<PAGE>
As filed with the Securities and Exchange Commission on April 29, 1998
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. 46
AND
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 31
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)
|X| 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)
|_| 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
<PAGE>
MFS SERIES TRUST V
MFS INTERNATIONAL OPPORTUNITIES FUND
MFS INTERNATIONAL STRATEGIC 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) Condensed Financial *
Information
(b) * *
(c) Information Concerning *
Shares of the Funds -
Performance Information
(d) Condensed Financial *
Information
<PAGE>
STATEMENT OF
ITEM NUMBER ADDITIONAL
FORM N-1A, PART A PROSPECTUS CAPTION INFORMATION CAPTION
4 (a) The Funds; Investment *
Objectives and Policies;
Certain Securities and
Investment Techniques;
Additional Risk Factors
(b), (c) Investment Objectives and *
Policies; Certain Securities
and Investment
Techniques; Additional
Risk Factors
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) Management of the Funds *
Shareholder Servicing Agent;
Back Cover Page
(f) Condensed Financial Information; *
Expense Summary
(g) Investment Objectives and *
Policies - Portfolio Trading
(h) * *
5A (a), (b), (c) ** **
<PAGE>
STATEMENT OF
ITEM NUMBER ADDITIONAL
FORM N-1A, PART A PROSPECTUS CAPTION INFORMATION CAPTION
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
(g) Information Concerning *
Shares of the Funds -
Tax Status; Information
Concerning Shares of the
Funds - Dividends and
Capital Gain Distributions
(h) * *
7 (a) Front Cover Page; Management *
of the Funds - Distributor;
Back Cover Page
(b) Information Concerning *
Shares of the Funds -
Purchases; Net Asset Value
<PAGE>
STATEMENT OF
ITEM NUMBER ADDITIONAL
FORM N-1A, PART A PROSPECTUS CAPTION INFORMATION CAPTION
(c) Information Concerning *
Shares of the Funds -
Purchases; Information
Concerning Shares of the
Funds - Exchanges
(d) Front Cover Page; Information *
Concerning Shares of the
Funds - Purchases;
Shareholder Services
(e) Information Concerning *
Shares of the Funds -
Distribution Plan; Expense
Summary
(f) Information Concerning *
Shares of the Funds -
Distribution Plan
(g) Expense Summary; Information *
Concerning Shares of the Funds -
Purchases; Information
Concerning Shares of the Funds -
Exchanges; Information
Concerning Shares of the Funds -
Redemptions and Repurchases;
Information Concerning Shares
of the Funds - Distribution Plan;
Information Concerning Shares
of the Funds -Distributions;
Information Concerning Shares
of the Funds -Performance
Information; Shareholder Services
<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 The Funds Definitions
13 (a), (b), (c) * Investment Objectives,
Policies and Restrictions
(d) * *
14 (a), (b), (c) * Management of the Funds -
Trustees and Officers;
Trustee Compensation
Table
15 (a) * *
(b), (c) * Management of the Funds -
Trustees and Officers
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) * Management of the Funds;
Administrator
(e) * Portfolio Transactions and
Brokerage Commissions
(f) Information Concerning Distribution Plan
Shares of the Funds -
Distribution Plan
<PAGE>
STATEMENT OF
ITEM NUMBER ADDITIONAL
FORM N-1A, PART B PROSPECTUS CAPTION INFORMATION CAPTION
(g) * *
(h) * Management of the Funds -
Custodian; Independent
Auditors and Financial
Statements; Back Cover
Page
(i) * Management of the Funds -
Shareholder Servicing
Agent
17 (a) * Portfolio Transactions and
Brokerage Commissions
(b) * *
(c), (d), (e) * Portfolio Transactions and
Brokerage Commissions
18 (a) Information Concerning Description of Shares
Shares of the Funds - Voting Rights and
Description of Shares, Liabilities
Voting Rights and
Liabilities
(b) * *
19 (a) Information Concerning Shareholder Services
Shares of the Funds -
Purchases; Shareholder
Services
<PAGE>
STATEMENT OF
ITEM NUMBER ADDITIONAL
FORM N-1A, PART B PROSPECTUS CAPTION INFORMATION CAPTION
(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) Information Concerning Shares *
of the Funds - Redemptions
and Repurchases
20 * Tax Status
21 (a) * Management of the Funds -
Distributor; Distribution
Plan
(b) * Management of the Funds -
Distributor; Distribution
Plan
(c) * *
22 (a) * *
(b) * Determination of Net Asset
Value and Performance
Information; Appendix A
23 * Independent Auditors and
Financial Statements
- -----------------------------
* Not Applicable
** To be contained in Annual Report
<PAGE>
[GRAPHIC OMITTED] PROSPECTUS
MAY 1, 1998
MFS(R) International Opportunities Fund
MFS(R) International Strategic 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
- --------------------------------------------------------------------------------
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 Strategic Growth Fund (the "International Strategic Growth
Fund") -- The investment objective of the International Strategic 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.
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 May 1, 1998, 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 29 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>
TABLE OF CONTENTS
Page
1. Expense Summary........................................ 1
2. Condensed Financial Highlights......................... 4
3. The Funds.............................................. 5
4. Investment Objectives and Policies..................... 6
International Opportunities Fund....................... 6
International Strategic Growth Fund.................... 6
International Value Fund............................... 6
Asia Pacific Fund...................................... 7
5. Certain Securities and Investment Techniques........... 7
6. Additional Risk Factors................................ 12
7. Management of the Funds................................ 15
8. Information Concerning Shares of the Funds............. 16
Purchases............................................ 16
Exchanges............................................ 21
Redemptions and Repurchases.......................... 21
Distribution Plan.................................... 23
Distributions........................................ 25
Tax Status........................................... 25
Net Asset Value...................................... 25
Expenses ............................................ 26
Description of Shares, Voting Rights and Liabilities. 26
Performance Information.............................. 27
9. Shareholder Services................................... 27
Appendix A - Waivers of Sales Charges.................................. A-1
Appendix B - Description of Bond Ratings............................... B-1
<PAGE>
1. EXPENSE SUMMARY
<TABLE>
<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>
<S> <C> <C> <C> <C>
International International International Asia
Opportunities Strategic 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)(8).................. 1.75%(6) 1.75%(6) 1.75%(6) 1.34%
----- ----- ----- -----
Total Operating Expenses
(after fee reduction)(7)........... 1.75% 1.75% 1.75% 1.34%
</TABLE>
CLASS B SHARES
<TABLE>
<S> <C> <C> <C> <C>
International International International Asia
Opportunities Strategic 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)(8).................. 1.75%(6) 1.75%(6) 1.75%(6) 1.34%
----- ----- ----- -----
Total Operating Expenses
(after fee reduction)(7)........... 2.75% 2.75% 2.75% 2.34%
</TABLE>
CLASS C SHARES
<TABLE>
<S> <C> <C> <C> <C>
International International International Asia
Opportunities Strategic 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)(8).................. 1.75%(6) 1.75%(6) 1.75%(6) 1.34%
----- ----- ----- -----
Total Operating Expenses
(after fee reduction)(7)........... 2.75% 2.75% 2.75% 2.34%
</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 intends during the Funds' current fiscal year to waive its
right to receive management fees from each Fund. Absent these waivers,
"Management Fees" would be as follows:
<TABLE>
<S> <C> <C> <C>
International International International Asia
Opportunities Strategic Growth Value Pacific
Fund Fund Fund Fund
0.975% 0.975% 0.975% 1.00%
</TABLE>
(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) The Adviser has agreed to bear the expenses of the International
Opportunities Fund, the International Strategic Growth Fund and the
International Value Fund, subject to reimbursement by each such Fund,
such that "Other Expenses" do not exceed 1.75% per annum of each such
Fund's average daily net assets during the current fiscal year. See
"Information Concerning Shares of the Funds - Expenses" below.
Otherwise, "Other Expenses" would be 2.89% for each class of the
International Opportunities Fund, 2.85% for each class of the
International Strategic Growth Fund and 3.01% for each class of the
International Value Fund.
(7) Absent any expense reductions, "Total Operating Expenses," expressed as
a percentage of average daily net assets, would be as follows:
<TABLE>
<S> <C> <C> <C>
International International International Asia
Opportunities Strategic Growth Value Pacific
Fund Fund Fund Fund
Class A 4.36% 4.32% 4.48% 2.84%
Class B 4.86% 4.82% 4.98% 3.34%
Class C 4.86% 4.82% 4.98% 3.34%
</TABLE>
(8) 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."
2
<PAGE>
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
<TABLE>
<S> <C> <C> <C> <C>
International International International Asia
Opportunities Strategic Growth Value Pacific
Period Fund Fund Fund Fund
1 year $ 64 $ 64 $ 64 $61
3 years 100 100 100 88
</TABLE>
CLASS B SHARES
(ASSUMES REDEMPTION)
<TABLE>
<S> <C> <C> <C> <C>
International International International Asia
Opportunities Strategic Growth Value Pacific
Period Fund Fund Fund Fund
1 year $ 68 $ 68 $ 68 $ 64
3 years 115 115 115 103
</TABLE>
CLASS B SHARES
(ASSUMES NO REDEMPTION)
<TABLE>
<S> <C> <C> <C> <C>
International International International Asia
Opportunities Strategic Growth Value Pacific
Period Fund Fund Fund Fund
1 year $ 28 $28 $28 $24
3 years 85 85 85 73
</TABLE>
CLASS C SHARES
(ASSUMES REDEMPTION)
<TABLE>
<S> <C> <C> <C> <C>
International International International Asia
Opportunities Strategic Growth Value Pacific
Period Fund Fund Fund Fund
1 year $38 $38 $38 $34
3 years 85 85 85 73
</TABLE>
CLASS C SHARES
(ASSUMES NO REDEMPTION)
<TABLE>
<S> <C> <C> <C> <C>
International International International Asia
Opportunities Strategic Growth Value Pacific
Period Fund Fund Fund Fund
1 year $28 $28 $28 $24
3 years 85 85 85 73
</TABLE>
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."
3
<PAGE>
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. CONDENSED FINANCIAL INFORMATION
The following information is unaudited and should be read in conjunction with
the financial statements included in the Funds' Semiannual Report to
shareholders which are incorporated by reference into the SAI.
<TABLE>
<S> <C> <C> <C>
International
International Strategic International
Opportunities Growth Value
Fund Fund Fund
Period Ended March 31, 1998* Class A Class A Class A
Per share data (for a share outstanding throughout the period):
Net asset value - beginning of period $10.00 $10.00 $10.00
------ ------ ------
Income from investment operations# --
Net investment income (loss)ss. $(0.01) $(0.01) $ 0.03
Net realized and unrealized gain on
investments and foreign currency transactions 1.15 1.45 1.54
---- ---- ----
Total from investment operations $ 1.14 $ 1.44 $ 1.57
------ ------ -------
Net asset value - end of period $11.14 $11.44 $11.57
------ ------ ------
Total return 11.40%++ 14.40%++ 15.70%++
Ratios (to average net assets)/Supplemental datass.:
Expenses 1.75%+ 1.75%+ 1.75%+
Net investment income (loss) (0.24)+ (0.24)%+ 0.55%+
Portfolio turnover 74% 33% 25%
Average commission rate $0.0127 $0.0256 $0.0286
Net assets at end of period (000 omitted) $714 $435 $1,111
</TABLE>
* For the period from the commencement of investment operations, October 9,
1997, through March 31, 1998.
+ Annualized.
++ Not Annualized.
# Per share data are based on average shares outstanding.
## The Fund's expenses are calculated without reduction for fees paid
indirectly.
ss. Subject to reimbursement by the Funds, the investment adviser agreed to
maintain the expenses of the Funds at not more than 1.75% of the Funds'
average daily net assets. The investment adviser and distributor did not
impose any of their fees for the period indicated. If the fees had been
incurred by the Funds and/or if actual expenses had been over/under this
limitation, the net investment loss per share and the ratios would have
been:
<TABLE>
<S> <C> <C> <C>
Net investment loss $(0.15) $(0.13) $(0.10)
Ratios (to average net assets):
Expenses## 4.36%+ 4.32%+ 4.48%+
Net investment loss (2.85)%+ (2.81)%+ (2.18)%+
</TABLE>
4
<PAGE>
Asia
Pacific
Fund
Period Ended March 31, 1998* Class A
Per share data (for a share outstanding throughout the period):
Net asset value - beginning of period $10.00
Income from investment operations# --
Net investment incomess. $ 0.03
Net realized and unrealized loss on
investments and foreign currency transactions (1.26)
-----
Total from investment operations $ (1.23)
--------
Less distributions declared to shareholders from
net investment income $ (0.02)
--------
Net asset value - end of period $ 8.75
-------
Total return (12.26)%++
Ratios (to average net assets)/Supplemental datass.:
Expenses## 1.34%+
Net investment income 0.64%+
Portfolio turnover 21%
Average commission rate $0.0157
Net assets at end of period (000 omitted) $ 1,803
* For the period from the commencement of investment operations, October 9,
1997, through March 31, 1998.
+ Annualized.
++ Not Annualized.
# Per share data are based on average shares outstanding.
## The Fund's expenses are calculated without reduction for fees paid
indirectly.
ss. The investment adviser and distributor did not impose any of their fees for
the period indicated. If the fees had been incurred by the Fund, the net
investment loss per share and the ratios would have been:
Net investment loss $(0.01) Ratios (to average net assets):
Expenses## 2.84%+
Net investment loss (0.86)%+
3. 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 of 1.00% upon redemption 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 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 of 1.00% upon redemption 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.
5
<PAGE>
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.
4. 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 International Opportunities 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, 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 "Certain Securities and 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 STRATEGIC GROWTH FUND - The International Strategic 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 "Certain Securities and 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 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"), Fitch Investors
Service, Inc. ("Fitch") or Duff & Phelps Credit Rating Co. ("Duff & Phelps") or
Ba or lower by Moody's Investors Service, Inc. ("Moody's"), or if unrated,
determined to be of equivalent quality by the Adviser.
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The Fund may engage in certain investment techniques, as described under the
caption "Certain Securities and 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, Fitch or
Duff & Phelps 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 "Certain Securities and 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 location of its
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.
5. CERTAIN SECURITIES AND INVESTMENT TECHNIQUES
The securities and investment techniques described below are applicable to all
or certain of the Funds, as specified. Additional information about certain of
these securities and investment techniques can be found under the caption
"Investment Objectives, Policies and Restrictions - Investment Techniques" in
the SAI and "Additional Risk Factors" below.
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. 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.
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, the source of its revenues and
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location of its 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.
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 Depositary
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, Croatia, Dominican Republic, Ecuador, Jordan, Mexico, Morocco,
Nigeria, Panama, Peru, the Philippines, Poland, Slovenia, 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 (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.
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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 of the liquidity determinations, 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. Although a Fund does not intend to make such purchases for speculative
purposes, purchases of securities on such bases may involve more risk than other
types of purchases.
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
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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 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. 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.
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 of a security 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, minus any amounts
pledged by a Fund as collateral (which does not include proceeds from the short
sale), exceeds 35% of its net assets.
6. 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 Certain
Securities and 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
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<PAGE>
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 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
13
<PAGE>
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 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, Fitch
or Duff & Phelps 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, Fitch
or Duff & Phelps and comparable unrated securities (commonly known as "junk
bonds") to the extent described above. No minimum rating standard is required by
the International Value Fund or the Asia Pacific Fund. These securities are
considered speculative and, while generally providing greater income than
investments in higher rated securities, will involve greater risk of principal
and income (including the possibility of default or bankruptcy of the issuers of
such securities) and may involve greater volatility of price (especially during
periods of economic uncertainty or change) than securities in the higher rating
categories. However, since yields vary over time, no specific level of income
can ever be assured. These lower rated high yielding fixed income securities
generally tend to reflect economic changes and short-term corporate and industry
developments to a greater extent than higher rated securities which react
primarily to fluctuations in the general level of interest rates (although these
lower rated fixed income securities are also affected by changes in interest
rates, the market's perception of their credit quality, and the outlook for
economic growth). In the past, economic downturns or an increase in interest
rates have, under certain circumstances, caused a higher incidence of default by
the issuers of these securities and may do so in the future, especially in the
case of highly leveraged issuers. During certain periods, the higher yields on 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).
--------------------------------
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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).
Except with respect to a Fund's policies on borrowing and investing in illiquid
securities, 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.
7. 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 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:
% OF AVERAGE DAILY
NET ASSETS OF
FUND EACH FUND
International Opportunities Fund 0.975% of the first $500 million and
0.925% thereafter
International Strategic Growth Fund 0.975% of the first $500 million and
0.925% thereafter
International Value Fund 0.975% of the first $500 million and
0.925% thereafter
Asia Pacific Fund 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 Strategic 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 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
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<PAGE>
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 $82.2
billion on behalf of approximately 3.1 million investor accounts as of March 31,
1998. As of such date, the MFS organization managed approximately $21.1 billion
of assets invested in fixed income funds and fixed income portfolios,
approximately $4.3 billion of assets invested in foreign securities, and
approximately $56.9 billion of assets invested in equity securities. MFS is a
subsidiary of Sun Life of Canada (U.S.) Financial Services Holdings, Inc., which
in turn is an indirect wholly owned subsidiary of Sun Life Assurance Company of
Canada ("Sun Life"). The Directors of MFS are John W. Ballen, Jeffrey L. Shames,
Arnold D. Scott, Donald A. Stewart and John D. McNeil. Mr. Ballen is an
Executive Vice President of MFS, Mr. Shames is the Chairman, Chief Executive
Officer and President of MFS 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.
Mr. Shames, the Chairman and a Director of MFS, is also a Trustee of the Trust.
W. Thomas London, Stephen E. Cavan, James O. Yost, Mark E. Bradley, Ellen
Moynihan and James R. Bordewick, Jr., all of whom are officers of MFS, are
officers of the Trust.
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. Some simultaneous
transactions are inevitable when several clients receive investment advice from
MFS 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, as
amended. 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.
8. 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. As used in the Prospectus and any appendices
thereto the term "dealer" includes any broker, dealer, bank (including bank
trust departments), registered investment adviser, financial planner and any
other financial institutions having a selling agreement or other similar
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.
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<PAGE>
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>
<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, 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 five 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;
(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; and
(v) 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,
1997; (b) such plan's records are maintained on a pooled
basis by the Shareholder Servicing Agent; and (c) the
sponsoring organization demonstrates to the
17
<PAGE>
satisfaction of MFD that, at the time of purchase, the
employer has at least 200 eligible employees and the plan
has aggregate assets of at least $2,000,000.
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,
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 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)
(a) with respect to plans which establish an account with the Shareholder
Servicing Agent on or after November 1, 1997, in the event that the plan makes a
complete redemption of all of its shares in the MFS Funds, or (b) with respect
to plans which established an account with the Shareholder Servicing Agent prior
to November 1, 1997, 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 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.
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<PAGE>
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
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 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.
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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 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 or arrange for the
sale of 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 and other
employees, payment for travel expenses, including lodging, incurred by
registered representatives and other employees 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 and other employees 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.
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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 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
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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.
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
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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."
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.
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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).
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 A shares under the Distribution Plan are currently being waived
on a voluntary basis and may be imposed at the discretion of MFD.
24
<PAGE>
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.
Because each Fund intends 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 not expected that the Funds will 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.
Each Fund expects that none of its distributions will be eligible for the
dividends received deduction for corporations. 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 the 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 the 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. Backup
withholding will not, however, be applied to payments that 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.
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.
25
<PAGE>
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: advisory and administrative services; 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 (after taking into effect any compensating balance
and offset arrangements) such that the "Other Expenses" of each of the
International Opportunities Fund, the International Strategic Growth Fund and
the International Value Fund, which are defined to include all Fund expenses
except for management fees, Rule 12b-1 fees, taxes, extraordinary expenses,
brokerage and transaction costs and class specific expenses, do not exceed 1.75%
per annum of each such Fund's average daily net assets (the "Maximum
Percentage"). The payments made by MFS on behalf of each such Fund under this
arrangement are subject to reimbursement by each such Fund to MFS, which will be
accomplished by the payment of an expense reimbursement fee by each such Fund to
MFS computed and paid monthly at a percentage of its average daily net assets
for each such Fund's current fiscal year, with a limitation that immediately
after such payment each such Fund's "Other Expenses" will not exceed the Maximum
Percentage. The obligation of MFS to bear a Fund's "Other Expenses" pursuant to
this arrangement, and a Fund's obligation to pay the reimbursement fee 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 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.
26
<PAGE>
The following owned of record more than 25% of the outstanding shares of the
following Funds as of March 31, 1998:
<TABLE>
<S> <C> <C> <C>
Name and Address Fund Class Percentage of the Fund
TRS MFS Defined Contribution Plan International Opportunities Fund I 44.43%
c/o Mark Leary International Strategic Growth Fund I 64.71%
Mass Financial Services International Value Fund I 86.64%
500 Boylston St.
Boston, MA
MFS Fund Distributors, Inc. International Opportunities Fund A 51.14%
c/o Mass Financial Services International Strategic Growth Fund A 26.87%
Attn: Thomas B. Hastings International Value Fund A 68.21%
500 Boylston St.
Boston, MA
</TABLE>
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. Each Fund offers multiple classes of
shares which were initially offered for sale to, and purchased by, the public on
different dates (the class "inception date"). The calculation of total rate of
return for a class of shares which has a later class inception date than another
class of shares of the Fund is based both on (i) the performance of such Fund's
newer class from its inception date and (ii) the performance of such Fund's
oldest class from its inception date up to the class inception date of the newer
class. See the SAI for further information on the calculation of total return
for share classes with different class inception dates. 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' Semiannual Report may be
obtained without charge by contacting the Shareholder Servicing Agent (see back
cover for address and phone number). In addition to information provided in
shareholder reports, 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.
9. 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.
27
<PAGE>
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.
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
28
<PAGE>
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.
29
<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). As used in this Appendix, the term "dealer" includes any
broker, dealer, bank (including bank trust departments), registered investment
adviser, financial planner and any other financial institutions having a selling
agreement or other similar agreement with MFD.
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 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;
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);
A-1
<PAGE>
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
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.
7. Loan Repayments
Shares acquired pursuant to repayments by retirement plan
participants of loans from 401(a) or ESP Plans with
respect to which such Plan or its sponsoring organization
subscribes to the MFS FUNDamental 401(k) Program or the
MFS Recordkeeper Plus Program (but not the MFS
Recordkeeper Program).
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. Wrap Account and Fund "Supermarket" Investments
Shares acquired by investments through certain dealers
(including registered investment advisers and financial
planners) 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, mutual fund
"supermarket" account or a similar program under which
such clients pay a fee to such dealer.
2. Investment by Insurance Company Separate Accounts
Shares acquired by insurance company separate accounts.
3. Retirement Plans
Administrative Services Arrangements
Shares acquired by retirement plans or trust accounts
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.
4. Purchases of at Least $5 Million (CDSC waiver only)
Shares acquired of Eligible Funds (as defined below) if
the shareholder's investment equals or exceeds $5 million
in one or more Eligible Funds (the "Initial Purchase")
(this waiver applies to the shares acquired from the
Initial Purchase and all shares of Eligible Funds
subsequently acquired by the shareholder); provided that
the dealer through which the Initial Purchase is made
enters into an agreement with MFD to accept delayed
payment of commissions with respect to the Initial
Purchase and all subsequent investments by the shareholder
in the Eligible Funds subject to such requirements as may
be established from time to time by MFD (for a schedule of
the amount of commissions paid by MFD to the dealer on
such investments, see "Purchases - Class A Shares
Purchases subject to a CDSC" in the Prospectus). The
Eligible Funds are all funds included in the MFS Family of
Funds, except for Massachusetts Investors Trust,
Massachusetts Investors Growth Stock Fund, MFS Municipal
Bond Fund, MFS Municipal Limited Maturity Fund, MFS Money
Market Fund, MFS Government Money Market Fund and MFS Cash
Reserve Fund.
5. Bank Trust Departments and Law Firms
Shares acquired by certain bank trust departments or law
firms acting as trustee or manager for trust accounts
which have entered into an administrative services
agreement with MFD and are acquiring such shares for the
benefit of their trust account clients.
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 (or 15% per year, in the case of accounts
registered as IRAs where the redemption is made pursuant
to Section 72(t) of the Internal Revenue Code of 1986, as
amended) 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.
A-3
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-4
<PAGE>
APPENDIX B
DESCRIPTION OF BOND RATINGS
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.
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: An obligation rated AAA has the highest rating assigned by S&P. The
obligor's capacity to meet its financial commitment on the obligation is
EXTREMELY STRONG.
AA: An obligation rated AA differs from the higher rated issues only in
small degree. The obligor's capacity to meet its financial commitment on the
obligation is VERY STRONG.
A: An obligation rated A is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations in
higher rated categories. However the obligor's capacity to meet its financial
commitment on the obligation is still STRONG.
BBB: An obligation rated BBB exhibits ADEQUATE protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.
Obligations rated BB, B, CCC, CC and C are regarded as having significant
speculative
<PAGE>
characteristics. BB indicates the least degree of speculation and C the highest.
While such obligations will likely have some quality and protective
characteristics, these may be outweighed by large uncertainties or major
exposures to adverse conditions.
BB: An obligation rated BB is LESS VULNERABLE to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.
B: An obligation rated B is MORE VULNERABLE to nonpayment than obligations
rated BB, but the obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial, or economic
conditions will likely impair the obligor's capacity or willingness to meet its
financial commitment on the obligation.
CCC: An obligation rated CCC is CURRENTLY VULNERABLE to nonpayment, and is
dependent upon favorable business, financial, and economic conditions to meet
its financial commitment on the obligation. In the event of adverse business,
financial, or economic conditions, the obligor is not likely to have the
capacity to meet its financial commitment on the obligation.
CC: An obligation rated CC is CURRENTLY HIGHLY VULNERABLE to nonpayment.
C: The C rating may be used to cover a situation where a bankruptcy
petition has been filed or similar action has been taken, but payments on this
obligation are being continued.
D: An obligation rated D is in payment default. The D rating category is
used when payments on an obligation 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 or the taking of similar actions of payments on
an obligation are jeopardized.
Plus (+) or Minus (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within major
categories.
r: This symbol is attached to the ratings of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risks--such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
FITCH
AAA: Highest credit quality. AAA ratings denote the lowest expectation of
credit risk. They are assigned only in case of exceptionally strong capacity for
timely payment of financial commitments. This capacity is highly unlikely to be
adversely affected by foreseeable events.
AA: Very high credit quality. AA ratings denote a very low expectation of
credit risk. They indicate very strong capacity for timely payment of financial
commitments. This capacity is not significantly vulnerable to foreseeable
events.
A: High credit quality. A ratings denote a low expectation of credit risk.
The capacity for timely payment of financial commitments is considered strong.
This capacity may, nevertheless, be more vulnerable to changes in circumstances
or in economic conditions than is the case for higher ratings.
BBB: Good credit quality. BBB ratings indicate that there is currently a
low expectation of credit risk. The capacity for timely payment of financial
commitments is considered adequate, but adverse changes in circumstances and in
economic conditions are more likely to impair this capacity. This is the lowest
investment-grade category.
BB: Speculative. BB ratings indicate that there is a possibility of credit
risk developing, particularly as the result of adverse economic change over
time; however, business or financial alternatives may be available to allow
financial commitments to be met. Securities rated in this category are not
investment grade.
B: Highly speculative. B ratings indicate that significant credit risk is
present, but a limited margin of safety remains. Financial commitments are
currently being met; however, capacity for continued
B-2
<PAGE>
payment is contingent upon a sustained, favorable business and economic
environment.
CCC, CC, C: High default risk. Default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon sustained, favorable
business or economic developments. A CC rating indicates that default of some
kind appears probable. C ratings signal imminent default.
DDD, DD and D: Default. Securities are not meeting current obligations and
are extremely speculative. DDD designates the highest potential for recovery of
amounts outstanding on any securities involved. For U.S. corporates, for
example, DD indicates expected recovery of 50%--90% of such outstandings, and D
the lowest recovery potential, i.e., below 50%.
DUFF & PHELPS
These ratings represent a summary opinion of the issuer's long-term
fundamental quality. Rating determination is based on qualitative and
quantitative factors which may vary according to the basic economic and
financial characteristics of each industry and each issuer. Important
considerations are vulnerability to economic cycles as well as risks related to
such factors as competition, government action, regulation, technological
obsolescence, demand shifts, cost structure, and management depth and expertise.
The projected viability of the obligor at the trough of the cycle is a critical
determination.
Each rating also takes into account the legal form of the security (e.g.,
first mortgage bonds, subordinated debt, preferred stock, etc.). The extent of
rating dispersion among the various classes of securities is determined by
several classes in the capital structure, the overall credit strength of the
issuer, and the nature of covenant protection. From time to time, Duff & Phelps
places issuers or security classes on Rating Watch. The Rating Watch status
results from a need to notify investors and the issuer that there are conditions
present leading us to re-evaluate the current rating(s).
A listing on Rating Watch, however, does not mean a rating change is
inevitable. The Rating Watch status can either be resolved quickly or over a
longer period of time depending on the reasons surrounding the placement on
Rating Watch. The "up" designation means a rating may be upgraded; the "down"
designation means a rating may be downgraded, and the "uncertain" designation
means a rating may be raised or lowered.
The Credit Rating Committee formally reviews all ratings once per quarter
(more frequently, if necessary). Ratings of BBB- and higher fall within the
definition of investment grade securities, as defined by bank and insurance
supervisory authorities. Structured finance issues, including real estate,
asset-backed and mortgage-backed financings, used this same rating scale. Duff &
Phelps claims paying ability ratings of insurance companies use the same scale
with minor modification in the definitions. Thus, an investor can compare the
credit quality of investment alternatives across industries and structural
types. A "Cash Flow Rating" (as noted for specific ratings) addresses the
likelihood that aggregate principal and interest will equal or exceed the rated
amount under appropriate stress conditions.
AAA: Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA+, AA, AA-: High credit quality. Protection factors are strong. Risk is
modest but may vary slightly from time to time because of economic conditions.
A+, A, A-: Protection factors are average but adequate. However, risk
factors are more variable and greater in periods of economic stress.
BBB+, BBB, BBB-: Below average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk during
economic cycles.
BB+, BB, BB-: Below investment grade but deemed likely to meet obligations
when due. Present or prospective financial protection factors fluctuate
according to industry conditions or company fortunes. Overall quality may move
up or down frequently within this category.
B+, B, B-: Below investment grade and possessing risk that obligations will
not be met when due. Financial protection factors will fluctuate widely
according to economic cycles, industry conditions and/or company fortunes.
Potential exists for frequent changes in the rating within this category or into
a higher or lower rating grade.
CCC: Well below investment grade securities. Considerable uncertainty
exists as to timely payment
B-3
<PAGE>
of principal, interest or preferred dividends. Protection factors are narrow and
risk can be substantial with unfavorable economic/industry conditions, and/or
with unfavorable company developments.
DD: Defaulted debt obligations. Issuers failed to meet scheduled principal
and/or interest payments.
DP: Preferred stock with dividend arrearages.
<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 Strategic 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 STRATEGIC GROWTH FUND
MFS(R) INTERNATIONAL VALUE FUND
MFS(R) ASIA PACIFIC FUND
Supplement to the May 1, 1998 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 May 1, 1998,
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>
<S> <C> <C> <C> <C> <C>
Class I
International International International Asia
Opportunities Strategic 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>
<S> <C> <C> <C> <C>
International International International Asia
Opportunities Strategic 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) 1.75%(4) 1.75%(4) 1.75%(4) 1.34%
-------- -------- -------- -----
Total Operating Expenses (after
fee reduction)(5) 1.75% 1.75% 1.75% 1.34%
</TABLE>
- ------------------------------
(1) The Adviser intends during the Funds' current fiscal year to waive its
right to receive management fees from each Fund. Absent this waiver,
"Management Fees" would be as follows:
<TABLE>
<S> <C> <C> <C>
INTERNATIONAL INTERNATIONAL INTERNATIONAL ASIA
OPPORTUNITIES STRATEGIC GROWTH VALUE PACIFIC
FUND FUND FUND FUND
0.975% 0.975% 0.975% 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.
(4) The Adviser has agreed to bear the expenses of the International
Opportunities Fund, the International Strategic Growth Fund and the
International Value Fund, subject to reimbursement by each such Fund, such
that "Other Expenses" do not exceed 1.75% per
1
<PAGE>
annum of each such Fund's average daily net assets during the current
fiscal year. See "Information Concerning Shares of the Funds -
Expenses" below. Otherwise, "Other Expenses" would be 2.89% for each
class of the International Opportunities Fund, 2.85% for each class of the
International Strategic Growth Fund and 3.01% for each class of the
International Value Fund.
(5) Absent any fee waivers, "Total Operating Expenses" for each Fund would be
as follows:
<TABLE>
<S> <C> <C> <C>
INTERNATIONAL INTERNATIONAL INTERNATIONAL ASIA
OPPORTUNITIES STRATEGIC GROWTH VALUE PACIFIC
FUND FUND FUND FUND
3.86% 3.82% 3.98% 2.34%
</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>
<S> <C> <C> <C> <C>
INTERNATIONAL INTERNATIONAL INTERNATIONAL ASIA
OPPORTUNITIES STRATEGIC GROWTH VALUE PACIFIC
Period FUND FUND FUND FUND
1 year......... $18 $18 $18 $14
3 years........ 55 55 55 42
</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.
2. CONDENSED FINANCIAL INFORMATION
The following information is unaudited and should be read in conjunction with
the financial statements included in the Funds' Semiannual Report to
shareholders which are incorporated by reference into the SAI.
<TABLE>
<S> <C> <C> <C>
International
International Strategic International
Opportunities Growth Value
Fund Fund Fund
Period Ended March 31, 1998* Class I Class I Class I
Per share data (for a share outstanding throughout the period).
Net asset value - beginning of period $10.00 $10.00 $10.00
------ ------ ------
Income from investment operations# --
Net investment income (loss)ss. $(0.01) $(0.01) $ 0.03
Net realized and unrealized gain on
investments and foreign currency transactions 1.15 1.45 1.55
---- ---- ----
Total from investment operations $ 1.14 $ 1.44 $ 1.58
------ ------ -------
Net asset value - end of period $11.14 $11.44 $11.58
------ ------ ------
Total return 11.40%++ 14.40%++ 15.80%++
Ratios (to average net assets)/Supplemental datass.:
Expenses 1.75%+ 1.75%+ 1.75%+
Net investment income (loss) (0.24)%+ (0.25)%+ 0.56%+
Portfolio turnover 74% 33% 25%
</TABLE>
2
<PAGE>
<TABLE>
<S> <C> <C> <C>
Average commission rate $0.0127 $0.0256 $0.0286
Net assets at end of period (000 omitted) $571 $799 $103
</TABLE>
^ For the period from the commencement of investment operations, October 10,
1998, through March 31, 1998.
+ Annualized.
++ Not Annualized.
# Per share data are based on average shares outstanding.
## The Fund's expenses are calculated without reduction for fees paid
indirectly.
ss. Subject to reimbursement by the Funds, the investment adviser agreed to
maintain the expenses of the Funds at not more than 1.75% of the Funds'
average daily net assets. The investment adviser and distributor did not
impose any of their fees for the period indicated. If the fees had been
incurred by the Funds and/or if actual expenses had been over/under this
limitation, the net investment loss per share and the ratios would have
been:
<TABLE>
<S> <C> <C> <C>
Net investment loss $(0.12) $(0.11) $(0.08)
Ratios (to average net assets):
Expenses## 3.86%+ 3.82%+ 3.98%+
Net investment loss (2.35)%+ (2.32)%+ (1.67)%+
</TABLE>
Asia
Pacific
Fund
Period Ended March 31, 1998* Class I
Per share data (for a share outstanding throughout the period):
Net asset value - beginning of period $10.00
Income from investment operations# --
Net investment incomess. $ 0.02
Net realized and unrealized loss on
investments and foreign currency transactions (1.25)
------
Total from investment operations $ (1.23)
--------
Less distributions declared to shareholders from
net investment income $ (0.02)
--------
Net asset value - end of period $ 8.75
-------
Total return (12.26)%++
Ratios (to average net assets)/Supplemental datass.:
Expenses## 1.34%+
Net investment income 0.55%+
Portfolio turnover 21%
Average commission rate $0.0157
Net assets at end of period (000 omitted) $ 371
* For the period from the commencement of investment operations, October 10,
1997, through March 31, 1998.
+ Annualized.
++ Not Annualized.
# Per share data are based on average shares outstanding.
## The Fund's expenses are calculated without reduction for fees paid
indirectly.
ss. The investment adviser and distributor did not impose any of their fees for
the period indicated. If the fees had been incurred by the Fund, the net
investment loss per share and the ratios would have been:
Net investment loss $(0.02) Ratios (to average net assets):
Expenses## 2.34%+
Net investment loss (0.45)% +
3
<PAGE>
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 each 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,
Class B 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.
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, Class B and Class C shares because expenses
attributable to Class A, Class B 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 (after taking into effect any
compensating balance and offset arrangements) such that the "Other Expenses," of
each of the International Opportunities Fund, the International Strategic Growth
Fund and the International Value Fund, which are defined to include all Fund
expenses except for management fees, Rule 12b-1 fees, taxes, extraordinary
expenses, brokerage and transaction costs and class specific expenses, do not
exceed 1.75% per annum of each such Funds' average daily net assets (the
"Maximum Percentage") with respect to Class I shares. The payments made by MFS
on behalf of each such Fund under this arrangement are subject to reimbursement
by each such Fund to MFS, which will be accomplished by the payment of an
expense reimbursement fee by each such Fund to MFS computed and paid monthly at
a percentage of its average daily net assets for each such Fund's current fiscal
year, with a limitation that immediately after such payment each such Fund's
"Other Expenses" will not exceed the Maximum Percentage. The obligation of MFS
to bear a Fund's "Other Expenses" pursuant to this arrangement, and a Fund's
obligation to pay the reimbursement fee 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 May 1, 1998
4
<PAGE>
[GRAPHIC OMITTED]
MFS(R) International Opportunities Fund
MFS(R) International Strategic Growth Fund STATEMENT OF ADDITIONAL
MFS(R) International Value Fund INFORMATION
MFS(R) Asia Pacific Fund May 1, 1998
(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
Administrator.......................................... 19
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............................................... 26
8. Determination of Net Asset Value and Performance................ 27
9. Description of Shares, Voting Rights and Liabilities............ 29
10. Independent Auditors and Financial Statements................... 30
Appendix A...................................................... 31
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 May 1,
1998. 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 Strategic Growth
Strategic Growth Fund, a diversified series of the
Fund 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 Strategic 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 May 1, 1998, 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 - Certain Securities and Investment Techniques" and
"-Additional Risk Factors" sections of the Prospectus.
CERTAIN SECURITIES AND 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
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(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.
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
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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 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 Depositary Receipts
("ADRs") which are certificates issued by a U.S. depository (usually a bank) and
represent a specified quantity of shares of an underlying non-U.S. stock on
deposit with a custodian bank as collateral. ADRs may be sponsored or
unsponsored. A sponsored ADR is issued by a depository which has an exclusive
relationship with the issuer of the underlying security. An unsponsored ADR may
be issued by any number of U.S. depositories. Under the terms of most sponsored
arrangements, depositories agree to distribute notices of shareholder meetings
and voting instructions, and to provide shareholder communications and other
information to the ADR holders at the request of the issuer of the deposited
securities. The depository of an unsponsored ADR, on the other hand, is under no
obligation to distribute shareholder communications received from the issuer of
the deposited securities or to pass through voting rights to ADR holders in
respect of the deposited securities. 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 New York Stock
Exchange (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
amount 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
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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 collateral.
Borrowing: While each Fund may borrow up to 33 1/3% of its total assets, each
Fund currently does not intend to borrow more than 5% of its total assets for
investment purposes.
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 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
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. A Fund would also receive a fee from the
borrower or compensation based on investment of the cash collateral, less a fee
paid to the borrower, 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
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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.
Each Fund will maintain cash or appropriate liquid assets 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 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 segregated by the Fund) 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 liquid assets representing the difference is segregated by
the Fund. A put option written by a Fund is "covered" if the Fund segregates
liquid assets with a value equal to the exercise price, 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 liquid assets representing the difference
is segregated by the Fund. 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
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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 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"
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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 consideration segregated by the Fund) 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 liquid assets representing the difference is segregated by the Fund.
Each Fund may cover put options on stock indices by segregating liquid assets
with a value equal to the exercise price, 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 liquid assets representing the difference is
segregated by the Fund. 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
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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 segregates
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 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.
Options on Securities, Reset Options, Options on Stock Indices, Yield Curve
Options: 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 on stock
indices, and may purchase and sell Futures Contracts on foreign currencies or
indices of foreign currencies ("Futures Contracts"). 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
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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 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 the value date, 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 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
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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 Fund'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
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 liquid assets representing the difference
is segregated by the Fund 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 liquid assets representing
the difference is segregated by the Fund. 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.
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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 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 price
of 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.
A Fund will not sell short securities whose underlying value, minus any amounts
pledged by a Fund as collateral (which does not include the proceeds from the
short sale), exceeds 35% of its net assets.
Whenever a 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
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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.
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
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<PAGE>
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 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
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<PAGE>
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 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
14
<PAGE>
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, Options on Futures Contracts and Options
on Foreign Currencies traded on a CFTC-regulated exchange only (i) for bona fide
hedging purposes (as defined in CFTC regulations), or (ii) for non-bona fide
purposes, provided that the aggregate initial margin and premiums required to
establish such non-bona fide hedging positions does not exceed 5% of the
liquidation value of the Fund's assets, after taking into account unrealized
profits and unrealized losses on any such contracts a Fund has entered into, and
excluding, in computing such 5%, the in-the-money amount with respect to an
option that is in-the-money of the time of purchase.
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"),
Fitch Investors Service, Inc. ("Fitch") or Duff & Phelps Credit Rating Co.
("Duff & Phelps"), 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 Fund each may also invest in
fixed income securities rated Ba or lower by Moody's or BB or lower by S&P,
Fitch or Duff & Phelps, and comparable unrated securities (commonly known as
"junk bonds") to the extent described in the Prospectus. No minimum rating
standard is required by the International Value Fund or the Asia Pacific Fund.
These securities are considered speculative and, while generally providing
greater income than investments in higher rated securities, will involve greater
risk of principal and income (including the possibility of default or bankruptcy
of the issuers of such securities) and may involve greater volatility of price
(especially during periods of economic uncertainty or change) than securities in
the higher rating categories and because yields vary over time, no specific
level of income can ever be assured. These lower rated high yielding fixed
income securities generally tend to reflect economic changes (and the outlook
for economic growth), short-term corporate and industry developments and the
market's perception of their credit quality (especially during times of adverse
publicity) to a greater extent than higher rated securities which react
primarily to fluctuations in the general level of interest rates (although these
lower rated fixed income securities are also affected by changes in interest
rates). In the past, economic downturns or an increase in interest rates have,
under certain circumstances, caused a higher incidence of default by the issuers
of these securities and may do so in the future, especially in the case of
highly leveraged issuers. The prices for these securities may be affected by
legislative and regulatory developments. The market for these lower rated fixed
income securities may be less liquid than the market for investment grade fixed
income securities. Furthermore, the liquidity of these lower rated securities
may be affected by the market's perception of their credit quality. Therefore,
the Adviser's judgment may at times play a greater role in valuing these
securities than in the case of investment grade fixed income securities, and it
also may be more difficult during times of certain adverse market conditions to
sell these lower rated securities to meet redemption requests or to respond to
changes in the market.
While the Adviser may refer to ratings issued by established credit rating
agencies, it is not 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.
-------------------------------
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
15
<PAGE>
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, 25% or more 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) above and policy (1) below,
these investment restrictions and policies 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 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
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
16
<PAGE>
ARNOLD D. SCOTT* (born 12/16/42)
Massachusetts Financial Services Company, Senior Executive Vice President,
Secretary and Director
JEFFREY L. SHAMES* (born 6/2/55)
Massachusetts Financial Services Company, Chairman, Chief Executive Officer,
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, Trustee
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 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. 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.), a subsidiary of Sun Life Assurance Company of Canada ("Sun Life").
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 75 and if the
Trustee has completed at least five years of service, he would be entitled to
annual payments during his lifetime of up to 50% of such Trustee's average
annual compensation (based on the three years prior to his retirement) depending
on his length of service. A Trustee may also retire prior to age 75 and receive
reduced payments if he has completed at least five years of service. Under the
plan, a Trustee (or his beneficiaries) will also receive benefits for a period
of time in the event the Trustee is disabled or dies. These benefits will also
be based on the Trustee's average annual compensation and length of service.
There is no retirement plan provided by the Trust for Messrs. 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
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RETIREMENT TOTAL
TRUSTEE BENEFIT TRUSTEE
FEES ACCRUED FEES
FROM AS PART FROM
EACH OF FUND FUND
TRUSTEE FUND(1) EXPENSE(1) COMPLEX(2)
Richard B. $0 $0 $247,168
Bailey
Peter G. 0 0 105,995
Harwood
J. Atwood 0 0 98,750
Ives
Lawrence 0 0 98,310
T. Perera
William J. 0 0 102,840
Poorvu
Charles 0 0 105,995
W. Schmidt
Arnold D. 0 0 0
Scott
Jeffrey L. 0 0 0
Shames
David B. 0 0 108,710
Stone
Elaine R. 0 0 105,995
Smith
1) Estimated for the fiscal year ending September 30, 1998.
2) 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 March 31, 1998, the Trustees owned less than 1% of the shares of each
Fund, not including the Class I shares owned of record by the MFS Defined
Contribution Plan of which Messrs. Scott and Shames are Trustees (see next
paragraph).
As of March 31, 1998, MFS Defined Contribution Plan, 500 Boylston Street,
Boston, MA owned 99.98% of the Class I shares of each Fund; MFS Fund
Distributors, Inc., 500 Boylston Street, Boston, MA owned 76.15%, 96.87%, 82.24%
and 92.03% of the Class A shares of International Strategic Growth Fund,
International Value Fund, Asia Pacific Fund and International Opportunities
Fund, respectively; and David R. Mannheim, Wellesley, MA, owned 13.14% of the
Class A shares of International Strategic Growth 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.) Financial Services
Holdings, Inc., which in turn is an indirect wholly owned subsidiary of 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
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."
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
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omission in the execution and management of the Fund, except for willful
misfeasance, bad faith or gross negligence in the performance of its or their
duties or by reason of reckless disregard of its or their obligations and duties
under the Advisory Agreement.
Administrator
MFS provides the Fund with certain financial, legal, compliance, shareholder
communications and other administrative services pursuant to a Master
Administrative Services Agreement dated March 1, 1997, as amended. Under this
Agreement, the Fund pays MFS an administrative fee of up to 0.015% per annum of
the Fund's average daily net assets. This fee reimburses MFS for a portion of
the costs it incurs to provide such services.
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.
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 a
Shareholder Servicing Agreement effective August 1, 1985, as amended (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 0.1125%. 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 agent 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 and Class I shares of each Fund. The public offering price of
Class B, Class C and Class I
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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
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 $54,160 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.
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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 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
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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 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 a 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
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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 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 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
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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.
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:
Traditional Individual Retirement Accounts (IRAs) (for individuals 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);
Roth Individual Retirement Accounts (Roth IRAs) (for individuals who
desire to make limited contributions to a tax-favored retirement program);
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 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 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 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 are taxable to shareholders as ordinary income for
federal income tax purposes whether the distributions are paid in cash or
reinvested in additional shares. 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-
24
<PAGE>
term capital gains without regard to the length of time shareholders have owned
their shares. It is uncertain at this time whether all or any part of such
capital gains will be eligible to be taxed at a maximum rate below 28%. 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. Each Fund will notify shareholders regarding
the federal tax status of the Fund's distributions after the end of each
calendar year.
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 a long-term capital gain or loss if the shares have been held for more than
12 months and otherwise as a short-term capital gain or loss; a long-term
capital gain will be eligible for reduced tax rates if the shares were held for
more than 18 months. 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 disposition 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 90 days after
their purchase followed by any purchase without payment of an additional sales
charge (including purchases by exchange or by reinvestment) 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).
Each Fund's current dividend and accounting policies will affect the amount,
timing, and character of distributions to shareholders and may, under certain
circumstances, make an economic return of capital taxable to shareholders. 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
recognize 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, Forward Contracts, short
sales "against the box," and swaps and related transactions 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 that may 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. Each Fund may
elect to mark to market any investments in "passive foreign investment
companies" on the last day of each year. This election may cause the Fund to
recognize income prior to the receipt of cash payments with respect to those
investments; 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.
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 each 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, the Fund 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 portions 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
25
<PAGE>
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 the 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 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
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<PAGE>
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 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.
Each Fund offers multiple classes of shares which were initially offered for
sale to, and purchased by, the public on different dates (the class "inception
date"). The calculation of total rate of return for a class of shares which has
a later inception date than another class of shares of a Fund is based both on
(i) the performance of the Fund's newer class from its inception date and (ii)
the performance of the Fund's oldest class from its inception date up to the
class inception date of the newer class.
As discussed in the Prospectus, the sales charges, expenses and expense ratios,
and therefore the performance, of a Fund's classes of shares differ. In
calculating total rate of return for a newer class of shares in accordance with
certain formulas required by the SEC, the performance will be adjusted to take
into account the fact that the newer class is subject to a different sales
charge than the oldest class (e.g., if the newer class is Class A shares, the
total rate of return quoted will reflect the deduction of the initial sales
charge applicable to Class A shares; if the newer class is Class B shares, the
total rate of return quoted will reflect the deduction of the CDSC applicable to
Class B shares). However, the performance will not be adjusted to take into
account the fact that the newer class of shares bears different
27
<PAGE>
class specific expenses than the oldest shares (e.g., Rule 12b-1 fees).
Therefore, the total rate of return quoted for a newer class of shares will
differ from the return that would be quoted had the newer class of shares been
outstanding for the entire period over which the calculation is based (i.e., the
total rate of return quoted for the newer class will be higher than the return
that would have been quoted had the newer class of shares been outstanding for
the entire period over which the calculation is based if the class specific
expenses for the newer class are higher than the class specific expenses of the
oldest class, and the total rate of return quoted for the newer class will be
lower than the return that would be quoted had the newer class of shares been
outstanding for this entire period if the class specific expenses for the newer
class are lower than the class specific expenses of the oldest class).
Total rate of return quotations for each Fund are presented in Appendix A
attached hereto under the heading "Performance Quotations."
Total rate of return figures would have been lower if fee reductions were not in
place. These figures are not calculated on an annualized basis. The aggregate
total return represents a limited time frame and may not be indicative of future
performance.
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; 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.
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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(R)Equity Fund, the first Fund 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 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
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<PAGE>
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.
The Funds' unaudited Portfolios of Investments and the Statements of Assets and
Liabilities at March 31, 1998, the Statements of Operations and the Statements
of Changes in Net Assets for the period October 10, 1997 to March 31, 1998, and
the Notes to Financial Statements, each of which is included in the Semiannual
Report to Shareholders of the Funds in this SAI.
30
<PAGE>
Appendix A
Performance Quotations
Performance Quotations are as of March 31, 1998
Aggregate Annual Total Returns(1)
Life of Fund(2)
MFS International Opportunities Fund
Class A Shares with sales charge 6.11%
Class A Shares without sales charge 11.40
Class I Shares 11.40
MFS International Strategic Growth Fund
Class A Shares with sales charge 8.97
Class A Shares without sales charge 14.40
Class I Shares 14.40
MFS International Value Fund
Class A Shares with sales charge 10.20
Class A Shares without sales charge 15.70
Class I Shares 15.80
MFS Asia Pacific Fund
Class A Shares with sales charge -16.43
Class A Shares without sales charge -12.26
Class I Shares -12.26
Class B and Class C shares were not available for sale during the period.
(1) Total rate of return figures would have been lower if certain fee waivers
were not in place.
(2) Aggregate total return from inception of Class A and Class I shares on
October 9, 1997.
<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 Strategic Growth Fund
MFS(R) International Value Fund
MFS(R) Asia Pacific Fund
500 BOYLSTON STREET
BOSTON, MA 02116
[GRAPHIC OMITTED]
<PAGE>
MFS Asia Pacific Fund
Portfolio of Investments (Unaudited) - March 31, 1998
<TABLE>
<S> <C> <C>
Issuer Shares Value
Stocks - 94.2%
Australia - 8.0%
Australia & New Zealand Banking Group Ltd. (Banks and Credit Cos.)* 4,826 $ 32,287
Broken Hill Proprietary Co. Ltd. (Mining) 4,034 41,258
Fletcher Challenge Paper, ADR (Paper Products) 1,400 19,688
Mayne Nickless Ltd. (Business Services) 2,000 10,333
QBE Insurance Group Ltd. (Insurance) 8,225 35,958
Westpac Banking Corp. Ltd., ADR (Banks and Credit Cos.) 1,000 33,875
----------------
$ 173,399
Canada - 1.1%
Bell Canada International, Inc. (Telecommunications)* 1,100 $ 24,613
China - 1.0%
Huaneng Power International, Inc., ADR (Utilities - Electric)* 900 $ 21,150
Hong Kong - 19.6%
Asia Electronics Holding Co. (Electronics)* 1,500 $ 13,031
Cheung Kong Holdings Ltd. (Real Estate) 13,000 92,280
Citic Pacific Ltd. (Conglomerate) 4,000 14,145
Hong Kong & China Gas Ltd. (Oil and Gas) 10,000 16,778
Hong Kong Electric Holdings Ltd. (Utilities-Electric) 5,000 17,165
Hutchison Whampoa Ltd. (Conglomerate) 14,000 98,475
Li & Fung Ltd. (Wholesale) 34,000 53,974
Liu Chong Hing Bank (Banks and Credit Cos.) 19,000 30,652
National Mutual Asia Ltd. (Insurance) 24,000 19,824
Sun Hung Kai Properties Ltd. (Real Estate) 4,000 27,232
Wing Hang Bank Ltd. (Banks and Credit Cos.) 14,000 41,558
----------------
$ 425,114
India - 0.3%
Mahanagar Telephone Nigam Ltd., GDR (Utilities-Telephone)* 400 $ 6,870
Indonesia - 1.0%
PT Indah Kiat Pulp & Paper Corp. (Paper Products) 90,000 $ 22,500
Japan - 33.0%
Aeon Credit Service Co. Ltd. (Financial Services) 480 $ 22,273
AFLAC, Inc. (Insurance) 700 44,275
Bank of Tokyo Ltd. (Banks and Credit Cos.) 2,000 24,288
Bridgestone Corp. (Tire and Rubber) 2,000 45,277
Canon, Inc. (Office Equipment) 2,000 45,128
Fujimi, Inc. (Electronics) 550 21,769
Keyence Corp. (Electronics) 300 41,379
Kinki Coca-Cola Bottling Co. (Beverages) 3,000 33,958
Kirin Beverage Corp. (Beverages) 1,000 19,116
Meitec Corp. (Computer Software - Systems) 1,000 31,259
Nippon Broadcasting System (Broadcasting) 1,000 40,180
Nippon Telephone & Telegraph Co. (Utilities - Telephone) 4 33,283
NTT Data Corp. (Telecommunications) 1 44,453
Secom Co. (Consumer Goods and Services) 1,000 61,095
Shohkoh Fund & Co. Ltd. (Financial Services) 100 33,358
Sony Corp. (Electronics) 700 59,295
Takeda Chemical Industries (Pharmaceuticals) 1,000 25,412
TDK Corp., ADR (Electronics) 520 39,910
Terumo Corp. (Pharmaceuticals) 2,000 28,036
Ushio, Inc. (Electronics) 3,000 23,164
----------------
$ 716,908
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Malaysia - 1.7%
New Straits Times Press Berhad (Printing and Publishing) 23,000 $ 36,016
New Zealand - 0.5%
Telecom Corp. of New Zealand Ltd. (Utilities - Telephone) 300 $ 11,531
Philippines - 3.7%
San Miguel Corp., "B" (Brewery) 15,000 $ 26,211
SM Prime Holding, Inc. (Real Estate) 281,000 55,055
----------------
$ 81,266
Singapore - 14.5%
Datacraft Asia Ltd. (Telecommunications) 25,000 $ 81,000
Development Bank of Singapore Ltd. (Banks and Credit Cos.) 6,600 48,238
Hong Leong Finance Ltd. (Finance) + 27,000 45,990
Mandarin Oriental International Ltd. (Restaurants and Lodgings)* 21,000 16,800
Overseas Union Bank (Finance) 10,000 39,021
Overseas-Chinese Banking Corp. Ltd. (Finance) 1,000 5,636
Singapore Land Ltd. (Conglomerate) 15,000 48,312
Singapore Press Holdings Ltd. (Printing & Publishing) 2,552 29,243
----------------
$ 314,240
South Korea - 1.4%
Pohang Iron & Steel Co. Ltd., ADR (Steel) 1,550 $ 30,031
Taiwan - 1.1%
Acer, Inc., GDR (Computer Hardware) 2,400 $ 24,480
United Kingdom - 7.3%
HSBC Holdings PLC (Financial Services)* 3,600 $ 110,116
Tanjong PLC (Entertainment) 20,000 48,900
----------------
$ 159,016
Total Stocks (Identified Cost, $2,198,950) $ 2,047,134
Rights Shares
- -------------------------------------------------------------------------------------------------------------------
Development Bank of Singapore (Banks and Credit Cos.), (Identified Cost, $0) 1,200 $ 0
- -------------------------------------------------------------------------------------------------------------------
Principal Amount
Short-Term Obligations -- 6.9% (000 Omitted)
- -------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., due 4/01/98, at Amortized Cost $ 150 $ 150,000
Total Investments (Identified Cost, $2,348,950 ) $ 2,197,134
Securities Sold Short -- (1.1%)
- -------------------------------------------------------------------------------------------------------------------
Malayan Banking Berhad (Banks and Credit Cos.) (Proceeds Received, $23,099)$ (6,000) $ (23,077)
Other Assets, Less Liabilities -- 0.0% 249
Net Assets -- 100.0% $ 2,174,306
</TABLE>
* Non-income producing security
## SEC Rule 144A restriction
+ Restricted Securities
See notes to financial statements
<PAGE>
<TABLE>
<S> <C> <C>
MFS International Opportunities Fund
Portfolio of investments (Unaudited) - March 31, 1998
Issuer Shares Value
Stocks - 98.7%
Foreign Stocks - 97.5%
Australia - 1.9%
QBE Insurance Group Ltd. (Insurance) 4,133 $ 18,069
Westpac Banking Corp. Ltd. Corp. (Banks and Credit Cos.) 1,032 6,918
----------------
$ 24,987
Brazil - 6.2%
Cia Electrict est Rio Janeiro (Utilities - Electric) 16,300 $ 11,326
Cia Riogrand Telec (Utilities - Telephone) 10,000 12,578
Companhia Paranaense De Energy, ADR (Utilities - Electric) 975 14,199
Hunter Douglas N.V., ADR (Consumer Goods and Services)* 140 6,383
Telecomunicacoes Brasileiras S.A., ADR (Telecommunications) 214 27,780
Uniao de Banco Brasiliero S.A. (Banks and Credit Cos.) 200 7,250
----------------
$ 79,516
Canada - 2.3%
Canadian National Railway Co. (Railroads) 470 $ 30,080
Chile - 1.0%
Chilectra S.A., ADR (Utilities - Electric) 305 $ 8,235
Santa Isabel S.A., ADR (Stores)## 228 4,147
----------------
$ 12,382
Egypt - 0.7%
Commercial International Bank, GDR (Banks and Credit Cos.)## 250 $ 4,600
Suez Cement Co., GDR (Construction) 100 2,135
Suez Cement Co., GDR (Construction)## 100 2,135
----------------
$ 8,870
Finland - 2.3%
Pohjola (Insurance) 280 $ 12,979
TT Tieto Oy (Computer Software - Systems) 100 16,936
----------------
$ 29,915
France - 9.0%
Alcatel Alsthom Compagnie (Telecommunications) 120 $ 22,535
Compagnie Generale de Geophysique S.A., ADR (Oil Services)* 495 12,746
Dassault Systemes S.A., ADR (Computer Software - Systems) 335 13,233
Renault Regie Nationale (Automobiles) 175 7,799
Sanofi (Medical and Health Products) 84 9,644
TOTAL S.A., "B" (Oils) 130 15,618
TV Francaise (Broadcasting) 57 7,087
Union des Assurances Federales S.A. (Insurance) 160 26,301
----------------
$ 114,963
Germany - 4.6%
Adidas-Salomon AG (Apparel and Textiles) 53 $ 9,404
Henkel KGaA (Chemicals) 440 31,995
Wella AG (Cosmetics) 20 17,205
----------------
$ 58,604
Greece - 1.9%
Athens Medic Center, GDR (Medical and Health Technology and Services) 710 $ 11,728
Hellenic Telecommunication Organization S.A., GDR (Telecommunications) 490 12,275
----------------
$ 24,003
Hong Kong - 5.1%
Cheung Kong Holdings Ltd. (Real Estate) 1,000 $ 7,098
Hutchison Whampoa Ltd. (Conglomerate) 2,000 14,068
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Li & Fung Ltd. (Wholesale) 4,000 6,350
Liu Chong Hing Bank (Banks and Credit Cos.) 4,000 6,453
Wing Hang Bank Ltd. (Banks and Credit Cos.) 10,500 31,169
----------------
$ 65,138
Hungary - 0.8%
Gedeon Richter Ltd. (Pharmaceuticals) 40 $ 4,140
Magyar Tavkozlesi Rt. (Telecommunications)* 200 6,225
----------------
$ 10,365
Ireland - 3.6%
Allied Irish Banks (Banks and Credit Cos.)* 1,438 $ 17,758
Anglo Irish Bank Corp. PLC (Banks and Credit Cos.)* 12,084 28,145
----------------
$ 45,903
Italy - 4.4%
Banca Carige S.p.A. (Banks and Credit Cos.) 1,200 $ 13,435
Banca Nazionale del Lavoro (Banks and Credit Cos.) 450 12,164
Industrie Natuzzi S.p.A., ADR (Consumer Goods and Services) 612 16,906
Telecom Italia S.p.A. (Telecommunications)* 1,700 13,403
----------------
$ 55,908
Japan - 5.3%
Aeon Credit Service Co. Ltd. (Financial Services) 200 $ 9,280
Aiful Corp. (Financial Services) 100 6,297
Canon, Inc., ADR (Special Products and Services) 500 11,406
Fujimi, Inc. (Electronics) 110 4,354
Osaka Sanso Kogyo Ltd. (Chemicals) 5,000 8,621
Sony Corp., ADR (Electronics) 243 20,670
Ushio, Inc. (Electronics) 1,000 7,721
----------------
$ 68,349
Malaysia - 1.2%
New Straits Times Press Berhad (Printing and Publishing) 10,000 $ 15,659
Tanjong PLC (Entertainment) 9,000 22,005
----------------
$ 37,664
Netherlands - 12.5%
Akzo Nobel N.V. (Chemicals) 134 $ 27,235
Benckiser N.V. (Consumer Goods and Services)* 490 27,067
Brunel International N.V. (Human Resources)* 940 27,969
Fugro N.V. (Engineering)* 575 22,628
Hunter Douglas N.V., ADR (Consumer Goods and Services)* 140 6,383
IHC Caland N.V. (Transportation)* 168 9,280
ING Groep N.V. (Financial Services)* 300 17,032
Koninklijke Ten Cate (Conglomerate)* 478 16,929
Royal Dutch Petroleum Co. (Oils) 217 12,289
----------------
$ 166,812
Norway - 0.8%
Christiania Bank (Banks and Credit Cos.) 2,500 $ 10,622
Peru - 1.0%
Luz del Sur S.A. (Utilities - Electric) 2,932 $ 3,194
Telefonica del Peru S.A., ADR (Telecommunications) 443 9,552
----------------
$ 12,746
Portugal - 2.4%
Banco Espirito Santo e Comercial de Lisboa S.A. (Banks and Credit Cos.) 403 $ 18,628
Portugal Telecom S.A. (Utilities - Telephone) 233 12,218
----------------
$ 30,846
Singapore - 2.9%
Hong Leong Finance Ltd. (Finance) + 5,000 $ 8,517
Mandarin Oriental International Ltd. (Restaurants and Lodgings)* 17,000 13,600
Overseas Union Bank (Finance) 4,000 15,608
----------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
$ 37,725
South Africa - 0.3%
South African Breweries, ADR (Food and Beverage Products) 150 $ 4,397
South Korea - 0.4%
Pohang Iron & Steel Co. Ltd., ADR (Steel) 265 $ 5,134
Spain - 3.5%
Abengoa S.A. (Construction) 239 $ 21,328
Acerinox S.A. (Iron and Steel) 85 13,979
Repsol S.A., ADR (Oil Services) 199 10,124
----------------
$ 45,431
Sweden - 5.2%
Ericsson LM, "B" (Telecommunications) 220 $ 10,437
Securitas AB, "B" (Commercial Services) 375 12,734
Skandia Forsakrings AB (Insurance) 292 18,993
Sparbanken Sverige AB, "A" (Banks and Credit Cos.) 356 11,711
Volvo AB, "B" (Automobiles) 400 12,709
----------------
$ 66,584
Switzerland - 2.6%
Ciba Specialty AG (Chemicals)* 100 $ 12,795
Kuoni Reisen Holdings AG (Transportation) 2 10,040
Novartis AG (Pharmaceuticals) 6 10,622
----------------
$ 33,457
United Kingdom - 14.6%
ASDA Group PLC (Supermarkets) 4,147 $ 13,915
British Aerospace PLC (Aerospace and Defense)* 853 28,114
British Petroleum PLC (Oils)* 907 13,062
HSBC Holdings PLC (Financial Services)* 200 6,505
Kwik-Fit Holdings PLC (Automotive Repair Centers) 1,404 10,963
Lloyds TSB Group PLC (Banks and Credit Cos.)* 813 12,669
LucasVarity PLC (Automotive) 6,050 24,431
PowerGen PLC (Utilities-Electric)* 611 8,543
Sema Group PLC (Computer Software - Systems) 240 9,483
Standard Chartered PLC (Banks and Credit Cos.) 800 11,609
Tanjong PLC (Entertainment) 9,000 22,005
Taylor Nelson AGB (Advertising) 3,600 6,545
Williams PLC (Diversified Manufacturing) 2,530 20,221
----------------
$ 188,065
Venezuela - 1.0%
Compania Anonima Nacional Telefonos de Venezuela, ADR (Telecommunications) 300 $ 12,544
Total Foreign Stocks $ 1,252,622
U.S. Stocks - 1.2%
Medical and Health Products - 0.9%
American Home Products Corp. 120 $ 11,445
Telecommunications - 0.3%
Global TeleSystems Group, Inc.* 100 $ 4,675
Total U.S. Stocks $ 16,120
Total Stocks (Identified Cost, $1,098,047) $ 1,268,742
Principal Amount
(000 Omitted)
- -------------------------------------------------------------------------------------------------------------------
Short-Term Obligations -- 2.7%
General Electric Co., due 4/01/98, at Amortized Cost $ 35 $ 35,000
Total Investments (Identified Cost, $1,133,047 ) $ 1,303,742
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Other Assets, Less Liabilities -- (1.4%) (18,607)
Net Assets -- 100.0% $ 1,285,135
</TABLE>
* Non-income producing security
## SEC Rule 144A restriction
+ Restricted Security
See notes to financial statements
<PAGE>
<TABLE>
<S> <C> <C>
MFS International Strategic Growth Fund
Portfolio of Investments (Unaudited) - March 31, 1998
Issuer Shares Value
Stocks - 95.1%
Australia - 3.2%
QBE Insurance Group Ltd. (Insurance) 5,700 $ 24,919
Seven Network Ltd. (Entertainment) 3,900 14,338
----------------
$ 39,257
Canada - 4.5%
Canadian National Railway Co. (Railroads) 780 $ 49,920
Legacy Hotel Real Estate Investment Trust (Real Estate)*## 800 5,240
----------------
$ 55,160
Chile - 1.6%
Chilectra S.A., ADR (Utilities - Electric) 750 $ 20,250
Finland - 3.5%
Huhtamaki Oy Group (Conglomerate) 185 $ 10,060
Pohjola Insurance Co. "A", (Insurance) 330 15,296
TT Tieto Oy (Computer Software - Systems) 105 17,783
----------------
$ 43,139
France - 6.4%
Renault S.A. (Automobiles) 200 $ 8,914
TOTAL S.A., "B" (Oils) 170 20,423
TV Francaise (Broadcasting) 150 18,650
Union des Assurances Federales S.A. (Insurance) 185 30,411
----------------
$ 78,398
Germany - 6.7%
Adidas-Salomon AG (Apparel and Textiles) 90 $ 15,969
Henkel KGaA (Chemicals) 630 45,811
Wella AG (Cosmetics) 25 21,506
----------------
$ 83,286
Greece - 0.4%
Hellenic Telecommunication Organization S.A., GDR (Telecommunications) 200 $ 5,010
Hong Kong - 1.3%
Wing Hang Bank Ltd. (Banks and Credit Cos.) 5,500 $ 16,326
Ireland - 3.4%
Anglo Irish Bank Corp. PLC (Banks and Credit Cos.)* 17,891 $ 41,670
Italy - 1.8%
Banca Carige S.p.A (Banks and Credit Cos.) 1,200 $ 13,435
ERG S.p.A. (Oils)* 2,000 9,336
----------------
$ 22,771
Japan - 10.5%
Canon, Inc., ADR (Special Products and Services) 700 $ 15,969
Eisai Co. Ltd. (Pharmaceuticals) 1,000 13,718
Kinki Coca-Cola Bottling Co. (Beverages) 1,000 11,319
Kirin Beverage Corp. (Beverages) 1,000 19,116
Nitto Denko Corp. (Industrial Goods and Services) 1,000 14,543
Sony Corp. (Electronics) 100 8,471
Sony Corp., ADR (Electronics) 230 19,564
Tokyo Broadcasting System, Inc. (Broadcasting) 1,000 11,469
Ushio, Inc. (Electronics) 2,000 15,442
----------------
$ 129,611
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Malaysia - 0.8%
New Straits Times Press Berhad (Printing and Publishing) 6,000 $ 9,396
Mexico - 0.3%
TV Azteca, S.A. de C.V., ADR (Broadcasting)* 200 $ 3,925
Netherlands - 11.2%
Akzo Nobel N.V. (Chemicals) 200 $ 40,649
Benckiser N.V. (Consumer Goods and Services)* 560 30,933
Brunel International N.V. (Human Resources) 620 18,448
IHC Caland N.V. (Transportation) 170 9,391
Ing Groep N.V. (Financial Services) 420 23,845
Koninklijke Ahrend Groep N.V. (Conglomerate)* 430 15,230
----------------
$ 138,496
Peru - 1.0%
Luz del Sur S.A. (Utilities - Electric) 1,790 $ 1,950
Telefonica del Peru S.A., ADR (Telecommunications) 500 10,781
----------------
$ 12,731
Portugal - 4.8%
Banco Espirito Santo e Comercial de Lisboa S.A. (Banks and Credit Cos.) 330 $ 15,253
Banco Totta & Acores S.A. (Banks and Credit Cos.) 700 25,959
Portugal Telecom S.A. (Utilities - Telephone) 350 18,214
----------------
$ 59,426
Singapore - 2.2%
Hong Leong Finance Ltd. (Finance) + 7,000 $ 11,923
Overseas Union Bank (Finance) 4,000 15,609
----------------
$ 27,532
Spain - 2.7%
Acerinox S.A. (Iron and Steel) 100 $ 16,446
Repsol S.A. (Oils) 320 16,338
----------------
$ 32,784
Sweden - 6.9%
Astra AB (Pharmaceuticals) 1,100 $ 21,835
Skandia Forsakrings AB (Insurance) 330 21,464
Sparbanken Sverige AB, "A" (Banks and Credit Cos.) 770 25,330
Volvo AB, "B" (Automobiles) 530 16,840
----------------
$ 85,469
Switzerland - 2.9%
Ciba Specialty AG (Chemicals)* 170 $ 21,752
Novartis AG (Pharmaceuticals) 8 14,163
----------------
$ 35,915
United Kingdom - 18.1%
ASDA Group PLC (Supermarkets) 6,200 $ 20,803
Avis Europe PLC (Auto Rental)## 3,500 14,222
British Aerospace PLC (Aerospace and Defense)* 1,300 42,847
British Petroleum PLC (Oils)* 1,714 24,685
Carlton Communicatons PLC (Broadcasting) 1,100 8,773
Diageo PLC (Food and Beverages) 909 10,723
Lloyds TSB Group PLC (Banks and Credit Cos.) 1,090 16,986
LucasVarity PLC (Automotive) 5,800 23,421
PowerGen PLC (Utilities-Electric)* 1,000 13,983
Tanjong PLC (Entertainment) 10,000 24,451
Tomkins PLC (Conglomerate) 3,600 22,032
----------------
$ 222,926
Venezuela - 0.9%
Compania Anonima Nacional Telefonos de Venezuela, ADR (Telecommunications) 270 $ 11,289
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Total Stocks (Identified Cost, $1,032,071) $ 1,174,767
Principal Amount
(000 Omitted)
- -------------------------------------------------------------------------------------------------------------------
Short-Term Obligations -- 5.7%
Federal Home Loan Bank, due 4/01/98, at Amortized Cost $ 70 $ 70,000
Total Investments (Identified Cost, $1,102,071 ) $ 1,244,767
Other Assets, Less Liabilities -- (0.8%) (9,910)
Net Assets -- 100.0% $ 1,234,857
</TABLE>
* Non-income producing security ## SEC Rule 144A restriction +
Restricted Security See notes to financial statements
<PAGE>
MFS International Value Fund
Portfolio of investments (Unaudited) - March 31, 1998
Stocks - 93.8%
Foreign Stocks - 86.7%
<TABLE>
<S> <C> <C>
Australia - 2.5%
QBE Insurance Group Ltd. (Insurance) 3,250 $ 14,208
Seven Network Ltd. (Entertainment) 4,400 16,176
$ 30,384
Austria - 0.4%
Austria Tabak AG (Tobacco)* 100 $ 5,314
Brazil - 3.4%
Cia Cervejaria Brahma, ADR (Beverages) 1,300 $ 20,150
Hunter Douglas N.V., ADR (Consumer Goods and Services)* 465 21,200
$ 41,350
Canada - 1.6%
Canadian National Railway Co. (Railroads) 300 $ 19,200
Chile - 1.6%
Enersis S.A., ADR (Utilities-Electric) 600 $ 18,938
France - 13.2%
Alcatel Alsthom Compagnie (Telecommunications) 150 $ 28,169
Pin Printemps Redo (Real Estate Investment Trust) 26 20,110
Renault Regie Nationale (Automobiles) 225 10,028
Sanofi (Medical and Health Products) 120 13,777
Seita (Tobacco) 625 24,524
Total SA, ADR (Oils) 370 22,223
TV Francaise (Broadcasting) 100 12,434
Union des Assurances Federales S.A. (Insurance) 175 28,767
$ 160,032
Germany - 8.4%
Adidas-Salomon AG (Apparel and Textiles) 100 $ 17,743
Henkel KGaA (Chemicals) 300 21,815
Mannesmann AG (Diversified Machinery) 35 25,640
Prosieben Media AG (Entertainment)* 300 15,663
Wella AG (Cosmetics) 25 21,506
$ 102,367
Hong Kong - 1.1%
Wing Hang Bank Ltd. (Banks and Credit Cos.) 4,500 $ 13,358
Italy - 3.6%
Instituto Nazionale delle Assicurazioni (Insurance) 6,000 $ 19,462
Telecom Italia S.p.A. (Telecommunications)* 4,000 24,522
$ 43,984
Japan - 6.5%
Aiful Corp. (Financial Services) 100 $ 6,297
Canon, Inc. (Office Equipment) 1,000 22,564
Sony Corp., ADR (Electronics) 200 17,013
Terumo Corp. (Pharmaceuticals) 1,000 14,018
Tokyo Broadcasting System, Inc. (Broadcasting) 1,000 11,469
Ushio, Inc. (Electronics) 1,000 7,721
$ 79,082
Malaysis - 1.4%
Tanjong PLC (Entertainment) 7,000 $ 17,115
Netherlands - 7.3%
Akzo Nobel N.V. (Chemicals) 120 $ 24,389
Benckiser N.V. (Consumer Goods and Services)* 200 11,048
Hunter Douglas N.V., ADR (Consumer Goods and Services)* 465 21,100
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
IHC Caland N.V. (Transportation)* 350 19,333
Koninklijke Ten Cate (Conglomerate)* 320 11,334
Royal Dutch Petroleum Co., ADR (Oils) 400 22,725
$ 88,829
Norway - 1.8%
Christiania Bank (Banks and Credit Cos.) 5,000 $ 21,243
Peru - 1.0%
Telefonica del Peru S.A., ADR (Telecommunications) 550 $ 11,859
Portugal - 2.4%
Banco Totta E Acores (Banks and Credit Cos.) 800 $ 29,667
Singapore - 0.8%
Hong Leong Finance Ltd. (Finance) + 6,000 $ 10,220
Spain - 1.4%
Acerinox S.A. (Iron and Steel) 100 $ 16,446
Sweden - 6.6%
Astra AB (Pharmaceuticals) 1,200 $ 23,820
Securitas AB, "B" (Commercial Services) 190 6,452
Skandia Forsakrings AB (Insurance) 200 13,009
Sparbanken Sverige AB, "A" (Banks and Credit Cos.) 750 24,672
Volvo AB, "B" (Automobiles) 400 12,709
$ 80,662
Switzerland - 2.2%
Nestle AG, Registered Shares (Food and Beverage Products) 14 $ 26,760
United Kingdom - 20.9%
ASDA Group PLC (Supermarkets) 5,100 $ 17,112
Avis Europe PLC (Auto Rental)## 8,000 32,507
Bank of Scotland (Banks and Credit Cos.)* 1,500 17,795
Booker PLC (Food - Wholesale)* 3,600 15,684
British Aerospace PLC (Aerospace and Defense)* 500 16,480
Compass Group PLC (Food - Catering) 1,500 25,561
Gallaher Group (Tobacco) 4,000 22,017
LucasVarity PLC (Automotive) 6,000 24,229
PowerGen PLC (Utilities-Electric)* 1,600 22,373
Tanjong PLC (Entertainment) 7,000 17,115
Tomkins PLC (Conglomerate) 2,650 16,218
Williams PLC (Diversified Manufacturing) 3,300 26,376
$ 253,467
Total Foreign Stocks $ 1,053,162
U.S. Stocks - 7.1%
Construction Services - 1.9%
Martin Marietta Materials, Inc. 550 $ 23,753
Insurance - 1.9%
Transamerica Corp. 200 $ 23,300
Medical and Health Products - 1.6%
American Home Products Corp. 200 $ 19,075
Telecommunications - 1.7%
Sprint Corp. 300 $ 20,306
Total U.S. Stocks $ 86,434
Total Stocks (Identified Cost, $992,754) $ 1,139,596
Principal Amount
(000 Omitted)
- -------------------------------------------------------------------------------------------------------------------
Short-Term Obligations -- 6.2%
Federal Home Loan Bank, due 4/01/98, at Amortized Cost $ 75 $ 75,000
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Total Investments (Identified Cost, $1,067,754 ) $ 1,214,596
Other Assets, Less Liabilities -- 0.0% 0
Net Assets -- 100.0% $ 1,214,596
* Non-income producing security ## SEC Rule 144A restriction +
Restricted Security See notes to financial statements
</TABLE>
<PAGE>
Financial Statements
Statements of Assets and Liabilities (Unaudited)
<TABLE>
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
Asia International International International
Pacific Opportunities Strategic Value
March 31, 1998 Fund Fund Growth Fund Fund
- ---------------------------------------------------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $2,348,950, $1,133,047,
$1,102,071, and $1,067,754, respectively) $ 2,197,134 $ 1,303,742 $ 1,244,767 $ 1,214,596
Cash
4,585 1,099 1,780 291
Foreign currency, at value (identified cost, $1,733, $249,
$840, and $232, respectively)
1,755 251 829 232
Receivable for investments sold
23,099 4,269 3,687 6,852
Interest and dividends receivable
3,857 2,283 1,830 1,444
----------------------------- -------------- --------------
Total assets $ 2,230,430 $ 1,311,644 $ 1,252,893 $ 1,223,415
----------------------------- -------------- --------------
Liabilities:
Securities sold short, at value (proceeds received, $23,099) $ 23,077 $ - $ - $ -
Payable for investments purchased
21,645 17,174 10,714 6,361
Net payable for forward foreign currency exchange
contracts to sell 6,442 - - -
Net payable for forward foreign currency exchange
contracts closed or subject to master netting agreements - 5,384 4,146 -
Payable to affiliates -
Shareholder servicing agent fee 7 - - -
Accrued expenses and other liabilities 4,953 3,951 3,440 3,265
----------------------------- -------------- --------------
Total liabilities $ 56,124 $ 26,509 $ 18,300 $ 9,626
----------------------------- -------------- --------------
Net Assets $ 2,174,306 $ 1,285,135 $ 1,234,593 $ 1,213,789
----------------------------- -------------- --------------
Net Assets consist of:
Paid-in capital $ 2,414,600 $ 1,152,493 $ 1,078,112 $ 1,049,733
Unrealized appreciation (depreciation) on investments and
translation of assets and liabilities in foreign
currencies (158,218) 165,293 138,545 146,822
Accumulated undistributed net realized gain (loss) on investments
and foreign currency transactions (82,884) (31,053) 19,206 14,528
Accumulated undistributed net investment income (loss) 808 (1,598) (1,270 2,706
----------------------------- -------------- --------------
Total $ 2,174,306 $ 1,285,135 $ 1,234,593 $ 1,213,789
----------------------------- -------------- --------------
Shares of beneficial interest outstanding:
Class A
206,053 64,107 38,081 96,005
Class I
42,381 51,267 69,866 8,911
----------------------------- -------------- --------------
Total shares of beneficial interest outstanding
248,434 115,374 107,947 104,916
----------------------------- -------------- --------------
Net Assets:
Class A $ 1,803,281 $ 714,084 $ 435,494 $ 1,110,641
Class I
371,025 571,051 799,099 103,148
----------------------------- -------------- --------------
Total net assets $ 2,174,306 $ 1,285,135 $1,234,593 $ 1,213,789
----------------------------- -------------- --------------
Class A shares:
Net asset value and offering price per share
(net assets - shares of beneficial interest outstanding) $ 8.75 $ 11.14 $ 11.44 $ 11.57
----------------------------- -------------- --------------
Class I shares:
Net asset value and offering and redemption price per share
(net assets - shares of beneficial interest outstanding) $ 8.75 $ 11.14 $ 11.44 $ 11.58
----------------------------- -------------- --------------
</TABLE>
See notes to financial statements
<PAGE>
Financial Statements
Statements of Operations (Unaudited)
<TABLE>
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
Asia International International International
Pacific Opportunities Strategic Value
Period Ended March 31, 1998* Fund Fund Growth Fund Fund
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income:
Income -
Dividends $ 8,864 $ 4,983 $ 2,965 $ 3,700
Interest 10,347 3,093 5,433 7,993
Foreign taxes whitheld (1,109) (587) (678) (387)
----------------------------- -------------- --------------
Total investment income $ 18,102 $ 7,489 $ 7,720 $ 11,306
----------------------------- -------------- --------------
Expenses -
Management fee $ 9,029 $ 5,021 $ 5,009 $ 4,751
Shareholder servicing agent fee 378 614 578 553
Distribution and service fee - Class A 3,850 1,446 878 2,250
Administrative fee 50 62 62 59
Registration fee 4,885 5,875 5,875 5,875
Auditing fee 2,900 2,750 2,750 3,250
Postage 41 21 251 250
Printing 500 2,300 2,300 2,300
Legal fee 908 713 525 613
Custodian fee 2,535 2,696 1,484 1,427
Miscellaneous 188 - 804 476
----------------------------- -------------- --------------
Total expenses $ 25,264 $ 21,498 $ 20,516 $ 21,804
----------------------------- -------------- --------------
Fees paid indirectly (37) (62) (153) (122)
Preliminary reduction of expenses by investment adviser
and distributor (12,879) (12,349) (11,373) (13,082)
----------------------------- -------------- --------------
Net expenses $ 12,348 $ 9,087 $ 8,990 $ 8,600
----------------------------- -------------- --------------
----------------------------- -------------- --------------
Net investment income (loss) $ 5,754 $ (1,598) $ (1,270) $ 2,706
----------------------------- -------------- --------------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $ (84,115) $ (30,753) $ 19,328 $ 14,404
Foreign currency transactions 1,231 (300) (122) 124
----------------------------- -------------- --------------
Net realized gain (loss) on investments and foreign currency
transactions $ (82,884) $ (31,053) $ 19,206 $ 14,528
----------------------------- -------------- --------------
Change in unrealized appreciation (depreciation) -
Investments $ (151,816) $ 170,695 $ 142,685 $ 146,841
Securities sold short 22 - - -
Translation of assets and liabilities in foreign currencies (6,424) (5,402) (4,140) (19)
----------------------------- -------------- --------------
----------------------------- -------------- --------------
Net change in unrealized appreciation (depreciation) $ (158,218) $ 165,293 $ 138,545 $ 146,822
----------------------------- -------------- --------------
Net realized and unrealized gain (loss) on investments and
foreign currency $ (241,102) $ 134,240 $ 157,751 $ 161,350
----------------------------- -------------- --------------
Increase (decrease) in net assets from operations $ (235,348) $ 132,642 $ 156,481 $ 164,056
----------------------------- -------------- --------------
</TABLE>
*For the period from the commencement of the Fund's investment operations,
October 9,1997, through March 31, 1998.
See notes to financial statements
<PAGE>
Financial Statements
Statements of Changes in Net Assets (Unaudited)
<TABLE>
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
Asia International International International
Pacific Opportunities Strategic Value
Period Ended March 31, 1998* Fund Fund Growth Fund Fund
- ---------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets:
From operations -
Net investment income (loss) $ 5,754 $ (1,598) $ (1,270) $ 2,706
Net realized gain (loss) on investments and foreign currency
transactions
(82,884) (31,053) 19,206 14,528
Net unrealized gain (loss) on investments and foreign currency
translation (158,218) 165,293 138,545 146,822
----------------------------- -------------- --------------
Increase (decrease) in net assets from operations $ (235,348) $ 132,642 $ 156,481 $ 164,056
----------------------------- -------------- --------------
Distributions delcared to shareholders:
From net investment income - Class A $ (4,075) $ - $ - $ -
From net investment income - Class I (871) - - -
----------------------------- -------------- --------------
Total distributions declared to shareholders $ (4,946) $ - $ - $ -
----------------------------- -------------- --------------
----------------------------- -------------- --------------
Net increase in net assets from Fund shares transactions $ 2,414,600 $ 1,152,493 $ 1,078,112 $ 1,049,733
----------------------------- -------------- --------------
Total increase in net assets $ 2,174,306 $ 1,285,135 $ 1,234,593 $ 1,213,789
Net assets:
At beginning of period
- - - -
----------------------------- -------------- --------------
At end of period (including accumulated undistributed net
investment income (loss) of $808, $(1,598), $(1,270), and
$3,046, respectively) $ 2,174,306 $ 1,285,135 $ 1,234,593 $ 1,213,789
----------------------------- -------------- --------------
</TABLE>
*For the period from the commencement of the Fund's investment operations,
October 9, 1997, through March 31, 1998.
See notes to financial statements
<PAGE>
Financial Highlights
<TABLE>
<S> <C> <C> <C>
International Opportunities International Strategic International Value
Growth Fund
Period Ended March 31, 1998* Class A Class I Class A Class I Class A Class I
Per share data (for a share outstanding throughout the period):
Net asset value - beginning of period $10.00 $10.00 $10.00 $10.00 $10.00 $10.00
Income from investment operations# --
Net investment income (loss)ss. $(0.01) $(0.01) $(0.01) $(0.01) $0.03 $0.03
Net realized and unrealized gain (loss) on
investments and foreign currency transactions 1.15 1.15 1.45 1.45 1.54 1.55
Total from investment $1.14 $1.14 $1.44 $1.44 $1.57 $1.58
operations
Net asset value -- end of period $11.14 $11.14 $11.44 $11.44 $11.57 $11.58
Total 11.40%++ 11.40%++ 14.40%++ 14.40%++ 15.70%++ 15.80%++
return
Ratios (to average net assets)/Supplemental
datass.:
Expenses 1.75%+ 1.75%+ 1.75%+ 1.75%+ 1.75%+ 1.75%+
Net investment income (loss) (0.24)%+ (0.24)%+ (0.24)%+ (0.25)%+ 0.55%+ 0.56%+
Portfolio turnover 74% 74% 33% 33% 25% 25%
Average commission rate $0.0127 $0.0127 $0.0256 $0.0256 $0.0286 $0.0286
Net assets at end of period (000 omitted) $714 $571 $435 $799 $1,111 $103
</TABLE>
* For the period from the commencement of investment operations, October 9,
1997, through March 31, 1998.
+ Annualized.
++ Not Annualized.
# Per share data are based on average shares outstanding.
## The Fund's expenses are calculated without reduction for fees paid
indirectly. ss. Subject to reimbursement by the Funds, the investment
adviser agreed to maintain the expenses of the Funds at not more than
1.75% of the Funds' average daily net assets. The investment adviser and
distributor did not impose any of their fees for the periods indicated.
If the fees had been incurred by the Funds' and/or if actual expenses
had been over/under this limitation, the net investment loss per share and
the ratios would have been:
<TABLE>
<S> <C> <C> <C> <C> <C>
Net investment loss $(0.15) $(0.12) $(0.13) $(0.11) $(0.10) $(0.08)
Ratios (to average net assets):
Expenses## 4.36%+ 3.86%+ 4.32%+ 3.82%+ 4.48%+ 3.98%+
Net investment loss (2.85)%+ (2.35)%+ (2.81)%+ (2.32)%+ (2.18)%+ (1.67)%+
</TABLE>
See notes to financial statements
<PAGE>
Financial Highlights
<TABLE>
<S> <C> <C>
Asia Pacific Fund
Period Ended March 31, 1998* Class A Class I
Per share data (for a share outstanding throughout the period):
Net asset value - beginning of period $10.00 $10.00
Income from investment operations# --
Net investment incomess. $0.03 $0.02
Net realized and unrealized loss
on
investments and foreign currency transactions (1.26) (1.25)
Total from investment ($1.23) ($1.23)
operations
Less distributions declared to shareholders from
net investment income $(0.02) $(0.02)
Net asset value -- end of period $8.75 $8.75
Total (12.26)%++ (12.26)%++
return
Ratios (to average net assets)/Supplemental
datass.:
Expenses ## 1.34%+ 1.34%+
Net investment income (loss) 0.64%+ 0.55%+
Portfolio turnover 21% 21%
Average commission rate $0.0157 $0.0157
Net assets at end of period (000 omitted) $1,803 $371
</TABLE>
* For the period from the commencement of investment operations, October 9,
1997, through March 31, 1998.
+ Annualized.
++ Not Annualized.
# Per share data are based on average shares outstanding.
## The Fund's expenses are calculated without reduction for fees paid
indirectly.
ss. The investment adviser and distributor did not impose any of their fees for
the periods indicated. If the fees had been incurred by the Fund, the net
investment loss per share and the ratios would have been:
<TABLE>
<S> <C> <C>
Net investment loss $(0.01) $(0.02)
Ratios (to average net assets):
Expenses## 2.84%+ 2.34%+
Net investment loss (0.86)%+ (0.45)%+
</TABLE>
See notes to financial statements
<PAGE>
- -------------------------------------------------------------------------------
Notes to Financial Statements (Unaudited)
- -------------------------------------------------------------------------------
(1) Business and Organization
MFS Asia Pacific Fund, MFS International Opportunities Fund, MFS International
Strategic Growth Fund, and MFS International Value Fund (the Funds) are
diversified series of MFS Series Trust V (the Trust). The Trust is organized as
a Massachusetts business trust and is registered under the Investment Company
Act of 1940, as amended, as an open-end management investment company.
(2) Significant Accounting Policies
General The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Investment Valuations
Equity securities listed on securities exchanges or reported through the NASDAQ
system are reported at market value using last sale prices. Unlisted equity
securities or listed equity securities for which last sale prices are not
available are reported at market value using last quoted bid prices. Short-term
obligations, which mature in 60 days or less, are valued at amortized cost,
which approximates market value. Investments in foreign securities are
vulnerable to the effects of changes in the relative values of the local
currency and the U.S. dollar and to the effects of changes in each country's
legal, political, and economic environment. Securities for which there are no
such quotations or valuations are valued at fair value as determined in good
faith by or at the direction of the Trustees.
Foreign Currency Translation - Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars based upon current exchange rates. Purchases and
sales of foreign investments, income, and expenses are converted into U.S.
dollars based upon currency exchange rates prevailing on the respective dates of
such transactions. Gains and losses attributable to foreign currency exchange
rates on sales of securities are recorded for financial statement purposes as
net realized gains and losses on investments. Gains and losses attributable to
foreign exchange rate movements on income and expenses are recorded for
financial statement purposes as foreign currency transaction gains and losses.
That portion of both realized and unrealized gains and losses on investments
that results from fluctuations in foreign currency exchange rates is not
separately disclosed.
Forward Foreign Currency Exchange Contracts - The Funds may enter into forward
foreign currency exchange contracts for the purchase or sale of a specific
foreign currency at a fixed price on a future date. Risks may arise upon
entering into these contracts from the potential inability of counterparties to
meet the terms of their contracts and from unanticipated movements in the value
of a foreign currency relative to the U.S. dollar. The Funds will enter into
forward contracts for hedging purposes as well as for non-hedging purposes. For
hedging purposes, the Funds may enter into contracts to deliver or receive
foreign currency it will receive from or require for its normal investment
activities. The Funds may also use contracts in a manner intended to protect
foreign currency-denominated securities from declines in value due to
unfavorable exchange rate movements. For non-hedging purposes, the Funds may
enter into contracts with the intent of changing the relative exposure of the
Funds' portfolio of securities to different currencies to take advantage of
anticipated changes. The forward foreign currency exchange contracts are
adjusted by the daily exchange rate of the underlying currency and any gains or
losses are recorded as
8
<PAGE>
unrealized until the contract settlement date. On contract settlement date, the
gains or losses are recorded as realized gains or losses on foreign currency
transactions.
Short Sales - Each Fund may enter into short sales. A short sale transaction
involves selling a security which the Funds do not own with the intent of
purchasing it later at a lower price. The Fund will realize a gain if the
security price decreases and a loss if the security price increases between the
date of the short sale and the date on which the Fund must replace the borrowed
security. Losses can exceed the proceeds from short sales and can be greater
than losses from the actual purchase of a security. 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. Whenever a Fund engages in short sales, its custodian
segregates cash or marketable securities in an amount that, when combined with
the amount of proceeds deposited with the broker in connection with the short
sale, at least equals the current market value of the security sold short.
Investment Transactions and Income - Investment transactions are recorded on the
trade date. Interest income is recorded on the accrual basis. All discount is
accreted for financial statement and tax reporting purposes as required by
federal income tax regulations. Dividends received in cash are recorded on the
ex-dividend date. Dividend and interest payments received in additional
securities are recorded on the ex-dividend or ex-interest date in an amount
equal to the value of the security on such date.
Fees Paid Indirectly - The Funds' custody fee is calculated as a percentage of
the Funds' average daily net assets. The fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by the
Funds. This amount is shown as a reduction of expenses on the Statement of
Operations.
Tax Matters and Distributions - Each Fund's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided. Each Fund files a tax
return annually using tax accounting methods required under provisions of the
Code, which may differ from generally accepted accounting principles, the basis
on which these financial statements are prepared. Accordingly, the amount of net
investment income and net realized gain reported on these financial statements
may differ from that reported on the Fund's tax return and, consequently, the
character of distributions to shareholders reported in the financial highlights
may differ from that reported to shareholders on Form 1099-DIV.
Distributions to shareholders are recorded on the ex-dividend date. Each Fund
distinguishes between distributions on a tax basis and a financial reporting
basis and requires that only distributions in excess of tax basis earnings and
profits are reported in the financial statements as a tax return of capital.
Differences in the recognition or classification of income between the financial
statements and tax earnings and profits, which result in temporary
over-distributions for financial statement purposes are classified as
distributions in excess of net investment income or net realized gains.
Multiple Classes of Shares of Beneficial Interest
The Funds offer multiple classes of shares, which differ in their respective
distribution and service fees. All shareholders bear the common expenses of the
Funds based on average daily net assets of each class, without distinction
between share classes. Dividends are declared separately for each class. No
class has preferential dividend rights; differences in per share dividend rates
are generally due to differences in separate class expenses.
9
<PAGE>
(3) Transactions with Affiliates
Investment Adviser - Each Fund has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. For the MFS
Asia Pacific Fund, the management fee is computed daily and paid monthly at an
annual rate of 1.00% of average daily net assets. The management fee for MFS
International Opportunities Fund, MFS International Strategic Growth Fund, and
MFS International Value Fund is computed daily and paid monthly at the following
annual rates:
First $500 million of average net assets 0.975%
Average net assets in excess of $500 million 0.925%
The investment adviser has voluntarily agreed to waive its fee, which is
reflected as a preliminary reduction of expenses in the Statement of Operations.
Each Fund has a temporary expense reimbursement agreement whereby MFS has
voluntarily agreed to pay all of the Fund's operating expenses, exclusive of
management, distribution, and service fees. Each Fund in turn will pay MFS an
expense reimbursement fee not greater than 1.75% of average daily net assets. To
the extent that the expense reimbursement fee exceeds each Fund's actual
expenses, the excess will be applied to amounts paid by MFS in prior years. At
March 31, 1998, the aggregate unreimbursed expenses owed to MFS by the Funds
amounted to:
International International International
Opportunities Strategic Growth Value
Fund Fund Fund
$5,882 $5,486 $ 6,164
Administrator - Each Fund has an administrative services agreement with MFS to
provide the Fund with certain financial, legal, shareholder servicing,
compliance, and other administrative services. As a partial reimbursement for
the cost of providing these services, each Fund pays MFS an administrative fee
at the following annual percentages of the Funds' average daily net assets:
First $1 billion 0.0150%
Next $1 billion 0.0125%
Next $1 billion 0.0100%
In excess of $3 billion 0.0000%
Each Fund pays no compensation directly to its Trustees who are officers of the
investment adviser, or to officers of each Fund, all of whom receive
remuneration for their services to each Fund from MFS. Certain officers and
Trustees of the Funds are officers or directors of MFS, MFS Fund Distributors,
Inc. (MFD), and MFS Service Center, Inc. (MFSC). The Trustees are currently not
receiving any payments for their services to each Fund.
The Trustees have adopted a distribution plan for Class A and Class I shares
pursuant to Rule 12b-1 of the Investment Company Act of 1940 as follows:
Each Fund's distribution plan provides that each Fund will pay MFD up to 0.50%
per annum of its average daily net assets attributable to Class A shares in
order that MFD may pay expenses on behalf of each Fund related to the
distribution and servicing of its shares. These expenses include a service fee
paid to each securities dealer that enters into a sales agreement with MFD of up
to 0.25% per annum of each Fund's average daily net assets attributable to Class
A shares which are attributable to that securities dealer and a distribution fee
to MFD of up to 0.25% per annum of each Fund's average daily net assets
attributable to Class A shares, commissions to dealers and payments to MFD
wholesalers for sales at or above a certain
10
<PAGE>
dollar level, and other such distribution-related expenses that are approved by
the Trustees. Distribution and service fees under the Class A distribution plan
are currently being waived.
Certain Class A shares are subject to a contingent deferred sales charge in the
event of a shareholder redemption within 12 months following purchase. MFD
receives all contingent deferred sales charges. There were no contingent
deferred sales charges imposed during the period ended March 31, 1998.
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earns a
fee for its services as shareholder servicing agent. The fee is calculated as a
percentage of each Fund's average daily net assets at an effective annual rate
of 0.1125% . Prior to January 1, 1998, the fee was calculated as a percentage of
each Fund's average daily net assets at an effective annual rate of 0.13%.
(4) Portfolio Securities
Purchases and sales of investments, other than purchased option transactions and
short-term obligations, were as follows:
<TABLE>
<S> <C> <C> <C> <C>
International International Strategic International
Asia Pacific Fund Opportunities Fund Growth Fund Value Fund
Purchases
Investments $2,615,041 $1,793,311 $1,349,430 $1,151,878
Sales
Investments $355,076 $664,512 $336,640 $173,527
</TABLE>
The cost and unrealized appreciation or depreciation in value of the investments
owned by the Funds, as computed on a federal income tax basis, are as follows:
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
Asia International International International
Pacific Opportunities Strategic Growth Value
Fund Fund Fund Fund
- ------------------------------------------ ----------------------------------- -----------------------------------
Aggregate cost $2,348,950 $1,133,047 $1,102,071 $1,067,754
Gross unrealized appreciation 70,269 $ 191,511 $ 178,563 $ 172,015
Gross unrealized depreciation (222,085) (20,816) (35,867) (25,173)
================ =============== ================ ==============
Net unrealized appreciation $(151,816) $ 170,695 $ 142,696 $ 146,842
(depreciation)
================ =============== ================ ==============
</TABLE>
(5) Shares of Beneficial Interest
The Funds' Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
<TABLE>
<S> <C> <C> <C>
Class A Shares Period Ended March 31, 1998*
- --------------------------------------------------------------------------------------------------------------------
Asia Pacific International Opportunities
Fund Fund
------------------------------------ ------------------------------------
Amount Amount
Shares Shares
==========================================================================================================
Shares sold 206,374 $2,023,811 64,108 $640,938
Shares issued to shareholders
in 498 4,074
</TABLE>
11
<PAGE>
<TABLE>
<S> <C> <C> <C>
reinvestment of distributions
Shares reacquired (819) (5,680) (1) (5)
================ =============== ================= ===============
Net increase 206,053 $2,022,205 64,107 $640,933
================ =============== ================= ===============
Class A Shares Period Ended March 31, 1998*
- --------------------------------------------------------------------------------------------------------------------
International Strategic Growth International Value
Fund Fund
----------------------------------- ------------------------------------
Amount Amount
Shares Shares
========================================= ================ == =============== == ================= == ===============
Shares sold 38,181 $382,553 96,025 $960,810
Shares reacquired (100) (1,064) (20) (201)
================ =============== ================= ===============
Net increase 38,081 $381,489 96,025 $960,609
================ =============== ================= ===============
Class I Shares Period Ended March 31, 1998*
- --------------------------------------------------------------------------------------------------------------------
Asia Pacific International Opportunities
Fund Fund
----------------------------------- ------------------------------------
Amount Amount
Shares Shares
========================================= ================ == =============== == ================= == ===============
Shares sold 47,761 $437,074 51,267 $511,560
Shares issued to shareholders in
reinvestment of distributions 107 871
Shares reacquired (5,487) (45,550) 0 0
================ =============== ================= ===============
Net increase 42,381 $392,395 51,267 $511,560
================ =============== ================= ===============
Class I Shares Period Ended March 31, 1998*
- --------------------------------------------------------------------------------------------------------------------
International Strategic Growth International
Fund Value Fund
----------------------------------- ------------------------------------
Shares Amount Amount
Shares
========================================= ================ == =============== == ================= == ===============
Shares sold 72,391 $ 723,594 8,911 $89,124
Shares issued to shareholders in
reinvestment of distributions
Shares reacquired (2,525) (26,971) 0 0
================ =============== ================= ===============
Net increase 69,866 $ 696,623 8,911 $89,124
================ =============== ================= ===============
</TABLE>
* For the period from the commencement of investment operations, October 9,
1997, through March 31, 1998.
(6) Line of Credit
Each Fund and other affiliated funds participate in a $805 million unsecured
line of credit provided by a syndication of banks under a line of credit
agreement. Borrowings may be made to temporarily finance the repurchase of each
Fund's shares. Interest is charged to each fund, based on its borrowings, at a
rate equal to the bank's base rate. In addition, a commitment fee, based on the
average daily unused portion of the line of credit, is allocated among the
participating funds at the end of each quarter. The commitment fee allocated to
the Funds for the period ended March 31, 1998, were as follows:
<TABLE>
<S> <C> <C> <C>
International International Strategic International
Asia Pacific Fund Opportunities Fund Growth Fund Value Fund
$5 $2 $2 $4
</TABLE>
12
<PAGE>
(7) Financial Instruments
The Funds trade financial instruments with off-balance-sheet risk in the normal
course of its investing activities in order to manage exposure to market risks
such as interest rates and foreign currency exchange rates. These financial
instruments include short sales and forward foreign currency exchange contracts.
The notional or contractual amounts of these instruments represent the
investment the Funds have in particular classes of financial instruments and
does not necessarily represent the amounts potentially subject to risk. The
measurement of the risks associated with these instruments is meaningful only
when all related and offsetting transactions are considered.
Forward Foreign Currency Exchange Contracts
Asia Pacific Fund:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Settlement Date Contracts to Deliver Contracts at Value Net Unrealized
In Exchange for Depreciation
Sales 5/15/98 MYR 335,713 $88,160 $91,595 $3,435
5/15/98 SGD 185,898 112,000 115,007 3,007
$6,442
</TABLE>
International Opportunities Fund:
Forward foreign currency purchases and sales under master netting agreements
amounted to a net payable of $3,966 with Deutsche Bank and $1,418 with Merrill
Lynch at March 31, 1998.
At March 31, 1998, the Fund had sufficient cash and/or securities to cover any
commitments under these contracts.
International Strategic Growth Fund:
Forward foreign currency purchases and sales under master netting agreements
amounted to a net payable of $3,437 with Deutsche Bank and $709 with Merrill
Lynch at March 31, 1998.
At March 31, 1998, the Fund had sufficient cash and/or securities to cover any
commitments under these contracts.
(8) Restricted Securities
The Funds may invest not more than 15% of its net assets in securities which are
subject to legal or contractual restrictions on resale. At March 31, 1998, the
Funds owned the following restricted securities which may not be publicly sold
without registration under the Securities Act of 1933. The Funds does not have
the right to demand that such securities be registered. The value of these
securities is determined by valuations furnished by dealers or by a pricing
service, or if not available, are valued at fair value as determined in good
faith by or at the direction of the Trustees.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Percentage of
Date of Net Assets
Fund Description Acquisition Shares Cost Value
Asia Pacific Hong Leong Finance Ltd. 10/13/97 27,000 $48,518 $45,990 2.12%
International
Opportunities Hong Leong Finance Ltd. 10/13/97 5,000 $7,997 $8,517 0.66%
International Strategic
Growth Hong Leong Finance Ltd. 10/10/97 7,000 $12,942 $11,923 0.97%
International Value Hong Leong Finance Ltd. 10/21/97 6,000 $9,702 $10,220 0.84%
</TABLE>
<PAGE>
PART C
Item 24. Financial Statements and Exhibits
MFS International Opportunities Fund, MFS International
Strategic Growth Fund, MFS International Value Fund and MFS Asia
Pacific Fund
(a) Financial Statements Included in Parts A and B:
Included in Part A of this Registration Statement:
For the period ended March 31, 1998:
Financial Highlights (Unaudited)
Included in Part B of this Registration Statement:
At March 31, 1998:
Portfolio of Investments (Unaudited)
Statement of Assets and Liabilities (Unaudited)
For the period ended March 31, 1998:
Statement of Changes in Net Assets (Unaudited)
Statement of Operations (Unaudited)
(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 23, 1997
to add 4 new Series to Trust. (12).
(e) Amendment to Declaration of Trust dated September 19,
1997 to redesignate name of MFS International Growth
Fund to MFS International Strategic Growth Fund. (13)
2 Amended and Restated By-Laws, dated December 21,
1994. (5)
<PAGE>
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 for
MFS Total Return Fund, a series of the Trust, dated
November 19, 1985. (5)
(c) Investment Advisory Agreement for MFS Research Fund, a
Series of the Trust, dated September 1, 1993. (5)
(d) Investment Advisory Agreement dated October 8, 1997,
for MFS International Opportunities Fund. (13)
(e) Investment Advisory Agreement dated October 8, 1997,
for MFS International Strategic Growth Fund. (13)
(f) Investment Advisory Agreement dated October 8, 1997,
for MFS International Value Fund. (13)
(g) Investment Advisory Agreement dated October 8, 1997,
for MFS Asia Pacific Fund. (13)
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, and the Mutual Fund Agreement between
MFD and a bank or NASD affiliate, as amended on
April 11, 1997. (10)
7 Retirement Plan for Non-Interested Person Trustees,
dated January 1, 1991. (5)
8 Custodian Agreement between the Trust and State Street
Bank and Trust Company, dated October 1, 1997; filed
herewith.
<PAGE>
9 (a) Shareholder Servicing Agent Agreement between the
Registrant and Massachusetts Financial Service Center,
Inc., dated August 1, 1985. (5)
(b) Amendment to Exhibit B of Shareholder Servicing Agent
Agreement, dated January 1, 1998. (13)
(c) Exchange Privilege Agreement, dated July 31, 1997. (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, as amended. (14)
10 Opinion and Consent of Counsel dated January 26,
1998. (13)
11 Consent of Deloitte & Touche, LLP for MFS Total Return
Fund and MFS Research Fund. (13)
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)
<PAGE>
(c) Forms for MFS Prototype Paired Defined Contribution
Plans and Trust Agreement as currently in effect. (4)
(d) Forms for Roth Individual Retirement Account Disclosure
Statement and Trust Agreement. (15)
15 (a) Master Distribution Plan pursuant to Rule 12b-1 under
the Investment Company Act of 1940, effective January
1, 1997. (8)
(b) Exhibits as revised February 18, 1998 to Master
Distribution Plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940 to replace those
exhibits to the Master Distribution Plan contained in
Exhibit 15(a) above. (14)
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 (a) Financial Data Schedules for MFS Total Return Fund and
MFS Research Fund. (13)
(b) Financial Data Schedules for MFS International
Opportunities Fund, MFS International Strategic Growth
Fund, MFS International Value Fund and MFS Asia Pacific
Fund; filed herewith.
18 Plan pursuant to Rule 18f-3(d) under the Investment
Company Act of 1940. (6)
Power of Attorney dated September 21, 1994. (5)
Power of Attorney dated February 19, 1998; filed herewith.
(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 Massachusetts Investors Growth Stock Fund
(File Nos. 2-14667 and 811-859) Post-Effective Amendment No. 64 filed
with the SEC via EDGAR on July 30, 1997.
(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.
<PAGE>
(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.
(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 Registrant's Post-Effective Amendment No. 44
filed with the SEC via EDGAR on July 25, 1997.
(13) Incorporated by reference to Registrant's Post-Effective Amendment No. 45
as filed with the SEC via EDGAR on January 27, 1998.
(14) Incorporated by reference to Massachusetts Investors Growth
Stock Fund (File Nos. 2-14677 and 811-859) Post-Effective
Amendment No. 65 as filed with the SEC via EDGAR on March 30,
1998.
(15) Incorporated by reference to MFS Series Trust VIII (File Nos. 33-37972
and 811-5262) Post-Effective Amendment No. 14 as filed with the SEC via
EDGAR on February 26, 1998.
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 136,913
(without par value) (as of March 31, 1998)
Class B Shares of Beneficial Interest 170,667
(without par value) (as of March 31, 1998)
Class C Shares of Beneficial Interest 26,318
(without par value) (as of March 31, 1998)
Class I Shares of Beneficial Interest 8
(without par value) (as of March 31, 1998)
For MFS Research Fund
Class A Shares of Beneficial Interest 175,962
(without par value) (as of March 31, 1998)
<PAGE>
Class B Shares of Beneficial Interest 114,128
(without par value) (as of March 31, 1998)
Class C Shares of Beneficial Interest 9,761
(without par value) (as of March 31, 1998)
Class I Shares of Beneficial Interest 4
(without par value) (as of March 31, 1998)
For MFS International Opportunities Fund
Class A Shares of Beneficial Interest 18
(without par value) (as of March 31, 1998)
Class B Shares of Beneficial Interest 0
(without par value) (as of March 31, 1998)
Class C Shares of Beneficial Interest 0
(without par value) (as of March 31, 1998)
Class I Shares of Beneficial Interest 4
(without par value) (as of March 31, 1998)
For MFS International Strategic Growth Fund
Class A Shares of Beneficial Interest 20
(without par value) (as of March 31, 1998)
Class B Shares of Beneficial Interest 0
(without par value) (as of March 31, 1998)
Class C Shares of Beneficial Interest 0
(without par value) (as of March 31, 1998)
Class I Shares of Beneficial Interest 4
(without par value) (as of March 31, 1998)
For MFS International Value Fund
Class A Shares of Beneficial Interest 7
(without par value) (as of March 31, 1998)
<PAGE>
Class B Shares of Beneficial Interest 0
(without par value) (as of March 31, 1998)
Class C Shares of Beneficial Interest 0
(without par value) (as of March 31, 1998)
Class I Shares of Beneficial Interest 4
(without par value) (as of March 31, 1998)
For MFS Asia Pacific Fund
Class A Shares of Beneficial Interest 27
(without par value) (as of March 31, 1998)
Class B Shares of Beneficial Interest 0
(without par value) (as of March 31, 1998)
Class C Shares of Beneficial Interest 0
(without par value) (as of March 31, 1998)
Class I Shares of Beneficial Interest 4
(without par value) (as of March 31, 1998)
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 (except the Vertex Funds mentioned below):
<PAGE>
Massachusetts Investors Trust, Massachusetts Investors Growth Stock Fund, MFS
Growth Opportunities Fund, MFS Government Securities Fund, MFS Government
Limited Maturity Fund, MFS Series Trust I (which has thirteen series: MFS
Managed Sectors Fund, MFS Cash Reserve Fund, MFS World Asset Allocation Fund,
MFS Strategic 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 three series: MFS Emerging Growth Fund, MFS Large Cap Growth Fund and MFS
Intermediate Income 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 Mid Cap Growth Fund), MFS Series Trust V (which has
six series: MFS Total Return Fund, MFS Research Fund, MFS International
Opportunities Fund, MFS International Strategic Growth Fund, MFS International
Value Fund and MFS Asia Pacific 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 eight series: MFS Government
Mortgage Fund, MFS/Foreign & Colonial Emerging Markets Equity Fund, MFS
International Growth Fund, MFS International Growth and Income Fund, MFS Real
Estate Investment Fund, MFS Strategic Value Fund, MFS Small Cap Value Fund and
MFS Emerging Markets Debt Fund), MFS Series Trust XI (which has six series: MFS
Union Standard Equity Fund, Vertex All Cap Fund, Vertex Research All Cap Fund,
Vertex Growth Fund, Vertex Discovery Fund and Vertex Contrarian Fund (the Vertex
Funds are expected to be declared effective April 28, 1998)), and MFS Municipal
Series Trust (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 open-end Funds:
MFS Institutional Trust ("MFSIT") (which has seven series) and MFS Variable
Insurance Trust ("MVI") (which has twelve series). The principal business
address of each of the aforementioned funds is 500 Boylston Street, Boston,
Massachusetts
02116.
<PAGE>
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") (which has 26 series), 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 (collectively, the "Accounts"). The
principal business address of MFS/SL is 500 Boylston Street, Boston,
Massachusetts 02116. The principal business address of each of the
aforementioned Accounts is One Sun Life Executive Park, Wellesley Hills,
Massachusetts 02181.
Vertex Investment Management, Inc., a Delaware corporation and a wholly
owned subsidiary of MFS, whose principal business address is 500 Boylston
Street, Boston, Massachusetts 02116 ("Vertex"), serves as investment adviser to
Vertex All Cap Fund, Vertex Research All Cap Fund, Vertex Growth Fund, Vertex
Discovery Fund and Vertex Contrarian Fund, each a series of MFS Series Trust XI.
The principal business address of the aforementioned Funds is 500 Boylston
Street, Boston, Massachusetts 02116.
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 Governments 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 Meridian Emerging Markets Debt Fund
(collectively the "MFS Meridian Funds"). Each of the MFS Meridian Funds is
organized as an exempt company under
<PAGE>
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 Institutional Advisors (Australia) Ltd. ("MFSI-Australia"), a
private limited company organized under the Corporations Law of New South Wales,
Australia whose current address is Level 37, Governor Phillip Tower, One Farrer
Place, Sydney, N5W2000, Australia, is involved primarily in investment
management and distribution of Australian superannuation unit trusts and acts as
an investment adviser to institutional accounts.
MFS Holdings Australia Pty Ltd. ("MFS Holdings Australia"), a private
limited company organized pursuant to the Corporations Law of New South Wales,
Australia whose current address is Level 37, Governor Phillip Tower, One Farrer
Place, Sydney, NSW2000 Australia, and whose function is to serve primarily as a
holding company.
MFS Fund Distributors, Inc. ("MFD"), a wholly owned subsidiary of MFS,
serves as distributor for the MFS Funds, MVI and MFSIT.
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 and MVI.
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 Jeffrey L. Shames, Arnold D. Scott, John W.
Ballen, Donald A. Stewart and John D. McNeil. Mr. Shames is the Chairman, Chief
Executive Officer and President, Mr. Scott is a Senior Executive Vice President
and Secretary, 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.
<PAGE>
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.
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
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
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
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
James T. Swanson, Robert J. Manning 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.
<PAGE>
MFS Series Trust IV
MFS Series Trust IX
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. Moynihan and Mark E.
Bradley are the Assistant Treasurers and James R. Bordewick, Jr. is the
Assistant Secretary.
MFS Series Trust VII
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
Jeffrey L. Shames, Leslie J. Nanberg and James T. Swanson
and John D. Laupheimer, Jr., a Senior 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
Robert A. Dennis is Vice President, David B. Smith and
Geoffrey L. Schechter, 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 Series Trust XI
MFS Institutional Trust
Jeffrey L. Shames is the Chairman and the 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.
<PAGE>
MFS Municipal Income Trust
Robert J. Manning is 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 Multimarket Income Trust
MFS Charter Income Trust
Leslie J. Nanberg and James T. Swanson are Vice Presidents,
Stephen E. Cavan is the Secretary, W. Thomas London is the Treasurer, James O.
Yost, Ellen M. Moynihan and Mark E. Bradley are the Assistant Treasurers and
James R. Bordewick, Jr. is the Assistant Secretary.
MFS Special Value Trust
Robert J. Manning is 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/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.
Vertex
Jeffrey L. Shames and Arnold D. Scott are the Directors,
Jeffrey L. Shames is the President, Kevin R. Parke and John W. Ballen are
Executive Vice Presidents, John
<PAGE>
F. Brennan, Jr., and John D. Laupheimer are Senior Vice Presidents, Brian E.
Stack is a 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.
MIL
Arnold D. Scott, Jeffrey L. Shames and Thomas J. Cashman, Jr. are
Directors, Stephen E. Cavan is a Director, Senior Vice President and the 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
Thomas J. Cashman, Jr. is President and a Director, Arnold D. Scott
and Jeffrey L. Shames are Directors, Stephen E. Cavan is a Director and the
Secretary, Joseph W. Dello Russo is the Treasurer, Thomas B. Hastings is the
Assistant Treasurer and Robert T. Burns is the Assistant Secretary.
MFSI - Australia
Thomas J. Cashman, Jr. is President and a Director, Graham E. Lenzer,
John A. Gee and David Adiseshan are Directors, Stephen E. Cavan is the
Secretary, Joseph W. Dello Russo is the Treasurer, Thomas B. Hastings is the
Assistant Treasurer, and Robert T. Burns is the Assistant Secretary.
MFS Holdings - Australia
Jeffrey L. Shames is the President and a Director, Arnold D. Scott,
Thomas J. Cashman, Jr., and Graham E. Lenzer are Directors, Stephen E. Cavan is
the Secretary, Joseph W. Dello Russo is the Treasurer, Thomas B. Hastings is the
Assistant Treasurer, and Robert T. Burns is the Assistant Secretary.
MIL Funds
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 O. Yost, Ellen
M. Moynihan and Mark E. Bradley are the Assistant Treasurers and James R.
Bordewick, Jr. is the Assistant Secretary.
<PAGE>
MFS Meridian Funds
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, Ellen M. Moynihan and Mark E.
Bradley are the Assistant Treasurers.
MFD
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.
MFSC
Arnold D. Scott and Jeffrey L. Shames are Directors, Joseph A.
Recomendes, a Senior Vice President and Chief Information Officer of MFS, is
Vice Chairman and a Director, Janet A. Clifford is the 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
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, Kevin R. Parke is the
Executive Vice President and a Managing Director, George F. Bennett, Jr., John
A. Gee, Brianne Grady, Joseph A. Kosciuszek and Joseph J. Trainor 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
Arnold D. Scott is the Chairman and a Director, Martin E. Beaulieu
is the President, William W. Scott, Jr. is a Director, 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.
<PAGE>
In addition, the following persons, Directors or officers of MFS, have
the affiliations indicated:
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.
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
State Street Bank and Trust State Street South
Company (custodian) 5-West
North Quincy, MA 02116
MFS Service Center, Inc. 500 Boylston Street
(transfer agent) Boston, Mass. 02116
<PAGE>
Item 31. Management Services
Not applicable.
Item 32. Undertakings
(a) Not Applicable.
(b) Not Applicable.
(c) Registrant undertakes to furnish each person to whom a prospectus
is delivered with a copy of its latest annual report to shareholders upon
request and without charge.
(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 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.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Post-Effective Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereto duly authorized, in the City of Boston and
The Commonwealth of Massachusetts on the 29th day of April, 1998.
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 April 29, 1998.
SIGNATURE TITLE
STEPHEN E. CAVAN* Principal Executive Officer
Stephen E. Cavan
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
<PAGE>
LAWRENCE T. PERERA* Trustee
Lawrence T. Perera
WILLIAM J. POORVU* Trustee
William J. Poorvu
CHARLES W. SCHMIDT* Trustee
Charles W. Schmidt
ARNOLD D. SCOTT* Trustee
Arnold D. Scott
JEFFREY L. SHAMES* Trustee
Jeffrey L. Shames
ELAINE R. SMITH* Trustee
Elaine R. Smith
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
(i) 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, and (ii)
a Power of Attorney dated February 19,
1998, filed herewith.
<PAGE>
POWER OF ATTORNEY
MFS Series Trust V
The undersigned officer of MFS Series Trust V (the "Registrant") hereby
severally constitutes and appoints Jeffrey L. Shames, Arnold D. Scott, W. Thomas
London, and James R. Bordewick, Jr., and each of them singly, as true and lawful
attorneys, with full power to them and each of them to sign for the undersigned,
in the name of, and in the capacity indicated below, any Registration Statement
and any and all amendments thereto and to file the same with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission for the purpose of registering the Registrant as a
management investment company under the Investment Company Act of 1940 and/or
the shares issued by the Registrant under the Securities Act of 1933 granting
unto my said attorneys, and each of them, acting alone, full power and authority
to do and perform each and every act and thing requisite or necessary or
desirable to be done in the premises, as fully to all intents and purposes as he
or she might or could do in person, hereby ratifying and confirming all that
said attorneys or any of them may lawfully do or cause to be done by virtue
thereof.
In WITNESS WHEREOF, the undersigned has hereunto set his hand on this
19th day of February, 1998.
Signature Title
STEPHEN E. CAVAN Principal Executive Officer
Stephen E. Cavan
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION OF EXHIBIT PAGE NO.
8 Custodian Agreement between the Trust and
State Street Bank and Trust Company, dated
October 1, 1997.
17 (b) Financial Data Schedules for MFS International
Opportunities Fund, MFS International
Strategic Growth Fund, MFS International
Value Fund and MFS Asia Pacific Fund.
<PAGE>
EXHIBIT NO. 99.8
CUSTODIAN CONTRACT
Between
MFS SERIES TRUST V
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
............................................................................Page
1. Employment of Custodian and Property to be Held By It...............1
2.Duties of the Custodian with Respect to Property of the Trust
Held by the Custodian........................................................2
2.1 Holding Securities..................................................2
2.2 Delivery of Securities..............................................2
2.3 Registration of Securities..........................................5
2.4 Bank Accounts.......................................................5
2.5 Payments for Shares.................................................6
2.6 Investment and Availability of Federal Funds........................6
2.7 Collection of Income................................................6
2.8 Payment of Trust Monies.............................................7
2.9 Liability for Payment in Advance of Receipt of Securities Purchased.8
2.10 Payments for Repurchases or Redemptions of Shares of the Trust......9
2.11 Appointment of Agents...............................................9
2.12 Deposit of Trust Assets in Securities System........................9
2.12 A Trust Assets Held in the Custodian's Direct Paper System..........11
2.13 Segregated Account..................................................12
2.14 Ownership Certificates for Tax Purposes.............................13
2.15 Proxies.............................................................13
2.16 Communications Relating to Trust Portfolio Securities...............13
3. Duties of the Custodian with Respect to Property of the Portfolio
Held Outside of the United States............................................14
3A.Duties of the Custodian with Respect to the State Street Portfolios.......14
3A.1 Appointment of Foreign Sub-Custodians...............................14
3A.2 Assets to be Held..................................................14
3A.3 Foreign Securities Depositories.....................................15
3A.4 Holding Securities..................................................15
3A.5 Agreements with Foreign Banking Institutions........................15
3A.6 Access of Independent Accountants of the Portfolio..................16
3A.7 Reports by Custodian................................................16
3A.8 Transactions in Foreign Custody Account.............................16
3A.9 Liability of Foreign Sub-Custodians.................................17
3A.10 Liability of Custodian.............................................17
3A.11 Reimbursement for Advances..........................................18
3A.12 Monitoring Responsibilities.........................................18
3A.13 Branches of U.S. Banks.............................................19
3A.14 Tax Law.............................................................19
3B. Duties of the Custodian with Respect to the Chase Portfolios........19
3B.1 Appointment of Chase as Subcustodian................................20
3B.2 Standard of Care; Liability.........................................20
3B.3 Trust's Responsibility for Rules and Regulations....................20
<PAGE>
4. Proper Instructions.................................................21
5. Actions Permitted Without Express Authority.........................21
6. Evidence of Authority...............................................22
7. Duties of Custodian With Respect to the Books of Account
and Calculation of Net Asset Value and Net Income............................22
8. Records.............................................................22
9. Opinion of Trust's Independent Accountants..........................23
10. Reports to Trust by Independent Public Accountants..................23
11. Compensation of Custodian...........................................24
12. Responsibility of Custodian.........................................24
13. Effective Period, Termination and Amendment.........................26
14. Successor Custodian.................................................27
15. Interpretive and Additional Provisions..............................28
16. Additional Portfolios...............................................28
17. Massachusetts Law to Apply..........................................29
18. Trust Disclaimer....................................................29
19. Prior Contracts.....................................................29
20. Shareholder Communications...............................................30
<PAGE>
CUSTODIAN CONTRACT
This Contract between MFS Series Trust V, a business trust organized
and existing under the laws of The Commonwealth of Massachusetts, having its
principal place of business at 500 Boylston Street, Boston, Massachusetts 02116,
hereinafter called the "Trust", and State Street Bank and Trust Company, a
Massachusetts trust company, having its principal place of business at 225
Franklin Street, Boston, Massachusetts, 02110, hereinafter called the
"Custodian",
WITNESSETH:
WHEREAS, the Trust is authorized to issue shares in separate series,
with each such series representing interests in a separate portfolio of
securities and other assets; and
WHEREAS, the Trust currently offers shares in two series, MFS Total
Return Fund and MFS Research Fund (such series together with all other series
subsequently established by the Trust and made subject to this Contract in
accordance with paragraph 16, being herein referred to as the "Portfolio(s)");
NOW THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be Held by It.
The Trust hereby employs the Custodian as the custodian of the assets
of the Portfolios of the Trust pursuant to the provisions of the Declaration of
Trust. The Trust agrees, on behalf of the Portfolios, agrees to deliver to the
Custodian all securities and cash of the Portfolios, and all payments of income,
payments of principal or capital distributions received by it with respect to
all securities owned by the Portfolios from time to time, and the cash
consideration received by it for such new or treasury shares of beneficial
interest of the Trust representing interests in the Portfolios ("Shares") as may
be issued or sold from time to time. The Custodian shall not be responsible for
any property of a Portfolio held or received by the Portfolio and not delivered
to the Custodian.
Upon receipt of "Proper Instructions" (within the meaning of Section
2.17), the Custodian shall on behalf of the applicable Portfolio(s) from time to
time employ one or more sub-custodians, but only in accordance with an
applicable vote by the Board of Trustees of the Trust on behalf of the
applicable Portfolio(s), and provided that the Custodian shall have no more or
less responsibility or liability to the Trust on account of any actions or
omissions of any subcustodian so employed than any such subcustodian has to the
Custodian.
2. Duties of the Custodian with Respect to Property of the Trust Held By the
Custodian.
1
<PAGE>
2.1 Holding Securities. The Custodian shall hold and physically segregate for
the account of each Portfolio all non-cash property, including all securities
owned by such Portfolio, other than (a) securities which are maintained pursuant
to Section 2.12 in a clearing agency which acts as a securities depository or in
a book-entry system authorized by the U.S. Department of the Treasury (each, a
"U.S. Securities System") and (b) commercial paper of an issuer for which State
Street Bank and Trust Company acts as issuing and paying agent ("Direct Paper")
which is deposited and/or maintained in the Direct Paper System of the Custodian
pursuant to Section 2.12A.
2.2 Delivery of Securities. The Custodian shall release and deliver securities
owned by a Portfolio held by the Custodian or in a U.S. Securities System
account of the Custodian or in the Custodian's Direct Paper book entry system
account ("Direct Paper System Account") only upon receipt of Proper Instructions
from the Trust on behalf of the applicable Portfolio, which may be continuing
instructions when deemed appropriate by the parties, and only in the following
cases:
1) Upon sale of such securities for the account of the Portfolio and
receipt of payment therefor;
2) Upon the receipt of payment in connection with any repurchase agreement
related to such securities entered into by the Portfolio;
3) In the case of a sale effected through a U.S. Securities System, in
accordance with the provisions of Section 2.12 hereof;
4) To the depository agent in connection with tender or other similar
offers for securities of the Portfolio;
5) To the issuer thereof or its agent when such securities are called,
redeemed, retired or otherwise become payable; provided that, in any such case,
the cash or other consideration is to be delivered to the Custodian;
6) To the issuer thereof, or its agent, for transfer into the name of the
Portfolio or into the name of any nominee or nominees of the Custodian or into
the name or nominee name of any agent appointed pursuant to Section 2.11 or into
the name or nominee name of any sub-custodian appointed pursuant to Article 1;
or for exchange for a different number of bonds, certificates or other evidence
representing the same aggregate face amount or number of units; provided that,
in any such case, the new securities are to be delivered to the Custodian;
7) Upon the sale of such securities for the account of the Portfolio, to
the broker or its clearing agent, against a receipt, for examination in
accordance with "street delivery" custom; provided that in any such case, the
Custodian shall have no responsibility or liability for any loss arising from
the delivery of such securities prior to receiving payment for such securities
except as may arise from the Custodian's own negligence or willful misconduct;
2
<PAGE>
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment of the
securities of the issuer of such securities, or pursuant to provisions for
conversion contained in such securities, or pursuant to any deposit agreement;
provided that, in any such case, the new securities and cash, if any, are to be
delivered to the Custodian;
9) In the case of warrants, rights or similar securities, the surrender
thereof in the exercise of such warrants, rights or similar securities or the
surrender of interim receipts or temporary securities for definitive securities;
provided that, in any such case, the new securities and cash, if any, are to be
delivered to the Custodian;
10) For delivery in connection with any loans of securities made by the
Portfolio, but only against receipt of adequate collateral as agreed upon from
time to time by the Custodian and the Trust on behalf of the Portfolio, which
may be in the form of cash or obligations issued by the United States
government, its agencies or instrumentalities, except that in connection with
any loans for which collateral is to be credited to the Custodian's account in
the book-entry system authorized by the U.S. Department of the Treasury, the
Custodian will not be held liable or responsible for the delivery of securities
owned by the Portfolio prior to the receipt of such collateral;
11) For delivery as security in connection with any borrowings by the Trust
on behalf of the Portfolio requiring a pledge of assets by the Trust on behalf
of the Portfolio, but only against receipt of amounts borrowed;
12) For delivery in accordance with the provisions of any agreement among
the Trust on behalf of the Portfolio, the Custodian and a broker-dealer
registered under the Securities Exchange Act of 1934 (the "Exchange Act") and a
member of The National Association of Securities Dealers, Inc. ("NASD"),
relating to compliance with the rules of The Options Clearing Corporation and of
any registered national securities exchange, or of any similar organization or
organizations, regarding escrow or other arrangements in connection with
transactions by the Portfolio of the Trust;
13) For delivery in accordance with the provisions of any agreement among
the Trust on behalf of the Portfolio, the Custodian, and a Futures Commission
Merchant registered under the Commodity Exchange Act, relating to compliance
with the rules of the Commodity Futures Trading Commission and/or any Contract
Market, or any similar organization or organizations, regarding account deposits
in connection with transactions by the Portfolio of the Trust;
14) Upon receipt of instructions from the transfer agent ("Transfer Agent")
for the Trust, for delivery to such Transfer Agent or to the holders of shares
in connection with distributions in kind, as may be described from time to time
in the currently effective prospectus and statement of additional information of
the Trust related to the Portfolio ("Prospectus"), in satisfaction of requests
by holders of Shares for repurchase or redemption; and
3
<PAGE>
15) For any other proper corporate purpose, but only upon receipt of, in
addition to Proper Instructions from the Trust on behalf of the applicable
Portfolio, a certified copy of a resolution of the Board of Trustees or of the
Executive Committee signed by an officer of the Trust and certified by the
Secretary or an Assistant Secretary, setting forth the purpose for which such
delivery is to be made, declaring such purpose to be a proper corporate purpose,
and naming the person or persons to whom delivery of such securities shall be
made.
2.3 Registration of Securities. Securities held by the Custodian (other than
bearer securities) shall be registered in the name of the Portfolio or in the
name of any nominee of the Trust on behalf of the Portfolio or of any nominee of
the Custodian which nominee shall be assigned exclusively to the Portfolio,
unless the Trust has authorized in writing the appointment of a nominee to be
used in common with other registered investment companies having the same
investment adviser as the Portfolio, or in the name or nominee name of any agent
appointed pursuant to Section 2.11 or in the name or nominee name of any
sub-custodian appointed pursuant to Article 1. All securities accepted by the
Custodian on behalf of the Portfolio under the terms of this Contract shall be
in "street name" or other good delivery form.
2.4 Bank Accounts. The Custodian shall open and maintain a separate bank account
or accounts (the "Portfolio's Account or Accounts") in the name of each
Portfolio of the Trust, subject only to draft or order by the Custodian acting
pursuant to the terms of this Contract, and shall hold in such account or
accounts, subject to the provisions hereof, all cash received by it from or for
the account of the Portfolio, other than cash maintained by the Portfolio in a
bank account established and used in accordance with Rule 17f-3 under the
Investment Company Act of 1940. Funds held by the Custodian for a Portfolio may
be deposited by it to its credit as Custodian in the Banking Department of the
Custodian or in such other banks or trust companies as it may in its discretion
deem necessary or desirable; provided, however, that every such bank or trust
company shall be qualified to act as a custodian under the Investment Company
Act of 1940 and that each such bank or trust company and the funds to be
deposited with each such bank or trust company shall on behalf of each
applicable Portfolio be approved by vote of a majority of the Board of Trustees
of the Trust. Such funds shall be deposited by the Custodian in its capacity as
Custodian and shall be withdrawable by the Custodian only in that capacity.
2.5 Payments for Shares. The Custodian shall receive from the distributor for
the Shares or from the Transfer Agent of the Trust and deposit into the
Portfolio's Account such payments as are received for Shares of that Portfolio
issued or sold from time to time by the Trust. The Custodian will provide timely
notification to the Trust on behalf of each such Portfolio and the Transfer
Agent of any receipt by it of payments for Shares of such Portfolio.
2.6 Investment and Availability of Federal Funds. Upon mutual agreement between
the Trust on behalf of each applicable Portfolio and the Custodian, the
Custodian shall, upon the receipt of Proper Instructions from the Trust on
behalf of a Portfolio, 1) invest in such instruments as may be set forth in such
instruments as may be set forth in such instructions on the same day as received
all federal funds received after a time agreed upon the Custodian and the Trust;
and 2) make federal
4
<PAGE>
funds available to such Portfolio as of specified times agreed upon from time to
time by the Trust and the Custodian in the amount of checks received in payment
for Shares of such Portfolio which are deposited into the Portfolio's account.
2.7 Collection of Income. The Custodian shall collect on a timely basis all
income and other payments with respect to registered securities held hereunder
to which each Portfolio shall be entitled either by law or pursuant to custom in
the securities business, and shall collect on a timely basis all income and
other payments with respect to bearer securities if, on the date of payment by
the issuer, such securities are held by the Custodian or its agent thereof and
shall credit such income, as collected, to such Portfolio's custodian account.
Without limiting the generality of the foregoing, the Custodian shall detach and
present for payment all coupons and other income items requiring presentation as
and when they become due and shall collect interest when due on securities held
hereunder. Income due each Portfolio on securities loaned pursuant to the
provisions of Section 2.2 (10) shall be the responsibility of the Trust. The
Custodian will have no duty or responsibility in connection therewith, other
than to provide the Trust with such information or data as may be necessary to
assist the Trust in arranging for the timely delivery to the Custodian of the
income to which the Portfolio is properly entitled.
2.8 Payment of Trust Monies. Upon receipt of Proper Instructions from the Trust
on behalf of the applicable Portfolio, which may be continuing instructions when
deemed appropriate by the parties, the Custodian shall pay out monies of a
Portfolio in the following cases only:
1) Upon the purchase of securities for the account of the Portfolio but
only (a) against the delivery of such securities to the Custodian (or any bank,
banking firm or trust company doing business in the United States or abroad
which is qualified under the Investment Company Act of 1940, as amended, to act
as a custodian and has been designated by the Custodian as its agent for this
purpose) registered in the name of the Portfolio or in the name of a nominee of
the Custodian referred to in Section 2.3 hereof or in proper form for transfer;
(b) in the case of a purchase effected through a U.S. Securities System, in
accordance with the conditions set forth in Section 2.12 hereof; or (c) in the
case of a purchase involving the Direct Paper System, in accordance with the
conditions set forth in Section 2.12A; or (d) in the case of repurchase
agreements entered into between the Trust on behalf of the Portfolio and the
Custodian, or another bank, or a broker-dealer which is a member of NASD, (i)
against delivery of the securities either in certificate form or through an
entry crediting the Custodian's account at the Federal Reserve Bank with such
securities or (ii) against delivery of the receipt evidencing purchase by the
Portfolio of securities owned by the Custodian along with written evidence of
the agreement by the Custodian to repurchase such securities from the Portfolio;
2) In connection with conversion, exchange or surrender of securities owned
by the Portfolio as set forth in Section 2.2 hereof;
3) For the redemption or repurchase of Shares issued by the Portfolio as
set forth in Section 2.10 hereof;
5
<PAGE>
4) For the payment of any expense or liability incurred by the Portfolio,
including but not limited to the following payments for the account of the
Portfolio: interest, taxes, management, accounting, transfer agent and legal
fees, and operating expenses of the Trust whether or not such expenses are to be
in whole or part capitalized or treated as deferred expenses;
5) For the payment of any dividends on Shares of the Portfolio declared
pursuant to the governing documents of the Trust;
6) For payment of the amount of dividends received in respect of securities
sold short;
7) For any other proper purpose, but only upon receipt of, in addition to
Proper Instructions from the Trust on behalf of the Portfolio, a certified copy
of a resolution of the Board of Trustees or of the Executive Committee of the
Trust signed by an officer of the Trust and certified by its Secretary or an
Assistant Secretary, setting forth the purpose for which such payment is to be
made, declaring such purpose to be a proper purpose, and naming the person or
persons to whom such payment is to be made.
2.9 Liability for Payment in Advance of Receipt of Securities Purchased. In any
and every case where payment for purchase of securities for the account of a
Portfolio is made by the Custodian in advance of receipt of the securities
purchased in the absence of specific written instructions from the Trust on
behalf of such Portfolio to so pay in advance, the Custodian shall be absolutely
liable to the Trust for such securities to the same extent as if the securities
had been received by the Custodian except that in the case of repurchase
agreements entered into by the Trust on behalf of a Portfolio with a bank which
is a member of the Federal Reserve System, the Custodian may transfer funds to
the account of such bank prior to the receipt of written evidence that the
securities subject to such repurchase agreement have been transferred by
book-entry into a segregated non-proprietary account of the Custodian maintained
with the Federal Reserve Bank of Boston or of the safekeeping receipt, provided
that such securities have in fact been so transferred by book-entry.
2.10 Payments for Repurchases or Redemptions of Shares of the Trust. From such
funds as may be available for the purpose but subject to the limitations of the
Declaration of Trust and any applicable votes of the Board of Trustees of the
Trust pursuant thereto, the Custodian shall, upon receipt of instructions from
the Transfer Agent, make funds available for payment to holders of Shares who
have delivered to the Transfer Agent a request for redemption or repurchase of
their Shares. In connection with the redemption or repurchase of Shares of a
Portfolio, the Custodian is authorized upon receipt of instructions from the
Transfer Agent to wire funds to or through a commercial bank designated by the
redeeming shareholders. In connection with the redemption or repurchase of
Shares of a Portfolio, the Custodian shall honor checks drawn on the Custodian
by a holder of Shares, which checks have been furnished by the Trust to the
holder of Shares, when presented to the Custodian in accordance with such
procedures and controls as are mutually agreed upon from time to time between
the Trust and the Custodian.
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2.11 Appointment of Agents. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or trust company
which is itself qualified under the Investment Company Act of 1940, as amended,
to act as a custodian, as its agent to carry out such of the provisions of this
Article 2 as the Custodian may from time to time direct; provided, however, that
the appointment of any agent shall not relieve the Custodian of its
responsibilities or liabilities hereunder.
2.12 Deposit of Trust Assets in U.S. Securities Systems. The Custodian may
deposit and/or maintain securities owned by a Portfolio in a U.S. Securities
System in accordance with applicable Federal Reserve Board and Securities and
Exchange Commission rules and regulations, if any, and subject to the following
provisions:
1) The Custodian may keep securities of the Portfolio in a U.S. Securities
System provided that such securities are represented in an account ("Custodian's
Account") of the Custodian in the U.S. Securities System which shall not include
any assets of the Custodian other than assets held as a fiduciary, custodian or
otherwise for customers;
2) The records of the Custodian with respect to securities of the Portfolio
which are maintained in a U.S. Securities System shall identify by book-entry
those securities belonging to the Portfolio;
3) The Custodian shall pay for securities purchased for the account of the
Portfolio upon (i) receipt of advice from the U.S. Securities System that such
securities have been transferred to the Custodian's Account, and (ii) the making
of an entry on the records of the Custodian to reflect such payment and transfer
for the account of the Portfolio. The Custodian shall transfer securities sold
for the account of the Portfolio upon (i) receipt of advice from the U.S.
Securities System that payment for such securities has been transferred to the
Custodian's Account, and (ii) the making of an entry on the records of the
Custodian to reflect such transfer and payment for the account of the Portfolio.
Copies of all advices from the U.S. Securities System of transfers of securities
for the account of the Portfolio shall identify the Portfolio, be maintained for
the Portfolio by the Custodian and be provided to the Trust at its request. Upon
request, the Custodian shall furnish the Trust on behalf of the Portfolio
confirmation of each transfer to or from the account of the Portfolio in the
form of a written advice or notice and shall furnish to the Portfolio copies of
daily transaction sheets reflecting each day's transactions in the U.S.
Securities System for the account of the Portfolio.
4) The Custodian shall provide the Trust for the Portfolio with any report
obtained by the Custodian on the U.S. Securities System's accounting system,
internal accounting control and procedures for safeguarding securities deposited
in the U.S. Securities System;
5) The Custodian shall have received from the Trust on behalf of the
Portfolio the initial or annual certificate, as the case may be, required by
Article 9 hereof;
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6) Anything to the contrary in this Contract notwithstanding, the Custodian
shall be liable to the Trust for the benefit of the Portfolio for any loss or
damage to the Portfolio resulting from use of a U.S. Securities System by reason
of any negligence, misfeasance or misconduct of the Custodian or any of its
agents or of any of its or their employees or from failure of the Custodian or
any such agent to enforce effectively such rights as it may have against such
U.S. Securities System; at the election of the Trust, it shall be entitled to be
subrogated to the rights of the Custodian with respect to any claim against the
U.S. Securities System or any other person which the Custodian may have as a
consequence of any such loss or damage if and to the extent that the Trust has
not been made whole for any such loss or damage.
2.12A Trust Assets Held in the Custodian's Direct Paper System.
The Custodian may deposit and/or maintain securities owned by a Portfolio in the
Direct Paper System of the Custodian subject to the following provisions:
1) No transaction relating to securities in the Direct Paper System will be
effected in the absence of Proper Instructions from the Trust on behalf of the
Portfolio;
2) The Custodian may keep securities of the Portfolio in the Direct Paper
System only if such securities are represented in an account ("Account") of the
Custodian in the Direct Paper System which shall not include any assets of the
Custodian other than assets held as a fiduciary, custodian or otherwise for
customers;
3) The records of the Custodian with respect to securities of the Portfolio
which are maintained in the Direct Paper System shall identify by book-entry
those securities belonging to the Portfolio;
4) The Custodian shall pay for securities purchased for the account of the
Portfolio upon the making of an entry on the records of the Custodian to reflect
such payment and transfer of securities to the account of the Portfolio. The
Custodian shall transfer securities sold for the account of the Portfolio upon
the making of an entry on the records of the Custodian to reflect such transfer
and receipt of payment for the account of the Portfolio;
5) The Custodian shall furnish the Trust on behalf of the Portfolio
confirmation of each transfer to or from the account of the Portfolio, in the
form of a written advice or notice, of Direct Paper on the next business day
following such transfer and shall furnish to the Trust on behalf of the
Portfolio copies of daily transaction sheets reflecting each day's transaction
in the Securities System for the account of the Portfolio;
6) The Custodian shall provide the Trust on behalf of the Portfolio with
any report on its system of internal accounting control as the Trust may
reasonably request from time to time.
2.13 Segregated Account. The Custodian shall upon receipt of Proper Instructions
from the Trust on behalf of each applicable Portfolio establish and maintain a
segregated account or accounts
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for and on behalf of each such Portfolio, into which account or accounts may be
transferred cash and/or securities, including securities maintained in an
account by the Custodian pursuant to Section 2.12 hereof, (i) in accordance with
the provisions of any agreement among the Trust on behalf of the Portfolio, the
Custodian and a broker-dealer registered under the Exchange Act and a member of
the NASD (or any futures commission merchant registered under the Commodity
Exchange Act), relating to compliance with the rules of The Options Clearing
Corporation and of any registered national securities exchange (or the Commodity
Futures Trading Commission or any registered contract market), or of any similar
organization or organizations, regarding escrow or other arrangements in
connection with transactions by the Trust, (ii) for purposes of segregating cash
or government securities in connection with options purchased, sold or written
by the Portfolio or commodity futures contracts or options thereon purchased or
sold by the Portfolio, (iii) for the purposes of compliance by the Portfolio
with the procedures required by Investment Company Act Release No. 10666, or any
subsequent release or releases of the Securities and Exchange Commission
relating to the maintenance of segregated accounts by registered investment
companies and (iv) for other proper corporate purposes, but only, in the case of
clause (iv), upon receipt of, in addition to Proper Instructions from the Trust
on behalf of the applicable Portfolio, a certified copy of a resolution of the
Board of Trustees or of the Executive Committee signed by an officer of the
Trust and certified by the Secretary or an Assistant Secretary, setting forth
the purpose or purposes of such segregated account and declaring such purposes
to be proper corporate purposes.
2.14 Ownership Certificates for Tax Purposes. The Custodian shall execute
ownership and other certificates and affidavits for all federal and state tax
purposes in connection with receipt of income or other payments with respect to
securities of each Portfolio held by it and in connection with transfers of
securities.
2.15 Proxies. The Custodian shall, with respect to the securities held
hereunder, cause to be promptly executed by the registered holder of such
securities, if the securities are registered otherwise than in the name of the
Portfolio or a nominee of the Portfolio, all proxies, without indication of the
manner in which such proxies are to be voted, and shall promptly deliver to the
Portfolio such proxies, all proxy soliciting materials and all notices relating
to such securities.
2.16 Communications Relating to Trust Portfolio Securities.
The Custodian shall transmit promptly to the Trust for each Portfolio all
written information (including, without limitation, pendency of calls and
maturities of securities and expirations of rights in connection therewith and
notices of exercise of call and put options written by the Trust on behalf of
the Portfolio and the maturity of futures contracts purchased or sold by the
Portfolio) received by the Custodian from issuers of the securities being held
for the Portfolio. With respect to tender or exchange offers, the Custodian
shall transmit promptly to the Portfolio all written information received by the
Custodian from issuers of the securities whose tender or exchange is sought and
from the party (or his agents) making the tender or exchange offer. If the
Portfolio desires to take action with respect to any tender offer, exchange
offer or any other similar transaction, the Portfolio shall notify the Custodian
at least three business days prior to the date on which the Custodian is to take
such action.
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3. Duties of the Custodian with Respect to Property of the Portfolios Held
Outside of the United States.
3A. Duties of Custodian with Respect to the State Street Portfolios.
The provisions of this Article 3A shall apply to the duties of the
Custodian as they relate to the foreign securities of any Portfolio employing
the State Street Global Custody Network pursuant to Section 16 of this Agreement
(a "State Street Portfolio").
3A.1 Appointment of Foreign Sub-Custodians. The State Street Portfolios hereby
authorize and instruct the Custodian to employ as sub-custodians for the
Portfolios' securities and other assets maintained outside the United States the
foreign banking institutions and foreign securities depositories designated in
resolutions approved by the Board of Trustees of the Trust and delivered to
State Street ("foreign sub-custodians"). Subject to receipt of "Proper
Instructions", as defined in Section 5 of this Contract, together with a
certified resolution of the Portfolio's Board of Trustees, the Custodian and a
State Street Portfolio may from time to time agree to designate additional
foreign banking institutions and foreign securities depositories to act as
sub-custodian. Upon receipt of Proper Instructions, a State Street Portfolio may
instruct the Custodian to cease the employment of any one or more such
sub-custodians for maintaining custody of the Portfolio's assets.
3A.2 Assets to be Held. The Custodian shall limit the securities and other
assets maintained in the custody of the foreign sub-custodians to: (a) "foreign
securities", as defined in paragraph (c)(1) of Rule 17f-5 under the Investment
Company Act of 1940, and (b) cash and cash equivalents in such amounts as the
Custodian or the State Street Portfolio may determine to be reasonably necessary
to effect the Portfolio's foreign securities transactions. The Custodian shall
identify on its books as belonging to each State Street Portfolio, the foreign
securities of the State Street Portfolio held by each foreign sub-custodian.
3A.3 Foreign Securities Depositories. Except as may otherwise be agreed upon in
writing by the Custodian and a State Street Portfolio, assets of the State
Street Portfolios shall be maintained in a clearing agency which acts as a
securities depository or in a book-entry system for the central handling of
securities located outside of the United States (each a "Foreign Securities
System") only through arrangements implemented by the foreign banking
institutions serving as sub-custodians pursuant to the terms hereof. (Foreign
Securities Systems and U.S. Securities Systems are collectively referred to
herein as "Securities Systems"). Where possible, such arrangements shall include
entry into agreements containing the provisions set forth in Section 3A.5
hereof.
3A.4 Holding Securities. The Custodian may hold securities and other non-cash
property for all of its customers, including the State Street Portfolios, with a
Foreign Sub-custodian in a single account that is identified as belonging to the
Custodian for the benefit of its customers, provided however, that (i) the
records of the Custodian with respect to securities and other non-cash property
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of the State Street Portfolios which are maintained in such account shall
identify by book-entry those securities and other non-cash property belonging to
each State Street Portfolio and (ii) the Custodian shall require that securities
and other non-cash property so held by the Foreign Sub-custodian be held
separately from any assets of the Foreign Sub-custodian or of others.
3A.5 Agreements with Foreign Banking Institutions. Each agreement with a foreign
banking institution shall provide that: (a) the assets of the State Street
Portfolios will not be subject to any right, charge, security interest, lien or
claim of any kind in favor of the foreign banking institution or its creditors
or agent, except a claim of payment for their safe custody or administration;
(b) beneficial ownership of the assets of each State Street Portfolio will be
freely transferable without the payment of money or value other than for custody
or administration; (c) adequate records will be maintained identifying the
assets as belonging to each applicable State Street Portfolio; (d) officers of
or auditors employed by, or other representatives of the Custodian, including to
the extent permitted under applicable law the independent public accountants for
the State Street Portfolios, will be given access to the books and records of
the foreign banking institution relating to its actions under its agreement with
the Custodian; and (e) assets of the State Street Portfolios held by the foreign
sub-custodian will be subject only to the instructions of the Custodian or its
agents.
3A.6 Access of Independent Accountants of the State Street Portfolios. Upon
request of the State Street Portfolios, the Custodian will use its best efforts
to arrange for the independent accountants of the State Street Portfolios to be
afforded access to the books and records of any foreign banking institution
employed as a foreign sub-custodian insofar as such books and records relate to
the performance of such foreign banking institution under its agreement with the
Custodian.
3A.7 Reports by Custodian. The Custodian will supply to the State Street
Portfolios from time to time, as mutually agreed upon, statements in respect of
the securities and other assets of the State Street Portfolios held by foreign
sub-custodians, including but not limited to an identification of entities
having possession of the State Street Portfolios securities and other assets and
advices or notifications of any transfers of securities to or from each
custodial account maintained by a foreign banking institution for the Custodian
on behalf of each applicable State Street State Street Portfolio indicating, as
to securities acquired for a State Street Portfolio, the identity of the entity
having physical possession of such securities.
3A.8 Transactions in Foreign Custody Account. (a) Except as otherwise provided
in paragraph (b) of this Section 3A.8, the provision of Sections 2.2 and 2.7 of
this Contract shall apply, mutatis mutandis to the foreign securities of the
State Street Portfolios held outside the United States by foreign
sub-custodians.
(b) Notwithstanding any provision of this Contract to the contrary,
settlement and payment for securities received for the account of each
applicable State Street Portfolio and delivery of securities maintained for the
account of each applicable State Street Portfolio may be effected in accordance
with the customary established securities trading or securities processing
practices and procedures in the jurisdiction or market in which the transaction
occurs, including, without
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limitation, delivering securities to the purchaser thereof or to a dealer
therefor (or an agent for such purchaser or dealer) against a receipt with the
expectation of receiving later payment for such securities from such purchaser
or dealer.
(c) Securities maintained in the custody of a foreign sub-custodian may
be maintained in the name of such entity's nominee to the same extent as set
forth in Section 2.3 of this Contract, and the State Street Portfolios agree to
hold any such nominee harmless from any liability as a holder of record of such
securities.
3A.9 Liability of Foreign Sub-Custodians. Each agreement pursuant to which the
Custodian employs a foreign banking institution as a foreign sub-custodian shall
require the institution to exercise reasonable care in the performance of its
duties and to indemnify, and hold harmless, the Custodian and the State Street
Portfolios from and against any loss, damage, cost, expense, liability or claim
arising out of or in connection with the institution's performance of such
obligations. At the election of a State Street Portfolio, it shall be entitled
to be subrogated to the rights of the Custodian with respect to any claims
against a foreign banking institution as a consequence of any such loss, damage,
cost, expense, liability or claim if and to the extent that the State Street
Portfolio has not been made whole for any such loss, damage, cost, expense,
liability or claim.
3A.10 Liability of Custodian. The Custodian shall be liable for the acts or
omissions of a foreign banking institution to the same extent as set forth with
respect to sub-custodians generally in this Contract and, regardless of whether
assets are maintained in the custody of a foreign banking institution, a foreign
securities depository or a branch of a U.S. bank as contemplated by paragraph
3A.13 hereof, the Custodian shall not be liable for any loss, damage, cost,
expense, liability or claim resulting from nationalization, expropriation,
currency restrictions, or acts of war or terrorism or any loss where the
sub-custodian has otherwise exercised reasonable care. Notwithstanding the
foregoing provisions of this paragraph 3A.10, in delegating custody duties to
State Street London Ltd., the Custodian shall not be relieved of any
responsibility to a State Street Portfolio for any loss due to such delegation,
except such loss as may result from (a) political risk (including, but not
limited to, exchange control restrictions, confiscation, expropriation,
nationalization, insurrection, civil strife or armed hostilities) or (b) other
losses (excluding a bankruptcy or insolvency of State Street London Ltd. not
caused by political risk) due to Acts of God, nuclear incident or other losses
under circumstances where the Custodian and State Street London Ltd. have
exercised reasonable care.
3A.11 Reimbursement for Advances. If a State Street Portfolio requires the
Custodian to advance cash or securities for any purpose for the benefit of such
State Street Portfolio including the purchase or sale of foreign exchange or of
contracts for foreign exchange, or in the event that the Custodian or its
nominee shall incur or be assessed any taxes, charges, expenses, assessments,
claims or liabilities in connection with the performance of this Contract,
except such as may arise from its or its nominee's own negligent action,
negligent failure to act or willful misconduct, any property at any time held
for the account of the applicable State Street Portfolio shall be security
therefor and should the State Street Portfolio fail to repay the Custodian
promptly, the Custodian
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shall be entitled to utilize available cash and to dispose of such State Street
Portfolio's assets to the extent necessary to obtain reimbursement.
3A.12 Monitoring Responsibilities. The Custodian shall furnish annually to the
State Street Portfolios, during the month of June, information concerning the
foreign sub-custodians employed by the Custodian. Such information shall be
similar in kind and scope to that furnished to the State Street Portfolios in
connection with the initial approval of this Contract. In addition, the
Custodian will promptly inform the State Street Portfolios in the event that the
Custodian learns of a material adverse change in the financial condition of a
foreign sub-custodian or any material loss of the assets of the State Street
Portfolios or in the case of any foreign sub-custodian not the subject of an
exemptive order from the Securities and Exchange Commission is notified by such
foreign sub-custodian that there appears to be a substantial likelihood that its
shareholders' equity will decline below $200 million (U.S. dollars or the
equivalent thereof) or that its shareholders' equity has declined below $200
million (in each case computed in accordance with generally accepted U.S.
accounting principles).
3A.13 Branches of U.S. Banks. (a) Except as otherwise set forth in this
Contract, the provisions hereof shall not apply where the custody of the State
Street Portfolio's assets are maintained in a foreign branch of a banking
institution which is a "bank" as defined by Section 2(a)(5) of the Investment
Company Act of 1940 meeting the qualification set forth in Section 26(a) of said
Act. The appointment of any such branch as a sub-custodian shall be governed by
paragraph 1 of this Contract.
(b) Cash held for each State Street Portfolio in the United Kingdom
shall be maintained in an interest bearing account established for the State
Street Portfolio with the Custodian's London branch, which account shall be
subject to the direction of the Custodian, State Street London Ltd. or both.
3A.14 Tax Law. The Custodian shall have no responsibility or liability for any
obligations now or hereafter imposed on the State Street Portfolios or the
Custodian as custodian of the State Street Portfolios by the tax law of the
United States of America or any state or political subdivision thereof. It shall
be the responsibility of the State Street Portfolios to notify the Custodian of
the obligations imposed on the State Street Portfolios or the Custodian as
custodian of the State Street Portfolio by the tax law of jurisdictions other
than those mentioned in the above sentence, including responsibility for
withholding and other taxes, assessments or other governmental charges,
certifications and governmental reporting. The sole responsibility of the
Custodian with regard to such tax law shall be to use reasonable efforts to
assist the State Street Portfolios with respect to any claim for exemption or
refund under the tax law of jurisdictions for which the State Street Portfolios
have provided such information.
3B. Duties of the Custodian with respect to the Chase Portfolios.
The provisions of this Article 3B shall apply to the duties of the
Custodian as they relate to the foreign securities of MFS Total Return Fund and
MFS Research Fund and any other Portfolio
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employing the Chase Global Custody Network pursuant to Section 16 of this
Agreement (a "Chase Portfolio").
3B.1 Appointment of Chase as Subcustodian. The Custodian is authorized and
instructed by the Chase Portfolios to employ Chase Manhattan Bank N.A. ("Chase")
as subcustodian for the Chase Portfolios' foreign securities including cash
incidental to transactions in such securities) on the terms and conditions set
forth in the Subcustody Contract between the Custodian and Chase which is
attached hereto as Exhibit A (the "Subcustody Contract"). The Custodian
acknowledges that it has entered into the Subcustody Contract and hereby agrees
to provide such services to the Chase Portfolios and in accordance with such
Subcustody Contract as necessary for foreign custody services to be provided
pursuant thereto.
3B.2 Standard of Care; Liability. Notwithstanding anything to the contrary in
this Contract, the Custodian shall not be liable to the Chase Portfolios for any
loss, damage, cost, expense, liability or claim arising out of or in connection
with the maintenance or custody of the Chase Portfolios' foreign securities by
Chase or by any other banking institution or securities depository employed
pursuant to the terms of the Subcustody Contract, except that the Custodian
shall be liable for any such loss, damage, expense, liability or claim directly
resulting from the failure of the Custodian to exercise reasonable care in the
performance of tits duties hereunder. At the election of a Chase Portfolio, such
Chase Portfolio shall be entitled to be subrogated to the rights of the
Custodian under the Subcustody Contract with respect to any claim arising
hereunder against Chase or any other banking institution or securities
depository employed by Chase if and to the extent that such Chase Portfolio has
not been made whole therefor.
3B.3 Portfolio's Responsibility for Rules and Regulations. As between the
Custodian and the Chase Portfolios, the Chase Portfolios shall be solely
responsible to assure that the maintenance of foreign securities and cash
pursuant to the terms of the Subcustody Contract comply with all applicable
rules, regulations, interpretations and orders of the Securities and Exchange
Commission, and the Custodian assumes no responsibility and makes no
representations as to such compliance.
4. Proper Instructions. Proper Instructions as used throughout this Contract
means a writing signed or initialed by one or more person or persons as the
Board of Trustees shall have from time to time authorized. Each such writing
shall set forth the specific transaction or type of transaction involved,
including a specific statement of the purpose for which such action is
requested. Oral instructions will be considered Proper Instructions if the
Custodian reasonably believes them to have been given by a person authorized to
give such instructions with respect to the transaction involved. The Trust shall
cause all oral instructions to be confirmed in writing. Upon receipt of a
certificate of the Secretary or an Assistant Secretary as to the authorization
by the Board of Trustees of the Trust accompanied by a detailed description of
procedures approved by the Board of Trustees, Proper Instructions may include
communications effected directly between electro-mechanical or electronic
devices provided that the Board of Trustees and the Custodian are satisfied that
such procedures afford adequate safeguards for the Portfolios' assets.
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5. Actions Permitted without Express Authority. The Custodian may in its
discretion, without express authority from the Trust on behalf of each
applicable Portfolio:
1) make payments to itself or others for minor expenses of handling
securities or other similar items relating to its duties under this Contract,
provided that all such payments shall be accounted for to the Trust on behalf of
the Portfolio;
2) surrender securities in temporary form for securities in definitive
form;
3) endorse for collection, in the name of the Portfolio, checks, drafts and
other negotiable instruments; and
4) in general, attend to all non-discretionary details in connection with
the sale, exchange, substitution, purchase, transfer and other dealings with the
securities and property of the Portfolio except as otherwise directed by the
Board of Trustees of the Trust.
6. Evidence of Authority. The Custodian shall be protected in acting upon any
instructions, notice, request, consent, certificate or other instrument or paper
believed by it to be genuine and to have been properly executed by or on behalf
of the Trust. The Custodian may receive and accept a certified copy of a vote of
the Board of Trustees of the Trust as conclusive evidence (a) of the authority
of any person to act in accordance with such vote or (b) of any determination or
of any action by the Board of Trustees pursuant to the Declaration of Trust as
described in such vote, and such vote may be considered as in full force and
effect until receipt by the Custodian of written notice to the contrary.
7. Duties of Custodian with Respect to the Books of Account and Calculation of
Net Asset Value and Net Income.
The Custodian shall cooperate with and supply necessary information to
the entity or entities appointed by the Board of Trustees of the Trust to keep
the books of account of each Portfolio and/or compute the net asset value per
share of the outstanding shares of each Portfolio or, if directed in writing to
do so by the Trust on behalf of the Portfolio, shall itself keep such books of
account and/or compute such net asset value per share. If so directed, the
Custodian shall also calculate daily the net income of the Portfolio as
described in the Trust's currently effective prospectus related to such
Portfolio and shall advise the Trust and the Transfer Agent daily of the total
amounts of such net income and, if instructed in writing by an officer of the
Trust to do so, shall advise the Transfer Agent periodically of the division of
such net income among its various components. The calculations of the net asset
value per share and the daily income of each Portfolio shall be made at the time
or times described from time to time in the Trust's currently effective
prospectus related to such Portfolio.
8. Records.
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The Custodian shall with respect to each Portfolio create and maintain
all records relating to its activities and obligations under this Contract in
such manner as will meet the obligations of the Trust under the Investment
Company Act of 1940, with particular attention to Section 31 thereof and Rules
31a-1 and 31a-2 thereunder, applicable federal and state tax laws and any other
law or administrative rules or procedures which may be applicable to the Trust.
All such records shall be the property of the Trust and shall at all times
during the regular business hours of the Custodian be open for inspection by
duly authorized officers, employees or agents of the Trust and employees and
agents of the Securities and Exchange Commission. The Custodian shall, at the
Trust's request, supply the Trust with a tabulation of securities owned by the
Trust and held by the Custodian and shall, when requested to do so by the Trust
and for such compensation as shall be agreed upon between the Trust and the
Custodian, include certificate numbers in such tabulations.
9. Opinion of Trust's Independent Accountant.
The Custodian shall take all reasonable action, as the Trust on behalf
of each applicable Portfolio may from time to time request, to obtain from year
to year favorable opinions from the Trust's independent accountants with respect
to its activities hereunder in connection with the preparation of the Trust's
Form N-1A, and Form N-SAR or other annual reports to the Securities and Exchange
Commission and with respect to any other requirements of such Commission.
10. Reports to Trust by Independent Public Accountants.
The Custodian shall provide the Trust, on behalf of each of the
Portfolios at such times as the Trust may reasonably require, with reports by
independent public accountants on the accounting system, internal accounting
control and procedures for safeguarding securities, futures contracts and
options on futures contracts, including securities deposited and/or maintained
in a Securities System, relating to the services provided by the Custodian under
this Contract; such reports, shall be of sufficient scope and in sufficient
detail, as may reasonably be required by the Trust to provide reasonable
assurance that any material inadequacies would be disclosed by such examination,
and, if there are no such inadequacies, the reports shall so state.
11. Compensation of Custodian.
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon from time to time between the
Trust on behalf of each applicable Portfolio and the Custodian.
12. Responsibility of Custodian.
So long as and to the extent that it is in the exercise of reasonable
care, the Custodian shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Contract and shall be held harmless in acting
upon any notice, request, consent, certificate or other instrument reasonably
believed by it to be genuine and to be signed by the proper party or parties.
The Custodian shall be held to the exercise of
16
<PAGE>
reasonable care in carrying out the provisions of this Contract and shall be
indemnified by the Trust for any action taken or omitted by it in the proper
execution of instructions from the Trust. It shall be entitled to rely on and
may act upon advice of counsel for the Trust on all matters and shall be without
liability for any action reasonably taken or omitted pursuant to such advice.
Notwithstanding the foregoing, the responsibility of the Custodian with respect
to redemptions effected by check shall be in accordance with a separate
Agreement entered into between the Custodian and the Trust.
Except as may arise from the Custodian's own negligence or willful
misconduct, the Custodian shall be without liability to the Portfolio for any
loss, liability, claim or expense resulting from or caused by; (i) events or
circumstances beyond the reasonable control of the Custodian or any
sub-custodian or Securities System or any agent or nominee of any of the
foregoing, including, without limitation, nationalization or expropriation,
imposition of currency controls or restrictions, the interruption, suspension or
restriction of trading on or the closure of any securities market, power or
other mechanical or technological failures or interruptions, computer viruses or
communications disruptions, acts of war or terrorism, riots, revolutions, work
stoppages, natural disasters or other similar events or acts; (ii) errors by the
Portfolio or the Investment Advisor in their instructions to the Custodian;
(iii) the insolvency of or acts or omissions by a Securities System; (iv) any
delay or failure of any broker, agent or intermediary, central bank or other
commercially prevalent payment or clearing system to deliver to the Custodian's
sub-custodian or agent securities purchased or in the remittance or payment made
in connection with securities sold; (v) any delay or failure of any company,
corporation, or other body in charge or registering or transferring securities
in the name of the Custodian, the Portfolio, the Custodian's sub-custodians,
nominees or agents or agents or any consequential losses arising out of such
delay or failure to transfer such securities including non-receipt of bonus,
dividends and rights and other accretions or benefits; (vi) delays or inability
to perform its duties due to any disorder in market infrastructure with respect
to any particular security or Securities System; and (vii) any provision of any
present or future law or regulation or order of the United States of America, or
any state thereof, or any other country, or political subdivision thereof or of
any court of competent jurisdiction. In no event shall the Custodian be liable
for indirect, special or consequential damages.
The Custodian shall be liable for the acts or omissions of a foreign
banking institution to the same extent as set forth with respect to
sub-custodians generally in this Contract.
The Trust on behalf of a Portfolio agrees to indemnify and hold
harmless the Custodian and its nominee from and against all taxes, charges,
expenses, assessments, claims and liabilities (including counsel fees) incurred
or assessed against it or its nominee in connection with the performance of this
Contract, except such as may arise from its or its nominee's own negligent
action, negligent failure to act or willful misconduct.
The Custodian is authorized to charge any account of the applicable
Portfolio for such item and its fees. To secure any such authorized charges and
any advances of cash or securities made by the Custodian to or for the benefit
of a Portfolio for any purpose which results in the Portfolio incurring an
overdraft at the end of any business day or for extraordinary or emergency
purposes
17
<PAGE>
during any business day, the Trust on behalf of the Portfolio hereby grants to
the Custodian a security interest in and pledges to the Custodian securities
held for it by the Custodian, in an amount not to exceed five percent of the
applicable Portfolio's gross assets, the specific securities to be designated in
writing from time to time by the Trust on behalf of the Portfolio or its
investment adviser (the "Pledged Securities"). Should the Trust on behalf of the
Portfolio fail to repay promptly any advances of cash or securities, the
Custodian shall be entitled to use available cash and to dispose of the Pledged
Securities as is necessary to repay any such advances.
13. Effective Period, Termination and Amendment.
This Contract shall become effective as of its execution, shall
continue in full force and effect until terminated as hereinafter provided, may
be amended at any time by mutual agreement of the parties hereto and may be
terminated by either party by an instrument in writing delivered or mailed,
postage prepaid to the other party, such termination to take effect not sooner
than thirty (30) days after the date of such delivery or mailing; provided,
however that the Custodian shall not with respect to a Portfolio act under
Section 2.12 hereof in the absence of receipt of an initial certificate of the
Secretary or an Assistant Secretary that the Board of Trustees of the Trust have
approved the initial use of a particular Securities System by such Portfolio and
the receipt of an annual certificate of the Secretary or an Assistant Secretary
that the Board of Trustees has reviewed the use by such Portfolio of such
Securities System, as required in each case by Rule 17f-4 under the Investment
Company Act of 1940, as amended and that the Custodian shall not with respect to
a Portfolio act under Section 2.12A hereof in the absence of receipt of an
initial certificate of the Secretary or an Assistant Secretary that the Board of
Trustees has approved the initial use of the Direct Paper System by such
Portfolio and the receipt of an annual certificate of the Secretary or an
Assistant Secretary that the Board of Trustees has reviewed the use by such
Portfolio of the Direct Paper System; provided further, however, (a) that the
Trust shall not amend or terminate this Contract in contravention of any
applicable federal or state regulations, or any provision of the Declaration of
Trust, and (b) that the Trust on behalf of one or more of the Portfolios may at
any time by action of its Board of Trustees (i) substitute another bank or trust
company for the Custodian by giving notice as described above to the Custodian,
or (ii) immediately terminate this Contract in the event of the appointment of a
conservator or receiver for the Custodian or upon the happening of a like event
at the direction of an appropriate regulatory agency or court of competent
jurisdiction.
Upon termination of the Contract, the Trust on behalf of each
applicable Portfolio shall pay to the Custodian such compensation as may be due
as of the date of such termination and shall likewise reimburse the Custodian
for its costs, expenses and disbursements.
14. Successor Custodian.
If a successor custodian for the assets, of one or more of the
Portfolios shall be appointed by the Board of Trustees of the Trust, the
Custodian shall, upon termination, deliver to such successor custodian at the
office of the Custodian, duly endorsed and in the form for transfer, all
securities of each applicable Portfolio then held by it hereunder and shall
transfer to an account of the successor custodian all of the securities of each
such Portfolio held in a Securities System.
18
<PAGE>
If no such successor custodian shall be appointed, the Custodian shall,
in like manner, upon receipt of a certified copy of a vote of the Board of
Trustees of the Trust, deliver at the office of the Custodian and transfer such
securities, funds and other properties in accordance with such vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Trustees shall have been delivered to
the Custodian on or before the date when such termination shall become
effective, then the Custodian shall have the right to deliver to a bank or trust
company, which is a "bank" as defined in the Investment Company Act of 1940, of
its own selection, having an aggregate capital, surplus, and undivided profits,
as shown by its last published report, of not less than $25,000,000, all
securities, funds and other properties held by the Custodian on behalf of each
applicable Portfolio and all instruments held by the Custodian relative thereto
and all other property held by it under this Contract on behalf of each
applicable Portfolio and to transfer to an account of such successor custodian
all of the securities of each such Portfolio held in any Securities System.
Thereafter, such bank or trust company shall be the successor of the Custodian
under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Trust to procure the certified copy of the vote referred to or of
the Board of Trustees to appoint a successor custodian, the Custodian shall be
entitled to fair compensation for its services during such period as the
Custodian retains possession of such securities, funds and other properties and
the provisions of this Contract relating to the duties and obligations of the
Custodian shall remain in full force and effect.
15. Interpretive and Additional Provisions.
In connection with the operation of this Contract, the Custodian and
the Trust on behalf of each of the Portfolios, may from time to time agree on
such provisions interpretive of or in addition to the provisions of this
Contract as may in their joint opinion be consistent with the general tenor of
this Contract. Any such interpretive or additional provisions shall be in a
writing signed by both parties and shall be annexed hereto, provided that no
such interpretive or additional provisions shall contravene any applicable
federal or state regulations or any provision of the Declaration of Trust of the
Trust. No interpretive or additional provisions made as provided in the
preceding sentence shall be deemed to be an amendment of this Contract.
16. Additional Portfolios.
In the event that the Trust establishes one or more series of Shares in
addition to the initial series with respect to which it desires to have the
Custodian render services as custodian under the terms hereof, it shall so
notify the Custodian in writing, specifying whether such additional Portfolio
will employ the State Street Global Custody Network (thereby becoming a State
Street Portfolio subject to Article 3A hereunder) or the Chase Global Custody
Network (thereby becoming a "Chase Portfolio" subject to Article 3B hereunder)
or any other global custody network agreed upon by the parties (in which event
the Portfolio will be subject to Article 3B hereunder)
19
<PAGE>
and if the Custodian agrees in writing to provide such services, such series of
Shares shall become a Portfolio hereunder.
17. Massachusetts Law to Apply.
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of The Commonwealth of Massachusetts.
18. Trust Disclaimer.
A copy of the Declaration of Trust of the Trust is on file with the
Secretary of State of The Commonwealth of Massachusetts. Custodian acknowledges
that the obligations of or arising out of this instrument are not binding upon
any of the Trust's trustees, officers, employees, agents or shareholders
individually, but are binding solely upon the assets and property of the Trust
in accordance with its proportionate interest hereunder. If this instrument is
executed by the Trust on behalf of one or more series of the Trust, Custodian
further acknowledges that the assets and liabilities of each series of the Trust
are separate and distinct and that the obligations of or arising out of this
instrument are binding solely upon the assets or property of the series on whose
behalf the Trust has executed this instrument. If the Trust has executed this
instrument on behalf of more than one series of the Trust, Custodian also agrees
that the obligations of each series hereunder shall be several and not joint, in
accordance with its proportionate interest hereunder, and Custodian agrees not
to proceed against any series for the obligations of another series.
19. Prior Contracts.
This Contract supersedes and terminates, as of the date hereof, the
existing custodian contract between the Trust on behalf of each of the
Portfolios and the Custodian. Any reference to the custodian contract between
the Trust and the Custodian in documents executed prior to the date hereof shall
be deemed to refer to this Contract.
20. Shareholder Communications.
Securities and Exchange Commission Rule 14b-2 requires banks which hold
securities for the account of customers to respond to requests by issuers of
securities for the names, addresses and holdings of beneficial owners of
securities of that issuer held by the bank unless the beneficial owner has
expressly objected to disclosure of this information. In order to comply with
the rule, the Custodian needs for the Trust to indicate whether the Trust, on
behalf of the Portfolios, authorizes the Custodian to provide the Trust's name,
address, and share position to requesting companies whose stock the Trust owns.
If the Trust tells the Custodian "no", the Custodian will not provide this
information to requesting companies. If the Trust tells the Custodian "yes" or
does not check either "yes" or "no" below, the Custodian is required by the rule
to treat the Trust as consenting to disclosure of this information for all
securities owned by any Portfolios of the Trust. For the Trust's protection, the
Rule prohibits the requesting company from using the Trust's name
20
<PAGE>
and address for any purpose other than corporate communications. Please indicate
below whether the Trust consents or objects by checking one of the alternatives
below.
YES [ ] The Custodian is authorized to release the Trust's name,
address, and share positions.
NO [ ] The Custodian is not authorized to release the Trust's name,
address, and share positions.
21
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this instrument to
be executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of the 1st day of October, 1997.
Attest MFS SERIES TRUST V
ELIZABETH G. ARMSTRONG By: JAMES R. BORDEWICK, JR.
Name: Elizabeth G. Armstrong Name: James R. Bordewick, Jr.
Title: Associate Counsel Title: Assistant Secretary
Attest STATE STREET BANK AND TRUST COMPANY
THOMAS M. LENZ By: RONALD E. LOGUE
Thomas M. Lenz Ronald E. Logue
Vice President Executive Vice President
22
<PAGE>
[ARTICLE] 6
[CIK] 0000200489
[NAME] MFS SERIES TRUST V
[SERIES]
[NUMBER] 031
[NAME] MFS ASIA PACIFIC FUND CLASS A
<TABLE>
<S> <C>
[PERIOD-TYPE] 6-MOS
[FISCAL-YEAR-END] SEP-30-1998
[PERIOD-START] OCT-10-1997
[PERIOD-END] MAR-31-1998
[INVESTMENTS-AT-COST] 2348950
[INVESTMENTS-AT-VALUE] 2197134
[RECEIVABLES] 26956
[ASSETS-OTHER] 4585
[OTHER-ITEMS-ASSETS] 1755
[TOTAL-ASSETS] 2230430
[PAYABLE-FOR-SECURITIES] 44722
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 11402
[TOTAL-LIABILITIES] 56124
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 2414600
[SHARES-COMMON-STOCK] 206053
[SHARES-COMMON-PRIOR] 0
[ACCUMULATED-NII-CURRENT] 808
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS] (82884)
[ACCUM-APPREC-OR-DEPREC] (158218)
[NET-ASSETS] 2174306
[DIVIDEND-INCOME] 8864
[INTEREST-INCOME] 10347
[OTHER-INCOME] (1109)
[EXPENSES-NET] (12348)
[NET-INVESTMENT-INCOME] 5754
[REALIZED-GAINS-CURRENT] (82884)
[APPREC-INCREASE-CURRENT] (158218)
[NET-CHANGE-FROM-OPS] (235348)
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (4075)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 206374
[NUMBER-OF-SHARES-REDEEMED] (819)
[SHARES-REINVESTED] 498
[NET-CHANGE-IN-ASSETS] 2174306
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 9029
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 25264
[AVERAGE-NET-ASSETS] 1953717
[PER-SHARE-NAV-BEGIN] 10.00
[PER-SHARE-NII] 0.03
[PER-SHARE-GAIN-APPREC] (1.26)
[PER-SHARE-DIVIDEND] (0.02)
[PER-SHARE-DISTRIBUTIONS] 0.00
[RETURNS-OF-CAPITAL] 0.00
[PER-SHARE-NAV-END] 8.75
[EXPENSE-RATIO] 1.34
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
<PAGE>
[ARTICLE] 6
[CIK] 0000200489
[NAME] MFS SERIES TRUST V
[SERIES]
[NUMBER] 032
[NAME] MFS ASIA PACIFIC FUND CLASS I
<TABLE>
<S> <C>
[PERIOD-TYPE] 6-MOS
[FISCAL-YEAR-END] SEP-30-1998
[PERIOD-START] OCT-10-1997
[PERIOD-END] MAR-31-1998
[INVESTMENTS-AT-COST] 2348950
[INVESTMENTS-AT-VALUE] 2197134
[RECEIVABLES] 26956
[ASSETS-OTHER] 4585
[OTHER-ITEMS-ASSETS] 1755
[TOTAL-ASSETS] 2230430
[PAYABLE-FOR-SECURITIES] 44722
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 11402
[TOTAL-LIABILITIES] 56124
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 2414600
[SHARES-COMMON-STOCK] 42381
[SHARES-COMMON-PRIOR] 0
[ACCUMULATED-NII-CURRENT] 808
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS] (82884)
[ACCUM-APPREC-OR-DEPREC] (158218)
[NET-ASSETS] 2174306
[DIVIDEND-INCOME] 8864
[INTEREST-INCOME] 10347
[OTHER-INCOME] (1109)
[EXPENSES-NET] (12348)
[NET-INVESTMENT-INCOME] 5754
[REALIZED-GAINS-CURRENT] (82884)
[APPREC-INCREASE-CURRENT] (158218)
[NET-CHANGE-FROM-OPS] (235348)
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (871)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 47761
[NUMBER-OF-SHARES-REDEEMED] (5487)
[SHARES-REINVESTED] 107
[NET-CHANGE-IN-ASSETS] 2174306
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 9029
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 25264
[AVERAGE-NET-ASSETS] 1953717
[PER-SHARE-NAV-BEGIN] 10.00
[PER-SHARE-NII] 0.02
[PER-SHARE-GAIN-APPREC] (1.25)
[PER-SHARE-DIVIDEND] (0.02)
[PER-SHARE-DISTRIBUTIONS] 0.00
[RETURNS-OF-CAPITAL] 0.00
[PER-SHARE-NAV-END] 8.75
[EXPENSE-RATIO] 1.34
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
<PAGE>
[ARTICLE] 6
[CIK] 0000200489
[NAME] MFS SERIES TRUST V
[SERIES]
[NUMBER] 041
[NAME] MFS INTERNATIONAL OPPORTUNITIES FUND CLASS A
<TABLE>
<S> <C>
[PERIOD-TYPE] 6-MOS
[FISCAL-YEAR-END] SEP-30-1998
[PERIOD-START] OCT-10-1998
[PERIOD-END] MAR-31-1998
[INVESTMENTS-AT-COST] 1133047
[INVESTMENTS-AT-VALUE] 1303742
[RECEIVABLES] 6552
[ASSETS-OTHER] 1099
[OTHER-ITEMS-ASSETS] 251
[TOTAL-ASSETS] 1311644
[PAYABLE-FOR-SECURITIES] 17174
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 9335
[TOTAL-LIABILITIES] 26509
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 1152493
[SHARES-COMMON-STOCK] 64107
[SHARES-COMMON-PRIOR] 0
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] (1598)
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS] (31053)
[ACCUM-APPREC-OR-DEPREC] 165293
[NET-ASSETS] 1285135
[DIVIDEND-INCOME] 4983
[INTEREST-INCOME] 3093
[OTHER-INCOME] (587)
[EXPENSES-NET] (9087)
[NET-INVESTMENT-INCOME] (1598)
[REALIZED-GAINS-CURRENT] (31053)
[APPREC-INCREASE-CURRENT] 165293
[NET-CHANGE-FROM-OPS] 132642
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 64108
[NUMBER-OF-SHARES-REDEEMED] (1)
[SHARES-REINVESTED] 0
[NET-CHANGE-IN-ASSETS] 1285135
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 5021
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 21498
[AVERAGE-NET-ASSETS] 1095641
[PER-SHARE-NAV-BEGIN] 10.00
[PER-SHARE-NII] (0.01)
[PER-SHARE-GAIN-APPREC] 1.15
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 11.14
[EXPENSE-RATIO] 1.75
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
<PAGE>
[ARTICLE] 6
[CIK] 0000200489
[NAME] MFS SERIES TRUST V
[SERIES]
[NUMBER] 041
[NAME] MFS INTERNATIONAL OPPORTUNITIES FUND CLASS I
<TABLE>
<S> <C>
[PERIOD-TYPE] 6-MOS
[FISCAL-YEAR-END] SEP-30-1998
[PERIOD-START] OCT-10-1998
[PERIOD-END] MAR-31-1998
[INVESTMENTS-AT-COST] 1133047
[INVESTMENTS-AT-VALUE] 1303742
[RECEIVABLES] 6552
[ASSETS-OTHER] 1099
[OTHER-ITEMS-ASSETS] 251
[TOTAL-ASSETS] 1311644
[PAYABLE-FOR-SECURITIES] 17174
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 9335
[TOTAL-LIABILITIES] 26509
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 1152493
[SHARES-COMMON-STOCK] 51267
[SHARES-COMMON-PRIOR] 0
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] (1598)
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS] (31053)
[ACCUM-APPREC-OR-DEPREC] 165293
[NET-ASSETS] 1285135
[DIVIDEND-INCOME] 4983
[INTEREST-INCOME] 3093
[OTHER-INCOME] (587)
[EXPENSES-NET] (9087)
[NET-INVESTMENT-INCOME] (1598)
[REALIZED-GAINS-CURRENT] (31053)
[APPREC-INCREASE-CURRENT] 165293
[NET-CHANGE-FROM-OPS] 132642
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 51267
[NUMBER-OF-SHARES-REDEEMED] 0
[SHARES-REINVESTED] 0
[NET-CHANGE-IN-ASSETS] 1285135
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 5021
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 21498
[AVERAGE-NET-ASSETS] 1095641
[PER-SHARE-NAV-BEGIN] 10.00
[PER-SHARE-NII] (0.01)
[PER-SHARE-GAIN-APPREC] 1.15
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 11.14
[EXPENSE-RATIO] 1.75
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
<PAGE>
[ARTICLE] 6
[CIK] 0000200489
[NAME] MFS SERIES TRUST V
[SERIES]
[NUMBER] 051
[NAME] MFS INTERNATIONAL STRATEGIC GROWTH FUND CLASS A
<TABLE>
<S> <C>
[PERIOD-TYPE] 6-MOS
[FISCAL-YEAR-END] SEP-30-1998
[PERIOD-START] OCT-10-1998
[PERIOD-END] MAR-31-1998
[INVESTMENTS-AT-COST] 1102071
[INVESTMENTS-AT-VALUE] 1244767
[RECEIVABLES] 5517
[ASSETS-OTHER] 1780
[OTHER-ITEMS-ASSETS] 829
[TOTAL-ASSETS] 1252893
[PAYABLE-FOR-SECURITIES] 10714
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 7586
[TOTAL-LIABILITIES] 18300
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 1078112
[SHARES-COMMON-STOCK] 38081
[SHARES-COMMON-PRIOR] 0
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] (1270)
[ACCUMULATED-NET-GAINS] 19206
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 138545
[NET-ASSETS] 1234593
[DIVIDEND-INCOME] 2965
[INTEREST-INCOME] 5433
[OTHER-INCOME] (678)
[EXPENSES-NET] (8990)
[NET-INVESTMENT-INCOME] (1270)
[REALIZED-GAINS-CURRENT] 19206
[APPREC-INCREASE-CURRENT] 138545
[NET-CHANGE-FROM-OPS] 156481
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 38181
[NUMBER-OF-SHARES-REDEEMED] (100)
[SHARES-REINVESTED] 0
[NET-CHANGE-IN-ASSETS] 1234593
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 5009
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 20516
[AVERAGE-NET-ASSETS] 1083929
[PER-SHARE-NAV-BEGIN] 10.00
[PER-SHARE-NII] (0.01)
[PER-SHARE-GAIN-APPREC] 1.45
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 11.44
[EXPENSE-RATIO] 1.75
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
<PAGE>
[ARTICLE] 6
[CIK] 0000200489
[NAME] MFS SERIES TRUST V
[SERIES]
[NUMBER] 051
[NAME] MFS INTERNATIONAL STRATEGIC GROWTH FUND CLASS I
<TABLE>
<S> <C>
[PERIOD-TYPE] 6-MOS
[FISCAL-YEAR-END] SEP-30-1998
[PERIOD-START] OCT-10-1998
[PERIOD-END] MAR-31-1998
[INVESTMENTS-AT-COST] 1102071
[INVESTMENTS-AT-VALUE] 1244767
[RECEIVABLES] 5517
[ASSETS-OTHER] 1780
[OTHER-ITEMS-ASSETS] 829
[TOTAL-ASSETS] 1252893
[PAYABLE-FOR-SECURITIES] 10714
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 7586
[TOTAL-LIABILITIES] 18300
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 1078112
[SHARES-COMMON-STOCK] 69866
[SHARES-COMMON-PRIOR] 0
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] (1270)
[ACCUMULATED-NET-GAINS] 19206
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 138545
[NET-ASSETS] 1234593
[DIVIDEND-INCOME] 2965
[INTEREST-INCOME] 5433
[OTHER-INCOME] (678)
[EXPENSES-NET] (8990)
[NET-INVESTMENT-INCOME] (1270)
[REALIZED-GAINS-CURRENT] 19206
[APPREC-INCREASE-CURRENT] 138545
[NET-CHANGE-FROM-OPS] 156481
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 72391
[NUMBER-OF-SHARES-REDEEMED] (2525)
[SHARES-REINVESTED] 0
[NET-CHANGE-IN-ASSETS] 1234593
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 5009
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 20516
[AVERAGE-NET-ASSETS] 1083929
[PER-SHARE-NAV-BEGIN] 10.00
[PER-SHARE-NII] (0.01)
[PER-SHARE-GAIN-APPREC] 1.45
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 11.44
[EXPENSE-RATIO] 1.75
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
<PAGE>
[ARTICLE] 6
[CIK] 0000200489
[NAME] MFS SERIES TRUST V
[SERIES]
[NUMBER] 061
[NAME] MFS INTERNATIONAL VALUE FUND CLASS A
<TABLE>
<S> <C>
[PERIOD-TYPE] 6-MOS
[FISCAL-YEAR-END] SEP-30-1998
[PERIOD-START] OCT-10-1998
[PERIOD-END] MAR-31-1998
[INVESTMENTS-AT-COST] 1067754
[INVESTMENTS-AT-VALUE] 1214596
[RECEIVABLES] 8296
[ASSETS-OTHER] 291
[OTHER-ITEMS-ASSETS] 232
[TOTAL-ASSETS] 1223415
[PAYABLE-FOR-SECURITIES] 6361
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 3265
[TOTAL-LIABILITIES] 9626
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 1049733
[SHARES-COMMON-STOCK] 96005
[SHARES-COMMON-PRIOR] 0
[ACCUMULATED-NII-CURRENT] 2706
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 14528
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 146822
[NET-ASSETS] 1213789
[DIVIDEND-INCOME] 3700
[INTEREST-INCOME] 7993
[OTHER-INCOME] (387)
[EXPENSES-NET] (8600)
[NET-INVESTMENT-INCOME] 2706
[REALIZED-GAINS-CURRENT] 14528
[APPREC-INCREASE-CURRENT] 146822
[NET-CHANGE-FROM-OPS] 164056
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 96025
[NUMBER-OF-SHARES-REDEEMED] (20)
[SHARES-REINVESTED] 0
[NET-CHANGE-IN-ASSETS] 1213789
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 4751
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 21804
[AVERAGE-NET-ASSETS] 1036835
[PER-SHARE-NAV-BEGIN] 10.00
[PER-SHARE-NII] 0.03
[PER-SHARE-GAIN-APPREC] 1.54
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 11.57
[EXPENSE-RATIO] 1.75
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
<PAGE>
[ARTICLE] 6
[CIK] 0000200489
[NAME] MFS SERIES TRUST V
[SERIES]
[NUMBER] 061
[NAME] MFS INTERNATIONAL VALUE FUND CLASS I
<TABLE>
<S> <C>
[PERIOD-TYPE] 6-MOS
[FISCAL-YEAR-END] SEP-30-1998
[PERIOD-START] OCT-10-1998
[PERIOD-END] MAR-31-1998
[INVESTMENTS-AT-COST] 1067754
[INVESTMENTS-AT-VALUE] 1214596
[RECEIVABLES] 8296
[ASSETS-OTHER] 291
[OTHER-ITEMS-ASSETS] 232
[TOTAL-ASSETS] 1223415
[PAYABLE-FOR-SECURITIES] 6361
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 3265
[TOTAL-LIABILITIES] 9626
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 1049733
[SHARES-COMMON-STOCK] 8911
[SHARES-COMMON-PRIOR] 0
[ACCUMULATED-NII-CURRENT] 2706
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 14528
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 146822
[NET-ASSETS] 1213789
[DIVIDEND-INCOME] 3700
[INTEREST-INCOME] 7993
[OTHER-INCOME] (387)
[EXPENSES-NET] (8600)
[NET-INVESTMENT-INCOME] 2706
[REALIZED-GAINS-CURRENT] 14528
[APPREC-INCREASE-CURRENT] 146822
[NET-CHANGE-FROM-OPS] 164056
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 8911
[NUMBER-OF-SHARES-REDEEMED] 0
[SHARES-REINVESTED] 0
[NET-CHANGE-IN-ASSETS] 1213789
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 4751
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 21804
[AVERAGE-NET-ASSETS] 1036835
[PER-SHARE-NAV-BEGIN] 10.00
[PER-SHARE-NII] 0.03
[PER-SHARE-GAIN-APPREC] 1.55
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 11.58
[EXPENSE-RATIO] 1.75
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
