<PAGE>
As filed with the Securities and Exchange Commission on July 25, 1997
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. 44
AND
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 29
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)
|_| on [date] pursuant to paragraph (b)
|_| 60 days after filing pursuant to paragraph (a)(i)
|_| on [date] pursuant to paragraph (a)(i)
|X| 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, 1996 on November 25, 1996.
<PAGE>
MFS SERIES TRUST V
MFS INTERNATIONAL OPPORTUNITIES FUND
MFS INTERNATIONAL GROWTH FUND
MFS INTERNATIONAL VALUE FUND
MFS ASIA PACIFIC 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) * *
(b) * *
(c) Information Concerning *
Shares of the Funds -
Performance Information
(d) * *
4 (a) The Funds; Investment *
Objectives and Policies;
Investment Techniques;
Additional Risk Factors
(b), (c) Investment Objectives and *
Policies; Investment
Techniques; Additional
Risk Factors
<PAGE>
STATEMENT OF
ITEM NUMBER ADDITIONAL
FORM N-1A, PART A PROSPECTUS CAPTION INFORMATION CAPTION
5 (a) The Funds; Management of *
the Funds - Investment
Adviser
(b) Front Cover Page; *
Management of the Funds -
Investment Adviser; Back
Cover Page
(c) Management of the Funds *
(d) Management of the Funds - *
Administrator
(e) Back Cover Page *
(f) Expense Summary *
(g) Investment Objectives and *
Policies - Portfolio Trading
5A (a), (b) * *
6 (a) Information Concerning *
Shares of the Funds -
Description of Shares,
Voting Rights and
Liabilities; Information
Concerning Shares of
the Funds - Redemptions
and Repurchases;
Information Concerning
Shares of the Funds -
Purchases
(b), (c), (d) * *
(e) Shareholder Services *
(f) Information Concerning *
Shares of the Funds -
Dividends and Capital
Gain Distributions;
Shareholder Services -
Distribution Options
<PAGE>
STATEMENT OF
ITEM NUMBER ADDITIONAL
FORM N-1A, PART A PROSPECTUS CAPTION INFORMATION CAPTION
(g) Information Concerning *
Shares of the Funds -
Tax Status; Information
Concerning Shares of the
Funds - Dividends and
Capital Gain Distributions
(h) The Funds; Information *
Concerning Shares of the
Funds
7 (a) Front Cover Page; Management *
of the Funds - Distributor;
Back Cover Page
(b) Information Concerning *
Shares of the Funds -
Purchases
(c) Information Concerning *
Shares of the Funds -
Purchases; Information
Concerning Shares of the
Funds - Exchanges;
Shareholder Services
(d) Front Cover Page; Information *
Concerning Shares of the
Funds - Purchases
(e) Information Concerning *
Shares of the Funds -
Distribution Plan; Expense
Summary
(f) Information Concerning *
Shares of the Funds -
Distribution Plan
(g) Information Concerning *
Shares of the Funds -
Purchases
<PAGE>
STATEMENT OF
ITEM NUMBER ADDITIONAL
FORM N-1A, PART A PROSPECTUS CAPTION INFORMATION CAPTION
8 (a) Information Concerning *
Shares of the Funds -
Redemptions and
Repurchases; Information
Concerning Shares of the
Funds - Purchases
(b), (c), (d) Information Concerning *
Shares of the Funds -
Redemptions and Repurchases
9 * *
<PAGE>
STATEMENT OF
ITEM NUMBER ADDITIONAL
FORM N-1A, PART B PROSPECTUS CAPTION INFORMATION CAPTION
10 (a), (b) * Front Cover Page
11 * Front Cover Page
12 * *
13 (a), (b), (c) * Investment Objectives,
Policies and
Restrictions
(d) * *
14 (a), (b) * Management of the Funds -
Trustees and Officers
(c) * *
15 (a) * *
(b), (c) * *
16 (a) Management of the Funds - Management of the Funds -
Investment Adviser Investment Adviser;
Management of the Funds -
Trustees and Officers
(b) Management of the Funds - Management of the Funds -
Investment Adviser Investment Adviser
(c) * *
(d) * *
(e) * Portfolio Transactions and
Brokerage Commissions
(f) Information Concerning Distribution Plan
Shares of the Funds -
Distribution Plan
(g) * *
(h) * Management of the Funds -
Custodian; Independent
Auditors Back Cover
Page
<PAGE>
STATEMENT OF
ITEM NUMBER ADDITIONAL
FORM N-1A, PART B PROSPECTUS CAPTION INFORMATION CAPTION
(i) * Management of the Funds -
Shareholder Servicing
Agent
17 (a) * Portfolio Transactions and
Brokerage Commissions
(b) * *
(c) * Portfolio Transactions and
Brokerage Commissions
(d) * Portfolio Transactions and
Brokerage Commissions
(e) * *
18 (a) * Description of Shares
Voting Rights and
Liabilities
(b) * *
19 (a) Information Concerning Shareholder Services
Shares of the Funds -
Purchases; Shareholder
Services
(b) Information Concerning Management of the Funds -
Shares of the Funds - Principal Underwriter;
Net Asset Value; Determination of Net
Information Concerning Asset Value and
Shares of the Funds - Performance - Net Asset
Purchases Value
(c) * *
20 * Tax Status
21 (a) * Management of the Funds -
Principal Underwriter;
Distribution Plan
(b) * Management of the Funds -
Principal Underwriter;
Distribution Plan
<PAGE>
STATEMENT OF
ITEM NUMBER ADDITIONAL
FORM N-1A, PART B PROSPECTUS CAPTION INFORMATION CAPTION
(c) * *
22 (a) * *
(b) * Determination of Net Asset
Value and Performance
23 * *
- -----------------------------
* Not Applicable
[GRAPHIC OMITTED] DRAFT OF JULY 22, 1997
PROSPECTUS
October 9, 1997
MFS(R) International Opportunities Fund
MFS(R) International Growth Fund
MFS(R) International Value Fund
MFS(R) Asia Pacific Fund
Class A Shares of Beneficial Interest
(Members of the MFS Family of Funds(R)) Class B Shares of Beneficial Interest
Each a series of MFS Series Trust V Class C Shares of Beneficial Interest
- -------------------------------------------------------------------------------
Page
1. Expense Summary............................................. 1
2. The Funds................................................... 3
3. Investment Objectives and Policies.......................... 4
International Opportunities Fund.................... 4
International Growth Fund........................... 4
International Value Fund............................ 4
Asia Pacific Fund................................... 5
4. Investment Techniques....................................... 5
5. Additional Risk Factors..................................... 10
6. Management of the Funds..................................... 12
7. Information Concerning Shares of the Funds.................. 14
Purchases............................................ 14
Exchanges............................................ 18
Redemptions and Repurchases.......................... 19
Distribution Plan.................................... 20
Distributions........................................ 22
Tax Status........................................... 22
Net Asset Value...................................... 23
Expenses ............................................ 23
Description of Shares, Voting Rights and Liabilities. 23
Performance Information.............................. 24
8. Shareholder Services........................................ 24
Appendix A - Waivers of Sales Charges.................................. A-1
Appendix B - Description of Bond Ratings............................... B-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.
Investors should read this Prospectus and retain it for future reference.
While three classes of shares of each Fund are described in this Prospectus, the
Funds do not currently offer Class B and Class C shares. Class A shares are
available for purchase at net asset value only by employees of MFS and its
affiliates and certain of their family members who are residents of The
Commonwealth of Massachusetts, and members of the governing boards of the
various funds sponsored by MFS.
Each Fund's investment adviser and distributor are Massachusetts Financial
Services Company (the "Adviser" or "MFS") and MFS Fund Distributors, Inc.
("MFD"), respectively, both of which are located at 500 Boylston Street, Boston,
Massachusetts 02116. Each Fund is a series of MFS Series Trust V (the "Trust").
This Prospectus sets forth concisely the information concerning each Fund and
the Trust that a prospective investor ought to know before investing. The Trust,
on behalf of each Fund, has filed with the Securities and Exchange Commission
(the "SEC") a Statement of Additional Information ("SAI"), dated October 9,
1997, as amended or supplemented from time to time, which contains more detailed
information about the Trust and each Fund. The SAI is incorporated into this
Prospectus by reference. See page 25 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).
<PAGE>
MFS International Opportunities Fund (the "International Opportunities Fund") --
The investment objective of the International Opportunities Fund is capital
appreciation. The Fund will, under normal conditions, invest at least 80% of its
total assets in equity securities of companies whose principal activities are
outside the U.S. The Fund may invest in foreign companies of any size, including
smaller, lesser known companies in the developing stages of their life cycle
that offer the potential for accelerated earnings or revenue growth (foreign
emerging growth companies). Such companies generally would be expected to offer
superior prospects for growth and would have the products, management and market
opportunities which are usually necessary to become more widely recognized as
growth companies.
MFS International Growth Fund (the "International Growth Fund") -- The
investment objective of the International Growth Fund is capital appreciation.
The Fund will, under normal conditions, invest at least 80% of its total assets
in equity securities of companies whose principal activities are outside the
U.S. The Fund may invest in foreign companies of any size but generally invests
in established foreign companies which the Adviser believes offer prospects for
growth of earnings. The Fund may also invest in equity securities of foreign
companies in the developing stages of their life cycle (foreign emerging growth
companies).
MFS International Value Fund (the "International Value Fund") -- The investment
objective of the International Value Fund is capital appreciation. The Fund
seeks to achieve its objective by investing, under normal conditions, at least
80% of its total assets in equity securities of companies whose principal
activities are outside the U.S. The Fund invests in securities that the Adviser
believes are undervalued compared to industry norms within their countries,
based on an assessment of assets, earnings, cash flow and growth potential. The
Fund generally will invest in established foreign companies, many of which pay
current dividends.
MFS Asia Pacific Fund (the "Asia Pacific Fund") -- The investment objective of
the Asia Pacific Fund is capital appreciation. The Fund seeks to achieve its
objective by investing, under normal conditions, at least 80% of its total
assets in equity securities of companies whose principal activities are in Asia
or the Pacific Basin. The Fund may invest in securities of issuers located in
any country in Asia or the Pacific Basin.
<PAGE>
1. EXPENSE SUMMARY
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Shareholder Transaction Expenses: Class A Class B Class C
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% 1.00%
</TABLE>
Annual Operating Expenses (as a percentage of average daily net assets):
CLASS A SHARES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
International International International Asia
Opportunities Growth Value Pacific
Fund Fund Fund Fund
Management Fees (after fee
reduction)(2)...................... 0.00% 0.00% 0.00% 0.00%
Rule 12b-1 Fees (after fee
reduction)(3)...................... 0.00% 0.00% 0.00% 0.00%
Other Expenses(5)(7).................. 1.61% 1.61% 1.61% 1.61%
----- ----- ----- -----
Total Operating Expenses
(after fee reduction)(6)........... 1.61% 1.61% 1.61% 1.61%
</TABLE>
CLASS B SHARES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
International International International Asia
Opportunities Growth Value Pacific
Fund Fund Fund Fund
Management Fees (after fee
reduction)(2)...................... 0.00% 0.00% 0.00% 0.00%
Rule 12b-1 Fees(4).................... 1.00% 1.00% 1.00% 1.00%
Other Expenses(5)(7).................. 1.61% 1.61% 1.61% 1.61%
----- ----- ----- -----
Total Operating Expenses
(after fee reduction)(6)........... 2.61% 2.61% 2.61% 2.61%
</TABLE>
CLASS C SHARES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
International International International Asia
Opportunities Growth Value Pacific
Fund Fund Fund Fund
Management Fees (after fee
reduction)(2)...................... 0.00% 0.00% 0.00% 0.00%
Rule 12b-1 Fees(4).................... 1.00% 1.00% 1.00% 1.00%
Other Expenses(5)(7).................. 1.61% 1.61% 1.61% 1.61%
----- ----- ----- -----
Total Operating Expenses
(after fee reduction)(6)........... 2.61% 2.61% 2.61% 2.61%
</TABLE>
- -----------------------
(1) Purchases of $1 million or more and certain purchases by retirement plans
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 "Purchases").
-1-
<PAGE>
(2) The Adviser is currently waiving its right to receive management fees from
each Fund. Absent these waivers, "Management Fees" would be as follows:
International International International Asia
Opportunities Growth Value Pacific
Fund Fund Fund Fund
1.00% 1.00% 1.00% 1.00%
(3) Each Fund has adopted a distribution plan for its shares in accordance with
Rule 12b-1 under the Investment Company Act of 1940, as amended (the "1940
Act") (the "Distribution Plan"), which provides that it will pay
distribution/service fees aggregating up to (but not necessarily all of)
0.50% per annum of the average daily net assets attributable to Class A
shares. Distribution and service fees under the Distribution Plan are
currently being waived on a voluntary basis and, while they may be imposed
at the discretion of MFD at any time, MFD currently intends to waive these
fees during the Funds' current fiscal year. Distribution expenses paid
under the Distribution 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.
See "Distribution Plan" below.
(4) Each Fund's Distribution Plan provides 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 Class B
shares and Class C shares, respectively. Distribution expenses paid under
the Distribution Plan with respect to Class B or Class C shares, together
with any CDSC payable upon redemption of Class B and Class C 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.
See "Distribution Plan" below.
(5) "Other Expenses" for each Fund are based on estimates of payments to be
made during each Fund's current fiscal year.
(6) Absent any expense reductions, "Total Operating Expenses," expressed as a
percentage of average daily net assets, would be as follows:
International International International Asia
Opportunities Growth Value Pacific
Fund Fund Fund Fund
---- ---- ---- ----
Class A 2.61% 2.61% 2.61% 2.61%
Class B 3.61% 3.61% 3.61% 3.61%
Class C 3.61% 3.61% 3.61% 3.61%
(7) Each Fund has an expense offset arrangement which reduces the Fund's
custodian fee based upon the amount of cash maintained by the Fund with its
custodian and dividend disbursing agent, and may enter into other such
arrangements and directed brokerage arrangements (which would also have the
effect of reducing the Fund's expenses). Any such fee reductions are not
reflected under "Other Expenses."
EXAMPLE OF EXPENSES
An investor would pay the following dollar amounts of expenses on a $1,000
investment in each Fund, assuming (a) a 5% annual return and, unless otherwise
noted, (b) redemption at the end of each of the time periods indicated:
CLASS A SHARES
International International International Asia
Opportunities Growth Value Pacific
Period Fund Fund Fund Fund
1 year $63 $63 $63 $63
3 years 96 96 96 96
-2-
<PAGE>
CLASS B SHARES
(ASSUMES REDEMPTION)
International International International Asia
Opportunities Growth Value Pacific
Period Fund Fund Fund Fund
1 year $ 66 $ 66 $ 66 $ 66
3 years 111 111 111 111
CLASS B SHARES
(ASSUMES NO REDEMPTION)
International International International Asia
Opportunities Growth Value Pacific
Period Fund Fund Fund Fund
1 year $26 $26 $26 $26
3 years 81 81 81 81
CLASS C SHARES
(ASSUMES REDEMPTION)
International International International Asia
Opportunities Growth Value Pacific
Period Fund Fund Fund Fund
1 year $36 $36 $36 $36
3 years 81 81 81 81
CLASS C SHARES
(ASSUMES NO REDEMPTION)
International International International Asia
Opportunities Growth Value Pacific
Period Fund Fund Fund Fund
1 year $26 $26 $26 $26
3 years 81 81 81 81
The purpose of the expense table above is to assist investors in understanding
the various costs and expenses that a shareholder of each Fund will bear
directly or indirectly. More complete descriptions of the following Fund
expenses are set forth in the following sections: (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 Plan."
The "Example" set forth above should not be considered a representation of past
or future expenses of a Fund; actual expenses may be greater or less than those
shown.
2. THE FUNDS
Each Fund is a 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. Each Fund is a diversified fund. The Trust presently
consists of six series, two of which are offered for sale pursuant to separate
prospectuses, and each of which represents a portfolio with separate investment
objectives and policies. Shares of each Fund are sold continuously to the public
and each Fund then uses the proceeds to buy securities for its portfolio. While
each Fund has three classes of shares designed for sale generally to the public,
Class A shares are the only class presently available for sale. Class A shares
are offered at net asset value plus an initial sales charge up to a maximum of
4.75% of the offering price (or a CDSC upon redemption of 1.00% during the first
year in the case of certain purchases of $1 million or more and certain
purchases by retirement plans) and are subject to an annual distribution fee and
service fee up to a maximum of 0.50% per
-3-
<PAGE>
annum. Class B shares are offered at net asset value without an initial sales
charge but are subject to a CDSC upon redemption (declining from 4.00% during
the first year to 0% after six years) and an annual distribution fee and service
fee up to a maximum of 1.00% per annum; 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 but are subject to a CDSC upon
redemption of 1.00% during the first year and an annual distribution fee and
service fee up to a maximum of 1.00% per annum. Class C shares do not convert to
any other class of shares of a Fund. In addition, the Funds offer an additional
class of shares, Class I shares, exclusively to certain institutional investors.
Class I shares are made available by means of a separate Prospectus supplement
provided to institutional investors eligible to purchase Class I shares and are
offered at net asset value without an initial sales charge or CDSC upon
redemption and without an annual distribution and service fee.
The Trust's Board of Trustees provides broad supervision over the affairs of
each Fund. MFS is each Fund's investment adviser and is responsible for the
management of each Fund's assets. The officers of the Trust are responsible for
its operations. The Adviser manages each Fund's portfolio from day to day in
accordance with each Fund's investment objective and policies. A majority of the
Trustees are not affiliated with the Adviser. The selection of investments and
the way they are managed depend on the conditions and trends in the economies of
the various countries of the world, their financial markets and the relationship
of their currencies to the U.S. dollar. The Trust also offers to buy back
(redeem) shares of each Fund from shareholders at any time at net asset value,
less any applicable CDSC.
3. INVESTMENT OBJECTIVES AND POLICIES
Each Fund has an investment objective which it pursues through separate
investment policies, as described below. The differences in objectives and
policies among the Funds can be expected to affect the market and financial risk
to which each Fund is subject and the performance of each Fund. The investment
objective and polices of each Fund, unless otherwise specifically stated, may be
changed by the Trustees of the Trust without a vote of the shareholders. A
change in a Fund's objective may result in the Fund having an investment
objective different from the objective which shareholders considered appropriate
at the time of investment in the Fund. Any investment involves risk and there is
no assurance that the investment objective of any Fund will be achieved.
INTERNATIONAL OPPORTUNITIES FUND - The investment objective of the MFS
International Opportunities Fund is capital appreciation.
The Fund will, under normal conditions, invest at least 80% of its total assets
in equity securities of companies whose principal activities are outside the
U.S. The Fund may invest in foreign companies of any size, including smaller,
lesser known companies in the developing stages of their life cycle that offer
the potential for accelerated earnings or revenue growth (foreign emerging
growth companies). Such companies generally would be expected to offer superior
prospects for growth and would have the products, management and market
opportunities which are usually necessary to become more widely recognized as
growth companies.
The Fund may invest up to 35% of its net assets in securities of issuers whose
principal activities are located in emerging market countries. The Fund may also
invest up to 10% of its net assets in fixed income securities (including Brady
Bonds). The Fund may engage in short sales of securities which the Adviser
expects to decline in price.
The Fund may engage in certain investment techniques, as described under the
caption "Investment Techniques" below and in the SAI. The Fund's investments are
subject to certain risks, as described in the above-referenced sections of this
Prospectus and the SAI and as described under the caption "Additional Risk
Factors" below.
INTERNATIONAL GROWTH FUND - The International Growth Fund's investment objective
is capital appreciation.
The Fund will, under normal conditions, invest at least 80% of its total assets
in equity securities of companies whose principal activities are outside the
U.S. The Fund may invest in foreign companies of any size but generally invests
in established foreign companies which the Adviser believes offer prospects for
growth of earnings. The Fund may also invest in equity securities of foreign
companies in the developing stages of their life cycle (foreign emerging growth
companies).
The Fund may invest up to 25% of its net assets in securities of issuers whose
principal activities are located in emerging market countries. The Fund may also
invest up to 10% of its net assets in fixed income securities (including Brady
Bonds).
The Fund may engage in certain investment techniques, as described under the
caption "Investment Techniques" below and in the SAI. The Fund's investments are
subject to certain risks, as described in the above-referenced sections of this
Prospectus and the SAI and as described under the caption "Additional Risk
Factors" below.
INTERNATIONAL VALUE FUND - The International Value Fund's investment objective
is capital appreciation.
The Fund seeks to achieve its objective by investing, under normal conditions,
at least 80% of its total assets in equity securities of companies whose
principal activities are outside the U.S. The Fund invests in securities that
the Adviser believes are undervalued
-4-
<PAGE>
compared to industry norms within their countries, based on an assessment of
assets, earnings, cash flow and growth potential. The Fund generally will invest
in established foreign companies, many of which pay current dividends.
The Fund may invest up to 10% of its net assets in securities of issuers whose
principal activities are located in emerging market countries. The Fund may also
invest up to 25% of its net assets in fixed income securities (including Brady
Bonds), including up to 10% of its net assets in fixed income securities rated
BB or lower by Standard & Poor's Ratings Services ("S&P") or Fitch Investors
Service, Inc. ("Fitch") or Ba or lower by Moody's Investors Service, Inc.
("Moody's"), or if unrated, determined to be of equivalent quality by the
Adviser.
The Fund may engage in certain investment techniques, as described under the
caption "Investment Techniques" below and in the SAI. The Fund's investments are
subject to certain risks, as described in the above-referenced sections of this
Prospectus and the SAI and as described under the caption "Additional Risk
Factors" below.
ASIA PACIFIC FUND - The Asia Pacific Fund's investment objective is capital
appreciation.
The Fund seeks to achieve its objective by investing, under normal conditions,
at least 80% of its total assets in equity securities of companies whose
principal activities are in Asia or the Pacific Basin. The Fund may invest in
securities of issuers located in any country in Asia or the Pacific Basin. Such
countries may include Australia, Hong Kong, India, Indonesia, Japan, Malaysia,
New Zealand, Pakistan, the Peoples Republic of China, the Philippines,
Singapore, South Korea, Taiwan and Thailand. Many of these countries have less
developed economies and securities markets (emerging market countries). Although
the amount of the Fund's assets invested in emerging market countries will vary
over time, the Fund may invest all of its assets in emerging markets securities.
The Fund may invest in companies of any size whose earnings are believed to be
in a relatively strong growth trend, or in companies in which significant
further growth is not anticipated but whose securities are thought to be
undervalued. The Fund may invest in lesser known companies in the developing
stages of their life cycle that offer the potential for accelerated earnings or
revenue growth (foreign emerging growth companies).
The Fund may invest up to 10% of its net assets in fixed income securities
(including Brady Bonds), all of which may be rated BB or lower by S&P or Fitch
or Ba or lower by Moody's, or if unrated, determined to be of equivalent quality
by the Adviser. The Fund may engage in short sales of securities which the
Adviser expects to decline in price.
The Fund may engage in certain investment techniques, as described under the
caption "Investment Techniques" below and in the SAI. The Fund's investments are
subject to certain risks, as described in the above-referenced sections of this
Prospectus and the SAI and as described under the caption "Additional Risk
Factors" below.
--------------------------------
In determining where an issuer's principal activities are located, the Adviser
considers 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 are deemed to be located in a particular country
or region if the issuer (a) is organized under the laws of, and maintains a
principal office in, that country or region, (b) has its principal securities
trading market in that country or region, (c) derives 50% or more of its total
revenues from goods sold or services performed in that country or region, or (d)
has 50% or more of its assets in that country or region.
4. INVESTMENT TECHNIQUES
The investment techniques described below are applicable to all or certain of
the Funds, as specified. Additional information about certain of these
investment techniques can be found under the caption "Investment Objectives,
Policies and Restrictions - Investment Techniques" in the SAI.
Equity Securities: Each Fund may invest in all types of equity
securities, including the following: common stocks, preferred stocks and
preference stocks; securities such as bonds, warrants or rights that are
convertible into stocks; and depository receipts for those securities. These
securities may be listed on securities exchanges, traded in various
over-the-counter markets or have no organized market.
Foreign Emerging Growth Securities: Each Fund may invest in securities
of foreign emerging growth companies, including established foreign companies,
whose rates of earnings growth are expected to accelerate because of special
factors, such as rejuvenated management, new products, changes in consumer
demand, or basic changes in the economic environment or which otherwise
represent opportunities for long-term growth. See "Additional Risk Factors -
Foreign Securities" below. It is anticipated that these companies will primarily
be in nations with more developed securities markets, such as Japan, Australia,
Canada, New Zealand, Hong Kong and most Western European countries, including
Great Britain.
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Emerging Markets Securities: Each Fund may invest in securities of
issuers whose principal activities are located in emerging market countries
(which may include foreign governments and their subdivisions, agencies or
instrumentalities). Emerging markets 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% or more of its assets in that country. See "Additional Risk
Factors - Emerging Market Securities" below.
Fixed Income Securities: Fixed income securities in which each Fund may
invest include bonds, debentures, mortgage securities, notes, bills, commercial
paper, U.S. Government Securities and certificates of deposit, as well as debt
obligations which may have a call on common stock by means of attached warrants.
Depository Receipts: Each Fund may invest in American Depository
Receipts ("ADRs"), Global Depository Receipts ("GDRs") and other types of
depository receipts. ADRs 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. GDRs and other types of
depository receipts are typically issued by foreign banks or trust companies and
evidence ownership of underlying securities issued by either a foreign or a U.S.
company. Generally, ADRs are in registered form and are designed for use in U.S.
securities markets and GDRs are in bearer form and are designed for use in
foreign securities markets. For the purposes of a Fund's policy to invest a
certain percentage of its assets in foreign securities, the investments of a
Fund in ADRs, GDRs and other types of depository receipts are deemed to be
investments in the underlying securities.
Privatizations: The governments in some countries, including emerging
market countries, have been engaged in programs of selling part or all of their
stakes in government owned or controlled enterprises ("privatizations"). Each
Fund may invest in privatizations. In certain countries, the ability of foreign
entities to participate in privatizations may be limited by local law and the
terms on which the foreign entities may be permitted to participate may be less
advantageous than those afforded local investors.
Brady Bonds: Each 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.
Investment in Other Investment Companies: Each Fund may invest in other
investment companies to the extent permitted by the 1940 Act and applicable
state securities laws (i) as a means by which the Fund may invest in securities
of certain countries which do not otherwise permit investment, (ii) as a means
to purchase thinly traded securities of emerging market companies, or (iii) when
the Adviser believes such investments may be more advantageous to the Fund than
a direct market purchase of securities. If a Fund invests in such investment
companies, the Fund's shareholders will bear not only their proportionate share
of the expenses of the Fund (including operating expenses and the fees of the
Adviser) but also will indirectly bear similar expenses of the underlying
investment companies.
U.S. Government Securities: Each Fund for temporary defensive purposes,
as discussed below, may invest in U.S. Government securities, including: (1) the
following 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, authorities 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
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(collectively, "U.S. Government Securities"). The term "U.S. Government
Securities" also includes interests in trusts or other entities issuing
interests in obligations that are backed by the full faith and credit of the
U.S. Government or are issued or guaranteed by the U.S. Government, its
agencies, authorities or instrumentalities.
Investments for Temporary Defensive Purposes: During periods of unusual
conditions when the Adviser believes that investing for temporary defensive
purposes is appropriate, or in order to meet anticipated redemption requests, a
large portion or all of the assets of a Fund may be invested in cash (including
foreign currency) or cash equivalents, including, but not limited to,
obligations of banks (including certificates of deposit, bankers' acceptances,
time deposits and repurchase agreements), commercial paper, short-term notes,
U.S. Government Securities and related repurchase agreements.
Repurchase Agreements: Each Fund may enter into repurchase agreements
in order to earn income on available cash or as a temporary defensive measure.
Under a repurchase agreement, a 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). Each
Fund has adopted certain procedures intended to minimize the risks of such
transactions.
Restricted Securities: Each Fund may purchase securities that are not
registered under the Securities Act of 1933 (the "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"). A determination is made 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 a 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 the Adviser the daily function of determining and
monitoring the liquidity of Rule 144A securities. The Board, however, retains
oversight focusing on factors such as valuation, liquidity and availability of
information. Investing in Rule 144A Securities could have the effect of
decreasing the level of liquidity in a 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 each Fund's 15% limitation
on investments in illiquid investments, a Fund may also invest in restricted
securities that may not be sold under Rule 144A, which presents certain risks.
As a result, a 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.
Lending of Portfolio Securities: Each Fund may seek to increase its
income by lending portfolio securities. Such loans will usually be made to
member firms (and subsidiaries thereof) of the New York Stock Exchange (the
"Exchange") and to member banks of the Federal Reserve System, and would be
required to be secured continuously by collateral in cash, irrevocable letters
of credit or U.S. Treasury securities maintained on a current basis at an amount
at least equal to the market value of the securities loaned. If the Adviser
determines to lend portfolio securities, it is intended that the value of the
securities loaned would not exceed 30% of the value of the net assets of the
Fund making the loans.
"When Issued" Securities: Each Fund may purchase securities on a
"when-issued" or on a "forward delivery" basis, which means that the securities
will be delivered to a 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. In general, a Fund does not pay
for such securities until received, and does not start earning interest on the
securities until the contractual settlement date. While awaiting delivery of
securities purchased on such bases, a Fund will normally invest in liquid
assets.
Indexed Securities: Each 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 (i.e., principal value)
and/or interest rates rise or fall according to changes in value of one or more
specified underlying instruments. Indexed securities may be positively or
negatively indexed (i.e., their principal value or interest rates 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 and could involve the loss of all
or a portion of the principal amount of the investment.
Zero Coupon Bonds, Deferred Interest Bonds and PIK Bonds: Each Fund may
invest in zero coupon bonds, deferred interest bonds and payment-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. A
Fund will accrue income on such investments for tax and accounting purposes,
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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.
Swaps and Related Transactions: As one way of managing its exposure to
different types of investments, each 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 a Fund with another party of
cash payments based upon different interest rate indices, currencies, and other
prices or rates, such as the value of mortgage prepayment rates. For example, in
the typical interest rate swap, a 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 notional
principal amount determined by the parties.
Each 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 could be used to shift a Fund's investment exposure
from one type of investment to another. For example, if a 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 a 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,
or no investment of cash. As a result, swaps can be highly volatile and may have
a considerable impact on a 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. A Fund may also suffer
losses if it is unable to terminate outstanding swap agreements or reduce its
exposure through offsetting transactions.
Options on Securities: Each Fund may write (sell) covered put and call
options and purchase put and call options on securities. Each Fund will write
options on securities for the purpose of increasing its return and/or to protect
the value of its portfolio. In particular, where a Fund writes an option that
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 the portfolio security underlying the option, or
the increased cost of portfolio securities to be acquired. However, the writing
of options constitutes only a partial hedge up to the amount of the premium,
less any transaction costs. In contrast, however, if the price of the underlying
security moves adversely to the Fund's position, the option may be exercised and
the Fund will be required to purchase or sell the underlying security at a
disadvantageous price, which may only be partially offset by the amount of the
premium. Each 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.
By writing a call option on a security, a Fund limits its opportunity
to profit from any increase in the market value of the underlying security,
since the holder will usually exercise the call option when the market value of
the underlying security exceeds the exercise price of the call. However, the
Fund retains the risk of depreciation in value of securities on which it has
written call options.
Each Fund may also purchase put or call options in anticipation of
market fluctuations which may adversely affect the value of its portfolio or the
prices of securities that a Fund wants to purchase at a later date. In the event
that the expected market fluctuations occur, a Fund may be able to offset the
resulting adverse effect on its portfolio, in whole or in part, through the
options purchased. The premium paid for a put or call option plus any
transaction costs will reduce the benefit, if any, realized by the Fund upon
exercise or liquidation of the option, and, unless the price of the underlying
security changes sufficiently, the option may expire without value to the Fund.
In certain instances, a Fund may enter into options on Treasury
securities that are "reset" options or "adjustable strike" options. These
options provide for periodic adjustment of the strike price and may also provide
for the periodic adjustment of the premium during the term of the option.
Options on Stock Indices: Each Fund may write (sell) covered call and
put options and purchase call and put options on stock indices. Each 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 a 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. A Fund will
thereby retain the amount of the premium, less related transaction costs, which
will increase its gross income and offset part of the reduced value of portfolio
securities or the increased cost of
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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 a Fund for the
writing of the option, less related transaction costs. In addition, if the value
of an underlying index moves adversely to a 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.
Each 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. A
Fund's possible loss in either case will be limited to the premium paid for the
option, plus related transaction costs.
"Yield Curve" Options: Each Fund may 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 a 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
"Additional 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 Foreign Currencies: Each 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 a 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 a Fund's position, it may forfeit the entire amount of the premium paid for
the option plus related transaction costs. A Fund may also choose, or be
required to receive delivery of the foreign currencies underlying Options on
Foreign Currencies into which it has entered. 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, a Fund may hold such
currencies for an indefinite period of time.
Futures Contracts and Options on Futures Contracts: Each Fund may
purchase and sell futures contracts ("Futures Contracts") on stock indices, and
may purchase and sell Futures Contracts on foreign currencies or indices of
foreign currencies and on fixed income securities or indices of such securities.
Each Fund may also purchase and write options on such Futures Contracts. The
Funds may also purchase and write options on such Futures Contracts. All
above-referenced options on Futures Contracts are referred to as "Options on
Futures Contracts."
Such transactions will be entered into for hedging purposes or for
non-hedging purposes to the extent permitted by applicable law. Each 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
Funds, if its investment judgment about the general direction of exchange rates
or the stock market is incorrect, a Fund's overall performance may be poorer
than if it had not entered into any such contract and the Fund may realize a
loss. A 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. In addition, a Fund
will not purchase put and call options on Futures Contracts if as a result more
than 5% of its total assets would be invested in such options.
Purchases of Options on Futures Contracts may present less risk in
hedging a 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, a Fund may suffer a loss on the transaction.
Futures Contracts and Options on Futures Contracts that are entered
into by a Fund will be traded on U.S. and foreign exchanges.
Forward Contracts: Each 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 at a price set at the time of the contract ("Forward
Contracts"). Each Fund may enter into Forward Contracts for hedging purposes and
for non-hedging purposes of increasing the Fund's current income. By entering
into transactions in Forward Contracts for hedging purposes, a 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, a Fund
may sustain losses which will reduce its gross income. Such transactions,
therefore, could be considered speculative. Forward Contracts are traded
over-the-counter
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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. A 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, a Fund may hold such currencies for an
indefinite period of time. A 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. Each 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.
Short Sales: If the International Opportunities Fund or the Asia
Pacific Fund anticipate that the price of a security will decline, they may sell
the security short and borrow the same type of security from a broker or other
institution to complete the sale. Such Fund may make a profit or loss depending
upon whether the market price of the security decreases or increases between the
date of the short sale and the date on which the Fund must replace the borrowed
security. Possible losses from short sales differ from losses that could be
incurred from a purchase of a security, because losses from short sales may be
unlimited, whereas losses from purchases can equal only the total amount
invested. Each such Fund's short sales must be fully collateralized. A Fund will
not sell short securities whose underlying value exceeds 35% of its net assets.
5. ADDITIONAL RISK FACTORS
The following discussion of additional risk factors supplements the risk factors
described above. Additional information concerning risk factors can be found
under the caption "Investment Objectives, Policies and Restrictions Investment
Techniques" in the SAI.
Foreign Securities: Each Fund may invest in dollar denominated and
non-dollar denominated foreign securities. 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, securities settlement practices, 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. Each 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. Each Fund may also hold foreign currency
in anticipation of purchasing foreign securities.
Foreign Emerging Growth Companies: Investing in emerging growth
companies involves greater risk than is customarily associated with investing in
more established companies. Emerging growth companies often have limited product
lines, markets or financial resources, and they may be dependent on one-person
management. The securities of emerging growth companies may be subject to more
abrupt or erratic market movements than securities of larger, more established
companies or the market averages in general. Similarly, many of the securities
offering the capital appreciation sought by the Funds will involve a higher
degree of risk than would established growth stocks.
Emerging Market Securities: Each Fund may invest in emerging markets.
In addition to the general risks of investing in foreign securities, investments
in emerging markets involve special risks. Securities of many issuers in
emerging markets may be less liquid and more volatile than securities of
comparable domestic issuers. These securities may be considered speculative and,
while generally offering higher income and the potential for capital
appreciation, may present significantly greater risk. Emerging markets may 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 a Fund is uninvested and no return is earned thereon. The inability of
a Fund to make intended securities purchases due to settlement problems could
cause a Fund to miss attractive investment opportunities. Inability to dispose
of portfolio securities due to settlement problems could result in losses to a
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, possible liability to the purchaser.
Certain markets may require payment for securities before delivery, and in such
markets a 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 on 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
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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 movements in price.
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. A 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 a Fund.
Allocation Among Emerging Markets: Each Fund may allocate all or a
portion of its investments in emerging market securities among the emerging
markets of Latin America, Asia, Africa, the Middle East and the developing
countries of Europe, primarily in Eastern Europe. Each Fund will allocate its
investments among these emerging markets in accordance with the Adviser's
determination as to the allocation most appropriate with respect to the Fund's
investment objective and policies. The Asia Pacific Fund expects to invest
substantially all of its assets in developed and emerging market countries in a
single region, the Asia and Pacific Basin region. Each other Fund may invest its
assets allocated to investment in emerging markets without limitation in any
particular region, and, in accordance with the Adviser's investment discretion,
at times may invest all of its assets allocated to investment in emerging
markets in securities of emerging market issuers located in a single region
(e.g., Latin America). To the extent that the Asia Pacific Fund's or any other
Fund's investments are concentrated in one or a few emerging market regions, the
Fund's investment performance correspondingly will be more dependent upon the
economic, political and social conditions and changes in those regions. The
ability of a Fund, other than the Asia Pacific Fund, to allocate its investments
among emerging market regions without restriction may have the effect of
increasing the volatility of the Fund, as compared to a fund which limits such
allocations.
Investments in One or a Limited Number of Countries: Each Fund will
seek to reduce risk by investing its assets in a number of markets and issuers.
However, each Fund may invest a substantial amount of its net assets in issuers
located in a single country. To the extent that a Fund invests a significant
portion of its assets in a single or limited number of countries, the Fund's
investment performance correspondingly will be more dependent upon the economic,
political and social conditions and changes in that country or countries, and
the risks associated with investments in such country or countries will be
particularly significant. The ability of a Fund to focus its investments in one
or a limited number of countries may have the effect of increasing the
volatility of that Fund. The Asia Pacific Fund may be particularly dependent
upon the economic, political and social conditions in Japan as a result of its
investments of substantially all of its assets in Japanese issuers and issuers
in other Asia and Pacific Basin countries, many of which are directly affected
by Japanese capital investments in the region and by Japanese consumer demands.
Foreign Currencies: Because each Fund may invest up to 100% of its
assets in securities denominated in currencies other than the U.S. dollar, and
because each Fund may hold foreign currencies, the value of a Fund's
investments, and the value of dividends and interest earned by a Fund, may be
significantly affected by changes in currency exchange rates. Some foreign
currency values may be volatile, and there is the possibility of governmental
controls on currency exchange or governmental intervention in currency markets,
which could adversely affect the Funds. Although the Adviser may attempt to
manage currency exchange rate risks, there is no assurance that the Adviser will
do so at an appropriate time or that the Adviser will be able to predict
exchange rates accurately. For example, if the Adviser hedges a Fund's exposure
to a foreign currency, and that currency's value rises, the Fund will lose the
opportunity to participate in the currency's appreciation. Each Fund may hold
foreign currency received in connection with investments in foreign securities,
and enter into Forward Contracts, Futures Contracts and Options on Foreign
Currencies 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 rates. While the holding of foreign currencies
will permit a Fund to take advantage of favorable movements in the applicable
exchange rate, it also exposes the Fund to risk of loss if such rates move in a
direction adverse to the Fund's position. Such losses could also adversely
affect the Fund's hedging strategies.
Options, Futures Contracts and Forward Contracts: Although each Fund
may enter into transactions in options, Futures Contracts, Options on Futures
Contracts, Forward 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 a Fund's hedging strategy unsuccessful and could result in losses.
The Funds 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 a 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 a
Fund may be required to maintain a position until exercise or expiration, which
could result in losses. The SAI contains a
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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 and indices
underlying options, Futures Contracts and Options on Futures Contracts traded by
the Fund will include both domestic and foreign securities.
Lower Rated Bonds: Each Fund may invest in fixed income securities, and
may invest in convertible 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 securities.
The International Value Fund and the Asia Pacific Fund each 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. 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 a 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, a 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 a Fund but will be reflected
in the net asset value of shares of the Fund.
Portfolio Trading: Each Fund intends to manage its portfolio by buying
and selling securities, as well as holding securities to maturity, to help
attain its investment objective and policies.
Each Fund will engage in portfolio trading if it believes a
transaction, net of costs (including custodian charges), will help in attaining
its investment objective. In trading portfolio securities, a Fund seeks to take
advantage of market developments, yield disparities and variations in the
creditworthiness of issuers. For a description of the strategies which may be
used by the Funds in trading portfolio securities, see "Portfolio Transactions
and Brokerage Commissions" in the SAI. Because each Fund is expected to have a
portfolio turnover rate of up to 200% during its current fiscal year,
transaction costs incurred by each Fund and the realized capital gains and
losses of each Fund may be greater than that of a fund with a lower portfolio
turnover rate.
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 Conduct Rules
of the National Association of Securities Dealers, Inc. (the "NASD") and such
other policies as the Trustees of the Trust may determine, the Adviser may
consider sales of shares of other investment company clients of MFD, the
distributor of shares of the Trust and of the MFS Family of Funds (the "MFS
Funds"), as a factor in the selection of broker-dealers to execute each 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 a Fund's operating expenses (e.g., fees charged by the custodian of
the Fund's assets).
--------------------------------------
The SAI includes a discussion of other investment policies and a
listing of specific investment restrictions which govern the investment policies
of each Fund. The specific investment restrictions listed in the SAI may be
changed without shareholder approval unless indicated otherwise (see the SAI). A
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.
6. MANAGEMENT OF THE FUNDS
Investment Adviser -- The Adviser manages each Fund pursuant to separate
Investment Advisory Agreements, dated October 8, 1997 (the "Advisory
Agreements"). Under the Advisory Agreements, the Adviser provides each Fund with
overall investment advisory and
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administrative services. Subject to such policies as the Trustees may determine,
the Adviser makes investment decisions for each Fund. For its services, the
Adviser is entitled to receive a management fee, computed and paid monthly, in
an amount listed below per annum of the average daily net assets of such Fund:
International International International Asia
Opportunities Growth Value Pacific
Fund Fund Fund Fund
1.00% 1.00% 1.00% 1.00%
The Adviser is currently waiving its right to receive management fees from each
Fund.
The identity and background of the portfolio manager(s) for each Fund is set
forth below. Each portfolio manager has acted in that capacity since the
commencement of investment operations of each Fund.
FUND PORTFOLIO MANAGER(S)
International Opportunities Fund David A. Antonelli, a Vice President of the
Adviser, has been employed as a portfolio
manager by the Adviser since 1991.
International Growth Fund David R. Mannheim, a Senior Vice President
of the Adviser, has been employed as a
portfolio manager by the Adviser since 1988.
International Value Fund Frederick J. Simmons, a Senior Vice President
of the Adviser, has been employed as a
portfolio manager by the Adviser since 1971.
Asia Pacific Fund Christopher J. Burn and Barry P. Dargan,
Investment Officers of the Adviser, have been
employed as a portfolio manager by the
Adviser since 1995 and 1996, respectively.
Prior to joining MFS, Mr. Burn completed his
MBA at the Wharton School of Business at the
University of Pennsylvania in 1995, and
worked as an Analyst at the United States
Department of State until 1993. Prior to
joining MFS, Mr. Dargan was an Executive
Director and Investment Analyst at SBC
Warburg in Tokyo, Japan.
MFS also serves as investment adviser to each of the other MFS Funds and 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 Union Standard Trust, MFS Institutional Trust, MFS
Variable Insurance Trust, MFS/Sun Life Series Trust, 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 Institutional Advisors, Inc., provide
investment advice to substantial private clients.
MFS is America's oldest mutual fund organization. MFS and its predecessor
organizations have a history of money management dating from 1924 and the
founding of the first mutual fund in the U.S., Massachusetts Investors Trust.
Net assets under the management of the MFS organization were approximately $____
billion on behalf of approximately ___ million investor accounts as of August
31, 1997. As of such date, the MFS organization managed approximately $____
billion of assets invested in fixed income funds and fixed income portfolios,
approximately $____ billion of assets invested in foreign securities, and
approximately $_____ billion of assets invested in equity securities. MFS is a
subsidiary of Sun Life of Canada (U.S.), a subsidiary of Sun Life of Canada
(U.S.) Holdings, Inc., 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, Arnold D. Scott, Donald A. Stewart and John D.
McNeil. 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. Stewart
and McNeil are the President and the Chairman of Sun Life, respectively. 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, Mark E. Bradley, Ellen M. Moynihan 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.
("FCM"). FCM 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
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<PAGE>
management in 1868, and HYPO-BANK (Bayerische Hypotheken-und Wechsel-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 FCM 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 has access to the extensive
international equity investment expertise of FCM, and FCM has access to the
extensive U.S. equity investment expertise of MFS. MFS and FCM each have
investment personnel working in each other's offices in Boston and London,
respectively.
In certain instances there may be securities which are suitable for a Fund's
portfolio as well as for portfolios of other clients of MFS or clients of FCM.
Some simultaneous transactions are inevitable when several clients receive
investment advice from MFS and FCM, 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
a Fund is concerned, in other cases, however, it may produce increased
investment opportunities for the Funds.
Administrator - MFS provides each Fund with certain financial, legal,
compliance, shareholder communications and other administrative services
pursuant to a Master Administrative Services Agreement dated March 1, 1997.
Under this Agreement, each Fund pays MFS an administrative fee up to 0.015% per
annum of such Fund's average daily net assets. This fee reimburses MFS for a
portion of the costs it incurs to provide such services.
Distributor -- MFD, a wholly owned subsidiary of MFS, is the distributor of
shares of each Fund and also serves as distributor of 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 each Fund.
7. INFORMATION CONCERNING SHARES OF THE FUNDS
PURCHASES
Class A, Class B and Class C shares of each Fund may be purchased at the public
offering price through any dealer and other financial institution ("dealers")
having a selling agreement with MFD. Dealers may also charge their customers
fees relating to investments in each Fund.
This Prospectus offers Class A, Class B and Class C shares which bear sales
charges and distribution fees in different forms and amounts, as described below
(currently, only Class A shares are available for sale):
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:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Dealer Allowance
Offering Net Amount as a Percentage of
Amount of Purchase Price Invested 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**
</TABLE>
..........
* 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 each Fund as well as certain other MFS Funds owned or
being purchased,
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<PAGE>
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 an initial sales charge). In the
following four circumstances, Class A shares of each Fund 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;
(ii) on investments in Class A shares by certain retirement plans
subject to the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), if, prior to July 1, 1996: (a) the Plan had
established an account with the Shareholder Servicing Agent and
(b) the sponsoring organization had demonstrated to the
satisfaction of MFD that either (i) the employer had at least 25
employees or (ii) the aggregate purchases by the retirement plan
of Class A shares of the MFS Funds would be in an amount of at
least $250,000 within a reasonable period of time, as determined
by MFD in its sole discretion;
(iii) on investments in Class A shares by certain retirement plans
subject to ERISA, if: (a) the retirement plan and/or sponsoring
organization subscribes to the MFS FUNDamental 401(k) Program or
any similar recordkeeping system made available by the
Shareholder Servicing agent (the "MFS Participant Recordkeeping
System"); (b) the plan establishes an account with the
Shareholder Servicing agent on or after July 1, 1996; and (c) the
aggregate purchases by the retirement plan of Class A shares of
the MFS Funds will be in an aggregate amount of at least $500,000
within a reasonable period of time, as determined by MFD in its
sole discretion; and
(iv) on investments in Class A shares by certain retirement plans
subject to ERISA, if: (a) the plan establishes an account with
the Shareholder Servicing Agent on or after July 1, 1996 and (b)
the plan has, at the time of purchase, a market value of $500,000
or more invested in shares of any class or classes of the MFS
Funds. The retirement plan will qualify under this category only
if the plan or its sponsoring organization informs the
Shareholder Servicing Agent prior to the purchases that the plan
has a market value of $500,000 or more invested in shares of any
class or classes of the MFS Funds. The Shareholder Servicing
Agent has no obligation independently to determine whether such a
plan qualifies under this category.
In the case of such purchases, MFD will pay commissions to dealers on
new investments in Class A shares made through such dealers, as follows:
Commission Paid by MFD to Dealers Cumulative Purchase Amount
1.00%........................ On the first $2,000,000, plus
0.80%........................ Over $2,000,000 to $3,000,000, plus
0.50%........................ Over $3,000,000 to $50,000,000, plus
0.25%........................ Over $50,000,000
For purposes of determining the level of commissions to be paid to
dealers with respect to a shareholder's new investment in Class A shares made on
or after April 1, 1996, purchases for each shareholder account (and certain
other accounts for which the shareholder is a record or beneficial holder) will
be aggregated over a 12-month period (commencing from the date of the first such
purchase).
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 are waived. These circumstances are
described in Appendix A to this Prospectus. In addition to these circumstances,
the CDSC imposed upon the redemption of Class A shares is waived with respect to
shares held by certain retirement plans qualified under Section 401(a) or 403(b)
of the Internal Revenue Code of 1986, as amended (the "Code"), and subject to
ERISA, where:
(i) the retirement plan and/or sponsoring organization does not
subscribe to the MFS Participant Recordkeeping System; and
(ii) the retirement plan and/or sponsoring organization demonstrates
to the satisfaction of, and certifies to, the Shareholder
Servicing Agent that the retirement plan has, at the time of
certification, or will have pursuant to a
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<PAGE>
purchase order placed with the certification, a market value of
$500,000 or more invested in shares of any class or classes
of the MFS Funds and aggregate assets of at least $10
million;
provided, however, that the CDSC will not be waived (i.e., it will be imposed)
in the event that there is a change in law or regulations which results in a
material adverse change to the tax advantaged nature of the plan, or in the
event that the plan and/or sponsoring organization: (i) becomes insolvent or
bankrupt; (ii) is terminated or partially terminated under ERISA or is
liquidated or dissolved; or (iii) is acquired by, merged into, or consolidated
with any other entity.
CLASS B SHARES: Class B shares are offered at net asset value without an initial
sales charge but subject to a CDSC as follows:
CONTINGENT
YEAR OF REDEMPTION AFTER DEFERRED SALES
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.
See "Redemptions and Repurchases - Contingent Deferred Sales Charge" for further
discussion of the CDSC.
Except as described below, 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 each Fund's
Distribution Plan (see "Distribution Plan" 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).
Class B shares purchased by a retirement plan whose sponsoring organization
subscribes to the MFS Participant Recordkeeping System and which has established
its account with the Shareholder Servicing Agent on or after July 1, 1996, will
be subject to the CDSC described above, only under limited circumstances, as
explained below under "Waivers of CDSC." With respect to such purchases, MFD
pays an amount to dealers equal to 3.00% of the amount purchased through such
dealers (rather than the 4.00% payment described above), which is comprised of a
commission of 2.75% plus the advancement of the first year service fee equal to
0.25% of the purchase price payable under each Fund's Distribution Plan. As
discussed above, such retirement plans are eligible to purchase Class A shares
of the Fund at net asset value without an initial sales charge but subject to a
1% CDSC if the plan has, at the time of purchase, a market value of $500,000 or
more invested in shares of any class or classes of the MFS Funds. In this event,
the plan or its sponsoring organization should inform the Shareholder Servicing
Agent that the plan is eligible to purchase Class A shares under this category;
the Shareholder Servicing Agent has no obligation independently to determine
whether such a plan qualifies under this category for the purchase of Class A
shares.
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. In addition to these circumstances, the CDSC
imposed upon the redemption of Class B shares is waived with respect to shares
held by a retirement plan whose sponsoring organization subscribes to the MFS
Participant Recordkeeping System and which has established an account with the
Shareholder Servicing Agent on or after July 1, 1996; provided, however, that
the CDSC will not be waived (i.e., it will be imposed) in the event that there
is a change in law or regulations which results in a material adverse change to
the tax advantaged nature of the plan, or in the event that the plan and/or
sponsoring organization: (i) becomes insolvent or bankrupt; (ii) is terminated
or partially terminated under ERISA or is liquidated or dissolved; or (iii) is
acquired by, merged into, or consolidated with any other entity.
Conversion of Class B Shares. Class B shares of each Fund that remain
outstanding for approximately eight years will convert to Class A shares of the
same 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 each Fund's Distribution
Plan. See "Distribution Plan" 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
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<PAGE>
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 but are subject to a CDSC upon redemption of 1.00% during the first
year. Class C shares do not convert to any other class of shares. The maximum
investment in Class C shares is up to $1,000,000 per transaction.
The CDSC imposed is assessed against the lesser of the value of the shares
redeemed (exclusive of reinvested dividend and capital gain distributions) or
the total cost of such shares. No CDSC is assessed against shares acquired
through the automatic reinvestment of dividend or capital gain distributions.
See "Redemptions and Repurchases - Contingent Deferred Sales Charge" below for
further discussion of the CDSC.
MFD will pay dealers 1.00% of the purchase price of Class C shares purchased
through dealers and, as compensation therefor, MFD will retain the 1.00% per
annum distribution and service fee paid under each Fund's Distribution Plan to
MFD for the first year after purchase (see "Distribution Plan" below).
Class C shares are not currently available for purchase by any retirement plan
qualified under Sections 401(a) or 403(b) of 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.
Waivers of CDSC: In certain circumstances, the CDSC imposed upon
redemption of Class C shares is waived. These circumstances are described in
Appendix A to this Prospectus.
GENERAL: The following information applies to purchases of all classes of each
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
Individual Retirement Accounts ("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. Each Fund reserves the right to cease offering its shares at
any time.
Subsequent Investment by Telephone. Each shareholder may purchase
additional shares of any MFS Fund by telephoning the Shareholder Servicing Agent
toll-free at (800) 225-2606. The minimum purchase amount is $50 and the maximum
purchase amount is $100,000. Shareholders wishing to avail themselves of this
telephone purchase privilege must so elect on their Account Application and
designate thereon a bank and account number from which purchases will be made.
If a telephone purchase request is received by the Shareholder Servicing Agent
on any business day prior to the close of regular trading on the Exchange
(generally, 4:00 p.m., Eastern time), the purchase will occur at the closing net
asset value of the shares purchased on that day. The Shareholder Servicing Agent
may be liable for any losses resulting from unauthorized telephone transactions
if it does not follow 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.
Right to Reject Purchase Orders/Market Timing. Purchases and exchanges
should be made for investment purposes only. Each Fund and MFD reserve the right
to restrict or to reject any specific purchase or exchange request. In the event
that a Fund or MFD rejects an exchange request, neither the redemption nor the
purchase side of the exchange will be processed.
The Funds are not designed for professional market timing organizations or other
entities using programmed or frequent exchanges. The Funds define a "market
timer" as an individual, or organization acting on behalf of one or more
individuals, if (i) the individual or organization makes three or more exchange
requests out of a Fund per calendar year and (ii) any one of such exchange
requests represents shares equal in value to 1/2 of 1% or more of a Fund's net
assets at the time of the request. Accounts under common ownership or control,
including accounts administered by market timers, will be aggregated for
purposes of this definition.
As noted above, the Funds and MFD each reserves the right to reject or restrict
any specific purchase and exchange request, and, in addition, may impose
specific limitations with respect to market timers, including delaying for up to
seven days the purchase side of an exchange request by market timers or
specifically rejecting or otherwise restricting purchase or exchange requests by
market timers. In
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the event that any individual or entity is determined either by the Fund or MFD,
in its sole discretion, to be a market timer with respect to any calendar year,
the Fund and/or MFD will reject all exchange requests into the Fund during the
remainder of that calendar year. Other funds in the MFS Funds may have different
and/or more or less restrictive policies with respect to market timers than the
Funds. These policies are disclosed in the prospectuses of these other MFS
Funds.
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 and/or Class C 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 a 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 a 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.
EXCHANGES
Subject to the requirements set forth below, some or all of the shares in an
account with a 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). Shares of one class
may not be exchanged for shares of any other class.
EXCHANGES AMONG MFS FUNDS (excluding exchanges from MFS money market funds): No
initial sales charge 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: A shareholder should read the prospectus of the other MFS Funds and
consider the differences in objectives, policies and restrictions before making
any exchange. Exchanges will be made only after instructions in writing or by
telephone (an "Exchange
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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
Exchange (generally, 4:00 p.m., Eastern time), 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.
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.
REDEMPTIONS AND REPURCHASES
A shareholder may withdraw all or any portion of the value of his account on any
date on which a Fund is open for business by redeeming shares at their net asset
value (a redemption) or by selling such shares to a 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, each 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 may
be liable for any losses resulting from unauthorized telephone transactions if
it does not follow 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.
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CONTINGENT DEFERRED SALES CHARGE: Investments in Class A, Class B and Class C
shares ("Direct Purchases") will be subject to a CDSC for a period of: (i) with
respect to Class A and Class C shares, 12 months (however, the CDSC on Class A
shares is only imposed with respect to purchases of $1 million or more of Class
A shares or purchases by certain retirement plans of Class A shares); or (ii)
with respect to Class B shares, six years. 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 and Class C 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 each 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 Class C shares and 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 each Fund's shares.
Signature Guarantee. In order to protect shareholders against fraud,
each 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 a 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 Class
C shares and 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. The Trust agrees to redeem shares of each Fund
solely in cash up to the lesser of $250,000 or 1% of the net asset value of the
Fund during any 90-day period for any one shareholder. Each Fund has reserved
the right to pay other redemptions, 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, each 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 or exchanges, 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 PLAN
The Trustees have adopted a Distribution Plan 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 Plan"), after having concluded that there is a reasonable
likelihood that the Plan would benefit each Fund and its shareholders.
In certain circumstances, the fees described below may not be imposed or are
being waived. These circumstances, if any, are described below under the heading
"Current Level of Distribution and Service Fees."
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FEATURES COMMON TO EACH CLASS OF SHARES: There are features of the Distribution
Plan that are common to each Class of shares, as described below.
Service Fees. The Distribution Plan provides that a 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 a Fund having an aggregate net asset value at or
above a certain dollar level. Dealers may from time to time be required to meet
certain criteria in order to receive service fees. MFD or its affiliates are
entitled to retain all service fees payable under the 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. The Distribution Plan provides that a Fund may pay
MFD a distribution fee in addition to the service fee described above 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 Funds - Distributor" in the SAI. The amount of the
distribution fee paid by a Fund with respect to each class differs under the
Distribution Plan, as does the use by MFD of such distribution fees. Such
amounts and uses are described below in the discussion of the provisions of the
Distribution Plan relating to each Class of shares. While the amount of
compensation received by MFD in the form of distribution fees during any year
may be more or less than the expenses 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 provisions of the Distribution Plan are severable with respect to
each class of shares offered by the Fund.
FEATURES UNIQUE TO CLASS OF SHARES: These are certain features of the
Distribution Plan that are unique to each class of shares, as described below.
Class A Shares. 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 Distribution Plan is equal,
on an annual basis, to 0.25% of a 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 commissions to dealers with respect to purchases
of $1 million or more and purchases by certain retirement plans of Class A
shares which are sold at net asset value but which are subject to a 1% CDSC for
one year after purchase). Distribution fee payments under the Distribution Plan
may be used by MFD to pay securities dealers a distribution fee in an amount
equal to 0.25% per annum of each Fund's average daily net assets attributable to
Class A shares (other than Class A shares that have converted from Class B
shares) owned by investors from whom that securities dealer is the holder or
dealer of record. 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 0.50% per annum of the average daily net assets
of a Fund attributable to Class A shares, the Fund is permitted to pay such
distribution-related expenses or other distribution-related expenses.
Class B Shares. 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
therefor, MFD may retain the service fee paid by a 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 Distribution Plan, a 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).
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Class C Shares. Class C shares are offered at net asset value without
an initial sales charge but subject to a CDSC upon redemption of 1.00% during
the first year. See "Purchases - Class C shares" above. MFD will pay a
commission to dealers of 1.00% of the purchase price of Class C shares purchased
through dealers at the time of purchase. In compensation for this 1.00%
commission paid by MFD to dealers, MFD will retain the 1.00% per annum Class C
distribution and service fees paid by the Fund with respect to such shares for
the first year after purchase, and dealers will become eligible to receive from
MFD the ongoing 1.00% per annum distribution and service fees paid by the Fund
to MFD with respect to such shares commencing in the thirteenth month following
purchase.
This ongoing 1.00% fee is comprised of the 0.25% per annum service fee
paid to MFD under the 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 Distribution Plan equal, on an annual basis, to 0.75% of a
Fund's average daily net assets attributable to Class C shares.
CURRENT LEVEL OF DISTRIBUTION AND SERVICE FEES: Each Fund's Class A, Class B and
Class C distribution and service fees for its current fiscal year are 0.00%,
1.00% and 1.00%, per annum, respectively. Distribution and service fees with
respect to Class C shares under the Distribution Plan are currently being waived
on a voluntary basis and may be imposed at the discretion of MFD.
DISTRIBUTIONS
Each Fund intends to pay substantially all of its net investment income to its
shareholders as dividends at least annually. In determining the net investment
income available for distributions, each Fund may rely on projections of its
anticipated net investment income over a longer term, rather than its actual net
investment income for the period. If a Fund earns less than projected, or
otherwise distributes more than its earnings for the year, a portion of the
distributions may constitute a return of capital. Each 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 a 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
Each Fund is treated as an entity separate from the other Funds and the other
series of the Trust for federal income tax purposes. In order to minimize the
taxes each Fund would otherwise be required to pay, each Fund intends to qualify
each year as a "regulated investment company" under Subchapter M of the Code,
and to distribute all of its net investment income and net realized capital
gains to its shareholders in accordance with the timing requirements imposed by
the Code. It is expected that the Funds will not be required to pay entity level
federal income or excise taxes, although foreign-source income received by a
Fund may be subject to foreign withholding taxes.
Shareholders of a 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 reinvested in additional shares.
Shortly after the end of each calendar year, each shareholder of a Fund will be
sent a statement that sets forth the federal income tax status of all of the
Fund's dividends and distributions for that calendar year, including the portion
taxable as ordinary income, the portion taxable as long-term capital gain, the
portion, if any, representing a return of capital (which is generally free of
current taxes but results in a basis reduction) and the amount, if any, of
federal income tax withheld. In certain circumstances, a Fund may also elect to
"pass through" to shareholders foreign income taxes paid by the Fund. Under
those circumstances, the Fund will notify shareholders of their pro rata portion
of the foreign income taxes paid by the Fund; shareholders may be eligible for
foreign tax credits or deductions with respect to those taxes, but will be
required to treat the amount of the taxes as an amount distributed to them and
thus includable in their gross income for federal income tax purposes.
Fund distributions will reduce a Fund's net asset value per share. Shareholders
who buy shares just before a 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.
Each Fund intends to withhold U.S. federal income tax at a rate of 30% on
dividends and any 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.
Each 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 Funds' Account
Application for additional information regarding backup withholding of federal
income tax and should consult their own tax advisers as to the tax consequences
to them of an investment in a Fund.
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NET ASSET VALUE
The net asset value per share of each class of each 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 a Fund's portfolio are valued on the basis of
their market values or otherwise at their fair values, as described in the SAI.
All investments and assets are expressed in U.S. dollars based upon current
currency exchange rates. The net asset value per share of each class of shares
is effective for orders received in "good order" by the dealer prior to its
calculation and received by the dealer prior to the close of that business day.
EXPENSES
The Trust pays the compensation of the Trustees who are not officers of MFS and
all expenses of the Funds (other than those assumed by MFS) including but not
limited to: governmental fees; interest charges; taxes; membership dues in the
Investment Company Institute allocable to the Funds; fees and expenses of
independent auditors, of legal counsel, and of any transfer agent, registrar or
dividend disbursing agent of the Funds; expenses of repurchasing and redeeming
shares and servicing shareholder accounts; expenses of preparing, printing and
mailing prospectuses, periodic reports, notices and proxy statements to
shareholders and 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 State Street
Bank and Trust Company, the Funds' custodian, for all services to the Funds,
including safekeeping of funds and securities and maintaining required books and
accounts; expenses of calculating the net asset value of shares of the Funds;
and expenses of shareholder meetings. Expenses relating to the issuance,
registration and qualification of shares of the Funds and the preparation,
printing and mailing of prospectuses are borne by the Funds except that the
Distribution Agreement with MFD 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 between the series in a manner believed by
management of the Trust to be fair and equitable.
Subject to termination or revision at the sole discretion of MFS, MFS has agreed
to bear each Fund's expenses such that such Fund's "Other Expenses," which are
defined to include all Fund expenses except for management fees, Rule 12b-1
fees, taxes, extraordinary expenses, brokerage and termination costs and class
specific expenses, do not exceed 1.75% per annum of its average daily net assets
(the "Maximum Percentage"). The obligation of MFS to bear these expenses
terminates on the last day of that Fund's fiscal year in which such Fund's
"Other Expenses" are less than or equal to the Maximum Percentage. The payments
made by MFS on behalf of a Fund under this arrangement are subject to
reimbursement by the Fund to MFS, which will be accomplished by the payment of
an expense reimbursement fee by such Fund to MFS computed and paid monthly at a
percentage of its average daily net assets for its then current fiscal year,
with a limitation that immediately after such payment the Fund's "Other
Expenses" will not exceed the Maximum Percentage. This expense reimbursement by
the Funds to MFS terminates on the earlier of the date on which payments made by
the Fund equal the prior payment of such reimbursable expenses by MFS or
September 30, 2007.
DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
Each Fund has three classes of shares which it offers to the general public,
entitled Class A, Class B and Class C shares of Beneficial Interest (without par
value). Each Fund also has a class of shares which it offers exclusively to
certain institutional investors, entitled Class I shares. As of the date of this
Prospectus, the Trust has six series. The Trust has reserved the right to create
and issue additional classes of shares and series, 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 the Distribution Plan or on any other matter that affects solely that
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 Trust's 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 each Fund represents an equal proportionate interest in
that Fund with each other class share, subject to the liabilities of the
particular class. Shares have no pre-emptive or conversion rights (except as set
forth in "Purchases -- Conversion of Class B shares"). Shares are fully paid and
non-assessable. Should a 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
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<PAGE>
incurring financial loss on account of shareholder liability would be limited to
circumstances in which both inadequate insurance existed and the Trust itself
was unable to meet its obligations.
PERFORMANCE INFORMATION
From time to time, each Fund may 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 will
reflect the average annual percentage change over stated periods in the value of
an investment in each class of shares of a Fund made at the maximum public
offering price of the shares of that class with all distributions reinvested and
which will give effect to the imposition of any applicable CDSC assessed upon
redemptions of the Fund's Class B and Class C 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.
Total rate of return reflects all components of investment return over a stated
period of time. A 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 a Fund will calculate its total rate of
return, see the SAI. A copy of the Funds' Annual Report, when available, 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, each 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.
8. SHAREHOLDER SERVICES
Shareholders with questions concerning the shareholder services described below
or concerning other aspects of a Fund, should contact the Shareholder Servicing
Agent (see back cover for address and phone number). 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 a Fund (such as Right of Accumulation, Letter
of Intent and certain recordkeeping services) that a Fund ordinarily provides.
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").
Distribution Options -- The following options are available to all accounts
(except Systematic Withdrawal Plan accounts described below) 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 (including short-term capital gains) in cash; capital gain
distributions reinvested in additional shares; or
-- 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. Dividends and capital gain
distributions in amounts less than $10 will automatically be reinvested in
additional shares of each 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, or the shareholder does not respond to mailings from the Shareholder
Servicing Agent with regard to uncashed distribution checks, 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, each
Fund makes available the following programs designed to enable shareholders to
add to their investment in an account with a 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 a 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 a Fund alone or in combination with shares of Class B or Class C shares of a
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 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.
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<PAGE>
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 Class A, Class B and Class C
shares of that shareholder in the MFS Funds or MFS Fixed Fund (a bank collective
investment fund) reaches a discount level.
Distribution Investment Program: Shares of a particular class of a 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 a 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 to him (or any one 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 and Class C 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 CDSC.
Dollar Cost Averaging Programs --
Automatic Investment Plan: Cash investments of $50 or more may be made
through a shareholder's checking account on any day of the month. If the
shareholder does not specify a date, the investment will automatically occur on
the first business day of the month. 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 participate in 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 available for sale). Under the Automatic
Exchange Plan, exchanges of at least $50 each may be made to up to six 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 transferred 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 an investment program concurrently with a withdrawal program
would 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 share redemption (if applicable) in the case of Class A shares.
Tax-Deferred Retirement Plans -- Except as noted under "Purchases -- Class C
Shares," shares of each Fund may be purchased by all types of tax-deferred
retirement plans, including IRAs, Simplified Employee Pension 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 Funds' SAI contains more detailed information about each Fund, including,
but not limited to, information related to: (i) each Fund's investment policies
and restrictions; (ii) the Trustees, officers and Adviser; (iii) portfolio
trading; (iv) the shares, including rights and liabilities of shareholders; (v)
tax status of dividends and distributions; (vi) the Distribution Plan; and (vii)
various services and privileges provided by each Fund for the benefit of its
shareholders, including additional information with respect to the exchange
privilege.
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<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 CDSC for Class
A shares are waived (Section II), and the CDSC for Class B and Class C 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 and Class C shares, as
applicable, are 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 fund
in the MFS Funds 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 institutions
("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 the
MFS Fund which issued the shares; and Institutional Clients
of MFS or MFS Institutional Advisors, Inc.
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 ("IRAs")
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 401(a) or ESP Plan
participant;
Loan from 401(a) or ESP 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 401(a) or ESP Plan participant
(excluding, however, a partial or other termination of the
Plan);
Tax-free return of excess 401(a) or ESP Plan contributions;
To the extent that redemption proceeds are used to pay
expenses (or certain participant expenses) of the 401(a) or
ESP 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
MFS Service Center, Inc. ( the "Shareholder Servicing
Agent"); and
A-1
<PAGE>
Distributions from a 401(a) or ESP 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 401(a) or ESP 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
401(a) or ESP Plan's shares in all MFS Funds (i.e., all the
assets of the 401(a) or ESP Plan invested in the MFS Funds
are withdrawn), unless immediately prior to the redemption,
the aggregate amount invested by the 401(a) or ESP 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 401(a) or ESP 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 SRO 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 CDSC imposed on certain redemptions of Class
A shares are 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 established certain operational arrangements with MFD
which include 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.
A-2
<PAGE>
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:
IRAs
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 401(a) 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 401(a)
Plan.
ESP Plans and SRO Plans
Distributions made on or after the ESP or SRO Plan
participant has attained the age of 59 1/2 years old.
III. WAIVERS OF CLASS B AND CLASS C 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 and
Class C 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:
IRAs, 401(a) Plans, ESP Plans and SRO Plans
Distributions made on or after the IRA owner or the 401(a),
ESP or SRO Plan participant, as applicable, has attained the
age of 70 1/2 years old, but only with respect to the
minimum distribution under Code rules.
Salary Reduction Simplified Employee Pension Plans ("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; and
Death or disability of a SAR-SEP Plan participant.
A-3
<PAGE>
APPENDIX B
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 risk 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. Some 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.
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 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
<PAGE>
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 or a plus or minus signed 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-1+'.
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
B-2
<PAGE>
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.
CC: Bonds are minimally protected. 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 designed 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.
B-3
<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 and 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 Ernst & Young LLP 200 Clarendon Street Boston, MA 02116
[GRAPHIC OMITTED]
MFS(R) International Opportunities Fund
MFS(R) International Growth Fund
MFS(R) International Value Fund
MFS(R) Asia Pacific Fund
500 Boylston Street, Boston, MA 02116
<PAGE>
MFS(R) INTERNATIONAL OPPORTUNITIES FUND
MFS(R) INTERNATIONAL GROWTH FUND
MFS(R) INTERNATIONAL VALUE FUND
MFS(R) ASIA PACIFIC FUND
Supplement to the October 9, 1997 Prospectus and Statement of Additional
Information
The following information should be read in conjunction with the Funds'
Prospectus and Statement of Additional Information ("SAI"), dated October 9,
1997, as supplemented, and contains a description of Class I shares.
Class I shares are available for purchase only by certain investors as
described under the caption "Eligible Purchasers" below.
EXPENSE SUMMARY
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Class I
International International International Asia
Opportunities Growth Value Pacific
Fund Fund Fund Fund
Shareholder Transaction Expenses:
Maximum Initial Sales Charge Imposed
on Purchases of Fund Shares (as a
percentage of offering price) None None None None
Maximum Contingent Deferred Sales
Charge (as a percentage of original
purchase price or redemption proceeds,
as applicable) None None None None
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
International International International Asia
Opportunities Growth Value Pacific
Fund Fund Fund Fund
Annual Operating Expenses (as a percentage of average net assets):
Management Fees (after fee
reduction)(1) 0.00% 0.00% 0.00% 0.00%
Rule 12b-1 Fees None None None None
Other Expenses (after fee
reduction)(2) (3) 1.61% 1.61% 1.61% 1.61%
----- ----- ----- -----
Total Operating Expenses (after
fee reduction)(4) 1.61% 1.61% 1.61% 1.61%
</TABLE>
- ------------------------------
(1) The Adviser is currently waiving its right to receive management fees from
each Fund. Absent this waiver, "Management Fees" would be as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
INTERNATIONAL INTERNATIONAL INTERNATIONAL ASIA
OPPORTUNITIES GROWTH VALUE PACIFIC
FUND FUND FUND FUND
1.00% 1.00% 1.00% 1.00%
</TABLE>
(2) Each Fund has an expense offset arrangement which reduces the Fund's
custodian fee based upon the amount of cash maintained by the Fund with its
custodian and dividend disbursing agent, and may enter into other such
arrangements and directed brokerage arrangements (which would also have the
effect of reducing the Fund's expenses). Any such fee reductions are not
reflected under "Other Expenses."
(3) "Other Expenses" for each Fund are based on estimates of payments to be
made during each such Fund's current fiscal year.
-1-
<PAGE>
(4) Absent any fee waivers, "Total Operating Expenses" for each Fund would be
as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
INTERNATIONAL INTERNATIONAL INTERNATIONAL ASIA
OPPORTUNITIES GROWTH VALUE PACIFIC
FUND FUND FUND FUND
2.61% 2.61% 2.61% 2.61%
</TABLE>
Example of Expenses
An investor would pay the following dollar amounts of expenses on a
$1,000 investment in Class I shares of each Fund, assuming (a) a 5% annual
return and (b) redemption at the end of each of the time periods indicated:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
INTERNATIONAL INTERNATIONAL INTERNATIONAL ASIA
OPPORTUNITIES GROWTH VALUE PACIFIC
Period FUND FUND FUND FUND
1 year......... $26 $26 $26 $26
3 years........ 81 81 81 81
</TABLE>
The purpose of the expense table above is to assist investors in
understanding the various costs and expenses that a shareholder of the Funds
will bear directly or indirectly. A more complete description of each Fund's
management fee is set forth under the caption "Management of the Funds" in the
Prospectus.
The "Example" set forth above should not be considered a representation
of past or future expenses of the Funds; actual expenses may be greater or less
than those shown.
ELIGIBLE PURCHASERS
Class I shares are available for purchase only by the following purchasers
("Eligible Purchasers"):
(i) certain retirement plans established for the benefit of employees of
Massachusetts Financial Services Company ("MFS"), the Fund's investment
adviser, and employees of MFS' affiliates; and
(ii) any fund distributed by MFS Fund Distributors, Inc. ("MFD"), the Fund's
distributor, if the fund seeks to achieve its investment objective by
investing primarily in shares of the Fund and other funds distributed by
MFD.
In no event will the Fund, MFS, MFD or any of their affiliates pay any
sales commissions or compensation to any third party in connection with the sale
of Class I shares; the payment of any such sales commission or compensation
would, under the Fund's policies, disqualify the purchaser as an eligible
investor of Class I shares.
SHARE CLASSES OFFERED BY THE FUNDS
While each Fund has four classes of shares (Class A, Class B, Class C
and Class I shares), Class A and Class I shares are the only classes presently
available for sale. Class I shares are available for purchase only by Eligible
Purchasers, as defined above, and are described in this Supplement. Class A
shares, Class B shares and Class C shares are described in the Funds'
Prospectus. Class A shares are available for purchase by certain retirement
plans established for the benefit of employees of MFS and by such employees and
certain of their family members who are residents of The Commonwealth of
Massachusetts, and members of the governing boards of the various funds
sponsored by MFS.
-2-
<PAGE>
Class A shares are offered at net asset value plus an initial sales
charge up to a maximum of 4.75% of the offering price (or a contingent deferred
sales charge (a "CDSC") upon redemption of 1.00% during the first year in the
case of purchases of $1 million or more and certain purchases by retirement
plans), and are subject to an annual distribution fee and service fee up to a
maximum of 0.50% per annum. Class B shares are offered at net asset value
without an initial sales charge but are subject to a CDSC upon redemption
(declining from 4.00% during the first year to 0% after six years) and an annual
distribution fee and service fee up to a maximum of 1.00% per annum; Class B
shares convert to Class A shares approximately eight years after purchase. Class
C shares are offered at net asset value without an initial sales charge but are
subject to a CDSC upon redemption of 1.00% during the first year and an annual
distribution fee and service fee up to a maximum of 1.00% per annum. Class I
shares are offered at net asset value without an initial sales charge or CDSC
and are not subject to a distribution or service fee. Class C and Class I shares
do not convert to any other class of shares of the Funds.
OTHER INFORMATION
Eligible Purchasers may purchase Class I shares only directly through
MFD. Eligible Purchasers may exchange Class I shares of a Fund for Class I
shares of any other MFS Fund available for purchase by such Eligible Purchasers
at their net asset value (if available for sale), and may exchange Class I
shares of a Fund for shares of the MFS Money Market Fund (if available for
sale), and may redeem Class I shares of a Fund at net asset value. Distributions
paid by a Fund with respect to Class I shares generally will be greater than
those paid with respect to Class A shares, Class B shares and Class C shares
because expenses attributable to Class A shares, Class B shares and Class C
shares generally will be higher.
Subject to termination or revision at the sole discretion of MFS, MFS
has agreed to bear each Fund's expenses such that each Fund's "Other Expenses,"
which are defined to include all Fund expenses except for management fees,
taxes, extraordinary expenses, brokerage and termination costs, do not exceed
1.75% per annum of each of the Funds' average daily net assets (the "Maximum
Percentage") with respect to Class I shares. The obligation of MFS to bear these
expenses terminates on the last day of the Fund's fiscal year in which the
Fund's "Other Expenses" are less than or equal to the Maximum Percentage. The
payments made by MFS on behalf of each Fund under this arrangement are subject
to reimbursement by each Fund to MFS, which will be accomplished by the payment
of an expense reimbursement fee by each Fund to MFS computed and paid monthly at
a percentage of its average daily net assets for each Fund's current fiscal
year, with a limitation that immediately after such payment each Fund's "Other
Expenses" will not exceed the Maximum Percentage. This expense reimbursement by
each Fund to MFS terminates on the earlier of the date on which payments made by
a Fund equal the prior payment of such reimbursable expenses by MFS or September
30, 2007.
The date of this Supplement is October 9, 1997
<PAGE>
[GRAPHIC OMITTED]
INVESTMENT MANAGEMENT
=============================================================================
MFS(R) International Opportunities Fund
MFS(R) International Growth Fund
MFS(R) International Value Fund STATEMENT OF ADDITIONAL INFORMATION
MFS(R) Asia Pacific Fund October 9, 1997
(Members of the MFS Family of Funds(R)) Each a series of MFS Series Trust V 500
Boylston Street, Boston, MA 02116 (617) 954-5000
PAGE
1. Definitions..................................................... 1
2. Investment Objectives, Policies and Restrictions................ 1
3. Management of the Funds......................................... 16
Trustees............................................... 16
Officers............................................... 17
Investment Adviser..................................... 18
Custodian.............................................. 19
Shareholder Servicing Agent............................ 19
Distributor............................................ 19
4. Portfolio Transactions and Brokerage Commissions................ 20
5. Shareholder Services............................................ 21
Investment and Withdrawal Programs..................... 21
Exchange Privilege..................................... 23
Tax-Deferred Retirement Plans.......................... 24
6. Tax Status...................................................... 24
7. Distribution Plan............................................... 25
8. Determination of Net Asset Value and Performance................ 26
9. Description of Shares, Voting Rights and Liabilities............ 28
10. Independent Auditors............................................ 29
This Statement of Additional Information ("SAI"), as amended or supplemented
from time to time, sets forth information which may be of interest to investors
but which is not necessarily included in the Funds' Prospectus dated October 9,
1997. 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 back cover 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>
I. DEFINITIONS
International MFS(R) International Opportunities
Opportunities Fund Fund, a diversified series of the
Trust.
International MFS(R) International Growth Fund, a
Growth Fund diversified series of the Trust.
International MFS(R) International Value Fund, a
Value Fund diversified series of the Trust.
Asia Pacific Fund MFS(R) Asia Pacific Fund, a diversified series
of the Trust.
"Fund(s)" International Opportunities Fund,
International Growth Fund,
International Value Fund and Asia
Pacific Fund.
"Trust" MFS Series Trust V, a Massachusetts
business Trust, organized in 1984.
"MFS" or Massachusetts Financial Services
the "Adviser" Company, a Delaware corporation.
"MFD" MFS Fund Distributors, Inc., a
Delaware corporation.
"Prospectus" The Prospectus of the Funds, dated October 9, 1997, as
amended or supplemented from time to time.
2. INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
Investment Objectives and Policies. The investment objective and policies of
each Fund are described in the Prospectus and below. The following discussion of
each Fund's investment techniques and restrictions supplements, and should be
read in conjunction with, the information set forth in the "Investment
Objectives and Policies - Investment Techniques" and "-Additional Risk Factors"
sections of the Prospectus.
INVESTMENT TECHNIQUES
Foreign Securities: Each Fund may invest up to 100% of its assets in foreign
securities as discussed in the Prospectus. Investments in foreign issues involve
considerations and possible risks not typically associated with investments in
securities issued by domestic companies or with debt securities issued by
foreign governments. There may be less publicly available information about a
foreign company than about a domestic company, and many foreign companies are
not subject to accounting, auditing and financial reporting standards and
requirements comparable to those to which U.S. companies are subject. Foreign
securities markets, while growing in volume, have substantially less volume than
U.S. markets, and securities of many foreign companies are less liquid and their
prices more volatile than securities of
comparable domestic companies. Fixed brokerage commissions and other transaction
costs on foreign securities exchanges are generally higher than in the U.S.
There is also less government supervision and regulation of exchanges, brokers
and issuers in foreign countries than there is in the U.S.
Emerging Markets: Each of the Funds may invest in securities of government,
government-related, supranational and corporate issuers located in emerging
markets. Such investments entail significant risks as described in the
Prospectus under the caption "Risk Factors" and as more fully described below.
Company Debt - Governments of many emerging market countries have exercised
and continue to exercise substantial influence over many aspects of the private
sector through the ownership or control of many companies, including some of the
largest in any given country. As a result, government actions in the future
could have a significant effect on economic conditions in emerging markets,
which in turn, may adversely affect companies in the private sector, general
market conditions and prices and yields of certain of the securities in a Fund's
portfolio. Expropriation, confiscatory taxation, nationalization, political,
economic or social instability or other similar developments have occurred
frequently over the history of certain emerging markets and could adversely
affect a Fund's assets should these conditions recur.
Sovereign Debt - Investment in sovereign debt can involve a high degree of
risk. The governmental entity that controls the repayment of sovereign debt may
not be able or willing to repay the principal and/or interest when due in
accordance with the terms of such debt. A governmental entity's willingness or
ability to repay principal and interest due in a timely manner may be affected
by, among other factors, its cash flow situation, the extent of its foreign
reserves, the availability of sufficient foreign exchange on the date a payment
is due, the relative size of the debt service burden to the economy as a whole,
the governmental entity's policy towards the International Monetary Fund and the
political constraints to which a governmental entity may be subject.
Governmental entities may also be dependent on expected disbursements from
foreign governments, multilateral agencies and others abroad to reduce principal
and interest on their debt. The commitment on the part of these governments,
agencies and others to make such disbursements may be conditioned on a
governmental entity's implementation of economic reforms and/or economic
performance and the timely service of such debtor's obligations. Failure to
implement such reforms, achieve such levels of economic performance or repay
principal or interest when due may result in the cancellation of such third
parties' commitments to lend funds to the governmental entity, which may further
impair such debtor's ability or willingness to service its debts in a timely
manner. Consequently, governmental entities may default on their sovereign debt.
Holders of sovereign debt (including a Fund) may be requested to participate in
the rescheduling of such debt and to extend further loans to governmental
entities. There is no bankruptcy proceeding by which sovereign debt on which
governmental entities have defaulted may be collected in whole or in part.
-1-
<PAGE>
Emerging market governmental issuers are among the largest debtors to commercial
banks, foreign governments, international financial organizations and other
financial institutions. Certain emerging market governmental issuers have not
been able to make payments of interest on or principal of debt obligations as
those payments have come due. Obligations arising from past restructuring
agreements may affect the economic performance and political and social
stability of those issuers.
The ability of emerging market governmental issuers to make timely payments on
their obligations is likely to be influenced strongly by the issuer's balance of
payments, including export performance, and its access to international credits
and investments. An emerging market whose exports are concentrated in a few
commodities could be vulnerable to a decline in the international prices of one
or more of those commodities. Increased protectionism on the part of an emerging
market's trading partners could also adversely affect the country's exports and
tarnish its trade account surplus, if any. To the extent that emerging markets
receive payment for their exports in currencies other than dollars or
non-emerging market currencies, its ability to make debt payments denominated in
dollars or non-emerging market currencies could be affected.
To the extent that an emerging market country cannot generate a trade surplus,
it must depend on continuing loans from foreign governments, multilateral
organizations or private commercial banks, aid payments from foreign governments
and on inflows of foreign investment. The access of emerging markets to these
forms of external funding may not be certain, and a withdrawal of external
funding could adversely affect the capacity of emerging market country
governmental issuers to make payments on their obligations. In addition, the
cost of servicing emerging market debt obligations can be affected by a change
in international interest rates since the majority of these obligations carry
interest rates that are adjusted periodically based upon international rates.
Another factor bearing on the ability of emerging market countries to repay debt
obligations is the level of international reserves of the country. Fluctuations
in the level of these reserves affect the amount of foreign exchange readily
available for external debt payments and thus could have a bearing on the
capacity of emerging market countries to make payments on these debt
obligations.
Liquidity; Trading Volume; Regulatory Oversight - The securities markets of
emerging market countries are substantially smaller, less developed, less liquid
and more volatile than the major securities markets in the U.S. Disclosure and
regulatory standards are in many respects less stringent than U.S. standards.
Furthermore, there is a lower level of monitoring and regulation of the markets
and the activities of investors in such markets.
The limited size of many emerging market securities markets and limited trading
volume in the securities of emerging market issuers compared to volume of
trading in the securities of U.S. issuers could cause prices to be erratic for
reasons apart from factors that affect the soundness and competitiveness of the
securities issuers. For example, limited market size may cause prices to be
unduly influenced by traders who control large positions. Adverse publicity and
investors' perceptions, whether or not based on in-depth fundamental analysis,
may decrease the value and liquidity of portfolio securities.
The risk also exists that an emergency situation may arise in one or more
emerging markets, as a result of which trading of securities may cease or may be
substantially curtailed and prices for a Fund's securities in such markets may
not be readily available. The Trust may suspend redemption of its shares for any
period during which an emergency exists, as determined by the Securities and
Exchange Commission (the "SEC"). Accordingly, if a Fund believes that
appropriate circumstances exist, it will promptly apply to the SEC for a
determination that an emergency is present. During the period commencing from
the Fund's identification of such condition until the date of the SEC action,
the Fund's securities in the affected markets will be valued at fair value
determined in good faith by or under the direction of the Board of Trustees.
Default; Legal Recourse - A Fund may have limited legal recourse in the
event of a default with respect to certain debt obligations it may hold. If the
issuer of a fixed-income security owned by a Fund defaults, the Fund may incur
additional expenses to seek recovery. Debt obligations issued by emerging market
governments differ from debt obligations of private entities; remedies from
defaults on debt obligations issued by emerging market governments, unlike those
on private debt, must be pursued in the courts of the defaulting party itself. A
Fund's ability to enforce its rights against private issuers may be limited. The
ability to attach assets to enforce a judgment may be limited. Legal recourse is
therefore somewhat diminished. Bankruptcy, moratorium and other similar laws
applicable to private issuers of debt obligations may be substantially different
from those of other countries. The political context, expressed as an emerging
market governmental issuer's willingness to meet the terms of the debt
obligation, for example, is of considerable importance. In addition, no
assurance can be given that the holders of commercial bank debt may not contest
payments to the holders of debt obligations in the event of default under
commercial bank loan agreements.
Inflation - Many emerging markets have experienced substantial, and in some
periods extremely high, rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates have had and may continue to have adverse
effects on the economies and securities markets of certain emerging market
countries. In an attempt to control inflation, wage and price controls have been
imposed in certain countries. Of these countries, some, in recent years, have
begun to control inflation through prudent economic policies.
Withholding - Income from securities held by a Fund could be reduced by a
withholding tax on the source or other taxes imposed by the emerging market
countries in which the Fund makes its investments. A Fund's net asset value may
also be affected by changes in the rates or methods of taxation applicable to
the Fund or to entities in which the Fund has invested. The Adviser will
consider the cost of any taxes in determining whether
-2-
<PAGE>
to acquire any particular investments, but can provide no assurance that the
taxes will not be subject to change.
Foreign Currencies - Each Fund may invest up to 100% of its assets in
securities denominated in foreign currencies. Accordingly, changes in the value
of these currencies against the U.S. dollar may result in corresponding changes
in the U.S. dollar value of a Fund's assets denominated in those currencies.
Each Fund may attempt to minimize the impact of these changes to the U.S. dollar
value of the Fund's portfolio by engaging in certain hedging practices, such as
entering into Futures Contracts and Options on Foreign Securities as described
below.
Some emerging market countries also may have managed currencies, which are not
free floating against the U.S. dollar. In addition, there is risk that certain
emerging market countries may restrict the free conversion of their currencies
into other currencies. Further, certain emerging market currencies may not be
internationally traded. Certain of these currencies have experienced a steep
devaluation relative to the U.S. dollar. Any devaluations in the currencies in
which a Fund's portfolio securities are denominated may have a detrimental
impact on the Fund's net asset value.
Investment in Other Investment Companies: A Fund's investment in other
investment companies, as described in the Prospectus, is limited in amount by
the Investment Company Act of 1940, as amended (the "1940 Act"), and applicable
state securities laws. Such investment may also involve the payment of
substantial premiums above the value of such investment companies' portfolio
securities, and the total return on such investment will be reduced by the
operating expenses and fees of such other investment companies, including
advisory fees.
Depository Receipts: Each Fund may invest in American Depository 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. Each 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 depository receipts in the United
States can reduce costs and delays at well as potential currency exchange and
other difficulties. Each 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. Each 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, 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 a foreign currency. Each Fund may also
invest in Global Depository Receipts ("GDRs") and other types of depository
receipts. GDRs and other types of depository receipts are typically issued by
foreign banks or trust companies and evidence ownership of underlying securities
issued by either a foreign or U.S. company
Repurchase Agreements: Each Fund may enter into repurchase agreements with
sellers who are member firms (or a subsidiary thereof) of the 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 a 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 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, a 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. Each Fund has adopted and follows procedures which are
intended to minimize the risks of repurchase agreements. For example, a 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.
Lending of Portfolio Securities: Each Fund may seek to increase its income by
lending portfolio securities. Such loans will usually be made only to member
firms of the New York Stock Exchange (the "Exchange") (and subsidiaries thereof)
and member banks of the Federal Reserve System, and would be required to be
secured continuously by collateral in cash, an irrevocable letter of credit or
U.S. Treasury securities maintained
-3-
<PAGE>
on a current basis at an amount at least equal to the market value of the
securities loaned. A Fund would have the right to call a loan and obtain the
securities loaned at any time on customary industry settlement notice (which
will not usually exceed five business days). For the duration 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 from
the investment of the collateral (if the collateral is in the form of cash). A
Fund would not, however, have the right to vote any securities having voting
rights during the existence of the loan, but the Fund 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 can be earned currently from securities loans
of this type justifies the attendant risk. If the Adviser determines to make
securities loans, it is intended that the value of the securities loaned would
not exceed 30% of the value of a Fund's net assets.
"When-Issued" Securities: Each Fund may purchase securities on a "when-issued"
or on a "forward delivery" basis. When a Fund commits to purchase these
securities on a "when-issued" or "forward delivery" basis, it will set up
procedures consistent with the General Statement of Policy of the SEC concerning
such purchases. Since that policy currently recommends that an amount of each
Fund's assets equal to the amount of the purchase be held aside or segregated to
be used to pay for the commitment, a Fund will always have liquid assets
sufficient to cover any commitments or to limit any potential risk. Although no
Fund intends to make such purchases for speculative purposes and intends to
adhere to the provisions of the SEC policy, purchases of securities on such
bases may involve more risk than other types of purchases. For example, a Fund
may have to sell assets which have been set aside in order to meet redemptions.
Also, if a Fund determines it is 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: Each 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 (i.e., principal value) 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 principal value or interest rates 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.
Zero Coupon Bonds, Deferred Interest Bonds and PIK Bonds: Each Fund may invest
in 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 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 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 than
debt obligations which make regular payments of interest. Each Fund will accrue
income on such investments for tax and accounting purposes, 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
each Fund's distribution obligations
Swaps and Related Transactions: Each 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 a 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. A 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.
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Each Fund will maintain cash or appropriate liquid assets with its custodian to
cover its current obligations under swap transactions. If a 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 a 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 the
Adviser is incorrect in its forecasts of such factors, the investment
performance of a 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 a 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, a Fund's risk of loss consists of the net amount
of payments that the Fund is contractually entitled to receive. Each 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.
Options on Securities: Each Fund may write (sell) covered put and call options,
and purchase put and call options, on securities. Call and put options written
by a Fund may be covered in the manner set forth below.
A call option written by a Fund is "covered" if the Fund owns the security
underlying the call or has an absolute and immediate right to acquire that
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 liquid assets in a segregated account with its custodian. A put
option written by a Fund is "covered" if the Fund maintains cash, short-term
money market instruments or high-quality debt 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 is equal to or greater than the
exercise price of the put written or where the exercise price of the put held is
less than the exercise price of the put written if the difference is maintained
by the Fund in liquid assets in a segregated account with its custodian. Put and
call options written by a Fund may also be covered in such other manner as may
be in accordance with the requirements of the exchange on which, or the counter
party with which, the option is traded, and applicable laws and regulations. If
the writer's obligation is not so covered, it is subject to the risk of the full
change in value of the underlying security from the time the option is written
until exercise.
Effecting a closing transaction in the case of a written call option will permit
a 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 in liquid assets. Such
transactions permit a 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 cash or proceeds from the concurrent sale of any securities
subject to the option to be used for other investments of a Fund, provided that
another option on such security is not written. If a 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.
A 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 a Fund is more than the
premium paid for the original purchase. Conversely, a 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 repurchase of a call option previously written by a 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, a 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. Buy-and-write
transactions using in-the-money call options may be used when it is expected
that the price of the underlying security will decline moderately during the
option period. Buy-and-write transactions using out-of-the-money call options
may be used when it is expected that the premiums received from writing the call
option plus the appreciation in the market price of the underlying security up
to the exercise price will be greater than the appreciation in the price of the
underlying security alone. If the call options are exercised in such
transactions, a 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
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<PAGE>
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. If the market price of the
underlying security rises or otherwise is above the exercise price, the put
option will expire worthless and a Fund's gain will be limited to the premium
received, less related transaction costs. If the market price of the underlying
security declines or otherwise is below the exercise price, a Fund may elect to
close the position or retain the option until it is exercised, at which time the
Fund will be required to take delivery of the security at the exercise price; a
Fund's return will be the premium received from the put option minus the amount
by which the market price of the security is below the exercise price, which
could result in a loss. Out-of-the-money, at-the-money and in-the-money put
options may be used by a Fund in the same market environments that call options
are used in equivalent buy-and-write transactions.
Each Fund may also write combinations of put and call options on the same
security, known as "straddles," with the same exercise price and expiration
date. By writing a straddle, a 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 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 the security remains stable and neither the
call nor the put is exercised. In those instances 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, a 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, a 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 not
be undertaken by a Fund solely for hedging purposes, 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 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.
Each Fund may also purchase options for hedging purposes or to increase its
return. Put options may be purchased to hedge against a decline in the value of
portfolio securities. If such decline occurs, the put options will permit a Fund
to sell the securities at the exercise price, or to close out the options at a
profit. By using put options in this way, a 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 by transaction costs.
Each Fund may also purchase call options to hedge against an increase in the
price of securities that the Fund anticipates purchasing in the future. If such
increase occurs, the call option will permit the Fund to purchase the securities
at the exercise price, or to close out the options at a profit. The premium paid
for the call option plus any transaction costs will reduce the benefit, if any,
realized by a Fund upon exercise of the option, and, unless the price of the
underlying security rises sufficiently, the option may expire worthless to the
Fund.
Reset Options: In certain instances, each Fund may enter into options on U.S.
Treasury securities which provide for periodic adjustment of the strike price
and may also provide for the periodic adjustment of the premium during the term
of each such option. Like other types of options, these transactions, which may
be referred to as "reset" options or "adjustable strike" options grant the
purchaser the right to purchase (in the case of a call) or sell (in the case of
a put), a specified type of U.S. Treasury security at any time up to a stated
expiration date (or, in certain instances, on such date). In contrast to other
types of options, however, the price at which the underlying security may be
purchased or sold under a "reset" option is determined at various intervals
during the term of the option, and such price fluctuates from interval to
interval based on changes in the market value of the underlying security. As a
result, the strike price of a "reset" option, at the time of exercise, may be
less advantageous than if the strike price had been fixed at the initiation of
the option. In addition, the premium paid for the purchase of the option may be
determined at the termination, rather than the initiation, of the option. If the
premium is paid at termination, the Fund assumes the risk that (i) the premium
may be less than the premium which would otherwise have been received at the
initiation of the option because of such factors as the volatility in yield of
the underlying Treasury security over the term of the option and adjustments
made to the strike price of the option, and (ii) the option purchaser may
default on its obligation to pay the premium at the termination of the option.
Options on Stock Indices: Each Fund may write (sell) covered call and put
options and purchase call and put options on stock indices. In contrast to an
option on a security, an option on a stock index provides the holder with the
right but not the obligation to make or receive a cash settlement upon exercise
of the option, rather than the right to purchase or sell a security. The amount
of this settlement is equal to (i) the amount, if any, by which the fixed
exercise price of the option exceeds (in the case of a call) or is below (in the
case of a put) the closing value of the underlying index on the date of
exercise, multiplied by (ii) a fixed "index multiplier."
Each 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 underlying index, or by having an absolute and immediate right to
acquire such securities without additional cash consideration (or for additional
cash
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<PAGE>
consideration held in a segregated account by its custodian) upon conversion or
exchange of other securities in its portfolio. Where a 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. Each 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 liquid assets
in a segregated account with its custodian. Each Fund may cover put options on
stock indices by maintaining liquid assets with a value equal to the exercise
price in a segregated account with its custodian, or by holding a put on the
same stock index and in the same principal amount as the put written where the
exercise price of the put held is equal to or greater than the exercise price of
the put written or where the exercise price of the put held is less than the
exercise price of the put written if the difference is maintained by the Fund in
liquid assets in a segregated account with its custodian. Put and call options
on stock indices 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.
Each 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 a 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, a 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 a 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.
Each Fund may also purchase put options on stock indices to hedge its
investments against a decline in value. By purchasing a put option on a stock
index, a 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.
The purchase of call options on stock indices may be used by a 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, a Fund will also bear the risk of losing all or a portion of the
premium paid if the value of the index does not rise. The purchase of call
options on stock indices when a 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 index underlying a stock index option may be a "broad-based" index, such as
the Standard & Poor's 500 Index or the New York Stock Exchange Composite Index,
the changes in value of which ordinarily will reflect movements in the stock
market in general. In contrast, certain options may be based on narrower market
indices, such as the Standard & Poor's 100 Index, or on indices of securities of
particular industry groups, such as those of oil and gas or technology
companies. A stock index assigns relative values to the stocks included in the
index and the index fluctuates with changes in the market values of the stocks
so included. The composition of the index is changed periodically.
"Yield Curve" Options: Each 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, a Fund may purchase or write such options for hedging
purposes. For example, a 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. A 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 a 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 liquid assets sufficient to cover the
Fund's net liability under the two options. Therefore, a 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
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<PAGE>
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. Because
these securities are traded over-the-counter, the SEC has taken the position
that yield curve options are illiquid and, therefore, cannot exceed the SEC
illiquidity ceiling.
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 each 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 a 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-the-money. Each Fund will treat all or a
part of the formula price as illiquid for purposes of the SEC illiquidity
ceiling. Each 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.
Futures Contracts: Each Fund may purchase and sell futures contracts ("Futures
Contracts") on stock indices, and may purchase and sell Futures Contracts on
foreign currencies or indices of foreign currencies. Each Fund may also purchase
and sell Futures Contracts on foreign or domestic fixed income securities or
indices of such securities. Such investment strategies will be used for hedging
purposes and for non-hedging purposes, subject to applicable law. 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 interest rate and
foreign currency futures contracts, the fixed income securities or currency are
delivered by the seller and paid for by the purchaser, or on which, in the case
of stock index futures contracts and certain interest rate and 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 "mark-to-market."
Purchases or sales of stock index futures contracts are 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.
Interest rate Futures Contracts may be purchased or sold to attempt to protect
against the effects of interest rate changes on a Fund's current or intended
investments in fixed income securities. For example, if a Fund owned long-term
bonds and interest rates were expected to increase, that Fund might enter into
interest rate futures contracts for the sale of debt securities. Such a sale
would have much the same effect as selling some of the long-term bonds in that
Fund's portfolio. If interest rates did increase, the value of the debt
securities in the portfolio would decline, but the value of that Fund's interest
rate futures contracts would increase at approximately the same rate, thereby
keeping the net asset value of that Fund from declining as much as it otherwise
would have.
Similarly, if interest rates were expected to decline, interest rate futures
contracts may be purchased to hedge in anticipation of subsequent purchases of
long-term bonds at higher prices. Since the fluctuations in the value of the
interest rate futures contracts should be similar to that of long-term bonds, a
Fund could protect itself against the effects of the anticipated rise in the
value of long-term bonds without actually buying them until the necessary cash
became available or the market had stabilized. At that time, the
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<PAGE>
interest rate futures contracts could be liquidated and that Fund's cash
reserves could then be used to buy long-term bonds on the cash market. A Fund
could accomplish similar results by selling bonds with long maturities and
investing in bonds with short maturities when interest rates are expected to
increase. However, since the futures market is more liquid than the cash market,
the use of interest rate futures contracts as a hedging technique allows a Fund
to hedge its interest rate risk without having to sell its portfolio securities.
As noted in the Prospectus, a 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.
Forward Contracts: Each Fund may enter into contracts for the purchase or sale
of a specific currency at a future date at a price set at the time the contract
is entered into (a "Forward Contract"), for hedging purposes as well as for
non-hedging purposes. Each Fund may also enter into Forward Contracts for
"cross-hedging" purposes as noted in the Prospectus. The Fund will enter into
Forward Contracts for the purpose of protecting its current or intended
investments from fluctuations in currency exchange rates.
A Forward Contract to sell a currency may be entered into where a Fund seeks to
protect against an anticipated increase in the exchange rate for a specific
currency which could reduce the dollar value of portfolio securities denominated
in such currency. Conversely, the Fund may enter into a Forward Contract to
purchase a given currency to protect against a projected increase in the dollar
value of securities denominated in such currency which the Fund intends to
acquire.
If a hedging transaction in Forward Contracts is successful, the decline in the
value of portfolio securities or the increase in the cost of securities to be
acquired may be offset, at least in part, by profits on the Forward Contract.
Nevertheless, by entering into such Forward Contracts, the Fund may be required
to forego all or a portion of the benefits which otherwise could have been
obtained from favorable movements in exchange rates. Each Fund does not
presently intend to hold Forward Contracts entered into until maturity, at which
time it would be required to deliver or accept delivery of the underlying
currency, but will seek in most instances to close out positions in such
Contracts by entering into offsetting transactions, which will serve to fix the
Fund's profit or loss based upon the value of the Contracts at the time the
offsetting transaction is executed.
Each 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, liquid assets, which will be marked to market on a
daily basis, in an amount equal to the value of its commitments under Forward
Contracts.
Options on Futures Contracts: Each Fund also may purchase and write options to
buy or sell those Futures Contracts in which it may invest ("Options on Futures
Contracts") as described above under "Futures Contracts." Such investment
strategies will be used for hedging purposes and for non-hedging purposes,
subject to applicable law.
An Option on a Futures Contract provides the holder with the right to enter into
a "long" position in the underlying Futures Contract in the case of a call
option, or a "short" position in the underlying Futures Contract in the case of
a put option, at a fixed exercise price up to a stated expiration date or, in
the case of certain options, on such date. Upon exercise of the option by the
holder, the contract market clearinghouse establishes a corresponding short
position for the writer of the option, in the case of a call option, or a
corresponding long position in the case of a put option. In the event that an
option is exercised, the parties will be subject to all the risks associated
with the trading of Futures Contracts, such as payment of initial and variation
margin deposits. In addition, the writer of an Option on a Futures Contract,
unlike the holder, is subject to initial and variation margin requirements on
the option position.
A position in an Option on a Futures Contract may be terminated by the purchaser
or seller prior to expiration by effecting a closing purchase or sale
transaction, subject to the availability of a liquid secondary market, which is
the purchase or sale of an option of the same Fund (i.e., the same exercise
price and expiration date) as the option previously purchased or sold. The
difference between the premiums paid and received represents the trader's profit
or loss on the transaction.
Options on Futures Contracts that are written or purchased by a Fund on U.S.
exchanges are traded on the same contract market as the underlying Futures
Contract, and, like Futures Contracts, are subject to regulation by the
Commodities Futures Trading Commission (the "CFTC") and the performance
guarantee of the exchange clearinghouse. In addition, Options on Futures
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Contracts may be traded on foreign exchanges. A 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 liquid assets in a segregated account with its custodian. A Fund may cover
the writing of put Options on Futures Contracts (a) through sales of the
underlying Futures Contract, (b) through segregation of liquid assets 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 is equal to or greater than the exercise price of the put written or
where the exercise price of the put held is less than the exercise price of the
put written if the difference is maintained by the Fund in liquid assets in a
segregated account with its custodian. Put and call Options on Futures Contracts
may also be covered in such other manner as may be in accordance with the rules
of the exchange on which the option is traded and applicable laws and
regulations. Upon the exercise of a call Option on a Futures Contract written by
a 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 a 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 writing of a call option on a Futures Contract for hedging purposes
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, a
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, a Fund will retain the full amount of the option premium 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 a 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 the changes in the value of its
futures positions, a 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.
Each Fund may purchase Options on Futures Contracts for hedging purposes instead
of 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, a 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 in part, by a
profit on the option. Conversely, where it is projected that the value of
securities to be acquired by a Fund will increase prior to acquisition, due to a
market advance or changes in interest or exchange rates, a Fund could purchase
call Options on Futures Contracts, rather than purchasing the underlying Futures
Contracts.
Options on Foreign Currencies: Each Fund may purchase and write options on
foreign currencies for hedging purposes in a manner similar to that in which
futures contracts on foreign currencies, or Forward Contracts, will be utilized.
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,
a Fund may purchase put options on the foreign currency. If the value of the
currency does decline, the Fund will have the right to sell such currency for a
fixed amount in dollars and will 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, each 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 foreign currency options will 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 foreign currency
options which would require it to forego a portion or all of the benefits of
advantageous changes in such rates. Each 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 could, instead of purchasing a put
option, write a call option on the relevant currency. If the expected decline
occurs, the option will most likely not be exercised, and the diminution in
value of portfolio securities will 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.
Similarly, instead of purchasing a call option to hedge against an anticipated
increase in the dollar cost of securities to be acquired, each Fund could write
a put option on the relevant currency which, if rates move in the manner
projected, will expire unexercised and allow the Fund to hedge such increased
cost up to the amount of the premium. Foreign currency options written by a Fund
will generally be covered in a manner similar to the covering of other types of
options. As in the case of other types of options, however, the writing of a
foreign currency option will constitute only a partial
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hedge up to the amount of the premium, and only if rates move in the expected
direction. If this does not occur, the option may be exercised and a Fund would
be required to purchase or sell the underlying currency at a loss which may not
be offset by the amount of the premium. Through the writing of options on
foreign currencies, a Fund also may be required to forego all or a portion of
the benefits which might otherwise have been obtained from favorable movements
in exchange rates.
ADDITIONAL RISK FACTORS
Short Sales: The International Opportunities Fund and the Asia Pacific Fund each
may seek to hedge investments or realize additional gains through short sales.
Short sales are transactions in which a Fund sells a security it does not own,
in anticipation of a decline in the market value of that security. To complete
such a transaction, the Fund must borrow the security to make delivery to the
buyer. The Fund then is obligated to replace the security borrowed by purchasing
it at the market price at the time of replacement. The price at such time may be
more or less than the price at which the security was sold by the Fund. Until
the security is replaced, the Fund is required to repay the lender any dividends
or interest which accrue during the period of the loan. To borrow the security,
the Fund also may be required to pay a premium, which would increase the cost of
the security sold. The net proceeds of the short sale will be retained by the
broker, to the extent necessary to meet margin requirements, until the short
position is closed out. The Fund also will incur transaction costs in effecting
short sales.
A Fund will incur a loss as a result of the short sale if the price of the
security increases between the date of the short sale and the date on which the
Fund replaces the borrowed security. The Fund will realize a gain if the
security declines in price between those dates. The amount of any gain will be
decreased, and the amount of any loss increased, by the amount of the premium,
dividends or interest the Fund may be required to pay in connection with a short
sale.
The International Opportunities Fund and the Asia Pacific Fund may each make
short sales "against the box," i.e., when a security identical to or convertible
or exchangeable into one owned by the Fund is borrowed and sold short. Each such
Fund may also enter into so called "naked" short sales, i.e., when a security
identical to or exchangeable into the security borrowed and sold short is not
owned by the Fund.
No securities will be sold short by a Fund if, after effect is given to any such
short sale, the total market value of all securities sold short would exceed 35%
of the value of the Fund's net assets.
Whenever the Fund engages in short sales, its custodian segregates cash or U.S.
Government securities in an amount that, when combined with the amount of
collateral deposited with the broker in connection with the short sale, equals
the current market value of the security sold short. The segregated assets are
marked to market daily.
Options, Futures and Forward Transactions
Risk of imperfect correlation of hedging instruments with a Fund's portfolio. A
Fund's ability effectively to hedge all or a portion of its portfolio through
transactions in options, Futures Contracts, Options on Futures Contracts,
Forward Contracts and options on foreign currencies depends 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. In the case of
futures and options based on an index, the portfolio will not duplicate the
components of the index, and in the case of futures and options on fixed income
securities, the portfolio securities which are being hedged may not be the same
type of obligation underlying such contract. The use of Forward Contracts for
"cross hedging" purposes may involve greater correlation risks. As a result, the
correlation probably will not be exact. Consequently, the Fund bears the risk
that the price of the portfolio securities being hedged will not move in the
same amount or direction as the underlying index or obligation.
For example, if a Fund purchases a put option on an index and the index
decreases less than the value of the hedged securities, the Fund would
experience a loss which is not completely offset by the put option. It is also
possible that there may be a negative correlation between the index or
obligation underlying an option or Futures Contract in which the Fund has a
position and the portfolio securities the Fund is attempting to hedge, which
could result in a loss on both the portfolio and the hedging instrument. In
addition, a Fund may enter into transactions in Forward Contracts or options on
foreign currencies in order to hedge against exposure arising from the
currencies underlying such instruments. In such instances, the Fund will be
subject to the additional risk of imperfect correlation between changes in the
value of the currencies underlying such forwards or options and changes in the
value of the currencies being hedged. It should be noted that stock index
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 based on a broad market index. This is due to the fact that 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. Nevertheless, where a Fund
enters into transactions in options, or futures on narrowly-based indices for
hedging purposes, movements in the value of the index should, if the hedge is
successful, correlate closely with the portion of the Fund's portfolio or the
intended acquisitions being hedged.
The trading of Futures Contracts, options and Forward Contracts for hedging
purposes 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 the options, futures and forward markets. In this regard, trading by
speculators in options, futures and Forward 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.
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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. The risk of imperfect correlation, however, generally
tends to diminish as the maturity date of the Futures Contract or expiration
date of the option approaches.
Further, with respect to options on securities, options on stock indices,
options on currencies and Options on Futures Contracts, a Fund is subject to the
risk of market movements between the time that the option is exercised and the
time of performance thereunder. This could increase the extent of any loss
suffered by a Fund in connection with such transactions.
In writing a covered call option on a security, index or futures contract, a
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. For example, where a Fund covers a
call option written on a stock index through segregation of securities, such
securities may not match the composition of the index, and the Fund may not be
fully covered. As a result, the Fund could be subject to risk of loss in the
event of adverse market movements.
The writing of options on securities, options on stock indices or Options on
Futures Contracts constitutes only a partial hedge against fluctuations in the
value of a Fund's portfolio. When a Fund writes an option, it will receive
premium income in return for the holder's purchase of the right to acquire or
dispose of the underlying obligation. In the event that the price of such
obligation does not rise sufficiently above the exercise price of the option, in
the case of a call, or fall below the exercise price, in the case of a put, the
option will not be exercised and the Fund will retain the amount of the premium,
less related transaction costs, which will constitute a partial hedge against
any decline that may have occurred in the Fund's portfolio holdings or any
increase in the cost of the instruments to be acquired.
Where the price of the underlying obligation moves sufficiently in favor of the
holder to warrant exercise of the option, however, and the option is exercised,
the Fund will incur a loss which may only be partially offset by the amount of
the premium it received.
Moreover, by writing an option, a Fund may be required to forego the benefits
which might otherwise have been obtained from an increase in the value of
portfolio securities or other assets or a decline in the value of securities or
assets to be acquired. In the event of the occurrence of any of the foregoing
adverse market events, a Fund's overall return may be lower than if it had not
engaged in the hedging transactions.
The Funds may enter transactions in options (except for Options on Foreign
Currencies), Futures Contracts, Options on Futures Contracts and Forward
Contracts for non-hedging purposes as well as hedging purposes. Non-hedging
transactions in such investments involve greater risks and may result in losses
which may not be offset by increases in the value of portfolio securities or
declines in the cost of securities to be acquired. The Funds will only write
covered options, such that liquid assets necessary to satisfy an option exercise
will be segregated at all times, unless the option is covered in such other
manner as may be in accordance with the rules of the exchange on which the
option is traded and applicable laws and regulations. Nevertheless, the method
of covering an option employed by a 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. Entering into
transactions in Futures Contracts, Options on Futures Contracts and Forward
Contracts for other than hedging purposes could expose the Fund to significant
risk of loss if foreign currency exchange rates do not move in the direction or
to the extent anticipated.
With respect to the writing of straddles on securities, a 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. Such transactions, therefore,
create an opportunity for increased return by providing a Fund with two
simultaneous premiums on the same security, but involve additional risk, since
the Fund may have an option exercised against it regardless of whether the price
of the security increases or decreases.
Risk of a 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 Funds 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 a 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 has insufficient cash
available to meet margin requirements, it will be necessary to liquidate
portfolio securities or other assets at a time when it is 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 portfolio,
and could result in trading losses.
The liquidity of a secondary market in a Futures Contract or option thereon may
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.
Once the daily limit has been reached in the contract, no trades may be entered
into at a price beyond the limit, thus preventing the liquidation of open
futures or option positions and requiring traders to make additional margin
deposits. Prices have in the past moved to the daily limit on a number of
consecutive trading days.
The trading of Futures Contracts and options is also subject to the risk of
trading halts, suspensions, exchange or clearinghouse
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equipment failures, government intervention, insolvency of a brokerage firm or
clearinghouse 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 or forward 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.
Where a Fund enters into such transactions 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 or other
assets held by the Fund or decreases in the prices of securities or other assets
the Fund intends to acquire. Where a Fund enters into such transactions for
other than hedging purposes, the margin requirements associated with such
transactions could expose the Fund to greater risk.
Trading and position limits. The exchange on which futures 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). Further, 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 portfolios
of the Fund.
Risks of Options on Futures Contracts. The amount of risk a 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 security, index, currency or Futures Contract.
Risks of transactions related to foreign currencies and transactions not
conducted on U.S. exchanges. Transactions in Forward Contracts on foreign
currencies, as well as futures and options on foreign currencies and
transactions executed on foreign exchanges, 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 a Fund. Further, 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 a 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 in that market which will not be reflected in
the forward, futures or options market until the following day, thereby making
it more difficult for the Fund to respond to such events in a timely manner.
Settlements of exercises of over-the-counter Forward Contracts or foreign
currency options 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 U.S. or foreign restrictions and regulations
regarding the maintenance of foreign banking relationships, fees, taxes or other
charges.
Unlike transactions entered into by a Fund in Futures Contracts and
exchange-traded options, options on foreign currencies, Forward Contracts and
over-the-counter options on securities are not traded on contract markets
regulated by the CFTC or (with the exception of certain foreign currency
options) the SEC. To the contrary, such instruments are traded through financial
institutions acting as market-makers, although foreign currency options are also
traded on certain national securities exchanges, such as the Philadelphia Stock
Exchange and the Chicago Board Options Exchange, subject to SEC regulation. In
an over-the-counter trading environment, many of the protections afforded to
exchange participants will not be available. For example, there are no daily
price fluctuation limits, and adverse market movements could therefore continue
to an unlimited extent over a period of time. Although the purchaser of an
option cannot lose more than the amount of the premium plus related transaction
costs, this entire amount could be lost. Moreover, the option writer and a
trader of Forward Contracts could lose amounts substantially in excess of their
initial investments, due to the margin and collateral requirements associated
with such positions.
In addition, over-the-counter transactions can only be entered into with a
financial institution willing to take the opposite side, as principal, of a
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 a 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
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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 guarantee of an exchange clearinghouse, and a Fund will
therefore be subject to the risk of default by, or the bankruptcy of, the
financial institution serving as its counterparty. One or more of such
institutions also may decide to discontinue their role as market-makers in a
particular currency or security, thereby restricting the Fund's ability to enter
into desired hedging transactions. A Fund will enter into an over-the-counter
transaction only with parties whose creditworthiness has been reviewed and found
satisfactory by the Adviser.
Options on securities, options on stock indices, Futures Contracts, Options on
Futures Contracts and options on foreign currencies may be traded on exchanges
located in foreign countries. Such transactions may not be conducted in the same
manner as those entered into on U.S. exchanges, and may be subject to different
margin, exercise, settlement or expiration procedures. As a result, many of the
risks of over-the-counter trading may be present in connection with such
transactions.
Options on foreign currencies traded on national securities exchanges are within
the jurisdiction of the SEC, as are other securities traded on such exchanges.
As a result, many of the protections provided to traders on organized exchanges
will be available with respect to such transactions. In particular, all foreign
currency option positions entered into on a national securities exchange are
cleared and guaranteed by the Options Clearing Corporation (the "OCC"), thereby
reducing the risk of counterparty default. Further, a liquid secondary market in
options traded on a national securities exchange may be more readily available
than in the over-the-counter market, potentially permitting a Fund to liquidate
open positions at a profit prior to exercise or expiration, or to limit losses
in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency options, however, is
subject to the risks of the availability of a liquid secondary market described
above, as well as the risks regarding adverse market movements, margining of
options written, the nature of the foreign currency market, possible
intervention by governmental authorities and the effects of other political and
economic events. In addition, exchange-traded options on foreign currencies
involve certain risks not presented by the over-the-counter market. For example,
exercise and settlement of such options must be made exclusively through the
OCC, which has established banking relationships in applicable foreign countries
for this purpose. As a result, the OCC may, if it determines that foreign
governmental restrictions or taxes would prevent the orderly settlement of
foreign currency option exercises, or would result in undue burdens on the OCC
or its clearing member, impose special procedures on exercise and settlement,
such as technical changes in the mechanics of delivery of currency, the fixing
of dollar settlement prices or prohibitions on exercise.
Policies on the use of futures and options on 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 CFTC require that a 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.
Each 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 such Fund's total assets. In addition, a Fund will not purchase put and call
options on Futures Contracts if as a result more than 5% of its total assets
would be invested in such options.
When a Fund purchases a Futures Contract, an amount of liquid assets 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
ensuring that the leveraging effect of such Futures Contract is minimized.
Risks of investing in Lower Rated Bonds
Each Fund may invest in fixed income securities rated Baa by Moody's Investors
Service, Inc. ("Moody's") or BBB by Standard & Poor's Ratings Services ("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 International Value Fund and the Asia Pacific each 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 a 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
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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 a 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 a 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 PIK bonds.
-----------------------
Each Fund's limitations, policies and ratings 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.
-----------------------
The policies stated above are not fundamental and may be changed without
shareholder approval, as may each Fund's investment objective.
INVESTMENT RESTRICTIONS
Each Fund has adopted the following restrictions which cannot be changed without
the approval of the holders of a majority of a 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 series or class, as applicable or (ii) 67% or more of the outstanding
shares of the Trust or a series or class, as applicable, present at a meeting at
which holders of more than 50% of the outstanding shares of the Trust or a
series or class, as applicable are represented in person or by proxy):
Each Fund may not:
(1) borrow amounts in excess of 331/3 of its total assets including amounts
borrowed;
(2) underwrite securities issued by other persons except insofar as a Fund may
technically be deemed an underwriter under the Securities Act of 1933 in selling
a portfolio security;
(3) purchase or sell real estate (including limited partnership interests but
excluding securities secured by real estate or interests therein and securities
of companies, such as real estate investment trusts, which deal in real estate
or interests therein), interests in oil, gas or mineral leases, commodities or
commodity contracts (excluding Options, Options on Futures Contracts, Options on
Stock Indices, Options on Foreign Currency and any other type of option, Futures
Contracts, any other type of futures contract, and Forward Contracts) in the
ordinary course of its business. Each Fund reserves the freedom of action to
hold and to sell real estate, mineral leases, commodities or commodity contracts
(including Options, Options on Futures Contracts, Options on Stock Indices,
Options on Foreign Currency and any other type of option, Futures Contracts, any
other type of futures contract, and Forward Contracts) acquired as a result of
the ownership of securities;
(4) issue any senior securities except as permitted by the 1940 Act. For
purposes of this restriction, collateral arrangements with respect to any type
of option (including Options on Futures Contracts, Options, Options on Stock
Indices and Options on Foreign Currencies), short sale, Forward Contracts,
Futures Contracts, any other type of futures contract, and collateral
arrangements with respect to initial and variation margin, are not deemed to be
the issuance of a senior security;
(5) make loans to other persons. For these purposes, the purchase of short-term
commercial paper, the purchase of a portion or all of an issue of debt
securities, the lending of portfolio securities, or the investment of a Fund's
assets in repurchase agreements, shall not be considered the making of a loan;
or
(6) purchase any securities of an issuer of a particular industry, if as a
result, more than 25% of its gross assets would be invested in securities
of issuers whose principal business activities are in the same industry
(except obligations issued or guaranteed by the U.S. Government or its
agencies and instrumentalities and repurchase agreements collateralized by
such obligations).
Except with respect to Investment Restriction (1), 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.
In addition, each Fund has the following nonfundamental policies which may be
changed without shareholder approval. Each Fund will not:
(1) invest in illiquid investments, including securities 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, where no market exists), if more than 15% of
a Fund's net assets (taken at market value) would be invested in such
securities. Repurchase agreements maturing in more than seven days will
be deemed to be illiquid for purposes of a Fund's limitation on
investment in illiquid securities. Securities that are not registered
under the 1933 Act and
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sold in reliance on Rule 144A thereunder, but are determined to be
liquid by the Trust's Board of Trustees (or its delegee), will not be
subject to this 15% limitation;
(2) invest for the purpose of exercising control or management; or
(3) pledge, mortgage or hypothecate in excess of 33 1/3% of its total assets.
For purposes of this restriction, collateral arrangements with respect to
any type of option (including Options on Futures Contracts, Options,
Options on Stock Indices and Options on Foreign Currencies), any short
sale, any type of futures contract (including Futures Contracts), Forward
Contracts and payments of initial and variation margin in connection
therewith, are not considered a pledge of assets.
3. MANAGEMENT OF THE FUNDS
The Trust's Board of Trustees provides broad supervision over the affairs of
each Fund. The Adviser is responsible for the investment management of each
Fund's assets, and the officers of the Trust are responsible for its operations.
The Trustees and officers are listed below, together with their ages and
principal occupations during the past five years.
(Their titles may have varied during that period.)
Trustees
A. KEITH BRODKIN,* Chairman and President (born 8/4/35)
Massachusetts Financial Services Company, Chairman
RICHARD B. BAILEY* (born 9/14/26)
Private Investor; Massachusetts Financial Services Company, former
Chairman (prior to September 30, 1991); Cambridge
Bancorp, Director; Cambridge Trust Company, Director
PETER G. HARWOOD (born 4/3/26)
Private Investor
Address: 211 Lindsay Pond Road, Concord, Massachusetts
J. ATWOOD IVES (born 5/1/36)
Eastern Enterprises (diversified services company), Chairman and Chief
Executive Officer
Address: 9 Riverside Road, Weston, Massachusetts
LAWRENCE T. PERERA (born 6/23/35)
Hemenway & Barnes (attorneys), Partner
Address: 60 State Street, Boston, Massachusetts
WILLIAM J. POORVU (born 4/10/35)
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 (born 3/18/28)
Private Investor; OHM Corporation, Director; Mohawk Paper Company, Director
Address: 30 Colpitts Road, Weston, Massachusetts
ARNOLD D. SCOTT* (born 12/16/42)
Massachusetts Financial Services Company, Senior Executive Vice President,
Secretary and Director
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JEFFREY L. SHAMES* (born 6/2/55)
Massachusetts Financial Services Company, President and Director
ELAINE R. SMITH (born 4/25/46)
Independent Consultant
Address: Weston, Massachusetts
DAVID B. STONE (born 9/2/27)
North American Management Corp. (investment adviser), Chairman and Director;
Eastern Enterprises, Director
Address: 10 Post Office Square, Suite 300, Boston, Massachusetts
Officers
W. THOMAS LONDON,* Treasurer (born 3/1/44)
Massachusetts Financial Services Company, Senior Vice President
JAMES O. YOST,* Assistant Treasurer (born 6/12/60)
Massachusetts Financial Services Company, Vice President
ELLEN M. MOYNIHAN, * Assistant Treasurer (born 11/13/57)
Massachusetts Financial Services Company, Vice President (since September,
1996); Deloitte & Touche, LLP, Senior Manager
(until September 1996)
MARK E. BRADLEY,* Assistant Treasurer (born 11/23/59)
Massachusetts Financial Services Company, Vice President (since March, 1997);
Putnam Investments, Vice President (from September 1994 until March 1997);
Ernst & Young, Senior Tax Manager (until September 1994)
STEPHEN E. CAVAN,* Secretary and Clerk (born 11/6/53)
Massachusetts Financial Services Company, Senior Vice President, General Counsel
and Assistant Secretary
JAMES R. BORDEWICK, JR.,* Assistant Secretary (born 3/6/59)
Massachusetts Financial Services Company, Senior Vice President and Associate
General Counsel
--------------------------
* "Interested persons" (as defined in the 1940 Act) of the Adviser, whose
address is 500 Boylston Street, Boston, Massachusetts 02116.
Each Trustee and officer holds comparable positions with certain affiliates of
MFS or with certain other funds of which MFS or a subsidiary 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.
While each Fund pays the compensation of the non-interested Trustees and Mr.
Bailey, the Trustees are currently waiving their rights to receive such fees.
Each Fund 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 5 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 5 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. Each Fund will accrue its allocable portion of compensation expenses
under the retirement plan each year to cover the current year's service and
amortize past service cost.
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- -----------------------------------------------------------------------------
TRUSTEE COMPENSATION TABLE
- -----------------------------------------------------------------------------
RETIREMENT TOTAL
TRUSTEE BENEFIT TRUSTEE
FEES ACCRUED ESTIMATED FEES
FROM AS PART CREDITED FROM
EACH OF FUND YEARS OF FUND
TRUSTEE FUND(1) EXPENSE(1) SERVICE(2) COMPLEX(3)
Richard $0 $0 8 $247,168
B. Bailey
A. Keith 0 0 N/A 0
Brodkin
Peter G. 0 0 5 105,995
Harwood
J. Atwood 0 0 17 98,750
Ives
Lawrence 0 0 26 98,310
T. Perera
William J. 0 0 25 102,840
Poorvu
Charles 0 0 20 105,995
W. Schmidt
Arnold D. 0 0 N/A 0
Scott
Jeffrey 0 0 N/A 0
L. Shames
David B. 0 0 11 108,710
Stone
Elaine R. 0 0 17 105,995
Smith
1) Estimated for the fiscal year ending September 30, 1998.
2) Based upon normal retirement age (73).
3) For calendar year 1996. All non-interested Trustees served as Trustees of
27 funds within the MFS fund complex (having aggregate net assets at
December 31, 1996, of approximately $21.1 billion) while Mr. Bailey served
as Trustee of 85 funds within the MFS fund complex (having aggregate net
assets at December 31, 1996, of approximately $38.4 billion).
As of October 1, 1997, the Trustees owned less than 1% of the shares of each
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,
as to liabilities of the Trust or its shareholders, it is determined 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 settlement,
such indemnification will not be provided unless it has been determined pursuant
to the Declaration of Trust, that they have not engaged in willful misfeasance,
bad faith, gross negligence or reckless disregard of their duties.
Investment Adviser
MFS and its predecessor organizations have a history of money management dating
from 1924. MFS is a subsidiary of Sun Life of Canada (U.S.), which is an
indirect wholly owned subsidiary of Sun Life Assurance Company of Canada ("Sun
Life").
Investment Advisory Agreements -- The Adviser manages each Fund pursuant to
separate Investment Advisory Agreements, dated October 8, 1997 (the "Advisory
Agreements"). The Adviser provides each Fund with overall investment advisory
and administrative services. Subject to such policies as the Trustees may
determine, the Adviser makes investment decisions for each Fund. For these
services, the Adviser receives an annual management fee, computed and paid
monthly, as disclosed in the Prospectus under the heading "Management of the
Funds."
The Adviser pays the compensation of the Trust's officers and of any Trustee who
is an officer of the Adviser. 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 each Fund's investments, effecting its
portfolio transactions, and, in general, administering its affairs.
Each Advisory Agreement will remain in effect until October 8, 1999, 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 Objective, Policies and 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.
Each 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 Objectives, Policies and Restrictions"), or by either
party on not more than 60 days' nor less than 30 days' written notice. Each
Advisory Agreement provides that if MFS ceases to serve as the Adviser to the
Fund, the Fund will change its name so as to delete the initials "MFS" and that
MFS may render services to others and may permit other fund clients to use the
initials "MFS" in their names. Each Advisory Agreement also 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
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disregard of its or their obligations and duties under the Advisory Agreement.
Custodian
State Street Bank and Trust Company (the "Custodian") is the custodian of each
Fund's assets. The Custodian's responsibilities include safekeeping and
controlling each Fund's cash and securities, handling the receipt and delivery
of securities, determining income and collecting interest and dividends on each
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 each Fund. The Custodian does not
determine the investment policies of each Fund or decide which securities a Fund
will buy or sell. Each Fund may, however, invest in securities of the Custodian
and may deal with the Custodian as principal in securities transactions. The
Custodian also acts as the dividend disbursing agent of each Fund. The Custodian
has contracted with the Adviser for the Adviser to perform certain accounting
functions related to options transactions for which the Adviser receives
remuneration on a cost basis.
Shareholder Servicing Agent
MFS Service Center, Inc. (the "Shareholder Servicing Agent"), a wholly owned
subsidiary of MFS, is each Fund's shareholder servicing agent, pursuant to an
Amended and Restated Shareholder Servicing Agreement dated January 2, 1996 (the
"Agency Agreement") with the Trust. The Shareholder Servicing Agent's
responsibilities under the Agency Agreement include administering and performing
transfer agent functions and the keeping of records in connection with the
issuance, transfer and redemption of each class of shares of each Fund. For
these services, the Shareholder Servicing Agent will receive a fee calculated as
a percentage of the average daily net assets of each Fund at an effective annual
rate of 0.13%. In addition, the Shareholder Servicing Agent will be reimbursed
by each Fund for certain expenses incurred by the Shareholder Servicing Agent on
behalf of the Fund. The Custodian has contracted with the Shareholder Servicing
Agent to 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 each Fund pursuant to a Distribution Agreement with the
Trust dated as of January 1, 1995 (the "Distribution Agreement").
Class A Shares: MFD acts as agent in selling Class A shares of each Fund to
dealers. The public offering price of Class A shares of each 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
each 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 each 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" below).
Class A shares of each Fund may be sold at their net asset value to certain
persons and in certain instances, 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 a 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 a 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 4.00% and MFD retains approximately 3/4 of 1% of the public
offering price. MFD, on behalf of each Fund, pays a commission to dealers who
initiate and are responsible for purchases of $1 million or more as described in
the Prospectus.
Class B Shares, Class C Shares and Class I Shares: MFD acts as agent in selling
Class B, Class C shares and Class I shares of each Fund. The public offering
price of Class B, Class C and Class I shares is their net asset value next
computed after the sale (see "Purchases" in the Prospectus and the Prospectus
supplement pursuant to which Class I shares are offered).
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 a Fund to dealers. MFD may
benefit from its temporary holding of funds paid to it by investment dealers for
the purchase of Fund shares.
The Distribution Agreement will remain in effect until August 1, 1998 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 Objective, Policies and Restrictions
- -- Investment Restrictions") and in either case, by a majority of the Trustees
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<PAGE>
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 Funds are made by
persons affiliated with the Adviser. Any such person may serve other clients of
the Adviser, or any subsidiary of the Adviser, in a similar capacity. Changes in
each Fund's investments are reviewed by the Board of Trustees.
The primary consideration in placing portfolio security transactions is
execution at the most favorable prices. The Adviser has complete freedom as to
the markets in and broker-dealers through which it seeks this result. In the
U.S. and in some other countries debt securities are traded principally in the
over-the-counter market on a net basis through dealers acting for their own
account and not as brokers. In other countries both debt and equity securities
are traded on exchanges at fixed commission rates. The cost of securities
purchased from underwriters includes an underwriter's commission or concession,
and the prices at which securities are purchased and sold from and to dealers
include a dealer's mark-up or mark-down. The Adviser normally seeks to deal
directly with the primary market makers or on major exchanges unless, in its
opinion, better prices are available elsewhere. Subject to the requirement of
seeking execution at the best available price, securities may, as authorized by
the Advisory Agreement, be bought from or sold to dealers who have furnished
statistical, research and other information or services to the Adviser. At
present no arrangements for the recapture of commission payments are in effect.
Consistent with the foregoing primary consideration, the Conduct Rules of the
National Association of Securities Dealers, Inc. ("NASD") and such other
policies as the Trustees may determine, the Adviser may consider sales of shares
of a 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.
Under an Advisory Agreement and as permitted by Section 28(e) of the Securities
Exchange Act of 1934, the Adviser may cause a 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 their
respective overall responsibilities to the Fund or to their other clients. Not
all of such services are useful or of value in advising a 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 a
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 a Fund. The Trustees
(together with the Trustees of the other MFS Funds) have directed the Adviser to
allocate a total of $39,100 of commission business from the MFS Funds to the
Pershing Division of Donaldson Lufkin & Jenrette as consideration for the annual
renewal of certain publications provided by Lipper Analytical Securities
Corporation (which provides information useful to the Trustees in reviewing the
relationship between a 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.
The management fee of the Adviser will not be reduced as a consequence of the
Adviser's receipt of brokerage and research service. To the extent a Fund's
portfolio transactions are used to obtain brokerage and research services, the
brokerage commissions paid by the Fund will exceed those that might otherwise be
paid for such portfolio transactions, or for such portfolio transactions and
research, by an amount which cannot be presently determined. Such services would
be useful and of value to the Adviser in serving both a 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.
In certain instances there may be securities which are suitable for a 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 a Fund and for such
other clients are made with a
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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 by the adviser 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 a Fund is concerned. In other cases,
however, a Fund believes that its ability to participate in volume transactions
will produce better executions for the Fund.
5. SHAREHOLDER SERVICES
Investment and Withdrawal Programs -- Each 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 a 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 a
Fund alone or in combination with shares of any class of 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 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 a 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 his new investment, together
with the current offering price value of all holdings of Class A, Class B and
Class C shares of that shareholder in the MFS Funds or MFS Fixed Fund reaches a
discount level. See "Purchases" in the Prospectus for the sales charges on
quantity discounts. For example, if a shareholder owns shares with a current
offering price value of $75,000 and purchases an additional $25,000 of Class A
shares of a Fund, the sales charge for the $25,000 purchase would be at the rate
of 4.00% (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.
Subsequent Investment by Telephone. Each shareholder may purchase
additional shares of any MFS Fund by telephoning the Shareholder Servicing Agent
toll-free at (800) 225-2606. The minimum purchase amount is $50 and the maximum
purchase amount is $100,000. Shareholders wishing to avail themselves of this
telephone purchase privilege must so elect on their Account Application and
designate thereon a bank and account number from which purchases will be made.
If a telephone purchase request is received by the Shareholder Servicing Agent
on any business day prior to the close of regular trading on the Exchange
(generally, 4:00 p.m., Eastern time), the purchase will occur at the closing net
asset value of the shares purchased on that day. The Shareholder Servicing Agent
may be liable for any losses resulting from unauthorized telephone transactions
if it does not follow 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
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accuracy of confirmation statements immediately after their receipt.
Distribution Investment Program: Distributions of dividends and capital
gains made by a 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 that 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 ("SWP") must be at least $100, except in certain limited circumstances. The
aggregate withdrawals of Class B and Class C shares in any year pursuant to a
SWP generally are limited to 10% of the value of the account at the time of
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 and Class C shares will be made in the
following order: (i) any "Reinvested Shares"; (ii) to the extent necessary, any
"Free Amount"; 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 and Class C 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 received in full
and fractional shares of a 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 a 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 a 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 a Fund
ceases to assume the cost of these services. Each 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 a 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 the 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 participate in the Automatic Exchange Plan. 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 available for sale). Under
the Automatic Exchange Plan, exchanges of at least $50 each may be made to up to
six 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
transfer 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
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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 each 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
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 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 the initial purchase in the case of Class B shares or 12
months of the initial purchase in the case of Class C shares and 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 adviser
for further information.
Exchange Privilege -- Subject to the requirements set forth below, some or all
of the shares of the same class in an account with a 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 (if available for sale
and if purchaser is eligible to purchase the Class of shares) 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 ($50 in the case of retirement plan participants whose sponsoring
organizations subscribe to 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. 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
Exchange the exchange usually will occur on that day if all the requirements set
forth above have been complied with at that time. However, payment of the
redemption proceeds by a Fund, and thus the 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 fund and consider the differences in
objectives and policies before making any exchange. Shareholders of the other
MFS Funds (except MFS Money Market Fund, MFS Government Money Market Fund and
Class A Shares of MFS Cash Reserve Fund for shares acquired through direct
purchase and dividends reinvested prior to June 1, 1992) have the right to
exchange their shares for shares of each Fund, subject to the conditions, if
any, set forth in their respective prospectuses. In addition, unitholders of the
MFS Fixed Fund have the right to exchange their units (except units acquired
through direct purchases) for shares of a Fund, subject to the conditions, if
any, imposed upon such unitholders by the MFS Fixed Fund.
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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 -- Shares of each 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 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.
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 Section 401(a) or 403(b) recordkeeping program made
available by the Shareholder Servicing Agent.
6. TAX STATUS
Each Fund intends to elect to be treated and to qualify each year as a
"regulated investment company" under Subchapter M of the Internal Revenue Code
of 1986, as amended (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 each 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 any Fund will be required to pay any federal income or excise taxes,
although a Fund's foreign-source income may be subject to foreign withholding
taxes. If a 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 the shareholders.
Shareholders of each Fund will normally 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. Distributions from 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 a Fund's shareholders as
long-term capital gains for federal income tax purposes without regard to the
length of time shareholders have owned their shares. Fund dividends that are
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 distribution will have the effect of reducing the per share net asset value
of shares in a Fund by the amount of the distribution. Shareholders purchasing
shares shortly before the record date of any 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 a
Fund by a shareholder that holds such shares as a capital asset will be treated
as long-term capital gain or loss if the shares have been held for more than
twelve months and otherwise as short-term capital gain or loss. However, any
loss realized upon a disposition of shares in a 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 a
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 of Class A shares of that Fund or of another MFS Fund (or any other
shares of an MFS Fund generally sold subject to a sales charge).
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Each Fund's current dividend and accounting policies may affect the amount,
timing, and character of distributions to shareholders and may under certain
circumstances make an economic return of capital taxable to shareholders. A
Fund's investments in zero coupon bonds, deferred interest bonds, PIK bonds, and
certain securities purchased at a market discount will cause the Fund 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.
Each 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 a Fund on the last business day of each taxable year will be
marked to market (i.e., treated as if closed out) on such 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 a 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 which could alter the effects of these
rules. Each 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 a Fund.
Foreign exchange gains or losses realized by a Fund will generally be treated as
ordinary income or losses. Use of foreign currencies for non-hedging purposes
and investment by a Fund in certain "passive foreign investment companies" may
be limited in order to avoid imposition of a tax on the Fund.
Investment income received by a Fund from foreign securities may be subject to
foreign income taxes withheld at the source. The United States has entered into
tax treaties with many foreign countries that may entitle a Fund to a reduced
rate of tax or an exemption from tax on such income; each Fund intends to
qualify for treaty reduced rates where available. It is not possible, however,
to determine a Fund's effective rate of foreign tax in advance since the amount
of the Fund's assets to be invested within various countries is not known. If a
Fund holds more than 50% of its assets in foreign stock and securities at the
close of its taxable year, it may elect to "pass through" to its shareholders
foreign income taxes paid. If a Fund so elects, its shareholders will be
required to treat their pro rata portion of the foreign income taxes paid by
that Fund as part of the amounts distributed to them by the Fund and thus
includable in their gross income for federal income tax purposes. Shareholders
who itemize deductions would then be allowed to claim a deduction or credit (but
not both) on their federal income tax returns for such amounts, subject to
certain limitations. Shareholders who do not itemize deductions would (subject
to such limitations) be able to claim a credit but not a deduction. No deduction
for such amounts will be permitted to individuals in computing their alternative
minimum tax liability. If a Fund does not qualify or elect to "pass through" to
its shareholders foreign income taxes paid by it, its shareholders will not be
able to claim any deduction or credit for any part of the foreign taxes paid by
that Fund.
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 the rate of 30%. Each Fund intends
to withhold U.S. federal income tax at the rate of 30% on 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 applicable to such
claims. Distributions received from a Fund by Non-U.S. Persons may also be
subject to tax under the laws of their own jurisdictions. Each Fund is also
required in certain circumstances to apply backup withholding at a rate of 31%
on taxable dividends and the proceeds of redemptions and exchanges 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.
A Fund will not be required to pay Massachusetts income or excise taxes as long
as it qualifies as a regulated investment company under the Code.
7. DISTRIBUTION PLAN
The Trustees have adopted a Distribution Plan for each Fund (the "Distribution
Plan") pursuant to Section 12(b) of the 1940 Act and Rule 12b-1 thereunder (the
"Rule") after having concluded that there is a reasonable likelihood that the
Distribution Plan would benefit each Fund and each respective class of
shareholders. The provisions of the Distribution Plan are severable with respect
to each Class of shares offered by each Fund. The Distribution Plan is designed
to promote sales, thereby increasing the net
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assets of each Fund. Such an increase may reduce the expense ratio to the extent
a Fund's fixed costs are spread over a larger net asset base. Also, an increase
in net assets may lessen the adverse effect that could result were a Fund
required to liquidate portfolio securities to meet redemptions. There is,
however, no assurance that the net assets of a Fund will increase or that the
other benefits referred to above will be realized.
The Distribution Plan is described in the Prospectus under the caption
"Distribution Plan," which is incorporated herein by reference. The following
information supplements this Prospectus discussion.
SERVICE FEES: With respect to Class A shares, no service fees will be paid: (i)
to any dealer who is the holder or dealer or 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 a 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 Class B shares, 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
the 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 Plan is to compensate MFD for its distribution services to a 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 expense and equipment.
GENERAL: The Distribution Plan will remain in effect until August 1, 1998, 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"). The Distribution Plan 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. The Distribution Plan 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
Distribution Plan 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 the Distribution Plan
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 a Fund's shares. The Distribution Plan may not 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 not 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 the Distribution Plan or in any related agreement.
8. DETERMINATION OF NET ASSET VALUE AND PERFORMANCE
Net Asset Value: The net asset value per share of each class of each 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 days on which they are observed): New Year's Day,
Martin Luther King 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 a Fund's portfolio are
valued at the last sale price on the exchange on which they are primarily traded
or on the NASDAQ stock market for unlisted national market issues, or at the
last quoted bid price for listed securities in which there were no sales during
the day or for unlisted securities not reported on the NASDAQ stock market.
Bonds and other fixed income securities (other than short-term obligations) of
U.S. issuers in a 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 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 quoted prices or 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
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model taking into consideration market data from an external pricing source. Use
of the pricing services has been approved by the Board of Trustees. All other
securities, futures contracts and options in a 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 stock
market, 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 in
a Fund's portfolio are valued at amortized cost, which constitutes fair value as
determined by the Board of Trustees. Short-term obligations with a remaining
maturity in excess of 60 days will be valued upon dealer supplied valuations.
Portfolio investments 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 a 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 prior to the
close of that business day.
PERFORMANCE INFORMATION
Total Rate of Return: Each 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. Each Fund may also calculate (i) a total rate of return, which is not
reduced by the CDSC (4% maximum for Class B shares and 1% maximum for Class C
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 sales charge (4.75% maximum with respect to Class A shares) and/or (iii)
a total rate of return which represents 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.
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. Each Fund may also
quote evaluations mentioned in independent radio or television broadcasts and
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. Each 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.
From time to time, each 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, and similar or related matters. 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.
From time to time the Fund may also discuss or quote the views of its
distributor, its investment adviser and other financial planning, legal, tax,
accounting, insurance, estate planning and other professionals, or from surveys,
regarding individual and family financial planning. Such views may include
information regarding: retirement planning; tax management strategies; estate
planning;
-27-
<PAGE>
general investment techniques (e.g., asset allocation and disciplined saving and
investing); business succession; ideas and information provided through the MFS
Heritage Planningsm program, an intergenerational financial planning assistance
program; issues with respect to insurance (e.g., disability and life insurance
and Medicare supplemental insurance); issues regarding financial and health care
management for elderly family members; and other similar or related matters.
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 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(R)becomes money manager of MFS(R)Union
Standard Trust, the first Trust to invest
solely 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. 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 each Fund and two 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
four classes of shares of each Fund (Class A, Class B, Class C and Class I
shares). Each share of a class of a Fund represents an equal proportionate
interest in the assets of the Fund allocable to that class. Upon liquidation of
a 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 a number of
series and additional 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, the Declaration
of Trust provides that a Trustee may be removed from office at a meeting of
shareholders by a vote of two-thirds of the outstanding shares of the Trust. A
meeting of shareholders will be called upon the request of shareholders of
record holding in the aggregate not less than 10% of the outstanding voting
securities of the Trust. No material amendment may be made to the Declaration of
Trust without the affirmative vote of a majority of the Trust's outstanding
shares (as defined in "Investment Restrictions"). The Trust or any series of the
Trust may be terminated (i) upon the merger or consolidation of the Trust or any
series of the Trust with another organization or upon the sale of 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
-28-
<PAGE>
the Trust's or the affected series' outstanding shares voting as a single class,
or of the affected series of the Trust, except that if the Trustees 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 will be
sufficient, or (ii) upon liquidation and distribution of the assets of a Fund,
if approved by the vote of the holders of two-thirds of its outstanding shares
of the Trust, or (iii) by the Trustees by written notice to its shareholders. 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 or obligations of the Trust and provides for indemnification
and reimbursement of expenses out of 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 and its shareholders and the Trustees, officers, employees and agents of
the Trust 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 his willful misfeasance, bad
faith, gross negligence, or reckless disregard of the duties involved in the
conduct of his office.
10. INDEPENDENT AUDITORS
Ernst & Young LLP are each Fund's independent auditors, providing audit
services, tax services, and assistance and consultation with respect to the
preparation of filings with the SEC.
<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 and 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
Ernst & Young, LLP
200 Clarendon Street
Boston, MA 02116
MFS(R) International Opportunities Fund
MFS(R) International Growth Fund
MFS(R) International Value Fund
MFS(R) Asia Pacific Fund
500 BOYLSTON STREET
BOSTON, MA 02116
[GRAPHIC OMITTED]
<PAGE>
PART C
Item 24. Financial Statements and Exhibits
MFS International Opportunities Fund, MFS International
Growth Fund, MFS International Value Fund and MFS Asia Pacific Fund
Not Applicable.
(b) Exhibits:
1 (a) Amended and Restated Declaration
of Trust, dated December 21,
1994. (5)
(b) Amendment to Declaration of Trust,
dated June 20, 1996. (7)
(c) Amendment to Declaration of Trust,
dated December 19, 1996. (9)
(d) Amendment to Declaration of Trust
dated July 16, 1997; filed herewith.
2 Amended and Restated By-Laws,
dated December 21, 1994. (5)
3 Not Applicable
4 Form of Certificate representing
ownership of the Registrant's
Classes of Shares. (6)
5 (a) Investment Advisory Agreement for
MFS Total Return Fund, a series of
the Trust, dated January 18,
1985. (5)
(b) Amendment No. 1 to Investment
Advisory Agreement, dated
November 19, 1985. (5)
(c) Investment Advisory Agreement for
MFS Research Fund, a Series of the
Trust, dated September 1, 1993. (5)
(d) Form of Investment Advisory
Agreement for MFS International
Opportunities Fund; filed herewith.
(e) Form of Investment Advisory
Agreement for MFS International
Growth Fund; filed herewith.
(f) Form of Investment Advisory
Agreement for MFS International
Value Fund; filed herewith.
<PAGE>
(g) Form of Investment Advisory
Agreement for MFS Asia Pacific
Fund; filed herewith.
6 (a) Distribution Agreement between the
Trust and MFS Fund Distributors,
Inc., dated January 1, 1995. (5)
(b) Dealer Agreement between MFS
Fund Distributors, Inc. and a dealer,
dated and the Mutual Fund
Agreement between MFD and a
bank or NASD affiliate, dated April
11, 1997. (10)
7 Retirement Plan for Non-Interested
Person Trustees, dated January 1,
1991. (5)
8 (a) Custodian Contract between
Registrant (formerly known as
Massachusetts Financial Total
Return Trust) and Investors Bank
and Trust Company, dated October
1, 1991. (5)
(b) Amendment No. 1 to Custodian
Contract, dated April 21, 1992. (5)
9 (a) Shareholder Servicing Agent
Agreement between the Registrant
and Massachusetts Financial
Service Center, Inc., dated August 1,
1985. (5)
(b) Amendment to Shareholder
Servicing Agent Agreement, dated
January 1, 1997; filed herewith.
(c) Exchange Privilege Agreement, dated
September 1, 1995. (2)
(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. (3)
(e) Third Amendment to the Loan
Agreement among MFS Borrowers
and The First National Bank of
Boston dated as of February 14,
1997. (11)
(f) Agreement and Plan of
Reorganization dated January 15,
1985 between Registrant and
Massachusetts Financial
Development Fund, Inc. (5).
(g) Dividend Disbursing Agency
Agreement dated February 1,
1986. (5)
(h) Master Administrative Services
Agreement, dated March 1,
1997. (12)
<PAGE>
10 Opinion and Consent of Counsel for
the fiscal year ended September 30,
1996 filed with Registrant's Rule
24f-2 Notice on November 25, 1996.
11 Not Applicable.
12 Not Applicable.
13 Not Applicable.
14 (a) Forms for Individual Retirement
Account Disclosure Statement as currently
in effect. (4)
(b) Forms for MFS 403(b) Custodial
Account Agreement as currently in
effect. (4)
(c) Forms for MFS Prototype Paired
Defined Contribution Plans and
Trust Agreement as currently in
effect. (4)
15 (a) Master Distribution Plan pursuant
to Rule 12b-1 under the Investment
Company Act of 1940, effective
January 1, 1997. (8)
(b) Form of Amendment to Master
Distribution Plan; 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. (1)
17 Not Applicable.
18 Plan pursuant to Rule 18f-3(d)
under the Investment Company Act
of 1940. (6)
Power of Attorney dated September 21, 1994. (5)
(1) 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.
(2) 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.
(3) 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.
(4) 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.
(5) Incorporated by reference to Registrant's Post-Effective Amendment No. 41
filed with the SEC via EDGAR on January 26, 1996.
(6) Incorporated by reference to MFS Series Trust I (File Nos. 33-7638 and
811-4777) Post-Effective Amendment No. 25 filed with the SEC via EDGAR on
August 27, 1996.
<PAGE>
(7) Incorporated by reference to Registrant's Post-Effective Amendment No. 42
filed with the SEC via EDGAR on August 28, 1996.
(8) Incorporated by reference to MFS Series Trust IV (File No. 33-34502 and
811-2594) Post-Effective Amendment No. 30 filed with the SEC via EDGAR on
December 27, 1996.
(9) Incorporated by reference to Registrant's Post-Effective Amendment No.
43 filed with the SEC via EDGAR on January 27, 1997.
(10) Incorporated by reference to MFS Series Trust III (File Nos. 2-60491
and 811-2794) Post-Effective Amendment No. 24 filed with the SEC via
EDGAR on May 29, 1997.
(11) Incorporated by reference to MFS Series Trust I File Nos. 33-7638
and 811-4777) Post-Effective Amendment No. 28 filed with the SEC via
EDGAR on June 26, 1997.
(12) Incorporated by reference to MFS/Sun Life Series Trust (File Nos.
2-83616 and 811-3732) Post-Effective Amendment No. 19 filed with the SEC
via EDGAR on March 18, 1997.
Item 25.Persons Controlled by or under Common Control
with Registrant
Not applicable.
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 162,380
(without par value) (as of June 30, 1997)
Class B Shares of Beneficial Interest 99,585
(without par value) (as of June 30, 1997)
Class C Shares of Beneficial Interest 6,517
(without par value) (as of June 30, 1997)
Class I Shares of Beneficial Interest 3
(without par value) (as of June 30, 1997)
For MFS Research Fund
Class A Shares of Beneficial Interest 102,360
(without par value) (as of June 30, 1997)
Class B Shares of Beneficial Interest 121,372
(without par value) (as of June 30, 1997)
Class C Shares of Beneficial Interest 17,662
(without par value) (as of June 30, 1997)
Class I Shares of Beneficial Interest 8
(without par value) (as of June 30, 1997)
<PAGE>
For MFS International Opportunities Fund
Class A Shares of Beneficial Interest 0
(without par value) (as of June 30, 1997)
Class B Shares of Beneficial Interest 0
(without par value) (as of June 30, 1997)
Class C Shares of Beneficial Interest 0
(without par value) (as of June 30, 1997)
Class I Shares of Beneficial Interest 0
(without par value) (as of June 30, 1997)
For MFS International Growth Fund
Class A Shares of Beneficial Interest 0
(without par value) (as of June 30, 1997)
Class B Shares of Beneficial Interest 0
(without par value) (as of June 30, 1997)
Class C Shares of Beneficial Interest 0
(without par value) (as of June 30, 1997)
Class I Shares of Beneficial Interest 0
(without par value) (as of June 30, 1997)
For MFS International Value Fund
Class A Shares of Beneficial Interest 0
(without par value) (as of June 30, 1997)
Class B Shares of Beneficial Interest 0
(without par value) (as of June 30, 1997)
Class C Shares of Beneficial Interest 0
(without par value) (as of June 30, 1997)
Class I Shares of Beneficial Interest 0
(without par value) (as of June 30, 1997)
For MFS Asia Pacific Fund
Class A Shares of Beneficial Interest 0
(without par value) (as of June 30, 1997)
Class B Shares of Beneficial Interest 0
(without par value) (as of June 30, 1997)
<PAGE>
Class C Shares of Beneficial Interest 0
(without par value) (as of June 30, 1997)
Class I Shares of Beneficial Interest 0
(without par value) (as of June 30, 1997)
Item 27.Indemnification
Reference is hereby made to (a) Article V of Registrant's Declaration
of Trust amended and restated, December 21, 1994, filed with Registrant's
Post-Effective Amendment No. 41 filed with the SEC via EDGAR on January 26,
1996; (b) Section 9 of the Shareholder Servicing Agent Agreement filed with
Registrant's Post-Effective Amendment No. 41, filed with the SEC via EDGAR on
January 26, 1996; 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, The MFS Series Trust
(which has one series: MFS Aggressive Small Cap Equity Fund), MFS Series Trust I
(which has thirteen 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, MFS Special
Opportunities Fund, MFS Convertible Securities Fund, MFS Blue Chip Fund, MFS New
Discovery Fund, MFS Science and Technology Fund and MFS Research International
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
<PAGE>
(which has 16 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 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 Virginia 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 MFS 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"). 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 MFS Closed-End Funds is 500 Boylston
Street, Boston, Massachusetts 02116.
Lastly, MFS serves as investment adviser to MFS/Sun Life Series Trust
("MFS/SL"), 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 of the aforementioned
funds is One Sun Life Executive Park, Wellesley Hills, Massachusetts 02181.
MFS International Ltd. ("MIL"), a limited liability company organized
under the laws of Bermuda and a subsidiary of MFS, whose principal business
address is Cedar House, 41 Cedar Avenue, Hamilton HM12 Bermuda, serves as
investment adviser to and distributor for MFS American Funds (which has six
portfolios: MFS American Funds-U.S. Equity Fund, MFS American Funds-U.S.
Emerging Growth Fund, MFS American Funds-U.S. High Yield Bond Fund, MFS American
Funds - U.S. Dollar Reserve Fund, MFS American Funds-Charter Income Fund and MFS
American Funds-U.S. Research 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, MFS Meridian U.S. Equity Fund, MFS Meridian Research Fund, MFS
Meridian U.S. High Yield Fund and MFS Emerging Markets Debt Fund (collectively
<PAGE>
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 Institutional Advisors, Inc. ("MFSI"), 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, Donald A. Stewart 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.,
Patricia A. Zlotin, John W. Ballen, Thomas J. Cashman, Jr., Joseph W. Dello
Russo and Kevin R. Parke are Executive Vice Presidents, Stephen E. Cavan is a
Senior Vice President, General Counsel and an Assistant Secretary, Robert T.
Burns is a Senior Vice President, Associate General Counsel and an Assistant
Secretary of MFS, and Thomas B. Hastings is a Vice President and Treasurer of
MFS.
<PAGE>
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, Ellen M.
Moynihan and Mark E. Bradley, Vice Presidents of MFS, are the Assistant
Treasurers, James R. Bordewick, Jr., Senior 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, Ellen M. Moynihan
and Mark E. Bradley are the Assistant Treasurers, 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, 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, Ellen M. Moynihan
and Mark E. Bradley are the Assistant Treasurers, 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, and Bernard Scozzafava, Vice President of MFS, are Vice
Presidents, Sheila Burns-Magnan, Assistant Vice President of MFS, and Daniel
E. McManus, Vice President of MFS, are Assistant Vice Presidents, Stephen E.
Cavan is the Secretary, W. Thomas London is the Treasurer, James O. Yost,
Ellen M. Moynihan and Mark E. Bradley are the Assistant Treasurers, 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, Ellen M.
<PAGE>
Moynihan and Mark E. Bradley are the Assistant Treasurers 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,
Ellen M. Moynihan and Mark E. Bradley are the Assistant Treasurers 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, Ellen M.
Moynihan and Mark E. Bradley are the Assistant Treasurers 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, Vice President of MFS, is an Assistant Vice President, Stephen E.
Cavan is the Secretary, W. Thomas London is the Treasurer, James O. Yost,
Ellen M. Moynihan and Mark E. Bradley are the Assistant Treasurers 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, Ellen M. Moynihan and Mark E.
Bradley are the Assistant Treasurers 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, Leslie J. Nanberg and
James T. Swanson are Vice Presidents, Stephen E. Cavan is the Secretary, W.
Thomas
<PAGE>
London is the Treasurer, James O. Yost, Ellen M. Moynihan and Mark E.
Bradley are the Assistant Treasurers and James R. Bordewick, Jr., is the
Assistant Secretary.
MFS Special Value Trust
A. Keith Brodkin is the Chairman and President, Jeffrey L. Shames and
Robert J. Manning are Vice Presidents, Stephen E. Cavan is the Secretary, W.
Thomas London is the Treasurer, James O. Yost, Ellen M. Moynihan and Mark E.
Bradley are the Assistant Treasurers and James R. Bordewick, Jr., is the
Assistant Secretary.
MFS/Sun Life Series Trust
John D. McNeil, Chairman and Director of Sun Life Assurance Company
of Canada, is the Chairman, Stephen E. Cavan is the Secretary, W. Thomas
London is the Treasurer, James O. Yost, Ellen M. Moynihan and Mark E. Bradley
are the Assistant Treasurers and James R. Bordewick, Jr., is the Assistant
Secretary.
Money Market Variable Account
High Yield Variable Account
Capital Appreciation Variable Account
Government Securities Variable Account
Total Return Variable Account
World Governments Variable Account
Managed Sectors Variable Account
John D. McNeil is the Chairman, Stephen E. Cavan is the Secretary,
and James R. Bordewick, Jr., is the Assistant Secretary.
MIL
A. Keith Brodkin is a Director and the Chairman, Arnold D. Scott and
Jeffrey L. Shames are Directors, Thomas J. Cashman, Jr., an Executive 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, Executive Vice President and Chief Financial Officer of
MFS, is the Treasurer and Thomas B. Hastings 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, James E. Russell 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, Richard W. S. Baker and William F. Waters are
Directors, Stephen E. Cavan is the Secretary, W. Thomas London is the
Treasurer, James O.
<PAGE>
Yost is the Assistant Treasurer and James R. Bordewick, Jr., is the Assistant
Secretary.
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, Jeffrey L.
Shames and William F. Waters are Directors, Stephen E. Cavan is the Secretary,
W. Thomas London is the Treasurer, James R. Bordewick, Jr., is the Assistant
Secretary and James O. Yost is the Assistant Treasurer.
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 Thomas B. Hastings 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, Thomas B.
Hastings 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, Thomas B. Hastings is
the Assistant Treasurer, Stephen E. Cavan is the Secretary, and Robert T.
Burns is the Assistant Secretary.
MFSI
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 (who is an Executive Vice President of MFS)
are Senior Vice Presidents and Managing Directors, Joseph W. Dello Russo is
the Treasurer, Thomas B. Hastings is the Assistant Treasurer and Robert T.
Burns is the Secretary.
RSI
William W. Scott, Jr. and Bruce C. Avery are Directors, Arnold D.
Scott is the Chairman and a Director, Joseph W. Dello Russo is the Treasurer,
Thomas B.
<PAGE>
Hastings is the Assistant Treasurer, Stephen E. Cavan is the
Secretary, Robert T. Burns is the Assistant Secretary and Sharon A. Brovelli
and Martin E. Beaulieu are Senior Vice Presidents.
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
Donald A. Stewart President and a Director, Sun
Life Assurance Company of Canada, Sun Life
Centre, 150 King Street West, Toronto,
Ontario, Canada (Mr. Stewart 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.
(d) 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
<PAGE>
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.
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) The registrant undertakes to file a post-effective amendment, using
financial statements which need not be certified, within four to six months from
the effective date of Registrant's 1933 Act Registration Statement.
(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,
<PAGE>
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 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 24th day of July, 1997.
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 July 24, 1997.
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
<PAGE>
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
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,
incorporated by reference to the
Registrant's Post-Effective
Amendment No. 41 filed with the
Securities and Exchange
Commission via EDGAR on
January 26, 1996.
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION OF EXHIBIT PAGE NO.
1 (d) Amendment to Declaration of Trust dated July 16,
1997.
5 (d) Form of Investment Advisory Agreement for MFS
International Opportunities Fund.
(e) Form of Investment Advisory Agreement for MFS
International Growth Fund.
(f) Form of Investment Advisory Agreement for MFS
International Value Fund.
(g) Form of Investment Advisory Agreement for MFS Asia
Pacific Fund.
9 (b) Amendment to Shareholder Servicing Agent Agreement
to add Class P shares, dated September 3, 1996.
15 (b) Form of Amendment to Master Distribution Plan.
<PAGE>
EXHIBIT NO. 99.1(d)
MFS SERIES TRUST V
CERTIFICATION OF AMENDMENT
TO DECLARATION OF TRUST
ESTABLISHMENT AND DESIGNATION
OF SERIES
AND
ESTABLISHMENT AND DESIGNATION
OF CLASSES
Pursuant to Section 6.9 of the Amended and Restated Declaration of
Trust dated January 6, 1995 (the "Declaration") of MFS Series Trust V, a
business trust organized under the laws of The Commonwealth of Massachusetts
(the "Trust"), the undersigned Trustees of the Trust, being a majority of the
Trustees of the Trust, hereby establish and designate four new series of Shares
(as defined in the Declaration), such series to have the following special and
relative rights:
1. The new series shall be designated:
-MFS International Opportunities Fund;
-MFS International Value Fund;
-MFS International Growth Fund; and
-MFS Asia Pacific 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, as
amended, 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 each 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 such new 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
<PAGE>
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 establishment and
designation of series of Shares.
Pursuant to Section 6.9(h) of the Declaration, this instrument shall be
effective upon the execution by a majority of the Trustees of the Trust.
The undersigned, being a majority of the Trustees of the Trust, acting
pursuant to Section 6.10 of the Declaration, do hereby divide the Shares of MFS
International Opportunities Fund, MFS International Value Fund, MFS
International Growth Fund and MFS Asia Pacific Fund, to create four classes of
Shares, within the meaning of Section 6.10, as follows:
1. The four classes of shares are designated "Class A Shares,"
"Class B Shares," "Class C Shares" and "Class I Shares";
2. Class A Shares, Class B Shares, Class C Shares and Class I Shares
shall be entitled to all the rights and preferences accorded to
shares under the Declaration;
3. The purchase price of Class A Shares, Class B Shares, Class C
Shares and Class I Shares, the method of determination of the net
asset value of Class A Shares, Class B Shares, Class C Shares and
Class I Shares, the price, terms and manner of redemption of
Class A Shares, Class B Shares, Class C Shares and Class I
Shares, any conversion feature of Class B Shares, and the
relative dividend rights of holders of Class A Shares, Class B
Shares, Class C Shares and Class I 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, Class C Shares and Class I 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; and
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.
IN WITNESS WHEREOF, a majority of the Trustees of the Trust have executed
this amendment, in one or more counterparts, all constituting a single
instrument, as an instrument under seal in The Commonwealth of Massachusetts, as
of this 16th day of July, 1997 and further certify, as provided by the
provisions of Section 9.3(d) of the Declaration, that this amendment was duly
adopted by the undersigned in accordance with the second sentence of Section
9.3(a) of the Declaration.
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
<PAGE>
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 38 Lake Avenue
Concord, MA 01742 Newton, MA 02159
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 282 Beacon Street
Boston, MA 02116 Boston, MA 02116
WILLIAM J. POORVU
William J. Poorvu
975 Memorial Drive
Cambridge, MA 02138
<PAGE>
EXHIBIT NO. 99.5(d)
FORM OF INVESTMENT ADVISORY AGREEMENT
INVESTMENT ADVISORY AGREEMENT, dated this day of October, 1997, by and
between MFS SERIES TRUST V, a Massachusetts business trust (the "Trust"), on
behalf of MFS INTERNATIONAL OPPORTUNITIES 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 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 supervision 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 Amended and
Restated Declaration of Trust, dated January 6, 1995, and By-Laws, each as
amended from time to time (respectively, the "Declaration" and the "By-Laws"),
to the provisions of the Investment Company Act of 1940 and the Rules,
Regulations and orders thereunder and to the Fund's then-current Prospectus and
Statement of Additional Information. 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 the 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 shall be 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 the
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
reasonable
-1-
<PAGE>
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.
The Adviser may from time to time enter into sub-investment advisory agreements
with one or more investment advisers with such terms and conditions as the
Adviser may determine, provided that such sub-investment advisory agreements
have been approved in accordance with applicable provisions of the Investment
Company Act of 1940. Subject to the provisions of Article 6, the Adviser shall
not be liable for any error of judgment or mistake of law by any sub-adviser or
for any loss arising out of any investment made by any sub-adviser or for any
act or omission in the execution and management of the Fund by any sub-adviser.
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 and servicing shareholder accounts; expenses of preparing, printing and
mailing stock 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 the 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; expenses of shareholders' meetings; and expenses
relating to the issuance, registration and qualification of shares of the Fund
and the preparation, printing and mailing of prospectuses for such purposes
(except to the extent that any Distribution Agreement to which the Trust is a
party provides that another party is to pay some or all of such expenses).
Article 3. Compensation of the Adviser. For the services to be rendered
and the facilities provided, the Fund shall pay to the Adviser an investment
advisory fee
-2-
<PAGE>
computed and paid monthly at an annual rate equal to 1.00% of the Fund's average
daily net assets for its then-current fiscal year. If the Adviser shall serve
for less than the whole of any period specified in this Article 3, the
compensation to the Adviser will be prorated.
Article 4. Special Services.. Should the Trust have occasion to request
the Adviser to perform services not herein contemplated or to request the
Adviser to arrange for the services of others, the Adviser will act for the
Trust on behalf of the Fund upon request to the best of its ability, with
compensation for the Adviser's services to be agreed upon with respect to each
such occasion as it arises.
Article 5. Covenants of the Adviser. The Adviser agrees that it will
not deal with itself, or with the Trustees of the Trust or the Trust's
distributor, if any, as principals in making purchases or sales of securities or
other property for the account of the Fund, except as permitted by the
Investment Company Act of 1940 and the Rules, Regulations or orders thereunder,
will not take a long or short position in the shares of the Fund except as
permitted by the Declaration, and will comply with all other provisions of the
Declaration and the By-Laws and the then-current Prospectus and Statement of
Additional Information of the Fund relative to the Adviser and its Directors and
officers.
Article 6. 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 and obligations hereunder. As used
in this Article 6, the term "Adviser" shall include Directors, officers and
employees of the Adviser as well as that corporation itself.
Article 7. Activities of the Adviser. The services of the Adviser to
the Fund are not deemed to be exclusive, the Adviser being free to render
investment advisory and/or other services to others. The Adviser may permit
other fund clients to use the initials "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 initials "MFS." It is
understood that the 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 Trust, and that the Adviser may be or become
interested in the Fund as a shareholder or otherwise.
Article 8. Duration, Termination and Amendment of this Agreement. This
Agreement shall become effective on the date first above written and shall
govern the relations between the parties hereto thereafter, and shall remain in
force until August 1, 1999 on which date it will terminate unless its
continuance after August 1, 1999 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 Board of
Trustees of the Trust, or by "vote of a majority of the outstanding voting
securities" of the Fund.
-3-
<PAGE>
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, in each case on not more than sixty
days' nor less than 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.
Article 9. Scope of Trust's Obligations. A copy of the Trust's
Declaration of Trust is on file with the Secretary of State of The Commonwealth
of Massachusetts. The Adviser acknowledges that the obligations of or arising
out of this Agreement 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 Agreement is executed by the
Trust on behalf of one or more series of the Trust, the Adviser 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
Agreement are binding solely upon the assets or property of the series on whose
behalf the Trust has executed this Agreement.
Article 10. Definitions. The terms "specifically approved at least
annually," "vote of a majority of the outstanding voting securities,"
"assignment," "affiliated person," and "interested person," when used in this
Agreement, shall have the respective meanings specified, and shall be construed
in a manner consistent with, the Investment Company Act of 1940 and the Rules
and Regulations promulgated thereunder, subject, however, to such exemptions as
may be granted by the Securities and Exchange Commission under said Act.
Article 11. Record Keeping. The Adviser will maintain records in a form
acceptable to the Trust 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 Trust
and will be available for inspection and use by the Trust.
-4-
<PAGE>
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.
MFS SERIES TRUST V, on behalf of
MFS INTERNATIONAL OPPORTUNITIES FUND,
one of its series
By: ______________________________
A. Keith Brodkin
Chairman and Trustee
MASSACHUSETTS FINANCIAL
SERVICES COMPANY
By: _______________________________
A. Keith Brodkin
Chairman
-5-
<PAGE>
EXHIBIT NO. 99.5(e)
FORM OF INVESTMENT ADVISORY AGREEMENT
INVESTMENT ADVISORY AGREEMENT, dated this day of October, 1997, by and
between MFS SERIES TRUST V, a Massachusetts business trust (the "Trust"), on
behalf of MFS INTERNATIONAL GROWTH 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 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 supervision 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 Amended and
Restated Declaration of Trust, dated January 6, 1995, and By-Laws, each as
amended from time to time (respectively, the "Declaration" and the "By-Laws"),
to the provisions of the Investment Company Act of 1940 and the Rules,
Regulations and orders thereunder and to the Fund's then-current Prospectus and
Statement of Additional Information. 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 the 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 shall be 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 the
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
reasonable
-1-
<PAGE>
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.
The Adviser may from time to time enter into sub-investment advisory agreements
with one or more investment advisers with such terms and conditions as the
Adviser may determine, provided that such sub-investment advisory agreements
have been approved in accordance with applicable provisions of the Investment
Company Act of 1940. Subject to the provisions of Article 6, the Adviser shall
not be liable for any error of judgment or mistake of law by any sub-adviser or
for any loss arising out of any investment made by any sub-adviser or for any
act or omission in the execution and management of the Fund by any sub-adviser.
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 and servicing shareholder accounts; expenses of preparing, printing and
mailing stock 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 the 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; expenses of shareholders' meetings; and expenses
relating to the issuance, registration and qualification of shares of the Fund
and the preparation, printing and mailing of prospectuses for such purposes
(except to the extent that any Distribution Agreement to which the Trust is a
party provides that another party is to pay some or all of such expenses).
Article 3. Compensation of the Adviser. For the services to be rendered
and the facilities provided, the Fund shall pay to the Adviser an investment
advisory fee
-2-
<PAGE>
computed and paid monthly at an annual rate equal to 1.00% of the Fund's average
daily net assets for its then-current fiscal year. If the Adviser shall serve
for less than the whole of any period specified in this Article 3, the
compensation to the Adviser will be prorated.
Article 4. Special Services.. Should the Trust have occasion to request
the Adviser to perform services not herein contemplated or to request the
Adviser to arrange for the services of others, the Adviser will act for the
Trust on behalf of the Fund upon request to the best of its ability, with
compensation for the Adviser's services to be agreed upon with respect to each
such occasion as it arises.
Article 5. Covenants of the Adviser. The Adviser agrees that it will
not deal with itself, or with the Trustees of the Trust or the Trust's
distributor, if any, as principals in making purchases or sales of securities or
other property for the account of the Fund, except as permitted by the
Investment Company Act of 1940 and the Rules, Regulations or orders thereunder,
will not take a long or short position in the shares of the Fund except as
permitted by the Declaration, and will comply with all other provisions of the
Declaration and the By-Laws and the then-current Prospectus and Statement of
Additional Information of the Fund relative to the Adviser and its Directors and
officers.
Article 6. 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 and obligations hereunder. As used
in this Article 6, the term "Adviser" shall include Directors, officers and
employees of the Adviser as well as that corporation itself.
Article 7. Activities of the Adviser. The services of the Adviser to
the Fund are not deemed to be exclusive, the Adviser being free to render
investment advisory and/or other services to others. The Adviser may permit
other fund clients to use the initials "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 initials "MFS." It is
understood that the 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 Trust, and that the Adviser may be or become
interested in the Fund as a shareholder or otherwise.
Article 8. Duration, Termination and Amendment of this Agreement. This
Agreement shall become effective on the date first above written and shall
govern the relations between the parties hereto thereafter, and shall remain in
force until October , 1999 on which date it will terminate unless its
continuance after October , 1999 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 Board of
Trustees of the Trust, or by "vote of a majority of the outstanding voting
securities" of the Fund.
-3-
<PAGE>
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, in each case on not more than sixty
days' nor less than 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.
Article 9. Scope of Trust's Obligations. A copy of the Trust's
Declaration of Trust is on file with the Secretary of State of The Commonwealth
of Massachusetts. The Adviser acknowledges that the obligations of or arising
out of this Agreement 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 Agreement is executed by the
Trust on behalf of one or more series of the Trust, the Adviser 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
Agreement are binding solely upon the assets or property of the series on whose
behalf the Trust has executed this Agreement.
Article 10. Definitions. The terms "specifically approved at least
annually," "vote of a majority of the outstanding voting securities,"
"assignment," "affiliated person," and "interested person," when used in this
Agreement, shall have the respective meanings specified, and shall be construed
in a manner consistent with, the Investment Company Act of 1940 and the Rules
and Regulations promulgated thereunder, subject, however, to such exemptions as
may be granted by the Securities and Exchange Commission under said Act.
Article 11. Record Keeping. The Adviser will maintain records in a form
acceptable to the Trust 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 Trust
and will be available for inspection and use by the Trust.
<PAGE>
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.
MFS SERIES TRUST V, on behalf of
MFS INTERNATIONAL GROWTH FUND,
one of its series
By: ____________________________
A. Keith Brodkin
Chairman and Trustee
MASSACHUSETTS FINANCIAL
SERVICES COMPANY
By: ___________________________
A. Keith Brodkin
Chairman
-5-
<PAGE>
EXHIBIT NO. 99.5(f)
FORM OF INVESTMENT ADVISORY AGREEMENT
INVESTMENT ADVISORY AGREEMENT, dated this day of October, 1997, by and
between MFS SERIES TRUST V, a Massachusetts business trust (the "Trust"), on
behalf of MFS INTERNATIONAL VALUE 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 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 supervision 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 Amended and
Restated Declaration of Trust, dated January 6, 1995, and By-Laws, each as
amended from time to time (respectively, the "Declaration" and the "By-Laws"),
to the provisions of the Investment Company Act of 1940 and the Rules,
Regulations and orders thereunder and to the Fund's then-current Prospectus and
Statement of Additional Information. 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 the 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 shall be 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 the
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
reasonable
-1-
<PAGE>
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.
The Adviser may from time to time enter into sub-investment advisory agreements
with one or more investment advisers with such terms and conditions as the
Adviser may determine, provided that such sub-investment advisory agreements
have been approved in accordance with applicable provisions of the Investment
Company Act of 1940. Subject to the provisions of Article 6, the Adviser shall
not be liable for any error of judgment or mistake of law by any sub-adviser or
for any loss arising out of any investment made by any sub-adviser or for any
act or omission in the execution and management of the Fund by any sub-adviser.
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 and servicing shareholder accounts; expenses of preparing, printing and
mailing stock 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 the 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; expenses of shareholders' meetings; and expenses
relating to the issuance, registration and qualification of shares of the Fund
and the preparation, printing and mailing of prospectuses for such purposes
(except to the extent that any Distribution Agreement to which the Trust is a
party provides that another party is to pay some or all of such expenses).
Article 3. Compensation of the Adviser. For the services to be rendered
and the facilities provided, the Fund shall pay to the Adviser an investment
advisory fee
-2-
<PAGE>
computed and paid monthly at an annual rate equal to 1.00% of the Fund's average
daily net assets for its then-current fiscal year. If the Adviser shall serve
for less than the whole of any period specified in this Article 3, the
compensation to the Adviser will be prorated.
Article 4. Special Services.. Should the Trust have occasion to request
the Adviser to perform services not herein contemplated or to request the
Adviser to arrange for the services of others, the Adviser will act for the
Trust on behalf of the Fund upon request to the best of its ability, with
compensation for the Adviser's services to be agreed upon with respect to each
such occasion as it arises.
Article 5. Covenants of the Adviser. The Adviser agrees that it will
not deal with itself, or with the Trustees of the Trust or the Trust's
distributor, if any, as principals in making purchases or sales of securities or
other property for the account of the Fund, except as permitted by the
Investment Company Act of 1940 and the Rules, Regulations or orders thereunder,
will not take a long or short position in the shares of the Fund except as
permitted by the Declaration, and will comply with all other provisions of the
Declaration and the By-Laws and the then-current Prospectus and Statement of
Additional Information of the Fund relative to the Adviser and its Directors and
officers.
Article 6. 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 and obligations hereunder. As used
in this Article 6, the term "Adviser" shall include Directors, officers and
employees of the Adviser as well as that corporation itself.
Article 7. Activities of the Adviser. The services of the Adviser to
the Fund are not deemed to be exclusive, the Adviser being free to render
investment advisory and/or other services to others. The Adviser may permit
other fund clients to use the initials "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 initials "MFS." It is
understood that the 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 Trust, and that the Adviser may be or become
interested in the Fund as a shareholder or otherwise.
Article 8. Duration, Termination and Amendment of this Agreement. This
Agreement shall become effective on the date first above written and shall
govern the relations between the parties hereto thereafter, and shall remain in
force until October , 1999 on which date it will terminate unless its
continuance after October , 1999 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 Board of
Trustees of the Trust, or by "vote of a majority of the outstanding voting
securities" of the Fund.
-3-
<PAGE>
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, in each case on not more than sixty
days' nor less than 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.
Article 9. Scope of Trust's Obligations. A copy of the Trust's
Declaration of Trust is on file with the Secretary of State of The Commonwealth
of Massachusetts. The Adviser acknowledges that the obligations of or arising
out of this Agreement 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 Agreement is executed by the
Trust on behalf of one or more series of the Trust, the Adviser 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
Agreement are binding solely upon the assets or property of the series on whose
behalf the Trust has executed this Agreement.
Article 10. Definitions. The terms "specifically approved at least
annually," "vote of a majority of the outstanding voting securities,"
"assignment," "affiliated person," and "interested person," when used in this
Agreement, shall have the respective meanings specified, and shall be construed
in a manner consistent with, the Investment Company Act of 1940 and the Rules
and Regulations promulgated thereunder, subject, however, to such exemptions as
may be granted by the Securities and Exchange Commission under said Act.
Article 11. Record Keeping. The Adviser will maintain records in a form
acceptable to the Trust 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 Trust
and will be available for inspection and use by the Trust.
<PAGE>
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.
MFS SERIES TRUST V, on behalf of
MFS INTERNATIONAL VALUE FUND,
one of its series
By: A. KEITH BRODKIN
A. Keith Brodkin
Chairman and Trustee
MASSACHUSETTS FINANCIAL
SERVICES COMPANY
By: A. KEITH BRODKIN
A. Keith Brodkin
Chairman
-5-
<PAGE>
EXHIBIT NO. 99.5(g)
FORM OF INVESTMENT ADVISORY AGREEMENT
INVESTMENT ADVISORY AGREEMENT, dated this day of October, 1997, by and
between MFS SERIES TRUST V, a Massachusetts business trust (the "Trust"), on
behalf of MFS ASIA PACIFIC 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 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 supervision 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 Amended and
Restated Declaration of Trust, dated January 6, 1995, and By-Laws, each as
amended from time to time (respectively, the "Declaration" and the "By-Laws"),
to the provisions of the Investment Company Act of 1940 and the Rules,
Regulations and orders thereunder and to the Fund's then-current Prospectus and
Statement of Additional Information. 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 the 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 shall be 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 the
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
reasonable
-1-
<PAGE>
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.
The Adviser may from time to time enter into sub-investment advisory agreements
with one or more investment advisers with such terms and conditions as the
Adviser may determine, provided that such sub-investment advisory agreements
have been approved in accordance with applicable provisions of the Investment
Company Act of 1940. Subject to the provisions of Article 6, the Adviser shall
not be liable for any error of judgment or mistake of law by any sub-adviser or
for any loss arising out of any investment made by any sub-adviser or for any
act or omission in the execution and management of the Fund by any sub-adviser.
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 and servicing shareholder accounts; expenses of preparing, printing and
mailing stock 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 the 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; expenses of shareholders' meetings; and expenses
relating to the issuance, registration and qualification of shares of the Fund
and the preparation, printing and mailing of prospectuses for such purposes
(except to the extent that any Distribution Agreement to which the Trust is a
party provides that another party is to pay some or all of such expenses).
Article 3. Compensation of the Adviser. For the services to be rendered
and the facilities provided, the Fund shall pay to the Adviser an investment
advisory fee
-2-
<PAGE>
computed and paid monthly at an annual rate equal to 1.00% of the Fund's average
daily net assets for its then-current fiscal year. If the Adviser shall serve
for less than the whole of any period specified in this Article 3, the
compensation to the Adviser will be prorated.
Article 4. Special Services.. Should the Trust have occasion to request
the Adviser to perform services not herein contemplated or to request the
Adviser to arrange for the services of others, the Adviser will act for the
Trust on behalf of the Fund upon request to the best of its ability, with
compensation for the Adviser's services to be agreed upon with respect to each
such occasion as it arises.
Article 5. Covenants of the Adviser. The Adviser agrees that it will
not deal with itself, or with the Trustees of the Trust or the Trust's
distributor, if any, as principals in making purchases or sales of securities or
other property for the account of the Fund, except as permitted by the
Investment Company Act of 1940 and the Rules, Regulations or orders thereunder,
will not take a long or short position in the shares of the Fund except as
permitted by the Declaration, and will comply with all other provisions of the
Declaration and the By-Laws and the then-current Prospectus and Statement of
Additional Information of the Fund relative to the Adviser and its Directors and
officers.
Article 6. 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 and obligations hereunder. As used
in this Article 6, the term "Adviser" shall include Directors, officers and
employees of the Adviser as well as that corporation itself.
Article 7. Activities of the Adviser. The services of the Adviser to
the Fund are not deemed to be exclusive, the Adviser being free to render
investment advisory and/or other services to others. The Adviser may permit
other fund clients to use the initials "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 initials "MFS." It is
understood that the 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 Trust, and that the Adviser may be or become
interested in the Fund as a shareholder or otherwise.
Article 8. Duration, Termination and Amendment of this Agreement. This
Agreement shall become effective on the date first above written and shall
govern the relations between the parties hereto thereafter, and shall remain in
force until October , 1999 on which date it will terminate unless its
continuance after October , 1999 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 Board of
Trustees of the Trust, or by "vote of a majority of the outstanding voting
securities" of the Fund.
-3-
<PAGE>
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, in each case on not more than sixty
days' nor less than 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.
Article 9. Scope of Trust's Obligations. A copy of the Trust's
Declaration of Trust is on file with the Secretary of State of The Commonwealth
of Massachusetts. The Adviser acknowledges that the obligations of or arising
out of this Agreement 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 Agreement is executed by the
Trust on behalf of one or more series of the Trust, the Adviser 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
Agreement are binding solely upon the assets or property of the series on whose
behalf the Trust has executed this Agreement.
Article 10. Definitions. The terms "specifically approved at least
annually," "vote of a majority of the outstanding voting securities,"
"assignment," "affiliated person," and "interested person," when used in this
Agreement, shall have the respective meanings specified, and shall be construed
in a manner consistent with, the Investment Company Act of 1940 and the Rules
and Regulations promulgated thereunder, subject, however, to such exemptions as
may be granted by the Securities and Exchange Commission under said Act.
Article 11. Record Keeping. The Adviser will maintain records in a form
acceptable to the Trust 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 Trust
and will be available for inspection and use by the Trust.
<PAGE>
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.
MFS SERIES TRUST V, on behalf of
MFS ASIA PACIFIC FUND, one of its series
By: A. KEITH BRODKIN
A. Keith Brodkin
Chairman and Trustee
MASSACHUSETTS FINANCIAL
SERVICES COMPANY
By: A. KEITH BRODKIN
A. Keith Brodkin
Chairman
-5-
<PAGE>
EXHIBIT NO. 99.9(b)
MFS SERIES TRUST V
500 Boylston Street o Boston o Massachusetts o 02116
(617) o 954-5000
January 1, 1997
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: JOSEPH W. DELLO RUSSO
Joseph W. Dello Russo
Treasurer
<PAGE>
ATTACHMENT 1
January 1, 1997
EXHIBIT B TO THE SHAREHOLDER
SERVICING AGENT AGREEMENT BETWEEN
MFS SERVICE CENTER, INC. ("MFSC")
AND MFS SERIES TRUST V (the "Fund")
The fees to be paid by the Fund on behalf of its series with respect to all
shares of each series of the Fund to MFSC, for MFSC's services as shareholder
servicing agent, shall be 0.13% of the average daily net assets of the Fund.
<PAGE>
EXHIBIT NO. 99.15(b)
MFS FUNDS
MASTER DISTRIBUTION PLAN PURSUANT TO RULE 12B-1 UNDER THE
INVESTMENT COMPANY ACT OF 1940
Effective January 1, 1997
This Distribution Plan (the "Plan") has been adopted by each of the
registered investment companies identified from time to time on Exhibit A hereto
(the "Trust" or "Trusts"), severally and not jointly, pursuant to Rule 12b-1
under the Investment Company Act of 1940, as amended (the "1940 Act"), and sets
forth the material aspects of the financing of the distribution of the classes
of shares representing interests in the same portfolio issued by the Trusts.
WITNESSETH:
WHEREAS, each Trust is engaged in business as an open-end management investment
company and is registered under the 1940 Act, some consisting of multiple
investment portfolios or series, each of which has separate investment
objectives and policies and segregated assets (the "Fund" or "Funds"); and
WHEREAS, each Fund intends to distribute its Shares of Beneficial Interest
(without par value) ("Shares") in accordance with Rule 12b-1 under the 1940 Act,
and desires to adopt this Distribution Plan as a plan of distribution pursuant
to such Rule; and
WHEREAS, each Fund presently offers multiple classes of Shares, some Funds
presently offering only certain classes of Shares to investors;
WHEREAS, each Trust has entered into a distribution agreement (the "Distribution
Agreement") in a form approved by the Board of Trustees of each 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 each Fund in connection with the offering and distribution of Shares; and
WHEREAS, each Trust recognizes and agrees that 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
WHEREAS, the Distribution Agreement provides that: (a) a sales charge may be
paid by investors who purchase Shares designated "Class A" and that the
Distributor and Dealers will receive such sales charge as partial compensation
for their services in connection with the sale of Class A Shares, and (b) the
Distributor may (but is not required to) impose certain deferred sales charges
-1-
<PAGE>
in connection with the repurchase of Shares and the Distributor may retain or
receive from a fund, as the case may be, all such deferred sales charges; and
WHEREAS, the Board of Trustees of each Trust, in considering whether each 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 a 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
shareholders; and
NOW THEREFORE, the Board of Trustees of each Trust hereby adopts this Plan for
each Fund as a plan of distribution in accordance with Rule 12b-1, relating to
the classes of Shares each Fund from time to time offers, on the following terms
and conditions:
1. SERVICES PROVIDED AND EXPENSES BORNE BY DISTRIBUTOR.
1.1. 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.
1.2. The Distributor shall bear all distribution-related expenses
to the extent specified in the Distribution Agreement in
providing the services described in Section 1.1, 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.
2. DISTRIBUTION FEES AND SERVICE FEES.
2.1 Distribution and Service Fees Common to Each Class of Shares.
2.1.1. Service Fees. 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, each 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 the Class of 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 Section 2.1.1.
hereof are calculated may be subject to certain minimum amount
requirements as may be determined,
-2-
<PAGE>
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 Section 2.1.1. 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 those
Shares. The service fee payable pursuant to this Section
2.1.1. may from time to time be paid by a 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.
2.1.2. Distribution Fees. As partial consideration for the
services performed as specified in the Distribution Agreement
and expenses incurred in the performance of its obligations
under the Distribution Agreement, a Fund shall pay the
Distributor a distribution fee periodically at a rate based on
the average daily net assets of a Fund attributable to the
designated Class of Shares. The amount of the distribution fee
paid by the Fund differs with respect to each Class of Shares,
as does the use by the Distributor of such distribution fees.
2.2. Distribution Fees Relating to Class A Shares
2.2.1. It is understood that the Distributor may impose
certain deferred sales charges in connection with the
repurchase of Class A Shares by a Fund and the Distributor may
retain (or receive from the Fund, as the case may be) all such
deferred sales charges. Each Fund listed on Exhibit B hereto
shall pay the Distributor a distribution fee periodically at a
rate of 0.10% per annum of average daily net assets of the
Fund attributable to Class A Shares. Each Fund listed on
Exhibit C hereto shall pay the Distributor a distribution fee
periodically at a rate not to exceed 0.25% per annum of
average daily net assets of the Fund attributable to Class A
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").
2.2.2. The aggregate amount of fees and expenses paid pursuant
to Sections 2.1. and 2.2. hereof shall not exceed 0.35% per
annum and 0.50% per annum of the average daily net assets
attributable to Class A Shares of each Fund listed on Exhibit
B hereto and Exhibit C, hereto, respectively. No fees shall be
paid pursuant to Section 2.2.1. hereof or this Section 2.2.2.
to any insurance company which has entered into an agreement
with the Trust on behalf of a Fund and the Distributor that
permits such insurance company to purchase Class A Shares from
a Fund at their net asset value in connection with annuity
agreements
-3-
<PAGE>
issued in connection with the insurance company's separate
accounts.
2.3. Distribution Fees Relating to Class B Shares
2.3.1. It is understood that the Distributor may impose
certain deferred sales charges in connection with the
repurchase of Class B Shares by a 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 relating to
Class B Shares, a 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 Class B Shares.
2.3.2. Each Fund understands that agreements between the
Distributor and the Dealers may provide for payment of
commissions to Dealers in connection with the sale of Class B
Shares and may provide for a portion (which may be all or
substantially all) of the fees payable by a 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 Class B Shares. Except as
described in Section 2.1., nothing in this Plan shall be
construed as requiring a Fund to make any payment to any
Dealer or to have any obligations to any Dealer in connection
with services as a dealer of Class B 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 Section 2.1., 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.
2.4. Distribution Fees Relating to Class C Shares
2.4.1. It is understood that the Distributor may (but is not
required to) impose certain deferred sales charges in
connection with the repurchase of Class C Shares by a 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 relating to Class C Shares, a 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 Class C Shares.
2.4.2. Each Fund understands that agreements between the
Distributor and the Dealers may provide for payment of
-4-
<PAGE>
commissions to Dealers in connection with the sales of Class C
Shares and may provide for a portion (which may be all or
substantially all) of the fees payable by a Fund to the
Distributor under the Distribution Agreement to be paid to the
Dealers in consideration of the Dealer's services as a dealer
of the Class C Shares. Except as described in Section 2.1.,
nothing in this Plan shall be construed as requiring a Fund to
make any payment to any Dealer or to have any obligations to
any Dealer in connection with services as a dealer of Class C
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 Section 2.1., 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.
3. EXPENSES BORNE BY FUND. Each 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 a Fund, except that the Distributor shall be responsible
for the distribution-related expenses as provided in Section 1 hereof.
4. ACTION TAKEN BY THE TRUST. Nothing herein contained shall be deemed to
require a 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 a Fund.
5. EFFECTIVENESS OF PLAN. This Plan shall become effective upon (a) approval
by a vote of at least a "majority of the outstanding voting securities" of
each particular class of Shares (unless previously so approved), 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.
6. DURATION OF PLAN. This Plan shall continue in effect indefinitely; provided
however, that such continuance is "specifically approved at least annually"
by vote of both a majority of the Trustees of the Trust and a majority of
the Qualified Trustees, such votes to be cast in person at a meeting called
for the purpose of voting on the continuance of this Plan. If such annual
approval is not obtained, this Plan, with respect to the classes of Shares
with respect to which such approval was not
-5-
<PAGE>
obtained, shall expire 12 months after the effective date of the last
approval.
7. AMENDMENTS OF PLAN. 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 affected Class
of 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 Shares.
8. REVIEW BY BOARD OF TRUSTEES. Each 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.
9. SELECTION AND NOMINATION OF QUALIFIED TRUSTEES. 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.
10. DEFINITIONS; COMPUTATION OF FEES. 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 or the rules and regulations adopted thereunder. All references herein
to "Fund" shall be deemed to refer to a Trust where such Trust does not
have multiple portfolios or series. In addition, for purposes of
determining the fees payable to the Distributor hereunder, (i) the value of
a Fund's net assets shall be computed in the manner specified in each
Fund's then-current prospectus and statement of additional information for
computation of the net asset value of Shares of the Fund and (ii) the net
asset value per Share of a particular class shall reflect any plan adopted
under Rule 18f-3 under the 1940 Act.
11. RETENTION OF PLAN RECORDS. Each Trust shall preserve copies of this Plan,
and each agreement related hereto and each report referred to in Section
8.1 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.
12. APPLICABLE LAW. This Plan shall be construed in accordance with the laws of
The Commonwealth of Massachusetts and the applicable provisions of the 1940
Act.
13. SEVERABILITY OF PLAN. 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. The provisions of this Plan are
-6-
<PAGE>
severable with respect to each Class of Shares offered by a Fund and with
respect to each Fund.
14. SCOPE OF TRUST'S OBLIGATION. A copy of the Declaration of Trust of each
Trust is on file with the ------------------------------ Secretary of State
of The Commonwealth of Massachusetts. It is acknowledged that the
obligations of or arising out of this Plan 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 in
accordance with its proportionate interest hereunder. If this Plan is
adopted by the Trust on behalf of one or more series of the Trust, it is
further acknowledged 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 Plan are binding solely upon the assets or property of the series
on whose behalf the Trust has adopted this Plan. If the Trust has adopted
this Plan on behalf of more than one series of the Trust, it is also
acknowledged that the obligations of each series hereunder shall be several
and not joint, in accordance with its proportionate interest hereunder, and
no series shall be responsible for the obligations of another series.
<PAGE>
EXHIBIT A
Dated: January 1, 1997
Revised: October 8, 1997
<TABLE>
<CAPTION>
<S> <C> <C>
CLASSES OF SHARES
COVERED BY RULE 12B-1
PLAN
DATE RULE 12b-1 PLAN
FUND ADOPTED
- ------------------------------------------------------ -------------------------- --------------------------
- ------------------------------------------------------ -------------------------- --------------------------
MFS High Income Fund A,B,C January 1, 1997
- ------------------------------------------------------ -------------------------- --------------------------
- ------------------------------------------------------ -------------------------- --------------------------
MFS Municipal High Income Fund B January 1, 1997
- ------------------------------------------------------ -------------------------- --------------------------
- ------------------------------------------------------ -------------------------- --------------------------
MFS Municipal Bond Fund B January 1, 1997
- ------------------------------------------------------ -------------------------- --------------------------
- ------------------------------------------------------ -------------------------- --------------------------
MFS OTC Fund A,B,C January 1, 1997
- ------------------------------------------------------ -------------------------- --------------------------
- ------------------------------------------------------ -------------------------- --------------------------
MFS Total Return Fund A,B,C January 1, 1997
- ------------------------------------------------------ -------------------------- --------------------------
- ------------------------------------------------------ -------------------------- --------------------------
MFS Research Fund A,B,C January 1, 1997
- ------------------------------------------------------ -------------------------- --------------------------
- ------------------------------------------------------ -------------------------- --------------------------
MFS World Governments Fund A,B,C January 1, 1997
- ------------------------------------------------------ -------------------------- --------------------------
- ------------------------------------------------------ -------------------------- --------------------------
MFS Value Fund A,B,C January 1, 1997
- ------------------------------------------------------ -------------------------- --------------------------
- ------------------------------------------------------ -------------------------- --------------------------
MFS Bond Fund A,B,C January 1, 1997
- ------------------------------------------------------ -------------------------- --------------------------
- ------------------------------------------------------ -------------------------- --------------------------
MFS Limited Maturity Fund A,B,C January 1, 1997
- ------------------------------------------------------ -------------------------- --------------------------
- ------------------------------------------------------ -------------------------- --------------------------
MFS Municipal Limited Maturity Fund A,B,C January 1, 1997
- ------------------------------------------------------ -------------------------- --------------------------
- ------------------------------------------------------ -------------------------- --------------------------
MFS Government Mortgage Fund A,B January 1, 1997
- ------------------------------------------------------ -------------------------- --------------------------
- ------------------------------------------------------ -------------------------- --------------------------
MFS/Foreign & Colonial Emerging Markets Equity Fund A,B,C January 1, 1997
- ------------------------------------------------------ -------------------------- --------------------------
- ------------------------------------------------------ -------------------------- --------------------------
MFS/Foreign & Colonial International Growth Fund A,B,C January 1, 1997
- ------------------------------------------------------ -------------------------- --------------------------
- ------------------------------------------------------ -------------------------- --------------------------
MFS/Foreign & Colonial International Growth and A,B,C January 1, 1997
Income Fund
- ------------------------------------------------------ -------------------------- --------------------------
- ------------------------------------------------------ -------------------------- --------------------------
MFS Municipal Income Fund A,B,C January 1, 1997
- ------------------------------------------------------ -------------------------- --------------------------
Massachusetts Investors Trust A,B,C January 1, 1997
- ------------------------------------------------------ -------------------------- --------------------------
Massachusetts Investors Growth A,B January 1, 1997
Stock Fund
- ------------------------------------------------------ -------------------------- --------------------------
MFS Growth Opportunities Fund A,B January 1, 1997
- ------------------------------------------------------ -------------------------- --------------------------
MFS Government Securities Fund A,B,C January 1, 1997
- ------------------------------------------------------ -------------------------- --------------------------
MFS International Opportunities Fund A,B,C October 8, 1997
- ------------------------------------------------------ -------------------------- --------------------------
- ------------------------------------------------------ -------------------------- --------------------------
MFS International Value Fund A,B,C October 8, 1997
- ------------------------------------------------------ -------------------------- --------------------------
- ------------------------------------------------------ -------------------------- --------------------------
MFS International Growth Fund A,B,C October 8, 1997
- ------------------------------------------------------ -------------------------- --------------------------
- ------------------------------------------------------ -------------------------- --------------------------
MFS Asia Pacific Fund A,B,C October 8, 1997
- ------------------------------------------------------ -------------------------- --------------------------
</TABLE>
-8-
<PAGE>
EXHIBIT B
Dated: January 1, 1997
MFS High Income Fund
MFS OTC Fund
MFS Total Return Fund
MFS Research Fund
MFS World Governments Fund
MFS Value Fund
MFS Bond Fund
MFS Limited Maturity Fund
MFS Municipal Limited Maturity Fund
MFS Government Mortgage Fund
MFS Municipal Income Fund
Massachusetts Investors Growth Stock Fund
MFS Growth Opportunities Fund
MFS Government Securities Fund
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EXHIBIT C
Dated: January 1, 1997
Revised: October 8, 1997
MFS/Foreign & Colonial Emerging Markets Equity Fund
MFS/Foreign & Colonial International Growth Fund
MFS/Foreign & Colonial International Growth & Income Fund
MFS International Opportunities Fund
MFS International Value Fund
MFS International Growth Fund
MFS Asia Pacific Fund
