Accounts may be transferred cash and/or securities
including securities maintained in an Account by the Bank pursuant to Section
6.2 hereof, (i) in accordance with the provisions of any agreement among the
Fund, the Bank and a broker or any Futures merchant, relating to compliance with
the rules of the Options Clearing Corporation and of any registered national
securities exchange or the Commodity Futures Trading Commission or any
registered contract market, or of any similar organization or organizations
(including any foreign organization) regarding escrow or other arrangements in
connection with transactions by the Fund, and (ii) for the purpose of
segregating cash or securities in connection with options purchased, or written
by the Fund or commodity futures or options thereon purchased or written by the
Fund, and (iii) for the purposes of compliance by the Fund with the procedures
required by Investment Company Act Release No. 10666, or any subsequent release
or releases or rules or regulations of the Securities and Exchange Commission
relating to the maintenance of Segregated Accounts by registered investment
companies , and (iv) for the purpose of segregating cash or securities for the
ICI Mutual Insurance Company letter of credit, and (v) for other proper
corporate purposes, but only, in the case of clause (v), upon receipt of an
Officers' Certificate, setting forth the purpose or purposes of such Segregated
Account and declaring such purposes to be proper corporate purposes.
6.4 Segregated Account for "When-Issued", "Forward Commitment"
and Reverse Repurchase Agreement Transactions. Notwithstanding any other
provisions hereof, the Bank will maintain a segregated account (the "Segregated
Account") in the name of the Fund (i) for the deposit of liquid assets, such as
cash, U.S. Government securities or other high grade obligations, having a value
(marked to the market on a daily basis by the Bank) at all times equal to not
less than the aggregate purchase price due on the settlement dates (or such
other amount as the Fund shall indicate) of all the Fund's then outstanding
forward commitment or "when-issued" agreements relating to the purchase of
portfolio securities and all the Fund's then outstanding commitments under
reverse repurchase agreements entered into with broker-dealer firms, and (ii)
for the deposit of any portfolio securities which the Fund has agreed to sell on
a forward commitment basis, all in accordance with Securities and Exchange
Commission Release No. IC-10666. No assets shall be deposited in the Segregated
Account except pursuant to Proper Instructions. Assets may be withdrawn from the
segregated account pursuant to Proper Instructions only (a) for sale or delivery
to meet the Fund's obligations under outstanding firm commitment or when-issued
agreements for the purchase of portfolio securities and under reverse repurchase
agreements, (b) for exchange for other liquid assets of equal or greater value
deposited in the Segregated Account, (c) to the extent that the Fund's
outstanding forward commitment or when-issued agreements for the purchase of
portfolio securities or reverse repurchase agreements are sold to other parties
or the Fund's obligations thereunder are met from assets of the Fund other than
those in the Segregated Account, or (d) for delivery upon settlement of a
forward commitment agreement for the sale of portfolio securities.
6.5 Interest Bearing Call or Time Deposits. The Bank shall, upon
receipt of Proper Instructions relating to the purchase by the Fund of interest
bearing fixed term and call deposits, transfer cash, by wire or otherwise, in
such amounts and to such bank or banks as shall be indicated in such Proper
Instructions. The Bank shall include in its records with respect to the assets
of the Fund appropriate notation as to the amount of each such deposit, the
banking institution with which such deposit is made (the "Deposit Bank"), and
shall retain such forms of advice or receipt evidencing the deposit, if any, as
may be forwarded to the Bank by the Deposit Bank. Such deposits shall be deemed
portfolio securities of the Fund and the responsibility of the Bank therefore
shall be the same as and no greater than the Bank's responsibility in respect of
other portfolio securities of the Fund.
7. Transfer of Securities. The Bank will transfer, exchange, deliver or
release Portfolio securities held by it hereunder, insofar as such securities
are available for such purpose, provided that before making any transfer,
exchange, delivery or release under this Section the Bank will receive Proper
Instructions requesting such transfer, exchange or delivery stating that it is
for a purpose permitted under the terms of this Section 7, specifying the
applicable subsection, or describing the purpose of the transaction with
sufficient particularity to permit the Bank to ascertain the applicable
subsection, only
7.1 Upon sales of Portfolio securities for the account of the
Fund, against contemporaneous receipt by the Bank of payment therefor in full,
each such payment to be in the amount of the sale price shown in the Proper
Instructions received by the Bank before such payment is made;
7.2 In exchange for or upon conversion into other securities
alone or other securities and cash pursuant to any plan of merger,
consolidation, reorganization, share split-up, change in par value,
recapitalization or readjustment or otherwise, upon exercise of subscription,
purchase or sale or other similar rights represented by such Portfolio
securities, or for the purpose of tendering shares in the event of a tender
offer therefore, provided however that in the event of an offer of exchange,
tender offer, or other exercise of rights requiring the physical tender or
delivery of Portfolio securities, the Bank shall have no liability for failure
to so tender in a timely matter unless such Proper Instructions are received by
the Bank at least two business days prior to the date required for tender, and
unless the Bank (or its agent or sub custodian hereunder) has actual possession
of such security at least two business days prior to the date of tender;
7.3 Upon conversion of Portfolio securities pursuant to their
terms into other securities;
7.4 For the purpose of redeeming in kind shares of common stock
of the Fund upon authorization from the Fund;
7.5 In the case of option contracts owned by the Fund, for
presentation to the endorsing broker;
7.6 When such Portfolio securities are called, redeemed or
retired or otherwise become payable;
7.7 For the purpose of effectuating the pledge of portfolio
securities held by the Bank pursuant to this Agreement in order to collateralize
loans made to the Fund by any bank, including the Bank; provided, however, that
such Portfolio securities will be released only upon payment to the Bank for the
account of the Fund of the moneys borrowed, except that in cases where
additional collateral is required to secure a borrowing already made, and such
fact is made to appear in the Proper Instructions, further portfolio securities
may be released for that purpose without any such payment;
7.8 For the purpose of releasing certificates representing
Portfolio securities of the Fund, against contemporaneous receipt by the Bank of
the fair value of such security, as set forth in Proper Instructions received by
the bank before such payment is made;
7.9 For the purpose of delivering securities lent by the Fund to
a bank or broker dealer, but only against receipt in accordance with street
delivery custom except as otherwise provided in Subsections 6.2(a) and (b)
hereof, of adequate collateral as agreed upon from time to time by the Fund and
the Bank, and upon receipt of payment in connection with any repurchase
agreement relating to such securities entered into by the Fund;
7.10 For other authorized transactions of the Fund or for other
proper corporate purposes; provided that before making such transfer, the Bank
will also receive an Officers' Certificate specifying the portfolio securities
to be delivered, setting forth the transaction in or purpose for which such
delivery is to be made, declaring such transaction to be an authorized
transaction of the Fund or such purpose to be a proper corporate purpose, and
naming the person or persons to whom delivery of such securities shall be made;
and
7.11 Upon termination of this Agreement as hereinafter set forth
pursuant to Section 9 and Section 13 of this Agreement.
7.12 For delivery in accordance with the provisions of any
agreement among the Fund, the Bank and a broker-dealer relating to compliance
with the rules of the Options Clearing Corporation and of any registered
national securities exchange, or of any similar organization or organizations
(including foreign organizations), regarding escrow or other arrangements in
connection with transactions by the Fund;
7.13 For delivery in accordance with the provisions of any
agreement among the Fund, the Bank, and a Futures commission merchant relating
to compliance with the rules of the Commodity Futures Trading Commissions or any
similar organization or organizations (including foreign organizations),
regarding account deposits in connection with transactions by the Fund.
As to any deliveries made by the Bank pursuant to subsections
7.1, 7.2, 7.3, 7.5, 7.6, 7.7, 7.8 and 7.9, securities or cash receivable in
exchange therefor shall be delivered to the Bank.
8. Redemptions. In the case of payment of assets of the Fund held by
the Bank in connection with redemptions and repurchases by the Fund of its
outstanding shares of beneficial interest, the Bank will rely on written
notification by the Fund's transfer agent of receipt of a request for redemption
and certificates, if issued, in proper form for redemption before such payment
is made. Payment shall be made in accordance with the Declaration of Trust of
the Fund, from assets available for said purpose.
9. Merger. Dissolution. etc. of Fund. In the case of the following
transactions, not in the ordinary course of business, namely, the merger of the
Fund into or the consolidation of the Fund with another investment company, the
sale by the Fund of all, or substantially all of its assets to another
investment company, or the liquidation or dissolution of the Fund and
distribution of its assets, the Bank will deliver the Portfolio securities held
by it under this Agreement and disburse cash only upon the order of the Fund set
forth in an officers' Certificate, accompanied by a certified copy of a
resolution of the Fund's Board authorizing any of the foregoing transactions.
Upon completion of such delivery and disbursement and the payment of the
preapproved fees, disbursements and expenses of the Bank, this Agreement will
terminate.
10. Actions of Bank Without Prior Authorization. Notwithstanding
anything herein to the contrary, unless and until the Bank receives an Officers'
Certificate to the contrary, it will without prior authorization or instruction
of the Fund or the transfer agent:
10.1 Receive and hold for the account of the Fund hereunder and
deposit in the account or accounts referred to in Section 6 hereof, all income,
dividends, interest and other payments or distribution of cash with respect to
the Portfolio securities held thereunder;
10.2 Present for payment all coupons and other income items held
by it for the account of the Fund which call for payment upon presentation and
hold the cash received by it upon such payment for the account of the Fund
account or accounts referred to in Section 6 hereof:
10.3 Receive and hold for the account of the Fund hereunder and
deposit in the account or accounts referred to in Section 6 hereof all
securities received as a distribution on Portfolio securities as a result of a
stock dividend, share split-up, reorganization, recapitalization, merger,
consolidation, readjustment, distribution of rights and similar securities
issued with respect to any Portfolio securities held by it hereunder.
10.4 Execute as agent on behalf of the Fund all necessary
ownership and other certificates and affidavits required by the Internal Revenue
Code or the regulations of the Treasury Department issued thereunder, or by the
laws of any state, now or hereafter in effect, inserting the Fund's name on such
certificates as the owner of the securities covered thereby, to the extent it
may lawfully do so and as may be required to obtain payment in respect thereof.
The Bank will execute and deliver such certificates in connection with Portfolio
securities delivered to it or by it under this Agreement as may be required
under the provisions of the Internal Revenue Code and any Regulations of the
Treasury Department issued thereunder, or under the laws of any State;
10.5 Present for payment all portfolio securities which are
called, redeemed, retired or otherwise become payable, and hold cash received by
it upon payment for the account of the Fund in the account or accounts referred
to in Section 6 hereof; and
10.6 Exchange interim receipts or temporary securities for
definitive securities.
The Bank shall collect any funds which are collectible arising
from Portfolio securities, including dividends, interest and other income, and
shall transmit promptly to the Fund all written information affecting such
securities including, without limitation, any call for redemption, offer of
exchange, pendency of maturity, notices regarding options and futures contracts,
right of subscription, reorganization or other proceedings.
If Portfolio securities upon which such income is payable are in
default or payment is refused after due demand or presentation, the Bank will
notify the Fund in writing of any default or refusal to pay within two business
days from the day on which it receives knowledge of such default or refusal. In
addition, the Bank will send the Fund a written report once each month showing
any income on any Portfolio security held by it which is more than ten days
overdue on the date of such report.
11. Maintenance of Records: Fund Evaluation: Accounting Services. The
Bank will maintain records with respect to transactions for which the Bank is
responsible pursuant to the terms and conditions of this Agreement, and in
compliance with the applicable rules and regulations of the Investment Company
Act of 1940 as amended, as well as applicable federal and state tax laws and all
other laws and regulations which may be applicable, and will furnish the Fund
daily with a statement of assets and liabilities and a portfolio of investments
of the Fund as well as such other calculations and reports as the Bank and Fund
may agree from time to time. The Bank will furnish to the Fund at the end of
every month, and at the close of each quarter of the Fund's fiscal year as well
as at such other times as the Fund may request, a list of the Portfolio
securities and the aggregate amount of cash held by it for the Fund. The books
and records of the Bank pertaining to its actions under this Agreement and
reports by the Bank or its independent accountants concerning its accounting
system, procedures for safeguarding the Fund's assets and internal accounting
controls, which shall be of sufficient scope and in sufficient detail as may
reasonably be required by the Fund to provide reasonable assurance that any
material inadequacies would be disclosed by such examination, and, if there are
no such inadequacies, shall so state, and will be open to inspection and audit
at reasonable times by officers of or auditors employed by the Fund as well as
any other person authorized by the Fund by Proper Instructions. The books and
records relating to the Fund will be preserved by the Bank in the manner and in
accordance with the applicable rules and regulations under the Investment
Company Act of 1940 and shall be the property of the Fund.
As custodian the Bank shall have and perform the following
powers and duties:
11.1 To keep the books of account and render statements or
copies from time to time as reasonably requested by the Treasurer or any
executive officer of the Fund.
11.2 To compute and, unless otherwise directed by the Board,
determine as of the close of business on the New York Stock Exchange on each day
on which said Exchange is open for trading or as of such other hours, if any, as
may be authorized by said Board the net asset value and the public offering
price of a share of beneficial interest of the Fund, such determination to be
made in accordance with the provisions of the Declaration of Trust of the Fund
and Prospectus and Statement of Additional Information relating to the Fund, as
they may from time to time be amended, and any applicable resolutions of the
Board at the time in force and applicable; and promptly to notify the Fund and
the National Association of Securities Dealers ("NASD") or such other persons as
the Fund may request of the results of such computation and determination. In
computing the net asset value hereunder, the Bank may rely in good faith upon
information furnished in writing to it by any Authorized Person in respect of
(i) the manner of accrual of the liabilities of the Fund and in respect of
liabilities of the Fund not appearing on its books of account kept by the Bank,
(ii) reserves, if any, authorized by the Board or that no such reserves have
been authorized, (iii) the source of the quotations to be used in computing the
net asset value, (iv) the value to be assigned to any security for which no
price quotations are available, and (v) the method of computation of the public
offering price on the basis of the net asset value of the shares, and the Bank
shall not be responsible for any loss occasioned by such reliance or for any
good faith reliance on any quotations received from a source pursuant to (iii)
above.
11.3 To assist generally in the preparation of reports to
shareholders and others, audits of accounts, and other ministerial matters of
like nature.
12. Concerning the Bank.
12.1 Performance of Duties. In performing its duties hereunder
and any other duties listed on any Schedule hereto, if any, the Bank will be
entitled to receive and act upon the advice of independent counsel of its own
selection, which may be counsel for the Fund, and will be without liability for
any action taken or thing done or omitted to be done in accordance with this
Agreement in good faith in conformity with such advice, if such counsel and such
advice are approved by the Fund, provided however such approval shall not be
unreasonably withheld. In the performance of its duties hereunder, so long as it
exercises reasonable care, the Bank will be protected and not be liable, and
will be indemnified and saved harmless for any action taken or omitted to be
taken by it in good faith reliance upon the terms of this Agreement, any
Officers' Certificate, Proper Instructions, resolution of the Board, telegram,
notice, request, certificate or other instrument reasonably believed by the Bank
to be genuine and to have been sent by an Authorized Person and for any other
loss to the Fund except in the case of the Bank's negligence, willful
misfeasance or misconduct or bad faith in the performance of its duties or
negligent disregard of its obligations and duties hereunder.
The Bank may employ agents in the performance of its duties
hereunder and the Bank shall be responsible for the acts and omissions of such
agents as if performed by the Bank hereunder. The Bank may employ sub custodians
upon receipt of Proper Instructions indicating that the Board has so approved
the appointment, provided that any such subcustodian meets at least the minimum
qualifications required by Section 17(f)(1) of the Investment Company Act of
1940 to act as a custodian of the Fund's assets. In order to comply with Rule
17f-5, (and 17f-4, if applicable) of the Investment Company Act of 1940, the
contract between the Bank and any foreign subcustodian relating to securities of
the Fund shall be subject to approval of the Fund. The appointment of any
subcustodian by the Bank pursuant to this Agreement shall not relieve the Bank
of its responsibilities and liabilities under this Agreement, and the Bank shall
be liable to the Fund, to the extent of the Fund's damages, resulting from the
failure of any subcustodian to exercise reasonable care and to act in good faith
without negligence, provided however, the Bank shall not be liable for any loss
resulting from, or caused by nationalization, expropriation, currency
restrictions, acts of war or terrorism, insurrection, revolution, nuclear
fusion, fission or radiation, acts of God or other similar events or acts not
due to the failure of the Bank or any subcustodians to exercise reasonable care
in the performance of their duties. Notwithstanding the foregoing, in connection
with the Bank's liability for the performance of The Chase Manhattan Bank, N. A.
("Chase") as a sub custodian of the Fund pursuant to an agreement by and between
Chase and the Bank, which form of agreement is attached hereto (the "Chase
Agreement"), and any subcustodian of the Fund appointed under the Chase
Agreement with the approval of the Board, the "Fund's damages" for the purpose
of the preceding sentence will be determined based on the market value of the
property which is the subject of the loss at the date of discovery of such loss
and without reference to any special conditions or circumstances.
The Bank will be under no duty or obligation to inquire into and
will not be liable for:
(a) the validity of the issue of any Portfolio
securities purchased by or for the Fund, the legality of the purchases thereof
or the propriety of the price incurred therefor;
(b) the legality of any sale of any portfolio securities
by or for the Fund or the propriety of the amount for which the same are sold;
(c) the legality of an issue or sale of any shares of
beneficial interest of the Fund or the sufficiency of the amount to be received
therefor;
(d) the legality of the repurchase of any shares of
beneficial interest of the Fund or the propriety of the amount to be paid
therefor;
(e) the legality of the declaration of any dividend by
the Fund or the legality of the distribution of any Portfolio securities as
payment in kind of such dividend; or
(f) any property or moneys of the Fund already delivered
or paid by the Bank pursuant to the terms hereof.
Moreover, the Bank will not be under any duty or obligation to
ascertain whether any Portfolio securities at any time delivered to or held by
it for the account of the Fund are such as may properly be held by the Fund
under the provisions of its Declaration of Trust or By-Laws, any federal or
state statutes or any rule or regulation of any governmental agency.
12.2 Fees and Expenses of Bank. The Fund will pay or reimburse
the Bank from time to time for any transfer taxes payable upon transfer of
Portfolio securities made hereunder, and for all necessary proper disbursements,
expenses and charges made or incurred by the Bank in the performance of this
Agreement (including any duties listed on any Schedule hereto, if any) including
any indemnities for any loss, liabilities or expense to the Bank as specifically
provided above. For the services rendered by the Bank hereunder, the Fund will
pay to the Bank such compensation or fees at such rate and at such times as
shall be agreed upon in writing by the parties from time to time. The Bank will
also be entitled to reimbursement by the Fund for all preapproved expenses
incurred in conjunction with termination of this Agreement by the Fund.
12.3 Advances by Bank. The Bank may, in its sole discretion,
advance funds on behalf of the Fund to make any payment permitted by this
Agreement upon receipt of any proper authorization required by this Agreement
for such payments by the Fund. Should such a payment or payments, with advanced
funds, result in an overdraft (due to insufficiencies of the Fund's account with
the Bank, or for any other reason) this Agreement deems any such or related
indebtedness, a loan made by the Bank to the Fund payable on demand and bearing
interest at the rate set forth in writing by the Bank concurrently herewith (as
amended from time to time) unless the Fund shall provide the Bank with agreed
upon compensating balances. The Fund agrees that the Bank shall have a
continuing lien and security interest on the assets of the Fund to the extent of
any overdraft, provided that in no event shall the amount of such lien exceed
the lesser of (i) the amount of such overdraft or (ii) 10% of the Fund's gross
assets on the date of such overdraft, and provided further that to the extent
consistent with the foregoing, the Bank will comply with any Proper Instructions
indicating which Portfolio securities and/or which account of the Fund shall be
subject to such lien. If such overdraft is not repaid within a reasonable period
of time, the Bank shall have the right to exercise any rights it may have as a
lienholder or secured party.
13. Termination
13.1 This Agreement may be termlnate at any time without penalty
upon sixty days written notice delivered by either party to the other by means
of registered mail, and upon the expiration of such sixty days this Agreement
will terminate; provided, however, that the effective date of such termination
may be postponed to a date not more than ninety days from the date of delivery
of such notice (i) by the Bank in order to prepare for the transfer by the Bank
of all of the assets of the Fund held hereunder, and (ii) by the Fund in order
to give the Fund an opportunity to make suitable arrangements for a successor
custodian. The Fund may immediately terminate this Agreement: (i) in the event
of the appointment of a conservator or receiver for the Bank or upon the
happening of a like event; (ii) if the Bank shall make a general assignment for
the benefit of creditors; admit in writing its inability to pay its debts as
they become due; file a petition in bankruptcy or a petition seeking any
reorganization, arrangement, composition, readjustment, liquidation, dissolution
or similar relief under any present or future bankruptcy, reorganization,
insolvency or similar statute, law or regulation or seek the appointment of any
trustee, receiver, custodian or liquidator of the Bank or of all or
substantially all of its properties; (iii) if a proceeding is commenced against
the Bank seeking relief or an appointment of a type described in paragraph
13.1(ii) above and such proceeding is not dismissed within 30 days after the
commencement thereof; (iv) if the Bank's insurance is materially adversely
changed. At any time after the termination of this Agreement, the Fund will, at
its request, have access to the records of the Bank relating to the performance
of its duties as custodian.
13.2 In the event of the termination of this Agreement, the Bank
will immediately upon receipt or transmittal, as the case may be, of notice of
termination, commence and prosecute diligently to completion the transfer of all
cash and the delivery of all Portfolio securities duly endorsed and all records
maintained under Section 11 to the successor custodian when appointed by the
Fund. The obligation of the Bank to deliver and transfer over the assets of the
Fund held by it directly to such successor custodian will commence as soon as
such successor is appointed and will continue until completed as aforesaid. If
the Fund does not select a successor custodian within ninety (90) days from the
date of delivery of notice of termination the Bank may, subject to the
provisions of subsection 13.3 of this Section 13, deliver the Portfolio
securities and cash of the Fund held by the Bank to a bank or trust company of
its own selection which meets the requirements of Section 17(f)(1) of the
Investment Company Act of 1940 and has a reported capital, surplus and undivided
profits aggregating not less than $25,000,000, to be held as the property of the
Fund under terms similar to those on which they were held by the Bank, whereupon
such bank or trust company so selected by the Bank will become the successor
custodian of such assets of the Fund with the same effect as though selected by
the Board.
13.3 Prior to the expiration of ninety (90) days after notice of
termination has been given, the Fund may furnish the Bank with an order of the
Fund advising that a successor custodian cannot be found willing and able to act
upon reasonable and customary terms and that there has been submitted to the
Board of the Fund the question of whether the Fund will be liquidated or will
function without a custodian for the assets of the Fund held by the Bank. In
that event the Bank will deliver the Portfolio securities and cash of the Fund
held by it, subject as aforesaid, in accordance with one of such alternatives
which may be approved by the requisite vote of the Board, upon receipt by the
Bank of a copy such vote certified by the Fund's Secretary or Assistant
Secretary.
14. Notices. Any notice or other instrument in writing authorized or
required by this Agreement to be given to either party hereto will be
sufficiently given if addressed to such party and mailed or delivered to it at
its office at the address set forth below; namely:
(a) In the case of notices sent to the Fund to:
Treasurer
Massachusetts Financial Total Return Trust
c/o Massachusetts Financial Services Company
500 Boylston Street
Boston, MA 02116
(b) In the case of notices sent to the Bank to:
Investors Bank & Trust Company
Financial Product Services
One Lincoln Plaza
P.O. Box 1537
Boston, Massachusetts 02205-1537
or at such other place as such party may from time to time
designate in writing.
15. Amendments. This Agreement may not be altered or amended, except by
an instrument in writing, executed by both parties, and in the case of the Fund,
such alteration or amendment will be authorized and approved by its Board.
16. Parties. This Agreement will be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and assigns;
provided, however, that this Agreement will not be assignable by the Fund
without the prior written consent of the Bank or by the Bank without the prior
written consent of the Fund, authorized and approved by its Board; and provided
further that termination proceedings pursuant to Section 13 hereof will not be
deemed to be an assignment within the meaning of this provision.
17. Governing Law. This Agreement and all performance hereunder will be
governed by the laws of the Commonwealth of Massachusetts.
18. Interpretive and Additional Provisions. In connection with the
operation of this Agreement, the Bank and the Fund may from time to time agree
on such provisions interpretive of or in addition to the provisions of this
Agreement as may in their joint opinion be consistent with the general tenor of
this Agreement. Any such interpretive or additional provisions shall be in
writing signed by both parties and shall be annexed hereto and shall be binding
upon the parties hereto as if incorporated into this Agreement, provided
however, no such interpretive or additional provisions shall be deemed to be an
alteration or amendment of this Agreement.
19. Delegation of Certain Duties to Massachusetts Financial Services
Company ("MFS"). The Bank, with the prior written consent of MFS, may delegate
to MFS the performance of any or all of the duties it has agreed to perform for
the Fund in a separate written agreement relating to (i) accounting for
investments in currency and for financial instruments (including, without
limitation, options contracts, futures contracts, options on futures contracts,
options on foreign currency and forward foreign currency exchange contracts) and
(ii) federal and state regulatory compliance. The Bank shall compensate MFS for
the performance of such duties at such fee or fees as MFS shall determine to be
equal to MFS' cost for performing such duties (the "MFS Fees") Following its
payment of MFS Fees to MFS, the Bank shall recover the amount of the MFS Fees
from the Fund on such terms as the Bank and the Fund shall agree. MFS assumes
responsibility for all duties delegated to it by the Bank pursuant to this
Section 19, and the Bank may rely on MFS for the accuracy and correctness of the
accounting information provided by MFS to the Bank pursuant to this Section 19.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate and their respective corporate seals to be affixed hereto
as of the date first above written by their respective officers thereunto duly
authorized.
MASSACHUSETTS FINANCIAL
TOTAL RETURN TRUST
By: /s/ W. THOMAS LONDON
----------------------
W. Thomas London
ATTEST:
/s/ ILLEGIBLE
- -------------------------
(Illegible)
INVESTORS BANK & TRUST
COMPANY
By: /s/ ILLEGIBLE
----------------------
(Illegible)
ATTEST:
/s/ ILLEGIBLE
- -------------------------
(Illegible)
The officer of the Fund signing this Agreement is executing this Agreement not
individually but in his capacity as an officer of the Fund. The obligations of
the Fund under this Agreement are not binding upon any of the trustees,
officers, employees, agents or shareholders of the Fund individually, but bind
only the trust estate of the Fund.
<PAGE>
EXHIBIT 99.8(b)
AMENDMENT TO
CUSTODIAN AGREEMENT
Amendment dated as of this 21st day of April, 1992 to the Custodian
Agreement between Massachusetts Financial Total Return Trust (the "Fund") and
Investors Bank & Trust Company (the "Bank") dated October 1, 1991 (the
"Agreement").
Section 12.3 of the Agreement is amended and restated as follows:
12.3 Advances by Bank. The Bank may, in its sole discretion, advance
funds on behalf of the Fund, or any series of the Fund, to make any payment
permitted by this Agreement upon receipt of any proper authorization required by
this Agreement for such payments by the Fund or any series of the Fund. Should
such a payment or payments, with advanced funds, result in an overdraft (due to
insufficiencies of the Fund's or, if applicable, any series' of the Fund account
with the Bank) or for any other reason, this Agreement deems any such or related
indebtedness, a loan made by the Bank to the Fund (or if the overdraft relates
to a series of the Fund, such series) payable on demand and bearing interest at
the rate set forth in writing by the Bank concurrently herewith (as amended from
time to time) unless the Fund (or, if applicable, the Fund on behalf of the
series) shall provide the Bank with agreed upon compensating balances. The Fund
agrees that the Bank shall have a continuing lien and security interest on the
assets of the Fund (or, if the overdraft is on behalf of a series of the Fund,
the assets of such series) to the extent of any overdraft, provided that in no
event shall the amount of such lien exceed the lesser of (i) the amount of such
overdraft or (ii) 10% of the Fund's gross assets (or if the overdraft is on
behalf of a series of the Fund, such series' gross assets) on the date of such
overdraft, and provided further that to the extent consistent with the
foregoing, the Bank will comply with any Proper Instructions indicating which
Portfolio securities and/or which account of the Fund (or if the overdraft is on
behalf of a series of the Fund, which Portfolio securities and/or which account
of the series) shall be subject to such lien. If such overdraft is not repaid
within a reasonable period of time, the Bank shall have the right to exercise
any rights it may have as a lien holder or secured party.
Section 15 of the Agreement is amended and restated as follows:
15. Amendments. This Agreement may not be altered or amended, except by
an instrument in writing, executed by both parties, and in the case of the Fund,
any alteration or amendment which is material will be authorized and approved by
its Board.
The Fund and the Bank also hereby agree that notwithstanding any
provision to the contrary in this Agreement, each series of the Fund (including
any future series of the Fund) is separately liable for its own expenses and
liabilities under the Agreement and that the assets of one series of the Fund
may not be set off against the obligations of another series or otherwise be
used to satisfy the obligations or indebtedness of another series of the Fund.
<PAGE>
Executed as of the date first above written.
MASSACHUSETTS FINANCIAL
TOTAL RETURN TRUST*
Attest: /s/ ILLEGIBLE By: /s/ W. THOMAS LONDON
- ------------------------------------- ------------------------------
(Illegible) W. Thomas London
INVESTORS BANK & TRUST COMPANY
Attest: /s/ ILLEGIBLE By: /s/ ILLEGIBLE
- ------------------------------------- --------------------------------
(Illegible) (Illegible)
* A copy of the Declaration of Trust of the Fund is on file with the Secretary
of State of the Commonwealth of Massachusetts. You acknowledge that the
obligations of or arising out of this instrument are not binding upon any of the
Fund trustees, officers or shareholders individually, but are binding only upon
the assets and property of the Fund.
<PAGE>
EXHIBIT NO. 99.9(a)
MASSACHUSETTS INCOME DEVELOPMENT FUND
200 BERKELEY STREET
BOSTON, MASSACHUSETTS 02116
August 1, 1985
Massachusetts Financial Service Center, Inc.
200 Berkeley Street
Boston, Massachusetts 02116
SHAREHOLDER SERVICING AGENT AGREEMENT
Dear Sirs:
Massachusetts Income Development Fund (the "Fund") is an open-end
registered investment company. The Fund has selected you to act as the
Shareholder Servicing Agent and you hereby agree to act as such Agent and
perform the duties and functions thereof in the manner and on the conditions
hereinafter set forth. Accordingly, the Fund hereby agrees with you as follows:
1. The Facility. You represent that you have the necessary computer
equipment, software and other office equipment ("Facility") adequate to perform
the services contemplated hereby as well as for other investment companies (such
investment companies, together with the Fund, are herein collectively referred
to as the "MFS Funds") for which Massachusetts Financial Services Company
("MFS") acts as investment adviser. The Facility is presently located at 50 Milk
Street, Boston, Massachusetts, and is to be dedicated solely to the performance
of services for the MFS Funds, provided that the Facility may be utilized to
perform services for others with the prior written permission of the MFS Funds.
2. Name. Unless otherwise directed in writing by MFS, you shall perform
the services contemplated hereby under the name "Massachusetts Financial Service
Center, Inc.", which name, any similar names and any logos of which shall remain
the property and under the control of MFS. Upon termination of this Agreement,
you shall cease to use such name or any similar name within a reasonable period
of time.
3. Services to be Performed. As Shareholder Servicing Agent ("Agent"),
you shall be responsible for administering and performing transfer and dividend
and distribution disbursing and plan agent functions in connection with the
issuance, transfer and redemption of the shares of beneficial interest
("Shares"). The details of the operating standards and procedures to be followed
by you shall be determined from time to time by agreement between you and the
Fund.
4. Standard of Service. As Agent for the Fund, you agree to provide
service equal to or better than that provided by you or others furnishing
shareholder services to other open-end investment companies ("Standard") at a
fee comparable to the fee paid you for your services hereunder. The Standard
shall include at least the following:
(a) Prompt reconciliation of any differences as to the number of
outstanding shares between various Facility records or
between Facility records and records of an MFS Fund's
Custodian;
(b) Prompt processing of shareholder correspondence and of other
matters requiring action by you;
(c) Prompt clearance of any daily volume backlog;
(d) Providing innovative services and technological
improvements;
(e) Meeting the requirements of any governmental authority
having jurisdiction over you or the Fund; and
(f) Prompt reconciliation of all bank accounts under your
control belonging to the Fund or MFS.
If any MFS Fund serviced by you is reasonably of the view that the
service provided by you does not meet the Standard, it shall give you written
notice specifying the particulars, and you then shall have 120 days in which to
restore the service so that it meets the Standard, except that such period shall
be 180 days with respect to meeting that portion of the Standard described above
in item (d) of this paragraph 4. If at the end of such period the Fund remains
reasonably of the view that the service provided by you, in the particulars
specified, does not meet the Standard, then the MFS Fund or Funds having a
majority of the accounts for which you are then Agent may, by appropriate action
(including the concurrence of a majority of the Trustees or Directors, as the
case may be, of such MFS Fund or Funds who are not interested persons of MFS),
elect to terminate this Agreement for cause as to all such Funds upon 90 days
notice to you. Upon termination hereof, the Fund shall pay you such compensation
as may be due to you as of the date of such termination, and shall likewise
reimburse you for any costs, expenses, and disbursements reasonably incurred by
you to such date in the performance of your duties hereunder.
5. Purchase of Facility. In the event that notice of termination of
this Agreement has been given pursuant to the provisions of paragraph 14 hereof,
for cause as defined in paragraph 4 hereof, the MFS Funds have the right, but
shall not be required (a) to purchase the Facility and assume the unexpired
portion of any leases of equipment or real estate relating to the Facility from
you at a price equal to your unrecovered acquisition value (as supported by the
schedules and records used in determining monthly billings) of the machinery,
equipment, software, furniture, fixtures and leasehold improvements included in
the Facility, and (b) to negotiate with persons then employed by you in the
operation of the Facility and to hire all of them in connection with the
purchase of the Facility from you by the MFS Funds. You agree to release each
such employee from any contractual obligations such person may have to you that
may interfere with such person's being hired at such time by the MFS Funds and
agree not to interfere with the negotiation and hiring of any such persons at
such time. In the event that the MFS Funds have given notice of termination of
this Agreement pursuant to the provisions of paragraph 14 hereof for reasons
other than cause as defined in paragraph 4 hereof, the MFS Funds shall purchase
the Facility under the terms and conditions set forth in subsections (a) and (b)
of this paragraph 5.
You shall effect the transfer of the Facility pursuant to this
paragraph 5 upon the termination date specified in the notice, or at such other
time as shall be agreed upon by the parties hereto.
6. Rights in Data and Confidentiality. You agree that all records,
data, files, input materials, reports, forms and other data received, computed
or stored in the performance of this Agreement are the exclusive property of the
Fund and that all such records and other data shall be furnished without
additional charge, except for actual processing costs, to the Fund in machine
readable as well as printed form immediately upon termination of this Agreement
or at the Fund's request. You shall safeguard and maintain the confidentiality
of the Fund's data and information supplied to you by the Fund and you shall not
transfer or disclose the Fund's data to any third party without the Fund's prior
written consent unless compelled to do so by order of a court or regulatory
authority.
7. Fees. The fee per Fund shareholder account for your shareholder
services hereunder shall not be in excess of such amount as shall be agreed in
writing between us. Such fee shall be payable in monthly installments of
one-twelfth of the annual fee. Such fee shall be subject to review at least
annually and fixed by the parties in good faith negotiation on the basis of a
statement of the expenses of the Facility prepared by you, which either you or
the Fund may require to be certified by a major accounting firm acceptable to
the parties. The party or parties requesting such certification shall bear all
expenses thereof. In addition to the foregoing fee, you will be reimbursed by
the Fund for out-of-pocket expenses reasonably incurred by you on behalf of the
Fund, including but not limited to expenses for stationery (including business
forms and checks), postage, telephone and telegraph line and toll charges, and
premiums for negotiable instrument insurance and similar items.
8. Record Keeping. You will maintain records in a form acceptable to
the Fund and in compliance with the rules and regulation of the Securities and
Exchange Commission, including, but not limited to, records required to be
maintained by Section 31(a) of the Investment Company Act of 1940 and the rules
thereunder, which at all times will be the property of the Fund and will be
available for inspection and use by the Fund.
9. Duty of Care and Indemnification. You will at all times act in good
faith in performing your duties hereunder. You will not be liable or responsible
for delays or errors by reason of circumstances beyond your control, including
acts of civil or military authority, national emergencies, labor difficulties,
fire, mechanical breakdown beyond your control, flood or catastrophe, acts of
God, insurrection, war, riots or failure beyond your control of transportation,
communication or power supply. The Fund will indemnify you against and hold you
harmless from any and all losses, claims, damages, liabilities or expenses
(including reasonable counsel fees and expenses) resulting from any claim,
demand, action or suit not resulting from your bad faith or negligence, and
arising out of, or in connection with, your duties on behalf of the Fund
hereunder. In addition, the Fund will indemnify you against and hold you
harmless from any and all losses, claims, damages, liabilities or expenses
(including reasonable counsel fees and expenses) resulting from any claim,
demand, action or suit as a result of your acting in accordance with any
instructions reasonably believed by you to have been executed or orally
communicated by any person duly authorized by the Fund or its Principal
Underwriter, or as a result of acting in accordance with written or oral advice
reasonably believed by you to have been given by counsel for the Fund, or as a
result of acting in accordance with any instrument or share certificate
reasonably believed by you to have been genuine and signed, countersigned or
executed by any person or persons authorized to sign, countersign or execute the
same (unless contributed to by your gross negligence or bad faith). In any case
in which the Fund may be asked to indemnify you or hold you harmless, the Fund
shall be advised of all pertinent facts concerning the situation in question and
you will use reasonable care to identify and notify the Fund promptly concerning
any situation which presents or appears likely to present a claim for
indemnification against the Fund. The Fund shall have the option to defend you
against any claim which may be the subject of this indemnification, and in the
event that the Fund so elects such defense shall be conducted by counsel chosen
by the Fund and satisfactory to you and it will so notify you, and thereupon the
Fund shall take over complete defense of the claim and you shall sustain no
further legal or other expenses in such situation for which you seek
indemnification under this paragraph, except the expense of any additional
counsel retained by you. You will in no case confess any claim or make any
compromise in any case in which the Fund will be asked to indemnify you except
with the Fund's prior written consent. The obligations of the parties hereto
under this paragraph shall survive the termination of this Agreement.
If any officer of the Fund shall no longer be vested with authority to
sign for the Fund, written notice thereof shall forthwith be given to you by the
Fund and until receipt of such notice by it, you shall be fully indemnified and
held harmless by the Fund in recognizing and acting upon certificates or other
instruments bearing the signatures or facsimile signatures of such officer.
10. Insurance. You will notify the Fund should any of your insurance
coverage, as set forth on Exhibit A hereto, be changed for any reason, such
notification to include the date of change and reason or reasons therefor.
11. Notices. All notices or other communications hereunder shall be in
writing and shall be deemed sufficient if mailed to either party at the
addresses set forth in this Agreement, or at such other addresses as the parties
hereto may designate by notice to each other.
12. Further Assurances. Each party agrees to perform such further acts
and execute such further documents as are necessary to effectuate the purposes
hereof.
13. Use of a Sub- or Co-Transfer Agent. Notwithstanding any other
provision of this Agreement, it is expressly understood and agreed that you are
authorized in the performance of your duties hereunder to employ, from time to
time, one or more Sub-Transfer Agents and/or Co-Transfer Agents.
14. Termination. Neither this Agreement nor any provision hereof may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing, which, except in the case of termination, shall be signed by the party
against which enforcement of such change waiver or discharge is sought. Except
as otherwise provided in paragraph 4 hereof, this Agreement shall continue
indefinitely until terminated by 90 days' written notice given by the Fund to
you or by you to the Fund, provided that the Fund may terminate this Agreement
upon 15 days' written notice of termination and election of the right to
purchase the Facility pursuant to the provisions of paragraph 5 hereof. Upon
termination hereof, the Fund shall pay you such compensation as may be due to
you as of the date of such termination, and shall likewise reimburse you for any
costs, expenses, and disbursements reasonably incurred by you to such date in
the performance of your duties hereunder. You agree to cooperate with the Fund
and provide all necessary assistance in effectuating an orderly transition upon
termination of this Agreement.
15. Successor. In the event that in connection with termination a
successor to any of your duties or responsibilities hereunder is designated by
the Fund by written notice to you, you will, promptly upon such termination and
at the expense of the Fund, transfer to such successor a certified list of the
shareholders of the Fund (with name, address and tax identification or Social
Security number) an historical record of the account of each shareholder and the
status thereof, and all other relevant books, records, correspondence, and other
data established or maintained by you under this Agreement in form reasonably
acceptable to the Fund (if such form differs from the form in which you have
maintained the same, the Fund shall pay any expenses associated with
transferring the same to such form), and will cooperate in the transfer of such
duties and responsibilities, including provision for assistance from your
cognizant personnel in the establishment of books, records and other data by
such successor.
16. Miscellaneous. This Agreement shall be construed and enforced in
accordance with and governed by the laws of the Commonwealth of Massachusetts.
The captions in this Agreement are included for convenience of reference only
and in no way define or delimit any of the provisions hereof or otherwise affect
their construction or effect. This Agreement may be executed simultaneously in
two or more counterparts, each of which shall be deemed an original but all of
which taken together shall constitute one and the same instrument. This
Agreement has been executed on behalf of the Fund by the undersigned not
individually, but in the capacity indicated, and the obligations of this
Agreement are not binding upon any of the Trustees or shareholders of the Fund
individually, but bind only the trust estate.
If you are in agreement with the foregoing, please sign the form of
acceptance on the accompanying two counterparts of this letter and return such
counterparts to the Fund whereupon this letter shall become a binding contract
among the Fund, you and MFS, MFS having already executed this letter.
Very truly yours,
MASSACHUSETTS INCOME
DEVELOPMENT FUND
By: /s/ RICHARD B. BAILEY
---------------------------------
Richard B. Bailey
Title: Chairman
The foregoing is hereby accepted as of the date thereof.
MASSACHUSETTS FINANCIAL
SERVICES COMPANY
By: /S/ H. ALDEN JOHNSON
---------------------------------
H. Alden Johnson
Title: President
The foregoing is hereby accepted as of the date thereof.
MASSACHUSETTS FINANCIAL
SERVICE CENTER, INC.
By: /S/ BRUCE C. AVERY
---------------------------------
Bruce C. Avery
Title: President
<PAGE>
EXHIBIT NO. 99.9(b)
MFS SERIES TRUST V
500 BOYLSTON STREET o BOSTON o MASSACHUSETTS o 02116
(617) o 954-5000
December 28, 1993
MFS Service Center, Inc.
500 Boylston Street
Boston, MA 02116
Dear Sir/Madam:
This will confirm our understanding that Exhibit B to the Shareholder
Servicing Agent Agreement between us, dated August 1, 1985, as amended, is
hereby amended, effective immediately, to read in its entirety as set forth on
Attachment 1 hereto.
Please indicate your acceptance of the foregoing by signing below.
Sincerely,
MFS SERIES TRUST V
By: W. THOMAS LONDON
---------------------------------
W. Thomas London
Treasurer
Accepted and Agreed:
MFS SERVICE CENTER, INC.
By: /s/ JAMES E. RUSSELL
----------------------------------
James E. Russell
Treasurer
<PAGE>
ATTACHMENT 1
DECEMBER 28, 1993
EXHIBIT B TO THE SHAREHOLDER SERVICING AGENT AGREEMENT
BETWEEN MFS SERVICE CENTER, INC. ("MFSC") AND
MFS SERIES TRUST V (THE "FUND")
1. The fees to be paid by the Fund on behalf of its series with respect
to Class A shares of each series of the Fund to MFSC, for MFSC's services as
shareholder servicing agent, shall be:
0.15% of the first $500 million of the assets of the series
attributable to such class;
0.12% of the second $500 million of the assets of the series
attributable to such class;
0.09% over $1 billion of the assets of the series attributable to
such class.
2. The fees to be paid by the Fund on behalf of its series with respect
to Class B shares of each series of the Fund to MFSC, for MFSC's services as
shareholder servicing agent, shall be:
0.22% of the first $500 million of the assets of the series
attributable to such class;
0.18% of the second $500 million of the assets of the series
attributable to such class;
0.13% over $1 billion of the assets of the series attributable to
such class.
3. The fees to be paid by the Fund on behalf of its series with respect
to Class C shares of each series of the Fund to MFSC, for MFSC's services as
shareholder servicing agent, shall be:
0.15% of the first $500 million of the assets of the series
attributable to such class;
0.12% of the second $500 million of the assets of the series
attributable to such class;
0.09% over $1 billion of the assets of the series attributable to
such class.
<PAGE>
EXHIBIT NO. 99.9(e)
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION made this 1st day of January, 1985 by
and between Massachusetts Financial Development Fund, Inc. (the "Fund"), a
Massachusetts corporation, and Massachusetts Financial Development Fund, a
Massachusetts business trust (the "Trust").
1. Plan of Reorganization and Liquidation. (a) The Fund shall assign, sell,
convey, transfer and deliver to the Trust at the closing provided for in Section
2 (hereinafter called the "Closing") all of its then existing assets of every
kind and nature. In consideration therefor, the Trust shall at the Closing (i)
assume all of the Fund's obligations and liabilities then existing, whether
absolute, accrued, contingent or otherwise, including without limitation all
liabilities of the Fund to shareholders who elect to dissent from the
transaction and effect their appraisal rights under Massachusetts law and all
fees are expenses in connection with the transactions contemplated hereby and
(ii) deliver to the Fund a number of full and fractional shares of beneficial
interest of the Trust (the "Trust Shares") equal to the number of full and
fractional shares of the Fund then outstanding.
(b) Upon consummation of the transaction described in paragraph (a) of this
Section 1, the Fund shall distribute in complete liquidation pro rata to its
shareholders of record as of the Closing Date (other than those shareholder who
have objected to the reorganization to as to be eligible to perfect statutory
appraisal rights) the Trust Shares received by the Fund. Such distribution shall
be accomplished by the establishment of an open account on the share records of
the Trust in the name of each shareholder of the Fund representing a number of
Trust Shares equal to the number of shares of the Fund owned of record by the
shareholder at the Closing Date, provided that a shareholder who has objected to
the reorganization so as to be eligible to perfect statutory appraisal rights
shall have no rights with respect to Trust Shares until such time as he has
waived or otherwise relinquished such statutory appraisal rights. Certificates
for shares of the Fund issued prior to the reorganization shall represent
outstanding shares of the Trust following the reorganization. Certificates
representing Trust Shares will be issued only if the shareholder so requests.
(c) As promptly as practicable after the liquidation of the Fund as foresaid,
the Fund shall be dissolved pursuant to the provisions of the Massachusetts
Business Corporation Law and its legal existence terminated.
2. Closing and Closing Date. The Closing shall occur at 10 A.M. on January 29,
1985 or at such later time and date as the parties may mutually agree (the
"Closing Date").
3. Conditions Precedent. The obligations of the Fund and the Trust to effect the
transaction contemplated hereunder shall be subject to the satisfaction of each
of the following conditions:
(a) All mailings shall have been made with, and all authority and orders shall
have been received from, the Securities and Exchange Commission (the "SEC") and
state securities commissions as may be necessary in the opinion of Gaston & Snow
& Ely Bartlett to permit the parties to carry out the transactions contemplated
by this Agreement;
(b) Each party shall have received an opinion of Gaston Snow & Ely Bartlett to
the effect that for federal income tax purposes: (i) no gain or loss will be
recognized by the Fund upon the transfer of its assets and liabilities to the
Trust; (ii) the tax basis of the assets of the Fund in the hands of the Trust
will be the same as the tax basis of such assets in the hands of the Fund
immediately prior to the transfer; (iii) the holding period of the assets of the
Fund transferred to the Trust will include the period during which such assets
were held by the Fund; (iv) no gain or loss will be recognized by the Trust upon
the receipt of the assets of the Fund in exchange for shares of the Trust and
the assumption by the Trust of the liabilities and obligations of the Fund; (v)
no gain or loss will be recognized by the shareholders of the Fund upon the
receipt of shares of the Trust in exchange for their shares in the Fund; (vi)
the basis of the shares of the Trust received by the shareholders of the Fund
will be the same as the basis of the shares of the Fund exchanged therefor; and
(vii) the holding period of shares of the Trust received by the shareholders of
the Fund will include the holding period of the shares of the Fund exchanged
therefor, provided that at the time of the exchange the shares of the Fund were
held as capital assets; and as to such other matters as it may reasonably
request;
(c) This Agreement and Plan of Reorganization and the reorganization
contemplated hereby shall have been adopted and approved by the affirmative vote
of the holders of at least two-thirds of the outstanding shares of Common Stock
of the Fund entitled to vote thereon;
(d) The Trust shall have entered into an Investment Advisory Agreement and a
Distribution Agreement with Massachusetts Financial Services Company, a
Shareholder Servicing Agent Agreement with Bradford Trust Company of Boston and
a Custodian Contract with State Street Bank and Trust Company, such contracts to
be in each case substantially identical in form and substance to those
respective contracts in effect at the Closing Date between the Fund and said
other parties, and such contracts shall have been approved by the Trustees of
the Trust and, to the extent required by law, by the Trustees of the Trust who
are not "interested persons" of the Trust as defined in the Investment Company
Act of 1940 and by the shareholders of the Trust (it being understood that the
Fund as sole shareholder of the Trust prior to the consummation of the
reorganization hereby agrees and is authorized to vote for such approval); and
(e) The Trustees of the Trust who are not "interested persons" of the Trust as
defined in the Investment Company Act of 1940 shall have selected as auditors
for the Trust such auditors as shall have been selected and ratified for the
Fund, and such selection shall have been ratified by the shareholders of the
Trust (it being understood that the Fund as sole shareholder of the Trust prior
to the consummation of the reorganization hereby agrees and is authorized to
vote for such ratification).
At any time prior to the Closing, any of the foregoing conditions may be waived
by the Board of Directors of the Fund and the Trustees of the Trust if, in their
judgment, such waiver will not have a material adverse effect on the interests
of the shareholders of the Fund.
4. Amendment. This Agreement may be amended at any time by action of the Board
of Directors of the Fund and the Trustees of the Trust, notwithstanding approval
thereof by the shareholders of the Fund, provided that no amendment shall have a
material adverse effect on the interests of the shareholders of the Fund.
5. Termination. The Board of Directors of the Fund and the Trustees of the Trust
may terminate this Agreement and abandon the reorganization contemplated hereby,
notwithstanding approval thereof by the shareholders of the Fund, at any time
prior to the Closing, if circumstances should develop that, in their judgment,
make proceeding with the Agreement inadvisable.
6. Limitation of Liability of the Trustees and Shareholders. A copy of the
Agreement and Declaration of Trust of the Trust is on file with the Secretary of
the The Commonwealth of Massachusetts, and notice is hereby given that this
instrument is executed on behalf of the Trustees of the Trust as Trustees and
not individually and that the obligations of the instrument are not binding upon
any of the Trustees or shareholders individually but binding only upon the
assets and property of the Trust.
IN WITNESS WHEREOF, the parties have hereunto caused this Agreement to be
executed and delivered by their duly authorized officers as of the day and year
first written above.
MASSACHUSETTS FINANCIAL
DEVELOPMENT FUND, INC.
By: /s/ ILLEGIBLE
---------------------------------
(Illegible)
MASSACHUSETTS FINANCIAL
DEVELOPMENT FUND
By: /s/ RICHARD B. BAILEY
---------------------------------
Richard B. Bailey
<PAGE>
EXHIBIT NO. 99.9(f)
Massachusetts Investors Trust
Massachusetts Investors Growth Stock Fund
Massachusetts Total Return Trust
Massachusetts Capital Development Fund
Massachusetts Financial Development Fund
Massachusetts Financial Bond Fund
Massachusetts Cash Management Trust
MFS Managed Municipal Bond Trust
Massachusetts Financial High Income Trust
Municipal Working Capital Trust
Massachusetts Financial International Trust
Massachusetts Financial Emerging Growth Trust
Massachusetts Financial Special Fund
MFS Managed High Yield Municipal Bond Trust
MFS Government Guaranteed Securities Trust
MFS Managed Multi-State Tax-Exempt Trust
MFS/Sun Life Series Trust
MFS Managed California Tax-Exempt Trust
Trust for Thrift Institutions
MFS Government Securities High Yield Trust
200 Berkeley Street o Boston o Massachusetts o 02116
February 1, 1986
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
Dividend Disbursing Agency Agreement
Dear Sirs:
Each of the above-listed funds (individually, the "Fund") is an
open-end registered investment company organized as a Massachusetts business
trust. Each Fund separately has selected you to act as its Dividend Disbursing
Agent and you hereby agree to act as such Agent and perform the duties and
functions thereof in the manner and on the conditions hereinafter set forth.
Accordingly, each Fund individually hereby agrees with you as follows:
1. Services to be Performed. As Dividend Disbursing Agent ("Agent"),
you shall be responsible for performing dividend and distribution disbursing
agent functions with regard to the Fund's shares of beneficial interest
("Shares"). The details of the operating standards and procedures to be followed
by you shall be determined from time to time by agreement between you and the
Fund.
2. Standard of Service. As Agent for the Fund, you agree to provide
service equal to at least that provided by you or others furnishing dividend and
distribution disbursing services to other open-end investment companies
("Standard") at a fee, as may be agreed to from time to time, comparable to the
fee paid you for your services hereunder. The Standard shall include at least
the following:
(a) Prompt processing of all matters requiring action by you;
(b) Prompt clearance of any daily volume backlog;
(c) Providing innovative services and technological improvements;
(d) Meeting the requirements of any governmental authority having
jurisdiction over you or the Fund; and
(e) Prompt reconciliation of all bank accounts under your control
belonging to the Fund.
If the Fund is reasonably of the view that the service provided
by you does not meet the Standard, it shall give you written notice specifying
the particulars, and you then shall have 120 days in which to restore the
service so that it meets the Standard, except that such period shall be 180 days
with respect to meeting that portion of the Standard described above in item (c)
of this paragraph 2. If at the end of such period the Fund remains reasonably of
the view that the service provided by you in the particulars specified, does not
meet the Standard, then the Fund may, by appropriate action, elect to terminate
this Agreement for cause upon 90 days notice to you. Upon termination hereof,
the Fund shall pay you such compensation as may be due to you as of the date of
such termination, and shall likewise reimburse you for any costs, expenses, and
disbursements reasonably incurred by you to such date in the performance of your
duties hereunder.
3. Rights in Data and Confidentiality. You agree that all records,
data, files, input materials, reports, forms and other data received, computed
or stored in the performance of this Agreement are the exclusive property of the
Fund and that all such records and other data shall be furnished without
additional charge, except for actual processing costs, to the Fund in machine
readable as well as printed form immediately upon termination of this Agreement
or at the Fund's request. You shall safeguard and maintain the confidentiality
of the Fund's data and information supplied to you by the Fund and you shall not
transfer or disclose the Fund's data to any third party without the Fund's prior
written consent unless compelled to do so by order of a court or regulatory
authority.
4. Fees. The fee, based upon check clearance and reconciliation work
performed hereunder, shall not be in excess of such amount as shall be agreed in
writing between us. Such fee shall be payable in monthly installments. Such fee
shall be subject to review at least annually and fixed by the parties in good
faith negotiation on the basis of a statement of your expenses, which either you
or the Fund may require to be certified by a major accounting firm acceptable to
the parties. The party requesting such certification shall bear all expenses
thereof. In addition to the foregoing fee, you will be reimbursed by the Fund
for out-of-pocket expenses reasonably incurred by you on behalf of the Fund,
including but not limited to expenses for stationery, postage, telephone and
telegraph line and toll charges and similar items.
5. Record Keeping. You will maintain records in a form acceptable to
the Fund and in compliance with the rules and regulations of the Securities and
Exchange Commission, including, but not limited to, records required to be
maintained by Section 31(a) of the Investment Company Act of 1940 and the rules
thereunder, which at all times will be the property of the Fund and will be
available for inspection and use by the Fund or the Fund's transfer agent.
6. Duty of Care and Indemnification. You will at all times act in good
faith in performing your duties hereunder. You will not be liable or responsible
for delays or errors by reason of circumstances beyond your control, including
acts of civil or military authority, national emergencies, labor difficulties,
fire, mechanical breakdown beyond your control, flood or catastrophe, acts of
God, insurrection, war, riots or failure beyond your control of transportation,
communication or power supply. The Fund will indemnify you against and hold you
harmless from any and all losses, claims, damages, liabilities or expenses
(including reasonable counsel fees and expenses) resulting from any claim,
demand, action or suit not resulting from your bad faith or negligence, and
arising out of, or in connection with, your duties on behalf of the Fund
hereunder. In addition, the Fund will indemnify you against and hold you
harmless from any and all losses, claims, damages, liabilities or expenses
(including reasonable counsel fees and expenses) resulting from any claim,
demand, action or suit as a result of your acting in accordance with any
instructions reasonably believed by you to have been given executed or orally
communicated by any person duly authorized by the Fund or as a result of acting
in accordance with written or oral advice reasonable believed by you to have
been given by counsel for the Fund, or as a result of acting in accordance with
any instrument or share certificate reasonably believed by you to have been
genuine and signed, countersigned or executed by any person or persons
authorized to sign, countersign or execute the same (unless contributed to by
your gross negligence or bad faith). In any case in which the Fund may be asked
to indemnify you or hold you harmless, the Fund shall be advised of all
pertinent facts concerning the situation in question and you will use reasonable
care to identify and notify the Fund promptly concerning any situation which
presents or appears likely to present a claim for indemnification against the
Fund. The Fund shall have the option to defend you against any claim which may
be the subject of this indemnification, and in the event that the Fund so elects
such defense shall be conducted by counsel chosen by the Fund and satisfactory
to you and it will so notify you, and thereupon the Fund shall take over
complete defense of the claim and you shall sustain no further legal or other
expenses in such situation for which you seek indemnification under this
paragraph, except the expense of any additional counsel retained by you. You
will in no case confess any claim or make any compromise in any case in which
the Fund will be asked to indemnify you except with the Fund's prior written
consent. The obligations of the parties hereto under this paragraph shall
survive the termination of this Agreement.
7. Insurance. You will notify the Fund should any of your insurance
coverage, as set forth on Exhibit A hereto, be changed for any reason, such
notification to include the date of change and reason or reasons therefor.
8. Notices. All notices or other communications hereunder shall be in
writing and shall be deemed sufficient if mailed to either party at the
addresses set forth in this Agreement, or at such other addresses as the parties
hereto may designate by notice to each other.
9. Further Assurances. Each party agrees to perform such further acts
and execute such further documents as are necessary to effectuate the purposes
hereof.
10. Use of a Sub-Dividend Disbursing Agent. Notwithstanding any other
provision of this Agreement, it is expressly understood and agreed that you are
authorized in the performance of your duties hereunder to employ one or more
Sub-Dividend Disbursing Agents.
11. Termination. Neither this Agreement nor any provision hereof may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing, which, except in the case of termination, shall be signed by the party
against which enforcement of such change waiver or discharge is sought. Except
as otherwise provided in paragraph 2 hereof, this Agreement shall continue
indefinitely until terminated by 90 days' written notice given by the Fund to
you or by you to the Fund. Upon termination hereof, the Fund shall pay you such
compensation as may be due to you as of the date of such termination, and shall
likewise reimburse you for any costs, expenses, and disbursements reasonably
incurred by you to such date in the performance of your duties hereunder. You
agree to cooperate with the Fund and provide all necessary assistance in
effectuating an orderly transition upon termination of this Agreement.
12. Successor. In the event that in connection with termination a
successor to any of your duties or responsibilities hereunder is designated by
the Fund by written notice to you, you will, promptly upon such termination and
at the expense of the Fund, transfer to such successor an historical record of
dividends and disbursements and all other relevant books, records,
correspondence, and other data established or maintained by you under this
Agreement in form reasonably acceptable to the Fund (if such form differs from
the form in which you have maintained the same, the Fund shall pay any expenses
associated with transferring the same to such form), and will cooperate in the
transfer of such duties and responsibilities, including provision for assistance
from your cognizant personnel in the establishment of books, records and other
data by such successor.
13. Miscellaneous. This Agreement shall be construed and enforced in
accordance with and governed by the laws of the Commonwealth of Massachusetts.
The captions in this Agreement are included for convenience of reference only
and in no way define or delimit any of the provisions hereof or otherwise affect
their construction or effect. This Agreement may be executed simultaneously in
two or more counterparts, each of which shall be deemed an original, but all of
which taken together shall constitute one and the same instrument. This
Agreement has been executed on behalf of the Fund by the undersigned not
individually, but in the capacity indicated, and the obligations of this
Agreement are not binding upon any of the Trustees or shareholders of the Fund
individually, but bind only the trust estate.
If you are in agreement with the foregoing, please sign the form of
acceptance on this letter and the accompanying counterpart of this letter and
return such counterpart to the Fund whereupon this letter shall become a binding
contract between the Fund and you, the Fund having already executed this letter
and its counterpart.
Very truly yours,
Massachusetts Investors Trust By: /s/ RICHARD B. BAILEY
-----------------------------
Richard B. Bailey
Chairman
Massachusetts Investors Growth Stock Fund By: /s/ RICHARD B. BAILEY
-----------------------------
Richard B. Bailey
Chairman
Massachusetts Total Return Trust By: /s/ RICHARD B. BAILEY
-----------------------------
Richard B. Bailey
Chairman
Massachusetts Capital Development Fund By: /s/ RICHARD B. BAILEY
-----------------------------
Richard B. Bailey
Chairman
<PAGE>
Massachusetts Financial Development Fund By: /s/ RICHARD B. BAILEY
-----------------------------
Richard B. Bailey
Chairman
Massachusetts Financial Bond Fund By: /s/ RICHARD B. BAILEY
-----------------------------
Richard B. Bailey
Chairman
Massachusetts Cash Management Trust By: /s/ RICHARD B. BAILEY
-----------------------------
Richard B. Bailey
Chairman
MFS Managed Municipal Bond Trust By: /s/ RICHARD B. BAILEY
-----------------------------
Richard B. Bailey
Chairman
Massachusetts Financial High Income Trust By: /s/ RICHARD B. BAILEY
-----------------------------
Chairman
Richard B. Bailey
Municipal Working Capital Trust By: /s/ RICHARD B. BAILEY
-----------------------------
Richard B. Bailey
Chairman
Massachusetts Financial International Trust By: /s/ RICHARD B. BAILEY
-----------------------------
Richard B. Bailey
Chairman
Massachusetts Financial Emerging Growth Trust By: /s/ RICHARD B. BAILEY
-----------------------------
Richard B. Bailey
Chairman
Massachusetts Financial Special Fund By: /s/ RICHARD B. BAILEY
-----------------------------
Richard B. Bailey
Chairman
MFS Managed High Yield Municipal Bond Trust By: /s/ RICHARD B. BAILEY
-----------------------------
Richard B. Bailey
Chairman
MFS Government Guaranteed Securities Trust By: /s/ RICHARD B. BAILEY
-----------------------------
Richard B. Bailey
Chairman
MFS Managed Mult-State Tax-Exempt Trust By: /s/ RICHARD B. BAILEY
-----------------------------
Richard B. Bailey
Chairman
MFS/Sun Life Series Trust By: /s/ JOHN D. McNEIL
John D. McNeil
-----------------------------
Chairman
MFS Managed California Tax-Exempt Trust By: /s/ RICHARD B. BAILEY
-----------------------------
Richard B. Bailey
Chairman
Trust for Thrift Institutions By: /s/ RICHARD B. BAILEY
-----------------------------
Richard B. Bailey
Chairman
MFS Government Securities High Yield Trust By: /s/ RICHARD B. BAILEY
-----------------------------
Richard B. Bailey
Chairman
Attest: /s/ DANIEL M. JAFFE
---------------------------------
Daniel M. Jaffe
The foregoing is hereby accepted as of the date thereof.
STATE STREET BANK AND
TRUST COMPANY
By: /s/ILLEGIBLE
-----------------------------
ILLEGIBLE
<PAGE>
EXHIBIT NO. 99.11
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Post-Effective
Amendment No. 41 to Registration Statement No. 2-38613 of MFS Series Trust V of
our reports each dated November 3, 1995 appearing in the annual reports to
shareholders for the year ended September 30, 1995, of MFS Total Return Fund and
MFS Research Fund, each a series of MFS Series Trust V and to the references to
us under the headings "Condensed Financial Information" in the Prospectus and
"Independent Auditors and Financial Statements" in the Statement of Additional
Information, both of which are part of such Registration Statement.
/s/ DELOITTE & TOUCHE LLP
---------------------------
Deloitte & Touche LLP
Boston, Massachusetts
January 22, 1996
<PAGE>
EXHIBIT NO. 99.15(a)
MFS SERIES TRUST V
MFS TOTAL RETURN FUND
AMENDED AND RESTATED DISTRIBUTION PLAN
AMENDED AND RESTATED DISTRIBUTION PLAN with respect to the shares of
beneficial interest to be designated "CLASS A" of the MFS TOTAL RETURN FUND (the
"Fund"), a series of MFS Series Trust V (the "Trust"), a business trust
organized and existing under the laws of The Commonwealth of Massachusetts,
dated the 17th day of May, 1989, amended and restated the 19th day of December,
1990, amended and restated the 23rd day of August, 1993 and amended this 21st
day of December, 1994.
WITNESSETH:
WHEREAS, the Trust is engaged in business as an open-end management
investment company and is registered under the Investment Company Act of 1940
(the "1940 Act"); and
WHEREAS, a plan of distribution pursuant to Rule 12b-1 of the 1940 Act
was previously adopted and approved by the Trustees of the Trust, including the
Qualifying Trustees (as defined below), and by the shareholders of the Fund; and
WHEREAS, the Trust intends to continue to distribute the Shares of
Beneficial Interest (without par value) of the Fund designated Class A Shares
(the "Shares") in part in accordance with Rule 12b-1 under the 1940 Act ("Rule
12b-1"), and desires to adopt this amended and restated Distribution Plan (the
"Plan") as a plan of distribution pursuant to such Rule; and
WHEREAS, the Trust has entered into a distribution agreement (the
"Distribution Agreement") in a form approved by the Board of Trustees of the
Trust (the "Board of Trustees") in the manner specified in Rule 12b-1, with MFS
Fund Distributors, Inc., a Delaware corporation, as distributor (the
"Distributor"), whereby the Distributor provides facilities and personnel and
renders services to the Fund in connection with the offering and distribution of
the Shares; and
WHEREAS, the Trust recognizes and agrees that the Distributor will
enter into agreements ("Dealer Agreements") with various securities dealers and
other financial intermediaries ("Dealers") pursuant to which the Dealers will
act as dealers of the Shares in connection with the offering of Shares; and
WHEREAS, the Distribution Agreement provides that a sales charge may be
paid by investors who purchase Shares and that the Distributor and Dealers will
receive such sales charge as partial compensation for their services in
connection with sale of Shares; and
WHEREAS, the Board of Trustees, in considering whether the Fund should
adopt and implement this Plan, has evaluated such information as it deemed
necessary to an informed determination as to whether this Plan should be adopted
and implemented and has considered such pertinent factors as it deemed necessary
to form the basis for a decision to use assets of the Fund for such purposes,
and has determined that there is a reasonable likelihood that the adoption and
implementation of this Plan will benefit the Fund and its Class A shareholders;
NOW, THEREFORE, the Board of Trustees hereby adopts this Plan for the
Fund as a plan of distribution relating to the Shares in accordance with Rule
12b-1 under the 1940 Act, on the following terms and conditions:
1. As specified in the Distribution Agreement, the Distributor shall
provide facilities, personnel and a program with respect to the offering and
sale of Shares. Among other things, the Distributor shall be responsible for all
expenses of printing (excluding typesetting) and distributing prospectuses to
prospective shareholders and providing such other related services as are
reasonably necessary in connection therewith.
2. The Distributor shall bear all distribution-related expenses to the
extent specified in the Distribution Agreement in providing the services
described in Section 1, including without limitation, the compensation of
personnel necessary to provide such services and all costs of travel, office
expenses (including rent and overhead), equipment, printing, delivery and
mailing costs.
3. As partial consideration for the services performed and expenses
incurred in the performance of its obligations under the Distribution Agreement,
the Fund shall pay the Distributor a distribution fee periodically at a rate of
0.10% per annum of the average daily net assets of the Fund attributable to the
Shares. Such payments shall commence following shareholder approval of the Plan
but only upon notification by the Distributor to the Fund of the commencement of
the Plan (the "Commencement Date").
4. As partial consideration for the personal services and/or account
maintenance services performed by each Dealer in the performance of its
obligations under its Dealer Agreement, the Fund shall on or after the
Commencement Date pay each Dealer a service fee periodically at a rate not to
exceed 0.25% per annum of the portion of the average daily net assets of the
Fund that is represented by Shares that are owned by investors for whom such
Dealer is the holder or dealer of record. The Distributor may from time to time
reduce the amount of the service fee paid to a Dealer for Shares sold prior to
certain date.
5. In addition to fees payable pursuant to Sections 3 and 4 hereof, the
expenses permitted to be paid by the Fund pursuant to this Plan on or after the
Commencement Date shall include other distribution related expenses. These other
distribution related expenses may include, but are not limited to, a dealer
commission and a payment to wholesalers employed by the Distributor on net asset
value purchases at or above a certain dollar level.
The aggregate amount of fees and expenses paid pursuant to Sections 3
and 4 hereof and this Section 5 shall not exceed 0.35% per annum of the average
daily net assets of the Fund attributable to the Shares. No fees shall be paid
pursuant to Section 4 hereof or this Section 5 to any insurance company which
has entered into an agreement with the Trust on behalf of the Fund and the
Distributor that permits such insurance company to purchase Shares from the Fund
at their net asset value in connection with annuity agreements issued in
connection with the insurance company's separate accounts. That portion of the
Fund's average daily net assets on which fees payable under Section 4 hereof and
this Section 5 are calculated may be subject to certain minimum amount
requirements as may be determined, and additional or different dealer or
wholesaler qualification standards that may be established, from time to time by
the Distributor. The Distributor shall be entitled to be paid any fees payable
under Section 4 hereof or this Section 5 with respect to accounts for which no
Dealer of record exists or qualification standards have not been met as partial
consideration for personal services and/or account maintenance services provided
by the Distributor to the Shares. The fees and expenses payable pursuant to
Section 4 and this Section 5 may from time to time be paid by the Fund to the
Distributor and the Distributor will then pay these expenses on behalf of the
Fund.
6. Nothing herein contained shall be deemed to require the Trust to
take any action contrary to its Declaration of Trust or By-Laws or any
applicable statutory or regulatory requirement to which it is subject or by
which it is bound, or to relieve or deprive the Board of Trustees of the
responsibility for and control of the conduct of the affairs of the Fund.
7. This Plan shall become effective upon (a) approval by a vote of at
least a "majority of the outstanding voting securities" of the Shares, and (b)
approval by a vote of the Board of Trustees and vote of a majority of the
Trustees who are not "interested persons" of the Trust and who have no direct or
indirect financial interest in the operation of the Plan or in any of the
agreements related to the Plan (the "Qualified Trustees"), such votes to be cast
in person at a meeting called for the purpose of voting on this Plan.
8. This Plan shall continue in effect indefinitely; provided, however,
that such continuance is subject to annual approval by a vote of the Board of
Trustees and a majority of the Qualified Trustees, such votes to be cast in
person at a meeting called for the purpose of voting on continuance of this
Plan. If such annual approval is not obtained, this Plan shall expire 12 months
after the effective date of the last approval.
9. This Plan may be amended at any time by the Board of Trustees;
provided that (a) any amendment to increase materially the amount to be spent
for the services described herein shall be effective only upon approval by a
vote of a "majority of the outstanding voting securities" of the Shares and (b)
any material amendment of this Plan shall be effective only upon approval by a
vote of the Board of Trustees and a majority of the Qualified Trustees, such
votes to be cast in person at a meeting called for the purpose of voting on such
amendment. This Plan may be terminated at any time by vote of a majority of the
Qualified Trustees or by a vote of a "majority of the outstanding voting
securities" of the Shares.
10. The Distributor shall provide the Board of Trustees, and the Board
of Trustees shall review, at least quarterly, a written report of the amounts
expended under the Plan and the purposes for which such expenditures were made.
11. While this Plan is in effect, the selection and nomination of
Qualified Trustees shall be committed to the discretion of the Trustees who are
not "interested persons" of the Trust.
12. For the purposes of this Plan, the terms "interested person" and
"majority of the outstanding voting securities" are used as defined in the 1940
Act. In addition, for purposes of determining the fees payable to Dealers and
wholesalers, the value of the Share's net assets shall be computed in the manner
specified in the Fund's then current prospectus for computation of the net asset
value of the Shares.
13. The Trust shall preserve copies of this Plan, and each agreement
related hereto and each report referred to in Section 10 hereof (collectively
the "Records") for a period of six years from the end of the fiscal year in
which such Record was made and each such Record shall be kept in an easily
accessible place for the first two years of said record keeping.
14. This Plan shall be construed in accordance with the laws of The
Commonwealth of Massachusetts and the applicable provisions of the 1940 Act.
15. If any provision of this Plan shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Plan shall not
be affected thereby.
<PAGE>
EXHIBIT NO. 99.15(b)
MFS SERIES TRUST V
MFS TOTAL RETURN FUND
PLAN OF DISTRIBUTION
PLAN OF DISTRIBUTION with respect to the shares of beneficial interest
to be designated "CLASS B" OF MFS TOTAL RETURN FUND (the "Fund"), a series of
MFS Series Trust V (the "Trust") a Massachusetts business trust, dated August
23, 1993 and amended this 21st day of December, 1994.
WITNESSETH:
WHEREAS, the Trust is engaged in business as an open-end management
investment company and is registered under the Investment Company Act of 1940,
as amended (collectively with the rules and regulations promulgated thereunder,
the "1940 Act"); and
WHEREAS, the Trust intends to distribute the shares of beneficial
interest (without par value) of the Fund designated Class B Shares (the
"Shares") in accordance with Rule 12b-1 under the 1940 Act ("Rule 12b-1"), and
desires to adopt this Distribution Plan (the "Plan") as a plan of distribution
pursuant to such Rule; and
WHEREAS, the Trust desires for MFS Fund Distributors, Inc., a Delaware
corporation, to provide certain distribution services for the Fund (the
"Distributor"); and
WHEREAS, the Trust has entered into a distribution agreement (the
"Distribution Agreement") (in a form approved by the Board of Trustees of the
Trust in a manner specified in such Rule 12b-1) with the Distributor, whereby
the Distributor will provide facilities and personnel and render services to the
Fund in connection with the offering and distribution of the Shares; and
WHEREAS, the Trust recognizes and agrees that (a) the Distributor may
retain the services of firms or individuals to act as dealers (the "Dealers") of
the Shares in connection with the offering of Shares, and (b) the Distributor
may make payments for such services to the Dealers out of the fee paid to the
Distributor hereunder, any deferred sales charges imposed by the Distributor in
connection with the repurchase of Shares, its profits or any other source
available to it; and
WHEREAS, the Trust recognizes and agrees that the Distributor may
impose certain deferred sales charges in connection with the repurchase of
Shares by the Fund, and the Distributor may retain (or receive from the Fund, as
the case may be) all such deferred sales charges; and
WHEREAS, the Board of Trustees of the Trust, in considering whether the
Fund should adopt and implement this Plan, has evaluated such information as it
deemed necessary to an informed determination as to whether this Plan should be
adopted and implemented and has considered such pertinent factors as it deemed
necessary to form the basis for a decision to use assets of the Fund for such
purposes, and has determined that there is a reasonable likelihood that the
adoption and implementation of this Plan will benefit the Fund and its Class B
shareholders;
NOW, THEREFORE, the Board of Trustees of the Trust hereby adopts this
Plan for the Fund as a plan for distribution relating to the Shares in
accordance with Rule 12b-1, on the following terms and conditions:
1. As specified in the Distribution Agreement, the Distributor shall
provide facilities, personnel and a program with respect to the offering and
sale of Shares. Among other things, the Distributor shall be responsible for
commissions payable to Dealers, all expenses of printing (excluding typesetting)
and distributing prospectuses to prospective shareholders and providing such
other related services as are reasonably necessary in connection therewith.
2. The Distributor shall bear all distribution-related expenses to the
extent specified in the Distribution Agreement in providing the services
described in paragraph 1, including without limitation, the compensation of
personnel necessary to provide such services and all costs of travel, office
expenses (including rent and overhead), equipment, printing, delivery and
mailing costs.
3. It is understood that the Distributor may impose certain deferred
sales charges in connection with the repurchase of Shares by the Fund and the
Distributor may retain (or receive from the Fund, as the case may be) all such
deferred sales charges. As additional consideration for all services performed
and expenses incurred in the performance of its obligations under the
Distribution Agreement, the Fund shall pay the Distributor a distribution fee
periodically at a rate of 0.75% per annum of the Fund's average daily net assets
attributable to the Shares.
4. As partial consideration for the personal services and/or account
maintenance services performed by each Dealer in the performance of its
obligations under its dealer agreement with the Distributor, the Fund shall pay
each Dealer a service fee periodically at a rate not to exceed 0.25% per annum
of the portion of the average daily net assets of the Fund that is represented
by Shares that are owned by lnvestors for whom such Dealer is the holder or
dealer of record. That portion of the Fund's average daily net assets on which
the fees payable under this paragraph 4 hereof are calculated may be subject to
certain minimum amount requirements as may be determined, and additional or
different dealer qualification standards that may be established from time to
time, by the Distributor. The Distributor shall be entitled to be paid any fees
payable under this paragraph 4 hereof with respect to Shares for which no Dealer
of record exists or qualification standards have not been met as partial
consideration for personal services and/or account maintenance services provided
by the Distributor to the Shares. The service fee payable pursuant to this
paragraph 4 may from time to time be paid by the Fund to the Distributor and the
Distributor will then pay these fees on behalf of the Fund.
5. The Fund understands that agreements between the Distributor and the
Dealers may provide for payment of commissions to Dealers in connection with the
sales of Shares and may provide for a portion (which may be all or substantially
all) of the fees payable by the Fund to the Distributor under the Distribution
Agreement to be paid by the Distributor to the Dealers in consideration of the
Dealer's services as a dealer of the Shares. Except as described in paragraph 4,
nothing in this Plan shall be construed as requiring the Fund to make any
payment to any Dealer or to have any obligations to any Dealer in connection
with services as a dealer of the Shares. The Distributor shall agree and
undertake that any agreement entered into between the Distributor and any Dealer
shall provide that, except as provided in paragraph 4, such Dealer shall look
solely to the Distributor for compensation for its services thereunder and that
in no event shall such Dealer seek any payment from the Fund.
6. The Fund shall pay all fees and expenses of any independent auditor,
legal counsel, investment adviser, administrator, transfer agent, custodian,
shareholder servicing agent, registrar or dividend disbursing agent of the Fund;
expenses of distributing and redeeming Shares and servicing shareholder
accounts; expenses of preparing, printing and mailing prospectuses, shareholder
reports, notices, proxy statements and reports to governmental officers and
commissions and to shareholders of the Fund, except that the Distributor shall
be responsible for the distribution-related expenses as provided in paragraphs 1
and 2 hereof.
7. Nothing herein contained shall be deemed to require the Trust to
take any action contrary to its Declaration of Trust or By-Laws or any
applicable statutory or regulatory requirement to which it is subject or by
which it is bound, or to relieve or deprive the Board of Trustees of the
responsibility for and control of the conduct of the affairs of the Fund.
8. This Plan shall become effective upon (a) approval by a vote of at
least a "majority of the outstanding voting securities" of the Shares, and (b)
approval by a vote of the Board of Trustees and a vote of a majority of the
Trustees who are not "interested persons" of the Trust and who have no direct or
indirect financial interest in the operation of the Plan or in any agreement
related to the Plan (the "Qualified Trustees"), such votes to be cast in person
at a meeting called for the purpose of voting on this Plan.
9. This Plan shall continue in effect indefinitely; provided that such
continuance is "specifically approved at least annually" by a vote of both a
majority of the Trustees of the Trust and a majority of the Qualified Trustees.
If such annual approval is not obtained, this Plan shall expire 12 months after
the effective date of the last approval.
10. This Plan may be amended at any time by the Board of Trustees;
provided that this Plan may not be amended to increase materially the amount of
permitted expenses hereunder without the approval of holders of a "majority of
the outstanding voting securities" of the Shares and may not be materially
amended in any case without a vote of a majority of both the Trustees and the
Qualified Trustees. This Plan may be terminated at any time by a vote of a
majority of the Qualified Trustees or by a vote of the holders of a "majority of
the outstanding voting securities" of the Shares.
11. The Fund and the Distributor shall provide the Board of Trustees,
and the Board of Trustees shall review, at least quarterly, a written report of
the amounts expended under this Plan and the purposes for which such
expenditures were made.
12. While this Plan is in effect, the selection and nomination of
Qualified Trustees shall be committed to the discretion of the Trustees who are
not "interested persons" of the Trust.
13. For the purposes of this Plan, the terms "interested persons",
"majority of the outstanding voting securities" and "specifically approved at
least annually" are used as defined in the 1940 Act. In addition, for purposes
of determining the fees payable to the Distributor hereunder, the value of the
Fund's net assets shall be computed in the manner specified in the Fund's
then-current prospectus and statement of additional information for computation
of the net asset value of the Shares of the Fund.
14. The Trust shall preserve copies of this Plan, and each agreement
related hereto and each report referred to in paragraph 11 hereof (collectively,
the "Records") for a period of six years from the end of the fiscal year in
which such Record was made and each such record shall be kept in an easily
accessible place for the first two years of said record-keeping.
15. This Plan shall be construed in accordance with the laws of The
Commonwealth of Massachusetts and the applicable provisions of the 1940 Act.
16. If any provision of this Plan shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Plan shall not
be affected thereby.
<PAGE>
EXHIBIT NO. 99.15(c)
MFS SERIES TRUST V
MFS TOTAL RETURN FUND
PLAN OF DISTRIBUTION
PLAN OF DISTRIBUTION with respect to the shares of beneficial interest
to be designated "CLASS C" of MFS TOTAL RETURN FUND (the "Fund"), a series of
MFS Series Trust V (the "Trust"), a Massachusetts business trust, dated July 20,
1994 and amended this 21st day of December, 1994.
WITNESSETH:
WHEREAS, the Trust is engaged in business as an open-end management
investment company and is registered under the Investment Company Act of 1940,
as amended (collectively with the rules and regulations promulgated thereunder,
the "1940 Act"); and
WHEREAS, the Trust intends to distribute the shares of beneficial
interest (without par value) of the Fund designated Class C Shares (the
"Shares") in accordance with Rule 12b-1 under the 1940 Act ("Rule 12b-1"), and
desires to adopt this Distribution Plan (the "Plan") as a plan of distribution
pursuant to such Rule; and
WHEREAS, the Trust desires for MFS Fund Distributors, Inc., a Delaware
corporation, to provide certain distribution services for the Fund (the
"Distributor"); and
WHEREAS, the Trust has entered into a distribution agreement (the
"Distribution Agreement") (in a form approved by the Board of Trustees of the
Trust in a manner specified in Rule 12b-1) with the Distributor, whereby the
Distributor will provide facilities and personnel and render services to the
Fund in connection with the offering and distribution of the Shares; and
WHEREAS, the Trust recognizes and agrees that (a) the Distributor may
retain the services of firms or individuals to act as dealers (the "Dealers") of
the Shares in connection with the offering of Shares, and (b) the Distributor
may make payments for such services to the Dealers out of the fee paid to the
Distributor hereunder, any deferred sales charges imposed by the Distributor in
connection with the repurchase of Shares, its profits or any other source
available to it; and
WHEREAS, the Trust recognizes and agrees that the Distributor may (but
is not required to) impose certain deferred sales charges in connection with the
repurchase of Shares by the Fund, and the Distributor may retain (or receive
from the Fund as the case may be) all such deferred sales charges; and
WHEREAS, the Board of Trustees of the Trust, in considering whether the
Fund should adopt and implement this Plan, has evaluated such information as it
deemed necessary to an informed determination as to whether this Plan should be
adopted and implemented and has considered such pertinent factors as it deemed
necessary to form the basis for a decision to use assets of the Fund for such
purposes, and has determined that there is a reasonable likelihood that the
adoption and implementation of this Plan will benefit the Fund and its Class C
shareholders;
NOW, THEREFORE, the Board of Trustees of the Trust hereby adopts this
Plan for the Fund as a plan for distribution relating to the Shares in
accordance with Rule 12b-1, on the following terms and conditions:
1. As specified in the Distribution Agreement, the Distributor shall
provide facilities, personnel and a program with respect to the offering and
sale of Shares. Among other things, the Distributor shall be responsible for any
commissions payable to Dealers (including any ongoing maintenance commissions),
all expenses of printing (excluding typesetting) and distributing prospectuses
to prospective shareholders and providing such other related services as are
reasonably necessary in connection therewith.
2. The Distributor shall bear all distribution-related expenses to the
extent specified in the Distribution Agreement in providing the services
described in paragraph 1, including without limitation, the compensation of
personnel necessary to provide such services and all costs of travel, office
expenses (including rent and overhead), equipment, printing, delivery and
mailing costs.
3. It is understood that the Distributor may (but is not required to)
impose certain deferred sales charges in connection with the repurchase of
Shares by the Fund and the Distributor may retain (or receive from the Fund, as
the case may be) all such deferred sales charges. As additional consideration
for all services performed and expenses incurred in the performance of its
obligations under the Distribution Agreement, the Fund shall pay the Distributor
a distribution fee periodically at a rate not to exceed 0.75% per annum of the
Fund's average daily net assets attributable to the Shares.
4. As partial consideration for the personal services and/or account
maintenance services performed by each Dealer in the performance of its
obligations under its dealer agreement with the Distributor, the Fund shall pay
each Dealer a service fee periodically at a rate not to exceed 0.25% per annum
of the portion of the average daily net assets of the Fund that is represented
by Shares that are owned by investors for whom such Dealer is the holder or
dealer of record. That portion of the Fund's average daily net assets on which
the fees payable under this paragraph 4 hereof are calculated may be subject to
certain minimum amount requirements as may be determined, and additional or
different dealer qualification standards that may be established, from time to
time by the Distributor. The Distributor shall be entitled to be paid any fees
payable under this paragraph 4 hereof with respect to Shares for which no Dealer
of record exists or qualification standards have not been met as partial
consideration for personal services and/or account maintenance services provided
by the Distributor to the Shares. The service fee payable pursuant to this
paragraph 4 may from time to time be paid by the Fund to the Distributor and the
Distributor will then pay these fees to Dealers on behalf of the Fund or retain
them in accordance with this paragraph.
5. The Fund understands that agreements between the Distributor and the
Dealers may provide for payment of commissions to Dealers in connection with the
sales of Shares and may provide for a portion (which may be all or substantially
all) of the fees payable by the Fund to the Distributor under the Distribution
Agreement to be paid by the Distributor to the Dealers in consideration of the
Dealer's services as a dealer of the Shares. Except as described in paragraph 4,
nothing in this Plan shall be construed as requiring the Fund to make any
payment to any Dealer or to have any obligations to any Dealer in connection
with services as a dealer of the Shares. The Distributor shall agree and
undertake that any agreement entered into between the Distributor and any Dealer
shall provide that, except as provided in paragraph 4, such Dealer shall look
solely to the Distributor for compensation for its services thereunder and that
in no event shall such Dealer seek any payment from the Fund.
6. The Fund shall pay all fees and expenses of any independent auditor,
legal counsel, investment adviser, administrator, transfer agent, custodian,
shareholder servicing agent, registrar or dividend disbursing agent of the Fund;
expenses of distributing and redeeming Shares and servicing shareholder
accounts; expenses of preparing, printing and mailing prospectuses, shareholder
reports, notices, proxy statements and reports to governmental officers and
commissions and to shareholders of the Fund, except that the Distributor shall
be responsible for the distribution-related expenses as provided in paragraphs 1
and 2 hereof.
7. Nothing herein contained shall be deemed to require the Trust to
take any action contrary to its Declaration of Trust or By-Laws or any
applicable statutory or regulatory requirement to which it is subject or by
which it is bound, or to relieve or deprive the Board of Trustees of the
responsibility for and control of the conduct of the affairs of the Fund.
8. This Plan shall become effective upon (a) approval by a vote of at
least a "majority of the outstanding voting securities" of Class C, and (b)
approval by a vote of the Board of Trustees and a vote of a majority of the
Trustees who are not "interested persons" of the Trust and who have no direct or
indirect financial interest in the operation of the Plan or in any agreement
related to the Plan (the "Qualified Trustees"), such votes to be cast in person
at a meeting called for the purpose of voting on this Plan.
9. This Plan shall continue in effect indefinitely; provided that such
continuance is "specifically approved at least annually" by a vote of both a
majority of the Trustees of the Trust and a majority of the Qualified Trustees.
If such annual approval is not obtained, this Plan shall expire 12 months after
the effective date of the last approval.
10. This Plan may be amended at any time by the Board of Trustees;
provided that this Plan may not be amended to increase materially the amount of
permitted expenses hereunder without the approval of holders of a "majority of
the outstanding voting securities" of Class C and may not be materially amended
in any case without a vote of a majority of both the Trustees and the Qualified
Trustees. This Plan may be terminated at any time by a vote of a majority of the
Qualified Trustees or by a vote of the holders of a "majority of the outstanding
voting securities" of Class C.
11. The Fund and the Distributor shall provide the Board of Trustees,
and the Board of Trustees shall review, at least quarterly, a written report of
the amounts expended under this Plan and the purposes for which such
expenditures were made.
12. While this Plan is in effect, the selection and nomination of
Qualified Trustees shall be committed to the discretion of the Trustees who are
not "interested persons" of the Trust.
13. For the purposes of this Plan, the terms "interested persons,"
"majority of the outstanding voting securities" and "specifically approved at
least annually" are used as defined in the 1940 Act. In addition, for purposes
of determining the fees payable to the Distributor hereunder, the value of the
Fund's net assets shall be computed in the manner specified in the Fund's
then-current prospectus and statement of additional information for computation
of the net asset value of the Shares of the Fund.
14. The Trust shall preserve copies of this Plan, and each agreement
related hereto and each report referred to in paragraph 11 hereof (collectively,
the "Records") for a period of six years from the end of the fiscal year in
which such Record was made and each such record shall be kept in an easily
accessible place for the first two years of said record-keeping.
15. This Plan shall be construed in accordance with the laws of The
Commonwealth of Massachusetts and the applicable provisions of the 1940 Act.
16. If any provision of this Plan shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Plan shall not
be affected thereby.
<PAGE>
EXHIBIT NO. 99.15(d)
MFS SERIES TRUST V
MFS RESEARCH FUND
DISTRIBUTION PLAN
DISTRIBUTION PLAN with respect to the shares of beneficial interest to
be designated "CLASS A" of the MFS RESEARCH FUND (the "Fund"), a series of MFS
Series Trust V (the "Trust"), a business trust organized and existing under the
laws of The Commonwealth of Massachusetts, dated the 1st day of September, 1993
and amended this 21st day of December, 1994.
WITNESSETH:
WHEREAS, the Trust is engaged in business as an open-end management
investment company and is registered under the Investment Company Act of 1940
(the "Act"); and
WHEREAS, the Trust intends to distribute the Shares of Beneficial
Interest (without par value) of the Fund designated Class A Shares (the
"Shares") in part in accordance with Rule 12b-1 under the Act, ("Rule 12b-1"),
and desires to adopt this Distribution Plan (the "Plan") as a plan of
distribution pursuant to such Rule; and
WHEREAS, the Trust has entered into a distribution agreement (the
"Distribution Agreement") in a form approved by the Board of Trustees of the
Trust (the "Board of Trustees") in the manner specified in Rule 12b-1, with MFS
Fund Distributors, Inc., a Delaware corporation, as distributor (the
"Distributor"), whereby the Distributor provides facilities and personnel and
renders services to the Fund in connection with the offering and distribution of
the Shares; and
WHEREAS, the Trust recognizes and agrees that the Distributor will
enter into agreements ("Dealer Agreements") with various securities dealers and
other financial intermediaries ("Dealers") pursuant to which the Dealers will
act as dealers of the Shares in connection with the offering of Shares; and
WHEREAS, the Distribution Agreement provides that a sales charge may be
paid by investors who purchase Shares and that the Distributor and Dealers will
receive such sales charge as partial compensation for their services in
connection with sale of Shares; and
WHEREAS, the Board of Trustees, in considering whether the Fund should
adopt and implement this Plan, has evaluated such information as it deemed
necessary to an informed determination as to whether this Plan should be adopted
and implemented and has considered such pertinent factors as it deemed necessary
to form the basis for a decision to use assets of the Fund for such purposes,
and has determined that there is a reasonable likelihood that the adoption and
implementation of this Plan will benefit the Fund and its Class A shareholders;
NOW, THEREFORE, the Board of Trustees hereby adopts this Plan for the
Fund as a plan of distribution relating to the Shares in accordance with Rule
12b-1 under the Act, on the following terms and conditions:
1. As specified in the Distribution Agreement, the Distributor shall
provide facilities, personnel and a program with respect to the offering and
sale of Shares. Among other things, the Distributor shall be responsible for all
expenses of printing (excluding typesetting) and distributing prospectuses to
prospective shareholders and providing such other related services as are
reasonably necessary in connection therewith.
2. The Distributor shall bear all distribution-related expenses
described in Section 1, including without limitation, the compensation of
personnel necessary to provide such services and all costs of travel, office
expenses (including rent and overhead), equipment, printing, delivery and
mailing costs.
3. As partial consideration for the services performed and expenses to
the extent specified in the Distribution Agreement in providing the services
incurred in the performance of its obligations under the Distribution Agreement,
the Fund shall pay the Distributor a distribution fee periodically at a rate of
0.10% per annum of the average daily net assets of the Fund attributable to the
Shares. Such payments shall commence following shareholder approval of the Plan
but only upon notification by the Distributor to the Fund of the commencement of
the Plan (the "Commencement Date").
4. As partial consideration for the personal services and/or account
maintenance services performed by each Dealer in the performance of its
obligations under its Dealer Agreement, the Fund shall on or after the
Commencement Date pay each Dealer a service fee periodically at a rate not to
exceed 0.25% per annum of the portion of the average daily net assets of the
Fund that is represented by Shares that are owned by investors for whom such
Dealer is the holder or dealer of record. The Distributor may from time to time
reduce the amount of the service fee paid to a Dealer for Shares sold prior to
certain date.
5. In addition to fees payable pursuant to Sections 3 and 4 hereof, the
expenses permitted to be paid by the Fund pursuant to this Plan on or after the
Commencement Date shall include other distribution related expenses. These other
distribution related expenses may include, but are not limited to, a dealer
commission and a payment to wholesalers employed by the Distributor on net asset
value purchases at or above a certain dollar level.
The aggregate amount of fees and expenses paid pursuant to
Sections 3 and 4 hereof and this Section 5 shall not exceed 0.35% per annum of
the average daily net assets of the Fund attributable to the Shares. No fees
shall be paid pursuant to Section 4 hereof or this Section 5 to any insurance
company which has entered into an agreement with the Trust on behalf of the Fund
and the Distributor that permits such insurance company to purchase Shares from
the Fund at their net asset value in connection with annuity agreements issued
in connection with the insurance company's separate accounts. That portion of
the Fund's average daily net assets on which fees payable under Section 4 hereof
and this Section 5 are calculated may be subject to certain minimum amount
requirements as may be determined, and additional or different dealer or
wholesaler qualification standards that may be established, from time to time by
the Distributor. The Distributor shall be entitled to be paid any fees payable
under Section 4 hereof or this Section 5 with respect to accounts for which no
Dealer of record exists or qualification standards have not been met as partial
consideration for personal services and/or account maintenance services provided
by the Distributor to the Shares. The fees and expenses payable pursuant to
Section 4 and this Section 5 may from time to time be paid by the Fund to the
Distributor and the Distributor will then pay these expenses on behalf of the
Fund.
6. Nothing herein contained shall be deemed to require the Trust to
take any action contrary to its Declaration of Trust or By-Laws or any
applicable statutory or regulatory requirement to which it is subject or by
which it is bound, or to relieve or deprive the Board of Trustees of the
responsibility for and control of the conduct of the affairs of the Fund.
7. This Plan shall become effective upon (a) approval by a vote of at
least a "majority of the outstanding voting securities" of the Shares, and (b)
approval by a vote of the Board of Trustees and vote of a majority of the
Trustees who are not "interested persons" of the Trust and who have no direct or
indirect financial interest in the operation of the Plan or in any of the
agreements related to the Plan (the "Qualified Trustees"), such votes to be cast
in person at a meeting called for the purpose of voting on this Plan.
8. This Plan shall continue in effect indefinitely; provided, however,
that such continuance is subject to annual approval by a vote of the Board of
Trustees and a majority of the Qualified Trustees, such votes to be cast in
person at a meeting called for the purpose of voting on continuance of this
Plan. If such annual approval is not obtained, this Plan shall expire 12 months
after the effective date of the last approval.
9. This Plan may be amended at any time by the Board of Trustees;
provided that (a) any amendment to increase materially the amount to be spent
for the services described herein shall be effective only upon approval by a
vote of a "majority of the outstanding voting securities" of the Shares and (b)
any material amendment of this Plan shall be effective only upon approval by a
vote of the Board of Trustees and a majority of the Qualified Trustees, such
votes to be cast in person at a meeting called for the purpose of voting on such
amendment. This Plan may be terminated at any time by vote of a majority of the
Qualified Trustees or by a vote of a "majority of the outstanding voting
securities" of the Shares.
10. The Distributor shall provide the Board of Trustees, and the Board
of Trustees shall review, at least quarterly, a written report of the amounts
expended under the Plan and the purposes for which such expenditures were made.
11. While this Plan is in effect, the selection and nomination of
Qualified Trustees shall be committed to the discretion of the Trustees who are
not "interested persons" of the Trust.
12. For the purposes of this Plan, the terms "interested person" and
"majority of the outstanding voting securities" are used as defined in the Act.
In addition, for purposes of determining the fees payable to Dealers and
wholesalers, the value of the Share's net assets shall be computed in the manner
specified in the Fund's then current prospectus for computation of the net asset
value of the Shares.
13. The Trust shall preserve copies of this Plan, and each agreement
related hereto and each report referred to in Section 10 hereof (collectively
the "Records") for a period of six years from the end of the fiscal year in
which such Record was made and each such Record shall be kept in an easily
accessible place for the first two years of said record keeping.
14. This Plan shall be construed in accordance with the laws of The
Commonwealth of Massachusetts and the applicable provisions of the Act.
15. If any provision of this Plan shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Plan shall not
be affected thereby.
<PAGE>
EXHIBIT NO. 99.15(e)
MFS SERIES TRUST V
MFS RESEARCH FUND
PLAN OF DISTRIBUTION
PLAN OF DISTRIBUTION with respect to the shares of beneficial interest
to be designated "CLASS B" OF MFS RESEARCH FUND (the "Fund"), a series of MFS
Series Trust V (the "Trust") a Massachusetts business trust, dated September 1,
1993 and amended this 21st day of December, 1994.
WITNESSETH:
WHEREAS, the Trust is engaged in business as an open-end management
investment company and is registered under the Investment Company Act of 1940,
as amended (collectively with the rules and regulations promulgated thereunder,
the "1940 Act"); and
WHEREAS, the Trust intends to distribute the shares of beneficial
interest (without par value) of the Fund designated Class B Shares (the
"Shares") in accordance with Rule 12b-1 under the 1940 Act ("Rule 12b-1"), and
desires to adopt this Distribution Plan (the "Plan") as a plan of distribution
pursuant to such Rule; and
WHEREAS, the Trust desires for MFS Fund Distributors, Inc., a Delaware
corporation, to provide certain distribution services for the Fund (the
"Distributor"); and
WHEREAS, the Trust has entered into a distribution agreement (the
"Distribution Agreement") (in a form approved by the Board of Trustees of the
Trust in a manner specified in such Rule 12b-1) with the Distributor, whereby
the Distributor will provide facilities and personnel and render services to the
Fund in connection with the offering and distribution of the Shares; and
WHEREAS, the Trust recognizes and agrees that (a) the Distributor may
retain the services of firms or individuals to act as dealers (the "Dealers") of
the Shares in connection with the offering of Shares, and (b) the Distributor
may make payments for such services to the Dealers out of the fee paid to the
Distributor hereunder, any deferred sales charges imposed by the Distributor in
connection with the repurchase of Shares, its profits or any other source
available to it; and
WHEREAS, the Trust recognizes and agrees that the Distributor may
impose certain deferred sales charges in connection with the repurchase of
Shares by the Fund, and the Distributor may retain (or receive from the Fund, as
the case may be) all such deferred sales charges; and
WHEREAS, the Board of Trustees of the Trust, in considering whether the
Fund should adopt and implement this Plan, has evaluated such information as it
deemed necessary to an informed determination as to whether this Plan should be
adopted and implemented and has considered such pertinent factors as it deemed
necessary to form the basis for a decision to use assets of the Fund for such
purposes, and has determined that there is a reasonable likelihood that the
adoption and implementation of this Plan will benefit the Fund and its Class B
shareholders;
NOW, THEREFORE, the Board of Trustees of the Trust hereby adopts this
Plan for the Fund as a plan for distribution relating to the Shares in
accordance with Rule 12b-1, on the following terms and conditions:
1. As specified in the Distribution Agreement, the Distributor shall
provide facilities, personnel and a program with respect to the offering and
sale of Shares. Among other things, the Distributor shall be responsible for
commissions payable to Dealers, all expenses of printing (excluding typesetting)
and distributing prospectuses to prospective shareholders and providing such
other related services as are reasonably necessary in connection therewith,
2. The Distributor shall bear all distribution-related expenses to the
extent specified in the Distribution Agreement in providing the services
described in paragraph 1, including without limitation, the compensation of
personnel necessary to provide such services and all costs of travel, office
expenses (including rent and overhead), equipment, printing, delivery and
mailing costs.
3. It is understood that the Distributor may impose certain deferred
sales charges in connection with the repurchase of Shares by the Fund and the
Distributor may retain (or receive from the Fund, as the case may be) all such
deferred sales charges. As additional consideration for all services performed
and expenses incurred in the performance of its obligations under the
Distribution Agreement, the Fund shall pay the Distributor a distribution fee
periodically at a rate of 0.75% per annum of the Fund's average daily net assets
attributable to the Shares.
4. As partial consideration for the personal services and/or account
maintenance services performed by each Dealer in the performance of its
obligations under its dealer agreement with the Distributor, the Fund shall pay
each Dealer a service fee periodically at a rate not to exceed 0.25% per annum
of the portion of the average daily net assets of the Fund that is represented
by Shares that are owned by investors for whom such Dealer is the holder or
dealer of record. That portion of the Fund's average daily net assets on which
the fees payable under this paragraph 4 hereof are calculated may be subject to
certain minimum amount requirements as may be determined, and additional or
different dealer qualification standards that may be established from time to
time, by the Distributor. The Distributor shall be entitled to be paid any fees
payable under this paragraph 4 hereof with respect to Shares for which no Dealer
of record exists or qualification standards have not been met as partial
consideration for personal services and/or account maintenance services provided
by the Distributor to the Shares. The service fee payable pursuant to this
paragraph 4 may from time to time be paid by the Fund to the Distributor and the
Distributor will then pay these fees on behalf of the Fund.
5. The Fund understands that agreements between the Distributor and the
Dealers may provide for payment of commissions to Dealers in connection with the
sales of Shares and may provide for a portion (which may be all or substantially
all) of the fees payable by the Fund to the Distributor under the Distribution
Agreement to be paid by the Distributor to the Dealers in consideration of the
Dealer's services as a dealer of the Shares. Except as described in paragraph 4,
nothing in this Plan shall be construed as requiring the Fund to make any
payment to any Dealer or to have any obligations to any Dealer in connection
with services as a dealer of the Shares. The Distributor shall agree and
undertake that any agreement entered into between the Distributor and any Dealer
shall provide that, except as provided in paragraph 4, such Dealer shall look
solely to the Distributor for compensation for its services thereunder and that
in no event shall such Dealer seek any payment from the Fund.
6. The Fund shall pay all fees and expenses of any independent auditor,
legal counsel, investment adviser, administrator, transfer agent, custodian,
shareholder servicing agent, registrar or dividend disbursing agent of the Fund;
expenses of distributing and redeeming Shares and servicing shareholder
accounts; expenses of preparing, printing and mailing prospectuses, shareholder
reports, notices, proxy statements and reports to governmental officers and
commissions and to shareholders of the Fund, except that the Distributor shall
be responsible for the distribution-related expenses as provided in paragraphs 1
and 2 hereof.
7. Nothing herein contained shall be deemed to require the Trust to
take any action contrary to its Declaration of Trust or By-Laws or any
applicable statutory or regulatory requirement to which it is subject or by
which it is bound, or to relieve or deprive the Board of Trustees of the
responsibility for and control of the conduct of the affairs of the Fund.
8. This Plan shall become effective upon (a) approval by a vote of at
least a "majority of the outstanding voting securities" of the Shares, and (b)
approval by a vote of the Board of Trustees and a vote of a majority of the
Trustees who are not "interested persons" of the Trust and who have no direct or
indirect financial interest in the operation of the Plan or in any agreement
related to the Plan (the "Qualified Trustees"), such votes to be cast in person
at a meeting called for the purpose of voting on this Plan.
9. This Plan shall continue in effect indefinitely; provided that such
continuance is "specifically approved at least annually" by a vote of both a
majority of the Trustees of the Trust and a majority of the Qualified Trustees.
If such annual approval is not obtained, this Plan shall expire 12 months after
the effective date of the last approval.
10. This Plan may be amended at any time by the Board of Trustees;
provided that this Plan may not be amended to increase materially the amount of
permitted expenses hereunder without the approval of holders of a "majority of
the outstanding voting securities" of the Shares and may not be materially
amended in any case without a vote of a majority of both the Trustees and the
Qualified Trustees. This Plan may be terminated at any time by a vote of a
majority of the Qualified Trustees or by a vote of the holders of a "majority of
the outstanding voting securities" of the Shares.
11. The Fund and the Distributor shall provide the Board of Trustees,
and the Board of Trustees shall review, at least quarterly, a written report of
the amounts expended under this Plan and the purposes for which such
expenditures were made.
12. While this Plan is in effect, the selection and nomination of
Qualified Trustees shall be committed to the discretion of the Trustees who are
not "interested persons" of the Trust.
13. For the purposes of this Plan, the terms "interested persons",
"majority of the outstanding voting securities" and "specifically approved at
least annually" are used as defined in the 1940 Act. In addition, for purposes
of determining the fees payable to the Distributor hereunder, the value of the
Fund's net assets shall be computed in the manner specified in the Fund's
then-current prospectus and statement of additional information for competition
of the net asset value of the Shares of the Fund.
14. The Trust shall preserve copies of this Plan, and each agreement
related hereto and each report referred to in paragraph 11 hereof (collectively,
the "Records") for a period of six years from the end of the fiscal year in
which such Record was made and each such record shall be kept in an easily
accessible place for the first two years of said record-keeping.
15. This Plan shall be construed in accordance with the laws of The
Commonwealth of Massachusetts and the applicable provisions of the 1940 Act.
16. If any provision of this Plan shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Plan shall not
be affected thereby.
<PAGE>
EXHIBIT NO. 99.15(f)
MFS SERIES TRUST V
MFS RESEARCH FUND
PLAN OF DISTRIBUTION
PLAN OF DISTRIBUTION with respect to the shares of beneficial interest
to be designated "CLASS C" of MFS Research Fund (the "Fund"), a series of MFS
Series Trust V (the "Trust") a Massachusetts business trust, dated December 28,
1993 and amended this 21st day of December, 1994.
WITNESSETH:
WHEREAS, the Trust is engaged in business as an open-end management
investment company and is registered under the Investment Company Act of 1940,
as amended (collectively with the rules and regulations promulgated thereunder,
the "1940 Act"); and
WHEREAS, the Trust intends to distribute the shares of beneficial
interest (without par value) of the Fund designated Class C Shares (the
"Shares") in accordance with Rule 12b-1 under the 1940 Act ("Rule 12b-1"), and
desires to adopt this Distribution Plan (the "Plan") as a plan of distribution
pursuant to such Rule; and
WHEREAS, the Trust desires for MFS Fund Distributors, Inc., a Delaware
corporation ("MFD"), to provide certain distribution services for the Fund (the
"Distributor"); and
WHEREAS, the Trust has entered into a distribution agreement (the
"Distribution Agreement") (in a form approved by the Board of Trustees of the
Trust in a manner specified in Rule 12b-1) with the Distributor, whereby the
Distributor will provide facilities and personnel and render services to the
Fund in connection with the offering and distribution of the Shares (the
"Distribution Agreement"); and
WHEREAS, the Trust recognizes and agrees that (a) the Distributor may
retain the services of firms or individuals to act as dealers (the "Dealers") of
the Shares in connection with the offering of Shares, and (b) the Distributor
may make payments for such services to the Dealers out of the fee paid to the
Distributor hereunder, any deferred sales charges imposed by the Distributor in
connection with the repurchase of Shares, its profits or any other source
available to it; and
WHEREAS, the Trust recognizes and agrees that the Distributor may (but
is not required to) impose certain deferred sales charges in connection with the
repurchase of Shares by the Fund, and the Distributor may retain (or receive
from the Fund, as the case may be) all such deferred sales charges; and
WHEREAS, the Board of Trustees of the Trust, in considering whether the
Fund should adopt and implement this Plan, has evaluated such information as it
deemed necessary to an informed determination as to whether this Plan should be
adopted and implemented and has considered such pertinent factors as it deemed
necessary to form the basis for a decision to use assets of the Fund for such
purposes, and has determined that there is a reasonable likelihood that the
adoption and implementation of this Plan will benefit the Fund and its Class C
shareholders;
NOW, THEREFORE, the Board of Trustees of the Trust hereby adopts this
Plan for the Fund as a plan for distribution relating to the Shares in
accordance with Rule 12b-1, on the following terms and conditions:
1. As specified in the Distribution Agreement, the Distributor shall
provide facilities, personnel and a program with respect to the offering and
sale of Shares. Among other things, the Distributor shall be responsible for any
commissions payable to Dealers (including any ongoing maintenance commissions),
all expenses of printing (excluding typesetting) and distributing prospectuses
to prospective shareholders and providing such other related services as are
reasonably necessary in connection therewith
2. The Distributor shall bear all distribution-related expenses to the
extent specified in the Distribution Agreement in providing the services
described in paragraph 1, including without limitation, the compensation of
personnel necessary to provide such services and all costs of travel, office
expenses (including rent and overhead), equipment, printing, delivery and
mailing costs.
3. It is understood that the Distributor may (but is not required to)
impose certain deferred sales charges in connection with the repurchase of
Shares by the Fund and the Distributor may retain (or receive from the Fund, as
the case may be) all such deferred sales charges. As additional consideration
for all services performed and expenses incurred in the performance of its
obligations under the Distribution Agreement, the Fund shall pay the Distributor
a distribution fee periodically at a rate not to exceed 0.75% per annum of the
Fund's average daily net assets attributable to the Shares.
4. As partial consideration for the personal services and/or account
maintenance services performed by each Dealer in the performance of its
obligations under its dealer agreement with the Distributor, the Fund shall pay
each Dealer a service fee periodically at a rate not to exceed 0.25% per annum
of the portion of the average daily net assets of the Fund that is represented
by Shares that are owned by investors for whom such Dealer is the holder or
dealer of record. That portion of the Fund's average daily net assets on which
the fees payable under this paragraph 4 hereof are calculated may be subject to
certain minimum amount requirements as may be determined, and additional or
different dealer qualification standards that may be established, from time to
time by the Distributor. The Distributor shall be entitled to be paid any fees
payable under this paragraph 4 hereof with respect to Shares for which no Dealer
of record exists or qualification standards have not been met as partial
consideration for personal services and/or account maintenance services provided
by the Distributor to the Shares. The service fee payable pursuant to this
paragraph 4 may from time to time be paid by the Fund to the Distributor and the
Distributor will then pay these fees to Dealers on behalf of the Fund or retain
them in accordance with this paragraph.
5. The Fund understands that agreements between the Distributor and the
Dealers may provide for payment of commissions to Dealers in connection with the
sales of Shares and may provide for a portion (which may be all or substantially
all) of the fees payable by the Fund to the Distributor under the Distribution
Agreement to be paid by the Distributor to the Dealers in consideration of the
Dealer's services as a dealer of the Shares. Except as described in paragraph 4,
nothing in this Plan shall be construed as requiring the Fund to make any
payment to any Dealer or to have any obligations to any Dealer in connection
with services as a dealer of the Shares. The Distributor shall agree and
undertake that any agreement entered into between the Distributor and any Dealer
shall provide that, except as provided in paragraph 4, such Dealer shall look
solely to the Distributor for compensation for its services thereunder and that
in no event shall such Dealer seek any payment from the Fund.
6. The Fund shall pay all fees and expenses of any independent auditor,
legal counsel, investment adviser, administrator, transfer agent, custodian,
shareholder servicing agent, registrar or dividend disbursing agent of the Fund;
expenses of distributing and redeeming Shares and servicing shareholder
accounts; expenses of preparing, printing and mailing prospectuses, shareholder
reports, notices, proxy statements and reports to governmental officers and
commissions and to shareholders of the Fund, except that the Distributor shall
be responsible for the distribution-related expenses as provided in paragraphs 1
and 2 hereof.
7. Nothing herein contained shall be deemed to require the Trust to
take any action contrary to its Declaration of Trust or By-Laws or any
applicable statutory or regulatory requirement to which it is subject or by
which it is bound, or to relieve or deprive the Board of Trustees of the
responsibility for and control of the conduct of the affairs of the Fund.
8. This Plan shall become effective upon (a) approval by a vote of at
least a "majority of the outstanding voting securities" of Class C, and (b)
approval by a vote of the Board of Trustees and a vote of a majority of the
Trustees who are not "interested persons" of the Trust and who have no direct or
indirect financial interest in the operation of the Plan or in any agreement
related to the Plan (the "Qualified Trustees"), such votes to be cast in person
at a meeting called for the Purpose of voting on this Plan.
9. This Plan shall continue in effect indefinitely; provided that such
continuance is "specifically approved at least annually" by a vote of both a
majority of the Trustees of the Trust and a majority of the Qualified Trustees.
If such annual approval is not obtained, this Plan shall expire 12 months after
the effective date of the last approval.
10. This Plan may be amended at any time by the Board of Trustees;
provided that this Plan may not be amended to increase materially the amount of
permitted expenses hereunder without the approval of holders of a "majority of
the outstanding voting securities" of Class C and may not be materially amended
in any case without a vote of a majority of both the Trustees and the Qualified
Trustees. This Plan may be terminated at any time by a vote of a majority of the
Qualified Trustees or by a vote of the holders of a "majority of the outstanding
voting securities" of Class C.
11. The Fund and the Distributor shall provide the Board of Trustees,
and the Board of Trustees shall review, at least quarterly, a written report of
the amounts expended under this Plan and the purposes for which such
expenditures were made.
12. While this Plan is in effect, the selection and nomination of
Qualified Trustees shall be committed to the discretion of the Trustees who are
not "interested persons" of the Trust.
13. For the purposes of this Plan, the terms "interested persons",
"majority of the outstanding voting securities" and "specifically approved at
least annually" are used as defined in the 1940 Act. In addition, for purposes
of determining the fees payable to the Distributor hereunder, the value of the
Fund's net assets shall be computed in the manner specified in the Fund's
then-current prospectus and statement of additional information for computation
of the net asset value of the Shares of the Fund.
14. The Trust shall preserve copies of this Plan, and each agreement
related hereto and each report referred to in paragraph 11 hereof (collectively,
the "Records") for a period of six years from the end of the fiscal year in
which such Record was made and each such record shall be kept in an easily
accessible place for the first two years of said record-keeping.
15. This Plan shall be construed in accordance with the laws of The
Commonwealth of Massachusetts and the applicable provisions of the 1940 Act.
16. If any provision of this Plan shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Plan shall not
be affected thereby.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE FINANCIAL STATEMENTS OF MFS TOTAL RETURN
FUND CLASS A AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER>011
<NAME> MFS TOTAL RETURN FUND CLASS A
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 2,746,829,464
<INVESTMENTS-AT-VALUE> 3,269,544,120
<RECEIVABLES> 81,202,514
<ASSETS-OTHER> 58,151
<OTHER-ITEMS-ASSETS> 16,688
<TOTAL-ASSETS> 3,350,821,473
<PAYABLE-FOR-SECURITIES> 69,267,792
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 10,844,835
<TOTAL-LIABILITIES> 80,112,627
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,648,454,101
<SHARES-COMMON-STOCK> 155,030,940
<SHARES-COMMON-PRIOR> 145,089,983
<ACCUMULATED-NII-CURRENT> 1,522,351
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 98,017,011
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 522,715,383
<NET-ASSETS> 3,270,708,846
<DIVIDEND-INCOME> 59,076,808
<INTEREST-INCOME> 105,318,026
<OTHER-INCOME> (478,396)
<EXPENSES-NET> 32,514,304
<NET-INVESTMENT-INCOME> 131,402,134
<REALIZED-GAINS-CURRENT> 120,786,908
<APPREC-INCREASE-CURRENT> 242,624,905
<NET-CHANGE-FROM-OPS> 494,813,947
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 91,296,492
<DISTRIBUTIONS-OF-GAINS> 1,471,111
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 27,571,191
<NUMBER-OF-SHARES-REDEEMED> 23,436,000
<SHARES-REINVESTED> 5,805,766
<NET-CHANGE-IN-ASSETS> 569,273,587
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 7,440,916
<OVERDIST-NET-GAINS-PRIOR> 17,579,156
<GROSS-ADVISORY-FEES> 11,256,389
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 34,719,899
<AVERAGE-NET-ASSETS> 2,885,203,365
<PER-SHARE-NAV-BEGIN> 12.80
<PER-SHARE-NII> 0.64
<PER-SHARE-GAIN-APPREC> 1.64
<PER-SHARE-DIVIDEND> 0.61
<PER-SHARE-DISTRIBUTIONS> 0.01
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 14.46
<EXPENSE-RATIO> 0.87
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE FINANCIAL STATEMENTS OF MFS TOTAL RETURN
FUND CLASS B AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER>012
<NAME> MFS TOTAL RETURN FUND CLASS B
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 2,746,829,464
<INVESTMENTS-AT-VALUE> 3,269,544,120
<RECEIVABLES> 81,202,514
<ASSETS-OTHER> 58,151
<OTHER-ITEMS-ASSETS> 16,688
<TOTAL-ASSETS> 3,350,821,473
<PAYABLE-FOR-SECURITIES> 69,267,792
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 10,844,835
<TOTAL-LIABILITIES> 80,112,627
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,648,454,101
<SHARES-COMMON-STOCK> 69,507,266
<SHARES-COMMON-PRIOR> 65,823,366
<ACCUMULATED-NII-CURRENT> 1,522,351
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 98,017,011
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 522,715,383
<NET-ASSETS> 3,270,708,846
<DIVIDEND-INCOME> 59,076,808
<INTEREST-INCOME> 105,318,026
<OTHER-INCOME> (478,396)
<EXPENSES-NET> 32,514,304
<NET-INVESTMENT-INCOME> 131,402,134
<REALIZED-GAINS-CURRENT> 120,786,908
<APPREC-INCREASE-CURRENT> 242,624,905
<NET-CHANGE-FROM-OPS> 494,813,947
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 33,884,609
<DISTRIBUTIONS-OF-GAINS> 672,401
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 17,488,664
<NUMBER-OF-SHARES-REDEEMED> 16,113,302
<SHARES-REINVESTED> 2,308,539
<NET-CHANGE-IN-ASSETS> 569,273,587
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 7,440,916
<OVERDIST-NET-GAINS-PRIOR> 17,579,156
<GROSS-ADVISORY-FEES> 11,256,389
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 34,719,899
<AVERAGE-NET-ASSETS> 2,885,203,365
<PER-SHARE-NAV-BEGIN> 12.80
<PER-SHARE-NII> 0.53
<PER-SHARE-GAIN-APPREC> 1.64
<PER-SHARE-DIVIDEND> 0.50
<PER-SHARE-DISTRIBUTIONS> 0.01
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 14.46
<EXPENSE-RATIO> 1.71
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE FINANCIAL STATEMENTS OF MFS TOTAL RETURN
FUND CLASS C AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER>013
<NAME> MFS TOTAL RETURN FUND CLASS C
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 2,746,829,464
<INVESTMENTS-AT-VALUE> 3,269,544,120
<RECEIVABLES> 81,202,514
<ASSETS-OTHER> 58,151
<OTHER-ITEMS-ASSETS> 16,688
<TOTAL-ASSETS> 3,350,821,473
<PAYABLE-FOR-SECURITIES> 69,267,792
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 10,844,835
<TOTAL-LIABILITIES> 80,112,627
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,648,454,101
<SHARES-COMMON-STOCK> 1,577,252
<SHARES-COMMON-PRIOR> 99,818
<ACCUMULATED-NII-CURRENT> 1,522,351
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 98,017,011
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 522,715,383
<NET-ASSETS> 3,270,708,846
<DIVIDEND-INCOME> 59,076,808
<INTEREST-INCOME> 105,318,026
<OTHER-INCOME> (478,396)
<EXPENSES-NET> 32,514,304
<NET-INVESTMENT-INCOME> 131,402,134
<REALIZED-GAINS-CURRENT> 120,786,908
<APPREC-INCREASE-CURRENT> 242,624,905
<NET-CHANGE-FROM-OPS> 494,813,947
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 302,945
<DISTRIBUTIONS-OF-GAINS> 2,050
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,619,700
<NUMBER-OF-SHARES-REDEEMED> 163,091
<SHARES-REINVESTED> 20,825
<NET-CHANGE-IN-ASSETS> 569,273,587
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 7,440,916
<OVERDIST-NET-GAINS-PRIOR> 17,579,156
<GROSS-ADVISORY-FEES> 11,256,389
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 34,719,899
<AVERAGE-NET-ASSETS> 2,885,203,365
<PER-SHARE-NAV-BEGIN> 12.80
<PER-SHARE-NII> 0.54
<PER-SHARE-GAIN-APPREC> 1.66
<PER-SHARE-DIVIDEND> 0.50
<PER-SHARE-DISTRIBUTIONS> 0.01
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 14.49
<EXPENSE-RATIO> 1.67
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE FINANCIAL STATEMENTS OF MFS RESEARCH
FUND CLASS A AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER>021
<NAME> MFS RESEARCH FUND CLASS A
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 588,292,393
<INVESTMENTS-AT-VALUE> 714,021,857
<RECEIVABLES> 11,132,654
<ASSETS-OTHER> 5,160
<OTHER-ITEMS-ASSETS> 15,718
<TOTAL-ASSETS> 725,175,389
<PAYABLE-FOR-SECURITIES> 12,730,698
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 806,757
<TOTAL-LIABILITIES> 13,537,455
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 537,626,146
<SHARES-COMMON-STOCK> 32,534,587
<SHARES-COMMON-PRIOR> 25,276,729
<ACCUMULATED-NII-CURRENT> 1,418,529
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 46,863,005
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 125,730,254
<NET-ASSETS> 711,637,934
<DIVIDEND-INCOME> 5,521,009
<INTEREST-INCOME> 1,763,021
<OTHER-INCOME> (108,803)
<EXPENSES-NET> 5,169,897
<NET-INVESTMENT-INCOME> 2,005,330
<REALIZED-GAINS-CURRENT> 47,454,687
<APPREC-INCREASE-CURRENT> 68,894,341
<NET-CHANGE-FROM-OPS> 118,354,358
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 481,316
<DISTRIBUTIONS-OF-GAINS> 820,736
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 12,798,218
<NUMBER-OF-SHARES-REDEEMED> 5,659,542
<SHARES-REINVESTED> 119,182
<NET-CHANGE-IN-ASSETS> 362,975,633
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 345,440
<OVERDISTRIB-NII-PRIOR> 72,628
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,910,078
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5,578,785
<AVERAGE-NET-ASSETS> 469,632,994
<PER-SHARE-NAV-BEGIN> 12.59
<PER-SHARE-NII> 0.08
<PER-SHARE-GAIN-APPREC> 2.99
<PER-SHARE-DIVIDEND> 0.02
<PER-SHARE-DISTRIBUTIONS> 0.03
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 15.61
<EXPENSE-RATIO> 0.95
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE FINANCIAL STATEMENTS OF MFS RESEARCH
FUND CLASS B AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER>022
<NAME> MFS RESEARCH FUND CLASS B
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 588,292,393
<INVESTMENTS-AT-VALUE> 714,021,857
<RECEIVABLES> 11,132,654
<ASSETS-OTHER> 5,160
<OTHER-ITEMS-ASSETS> 15,718
<TOTAL-ASSETS> 725,175,389
<PAYABLE-FOR-SECURITIES> 12,730,698
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 806,757
<TOTAL-LIABILITIES> 13,537,455
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 537,626,146
<SHARES-COMMON-STOCK> 11,565,395
<SHARES-COMMON-PRIOR> 2,053,733
<ACCUMULATED-NII-CURRENT> 1,418,529
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 46,863,005
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 125,730,254
<NET-ASSETS> 711,637,934
<DIVIDEND-INCOME> 5,521,009
<INTEREST-INCOME> 1,763,021
<OTHER-INCOME> (108,803)
<EXPENSES-NET> 5,169,897
<NET-INVESTMENT-INCOME> 2,005,330
<REALIZED-GAINS-CURRENT> 47,454,687
<APPREC-INCREASE-CURRENT> 68,894,341
<NET-CHANGE-FROM-OPS> 118,354,358
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 14,893
<DISTRIBUTIONS-OF-GAINS> 118,230
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 11,678,569
<NUMBER-OF-SHARES-REDEEMED> 2,178,275
<SHARES-REINVESTED> 11,368
<NET-CHANGE-IN-ASSETS> 362,975,633
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 345,440
<OVERDISTRIB-NII-PRIOR> 72,628
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,910,078
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5,578,785
<AVERAGE-NET-ASSETS> 469,632,994
<PER-SHARE-NAV-BEGIN> 12.50
<PER-SHARE-NII> (0.03)
<PER-SHARE-GAIN-APPREC> 2.96
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.03
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 15.40
<EXPENSE-RATIO> 1.78
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE FINANCIAL STATEMENTS OF MFS RESEARCH
FUND CLASS C AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER>023
<NAME> MFS RESEARCH FUND CLASS C
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 588,292,393
<INVESTMENTS-AT-VALUE> 714,021,857
<RECEIVABLES> 11,132,654
<ASSETS-OTHER> 5,160
<OTHER-ITEMS-ASSETS> 15,718
<TOTAL-ASSETS> 725,175,389
<PAYABLE-FOR-SECURITIES> 12,730,698
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 806,757
<TOTAL-LIABILITIES> 13,537,455
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 537,626,146
<SHARES-COMMON-STOCK> 1,669,270
<SHARES-COMMON-PRIOR> 385,474
<ACCUMULATED-NII-CURRENT> 1,418,529
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 46,863,005
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 125,730,254
<NET-ASSETS> 711,637,934
<DIVIDEND-INCOME> 5,521,009
<INTEREST-INCOME> 1,763,021
<OTHER-INCOME> (108,803)
<EXPENSES-NET> 5,169,897
<NET-INVESTMENT-INCOME> 2,005,330
<REALIZED-GAINS-CURRENT> 47,454,687
<APPREC-INCREASE-CURRENT> 68,894,341
<NET-CHANGE-FROM-OPS> 118,354,358
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 16,120
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,642,158
<NUMBER-OF-SHARES-REDEEMED> 359,369
<SHARES-REINVESTED> 1,007
<NET-CHANGE-IN-ASSETS> 362,975,633
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 345,440
<OVERDISTRIB-NII-PRIOR> 72,628
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,910,078
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5,578,785
<AVERAGE-NET-ASSETS> 469,632,994
<PER-SHARE-NAV-BEGIN> 12.51
<PER-SHARE-NII> (0.02)
<PER-SHARE-GAIN-APPREC> 2.96
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.03
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 15.42
<EXPENSE-RATIO> 1.71
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
