<PAGE>
As filed with the Securities and Exchange Commission on November 25, 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. 47
AND
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 32
MFS(R) SERIES TRUST V
(Exact Name of Registrant as Specified in Charter)
500 Boylston, Street, Boston, Massachusetts 02116
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code: (617) 954-5000
Stephen E. Cavan, Massachusetts Financial Services Company
500 Boylston Street, Boston, Massachusetts 02116
(Name and Address of Agent for Service)
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
It is proposed that this filing will become effective (check appropriate box)
|_| immediately upon filing pursuant to paragraph (b)
|_| on [date] pursuant to paragraph (b)
|_| 60 days after filing pursuant to paragraph (a)(i)
|X| on January 28, 1999 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(R) TOTAL RETURN FUND
MFS(R) RESEARCH FUND
MFS(R) INTERNATIONAL OPPORTUNITIES FUND
MFS(R) INTERNATIONAL STRATEGIC GROWTH FUND
MFS(R) INTERNATIONAL VALUE FUND
MFS(R) 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)
<TABLE>
<CAPTION>
STATEMENT OF
ITEM NUMBER ADDITIONAL
FORM N-1A, PART A PROSPECTUS CAPTION INFORMATION CAPTION
- ----------------- ------------------ -------------------
<S> <C> <C>
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) Information Concerning *
Shares of the Funds -
Performance Information
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; Year 2000 Issues
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) ** **
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;
Year 2000 Issues
(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
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>
<CAPTION>
STATEMENT OF
ITEM NUMBER ADDITIONAL
FORM N-1A, PART B PROSPECTUS CAPTION INFORMATION CAPTION
- ----------------- ------------------ -------------------
<S> <C> <C>
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
(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
(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
</TABLE>
<PAGE>
MFS(R) TOTAL RETURN FUND
SUPPLEMENT TO THE FEBRUARY 1, 1999 PROSPECTUS AND
STATEMENT OF ADDITIONAL INFORMATION
THE FOLLOWING INFORMATION SHOULD BE READ IN CONJUNCTION WITH THE FUND'S
PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION ("SAI"), DATED FEBRUARY 1,
1999, 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
SHAREHOLDER TRANSACTION EXPENSES: CLASS I
Maximum Initial Sales Charge Imposed on Purchases of Fund
Shares (as a percentage of offering price).......................... None
Maximum Contingent Deferred Sales Charge (as a percentage
of original purchase price or redemption proceeds, as applicable)... None
ANNUAL OPERATING EXPENSES OF THE FUND (AS A PERCENTAGE OF AVERAGE NET ASSETS):
Management Fees....................................................... 0.34%
Rule 12b-1 Fees....................................................... None
Other Expenses(1)..................................................... 0.21%
Total Operating Expenses.............................................. 0.55%
- ---------
(1) The Fund has an expense offset arrangement which reduces the Fund's
custodian fee based upon the amount of cash maintained by the Fund with its
custodian and dividend disbursing agent, and may enter into other such
arrangements and directed brokerage arrangements (which would also have the
effect of reducing the Fund's expenses). Any such fee reductions are not
reflected under "Other Expenses."
EXAMPLE OF EXPENSES
An investor would pay the following dollar amounts of expenses on a $1,000
investment in Class I shares of the Fund, assuming (a) a 5% annual return and
(b) redemption at the end of each of the time periods indicated:
PERIOD CLASS I
1 year........................................ $ 6
3 years....................................... 18
5 years....................................... 31
10 years...................................... 70
The purpose of the expense table above is to assist investors in
understanding the various costs and expenses that a shareholder of the Fund will
bear directly or indirectly. A more complete description of the Fund's
management fee is set forth under the caption "Management of the Fund" in the
Prospectus.
THE "EXAMPLE" SET FORTH ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST
OR FUTURE EXPENSES OF THE FUND; ACTUAL EXPENSES MAY BE GREATER OR LESS THAN
THOSE SHOWN.
CONDENSED FINANCIAL INFORMATION
The following information has been audited and should be read in
conjunction with the financial statements included in the Fund's Annual Report
to Shareholders which are incorporated by reference into the SAI in reliance
upon the report of the Fund's independent auditors, given upon their authority
as experts in accounting and auditing. The Fund's independent auditors are
Deloitte & Touche LLP.
FINANCIAL HIGHLIGHTS - CLASS I SHARES
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997*
------------------ -------------------
<S> <C> <C>
Per share data (for a share outstanding throughout the period):
Net asset value - beginning of period $ 16.92 $ 14.70
------- -------
Income from investment operations# -
Net investment income $ 0.63 $ 0.48
Net realized and unrealized gain on
investments and foreign currency transactions 0.53 2.23
------- -------
Total from investment operations $ 1.16 $ 2.71
------- -------
Less distributions declared to shareholders -
From net investment income $ (0.64) $ (0.49)
From net realized gain on investments and
foreign currency transactions (1.37) --
In excess of net investment income (0.01) --
--------- ----------------
Total distributions declared to shareholders $ 2.02 $ (0.49)
------- --------
Net asset value - end of period $ 16.06 $ 16.92
-------- -------
Total return 7.35% 18.69%++
Ratios (to average net assets)/
Supplemental data:
Expenses## 0.56% 0.60%+
Net investment income 3.79% 4.16%+
Portfolio turnover 126% 143%
Net assets at end of period
(000,000 omitted) $ 17 $ 16
- --------------------------
* For the period from the inception of Class I, January 2, 1997 through September 30, 1997.
+ Annualized
++ Not annualized
# Per share data are based on average shares outstanding.
## The Fund's expenses are calculated without reduction for fees paid indirectly.
</TABLE>
ELIGIBLE PURCHASERS
Class I shares are available for purchase only by the following purchasers
("Eligible Purchasers"):
(i) certain retirement plans established for the benefit of employees of
Massachusetts Financial Services Company ("MFS"), the Fund's investment
adviser, and employees of MFS' affiliates; and
(ii) any fund distributed by MFS Fund Distributors, Inc. ("MFD"), the Fund's
distributor, if the fund seeks to achieve its investment objective by
investing primarily in shares of the Fund and other funds distributed by
MFD.
In no event will the Fund, MFS, MFD or any of their affiliates pay any sales
commissions or compensation to any third party in connection with the sale of
Class I shares; the payment of any such sales commission or compensation would,
under the Fund's policies, disqualify the purchaser as an eligible investor of
Class I shares.
SHARE CLASSES OFFERED BY THE FUND
Four classes of shares of the Fund currently are offered for sale, Class A
shares, Class B shares, Class C shares and Class I shares. Class I shares are
available for purchase only by Eligible Purchasers, as defined above, and are
described in this Supplement. Class A shares, Class B shares and Class C shares
are described in the Fund's Prospectus and are available for purchase by the
general public.
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") of 1.00% upon redemption 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
0.35% 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 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 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 Fund.
OTHER INFORMATION
Eligible Purchasers may purchase Class I shares only directly through MFD.
Eligible Purchasers may exchange Class I shares of the 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 the Fund for shares of the MFS(R) Money Market Fund (if available for sale),
and may redeem Class I shares of the Fund at net asset value. Distributions paid
by the Fund with respect to Class I shares generally will be greater than those
paid with respect to Class A shares, Class B shares and Class C shares because
expenses attributable to Class A shares, Class B shares and Class C shares
generally will be higher.
THE DATE OF THIS SUPPLEMENT IS FEBRUARY 1, 1999.
<PAGE>
PROSPECTUS
CLASS A SHARES OF BENEFICIAL INTEREST
CLASS B SHARES OF BENEFICIAL INTEREST
CLASS C SHARES OF BENEFICIAL INTEREST
- --------------------------------------------------------------------------------
The primary investment objective of the MFS(R) Total Return Fund (the "Fund")
is to obtain above-average income (compared to a portfolio entirely invested
in equity securities) consistent with prudent employment of capital. The
Fund's secondary objective is to take advantage of opportunities for growth of
capital and income. Under normal market conditions, at least 25% of the Fund's
assets will be invested in fixed income securities and at least 40% and no
more than 75% of the Fund's assets will be invested in equity securities (see
"Investment Objectives and Policies"). The Fund is a diversified series of
MFS(R) Series Trust V (the "Trust"), an open-end investment company. The
minimum initial investment generally is $1,000 per account (see "Purchases").
The Fund's investment adviser and distributor are Massachusetts Financial
Services Company ("MFS") and MFS Fund Distributors, Inc. ("MFD"),
respectively, both of which are located at 500 Boylston Street, Boston,
Massachusetts 02116.
INVESTMENT PRODUCTS ARE NOT INSURED BY THE FDIC OR ANY OTHER GOVERNMENT
AGENCY, AND ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR GUARANTEED BY, ANY
FINANCIAL INSTITUTION. SHARES OF MUTUAL FUNDS ARE SUBJECT TO INVESTMENT RISKS,
INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED, AND WILL FLUCTUATE
IN VALUE. YOU MAY RECEIVE MORE OR LESS THAN YOU PAID WHEN YOU REDEEM YOUR
SHARES.
This Prospectus sets forth concisely the information concerning the Trust and
the Fund that a prospective investor ought to know before investing. The Trust,
on behalf of the Fund, has filed with the Securities and Exchange Commission
(the "SEC") a Statement of Additional Information, dated February 1, 1999, as
amended or supplemented from time to time (the "SAI"), which contains more
detailed information about the Trust and the Fund. The SAI is incorporated into
this Prospectus by reference. See page 44 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). The SEC maintains an Internet World Wide Web site at
http://www.sec.gov that contains the SAI, materials that are incorporated by
reference into this Prospectus and the SAI, and other information regarding the
Fund. This Prospectus is available on the Adviser's Internet World Wide Web site
at http://www.mfs.com.
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.
<PAGE>
TABLE OF CONTENTS
Page
1. Expense Summary .................................... 3
2. Condensed Financial Information .................... 5
3. The Fund ........................................... 8
4. Investment Objectives and Policies ................. 9
5. Management of the Fund ............................. 21
6. Year 2000 Issues ................................... 23
7. Information Concerning Shares of the Fund .......... 24
Purchases ...................................... 24
Exchanges ...................................... 31
Redemptions and Repurchases .................... 33
Distribution Plan .............................. 36
Distributions .................................. 38
Tax Status ..................................... 38
Net Asset Value ................................ 39
Description of Shares, Voting Rights and
Liabilities .................................... 39
Performance Information ........................ 40
Provision of Annual and Semiannual Reports ..... 41
8. Shareholder Services ............................... 41
Appendix A ......................................... A-1
Appendix B ......................................... B-1
1. EXPENSE SUMMARY
CLASS A CLASS B CLASS C
------- ------- -------
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Initial Sales Charge Imposed on
Purchases of Fund Shares (as a
percentage of offering price) 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%
ANNUAL OPERATING EXPENSES OF THE FUND (AS A PERCENTAGE OF AVERAGE NET ASSETS):
Management Fees ......................... 0.34% 0.34% 0.34%
Rule 12b-1 Fees ......................... 0.35%(2) 1.00%(3) 1.00%(3)
Other Expenses(4) ....................... 0.21% 0.21% 0.21%
---- ---- ----
Total Operating Expenses ................ 0.90% 1.55% 1.55%
- ------------
(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 "Information Concerning Shares of the Fund -- Purchases"
below.
(2) The 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"), which provides that it will pay distribution/service fees
aggregating up to (but not necessarily all of) 0.35% per annum of the
average daily net assets attributable to the Class A shares. The 0.35% per
annum distribution/service fee is reduced to 0.25% per annum for shares
purchased prior to October 1, 1989. Distribution expenses paid under the
Distribution Plan with respect to Class A shares, 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 "Information Concerning Shares of
the Fund -- Distribution Plan" below.
(3) The Fund's Distribution Plan provides that it will pay distribution/
service fees aggregating up to 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 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 "Information Concerning Shares of the Fund
-- Distribution Plan" below.
(4) The 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."
<PAGE>
EXAMPLE OF EXPENSES
An investor would pay the following dollar amounts of expenses on a $1,000
investment in the Fund, assuming (a) a 5% annual return and (b) redemption at
the end of each of the time periods indicated (unless otherwise noted):
PERIOD CLASS A CLASS B CLASS C
- ------ ------- ------------ ------------
(1) (1)
1 year ....................... $ 56 $ 56 $ 16 $ 26 $ 16
3 years ...................... 75 79 49 49 49
5 years ...................... 95 104 84 84 84
10 years ...................... 167 167
153 (2) (2) 185 185
- ------------
(1) Assumes no redemption.
(2) Class B shares convert to Class A shares approximately eight years after
purchase; therefore, years nine and ten reflect Class A expenses.
The purpose of the expense table above is to assist investors in understanding
the various costs and expenses that a shareholder of the Fund will bear
directly or indirectly. More complete descriptions of the following Fund
expenses are set forth in the following sections of the Prospectus: (i)
varying sales charges on share purchases -- "Purchases"; (ii) varying CDSCs --
"Purchases"; (iii) management fees -- "Investment Adviser"; and (iv) Rule
12b-1 (i.e., distribution plan) fees -- "Distribution Plan."
THE "EXAMPLE" SET FORTH ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES OF THE FUND; ACTUAL EXPENSES MAY BE GREATER OR LESS
THAN THOSE SHOWN.
<PAGE>
2. CONDENSED FINANCIAL INFORMATION
The following information has been audited for at least the latest five fiscal
years of the Fund and should be read in conjunction with the financial
statements included in the Fund's Annual Report to shareholders which are
incorporated by reference into the SAI in reliance upon the report of the
Fund's independent auditors given upon their authority, as experts in
accounting and auditing. The Fund's current independent auditors are Deloitte
& Touche LLP.
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ----
CLASS A
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD):
Net asset value -- beginning of
period ...................... $16.92 $15.03 $14.46 $12.80 $13.70 $12.42
------ ------ ------ ------ ------ ------
Income from investment operations# --
Net investment income(S) .... $ 0.57 $ 0.60 $ 0.64 $ 0.64 $ 0.54 $ 0.45
Net realized and unrealized
gain (loss) on investments
and foreign currency
transactions .............. 0.53 2.94 1.21 1.64 (0.69) 1.74
------ ------ ------ ------ ------ ------
Total from investment
operations ............ $ 1.10 $ 3.54 $ 1.85 $ 2.28 $(0.15) $ 2.19
------ ------ ------ ------ ------ ------
Less distributions declared to
shareholders --
From net investment income .. $(0.58) $(0.59) $(0.62) $(0.61) $(0.54) $(0.59)
From net realized gain on
investments and foreign
currency transactions ..... $(1.37) (1.06) (0.66) (0.01) (0.10) (0.32)
In excess of net investment
income .................... (0.01) -- -- -- -- --
In excess of net realized
gain on investments and
foreign currency
transactions .............. -- -- -- -- (0.11) --
------ ------ ------ ------ ------ ------
Total distributions
declared to shareholders $(1.96) $(1.65) $(1.28) $(0.62) $(0.75) $(0.91)
------ ------ ------ ------ ------ ------
Net asset value -- end of
period ........................ $16.06 $16.92 $15.03 $14.46 $12.80 $13.70
====== ====== ====== ====== ====== ======
TOTAL RETURN(+) ............... 6.98% 25.27% 13.50% 18.36% (1.07)% 18.32%
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA(S):
Expenses## .................. 0.90% 0.93% 0.91% 0.87% 0.85% 0.84%
Net investment income ....... 3.44% 3.84% 4.35% 4.82% 4.26% 4.51%
PORTFOLIO TURNOVER ............ 126% 143% 140% 102% 91% 95%
NET ASSETS AT END OF PERIOD
(000,000 OMITTED) ........... $3,503 $3,199 $2,568 $2,242 $1,857 $1,702
- ------------
# Per shares data for the periods subsequent to September 30, 1993, are based on average shares outstanding.
## For fiscal years ending after September 1, 1995, the Fund's expenses are calculated without reduction for fees paid
indirectly.
(+) Total returns for Class A shares do not include the applicable sales charge. If the charge had been included, the
results would have been lower.
(S) The distributor did not impose a portion of its distribution fee for the periods indicated. If this fee had been
incurred by the Fund, the net investment income per share and the ratios would have been:
Net investment income ....... $ -- $ -- $ -- $ 0.63 $ 0.52 $ --
Ratios (to average net assets):
Expenses## ................ -- -- -- 0.97% 0.95% --
Net investment income ..... -- -- -- 4.72% 4.16% --
</TABLE>
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS -- CONTINUED
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------
1992 1991 1990 1989
---- ---- ---- ----
CLASS A
- ------------------------------------------------------------------------------------------------------------
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD):
<S> <C> <C> <C> <C>
Net asset value -- beginning of period ............... $11.82 $10.25 $11.58 $10.13
------ ------ ------ ------
Income from investment operations --
Net investment income .............................. $ 0.65 $ 0.67 $ 0.64 $ 0.65
Net realized and unrealized gain (loss) on
investments and foreign currency transactions .... 0.75 1.57 (1.25) 1.71
------ ------ ------ ------
Total from investment operations ............... $ 1.40 $ 2.24 $(0.61) $ 2.36
------ ------ ------ ------
Less distributions declared to shareholders --
From net investment income(++) ..................... $(0.66) $(0.61) $(0.66) $(0.63)
From net realized gain on investments and
foreign currency transactions .................... (0.14) (0.06) (0.06) (0.28)
From paid-in capital ............................... -- -- -- --
------ ------ ------ ------
Total distributions declared to
shareholders ................................. $(0.80) $(0.67) $(0.72) $(0.91)
------ ------ ------ ------
Net asset value -- end of period ..................... $12.42 $11.82 $10.25 $11.58
====== ====== ====== ======
TOTAL RETURN(+) ...................................... 12.26% 22.25% (5.59)% 23.46%
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA:
Expenses ........................................... 0.84% 0.87% 0.85% 0.72%
Net investment income .............................. 5.40% 5.89% 5.71% 5.97%
PORTFOLIO TURNOVER ................................... 84% 74% 50% 53%
NET ASSETS AT END OF PERIOD (000,000 OMITTED) ... $1,198 $ 909 $ 707 $ 628
- ------------
(+) Total returns for Class A shares do not include the applicable sales charge (except for reinvested
dividends prior to October 1, 1989). If the charge had been included, the results would have been lower.
(++) For the years ended September 30, 1992 and 1991, $0.0508 and $0.0596, respectively, of per share
distributions from net investment income have been redesignated as distributions from capital gains.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS -- CONTINUED
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993*
---- ---- ---- ---- ---- -----
CLASS B
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT
EACH PERIOD):
Net asset value -- beginning
of period ......................... $16.92 $15.02 $14.46 $12.80 $13.70 $13.53
------ ------ ------ ------ ------ ------
Income from investment operations# --
Net investment income ............. $ 0.46 $ 0.50 $ 0.52 $ 0.53 $ 0.39 $ 0.06
Net realized and unrealized
gain (loss) on investments
and foreign currency
transactions .................... 0.53 2.95 1.21 1.64 (0.65) 0.16
------ ------ ------ ------ ------ ------
Total from investment
operations .................. $ 0.99 $ 3.45 $ 1.73 $ 2.17 $(0.26) $ 0.22
------ ------ ------ ------ ------ ------
Less distributions declared to
shareholders --
From net investment income ........ $(0.48) $(0.49) $(0.51) $(0.50) $(0.43) $(0.05)
From net realized gain on
investments and foreign
currency transactions ........... (1.37) (1.06) (0.66) -- -- --
In excess of net investment
income .......................... (0.01) -- -- (0.01) (0.10) --
From paid-in capital .............. -- -- -- -- (0.11) --
------ ------ ------ ------ ------ ------
Total distributions
declared to shareholders .... $(1.86) $(1.55) $(1.17) $(0.51) $(0.64) $(0.05)
------ ------ ------ ------ ------ ------
Net asset value -- end of
period ............................ $16.05 $16.92 $15.02 $14.46 $12.80 $13.70
====== ====== ====== ====== ====== ======
TOTAL RETURN ........................ 6.22% 24.51% 12.49% 17.46% (1.93)% 15.24%++
RATIOS (TO AVERAGE NET
ASSETS)/SUPPLEMENTAL DATA:
Expenses## ........................ 1.55% 1.60% 1.67% 1.71% 1.70% 1.75%+
Net investment income ............. 2.80% 3.17% 3.56% 3.97% 3.45% 3.98%+
PORTFOLIO TURNOVER .................. 126% 143% 140% 102% 91% 95%
NET ASSETS AT END OF PERIOD
(000,000 OMITTED) ................. $ 1,984 $ 1,707 $ 1,284 $1,005 $ 843 $ 532
- ----------
* For the period from the inception of Class B shares, August 23, 1993, through September 30, 1993.
+ Annualized.
++ Not annualized.
# Per share data for the periods subsequent to September 30, 1993, are based on average shares outstanding.
## For fiscal years ending after September 1, 1995, the Fund's expenses are calculated without reduction for fees paid
indirectly.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS -- CONTINUED
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------------------------------------------------
1998 1997 1996 1995 1994**
---- ---- ---- ---- -----
CLASS C
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT
EACH PERIOD):
Net asset value -- beginning of period ....... $16.96 $15.06 $14.49 $12.80 $12.92
------ ------ ------ ------ ------
Income from investment operations# --
Net investment income ...................... $ 0.46 $ 0.50 $ 0.53 $ 0.54 $ 0.08
Net realized and unrealized gain
(loss) on investments and foreign
currency transactions .................... 0.53 2.95 1.22 1.66 (0.13)
------ ------ ------ ------ ------
Total from investment operations ....... $ 0.99 $ 3.45 $ 1.75 $ 2.20 $(0.05)
------ ------ ------ ------ ------
Less distributions declared to
shareholders --
From net investment income ................. $(0.47) $(0.49) $(0.52) $(0.50) $(0.07)
From net realized gain on
investments and foreign currency
transactions ............................. (1.37) (1.06) (0.66) (0.01) --
In excess of net investment income ......... (0.01) -- -- -- --
------ ------ ------ ------ ------
Total distributions declared to
shareholders ......................... $(1.85) $(1.55) $(1.18) $(0.51) $(0.07)
------ ------ ------ ------ ------
Net asset value -- end of period ............. $16.10 $16.96 $15.06 $14.49 $12.80
====== ====== ====== ====== ======
TOTAL RETURN ................................. 6.27% 24.39% 12.67% 17.66% (0.41)%++
RATIOS (TO AVERAGE NET
ASSETS)/SUPPLEMENTAL DATA:
Expenses## ................................. 1.55% 1.60% 1.63% 1.67% 1.76%+
Net investment income ...................... 2.80% 3.16% 3.67% 4.14% 4.08%+
PORTFOLIO TURNOVER ........................... 126% 143% 140% 102% 91%
NET ASSETS AT END OF PERIOD (000,000
OMITTED) ................................... $ 336 $ 190 $ 83 $ 23 $ 1
- ----------
** For the period from commencement of the Fund's offering of Class C shares, August 1, 1994, through September 30,
1994.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## For fiscal years ending after September 1, 1995, the Fund's expenses are calculated without reduction for fees
paid indirectly.
</TABLE>
3. THE FUND
The Fund is a diversified series of the Trust, an open-end management
investment company which was organized as a business trust under the laws of
The Commonwealth of Massachusetts in 1984. The Fund and its predecessor have
been in business since 1970. The Trust presently consists of six series, each
of which represents a portfolio with separate investment objectives and
policies. Shares of the Fund are continuously sold to the public and the Fund
then uses the proceeds to buy securities (stocks, bonds and other instruments)
for its portfolio. Three classes of shares of the Fund currently are offered
for sale to the general public. 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
purchases of $1 million or more and certain purchases by retirement plans) and
subject to an annual distribution and service fee up to a maximum of 0.35% per
annum. Class B shares are offered at net asset value without an initial sales
charge but 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 the Fund. In addition, the Fund offers an
additional class of shares, Class I shares, exclusively to certain
institutional investors. Class I shares are made available by means of a
separate Prospectus Supplement provided to institutional investors eligible to
purchase Class I shares and are offered at net asset value without an initial
sales charge or CDSC upon redemption and without an annual distribution and
service fee.
The Trust's Board of Trustees provides broad supervision over the affairs of
the Fund. Massachusetts Financial Services Company, a Delaware corporation
("MFS" or the "Adviser"), is the Fund's investment adviser. The Adviser is
responsible for the management of the Fund's assets and the officers of the
Trust are responsible for the Fund's operations. The Adviser manages the
portfolio from day to day in accordance with the Fund's investment objectives
and policies. The selection of investments and the way they are managed depend
on conditions and trends in the economy and the financial marketplaces. The
Fund also offers to buy back (redeem) its shares from its shareholders at any
time at net asset value, less any applicable CDSC.
4. INVESTMENT OBJECTIVES AND POLICIES
INVESTMENT OBJECTIVES: The Fund's primary investment objective is to obtain
above-average income (compared to a portfolio entirely invested in equity
securities) consistent with the prudent employment of capital. While current
income is the primary objective, the Fund believes that there should also be a
reasonable opportunity for growth of capital and income, since many securities
offering a better than average yield may also possess growth potential. Thus,
in selecting securities for its portfolio, the Fund considers each of these
objectives. Under normal market conditions, at least 25% of the Fund's assets
will be invested in fixed income securities and at least 40% and no more than
75% of the Fund's assets will be invested in equity securities. Any investment
involves risk and there can be no assurance that the Fund will achieve its
investment objectives.
INVESTMENT POLICIES: The Fund's policy is to invest in a broad list of
securities, including short-term obligations. The list may be diversified not
only by companies and industries, but also by type of security. Fixed income
securities and equity securities (which include: common stocks, preferred
stocks and preference stocks; securities such as bonds, warrants or rights
that are convertible into stock; and depositary receipts for those securities)
may be held by the Fund. Some fixed income securities may also have a call on
common stock by means of a conversion privilege or attached warrants. The Fund
may vary the percentage of assets invested in any one type of security in
accordance with the Adviser's interpretation of economic and money market
conditions, fiscal and monetary policy and underlying security values. The
Fund's debt investments may consist of both "investment grade" securities
(rated Baa or better by Moody's Investors Service, Inc. ("Moody's") or BBB or
better by Standard and Poor's Ratings Services ("S&P"), Fitch IBCA ("Fitch")
or Duff & Phelps Credit Rating Co. ("Duff & Phelps")) and securities that are
unrated or are in the lower rating categories (rated Ba or lower by Moody's or
BB or lower by S&P, or Fitch or Duff & Phelps) (commonly known as "junk
bonds") including up to 20% of its net assets in nonconvertible fixed income
securities that are in these lower rating categories and comparable unrated
securities (see "Risk Factors -- Lower Rated Bonds" below). Generally, most of
the Fund's long-term debt investments will consist of "investment grade"
securities. It is not the Fund's policy to rely exclusively on ratings issued
by established credit rating agencies but rather to supplement such ratings
with the Adviser's own independent and ongoing review of credit quality. See
Appendix B for a description of these ratings.
U.S. GOVERNMENT SECURITIES: The Fund may also invest in U.S. Government
securities, including the following: (1) U.S. Treasury obligations, which
differ only in their interest rates, maturities and times of issuance: U.S.
Treasury bills (maturities of one year or less); U.S. Treasury notes
(maturities of one to ten years); and U.S. Treasury bonds (generally
maturities of greater than ten years), all of which are backed by the full
faith and credit of the U.S. Government; and (2) obligations issued or
guaranteed by U.S. Government agencies or instrumentalities, some of which are
backed by the full faith and credit of the U.S. Treasury, e.g., direct pass-
through certificates of the Government National Mortgage Association ("GNMA");
some of which are supported by the right of the issuer to borrow from the U.S.
Government, e.g., obligations of Federal Home Loan Banks; and some of which
are backed only by the credit of the issuer itself, e.g., obligations of the
Student Loan Marketing Association.
MORTGAGE PASS-THROUGH SECURITIES: The Fund may invest in mortgage pass-
through securities. Mortgage pass-through securities are securities
representing interests in "pools" of mortgage loans. Monthly payments of
interest and principal by the individual borrowers on mortgages are passed
through to the holders of the securities (net of fees paid to the issuer or
guarantor of the securities) as the mortgages in the underlying mortgage pools
are paid off. Payment of principal and interest on some mortgage pass-through
securities (but not the market value of the securities themselves) may be
guaranteed by the full faith and credit of the U.S. Government (in the case of
securities guaranteed by GNMA); or guaranteed by U.S. Government-sponsored
corporations (such as the Federal National Mortgage Association or the Federal
Home Loan Mortgage Corporation, which are supported only by the discretionary
authority of the U.S. Government to purchase the agency's obligations).
Mortgage pass-through securities may also be issued by non-governmental
issuers (such as commercial banks, savings and loan institutions, private
mortgage insurance companies, mortgage bankers and other secondary market
issuers). See the SAI for a further discussion of these securities.
ZERO COUPON BONDS, DEFERRED INTEREST BONDS AND PIK BONDS: Fixed income
securities that the Fund may invest in also include zero coupon bonds,
deferred interest bonds and bonds on which the interest is payable in kind
("PIK bonds"). Zero coupon and deferred interest bonds are debt obligations
which are issued or purchased at a significant discount from face value. The
discount approximates the total amount of interest the bonds will accrue and
compound over the period until maturity or the first interest payment date at
a rate of interest reflecting the market rate of the security at the time of
issuance. While zero coupon bonds do not require the periodic payment of
interest, deferred interest bonds provide for a period of delay before the
regular payment of interest begins. PIK bonds are debt obligations which
provide that the issuer thereof may, at its option, pay interest on such bonds
in cash or in the form of additional debt obligations. Such investments
benefit the issuer by mitigating its need for cash to meet debt service, but
also require a higher rate of return to attract investors who are willing to
defer receipt of such cash. Such investments may experience greater volatility
in market value due to changes in interest rates than debt obligations which
make regular payments of interest. The Fund will accrue income on such
investments for tax and accounting purposes, as required, which is
distributable to shareholders and which, because no cash is received at the
time of accrual, may require the liquidation of other portfolio securities to
satisfy the Fund's distribution obligations.
FOREIGN SECURITIES: The Fund may invest up to 20% (and generally expects to
invest between 5% and 20%) of its total assets in foreign securities which are
not traded on a U.S. exchange (not including American Depositary Receipts).
Investing in securities of foreign issuers generally involves risks not
ordinarily associated with investing in securities of domestic issuers. These
include changes in currency rates, exchange control regulations, governmental
administration or economic or monetary policy (in the United States or abroad)
or circumstances in dealings between nations. Costs may be incurred in
connection with conversions between various currencies. Special considerations
may also include more limited information about foreign issuers, higher
brokerage costs, different accounting standards and thinner trading markets.
Foreign securities markets may also be less liquid, more volatile and less
subject to government supervision than in the United States. Investments in
foreign countries could be affected by other factors including expropriation,
confiscatory taxation and potential difficulties in enforcing contractual
obligations and could be subject to extended settlement periods. The Fund may
hold foreign currency received in connection with investments in foreign
securities when, in the judgment of the Adviser, it would be beneficial to
convert such currency into U.S. dollars at a later date, based on anticipated
changes in the relevant exchange rate. The Fund may also hold foreign currency
in anticipation of purchasing foreign securities. See the SAI for further
discussion of foreign securities and the holding of foreign currency, as well
as the associated risks.
EMERGING MARKET SECURITIES: Consistent with the Fund's objective and policies,
the Fund may invest in securities of issuers whose principal activities are
located in emerging market countries. Emerging market countries include any
country determined by the Adviser to have an emerging market economy, taking
into account a number of factors, including whether the country has a low- to
middle-income economy according to the International Bank for Reconstruction
and Development, the country's foreign currency debt rating, its political and
economic stability and the development of its financial and capital markets.
The Adviser determines whether an issuer's principal activities are located in
an emerging market country by considering such factors as its country of
organization, the principal trading market for its securities and the source
of its revenues and 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.
BRADY BONDS: The Fund may invest in Brady Bonds, which are securities created
through the exchange of existing commercial bank loans to public and private
entities in certain emerging markets for new bonds in connection with debt
restructurings under a debt restructuring plan introduced by former U.S.
Secretary of the Treasury, Nicholas F. Brady (the "Brady Plan"). Brady Plan
debt restructurings have been implemented to date in Argentina, Brazil,
Bulgaria, Costa Rica, 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.
AMERICAN DEPOSITARY RECEIPTS: The Fund may invest in American Depositary
Receipts ("ADRs") which are certificates issued by a U.S. depository (usually
a bank) and represent a specified quantity of shares of an underlying non-U.S.
stock on deposit with a custodian bank as collateral. Because ADRs trade on
United States securities exchanges, the Adviser does not treat them as foreign
securities. However, they are subject to many of the risks of foreign
securities such as changes in exchange rates and more limited information
about foreign issuers.
REPURCHASE AGREEMENTS: The Fund may enter into repurchase agreements in order
to earn income on available cash or as a temporary defensive measure. Under a
repurchase agreement, the Fund acquires securities subject to the seller's
agreement to repurchase at a specified time and price. If the seller becomes
subject to a proceeding under the bankruptcy laws or its assets are otherwise
subject to a stay order, the Fund's right to liquidate the securities may be
restricted (during which time the value of the securities could decline). As
discussed in the SAI, the Fund has adopted certain procedures intended to
minimize risk.
LENDING OF SECURITIES: The Fund may seek to increase its income by lending
portfolio securities. Such loans will usually be made only to member firms
(and subsidiaries thereof) of the New York Stock Exchange and to member banks
of the Federal Reserve System, and would be required to be secured
continuously by collateral in cash, U.S. Government securities or an
irrevocable letter of credit maintained on a current basis at an amount at
least equal to the market value of the securities loaned. The Fund will
continue to collect the equivalent of interest on the securities loaned and
will also receive either interest (through investment of cash collateral) or a
fee (if the collateral is U.S. Government securities or a letter of credit).
"WHEN-ISSUED" SECURITIES: The Fund may purchase securities on a "when-issued"
or on a "forward delivery" basis, which means that the securities will be
delivered to the Fund at a future date usually beyond customary settlement
time. The commitment to purchase a security for which payment will be made on
a future date may be deemed a separate security. The Fund does not pay for the
securities until received, and does not start earning interest on the
securities until the contractual settlement date. While awaiting delivery of
securities purchased on such bases, the Fund will segregate liquid assets
sufficient to cover its commitments.
INDEXED SECURITIES: The Fund may invest in indexed securities whose value is
linked to foreign currencies, interest rates, commodities, indices, or other
financial indicators. Most indexed securities are short to intermediate term
fixed-income securities whose values at maturity (i.e., principal value) or
interest rates rise or fall according to changes in the 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 or interest on the instrument.
MORTGAGE "DOLLAR ROLL" TRANSACTIONS: The Fund may enter into mortgage "dollar
roll" transactions with selected banks and broker-dealers pursuant to which
the Fund sells mortgage-backed securities for delivery in the future
(generally within 30 days) and simultaneously contracts to repurchase
substantially similar (same type, coupon and maturity) securities on a
specified future date. The Fund will only enter into covered rolls. A "covered
roll" is a specific type of dollar roll for which there is an offsetting cash
position or a cash equivalent security position which matures on or before the
forward settlement date of the dollar roll transaction.
LOAN PARTICIPATIONS AND OTHER DIRECT INDEBTEDNESS: The Fund may invest a
portion of its assets in "loan participations." By purchasing a loan
participation, the Fund acquires some or all of the interest of a bank or
other lending institution in a loan to a corporate borrower. Many such loans
are secured, and most impose restrictive covenants which must be met by the
borrower. These loans are made generally to finance internal growth, mergers,
acquisitions, stock repurchases, leveraged buy-outs and other corporate
activities. Such loans may be in default at the time of purchase. The Fund may
also purchase trade or other claims against companies, which generally
represent money owed by the company to a supplier of goods or services. These
claims may also be purchased at a time when the company is in default. Certain
of the loan participations acquired by the Fund may involve revolving credit
facilities or other standby financing commitments which obligate the Fund to
pay additional cash on a certain date or on demand.
The highly leveraged nature of many such loans may make such loans especially
vulnerable to adverse changes in economic or market conditions. Loan
participations and other direct investments may not be in the form of
securities or may be subject to restrictions on transfer, and only limited
opportunities may exist to resell such instruments. As a result, the Fund may
be unable to sell such investments at an opportune time or may have to resell
them at less than fair market value. For a further discussion of loan
participations and the risks related to transactions therein, see the SAI.
SWAPS AND RELATED TRANSACTIONS: As one way of managing its exposure to
different types of investments, the Fund may enter into interest rate swaps,
currency swaps and other types of available swap agreements, such as caps,
collars and floors. Swaps involve the exchange by the Fund with another party
of cash payments based upon different interest rate indices, currencies, or
other prices or rates, such as the value of mortgage prepayment rates. For
example, in the typical interest rate swap, the Fund might exchange a sequence
of cash payments based on a floating rate index for cash payments based on a
fixed rate. Payments made by both parties to a swap transaction are based on a
notional principal amount determined by the parties and the payment
obligations of the parties are typically netted on the payment dates.
The Fund may also purchase and sell caps, floors and collars. In a typical cap
or floor agreement, one party agrees to make payments only under specified
circumstances, usually in return for payment of a fee by the counterparty. For
example, the purchase of an interest rate cap entitles the buyer, to the
extent that a specified index exceeds a predetermined interest rate, to
receive payments of interest on a contractually-based principal amount from
the counterparty selling such interest rate cap. The sale of an interest rate
floor obligates the seller to make payments to the extent that a specified
interest rate falls below an agreed-upon level. A collar arrangement combines
elements of buying a cap and selling a floor.
Swap agreements could be used to shift the Fund's investment exposure from one
type of investment to another. For example, if the Fund agreed to exchange
payments in dollars for payments in foreign currency, in each case based on a
fixed rate, the swap agreement would tend to decrease the Fund's exposure to
U.S. interest rates and increase its exposure to foreign currency and interest
rates. Caps and floors have an effect similar to buying or writing options.
Depending on how they are used, swap agreements may increase or decrease the
overall volatility of the Fund's investments and its share price and yield.
Swap agreements are sophisticated hedging instruments that typically involve a
small investment of cash relative to the magnitude of risks assumed or no
investment of cash. As a result, swaps can be highly volatile and may have a
considerable impact on the Fund's performance. Swap agreements are subject to
risks related to the counterparty's ability to perform, and may decline in
value if the counterparty's creditworthiness deteriorates. The Fund may also
suffer losses if it is unable to terminate outstanding swap agreements or
reduce its exposure through offsetting transactions.
Swaps, caps, floors and collars are highly specialized activities which
involve certain risks. See the SAI for risks involved in these activities.
RESTRICTED SECURITIES: The Fund may also purchase securities that are not
registered under the Securities Act of 1933 ("1933 Act") ("restricted
securities"), including those that can be offered and sold to "qualified
institutional buyers" under Rule 144A under the 1933 Act ("Rule 144A
securities"). 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 the Fund's limitation on investing not more
than 15% of its net assets in illiquid investments. The Board of Trustees has
adopted guidelines and delegated to MFS the daily function of determining and
monitoring the liquidity of Rule 144A securities. The Board, however, 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 the
Fund to the extent that qualified institutional buyers become for a time
uninterested in purchasing Rule 144A securities held in the Fund's portfolio.
Subject to the Fund's 15% limitation on investments in illiquid investments,
the Fund may also invest in restricted securities that may not be sold under
Rule 144A, which presents certain risks. As a result, the Fund might not be
able to sell these securities when the Adviser wishes to do so, or might have
to sell them at less than fair value. In addition, market quotations are less
readily available. Therefore, judgment may at times play a greater role in
valuing these securities than in the case of unrestricted securities.
CORPORATE ASSET-BACKED SECURITIES: The Fund may invest in corporate asset-
backed securities. These securities, issued by trusts and special purpose
corporations, are backed by a pool of assets, such as credit card or
automobile loan receivables, representing the obligations of a number of
different parties. Corporate asset-backed securities present certain risks.
For instance, in the case of credit card receivables, these securities may not
have the benefit of any security interest in the related collateral. See the
SAI for further information on these securities.
OPTIONS ON SECURITIES: The Fund may write (sell) covered put and call options
on securities and purchase put and call options on securities. The Fund will
write such options for the purpose of increasing its return and/or to protect
the value of its portfolio. In particular, where the Fund writes an option
which expires unexercised or is closed out by the Fund at a profit, it will
retain the premium paid for the option, which will increase its gross income
and will offset in part the reduced value of a portfolio security in
connection with which the option may have been written or the increased cost
of portfolio securities to be acquired. However, the writing of options
constitutes only a partial hedge, up to the amount of the premium, less any
transaction costs. In contrast, if the price of the security underlying the
option moves adversely to the Fund's position, the option may be exercised and
the Fund will be required to purchase or sell the security at a
disadvantageous price, resulting in losses which may only be partially offset
by the amount of the premium. The Fund may also write combinations of put and
call options on the same security, known as "straddles." Such transactions can
generate additional premium income but also present increased risk.
The Fund may purchase put or call options in anticipation of declines in the
value of portfolio securities or increases in the value of securities to be
acquired. In the event that such declines or increases occur, the Fund may be
able to offset the resulting adverse effect on its portfolio, in whole or in
part, through the options purchased. The risk assumed by the Fund in
connection with such transactions is limited to the amount of the premium and
related transaction costs associated with the option, although the Fund may be
required to forfeit such amounts in the event that the prices of securities
underlying the options do not move in the direction or to the extent
anticipated.
The Fund may also enter into options on the yield "spread," or yield
differential, between two securities, a transaction referred to as a "yield
curve" option, for hedging and non-hedging (an effort to increase current
income) purposes. In contrast to other types of options, a yield curve option
is based on the difference between the yields of designated securities rather
than the actual prices of the individual securities, and is settled through
cash payments. Accordingly, a yield curve option is profitable to the holder
if this differential widens (in the case of a call) or narrows (in the case of
a put), regardless of whether the yields of the underlying securities increase
or decrease. Yield curve options written by the Fund will be covered as
described in the SAI. The trading of yield curve options is subject to all the
risks associated with trading other types of options, as discussed below under
"Risk Factors" and in the SAI. In addition, such options present risks of loss
even if the yield on one of the underlying securities remains constant, if the
spread moves in a direction or to an extent which was not anticipated.
OPTIONS ON STOCK INDICES: The Fund may write (sell) covered call and put
options and purchase call and put options on stock indices. The Fund may write
options on stock indices for the purpose of increasing its gross income and to
protect its portfolio against declines in the value of securities it owns or
increases in the value of securities to be acquired. When the Fund writes an
option on a stock index, and the value of the index moves adversely to the
holder's position, the option will not be exercised, and the Fund will either
close out the option at a profit or allow it to expire unexercised. The Fund
will thereby retain the amount of the premium, which will increase its gross
income and offset part of the reduced value of portfolio securities or the
increased cost of securities to be acquired. Such transactions, however, will
constitute only partial hedges against adverse price fluctuations, since any
such fluctuations will be offset only to the extent of the premium received by
the Fund for the writing of the option. In addition, if the value of an
underlying index moves adversely to the Fund's option position, the option may
be exercised, and the Fund will experience a loss which may only be partially
offset by the amount of the premium received.
The Fund may also purchase put or call options on stock indices in order,
respectively, to hedge its investments against a decline in value or to
attempt to reduce the risk of missing a market or industry segment advance.
The Fund's possible loss in either case will be limited to the premium paid
for the option, plus related transaction costs.
OPTIONS ON FOREIGN CURRENCIES: The Fund may also purchase and write options on
foreign currencies ("Options on Foreign Currencies") for the purpose of
protecting against declines in the dollar value of portfolio securities and
against increases in the dollar cost of securities to be acquired. As in the
case of other types of options, however, the writing of an Option on Foreign
Currency will constitute only a partial hedge, up to the amount of the premium
received, and the Fund may be required to purchase or sell foreign currencies
at disadvantageous exchange rates, thereby incurring losses. The purchase of
an Option on Foreign Currency may constitute an effective hedge against
fluctuations in exchange rates although, in the event of rate movements
adverse to the Fund's position, it may forfeit the entire amount of the
premium paid for the option plus related transaction costs. The Fund may also
choose to, or be required to, receive delivery of the foreign currencies
underlying Options on Foreign Currencies it has entered into. Under certain
circumstances, such as where the Adviser believes that the applicable exchange
rate is unfavorable at the time the currencies are received or the Adviser
anticipates, for any other reason, that the exchange rate will improve, the
Fund may hold such currencies for an indefinite period of time. See
"Investment Objectives and Policies -- Foreign Securities" in the SAI for
information on the risks associated with holding foreign currency.
FUTURES CONTRACTS: The Fund may enter into contracts for the purchase or sale
for future delivery of fixed income securities or foreign currencies or
contracts based on interest rates, indices of securities or currencies
(including any index of U.S. or foreign securities) as such instruments become
available for trading ("Futures Contracts"). Such transactions will be entered
into for hedging purposes, in order to protect the Fund's current or intended
investments from the effects of changes in interest or exchange rates or
declines in a securities market, as well as for non-hedging purposes, to the
extent permitted by applicable law. The Fund will incur brokerage fees when it
purchases and sells Futures Contracts, and will be required to maintain margin
deposits. In addition, Futures Contracts entail risks. Although the Adviser
believes that use of such contracts will benefit the Fund, if its investment
judgment about the general direction of interest or exchange rates or a
securities market is incorrect, the Fund's overall performance may be poorer
than if it had not entered into any such contract and the Fund may realize a
loss.
OPTIONS ON FUTURES CONTRACTS: The Fund may purchase and write options on
Futures Contracts ("Options on Futures Contracts") for hedging purposes or for
non-hedging purposes to the extent permitted by applicable law. Purchases of
Options on Futures Contracts may present less risk in hedging the Fund's
portfolio than the purchase or sale of the underlying Futures Contracts since
the potential loss is limited to the amount of the premium plus related
transaction costs, although it may be necessary to exercise the option to
realize any profit, which results in the establishment of a futures position.
The writing of Options on Futures Contracts, however, does not present less
risk than the trading of Futures Contracts and will constitute only a partial
hedge, up to the amount of the premium received. In addition, if an option is
exercised, the Fund may suffer a loss on the transaction.
FORWARD CONTRACTS: The Fund may enter into forward foreign currency exchange
contracts for the purchase or sale of a fixed quantity of a foreign currency
at a future date ("Forward Contracts"). The Fund may enter into Forward
Contracts for hedging purposes as well as for non-hedging purposes (i.e.,
speculative purposes). By entering into transactions in Forward Contracts, for
hedging purposes, the Fund may be required to forego the benefits of
advantageous changes in exchange rates and, in the case of Forward Contracts
entered into for non-hedging purposes, the Fund may sustain losses which will
reduce its gross income. Such transactions, therefore, could be considered
speculative. Forward Contracts are traded over-the-counter and not on
organized commodities or securities exchanges. As a result, Forward Contracts
operate in a manner distinct from exchange-traded instruments, and their use
involves certain risks beyond those associated with transactions in Futures
Contracts or options traded on exchanges. The Fund may choose to, or be
required to, receive delivery of the foreign currencies underlying Forward
Contracts it has entered into. Under certain circumstances, such as where the
Adviser believes that the applicable exchange rate is unfavorable at the time
the currencies are received or the Adviser anticipates, for any other reason,
that the exchange rate will improve, the Fund may hold such currencies for an
indefinite period of time. The Fund may also enter into a Forward Contract on
one currency to hedge against risk of loss arising from fluctuations in the
value of a second currency (referred to as a "cross hedge") if, in the
judgment of the Adviser, a reasonable degree of correlation can be expected
between movements in the values of the two currencies. The Fund has
established procedures which require the use of segregated assets or "cover"
in connection with the purchase and sale of such contracts. See "Investment
Objective and Policies -- Foreign Securities" in the SAI for information on
the risks associated with holding foreign currency.
RISK FACTORS
LOWER RATED BONDS: The Fund may invest in fixed income securities rated
Baa by Moody's or BBB by S&P or Fitch and comparable unrated securities. These
securities, while normally exhibiting adequate protection parameters, have
speculative characteristics and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than in the case of higher grade fixed income
securities.
The Fund may also invest in securities rated Ba or lower by Moody's or BB or
lower by S&P or Fitch and comparable unrated securities (commonly known as
"junk bonds") to the extent described above. No minimum rating standard is
required by the Fund. These securities are considered speculative and, while
generally providing greater income than investments in higher rated
securities, will involve greater risk of principal and income (including the
possibility of default or bankruptcy of the issuers of such securities) and
may involve greater volatility of price (especially during periods of economic
uncertainty or change) than securities in the higher rating categories.
However, since yields vary over time, no specific level of income can ever be
assured. These lower rated high yielding fixed income securities generally
tend to reflect economic changes and short-term corporate and industry
developments to a greater extent than higher rated securities which react
primarily to fluctuations in the general level of interest rates (although
these lower rated fixed income securities are also affected by changes in
interest rates, the market's perception of their credit quality, and the
outlook for economic growth). In the past, economic downturns or an increase
in interest rates have, under certain circumstances, caused a higher incidence
of default by the issuers of these securities and may do so in the future,
especially in the case of highly leveraged issuers. During certain periods,
the higher yields on the Fund's lower rated high yielding fixed income
securities are paid primarily because of the increased risk of loss of
principal and income, arising from such factors as the heightened possibility
of default or bankruptcy of the issuers of such securities. Due to the fixed
income payments of these securities, the Fund may continue to earn the same
level of interest income while its net asset value declines due to portfolio
losses, which could result in an increase in the Fund's yield despite the
actual loss of principal. The market for these lower rated fixed income
securities may be less liquid than the market for investment grade fixed
income securities, and judgment may at times play a greater role in valuing
these securities than in the case of investment grade fixed income securities.
Changes in the value of securities subsequent to their acquisition will not
affect cash income or yield to maturity to the Fund but will be reflected in
the net asset value of shares of the Fund. See the SAI for more information on
lower rated securities.
OPTIONS, FUTURES CONTRACTS AND FORWARD CONTRACTS: Although the Fund will
enter into transactions in options, Futures Contracts, Options on Futures
Contracts and Options on Foreign Currencies for hedging purposes, such
transactions nevertheless involve certain risks. For example, a lack of
correlation between the instrument underlying an option or Futures Contract
and the assets being hedged, or unexpected adverse price movements, could
render the Fund's hedging strategy unsuccessful and could result in losses.
The Fund also may enter into transactions in options, Futures Contracts,
Options on Futures Contracts and Forward Contracts for other than hedging
purposes, which involves greater risk. In particular, such transactions may
result in losses for the Fund which are not offset by gains on other portfolio
positions, thereby reducing gross income. In addition, foreign currency
markets may be extremely volatile from time to time. There also can be no
assurance that a liquid secondary market will exist for any contract purchased
or sold, and the Fund may be required to maintain a position until exercise or
expiration, which could result in losses. The SAI contains a description of
the nature and trading mechanics of options, Futures Contracts, Options on
Futures Contracts, Forward Contracts and Options on Foreign Currencies, and
includes a discussion of the risks related to transactions therein.
Transactions in Forward Contracts may be entered into only in the over-the-
counter market. Futures Contracts and Options on Futures Contracts may be
entered into on U.S. exchanges regulated by the Commodity Futures Trading
Commission and on foreign exchanges. In addition, the securities underlying
options, Futures Contracts and Options on Futures Contracts traded by the Fund
will include both domestic and foreign securities.
EMERGING MARKET SECURITIES: The risks of investing in foreign securities
may be intensified in the case of investments in emerging markets. Securities
of many issuers in emerging markets may be less liquid and more volatile than
securities of comparable domestic issuers. Emerging markets also have
different clearance and settlement procedures, and in certain markets there
have been times when settlements have been unable to keep pace with the volume
of securities transactions, making it difficult to conduct such transactions.
Delays in settlement could result in temporary periods when a portion of the
assets of the Fund is uninvested and no return is earned thereon. The
inability of the Fund to make intended security purchases due to settlement
problems could cause the Fund to miss attractive investment opportunities.
Inability to dispose of portfolio securities due to settlement problems could
result in losses to the Fund due to subsequent declines in value of the
portfolio security, a decrease in the level of liquidity in the Fund
portfolio, or if the Fund has entered into a contract to sell the security, in
possible liability to the purchaser. Certain markets may require payment for
securities before delivery and in such markets the Fund bears the risk that
the securities will not be delivered and that the Fund's payments will not be
returned. Securities prices in emerging markets can be significantly more
volatile than in the more developed nations of the world, reflecting the
greater uncertainties of investing in less established markets and economies.
In particular, countries with emerging markets may have relatively unstable
governments, present the risk of nationalization of businesses, restrictions
on foreign ownership, or prohibitions of repatriation of assets, and may have
less protection of property rights than more developed countries. The
economies of countries with emerging markets may be predominantly based on
only a few industries, may be highly vulnerable to changes in local or global
trade conditions, and may suffer from extreme and volatile debt burdens or
inflation rates. Local securities markets may trade a small number of
securities and may be unable to respond effectively to increases in trading
volume, potentially making prompt liquidation of substantial holdings
difficult or impossible at times. Securities of issuers located in countries
with emerging markets may have limited marketability and may be subject to
more abrupt or erratic price movements.
Certain emerging markets may require governmental approval for the
repatriation of investment income, capital or the proceeds of sales of
securities by foreign investors. In addition, if a deterioration occurs in an
emerging market's balance of payments or for other reasons, a country could
impose temporary restrictions on foreign capital remittances. The Fund could
be adversely affected by delays in, or a refusal to grant, any required
governmental approval for repatriation of capital, as well as by the
application to the Fund of any restrictions on investments.
Investment in certain foreign emerging market debt obligations may be
restricted or controlled to varying degrees. These restrictions or controls
may at times preclude investment in certain foreign emerging market debt
obligations and increase the expenses of the Fund.
--------------------
PORTFOLIO TRADING: The primary consideration in placing portfolio security
transactions with broker-dealers for execution is to obtain and maintain the
availability of execution at the most favorable prices and in the most
effective manner possible. Consistent with the foregoing primary
consideration, the Conduct Rules of the National Association of Securities
Dealers, Inc. (the "NASD"), and such other policies as the Trustees may
determine, the Adviser may consider sales of shares of the Fund and of the
other investment company clients of MFD as a factor in the selection of
broker-dealers to execute the Fund's portfolio transactions. From time to
time, the Adviser may direct certain portfolio transactions to broker-dealer
firms which, in turn, have agreed to pay a portion of the Fund's operating
expenses (e.g., fees charged by the custodian of the Fund's assets). For a
further discussion of portfolio trading, see "Portfolio Transactions and
Brokerage Commissions" in the SAI. For the fiscal year ended September 30,
1998, the Fund had a portfolio turnover rate in excess of 100%. Transaction
costs incurred by the Fund and the realized capital gains and losses of the
Fund may be greater than that of a fund with a lesser portfolio turnover rate.
The portfolio will be managed actively with respect to the Fund's fixed income
securities and the asset allocations modified as the Adviser deems necessary.
Although the Fund does not intend to seek short-term profits, fixed income
securities in its portfolio will be sold whenever the Adviser believes it is
appropriate to do so without regard to the length of time the particular asset
may have been held.
With respect to its equity securities, the Fund does not intend to trade in
securities for short-term profits and anticipates that such securities
ordinarily will be held for one year or longer. However, the Fund will effect
trades whenever it believes that changes in its portfolio securities are
appropriate.
--------------------
The investment objectives and policies described above, including investing in
Options, Options on Foreign Currency, Futures Contracts, Options on Futures
Contracts and Forward Contracts, are not fundamental and may be changed
without shareholder approval. A change in the Fund's investment objectives may
result in the Fund having investment objectives different from the objectives
which the shareholder considered appropriate at the time of investment in the
Fund.
The SAI includes a discussion of other investment policies and a listing of
specific investment restrictions which govern the Fund's investment policies.
The specific investment restrictions listed in the SAI may be changed without
shareholder approval unless indicated otherwise (see "Investment Restrictions"
in the SAI). Except with respect to the Fund's policy on borrowing and
investing in illiquid securities, the Fund's investment limitations, policies
and rating standards are adhered to at the time of purchase or utilization of
assets; a subsequent change in circumstances will not be considered to result
in a violation of policy.
5. MANAGEMENT OF THE FUND
INVESTMENT ADVISER: The Adviser manages the Fund pursuant to an Investment
Advisory Agreement, dated January 18, 1985 (the "Advisory Agreement"). Under
the Advisory Agreement, the Adviser provides the Fund with overall investment
advisory services.
David M. Calabro, a Senior Vice President of the Adviser, Geoffrey L.
Kurinsky, a Senior Vice President of the Adviser, Constantinos G. Mokas, a
Vice President of the Adviser, Lisa B. Nurme, a Senior Vice President of the
Adviser, and Maura A. Shaughnessy, a Senior Vice President of the Adviser, are
the Fund's portfolio managers. Mr. Calabro is the head of this portfolio
management team and a manager of the common stock portion of the Fund's
portfolio. Mr. Calabro has been a portfolio manager of the Fund since 1995 and
has been employed by the Adviser as a portfolio manager since 1992. Mr.
Kurinsky, the manager of the Fund's fixed income securities, has been a
portfolio manager of the Fund since 1989 and has been employed by the Adviser
as a portfolio manager since 1987. Mr. Mokas, the manager of the Fund's
convertible securities, has been a portfolio manager of the Fund since April
1, 1998, and has been employed by the Adviser as a portfolio manager since
1990. Ms. Nurme, a manager of the common stock portion of the Fund's
portfolio, has been a portfolio manager of the Fund since 1995 and has been
employed by the Adviser as a portfolio manager since 1987. Ms. Shaughnessy,
also a manager of the common stock portion of the Fund's portfolio, has been a
portfolio manager of the Fund since 1995 and has been employed by the Adviser
as a portfolio manager since 1991.
Subject to such policies as the Trustees may determine, the Adviser makes
investment decisions for the Fund. For these services and facilities, the
Adviser receives a management fee, computed and paid monthly, fixed by a
formula based upon a percentage of the Fund's average daily net assets plus a
percentage of the Fund's gross income other than gains from the sale of
securities. The applicable percentages are reduced as assets and income reach
the following levels:
<TABLE>
<CAPTION>
ANNUAL RATE OF MANAGEMENT FEE BASED ON ANNUAL RATE OF MANAGEMENT FEE BASED ON
AVERAGE DAILY NET ASSETS GROSS INCOME
- --------------------------------------------------- ------------------------------------------------
<S> <C>
0.250% of the first $200 million 3.57% of the first $14 million
0.212% of average daily net assets in excess of 3.04% of gross income in excess of $14 million
$200 million
</TABLE>
For the Fund's fiscal year ended September 30, 1998, MFS received management
fees under the Advisory Agreement of $19,252,268 (of which $11,957,988 was
based on average daily net assets and $7,294,280 on gross income), equivalent,
on an annualized basis, to 0.34% of the Fund's average daily net assets.
MFS also serves as investment adviser to each of the other funds in the MFS
Family of Funds (the "MFS Funds") and to MFS(R)/Sun Life Series Trust, MFS
Institutional Trust, MFS Variable Insurance Trust, MFS Municipal Income Trust,
MFS Government Markets Income Trust, MFS Multimarket Income Trust, MFS
Intermediate Income Trust, MFS Charter Income Trust, MFS Special Value Trust,
and seven variable accounts, each of which is a registered investment company
established by Sun Life Assurance Company of Canada (U.S.), a subsidiary of
Sun Life Assurance Company of Canada ("Sun Life"), in connection with the sale
of various fixed/variable annuity contracts. MFS and its wholly-owned
subsidiary, MFS Institutional Advisors, Inc., also provide investment advice
to substantial private clients.
MFS is America's oldest mutual fund organization. MFS and its predecessor
organizations have a history of money management dating from 1924 and the
founding of the first mutual fund in the United States, Massachusetts
Investors Trust. Net assets under the management of the MFS organization were
approximately $ billion on behalf of approximately million investor
accounts as of December 31, 1998. As of such date, the MFS organization
managed approximately $ billion of assets in fixed income securities. MFS
is a subsidiary of Sun Life of Canada (U.S.) Financial Services Holdings,
Inc., which in turn is an indirect subsidiary of Sun Life. The Directors of
MFS are John W. Ballen, Thomas J. Cashman, Joseph Dello Russo, John D. McNeil,
Kevin R. Parke, Arnold D. Scott, William W. Scott, Jr., Jeffrey L. Shames and
Donald A. Stewart. Mr. Shames is the Chairman and Chief Executive Officer of
MFS, Mr. Ballen is the President and the Chief Investment Officer of MFS, Mr.
Cashman is an Executive Vice President of MFS, Mr. Dello Russo is the Chief
Financial Officer and an Executive Vice President of MFS, Mr. Parke is the
Chief Equity Officer, Director of Equity Research and an Executive Vice
President of MFS, Mr. Arnold Scott is the Secretary and a Senior Executive
Vice President of MFS and Mr. William Scott is the President of MFS Fund
Distributors, Inc. (the distributor of MFS Funds). Messrs. McNeil and Stewart
are the Chairman and the President, respectively, of Sun Life. Sun Life, a
mutual life insurance company, is one of the largest international life
insurance companies and has been operating in the U.S. since 1895,
establishing a headquarters office here in 1973. The executive officers of MFS
report to the Chairman of Sun Life.
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, Ellen Moynihan, Mark
E. Bradley 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 the 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 the Fund is concerned,
in other cases, however, it may produce increased investment opportunities for
the Fund.
DISTRIBUTOR: MFD, a wholly owned subsidiary of MFS, is the distributor of
shares of the Fund and also serves as distributor for each of the other MFS
Funds.
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 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.
SHAREHOLDER SERVICING AGENT -- MFS Service Center, Inc. (the "Shareholder
Servicing Agent"), a wholly owned subsidiary of MFS, performs transfer agency
and certain other services for the Fund.
6. YEAR 2000 ISSUES
The Fund could be adversely affected if the computer systems used by MFS, the
Fund's other service providers or the companies in which the Fund invests do
not properly process date-related information from and after January 1, 2000
(the "Year 2000 Issue"). MFS recognizes the importance of the Year 2000 Issue
and, to address Year 2000 compliance, created a Year 2000 Program Management
Office in 1996, which is separately funded, has a specialized staff and
reports directly to MFS Senior Management. The Office, with the help of
external consultants, is responsible for ascertaining that all internal
systems, data feeds and third party applications are Year 2000 compliant.
While MFS is confident that all MFS systems will be Year 2000 compliant before
the turn of the century, there are significant systems interdependencies in
the domestic and foreign markets for securities, the business environments in
which companies held by the Fund operate and in MFS' own business environment.
MFS has been actively working with the Fund's other service providers to
identify and respond to potential problems in an effort to ensure Year 2000
compliance or develop contingency plans. Year 2000 compliance is also one of
the factors considered by MFS in its ongoing assessment of companies in which
the Fund invests. There can be no assurance, however, that these steps will be
sufficient to avoid any adverse impact on the Fund.
7. INFORMATION CONCERNING SHARES OF THE FUND
PURCHASES
Class A, B and C shares of the 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 the Fund.
This Prospectus offers Class A, B and C shares to the general public, which
bear sales charges and distribution fees in different forms and amounts, as
described below:
CLASS A SHARES: Class A shares are generally offered at net asset value plus
an initial sales charge, but in certain cases are offered at net asset value
without an initial sales charge but subject to a CDSC.
PURCHASES SUBJECT TO INITIAL SALES CHARGE. Class A shares are offered at
net asset value plus an initial sales charge as follows:
<TABLE>
<CAPTION>
SALES CHARGE* AS
PERCENTAGE OF:
------------------------------------ DEALER ALLOWANCE
NET AMOUNT AS A PERCENTAGE
AMOUNT OF PURCHASE OFFERING PRICE INVESTED OF OFFERING PRICE
- ------------------ -------------- ---------- -----------------
<S> <C> <C> <C>
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 the Fund as well as certain other MFS Funds owned or
being purchased, the existence of an agreement to purchase additional shares
during a 13-month period (or 36-month period for purchases of $1 million or
more) or other special purchase programs. A description of the Right of
Accumulation, Letter of Intent and Group Purchase privileges by which the
sales charge may be reduced is set forth in the SAI.
PURCHASES SUBJECT TO A CDSC (but not subject to an initial sales charge).
In the following five circumstances, Class A shares are offered at net asset
value without an initial sales charge but subject to a CDSC, equal to 1% of
the lesser of the value of the shares redeemed (exclusive of reinvested
dividend and capital gain distributions) or the total cost of such shares, in
the event of a share redemption within 12 months following the purchase:
(i) on investments of $1 million or more in Class A shares; and
(ii) on investments in Class A shares by certain retirement plans subject
to the Employee Retirement Income Security Act of 1974, as amended
("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; (c) the aggregate purchases by the retirement
plan of Class A shares of the MFS Funds will be in an aggregate
amount of at least $500,000 within a reasonable period of time, as
determined by MFD in its sole discretion; and (d) the plan has not
redeemed its Class B shares in the MFS Funds in order to purchase
Class A shares under this category.
(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 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 all 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, 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 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 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
regulation 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 upon redemption as follows:
CONTINGENT
YEAR OF REDEMPTION DEFERRED SALES
AFTER PURCHASE CHARGE
- -------------- ------
First ....................................................... 4%
Second ...................................................... 4%
Third ....................................................... 3%
Fourth ...................................................... 3%
Fifth ....................................................... 2%
Sixth ....................................................... 1%
Seventh and following ....................................... 0%
The CDSC imposed is assessed against the lesser of the value of the shares
redeemed (exclusive of reinvested dividends and capital gain distributions) or
the total cost of such shares. No CDSC is assessed against shares acquired
through the automatic reinvestment of dividends or capital gain distributions.
See "Redemptions and Repurchases -- Contingent Deferred Sales Charge" for
further discussion of the CDSC.
Except as described below, MFD will pay commissions to dealers of 3.75% of the
purchase price of Class B shares purchased through dealers. MFD will also
advance to dealers the first year service fee payable under the 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 between July 1,
1996 and December 31, 1998 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
the Fund's Distribution Plan.
For purchases of Class B shares by a retirement plan whose sponsoring
organization subscribes to the MFS Recordkeeper Plus product and which
establishes its account with MFSC on or after January 1, 1999 (provided that
the plan establishment paperwork is received by MFSC in good order on or after
November 15, 1998), MFD pays no up front commissions to dealers, but instead
pays an amount to dealers equal to 1% per annum of the average daily net
assets of the Fund attributable to plan assets, payable at the rate of 0.25%
at the end of each calendar quarter, in arrears. This commission structure is
not available with respect to a plan with a pre-existing account(s) with any
MFS Fund which seeks to switch to the MFS Recordkeeper Plus product.
Certain 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 established an account with the
Shareholder Servicing Agent between July 1, 1996 and December 31, 1998;
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.
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 Recordkeeper Plus product
and which establishes its account with MFSC on or after January 1, 1999
(provided that the plan establishment paperwork is received by MFSC in good
order on or after November 15, 1998). A plan with a pre-existing account(s)
with any MFS Fund which switches to the MFS Recordkeeper Plus product will not
become eligible for this waiver category.
CONVERSION OF CLASS B SHARES. Class B shares of the Fund that remain
outstanding for approximately eight years will convert to Class A shares of
the Fund. Shares purchased through the reinvestment of distributions paid in
respect of Class B shares will be treated as Class B shares for purposes of
the payment of the distribution and service fees under the Fund's Distribution
Plan applicable to Class B shares. See "Information Concerning Shares of the
Fund -- 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 or a CDSC but are subject to a CDSC of 1.00% upon
redemption during the first year. Class C shares do not convert to any other
class of shares of the Fund. The maximum investment in Class C shares that may
be made is 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 the 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 Internal Revenue Code of
1986, as amended (the "Code"), if the retirement plan and/or the sponsoring
organization subscribe to the MFS FUNDamental 401(k) Plan or another similar
recordkeeping program made available by the Shareholder Servicing Agent.
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 the
Fund's shares.
MINIMUM INVESTMENT. Except as described below, the minimum initial
investment is $1,000 per account and the minimum additional investment is $50
per account. Accounts being established for monthly automatic investments and
under payroll savings programs and tax-deferred retirement programs (other
than IRAs) involving the submission of investments by means of group remittal
statements are subject to a $50 minimum on initial and additional investments
per account. The minimum initial investment for IRAs is $250 per account and
the minimum additional investment is $50 per account. Accounts being
established for participation in the Automatic Exchange Plan are subject to a
$50 minimum on initial and additional investments per account. There are also
other limited exceptions to these minimums for certain tax-deferred retirement
programs. Any minimums may be changed at any time at the discretion of MFD.
The Fund reserves the right to cease offering its shares at any time.
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. The Fund and MFD each reserve the
right to reject or restrict any specific purchase or exchange request. Because
an exchange request involves both a request to redeem shares of one fund and
to purchase shares of another fund, the Fund considers the underlying
redemption request conditioned upon the acceptance of the underlying purchase
request. Therefore, in the event that the Fund or MFD rejects an exchange
request, neither the redemption nor the purchase side of the exchange will be
processed.
The MFS Family of Funds is not designed for professional market timing
organizations or other entities using programmed or frequent exchanges. The
MFS Family of Funds defines a "market timer" as an individual, or organization
acting on behalf of one or more individuals, if (i) the individual or
organization makes six or more exchange requests among the MFS Family of Funds
or three or more exchange requests out of any of the MFS high yield bond funds
or MFS municipal bond funds per calendar year and (ii) any one of such
exchange requests represents shares equal in value to $1 million or more.
Accounts under common ownership or control, including accounts administered by
market timers, will be aggregated for purposes of this definition.
As noted above, the Fund and MFD each reserve 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 (i) delaying for
up to seven days the purchase side of an exchange request by market timers,
(ii) rejecting or otherwise restricting purchase or exchange requests by
market timers; and (iii) permitting exchanges by market timers only into
certain 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 the Fund. Such concessions provided by
MFD may include financial assistance to dealers in connection with preapproved
conferences or seminars, sales or training programs for invited registered
representatives 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.
RESTRICTIONS ON ACTIVITIES OF NATIONAL BANKS. The Glass-Steagall Act
prohibits national banks from engaging in the business of underwriting,
selling or distributing securities. Although the scope of the prohibition has
not been clearly defined, MFD believes that such Act should not preclude banks
from entering into agency agreements with MFD. If, however, a bank were
prohibited from so acting, the Trustees would consider what actions, if any,
would be necessary to continue to provide efficient and effective shareholder
services in respect of Shareholders who invested in the Fund through a
national bank. It is not expected that shareholders would suffer any adverse
financial consequence as a result of these occurrences. In addition, state
securities laws on this issue may differ from the interpretation of federal
law expressed herein and banks and financial institutions may be required to
register as broker-dealers pursuant to state law.
--------------------
A shareholder whose shares are held in the name of, or controlled by, a dealer
might not receive many of the privileges and services from the Fund (such as
Right of Accumulation, Letter of Intent and certain recordkeeping services)
that the Fund ordinarily provides.
EXCHANGES
Subject to the requirements set forth below, some or all of the shares in an
account with the Fund for which payment has been received by the Fund (i.e.,
an established account) may be exchanged for shares of the same class of any
of the other MFS Funds at net asset value (if available for sale). Shares of
one class may not be exchanged for shares of any other class.
EXCHANGES AMONG MFS FUNDS (EXCLUDING MFS MONEY MARKET FUNDS): No initial sales
charges or CDSC will be imposed in connection with an exchange from shares of
an MFS Fund to shares of any other MFS Fund, except with respect to exchanges
from an MFS money market fund to another MFS Fund which is not an MFS money
market fund (discussed below). With respect to an exchange involving shares
subject to a CDSC, the CDSC will be unaffected by the exchange and the holding
period for purposes of calculating the CDSC will carry over to the acquired
shares.
EXCHANGES FROM AN MFS MONEY MARKET FUND: Special rules apply with respect to
the imposition of an initial sales charge or a CDSC for exchanges from an MFS
money market fund to another MFS Fund which is not an MFS money market fund.
These rules are described under the caption "Exchanges" in the Prospectuses of
those MFS money market funds.
EXCHANGES INVOLVING THE MFS FIXED FUND: Class A shares of any MFS Fund held by
certain qualified retirement plans may be exchanged for units of
participation of the MFS Fixed Fund (a bank collective investment fund) (the
"Units"), and Units may be exchanged for Class A shares of any MFS Fund. With
respect to exchanges between Class A shares subject to a CDSC and Units, the
CDSC will carry over to the acquired shares or Units and will be deducted from
the redemption proceeds when such shares or Units are subsequently redeemed,
assuming the CDSC is then payable (the period during which the Class A shares
and the Units were held will be aggregated for purposes of calculating the
applicable CDSC). In the event that a shareholder initially purchases Units
and then exchanges into Class A shares subject to an initial sales charge of
an MFS Fund, the initial sales charge shall be due upon such exchange, but
will not be imposed with respect to any subsequent exchanges between such
Class A shares and Units with respect to shares on which the initial sales
charge has already been paid. In the event that a shareholder initially
purchases Units and then exchanges into Class A shares subject to a CDSC of an
MFS Fund, the CDSC period will commence upon such exchange, and the
applicability of the CDSC with respect to subsequent exchanges shall be
governed by the rules set forth above in this paragraph.
GENERAL: A shareholder should read the prospectus of the other MFS Funds into
which an exchange is made 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 New York
Stock Exchange (generally, 4:00 p.m., Eastern time) (the "Exchange"), the
exchange will occur on that day if all the requirements set forth above have
been complied with at that time and subject to the Fund's right to reject
purchase orders. No more than five exchanges may be made in any one Exchange
Request by telephone. Additional information concerning this exchange
privilege and prospectuses for any of the other MFS Funds may be obtained from
dealers or the Shareholder Servicing Agent. 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 the Fund is open for business by redeeming shares at their
net asset value (a redemption) or by selling such shares to the Fund through a
dealer (a repurchase). Certain redemptions and repurchases are, however,
subject to a CDSC. See "Contingent Deferred Sales Charge" below. Because the
net asset value of shares of the account fluctuates, redemptions or
repurchases, which are taxable transactions, are likely to result in gains or
losses to the shareholder. When a shareholder withdraws an amount from his
account, the shareholder is deemed to have tendered for redemption a
sufficient number of full and fractional shares in his account to cover the
amount withdrawn. The proceeds of a redemption or repurchase will normally be
available within seven days, except for shares purchased or received in
exchange for shares purchased by check (including certified checks or
cashier's checks). Payment of redemption proceeds may be delayed for up to 15
days from the purchase date in an effort to assure that such check has
cleared. See "Tax Status" below.
REDEMPTION BY MAIL: Each shareholder may redeem all or any portion of the
shares in his account by mailing or delivering to the Shareholder Servicing
Agent (see back cover for address) a stock power with a written request for
redemption or letter of instruction, together with his share certificates (if
any were issued), all in "good order" for transfer. "Good order" generally
means that the stock power, written request for redemption, letter of
instruction or certificate must be endorsed by the record owner(s) exactly as
the shares are registered and the signature(s) must be guaranteed in the
manner set forth below under the caption "Signature Guarantee." In addition,
in some cases "good order" will require the furnishing of additional
documents. The Shareholder Servicing Agent may make certain de minimis
exceptions to the above requirements for redemption. Within seven days after
receipt of a redemption request in "good order" by the Shareholder Servicing
Agent, the Fund will make payment in cash of the net asset value of the shares
next determined after such redemption request was received, reduced by the
amount of any applicable CDSC described above and the amount of any income tax
required to be withheld, except during any period in which the right of
redemption is suspended or date of payment is postponed because the Exchange
is closed or trading on such Exchange is restricted or to the extent otherwise
permitted by the 1940 Act if an emergency exists.
REDEMPTION BY TELEPHONE: Each shareholder may redeem an amount from his
account by telephoning the Shareholder Servicing Agent toll-free at (800)
225-2606. Shareholders wishing to avail themselves of this telephone
redemption privilege must so elect on their Account Application, designate
thereon a bank and account number to receive the proceeds of such redemption,
and sign the Account Application Form with the signature(s) guaranteed in the
manner set forth below under the caption "Signature Guarantee." The proceeds
of such a redemption, reduced by the amount of any applicable CDSC and the
amount of any income tax required to be withheld, are mailed by check to the
designated account, without charge, if the redemption proceeds do not exceed
$1,000, and are wired in federal funds to the designated account if the
redemption proceeds exceed $1,000. If a telephone redemption request is
received by the Shareholder Servicing Agent by the close of regular trading on
the Exchange on any business day, shares will be redeemed at the closing net
asset value of the Fund on that day. Subject to the conditions described in
this section, proceeds of a redemption are normally mailed or wired on the
next business day following the date of receipt of the order for redemption.
The Shareholder Servicing Agent will not be responsible for any losses
resulting from unauthorized telephone transactions if it follows reasonable
procedures designed to verify the identity of the caller. The Shareholder
Servicing Agent will request personal or other information from the caller,
and will normally also record calls. Shareholders should verify the accuracy
of confirmation statements immediately after their receipt.
REPURCHASE THROUGH A DEALER: If a shareholder desires to sell his shares
through his dealer (a repurchase), the shareholder can place a repurchase
order with his dealer, who may charge the shareholder a fee. IF THE DEALER
RECEIVES THE SHAREHOLDER'S ORDER PRIOR TO THE CLOSE OF REGULAR TRADING ON THE
EXCHANGE AND COMMUNICATES IT TO MFD BEFORE THE CLOSE OF BUSINESS ON THE SAME
DAY, THE SHAREHOLDER WILL RECEIVE THE NET ASSET VALUE CALCULATED ON THAT DAY,
REDUCED BY THE AMOUNT OF ANY APPLICABLE CDSC AND THE AMOUNT OF ANY INCOME TAX
REQUIRED TO BE WITHHELD.
CONTINGENT DEFERRED SALES CHARGE: Investments in Class A, 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 C shares and Class B shares purchased on or after
January 1, 1993 will be aggregated on a calendar month basis -- all
transactions made during a calendar month, regardless of when during the month
they have occurred, will age one year at the close of business on the last day
of such month in the following calendar year and each subsequent year. For
Class B shares of the Fund purchased prior to January 1, 1993, transactions
will be aggregated on a calendar year basis -- all transactions made during a
calendar year, regardless of when during the year they have occurred, will age
one year at the close of business on December 31 of that year and each
subsequent year.
At the time of a redemption, the amount by which the value of a shareholder's
account for a particular class of shares represented by Direct Purchases
exceeds the sum of the six calendar year aggregations (12 months in the case
of purchases of Class C shares and of purchases of $1 million or more of Class
A shares or purchases by certain retirement plans of Class A shares) of Direct
Purchases may be redeemed without charge ("Free Amount"). Moreover, no CDSC is
ever assessed on additional shares acquired through the automatic reinvestment
of dividends or capital gain distributions ("Reinvested Shares"). Therefore,
at the time of redemption of a particular class, (i) any Free Amount is not
subject to the CDSC and (ii) the amount of the redemption equal to the then-
current value of Reinvested Shares is not subject to the CDSC, but (iii) any
amount of the redemption in excess of the aggregate of the then-current value
of Reinvested Shares and the Free Amount is subject to a CDSC. The CDSC will
first be applied against the amount of Direct Purchases which will result in
any such charge being imposed at the lowest possible rate. The CDSC to be
imposed upon redemptions of shares will be calculated as set forth in
"Purchases" above.
The applicability of a CDSC will be unaffected by exchanges or transfers of
registration, except as described in Appendix A hereto.
GENERAL: The following information applies to redemptions and repurchases of
all classes of the Fund's shares.
SIGNATURE GUARANTEE. In order to protect shareholders against fraud, the
Fund requires, in certain instances as indicated above, that the shareholder's
signature be guaranteed. In these cases the shareholder's signature must be
guaranteed by an eligible bank, broker, dealer, credit union, national
securities exchange, registered securities association, clearing agency or
savings association. Signature guarantees shall be accepted in accordance with
policies established by the Shareholder Servicing Agent.
REINSTATEMENT PRIVILEGE. Shareholders of the Fund who have redeemed their
shares have a one-time right to reinvest the redemption proceeds in the same
class of shares of any of the MFS Funds (if shares of such Fund are available
for sale) at net asset value (with a credit for any CDSC paid) within 90 days
of the redemption pursuant to the Reinstatement Privilege. If the shares
credited for any CDSC paid are then redeemed within six years of the initial
purchase in the case of Class B shares or within 12 months of the initial
purchase for 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 the 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. The 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, the Fund reserves the right to redeem shares in
any account for their then-current value if at any time the total investment
in such account drops below $500 because of redemptions 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 the 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 certain features of the
Distribution Plan that are common to each class of shares, as described below.
SERVICE FEES. The Distribution Plan provides that the Fund may pay MFD a
service fee of up to 0.25% of the average daily net assets attributable to the
class of shares to which the Distribution Plan relates (i.e., Class A, Class B
or Class C shares, as appropriate) (the "Designated Class") annually in order
that MFD may pay expenses on behalf of the Fund relating to the servicing of
shares of the Designated Class. The service fee is used by MFD to compensate
dealers which enter into a sales agreement with MFD in consideration for all
personal services and/or account maintenance services rendered by the dealer
with respect to shares of the Designated Class owned by investors for whom
such dealer is the dealer or holder of record. MFD may from time to time
reduce the amount of the service fees paid for shares sold prior to a certain
date. Service fees may be reduced for a dealer that is the holder or dealer of
record for an investor who owns shares of the Fund having an aggregate net
asset value at or above a certain dollar level. Dealers may from time to time
be required to meet certain criteria in order to receive service fees. MFD or
its affiliates are entitled to retain all service fees payable under the
Distribution Plan for which there is no dealer of record or for which
qualification standards have not been met as partial consideration for
personal services and/or account maintenance services performed by MFD or its
affiliates to shareholder accounts.
DISTRIBUTION FEES. The Distribution Plan provides that the Fund may pay
MFD a distribution fee based on the average daily net assets attributable to
the Designated Class as partial consideration for distribution services
performed and expenses incurred in the performance of MFD's obligations under
its distribution agreement with the Fund. See "Management of the Fund --
Distributor" in the SAI. The amount of the distribution fee paid by the Fund
with respect to each class differs under the Distribution 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 expense
incurred by MFD under its distribution agreement with the Fund, the Fund is
not liable to MFD for any losses MFD may incur in performing services under
its distribution agreement with the Fund.
OTHER COMMON FEATURES. Fees payable under the Distribution Plan are
charged to, and therefore reduce, income allocated to shares of the Designated
Class. The provisions of the Distribution Plan relating to operating policies
as well as initial approval, renewal, amendment and termination are
substantially identical as they relate to each class of shares covered by the
Distribution Plan.
FEATURES UNIQUE TO EACH CLASS OF SHARES: There 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 with an initial sales
charge, a substantial portion of which is paid to or retained by the dealer
making the sale (and the remainder of which is paid to MFD). See "Purchases
- -- Class A Shares" above. In addition to the initial sales charge, the dealer
also generally receives the ongoing 0.25% per annum service fee, as discussed
above.
The distribution fee paid to MFD under the Distribution Plan is equal, on an
annual basis, to 0.10% of the Fund's average daily net assets attributable to
Class A shares. As noted above, MFD may use the distribution fee to cover
distribution-related expenses incurred by it under its distribution agreement
with the Fund, including commissions to dealers and payments to wholesalers
employed by MFD (e.g., MFD pays commission to dealers with respect to
purchases of $1 million or more 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). See "Purchases -- Class A Shares" above.
In addition, to the extent that the aggregate service and distribution fees
paid under the Distribution Plan do not exceed 0.35% per annum of the average
daily net assets of the Fund attributable to Class A shares, the Fund is
permitted to pay such distribution-related expenses or other distribution-
related expenses.
CLASS B 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 therefore, MFD may retain the service fee paid by the Fund with
respect to such shares for the first year after purchase. Dealers will become
eligible to receive the ongoing 0.25% per annum service fee with respect to
such shares commencing in the thirteenth month following purchase.
Under the Distribution Plan, the Fund pays MFD a distribution fee equal, on an
annual basis, to 0.75% of the Fund's average daily net assets attributable to
Class B shares. As noted above, this distribution fee may be used by MFD to
cover its distribution-related expenses under its distribution agreement with
the Fund (including the 3.75% commission it pays to dealers upon purchase of
Class B shares, as described under "Purchases -- Class B Shares" above).
CLASS C SHARES. Class C shares are offered at net asset value without an
initial sales charge but subject to a CDSC. 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 the Fund's average daily net assets attributable to Class C shares.
CURRENT LEVEL OF DISTRIBUTION AND SERVICE FEES: The Fund's Class A, Class B
and Class C distribution and service fees for its current fiscal year are
0.35%, 1.00% and 1.00% per annum, respectively. The 0.35% per annum Class A
distribution/service fee is reduced to 0.25% per annum for shares purchased
prior to October 1, 1989.
DISTRIBUTIONS
The Fund intends to declare as dividends daily and pay to its shareholders as
dividends monthly substantially all of its net investment income (dividends
will only accrue on shares for which payment has been received). Dividends
generally are distributed on the first business day of the month. The Fund may
make one or more distributions during the calendar year to its shareholders
from any long-term capital gains and may also make one or more distributions
during the calendar year to its shareholders from short-term capital gains.
Shareholders may elect to receive dividends and capital gain distributions in
either cash or additional shares of the same class with respect to which a
distribution is made (see "Tax Status" and "Shareholder Services --
Distribution Options" below). Distributions paid by the Fund with respect to
Class A shares will generally be greater than those paid with respect to Class
B and Class C shares because expenses attributable to Class B and Class C
shares will generally be higher.
TAX STATUS
The Fund is treated as an entity separate from the other series of the Trust
for federal income tax purposes. In order to minimize the taxes the Fund would
otherwise be required to pay, the Fund intends to qualify each year as a
"regulated investment company" under Subchapter M of the Code. Because the
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 Fund will be required to pay
entity-level federal income or excise taxes, although the Fund's foreign-
source income may be subject to foreign withholding taxes.
Shareholders of the Fund normally will have to pay federal income taxes, and
any state or local taxes, on the dividends and capital gain distributions they
receive from the Fund, whether paid in cash or reinvested in additional
shares. A portion of the dividends received from the Fund (but none of the
Fund's capital gain distributions) may qualify for the dividends-received
deduction for corporations.
Shortly after the end of each calendar year, each shareholder will be sent a
statement setting forth the federal income tax status of all dividends and
distributions for that year, including the portion taxable as ordinary income,
the portion taxable as long term capital gain (as well as the rate category or
categories under which such gain is taxable), the portion, if any,
representing a return of capital (which is generally free of current taxes but
which results in a basis reduction), and the amount, if any, of federal income
tax withheld.
Fund distributions of net capital gains or net short-term capital gains will
reduce the Fund's net asset value per share. Shareholders who buy shares
shortly before the Fund makes such a distribution may thus pay the full price
for the shares and then effectively receive a portion of the purchase price
back as a taxable distribution.
The Fund intends to withhold U.S. federal income tax at the rate of 30% (or
any lower rate permitted under an applicable treaty) on taxable dividends and
other payments that are subject to such withholding and that are made to
persons who are neither citizens nor residents of the U.S. The 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 Fund's 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 the Fund.
NET ASSET VALUE
The net asset value per share of each class of shares of the Fund is
determined each day during which the Exchange is open for trading. This
determination is made once each day as of the close of regular trading on the
Exchange by deducting the amount of liabilities attributable to the class from
the value of the Fund's assets attributable to the class and dividing the
difference by the number of shares of the class outstanding. Assets in the
Fund's portfolio are valued on the basis of their market values as described
in the SAI. The net asset value of each class of shares is effective for
orders received in "good order" by the dealer prior to its calculation and
received by MFD prior to the close of that business day. The Fund has
authorized one or more dealers to receive purchase and redemption orders on
behalf of the Fund. Such dealers are authorized to designate other
intermediaries to receive purchase and redemption orders on behalf of the
Fund. The Fund will be deemed to have received a purchase or redemption order
when an authorized dealer or, if applicable, a dealer's authorized designee.
receives the order. Customer orders will be priced at the net asset value of
the Fund next computed after such orders are received by an authorized dealer
or the dealer's authorized designee.
DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Fund, one of six series of the Trust, 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). The Fund also has a class of shares
which it offers exclusively to certain institutional investors, entitled Class
I shares. The Trust has reserved the right to create and issue additional
classes and series of shares, in which case each class of shares of a series
would participate equally in the earnings, dividends and assets attributable
to that class of that particular series. Shareholders are entitled to one vote
for each share held and shares of each series would be entitled to vote
separately to approve investment advisory agreements or changes in investment
restrictions, but shares of all series would vote together in the election of
Trustees and selection of accountants. Additionally, each class of shares of a
series will vote separately on any material increases in the fees under the
Distribution Plan or on any other matter that affects solely its class of
shares, but will otherwise vote together with all other classes of shares of
the series on all other matters. The Trust does not intend to hold annual
shareholder meetings. The Declaration of Trust provides that a Trustee may be
removed from office in certain instances (see "Description of Shares, Voting
Rights and Liabilities" in the SAI).
Each share of a class of the Fund represents an equal proportionate interest
in the Fund with each other class share, subject to the liabilities of that
class. Shares have no pre-emptive or conversion rights (except as set forth
above in "Purchases -- Conversion of Class B Shares"). Shares are fully paid
and non-assessable. Should the Fund be liquidated, shareholders of each class
are entitled to share pro rata in the net assets attributable to that class
available for distribution to shareholders. Shares will remain on deposit with
the Shareholder Servicing Agent and certificates will not be issued except in
connection with pledges and assignments and in certain other limited
circumstances.
The Trust is an entity of the type commonly known as a "Massachusetts business
trust." Under Massachusetts law, shareholders of such a trust may, under
certain circumstances, be held personally liable as partners for its
obligations. However, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which both
inadequate insurance (e.g., fidelity bonding and errors and omissions
insurance) existed and the Trust itself is unable to meet its obligations.
PERFORMANCE INFORMATION
From time to time, the Fund will provide yield, current distribution rate and
total rate of return quotations for each class of shares and may also quote
fund rankings in the relevant fund category from various sources, such as the
Lipper Analytical Securities Corporation, Inc. and Wiesenberger Investment
Companies Service. Yield quotations are based on the annualized net investment
income per share allocated to each class of the Fund over a 30-day period
stated as a percent of the maximum public offering price of that class on the
last day of that period. Yield calculations for Class B and Class C shares
assume no CDSC is paid. The current distribution rate for each class is
calculated by (i) annualizing the distributions (excluding short-term capital
gains) of the class for a stated period; (ii) adding any short-term capital
gains paid within the immediately preceding 12-month period; and (iii)
dividing the result by the maximum offering price or net asset value per share
on the last day of the period. Current distribution rate calculations for
Class B and Class C shares assume no CDSC is paid. The current distribution
rate differs from the yield calculation because it may include distributions
to shareholders from sources other than dividends and interest, such as
premium income from option writing, short-term capital gains, and return of
invested capital, and may be calculated over a different period of time. Total
rate of return quotations will reflect the average annual percentage change
over stated periods in the value of an investment in each class of shares of
the Fund made at the maximum public offering price of the shares of that class
with all distributions reinvested and which 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 therefore be higher. The 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 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. See the SAI for further information on the calculation of total
rate of 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. Yield reflects only annualized net
portfolio income as of a stated period of time and current distribution rate
reflects only the annualized rate of distributions paid by the Fund over a
stated period of time, while total rate of return reflects all components of
investment return. The Fund's quotations may from time to time be used in
advertisements, shareholder reports or other communications to shareholders.
For a discussion of the manner in which the Fund will calculate its yield,
current distribution rate and total rate of return, see the SAI. For further
information about the Fund's performance for the fiscal year ended September
30, 1998, please see the Fund's Annual Report. A copy of the Annual Report may
be obtained without charge by contacting the Shareholder Servicing Agent (see
back cover for address and phone number). In addition to information provided
in shareholder reports, the Fund may, in its discretion, from time to time,
make a list of all or a portion of its holdings available to investors upon
request.
PROVISION OF ANNUAL AND SEMIANNUAL REPORTS
To avoid sending duplicate copies of materials to households, only one copy of
the Fund's annual and semiannual report may be mailed to shareholders having the
same residential address on the Fund's records. However, any shareholder may
call the Shareholder Servicing Agent at 1-800-225-2606 to request that copies of
such reports be sent personally to that shareholder.
8. SHAREHOLDER SERVICES
Shareholders with questions concerning the shareholder services described
below or concerning other aspects of the Fund, should contact their investment
dealer or the Shareholder Servicing Agent (see back cover for address and
phone number).
ACCOUNT AND CONFIRMATION STATEMENTS: Each shareholder will receive
confirmation statements showing the transaction activity in his account. At
the end of each calendar year, each shareholder will receive information
regarding the tax status of reportable dividends and distributions for that
year (see "Tax Status" above).
DISTRIBUTION OPTIONS: The following options are available to all accounts
(except Systematic Withdrawal Plan accounts) and may be changed as often as
desired by notifying the Shareholder Servicing Agent:
o Dividends and capital gain distributions reinvested in additional shares.
This option will be assigned if no other option is specified.
o Dividends in cash; capital gain distributions reinvested in additional
shares.
o Dividends and capital gain distributions in cash.
Reinvestments (net of any tax withholding) will be made in additional full and
fractional shares of the same class of shares at the net asset value in effect
at the close of business on the last business day of the quarter. Checks for
dividends and capital gain distributions in amounts less than $10 will
automatically be reinvested in additional shares of the Fund. If a shareholder
has elected to receive dividends and/or capital gain distributions in cash,
and the postal or other delivery service is unable to deliver checks to the
shareholder's address of record, or the shareholder does not respond to
mailings from the Shareholder Servicing Agent with regard to uncashed
distribution checks, such shareholders's distribution option will
automatically be converted to having all dividends and other distributions
reinvested in additional shares. Any request to change a distribution option
must be received by the Shareholder Servicing Agent by the record date for a
dividend or distribution in order to be effective for that dividend or
distribution. No interest will accrue on amounts represented by uncashed
distribution or redemption checks.
INVESTMENT AND WITHDRAWAL PROGRAMS: For the convenience of shareholders, the
Fund makes available the following programs designed to enable shareholders to
add to their investment in an account with the Fund or withdraw from it with a
minimum of paper work. The programs involve no extra charge to shareholders
(other than a sales charge in the case of certain Class A share purchases) and
may be changed or discontinued at any time by a shareholder or the Fund.
LETTER OF INTENT: If a shareholder (other than a group purchaser as
described in the SAI) anticipates purchasing $100,000 or more of Class A
shares of the Fund alone or in combination with shares of any class of other
MFS Funds or MFS Fixed Fund (a bank collective trust) within a 13-month period
(or 36-month period for purchases of $1 million or more), the shareholder may
obtain such shares at the same reduced sales charge as though the total
quantity were invested in one lump sum, subject to escrow agreements and the
appointment of an attorney for redemptions from the escrow amount if the
intended purchases are not completed, by completing the Letter of Intent
section of the Account Application.
RIGHT OF ACCUMULATION: A shareholder qualifies for cumulative quantity
discounts on purchases of Class A shares when his new investment, together
with the current offering price value of all holdings of Class A, B and C
shares of that shareholder in the MFS Funds or MFS Fixed Fund (a bank
collective trust), reaches a discount level.
DISTRIBUTION INVESTMENT PROGRAM: Shares of a particular class of the Fund
may be sold at net asset value (and without any applicable CDSC) through the
automatic reinvestment of dividend and capital gain distributions from the
same class of another MFS Fund. Furthermore, distributions made by the Fund
may be automatically invested at net asset value in shares of the same class
of another MFS Fund, if shares of such Fund are available for sale (without a
sales charge and not subject to any applicable CDSC).
SYSTEMATIC WITHDRAWAL PLAN: A shareholder may direct the Shareholder
Servicing Agent to send him (or anyone he designates) regular periodic
payments based upon the value of his account. Each payment under a Systematic
Withdrawal Plan (a "SWP") must be at least $100, except in certain limited
circumstances. The aggregate withdrawals of Class B 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 a 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 exchange their shares for the same class of shares
of the other MFS Funds (and, in the case of Class C shares, for shares of MFS
Money Market Fund) under the Automatic Exchange Plan, a dollar cost averaging
program. The Automatic Exchange Plan provides for automatic monthly or
quarterly exchanges of funds from the shareholder's account in an MFS Fund for
investment in the same class of shares of other MFS Funds selected by the
shareholder if such fund is available for sale. Under the Automatic Exchange
Plan, exchanges of at least $50 each may be made to up to 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 exchanged and, therefore, could result in a
capital gain or loss to the shareholder making the exchange. See the SAI for
further information concerning the Automatic Exchange Plan. Investors should
consult their tax advisers for information regarding the potential capital
gain and loss consequences of transactions under the Automatic Exchange Plan.
Because a dollar cost averaging program involves periodic purchases of shares
regardless of fluctuating share offering prices, a shareholder should consider
his financial ability to continue his purchases through periods of low price
levels. Maintaining a dollar cost averaging program concurrently with a
withdrawal program could be disadvantageous because of the sales charge
included in share purchases in the case of Class A shares and because of the
assessment of the CDSC for certain share redemptions in the case of Class A
shares.
TAX-DEFERRED RETIREMENT PLANS: Except as noted under "Purchases -- Class C
Shares," shares of the Fund may be purchased by all types of tax-deferred
retirement plans, including IRAs, SEP-IRA plans, 401(k) plans, 403(b) plans
and other corporate pension and profit-sharing plans. Investors should consult
with their tax adviser before establishing any of the tax-deferred retirement
plans described above.
--------------------
The Fund's SAI, dated February 1, 1999, as amended or supplemented from time
to time, contains more detailed information about the Trust and the Fund,
including, but not limited to, information related to (i) investment
objectives, policies and restrictions, (ii) Trustees, officers and investment
adviser, (iii) portfolio transactions and brokerage commissions, (iv)
Distribution Plan, (v) the method used to calculate performance quotations of
the Fund, and (vi) various services and privileges provided by the Fund for
the benefit of its shareholders, including additional information with respect
to the exchange privilege.
<PAGE>
APPENDIX A
WAIVERS OF SALES CHARGES
This Appendix sets forth the various circumstances in which all applicable
sales charges are waived (Section I), the initial sales charge and the
contingent deferred sales charge ("CDSC") for Class A shares are waived
(Section II), and the CDSC for Class B and Class C shares is waived (Section
III). Some of the following information will not apply to certain MFS Funds,
depending on which classes of shares are offered by such Fund. 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 MFS Fund Distributors, Inc. ("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, is waived:
1. DIVIDEND REINVESTMENT
o Shares acquired through dividend or capital gain reinvestment; and
o Shares acquired by automatic reinvestment of distributions of
dividends and capital gains of any MFS Fund in the MFS Family of
Funds ("MFS Funds") pursuant to the Distribution Investment Program.
2. CERTAIN ACQUISITIONS/LIQUIDATIONS
o 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:
o Officers, eligible directors, employees (including retired employees)
and agents of Massachusetts Financial Services Company ("MFS"), Sun
Life Assurance Company of Canada ("Sun Life") or any of their
subsidiary companies;
o Trustees and retired trustees of any investment company for which MFD
serves as distributor;
o Employees, directors, partners, officers and trustees of any sub-
adviser to any MFS Fund;
o Employees or registered representatives of dealers;
o Certain family members of any such individual and their spouses
identified above and certain trusts, pension, profit-sharing or other
retirement plans for the sole benefit of such persons, provided the
shares are not resold except to an MFS Fund; and
o Institutional Clients of MFS or MFS Institutional Advisors, Inc.
("MFSI").
4. INVOLUNTARY REDEMPTIONS (CDSC WAIVER ONLY)
o Shares redeemed at an MFS Fund's direction due to the small size of a
shareholder's account. See "Redemptions and Repurchases -- General --
Involuntary Redemptions/ Small Accounts" in the Prospectus.
5. RETIREMENT PLANS (CDSC WAIVER ONLY). Shares redeemed on account of
distributions made under the following circumstances:
INDIVIDUAL RETIREMENT ACCOUNTS ("IRA'S")
o Death or disability of the IRA owner.
SECTION 401(a) PLANS ("401(a) PLANS") AND SECTION 403(b) EMPLOYER
SPONSORED PLANS ("ESP PLANS")
o Death, disability or retirement of 401(a) or ESP Plan participant;
o Loan from 401(a) or ESP Plan (repayment of loans, however, will
constitute new sales for purposes of assessing sales charges);
o Financial hardship (as defined in Treasury Regulation Section
1.401(k)-1(d)(2), as amended from time to time);
o Termination of employment of 401(a) or ESP Plan participant
(excluding, however, a partial or other termination of the Plan);
o Tax-free return of excess 401(a) or ESP Plan contributions;
o 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 the Shareholder Servicing Agent; and
o 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 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.
o Shares purchased by certain retirement plans or trust accounts if:
(i) the plan is currently a party to a retirement plan recordkeeping
or administrative services agreement with MFD or one of its
affiliates and (ii) the shares purchased or redeemed represent
transfers from or transfers to plan investments other than the MFS
Funds of which retirement plan recordkeeping services are provided
under the terms of such agreement.
SECTION 403(b) SALARY REDUCTION ONLY PLANS ("SRO PLANS")
o Death or disability of SRO Plan participant.
6. CERTAIN TRANSFERS OF REGISTRATION (CDSC WAIVER ONLY). Shares
transferred:
o 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
o 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
o 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
o 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
o Shares acquired by insurance company separate accounts.
3. RETIREMENT PLANS
ADMINISTRATIVE SERVICES ARRANGEMENTS
o 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.
REINVESTMENT OF DISTRIBUTIONS FROM QUALIFIED RETIREMENT PLANS
o Shares acquired through the automatic reinvestment in Class A shares
of Class A or Class B distributions which constitute required
withdrawals from qualified retirement plans.
SHARES REDEEMED ON ACCOUNT OF DISTRIBUTIONS MADE UNDER THE FOLLOWING
CIRCUMSTANCES:
IRA'S
o Distributions made on or after the IRA owner has attained the age of
59 1/2 years old; and
o Tax-free returns of excess IRA contributions.
401(a) PLANS
o Distributions made on or after the 401(a) Plan participant has
attained the age of 59 1/2 years old; and
o Certain involuntary redemptions and redemptions in connection with
certain automatic withdrawals from a Plan.
ESP PLANS AND SRO PLANS
o 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)
o 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
o 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 MFS and are acquiring such
shares for the benefit of their trust account clients.
6. INVESTMENT OF PROCEEDS FROM CERTAIN REDEMPTIONS OF CLASS I SHARES
o The initial sales charge imposed on purchases of Class A shares, and
the contingent deferred sales charge imposed on certain redemptions
of Class A shares, are waived with respect to Class A shares acquired
of any of the MFS Funds through the immediate reinvestment of the
proceeds of a redemption of Class I shares of any of the MFS Funds.
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
o 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
o Shares redeemed on account of the death of the account owner if the
shares are held solely in the deceased individual's name or in a
living trust for the benefit of the deceased individual.
3. DISABILITY OF OWNER
o Shares redeemed on account of the disability of the account owner if
shares are held either solely or jointly in the disabled individual's
name or in a living trust for the benefit of the disabled individual
(in which case a disability certification form is required to be
submitted to the Shareholder Servicing Agent.).
4. RETIREMENT PLANS. Shares redeemed on account of distributions made
under the following circumstances:
IRA'S, 401(a) PLANS, ESP PLANS AND SRO PLANS
o 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
applicable Internal Revenue Code ("Code") rules.
SALARY REDUCTION EMPLOYEE PENSION PLANS ("SAR-SEP PLANS")
o 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;
o Death or disability of a SAR-SEP Plan participant.
<PAGE>
APPENDIX B
DESCRIPTION OF BOND RATINGS
MOODY'S INVESTORS SERVICE, INC.
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than Aaa
securities.
A: Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may
be present which suggest a susceptibility to impairment some time in the
future.
Baa: Bonds which are rated Baa are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
ABSENCE OF RATING: Where no rating has been assigned or where a rating has
been suspended or withdrawn, it may be for reasons unrelated to the quality of
the issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies that
are not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise,
the effects of which preclude satisfactory analysis; if there is no longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.
NOTE: Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa to B. The modifier 1 indicates that the company ranks
in the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the company ranks in the
lower end of its generic rating category.
STANDARD & POOR'S RATINGS SERVICES
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 highest rated obligations 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 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 for the
obligor 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 Standard & Poor's 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 a
similar action if 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 the major
rating 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 risk -- such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
FITCH IBCA
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.
Speculative Grade
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 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, 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 CREDIT RATING CO.
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 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. Issuer failed to meet scheduled principal and/
or interest payments.
DP: Preferred stock with dividend arrearages.
DUFF & PHELPS SHORT-TERM RATINGS
D-1+: Highest certainty of timely payment. Short-term liquidity, including
internal operation factors and/or access to alternative sources of funds, is
outstanding and safety is just below risk-free U.S. Treasury short-term
obligations.
D-1: Very high certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk factors are minor.
D-1-: High certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are very small.
D-2: Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.
D-3: Satisfactory liquidity and other protection factors qualify issues as to
investment grade. Risk factors are larger and subject to more variation.
Nevertheless, timely payment is expected.
D-4: Speculative investment characteristics. Liquidity is not sufficient to
insure against disruption in debt service. Operating factors and market access
may be subject to a high degree of variation.
D-5: Issuer failed to meet scheduled principal and/or interest payments.
<PAGE>
Investment Adviser
Massachusetts Financial
Services Company
500 Boylston Street
Boston, MA 02116
(617) 954-5000
Principal Underwriter
MFS Fund Distributors, Inc.
500 Boylston Street
Boston, MA 02116
(617) 954-5000
Custodian
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
Dividend Disbursing Agent
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
Shareholder Servicing Agent
MFS Service Center, Inc.
500 Boylston Street
Boston, MA 02116
Toll-free: (800) 225-2606
Mailing Address:
P.O. Box 2281
Boston, MA 02107-9906
Independent Auditors
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
MTR-1-2/98/xxxM 15/215/315
<PAGE>
[Logo] M F S(R)
INVESTMENT MANAGEMENT
MFS(R) TOTAL STATEMENT OF
RETURN FUND ADDITIONAL INFORMATION
(A Member of the MFS Family of Funds(R)) February 1, 1999
- --------------------------------------------------------------------------------
Page
----
1. Definitions ........................................................... 2
2. Investment Objectives, Policies and Restrictions ...................... 2
3. Management of the Fund ................................................ 12
Trustees ............................................................ 13
Officers ............................................................ 13
Trustee Compensation Table .......................................... 13
Investment Adviser .................................................. 14
Administrator ....................................................... 14
Custodian ........................................................... 15
Shareholder Servicing Agent ......................................... 15
Distributor ......................................................... 15
4. Portfolio Transactions and Brokerage Commissions ...................... 16
5. Shareholder Services .................................................. 17
Investment and Withdrawal Programs .................................. 17
Exchange Privilege .................................................. 19
Tax-Deferred Retirement Plans ....................................... 19
6. Tax Status ............................................................ 20
7. Determination of Net Asset Value and Performance ...................... 21
8. Distribution Plan ..................................................... 23
9. Description of Shares, Voting Rights and Liabilities .................. 24
10. Independent Auditors and Financial Statements ......................... 25
Appendix A -- Performance Information ................................. A-1
MFS TOTAL RETURN FUND
A Series of MFS(R) Series Trust V
500 Boylston Street, Boston, Massachusetts 02116
(617) 954-5000
This Statement of Additional Information, as amended or supplemented from time
to time (the "SAI"), sets forth information which may be of interest to
investors but which is not necessarily included in the Fund's Prospectus,
dated February 1, 1999. This SAI should be read in conjunction with the
Prospectus, a copy of which may be obtained without charge by contacting the
Shareholder Servicing Agent (see last page for address and phone number).
THIS SAI IS NOT A PROSPECTUS AND IS AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE
INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS.
<PAGE>
1. DEFINITIONS
"Fund" -- MFS Total Return Fund, a series of
MFS Series Trust V (the "Trust"), a
Massachusetts business trust. The
Trust was known as Massachusetts
Financial Total Return Trust until
August 3, 1992.
"MFS" or the "Adviser" -- Massachusetts Financial Services
Company, a Delaware corporation.
"MFD" -- MFS Fund Distributors, Inc., a
Delaware corporation.
"Prospectus" -- The Prospectus of the Fund, dated
February 1, 1999, as amended or
supplemented from time to time.
2. INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
INVESTMENT OBJECTIVES. The Fund's primary investment objective is to obtain
above-average income (compared to a portfolio invested entirely in equity
securities) consistent with the prudent employment of capital. While current
income is the primary objective, the Fund believes that there should also be a
reasonable opportunity for growth of capital and income, since many securities
offering a better than average yield may also possess growth potential. Thus,
in selecting securities for its portfolio, the Fund considers each of these
objectives. Any investment involves risk and there can be no assurance that
the Fund will achieve its investment objectives.
INVESTMENT POLICIES. The Prospectus contains a discussion of the Fund's
policies with respect to investments in various types of securities and the
risks involved in such investments. Some of these policies are discussed
further below.
LOAN PARTICIPATIONS AND OTHER DIRECT INDEBTEDNESS: The Fund may purchase loan
participations and other direct claims against a borrower. In purchasing a
loan participation, the Fund acquires some or all of the interest of a bank or
other lending institution in a loan to a corporate borrower. Many such loans
are secured, although some may be unsecured. Such loans may be in default at
the time of purchase. Loans that are fully secured offer the Fund more
protection than an unsecured loan in the event of non-payment of scheduled
interest or principal. However, there is no assurance that the liquidation of
collateral from a secured loan would satisfy the corporate borrower's
obligation, or that the collateral can be liquidated.
These loans are made generally to finance internal growth, mergers,
acquisitions, stock repurchases, leveraged buy-outs and other corporate
activities. Such loans are typically made by a syndicate of lending
institutions, represented by an agent lending institution which has negotiated
and structured the loan and is responsible for collecting interest, principal
and other amounts due on its own behalf and on behalf of the others in the
syndicate, and for enforcing its and their other rights against the borrower.
Alternatively, such loans may be structured as a novation, pursuant to which
the Fund would assume all of the rights of the lending institution in a loan,
or as an assignment, pursuant to which the Fund would purchase an assignment
of a portion of a lender's interest in a loan either directly from the lender
or through an intermediary. The Fund may also purchase trade or other claims
against companies, which generally represent money owed by the company to a
supplier of goods or services. These claims may also be purchased at a time
when the company is in default.
Certain of the loan participations acquired by the Fund may involve revolving
credit facilities or other standby financing commitments which obligate the
Fund to pay additional cash on a certain date or on demand. These commitments
may have the effect of requiring the Fund to increase its investment in a
company at a time when the Fund might not otherwise decide to do so (including
at a time when the company's financial condition makes it unlikely that such
amounts will be repaid). To the extent that the Fund is committed to advance
additional funds, it will at all times hold and maintain in a segregated
account liquid assets in an amount sufficient to meet such commitments.
The Fund's ability to receive payments of principal, interest and other
amounts due in connection with these investments will depend primarily on the
financial condition of the borrower. In selecting the loan participations and
other direct investments which the Fund will purchase, the Adviser will rely
upon its (and not that of the original lending institution's) own credit
analysis of the borrower. As the Fund may be required to rely upon another
lending institution to collect and pass on to the Fund amounts payable with
respect to the loan and to enforce the Fund's rights under the loan, an
insolvency, bankruptcy or reorganization of the lending institution may delay
or prevent the Fund from receiving such amounts. In such cases, the Fund will
evaluate as well the creditworthiness of the lending institution and will
treat both the borrower and the lending institution as an "issuer" of the loan
participation for purposes of certain investment restrictions pertaining to
the diversification of the Fund's portfolio investments. The highly leveraged
nature of many such loans may make such loans especially vulnerable to adverse
changes in economic or market conditions. Investments in such loans may
involve additional risks to the Fund. For example, if a loan is foreclosed,
the Fund could become part owner of any collateral, and would bear the costs
and liabilities associated with owning and disposing of the collateral. In
addition, it is conceivable that under emerging legal theories of lender
liability, the Fund could be held liable as a co-lender. It is unclear whether
loans and other forms of direct indebtedness offer securities law protections
against fraud and misrepresentation. In the absence of definitive regulatory
guidance, the Fund relies on the Adviser's research in an attempt to avoid
situations where fraud or misrepresentation could adversely affect the Fund.
In addition, loan participations and other direct investments may not be in
the form of securities or may be subject to restrictions on transfer, and only
limited opportunities may exist to resell such instruments. As a result, the
Fund may be unable to sell such investments at an opportune time or may have
to resell them at less than fair market value. To the extent that the Adviser
determines that any such investments are illiquid, the Fund will include them
in the investment limitations described below.
MORTGAGE PASS-THROUGH SECURITIES: The Fund may invest in mortgage pass-through
securities. Mortgage pass-through securities are securities representing
interests in "pools" of mortgage loans. Monthly payments of interest and
principal by the individual borrowers on mortgages are passed through to the
holders of the securities (net of fees paid to the issuer or guarantor of the
securities) as the mortgages in the underlying mortgage pools are paid off.
The average lives of mortgage pass-throughs are variable when issued because
their average lives depend on prepayment rates. The average life of these
securities is likely to be substantially shorter than their stated final
maturity as a result of unscheduled principal prepayments. Prepayments on
underlying mortgages result in a loss of anticipated interest, and all or part
of a premium if any has been paid, and the actual yield (or total return) to
the Fund may be different than the quoted yield on the securities. Mortgage
prepayments generally increase with falling interest rates and decrease with
rising interest rates. Like other fixed income securities, when interest rates
rise the value of a mortgage pass-through security generally will decline;
however, when interest rates are declining, the value of mortgage pass-through
securities with prepayment features may not increase as much as that of other
fixed-income securities.
Payment of principal and interest on some mortgage pass-through securities
(but not the market value of the securities themselves) may be guaranteed by
the full faith and credit of the U.S. Government (in the case of securities
guaranteed by the Government National Mortgage Association ("GNMA"); or
guaranteed by agencies or instrumentalities of the U.S. Government (such as
the Federal National Mortgage Association ("FNMA") or the Federal Home Loan
Mortgage Corporation, ("FHLMC") which are supported only by the discretionary
authority of the U.S. Government to purchase the agency's obligations).
Mortgage pass-through securities may also be issued by non-governmental
issuers (such as commercial banks, savings and loan institutions, private
mortgage insurance companies, mortgage bankers and other secondary market
issuers). Some of these mortgage pass-through securities may be supported by
various forms of insurance or guarantees.
Interests in pools of mortgage-related securities differ from other forms of
debt securities, which normally provide for periodic payment of interest in
fixed amounts with principal payments at maturity or specified call dates.
Instead, these securities provide a monthly payment which consists of both
interest and principal payments. In effect, these payments are a "pass-
through" of the monthly payments made by the individual borrowers on their
mortgage loans, net of any fees paid to the issuer or guarantor of such
securities. Additional payments are caused by prepayments of principal
resulting from the sale, refinancing or foreclosure of the underlying
property, net of fees or costs which may be incurred. Some mortgage pass-
through securities (such as securities issued by the GNMA) are described as
"modified pass-through." These securities entitle the holder to receive all
interests and principal payments owed on the mortgages in the mortgage pool,
net of certain fees, at the scheduled payment dates regardless of whether the
mortgagor actually makes the payment.
The principal governmental guarantor of mortgage pass-through securities is
the GNMA. GNMA is a wholly-owned U.S. Government corporation within the
Department of Housing and Urban Development. GNMA is authorized to guarantee,
with the full faith and credit of the U.S. Government, the timely payment of
principal and interest on securities issued by institutions approved by GNMA
(such as savings and loan institutions, commercial banks and mortgage bankers)
and backed by mortgage pools of Federal Housing Administration-insured or
Veterans Administration-guaranteed. These guarantees, however, do not apply to
the market value or yield of mortgage pass-through securities. GNMA securities
are often purchased at a premium over the maturity value of the underlying
mortgages. This premium is not guaranteed and will be lost if prepayment
occurs.
Government-related guarantors (i.e., whose guarantees are not backed by the
full faith and credit of the U.S. Government) include the FNMA and the FHLMC.
FNMA is a government-sponsored corporation owned entirely by private
stockholders. It is subject to general regulation by the Secretary of Housing
and Urban Development. FNMA purchases conventional residential mortgages
(i.e., mortgages not insured or guaranteed by any governmental agency) from a
list of approved seller/servicers which include state and federally-chartered
savings and loan associations, mutual savings banks, commercial banks, credit
unions and mortgage bankers. Pass-through securities issued by FNMA are
guaranteed as to timely payment by FNMA of principal and interest.
FHLMC is also a government-sponsored corporation owned by private
stockholders. FHLMC issues Participation Certificates ("PCs") which represent
interests in conventional mortgages (i.e., not federally insured or
guaranteed) from FHLMC's national portfolio. FHLMC guarantees timely payment
of interest and ultimate collection of principal regardless of the status of
the underlying mortgage loans.
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers also create
pass-through pools of mortgage loans. Such issuers may also be the originators
and/or servicers of the underlying mortgage-related securities. Pools created
by such non-governmental issuers generally offer a higher rate of interest
than government and government-related pools because there are no direct or
indirect government or agency guarantees of payments in the former pools.
However, timely payment of interest and principal of mortgage loans in these
pools may be supported by various forms of insurance or guarantees, including
individual loan, title, pool and hazard insurance and letters of credit. The
insurance and guarantees are issued by governmental entities, private insurers
and the mortgage poolers. There can be no assurance that the private insurers
or guarantors can meet their obligations under the insurance policies or
guarantee arrangements. The Fund may also buy mortgage-related securities
without insurance or guarantees.
SECURITIES LENDING: The Fund may seek to increase its income by lending fixed
income portfolio securities. Such loans will usually be made only to member
banks of the Federal Reserve System and to member firms (or subsidiaries
thereof) of the New York Stock Exchange and would be required to be secured
continuously by collateral in cash, U.S. Government securities or an
irrevocable letter of credit maintained on a current basis at an amount at
least equal to the market value of the securities loaned. The Fund would have
the right to call a loan and obtain the securities loaned at any time on
customary industry settlement notice (which will usually not exceed five
days). During the existence of a loan, the Fund would continue to receive the
equivalent of the interest paid by the issuer on the securities loaned or a
fee from the borrower. The Fund would also receive compensation based on
investment of the collateral, less a fee paid to the borrower if the
collateral is in the form of cash. The Fund would not, however, have the right
to vote any securities having voting rights during the existence of the loan,
but would call the loan in anticipation of an important vote to be taken among
holders of the securities or of the giving or withholding of their consent on
a material matter affecting the investment. As with other extensions of
credit, there are risks of delay in recovery or even loss of rights in the
collateral should the borrower of the securities fail financially. However,
the loans would be made only to firms deemed by the Adviser to be of good
standing, and when, in the judgment of the Adviser, the consideration which
could be earned currently from securities loans of this type justifies the
attendant risk. If the Adviser determines to lend securities, it is not
intended that the value of the securities loaned would exceed 30% of the value
of the Fund's total assets.
REPURCHASE AGREEMENTS: The Fund may enter into repurchase agreements with
sellers who are member firms (or subsidiaries thereof) of the New York Stock
Exchange or members of the Federal Reserve System, recognized primary U.S.
Government securities dealers or institutions which the Adviser has determined
to be of comparable creditworthiness. The securities that the Fund purchases
and holds through its agent are U.S. Government securities, the values of
which are equal to or greater than the repurchase price agreed to be paid by
the seller. The repurchase price may be higher than the purchase price, the
difference being income to the Fund, or the purchase and repurchase prices may
be the same, with interest at a standard rate due to the Fund together with
the repurchase price on repurchase. In either case, the income to the Fund is
unrelated to the interest rate on the U.S. Government securities.
The repurchase agreement provides that in the event the seller fails to pay
the amount agreed upon on the agreed upon delivery date or upon demand, as the
case may be, the Fund will have the right to liquidate the securities. If, at
the time the Fund is contractually entitled to exercise its right to liquidate
the securities, the seller is subject to a proceeding under the bankruptcy
laws or its assets are otherwise subject to a stay order, the Fund's exercise
of its right to liquidate the securities may be delayed and result in certain
losses and costs to the Fund. The Fund has adopted and follows procedures
which are intended to minimize the risks of repurchase agreements. For
example, the Fund only enters into repurchase agreements after the Adviser has
determined that the seller is creditworthy, and the Adviser monitors that
seller's creditworthiness on an ongoing basis. Moreover, under such
agreements, the value of the securities (which are marked to market every
business day) is required to be greater than the repurchase price, and the
Fund has the right to make margin calls at any time if the value of the
securities falls below the agreed upon collateral.
"WHEN-ISSUED" SECURITIES: When the Fund commits to purchase a security on a
"when-issued" or "forward delivery" basis, it will set up procedures
consistent with the General Statement of Policy of the Securities and Exchange
Commission (the "SEC") concerning such purchases. Since that policy currently
recommends that an amount of the Fund's assets equal to the amount of the
purchase be held aside or segregated to be used to pay for the commitment, the
Fund will always have liquid assets sufficient to cover any commitments or to
limit any potential risk. However, although the Fund does not intend to make
such purchases for speculative purposes and intends to adhere to the
provisions of the SEC policy, purchases of securities on such basis may
involve more risk than other types of purchases. For example, the Fund may
have to sell assets which have been set aside in order to meet redemptions.
Also, if the Fund determines it necessary to sell the "when-issued" or
"forward delivery" securities before delivery, it may incur a loss because of
market fluctuations since the time the commitment to purchase such securities
was made.
INDEXED SECURITIES: The Fund may purchase securities whose prices are indexed
to the prices of other securities, securities indices, currencies, precious
metals or other commodities, or other financial indicators. Indexed securities
typically, but not always, are debt securities or deposits whose value at
maturity (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 maturity value may increase when the specified currency value
increases, resulting in a security that performs similarly to a foreign-
denominated instrument, or their maturity value may decline when foreign
currencies increase, resulting in a security whose price characteristics are
similar to a put on the underlying currency. Currency-indexed securities may
also have prices that depend on the values of a number of different foreign
currencies relative to each other. Certain indexed securities may expose the
Fund to the risk of loss of all or a portion of the principal amount of its
investment and/or the interest that might otherwise have been earned on the
amount invested.
The performance of indexed securities depends to a great extent on the
performance of the security, currency, or other instrument to which they are
indexed, and may also be influenced by interest rate changes in the U.S. and
abroad. At the same time, indexed securities are subject to the credit risks
associated with the issuer of the security, and their values may decline
substantially if the issuer's creditworthiness deteriorates. Recent issuers of
indexed securities have included banks, corporations, and certain U.S.
Government agencies.
MORTGAGE "DOLLAR ROLL" TRANSACTIONS: As described in the Prospectus, the Fund
may enter into mortgage "dollar roll" transactions pursuant to which it sells
mortgage-backed securities for delivery in the future and simultaneously
contracts to repurchase substantially similar securities on a specified future
date. The Fund records these transactions as sale and purchase transactions,
rather than as borrowing transactions. During the roll period, the Fund
foregoes principal and interest paid on the mortgage-backed securities. The
Fund is compensated for the lost interest by the difference between the
current sales price and the lower price for the future purchase (often
referred to as the "drop") as well as by the interest earned on the cash
proceeds of the initial sale. The Fund may also be compensated by receipt of a
commitment fee.
FOREIGN SECURITIES: The Fund may invest up to 20% (and generally expects to
invest between 5% and 20%) of its total assets in foreign securities (not
including American Depositary Receipts). As discussed in the Prospectus,
investing in foreign securities generally represents a greater degree of risk
than investing in domestic securities due to possible exchange rate
fluctuations, less publicly available information, more volatile markets, less
securities regulation, less favorable tax provisions, war or expropriation. As
a result of its investments in foreign securities, the Fund may receive
interest or dividend payments, or the proceeds of the sale or redemption of
such securities, in the foreign currencies in which such securities are
denominated. Under certain circumstances, such as where the Adviser believes
that the applicable exchange rate is unfavorable at the time the currencies
are received or the Adviser anticipates, for any other reason, that the
exchange rate will improve, the Fund may hold such currencies for an
indefinite period of time. While the holding of currencies will permit the
Fund to take advantage of favorable movements in the applicable exchange rate,
such strategy also exposes the Fund to risk of loss if exchange rates move in
a direction adverse to the Fund's position. Such losses could reduce any
profits or increase any losses sustained by the Fund from the sale or
redemption of securities and could reduce the dollar value of interest or
dividend payments received.
AMERICAN DEPOSITARY RECEIPTS: The Fund may invest in American Depositary
Receipts ("ADRs") which are certificates issued by a U.S. depository (usually
a bank) and represent a specified quantity of shares of an underlying non-U.S.
stock on deposit with a custodian bank as collateral. ADRs may be sponsored or
unsponsored. A sponsored ADR is issued by a depository which has an exclusive
relationship with the issuer of the underlying security. An unsponsored ADR
may be issued by any number of U.S. depositories. Under the terms of most
sponsored arrangements, depositories agree to distribute notices of
shareholder meetings and voting instructions, and to provide shareholder
communications and other information to the ADR holders at the request of the
issuer of the deposited securities. The depository of an unsponsored ADR, on
the other hand, is under no obligation to distribute shareholder
communications received from the issuer of the deposited securities or to pass
through voting rights to ADR holders in respect of the deposited securities.
The Fund may invest in either type of ADR. Although the U.S. investor holds a
substitute receipt of ownership rather than direct stock certificates, the use
of the depositary receipts in the United States can reduce costs and delays as
well as potential currency exchange and other difficulties. The Fund may
purchase securities in local markets and direct delivery of these ordinary
shares to the local depository of an ADR agent bank in the foreign country.
Simultaneously, the ADR agents create a certificate which settles at the
Fund's custodian in five days. The Fund may also execute trades on the U.S.
markets using existing ADRs. A foreign issuer of the security underlying an
ADR is generally not subject to the same reporting requirements in the United
States as a domestic issuer. Accordingly the information available to a U.S.
investor will be limited to the information the foreign issuer is required to
disclose in its own country and the market value of an ADR may not reflect
undisclosed material information concerning the issuer of the underlying
security. ADRs may also be subject to exchange rate risks if the underlying
foreign securities are denominated in foreign currency.
CORPORATE ASSET-BACKED SECURITIES: The Fund may invest in corporate asset-
backed securities. These securities, issued by trusts and special purpose
corporations, are backed by a pool of assets, such as credit card and
automobile loan receivables, representing the obligations of a number of
different parties.
Corporate asset-backed securities present certain risks. For instance, in the
case of credit card receivables, these securities may not have the benefit of
any security interest in the related collateral. Credit card receivables are
generally unsecured and the debtors are entitled to the protection of a number
of state and federal consumer credit laws, many of which give such debtors the
right to set off certain amounts owed on the credit cards, thereby reducing
the balance due. Most issuers of automobile receivables permit the servicers
to retain possession of the underlying obligations. If the servicer were to
sell these obligations to another party, there is a risk that the purchaser
would acquire an interest superior to that of the holders of the related
automobile receivables. In addition, because of the large number of vehicles
involved in a typical issuance and technical requirements under state laws,
the trustee for the holders of the automobile receivables may not have a
proper security interest in all of the obligations backing such receivables.
Therefore, there is the possibility that recoveries on repossessed collateral
may not, in some cases, be available to support payments on these securities.
Corporate asset-backed securities are often backed by a pool of assets
representing the obligations of a number of different parties. To lessen the
effect of failures by obligors to make payments on underlying assets, the
securities may contain elements of credit support which fall into two
categories: (i) liquidity protection and (ii) protection against losses
resulting from ultimate default by an obligor on the underlying assets.
Liquidity protection refers to the provision of advances, generally by the
entity administering the pool of assets, to ensure that the receipt of
payments on the underlying pool occurs in a timely fashion. Protection against
losses resulting from ultimate default ensures payment through insurance
policies or letters of credit obtained by the issuer or sponsor from third
parties. The Fund will not pay any additional or separate fees for credit
support. The degree of credit support provided for each issue is generally
based on historical information respecting the level of credit risk associated
with the underlying assets. Delinquency or loss in excess of that anticipated
or failure of the credit support could adversely affect the return on an
instrument in such a security.
SWAPS AND RELATED TRANSACTIONS: The Fund may enter into interest rate swaps,
currency swaps and other types of available swap agreements, such as caps,
collars and floors.
Swap agreements may be individually negotiated and structured to include
exposure to a variety of different types of investments or market factors.
Depending on their structure, swap agreements may increase or decrease the
Fund's exposure to long or short-term interest rates (in the U.S. or abroad),
foreign currency values, mortgage securities, corporate borrowing rates, or
other factors such as securities prices or inflation rates. Swap agreements
can take many different forms and are known by a variety of names. The Fund is
not limited to any particular form or variety of swap agreement if MFS
determines it is consistent with the Fund's investment objective and policies.
The Fund will maintain liquid assets with its custodian to cover its current
obligations under swap transactions. If the Fund enters into a swap agreement
on a net basis (i.e., the two payment streams are netted out, with the Fund
receiving or paying as the case may be, only the net amount of the two
payments), the Fund will maintain liquid assets with its Custodian with a
daily value at least equal to the excess, if any, of the Fund's accrued
obligations under the swap agreement over the accrued amount the Fund is
entitled to receive under the agreement. If the Fund enters into a swap
agreement on other than a net basis, it will maintain cash or liquid assets
with a value equal to the full amount of the Fund's accrued obligations under
the agreement.
The most significant factor in the performance of swaps, caps, floors and
collars is the change in the specific interest rate, currency or other factor
that determines the amount of payments to be made under the arrangement. If
MFS is incorrect in its forecasts of such factors, the investment performance
of the Fund would be less than what it would have been if these investment
techniques had not been used. If a swap agreement calls for payments by the
Fund, the Fund must be prepared to make such payments when due. In addition,
if the counterparty's creditworthiness declined, the value of the swap
agreement would be likely to decline, potentially resulting in losses. If the
counterparty defaults, the Fund's risk of loss consists of the net amount of
payments that the Fund is contractually entitled to receive. The Fund
anticipates that it will be able to eliminate or reduce its exposure under
these arrangements by assignment or other disposition or by entering into an
offsetting agreement with the same or another counterparty.
RISKS OF INVESTING IN LOWER RATED BONDS: The Fund may invest in fixed income
securities rated Baa by Moody's Investors Service, Inc. ("Moody's") or BBB by
Standard & Poor's Ratings Services ("S&P"), Fitch IBCA ("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 Fund 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 Fund. These
securities are considered speculative and, while generally providing greater
income than investments in higher rated securities, will involve greater risk
of principal and income (including the possibility of default or bankruptcy of
the issuers of such securities) and may involve greater volatility of price
(especially during periods of economic uncertainty or change) than securities
in the higher rating categories and because yields vary over time, no specific
level of income can ever be assured. These lower rated high yielding fixed
income securities generally tend to reflect economic changes (and the outlook
for economic growth), short-term corporate and industry developments and the
market's perception of their credit quality (especially during times of
adverse publicity) to a greater extent than higher rated securities which
react primarily to fluctuations in the general level of interest rates
(although these lower rated fixed income securities are also affected by
changes in interest rates). In the past, economic downturns or an increase in
interest rates have, under certain circumstances, caused a higher incidence of
default by the issuers of these securities and may do so in the future,
especially in the case of highly leveraged issuers. The prices for these
securities may be affected by legislative and regulatory developments. The
market for these lower rated fixed income securities may be less liquid than
the market for investment grade fixed income securities. Furthermore, the
liquidity of these lower rated securities may be affected by the market's
perception of their credit quality. Therefore, the Adviser's judgment may at
times play a greater role in valuing these securities than in the case of
investment grade fixed income securities, and it also may be more difficult
during times of certain adverse market conditions to sell these lower rated
securities to meet redemption requests or to respond to changes in the market.
While the Adviser may refer to ratings issued by established credit rating
agencies, it is not the Fund's policy to rely exclusively on ratings issued by
these rating agencies, but rather to supplement such ratings with the
Adviser's own independent and ongoing review of credit quality. To the extent
the Fund invests in these lower rated securities, the achievement of its
investment objectives may be more dependent on the Adviser's own credit
analysis than in the case of a fund investing in higher quality fixed income
securities. These lower rated securities may also include zero coupon bonds,
deferred interest bonds and bonds on which interest is payable in kind ("PIK
Bonds") which are described in the Prospectus.
OPTIONS ON SECURITIES: The Fund may write (sell) covered call and put options
on securities and purchase call and put options on securities. The Fund may
write options on securities for the purpose of increasing its return on such
securities and for hedging purposes.
A call option written by the Fund is covered if the Fund owns the security
underlying the call or has an absolute and immediate right to acquire such
security without additional cash consideration (or for additional cash
consideration 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 the Fund is covered if the
Fund segregates liquid assets, or else holds a put on the same security and in
the same principal amount as the put written where the exercise price of the
put held (i) is equal to or greater than the exercise price of the put written
or (ii) is less than the exercise price of the put written if liquid assets
representing the difference is segregated by the Fund. Put and call options
written by the Fund may also be covered in such other manner as may be in
accordance with the requirements of the exchange on which, or the counterparty
with which, the option is traded, and applicable laws and regulations.
Effecting a closing transaction in the case of a written call option will
permit the Fund to write another call option on the underlying security with
either a different exercise price or expiration date or both, or in the case
of a written put option will permit the Fund to write another put option to
the extent that the exercise price thereof is secured by deposited cash or
short-term securities. Such transactions permit the Fund to generate
additional premium income, which will partially offset declines in the value
of portfolio securities or increases in the cost of securities to be acquired.
Also, effecting a closing transaction will permit the proceeds from the
concurrent sale of any securities subject to the option to be used for other
investments of the Fund, provided that another option on such security is not
written. If the Fund desires to sell a particular security from its portfolio
on which it has written a call option, it will effect a closing transaction in
connection with the option prior to or concurrent with the sale of the
security.
The Fund will realize a profit from a closing transaction if the premium paid
in connection with the closing of an option written by the Fund is less than
the premium received from writing the option, or if the premium received in
connection with the closing of an option purchased by the Fund is more than
the premium paid for the original purchase. Conversely, the Fund will suffer a
loss if the premium paid or received in connection with a closing transaction
is more or less, respectively, than the premium received or paid in
establishing the option position. Because increases in the market price of a
call option will generally reflect increases in the market price of the
underlying security, any loss resulting from the closing out of a call option
previously written by the Fund is likely to be offset in whole or in part by
appreciation of the underlying security owned by the Fund.
The Fund may write options in connection with buy-and-write transactions; that
is, the Fund may purchase a security and then write a call option against that
security. The exercise price of the call option the Fund determines to write
will depend upon the expected price movement of the underlying security. The
exercise price of a call option may be below ("in-the-money"), equal to ("at-
the-money") or above ("out-of-the-money") the current value of the underlying
security at the time the option is written. If the call options are exercised
in such transactions, the Fund's maximum gain will be the premium received by
it for writing the option, adjusted upwards or downwards by the difference
between the Fund's purchase price of the security and the exercise price, less
related transaction costs. If the options are not exercised and the price of
the underlying security declines, the amount of such decline will be offset in
part, or entirely, by the premium received.
The writing of covered put options is similar in terms of risk/return
characteristics to buy-and-write transactions. Put options could be used by
the Fund in the same market environments that call options would be used in
equivalent buy-and-write transactions.
The Fund may write combinations of put and call options on the same security,
a practice known as a "straddle." By writing a straddle, the Fund undertakes a
simultaneous obligation to sell and purchase the same security in the event
that one of the options is exercised. If the price of the security
subsequently rises sufficiently above the exercise price to cover the amount
of the premium and transaction costs, the call will likely be exercised and
the Fund will be required to sell the underlying security at a below market
price. This loss may be offset, however, in whole or in part, by the premiums
received on the writing of the two options. Conversely, if the price of the
security declines by a sufficient amount, the put will likely be exercised.
The writing of straddles will likely be effective, therefore, only where the
price of a security remains stable and neither the call nor the put is
exercised. In an instance where one of the options is exercised, the loss on
the purchase or sale of the underlying security may exceed the amount of the
premiums received.
By writing a call option, the Fund limits its opportunity to profit from any
increase in the market value of the underlying security above the exercise
price of the option. By writing a put option, the Fund assumes the risk that
it may be required to purchase the underlying security for an exercise price
above its then current market value, resulting in a capital loss unless the
security subsequently appreciates in value. The writing of options on
securities will be undertaken by the Fund for purposes in addition to hedging,
and could involve certain risks which are not present in the case of hedging
transactions. Moreover, even where options are written for hedging purposes,
such transactions will constitute only a partial hedge against declines in the
value of portfolio securities or against increases in the value of securities
to be acquired, up to the amount of the premium.
The Fund also may purchase put and call options on securities. Put options
would be purchased to hedge against a decline in the value of securities held
in the Fund's portfolio. If such a decline occurs, the put options will permit
the Fund to sell the underlying securities at the exercise price, or to close
out the options at a profit. By using put options in this way, the Fund will
reduce any profit it might otherwise have realized in the underlying security
by the amount of the premium paid for the put option and related transaction
costs. The Fund may purchase call options to hedge against an increase in the
price of securities that the Fund anticipates purchasing in the future. If
such an increase occurs, the call option will permit the Fund to purchase the
securities at the exercise price or to close out the option at a profit. The
premium paid for a call or put option plus any transaction costs will reduce
the benefit, if any, realized by the Fund upon exercise of the option, and,
unless the price of the underlying security rose or declined sufficiently, the
option may expire worthless to the Fund.
OPTIONS ON STOCK INDICES: The Fund may write (sell) covered call and put
options on stock indices and purchase call and put options on stock indices
for the purpose of increasing its gross income and to protect its portfolio
against declines in the value of securities it owns or increases in the value
of securities to be acquired.
The Fund may cover call options on stock indices by owning securities whose
price changes, in the opinion of the Adviser, are expected to be similar to
those of the index, or by having an absolute and immediate right to acquire
such securities without additional cash consideration (or for additional cash
consideration segregated by the Fund) upon conversion or exchange of other
securities in its portfolio. Nevertheless, where the Fund covers a call option
on a stock index through ownership of securities, such securities may not
match the composition of the index and, in that event, the Fund will not be
fully covered and could be subject to risk of loss in the event of adverse
changes in the value of the index. A Fund may also cover call options on stock
indices by holding a call on the same index and in the same principal amount
as the call written where the exercise price of the call held (a) is equal to
or less than the exercise price of the call written or (b) is greater than the
exercise price of the call written if liquid assets representing the
difference is segregated by the Fund. The Fund may cover put options on stock
indices by segregating liquid assets, or else by holding a put on the same
security and in the same principal amount as the put written where the
exercise price of the put held (a) is equal to or greater than the exercise
price of the put written or (b) is less than the exercise price of the put
written if liquid assets representing the difference is segregated by the
Fund. Put and call options on stock indices written by the Fund may also be
covered in such other manner as may be in accordance with the rules of the
exchange on which, or the counterparty with which, the option is traded, and
applicable laws and regulations.
The Fund will receive a premium from writing a put or call option, which
increases the Fund's gross income in the event the option expires unexercised
or is closed out at a profit. If the value of an index on which the Fund has
written a call option falls or remains the same, the Fund will realize a
profit in the form of the premium received (less transaction costs) that could
offset all or a portion of any decline in the value of the securities it owns.
If the value of the index rises, however, the Fund will realize a loss in its
call option position, which will reduce the benefit of any unrealized
appreciation in the Fund's stock investments. By writing a put option, the
Fund assumes the risk of a decline in the index. To the extent that the price
changes of securities owned by a Fund correlate with changes in the value of
the index, writing covered put options on indices will increase the Fund's
losses in the event of a market decline, although such losses will be offset
in part by the premium received for writing the option.
The purchase of call options on stock indices may be used by the Fund to
attempt to reduce the risk of missing a broad market advance, or an advance in
an industry or market segment, at a time when the Fund holds uninvested cash
or short-term debt securities awaiting investment. When purchasing call
options for this purpose, the Fund will also bear the risk of losing all or a
portion of the premium paid, and related transaction costs, if the value of
the index does not rise. The purchase of call options on stock indices when
the Fund is substantially fully invested is a form of leverage, up to the
amount of the premium and related transaction costs, and involves risks of
loss and of increased volatility similar to those involved in purchasing calls
on securities the Fund owns.
The Fund also may purchase put options on stock indices to hedge its
investments against a decline in value. By purchasing a put option on a stock
index, the Fund will seek to offset a decline in the value of securities it
owns through appreciation of the put option. If the value of the Fund's
investments does not decline as anticipated, or if the value of the option
does not increase, the Fund's loss will be limited to the premium paid for the
option, plus related transaction costs. The success of this strategy will
largely depend on the accuracy of the correlation between the changes in value
of the index and the changes in value of the Fund's security holdings.
YIELD CURVE OPTIONS: The Fund may also enter into options on the "spread," or
yield differential, between two fixed income securities, in transactions
referred to as "yield curve" options. In contrast to other types of options, a
yield curve option is based on the difference between the yields of designated
securities, rather than the prices of the individual securities, and is
settled through cash payments. Accordingly, a yield curve option is profitable
to the holder if this differential widens (in the case of a call) or narrows
(in the case of a put), regardless of whether the yields of the underlying
securities increase or decrease.
Yield curve options may be used for the same purposes as other options on
securities. Specifically, the Fund may purchase or write such options for
hedging purposes. For example, the Fund may purchase a call option on the
yield spread between two securities, if it owns one of the securities and
anticipates purchasing the other security and wants to hedge against an
adverse change in the yield spread between the two securities. The Fund may
also purchase or write yield curve options for other than hedging purposes
(i.e., in an effort to increase its current income) if, in the judgment of the
Adviser, the Fund will be able to profit from movements in the spread between
the yields of the underlying securities. The trading of yield curve options is
subject to all of the risks associated with the trading of other types of
options. In addition, however, such options present risk of loss even if the
yield of one of the underlying securities remains constant, if the spread
moves in a direction or to an extent which was not anticipated. Yield curve
options written by the Fund will be "covered." A call (or put) option is
covered if the Fund holds another call (or put) option on the spread between
the same two securities and segregates liquid assets sufficient to cover the
Fund's net liability under the two options. Therefore, the Fund's liability
for such a covered option is generally limited to the difference between the
amount of the Fund's liability under the option written by the Fund less the
value of the option held by the Fund. Yield curve options may also be covered
in such other manner as may be in accordance with the requirements of the
counterparty with which the option is traded and applicable laws and
regulations. Yield curve options are traded over-the-counter and because they
have been only recently introduced, established trading markets for these
securities have not yet developed. 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. See the
paragraph below for a discussion of the policies the Adviser intends to follow
to limit a Fund's investment in these securities.
The staff of the SEC has taken the position that purchased over-the-counter
options and assets used to cover written over-the-counter options are illiquid
and, therefore, together with other illiquid securities, cannot exceed a
certain percentage of the Fund's assets (the "SEC illiquidity ceiling").
Although the Adviser disagrees with this position, the Adviser intends to
limit the Fund's writing of over-the-counter options in accordance with the
following procedure. Except as provided below, the Fund intends to write over-
the-counter options only with primary U.S. Government securities dealers
recognized by the Federal Reserve Bank of New York. Also, the contracts which
the Fund has in place with such primary dealers will provide that the Fund has
the absolute right to repurchase an option it writes at any time at a price
which represents the fair market value, as determined in good faith through
negotiation between the parties, but which in no event will exceed a price
determined pursuant to a formula in the contract. Although the specific
formula may vary between contracts with different primary dealers, the formula
will generally be based on a multiple of the premium received by the Fund for
writing the option, plus the amount, if any, of the option's intrinsic value
(i.e., the amount that the option is in-the-money). The formula may also
include a factor to account for the difference between the price of the
security and the strike price of the option if the option is written out-of-
money. The Fund will treat all or a part of the formula price as illiquid for
purposes of the SEC illiquidity ceiling. The Fund may also write over-the-
counter options with non-primary dealers, including foreign dealers, and will
treat the assets used to cover these options as illiquid for purposes of such
SEC illiquidity ceiling.
OPTIONS ON FOREIGN CURRENCIES: The Fund may purchase and write put and call
options on foreign currencies ("Options on Foreign Currencies") for the
purpose of protecting against declines in the dollar value of foreign
portfolio securities and against increases in the dollar cost of foreign
securities to be acquired. For example, a decline in the dollar value of a
foreign currency in which portfolio securities are denominated will reduce the
dollar value of such securities, even if their value in the foreign currency
remains constant. In order to protect against such diminutions in the value of
portfolio securities, the Fund may purchase put Options on the Foreign
Currency. If the value of the currency did decline, the Fund would have the
right to sell such currency for a fixed amount in dollars and would thereby
offset, in whole or in part, the adverse effect on its portfolio which
otherwise would have resulted.
Conversely, where a rise in the dollar value of a currency in which securities
to be acquired are denominated is projected, thereby increasing the cost of
such securities, the Fund may purchase call options thereon. The purchase of
such options could offset, at least partially, the effects of the adverse
movements in exchange rates. As in the case of other types of options,
however, the benefit to the Fund deriving from purchases of Options on Foreign
Currencies would be reduced by the amount of the premium and related
transaction costs. In addition, where currency exchange rates do not move in
the direction or to the extent anticipated, the Fund could sustain losses on
transactions in Options on Foreign Currencies which would require it to forego
a portion or all of the benefits of advantageous changes in such rates.
The Fund may write Options on Foreign Currencies for the same types of hedging
purposes. For example, where the Fund anticipates a decline in the dollar
value of foreign-denominated securities due to adverse fluctuations in
exchange rates it may, instead of purchasing a put option, write a call option
on the relevant currency. If the expected decline occurred, the option would
most likely not be exercised, and the diminution in value of portfolio
securities would be offset by the amount of the premium received less related
transaction costs. As in the case of other types of options, therefore, the
writing of Options on Foreign Currencies will constitute only a partial hedge.
FUTURES CONTRACTS: The Fund may enter into contracts for the purchase or sale
for future delivery of fixed income securities or foreign currencies or
contracts based on interest rates or indices of securities of currencies
(including any index of U.S. or foreign securities) as such instruments become
available for trading ("Futures Contracts"). A Futures Contract is a bilateral
agreement providing for the purchase and sale of a specified type and amount
of a financial instrument, or foreign currency, or for the making and
acceptance of a cash settlement, at a stated time in the future for a fixed
price. By its terms, a Futures Contract provides for a specified settlement
date on which, in the case of the majority of foreign currency futures
contracts, the currency or the contract are delivered by the seller and paid
for by the purchaser, or on which, in the case of stock index futures
contracts and certain foreign currency futures contracts, the difference
between the price at which the contract was entered into and the contract's
closing value is settled between the purchaser and seller in cash. Futures
contracts differ from options in that they are bilateral agreements, with both
the purchaser and the seller equally obligated to complete the transaction.
Futures Contracts call for settlement only on the expiration date and cannot
be "exercised" at any other time during their term.
The purchase or sale of a Futures Contract differs from the purchase or sale
of a security or the purchase of an option in that no purchase price is paid
or received. Instead, an amount of liquid assets, which varies but may be as
low as 5% or less of the value of the contract, must be deposited with the
broker as "initial margin." Subsequent payments to and from the broker,
referred to as "variation margin," are made on a daily basis as the value of
the index or instrument underlying the Futures Contract fluctuates, making
positions in the Futures Contract more or less valuable -- a process known as
"marking to the market."
Purchases or sales of stock index futures contracts may be used to attempt to
protect a Fund's current or intended stock investments from broad fluctuations
in stock prices. For example, a Fund may sell stock index futures contracts in
anticipation of or during a market decline to attempt to offset the decrease
in market value of the Fund's securities portfolio that might otherwise
result. If such decline occurs, the loss in value of portfolio securities may
be offset, in whole or part, by gains on the futures position. When a Fund is
not fully invested in the securities market and anticipates a significant
market advance, it may purchase stock index futures contracts in order to gain
rapid market exposure that may, in part or entirely, offset increases in the
cost of securities that the Fund intends to purchase. As such purchases are
made, the corresponding positions in stock index futures contracts will be
closed out. In a substantial majority of these transactions, the Fund will
purchase such securities upon termination of the futures position, but under
unusual market conditions, a long futures position may be terminated without a
related purchase of securities.
As noted in the Prospectus, the Fund may purchase and sell foreign currency
futures contracts for hedging purposes, to attempt to protect its current or
intended investments from fluctuations in currency exchange rates. Such
fluctuations could reduce the dollar value of portfolio securities denominated
in foreign currencies, or increase the cost of foreign-denominated securities
to be acquired, even if the value of such securities in the currencies in
which they are denominated remains constant. A Fund may sell futures contracts
on a foreign currency, for example, where it holds securities denominated in
such currency and it anticipates a decline in the value of such currency
relative to the dollar. In the event such decline occurs, the resulting
adverse effect on the value of foreign-denominated securities may be offset,
in whole or in part, by gains on the futures contracts.
Conversely, a Fund could protect against a rise in the dollar cost of foreign-
denominated securities to be acquired by purchasing futures contracts on the
relevant currency, which could offset, in whole or in part, the increased cost
of such securities resulting from a rise in the dollar value of the underlying
currencies. Where a Fund purchases futures contracts under such circumstances,
however, and the prices of securities to be acquired instead decline, the Fund
will sustain losses on its futures position which could reduce or eliminate
the benefits of the reduced cost of portfolio securities to be acquired.
OPTIONS ON FUTURES CONTRACTS: The Fund may write or purchase options to buy or
sell Futures Contracts ("Options on Futures Contracts"), for hedging purposes
or for non-hedging purposes, to the extent permitted by applicable law. The
writing of a call Option on a Futures Contract constitutes a partial hedge
against declining prices of the securities or other instruments required to be
delivered under the terms of the Futures Contract. If the futures price at
expiration of the option is below the exercise price, the Fund will retain the
full amount of the option premium, less related transaction costs, which
provides a partial hedge against any decline that may have occurred in the
Fund's portfolio holdings. The writing of a put Option on a Futures Contract
constitutes a partial hedge against increasing prices of the securities or
other instruments required to be delivered under the terms of the Futures
Contract. If the futures price at expiration of the option is higher than the
exercise price, the Fund will retain the full amount of the option premium,
less related transaction costs, which provides a partial hedge against any
increase in the price of securities which the Fund intends to purchase. If a
put or call option the Fund has written is exercised, the Fund will incur a
loss which will be reduced by the amount of the premium it receives. Depending
on the degree of correlation between changes in the value of its portfolio
securities and changes in the value of its futures positions, the Fund's
losses from existing Options on Futures Contracts may to some extent be
reduced or increased by changes in the value of portfolio securities.
The Fund may cover the writing of call Options on Futures Contracts (a)
through purchases of the underlying Futures Contract, (b) through ownership of
the instrument, or instruments included in the index, underlying the Futures
Contract, or (c) through the holding of a call on the same Futures Contract
and in the same principal amount as the call written where the exercise price
of the call held (i) is equal to or less than the exercise price of the call
written or (ii) is greater than the exercise price of the call written if the
difference is maintained by the Fund in liquid assets in a segregated account
with its custodian. The Fund may cover the writing of put Options on Futures
Contracts (a) through sales of the underlying Futures Contract, (b) through
segregation of 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 (i) is equal to or greater
than the exercise price of the put written or (ii) is less than the exercise
price of the put written if liquid assets representing the difference is
segregated by the Fund. Put and call Options on Futures Contracts written by
the Fund may also be covered in such other manner as may be in accordance with
the rules of the exchange on which, or the counterparty with which, the option
is traded, and applicable laws and regulations. Upon the exercise of a call
Option on a Futures Contract written by the Fund, the Fund will be required to
sell the underlying Futures Contract which, if the Fund has covered its
obligation through the purchase of such Contract, will serve to liquidate its
futures position. Similarly, where a put Option on a Futures Contract written
by the Fund is exercised, the Fund will be required to purchase the underlying
Futures Contract which, if the Fund has covered its obligation through the
sale of such Contract, will close out its futures position.
The Fund may purchase Options on Futures Contracts for hedging purposes as an
alternative to purchasing or selling the underlying Futures Contracts. For
example, where a decrease in the value of portfolio securities is anticipated
as a result of a projected market-wide decline or changes in interest or
exchange rates, the Fund could, in lieu of selling Futures Contracts, purchase
put options thereon. In the event that such decrease occurs, it may be offset,
in whole or part, by a profit on the option. Conversely, where it is projected
that the value of securities to be acquired by the Fund will increase prior to
acquisition, due to a market advance or changes in interest or exchange rates,
the Fund could purchase call Options on Futures Contracts, rather than
purchasing the underlying Futures Contracts.
In order to assure that the Fund will not be deemed to be a "commodity pool" for
purposes of the Commodity Exchange Act, regulations of the Commodities Futures
Trading Commission (the "CFTC") require that the Fund enter into transactions in
Futures Contracts, 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 hedging
purposes, provided that the aggregate initial margin and premiums required to
establish on 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 the 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 at the time of purchase.
FORWARD CONTRACTS: The Fund may enter into forward foreign currency exchange
contracts for the purchase or sale of a specific currency at a future date at
a price set at the time of the contract (a "Forward Contract"). The Fund may
enter into Forward Contracts for hedging purposes as well as for non-hedging
purposes. The Fund may also enter into Forward Contracts for "cross-hedging"
as noted in the Prospectus. Transactions in Forward Contracts entered into for
hedging purposes will include forward purchases or sales of foreign currencies
for the purpose of protecting the dollar value of securities denominated in a
foreign currency or protecting the dollar equivalent of interest or dividends
to be paid on such securities. By entering into such transactions, however,
the Fund may be required to forego the benefits of advantageous changes in
exchange rates. The Fund may also enter into transactions in Forward Contracts
for other than hedging purposes which presents greater profit potential but
also involves increased risk. For example, if the Adviser believes that the
value of a particular foreign currency will increase or decrease relative to
the value of the U.S. dollar, the Fund may purchase or sell such currency,
respectively, through a Forward Contract. If the expected changes in the value
of the currency occur, the Fund will realize profits which will increase its
gross income. Where exchange rates do not move in the direction or to the
extent anticipated, however, the Fund may sustain losses which will reduce its
gross income. Such transactions, therefore, could be considered speculative.
The Fund has established procedures which require the use of segregated assets
or "cover" in connection with the purchase and sale of such contracts. In
those instances in which the Fund satisfies this requirement through
segregation of assets, it will segregate 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.
RISK FACTORS: IMPERFECT CORRELATION OF HEDGING INSTRUMENTS WITH THE FUND'S
PORTFOLIO -- The Fund's ability effectively to hedge all or a portion of its
portfolio through transactions in options, Futures Contracts, and Forward
Contracts will depend on the degree to which price movements in the underlying
index or instrument correlate with price movements in the relevant portion of
the Fund's portfolio. Because the securities in the Fund's portfolio will most
likely not be the same as those securities underlying a stock index, the
correlation between movements in the portfolio and in the securities
underlying the index will not be perfect. The trading of Futures Contracts and
options entails the additional risk of imperfect correlation between movements
in the futures or option price and the price of the underlying index or
obligation. The anticipated spread between the prices may be distorted due to
the differences in the nature of the markets, such as differences in margin
requirements, the liquidity of such markets and the participation of
speculators in such markets. In this regard, trading by speculators in options
and Futures Contracts has in the past occasionally resulted in market
distortions, which may be difficult or impossible to predict, particularly
near the expiration of such contracts. It should be noted that Futures
Contracts or options based upon a narrower index of securities, such as those
of a particular industry group, may present greater risk than options or
Futures Contracts based on a broad market index, because a narrower index is
more susceptible to rapid and extreme fluctuations as a result of changes in
the value of a small number of securities. The trading of Options on Futures
Contracts also entails the risk that changes in the value of the underlying
Futures Contracts will not be fully reflected in the value of the option.
Further, with respect to options on securities, options on stock indices and
Options on Futures Contracts, the Fund is subject to the risk of market
movements between the time that the option is exercised and the time of
performance thereunder. In writing a covered call option on a security, index
or Futures Contract, the Fund also incurs the risk that changes in the value
of the instruments used to cover the position will not correlate closely with
changes in the value of the option or underlying index or instrument.
The Fund will invest in a hedging instrument only if, in the judgment of its
Adviser, there would be expected to be a sufficient degree of correlation
between movements in the value of the instrument and movements in the value of
the relevant portion of the Fund's portfolio for such hedge to be effective.
There can be no assurance that the Adviser's judgment will be accurate.
Furthermore, the cost of using these techniques may make it economically
infeasible for the Fund to engage in such transactions.
It should also be noted that the Fund may enter into transactions in options,
futures contracts, options on futures contracts and forward contracts not only
for hedging purposes, but also for non-hedging purposes, including the purpose
of increasing its return on portfolio securities. As a result, in the event of
adverse market movements, the Fund might be subject to losses, which would not
be offset by increases in the value of portfolio securities or declines in the
cost of securities to be acquired. In addition, the method of covering an
option employed by the Fund may not fully protect it against risk of loss and,
in any event, the Fund could suffer losses on the option position which might
not be offset by corresponding portfolio gains.
With respect to the writing of straddles on securities, the Fund incurs the
risk that the price of the underlying security will not remain stable, that
one of the options written will be exercised and that the resulting loss will
not be offset by the amount of the premiums received.
POTENTIAL LACK OF A LIQUID SECONDARY MARKET -- Prior to exercise or
expiration, a futures or option position can only be terminated by entering
into a closing purchase or sale transaction. This requires a secondary market
for such instruments on the exchange on which the initial transaction was
entered into. While the Fund will enter into options or futures positions only
if there appears to be a liquid secondary market therefor, there can be no
assurance that such a market will exist for any particular contracts at any
specific time. In that event, it may not be possible to close out a position
held by the Fund, and the Fund could be required to purchase or sell the
instrument underlying an option, make or receive a cash settlement or meet
ongoing variation margin requirements. Under such circumstances, if the Fund
had insufficient cash available to meet margin requirements, it might be
necessary to liquidate portfolio securities at a time when it would be
disadvantageous to do so. The inability to close out options and futures
positions, therefore, could have an adverse impact on the Fund's ability
effectively to hedge its portfolios, and could result in trading losses. The
liquidity of a secondary market in a Futures Contract or options thereon may
also be adversely affected by "daily price fluctuation limits," established by
exchanges, which limit the amount of fluctuation in the price of a contract
during a single trading day. The trading of Futures Contracts and options is
also subject to the risk of trading halts, suspensions, exchange or clearing
house equipment failures, government intervention, insolvency of a brokerage
firm or clearing house or other disruptions of normal trading activity, which
could at times make it difficult or impossible to liquidate existing positions
or to recover excess variation margin payments.
MARGIN -- Because of low initial margin deposits made upon the opening of a
futures position and the writing of an option, such transactions involve
substantial leverage. As a result, relatively small movements in the price of
the contract can result in substantial unrealized gains or losses. Because the
Fund would engage in the purchase or sale of Futures Contracts and the writing
of Options on Futures Contracts solely for hedging purposes, however, and
would purchase and write options on securities and stock indices in part for
hedging purposes, any losses incurred in connection therewith should, if the
hedging strategy is successful, be offset, in whole or in part, by increases
in the value of securities held by the Fund or decreases in the prices of
securities the Fund intends to acquire. Where the Fund writes options on
securities or options on stock indices for other than hedging purposes, the
margin requirements associated with such transactions could expose the Fund to
greater risk.
TRADING AND POSITION LIMITS -- The exchanges on which Futures Contracts and
options are traded may impose limitations governing the maximum number of
positions on the same side of the market and involving the same underlying
instrument which may be held by a single investor, whether acting alone or in
concert with others (regardless of whether such contracts are held on the same
or different exchanges or held or written in one or more accounts or through
one or more brokers). In addition, the CFTC and the various contract markets
have established limits referred to as "speculative position limits" on the
maximum net long or net short position which any person may hold or control in
a particular futures or option contract. An exchange may order the liquidation
of positions found to be in violation of these limits and it may impose other
sanctions or restrictions. The Adviser does not believe that these trading and
position limits will have any adverse impact on the strategies for hedging the
portfolio of the Fund.
RISK OF OPTIONS ON FUTURES CONTRACTS -- The amount of risk the Fund assumes
when it purchases an Option on a Futures Contract is the premium paid for the
option, plus related transaction costs. In order to profit from an option
purchased, however, it may be necessary to exercise the option and to
liquidate the underlying Futures Contract, subject to the risks of the
availability of a liquid offset market described herein. The writer of an
Option on a Futures Contract is subject to the risks of commodity futures
trading, including the requirement of initial and variation margin payments,
as well as the additional risk that movements in the price of the option may
not correlate with movements in the price of the underlying index or Futures
Contract.
ADDITIONAL RISKS OF TRANSACTIONS NOT CONDUCTED ON EXCHANGES -- Transactions in
Forward Contracts are subject to all of the correlation, liquidity and other
risks outlined above. In addition, however, such transactions are subject to
the risk of governmental actions affecting trading in or the prices of
currencies underlying such contracts, which could restrict or eliminate
trading and could have a substantial adverse effect on the value of positions
held by the Fund. In addition, the value of such positions could be adversely
affected by a number of other complex political and economic factors
applicable to the countries issuing the underlying currencies. Further, unlike
trading in most other types of instruments, there is no systematic reporting
of last sale information with respect to the foreign currencies underlying
contracts thereon. As a result, the available information on which trading
systems will be based may not be as complete as the comparable data on which
the Fund makes investment and trading decisions in connection with other
transactions. Moreover, because the foreign currency market is a global, 24-
hour market, events could occur on that market which would not be reflected in
the forward markets until the following day, thereby preventing the Fund from
responding to such events in a timely manner. Settlements of exercises of
Forward Contracts generally must occur within the country issuing the
underlying currency, which in turn requires traders to accept or make delivery
of such currencies in conformity with any United States or foreign
restrictions and regulations regarding the maintenance of foreign banking
relationships, fees, taxes or other charges.
Forward Contracts, and over-the-counter options on securities, are not traded
on exchanges regulated by the CFTC or the SEC, but through financial
institutions acting as market-makers. In an over-the-counter trading
environment, many of the protections afforded to exchange participants will
not be available. In addition, over-the-counter transactions can only be
entered into with a financial institution willing to take the opposite side,
as principal, of the Fund's position unless the institution acts as broker and
is able to find another counterparty willing to enter into the transaction
with the Fund. Where no such counterparty is available, it will not be
possible to enter into a desired transaction. There also may be no liquid
secondary market in the trading of over-the-counter contracts, and the Fund
could be required to retain options purchased or written, or Forward Contracts
entered into, until exercise, expiration or maturity. This in turn could limit
the Fund's ability to profit from open positions or to reduce losses
experienced, and could result in greater losses. Further, over-the-counter
transactions are not subject to the performance guarantee of an exchange
clearing house, and the Fund will therefore be subject to the risk of default
by, or the bankruptcy of, the financial institution serving as its
counterparty.
While Forward Contracts are not presently subject to regulation by the CFTC,
the CFTC may in the future assert or be granted authority to regulate such
instruments. In such event, the Fund's ability to utilize Forward Contracts in
the manner set forth above could be restricted.
INVESTMENT RESTRICTIONS. The Fund has adopted the following restrictions which
cannot be changed without the approval of the holders of a majority of the
Fund's shares (which, as used in this SAI, means the lesser of (i) more than
50% of the outstanding shares of the Trust (or a class or series, as
applicable), or (ii) 67% or more of the outstanding shares of the Trust (or a
class or series, as applicable) present at a meeting if holders of more than
50% of the outstanding shares of the Trust (or a class or series, as
applicable) are represented at such meeting in person or by proxy):
The Fund may not:
(1) Borrow amounts in excess of 5% of its gross assets (taken at the lower
of cost or market value), and then only as a temporary measure for
extraordinary or emergency purposes;
(2) Pledge, mortgage or hypothecate an amount of assets which (taken at
market value) exceeds 33 1/3% of its gross assets taken at the lower of cost
or market value. For the purpose of this restriction, collateral
arrangements with respect to options on securities, stock indices and
foreign currencies ("Options"), Futures Contracts, Options on Futures
Contracts, Forward Contracts, and payments of initial and variation margin
in connection therewith are not considered a pledge of assets;
(3) Underwrite securities issued by other persons except insofar as the
Fund may technically be deemed an underwriter under the Securities Act of
1933 in selling a portfolio security;
(4) Concentrate its investments in any particular industry, but if it is
deemed appropriate for the attainment of its investment objectives, up to
25% of its assets, at market value at the time of each investment, may be
invested in any one industry;
(5) Purchase or sell real estate (including limited partnership interests
but excluding securities of companies, such as real estate investment
trusts, which deal in real estate or interests therein) or mineral leases,
commodities or commodity contracts (except for Options, Futures Contracts,
Options on Futures Contracts and Forward Contracts) in the ordinary course
of its business. The Fund reserves the freedom of action to hold and to sell
real estate or mineral leases, commodities or commodity contracts acquired
as a result of the ownership of securities. The Fund will not purchase
securities for the purpose of acquiring real estate or mineral leases,
commodities or commodity contracts (except for Options, Futures Contracts,
Options on Futures Contracts and Forward Contracts);
(6) Make loans to other persons except through the lending of its
portfolio securities and by entering into repurchase agreements (see the
discussion above under the caption "Investment Policies"). Not more than 10%
of the Fund's total assets will be invested in repurchase agreements
maturing in more than seven days. The Fund may purchase a portion of an
issue of debt securities of types commonly distributed privately to
financial institutions. For these purposes the purchase of short-term
commercial paper or a portion of an issue of debt securities which are part
of an issue to the public shall not be considered the making of a loan;
(7) Purchase the securities of any issuer if such purchase, at the time
thereof, would cause more than 5% of its total assets (taken at market
value) to be invested in the securities of such issuer, other than U.S.
Government securities;
(8) Purchase voting securities of any issuer if such purchase, at the time
thereof, would cause more than 10% of the outstanding voting securities of
such issuer to be held by the Fund; or purchase securities of any issuer if
such purchase at the time thereof would cause the Fund to hold more than 10%
of any class of securities of such issuer. For this purpose all indebtedness
of an issuer shall be deemed a single class and all preferred stock of an
issuer shall be deemed a single class;
(9) Invest for the purpose of exercising control or management;
(10) Purchase securities issued by any other investment company or
investment trust except by purchase in the open market where no commission
or profit to a sponsor or dealer results from such purchase other than the
customary broker's commission, or except when such purchase, though not made
in the open market, is part of a plan of merger or consolidation, provided,
however, that the Fund shall not purchase the securities of any investment
company or investment trust if such purchase at the time thereof would cause
more than 10% of the Fund's total assets (taken at market value) to be
invested in the securities of such issuer, and provided, further, that the
Fund shall not purchase securities issued by any open-end investment
company;
(11) Invest more than 5% of its assets in companies which, including
predecessors, have a record of less than three years" continuous operation;
(12) Purchase or retain in its portfolio any securities issued by an
issuer any of whose officers, directors, trustees or security holders is an
officer or Trustee of the Trust, or is an officer or director of the
Adviser, if after the purchase of the securities of such issuer by the Fund
one or more of such persons owns beneficially more than 1/2 of 1% of the
shares or securities, or both, all taken at market value, of such issuer,
and such persons owning more than 1/2 of 1% of such shares or securities
together own beneficially more than 5% of such shares or securities, or
both, all taken at market value;
(13) Purchase any securities on margin except that the Fund may obtain
such short-term credit as may be necessary for the clearance of purchases
and sales of securities and except that the Fund may make margin deposits in
connection with Options, Futures Contracts, Options on Futures Contracts and
Forward Contracts;
(14) Sell any security which the Fund does not own unless by virtue of its
ownership of other securities the Fund has at the time of sale a right to
obtain securities without payment of further consideration equivalent in
kind and amount to the securities sold and provided that if such right is
conditional the sale is made upon the same conditions; or
(15) Purchase or sell any put or call options or any combination thereof,
provided, that this shall not prevent the purchase, ownership, holding or
sale of warrants where the grantor of the warrants is the issuer of the
underlying securities or the writing, purchasing and selling of puts, calls
or combinations thereof with respect to securities, foreign currencies,
indices of securities and Futures Contracts.
As a matter of non-fundamental policy, the Fund may not invest in securities
(other than repurchase agreements maturing in seven days or less) which are
subject to legal or contractual restrictions on resale or for which there is
no readily available market (unless the Board of Trustees has determined that
such securities are liquid based upon trading markets for the specific
security) if more than 15% of the Fund's assets (taken at market value) would
be invested in such securities. The Fund also may not invest more than 5% of
the value of the Fund's net assets, valued at the lower of cost or market, in
warrants. Included within such amount, but not to exceed 2% of the value of
the Fund's net assets, may be warrants which are not listed on the New York or
American Stock Exchange. Warrants acquired by the Fund in units or attached to
Securities may be deemed to be without value. The Fund also may not invest 25%
or more of the market value of its total assets in any one industry.
Except for Investment Restriction (1) and the Fund's non-fundamental
investment policy regarding illiquid investments set forth above, these
investment restrictions are adhered to at the time of purchase or utilization
of assets; a subsequent change in circumstances will not be considered to
result in a violation of policy.
3. MANAGEMENT OF THE FUND
The Board of Trustees provides broad supervision over the affairs of the Fund.
The Adviser is responsible for the management of the Fund's assets, and the
officers of the Trust are responsible for the Fund's operations. The Trust's
officers and Trustees are listed below, together with their principal
occupations during the past five years. (Their titles may have varied during
that period.)
TRUSTEES
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, Trustee 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, Soldier's Field Road, Cambridge,
Massachusetts
CHARLES W. SCHMIDT (born 3/18/28)
Private investor; International Technology Corp., Director; Mohawk Paper
Company, Director
Address: 30 Colpitts Road, Weston, Massachusetts
ARNOLD D. SCOTT* (born 12/16/42)
Massachusetts Financial Services Company, Senior Executive Vice President and
Secretary
JEFFREY L. SHAMES* Chairman (born 6/2/55)
Massachusetts Financial Services Company, Chairman and Chief Executive Officer
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: Ten 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 Investment Company Act of 1940, as
amended (the "1940 Act")) of the Adviser whose address is 500 Boylston
Street, Boston, Massachusetts 02116.
Each Trustee and officer holds comparable positions with certain MFS
affiliates or with certain other funds of which MFS or a subsidiary of MFS is
the investment adviser or distributor. Mr. Brodkin, the Chairman of MFD,
Messrs. Shames and Scott, Directors of MFD, and Mr. Cavan, the Secretary of
MFD, hold similar positions with certain other MFS affiliates. Mr. Bailey is a
Director of Sun Life Assurance Company of Canada (U.S.), a subsidiary of Sun
Life Assurance Company of Canada ("Sun Life").
The Fund pays the compensation of non-interested Trustees and Mr. Bailey who
currently receive a fee of $7,500 per year plus $350 per meeting and $325 per
committee meeting attended, together with such Trustee's out-of-pocket
expenses. The Trust has adopted a retirement plan for non-interested Trustees
and Mr. Bailey. Under the plan, a Trustee will retire upon reaching age 73 and
if the Trustee has completed at least five years of service, he would be
entitled to annual payments during his lifetime of up to 50% of such Trustee's
average annual compensation (based on the three years prior to his retirement)
depending on his length of service. A Trustee may also retire prior to age 73
and receive reduced payments if he has completed at least five years of
service. Under the plan, a Trustee (or his beneficiaries) will also receive
benefits for a period of time in the event the Trustee is disabled or dies.
These benefits will also be based on the Trustee's average annual compensation
and length of service. There is no retirement plan provided by the Trust for
Messrs. Scott and Shames. The Fund will accrue its allocable share of
compensation expenses each year to cover current year's service and amortize
past service cost.
Set forth below is certain information concerning the cash compensation paid
to the Trustees and benefits accrued, and estimated benefits payable, under
the retirement plan.
TRUSTEE COMPENSATION TABLE
RETIREMENT
BENEFIT ESTIMATED TOTAL TRUSTEE
TRUSTEE ACCRUED AS CREDITED FEES FROM
FEES FROM PART OF FUND YEARS OF FUND AND FUND
TRUSTEE FUND(1) EXPENSE(1) SERVICE(2) COMPLEX(3)
- ------------------------------------------------------------------------------
Richard B. Bailey $12,250 $2,431 8 $242,022
Peter G. Harwood 14,575 1,790 5 121,105
J. Atwood Ives 13,250 2,527 17 108,720
Lawrence T. Perera 12,525 4,139 26 127,055
William J. Poorvu 13,525 4,432 25 121,105
Charles W. Schmidt 12,475 4,326 20 121,105
Arnold D. Scott --0-- --0-- N/A --0--
Jeffrey L. Shames --0-- --0-- N/A --0--
Elaine R. Smith 14,550 2,596 27 132,035
David B. Stone 15,425 4,549 14 127,055
(1) For fiscal year ended September 30, 1998.
(2) Based on normal retirement age of 73. See the table below for the
estimated annual benefits payable upon retirement by the Fund to a Trustee
based on his or her estimated years of service.
(3) For calendar year 1998. All Trustees receiving compensation served as
Trustees of 27 funds within the MFS fund complex (having aggregate net
assets at December 31, 1998, of approximately $29 billion) except Mr.
Bailey, who served as Trustee of 69 funds within the MFS fund complex
(having aggregate net assets at December 31, 1998, of approximately $48
billion).
ESTIMATED ANNUAL BENEFITS
PAYABLE BY FUND UPON RETIREMENT(4)
YEARS OF SERVICE
---------------------------------------------------------
AVERAGE TRUSTEE FEES 3 5 7 10 OR MORE
- --------------------------------------------------------------------------------
$11,025 $1,654 $2,756 $3,859 $5,513
12,214 1,832 3,053 4,275 6,107
13,402 2,010 3,351 4,691 6,701
14,591 2,189 3,648 5,107 7,295
15,779 2,367 3,945 5,523 7,890
16,968 2,545 4,242 5,939 8,484
(4) Other funds in the MFS fund complex provide similar retirement benefits to
the Trustees.
As of October 30, 1998, all Trustees and officers as a group owned less than
1% of the Fund's shares outstanding. As of October 30, 1998, Merrill Lynch,
Pierce, Fenner & Smith Inc., 4800 Deer Lake Drive East, Jacksonville, FL
32246-6484 was the record owner of approximately 6.49% of the outstanding
Class C shares of the Fund. As of October 30, 1998, MFS Defined Contribution
Plan, c/o Mark Leary, Massachusetts Financial Services, 500 Boylston Street,
Boston, MA 02116-3740, and MFS 401(k) Plan, c/o Mark Leary, 500 Boylston
Street, Boston, MA 02116-3740 owned 83.62% and 16.38%, respectively, of the
outstanding Class I shares of the Fund.
The Declaration of Trust provides that the Trust will indemnify the Trustees
and officers against liabilities and expenses incurred in connection with
litigation in which they may be involved because of their offices with the
Trust, unless, as to liabilities to the Trust or its shareholders, it is
finally adjudicated that they engaged in willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in their offices, or
with respect to any matter unless it is adjudicated that they did not act in
good faith in the reasonable belief that their actions were in the best
interest of the Trust. In the case of a settlement, such indemnification will
not be provided unless it has been determined pursuant to the Declaration of
Trust, that such officers or Trustees have not engaged in willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in
their offices.
INVESTMENT ADVISER
MFS and its predecessor organizations have a history of money management
dating from 1924. MFS is a subsidiary of Sun Life of Canada (U.S.) Financial
Services Holdings, Inc., which in turn is an indirect subsidiary of Sun Life.
The Adviser manages the Fund pursuant to an Investment Advisory Agreement,
dated January 18, 1985 (the "Advisory Agreement"). Under the Advisory
Agreement, the Adviser provides the Fund with overall investment advisory
services. Subject to such policies as the Trustees may determine, the Adviser
makes investment decisions for the Fund. For these services and facilities,
the Adviser receives a management fee, computed and paid monthly, on the basis
of a formula based upon a percentage of the Fund's average daily net assets
plus a percentage of its gross income (i.e., income other than gains from the
sale of securities). The applicable percentages are reduced as assets and
income reach the following levels:
ANNUAL RATE OF MANAGEMENT FEE ANNUAL RATE OF MANAGEMENT FEE
BASED ON AVERAGE DAILY NET ASSETS BASED ON GROSS INCOME
- -------------------------------------- --------------------------------
..250% of the first $200 million 3.57% of the first $14 million
..212% of average daily net assets in 3.04% of gross income in excess of
excess of $200 million $14 million
For the Fund's fiscal year ended September 30, 1998, MFS received management
fees under the Advisory Agreement of $19,252,268 (of which $11,957,988 was
based on average daily net assets and $7,294,280 on gross income), equivalent
on an annualized basis, to 0.34% of the Fund's average daily net assets. For
the Fund's fiscal year ended September 30, 1997, MFS received management fees
under the Advisory Agreement of $16,190,722 (of which $9,620,517 was based on
average daily net assets and $6,570,205 on gross income), equivalent, on an
annualized basis, to 0.36% of the Fund's average daily net assets. For the
Fund's fiscal year ended September 30, 1996, MFS received management fees
under the Advisory Agreement of $13,607,772 (of which $7,760,009 was based on
average daily net assets and $5,847,763 on gross income), equivalent on an
annualized basis, to 0.38% of the Fund's average daily net assets.
The Fund pays all of the Fund's expenses (other than those assumed by MFS or
MFD), including: advisory and administrative services; governmental fees;
interest charges; taxes; membership dues in the Investment Company Institute
allocable to the Fund; fees and expenses of independent auditors, of legal
counsel, and of any transfer agent, registrar or dividend disbursing agent of
the Fund; expenses of repurchasing and redeeming shares; expenses of
preparing, printing and mailing share certificates, shareholder reports,
notices, proxy statements and reports to governmental officers and
commissions; brokerage and other expenses connected with the execution,
recording and settlement of portfolio security transactions; insurance
premiums; fees and expenses of State Street Bank and Trust Company, the Fund's
custodian, for all services to the Fund, including safekeeping of funds and
securities and maintaining required books and accounts; expenses of
calculating the net asset value of shares of the Fund; and expenses of
shareholder meetings. Expenses relating to the issuance, registration and
qualification of shares of the Fund and the preparation, printing and mailing
of prospectuses for such purposes are borne by the Fund except that its
Distribution Agreement with MFD, the Fund's Distributor, requires MFD to pay
for prospectuses that are to be used for sales purposes. Expenses of the Trust
which are not attributable to a specific series are allocated among the series
in a manner believed by management of the Trust to be fair and equitable. For
a list of the Fund's expenses, including the compensation paid to the Trustees
who are not officers of MFS during the fiscal year ended September 30, 1998,
see "Financial Statements -- Statement of Operations" in the Annual Report to
shareholders. Payment by the Fund of brokerage commissions for brokerage and
research services of value to the Adviser in serving its clients is discussed
under the caption "Portfolio Transactions and Brokerage Commissions."
MFS pays the compensation of the Trust's officers and of any Trustee who is an
officer of MFS. The Adviser also furnishes at its own expense all necessary
administrative services, including office space, equipment, clerical
personnel, investment advisory facilities, and all executive and supervisory
personnel necessary for managing the Fund's investments, effecting its
portfolio transactions.
The Advisory Agreement will remain in effect until August 1, 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 outstanding voting securities (as defined under "Investment
Restrictions") and, in either case, by a majority of the Trustees who are not
parties to the Advisory Agreement or interested persons of any such party. The
Advisory Agreement terminates automatically if it is assigned and may be
terminated without penalty by vote of a majority of the Fund's shares (as
defined in "Investment Restrictions") or by either party on not more than 60
days" nor less than 30 days" written notice. MFS may render services to others
and neither the Adviser nor its personnel shall be liable for any error of
judgment or mistake of law or for any loss arising out of any investment or
for any act or omission in the execution and management of the Fund, except
for willful misfeasance, bad faith or gross negligence in the performance of
its or their duties or by reason of reckless disregard of its or their
obligations and duties under the Advisory Agreement.
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 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. For the March 1, 1997 through
the period ended September 30, 1997, MFS received $220,890 and for the year
ended September 30, 1998, MFS received $350,854 under the Agreement.
CUSTODIAN
State Street Bank and Trust Company (the "Custodian") is the custodian of the
Fund's assets. The Custodian's responsibilities include safekeeping and
controlling the Fund's cash and securities, handling the receipt and delivery
of securities, determining income and collecting interest and dividends on the
Fund's investments, maintaining books of original entry for portfolio and fund
accounting and other required books and accounts, and calculating the daily
net asset value of shares of each class of the Fund. The Custodian does not
determine the investment policies of the Fund or decide which securities the
Fund will buy or sell. The Fund may, however, invest in securities of the
Custodian and may deal with the Custodian as principal in securities
transactions. The Custodian also acts as the dividend disbursing agent of the
Fund.
SHAREHOLDER SERVICING AGENT
MFS Service Center, Inc. (the "Shareholder Servicing Agent"), a wholly owned
subsidiary of MFS, is the Fund's shareholder servicing agent, pursuant to a
Shareholder Servicing Agreement, effective August 1, 1985, 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 keeping records in connection with the
issuance, transfer and redemption of each class of shares of the Fund. For
these services, the Shareholder Servicing Agent will receive a fee calculated
as a percentage of the average daily net assets of the Fund at an effective
annual rate of 0.1125%. In addition, the Shareholder Servicing Agent will be
reimbursed by the Fund for certain expenses incurred by the Shareholder
Servicing Agent on behalf of the Fund. State Street Bank and Trust Company,
the dividend and distribution disbursing agent, has contracted with the
Shareholder Servicing Agent to administer and perform certain dividend
disbursing agent functions for the Fund.
DISTRIBUTOR
MFD, a wholly owned subsidiary of MFS, serves as distributor for the
continuous offering of shares of the Fund pursuant to a Distribution
Agreement, dated as of January 1, 1995 (the "Distribution Agreement"). Prior
to January 1, 1995, MFS Financial Services, Inc. ("FSI"), another wholly owned
subsidiary of MFS, was the Fund's distributor. Where this SAI refers to MFD in
relation to the receipt or payment of money with respect to a period or
periods prior to January 1, 1995, such reference shall be deemed to include
FSI, as the predecessor in interest to MFD.
CLASS A SHARES: MFD acts as agent in selling Class A shares of the Fund to
dealers. The public offering price of Class A shares of the Fund is their net
asset value next computed after the sale plus a sales charge which varies
based upon the quantity purchased. The public offering price of a Class A
share of the Fund is calculated by dividing net asset value of a Class A share
by the difference (expressed as a decimal) between 100% and the sales charge
percentage of offering price applicable to the purchase (see "Purchases" in
the Prospectus). The sales charge scale set forth in the Prospectus applies to
purchases of Class A shares of the Fund alone or in combination with shares of
all classes of certain other funds in the MFS Family of Funds (the "MFS
Funds") and other funds (as noted under Right of Accumulation) by any person,
including members of a family unit (e.g., husband, wife and minor children)
and bona fide trustees, and also applies to purchases made under the Right of
Accumulation or a Letter of Intent (see "Investment and Withdrawal Programs"
in this SAI). A group might qualify to obtain quantity sales charge discounts
(see "Investment and Withdrawal Programs").
Class A shares of the Fund may be sold at their net asset value to certain
persons or in certain circumstances as described in the Prospectus. Such sales
are made without a sales charge to promote good will with employees and others
with whom MFS, MFD and/or the Fund have business relationships, and because
the sales effort, if any, involved in making such sales is negligible.
MFD allows discounts to dealers (which are alike for all dealers) from the
applicable public offering price of the Class A shares. Dealer allowances
expressed as a percentage of offering price for all offering prices are set
forth in the Prospectus (see "Purchases" in the Prospectus). The difference
between the total amount invested and the sum of (a) the net proceeds to the
Fund and (b) the dealer commission is the commission paid to the distributor.
Because of rounding in the computation of offering price, the portion of the
sales charge paid to the distributor may vary and the total sales charge may
be more or less than the sales charge calculated using the sales charge
expressed as a percentage of the offering price or as a percentage of the net
amount invested as listed in the Prospectus. In the case of the maximum sales
charge, the dealer retains 4% and MFD retains approximately 3/4 of 1% of the
public offering price. In addition, MFD, on behalf of the Fund, will pay a
commission to dealers who initiate and are responsible for purchases of $1
million or more as described in the Prospectus.
CLASS B, CLASS C AND CLASS I SHARES: MFD acts as agent in selling Class B,
Class C and Class I shares of the Fund to dealers. The public offering price
of Class B, Class C and Class I shares is their net asset value next computed
after the sale (see "Purchases" in the Prospectus and the Prospectus
Supplement pursuant to which Class I shares are offered).
GENERAL: Neither MFD nor dealers are permitted to delay the placement of
orders to benefit themselves by a price change. On occasion, MFD may obtain
brokers loans from various banks, including the Custodian for the MFS Funds,
to facilitate the settlement of sales of shares of the Fund to dealers. MFD
may benefit from its temporary holding of funds paid to it by investment
dealers for the purchase of Fund shares.
During the Fund's fiscal year ended September 30, 1998, MFD and dealers and
certain other financial institutions received net commissions of $1,401,379
and $6,753,729, respectively (as their concession on gross commissions of
$8,155,108), for selling Class A shares of the Fund. The Fund received
$238,532,577 representing the aggregate net asset value of such shares. During
the Fund's fiscal year ended September 30, 1997, MFD and dealers and certain
other financial institutions received net commissions of $1,022,760 and
$5,856,862, respectively (as their concession on gross commissions of
$6,879,622), for selling Class A shares of the Fund. The Fund received
$454,614,566 representing the aggregate net asset value of such shares. During
the Fund's fiscal year ended September 30, 1996, MFD and dealers and certain
other financial institutions received net commissions of $1,144,503 and
$6,409,441, respectively (as their concession on gross commissions of
$7,553,944), for selling Class A shares of the Fund. The Fund received
$427,829,505 representing the aggregate net asset value of such shares.
For the Fund's fiscal years ended September 30, 1998, 1997 and 1996, the
Contingent Deferred Sales Charge ("CDSC") imposed on redemption of Class A
shares was $39,263, $58,236 and $13,595, respectively. For the Fund's fiscal
years ended September 30, 1998, 1997 and 1996, the CDSC imposed on redemption
of Class B shares was $2,278,545, $1,791,715 and $1,500,543, respectively.
During the Fund's fiscal years ended September 30, 1998, 1997 and 1996, the
CDSC imposed on redemption of Class C shares was $71,068, $35,597 and $3,178,
respectively.
The Distribution Agreement will remain in effect until August 1, 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 Trust's shares (as defined in "Investment Restrictions") and, in either
case, by a majority of the Trustees who are not parties to the Distribution
Agreement or interested persons of any such party. The Distribution Agreement
terminates automatically if it is assigned and may be terminated without
penalty by either party on not more than 60 days' nor less than 30 days'
notice.
4. PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
Specific decisions to purchase or sell securities for the Fund are made by a
portfolio committee consisting of persons who are employees of the Adviser and
who are appointed and supervised by its senior officers. Changes in the Fund's
investments are reviewed by the Board of Trustees. Members of the Fund's
portfolio committee may serve other clients of the Adviser or any subsidiary
of the Adviser in similar capacities.
The primary consideration in placing portfolio security transactions with
broker-dealers for execution is to obtain and maintain the availability of
execution at the most favorable prices and in the most effective manner
possible. The Adviser attempts to achieve this result by selecting broker-
dealers to execute portfolio transactions on behalf of the Fund and other
clients of the Adviser on the basis of their professional capability, the
value and quality of their brokerage services, and the general level of their
brokerage commissions. In the case of securities traded in the over-the-
counter market (where no stated commissions are paid but the prices include a
dealer's markup or markdown), the Adviser normally seeks to deal directly with
the primary market-makers, unless, in its opinion, best execution is available
elsewhere. In the case of securities purchased from underwriters, the cost of
such securities generally includes a fixed underwriting commission or
concession. From time to time, soliciting dealer fees are available to the
Adviser on the tender of the Fund's portfolio securities in so-called tender
or exchange offers. Such soliciting dealer fees are in effect recaptured for
the Fund by the Adviser. At present no other recapture arrangements are in
effect.
Consistent with the foregoing primary consideration, the Conduct Rules of the
National Association of Securities Dealers, Inc. (the "NASD") and such other
policies as the Trustees may determine, the Adviser may consider sales of
shares of the Fund and of other investment company clients of MFD as a factor
in the selection of broker-dealers to execute the Fund's portfolio
transactions.
Under the Advisory Agreement and as permitted by Section 28(e) of the
Securities Exchange Act of 1934, the Adviser may cause the Fund to pay a
broker-dealer which provides brokerage and research services to the Adviser an
amount of commission for effecting a securities transaction for the Fund in
excess of the amount other broker-dealers would have charged for the
transaction if the Adviser determines in good faith that the greater
commission is reasonable in relation to the value of the brokerage and
research services provided by the executing broker-dealer viewed in terms of
either a particular transaction or the Adviser's overall responsibilities to
the Fund or to its other clients. Not all of such services are useful or of
value in advising the Fund.
The term "brokerage and research services" includes: advice as to the value of
securities, the advisability of investing in, purchasing, or selling
securities, and the availability of securities or of purchasers or sellers of
securities; furnishing analyses and reports concerning issues, industries,
securities, economic factors and trends, portfolio strategy and the
performance of accounts; and effecting securities transactions and performing
functions incidental thereto such as clearance and settlement.
Although commissions paid on every transaction will, in the judgment of the
Adviser, be reasonable in relation to the value of the brokerage services
provided, commissions exceeding those which another broker might charge may be
paid to broker-dealers who were selected to execute transactions on behalf of
the Fund and the Adviser's other clients in part for providing advice as to
the availability of securities or of purchasers or sellers of securities and
services in effecting securities transactions and performing functions
incidental thereto such as clearance and settlement.
Broker-dealers may be willing to furnish statistical, research and other
factual information or services ("Research") to the Adviser for no
consideration other than brokerage or underwriting commissions. Securities may
be bought or sold from time to time through such broker-dealers on behalf of
the Fund. The Trust's Trustees (together with the Trustees of the other MFS
Funds) have directed the Adviser to allocate a total of $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 the
Fund and the Adviser).
The Adviser's investment management personnel attempt to evaluate the quality
of Research provided by brokers. The Adviser sometimes uses evaluations
resulting from this effort as a consideration in the selection of brokers to
execute portfolio transactions. However, the Adviser is unable to quantify the
amount of commissions set forth below which were paid as a result of such
Research because a substantial number of transactions were effected through
brokers which provide Research but which were selected principally because of
their execution capabilities.
The management fee that the Fund pays to the Adviser will not be reduced as a
consequence of the Adviser's receipt of brokerage and research services. To
the extent the Fund's portfolio transactions are used to obtain such services,
the brokerage commissions paid by the Fund will exceed those that might
otherwise be paid by an amount which cannot be presently determined. Such
services would be useful and of value to the Adviser in serving both the Fund
and other clients and, conversely, such services obtained by the placement of
brokerage business of other clients would be useful to the Adviser in carrying
out its obligations to the Fund. While such services are not expected to
reduce the expenses of the Adviser, the Adviser would, through use of the
services, avoid the additional expenses which would be incurred if it should
attempt to develop comparable information through its own staff.
For the Fund's fiscal years ended September 30, 1996, 1997 and 1998, total
brokerage commissions of $3,740,816, $4,286,823 and $ on total
transactions of $2,942,323,293, $3,605,738,508 and $ , respectively,
were paid. Not all of the Fund's transactions are equity security transactions
which involve the payment of brokerage commissions. During the Fund's fiscal
year ended September 30, 1998, the Fund owned securities issued by
which securities had a value of
$ at the end of such fiscal year, by which
securities had a value of $ at the end of such fiscal year, by
which securities had a value of $ at the end of such
fiscal year, by which securities had a value of
$ at the end of such fiscal year, by which securities
had a value of $ at the end of such fiscal year, and by
which securities had a value of $ at the end of such fiscal year.
Each of these entities are regular broker dealers of the Fund.
In certain instances there may be securities which are suitable for the Fund's
portfolio as well as for that of one or more of the other clients of the
Adviser or any subsidiary of the Adviser. Investment decisions for the Fund
and for such other clients are made with a view to achieving their respective
investment objectives. It may develop that a particular security is bought or
sold for only one client even though it might be held by, or bought or sold
for, other clients. Likewise, a particular security may be bought for one or
more clients when one or more other clients are selling that same security.
Some simultaneous transactions are inevitable when several clients receive
investment advice from the same investment adviser, particularly when the same
security is suitable for the investment objectives of more than one client.
When two or more clients are simultaneously engaged in the purchase or sale of
the same security, the securities are allocated among clients in a manner
believed 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 the Fund is concerned. In other cases, however, the
Fund believes that its ability to participate in volume transactions will
produce better executions for the Fund.
5. SHAREHOLDER SERVICES
INVESTMENT AND WITHDRAWAL PROGRAMS -- The Fund makes available the following
programs designed to enable shareholders to add to their investment or
withdraw from it with a minimum of paper work. These are described below and,
in certain cases, in the Prospectus. The programs involve no extra charge to
shareholders (other than a sales charge in the case of certain Class A share
purchases) and may be changed or discontinued at any time by a shareholder or
the Fund.
LETTER OF INTENT: If a shareholder (other than a group purchaser described
below) anticipates purchasing $100,000 or more of Class A shares of the Fund
alone or in combination with shares of Class B or Class C of the Fund or any
of the Classes of other MFS Funds, or MFS Fixed Fund (a bank collective trust)
within a 13-month period (or 36-month period in the case of purchases of $1
million or more), the shareholder may obtain Class A shares of the Fund at the
same reduced sales charge as though the total quantity were invested in one
lump sum by completing the Letter of Intent section of the Fund's Account
Application or filing a seperate Letter of Intent application (available from
the Shareholder Servicing Agent) within 90 days of the commencement of
purchases. Subject to acceptance by MFD and the conditions mentioned below,
each purchase will be made at a public offering price applicable to a single
transaction of the dollar amount specified in the Letter of Intent
application. The shareholder or his dealer must inform MFD that the Letter of
Intent is in effect each time shares are purchased. The shareholder makes no
commitment to purchase additional shares, but if his purchases within 13
months (or 36-months in the case of purchases of $1 million or more) plus the
value of shares credited toward completion of the Letter of Intent do not
total the sum specified, he will pay the increased amount of the sales charge
as described below. Instructions for issuance of shares in the name of a
person other than the person signing the Letter of Intent application must be
accompanied by a written statement from the dealer stating that the shares
were paid for by the person signing such Letter. Neither income dividends nor
capital gain distributions taken in additional shares will apply toward the
completion of the Letter of Intent. Dividends and distributions of other MFS
Funds automatically reinvested in shares of the Fund pursuant to the
Distribution Investment Program will also not apply toward completion of the
Letter of Intent.
Out of the shareholder's initial purchase (or subsequent purchases if
necessary), 5% of the dollar amount specified in the Letter of Intent
application shall be held in escrow by the Shareholder Servicing Agent in the
form of shares registered in the shareholder's name. All income dividends and
capital gain distributions on escrowed shares will be paid to the shareholder
or to his order. When the minimum investment so specified is completed (either
prior to or by the end of the 13-month period or 36-month period, as
applicable), the shareholder will be notified and the escrowed shares will be
released.
If the intended investment is not completed, the Shareholder Servicing Agent
will redeem an appropriate number of the escrowed shares in order to realize
such difference. Shares remaining after any such redemption will be released
by the Shareholder Servicing Agent. By completing and signing the Account
Application or separate Letter of Intent application, the shareholder
irrevocably appoints the Shareholder Servicing Agent his attorney to surrender
for redemption any or all escrowed shares with full power of substitution in
the premises.
RIGHT OF ACCUMULATION: A shareholder qualifies for cumulative quantity
discounts on the purchase of Class A shares when that shareholder's new
investment, together with the current offering price value of all the holdings
of Class A, B and C shares of that shareholder in the MFS Funds or MFS Fixed
Fund (a bank collective trust) reaches a discount level (see "Purchases" in
the Prospectus for the sales charges on quantity purchases). For example, if a
shareholder owns shares valued at $75,000 and purchases an additional $25,000
of Class A shares of the Fund, the sales charge for the $25,000 purchase would
be at the rate of 4% (the rate applicable to single transactions of $100,000).
A shareholder must provide the Shareholder Servicing Agent (or his investment
dealer must provide MFD) with information to verify that the quantity sales
charge discount is applicable at the time the investment is made. See the
prospectus for further information on the Right of Accumulation.
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 the Fund with respect to a particular class of shares may be
automatically invested in shares of the same class of one of the other MFS
Funds, if shares of the fund are available for sale. Such investments will be
subject to additional purchase minimums. Distributions will be invested at net
asset value (exclusive of any sales charge) and will not be subject to any
CDSC. Distributions will be invested at the close of business on the payable
date for the distribution. A shareholder considering the Distribution
Investment Program should obtain and read the prospectus of the other fund and
consider the differences in objectives and policies before making any
investment.
SYSTEMATIC WITHDRAWAL PLAN: A shareholder may direct the Shareholder
Servicing Agent to send him (or anyone he designates) regular periodic
payments based upon the value of his account. Each payment under a Systematic
Withdrawal Plan (a "SWP") must be at least $100, except in certain limited
circumstances. The aggregate withdrawals of Class B shares in any year
pursuant to a SWP generally are limited to 10% of the value of the account at
the time of the establishment of the SWP. SWP payments are drawn from the
proceeds of share redemptions (which would be a return of principal and, if
reflecting a gain, would be taxable). Redemptions of Class B and Class C
shares will be made in the following order: (i) any "Free Amount"; (ii) to the
extent necessary, any "Reinvested Shares"; and (iii) to the extent necessary,
the "Direct Purchase" subject to the lowest CDSC (as such terms are defined in
"Contingent Deferred Sales Charge" in the Prospectus). The CDSC will be waived
in the case of redemptions of Class B 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 reinvested in full and fractional shares of the
Fund at the net asset value in effect at the close of business on the record
date for such distributions. To initiate this service, shares having an
aggregate value of at least $5,000 either must be held on deposit by, or
certificates for such shares must be deposited with, the Shareholder Servicing
Agent. With respect to Class A shares, maintaining a withdrawal plan
concurrently with an investment program would be disadvantageous because of
the sales charges included in share purchases and the imposition of a CDSC on
certain redemptions. The shareholder may deposit into the account additional
shares of the Fund, change the payee or change the dollar amount of each
payment. The Shareholder Servicing Agent may charge the account for services
rendered and expenses incurred beyond those normally assumed by the Fund with
respect to the liquidation of shares. No charge is currently assessed against
the account, but one could be instituted by the Shareholder Servicing Agent on
60 days' notice in writing to the shareholder in the event that the Fund
ceases to assume the cost of these services. The Fund may terminate any SWP
for an account if the value of the account falls below $5,000 as a result of
share redemptions (other than as a result of a SWP) or an exchange of shares
of the Fund for shares of another MFS Fund. Any SWP may also be terminated at
any time by either the shareholder or the Fund.
INVEST BY MAIL: Additional investments of $50 or more may be made at any
time by mailing a check payable to the Fund directly to the Shareholder
Servicing Agent. The shareholder's account number and the name of his
investment dealer must be included with each investment.
GROUP PURCHASES: A bona fide group and all of its members may be treated as
a single purchaser and, under the Right of Accumulation (but not a Letter of
Intent), obtain quantity sales charge discounts on the purchase of Class A
shares if the group (1) gives its endorsement or authorization to the
investment program so it may be used by the investment dealer to facilitate
solicitation of the membership, thus effecting economies of sales effort; (2)
has been in existence for at least six months and has a legitimate purpose
other than to purchase mutual fund shares at a discount; (3) is not a group of
individuals whose sole organizational nexus is as credit cardholders of a
company, policyholders of an insurance company, customers of a bank or broker-
dealer, clients of an investment adviser or other similar groups; and (4)
agrees to provide certification of membership of those members investing money
in the MFS Funds upon the request of MFD.
AUTOMATIC EXCHANGE PLAN: Shareholders having account balances of at least
$5,000 in any MFS Fund may exchange their shares for the same class of shares
of other MFS Funds (if available for sale) under the Automatic Exchange Plan.
The Automatic Exchange Plan provides for automatic exchanges of funds from the
shareholder's account in a MFS Fund for investment in other MFS Funds selected
by the shareholder. Under the Automatic Exchange Plan, exchanges of at least
$50 each may be made to up to 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 exchange will occur after receipt and processing
by the Shareholder Servicing Agent of an application in good order. Exchanges
will continue to be made from a shareholder's account in any MFS Fund, as long
as the balance of the account is sufficient to complete the exchanges.
Additional payments made to a shareholder's account in such MFS Fund will
extend the period that exchanges will continue to be made under the Automatic
Exchange Plan. However, if additional payments are added to an account subject
to the Automatic Exchange Plan shortly before an exchange is scheduled, such
funds may not be available for exchanges until the following month; therefore,
care should be used to avoid inadvertently terminating the Automatic Exchange
Plan through exhaustion of the account balance.
No transaction fee for exchanges will be charged in connection with the
Automatic Exchange Plan. However, exchanges of shares of MFS Money Market
Fund, MFS Government Money Market Fund and Class A shares of MFS Cash Reserve
Fund will be subject to any applicable sales charge. Changes in amounts to be
exchanged to each fund, the funds to which exchanges are to be made and the
timing of exchanges (monthly or quarterly), or termination of a shareholder's
participation in the Automatic Exchange Plan will be made after instructions
in writing or by telephone (an "Exchange Change Request") are received by the
Shareholder Servicing Agent in proper form (i.e., if in writing -- signed by
the record owner(s) exactly as shares of the MFS Fund are registered; if by
telephone -- proper account identification is given by the dealer or
shareholder of record). Each Exchange Change Request (other than termination
of participation in the program) must involve at least $50. Generally, if an
Exchange Change Request is received before the close of business on the last
business day of a month, the Exchange Change Request will be effective for the
following month's exchange.
A shareholder's right to make additional investments in any of the MFS Funds,
to make exchanges of shares from one MFS Fund to another and to withdraw from
an MFS Fund, as well as a shareholder's other rights and privileges, are not
affected by a shareholder's participation in the Automatic Exchange Plan.
The Automatic Exchange Plan is part of the Exchange Privilege. For additional
information regarding the Automatic Exchange Plan including the treatment of
any CDSC, see "Exchange Privilege" below.
REINSTATEMENT PRIVILEGE: Shareholders of the Fund and shareholders of the
other MFS Funds (except MFS Money Market Fund, MFS Government Money Market
Fund and holders of Class A shares of MFS Cash Reserve Fund in the case where
the shares of such funds are acquired through direct purchase or reinvested
dividends) who have redeemed their shares have a one-time right to reinvest
the redemption proceeds in the same class of shares of any of the MFS Funds
(if shares of the fund are available for sale) at net asset value (without a
sales charge) and, if applicable, with credit for any CDSC paid. In the case
of proceeds reinvested in shares of MFS Money Market Fund, MFS Government
Money Market Fund and Class A shares of MFS Cash Reserve Fund, the shareholder
has the right to exchange the acquired shares for shares of another MFS Fund
at net asset value pursuant to the exchange privilege described below. Such a
reinvestment must be made within 90 days of the redemption and is limited to
the amount of the redemption proceeds. If the shares credited for any CDSC
paid are then redeemed within six years of their initial purchase in the case
of Class B shares or within 12 months of the initial purchase of 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 any loss realized on the original redemption for federal income tax
purposes. Please see your tax adviser for further information.
EXCHANGE PRIVILEGE -- Subject to the requirements set forth below, some or all
of the shares for which payment has been received by the Fund (i.e., an
established account) may be exchanged for shares of the same class of any of
the other MFS Funds (if available for sale and if the 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 or all the shares in the account (except that the minimum is $50
for accounts of retirement plan participants whose sponsoring organizations
subscribe to the MFS FUNDamental 401(k) Plan or another similar 401(k)
recordkeeping system made available by the Shareholder Servicing Agent). Each
exchange involves the redemption of the shares of the Fund to be exchanged and
the purchase at net asset value (i.e., without a sales charge) of shares of
the same class of the other MFS Fund. Any gain or loss on the redemption of
the shares exchanged is reportable on the shareholder's federal income tax
return, unless both the shares received and the shares surrendered in the
exchange are held in a tax-deferred retirement plan or other tax-exempt
account. No more than five exchanges may be made in any one Exchange Request
by telephone. If the Exchange Request is received by the Shareholder Servicing
Agent prior to the close of regular trading on the New York Stock Exchange
(the "Exchange"), the exchange usually will occur on that day if all of the
requirements set forth above have been complied with at that time. However,
payment of the redemption proceeds by the Fund, and thus purchase of shares of
the other MFS Fund, may be delayed for up to seven days if the Fund determines
that such a delay would be in the best interest of all its shareholders.
Investment dealers which have satisfied criteria established by MFD may also
communicate a shareholder's Exchange Request to MFD by facsimile subject to
the requirements set forth above.
No CDSC is imposed on exchanges among the MFS Funds, although liability for
the CDSC is carried forward to the exchanged shares. For purposes of
calculating the CDSC upon redemption of shares acquired in an exchange, the
purchase of shares acquired in one or more exchanges is deemed to have
occurred at the time of the original purchase of the exchanged shares.
Additional information with respect to any of the MFS Funds, including a copy
of its current prospectus, may be obtained from investment dealers or the
Shareholder Servicing Agent. A shareholder considering an exchange should
obtain and read the prospectus of the other MFS Fund and consider the
differences in objectives and policies before making any exchange.
Shareholders in the other MFS Funds (except holders of shares of MFS Money
Market Fund, MFS Government Money Market Fund and Class A shares of MFS Cash
Reserve Fund acquired through direct purchase and dividends reinvested prior
to June 1, 1992) have the right to exchange their shares for shares of the
Fund, subject to the conditions, if any, set forth in their respective
prospectuses. In addition, unitholders of the MFS Fixed Fund (a bank
collective investment fund) have the right to exchange their units (except
units acquired through direct purchases) for shares of the MFS Funds, subject
to the conditions, if any, imposed upon such unitholders by the MFS Fixed
Fund.
Any state income tax advantages for investment in shares of each state-
specific series of MFS Municipal Series Trust may only benefit residents of
such states. Investors should consult their own tax advisers to be sure this
is an appropriate investment, based on their residency and each state's income
tax laws.
The exchange privilege (or any aspect of it) may be changed or discontinued
and is subject to certain limitations (see "Purchases" in the Prospectus).
TAX-DEFERRED RETIREMENT PLANS -- Shares of the Fund may be purchased by all
types of tax-deferred retirement plans. MFD makes available, through
investment dealers, plans and/or custody agreements, the following:
Traditional Individual Retirement Accounts (IRAs) (for individuals and their
non-employed spouses who desire to make limited contributions to a tax-
deferred retirement program and, if eligible, to receive a federal income
tax deduction for amounts contributed);
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 (the "Code"), as amended;
403(b) Plans (deferred compensation arrangements for employees of public
school systems and certain non-profit organizations); and
Certain other qualified pension and profit-sharing plans.
The plan documents provided by MFD designate a trustee or custodian (unless
another trustee or custodian is designated by the individual or group
establishing the plan) and contain specific information about the plans. Each
plan provides that dividends and distributions will be reinvested
automatically. For further details with respect to any plan, including fees
charged by the trustee, custodian or MFD, tax consequences and redemption
information, see the specific documents for that plan. Plan documents other
than those provided by MFD may be used to establish any of the plans described
above. Third party administrative services, available for some corporate
plans, may limit or delay the processing of transactions.
Investors should consult with their tax adviser before establishing any of the
tax-deferred retirement plans described above.
6. TAX STATUS
The Fund has elected to be treated and intends to qualify each year as a
"regulated investment company" under Subchapter M of the Code, by meeting all
applicable requirements of Subchapter M, including requirements as to the
nature of the Fund's gross income, the amount of Fund distributions, and the
composition of the Fund's portfolio assets. Because the Fund intends to
distribute all of its net investment income and net realized capital gains to
shareholders in accordance with the timing requirements imposed by the Code,
it is not expected that the Fund will be required to pay any federal income or
excise taxes, although the Fund's foreign-source income may be subject to
foreign withholding taxes. If the Fund should fail to qualify as a "regulated
investment company" in any year, the Fund would incur a regular corporate
federal income tax upon its taxable income and Fund distributions would
generally be taxable as ordinary dividend income to the shareholders.
Shareholders of the Fund normally will have to pay federal income taxes, and
any state or local taxes, on the dividends and capital gain distributions they
receive from the Fund. Dividends from ordinary income and any distributions
from net short-term capital gains are taxable to shareholders as ordinary
income for federal income tax purposes whether the distributions are paid in
cash or reinvested in additional shares. A portion of the Fund's ordinary
income dividends is normally eligible for the dividends received deduction for
corporations if the recipient otherwise qualifies for that deduction with
respect to its holding of Fund shares. Availability of the deduction for
particular corporate shareholders is subject to certain limitations, and
deducted amounts may be subject to the alternative minimum tax and may result
in certain basis adjustments. Distributions of net capital gains (i.e., the
excess of net long-term capital gains over net short-term capital losses),
whether paid in cash or reinvested in additional shares, are taxable to
shareholders as long-term capital gains for federal income tax purposes
without regard to the length of time the shareholders have held their shares.
Any Fund dividend that is declared in October, November or December of any
calendar year, that is payable to shareholders of record in such a month, and
that is paid the following January will be treated as if received by the
shareholders on December 31 of the year in which the dividend is declared. The
Fund will notify shareholders regarding the federal tax status of its
distributions after the end of each calendar year.
Any Fund distribution of net capital gains or net short-term capital gains
will have the effect of reducing the per share net asset value of shares in
the Fund by the amount of the distribution. Shareholders purchasing shares
shortly before the record date of any such distribution may thus pay the full
price for the shares and then effectively receive a portion of the purchase
price back as a taxable distribution.
In general, any gain or loss realized upon a taxable disposition of shares of
the Fund by a shareholder that holds such shares as a capital asset will be
treated as a long-term capital gain or loss if the shares have been held for
more than twelve months and otherwise as a short-term capital gain or loss.
However, any loss realized upon a disposition of shares in the Fund held for
six months or less will be treated as a long-term capital loss to the extent
of any distributions of net capital gain made with respect to those shares.
Any loss realized upon a 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 the Fund within ninety days after their
purchase followed by any purchase (including purchases by exchange or by
reinvestment) without payment of an additional sales charge of Class A shares
of the Fund or of another MFS Fund (or any other shares of an MFS Fund
generally sold subject to a sales charge).
The Fund's current dividend and accounting policies will affect the amount,
timing and character of distributions to shareholders and may, under certain
circumstances, make an economic return of capital taxable to shareholders. Any
investment in zero coupon bonds, deferred interest bonds, payment-in-kind
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.
The Fund's transactions in options, Futures Contracts, Forward Contracts, 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 the Fund on the last
business day of each taxable year will be marked to market (i.e., treated as
if closed out) on that day, and any gain or loss associated with the positions
will be treated as 60% long-term and 40% short-term capital gain or loss.
Certain positions held by the Fund that substantially diminish its risk of
loss with respect to other positions in its portfolio may constitute
"straddles," and may be subject to special tax rules that would cause deferral
of Fund losses, adjustments in the holding periods of Fund securities, and
conversion of short-term into long-term capital losses. Certain tax elections
exist for straddles which could alter the effects of these rules. The Fund
will limit its activities in options, Futures Contracts, Forward Contracts,
and swaps and related transactions to the extent necessary to meet the
requirements of Subchapter M of the Code.
Special tax considerations apply with respect to foreign investments of the
Fund. Foreign exchange gains and losses realized by the Fund will generally be
treated as ordinary income and losses. Use of foreign currencies for non-
hedging purposes and investment by the Fund in certain "passive foreign
investment companies" may be limited in order to avoid a tax on the Fund. The
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
the Fund from foreign securities may be subject to foreign income taxes
withheld at the source; the Fund does not expect to be able to pass through
to shareholders foreign tax credits with respect to such foreign taxes. The
United States has entered into tax treaties with many foreign countries that
may entitle the Fund to a reduced rate of tax or an exemption from tax on such
income; the Fund intends to qualify for treaty reduced rates where available.
It is not possible, however, to determine the Fund's effective rate of foreign
tax in advance since the amount of the Fund's assets to be invested within
various countries is not known.
Dividends and certain other payments to persons who are not citizens or
residents of the United States or U.S. entities ("Non-U.S. Persons") are
generally subject to U.S. tax withholding at a rate of 30%. The Fund intends
to withhold U.S. federal income tax at the rate of 30% (or any lower rate
permitted under an applicable treaty) on taxable dividends and other payments
to Non-U.S. Persons that are subject to such withholding. Any amounts
overwithheld may be recovered by such persons by filing a claim for refund
with the U.S. Internal Revenue Service within the time period appropriate to
such claims. Distributions received from the Fund by Non-U.S. Persons may also
be subject to tax under the laws of their own jurisdictions. The 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 Non-U.S. Person) who does not furnish to the Fund certain
information and certifications or who is otherwise subject to backup
withholding. Backup withholding will not, however, be applied to payments that
have been subject to 30% withholding.
As long as it qualifies as a regulated investment company under the Code, the
Fund will not be required to pay Massachusetts income or excise taxes.
Distributions of the Fund that are derived from interest on obligations of the
U.S. Government and certain of its agencies and instrumentalities (but
generally not from capital gains realized upon the disposition of such
obligations) may be exempt from state and local taxes. The Fund intends to
advise shareholders of the extent, if any, to which its distributions consist
of such interest. Residents of certain states may be subject to an intangibles
tax or personal property tax on all or a portion of the value of their shares.
Shareholders are urged to consult their tax advisers regarding the possible
exclusion of a portion of their dividends for state and local income tax
purposes as well as regarding the tax consequences of an investment in the
Fund.
7. DETERMINATION OF NET ASSET VALUE AND PERFORMANCE
NET ASSET VALUE
The net asset value per share of each class of the Fund is determined each day
during which the Exchange is open for trading. (As of the date of this SAI,
the Exchange is open for trading every weekday except for the following
holidays or the day on which they are observed: New Year's Day, Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day.) This determination is made
once each day as of the close of regular trading on the Exchange by deducting
the amount of the liabilities attributable to the class from the value of the
assets attributable to the class and dividing the difference by the number of
shares of the class outstanding.
Bonds and other fixed income securities (other than short-term obligations) in
the Fund's portfolio are valued on the basis of valuations furnished by a
pricing service which utilizes both dealer-supplied valuations and electronic
data processing techniques which take into account appropriate factors such as
institution-size trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, trading characteristics and other market
data, without exclusive reliance upon exchange or over-the-counter prices,
since such valuations are believed to reflect more accurately the fair value
of such securities. Forward Contracts will be valued using a pricing model
taking into consideration market data from an external pricing source. Use of
the pricing service has been approved by the Trust's Board of Trustees. All
other securities, futures contracts and options in the Fund's portfolio (other
than short-term obligations) for which the principal market is one or more
securities or commodities exchanges (whether domestic or foreign) will be
valued at the last reported sale price or at the settlement price prior to the
determination (or if there has been no current sale, at the closing bid price)
on the primary exchange on which such securities, futures contracts or options
are traded; but if a securities exchange is not the principal market for
securities, such securities will, if market quotations are readily available,
be valued at current bid prices, unless such securities are reported on the
Nasdaq system, in which case they are valued at the last sale price or, if no
sales occurred during the day, at the last quoted bid price. Short-term
obligations with a remaining maturity in excess of 60 days will be valued
based upon dealer supplied valuations. Other short-term obligations are valued
at amortized cost, which constitutes fair value as determined by the Board of
Trustees. Portfolio securities for which there are no such quotations or
valuations are valued at fair value as determined in good faith by or at the
direction of the Board of Trustees.
Generally, trading in foreign securities is substantially completed each day
at various times prior to the close of regular trading on the Exchange.
Occasionally, events affecting the values of such securities may occur between
the times at which they are determined and the close of regular trading on the
Exchange which will not be reflected in the computation of the Fund's net
asset value unless the Trustees deem that such event would materially affect
the net asset value in which case an adjustment would be made.
All investments and assets are expressed in U.S. dollars based upon current
currency exchange rates. A share's net asset value is effective for orders
received by the dealer prior to its calculation and received by MFD in its
capacity as the Fund's distributor, or its agent, the shareholder servicing
agent, prior to the close of that business day.
PERFORMANCE INFORMATION
TOTAL RATE OF RETURN: The Fund will calculate its total rate of return for
each class of shares for certain periods by determining the average annual
compounded rates of return over those periods that would cause an investment
of $1,000 (made with all distributions reinvested and reflecting the CDSC or
the maximum public offering price) to reach the value of that investment at
the end of the periods. The Fund may also calculate (i) a total rate of
return, which is not reduced by the CDSC (4% maximum for Class B shares and 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 maximum sales charge (currently
4.75% on Class A shares) and/or (iii) total rates of return which represent
aggregate performance over a period or year-by-year performance, and which may
or may not reflect the effect of the maximum or other sales charge or CDSC.
Prior to October 1, 1989, the maximum sales charge on Class A shares was
7.25%. On October 1, 1989, the maximum sales charge on Class A shares was
lowered to 4.75%, a sales charge on reinvested dividends was eliminated and a
Distribution Plan (described below) pursuant to Rule 12b-1 under the 1940 Act
was implemented with respect to Class A shares.
The Fund 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 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 the 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 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 class are presented in Appendix A.
PERFORMANCE RESULTS: Any total rate of return quotations provided by the Fund
should not be considered as representative of the performance of the Fund in
the future since the net asset value and public offering price of shares of
the Fund will vary based not only on the type, quality and maturities of the
securities held in the Fund's portfolio, but also on changes in the current
value of such securities and on changes in the expenses of the Fund. These
factors and possible differences in the methods used to calculate yields and
total rates of return should be considered when comparing the yield and total
rate of return of the Fund to yields and total rates of return published for
other investment companies or other investment vehicles. Total rate of return
reflects the performance of both principal and income. Current net asset value
and account balance information may be obtained by calling 1-800-MFS-TALK
(637-8255).
YIELD: Any yield quotation for a class of shares of the Fund is based on the
annualized net investment income per share of that class over a 30-day period.
The yield for each class of shares of the Fund is calculated by dividing the
net investment income per share allocated to that class earned during the
period by the maximum offering price per share of that class of the Fund on
the last day of that period. The resulting figure is then annualized. Net
investment income per share of a class is determined by dividing (i) the
dividends and interest allocated to that class during the period, minus
accrued expenses of that class for the period, by (ii) the average number of
shares of the class, entitled to receive dividends during the period
multiplied by the maximum offering price per share on the last day of the
period. The yield calculation for Class A shares assumes a maximum sales
charge of 4.75%. The yield calculations for Class B and Class C shares assume
no CDSC is paid. Yield quotations for each class of shares are presented in
Appendix A attached hereto.
CURRENT DISTRIBUTION RATE: Yield, which is calculated according to a formula
prescribed by the SEC, is not indicative of the amounts which were or will be
paid to the Fund's shareholders. Amounts paid to shareholders of each class
are reflected in the "current distribution rate" for that class. The current
distribution rate for a class is computed by (i) annualizing the distributions
(excluding any short-term capital gains) of the class for the stated period;
(ii) adding any short-term capital gains paid within the immediately preceding
12-month period; and (iii) dividing the result by the maximum offering price
at net asset value per share on the last day of the period. The current
distribution rate differs from the yield computation because it may include
distributions to shareholders from sources other than dividends and interest,
such as premium income from option writing, short-term capital gains and
return of invested capital, and may be calculated over a different period of
time. The Fund's current distribution rate calculation for Class B and Class C
shares assumes no CDSC is paid. Current distribution rate quotations for each
class of shares are presented in Appendix A attached hereto.
GENERAL: From time to time the Fund may, as appropriate, quote Fund rankings
or reprint all or a portion of evaluations of fund performance and operations
appearing in various independent publications, including but not limited to
the following: Money, Fortune, U.S. News and World Report, Kiplinger's
Personal Finance, The Wall Street Journal, Barron's, Investors Business Daily,
Newsweek, Financial World, Financial Planning, Investment Advisor, USA Today,
Pensions and Investments, SmartMoney, Forbes, Global Finance, Registered
Representative, Institutional Investor, the Investment Company Institute,
Johnson's Charts, Morningstar, Lipper Analytical Securities Corporation, CDA
Wiesenberger, Shearson Lehman and Salomon Bros. Indices, Ibbotson, Business
Week, Lowry Associates, Media General, Investment Company Data, The New York
Times, Your Money, Strangers Investment Advisor, Financial Planning on Wall
Street, Standard and Poor's, Individual Investor, The 100 Best Mutual Funds
You Can Buy, by Gordon K. Williamson, Consumer Price Index, and Sanford C.
Bernstein & Co. Fund performance may also be compared to the performance of
other mutual funds tracked by financial or business publications or
periodicals.
From time to time, the Fund may discuss or quote its current portfolio manager
as well as other investment personnel, including such persons' views on: the
economy; securities markets; portfolio securities and their issuers;
investment philosophies, strategies, techniques and criteria used in the
selection of securities to be purchased or sold for the Fund; the Fund's
portfolio holdings; the investment research and analysis process; the
formulation and evaluation of investment recommendations; and the assessment
and evaluation of credit, interest rate, market and economic risks 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.
The Fund may also use charts, graphs or other presentation formats to
illustrate the historical correlation of its performance to fund categories
established by Morningstar (or other nationally recognized statistical ratings
organizations) and to other MFS Funds.
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 the following: 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
inter-generational 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 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, the Fund may also advertise annual returns showing the
cumulative value of an initial investment in the Fund in various amounts over
specified periods with capital gain and dividend distributions invested in
additional shares or taken in cash, and with no adjustment for any income
taxes (if applicable) payable by shareholders.
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) Global 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) Global Total Return Fund is the first
global balanced fund.
-- 1993 -- MFS(R) Global Growth Fund is the first global
emerging markets fund to offer the expertise of two
sub-advisers.
-- 1993 -- MFS becomes money manager of MFS(R) Union
Standard Equity Fund, the first fund to invest in
companies deemed to be union-friendly by an Advisory
Board of senior labor officials, senior managers of
companies with significant labor contracts, academics
and other national labor leaders or experts.
8. DISTRIBUTION PLAN
The Trustees have adopted a Distribution Plan for Class A, Class B and Class C
shares (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 the Fund and
the respective class of shareholders. The provisions of the Distribution Plan
are severable with respect to each class of shares offered by the Fund. The
Distribution Plan is designed to promote sales, thereby increasing the net
assets of the Fund. Such an increase may reduce the Fund's expense ratio to
the extent the Fund's fixed costs are spread over a larger net asset base.
Also, an increase in net assets may lessen the adverse effects that could
result were the Fund required to liquidate portfolio securities to meet
redemptions. There is, however, no assurance that the net assets of the Fund
will increase or that the other benefits referred to above will be realized.
The Distribution 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 of record for investors who own
Class A shares having an aggregate net asset value less than $750,000, or such
other amount as may be determined from time to time by MFD (MFD, however, may
waive this minimum amount requirement from time to time); or (ii) to any
insurance company which has entered into an agreement with the Fund and MFD
that permits such insurance company to purchase Class A shares from the Fund
at their net asset value in connection with annuity agreements issued in
connection with the insurance company's separate accounts. Dealers may from
time to time be required to meet certain other criteria in order to receive
service fees.
With respect to 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 the
Fund. MFD pays commissions to dealers as well as expenses of printing
prospectuses and reports used for sales purposes, expenses with respect to the
preparation and printing of sales literature and other distribution related
expenses, including, without limitation, the cost necessary to provide
distribution-related services, or personnel, travel, office expenses and
equipment.
DISTRIBUTION AND SERVICE FEES PAID DURING THE FUND'S LAST FISCAL YEAR: During
the fiscal year ended September 30, 1998, the Fund paid the following
Distribution Plan expenses:
AMOUNT OF AMOUNT OF AMOUNT OF
DISTRIBUTION DISTRIBUTION DISTRIBUTION
AND SERVICE AND SERVICE AND SERVICE
FEES PAID FEES RETAINED FEES RECEIVED
CLASSES OF SHARES BY FUND BY MFD BY DEALERS
- ----------------- ------- ------ ----------
Class A Shares $11,988,833 $ 4,567,790 $7,421,043
Class B Shares $18,619,719 $14,185,546 $4,434,173
Class C Shares $ 2,578,174 $ 67,115 $2,511,059
GENERAL: The Distribution Plan will remain in effect until August 1, 1999, 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 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
the Fund's shares. The Distribution Plan may not be amended to increase
materially the amount of permitted distribution expenses without the approval
of a majority of the respective class of the Fund's shares (as defined in
"Investment Restrictions") or may not be materially amended in any case
without a vote of the Trustees and a majority of the Distribution Plan
Qualified Trustees. The selection and nomination of Distribution Plan
Qualified Trustees shall be committed to the discretion of the non-interested
Trustees then in office. No Trustee who is not an "interested person" has any
financial interest in the Distribution Plan or in any related agreement.
9. DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional Shares of Beneficial Interest (without par value) of one
or more separate series and to divide or combine the shares of any series into
a greater or lesser number of shares without thereby changing the
proportionate beneficial interests in that series. The Trustees have currently
authorized shares of the Fund and five 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 the Fund and each of the Trust's five
other series, Class A shares, Class B shares and Class C shares as well as
Class I shares for the Fund and each of the five other series. Each share of a
class of the Fund represents an equal proportionate interest in the assets of
the Fund allocable to that class. Upon liquidation of the Fund, shareholders
of each class of the Fund are entitled to share pro rata in the Fund's net
assets allocable to such class available for distribution to shareholders. The
Trust reserves the right to create and issue additional series or classes of
shares, in which case the shares of each class of a series would participate
equally in the earnings, dividends and assets allocable to that class of the
particular series.
Shareholders are entitled to one vote for each share held and may vote in the
election of Trustees and on other matters submitted to meetings of
shareholders. Although Trustees are not elected annually by the shareholders,
shareholders have, under certain circumstances, the right to remove one or
more Trustees in accordance with the provisions of section 16(c) of the 1940
Act. No material amendment may be made to the Declaration of Trust without the
affirmative vote of a majority of the Trust shares (as defined in "Investment
Restrictions") or by an instrument in writing without a meeting, signed by a
majority of Trustees and consented to by the holders of not less than a
majority of the shares outstanding and entitled to vote. Shares have no pre-
emptive or conversion rights (except as described in the Prospectus under
"Purchases -- Conversion of Class B Shares"). Shares are fully paid and non-
assessable. The Trust may enter into a merger or consolidation, or sell all or
substantially all of its assets (or all or substantially all of the assets
belonging to any series of the Trust), if approved by the vote of the holders
of two-thirds of the Trust's outstanding shares voting as a single class, or
of the affected series of the Trust, as the case may be, except that if the
Trustees of the Trust recommend such merger, consolidation or sale, the
approval by vote of the holders of a majority of the Trust's or the affected
series' outstanding shares (as defined in "Investment Restrictions") will be
sufficient. The Trust or any series of the Trust may also be terminated (i)
upon liquidation and distribution of its assets, if approved by the vote of
the holders of two-thirds of its outstanding shares, or (ii) by the Trustees
by written notice to the shareholders of the Trust or the affected series. If
not so terminated the Trust will continue indefinitely.
The Trust is an entity of the type commonly known as a "Massachusetts business
trust." Under Massachusetts law, shareholders of such a trust may, under
certain circumstances, be held personally liable as partners for its
obligations. However, the Declaration of Trust contains an express disclaimer
of shareholder liability for acts, obligations or affairs of the Trust and
provides for indemnification and reimbursement of expenses out of the Trust
property for any shareholder held personally liable for the obligations of the
Trust. The Declaration of Trust also provides that the Trust shall maintain
appropriate insurance (for example, fidelity bonding and errors and omissions
insurance) for the protection of the Trust, its shareholders, Trustees,
officers, employees and agents covering possible tort and other liabilities.
Thus, the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which both inadequate
insurance existed and the Trust itself was unable to meet its obligations.
The Declaration of Trust further provides that obligations of the Trust are
not binding upon the Trustees individually but only upon the property of the
Trust and that the Trustees will not be liable for any action or failure to
act, but nothing in the Declaration of Trust protects a Trustee against any
liability to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.
10. INDEPENDENT AUDITORS AND FINANCIAL STATEMENTS
Deloitte & Touche LLP are the Fund's independent auditors, providing audit
services, tax return preparation, and assistance and consultation with respect
to the preparation of filings with the SEC.
The Portfolio of Investments at September 30, 1998, the Statement of Assets
and Liabilities at September 30, 1998, the Statement of Operations for the
year ended September 30, 1998, the Statement of Changes in Net Assets for each
of the two years in the period ended September 30, 1998, the Notes to
Financial Statements and the Independent Auditors' Report, each of which is
included in the Annual Report to shareholders of the Fund, are incorporated by
reference into this SAI and have been so incorporated in reliance upon the
report of Deloitte & Touche LLP, independent auditors, as experts in
accounting and auditing. A copy of the Annual Report accompanies this SAI.
<PAGE>
APPENDIX A
PERFORMANCE INFORMATION
The performance quotations below should not be considered as representative of
the performance of the Fund in the future since the net asset value and public
offering price of shares of the Fund will vary. See "Determination of Net
Asset Value and Performance" in the SAI.
All performance quotations are as of September 30, 1998.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS ACTUAL
---------------------------- 30-DAY 30-DAY
YIELD YIELD
(INCLUDING (WITHOUT CURRENT
ANY ANY DISTRIBUTION
1 YEAR 5 YEAR 10 YEAR WAIVERS) WAIVERS) RATE(4)
------ ------ ------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Class A Shares with sales charge .................... 1.90% 11.14% 12.42% N/A 2.53% 5.62%
Class A Shares without sales charge ................. 6.98 12.23 12.97 N/A N/A N/A
Class B Shares with CDSC ............................ 2.43 11.11(1) 12.52(1) N/A N/A N/A
Class B Shares without CDSC ......................... 6.22 11.37(1) 12.52(1) N/A 2.02 5.28
Class C Shares with CDSC ............................ 5.32 11.61(2) 12.65(2) N/A N/A N/A
Class C Shares without CDSC ......................... 6.27 11.61(2) 12.65(2) N/A 2.02 5.26
Class I Shares ...................................... 7.35(3) 12.38(3) 13.04(3) N/A 3.00 6.23
</TABLE>
(1) Class B share performance includes the performance of the Fund's Class A
shares for periods prior to the inception of Class B shares on August 23,
1993. Sales charges, expenses and expense ratios, and therefore
performance, for Class A and Class B shares differ. Class B share
performance has been adjusted to reflect that Class B shares generally are
subject to a CDSC (unless the performance quotation does not give effect
to the CDSC) whereas Class A shares generally are subject to an initial
sales charge. Class B share performance has not, however, been adjusted to
reflect differences in operating expenses (e.g., Rule 12b-1 fees), which
generally are lower for Class A shares.
(2) Class C share performance includes the performance of the Fund's Class A
shares for periods prior to the inception of Class C shares on August 1,
1994. Sales charges, expenses and expense ratios, and therefore
performance, for Class A and Class C shares differ. Class C share
performance has been adjusted to reflect that Class C shares generally are
subject to a CDSC (unless the performance quotation does not give effect
to the CDSC) whereas Class A shares generally are subject to an initial
sales charge. Class C share performance has not, however, been adjusted to
reflect differences in operating expenses (e.g., Rule 12b-1 fees), which
generally are lower for Class A shares.
(3) Class I share performance includes the performance of the Fund's Class A
shares for periods prior to the inception of Class I shares on January 2,
1997. Sales charges, expenses and expense ratios, and therefore
performance for Class I and A shares differ. Class I share performance has
been adjusted to reflect that Class I shares are not subject to an initial
sales charge, whereas Class A shares generally are subject to an initial
sales charge. Class I share performance has not, however, been adjusted to
reflect differences in operating expenses (e.g., Rule 12b-1 fees), which
generally are lower for Class I shares.
(4) Annualized based on last distribution.
<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
State Street Bank and Trust Company
225 Franklin Street, Boston, MA 02110
DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company
225 Franklin Street, Boston, MA 02110
SHAREHOLDER SERVICING AGENT
MFS Service Center, Inc.
500 Boylston Street, Boston, MA 02116
Toll free: (800) 225-2606
MAILING ADDRESS
P.O. Box 2281, Boston, MA 02107-9906
INDEPENDENT AUDITORS
Deloitte & Touche LLP
125 Summer Street, Boston, MA 02110
MFS(R) TOTAL
RETURN FUND
500 BOYLSTON STREET
BOSTON, MA 02116
[Logo] M F S(R)
INVESTMENT MANAGEMENT
We invented the mutual fund
Printed on recycled paper. MTR-13-x/98/xxx 15/215/315
<PAGE>
MFS(R) RESEARCH FUND
SUPPLEMENT TO THE FEBRUARY 1, 1999 PROSPECTUS AND
STATEMENT OF ADDITIONAL INFORMATION
THE FOLLOWING INFORMATION SHOULD BE READ IN CONJUNCTION WITH THE FUND'S
PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION ("SAI"), DATED FEBRUARY 1,
1999, 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
SHAREHOLDER TRANSACTION EXPENSES: CLASS I
Maximum Initial Sales Charge Imposed on Purchases of Fund
Shares (as a percentage of offering price)...................... None
Maximum Contingent Deferred Sales Charge (as a percentage
of original purchase price or redemption proceeds,
as applicable).................................................. None
ANNUAL OPERATING EXPENSES OF THE FUND (AS A PERCENTAGE OF
AVERAGE NET ASSETS):
Management Fees................................................... 0.43%
Rule 12b-1 Fees................................................... None
Other Expenses(1)................................................. 0.23%
Total Operating Expenses.......................................... 0.66%
-------------------
(1) The Fund has an expense offset arrangement which reduces the Fund's
custodian fee based upon the amount of cash maintained by the Fund with its
custodian and dividend disbursing agent, and may enter into other such
arrangements and directed brokerage arrangements (which would also have the
effect of reducing the Fund's expenses). Any such fee reductions are not
reflected under "Other Expenses."
EXAMPLE OF EXPENSES
An investor would pay the following dollar amounts of expenses on a $1,000
investment in Class I shares of the Fund, assuming (a) a 5% annual return and
(b) redemption at the end of each of the time periods indicated:
Period Class I
------ -------
1 year........................................ $ 7
3 years....................................... 21
5 years....................................... 37
10 years...................................... 82
The purpose of the expense table above is to assist investors in
understanding the various costs and expenses that a shareholder of the Fund will
bear directly or indirectly. A more complete description of the Fund's
management fee is set forth under the caption "Management of the Fund" in the
Prospectus.
THE "EXAMPLE" SET FORTH ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES OF THE FUND; ACTUAL EXPENSES MAY BE GREATER OR LESS THAN
THOSE SHOWN.
CONDENSED FINANCIAL INFORMATION
The following information has been audited and should be read in
conjunction with the financial statements included in the Fund's Annual Report
to Shareholders which are incorporated by reference into the SAI in reliance
upon the report of the Fund's independent auditors, given upon their authority
as experts in accounting and auditing. The Fund's independent auditors are
Deloitte & Touche LLP.
FINANCIAL HIGHLIGHTS - CLASS I SHARES
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997*
------------------ -------------------
<S> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $ 22.75 $ 18.34
------- -------
Income from investment operations# -
Net investment income $ 0.13 $ 0.07
Net realized and unrealized gain on investments
and foreign currency transactions (0.31) 4.34
--------- -------
Total from investment operations $ (0.18) $ 4.41
-------- -------
Less distributions declared to shareholders
from net realized gain on investments and
foreign currency transactions $ (1.05) --
Total distributions declared to shareholders $ (1.05) $ --
-------- -------
Net asset value - end of period $ 21.52 $ 22.75
------- -------
Total return (0.55)% 24.05%++
Ratios (to average net assets)/
Supplemental data:
Expenses## 0.56% 0.63%+
Net investment income 0.57% 0.51%+
Portfolio turnover 81% 79%
Net assets at end of period
(000 omitted) $17,551 $19,400
- --------------------------
* For the period from the inception of Class I, January 2, 1997 through September 30, 1997.
+ Annualized
++ Not annualized
# Per share data are based on average shares outstanding.
## The Fund's expenses are calculated without reduction for fees paid indirectly.
</TABLE>
ELIGIBLE PURCHASERS
Class I shares are available for purchase only by the following 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;
(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;
(iii) any retirement plan, endowment or foundation which (a) purchases shares
directly through MFD (rather than through a third party broker or dealer
or other financial intermediary); (b) has, at the time of purchase of
Class I shares, aggregate assets of at least $100 million; and (c) invests
at least $10 million in Class I shares of the Fund either alone or in
combination with investments in Class I shares of other MFS funds
distributed by MFD (additional investments may be made in any amount);
provided that MFD may accept purchases from smaller plans, endowments or
foundations or in smaller amounts if it believes, in its sole discretion,
that such entity's aggregate assets will equal or exceed $100 million, or
that such entity will make additional investments which will cause its
total investment to equal or exceed $10 million, within a reasonable
period of time;
(iv) bank trust departments which initially invest, on behalf of their trust
clients, at least $100,000 in Class I shares of the Fund (additional
investments may be made in any amount); provided that MFD may accept
smaller initial purchases if it believes, in its sole discretion, that the
bank trust department will make additional investments, on behalf of its
trust clients, which will cause its total investment to equal or exceed
$100,000 within a reasonable period of time; and
(v) certain retirement plans offered, administered or sponsored by insurance
companies, provided that these plans and insurance companies meet certain
criteria established by MFD from time to time.
In no event will the Fund, MFS, MFD or any of their affiliates pay any
sales commissions or compensation to any third party in connection with the sale
of Class I shares; the payment of any such sales commission or compensation
would, under the Fund's policies, disqualify the purchaser as an eligible
investor of Class I shares.
SHARE CLASSES OFFERED BY THE FUND
Four classes of shares of the Fund currently are offered for sale, Class A
shares, Class B shares, Class C shares and Class I shares. Class I shares are
available for purchase only by Eligible Purchasers, as defined above, and are
described in this Supplement. Class A shares, Class B shares and Class C shares
are described in the Fund's Prospectus and are available for purchase by the
general public.
Class A shares are offered at net asset value plus an initial sales charge
up to a maximum of 5.75% of the offering price (or a contingent deferred sales
charge (a "CDSC") of 1.00% upon redemption 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
0.35% 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 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 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 Fund.
OTHER INFORMATION
Eligible Purchasers may purchase Class I shares only directly through MFD.
Eligible Purchasers may exchange Class I shares of the 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 the Fund for shares of the MFS(R) Money Market Fund (if available for sale),
and may redeem Class I shares of the Fund at net asset value. Distributions paid
by the Fund with respect to Class I shares generally will be greater than those
paid with respect to Class A shares, Class B shares and Class C shares because
expenses attributable to Class A shares, Class B shares and Class C shares
generally will be higher.
The date of this Supplement is February 1, 1999.
<PAGE>
- --------------------
MFS(R) RESEARCH FUND
- --------------------
FEBRUARY 1, 1999
PROSPECTUS
CLASS A SHARES OF BENEFICIAL INTEREST
CLASS B SHARES OF BENEFICIAL INTEREST
CLASS C SHARES OF BENEFICIAL INTEREST
- --------------------------------------------------------------------------------
The investment objective of MFS(R) Research Fund (the "Fund") is to provide
long-term growth of capital and future income (see "Investment Objective and
Policies"). The Fund is a diversified series of MFS(R) Series Trust V (the
"Trust"), an open-end investment company. The minimum initial investment is
generally $1,000 per account (see "Purchases").
The Fund's investment adviser and distributor are Massachusetts Financial
Services Company ("MFS") and MFS Fund Distributors, Inc. ("MFD"),
respectively, both of which are located at 500 Boylston Street, Boston,
Massachusetts 02116.
INVESTMENT PRODUCTS ARE NOT INSURED BY THE FDIC OR ANY OTHER GOVERNMENT
AGENCY, AND ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR GUARANTEED BY, ANY
FINANCIAL INSTITUTION. SHARES OF MUTUAL FUNDS ARE SUBJECT TO INVESTMENT RISKS,
INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED, AND WILL FLUCTUATE
IN VALUE. YOU MAY RECEIVE MORE OR LESS THAN YOU PAID WHEN YOU REDEEM YOUR
SHARES.
This Prospectus sets forth concisely the information concerning the Trust and
the Fund that a prospective investor ought to know before investing. The Trust,
on behalf of the Fund, has filed with the Securities and Exchange Commission
(the "SEC") a Statement of Additional Information dated February 1, 1999, as
amended or supplemented from time to time (the "SAI"), which contains more
detailed information about the Trust and the Fund. The SAI is incorporated into
this Prospectus by reference. See page 36 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). The SEC maintains an Internet World Wide Web site at
http://www.sec.gov that contains the SAI, materials that are incorporated by
reference into this Prospectus and the SAI, and other information regarding the
Fund. This Prospectus is available on the Adviser's Internet World Wide Web site
at http://www.mfs.com.
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.
<PAGE>
TABLE OF CONTENTS
Page
1. Expense Summary ................................................ 3
2. Condensed Financial Information ................................ 5
3. The Fund ....................................................... 8
4. Investment Objective and Policies .............................. 9
5. Certain Securities, Investment Techniques and Risk Factors ..... 10
6. Additional Risk Factors ........................................ 12
7. Management of the Fund ......................................... 14
8. Year 2000 Issues ............................................... 16
9. Information Concerning Shares of the Fund ...................... 16
Purchases .................................................. 16
Exchanges .................................................. 24
Redemptions and Repurchases ................................ 25
Distribution Plan .......................................... 28
Distributions .............................................. 31
Tax Status ................................................. 31
Net Asset Value ............................................ 32
Description of Shares, Voting Rights and Liabilities ....... 32
Performance Information .................................... 33
Provision of Annual and Semiannual Reports ................. 34
10. Shareholder Services ........................................... 34
Appendix A ..................................................... A-1
<PAGE>
1. EXPENSE SUMMARY
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------- ------- -------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Initial Sales Charge Imposed on
Purchases of Fund Shares (as a percentage
of offering price) ........................ 5.75% 0.00% 0.00%
Maximum Contingent Deferred Sales Charge (as
a percentage of original purchase price or
redemption proceeds, as
applicable) ............................... See Below(1) 4.00% 1.00%
ANNUAL OPERATING EXPENSES OF THE FUND (AS A PERCENTAGE OF AVERAGE NET ASSETS):
Management Fees ............................. 0.43% 0.43% 0.43%
Rule 12b-1 Fees ............................. 0.35%(2) 1.00%(3) 1.00%(3)
Other Expenses(4) ........................... 0.23% 0.23% 0.23%
--- --- ---
Total Operating Expenses .................... 1.01% 1.66% 1.66%
</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 "Information Concerning Shares of the Fund -- Purchases"
below.
(2) The 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)
0.35% per annum of the average daily net assets attributable to the Class
A shares. The 0.35% per annum distribution/service fee is reduced to 0.25%
per annum for shares purchased prior to March 1, 1991. Distribution
expenses paid under the 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 "Information Concerning Shares of the Fund -- Distribution
Plan" below.
(3) The 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 or 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 "Information Concerning Shares of the Fund -- Distribution
Plan" below.
(4) The 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."
<PAGE>
EXAMPLE OF EXPENSES
An investor would pay the following dollar amounts of expenses on a $1,000
investment in the Fund, assuming (a) a 5% annual return and (b) redemption at
the end of each of the time periods indicated (unless otherwise noted):
PERIOD CLASS A CLASS B CLASS C
------- ------------------ ------------------
(1) (1)
1 year ...................... $ 67 $ 57 $ 17 $ 27 $ 17
3 years ..................... 88 82 52 52 52
5 years ..................... 110 110 90 90 90
10 years ..................... 174 179(2) 179(2) 197 197
- ------------
(1) Assumes no redemption.
(2) Class B shares convert to Class A shares approximately eight years after
purchase; therefore, years nine and ten reflect Class A expenses.
The purpose of the expense table above is to assist investors in understanding
the various costs and expenses that a shareholder of the Fund will bear
directly or indirectly. More complete descriptions of the following Fund
expenses are set forth in the following sections of the Prospectus: (i)
varying sales charges on share purchases -- "Purchases"; (ii) varying CDSCs --
"Purchases"; (iii) management fees -- "Investment Adviser"; and (iv) Rule
12b-1 (i.e., distribution plan) fees -- "Distribution Plan."
THE "EXAMPLE" SET FORTH ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES OF THE FUND; ACTUAL EXPENSES MAY BE GREATER OR LESS
THAN THOSE SHOWN.
<PAGE>
2. CONDENSED FINANCIAL INFORMATION
The following information has been audited for at least the latest five fiscal
years of the Fund and should be read in conjunction with the financial
statements included in the Fund's Annual Report to shareholders which are
incorporated by reference into the SAI in reliance upon the report of the
Fund's independent auditors given upon their authority as experts in
accounting and auditing. The Fund's current independent auditors are Deloitte
& Touche LLP.
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992
------ ------ ------ ------ ------ ------ ------
CLASS A
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD):
Net asset value --
beginning of period $22.69 $18.53 $15.61 $12.59 $14.47 $12.18 $11.84
------ ------ ------ ------ ------ ------ ------
Income from investment operations# --
Net investment income(S) $ 0.05 $ 0.04 $ 0.06 $ 0.08 $ 0.02 $ 0.11 $ 0.07
Net realized and
unrealized gain on
investments and
foreign currency
transactions ..... (0.30) 5.07 3.88 2.99 1.01 3.15 1.27
------ ------ ------ ------ ------ ------ ------
Total from
investment
operations ... $(0.25) $ 5.11 $ 3.94 $ 3.07 $ 1.03 $ 3.26 $ 1.34
------ ------ ------ ------ ------ ------ ------
Less distributions declared to shareholders --
From net investment
income ........... $ -- $(0.01) $(0.05) $(0.02) $(0.03) $(0.07) $ --
From net realized
gain on
investments and
foreign
currency
transactions ..... (0.99) (0.92) (0.97) (0.03) (2.87) (0.90) (1.00)
In excess of net
investment income. -- (0.02) -- -- (0.01) -- --
------ ------ ------ ------ ------ ------ ------
Total
distributions
declared to
shareholders . $(0.99) $(0.95) $(1.02) $(0.05) $(2.91) $(0.97) $(1.00)
------ ------ ------ ------ ------ ------ ------
Net asset value -- end
of period .......... $21.45 $22.69 $18.53 $15.61 $12.59 $14.47 $12.18
====== ====== ====== ====== ====== ====== ======
Total return(+) ...... (0.89)% 28.72% 26.54% 24.49% 7.72% 28.87% 11.79%
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA(S):
Expenses## ......... 0.91% 0.96% 0.91% 0.95% 0.91% 0.90% 0.84%
Net investment
income ........... 0.23% 0.18% 0.36% 0.58% 0.14% 0.36% 0.59%
PORTFOLIO TURNOVER ... 81% 79% 81% 94% 79% 93% 74%
NET ASSETS AT END OF
PERIOD (000 OMITTED) $2,611,866 $2,201,849 $972,353 $507,784 $318,170 $294,019 $240,366
- ------------
(+) Total return for Class A shares do not include the applicable sales charge. If the charge had been included, the results would
have been lower.
# Per share data for the periods subsequent to September 30, 1993, are based on average shares outstanding.
## For fiscal years ending after September 1, 1995, the Fund's expenses are calculated without reduction for fees paid indirectly.
(S) The distributor did not impose a portion of its distribution fee for the periods indicated. If this fee had been incurred by
the Fund, the net investment income per share and the ratios would have been:
Net investment income $ -- $ -- $ -- $ 0.07 $ 0.01 $ -- $ --
------ ------ ------ ------ ------ ------ ------
RATIOS (TO AVERAGE
NET ASSETS):
Expenses## ....... -- -- -- 1.05% 1.01% -- --
Net investment
income .......... -- -- -- 0.48% 0.04% -- --
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS -- CONTINUED
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------------------------------------
1991 1990 1989 1988
------ ------ ------ ------
CLASS A
- ------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD):
<S> <C> <C> <C> <C>
Net asset value -- beginning of period ............. $ 9.62 $11.49 $10.20 $12.54
------ ------ ------ ------
Income from investment operations --
Net investment income ............................ $ 0.27 $ 0.36 $ 0.39 $ 0.23
Net realized and unrealized gain (loss) on
investments and foreign currency transactions .. 2.21 (1.52) 2.30 (2.19)
------ ------ ------ ------
Total from investment operations ............. $ 2.48 $(1.16) $ 2.69 $(1.96)
------ ------ ------ ------
Less distributions declared to shareholders --
From net investment income ....................... $(0.26) $(0.36) $(0.39) $(0.24)
From net realized gain on investments and foreign
currency transactions .......................... -- (0.35)* (1.01) (0.14)
------ ------ ------ ------
Total distributions declared to shareholders . $(0.26) $(0.71) $(1.40) $(0.38)
------ ------ ------ ------
Net asset value -- end of period ................... $11.84 $ 9.62 $11.49 $10.20
====== ====== ====== ======
Total return(+) .................................... 25.87% (12.73)% 26.91% (15.60)%
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA:
Expenses ......................................... 0.95% 0.83% 0.88% 0.86%
Net investment income ............................ 2.48% 3.21% 3.48% 2.36%
PORTFOLIO TURNOVER ................................. 177% 79% 99% 116%
NET ASSETS AT END OF PERIOD (000 OMITTED) .......... $231,316 $202,377 $251,857 $239,616
- ----------
* For the year ended September 30, 1990, the per share distribution from paid-in-capital was $0.0009.
(+) Total return for Class A shares do not include the applicable sales charge (except for reinvested dividends prior to
October 1, 1989). If the charge had been included, the results would have been lower.
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS -- CONTINUED
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993**
------ ------ ------ ------ ------ ------
CLASS B
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA (FOR A SHARE OUTSTANDING
THROUGHOUT EACH PERIOD):
Net asset value -- beginning
of period .................. $22.16 $18.19 $15.40 $12.50 $14.47 $13.95
------ ------ ------ ------ ------ ------
Income from investment operations# --
Net investment loss ........ $(0.10) $(0.10) $(0.06) $(0.03) $(0.08) $(0.04)
Net realized and unrealized
gain on investments and
foreign currency
transactions ............. (0.28) 4.97 3.82 2.96 1.00 0.56
------ ------ ------ ------ ------ ------
Total from investment
operations ........... $(0.38) $ 4.87 $ 3.76 $ 2.93 $ 0.92 $ 0.52
------ ------ ------ ------ ------ ------
Less distributions declared to shareholders --
From net investment income . $ -- $ -- $ -- $ -- +++ $(0.02) $ --
From net realized gain on
investments and foreign
currency transactions .... (0.88) (0.90) (0.97) (0.03) (2.87) --
------ ------ ------ ------ ------ ------
Total distributions
declared to
shareholders ......... $(0.88) $(0.90) $(0.97) $(0.03) $(2.89) $ --
------ ------ ------ ------ ------ ------
Net asset value -- end of
period ..................... $20.90 $22.16 $18.19 $15.40 $12.50 $14.47
====== ====== ====== ====== ====== ======
Total return ................. (1.54)% 27.88% 25.59% 23.55% 6.91% 3.73%++
RATIOS (TO AVERAGE NET ASSETS)/
SUPPLEMENTAL DATA:
Expenses## ................. 1.56% 1.63% 1.66% 1.78% 1.82% 2.33%+
Net investment loss ........ (0.42)% (0.49)% (0.37)% (0.21)% (0.65)% (0.89)%+
PORTFOLIO TURNOVER ........... 81% 79% 81% 94% 79% 93%
NET ASSETS AT END OF PERIOD
(000 OMITTED) .............. $2,237,570 $1,860,130 $680,456 $178,117 $25,672 $ 447
- ----------
** For the period from the inception of Class B, September 7, 1993, through September 30, 1993.
+ Annualized.
++ Not annualized.
+++ For the year ended September 30, 1995, the per share distribution from net investment income was $0.00003.
# Per share data for the periods subsequent to September 30, 1993, are based on average shares outstanding.
## For fiscal years ending after September 1, 1995, the Fund's expenses are calculated without reduction for fees paid indirectly.
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS -- CONTINUED
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------------
1998 1997 1996 1995 1994***
------ ------ ------ ------ ------
CLASS C
- -----------------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA (FOR A SHARE OUTSTANDING
THROUGHOUT EACH PERIOD):
<S> <C> <C> <C> <C> <C>
Net asset value -- beginning of period .. $22.17 $18.22 $15.42 $12.51 $13.18
------ ------ ------ ------ ------
Income from investment operations# --
Net investment loss ................... $(0.10) $(0.09) $(0.06) $(0.02) $(0.04)
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions ........................ (0.27) 4.96 3.83 2.96 0.62
------ ------ ------ ------ ------
Total from investment operations .. $(0.37) $ 4.87 $ 3.77 $ 2.94 $ 0.58
------ ------ ------ ------ ------
Less distributions declared to
shareholders --
From net investment income ............ $ -- $ -- +++ $ -- $ -- $ --
In excess of net investment income .... -- -- +++ -- +++ -- --
From net realized gain on investments
and foreign currency transactions ... (0.88) (0.92) (0.97) (0.03) (1.25)
------ ------ ------ ------ ------
Total distributions declared to
shareholders .................... $(0.88) $(0.92) $(0.97) $(0.03) $(1.25)
------ ------ ------ ------ ------
Net asset value -- end of period ........ $20.92 $22.17 $18.22 $15.42 $12.51
====== ====== ====== ====== ======
Total return ............................ (1.51)% 27.87% 25.67% 23.58% 4.43%++
RATIOS (TO AVERAGE NET ASSETS)/
SUPPLEMENTAL DATA:
Expenses## ............................ 1.56% 1.62% 1.67% 1.71% 1.74%+
Net investment loss ................... (0.42)% (0.47)% (0.38)% (0.15)% (0.54)%+
PORTFOLIO TURNOVER ...................... 81% 79% 81% 94% 79%
NET ASSETS AT END OF PERIOD
(000 OMITTED) ......................... $563,505 $459,809 $136,032 $ 25,737 $ 4,821
- ----------
*** For the period from the inception of Class C, January 3, 1994, through September 30, 1994.
+ Annualized.
++ Not annualized.
+++ For the year ended September 30, 1997, the per share distribution from net investment income was $0.0004, and for the years
ended September 30, 1997 and 1996, the per share distribution in excess of net investment income were $0.0012 and $0.0027,
respectively.
# Per share data for the periods subsequent to September 30, 1993, are based on average shares outstanding.
## For fiscal years ending after September 1, 1995, the Fund's expenses are calculated without reduction for fees paid indirectly.
</TABLE>
<PAGE>
3. THE FUND
The Fund is a diversified series of the Trust, an open-end management
investment company, which was organized as a business trust under the laws of
The Commonwealth of Massachusetts in 1984. The Trust presently consists of six
series, each of which represents a portfolio with separate investment
objectives and policies. Shares of the Fund are continuously sold to the
public and the Fund then uses the proceeds to buy securities (stocks, bonds
and other instruments) for its portfolio. Three classes of shares of the Fund
currently are offered for sale to the general public. Class A shares are
offered at net asset value plus an initial sales charge up to a maximum of
5.75% of the offering price (or a CDSC of 1.00% upon redemption 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 a service fee up to a maximum of 0.35% 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 of up to 1.00% per annum. Class C shares do not convert to any other class
of shares of the Fund. In addition, the Fund offers an additional class of
shares, Class I shares, exclusively to certain institutional investors. Class
I shares are made available by means of a separate Prospectus Supplement
provided to institutional investors eligible to purchase Class I shares and
are offered at net asset value without an initial sales charge or CDSC upon
redemption and without an annual distribution and service fee.
The Trust's Board of Trustees provides broad supervision over the affairs of
the Fund. MFS is the Fund's investment adviser. The Adviser is responsible for
the management of the Fund's assets and the officers of the Trust are
responsible for its operations. The Adviser manages the portfolio from day to
day in accordance with the Fund's investment objective and policies. The
selection of investments and the way they are managed depend on conditions and
trends in the economy and the financial marketplaces. The Fund also offers to
buy back (redeem) its shares from its shareholders at any time at net asset
value, less any applicable CDSC.
4. INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE: The Fund's investment objective is to provide long-term
growth of capital and future income. Any investment involves risk and there
can be no assurance that the Fund will achieve its investment objective.
The portfolio securities of the Fund are selected by a committee of investment
research analysts. This committee includes investment analysts employed not
only by the Adviser but also by MFS International (U.K.) Limited, a wholly
owned subsidiary of MFS. The Fund's assets are allocated among industries by
the analysts acting together as a group. Individual analysts are then
responsible for selecting what they view as the securities best suited to meet
the Fund's investment objective within their assigned industry responsibility.
INVESTMENT POLICIES: The Fund's policy is to invest a substantial proportion
of its assets in the common stocks or securities convertible into common
stocks of companies believed to possess better than average prospects for
long-term growth. A smaller proportion of the assets may be invested in bonds,
short-term obligations, preferred stocks or common stocks whose principal
characteristic is income production rather than growth. Such securities may
also offer opportunities for growth of capital as well as income. In the case
of both growth stocks and income issues, emphasis is placed on the selection
of progressive, well-managed companies. The Fund's debt investments, if any,
may consist of "investment grade" securities (rated Baa or better by Moody's
Investors Service, Inc. ("Moody's") or BBB or better by Standard and Poor's
Ratings Services ("S&P") or Fitch IBCA ("Fitch")), and, with respect to no
more than 10% of its net assets, securities in the lower rated categories
(rated Ba or lower by Moody's or BB or lower by S&P or Fitch) or securities
which the Adviser believes to be of similar quality to these lower rated
securities (commonly known as "junk bonds"). For a description of bond
ratings, see Appendix A to the SAI. It is not the Fund's policy to rely
exclusively on ratings issued by established credit rating agencies but rather
to supplement such ratings with the Adviser's own independent and ongoing
review of credit quality. The Fund's achievement of its investment objective
may be more dependent on the Adviser's own credit analysis than in the case of
a fund investing in primarily higher quality bonds. From time to time, the
Fund's management will exercise its judgment with respect to the proportions
invested in growth stocks, income-producing securities or cash (including
foreign currency) and cash equivalents depending on its view of their relative
attractiveness.
5. CERTAIN SECURITIES, INVESTMENT TECHNIQUES AND RISK FACTORS
REPURCHASE AGREEMENTS: The Fund may enter into repurchase agreements in order
to earn income on available cash or as a temporary defensive measure. Under a
repurchase agreement, the Fund acquires securities subject to the seller's
agreement to repurchase at a specified time and price. If the seller becomes
subject to a proceeding under the bankruptcy laws or its assets are otherwise
subject to a stay order, the Fund's right to liquidate the securities may be
restricted (during which time the value of the securities could decline). As
discussed in the SAI, the Fund has adopted certain procedures intended to
minimize risk.
LENDING OF SECURITIES: The Fund may make loans of its fixed income portfolio
securities. Such loans will usually be made only to member banks of the
Federal Reserve System and member firms (and subsidiaries thereof) of the New
York Stock Exchange under contracts only if collateralized by U.S. Government
securities, an irrevocable letter of credit or cash. The Fund will continue to
collect the equivalent of interest on the securities loaned and will also
receive compensation based on investment of cash collateral or a fee (if the
collateral is U.S. Government securities or a letter of credit). The Fund pays
finder's and other fees in connection with securities loans.
AMERICAN DEPOSITARY RECEIPTS: The Fund may invest in American Depositary
Receipts ("ADRs") which are certificates issued by a U.S. depository (usually
a bank) and represent a specified quantity of shares of an underlying non-U.S.
stock on deposit with a custodian bank as collateral. Because ADRs trade on
United States securities exchanges, the Adviser does not treat them as foreign
securities. However, they are subject to many of the risks of foreign
securities (described above) such as changes in exchange rates and more
limited information about foreign issuers.
EMERGING MARKET SECURITIES: Consistent with the Fund's investment objective
and policies, the Fund may invest in securities of issuers whose principal
activities are located in emerging market countries. Emerging market countries
include any country determined by the Adviser to have an emerging market
economy, taking into account a number of factors, including whether the
country has a low- to middle-income economy according to the International
Bank for Reconstruction and Development, the country's foreign currency debt
rating, its political and economic stability and the development of its
financial and capital markets. The Adviser determines whether an issuer's
principal activities are located in an emerging market country by considering
such factors as its country of organization, the principal trading market for
its securities and the source of its revenues and 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% of its assets in that country.
RESTRICTED SECURITIES: The Fund may also purchase securities that are not
registered under the Securities Act of 1933 ("1933 Act") ("restricted
securities"), including those that can be offered and sold to "qualified
institutional buyers" under Rule 144A under the 1933 Act ("Rule 144A
securities"). 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 the Fund's limitation on investing not more
than 10% of its net assets in illiquid investments. The Board of Trustees has
adopted guidelines and delegated to MFS the daily function of determining and
monitoring the liquidity of Rule 144A securities. The Board, however, 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 the
Fund to the extent that qualified institutional buyers become for a time
uninterested in purchasing Rule 144A securities held in the Fund's portfolio.
Subject to the Fund's 10% limitation on investments in illiquid investments,
and subject to the diversification requirements of the Internal Revenue Code
of 1986, as amended (the "Code"), the Fund may also invest in restricted
securities that may not be sold under Rule 144A, which presents certain risks.
As a result, the Fund might not be able to sell these securities when the
Adviser wishes to do so, or might have to sell them at less than fair value.
In addition, market quotations are less readily available. Therefore, judgment
may at times play a greater role in valuing these securities than in the case
of unrestricted securities.
PORTFOLIO TRADING: The primary consideration in placing portfolio security
transactions with broker-dealers for execution is to obtain, and maintain the
availability of, execution at the most favorable prices and in the most
effective manner possible. Consistent with the foregoing primary
consideration, the Conduct Rules of the National Association of Securities
Dealers, Inc. (the "NASD") and such other policies as the Trustees may
determine, the Adviser may consider sales of shares of the Fund and of other
investment company clients of MFD as a factor in the selection of broker-
dealers to execute the Fund's portfolio transactions. From time to time, the
Adviser may direct certain portfolio transactions to broker-dealer firms
which, in turn, have agreed to pay a portion of the Fund's operating expenses
(e.g., fees charged by the custodian of the Fund's assets). For a further
discussion of portfolio trading, see the SAI.
Since shares of the Fund represent an investment in securities with
fluctuating market prices, shareholders should understand that the value of
their shares will vary as the aggregate value of the Fund's portfolio
securities increases or decreases. Moreover, any dividends the Fund pays will
increase or decrease in relation to the income received from its investments.
The Fund does not intend to trade in securities for short-term profits.
However, the Fund will trade whenever it believes that changes are
appropriate.
6. ADDITIONAL RISK FACTORS
RISKS OF INVESTING IN FOREIGN SECURITIES: The Fund may invest up to 20% (and
generally expects to invest between 5% and 15%) of its total assets in foreign
securities which are not traded on a U.S. exchange (not including American
Depositary Receipts). Investing in securities of foreign issuers generally
involves risks not ordinarily associated with investing in securities of
domestic issuers. These include changes in currency rates, exchange control
regulations, governmental administration or economic or monetary policy (in
the United States or abroad) or circumstances in dealings between nations.
Costs may be incurred in connection with conversions between various
currencies. Special considerations may also include more limited information
about foreign issuers, higher brokerage costs, different accounting standards
and thinner trading markets. Foreign securities markets may also be less
liquid, more volatile and less subject to government supervision than in the
United States. Investments in foreign countries could be affected by other
factors including expropriation, confiscatory taxation and potential
difficulties in enforcing contractual obligations and could be subject to
extended settlement periods. The Fund may hold foreign currency received in
connection with investments in foreign securities when, in the judgment of the
Adviser, it would be beneficial to convert such currency into U.S. dollars at
a later date, based on anticipated changes in the relevant exchange rate. The
Fund may also hold foreign currency in anticipation of purchasing foreign
securities. See the SAI for further discussion of foreign securities and the
holding of foreign currency, as well as the associated risks.
RISKS OF INVESTING IN EMERGING MARKET SECURITIES: The risks of investing in
foreign securities may be intensified in the case of investments in emerging
markets. Securities of many issuers in emerging markets may be less liquid and
more volatile than securities of comparable domestic issuers. Emerging markets
also have different clearance and settlement procedures, and in certain
markets there have been times when settlements have been unable to keep pace
with the volume of securities transactions, making it difficult to conduct
such transactions. Delays in settlement could result in temporary periods when
a portion of the assets of the Fund is uninvested and no return is earned
thereon. The inability of the Fund to make intended security purchases due to
settlement problems could cause the Fund to miss attractive investment
opportunities. Inability to dispose of portfolio securities due to settlement
problems could result in losses to the Fund due to subsequent declines in
value of the portfolio security, a decrease in the level of liquidity in the
Fund's portfolio, or, if the Fund has entered into a contract to sell the
security, in possible liability to the purchaser. Certain markets may require
payment for securities before delivery, and in such markets the Fund bears the
risk that the securities will not be delivered and that the Fund's payments
will not be returned. Securities prices in emerging markets can be
significantly more volatile than in the more developed nations of the world,
reflecting the greater uncertainties of investing in less established markets
and economies. In particular, countries with emerging markets may have
relatively unstable governments, present the risk of nationalization of
businesses, restrictions on foreign ownership, or prohibitions 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 price movements.
Certain emerging markets may require governmental approval for the
repatriation of investment income, capital or the proceeds of sales of
securities by foreign investors. In addition, if a deterioration occurs in an
emerging market's balance of payments or for other reasons, a country could
impose temporary restrictions on foreign capital remittances. The Fund could
be adversely affected by delays in, or a refusal to grant, any required
governmental approval for repatriation of capital, as well as by the
application to the Fund of any restrictions on investments.
Investment in certain foreign emerging market debt obligations may be
restricted or controlled to varying degrees. These restrictions or controls
may at times preclude investment in certain foreign emerging market debt
obligations and increase the expenses of the Fund.
RISKS OF INVESTING IN LOWER RATED BONDS: As described above, the Fund may
invest in fixed income (i.e., debt) securities rated Baa by Moody's or BBB by
S&P and comparable unrated securities. These securities, while normally
exhibiting adequate protection parameters, have speculative characteristics
and changes in economic conditions or other circumstances are more likely to
lead to a weakened capacity to make principal and interest payments than in
the case of higher grade fixed income securities.
The Fund may also invest in fixed income securities that are rated Ba or lower
by Moody's or BB or lower by S&P or Fitch or comparable unrated securities
("junk bonds"). These securities are considered speculative and, while generally
providing greater income than investments in higher rated securities, will
involve greater risk of principal and income (including the possibility of
default or bankruptcy of the issuers of such securities) and may involve greater
volatility of price (especially during periods of economic uncertainty or
change) than securities in the higher rating categories. However, since yields
vary over time, no specific level of income can ever be assured. These lower
rated high yielding fixed income securities generally tend to reflect economic
changes as well as short-term corporate and industry developments to a greater
extent than higher rated securities which react primarily to fluctuations in the
general level of interest rates. These lower rated fixed income securities are
also affected by changes in interest rates, the market's perception of their
credit quality, and the outlook for economic growth. In the past, economic
downturns or an increase in interest rates have, under certain circumstances,
caused a higher incidence of default by the issuer of these securities and may
do so in the future, especially in the case of highly leveraged issuers. During
certain periods, the higher yields on the Fund's lower rated high yielding fixed
income securities are paid primarily because of the increased risk of loss of
principal and income, arising from such factors as the heightened possibility of
default or bankruptcy of the issuers of such securities. Due to the fixed income
payments of these securities, the Fund may continue to earn the same level of
interest income while its net asset value declines due to portfolio losses,
which could result in an increase in the Fund's yield despite the actual loss of
principal. The market for these lower rated fixed income securities may be less
liquid than the market for investment grade fixed income securities. Therefore,
judgment may at times play a greater role in valuing these securities than in
the case of investment grade fixed income securities.
------------------------
The investment objective and policies described above are not fundamental and
may be changed without shareholder approval. A change in the Fund's investment
objective may result in the Fund having an investment objective different from
the objective which the Shareholder considered appropriate at the time of
investment in the Fund.
The SAI includes a discussion of other investment policies and a listing of
specific investment restrictions which govern the Fund's investment policies.
The specific investment restrictions listed in the SAI may be changed without
approval of the shareholders of the Fund, unless indicated otherwise (see
"Investment Restrictions" in the SAI). Except with respect to the Fund's
policy on borrowing and investing in illiquid securities, the Fund's
investment limitations, policies and ratings standards are adhered to at the
time of purchase or utilization of assets; a subsequent change in
circumstances will not be considered to result in a violation of policy.
7. MANAGEMENT OF THE FUND
INVESTMENT ADVISER: The Adviser manages the Fund pursuant to an Investment
Advisory Agreement, dated November 1, 1998 (the "Advisory Agreement"). Under
the Advisory Agreement, the Adviser provides the Fund with overall investment
advisory services. The Fund is currently managed by a committee comprised of
various equity research analysts employed by the Adviser. For these services
and facilities, effective November 1, 1998, the Adviser receives 0.43% per
annum of the Fund's average daily net assets. Prior to November 1, 1998, the
Adviser received a management fee, computed and paid monthly, fixed by a
formula based upon a percentage of the Fund's average daily net assets plus a
percentage of the Fund's gross income (i.e., income other than gains from the
sale of securities) in each case on an annualized basis for the Fund's then
current fiscal year. The applicable percentages were reduced as assets and
income reached the following levels:
ANNUAL RATE OF MANAGEMENT FEE ANNUAL RATE OF MANAGEMENT FEE
BASED ON AVERAGE DAILY NET ASSETS BASED ON GROSS INCOME
- ------------------------------------- ----------------------------------
0.40% of the first $100 million 5.0% of the first $2 million
0.32% of the next $400 million 4.0% of the next $8 million
0.288% of average daily net assets 3.6% of gross income in excess of
in excess of $500 million $10 million
For the fiscal year ended September 30, 1998, MFS received management fees of
$18,088,633 (of which $15,823,906 was based on average daily net assets and
$2,264,727 on gross income), equivalent, on an annualized basis, to 0.33% of
the Fund's average daily net assets.
MFS also serves as investment adviser to each of the other funds in the MFS
Family of Funds (the "MFS Funds"), to MFS(R) Municipal Income Trust, MFS
Multimarket Income Trust, MFS Government Markets Income Trust, MFS
Intermediate Income Trust, MFS Charter Income Trust, MFS Special Value Trust,
MFS Institutional Trust, MFS 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.), a
subsidiary of Sun Life Assurance Company of Canada ("Sun Life"), in connection
with the sale of various fixed/variable annuity contracts. MFS and its wholly
owned subsidiary, MFS Institutional Advisors, Inc., also provide investment
advice to substantial private clients.
MFS is America's oldest mutual fund organization. MFS and its predecessor
organizations have a history of money management dating from 1924 and the
founding of the first mutual fund in the United States, Massachusetts
Investors Trust. Net assets under the management of the MFS organization were
approximately $ billion on behalf of over million investor accounts as
of December 31, 1998. MFS is a subsidiary of Sun Life of Canada (U.S.)
Financial Services Holdings, Inc., which in turn is an indirect subsidiary of
Sun Life. The Directors of MFS are John W. Ballen, Thomas J. Cashman, Joseph
Dello Russo, John D. McNeil, Kevin R. Parke, Arnold D. Scott, William W.
Scott, Jr., Jeffrey L. Shames and Donald A. Stewart. Mr. Shames is the
Chairman and Chief Executive Officer of MFS, Mr. Ballen is the President and
the Chief Investment Officer of MFS, Mr. Cashman is an Executive Vice
President of MFS, Mr. Dello Russo is the Chief Financial Officer and an
Executive Vice President of MFS, Mr. Parke is the Chief Equity Officer,
Director of Equity Research and an Executive Vice President of MFS, Mr. Arnold
Scott is the Secretary and a Senior Executive Vice President of MFS and Mr.
William Scott is the President of MFS Fund Distributors, Inc. (the distributor
of MFS Funds). McNeil and Stewart are the Chairman and the President,
respectively, of Sun Life. Sun Life, a mutual life insurance company, is one
of the largest international life insurance companies and has been operating
in the United States since 1895, establishing a headquarters office here in
1973. The executive officers of MFS report to the Chairman of Sun Life.
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, Ellen Moynihan, Mark
E. Bradley, and James R. Bordewick, Jr., all of whom are officers of MFS, are
also officers of the Trust.
In certain instances there may be securities which are suitable for the Fund's
portfolio as well as for portfolios of other clients of MFS. 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 the Fund is concerned,
in other cases, however, it may produce increased investment opportunities for
the Fund.
DISTRIBUTOR: MFD, a wholly owned subsidiary of MFS, is the distributor of
shares of the Fund and also serves as distributor for each of the other MFS
Funds.
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 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.
SHAREHOLDER SERVICING AGENT: MFS Service Center, Inc. (the "Shareholder
Servicing Agent"), a wholly owned subsidiary of MFS, performs transfer agency,
certain dividend disbursing agency and other services for the Fund.
8. YEAR 2000 ISSUES
The Fund could be adversely affected if the computer systems used by MFS, the
Fund's other service providers or the companies in which the Fund invests do
not properly process date-related information from and after January 1, 2000
(the "Year 2000 Issue"). MFS recognizes the importance of the Year 2000 Issue
and, to address Year 2000 compliance, created a Year 2000 Program Management
Office in 1996, which is separately funded, has a specialized staff and
reports directly to MFS Senior Management. The Office, with the help of
external consultants, is responsible for ascertaining that all internal
systems, data feeds and third party applications are Year 2000 compliant.
While MFS is confident that all MFS systems will be Year 2000 compliant before
the turn of the century, there are significant systems interdependencies in
the domestic and foreign markets for securities, the business environments in
which companies held by the Fund operate and in MFS' own business environment.
MFS has been actively working with the Fund's other service providers to
identify and respond to potential problems in an effort to ensure Year 2000
compliance or develop contingency plans. Year 2000 compliance is also one of
the factors considered by MFS in its ongoing assessment of companies in which
the Fund invests. There can be no assurance, however, that these steps will be
sufficient to avoid any adverse impact on the Fund.
9. INFORMATION CONCERNING SHARES OF THE FUND
PURCHASES
Class A, B and C shares of the 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 the Fund.
This Prospectus offers Class A, B and C shares, which bear sales charges and
distribution fees in different forms and amounts, as described below:
CLASS A SHARES: Class A shares are generally offered at net asset value plus
an initial sales charge, but in certain cases are offered at net asset value
without an initial sales charge but subject to a CDSC.
PURCHASES SUBJECT TO INITIAL SALES CHARGE. Class A shares are offered at
net asset value plus an initial sales charge as follows:
<TABLE>
<CAPTION>
SALES CHARGE* AS
PERCENTAGE OF:
-------------------------------- DEALER ALLOWANCE
NET AMOUNT AS A PERCENTAGE
AMOUNT OF PURCHASE OFFERING PRICE INVESTED OF OFFERING PRICE
- ------------------ -------------- -------- -----------------
<S> <C> <C> <C> <C>
Less than $50,000 ................................. 5.75% 6.10% 5.00%
$50,000 but less than $100,000 .................... 4.75 4.99 4.00
$100,000 but less than $250,000 ................... 4.00 4.17 3.20
$250,000 but less than $500,000 ................... 2.95 3.05 2.25
$500,000 but less than $1,000,000 ................. 2.20 2.25 1.70
$1,000,000 or more ................................ None** None** See Below**
- ------------
* Because of rounding in the calculation of offering price, actual sales charges may be more or less than
those calculated using the percentages above.
** A CDSC will apply to such purchases, as discussed below.
</TABLE>
MFD allows discounts to dealers (which are alike for all dealers) from the
applicable public offering price, as shown in the above table. In the case of
the maximum sales charge, the dealer retains 5% and MFD retains approximately
3/4 of 1% of the public offering price. The sales charge may vary depending on
the number of shares of the Fund as well as certain other MFS Funds owned or
being purchased, the existence of an agreement to purchase additional shares
during a 13-month period (or 36-month period for purchases of $1 million or
more) or other special purchase programs. A description of the Right of
Accumulation, Letter of Intent and Group Purchase privileges by which the
sales charge may be reduced is set forth in the SAI.
PURCHASES SUBJECT TO A CDSC (but not subject to an initial sales charge).
In the following five circumstances, Class A shares are 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
will 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; (c) the aggregate purchases by the retirement plan of Class A
shares of the MFS Funds will be in an aggregate amount of at least
$500,000 within a reasonable period of time, as determined by MFD in
its sole discretion; and (d) the plan has not redeemed its Class B
shares in the MFS Funds in order to purchase Class A shares under this
category.
(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 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 all 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 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 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
regulation 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 upon redemption as follows:
CONTINGENT
YEAR OF REDEMPTION DEFERRED SALES
AFTER PURCHASE CHARGE
- ------------------ ---------------
First .............................................. 4%
Second ............................................. 4%
Third .............................................. 3%
Fourth ............................................. 3%
Fifth .............................................. 2%
Sixth .............................................. 1%
Seventh and following .............................. 0%
The CDSC imposed is assessed against the lesser of the value of the shares
redeemed (exclusive of reinvested dividends and capital gain distributions) or
the total cost of such shares. No CDSC is assessed against shares acquired
through the automatic reinvestment of dividends or capital gain distributions.
See "Redemptions and Repurchases -- Contingent Deferred Sales Charge" for
further discussion of the CDSC.
Except as described below, MFD will pay commissions to dealers of 3.75% of the
purchase price of Class B shares purchased through dealers. MFD will also
advance to dealers the first year service fee payable under the 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 between July 1,
1996 and December 31, 1998, 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
the Fund's Distribution Plan.
For purchases of Class B shares by a retirement plan whose sponsoring
organization subscribes to the MFS Recordkeeper Plus product and which
establishes its account with MFSC on or after January 1, 1999 (provided that
the plan establishment paperwork is received by MFSC in good order on or after
November 15, 1998), MFD pays no up front commissions to dealers, but instead
pays an amount to dealers equal to 1% per annum of the average daily net
assets of the Fund attributable to plan assets, payable at the rate of 0.25%
at the end of each calendar quarter, in arrears. This commission structure is
not available with respect to a plan with a pre-existing account(s) with any
MFS Fund which seeks to switch to the MFS Recordkeeper Plus product.
Certain 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 established an account with the
Shareholder Servicing Agent between July 1, 1996 and December 31, 1998;
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.
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 Recordkeeper Plus product
and which establishes its account with MFSC on or after January 1, 1999
(provided that the plan establishment paperwork is received by MFSC in good
order on or after November 15, 1998). A plan with a pre-existing account(s)
with any MFS Fund which switches to the MFS Recordkeeper Plus product will not
become eligible for this waiver category.
CONVERSION OF CLASS B SHARES. Class B shares of the Fund that remain
outstanding for approximately eight years will convert to Class A shares of
the Fund. Shares purchased through the reinvestment of distributions paid in
respect of Class B shares will be treated as Class B shares for purposes of
the payment of the distribution and service fees under the Fund's Distribution
Plan. See "Information Concerning Shares of the Fund -- 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.
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 the Fund's Distribution Plan by
the Fund to MFD for the first year after purchase (see "Distribution Plan"
below).
CLASS C SHARES: Class C shares are offered at net asset value without an
initial sales charge or a CDSC 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 of the Fund. The maximum investment in Class C shares that may be
made is up to $1,000,000 per transaction.
Class C shares are not currently available for purchase by any retirement plan
qualified under Sections 401(a) or 403(b) of the Internal Revenue Code of
1986, as amended (the "Code"), if the retirement plan and/or the sponsoring
organization subscribe to the MFS FUNDamental 401(k) Plan or another similar
recordkeeping program made available by the Shareholder Servicing Agent.
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
the Fund's shares.
MINIMUM INVESTMENT. Except as described below, the minimum initial
investment is $1,000 per account and the minimum additional investment is $50
per account. Accounts being established for monthly automatic investments and
under payroll savings programs and tax-deferred retirement programs (other
than IRAs) involving the submission of investments by means of group remittal
statements are subject to a $50 minimum on initial and additional investments
per account. The minimum initial investment for IRAs is $250 per account and
the minimum additional investment is $50 per account. Accounts being
established for participation in the Automatic Exchange Plan are subject to a
$50 minimum on initial and additional investments per account. There are also
other limited exceptions to these minimums for certain tax-deferred retirement
programs. Any minimums may be changed at any time at the discretion of MFD.
The Fund reserves the right to cease offering its shares at any time.
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. The Fund and MFD each reserve the
right to reject or restrict any specific purchase or exchange request. Because
an exchange request involves both a request to redeem shares of one fund and
to purchase shares of another fund, the Fund considers the underlying
redemption request conditioned upon the acceptance of the underlying purchase
request. Therefore, in the event that the Fund or MFD rejects an exchange
request, neither the redemption nor the purchase side of the exchange will be
processed.
The MFS Family of Funds is not designed for professional market timing
organizations or other entities using programmed or frequent exchanges. The
MFS Family of Funds defines a "market timer" as an individual, or organization
acting on behalf of one or more individuals, if (i) the individual or
organization makes six or more exchange requests among the MFS Family of Funds
or three or more exchange requests out of any of the MFS high yield bond funds
or MFS municipal bond funds per calendar year and (ii) any one of such
exchange requests represents shares equal in value to $1 million or more.
Accounts under common ownership or control, including accounts administered by
market timers, will be aggregated for purposes of this definition.
As noted above, the Fund and MFD each reserve 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 (i) delaying for
up to seven days the purchase side of an exchange request by market timers,
(ii) rejecting or otherwise restricting purchase or exchange requests by
market timers; and (iii) permitting exchanges by market timers only into
certain 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 the Fund. Such concessions provided by
MFD may include financial assistance to dealers in connection with preapproved
conferences or seminars, sales or training programs for invited registered
representatives 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.
RESTRICTIONS ON ACTIVITIES OF NATIONAL BANKS. The Glass-Steagall Act
prohibits national banks from engaging in the business of underwriting,
selling or distributing securities. Although the scope of the prohibition has
not been clearly defined, MFD believes that such Act should not preclude banks
from entering into agency agreements with MFD. If, however, a bank were
prohibited from so acting, the Trustees would consider what actions, if any,
would be necessary to continue to provide efficient and effective shareholder
services in respect of Shareholders who invested in the Fund through a
national bank. It is not expected that shareholders would suffer any adverse
financial consequence as a result of these occurrences. In addition, state
securities laws on this issue may differ from the interpretation of federal
law expressed herein and banks and financial institutions may be required to
register as broker-dealers pursuant to state law.
------------------------
A shareholder whose shares are held in the name of, or controlled by, a dealer
might not receive many of the privileges and services from the Fund (such as
Right of Accumulation, Letter of Intent and certain recordkeeping services)
that the Fund ordinarily provides.
EXCHANGES
Subject to the requirements set forth below, some or all of the shares in an
account with the Fund for which payment has been received by the Fund (i.e.,
an established account) may be exchanged for shares of the same class of any
of the other MFS Funds at net asset value (if available for sale). Shares of
one class may not be exchanged for shares of any other class.
EXCHANGES AMONG MFS FUNDS (EXCLUDING MFS MONEY MARKET FUNDS): No initial
sales charges or CDSC will be imposed in connection with an exchange from
shares of an MFS Fund to shares of any other MFS Fund, except with respect to
exchanges from an MFS money market fund to another MFS Fund which is not an
MFS money market fund (discussed below). With respect to an exchange
involving shares subject to a CDSC, the CDSC will be unaffected by the
exchange and the holding period for purposes of calculating the CDSC will
carry over to the acquired shares.
EXCHANGES FROM AN MFS MONEY MARKET FUND: Special rules apply with respect
to the imposition of an initial sales charge or a CDSC for exchanges from an
MFS money market fund to another MFS Fund which is not an MFS money market
fund. These rules are described under the caption "Exchanges" in the
Prospectuses of those MFS money market funds.
EXCHANGES INVOLVING THE MFS FIXED FUND: Class A shares of any MFS Fund
held by certain qualified retirement plans may be exchanged for units of
participation of the MFS Fixed Fund (a bank collective investment fund) (the
"Units"), and Units may be exchanged for Class A shares of any MFS Fund. With
respect to exchanges between Class A shares subject to a CDSC and Units, the
CDSC will carry over to the acquired shares or Units and will be deducted from
the redemption proceeds when such shares or Units are subsequently redeemed,
assuming the CDSC is then payable (the period during which the Class A shares
and the Units were held will be aggregated for purposes of calculating the
applicable CDSC). In the event that a shareholder initially purchases Units
and then exchanges into Class A shares subject to an initial sales charge of
an MFS Fund, the initial sales charge shall be due upon such exchange, but
will not be imposed with respect to any subsequent exchanges between such
Class A shares and Units with respect to shares on which the initial sales
charge has already been paid. In the event that a shareholder initially
purchases Units and then exchanges into Class A shares subject to a CDSC of an
MFS Fund, the CDSC period will commence upon such exchange, and the
applicability of the CDSC with respect to subsequent exchanges shall be
governed by the rules set forth above in this paragraph.
GENERAL: A shareholder should read the prospectus of the other MFS Funds
into which an exchange is made 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 New York
Stock Exchange (generally, 4:00 p.m., Eastern time) (the "Exchange"), the
exchange will occur on that day if all the requirements set forth above have
been complied with at that time and subject to the Fund's right to reject
purchase orders. No more than five exchanges may be made in any one Exchange
Request by telephone. Additional information concerning this exchange
privilege and prospectuses for any of the other MFS Funds may be obtained from
dealers or the Shareholder Servicing Agent. 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 the Fund is open for business by redeeming shares at their
net asset value (a redemption) or by selling such shares to the Fund through a
dealer (a repurchase). Certain redemptions and repurchases are, however,
subject to a CDSC. See "Contingent Deferred Sales Charge" below. Because the
net asset value of shares of the account fluctuates, redemptions or
repurchases, which are taxable transactions, are likely to result in gains or
losses to the shareholder. When a shareholder withdraws an amount from his
account, the shareholder is deemed to have tendered for redemption a
sufficient number of full and fractional shares in his account to cover the
amount withdrawn. The proceeds of a redemption or repurchase will normally be
available within seven days, except for shares purchased or received in
exchange for shares purchased by check (including certified checks or
cashier's checks). Payment of redemption proceeds may be delayed for up to 15
days from the purchase date in an effort to assure that such check has
cleared. See "Tax Status" below.
REDEMPTION BY MAIL: Each shareholder may redeem all or any portion of the
shares in his account by mailing or delivering to the Shareholder Servicing
Agent (see back cover for address) a stock power with a written request for
redemption or letter of instruction, together with his share certificates (if
any were issued), all in "good order" for transfer. "Good order" generally
means that the stock power, written request for redemption, letter of
instruction or certificate must be endorsed by the record owner(s) exactly as
the shares are registered and the signature(s) must be guaranteed in the
manner set forth below under the caption "Signature Guarantee." In addition,
in some cases "good order" will require the furnishing of additional
documents. The Shareholder Servicing Agent may make certain de minimis
exceptions to the above requirements for redemption. Within seven days after
receipt of a redemption request in "good order" by the Shareholder Servicing
Agent, the Fund will make payment in cash of the net asset value of the shares
next determined after such redemption request was received, reduced by the
amount of any applicable CDSC described above and the amount of any income tax
required to be withheld, except during any period in which the right of
redemption is suspended or date of payment is postponed because the Exchange
is closed or trading on such Exchange is restricted or to the extent otherwise
permitted by the 1940 Act if an emergency exists.
REDEMPTION BY TELEPHONE: Each shareholder may redeem an amount from his
account by telephoning the Shareholder Servicing Agent toll-free at (800)
225-2606. Shareholders wishing to avail themselves of this telephone
redemption privilege must so elect on their Account Application, designate
thereon a bank and account number to receive the proceeds of such redemption,
and sign the Account Application Form with the signature(s) guaranteed in the
manner set forth below under the caption "Signature Guarantee." The proceeds
of such a redemption, reduced by the amount of any applicable CDSC and the
amount of any income tax required to be withheld, are mailed by check to the
designated account, without charge, if the redemption proceeds do not exceed
$1,000, and are wired in federal funds to the designated account if the
redemption proceeds exceed $1,000. If a telephone redemption request is
received by the Shareholder Servicing Agent by the close of regular trading on
the Exchange on any business day, shares will be redeemed at the closing net
asset value of the Fund on that day. Subject to the conditions described in
this section, proceeds of a redemption are normally mailed or wired on the
next business day following the date of receipt of the order for redemption.
The Shareholder Servicing Agent will not be responsible for any losses
resulting from unauthorized telephone transactions if it follows reasonable
procedures designed to verify the identity of the caller. The Shareholder
Servicing Agent will request personal or other information from the caller,
and will normally also record calls. Shareholders should verify the accuracy
of confirmation statements immediately after their receipt.
REPURCHASE THROUGH A DEALER: If a shareholder desires to sell his shares
through his dealer (a repurchase), the shareholder can place a repurchase
order with his dealer, who may charge the shareholder a fee. IF THE DEALER
RECEIVES THE SHAREHOLDER'S ORDER PRIOR TO THE CLOSE OF REGULAR TRADING ON THE
EXCHANGE AND COMMUNICATES IT TO MFD BEFORE THE CLOSE OF BUSINESS ON THE SAME
DAY, THE SHAREHOLDER WILL RECEIVE THE NET ASSET VALUE CALCULATED ON THAT DAY,
REDUCED BY THE AMOUNT OF ANY APPLICABLE CDSC AND THE AMOUNT OF ANY INCOME TAX
REQUIRED TO BE WITHHELD.
CONTINGENT DEFERRED SALES CHARGE: Investments in Class A, 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 C shares and Class B shares purchased on or after
January 1, 1993 will be aggregated on a calendar month basis -- all
transactions made during a calendar month, regardless of when during the month
they have occurred, will age one year at the close of business on the last day
of such month in the following calendar year and each subsequent year. For
Class B shares of the Fund purchased prior to January 1, 1993, transactions
will be aggregated on a calendar year basis -- all transactions made during a
calendar year, regardless of when during the year they have occurred, will age
one year at the close of business on December 31 of that year and each
subsequent year.
At the time of a redemption, the amount by which the value of a shareholder's
account for a particular class of shares represented by Direct Purchases
exceeds the sum of the six calendar year aggregations (12 months in the case
of purchases of Class C shares and of purchases of $1 million or more of Class
A shares or purchases by certain retirement plans of Class A shares) of Direct
Purchases may be redeemed without charge ("Free Amount"). Moreover, no CDSC is
ever assessed on additional shares acquired through the automatic reinvestment
of dividends or capital gain distributions ("Reinvested Shares"). Therefore,
at the time of redemption of a particular class, (i) any Free Amount is not
subject to the CDSC and (ii) the amount of the redemption equal to the then-
current value of Reinvested Shares is not subject to the CDSC, but (iii) any
amount of the redemption in excess of the aggregate of the then-current value
of Reinvested Shares and the Free Amount is subject to a CDSC. The CDSC will
first be applied against the amount of Direct Purchases which will result in
any such charge being imposed at the lowest possible rate. The CDSC to be
imposed upon redemptions of shares will be calculated as set forth in
"Purchases" above.
The applicability of a CDSC will be unaffected by exchanges or transfers of
registration, except as described in Appendix A hereto.
GENERAL: The following information applies to redemptions and repurchases
of all classes of the Fund's shares.
SIGNATURE GUARANTEE. In order to protect shareholders against fraud, the
Fund requires, in certain instances as indicated above, that the shareholder's
signature be guaranteed. In these cases the shareholder's signature must be
guaranteed by an eligible bank, broker, dealer, credit union, national
securities exchange, registered securities association, clearing agency or
savings association. Signature guarantees shall be accepted in accordance with
policies established by the Shareholder Servicing Agent.
REINSTATEMENT PRIVILEGE. Shareholders of the Fund who have redeemed their
shares have a one-time right to reinvest the redemption proceeds in the same
class of shares of any of the MFS Funds (if shares of such Fund are available
for sale) at net asset value (with a credit for any CDSC paid) within 90 days
of the redemption pursuant to the Reinstatement Privilege. If the shares
credited for any CDSC paid are then redeemed within six years of the initial
purchase in the case of Class B shares or within 12 months of the initial
purchase for 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 the 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. The 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, the Fund reserves the right to redeem shares in
any account for their then-current value if at any time the total investment
in such account drops below $500 because of redemptions 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 the 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 certain features of the
Distribution Plan that are common to each class of shares, as described below.
SERVICE FEES. The Distribution Plan provides that the Fund may pay MFD a
service fee of up to 0.25% of the average daily net assets attributable to the
class of shares to which the Distribution Plan relates (i.e., Class A, Class B
or Class C shares, as appropriate) (the "Designated Class") annually in order
that MFD may pay expenses on behalf of the Fund relating to the servicing of
shares of the Designated Class. The service fee is used by MFD to compensate
dealers which enter into a sales agreement with MFD in consideration for all
personal services and/or account maintenance services rendered by the dealer
with respect to shares of the Designated Class owned by investors for whom
such dealer is the dealer or holder of record. MFD may from time to time
reduce the amount of the service fees paid for shares sold prior to a certain
date. Service fees may be reduced for a dealer that is the holder or dealer of
record for an investor who owns shares of the Fund having an aggregate net
asset value at or above a certain dollar level. Dealers may from time to time
be required to meet certain criteria in order to receive service fees. MFD or
its affiliates are entitled to retain all service fees payable under the
Distribution Plan for which there is no dealer of record or for which
qualification standards have not been met as partial consideration for
personal services and/or account maintenance services performed by MFD or its
affiliates to shareholder accounts.
DISTRIBUTION FEES. The Distribution Plan provides that the Fund may pay
MFD a distribution fee based on the average daily net assets attributable to
the Designated Class as partial consideration for distribution services
performed and expenses incurred in the performance of MFD's obligations under
its distribution agreement with the Fund. See "Management of the Fund --
Distributor" in the SAI. The amount of the distribution fee paid by the Fund
with respect to each class differs under the Distribution Plans, as does the
use by MFD of such distribution fees. Such amounts and uses are described
below in the discussion of the 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 expense
incurred by MFD under its distribution agreement with the Fund, the Fund is
not liable to MFD for any losses MFD may incur in performing services under
its distribution agreement with the Fund.
OTHER COMMON FEATURES. Fees payable under the Distribution Plan are
charged to, and therefore reduce, income allocated to shares of the Designated
Class. The provisions of the Distribution Plan relating to operating policies
as well as initial approval, renewal, amendment and termination are
substantially identical as they relate to each class of shares covered by the
Distribution Plan.
FEATURES UNIQUE TO EACH CLASS OF SHARES: There 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 0.10% of the Fund's average daily net assets attributable to
Class A shares. As noted above, MFD may use the distribution fee to cover
distribution-related expenses incurred by it under its distribution agreement
with the Fund, including commissions to dealers and payments to wholesalers
employed by MFD (e.g., MFD pays 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). See "Purchases -- Class A Shares" above.
In addition, to the extent that the aggregate service and distribution fees
paid under the Distribution Plan do not exceed 0.35% per annum of the average
daily net assets of the Fund attributable to Class A shares, the Fund is
permitted to pay such distribution-related expenses or other distribution-
related expenses.
CLASS B 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 therefore, MFD may retain the service fee paid by the Fund with
respect to such shares for the first year after purchase. Dealers will become
eligible to receive the ongoing 0.25% per annum service fee with respect to
such shares commencing in the thirteenth month following purchase.
Under the Distribution Plan, the Fund pays MFD a distribution fee equal, on an
annual basis, to 0.75% of the Fund's average daily net assets attributable to
Class B shares. As noted above, this distribution fee may be used by MFD to
cover its distribution-related expenses under its distribution agreement with
the Fund (including the 3.75% commission it pays to dealers upon purchase of
Class B shares, as described under "Purchases -- Class B Shares" above).
CLASS C SHARES. Class C shares are offered at net asset value without an
initial sales charge but subject to a CDSC. 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 the Fund's average daily net assets attributable to Class C shares.
CURRENT LEVEL OF DISTRIBUTION AND SERVICE FEES: The Fund's Class A, Class
B and Class C distribution and service fees for its current fiscal year are
0.35%, 1.00% and 1.00% per annum, respectively. The 0.35% per annum Class A
distribution/service fee is reduced to 0.25% per annum for shares purchased
prior to March 1, 1991.
DISTRIBUTIONS
The Fund intends to pay substantially all of its net investment income to its
shareholders as dividends on an annual basis. The Fund may make one or more
distributions during the calendar year to its shareholders from any long-term
capital gains, and may also make one or more distributions during the calendar
year to its shareholders from short-term capital gains. Shareholders may elect
to receive dividends and capital gain distributions in either cash or
additional shares of the same class with respect to which a distribution is
made. See "Tax Status" and "Shareholder Services -- Distribution Options"
below. Distributions paid by the Fund with respect to Class A shares will
generally be greater than those paid with respect to Class B and Class C
shares because expenses attributable to Class B and Class C shares will
generally be higher.
TAX STATUS
The Fund is treated as an entity separate from the other series of the Trust
for federal income tax purposes. In order to minimize the taxes the Fund would
otherwise be required to pay, the Fund intends to qualify each year as a
"regulated investment company" under Subchapter M of the Code. Because the
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 Fund will be required to pay
entity-level federal income or excise taxes, although the Fund's foreign-
source income may be subject to foreign withholding taxes.
Shareholders of the Fund normally will have to pay federal income taxes, and
any state or local taxes, on the dividends and capital gain distributions they
receive from the Fund, whether paid in cash or reinvested in additional
shares. A portion of the dividends received from the Fund (but none of the
Fund's capital gain distributions) may qualify for the dividends received
deduction for corporations.
Shortly after the end of each calendar year, each shareholder will be sent a
statement setting forth the federal income tax status of all dividends and
distributions for that year, including the portion taxable as ordinary income,
the portion taxable as long term capital gain (as well as the rate category or
categories under which such gain is taxable), the portion, if any,
representing a return of capital (which is generally free of current taxes but
which results in a basis reduction), and the amount, if any, of federal income
tax withheld.
Fund distributions will reduce the Fund's net asset value per share.
Shareholders who buy shares shortly before the Fund makes a distribution may
thus pay the full price for the shares and then effectively receive a portion
of the purchase price back as a taxable distribution.
The Fund intends to withhold U.S. federal income tax at the rate of 30% (or
any lower rate permitted under an applicable treaty) on taxable dividends and
other payments that are subject to such withholding and are made to persons
who are neither citizens nor residents of the U.S. The 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 Fund's 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 the Fund.
NET ASSET VALUE
The net asset value per share of each class of shares of the Fund is
determined each day during which the Exchange is open for trading. This
determination is made once each day as of the close of regular trading on the
Exchange by deducting the amount of the liabilities attributable to the class
from the value of the assets attributable to the class and dividing the
difference by the number of shares of the class outstanding. Assets in the
Fund's portfolio are valued on the basis of their market values as described
in the SAI. The net asset value of each class of shares is effective for
orders received in "good order" by the dealer prior to its calculation and
received by MFD prior to the close of that business day. The Fund has
authorized one or more dealers to receive purchase and redemption orders on
behalf of the Fund. Such dealers are authorized to designate other
intermediaries to receive purchase and redemption orders on behalf of the
Fund. The Fund will be deemed to have received a purchase or redemption order
when an authorized dealer or, if applicable, a dealer's authorized designee.
receives the order. Customer orders will be priced at the net asset value of
the Fund next computed after such orders are received by an authorized dealer
or the dealer's authorized designee.
DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Fund, one of six series of the Trust, 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). The Fund also has a class of shares
which it offers exclusively to certain institutional investors, entitled Class
I shares. The Trust has reserved the right to create and issue additional
classes and series of shares, in which case each class of shares of a series
would participate equally in the earnings, dividends and assets attributable
to that class of shares of that particular series. Shareholders are entitled
to one vote for each share held and shares of each series would be entitled to
vote separately to approve investment advisory agreements or changes in
investment restrictions, but shares of all series would vote together in the
election of Trustees or ratification of selection of accountants.
Additionally, each class of shares of a series will vote separately on any
material increases in the fees under the Distribution Plan or on any other
matter that affects solely its class of shares, but will otherwise vote
together with all other classes of shares of the series on all other matters.
The Trust does not intend to hold annual shareholder meetings. The Declaration
of Trust provides that a Trustee may be removed from office in certain
instances (see "Description of Shares, Voting Rights and Liabilities" in the
SAI).
Each share of a class of the Fund represents an equal proportionate interest
in the Fund with each other class share, subject to the liabilities of the
particular class. Shares have no pre-emptive or conversion rights (except as
described above in "Purchases -- Conversion of Class B Shares"). Shares are
fully paid and non-assessable. Should the Fund be liquidated, shareholders of
each class are entitled to share pro rata in the net assets attributable to
that class available for distribution to shareholders. Shares will remain on
deposit with the Shareholder Servicing Agent and certificates will not be
issued except in connection with pledges and assignments and in certain other
limited circumstances.
The Trust is an entity of the type commonly known as a "Massachusetts business
trust." Under Massachusetts law, shareholders of such a trust may, under
certain circumstances, be held personally liable as partners for its
obligations. However, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which both
inadequate insurance (e.g., fidelity bonding and errors and omissions
insurance) exists and the Trust itself is unable to meet its obligations.
PERFORMANCE INFORMATION
From time to time, the Fund will provide total rate of return quotations for
each class of shares and may also quote fund rankings in the relevant fund
category from various sources, such as the Lipper Analytical Securities
Corporation and Wiesenberger Investment Companies Service. Total rate of
return quotations reflect the average annual percentage change over stated
periods in the value of an investment in a class of shares of the Fund made at
the maximum public offering price of the shares of that class with all
distributions reinvested and which 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 a CDSC, and which will therefore be
higher. The 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 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. See
the SAI for further information on the calculation of total rate of return for
share classes with different class inception dates.
The Fund's total rate of return quotations are based on historical performance
and are not intended to indicate future performance. Total rate of return
reflects all components of investment return over a stated period of time. The
Fund's quotations may from time to time be used in advertisements, shareholder
reports or other communications to shareholders. For a discussion of the
manner in which the Fund will calculate its total rate of return, see the SAI.
For further information about the Fund's performance for the fiscal year ended
September 30, 1998, please see the Fund's Annual Report. A copy of the Annual
Report may be obtained without charge by contacting the Shareholder Servicing
Agent (see back cover for address and phone number). In addition to
information provided in shareholder reports, the Fund may, in its discretion,
from time to time, make a list of all or a portion of its holdings available
to investors upon request.
PROVISION OF ANNUAL AND SEMIANNUAL REPORTS
To avoid sending duplicate copies of materials to households, only one copy of
the Fund's annual and semiannual report may be mailed to shareholders having the
same residential address on the Fund's records. However, any shareholder may
call the Shareholder Servicing Agent at 1-800-225-2606 to request that copies of
such reports be sent personally to that shareholder.
10. SHAREHOLDER SERVICES
Shareholders with questions concerning the shareholder services described
below or concerning other aspects of the Fund, should contact their investment
dealer or the Shareholder Servicing Agent (see back cover for address and
phone number).
ACCOUNT AND CONFIRMATION STATEMENTS: Each shareholder will receive
confirmation statements showing the transaction activity in his account. At
the end of each calendar year, each shareholder will receive income tax
information regarding reportable dividends and capital gain distributions for
that year (see "Tax Status").
DISTRIBUTION OPTIONS: The following options are available to all accounts
(except Systematic Withdrawal Plan accounts) and may be changed as often as
desired by notifying the Shareholder Servicing Agent:
o Dividends and capital gain distributions reinvested in additional shares;
this option will be assigned if no other option is specified;
o Dividends in cash; capital gain distributions reinvested in additional
shares;
o Dividends and capital gain distributions in cash.
Reinvestments (net of any tax withholding) will be made in additional full and
fractional shares of the same class of shares at the net asset value in effect
at the close of business on the record date. Checks for dividends and capital
gain distributions in amounts less than $10 will automatically be reinvested
in additional shares of the Fund. If a shareholder has elected to receive
dividends and/or capital gain distributions in cash, and the postal or other
delivery service is unable to deliver checks to the shareholder's address of
record 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, the
Fund makes available the following programs designed to enable shareholders to
add to their investment in an account with the Fund or withdraw from it with a
minimum of paper work. The programs involve no extra charge to shareholders
(other than a sales charge in the case of certain Class A share purchases) and
may be changed or discontinued at any time by a shareholder or the Fund.
LETTER OF INTENT -- If a shareholder (other than a group purchaser as
described in the SAI) anticipates purchasing $50,000 or more of Class A shares
of the Fund alone or in combination with shares of Class B or Class C of the
Fund or any of the classes of other MFS Funds or MFS Fixed Fund (a bank
collective trust) within a 13-month period (or 36-month period for purchases
of $1 million or more), the shareholder may obtain such shares of the Fund at
the same reduced sales charge as though the total quantity were invested in
one lump sum, subject to escrow agreements and the appointment of an attorney
for redemptions from the escrow amount if the intended purchases are not
completed, by completing the Letter of Intent section of the Account
Application.
RIGHT OF ACCUMULATION -- A shareholder qualifies for cumulative quantity
discounts on purchases of Class A shares when his new investment, together
with the current offering price value of all holdings of Class A, B and C
shares of that shareholder in the MFS Funds or MFS Fixed Fund (a bank
collective trust), reaches a discount level.
DISTRIBUTION INVESTMENT PROGRAM -- Shares of a particular class of the
Fund may be sold at net asset value (and without any applicable CDSC) through
the automatic reinvestment of dividend and capital gain distributions from the
same class of another MFS Fund. Furthermore, distributions made by the Fund
may be automatically invested at net asset value in shares of the same class
of another MFS Fund, if shares of such Fund are available for sale (without a
sales charge and not subject to any applicable CDSC).
SYSTEMATIC WITHDRAWAL PLAN -- A shareholder may direct the Shareholder
Servicing Agent to send him (or anyone he designates) regular periodic
payments based upon the value of his account. Each payment under a Systematic
Withdrawal Plan (a "SWP") must be at least $100, except in certain limited
circumstances. The aggregate withdrawals of Class B 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 a 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 exchange their shares for shares of the same class
of shares of other MFS Funds (and, in the case of Class C shares, for shares
of MFS Money Market Fund) under the Automatic Exchange Plan, a dollar cost
averaging program. The Automatic Exchange Plan provides for automatic
exchanges of funds from the shareholder's account in an MFS Fund for
investment in the same class of shares of other MFS Funds selected by the
shareholder if such fund is available for sale. Under the Automatic Exchange
Plan, exchanges of at least $50 each may be made to up to 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 and Class A
shares of MFS Cash Reserve Fund will be subject to any applicable sales
charge. For federal and (generally) state income tax purposes, a transfer is
treated as a sale of the shares exchanged and, therefore, could result in a
capital gain or loss to the shareholder making the exchange. See the SAI for
further information concerning the Automatic Exchange Plan. Investors should
consult their tax advisers for information regarding the potential capital
gain and loss consequences of transactions under the Automatic Exchange Plan.
Because a dollar cost averaging program involves periodic purchases of shares
regardless of fluctuating share offering prices, a shareholder should consider
his financial ability to continue his purchases through periods of low price
levels. Maintaining a dollar cost averaging program concurrently with a
withdrawal program could be disadvantageous because of the sales charges
included in share purchases in the case of Class A shares, and because of the
assessment of the CDSC for certain share redemptions in the case of Class A
shares which are subject to a CDSC.
TAX-DEFERRED RETIREMENT PLANS: Except as noted under "Purchases -- Class C
Shares," shares of the Fund may be purchased by all types of tax-deferred
retirement plans, including IRAs, SEP-IRA plans, 401(k) plans, 403(b) plans
and other corporate pension and profit-sharing plans. Investors should consult
with their tax advisers before establishing any of the tax-deferred retirement
plans described above.
--------------------
The Fund's SAI dated February 1, 1999, as amended or supplemented from time to
time, contains more detailed information about the Fund, including, but not
limited to, information related to (i) investment objective, policies and
restrictions, (ii) Trustees, officers and investment adviser, (iii) portfolio
transactions and brokerage commissions, (iv) the Distribution Plan and (v)
various services and privileges provided for the benefit of its shareholders,
including additional information with respect to the exchange privilege.
<PAGE>
APPENDIX A
WAIVERS OF SALES CHARGES
This Appendix sets forth the various circumstances in which all applicable
sales charges are waived (Section I), the initial sales charge and the
contingent deferred sales charge ("CDSC") for Class A shares are waived
(Section II), and the CDSC for Class B and Class C shares is waived (Section
III). Some of the following information will not apply to certain MFS Funds,
depending on which classes of shares are offered by such Fund. 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 MFS Fund Distributors, Inc. ("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, is waived:
1. DIVIDEND REINVESTMENT
o Shares acquired through dividend or capital gain reinvestment; and
o Shares acquired by automatic reinvestment of distributions of
dividends and capital gains of any MFS Fund in the MFS Family of
Funds ("MFS Funds") pursuant to the Distribution Investment Program.
2. CERTAIN ACQUISITIONS/LIQUIDATIONS
o 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:
o Officers, eligible directors, employees (including retired
employees) and agents of Massachusetts Financial Services Company
("MFS"), Sun Life Assurance Company of Canada ("Sun Life") or any of
their subsidiary companies;
o Trustees and retired trustees of any investment company for which
MFS Fund Distributors, Inc. ("MFD") serves as distributor;
o Employees, directors, partners, officers and trustees of any sub-
adviser to any MFS Fund;
o Employees or registered representatives of dealers;
o Certain family members of any such individual and their spouses
identified above and certain trusts, pension, profit-sharing or
other retirement plans for the sole benefit of such persons,
provided the shares are not resold except to an MFS Fund; and
o Institutional Clients of MFS or MFS Institutional Advisors, Inc.
("MFSI").
4. INVOLUNTARY REDEMPTIONS (CDSC WAIVER ONLY)
o Shares redeemed at an MFS Fund's direction due to the small size of
a shareholder's account. See "Redemptions and Repurchases -- General
-- Involuntary Redemptions/ Small Accounts" in the Prospectus.
5. RETIREMENT PLANS (CDSC WAIVER ONLY). Shares redeemed on account of
distributions made under the following circumstances:
INDIVIDUAL RETIREMENT ACCOUNTS ("IRA'S")
o Death or disability of the IRA owner.
SECTION 401(a) PLANS ("401(a) PLANS") AND SECTION 403(b) EMPLOYER
SPONSORED PLANS ("ESP PLANS")
o Death, disability or retirement of 401(a) or ESP Plan participant;
o Loan from 401(a) or ESP Plan (repayment of loans, however, will
constitute new sales for purposes of assessing sales charges);
o Financial hardship (as defined in Treasury Regulation Section
1.401(k)-1(d)(2), as amended from time to time);
o Termination of employment of 401(a) or ESP Plan participant
(excluding, however, a partial or other termination of the Plan);
o Tax-free return of excess 401(a) or ESP Plan contributions;
o 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 the Shareholder Servicing Agent; and
o 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 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.
o Shares purchased by certain retirement plans or trust accounts if:
(i) the plan is currently a party to a retirement plan recordkeeping
or administrative services agreement with MFD or one of its
affiliates and (ii) the shares purchased or redeemed represent
transfers from or transfers to plan investments other than the MFS
Funds of which retirement plan recordkeeping services are provided
under the terms of such agreement.
SECTION 403(b) SALARY REDUCTION ONLY PLANS ("SRO PLANS")
o Death or disability of SRO Plan participant.
6. CERTAIN TRANSFERS OF REGISTRATION (CDSC WAIVER ONLY). Shares
transferred:
o 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
o 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
o 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 redemption of Class A shares are
waived:
1. WRAP ACCOUNT AND FUND "SUPERMARKET" INVESTMENTS
o 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
o Shares acquired by insurance company separate accounts.
3. RETIREMENT PLANS
ADMINISTRATIVE SERVICES ARRANGEMENTS
o 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.
REINVESTMENT OF DISTRIBUTIONS FROM QUALIFIED RETIREMENT PLANS
o Shares acquired through the automatic reinvestment in Class A shares
of Class A or Class B distributions which constitute required
withdrawals from qualified retirement plans.
SHARES REDEEMED ON ACCOUNT OF DISTRIBUTIONS MADE UNDER THE FOLLOWING
CIRCUMSTANCES:
IRA'S
o Distributions made on or after the IRA owner has attained the age of
59 1/2 years old; and
o Tax-free returns of excess IRA contributions.
401(a) PLANS
o Distributions made on or after the 401(a) Plan participant has
attained the age of 59 1/2 years old; and
o Certain involuntary redemptions and redemptions in connection with
certain automatic withdrawals from a Plan.
ESP PLANS AND SRO PLANS
o 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)
o 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
o 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 MFS and are acquiring
such shares for the benefit of their trust account clients.
6. INVESTMENT OF PROCEEDS FROM CERTAIN REDEMPTIONS OF CLASS I SHARES
o The initial sales charge imposed on purchases of Class A shares, and
the contingent deferred sales charge imposed on certain redemptions
of Class A shares, are waived with respect to Class A shares
acquired of any of the MFS Funds through the immediate reinvestment
of the proceeds of a redemption of Class I shares of any of the MFS
Funds.
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
o 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
o Shares redeemed on account of the death of the account owner if the
shares are held solely in the deceased individual's name or in a
living trust for the benefit of the deceased individual.
3. DISABILITY OF OWNER
o Shares redeemed on account of the disability of the account owner if
shares are held either solely or jointly in the disabled
individual's name or in a living trust for the benefit of the
disabled individual (in which case a disability certification form
is required to be submitted to the Shareholder Servicing Agent).
4. RETIREMENT PLANS. Shares redeemed on account of distributions made
under the following circumstances:
IRA'S, 401(a) PLANS, ESP PLANS AND SRO PLANS
o 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
applicable Internal Revenue Code ("Code") rules.
SALARY REDUCTION EMPLOYEE PENSION PLANS ("SAR-SEP PLANS")
o 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;
o Death or disability of a SAR-SEP Plan participant.
<PAGE>
Investment Adviser
Massachusetts Financial
Services Company
500 Boylston Street
Boston, MA 02116
(617) 954-5000
Distributor
MFS Fund Distributors, Inc.
500 Boylston Street
Boston, MA 02116
(617) 954-5000
Custodian
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
Dividend Disbursing Agent
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
Shareholder Servicing Agent
MFS Service Center, Inc.
500 Boylston Street
Boston, MA 02116
Toll-free: (800) 225-2606
Mailing Address:
P.O. Box 2281
Boston, MA 02107-9906
Independent Auditors
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
MXX-1-4/98/XXXM 00/000
<PAGE>
[Logo](R)
INVESTMENT MANAGEMENT
MFS(R) RESEARCH STATEMENT OF
FUND ADDITIONAL INFORMATION
(A member of the MFS Family of Funds(R)) February 1, 1999
- --------------------------------------------------------------------------------
Page
----
1. Definitions .......................................................... 2
2. The Fund ............................................................. 2
3. Investment Objective, Policies and Restrictions ...................... 2
4. Management of the Fund ............................................... 4
Trustees .......................................................... 4
Officers .......................................................... 4
Trustee Compensation Table ........................................ 5
Investment Adviser ................................................ 6
Administrator ..................................................... 6
Custodian ......................................................... 7
Shareholder Servicing Agent ....................................... 7
Distributor ....................................................... 7
5. Portfolio Transactions and Brokerage Commissions ..................... 8
6. Shareholder Services ................................................. 9
Investment and Withdrawal Programs ................................ 9
Exchange Privilege ................................................ 11
Tax-Deferred Retirement Plans ..................................... 11
7. Tax Status ........................................................... 12
8. Determination of Net Asset Value and Performance ..................... 13
9. Distribution Plan .................................................... 14
10. Description of Shares, Voting Rights and Liabilities ................. 15
11. Independent Auditors and Financial Statements ........................ 16
Appendix A -- Description of Bond Ratings ............................ A-1
Appendix B -- Performance Information ................................ B-1
MFS RESEARCH FUND
A Series of MFS(R) Series Trust V
500 Boylston Street, Boston, Massachusetts 02116
(617) 954-5000
This Statement of Additional Information, as amended or supplemented from time
to time (the "SAI"), sets forth information which may be of interest to
investors but which is not necessarily included in the Fund's Prospectus,
dated February 1, 1999. This SAI should be read in conjunction with the
Prospectus, a copy of which may be obtained without charge by contacting the
Shareholder Servicing Agent (see last page for address and phone number).
THIS SAI IS NOT A PROSPECTUS AND IS AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE
INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS.
<PAGE>
1. DEFINITIONS
"Fund" -- MFS Research Fund, a series of MFS Series Trust
V, a Massachusetts business trust (the "Trust").
The Trust was known as Massachusetts Financial
Total Return Trust until August 3, 1992 and as
MFS Total Return Fund until August 23, 1993. The
Fund reorganized as a series of the Trust on
September 7, 1993.
"MFS" or the "Adviser" -- Massachusetts Financial Services Company, a
Delaware corporation.
"MFD" -- MFS Fund Distributors, Inc., a Delaware
corporation.
"Prospectus" -- The Prospectus of the Fund, dated February 1,
1999, as amended and supplemented from time to
time.
2. THE FUND
The Fund was known as "Massachusetts Financial Development Fund" until its
name was changed as of February 1, 1992. The predecessor of the Fund --
Massachusetts Financial Development Fund, Inc. (the "Corporation") -- was
incorporated under the laws of The Commonwealth of Massachusetts in 1970. The
Fund was reorganized as a separate Massachusetts business trust on January 29,
1985, pursuant to an Agreement and Plan of Reorganization, dated January 15,
1985. The Fund reorganized as a series of the Trust on September 7, 1993. All
references in this SAI to the Fund's past activities are intended to include
those of the Corporation, unless the context indicates otherwise.
3. INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
INVESTMENT OBJECTIVE. The Fund's investment objective is to provide long-term
growth of capital and future income. Any investment involves risk and there
can be no assurance that the Fund will achieve its investment objective.
INVESTMENT POLICIES. The Prospectus contains a discussion of the Fund's
policies with respect to investments in various types of securities, including
repurchase agreements, and the risks involved in such investments. Some of
these policies are further described below.
SECURITIES LENDING: The Fund may seek to increase its income by lending
portfolio securities. Such loans will usually be made only to member banks of
the Federal Reserve System and to member firms (and subsidiaries thereof) of
the New York Stock Exchange and would be required to be secured continuously
by collateral in cash, U.S. Government securities or an irrevocable letter of
credit, maintained on a current basis at an amount at least equal to the
market value of the securities loaned. The Fund would have the right to call a
loan and obtain the securities loaned at any time on customary industry
settlement notice (which usually will not exceed five days). During the
existence of a loan, the Fund would continue to receive the equivalent of the
interest or dividends paid by the issuer on the securities loaned or a fee
from the borrower. The Fund would also receive compensation based on
investment of the collateral, less a fee paid to the borrower if the
collateral is in the form of cash. The Fund would not, however, have the right
to vote any securities having voting rights during the existence of the loan,
but would call the loan in anticipation of an important vote to be taken among
holders of the securities or of the giving or withholding of their consent on
a material matter affecting the investment. As with other extensions of credit
there are risks of delay in recovery or even loss of rights in the collateral
should the borrower of the securities fail financially. However, the loans
would be made only to entities deemed by the Adviser to be of good standing,
and when, in the judgment of the Adviser, the consideration which can be
earned currently from securities loans of this type justifies the attendant
risk. If the Adviser determines to make securities loans, it is not intended
that the value of the securities loaned would exceed 30% of the value of the
Fund's total assets.
REPURCHASE AGREEMENTS: The Fund may enter into repurchase agreements with
sellers who are member firms (or subsidiaries thereof) of the New York Stock
Exchange or members of the Federal Reserve System, recognized primary U.S.
Government securities dealers or institutions which the Adviser has determined
to be of comparable creditworthiness. The securities that the Fund purchases
and holds through its agent are U.S. Government securities, the values of
which are equal to or greater than the repurchase price agreed to be paid by
the seller. The repurchase price may be higher than the purchase price, the
difference being income to the Fund, or the purchase and repurchase prices may
be the same, with interest at a standard rate due to the Fund together with
the repurchase price on repurchase. In either case, the income to the Fund is
unrelated to the interest rate on the U.S. Government securities.
The repurchase agreement provides that in the event the seller fails to pay
the amount agreed upon on the agreed upon delivery date or upon demand, as the
case may be, the Fund will have the right to liquidate the securities. If at
the time the Fund is contractually entitled to exercise its right to liquidate
the securities, the seller is subject to a proceeding under the bankruptcy
laws or its assets are otherwise subject to a stay order, the Fund's exercise
of its right to liquidate the securities may be delayed and result in certain
losses and costs to the Fund. The Fund has adopted and follows procedures
which are intended to minimize the risks of repurchase agreements. For
example, the Fund only enters into repurchase agreements after the Adviser has
determined that the seller is creditworthy, and the Adviser monitors that
seller's creditworthiness on an ongoing basis. Moreover, under such
agreements, the value of the securities (which are marked to market every
business day) is required to be greater than the repurchase price, and the
Fund has the right to make margin calls at any time if the value of the
securities falls below the agreed upon collateral.
FOREIGN SECURITIES: The Fund may invest up to 20% (and generally expects to
invest between 5% and 15%) of its total assets in foreign securities (not
including American Depositary Receipts). As discussed in the Prospectus,
investing in foreign securities generally represents a greater degree of risk
than investing in domestic securities, due to possible exchange rate
fluctuations, less publicly available information, more volatile markets, less
securities regulation, less favorable tax provisions, war or expropriation. As
a result of its investments in foreign securities, the Fund may receive
interest or dividend payments, or the proceeds of the sale or redemption of
such securities, in the foreign currencies in which such securities are
denominated. Under certain circumstances, such as where the Adviser believes
that the applicable exchange rate is unfavorable at the time the currencies
are received or the Adviser anticipates, for any other reason, that the
exchange rate will improve, the Fund may hold such currencies for an
indefinite period of time. While the holding of currencies will permit the
Fund to take advantage of favorable movements in the applicable exchange rate,
such strategy also exposes the Fund to risk of loss if exchange rates move in
a direction adverse to the Fund's position. Such losses could reduce any
profits or increase any losses sustained by the Fund from the sale or
redemption of securities and could reduce the dollar value of interest or
dividend payments received.
AMERICAN DEPOSITARY RECEIPTS: The Fund may invest in American Depositary
Receipts ("ADRs") which are certificates issued by a U.S. depository (usually
a bank) and represent a specified quantity of shares of an underlying non-U.S.
stock on deposit with a custodian bank as collateral. ADRs may be sponsored or
unsponsored. A sponsored ADR is issued by a depository which has an exclusive
relationship with the issuer of the underlying security. An unsponsored ADR
may be issued by any number of U.S. depositories. Under the terms of most
sponsored arrangements, depositories agree to distribute notices of
shareholder meetings and voting instructions, and to provide shareholder
communications and other information to the ADR holders at the request of the
issuer of the deposited securities. The depository of an unsponsored ADR, on
the other hand, is under no obligation to distribute shareholder
communications received from the issuer of the deposited securities or to pass
through voting rights to ADR holders in respect of the deposited securities.
The Fund may invest in either type of ADR. Although the U.S. investor holds a
substitute receipt of ownership rather than direct stock certificates, the use
of the depositary receipts in the United States can reduce costs and delays as
well as potential currency exchange and other difficulties. The Fund may
purchase securities in local markets and direct delivery of these ordinary
shares to the local depository of an ADR agent bank in the foreign country.
Simultaneously, the ADR agents create a certificate which settles at the
Fund's custodian in five days. The Fund may also execute trades on the U.S.
markets using existing ADRs. A foreign issuer of the security underlying an
ADR is generally not subject to the same reporting requirements in the United
States as a domestic issuer. Accordingly the information available to a U.S.
investor will be limited to the information the foreign issuer is required to
disclose in its own country and the market value of an ADR may not reflect
undisclosed material information concerning the issuer of the underlying
security. ADRs may also be subject to exchange rate risks if the underlying
foreign securities are denominated in foreign currency.
RISKS OF INVESTING IN LOWER RATED BONDS: The Fund may invest in fixed income
securities rated Baa by Moody's Investors Service, Inc. ("Moody's") or BBB by
Standard & Poor's Ratings Services ("S&P") or Fitch IBCA ("Fitch") and
comparable unrated securities. These securities, while normally exhibiting
adequate protection parameters, have speculative characteristics and changes
in economic conditions or other circumstances are more likely to lead to a
weakened capacity to make principal and interest payments than in the case of
higher grade fixed income securities.
The Fund may also invest up to 10% of its net assets in securities rated Ba or
lower by Moody's or BB or lower by S&P or Fitch and comparable unrated
securities (commonly known as "junk bonds"). No minimum rating standard is
required by the Fund. These securities are considered speculative and, while
generally providing greater income than investments in higher rated
securities, will involve greater risk of principal and income (including the
possibility of default or bankruptcy of the issuers of such securities) and
may involve greater volatility of price (especially during periods of economic
uncertainty or change) than securities in the higher rating categories and
because yields vary over time, no specific level of income can ever be
assured. These lower rated high yielding fixed income securities generally
tend to reflect economic changes (and the outlook for economic growth), short-
term corporate and industry developments and the market's perception of their
credit quality (especially during times of adverse publicity) to a greater
extent than higher rated securities which react primarily to fluctuations in
the general level of interest rates (although these lower rated fixed income
securities are also affected by changes in interest rates). In the past,
economic downturns or an increase in interest rates have, under certain
circumstances, caused a higher incidence of default by the issuers of these
securities and may do so in the future, especially in the case of highly
leveraged issuers. The prices for these securities may be affected by
legislative and regulatory developments. The market for these lower rated
fixed income securities may be less liquid than the market for investment
grade fixed income securities. Furthermore, the liquidity of these lower rated
securities may be affected by the market's perception of their credit quality.
Therefore, the Adviser's judgment may at times play a greater role in valuing
these securities than in the case of investment grade fixed income securities,
and it also may be more difficult during times of certain adverse market
conditions to sell these lower rated securities to meet redemption requests or
to respond to changes in the market.
While the Adviser may refer to ratings issued by established credit rating
agencies, it is not the Fund's policy to rely exclusively on ratings issued by
these rating agencies, but rather to supplement such ratings with the
Adviser's own independent and ongoing review of credit quality. To the extent
the Fund invests in these lower rated securities, the achievement of its
investment objective may be more dependent on the Adviser's own credit
analysis than in the case of a fund investing in higher quality fixed income
securities.
The Fund may not invest 25% or more of the market value of its total assets in
securities of issuers in any one industry.
WARRANTS: The Fund will not invest more than 5% of its net assets, valued at
the lower of cost or market, in warrants. Included within such amount, but not
to exceed 2% of the value of its net assets, may be warrants which are not
listed on the New York or American Stock Exchange. Warrants acquired by the
Fund in units or attached to securities may be deemed to be without value.
THE POLICIES STATED ABOVE ARE NOT FUNDAMENTAL AND MAY BE CHANGED WITHOUT
SHAREHOLDER APPROVAL, AS MAY THE FUND'S INVESTMENT OBJECTIVE.
----------------
INVESTMENT RESTRICTIONS. The Fund has adopted the following restrictions which
cannot be changed without the approval of the holders of a majority of the
Fund's shares (which, as used in this SAI, means the lesser of (i) more than
50% of the outstanding shares of the Trust (or a class or series, as
applicable) or (ii) 67% or more of the outstanding shares of the Trust (or a
class or series, as applicable) present at a meeting if holders of more than
50% of the outstanding shares of the Trust (or a class or series, as
applicable) are represented at such meeting in person or by proxy):
The Fund may not:
(1) Borrow amounts in excess of 5% of its gross assets (taken at the lower
of cost or market value), and then only as a temporary measure for
extraordinary or emergency purposes;
(2) Pledge, mortgage or hypothecate an amount of assets which (taken at
market value) exceeds 15% of its gross assets (taken at the lower of cost or
market value);
(3) Underwrite securities issued by other persons except insofar as the
Fund may technically be deemed an underwriter under the Securities Act of
1933 in selling a portfolio security;
(4) Concentrate its investments in any particular industry, but if it is
deemed appropriate for the attainment of its investment objectives, up to
25% of its assets, at market value at the time of each investment, may be
invested in any one industry;
(5) Purchase or sell real estate (including limited partnership interests
but excluding securities of companies, such as real estate investment
trusts, which deal in real estate or interests therein) or mineral leases,
commodities or commodity contracts in the ordinary course of its business.
The Fund reserves the freedom of action to hold and to sell real estate or
mineral leases, commodities or commodity contracts acquired as a result of
the ownership of securities. The Fund will not purchase securities for the
purpose of acquiring real estate or mineral leases, commodities or commodity
contracts;
(6) Make loans to other persons except through the lending of its
portfolio securities and by entering into repurchase agreements. See the
discussion above under the caption "Investment Policies." Not more than 10%
of the Fund's total assets will be invested in repurchase agreements
maturing in more than seven days. Subject to the limitation set forth in
paragraph 16 below, the Fund may purchase a portion of an issue of debt
securities of types commonly distributed privately to financial
institutions. For these purposes the purchase of short-term commercial paper
or a portion of an issue of debt securities which are part of an issue to
the public shall not be considered the making of a loan;
(7) Purchase the securities of any issuer if such purchase, at the time
thereof, would cause more than 5% of its total assets (taken at market
value) to be invested in the securities of such issuer, other than U.S.
Government securities;
(8) Purchase voting securities of any issuer if such purchase, at the time
thereof, would cause more than 10% of the outstanding voting securities of
such issuer to be held by the Fund; or purchase securities of any issuer if
such purchase at the time thereof would cause the Fund to hold more than 10%
of any class of securities of such issuer. For this purpose all indebtedness
of an issuer shall be deemed a single class and all preferred stock of an
issuer shall be deemed a single class;
(9) Invest for the purpose of exercising control or management;
(10) Invest more than 5% of its assets in companies which, including
predecessors, have a record of less than three years' continuous operation;
(11) Purchase any securities on margin except that the Fund may obtain
such short-term credit as may be necessary for the clearance of purchases
and sales of securities;
(12) Sell any security which the Fund does not own unless by virtue of its
ownership of other securities the Fund has at the time of sale a right to
obtain securities without payment of further consideration equivalent in
kind and amount to the securities sold and provided that if such right is
conditional the sale is made upon the same conditions;
(13) Invest in securities which are subject to legal or contractual
restrictions on resale, or for which there is no readily available market
(e.g., trading in the security is suspended, or, in the case of unlisted
securities, market makers do not exist or will not entertain bids or
offers), unless the Board of Trustees has determined that such securities
are liquid based upon trading markets for the specific security, if more
than 10% of the Fund's assets (taken at market value) would be invested in
such securities.
APPLICABILITY OF RESTRICTIONS: Except with respect to Investment Restriction
(1) and the Fund's policy on investing in illiquid securities, these
investment restrictions are adhered to at the time of purchase or utilization
of assets; a subsequent change in circumstances will not be considered to
result in a violation of policy.
4. MANAGEMENT OF THE FUND
The Board of Trustees provides broad supervision over the affairs of the Fund.
The Adviser is responsible for the investment management of the Fund and the
officers of the Trust are responsible for its operations. The Trustees and
officers of the Trust are listed below, together with their principal
occupations during the past five years. (Their titles may have varied during
that period.)
TRUSTEES
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, Trustee 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; International Technology Corp., Director; Mohawk Paper
Company, Director
Address: 30 Colpitts Road, Weston, Massachusetts
ARNOLD D. SCOTT* (born 12/16/42)
Massachusetts Financial Services Company, Senior Executive Vice President and
Secretary
JEFFREY L. SHAMES*, Chairman (born 6/2/55)
Massachusetts Financial Services Company, Chairman and Chief Executive Officer
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 Investment Company Act of 1940, as
amended ("1940 Act")) of the Adviser whose address is 500 Boylston Street,
Boston, Massachusetts 02116.
Each Trustee and officer holds comparable positions with certain MFS
affiliates or with certain other funds of which MFS or a subsidiary of MFS is
the investment adviser or distributor. Mr. Brodkin, the Chairman of MFD,
Messrs. Shames and Scott, Directors of MFD, and Mr. Cavan, the Secretary of
MFD hold similar positions with certain other MFS affiliates. Mr. Bailey is a
Director of Sun Life Assurance Company of Canada (U.S.), a subsidiary of Sun
Life Assurance Company of Canada ("Sun Life").
The Fund pays the compensation of non-interested Trustees and Mr. Bailey who
currently receive a fee of $4,500 per year plus $200 per meeting and $175 per
committee meeting attended, together with such Trustee's out-of-pocket
expenses. The Trust has adopted a retirement plan for non-interested Trustees
and Mr. Bailey. Under this plan, a Trustee will retire upon reaching age 73
and if the Trustee has completed at least five years of service, he or she
would be entitled to annual payments during his lifetime of up to 50% of such
Trustee's average annual compensation (based on the three years prior to his
retirement) depending on his length of service. A Trustee may also retire
prior to age 73 and receive reduced payments if he or she has completed at
least five years of service. Under the plan, a Trustee (or his or her
beneficiaries) will also receive benefits for a period of time in the event
the Trustee is disabled or dies. These benefits will also be based on the
Trustee's average annual compensation and length of service. There is no
retirement plan provided by the Trust for Messrs. Scott and Shames. The Fund
will accrue its allocable share of compensation expenses each year to cover
current year's service and amortize past service cost.
Set forth below is certain information concerning the cash compensation paid
to the Trustees and benefits accrued, and estimated benefits payable, under
the retirement plan.
<TABLE>
TRUSTEE COMPENSATION TABLE
<CAPTION>
RETIREMENT BENEFIT ESTIMATED TOTAL TRUSTEE FEES
TRUSTEE FEES ACCRUED AS PART OF CREDITED YEARS FROM FUND AND
TRUSTEE FROM FUND(1) FUND EXPENSE(1) OF SERVICE(2) FUND COMPLEX(3)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Richard B. Bailey $10,700 $ 993 8 $242,022
Peter G. Harwood 12,775 730 5 121,105
J. Atwood Ives 11,700 1,033 17 108,720
Lawrence T. Perera 10,875 1,684 26 127,055
William J. Poorvu 11,800 1,802 25 121,105
Charles W. Schmidt 10,825 1,767 20 121,105
Arnold D. Scott -- -- N/A --
Jeffrey L. Shames -- -- N/A --
Elaine R. Smith 12,750 1,060 27 132,035
David B. Stone 13,475 1,853 14 127,055
</TABLE>
(1) For fiscal year ended September 30, 1998.
(2) Based on normal retirement age of 73. See the table below for the
estimated annual benefits payable upon retirement by the Fund to a Trustee
based on his or her estimated credited years of service.
(3) For calendar year 1998. All Trustees receiving compensation served as
Trustees of 27 funds within the MFS fund complex (having aggregate net
assets at December 31, 1998, of approximately $29 billion) except Mr.
Bailey, who served as Trustee of 69 funds within the MFS fund complex
(having aggregate net assets at December 31, 1998, of approximately $48
billion).
<TABLE>
ESTIMATED ANNUAL BENEFITS PAYABLE BY FUND UPON RETIREMENT(4)
<CAPTION>
YEARS OF SERVICE
--------------------------------------------------------------------
AVERAGE TRUSTEE FEES 3 5 7 10 OR MORE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 9,630 $1,445 $2,408 $3,371 $4,815
10,669 1,600 2,667 3,734 5,334
11,707 1,756 2,927 4,097 5,854
12,746 1,912 3,186 4,461 6,373
13,784 2,068 3,446 4,824 6,892
14,823 2,223 3,706 5,188 7,411
</TABLE>
(4) Other funds in the MFS fund complex provide similar retirement benefits to
the Trustees.
As of October 30, 1998, all Trustees and officers as a group owned less than
1% of the Fund's shares outstanding.
As of October 30, 1998, Merrill Lynch Pierce Fenner & Smith Inc., Attn: Fund
Administration, 4800 Deer Lake Drive East, Jacksonville, FL 32232-6484 was the
record owner of 9.43% of the outstanding Class A shares of the Fund, 13.84% of
the outstanding Class B shares of the Fund and 27.69% of the outstanding Class
C shares of the Fund. As of October 30, 1998, MFS Defined Contribution Plan,
c/o Mark Leary, Massachusetts Financial Services, 500 Boylston Street, Boston,
MA 02116-3740 and New England Trust Company, c/o First of America Bank, P.O.
Box 4042, Kalamazoo, MI 49003-4042, owned 84.16% and 7.93%, respectively, of
the outstanding Class I shares of the Fund.
The Declaration of Trust provides that the Trust will indemnify its Trustees
and officers against liabilities and expenses incurred in connection with
litigation in which they may be involved because of their offices with the
Trust, unless it is finally adjudicated that they engaged in willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in their offices, or with respect to any matter unless it is
adjudicated that they did not act in good faith in the reasonable belief that
their actions were in the best interests of the Trust. In the case of a
settlement, such indemnification will not be provided unless it has been
determined pursuant to the Declaration of Trust, that such officers or
Trustees have not engaged in willful misfeasance, bad faith, gross negligence
or reckless disregard of the duties involved in their offices.
INVESTMENT ADVISER
MFS and its predecessor organizations have a history of money management
dating from 1924. MFS is a subsidiary of Sun Life of Canada (U.S.) Financial
Services Holdings, Inc., which in turn is an indirect wholly owned subsidiary
of Sun Life.
The Adviser manages the Fund pursuant to an Investment Advisory Agreement,
dated November 1, 1998 (the "Advisory Agreement"). Under the Advisory
Agreement, the Adviser provides the Fund with overall investment advisory
services. Subject to such policies as the Trustees may determine, the Adviser
makes investment decisions for the Fund. For these services and facilities,
effective November 1, 1998, the Adviser receives 0.43% per annum of the Fund's
average daily net assets. Prior to November 1, 1998, the Adviser received a
management fee computed and paid monthly on the basis of a formula based upon
a percentage of the Fund's average daily net assets plus a percentage of its
gross income (i.e. income other than gains from the sale of securities). The
applicable percentages were reduced as assets and income reached the following
levels:
ANNUAL RATE OF MANAGEMENT FEE ANNUAL RATE OF MANAGEMENT FEE
BASED ON AVERAGE DAILY NET ASSETS BASED ON GROSS INCOME
- -------------------------------------- --------------------------------
0.40% of the first $100 million 5.0% of the first $2 million
0.32% of the next $400 million 4.0% of the next $8 million
0.288% of average daily net assets 3.6% of gross income in excess
in excess of $500 million of $10 million
For the fiscal year ended September 30, 1998, MFS received management fees
under the Fund's Investment Advisory Agreement of $18,088,633 (of which
$15,823,906 was based on average daily net assets and $2,264,727 on gross
income), equivalent on an annualized basis to 0.33% of the Fund's average
daily net assets. For the fiscal year ended September 30, 1997, MFS received
management fees of $10,295,600 (of which $9,009,037 was based on average daily
net assets and $1,286,563 on gross income), equivalent on an annualized basis
to 0.34% of the Fund's average daily net assets. For the fiscal year ended
September 30, 1996, MFS received management fees of $4,095,566 (of which
$3,518,278 was based on average daily net assets and $577,288 on gross
income), equivalent on an annualized basis to 0.36% of the Fund's average
daily net assets.
The Fund pays its expenses (other than those assumed by MFS or MFD),
including: advisory and administrative services; governmental fees; interest
charges; taxes; membership dues in the Investment Company Institute allocable
to the Fund; fees and expenses of independent auditors, of legal counsel, and
of any transfer agent, registrar or dividend disbursing agent of the Fund;
expenses of repurchasing and redeeming shares; expenses of preparing, printing
and mailing share certificates, shareholder reports, notices, proxy statements
and reports to governmental officers and commissions; brokerage and other
expenses connected with the execution, recording and settlement of portfolio
security transactions; insurance premiums; fees and expenses of Investors Bank
& Trust Company, the Fund's custodian, for all services to the Fund, including
safekeeping of funds and securities and maintaining required books and
accounts; expenses of calculating the net asset value of shares of the Fund;
and expenses of shareholder meetings. Expenses relating to the issuance,
registration and qualification of shares of the Fund and the preparation,
printing and mailing of prospectuses for such purposes are borne by the Fund
except that its Distribution Agreement with MFD, the Fund's principal
underwriter, requires MFD to pay for prospectuses that are to be used for
sales purposes. Expenses of the Trust which are not attributable to a specific
series are allocated among the series in a manner believed by management of
the Trust to be fair and equitable. For a list of the Fund's expenses,
including the compensation paid to the Trustees who are not officers of MFS,
during the fiscal year ended September 30, 1998, see "Financial Statements --
Statement of Operations" in the Annual Report to shareholders. Payment by the
Fund of brokerage commissions for brokerage and research services of value to
the Adviser in serving its clients is discussed under the caption "Portfolio
Transactions and Brokerage Commissions."
MFS pays the compensation of the Trust's officers and any Trustee who is an
officer of MFS. The Adviser also furnishes at its own expense all necessary
administrative services, including office space, equipment, clerical
personnel, investment advisory facilities, and all executive and supervisory
personnel necessary for managing the Fund's investments, effecting its
portfolio transactions.
The Advisory Agreement will remain in effect until August 1, 2000, and will
continue in effect thereafter only if such continuance is specifically
approved at least annually by the Board of Trustees or by vote of a majority
of the Fund's shares (as defined in "Investment Restrictions") and, in either
case, by a majority of the Trustees who are not parties to the Advisory
Agreement or interested persons of any such party. The Advisory Agreement
terminates automatically if it is assigned and may be terminated without
penalty by vote of a majority of the Fund's shares (as defined in "Investment
Restrictions") or by either party on not more than 60 days' nor less than 30
days' written notice. The Advisory Agreement provides that neither the Adviser
nor its personnel shall be liable for any error of judgment or mistake of law
or for any loss arising out of any investment or for any act or omission in
the execution and management of the Fund, except for willful misfeasance, bad
faith or gross negligence in the performance of its or their duties or by
reason of reckless disregard of its or their obligations and duties under the
Advisory Agreement.
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 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. For the period commencing March
1, 1997 through the period ended September 30, 1997, and the year ended
September 30, 1998, MFS received $252,317 and $350,786, respectively, under
the Agreement.
CUSTODIAN
State Street Bank and Trust Company (the "Custodian") is the custodian of the
Fund's assets. The Custodian's responsibilities include safekeeping and
controlling the Fund's cash and securities, handling the receipt and delivery
of securities, determining income and collecting interest and dividends on the
Fund's investments, maintaining books of original entry for portfolio and fund
accounting and other required books and accounts, and calculating the daily
net asset value of each class of shares of the Fund. The Custodian does not
determine the investment policies of the Fund or decide which securities the
Fund will buy or sell. The Fund may, however, invest in securities of the
Custodian and may deal with the Custodian as principal in securities
transactions. The Custodian also acts as the dividend disbursing agent of the
Fund.
SHAREHOLDER SERVICING AGENT
MFS Service Center, Inc. (the "Shareholder Servicing Agent"), a wholly owned
subsidiary of MFS, is the Fund's shareholder servicing agent, pursuant to a
Shareholder Servicing Agreement, effective August 1, 1985, as amended (the
"Agency Agreement"). The Shareholder Servicing Agent's responsibilities under
the Agency Agreement include administering and performing transfer agent
functions and keeping records in connection with the issuance, transfer and
redemption of each class of shares of the Fund. For these services, the
Shareholder Servicing Agent will receive a fee calculated as a percentage of
the average daily net assets of the Fund at an effective annual rate of
0.1125%. In addition, the Shareholder Servicing Agent will be reimbursed by
the Fund for certain expenses incurred by the Shareholder Servicing Agent on
behalf of the Fund. State Street Bank and Trust Company, the dividend and
distribution disbursing agent of the Fund, has contracted with the Shareholder
Servicing Agent to administer and perform certain dividend disbursing agent
functions for the Fund.
DISTRIBUTOR
MFD, a wholly owned subsidiary of MFS, serves as distributor for the
continuous offering of shares of the Fund pursuant to a Distribution
Agreement, dated January 1, 1995 as amended and restated (the "Distribution
Agreement"). Prior to January 1, 1995, MFS Financial Services, Inc. ("FSI"),
another wholly owned subsidiary of MFS, was the Fund's distributor. Where this
SAI refers to MFD in relation to the receipt or payment of money with respect
to a period or periods prior to January 1, 1995, such reference shall be
deemed to include FSI, as the predecessor in interest to MFD.
CLASS A SHARES: MFD acts as agent in selling Class A shares of the Fund to
dealers. The public offering price of Class A shares of the Fund is their net
asset value next computed after the sale plus a sales charge which varies
based upon the quantity purchased. The public offering price of a Class A
share of the Fund is calculated by dividing the net asset value of a Class A
share by the difference (expressed as a decimal) between 100% and the sales
charge percentage of offering price applicable to the purchase (see
"Purchases" in the Prospectus). The sales charge scale set forth in the
Prospectus applies to purchases of Class A shares of the Fund alone or in
combination with shares of all classes of certain other funds in the MFS
Family of Funds (the "MFS Funds") and other funds (as noted under Right of
Accumulation) by any person, including members of a family unit (e.g.,
husband, wife and minor children) and bona fide trustees, and also applies to
purchases made under the Right of Accumulation or a Letter of Intent (see
"Investment and Withdrawal Programs" below). A group might qualify to obtain
quantity sales charge discounts (see "Investment and Withdrawal Programs" in
this SAI).
Class A shares of the Fund may be sold at their net asset value to certain
persons or in certain circumstances, as described in the Prospectus. Such
sales are made without a sales charge to promote good will with employees and
others with whom MFS, MFD and/or the Fund have business relationships, and
because the sales effort, if any, involved in making such sales is negligible.
MFD allows discounts to dealers (which are alike for all dealers) from the
applicable public offering price of the Class A shares. Dealer allowances
expressed as a percentage of offering price for all offering prices are set
forth in the Prospectus (see "Purchases" in the Prospectus). The difference
between the total amount invested and the sum of (a) the net proceeds to the
Fund and (b) the dealer commission is the commission paid to the distributor.
Because of rounding in the computation of offering price, the portion of the
sales charge paid to the distributor may vary and the total sales charge may
be more or less than the sales charge calculated using the sales charge
expressed as a percentage of offering price or as a percentage of the net
amount invested as listed in the Prospectus. In the case of the maximum sales
charge, the dealer retains 5% and MFD retains approximately 3/4 of 1% of the
public offering price. In addition, MFD on behalf of the Fund pays a
commission on purchases of $1 million or more as described in the Prospectus.
CLASS B SHARES, CLASS C SHARES AND CLASS I SHARES: MFD acts as agent in
selling Class B, Class C and Class I shares of the Fund to dealers. The public
offering price of Class B, Class C and Class I shares is their net asset value
next computed after the sale (see "Purchases" in the Prospectus and the
Prospectus Supplement pursuant to which Class I shares are offered).
GENERAL: Neither MFD nor dealers are permitted to delay placing orders to
benefit themselves by a price change. On occasion, MFD may obtain brokers
loans from various banks, including the custodian banks for the MFS Funds, to
facilitate the settlement of sales of shares of the Fund to dealers. MFD may
benefit from its temporary holding of funds paid to it by investment dealers
for the purchase of Fund shares.
During the Fund's fiscal year ended September 30, 1998, MFD received net
commissions of $1,982,171 and dealers received net commissions of $11,310,221
(as their concession on gross commissions of $13,292,392) for selling Class A
shares of the Fund; the Fund received $349,585,006 representing the aggregate
net asset value of such shares. During the Fund's fiscal year ended September
30, 1997, MFD received net commissions of $2,307,594 and dealers received net
commissions of $14,693,030 (as their concession on gross commissions of
$17,000,624) for selling Class A shares of the Fund; the Fund received
$942,545,591 representing the aggregate net asset value of such shares. During
the Fund's fiscal year ended September 30, 1996, MFD received net commissions
of $1,332,269 and dealers received net commissions of $8,647,645 (as their
concession on gross commissions of $9,979,914) for selling Class A shares of
the Fund; the Fund received $333,855,871 representing the aggregate net asset
value of such shares.
During the Fund's fiscal year ended September 30, 1998, the CDSC imposed on
redemption of Class A, Class B and Class C shares was $32,486, $2,772,815 and
$136,727, respectively. During the Fund's fiscal year ended September 30,
1997, the CDSC imposed on redemption of Class A, Class B and Class C shares
was $27,929, $1,598,460 and $107,032, respectively. During the Fund's fiscal
year ended September 30, 1996, the Contingent Deferred Sales Charge ("CDSC")
imposed on redemption of Class A, B and C shares was $3,234, $407,275 and
$6,647, respectively.
The Distribution Agreement will remain in effect until August 1, 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 outstanding voting securities and, in either case, by a majority
of the Trustees who are not parties to the Distribution Agreement or
interested persons of any such party. The Distribution Agreement terminates
automatically if it is assigned and may be terminated without penalty by
either party on not more than 60 days' nor less than 30 days' notice.
5. PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
Specific decisions to purchase or sell securities for the Fund are made by a
portfolio committee consisting of persons who are employees of the Adviser and
who are appointed and supervised by its senior officers. Changes in the Fund's
investments are reviewed by the Board of Trustees. Members of the Fund's
portfolio committee may serve other clients of the Adviser or any subsidiary
of the Adviser in a similar capacity.
The primary consideration in placing portfolio security transactions with
broker-dealers for execution is to obtain and maintain the availability of
execution at the most favorable prices and in the most effective manner
possible. The Adviser attempts to achieve this result by selecting broker-
dealers to execute portfolio transactions on behalf of the Fund and other
clients of the Adviser on the basis of their professional capability, the
value and quality of their brokerage services, and the general level of their
brokerage commissions. In the case of securities traded in the over-the-
counter market (where no stated commissions are paid but the prices include a
dealer's markup or markdown), the Adviser normally seeks to deal directly with
the primary market makers, unless in its opinion, best execution is available
elsewhere. In the case of securities purchased from underwriters, the cost of
such securities generally includes a fixed underwriting commission or
concession. From time to time, soliciting dealer fees are available to the
Adviser on the tender of the Fund's portfolio securities in so-called tender
or exchange offers. Such soliciting dealer fees are in effect recaptured for
the Fund by the Adviser. At present no other recapture arrangements are in
effect.
Consistent with the foregoing primary consideration, the Conduct Rules of the
National Association of Securities Dealers, Inc. (the "NASD") and such other
policies as the Trustees may determine, the Adviser may consider sales of
shares of the Fund and of other investment company clients of MFD as a factor
in the selection of broker-dealers to execute the Fund's portfolio
transactions.
Under the Advisory Agreement and as permitted by Section 28(e) of the
Securities Exchange Act of 1934, the Adviser may cause the Fund to pay a
broker-dealer which provides brokerage and research services to the Adviser an
amount of commission for effecting a securities transaction for the Fund in
excess of the amount other broker-dealers would have charged for the
transaction if the Adviser determines in good faith that the greater
commission is reasonable in relation to the value of the brokerage and
research services provided by the executing broker-dealer viewed in terms of
either a particular transaction or the Adviser's overall responsibilities to
the Fund or to its other clients. Not all of such services are useful or of
value in advising the Fund.
The term "brokerage and research services" includes advice as to the value of
securities, the advisability of investing in, purchasing, or selling
securities, and the availability of securities or of purchasers or sellers of
securities; furnishing analyses and reports concerning issues, industries,
securities, economic factors and trends, portfolio strategy and the
performance of accounts; and effecting securities transactions and performing
functions incidental thereto such as clearance and settlement.
Although commissions paid on every transaction will, in the judgment of the
Adviser, be reasonable in relation to the value of the brokerage services
provided, commissions exceeding those which another broker might charge may be
paid to broker-dealers who were selected to execute transactions on behalf of
the Fund and the Adviser's other clients in part for providing advice as to
the availability of securities or of purchasers or sellers of securities and
services in effecting securities transactions and performing functions
incidental thereto such as clearance and settlement.
Broker-dealers may be willing to furnish statistical, research and other
factual information or services ("Research") to the Adviser for no
consideration other than brokerage or underwriting commissions. Securities may
be bought or sold from time to time through such broker-dealers on behalf of
the Fund. The Trust's Trustees (together with the Trustees of the other MFS
Funds) have directed the Adviser to allocate a total of $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 the
Fund and the Adviser).
The Adviser's investment management personnel attempt to evaluate the quality
of Research provided by brokers. The Adviser sometimes uses evaluations
resulting from this effort as a consideration in the selection of brokers to
execute portfolio transactions. However, the Adviser is unable to quantify the
amount of commissions set forth below which were paid as a result of such
Research because a substantial number of transactions were effected through
brokers which provide Research but which were selected principally because of
their execution capabilities.
The management fee that the Fund pays to the Adviser will not be reduced as a
consequence of the Adviser's receipt of brokerage and research services. To
the extent the Fund's portfolio transactions are used to obtain such services,
the brokerage commissions paid by the Fund will exceed those that might
otherwise be paid, by an amount which cannot be presently determined. Such
services would be useful and of value to the Adviser in serving both the Fund
and other clients and, conversely, such services obtained by the placement of
brokerage business of other clients would be useful to the Adviser in carrying
out its obligations to the Fund. While such services are not expected to
reduce the expenses of the Adviser, the Adviser would, through use of the
services, avoid the additional expenses which would be incurred if it should
attempt to develop comparable information through its own staff.
For the Fund's fiscal years ended September 1998, 1997 and 1996, total
brokerage commissions of $ , $7,737,147 and $3,831,659, respectively,
were paid on total transactions of $ , $5,170,226,072 and
$2,556,113,000. During the Fund's fiscal year ended September 30, 1998, the
Fund owned securities issued by [Morgan Stanley which securities had a value
of $17,937,938 at the end of such fiscal year and by Goldman Sachs which
securities had a value of $8,174,475 at the end of such fiscal year.]
In certain instances there may be securities which are suitable for the Fund's
portfolio as well as for that of one or more of the other clients of the
Adviser or any subsidiary of the Adviser. Investment decisions for the Fund
and for such other clients are made with a view to achieving their respective
investment objectives. It may develop that a particular security is bought or
sold for only one client even though it might be held by, or bought or sold
for, other clients. Likewise, a particular security may be bought for one or
more clients when one or more other clients are selling that same security.
Some simultaneous transactions are inevitable when several clients receive
investment advice from the same investment adviser, particularly when the same
security is suitable for the investment objectives of more than one client.
When two or more clients are simultaneously engaged in the purchase or sale of
the same security, the securities are allocated among clients in a manner
believed 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 the Fund is concerned. In other cases, however, the
Fund believes that its ability to participate in volume transactions will
produce better executions for the Fund.
6. SHAREHOLDER SERVICES
INVESTMENT AND WITHDRAWAL PROGRAMS -- The Fund makes available programs
designed to enable shareholders to add to their investment or withdraw from it
with a minimum of paper work. The programs involve no extra charge to
shareholders (other than a sales charge in the case of certain Class A share
purchases) and may be changed or discontinued at any time by a shareholder or
the Fund.
LETTER OF INTENT: If a shareholder (other than a group purchaser described
below) anticipates purchasing $50,000 or more of Class A shares of the Fund
alone or in combination with shares of Class B or Class C of the Fund or any
of the classes of other MFS Funds or MFS Fixed Fund (a bank collective
investment fund) within a 13-month period (or 36 month period, in the case of
purchases of $1 million or more), the shareholder may obtain Class A shares of
the Fund at the same reduced sales charge as though the total quantity were
invested in one lump sum by completing the Letter of Intent section of the
Fund's Account Application or filing a separate Letter of Intent application
(available from the Shareholder Servicing Agent) within 90 days of the
commencement of purchases. Subject to acceptance by MFD and the conditions
mentioned below, each purchase will be made at a public offering price
applicable to a single transaction of the dollar amount specified in the
Letter of Intent application. The shareholder or his dealer must inform MFD
that the Letter of Intent is in effect each time shares are purchased. The
shareholder makes no commitment to purchase additional shares, but if his
purchases within 13 months (or 36 months in the case of purchases of $1
million or more) plus the value of shares credited toward completion of the
Letter of Intent do not total the sum specified, he will pay the increased
amount of the sales charge as described below. Instructions for issuance of
shares in the name of a person other than the person signing the Letter of
Intent application must be accompanied by a written statement from the dealer
stating that the shares were paid for by the person signing such Letter.
Neither income dividends nor capital gain distributions taken in additional
shares will apply toward the completion of the Letter of Intent. Dividends and
distributions of other MFS Funds automatically reinvested in shares of the
Fund pursuant to the Distribution Investment Program will also not apply
toward completion of the Letter of Intent.
Out of the shareholder's initial purchase (or subsequent purchases if
necessary), 5% of the dollar amount specified in the Letter of Intent
application shall be held in escrow by the Shareholder Servicing Agent in the
form of shares registered in the shareholder's name. All income dividends and
capital gain distributions on escrowed shares will be paid to the shareholder
or to his order. When the minimum investment so specified is completed (either
prior to or by the end of the 13-month period or 36-month period, as
applicable), the shareholder will be notified and the escrowed shares will be
released.
If the intended investment is not completed, the Shareholder Servicing Agent
will redeem an appropriate number of the escrowed shares in order to realize
such difference. Shares remaining after any such redemption will be released
by the Shareholder Servicing Agent. By completing and signing the Account
Application or separate Letter of Intent application, the shareholder
irrevocably appoints the Shareholder Servicing Agent his attorney to surrender
for redemption any or all escrowed shares with full power of substitution in
the premises.
RIGHT OF ACCUMULATION: A shareholder qualifies for cumulative quantity
discounts on the purchase of Class A shares when that shareholder's new
investment, together with the current offering price value of all holdings of
Class A, B and C shares of that shareholder in the MFS Funds or MFS Fixed Fund
(a bank collective investment fund) reaches a discount level. See "Purchases"
in the Prospectus for the sales charges on quantity discounts. For example, if
a shareholder owns shares valued at public offering price at $37,500 and
purchases an additional $12,500 of Class A shares of the Fund, the sales
charge for the $12,500 purchase would be at the rate of 4.75% (the rate
applicable to single transactions of $50,000). A shareholder must provide the
Shareholder Servicing Agent (or his investment dealer must provide MFD) with
information to verify that the quantity sales charge discount is applicable at
the time the investment is made.
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 the Fund with respect to a particular class of shares may be
automatically invested in shares of the same class of one of the other MFS
Funds if shares of such fund are available for sale. Such investments will be
subject to additional purchase minimums. Distributions will be invested at net
asset value (exclusive of any sales charge) and will not be subject to any
CDSC. Distributions will be invested at the close of business on the payable
date for the distribution. A shareholder considering the Distribution
Investment Program should obtain and read the prospectus of the other MFS fund
and consider the differences in objectives and policies before making any
investment.
SYSTEMATIC WITHDRAWAL PLAN: A shareholder may direct the Shareholder
Servicing Agent to send him (or anyone he designates) regular periodic
payments, based upon the value of his account. Each payment under a Systematic
Withdrawal Plan ("SWP") must be at least $100, except in certain limited
circumstances. The aggregate withdrawals of Class B shares in any year
pursuant to a Plan generally are limited to 10% of the value of the account at
the time of the establishment of the SWP. SWP payments are drawn from the
proceeds of share redemptions (which would be a return of principal and, if
reflecting a gain, would be taxable). Redemptions of Class B and Class C
shares will be made in the following order: (i) any "Free Amount"; (ii) to the
extent necessary any "Reinvested Shares"; (iii) to the extent necessary, the
"Direct Purchase" subject to the lowest CDSC (as such terms are defined in
"Contingent Deferred Sales Charge" in the Prospectus). The CDSC will be waived
in the case of redemptions of Class B 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 reinvested in full and fractional shares of the
Fund at the net asset value in effect at the close of business on the record
date for such distributions. To initiate this service, shares having an
aggregate value of at least $5,000 either must be held on deposit by, or
certificates for such shares must be deposited with, the Shareholder Servicing
Agent. With respect to Class A shares, maintaining a withdrawal plan
concurrently with an investment program would be disadvantageous because of
the sales charges included in share purchases and the imposition of a CDSC on
certain redemptions. The shareholder may deposit into the account additional
shares of the Fund, change the payee or change the dollar amount of each
payment. The Shareholder Servicing Agent may charge the account for services
rendered and expenses incurred beyond those normally assumed by the Fund with
respect to the liquidation of shares. No charge is currently assessed against
the account, but one could be instituted by the Shareholder Servicing Agent on
60 days' notice in writing to the shareholder in the event that the Fund
ceases to assume the cost of these services. The Fund may terminate any SWP
for an account if the value of the account falls below $5,000 as a result of
share redemptions (other than as a result of a SWP) or an exchange of shares
of the Fund for shares of another MFS Fund. Any SWP may be terminated at any
time by either the shareholder or the Fund.
INVEST BY MAIL: Additional investments of $50 or more may be made at any
time by mailing a check payable to the Fund directly to the Shareholder
Servicing Agent. The shareholder's account number and the name of his
investment dealer must be included with each investment.
GROUP PURCHASES: A bona fide group and all its members may be treated as a
single purchaser and, under the Right of Accumulation (but not a Letter of
Intent), obtain quantity sales charge discounts on the purchase of Class A
shares if the group (1) gives its endorsement or authorization to the
investment program so it may be used by the investment dealer to facilitate
solicitation of the membership, thus effecting economies of sales effort; (2)
has been in existence for at least six months and has a legitimate purpose
other than to purchase mutual fund shares at a discount; (3) is not a group of
individuals whose sole organizational nexus is as credit cardholders of a
company, policyholders of an insurance company, customers of a bank or broker-
dealer, clients of an investment adviser or other similar groups; and (4)
agrees to provide certification of membership of those members investing money
in the MFS Funds upon the request of MFD.
AUTOMATIC EXCHANGE PLAN: Shareholders having account balances of at least
$5,000 in any MFS Fund may exchange their shares for the same class of shares
of other MFS Funds (if available for sale) under the Automatic Exchange Plan,
a dollar cost averaging program. The Automatic Exchange Plan provides for
automatic monthly or quarterly exchanges of funds from the shareholder's
account in an MFS Fund for investment in the same class of shares of other MFS
Funds selected by the shareholder. Under the Automatic Exchange Plan,
exchanges of at least $50 each may be made to up to 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 exchange will occur
after receipt and processing by the Shareholder Servicing Agent of an
application in good order. Exchanges will continue to be made from a
shareholder's account in any MFS Fund as long as the balance of the account is
sufficient to complete the exchanges. Additional payments made to a
shareholder's account will extend the period that exchanges will continue to
be made under the Automatic Exchange Plan. However, if additional payments are
added to an account subject to the Automatic Exchange Plan shortly before an
exchange is scheduled, such funds may not be available for exchanges until the
following month; therefore, care should be used to avoid inadvertently
terminating the Automatic Exchange Plan through exhaustion of the account
balance.
No transaction fee for exchanges will be charged in connection with the
Automatic Exchange Plan. However, exchanges of shares of MFS Money Market
Fund, MFS Government Money Market Fund and Class A shares of MFS Cash Reserve
Fund will be subject to any applicable sales charge. Changes in amounts to be
exchanged to each fund, the funds to which exchanges are to be made and the
timing of exchanges (monthly or quarterly), or termination of a shareholder's
participation in the Automatic Exchange Plan will be made after instructions
in writing or by telephone (an "Exchange Change Request") are received by the
Shareholder Servicing Agent in proper form (i.e., if in writing -- signed by
the record owner(s) exactly as shares are registered; if by telephone --
proper account identification is given by the dealer or shareholder of
record). Each Exchange Change Request (other than termination of participation
in the program) must involve at least $50. Generally, if an Exchange Change
Request is received by telephone or in writing before the close of business on
the last business day of a month, the Exchange Change Request will be
effective for the following month's exchange.
A shareholder's right to make additional investments in any of the MFS Funds,
to make exchanges of shares from one MFS Fund to another and to withdraw from
an MFS Fund, as well as a shareholder's other rights and privileges are not
affected by a shareholder's participation in the Automatic Exchange Plan.
The Automatic Exchange Plan is part of the Exchange Privilege. For additional
information regarding the Automatic Exchange Plan, including the treatment of
any CDSC, see "Exchange Privilege" below.
REINSTATEMENT PRIVILEGE: Shareholders of the Fund and shareholders of the
other MFS Funds (except MFS Money Market Fund, MFS Government Money Market
Fund and holders of Class A shares of MFS Cash Reserve Fund in the case where
such shares are acquired through direct purchase or reinvested dividends) who
have redeemed their shares have a one-time right to reinvest the redemption
proceeds in the same class of shares of any of the MFS Funds (if shares of the
fund are available for sale) at net asset value (without a sales charge) and,
if applicable, with credit for any CDSC paid. In the case of proceeds
reinvested in shares of MFS Money Market Fund, MFS Government Money Market
Fund and Class A shares of MFS Cash Reserve Fund, the shareholder has the
right to exchange such shares for shares of another MFS Fund at net asset
value pursuant to the exchange privilege described below. Such a reinvestment
must be made within 90 days of the redemption and is limited to the amount of
the redemption proceeds. If the shares credited for any CDSC paid are then
redeemed within six years of the initial purchase for Class B shares (or
within 12 months of the initial purchase of 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
advisor for further information.
EXCHANGE PRIVILEGE -- Subject to the requirements set forth below, some or all
of the shares for which payment has been received by the Fund (i.e., an
established account) may be exchanged for shares of the same class of any of
the other MFS Funds (if available for sale and if the 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") for an
established account are received by the Shareholder Servicing Agent.
Each Exchange Request must be in proper form (i.e., if in writing -- signed by
the record owner(s) exactly as the shares are registered; if by telephone --
proper account identification is given by the dealer or shareholder of
record), and each exchange must involve either shares having an aggregate
value of at least $1,000 or all the shares in the account (except that the
minimum is $50 for accounts of retirement plan participants whose sponsoring
organizations subscribe to the MFS FUNDamental 401(k) Plan or another similar
401(k) recordkeeping system made available by the Shareholder Servicing
Agent). Each exchange involves the redemption of the shares of the Fund to be
exchanged and the purchase at net asset value (i.e., without a sales charge)
of shares of the same class of the other MFS Fund. Any gain or loss on the
redemption of the shares exchanged is reportable on the shareholder's federal
income tax return, unless both the shares received and the shares surrendered
are held in a tax-deferred retirement plan or other tax-exempt account. No
more than five exchanges may be made in any one Exchange Request by telephone.
If an Exchange Request is received by the Shareholder Servicing Agent prior to
the close of regular trading on the New York Stock Exchange (the "Exchange"),
the exchange usually will occur on that day if all the restrictions set forth
above have been complied with at that time. However, payment of the redemption
proceeds by the Fund, and thus the purchase of shares of another MFS Fund, may
be delayed for up to seven days if the Fund determines that such a delay would
be in the best interest of all its shareholders. Investment dealers which have
satisfied criteria established by MFD may also communicate a shareholder's
Exchange Request to MFD by facsimile subject to the restrictions and
requirements set forth above.
No CDSC is imposed on exchanges among the MFS Funds, although liability for
the CDSC is carried forward to the exchanged shares. For purposes of
calculating the CDSC upon redemption of shares acquired in an exchange, the
purchase of shares acquired in one or more exchanges is deemed to have
occurred at the time of the original purchase of the exchanged shares.
Additional information with respect to any of the MFS Funds, including a copy
of its current prospectus, may be obtained from investment dealers or the
Shareholder Servicing Agent. A shareholder considering an exchange should
obtain and read the prospectus of the other MFS Fund and consider the
differences in objectives and policies before making any exchange.
Shareholders of the other MFS Funds (except shares of MFS Money Market Fund,
MFS Government Money Market Fund and Class A shares of MFS Cash Reserve Fund
acquired through direct purchase and dividends reinvested prior to June 1,
1992) have the right to exchange their shares for shares of the Fund, subject
to the conditions, if any, set forth in their respective prospectuses. In
addition, unitholders of the MFS Fixed Fund (a bank collective investment
fund) have the right to exchange their units (except units acquired through
direct purchases) for shares of the Fund, subject to the conditions, if any,
imposed upon such unitholders by the MFS Fixed Fund.
Any state income tax advantages for investment in shares of each state-
specific series of MFS Municipal Series Trust may only benefit residents of
such states. Investors should consult with their own tax advisers to be sure
this is an appropriate investment, based on their residency and each state's
income tax laws.
The exchange privilege (or any aspect of it) may be changed or discontinued
and is subject to certain limitations (see "Purchases" in the Prospectus).
TAX-DEFERRED RETIREMENT PLANS -- Except as noted below, shares of the Fund
may be purchased by all types of tax-deferred retirement plans. MFD makes
available, through investment dealers, plans and/or custody agreements the
following:
Traditional Individual Retirement Accounts ("IRAs") (for individuals and
their non-employed spouses who desire to make limited contributions to a
tax-deferred retirement program and, if eligible, to receive a federal
income tax deduction for amounts contributed);
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 qualified corporate pension and profit-sharing plans.
The plan documents provided by MFD designate a trustee or custodian (unless
another trustee or custodian is designated by the individual or group
establishing the plan) and contain specific information about the plans. Each
plan provides that dividends and distributions will be reinvested
automatically. For further details with respect to any plan, including fees
charged by the trustee, custodian or MFD, tax consequences and redemption
information, see the specific documents for that plan. Plan documents other
than those provided by MFD may be used to establish any of the plans described
above. Third party administrative services, available for some corporate
plans, may limit or delay the processing of transactions.
An investor should consult with his tax adviser before establishing any of the
tax-deferred retirement plans described above.
Class C shares are not currently available for purchase by any retirement plan
qualified under Internal Revenue Code section 401(a) or 403(b) if the
retirement plan and/or the sponsoring organization subscribe to the MFS
FUNDamental 401(k) Plan or another similar 401(a) or 403(b) recordkeeping
program made available by MFS Service Center, Inc.
7. TAX STATUS
The Fund has elected to be treated and intends to qualify each year as a
"regulated investment company" under Subchapter M of the Code, by meeting all
applicable requirements of Subchapter M, including requirements as to the
nature of the Fund's gross income, the amount of Fund distributions, and the
composition of the Fund's portfolio assets. Because the Fund intends to
distribute all of its net investment income and net realized capital gains to
shareholders in accordance with the timing requirements imposed by the Code,
it is not expected that the Fund will be required to pay any federal income or
excise taxes, although the Fund's foreign-source income may be subject to
foreign withholding taxes. If the Fund should fail to qualify as a "regulated
investment company" in any year, the Fund would incur a regular corporate
federal income tax upon its taxable income and Fund distributions would
generally be taxable as ordinary dividend income to the shareholders.
Shareholders of the Fund normally will have to pay federal income taxes, and
any state or local taxes, on the dividends and capital gain distributions they
receive from the Fund. Dividends from ordinary income and any distributions
from net short-term capital gains are taxable to shareholders as ordinary
income for federal income tax purposes whether the distributions are paid in
cash or reinvested in additional shares. A portion of the Fund's ordinary
income dividends is normally eligible for the dividends received deduction for
corporations if the recipient otherwise qualifies for that deduction with
respect to its holding of Fund shares. Availability of the deduction for
particular corporate shareholders is subject to certain limitations, and
deducted amounts may be subject to the alternative minimum tax and may result
in certain basis adjustments. Distributions of net capital gains (i.e., the
excess of net long-term capital gains over net short-term capital losses),
whether paid in cash or reinvested in additional shares, are taxable to
shareholders as long-term capital gains for federal income tax purposes
without regard to the length of time the shareholders have held their shares.
Any Fund dividend that is declared in October, November, or December of any
calendar year, that is payable to shareholders of record in such a month, and
that is paid the following January will be treated as if received by
shareholders on December 31 of the year in which the dividend is declared. The
Fund will notify shareholders regarding the federal tax status of its
distributions after the end of each calendar year.
Any Fund distribution will have the effect of reducing the per share net asset
value of shares in the 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
the Fund by a shareholder that holds such shares as a capital asset will be
treated as a long-term capital gain or loss if the shares have been held for
more than twelve months and otherwise as a short-term capital gain or loss.
However, any loss realized upon a disposition of shares in the Fund held for
six months or less will be treated as a long-term capital loss to the extent
of any distributions of net capital gain made with respect to those shares.
Any loss realized upon a 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 the Fund within ninety days after their
purchase followed by any purchase (including purchases by exchange or by
reinvestment), without payment of an additional sales charge, of Class A
shares of the Fund or of another MFS Fund (or any other shares of an MFS Fund
generally sold subject to a sales charge).
The Fund's current dividend and accounting policies will affect the amount,
timing and character of distributions to shareholders and may, under certain
circumstances, make an economic return of capital taxable to shareholders. Any
investment in certain securities purchased at 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.
Special tax considerations apply with respect to foreign investments of the
Fund. Foreign exchange gains and losses realized by the Fund will generally be
treated as ordinary income and losses. Investment by the Fund in certain
"passive foreign investment companies" may be limited in order to avoid a tax
on the Fund. The 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
the Fund from foreign securities may be subject to foreign income taxes
withheld at the source; the Fund does not expect to be able to pass through to
shareholders foreign tax credits with respect to such foreign taxes. The
United States has entered into tax treaties with many foreign countries that
may entitle the Fund to a reduced rate of tax or an exemption from tax on such
income; the Fund intends to qualify for treaty reduced rates where available.
It is not possible, however, to determine the Fund's effective rate of foreign
tax in advance since the amount of the Fund's assets to be invested within
various countries is not known.
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%. The Fund intends
to withhold U.S. federal income tax payments at the rate of 30% (or any lower
rate permitted under an applicable treaty) on taxable dividends and other
payments to Non-U.S. persons that are subject to such withholding. Any amounts
overwithheld may be recovered by such persons by filing a claim for refund
with the U.S. Internal Revenue Service within the time period appropriate to
such claims. Distributions received from the Fund by Non-U.S. Persons also may
be subject to tax under the laws of their own jurisdictions. The 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 Non-U.S. Person) who does not furnish to the Fund certain
information and certifications or who is otherwise subject to backup
withholding. Backup withholding will not, however, be applied to payments that
have been subject to 30% withholding.
As long as it qualifies as a regulated investment company under the Code, the
Fund will not be subject to Massachusetts income or excise
taxes.
8. DETERMINATION OF NET ASSET VALUE AND PERFORMANCE
NET ASSET VALUE
The net asset value per share of each class of the Fund is determined each day
during which the Exchange is open for regular trading. (As of the date of this
SAI, the Exchange is open for regular trading every weekday except for the
following holidays or days on which they are observed: New Year's Day; Martin
Luther King, Jr. Day; Presidents' Day; Good Friday; Memorial Day; Independence
Day; Labor Day; Thanksgiving Day and Christmas Day.) This determination is
made once each day as of the close of regular trading on the Exchange by
deducting the amount of the liabilities attributable to the class from the
value of the assets attributable to the class and dividing the difference by
the number of shares of the class outstanding. Equity securities in the Fund's
portfolio are valued at the last sale price on the exchange on which they are
primarily traded or on the Nasdaq system for unlisted national market issues,
or at the last quoted bid price for securities in which there were no sales
during the day or for unlisted securities not reported on the Nasdaq system.
Bonds and other fixed income securities in the Fund's portfolio are valued on
the basis of valuations furnished by a pricing service which utilizes both
dealer-supplied valuations and electronic data processing techniques which
take into account appropriate factors such as institution-size trading in
similar groups of securities, yield, quality, coupon rate, maturity, type of
issue, trading characteristics and other market data, without exclusive
reliance upon exchange or over-the-counter prices, since such valuations are
believed to reflect more accurately the fair value of such securities. Use of
the pricing service has been approved by the Trust's Board of Trustees. Short-
term obligations with a remaining maturity in excess of 60 days will be valued
upon dealer supplied valuations. Other short-term obligations are valued at
amortized cost, which constitutes fair value as determined by the Board of
Trustees. Portfolio securities for which there are no such quotations or
valuations are valued at fair value as determined in good faith by or at the
direction of the Board of Trustees.
PERFORMANCE INFORMATION
TOTAL RATE OF RETURN: The Fund will calculate its total rate of return for
each class of shares for certain periods by determining the average annual
compounded rates of return over those periods that would cause an investment
of $1,000 (made with all distributions reinvested and reflecting the CDSC or
the maximum public offering price) to reach the value of that investment at
the end of the periods. The Fund may also calculate (i) a total rate of
return, which is not reduced by the CDSC (4% maximum for Class B shares 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 maximum sales charge (currently
5.75% on Class A shares), and/or (iii) total rates of return which represent
aggregate performance over a period or year-by-year performance, and which may
or may not reflect the effect of the maximum or other sales charge or CDSC.
Prior to March 1, 1991, the maximum sales charge on Class A shares was 7.25%.
On March 1, 1991, the maximum sales charge on Class A shares was lowered to
5.75%, the sales charge was eliminated on reinvested dividends and a
Distribution Plan pursuant to Rule 12b-1 under the 1940 Act was implemented
with respect to Class A shares.
The 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 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 the 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 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 class are presented in Appendix B
attached hereto.
PERFORMANCE RESULTS: Any total rate of return quotations provided by the Fund
should not be considered as representative of the performance of the Fund in
the future since the net asset value and public offering price of shares of
the Fund will vary based not only on the type, quality and maturities of the
securities held in the Fund's portfolio, but also on changes in the current
value of such securities and on changes in the expenses of the Fund. These
factors and possible differences in the methods used to calculate total rates
of return should be considered when comparing the total rate of return of the
Fund to total rates of return published for other investment companies or
other investment vehicles. Total rate of return reflects the performance of
both principal and income. Current net asset value of shares and account
balance information may be obtained by calling 1-800-MFS-TALK (637-8255).
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 Securities Corporation, 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.
The Fund may also use charts, graphs or other presentation formats to
illustrate the historical correlation of its performance to fund categories
established by Morningstar (or other nationally recognized statistical ratings
organizations) and to other MFS Funds.
From time to time, the Fund may discuss or quote its current portfolio manager
as well as other investment personnel, including such persons' views on: the
economy; securities markets; portfolio securities and their issuers;
investment philosophies, strategies, techniques and criteria used in the
selection of securities to be purchased or sold for the Fund; the Fund's
portfolio holdings; the investment research and analysis process; the
formulation and evaluation of investment recommendations; and the assessment
and evaluation of credit, interest rate, market and economic risks 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 inter-generational
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 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, the Fund may also advertise annual returns showing the
cumulative value of an initial investment in the Fund in various amounts over
specified periods with capital gain and dividend distributions invested in
additional shares or taken in cash, and with no adjustment for any income
taxes (if applicable) payable by shareholders.
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) Global 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) Global Total Return Fund is the first global balanced
fund.
-- 1993 -- MFS(R) Global Growth Fund is the first global emerging markets
fund to offer the expertise of two sub-advisers.
-- 1993 -- MFS becomes money manager of MFS(R) Union Standard Equity Fund,
the first fund to invest in companies deemed to be union-friendly by an
Advisory Board of senior labor officials, senior managers of companies
with significant labor contracts, academics and other national labor
leaders or experts.
9. DISTRIBUTION PLAN
The Trustees have adopted a Distribution Plan for Class A, Class B and Class C
shares (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 the Fund and
each respective class of shareholders. The provisions of the Distribution Plan
are severable with respect to each class of shares offered by the Fund. The
Distribution Plan is designed to promote sales, thereby increasing the net
assets of the Fund. Such an increase may reduce the expense ratio to the
extent the Fund's fixed costs are spread over a larger net asset base. Also,
an increase in net assets may lessen the adverse effects that could result
were the Fund required to liquidate portfolio securities to meet redemptions.
There is, however, no assurance that the net assets of the Fund will increase
or that the other benefits referred to above will be realized.
The Distribution 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 of record for investors who own
Class A shares having an aggregate net asset value less than $750,000, or such
other amount as may be determined from time to time by MFD (MFD, however, may
waive this minimum amount requirement from time to time); or (ii) to any
insurance company which has entered into an agreement with the Fund and MFD
that permits such insurance company to purchase Class A shares from the Fund
at their net asset value in connection with annuity agreements issued in
connection with the insurance company's separate accounts. Dealers may from
time to time be required to meet certain other criteria in order to receive
service fees.
With respect to 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 Plans is to compensate MFD for its distribution services to the
Fund. MFD pays commissions to dealers as well as expenses of printing
prospectuses and reports used for sales purposes, expenses with respect to the
preparation and printing of sales literature and other distribution related
expenses, including, without limitation, the cost necessary to provide
distribution-related services, or personnel, travel, office expenses and
equipment.
DISTRIBUTION AND SERVICE FEES PAID DURING THE FUND'S LAST FISCAL YEAR: During
the fiscal year ended September 30, 1998, the Fund paid the following
Distribution Plan expenses:
AMOUNT OF AMOUNT OF AMOUNT OF
DISTRIBUTION DISTRIBUTION DISTRIBUTION
AND SERVICE AND SERVICE AND SERVICE
FEES PAID FEES RETAINED FEES RECEIVED
CLASSES OF SHARES BY FUND BY MFD BY DEALERS
- ----------------- ------- ------ ----------
Class A Shares $ 9,198,981 $ 2,986,989 $6,211,992
Class B Shares $22,103,603 $16,632,598 $5,471,005
Class C Shares $ 5,519,535 $ 5,073 $5,514,462
GENERAL: The Distribution Plan will remain in effect until August 1, 1999, 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 the Distributions 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
the Fund's shares. The Distribution Plan may not be amended to increase
materially the amount of permitted distribution expenses without the approval
of a majority of the respective class of the Fund's shares (as defined in
"Investment Restrictions") or may not be materially amended in any case
without a vote of the Trustees and a majority of the Distribution Plan
Qualified Trustees. The selection and nomination of Distribution Plan
Qualified Trustees shall be committed to the discretion of the non-interested
Trustees then in office. No Trustee who is not an "interested person" has any
financial interest in the Distribution Plan or in any related agreement.
10. DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional Shares of Beneficial Interest (without par value) of one
or more separate series and to divide or combine the shares of any series into
a greater or lesser number of shares without thereby changing the
proportionate beneficial interests in that series. The Trustees have currently
authorized shares of the Fund and five 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 series of the Trust (Class A, Class
B and Class C shares as well as Class I shares for the Fund and five other
series). Each share of a class of the Fund represents an equal proportionate
interest in the assets of the Fund allocable to that class. Upon liquidation
of the Fund, the shareholders of each class of the Fund are entitled to share
pro rata in the net assets of the Fund allocable to such class available for
distribution to its shareholders. The Trust reserves the right to create and
issue additional classes or series of shares, in which case the shares of each
class would participate equally in the earnings, dividends and assets
allocable to that class of the particular series.
Shareholders are entitled to one vote for each share held and may vote in the
election of Trustees and on other matters submitted to meetings of
shareholders. Although Trustees are not elected annually by the shareholders,
shareholders have, under certain circumstances, the right to remove one or
more Trustees. No material amendment may be made to the Declaration of Trust
without the affirmative vote of the holders of a majority of the Trust's
shares or by an instrument in writing without a meeting, signed by a majority
of Trustees and consented to by the holders of more than 50% of the shares of
the Fund outstanding and entitled to vote. Shares have no preemptive or
conversion rights (except as described in "Purchases -- Conversion of Class B
Shares" in the Prospectus). Shares when issued are fully paid and non-
assessable.
The Trust may enter into a merger or consolidation, or sell all or
substantially all of its assets (or all or substantially all of the assets
belonging to any series of the Trust), if approved by the vote of the holders
of two-thirds of the Trust's outstanding shares voting as a single class, or
of the affected series of the Trust, as the case may be, except that if the
Trustees of the Trust recommend such merger, consolidation or sale, the
approval by vote of the holders of a majority of the Trust's or the affected
series' outstanding shares (as defined in "Investment Objective, Policies and
Restrictions -- Investment Restrictions") will be sufficient. The Trust or any
series of the Trust may also be terminated (i) upon liquidation and
distribution of its assets, if approved by the vote of the holders of two-
thirds of its outstanding shares, or (ii) by the Trustees by written notice to
the shareholders of the Trust or the affected series. If not so terminated the
Trust will continue indefinitely.
The Trust is an entity of the type commonly known as a "Massachusetts business
trust." Under Massachusetts law, shareholders of such a trust may, under
certain circumstances, be held personally liable as partners for its
obligations. However, the Declaration of Trust contains an express disclaimer
of shareholder liability for acts, obligations or affairs of the Trust and
provides for indemnification and reimbursement of expenses out of the Trust
property for any shareholder held personally liable for the obligations of the
Fund. The Declaration of Trust also provides that the Trust shall maintain
appropriate insurance (for example, fidelity bonding and errors and omissions
insurance) for the protection of the Trust, its shareholders, Trustees,
officers, employees and agents covering possible tort and other liabilities.
Thus, the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which both inadequate
insurance existed and the Trust itself was unable to meet its obligations.
The Declaration of Trust further provides that obligations of the Trust are
not binding upon the Trustees individually but only upon the property of the
Trust and that the Trustees will not be liable for any action or failure to
act, but nothing in the Declaration of Trust protects a Trustee against any
liability to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.
11. INDEPENDENT AUDITORS AND FINANCIAL STATEMENTS
Deloitte & Touche LLP are the Fund's independent auditors, providing audit
services, tax return preparation, and assistance and consultation with respect
to the preparation of filings with the SEC.
The Portfolio of Investments at September 30, 1998, the Statement of Assets
and Liabilities at September 30, 1998, the Statement of Operations for the
year ended September 30, 1998, the Statement of Changes in Net Assets for the
years ended September 30, 1998 and 1997, the Notes to Financial Statements and
the Independent Auditors' Report, each of which is included in the Annual
Report to shareholders of the Fund, are incorporated by reference into this
SAI and have been so incorporated in reliance upon the report of Deloitte &
Touche LLP, independent auditors, as experts in accounting and auditing. A
copy of the Annual Report accompanies this SAI.
<PAGE>
APPENDIX A
DESCRIPTION OF BOND RATINGS
MOODY'S INVESTORS SERVICE, INC.
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than Aaa
securities.
A: Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may
be present which suggest a susceptibility to impairment some time in the
future.
Baa: Bonds which are rated Baa are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
ABSENCE OF RATING: Where no rating has been assigned or where a rating has
been suspended or withdrawn, it may be for reasons unrelated to the quality of
the issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies that
are not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise,
the effects of which preclude satisfactory analysis; if there is no longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.
NOTE: Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa to B. The modifier 1 indicates that the company ranks
in the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the company ranks in the
lower end of its generic rating category.
STANDARD & POOR'S RATINGS SERVICES
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 highest rated obligations 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 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 for the
obligor 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 Standard & Poor's 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 a
similar action if 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 the major
rating 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 risk -- such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
FITCH IBCA
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.
Speculative Grade
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 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, 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 CREDIT RATING CO.
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 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. Issuer failed to meet scheduled principal and/
or interest payments.
DP: Preferred stock with dividend arrearages.
DUFF & PHELPS SHORT-TERM RATINGS
D-1+: Highest certainty of timely payment. Short-term liquidity, including
internal operation factors and/or access to alternative sources of funds, is
outstanding and safety is just below risk-free U.S. Treasury short-term
obligations.
D-1: Very high certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk factors are minor.
D-1-: High certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are very small.
D-2: Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.
D-3: Satisfactory liquidity and other protection factors qualify issues as to
investment grade. Risk factors are larger and subject to more variation.
Nevertheless, timely payment is expected.
D-4: Speculative investment characteristics. Liquidity is not sufficient to
insure against disruption in debt service. Operating factors and market access
may be subject to a high degree of variation.
D-5: Issuer failed to meet scheduled principal and/or interest payments.
<PAGE>
APPENDIX B
PERFORMANCE INFORMATION
The performance quotations below should not be considered as representative of
the performance of the Fund in the future since the net asset value and public
offering price of shares of the Fund will vary. See "Determination of Net
Asset Value and Performance" in the SAI.
All performance quotations are as of September 30, 1998.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
-------------------------------------------
1 YEAR 5 YEAR 10 YEAR
------ ------ -------
<S> <C> <C> <C>
Class A shares with sales charge ........................ (6.59)% 15.33% 15,41%
Class A shares without sales charge ..................... (0.89)% 16.71% 16.09%
Class B shares with CDSC ................................ (5.31)% 15.65%(1) 15.68%(1)
Class B shares without CDSC ............................. (1.54)% 15.87%(1) 15.68%(1)
Class C shares with CDSC ................................ (2.46)% 15.94%(2) 15.71%(2)
Class C shares without CDSC ............................. (1.51)% 15.94%(2) 15.71%(2)
Class I shares without CDSC ............................. (0.55)%(3) 16.85%(3) 16.16%(3)
----- ------ ------
</TABLE>
(1) Class B share performance includes the performance of the Fund's Class A
shares for periods prior to the inception of Class B shares on September
7, 1993. Sales charges, expenses and expense ratios, and therefore
performance, for Class A and Class B shares differ. Class B share
performance has been adusted to reflect that Class B shares generally are
subject to CDSC (unless the performance quotation does not give effect to
the CDSC) whereas Class A shares generally are subject to an initial sales
charge. Class B share performance has not, however, been adjusted to
reflect differences in operating expenses (e.g., Rule 12b-1 fees), which
generally are lower for Class A shares.
(2) Class C share performance includes the performance of the Fund's Class A
shares for periods prior to the inception of Class C shares on January 3,
1994. Sales charges, expenses and expense ratios, and therefore
performance, for Class A and Class C shares differ. Class C shares
performance has been adjusted to reflect that Class C shares generally are
subject to a CDSC (unless the performance quotation does not give effect
to the CDSC) whereas Class A shares generally are subject to an initial
sales charge. Class C share performance has not, however, been adjusted to
reflect differences in operating expenses (e.g., Rule 12b-1 fees), which
generally are lower for Class A shares.
(3) Class I share performance includes the performance of the Fund's Class A
shares for the periods prior to the inception of Class I shares on
January 2, 1997. Sales charges, expenses and expense ratios, and therefore
performance for Class I and A shares differ. Class I share performance has
been adjusted to reflect that Class I shares are not subject to an initial
sales charge, whereas Class A shares generally are subject to an initial
sales charge. Class I share performance has not, however, been adjusted to
reflect differences in operating expenses (e.g., Rule 12b-1 fees), which
generally are lower for Class I shares.
<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
State Street Bank and Trust Company
225 Franklin Street, Boston, MA 02110
DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company
225 Franklin Street, Boston, MA 02110
SHAREHOLDER SERVICING AGENT
MFS Service Center, Inc.
500 Boylston Street, Boston, MA 02116
Toll free: (800) 225-2606
MAILING ADDRESS
P.O. Box 2281, Boston, MA 02107-9906
INDEPENDENT AUDITORS
Deloitte & Touche LLP
125 Summer Street, Boston, MA 02110
MFS(R)
RESEARCH
FUND
500 BOYLSTON STREET
BOSTON, MA 02116
[Logo](R)
INVESTMENT MANAGEMENT
We invented the mutual fund
Printed on recycled paper. MFR-13-x/98/xxx 14/214/314
<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 FEBRUARY 1, 1999 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 FEBRUARY 1,
1999, 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.
<TABLE>
EXPENSE SUMMARY
<CAPTION>
Class I
------------------------------------------------------------------
INTERNATIONAL INTERNATIONAL INTERNATIONAL ASIA
OPPORTUNITIES STRATEGIC GROWTH VALUE PACIFIC
FUND FUND FUND FUND
------------- ---------------- ------------- --------
<S> <C> <C> <C> <C>
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
<CAPTION>
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 expense limitation)(2)...... 1.75%(3) 1.75%(3) 1.75%(3) 1.36%
-------- -------- -------- -----
Total Operating Expenses (after
fee reductions) (4)............................ 1.75% 1.75% 1.75% 1.36%
</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>
<CAPTION>
INTERNATIONAL INTERNATIONAL INTERNATIONAL ASIA
OPPORTUNITIES STRATEGIC GROWTH VALUE PACIFIC
FUND FUND FUND FUND
------------- ---------------- ------------ -------
<S> <C> <C> <C> <C>
0.975% 0.975% 0.975% 1.00%
(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) The Adviser has agreed to bear the expenses of the 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" in the Prospectus. Otherwise, "Other Expenses" would be 2.10% for
the International Opportunities Fund, 2.45% for the International Strategic
Growth Fund and 2.45% for the International Value Fund.
(4) Absent any fee waivers, "Total Operating Expenses" for each Fund would be as
follows:
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL INTERNATIONAL INTERNATIONAL ASIA
OPPORTUNITIES STRATEGIC GROWTH VALUE PACIFIC
FUND FUND FUND FUND
------------- ---------------- ------------ -------
<S> <C> <C> <C> <C>
3.07% 3.42% 3.42% 2.36%
</TABLE>
EXAMPLE OF EXPENSES
An investor would pay the following dollar amounts of expenses on a
$1,000 investment in Class I shares of each Fund, assuming (a) a 5% annual
return and (b) redemption at the end of each of the time periods indicated:
<TABLE>
<CAPTION>
INTERNATIONAL INTERNATIONAL INTERNATIONAL ASIA
OPPORTUNITIES STRATEGIC GROWTH VALUE PACIFIC
PERIOD FUND FUND FUND FUND
- ------ ------------- ---------------- ------------ -------
<S> <C> <C> <C> <C>
1 year......... $18 $ 18 $18 $ 14
3 years........ 55 55 55 42
5 years........ 95 95 95 73
10 years....... 206 206 206 164
</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 has been audited and should be read in conjunction
with the financial statements included in the Funds' Annual Report to
shareholders which are incorporated by reference into the SAI in reliance upon
the report of the Funds' independent Auditors, given upon their authority as
experts in accounting and auditing. The Funds' independent auditors are Ernst &
Young LLP.
<TABLE>
<CAPTION>
INTERNATIONAL
INTERNATIONAL STRATEGIC INTERNATIONAL
OPPORTUNITIES GROWTH VALUE
FINANCIAL HIGHLIGHTS FUND FUND FUND
PERIOD ENDED SEPTEMBER 30, 1998* CLASS I CLASS I CLASS I
- -------------------------------- ------------- ------------- -------------
<S> <C> <C> <C>
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 incomess. $ 0.07 $ 0.05 $ 0.11
Net realized and unrealized gain on
investments and foreign currency (0.65) (0.35) 0.36
----- ----
Total from investment operations $ (0.58) $ (0.30) $ 0.47
-------- -------- -------
Net asset value - end of period $ 9.42 $ 9.70 $10.47
------- ------- ------
Total return (5.80)%++ (3.00)%++ 4.70%++
Ratios (to average net assets)/Supplemental datass.:
Expenses 1.75%+### 1.75%+ 1.75%+###
Net investment income 0.65%+ 0.48%+ 1.00%+
Portfolio turnover 165% 103% 71%
Net assets at end of period (000 omitted) $692 $876 $112
- ------------------
+ Annualized.
++ Not annualized.
* For the period from the commencement of the Fund's investment operations, October 9, 1997 through
September 30, 1998.
# Per share data are based on average shares outstanding.
## The Fund's expenses are calculated without reduction for fees paid indirectly.
### The Fund's expenses without reduction for fees paid indirectly for both
Class A and Class I for the period ended September 30, 1998 would have
been:
1.79% 1.77%
ss. Subject to reimbursement by the Fund, the investment adviser agreed to
maintain the expenses of the Fund, exclusive of management, distribution,
and service fees, at not more than 1.75% of the Fund's average daily net
assets. The investment adviser and the distributor voluntarily waived
their fees for the period indicated. If these fees had not been waived
and/or, if actual expenses had been over this limitation, the net
investment loss per share and the ratios would have been:
Net investment income $ 0.07 $ (0.13) $ (0.07)
Ratios (to average net assets):
Expenses## 3.07%+ 3.38%+ 3.42%+
Net investment income (0.71)% + (1.15)% + (0.67)%+
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS ASIA PACIFIC FUND
Period Ended September 30, 1998* CLASS I
- -------------------------------- -----------------
<S> <C>
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. $ 0.08
Net realized and unrealized loss on
investments and foreign currency (3.53)
Total from investment operations $ (3.45)
--------
Less distributions declared to shareholders from net investment income $ (0.02)
Net asset value - end of period $ 6.53
-------
Total return (34.72)%++
Ratios (to average net assets)/Supplemental datass.:
Expenses## 1.33%+
Net investment income 0.83%+
Portfolio turnover 84%
Net assets at end of period (000 omitted) $342
- ------------------
* For the period from the commencement of the Fund's investment operations, October 9, 1997 through September 30,
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 the distributor voluntarily waived their fees
for the period indicated. If these 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## 2.37%+
Net investment loss (0.22)%+
</TABLE>
<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") of 1.00% upon redemption 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 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 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.
THE DATE OF THIS SUPPLEMENT IS FEBRUARY 1, 1999.
<PAGE>
[Logo](R)
INVESTMENT MANAGEMENT
We invented the mutual fund(R)
PROSPECTUS
FEBRUARY 1, 1999
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 MASSACHUSETTS FINANCIAL SERVICES COMPANY (THE
"ADVISER" OR "MFS").
Each Fund's investment adviser and distributor are 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 February 1, 1999, 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 30 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. Year 2000 Issues............................................. 17
9. Information Concerning Shares of the Funds................... 17
Purchases................................................... 17
Exchanges................................................... 22
Redemptions and Repurchases................................. 22
Distribution Plan........................................... 24
Distributions............................................... 26
Tax Status.................................................. 26
Net Asset Value............................................. 26
Expenses.................................................... 27
Description of Shares, Voting Rights and Liabilities........ 27
Performance Information..................................... 28
Provision of Annual and Semiannual Reports.................. 28
10. Shareholder Services...................................... 28
Appendix A - Waivers of Sales Charges................................... A-1
Appendix B - Description of Bond Ratings................................ B-1
<PAGE>
1. EXPENSE SUMMARY
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES: CLASS A CLASS B CLASS C
------- ------- -------
<S> <C> <C> <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):
<TABLE>
CLASS A SHARES
<CAPTION>
INTERNATIONAL INTERNATIONAL INTERNATIONAL ASIA
OPPORTUNITIES STRATEGIC GROWTH VALUE PACIFIC
FUND FUND FUND FUND
------------- ---------------- ------------ -------
<S> <C> <C> <C> <C>
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 (after expense
limitation)(5) (7) .............. 1.75% 1.75% 1.75% 1.36%
TOTAL OPERATING EXPENSES
(AFTER FEE REDUCTIONS)(6) ....... 1.75% 1.75% 1.75% 1.36%
----- ----- ----- -----
</TABLE>
CLASS B SHARES
<TABLE>
INTERNATIONAL INTERNATIONAL INTERNATIONAL ASIA
OPPORTUNITIES STRATEGIC GROWTH VALUE PACIFIC
FUND FUND FUND FUND
------------- ---------------- ------------ -------
<S> <C> <C> <C> <C>
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 (after expense
limitation)(5) (7) ............ 1.75% 1.75% 1.75% 1.36%
TOTAL OPERATING EXPENSES
(AFTER FEE REDUCTIONS)(6) ....... 2.75% 2.75% 2.75% 2.36%
----- ----- ----- -----
</TABLE>
CLASS C SHARES
<TABLE>
<CAPTION>
INTERNATIONAL INTERNATIONAL INTERNATIONAL ASIA
OPPORTUNITIES STRATEGIC GROWTH VALUE PACIFIC
FUND FUND FUND FUND
------------- ---------------- ------------ -------
<S> <C> <C> <C> <C>
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 (after expense
limitation)(5) (7) .............. 1.75% 1.75% 1.75% 1.36%
TOTAL OPERATING EXPENSES
(AFTER FEE REDUCTIONS)(6) ....... 2.75% 2.75% 2.75% 2.36%
</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").
(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:
INTERNATIONAL INTERNATIONAL INTERNATIONAL ASIA
OPPORTUNITIES STRATEGIC GROWTH VALUE PACIFIC
FUND FUND FUND FUND
------------- ---------------- ------------- -------
0.975% 0.975% 0.975% 1.00%
(3) Each Fund has adopted a distribution plan for its shares in accordance
with Rule 12b-1 under the Investment Company Act of 1940, as amended (the
"1940 Act") (the "Distribution Plan"), which provides that it will pay
distribution/service fees aggregating up to (but not necessarily all of)
0.50% per annum of the average daily net assets attributable to Class A
shares. Distribution and service fees under the Distribution Plan are
currently being waived on a voluntary basis and, while they may be imposed
at the discretion of MFD at any time, MFD currently intends to waive these
fees during the Funds' current fiscal year. Distribution expenses paid
under the Distribution Plan, together with the initial sales charge, may
cause long-term shareholders to pay more than the maximum sales charge
that would have been permissible if imposed entirely as an initial sales
charge. See "Distribution Plan" below.
(4) Each Fund's Distribution Plan provides that it will pay
distribution/service fees aggregating up to (but not necessarily all of)
1.00% per annum of the average daily net assets attributable to Class B
shares and Class C shares, respectively. Distribution expenses paid under
the Distribution Plan with respect to Class B or Class C shares, together
with any CDSC payable upon redemption of Class B and Class C shares, may
cause long-term shareholders to pay more than the maximum sales charge
that would have been permissible if imposed entirely as an initial sales
charge. See "Distribution Plan" below.
(5) The Adviser has agreed to bear the expenses of the 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 2.10% for each class
of the International Opportunities Fund, 2.45% for each class of the
International Strategic Growth Fund and 2.45% for each class of the
International Value Fund.
(6) Absent any expense reductions, "Total Operating Expenses," expressed as a
percentage of average daily net assets, would be as follows:
INTERNATIONAL INTERNATIONAL INTERNATIONAL ASIA
OPPORTUNITIES STRATEGIC GROWTH VALUE PACIFIC
FUND FUND FUND FUND
------------- ---------------- ------------- -------
Class A 3.57% 3.92% 3.92% 2.86%
Class B 4.07% 4.42% 4.42% 3.36%
Class C 4.07% 4.42% 4.42% 3.36%
(7) Each Fund has an expense offset arrangement which reduces the Fund's
custodian fee based upon the amount of cash maintained by the Fund with
its custodian and dividend disbursing agent, and may enter into other such
arrangements and directed brokerage arrangements (which would also have
the effect of reducing the Fund's expenses). Any such fee reductions are
not reflected under "Other Expenses."
EXAMPLE OF EXPENSES
An investor would pay the following dollar amounts of expenses on a $1,000
investment in each Fund, assuming (a) a 5% annual return and, unless otherwise
noted, (b) redemption at the end of each of the time periods indicated:
CLASS A SHARES
INTERNATIONAL INTERNATIONAL INTERNATIONAL ASIA
OPPORTUNITIES STRATEGIC GROWTH VALUE PACIFIC
PERIOD FUND FUND FUND FUND
------ ------------- ---------------- ------------- -------
1 year $ 64 $ 64 $ 64 $ 61
3 years 100 100 100 89
5 years 138 138 138 118
10 years 244 244 244 203
CLASS B SHARES
(ASSUMES REDEMPTION)
INTERNATIONAL INTERNATIONAL INTERNATIONAL ASIA
OPPORTUNITIES STRATEGIC GROWTH VALUE PACIFIC
PERIOD FUND FUND FUND FUND
------ ------------- ---------------- ------------- -------
1 year $ 63 $ 68 $ 68 $ 64
3 years 100 115 115 104
5 years 140 165 165 146
10 years(2) 246 284 284 244
CLASS B SHARES
(ASSUMES NO REDEMPTION)
INTERNATIONAL INTERNATIONAL INTERNATIONAL ASIA
OPPORTUNITIES STRATEGIC GROWTH VALUE PACIFIC
PERIOD FUND FUND FUND FUND
------ ------------- ---------------- ------------- -------
1 year $ 23 $ 28 $ 28 $ 24
3 years 70 85 85 74
5 years 120 145 145 126
10 year 246 284 284 244
CLASS C SHARES
(ASSUMES REDEMPTION)
INTERNATIONAL INTERNATIONAL INTERNATIONAL ASIA
OPPORTUNITIES STRATEGIC GROWTH VALUE PACIFIC
PERIOD FUND FUND FUND FUND
------ ------------- ---------------- ------------- -------
1 year $ 33 $ 38 $ 38 $ 34
3 years 70 85 85 74
5 years 120 145 145 126
10 years 258 308 308 270
___________________
(2) Class B shares convert to Class A shares approximately eight years after
purchase; therefore years nine and ten reflect Class A expenses.
CLASS C SHARES
(ASSUMES NO REDEMPTION)
INTERNATIONAL INTERNATIONAL INTERNATIONAL ASIA
OPPORTUNITIES STRATEGIC GROWTH VALUE PACIFIC
PERIOD FUND FUND FUND FUND
------ ------------- ---------------- ------------- -------
1 year $ 23 $ 28 $ 28 $ 24
3 years 70 85 85 74
5 years 120 145 145 126
10 years 258 308 308 270
The purpose of the expense table above is to assist investors in understanding
the various costs and expenses that a shareholder of each Fund will bear
directly or indirectly. More complete descriptions of the following Fund
expenses are set forth in the following sections: (i) varying sales charges on
share purchases -- "Purchases"; (ii) varying CDSCs -- "Purchases"; (iii)
management fees -- "Investment Adviser"; and (iv) Rule 12b-1 (i.e., distribution
plan) fees -- "Distribution Plan."
THE "EXAMPLE" SET FORTH ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST
OR FUTURE EXPENSES OF A FUND; ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN.
2. CONDENSED FINANCIAL INFORMATION
The following information has been audited and should be read in conjunction
with the financial statements included in the Funds' Annual Report to
shareholders which are incorporated by reference into the SAI in reliance upon
the report of each Fund's independent auditors given upon their authority as
experts in accounting and auditing. Each Fund's current independent auditors are
Ernst & Young LLP.
<TABLE>
<CAPTION>
INTERNATIONAL
INTERNATIONAL STRATEGIC INTERNATIONAL
OPPORTUNITIES GROWTH VALUE
FINANCIAL HIGHLIGHTS FUND FUND FUND
- -------------------- ------------- ------------- -------------
Period Ended September 30, 1998* CLASS A CLASS A CLASS A
- -------------------------------- ------- ------- -------
<S> <C> <C> <C>
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 incomess. $ 0.06 $ 0.04 $ 0.10
Net realized and unrealized gain on
investments and foreign currency (0.64) (0.36) 0.36
Total from investment operations $(0.58) $(0.32) $ 0.46
------ ------ ------
Net asset value - end of period $ 9.42 $ 9.68 $10.46
------ ------ ------
Total return (5.80)%++ (3.20)%++ 4.70%++
Ratios (to average net
assets)/Supplemental datas(s):
Expenses 1.75%###+ 1.75%+ 1.75%+###
Net investment income 0.54%+ 0.34%+ 0.98%+
Portfolio turnover 165% 103% 71%
Net assets at end of period (000 omitted) $573 $90 $1,002
- ------------------
* For the period from the commencement of investment operations, October 9, 1997
through September 30, 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. ### The Fund's expenses without reduction for fees paid indirectly
for the period ended September 30, 1998 would have been:
1.79% 1.77%
(S) 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 Fund's
average daily net assets. The investment adviser and the distributor
voluntarily waived their fees for the period indicated. If these fees had
not been incurred by the Funds and other expenses had not been limited, the
net investment loss per share and the ratios would have been:
Net investment income $ 0.13 $ (0.13) $ (0.13)
Ratios (to average net assets):
Expenses## 3.57%+ 3.92%+ 3.92%+
Net investment income (1.32)%+ (1.19)% + (1.19)% +
</TABLE>
FINANCIAL HIGHLIGHTS ASIA PACIFIC FUND
Period Ended September 30, 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 incomes(s) $ 0.07
Net realized and unrealized loss on
investments and foreign currency (3.53)
Total from investment operations $ 3.46
------
Less distributions declared to shareholders from net
investment income $(0.02)
Net asset value - end of period $ 6.52
------
Total return (34.82)%++
Ratios (to average net assets)/Supplemental datass.:
Expenses## 1.36%+
Net investment income 0.86%+
Portfolio turnover 84%
Net assets at end of period (000 omitted) $1,348
- ------------------
* For the period from the commencement of the Fund's investment operations,
October 9, 1997 through September 30, 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.
(S) The investment adviser and the distributor voluntarily waived their fees
for the period indicated. If these fees had been incurred by the Fund, the
net investment loss per share and the ratios would have been:
Net investment loss $(0.06) Ratios (to average net assets):
Expenses## 2.90%+
Net investment loss (0.69)%+
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, all 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.
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 IBCA ("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. See Appendix B for a description of these
ratings.
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
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.
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, U.S. Government securities or an
irrevocable letter of credit maintained on a current basis at an amount at least
equal to the market value of the securities loaned. The Fund will continue to
collect the equivalent of interest on the securities loaned and will receive
either interest (through investment of cash collateral) or a fee (if the
collateral is U.S. Government securities or a letter of credit).
"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, 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 and the payment obligations of the
parties are typically netted on the payment dates.
Each Fund may also purchase and sell caps, floors and collars. In a
typical cap or floor agreement, one party agrees to make payments only under
specified circumstances, usually in return for payment of a fee by the
counterparty. For example, the purchase of an interest rate cap entitles the
buyer, to the extent that a specified index exceeds a predetermined interest
rate, to receive payments of interest on a contractually-based principal amount
from the counterparty selling such interest rate cap. The sale of an interest
rate floor obligates the seller to make payments to the extent that a specified
interest rate falls below an agreed-upon level. A collar arrangement combines
elements of buying a cap and selling a floor.
Swap agreements could be used to shift a Fund's investment exposure from
one type of investment to another. For example, if a Fund agreed to exchange
payments in dollars for payments in foreign currency, in each case based on a
fixed rate, the swap agreement would tend to decrease the Fund's exposure to
U.S. interest rates and increase its exposure to foreign currency and interest
rates. Caps and floors have an effect similar to buying or writing options.
Depending on how they are used, swap agreements may increase or decrease the
overall volatility of a Fund's investments and its share price and yield.
Swap agreements are sophisticated hedging instruments that typically
involve a small investment of cash relative to the magnitude of risks assumed,
or no investment of cash. As a result, swaps can be highly volatile and may have
a considerable impact on a Fund 's performance. Swap agreements are subject to
risks related to the counterparty's ability to perform, and may decline in value
if the counterparty's creditworthiness deteriorates. A Fund may also suffer
losses if it is unable to terminate outstanding swap agreements or reduce its
exposure through offsetting transactions.
OPTIONS ON SECURITIES: Each Fund may write (sell) covered put and call
options and purchase put and call options on securities. Each Fund will write
options on securities for the purpose of increasing its return and/or to protect
the value of its portfolio. In particular, where a Fund writes an option that
expires unexercised or is closed out by the Fund at a profit, it will retain the
premium paid for the option which will increase its gross income and will offset
in part the reduced value of the portfolio security underlying the option, or
the increased cost of portfolio securities to be acquired. However, the writing
of options constitutes only a partial hedge up to the amount of the premium,
less any transaction costs. In contrast, however, if the price of the underlying
security moves adversely to the Fund's position, the option may be exercised and
the Fund will be required to purchase or sell the underlying security at a
disadvantageous price, which may only be partially offset by the amount of the
premium. Each Fund may also write combinations of put and call options on the
same security, known as "straddles." Such transactions can generate additional
premium income but also present increased risk.
By writing a call option on a security, a Fund limits its opportunity to
profit from any increase in the market value of the underlying security, since
the holder will usually exercise the call option when the market value of the
underlying security exceeds the exercise price of the call. However, the Fund
retains the risk of depreciation in value of securities on which it has written
call options.
Each Fund may also purchase put or call options in anticipation of market
fluctuations which may adversely affect the value of its portfolio or the prices
of securities that a Fund wants to purchase at a later date. In the event that
the expected market fluctuations occur, a Fund may be able to offset the
resulting adverse effect on its portfolio, in whole or in part, through the
options purchased. The premium paid for a put or call option plus any
transaction costs will reduce the benefit, if any, realized by the Fund upon
exercise or liquidation of the option, and, unless the price of the underlying
security changes sufficiently, the option may expire without value to the Fund.
In certain instances, a Fund may enter into options on Treasury securities
that are "reset" options or "adjustable strike" options. These options provide
for periodic adjustment of the strike price and may also provide for the
periodic adjustment of the premium during the term of the option.
OPTIONS ON STOCK INDICES: Each Fund may write (sell) covered call and put
options and purchase call and put options on stock indices. Each Fund may write
options on stock indices for the purpose of increasing its gross income and to
protect its portfolio against declines in the value of securities it owns or
increases in the value of securities to be acquired. When a Fund writes an
option on a stock index, and the value of the index moves adversely to the
holder's position, the option will not be exercised, and the Fund will either
close out the option at a profit or allow it to expire unexercised. A Fund will
thereby retain the amount of the premium, less related transaction costs, which
will increase its gross income and offset part of the reduced value of portfolio
securities or the increased cost of 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 to, 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 interest rates or 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 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 anticipates that the price of a security will decline, it 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. The Fund's short sales must be fully collateralized. The Fund
will not sell short securities whose underlying value, minus any amounts pledged
by the 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 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 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).
-----------------------------------------------------------
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.
FUND PORTFOLIO MANAGER(S)
International Opportunities Fund David A. Antonelli, a Vice President of
the Adviser, has been the portfolio
manager of the Fund since its inception
and 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 the
portfolio manager of the Fund since its
inception and 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 the portfolio manager of the
Fund since its inception and 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 portfolio managers of the Fund
since its inception and have been
employed as portfolio managers 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 Canada (U.S.)") in connection with the sale of
various fixed/variable annuity contracts. MFS and its wholly owned subsidiary,
MFS Institutional Advisors, Inc., provide investment advice to substantial
private clients.
MFS is America's oldest mutual fund organization. MFS and its predecessor
organizations have a history of money management dating from 1924 and the
founding of the first mutual fund in the U.S., Massachusetts Investors Trust.
Net assets under the management of the MFS organization were approximately $____
billion on behalf of approximately ___ million investor accounts as of December
31, 1998. As of such date, the MFS organization managed approximately $___
billion of assets invested in fixed income funds and fixed income portfolios,
approximately $___ billion of assets invested in foreign securities, and
approximately $___ billion of assets invested in equity securities. MFS is a
subsidiary of Sun Life of Canada (U.S.) 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, Thomas J. Cashman,
Joseph W. Dello Russo, John D. McNeil, Kevin R. Parke, Arnold D. Scott, William
W. Scott, Jr., Jeffrey L. Shames and Donald A. Stewart. Mr. Shames is the
Chairman and Chief Executive Officer of MFS, Mr. Ballen is the President and the
Chief Investment Officer of MFS, Mr. Cashman is an Executive Vice President of
MFS, Mr. Dello Russo is the Chief Financial Officer and an Executive Vice
President of MFS, Mr. Parke is the Chief Equity Officer, Director of Equity
Research and an Executive Vice President of MFS, Mr. Arnold Scott is the
Secretary and a Senior Executive Vice President of MFS and Mr. William Scott is
the President of MFS Fund Distributors, Inc. (the distributor of MFS Funds).
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. YEAR 2000 ISSUES
Each Fund could be adversely affected if the computer systems used by MFS, a
Fund's other service providers or the companies in which a Fund invests do not
properly process date-related information from and after January 1, 2000 (the
"Year 2000 Issue"). MFS recognizes the importance of the Year 2000 Issue and, to
address Year 2000 compliance, created a Year 2000 Program Management Office in
1996, which is separately funded, has a specialized staff and reports directly
to MFS senior management. The Office, with the help of external consultants, is
responsible for ascertaining that all internal systems, data fees and third
party applications are Year 2000 compliant. While MFS is confident that all MFS
systems will be Year 2000 compliant before the turn of the century, there are
significant systems interdependencies in the domestic and foreign markets for
securities, the business environments in which companies held by each Fund
operate and in MFS' own business environment. MFS has been actively working with
each Fund's other service providers to identify and respond to potential
problems in an effort to ensure Year 2000 compliance or develop contingency
plans. Year 2000 compliance is also one of the factors considered by MFS in its
ongoing assessment of companies in which each Fund invests. There can be no
assurance, however, that these steps will be sufficient to avoid any adverse
impact on a Fund.
9. 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.
PURCHASES SUBJECT TO INITIAL SALES CHARGE. Class A shares are offered at
net asset value plus an initial sales charge as follows:
SALES CHARGE* AS PERCENTAGE OF:
DEALER ALLOWANCE
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**
- ----------
* 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; (c) the aggregate purchases by the retirement
plan of Class A shares of the MFS Funds will be in an aggregate
amount of at least $500,000 within a reasonable period of time, as
determined by MFD in its sole discretion; and (d) the plan has not
redeemed its Class B shares in the MFS Funds in order to purchase
Class A shares under this category;
(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 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.
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 between July 1, 1996 and
December 31, 1998, 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.
For purchases of Class B shares by a retirement plan whose sponsoring
organization subscribes to the MFS Recordkeeper Plus product and which
establishes its account with MFSC on or after January 1, 1999 (provided that the
plan establishment paperwork is received by MFSC in good order on or after
November 15, 1998), MFD pays no up front commissions to dealers, but instead
pays an amount to dealers equal to 1% per annum of the average daily net assets
of the Fund attributable to plan assets, payable at the rate of 0.25% at the end
of each calendar quarter, in arrears. This commission structure is not available
with respect to a plan with a pre-existing account(s) with any MFS Fund which
seeks to switch to the MFS Recordkeeper Plus Product.
Certain 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 established an account with the
Shareholder Servicing Agent between July 1, 1996 and December 31, 1998;
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.
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 Recordkeeper Plus product and
which establishes its account with MFSC on or after January 1, 1999 (provided
that the plan establishment paperwork is received by MFSC in good order on or
after November 15, 1998). A plan with a pre-existing account(s) with any MFS
Fund which switches to the MFS Recordkeeper Plus product will not become
eligible for this waiver category.
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 of 1.00% upon redemption during the first
year. Class C shares do not convert to any other class of shares. The maximum
investment in Class C shares is up to $1,000,000 per transaction.
The CDSC imposed is assessed against the lesser of the value of the shares
redeemed (exclusive of reinvested dividend and capital gain distributions) or
the total cost of such shares. No CDSC is assessed against shares acquired
through the automatic reinvestment of dividend or capital gain distributions.
See "Redemptions and Repurchases - Contingent Deferred Sales Charge" below for
further discussion of the CDSC.
MFD will pay dealers 1.00% of the purchase price of Class C shares purchased
through dealers and, as compensation therefor, MFD will retain the 1.00% per
annum distribution and service fee paid under each Fund's Distribution Plan to
MFD for the first year after purchase (see "Distribution Plan" below).
Class C shares are not currently available for purchase by any retirement plan
qualified under Sections 401(a) or 403(b) of the Code, if the retirement plan
and/or the sponsoring organization subscribe to the MFS FUNDamental 401(k) Plan
or another similar recordkeeping program made available by the Shareholder
Servicing Agent.
WAIVERS OF CDSC. In certain circumstances, the CDSC imposed upon
redemption of Class C shares is waived. These circumstances are described in
Appendix A to this Prospectus.
GENERAL: The following information applies to purchases of all classes of each
Fund's shares.
MINIMUM INVESTMENT. Except as described below, the minimum initial
investment is $1,000 per account and the minimum additional investment is $50
per account. Accounts being established for monthly automatic investments and
under payroll savings programs and tax-deferred retirement programs (other than
Individual Retirement Accounts ("IRAs")) involving the submission of investments
by means of group remittal statements are subject to a $50 minimum on initial
and additional investments per account. The minimum initial investment for IRAs
is $250 per account and the minimum additional investment is $50 per account.
Accounts being established for participation in the Automatic Exchange Plan are
subject to a $50 minimum on initial and additional investments per account.
There are also other limited exceptions to these minimums for certain
tax-deferred retirement programs. Any minimums may be changed at any time at the
discretion of MFD. Each Fund reserves the right to cease offering its shares at
any time.
SUBSEQUENT INVESTMENT BY TELEPHONE. Each shareholder may purchase
additional shares of any MFS Fund by telephoning the Shareholder Servicing Agent
toll-free at (800) 225-2606. The minimum purchase amount is $50 and the maximum
purchase amount is $100,000. Shareholders wishing to avail themselves of this
telephone purchase privilege must so elect on their Account Application and
designate thereon a bank and account number from which purchases will be made.
If a telephone purchase request is received by the Shareholder Servicing Agent
on any business day prior to the close of regular trading on the Exchange
(generally, 4:00 p.m., Eastern time), the purchase will occur at the closing net
asset value of the shares purchased on that day. The Shareholder Servicing Agent
may be liable for any losses resulting from unauthorized telephone transactions
if it does not follow reasonable procedures designed to verify the identity of
the caller. The Shareholder Servicing Agent will request personal or other
information from the caller, and will normally also record calls. Shareholders
should verify the accuracy of confirmation statements immediately after their
receipt.
RIGHT TO REJECT PURCHASE ORDERS/MARKET TIMING. Purchases and exchanges
should be made for investment purposes only. Each Fund and MFD each reserve the
right to reject or restrict any specific purchase or exchange request. Because
an exchange request involves both a request to redeem shares of one fund and to
purchase shares of another fund, the Funds consider the underlying redemption
request conditioned upon the acceptance of the underlying purchase request.
Therefore, 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 MFS Funds are not designed for professional market timing organizations or
other entities using programmed or frequent exchanges. The MFS 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 six or more exchange
requests among the MFS Funds or three or more exchange requests out of any of
the MFS high yield bond funds or MFS municipal bond funds per calendar year and
(ii) any one of such exchange requests represents shares equal in value to $1
million or more. Accounts under common ownership or control, including accounts
administered by market timers, will be aggregated for purposes of this
definition.
As noted above, each Fund and MFD each reserve 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 (i) delaying for up to
seven days the purchase side of an exchange request by market timers, (ii)
rejecting or otherwise restricting purchase or exchange requests by market
timers; and (iii) permitting exchanges by market timers only into certain 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.
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 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
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.
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 CDSC of
1.00% 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 of 1.00% upon redemption 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.
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 (as
well as any rate category or categories under which such gain is taxable), the
portion, if any, representing a return of capital (which is generally free of
current taxes but which 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% (or any
lower rate permitted under an applicable treaty) on taxable 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. 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.
The Fund has authorized one or more dealers to receive purchase and redemption
orders on behalf of the Fund. Such dealers are authorized to designate other
intermediaries to receive purchase and redemption orders on behalf of the Fund.
The Fund will be deemed to have received a purchase or redemption order when an
authorized dealer or, if applicable, a dealer's authorized designee, receives
the order. Customer orders will be priced at the net asset value of the Fund
next computed after such orders are received by an authorized dealer or the
dealer's authorized designee.
EXPENSES
The Trust pays the compensation of the Trustees who are not officers of MFS and
all expenses of each Fund (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 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.
The following owned of record more than 25% of the outstanding shares of the
following Funds as of October 30, 1998:
<TABLE>
<CAPTION>
NAME AND ADDRESS FUND CLASS PERCENTAGE OF THE FUND
---------------- ---- ----- ----------------------
<S> <C> <C> <C>
TRS MFS Defined Contribution Plan International Opportunities Fund I 57.20%
c/o Mark Leary International Strategic Growth Fund I 90.72%
Mass Financial Services
500 Boylston St.
Boston, MA
MFS Fund Distributors, Inc. International Opportunities Fund A 29.82%
(a Delaware corporation) International Value Fund A 86.82%
c/o Mass Financial Services Asia Pacific Fund A 65.40%
Attn: Thomas B. Hastings
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 therefore 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' Annual Report may be
obtained without charge by contacting the Shareholder Servicing Agent (see back
cover for address and phone number). In addition to information provided in
shareholder reports, 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.
PROVISION OF ANNUAL AND SEMIANNUAL REPORTS
To avoid sending duplicate copies of materials to households, only one copy of
each Fund's Annual and Semiannual Report may be mailed to shareholders having
the same residential address on the Fund's records. However, any shareholder may
call the Shareholder Servicing Agent at 1-800-225-2606 to request that copies of
such reports be sent personally to that shareholder.
10. SHAREHOLDER SERVICES
Shareholders with questions concerning the shareholder services described below
or concerning other aspects of a Fund, should contact the Shareholder Servicing
Agent (see back cover for address and phone number). A shareholder whose shares
are held in the name of, or controlled by, a dealer might not receive many of
the privileges and services from a Fund (such as Right of Accumulation, Letter
of Intent and certain recordkeeping services) that a Fund ordinarily provides.
ACCOUNT AND CONFIRMATION STATEMENTS -- Each shareholder will receive
confirmation statements showing the transaction activity in his account. At the
end of each calendar year, each shareholder will receive information regarding
the tax status of reportable dividends and distributions for that year (see "Tax
Status").
DISTRIBUTION OPTIONS -- The following options are available to all accounts
(except Systematic Withdrawal Plan accounts described below) and may be changed
as often as desired by notifying the Shareholder Servicing Agent:
-- Dividends and capital gain distributions reinvested in additional
shares. This option will be assigned if no other option is specified;
-- Dividends (including short-term capital gains) in cash; capital gain
distributions reinvested in additional shares; or
-- Dividends and capital gain distributions in cash.
Reinvestments (net of any tax withholding) will be made in additional full and
fractional shares of the same class of shares at the net asset value in effect
at the close of business on the record date. Dividends and capital gain
distributions in amounts less than $10 will automatically be reinvested in
additional shares of each Fund. If a shareholder has elected to receive
dividends and/or capital gain distributions in cash, and the postal or other
delivery service is unable to deliver checks to the shareholder's address of
record, or the shareholder does not respond to mailings from the Shareholder
Servicing Agent with regard to uncashed distribution checks, such shareholder's
distribution option will automatically be converted to having all dividends and
other distributions reinvested in additional shares. Any request to change a
distribution option must be received by the Shareholder Servicing Agent by the
record date for a dividend or distribution in order to be effective for that
dividend or distribution. No interest will accrue on amounts represented by
uncashed distribution or redemption checks.
INVESTMENT AND WITHDRAWAL PROGRAMS -- For the convenience of shareholders, each
Fund makes available the following programs designed to enable shareholders to
add to their investment in an account with a Fund or withdraw from it with a
minimum of paper work. The programs involve no extra charge to shareholders
(other than a sales charge in the case of certain Class A share purchases) and
may be changed or discontinued at any time by a shareholder or a Fund.
LETTER OF INTENT: If a shareholder (other than a group purchaser as
described in the SAI) anticipates purchasing $100,000 or more of Class A shares
of a Fund alone or in combination with shares of Class B or Class C shares of a
Fund or any of the classes of other MFS Funds or MFS Fixed Fund (a bank
collective investment fund) within a 13-month period (or 36-month period for
purchases of $1 million or more), the shareholder may obtain such shares at the
same reduced sales charge as though the total quantity were invested in one lump
sum, subject to escrow agreements and the appointment of an attorney for
redemptions from the escrow amount if the intended purchases are not completed,
by completing the Letter of Intent section of the Account Application.
RIGHT OF ACCUMULATION: A shareholder qualifies for cumulative quantity
discounts on purchases of Class A shares when his new investment, together with
the current offering price value of all holdings of Class A, Class B and Class C
shares of that shareholder in the MFS Funds or MFS Fixed Fund (a bank collective
investment fund) reaches a discount level.
DISTRIBUTION INVESTMENT PROGRAM: Shares of a particular class of a Fund
may be sold at net asset value (and without any applicable CDSC) through the
automatic reinvestment of dividend and capital gain distributions from the same
class of another MFS Fund. Furthermore, distributions made by a Fund may be
automatically invested at net asset value in shares of the same class of another
MFS Fund, if shares of such Fund are available for sale (without a sales charge
and not subject to any applicable CDSC).
SYSTEMATIC WITHDRAWAL PLAN: A shareholder may direct the Shareholder
Servicing Agent to send to him (or any one he designates) regular periodic
payments based upon the value of his account. Each payment under a Systematic
Withdrawal Plan (a "SWP") must be at least $100, except in certain limited
circumstances. The aggregate withdrawals of Class B and Class C shares in any
year pursuant to a SWP will not be subject to a CDSC and are generally limited
to 10% of the value of the account at the time of the establishment of the SWP.
The CDSC will not be waived in the case of SWP redemptions of Class A shares
which are subject to CDSC.
DOLLAR COST AVERAGING PROGRAMS --
AUTOMATIC INVESTMENT PLAN: Cash investments of $50 or more may be made
through a shareholder's checking account on any day of the month. If the
shareholder does not specify a date, the investment will automatically occur on
the first business day of the month. Required forms are available from the
Shareholder Servicing Agent or investment dealers.
AUTOMATIC EXCHANGE PLAN: Shareholders having account balances of at least
$5,000 in any MFS Fund may participate in the Automatic Exchange Plan, a dollar
cost averaging program. The Automatic Exchange Plan provides for automatic
monthly or quarterly exchanges of funds from the shareholder's account in an MFS
Fund for investment in the same class of shares of other MFS Funds selected by
the shareholder (if available for sale). Under the Automatic Exchange Plan,
exchanges of at least $50 each may be made to up to six different funds. A
shareholder should consider the objectives and policies of a fund and review its
prospectus before electing to exchange money into such fund through the
Automatic Exchange Plan. No transaction fee is imposed in connection with
exchange transactions under the Automatic Exchange Plan. However, exchanges of
shares of MFS Money Market Fund, MFS Government Money Market Fund or Class A
shares of MFS Cash Reserve Fund will be subject to any applicable sales charge.
For federal and (generally) state income tax purposes, an exchange is treated as
a sale of the shares transferred and, therefore, could result in a capital gain
or loss to the shareholder making the exchange. See the SAI for further
information concerning the Automatic Exchange Plan. Investors should consult
their tax advisers for information regarding the potential capital gain and loss
consequences of transactions under the Automatic Exchange Plan.
Because a dollar cost averaging program involves periodic purchases of shares
regardless of fluctuating share offering prices, a shareholder should consider
his financial ability to continue his purchases through periods of low price
levels. Maintaining an investment program concurrently with a withdrawal program
would be disadvantageous because of the sales charges included in share
purchases in the case of Class A shares, and because of the assessment of the
CDSC for share redemption (if applicable) in the case of Class A shares.
TAX-DEFERRED RETIREMENT PLANS -- Except as noted under "Purchases -- Class C
Shares," shares of each Fund may be purchased by all types of tax-deferred
retirement plans, including IRAs, Simplified Employee Pension plans, 401(k)
plans, 403(b) plans and other corporate pension and profit-sharing plans.
Investors should consult with their tax advisers before establishing any of the
tax-deferred retirement plans described above.
-----------------------------------------------------
The Funds' SAI contains more detailed information about each Fund, including,
but not limited to, information related to: (i) each Fund's investment policies
and restrictions; (ii) the Trustees, officers and Adviser; (iii) portfolio
trading; (iv) the shares, including rights and liabilities of shareholders; (v)
tax status of dividends and distributions; (vi) the Distribution Plan; and (vii)
various services and privileges provided by each Fund for the benefit of its
shareholders, including additional information with respect to the exchange
privilege.
<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). Some of the following information will not apply to
certain MFS Funds depending on which classes of shares are offered. 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 institution 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
o Shares acquired through dividend or capital gain reinvestment;
and
o 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
o 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:
o Officers, eligible directors, employees (including retired
employees) and agents of MFS, Sun Life or any of their subsidiary
companies;
o Trustees and retired trustees of any investment company for which
MFD serves as distributor;
o Employees, directors, partners, officers and trustees of any
sub-adviser to any MFS Fund;
o Employees or registered representatives of dealers which have a
sales agreement with MFD;
o 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
o Institutional Clients of MFS or MFS Institutional Advisors, Inc.
4. INVOLUNTARY REDEMPTIONS (CDSC WAIVER ONLY)
o 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")
o Death or disability of the IRA owner.
SECTION 401(A) PLANS ("401(A) PLANS") AND SECTION 403(B)
EMPLOYER SPONSORED PLANS ("ESP PLANS")
o Death, disability or retirement of 401(a) or ESP Plan
participant;
o Loan from 401(a) or ESP Plan;
o Financial hardship (as defined in Treasury Regulation Section
1.401(k)-1(d)(2), as amended from time to time);
o Termination of employment of 401(a) or ESP Plan participant
(excluding, however, a partial or other termination of the Plan);
o Tax-free return of excess 401(a) or ESP Plan contributions;
o 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
o 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.
o Shares purchased by certain retirement plans or trust accounts
if: (i) the plan is currently a party to a retirement plan
recordkeeping or administrative services agreement with MFD or
one of its affiliates and (ii) the shares purchased or redeemed
represent transfers from or transfers to plan investments other
than the MFS Funds of which retirement plan recordkeeping
services are provided under the terms of such agreement.
SECTION 403(B) SALARY REDUCTION ONLY PLANS ("SRO PLANS")
o Death or disability of SRO Plan participant.
6. CERTAIN TRANSFERS OF REGISTRATION (CDSC WAIVER ONLY). Shares
transferred:
o 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
o 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
o 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
o 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
o Shares acquired by insurance company separate accounts.
3. RETIREMENT PLANS
ADMINISTRATIVE SERVICES ARRANGEMENTS
o 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.
REINVESTMENT OF DISTRIBUTIONS FROM QUALIFIED RETIREMENT PLANS
o 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
o Distributions made on or after the IRA owner has attained the age
of 59 1/2 years old; and
o Tax-free returns of excess IRA contributions.
401(A) PLANS
o Distributions made on or after the 401(a) Plan participant has
attained the age of 59 1/2 years old; and
o Certain involuntary redemptions and redemptions in connection
with certain automatic withdrawals from a 401(a) Plan.
ESP PLANS AND SRO PLANS
o 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)
o 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
o 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.
6. INVESTMENT OF PROCEEDS FROM CERTAIN REDEMPTIONS OF CLASS I SHARES o
o The initial sales charge imposed on purchases of Class A shares,
and the contingent deferred sales charge imposed on certain
redemptions of Class A shares, are waived with respect to Class A
shares acquired of any of the MFS Funds through the immediate
reinvestment of the proceeds of a redemption of Class I shares of
any of the MFS Funds.
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
o 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
o Shares redeemed on account of the death of the account owner if
the shares are held solely in the deceased individual's name or
in a living trust for the benefit of the deceased individual.
3. DISABILITY OF OWNER
o 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
o 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")
o 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
o Death or disability of a SAR-SEP Plan participant.
<PAGE>
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 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 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 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
[Logo](SM)
INVESTMENT MANAGEMENT
We invented the mutual fund(SM)
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>
[LOGO] M F S(R)
INVESTMENT MANAGEMENT
We invented the mutual fund(R)
STATEMENT OF ADDITIONAL
INFORMATION
February 1, 1999
MFS(R) International Opportunities Fund
MFS(R) International Strategic Growth Fund
MFS(R) International Value Fund
MFS(R) Asia Pacific Fund
(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...................................19
Administrator........................................19
Custodian............................................20
Shareholder Servicing Agent..........................20
Distributor..........................................20
4. Portfolio Transactions and Brokerage Commissions..............21
5. Shareholder Services..........................................22
Investment and Withdrawal Programs...................22
Exchange Privilege...................................24
Tax-Deferred Retirement Plans........................25
6. Tax Status....................................................25
7. Distribution Plan.............................................26
8. Determination of Net Asset Value and Performance..............27
9. Description of Shares, Voting Rights and Liabilities..........30
10. Independent Auditors and Financial Statements.................31
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 February 1,
1999. 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 Fund, a
Opportunities Fund diversified series of the Trust.
International MFS(R) International Strategic Growth Fund, a
Strategic Growth Fund diversified series of the Trust.
International Value Fund MFS(R) International Value Fund, a 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 the Adviser Massachusetts Financial Services Company, a
Delaware corporation.
MFD MFS Fund Distributors, Inc., a Delaware corporation.
Prospectus The Prospectus of the Funds, dated February 1, 1999,
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 (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 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 the SEC.
Such investment may 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 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. Certain indexed
securities may expose the Fund to the risk of loss of all or a portion of the
principal amount of its investment and/or the interest that might otherwise have
been earned on the amount invested.
The performance of indexed securities depends to a great extent on the
performance of the security, currency, or other instrument to which they are
indexed, and may also be influenced by interest rate changes in the U.S. and
abroad. At the same time, indexed securities are subject to the credit risks
associated with the issuer of the security, and their values may decline
substantially if the issuer's creditworthiness deteriorates. Recent issuers of
indexed securities have included banks, corporations and certain U.S. Government
agencies.
ZERO COUPON BONDS, DEFERRED INTEREST BONDS AND PIK BONDS: Each Fund may invest
in zero coupon bonds, deferred interest bonds and bonds on which the interest is
payable in kind ("PIK bonds"). Zero coupon and deferred interest bonds are debt
obligations which are issued at a significant discount from face value. The
discount approximates the total amount of interest the bonds will accrue and
compound over the period until maturity or the first interest payment date at a
rate of interest reflecting the market rate of the security at the time of
issuance. While zero coupon bonds do not require the periodic payment of
interest, deferred interest bonds provide for a period of delay before the
regular payment of interest begins. PIK bonds are debt obligations which provide
that the issuer may, at its option, pay interest on such bonds in cash or in the
form of additional debt obligations. Such investments benefit the issuer by
mitigating its need for cash to meet debt service, but also require a higher
rate of return to attract investors who are willing to defer receipt of such
cash. Such investments may experience greater volatility in market value than
debt obligations which make regular payments of interest. Each Fund will accrue
income on such investments for tax and accounting purposes, which is
distributable to shareholders and which, because no cash is received at the time
of accrual, may require the liquidation of other portfolio securities to satisfy
each Fund's distribution obligations.
SWAPS AND RELATED TRANSACTIONS: Each Fund may enter into interest rate swaps,
currency swaps and other types of available swap agreements, such as caps,
collars and floors.
Swap agreements may be individually negotiated and structured to include
exposure to a variety of different types of investments or market factors.
Depending on their structure, swap agreements may increase or decrease a Fund's
exposure to long or short-term interest rates (in the U.S. or abroad), foreign
currency values, mortgage securities, corporate borrowing rates, or other
factors such as securities prices or inflation rates. Swap agreements can take
many different forms and are known by a variety of names. A Fund is not limited
to any particular form or variety of swap agreement if MFS determines it is
consistent with the Fund's investment objective and policies.
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 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" 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 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 interest
rates or 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 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 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.
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, it segregates liquid securities in an
amount that, when combined with the amount of collateral deposited with the
broker in connection with the short sale, equals the current market value of the
security sold short. The segregated assets are marked to market daily.
OPTIONS, FUTURES AND FORWARD TRANSACTIONS
RISK OF IMPERFECT CORRELATION OF HEDGING INSTRUMENTS WITH A FUND'S PORTFOLIO. A
Fund's ability effectively to hedge all or a portion of its portfolio through
transactions in options, Futures Contracts, Options on Futures Contracts,
Forward Contracts and options on foreign currencies depends on the degree to
which price movements in the underlying index or instrument correlate with price
movements in the relevant portion of the Fund's portfolio. In the case of
futures and options based on an index, the portfolio will not duplicate the
components of the index, and in the case of futures and options on fixed income
securities, the portfolio securities which are being hedged may not be the same
type of obligation underlying such contract. The use of Forward Contracts for
"cross hedging" purposes may involve greater correlation risks. As a result, the
correlation probably will not be exact. Consequently, the Fund bears the risk
that the price of the portfolio securities being hedged will not move in the
same amount or direction as the underlying index or obligation.
For example, if a Fund purchases a put option on an index and the index
decreases less than the value of the hedged securities, the Fund would
experience a loss which is not completely offset by the put option. It is also
possible that there may be a negative correlation between the index or
obligation underlying an option or Futures Contract in which the Fund has a
position and the portfolio securities the Fund is attempting to hedge, which
could result in a loss on both the portfolio and the hedging instrument. In
addition, a Fund may enter into transactions in Forward Contracts or options on
foreign currencies in order to hedge against exposure arising from the
currencies underlying such instruments. In such instances, the Fund will be
subject to the additional risk of imperfect correlation between changes in the
value of the currencies underlying such forwards or options and changes in the
value of the currencies being hedged. It should be noted that stock index
futures contracts or options based upon a narrower index of securities, such as
those of a particular industry group, may present greater risk than options or
futures based on a broad market index. This is due to the fact that a narrower
index is more susceptible to rapid and extreme fluctuations as a result of
changes in the value of a small number of securities. Nevertheless, where a Fund
enters into transactions in options, or futures on narrowly-based indices for
hedging purposes, movements in the value of the index should, if the hedge is
successful, correlate closely with the portion of the Fund's portfolio or the
intended acquisitions being hedged.
The trading of Futures Contracts, options and Forward Contracts for hedging
purposes entails the additional risk of imperfect correlation between movements
in the futures or option price and the price of the underlying index or
obligation. The anticipated spread between the prices may be distorted due to
the differences in the nature of the markets such as differences in margin
requirements, the liquidity of such markets and the participation of speculators
in the options, futures and forward markets. In this regard, trading by
speculators in options, futures and Forward Contracts has in the past
occasionally resulted in market distortions, which may be difficult or
impossible to predict, particularly near the expiration of such contracts.
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. Furthermore, the cost of using these
techniques may make it economically infeasible for a Fund to engage in such
transactions.
The Funds may enter transactions in options (except for Options on Foreign
Currencies), Futures Contracts, Options on Futures Contracts and Forward
Contracts for non-hedging purposes as well as hedging purposes. Non-hedging
transactions in such investments involve greater risks and may result in losses
which may not be offset by increases in the value of portfolio securities or
declines in the cost of securities to be acquired. The Funds will only write
covered options, such that liquid assets necessary to satisfy an option exercise
will be segregated at all times, unless the option is covered in such other
manner as may be in accordance with the rules of the exchange on which the
option is traded and applicable laws and regulations. Nevertheless, the method
of covering an option employed by a Fund may not fully protect it against risk
of loss and, in any event, the Fund could suffer losses on the option position
which might not be offset by corresponding portfolio gains. Entering into
transactions in Futures Contracts, Options on Futures Contracts and Forward
Contracts for other than hedging purposes could expose the Fund to significant
risk of loss if foreign currency exchange rates do not move in the direction or
to the extent anticipated.
With respect to the writing of straddles on securities, a Fund incurs the risk
that the price of the underlying security will not remain stable, that one of
the options written will be exercised and that the resulting loss will not be
offset by the amount of the premiums received. Such transactions, therefore,
create an opportunity for increased return by providing a Fund with two
simultaneous premiums on the same security, but involve additional risk, since
the Fund may have an option exercised against it regardless of whether the price
of the security increases or decreases.
RISK OF A POTENTIAL LACK OF A LIQUID SECONDARY MARKET. Prior to exercise or
expiration, a futures or option position can only be terminated by entering into
a closing purchase or sale transaction. This requires a secondary market for
such instruments on the exchange on which the initial transaction was entered
into. While the Funds will enter into options or futures positions only if there
appears to be a liquid secondary market therefor, there can be no assurance that
such a market will exist for any particular contracts at any specific time. In
that event, it may not be possible to close out a position held by a Fund, and
the Fund could be required to purchase or sell the instrument underlying an
option, make or receive a cash settlement or meet ongoing variation margin
requirements. Under such circumstances, if the Fund has insufficient cash
available to meet margin requirements, it will be necessary to liquidate
portfolio securities or other assets at a time when it is disadvantageous to do
so. The inability to close out options and futures positions, therefore, could
have an adverse impact on the Fund's ability effectively to hedge its portfolio,
and could result in trading losses.
The liquidity of a secondary market in a Futures Contract or option thereon may
be adversely affected by "daily price fluctuation limits," established by
exchanges, which limit the amount of fluctuation in the price of a contract
during a single trading day.
Once the daily limit has been reached in the contract, no trades may be entered
into at a price beyond the limit, thus preventing the liquidation of open
futures or option positions and requiring traders to make additional margin
deposits. Prices have in the past moved to the daily limit on a number of
consecutive trading days.
The trading of Futures Contracts and options is also subject to the risk of
trading halts, suspensions, exchange or clearinghouse equipment failures,
government intervention, insolvency of a brokerage firm or clearinghouse or
other disruptions of normal trading activity, which could at times make it
difficult or impossible to liquidate existing positions or to recover excess
variation margin payments.
MARGIN. Because of low initial margin deposits made upon the opening of a
futures or forward position and the writing of an option, such transactions
involve substantial leverage. As a result, relatively small movements in the
price of the contract can result in substantial unrealized gains or losses.
Where a Fund enters into such transactions for hedging purposes, any losses
incurred in connection therewith should, if the hedging strategy is successful,
be offset, in whole or in part, by increases in the value of securities or other
assets held by the Fund or decreases in the prices of securities or other assets
the Fund intends to acquire. Where a Fund enters into such transactions for
other than hedging purposes, the margin requirements associated with such
transactions could expose the Fund to greater risk.
TRADING AND POSITION LIMITS. The exchange on which futures and options are
traded may impose limitations governing the maximum number of positions on the
same side of the market and involving the same underlying instrument which may
be held by a single investor, whether acting alone or in concert with others
(regardless of whether such contracts are held on the same or different
exchanges or held or written in one or more accounts or through one or more
brokers). Further, the CFTC and the various contract markets have established
limits referred to as "speculative position limits" on the maximum net long or
net short position which any person may hold or control in a particular futures
or option contract. An exchange may order the liquidation of positions found to
be in violation of these limits and it may impose other sanctions or
restrictions. The Adviser does not believe that these trading and position
limits will have any adverse impact on the strategies for hedging the portfolios
of the Fund.
RISKS OF OPTIONS ON FUTURES CONTRACTS. The amount of risk a Fund assumes when it
purchases an Option on a Futures Contract is the premium paid for the option,
plus related transaction costs. In order to profit from an option purchased,
however, it may be necessary to exercise the option and to liquidate the
underlying Futures Contract, subject to the risks of the availability of a
liquid offset market described herein. The writer of an Option on a Futures
Contract is subject to the risks of commodity futures trading, including the
requirement of initial and variation margin payments, as well as the additional
risk that movements in the price of the option may not correlate with movements
in the price of the underlying security, index, currency or Futures Contract.
RISKS OF TRANSACTIONS RELATED TO FOREIGN CURRENCIES AND TRANSACTIONS NOT
CONDUCTED ON U.S. EXCHANGES. Transactions in Forward Contracts on foreign
currencies, as well as futures and options on foreign currencies and
transactions executed on foreign exchanges, are subject to all of the
correlation, liquidity and other risks outlined above. In addition, however,
such transactions are subject to the risk of governmental actions affecting
trading in or the prices of currencies underlying such contracts, which could
restrict or eliminate trading and could have a substantial adverse effect on the
value of positions held by a Fund. Further, the value of such positions could be
adversely affected by a number of other complex political and economic factors
applicable to the countries issuing the underlying currencies.
Further, unlike trading in most other types of instruments, there is no
systematic reporting of last sale information with respect to the foreign
currencies underlying contracts thereon. As a result, the available information
on which trading systems will be based may not be as complete as the comparable
data on which a Fund makes investment and trading decisions in connection with
other transactions. Moreover, because the foreign currency market is a global,
24-hour market, events could occur in that market which will not be reflected in
the forward, futures or options market until the following day, thereby making
it more difficult for the Fund to respond to such events in a timely manner.
Settlements of exercises of over-the-counter Forward Contracts or foreign
currency options generally must occur within the country issuing the underlying
currency, which in turn requires traders to accept or make delivery of such
currencies in conformity with any U.S. or foreign restrictions and regulations
regarding the maintenance of foreign banking relationships, fees, taxes or other
charges.
Unlike transactions entered into by a Fund in Futures Contracts and
exchange-traded options, options on foreign currencies, Forward Contracts and
over-the-counter options on securities are not traded on contract markets
regulated by the CFTC or (with the exception of certain foreign currency
options) the SEC. To the contrary, such instruments are traded through financial
institutions acting as market-makers, although foreign currency options are also
traded on certain national securities exchanges, such as the Philadelphia Stock
Exchange and the Chicago Board Options Exchange, subject to SEC regulation. In
an over-the-counter trading environment, many of the protections afforded to
exchange participants will not be available. For example, there are no daily
price fluctuation limits, and adverse market movements could therefore continue
to an unlimited extent over a period of time. Although the purchaser of an
option cannot lose more than the amount of the premium plus related transaction
costs, this entire amount could be lost. Moreover, the option writer and a
trader of Forward Contracts could lose amounts substantially in excess of their
initial investments, due to the margin and collateral requirements associated
with such positions.
In addition, over-the-counter transactions can only be entered into with a
financial institution willing to take the opposite side, as principal, of a
Fund's position unless the institution acts as broker and is able to find
another counterparty willing to enter into the transaction with the Fund. Where
no such counterparty is available, it will not be possible to enter into a
desired transaction. There also may be no liquid secondary market in the trading
of over-the-counter contracts, and a Fund could be required to retain options
purchased or written, or Forward Contracts entered into, until exercise,
expiration or maturity. This in turn could limit the Fund's ability to profit
from open positions or to reduce losses experienced, and could result in greater
losses.
Further, over-the-counter transactions are not subject to the guarantee of an
exchange clearinghouse, and a Fund will therefore be subject to the risk of
default by, or the bankruptcy of, the financial institution serving as its
counterparty. One or more of such institutions also may decide to discontinue
their role as market-makers in a particular currency or security, thereby
restricting the Fund's ability to enter into desired hedging transactions. A
Fund will enter into an over-the-counter transaction only with parties whose
creditworthiness has been reviewed and found satisfactory by the Adviser.
Options on securities, options on stock indices, Futures Contracts, Options on
Futures Contracts and options on foreign currencies may be traded on exchanges
located in foreign countries. Such transactions may not be conducted in the same
manner as those entered into on U.S. exchanges, and may be subject to different
margin, exercise, settlement or expiration procedures. As a result, many of the
risks of over-the-counter trading may be present in connection with such
transactions.
Options on foreign currencies traded on national securities exchanges are within
the jurisdiction of the SEC, as are other securities traded on such exchanges.
As a result, many of the protections provided to traders on organized exchanges
will be available with respect to such transactions. In particular, all foreign
currency option positions entered into on a national securities exchange are
cleared and guaranteed by the Options Clearing Corporation (the "OCC"), thereby
reducing the risk of counterparty default. Further, a liquid secondary market in
options traded on a national securities exchange may be more readily available
than in the over-the-counter market, potentially permitting a Fund to liquidate
open positions at a profit prior to exercise or expiration, or to limit losses
in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency options, however, is
subject to the risks of the availability of a liquid secondary market described
above, as well as the risks regarding adverse market movements, margining of
options written, the nature of the foreign currency market, possible
intervention by governmental authorities and the effects of other political and
economic events. In addition, exchange-traded options on foreign currencies
involve certain risks not presented by the over-the-counter market. For example,
exercise and settlement of such options must be made exclusively through the
OCC, which has established banking relationships in applicable foreign countries
for this purpose. As a result, the OCC may, if it determines that foreign
governmental restrictions or taxes would prevent the orderly settlement of
foreign currency option exercises, or would result in undue burdens on the OCC
or its clearing member, impose special procedures on exercise and settlement,
such as technical changes in the mechanics of delivery of currency, the fixing
of dollar settlement prices or prohibitions on exercise.
POLICIES ON THE USE OF FUTURES AND OPTIONS ON FUTURES CONTRACTS. In order to
assure that the Fund will not be deemed to be a "commodity pool" for purposes of
the Commodity Exchange Act, regulations of the CFTC require that a Fund enter
into transactions in Futures Contracts, Options on Futures Contracts (including
Options on Futures 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 IBCA ("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 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 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, Trustee 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; International Technology Corp., Director; Mohawk Paper
Company, Director
Address: 30 Colpitts Road, Weston, Massachusetts
ARNOLD D. SCOTT* (born 12/16/42)
Massachusetts Financial Services Company, Senior Executive Vice President,
Secretary and Director
JEFFREY L. SHAMES* (born 6/2/55)
Massachusetts Financial Services Company, Chairman and Chief Executive Officer
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 73 and if the
Trustee has completed at least five years of service, he would be entitled to
annual payments during his lifetime of up to 50% of such Trustee's average
annual compensation (based on the three years prior to his retirement) depending
on his length of service. A Trustee may also retire prior to age 73 and receive
reduced payments if he has completed at least five years of service. Under the
plan, a Trustee (or his beneficiaries) will also receive benefits for a period
of time in the event the Trustee is disabled or dies. These benefits will also
be based on the Trustee's average annual compensation and length of service.
There is no retirement plan provided by the Trust for Messrs. 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.
<PAGE>
- ---------------------------------------------------------------
TRUSTEE COMPENSATION TABLE
- ---------------------------------------------------------------
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. Bailey $0 $0 $242,022
Peter G. Harwood 0 0 121,105
J. Atwood Ives 0 0 108,720
Lawrence T. Perera 0 0 127,055
William J. Poorvu 0 0 121,105
Charles W. Schmidt 0 0 121,105
Arnold D. Scott 0 0 0
Jeffrey L. Shames 0 0 0
David B. Stone 0 0 127,055
Elaine R. Smith 0 0 132,035
1) For the fiscal year ending September 30, 1998.
2) For calendar year 1997. All non-interested Trustees served as Trustees of
27 funds within the MFS fund complex (having aggregate net assets at
December 31, 1997, of approximately $29 billion) while Mr. Bailey served as
Trustee of 69 funds within the MFS fund complex (having aggregate net
assets at December 31, 1997, of approximately $48 billion).
As of October 30, 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 chart
below).
Fund
Owner & Address and Class % of Class
- --------------- --------- ----------
Ellen F. Bradley & International 5.38%
Mary Louise Smith TTEES Strategic
Joseph T. Flanagan Trust Growth
c/o The Landmark Class A
550 Washington St., Apt. 302
Braintree, MA 02184-5641
Heather L. Buchanan International 7.42%
145 Pinckney St., Apt 632 Strategic
Boston, MA 02114-3247 Growth
Class A
Dorothy E. Tameo & International 5.38%
Raymond F. Tameo JT WROS Strategic
128 Thurber Ave. Growth
Attleboro, MA 02703-6218 Class A
David R. Mannheim International 53.85%
3 Indian Springs Way Strategic
Wellesley, MA 02181-3217 Growth
Class A
Scott A. Lysko International 7.77%
47 Alpine St., Apt. 2 Strategic
Somerville, MA 02144-2624 Growth
Class A
TRS MFS Def Contribution Plan International 99.99%
c/o Mark Leary Strategic
Mass Financial Services Growth
500 Boylston St. Class I
Boston, MA 02116-3740
TRS MFS Def Contribution Plan International 99.90%
c/o Mark Leary Value
Mass Financial Services Class I
500 Boylston St.
Boston, MA 02116-3740
MFS Fund Distributors Inc. International 97.12%
c/o MA Financial Services Co Value
Attn: Thomas B. Hastings Class A
500 Boylston St.
15th Floor
Boston, MA 02116-3740
MFS Fund Distributors Inc. International 69.84%
c/o MA Financial Services Co Opportunities
Attn: Thomas B. Hastings Class A
500 Boylston St.
15th Floor
Boston, MA 02116-3740
Wayne L. Woodman International 21.44%
MA Financial Services Co Opportunities
500 Boylston St. Class A
Boston, MA 02116-3740
TRS MFS Def Contribution Plan International 99.99%
c/o Mark Leary Opportunities
Mass Financial Services Class I
500 Boylston St.
Boston, MA 02116-3740
MFS Fund Distributors, Inc. Asia Pacific 65.4%
c/o MA Financial Services Co Class A
Attn: Thomas B. Hastings
500 Boylston St.
15th Floor
Boston, MA 02116-3740
TRS MFS Def Contribution Plan Asia Pacific 20.2%
c/o Mark Leary Class I
Mass Financial Services
500 Boylston St.
Boston, MA 02116-3740
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 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. For the period October 9, 1997,
each Fund's commencement of investment operations, through September 30, 1998,
MFS received fees under the Administrative Services Agreement as follows:
International Opportunities $154
International Value $133
International Strategic Growth $132
Asia Pacific Fund $220
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 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, 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
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.
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 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 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
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:
o 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);
o Roth Individual Retirement Accounts (Roth IRAs) (for individuals who desire
to make limited contributions to a tax-favored retirement program);
o Simplified Employee Pension (SEP-IRA) Plans;
o Retirement Plans Qualified under Section 401(k) of the Internal Revenue Code
of 1986, as amended (the "Code");
o 403(b) Plans (deferred compensation arrangements for employees of public
school systems and certain non-profit organizations); and
o 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 has elected to be treated and intends to qualify each year as a
"regulated investment company" under Subchapter M of the Code by meeting all
applicable requirements of Subchapter M, including requirements as to the nature
of the Fund's gross income, the amount of Fund distributions, and the
composition 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 any 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 of net capital gains (i.e., the
excess of net long-term capital gains over net short-term capital losses),
whether paid in cash or reinvested in additional shares, are taxable to a Fund's
shareholders as long-term capital gains for federal tax purposes without regard
to the length of time shareholders have held their shares. Any Fund dividend
that is declared in October, November or December, that is payable to
shareholders of record in such a month, and that is paid the following January
will be taxable to shareholders as if received on December 31 of the year in
which the dividend is 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. 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 tax at the rate of 30% (or any lower rate
permitted by an applicable treaty) on taxable dividends and other payments to
Non-U.S. Persons that are subject to such withholding. 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 redemption proceeds paid to any shareholder (including a Non-U.S.
Person) who does not furnish to the Fund certain information and certifications
or who is otherwise subject to backup withholding. Backup withholding will not,
however, be applied to payments that have been subject to 30% withholding.
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, 1999, and
will continue in effect thereafter only if such continuance is specifically
approved at least annually by vote of both the Trustees and a majority of the
Trustees who are not "interested persons" or financially interested parties of
such Plan ("Distribution Plan Qualified Trustees"). The Distribution Plan also
requires that the Fund and MFD each shall provide the Trustees, and the Trustees
shall review, at least quarterly, a written report of the amounts expended (and
purposes therefor) under such Plan. The Distribution Plan may be terminated at
any time by vote of a majority of the Distribution Plan Qualified Trustees or by
vote of the holders of a majority of the respective class of the Fund's shares
(as defined in "Investment Restrictions"). All agreements relating to any of the
Distribution Plan entered into between the Fund or MFD and other organizations
must be approved by the Board of Trustees, including a majority of the
Distribution Plan Qualified Trustees. Agreements under the Distribution Plan
must be in writing, will be terminated automatically if assigned, and may be
terminated at any time without payment of any penalty, by vote of a majority of
the Distribution Plan Qualified Trustees or by vote of the holders of a majority
of the respective class of a Fund's shares. The Distribution Plan may not be
amended to increase materially the amount of permitted distribution expenses
without the approval of a majority of the respective class of the Fund's shares
(as defined in "Investment Restrictions") or may not be materially amended in
any case without a vote of the Trustees and a majority of the Distribution Plan
Qualified Trustees. The selection and nomination of Distribution Plan Qualified
Trustees shall be committed to the discretion of the non-interested Trustees
then in office. No Trustee who is not an "interested person" has any financial
interest in the Distribution Plan or in any related agreement.
8. DETERMINATION OF NET ASSET VALUE AND PERFORMANCE
NET ASSET VALUE: The net asset value per share of each class of each Fund is
determined each day during which the Exchange is open for trading. (As of the
date of this SAI, the Exchange is open for trading every weekday except for the
following holidays (or the days on which they are observed): New Year's Day,
Martin Luther King Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day.) This determination is made
once each day as of the close of regular trading on the Exchange by deducting
the amount of the liabilities attributable to the class from the value of the
assets attributable to the class and dividing the difference by the number of
shares of the class outstanding. Equity securities in a Fund's portfolio are
valued at the last sale price on the exchange on which they are primarily traded
or on the NASDAQ stock market for unlisted national market issues, or at the
last quoted bid price for listed securities in which there were no sales during
the day or for unlisted securities not reported on the NASDAQ stock market.
Bonds and other fixed income securities (other than short-term obligations) of
U.S. issuers in a Fund's portfolio are valued on the basis of valuations
furnished by a pricing service which utilizes both dealer-supplied valuations
and electronic data processing techniques which take into account appropriate
factors such as institutional-size trading in similar groups of securities,
yield, quality, coupon rate, maturity, type of issue, trading characteristics
and other market data without exclusive reliance upon quoted prices or exchange
or over-the-counter prices, since such valuations are believed to reflect more
accurately the fair value of such securities. Forward Contracts will be valued
using a pricing 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 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.
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.
The Fund may also use charts, graphs or other presentation formats to illustrate
the historical correlation of its performance to fund categories established by
Morningstar (or other nationally recognized statistical ratings organizations)
and to other MFS Funds.
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.
From time to time, the Fund may also advertise annual returns showing the
cumulative value of an initial investment in the Fund in various amounts over
specified periods with capital gain and dividend distributions invested in
additional shares or taken in cash, and with no adjustment for any income taxes
(if applicable) payable by shareholders.
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)Global 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)Global Total Return Fund is the
first global balanced fund.
- ------------------------------------------------------------
- -- 1993 -- MFS(R)Global 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 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 AND FINANCIAL STATEMENTS
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' Portfolios of Investments and the Statements of Assets and
Liabilities at September 30, 1998, the Statements of Operations and the
Statements of Changes in Net Assets for the period October 10, 1997 to September
30, 1998, the Notes to Financial Statements and the Independent Auditors'
Report, each of which is included in the Annual Report to Shareholders of the
Funds and are incorporated by reference into this SAI and have been so
incorporated in reliance upon the report of Ernst & Young, independent auditors,
as experts in accounting and auditing. A copy of the Annual Report accompanies
this SAI.
<PAGE>
Appendix A
Performance Quotations
Performance Quotations are as of September 30, 1998
AGGREGATE ANNUAL TOTAL RETURNS(1)
LIFE OF FUND(2)
MFS International Opportunities Fund ---------------------------------
Class A Shares with sales charge (10.27)%
Class A Shares without sales charge (5.80)
Class I Shares (5.80)
MFS International Strategic Growth Fund
Class A Shares with sales charge (7.80)
Class A Shares without sales charge (3.20)
Class I Shares (3.00)
MFS International Value Fund
Class A Shares with sales charge (0.27)
Class A Shares without sales charge 4.70
Class I Shares 4.70
MFS Asia Pacific Fund
Class A Shares with sales charge (37.92)
Class A Shares without sales charge (34.82)
Class I Shares (34.72)
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)
MFS(R) ASIA PACIFIC FUND
500 BOYLSTON STREET
BOSTON, MA 02116
[LOGO] M F S(R)
INVESTMENT MANAGEMENT
We invented the mutual fund(R)
<PAGE>
PART C
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
MFS TOTAL RETURN FUND
(A) FINANCIAL STATEMENTS INCLUDED IN PARTS A AND B:
INCLUDED IN PART A OF THIS REGISTRATION STATEMENT:
For the ten years ended September 30, 1998:
Financial Highlights
INCLUDED IN PART B OF THIS REGISTRATION STATEMENT:
At September 30, 1998:
Portfolio of Investments*
Statements of Assets and Liabilities*
For the year ended September 30, 1998:
Statement of Operations*
For the two years ended September 30, 1998:
Statement of Changes in Net Assets*
MFS RESEARCH FUND
(A) FINANCIAL STATEMENTS INCLUDED IN PARTS A AND B:
INCLUDED IN PART A OF THIS REGISTRATION STATEMENT:
For the ten years ended September 30, 1998:
Financial Highlights
INCLUDED IN PART B OF THIS REGISTRATION STATEMENT:
At September 30, 1998:
Portfolio of Investments**
Statement of Assets and Liabilities**
For the year ended September 30, 1998:
Statement of Operations**
For the two years ended September 30, 1998:
Statement of Changes in Net Assets**
<PAGE>
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 SEPTEMBER 30, 1998:
Financial Highlights***
INCLUDED IN PART B OF THIS REGISTRATION STATEMENT:
At September 30, 1998:
Portfolio of Investments***
Statement of Assets and Liabilities***
FOR THE PERIOD ENDED SEPTEMBER 30, 1998:
Statement of Changes in Net Assets***
Statement of Operations***
- ----------------------------
* Incorporated by reference to the Fund's Annual Report to Shareholders dated
September 30, 1998 filed with the SEC via EDGAR on or before November 18,
1998.
** Incorporated by reference to the Fund's Annual Report to Shareholders
dated September 30, 1998 filed with the SEC via EDGAR on November 18, 1998.
*** Incorporated by reference to the Fund's Annual Report to Shareholders dated
September 30, 1998 filed with the SEC via EDGAR on December 9, 1998.
(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)
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. (18)
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 (a) Consent of Deloitte & Touche, LLP for MFS
Total Return Fund and MFS Research Fund;
filed herewith.
(b) Consent of Ernst & Young, LLP for MFS
International Opportunities Fund, MFS
International Strategic Growth Fund, MFS
International Value Fund and MFS Asia
Pacific Fund; filed herewith.
12 Not Applicable.
13 Not Applicable.
14 (a) Forms for Individual Retirement Account
Disclosure Statement as currently in
effect. (4)
(b) Forms for MFS 403(b) Custodial Account
Agreement as currently in effect. (4)
(c) Forms for MFS Prototype Paired Defined
Contribution Plans and Trust Agreement as
currently in effect. (4)
(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 October 21, 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. (16)
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 Financial Data Schedules for each class of
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; filed herewith.
18 Plan pursuant to Rule 18f-3(d) under the
Investment Company Act of 1940. (17)
Power of Attorney dated September 21, 1994. (5)
Power of Attorney dated February 19, 1998. (18)
- ------------------
(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.
(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.
(16) Incorporated by reference to MFS Series Trust IX (File Nos. 2-50409 and
811-2464) Post-Effective Amendment No. 36 as filed with the SEC via EDGAR
on October 15, 1998.
(17) Incorporated by reference to MFS Series Trust II (File Nos. 33-7637 and
811-4775) Post-Effective Amendment No. 27 filed with the SEC via EDGAR on
May 29, 1998.
(18) Incorporated by reference to Registrant's Post-Effective Amendment No. 46
as filed with the SEC via EDGAR on April 29, 1998.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Not applicable.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
Not Required.
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): 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 Global 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 four series: MFS Emerging Growth Fund, MFS Large Cap Growth
Fund, MFS Intermediate Income Fund and MFS Charter Income Fund), MFS Series
Trust III (which has three series: MFS High Income Fund, MFS Municipal High
Income Fund and MFS High Yield Opportunities 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
five series: MFS Total Return Fund, MFS Research Fund, MFS International
Opportunities Fund, MFS International Strategic Growth Fund and MFS
International Value Fund), MFS Series Trust VI (which has three series: MFS
Global Total Return Fund, MFS Utilities Fund and MFS Global Equity Fund), MFS
Series Trust VII (which has two series: MFS Global Governments Fund and MFS
Capital Opportunities Fund), MFS Series Trust VIII (which has two series: MFS
Strategic Income Fund and MFS Global Growth Fund), MFS Series Trust IX (which
has five series: MFS Bond Fund, MFS Limited Maturity Fund, MFS Municipal Limited
Maturity Fund, MFS Research Bond Fund and MFS Intermediate Investment Grade Bond
Fund), MFS Series Trust X (which has seven series: MFS Government Mortgage Fund,
MFS/Foreign & Colonial Emerging Markets Equity Fund, MFS International Growth
Fund, MFS International Growth and Income Fund, MFS Strategic Value Fund, MFS
Small Cap Value Fund and MFS Emerging Markets Debt Fund), MFS Series Trust XI
(which has four series: MFS Union Standard Equity Fund, Vertex All Cap Fund,
Vertex U.S. All Cap Fund and Vertex Contrarian Fund), 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 ten series) and MFS
Variable Insurance Trust ("MVI") (which has thirteen series). The principal
business address of each of the aforementioned funds is 500 Boylston Street,
Boston, Massachusetts 02116.
In addition, MFS serves as investment adviser to the following
closed-end funds: MFS Municipal Income Trust, MFS Multimarket Income Trust, MFS
Government Markets Income Trust, MFS Intermediate Income Trust, MFS Charter
Income Trust and MFS Special Value Trust (the "MFS Closed-End Funds"). The
principal business address of each of the 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 U.S. All Cap 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 known as the MFS
Funds after January 1999 (which will have 11 portfolios as of January 1999):
U.S. Equity Fund, U.S. Emerging Growth Fund, U.S. High Yield Bond Fund, U.S.
Dollar Reserve Fund, Charter Income Fund, U.S. Research Fund, U.S. Strategic
Growth Fund, Global Equity Fund, European Equity Fund and European Corporate
Bond 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
Global Growth Fund, MFS Meridian Money Market Fund, MFS Meridian Global Balanced
Fund, MFS Meridian U.S. Equity Fund, MFS Meridian Research Fund, MFS Meridian
U.S. High Yield Fund, MFS Meridian Emerging Markets Debt Fund, MFS Meridian
Strategic Growth Fund and MFS Meridian Global Asset Allocation Fund and the MFS
Meridian Research International Fund (collectively the "MFS Meridian Funds").
Each of the MFS Meridian Funds is organized as an exempt company under the laws
of the Cayman Islands. The principal business address of each of the MFS
Meridian Funds is P.O. Box 309, Grand Cayman, Cayman Islands, British West
Indies.
MFS International (U.K.) Ltd. ("MIL-UK"), a private limited
company registered with the Registrar of Companies for England and Wales whose
current address is 4 John Carpenter Street, London, England ED4Y 0NH, is
involved primarily in marketing and investment research activities with respect
to private clients and the MIL Funds and the MFS Meridian Funds.
MFS 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.
Massachusetts Investment Management Co., Ltd. (MIMCO), a
wholly owned subsidiary of MFS, is a corporation incorporated in Japan. MIMCO,
whose address is Kamiyacho-Mori Building, 3-20, Tranomon 4-chome, Minato-ku,
Tokyo, Japan, is involved in investment management activities.
MIMCO
Jeffrey L. Shames, Arnold D. Scott and Mamoru Ogata are
Directors, Shaun Moran is the Representative Director, Joseph W. Dello Russo is
the Statutory Auditor, Robert DiBella is the President and Thomas B. Hastings is
the Assistant Statutory Auditor.
MFS
The Directors of MFS are Jeffrey L. Shames, Arnold D. Scott,
John W. Ballen, Kevin R. Parke, Thomas J. Cashman, Jr., Joseph W. Dello Russo,
William W. Scott, Donald A. Stewart and John D. McNeil. Mr. Shames is the
Chairman and Chief Executive Officer, Mr. Ballen is President and Chief
Investment Officer, Mr. Arnold Scott is a Senior Executive Vice President and
Secretary, Mr. William Scott, Mr. Cashman, Mr. Dello Russo and Mr. Parke are
Executive Vice Presidents (Mr. Parke is also Chief Equity Officer), Stephen E.
Cavan is a Senior Vice President, General Counsel and an Assistant Secretary,
Robert T. Burns is a Senior Vice President, Associate General Counsel and an
Assistant Secretary of MFS, and Thomas B. Hastings is a Vice President and
Treasurer of MFS.
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, Stephen E. Cavan is the Secretary, W. Thomas London is the
Treasurer, James O. Yost, Ellen M. Moynihan and Mark E. Bradley are the
Assistant Treasurers, and James R. Bordewick, Jr. is the Assistant Secretary.
MFS SERIES TRUST IV
MFS SERIES TRUST IX
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, Geoffrey L. Schechter,
Vice President of MFS, 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 VARIABLE INSURANCE TRUST
MFS SERIES TRUST XI
MFS INSTITUTIONAL TRUST
Jeffrey L. Shames is the President and 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.
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.
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.
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.
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 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
Peter D. Laird is President and a Director, 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
Peter D. Laird is President and a Director, Thomas J. Cashman,
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.
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
Thomas J. Cashman, Jr., Jeffrey L. Shames, and Arnold D. Scott
are Directors, Joseph J. Trainor 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.
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
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 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 20th day of November, 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 November 20, 1998.
SIGNATURE TITLE
--------- -----
STEPHEN E. CAVAN* Principal Executive Officer
- -------------------
Stephen E. Cavan
W. THOMAS LONDON* Treasurer (Principal Financial Officer
- ------------------- and Principal Accounting Officer)
W. Thomas London
RICHARD B. BAILEY* Trustee
- -------------------
Richard B. Bailey
PETER G. HARWOOD* Trustee
- -------------------
Peter G. Harwood
J. ATWOOD IVES* Trustee
- -------------------
J. Atwood Ives
LAWRENCE T. PERERA* Trustee
- -------------------
Lawrence T. Perera
WILLIAM J. POORVU* Trustee
- -------------------
William J. Poorvu
CHARLES W. SCHMIDT* Trustee
- -------------------
Charles W. Schmidt
ARNOLD D. SCOTT* Trustee
- -------------------
Arnold D. Scott
JEFFREY L. SHAMES* Trustee
- -------------------
Jeffrey L. Shames
ELAINE R. SMITH* Trustee
- -------------------
Elaine R. Smith
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, incorporated by
reference to the Registrant's
Post-Effective Amendment No. 46 filed with
the Securities and Exchange Commission via
EDGAR on April 29, 1998.
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION OF EXHIBIT PAGE NO.
- ----------- ---------------------- --------
11 (a) Consent of Deloitte & Touche, LLP for MFS Total
Return Fund and MFS Research Fund.
(b) Consent of Ernst & Young, LLP for MFS
International Opportunities Fund, MFS
International Strategic Growth Fund, MFS
International Value Fund and MFS Asia Pacific
Fund.
17 Financial Data Schedules for each class of 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.
<PAGE>
EXHIBIT 99.11(a)
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference in this Post-Effective Amendment
No. 47 to Registration Statement No. 2-38613 of MFS Series Trust V, of our
report dated November 6, 1998, appearing in the annual reports to shareholders
for the year ended September 30, 1998 of MFS Total Return Fund, a series of MFS
Series Trust V, and to the references to us under the headings "Condensed
Financial Information" in the Prospectus and "Independent Auditors and Financial
Statements" in the Statement of Additional Information, both of which are part
of such Registration Statement.
DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
Boston, Massachusetts
November 20, 1998
<PAGE>
EXHIBIT 99.11(a)
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference in this Post-Effective Amendment
No. 47 to Registration Statement No. 2-38613 of MFS Series Trust V, of our
report dated November 6, 1998, appearing in the annual reports to shareholders
for the year ended September 30, 1998 of MFS Research Fund, a series of MFS
Series Trust V, and to the references to us under the headings "Condensed
Financial Information" in the Prospectus and "Independent Auditors and Financial
Statements" in the Statement of Additional Information, both of which are part
of such Registration Statement.
DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
Boston, Massachusetts
November 20, 1998
<PAGE>
EXHIBIT 99.11(b)
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference made to our firm under the captions "Condensed
Financial Information" in the Prospectus and "Independent Auditors and Financial
Statements" in the Statement of Additional Information and to the incorporation
by reference in this Post-Effective Amendment No. 47 to Registration Statement
No. 2-38613 on Form N-1A of our report dated November 6, 1998, on the financial
statements and financial highlights of MFS International Strategic Growth Fund,
MFS International Opportunities Fund, MFS International Value Fund and MFS Asia
Pacific Fund, each a series of MFS Series Trust V, included in the 1998 Annual
Report to Shareholders.
ERNST & YOUNG LLP
Ernst & Young LLP
Boston, Massachusetts
November 20, 1998
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000200489
<NAME> MFS SERIES TRUST V
<SERIES>
<NUMBER> 011
<NAME> MFS TOTAL RETURN FUND CLASS A
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 5451522879
<INVESTMENTS-AT-VALUE> 5767376089
<RECEIVABLES> 170959871
<ASSETS-OTHER> 56031
<OTHER-ITEMS-ASSETS> 2471558
<TOTAL-ASSETS> 5940863549
<PAYABLE-FOR-SECURITIES> 82294802
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 19129023
<TOTAL-LIABILITIES> 101423825
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 4776117743
<SHARES-COMMON-STOCK> 218137383
<SHARES-COMMON-PRIOR> 189050501
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (5960193)
<ACCUMULATED-NET-GAINS> 753458252
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 315823922
<NET-ASSETS> 5839439724
<DIVIDEND-INCOME> 76150741
<INTEREST-INCOME> 166982484
<OTHER-INCOME> (882584)
<EXPENSES-NET> (63446066)
<NET-INVESTMENT-INCOME> 178804575
<REALIZED-GAINS-CURRENT> 796253668
<APPREC-INCREASE-CURRENT> (634130999)
<NET-CHANGE-FROM-OPS> 340927244
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (124362254)
<DISTRIBUTIONS-OF-GAINS> (261131649)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 55504066
<NUMBER-OF-SHARES-REDEEMED> (47976585)
<SHARES-REINVESTED> 21559401
<NET-CHANGE-IN-ASSETS> 726826055
<ACCUMULATED-NII-PRIOR> 5114906
<ACCUMULATED-GAINS-PRIOR> 376352403
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 19252268
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 64262950
<AVERAGE-NET-ASSETS> 5593332928
<PER-SHARE-NAV-BEGIN> 16.92
<PER-SHARE-NII> 0.57
<PER-SHARE-GAIN-APPREC> 0.53
<PER-SHARE-DIVIDEND> (0.59)
<PER-SHARE-DISTRIBUTIONS> (1.37)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 16.06
<EXPENSE-RATIO> 0.90
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000200489
<NAME> MFS SERIES TRUST V
<SERIES>
<NUMBER> 012
<NAME> MFS TOTAL RETURN FUND CLASS B
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 5451522879
<INVESTMENTS-AT-VALUE> 5767376089
<RECEIVABLES> 170959871
<ASSETS-OTHER> 56031
<OTHER-ITEMS-ASSETS> 2471558
<TOTAL-ASSETS> 5940863549
<PAYABLE-FOR-SECURITIES> 82294802
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 19129023
<TOTAL-LIABILITIES> 101423825
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 4776117743
<SHARES-COMMON-STOCK> 123572332
<SHARES-COMMON-PRIOR> 100913755
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (5960193)
<ACCUMULATED-NET-GAINS> 753458252
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 315823922
<NET-ASSETS> 5839439724
<DIVIDEND-INCOME> 76150741
<INTEREST-INCOME> 166982484
<OTHER-INCOME> (882584)
<EXPENSES-NET> (63446066)
<NET-INVESTMENT-INCOME> 178804575
<REALIZED-GAINS-CURRENT> 796253668
<APPREC-INCREASE-CURRENT> (634130999)
<NET-CHANGE-FROM-OPS> 340927244
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (55518030)
<DISTRIBUTIONS-OF-GAINS> (141020364)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 30797677
<NUMBER-OF-SHARES-REDEEMED> (19450599)
<SHARES-REINVESTED> 11311499
<NET-CHANGE-IN-ASSETS> 726826055
<ACCUMULATED-NII-PRIOR> 5114906
<ACCUMULATED-GAINS-PRIOR> 376352403
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 19252268
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 64262950
<AVERAGE-NET-ASSETS> 5593332928
<PER-SHARE-NAV-BEGIN> 16.92
<PER-SHARE-NII> 0.46
<PER-SHARE-GAIN-APPREC> 0.53
<PER-SHARE-DIVIDEND> (0.49)
<PER-SHARE-DISTRIBUTIONS> (1.37)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 16.05
<EXPENSE-RATIO> 1.55
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000200489
<NAME> MFS SERIES TRUST V
<SERIES>
<NUMBER> 013
<NAME> MFS TOTAL RETURN FUND CLASS C
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 5451522879
<INVESTMENTS-AT-VALUE> 5767376089
<RECEIVABLES> 170959871
<ASSETS-OTHER> 56031
<OTHER-ITEMS-ASSETS> 2471558
<TOTAL-ASSETS> 5940863549
<PAYABLE-FOR-SECURITIES> 82294802
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 19129023
<TOTAL-LIABILITIES> 101423825
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 4776117743
<SHARES-COMMON-STOCK> 20850631
<SHARES-COMMON-PRIOR> 11222686
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (5960193)
<ACCUMULATED-NET-GAINS> 753458252
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 315823922
<NET-ASSETS> 5839439724
<DIVIDEND-INCOME> 76150741
<INTEREST-INCOME> 166982484
<OTHER-INCOME> (882584)
<EXPENSES-NET> (63446066)
<NET-INVESTMENT-INCOME> 178804575
<REALIZED-GAINS-CURRENT> 796253668
<APPREC-INCREASE-CURRENT> (634130999)
<NET-CHANGE-FROM-OPS> 340927244
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (7674565)
<DISTRIBUTIONS-OF-GAINS> (16513122)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 10590618
<NUMBER-OF-SHARES-REDEEMED> (2309571)
<SHARES-REINVESTED> 1346898
<NET-CHANGE-IN-ASSETS> 726826055
<ACCUMULATED-NII-PRIOR> 5114906
<ACCUMULATED-GAINS-PRIOR> 376352403
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 19252268
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 64262950
<AVERAGE-NET-ASSETS> 5593332928
<PER-SHARE-NAV-BEGIN> 16.96
<PER-SHARE-NII> 0.46
<PER-SHARE-GAIN-APPREC> 0.53
<PER-SHARE-DIVIDEND> (0.48)
<PER-SHARE-DISTRIBUTIONS> (1.37)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 16.10
<EXPENSE-RATIO> 1.55
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000200489
<NAME> MFS SERIES TRUST V
<SERIES>
<NUMBER> 014
<NAME> MFS TOTAL RETURN FUND CLASS I
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 5451522879
<INVESTMENTS-AT-VALUE> 5767376089
<RECEIVABLES> 170959871
<ASSETS-OTHER> 56031
<OTHER-ITEMS-ASSETS> 2471558
<TOTAL-ASSETS> 5940863549
<PAYABLE-FOR-SECURITIES> 82294802
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 19129023
<TOTAL-LIABILITIES> 101423825
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 4776117743
<SHARES-COMMON-STOCK> 1078479
<SHARES-COMMON-PRIOR> 967229
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (5960193)
<ACCUMULATED-NET-GAINS> 753458252
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 315823922
<NET-ASSETS> 5839439724
<DIVIDEND-INCOME> 76150741
<INTEREST-INCOME> 166982484
<OTHER-INCOME> (882584)
<EXPENSES-NET> (63446066)
<NET-INVESTMENT-INCOME> 178804575
<REALIZED-GAINS-CURRENT> 796253668
<APPREC-INCREASE-CURRENT> (634130999)
<NET-CHANGE-FROM-OPS> 340927244
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (698425)
<DISTRIBUTIONS-OF-GAINS> (1386719)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 158035
<NUMBER-OF-SHARES-REDEEMED> (177735)
<SHARES-REINVESTED> 130950
<NET-CHANGE-IN-ASSETS> 726826055
<ACCUMULATED-NII-PRIOR> 5114906
<ACCUMULATED-GAINS-PRIOR> 376352403
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 19252268
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 64262950
<AVERAGE-NET-ASSETS> 5593332928
<PER-SHARE-NAV-BEGIN> 16.92
<PER-SHARE-NII> 0.63
<PER-SHARE-GAIN-APPREC> 0.53
<PER-SHARE-DIVIDEND> (0.65)
<PER-SHARE-DISTRIBUTIONS> (1.37)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 16.06
<EXPENSE-RATIO> 0.55
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000200489
<NAME> MFS SERIES TRUST V
<SERIES>
<NUMBER> 021
<NAME> MFS RESEARCH FUND, CLASS A
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 4889831744
<INVESTMENTS-AT-VALUE> 5408017117
<RECEIVABLES> 109707634
<ASSETS-OTHER> 31620
<OTHER-ITEMS-ASSETS> 200984
<TOTAL-ASSETS> 5517957355
<PAYABLE-FOR-SECURITIES> 62065858
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 25399694
<TOTAL-LIABILITIES> 87465552
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 4688242497
<SHARES-COMMON-STOCK> 121774044
<SHARES-COMMON-PRIOR> 97059972
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (106481)
<ACCUMULATED-NET-GAINS> 224168427
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 518187360
<NET-ASSETS> 5430491803
<DIVIDEND-INCOME> 55323440
<INTEREST-INCOME> 7179981
<OTHER-INCOME> (1008102)
<EXPENSES-NET> (67028225)
<NET-INVESTMENT-INCOME> (5532906)
<REALIZED-GAINS-CURRENT> 257290588
<APPREC-INCREASE-CURRENT> (379649249)
<NET-CHANGE-FROM-OPS> (127891567)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (104270556)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 83102457
<NUMBER-OF-SHARES-REDEEMED> (62877919)
<SHARES-REINVESTED> 4489534
<NET-CHANGE-IN-ASSETS> 889304361
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 179309876
<OVERDISTRIB-NII-PRIOR> (990511)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 18088633
<INTEREST-EXPENSE> 78670
<GROSS-EXPENSE> 67277049
<AVERAGE-NET-ASSETS> 5439639870
<PER-SHARE-NAV-BEGIN> 22.69
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> (0.30)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.99)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 21.45
<EXPENSE-RATIO> 0.91
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000200489
<NAME> MFS SERIES TRUST V
<SERIES>
<NUMBER> 022
<NAME> MFS RESEARCH FUND, CLASS B
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 4889831744
<INVESTMENTS-AT-VALUE> 5408017117
<RECEIVABLES> 109707634
<ASSETS-OTHER> 31620
<OTHER-ITEMS-ASSETS> 200984
<TOTAL-ASSETS> 5517957355
<PAYABLE-FOR-SECURITIES> 62065858
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 25399694
<TOTAL-LIABILITIES> 87465552
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 4688242497
<SHARES-COMMON-STOCK> 107048695
<SHARES-COMMON-PRIOR> 83947722
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (106481)
<ACCUMULATED-NET-GAINS> 224168427
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 518187360
<NET-ASSETS> 5430491803
<DIVIDEND-INCOME> 55323440
<INTEREST-INCOME> 7179981
<OTHER-INCOME> (1008102)
<EXPENSES-NET> (67028225)
<NET-INVESTMENT-INCOME> (5532906)
<REALIZED-GAINS-CURRENT> 257290588
<APPREC-INCREASE-CURRENT> (379649249)
<NET-CHANGE-FROM-OPS> (127891567)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (78726547)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 39061924
<NUMBER-OF-SHARES-REDEEMED> (19219913)
<SHARES-REINVESTED> 3258962
<NET-CHANGE-IN-ASSETS> 889304361
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 179309876
<OVERDISTRIB-NII-PRIOR> (990511)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 18088633
<INTEREST-EXPENSE> 78670
<GROSS-EXPENSE> 67277049
<AVERAGE-NET-ASSETS> 5439639870
<PER-SHARE-NAV-BEGIN> 22.16
<PER-SHARE-NII> (0.10)
<PER-SHARE-GAIN-APPREC> (0.28)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.88)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 20.90
<EXPENSE-RATIO> 1.56
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000200489
<NAME> MFS SERIES TRUST V
<SERIES>
<NUMBER> 023
<NAME> MFS RESEARCH FUND, CLASS C
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 4889831744
<INVESTMENTS-AT-VALUE> 5408017117
<RECEIVABLES> 109707634
<ASSETS-OTHER> 31620
<OTHER-ITEMS-ASSETS> 200984
<TOTAL-ASSETS> 5517957355
<PAYABLE-FOR-SECURITIES> 62065858
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 25399694
<TOTAL-LIABILITIES> 87465552
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 4688242497
<SHARES-COMMON-STOCK> 26942067
<SHARES-COMMON-PRIOR> 20738347
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (106481)
<ACCUMULATED-NET-GAINS> 224168427
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 518187360
<NET-ASSETS> 5430491803
<DIVIDEND-INCOME> 55323440
<INTEREST-INCOME> 7179981
<OTHER-INCOME> (1008102)
<EXPENSES-NET> (67028225)
<NET-INVESTMENT-INCOME> (5532906)
<REALIZED-GAINS-CURRENT> 257290588
<APPREC-INCREASE-CURRENT> (379649249)
<NET-CHANGE-FROM-OPS> (127891567)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (19503877)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 11258935
<NUMBER-OF-SHARES-REDEEMED> (5685657)
<SHARES-REINVESTED> 630442
<NET-CHANGE-IN-ASSETS> 889304361
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 179309876
<OVERDISTRIB-NII-PRIOR> (990511)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 18088633
<INTEREST-EXPENSE> 78670
<GROSS-EXPENSE> 67277049
<AVERAGE-NET-ASSETS> 5439639870
<PER-SHARE-NAV-BEGIN> 22.17
<PER-SHARE-NII> (0.10)
<PER-SHARE-GAIN-APPREC> (0.27)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.88)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 20.92
<EXPENSE-RATIO> 1.56
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000200489
<NAME> MFS SERIES TRUST V
<SERIES>
<NUMBER> 024
<NAME> MFS RESEARCH FUND, CLASS I
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 4889831744
<INVESTMENTS-AT-VALUE> 5408017117
<RECEIVABLES> 109707634
<ASSETS-OTHER> 31620
<OTHER-ITEMS-ASSETS> 200984
<TOTAL-ASSETS> 5517957355
<PAYABLE-FOR-SECURITIES> 62065858
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 25399694
<TOTAL-LIABILITIES> 87465552
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 4688242497
<SHARES-COMMON-STOCK> 815412
<SHARES-COMMON-PRIOR> 852759
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (106481)
<ACCUMULATED-NET-GAINS> 224168427
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 518187360
<NET-ASSETS> 5430491803
<DIVIDEND-INCOME> 55323440
<INTEREST-INCOME> 7179981
<OTHER-INCOME> (1008102)
<EXPENSES-NET> (67028225)
<NET-INVESTMENT-INCOME> (5532906)
<REALIZED-GAINS-CURRENT> 257290588
<APPREC-INCREASE-CURRENT> (379649249)
<NET-CHANGE-FROM-OPS> (127891567)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (848087)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 118387
<NUMBER-OF-SHARES-REDEEMED> (194599)
<SHARES-REINVESTED> 38865
<NET-CHANGE-IN-ASSETS> 889304361
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 179309876
<OVERDISTRIB-NII-PRIOR> (990511)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 18088633
<INTEREST-EXPENSE> 78670
<GROSS-EXPENSE> 67277049
<AVERAGE-NET-ASSETS> 5439639870
<PER-SHARE-NAV-BEGIN> 22.75
<PER-SHARE-NII> 0.13
<PER-SHARE-GAIN-APPREC> (0.31)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (1.05)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 21.52
<EXPENSE-RATIO> 0.56
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000200489
<NAME> MFS SERIES TRUST V
<SERIES>
<NUMBER> 041
<NAME> MFS INTERNATIONAL OPPORTUNITIES FUND CLASS A
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 1328459
<INVESTMENTS-AT-VALUE> 1216880
<RECEIVABLES> 55213
<ASSETS-OTHER> 11324
<OTHER-ITEMS-ASSETS> 1906
<TOTAL-ASSETS> 1285323
<PAYABLE-FOR-SECURITIES> 18882
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1167
<TOTAL-LIABILITIES> 20049
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1390147
<SHARES-COMMON-STOCK> 60806
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 4167
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (16602)
<ACCUM-APPREC-OR-DEPREC> (112438)
<NET-ASSETS> 1265274
<DIVIDEND-INCOME> 25775
<INTEREST-INCOME> 6515
<OTHER-INCOME> (2782)
<EXPENSES-NET> (22025)
<NET-INVESTMENT-INCOME> 7483
<REALIZED-GAINS-CURRENT> (19918)
<APPREC-INCREASE-CURRENT> (112438)
<NET-CHANGE-FROM-OPS> (124873)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 75967
<NUMBER-OF-SHARES-REDEEMED> (15161)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 1265274
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 12280
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 42427
<AVERAGE-NET-ASSETS> 1298403
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .06
<PER-SHARE-GAIN-APPREC> (0.64)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.42
<EXPENSE-RATIO> 1.75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000200489
<NAME> MFS SERIES TRUST V
<SERIES>
<NUMBER> 042
<NAME> MFS INTERNATIONAL OPPORTUNITIES FUND CLASS I
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 1328459
<INVESTMENTS-AT-VALUE> 1216880
<RECEIVABLES> 55213
<ASSETS-OTHER> 11324
<OTHER-ITEMS-ASSETS> 1906
<TOTAL-ASSETS> 1285323
<PAYABLE-FOR-SECURITIES> 18882
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1167
<TOTAL-LIABILITIES> 20049
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1390147
<SHARES-COMMON-STOCK> 73457
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 4167
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (16602)
<ACCUM-APPREC-OR-DEPREC> (112438)
<NET-ASSETS> 1265274
<DIVIDEND-INCOME> 25775
<INTEREST-INCOME> 6515
<OTHER-INCOME> (2782)
<EXPENSES-NET> (22025)
<NET-INVESTMENT-INCOME> 7483
<REALIZED-GAINS-CURRENT> (19918)
<APPREC-INCREASE-CURRENT> (112438)
<NET-CHANGE-FROM-OPS> (124873)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 73457
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 1265274
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 12280
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 42427
<AVERAGE-NET-ASSETS> 1298403
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .07
<PER-SHARE-GAIN-APPREC> (0.65)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.42
<EXPENSE-RATIO> 1.75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000200489
<NAME> MFS SERIES TRUST V
<SERIES>
<NUMBER> 051
<NAME> MFS INTERNATIONAL STRATEGIC GROWTH FUND CLASS A
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-09-1997
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 1008345
<INVESTMENTS-AT-VALUE> 956520
<RECEIVABLES> 9039
<ASSETS-OTHER> 3012
<OTHER-ITEMS-ASSETS> 5466
<TOTAL-ASSETS> 974037
<PAYABLE-FOR-SECURITIES> 7657
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 660
<TOTAL-LIABILITIES> 8317
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 984942
<SHARES-COMMON-STOCK> 9282
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 1788
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 31247
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (52257)
<NET-ASSETS> 965720
<DIVIDEND-INCOME> 22285
<INTEREST-INCOME> 4758
<OTHER-INCOME> (2698)
<EXPENSES-NET> (19452)
<NET-INVESTMENT-INCOME> 4893
<REALIZED-GAINS-CURRENT> 28142
<APPREC-INCREASE-CURRENT> (52257)
<NET-CHANGE-FROM-OPS> (19222)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 38708
<NUMBER-OF-SHARES-REDEEMED> (29426)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 965720
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 10774
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 38974
<AVERAGE-NET-ASSETS> 1139127
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.04
<PER-SHARE-GAIN-APPREC> (0.36)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.68
<EXPENSE-RATIO> 1.75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000200489
<NAME> MFS SERIES TRUST V
<SERIES>
<NUMBER> 052
<NAME> MFS INTERNATIONAL STRATEGIC GROWTH FUND CLASS I
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-09-1997
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 1008345
<INVESTMENTS-AT-VALUE> 956520
<RECEIVABLES> 9039
<ASSETS-OTHER> 3012
<OTHER-ITEMS-ASSETS> 5466
<TOTAL-ASSETS> 974037
<PAYABLE-FOR-SECURITIES> 7657
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 660
<TOTAL-LIABILITIES> 8317
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 984942
<SHARES-COMMON-STOCK> 90307
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 1788
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 31247
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (52257)
<NET-ASSETS> 965720
<DIVIDEND-INCOME> 22285
<INTEREST-INCOME> 4758
<OTHER-INCOME> (2698)
<EXPENSES-NET> (19452)
<NET-INVESTMENT-INCOME> 4893
<REALIZED-GAINS-CURRENT> 28142
<APPREC-INCREASE-CURRENT> (52257)
<NET-CHANGE-FROM-OPS> (19222)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 92832
<NUMBER-OF-SHARES-REDEEMED> (2525)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 965720
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 10774
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 38974
<AVERAGE-NET-ASSETS> 1139127
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> (0.35)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.70
<EXPENSE-RATIO> 1.75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000200489
<NAME> MFS SERIES TRUST V
<SERIES>
<NUMBER> 061
<NAME> MFS INTERNATIONAL VALUE FUND - CLASS A
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12 months
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-10-1997
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 1063395
<INVESTMENTS-AT-VALUE> 1089844
<RECEIVABLES> 19167
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 5379
<TOTAL-ASSETS> 1114390
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 47
<TOTAL-LIABILITIES> 47
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1068446
<SHARES-COMMON-STOCK> 95755
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 10713
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 8745
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 26439
<NET-ASSETS> 1114343
<DIVIDEND-INCOME> 6991
<INTEREST-INCOME> 23215
<OTHER-INCOME> 0
<EXPENSES-NET> (19313)
<NET-INVESTMENT-INCOME> 10893
<REALIZED-GAINS-CURRENT> 8517
<APPREC-INCREASE-CURRENT> 26439
<NET-CHANGE-FROM-OPS> 45849
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 96025
<NUMBER-OF-SHARES-REDEEMED> (270)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 1114343
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 10778
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 42903
<AVERAGE-NET-ASSETS> 1137701
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .10
<PER-SHARE-GAIN-APPREC> .36
<PER-SHARE-DIVIDEND> .00
<PER-SHARE-DISTRIBUTIONS> .00
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.46
<EXPENSE-RATIO> 1.75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000200489
<NAME> MFS SERIES TRUST V
<SERIES>
<NUMBER> 062
<NAME> MFS INTERNATIONAL VALUE FUND - CLASS I
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12 months
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-10-1997
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 1063395
<INVESTMENTS-AT-VALUE> 1089844
<RECEIVABLES> 19167
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 5379
<TOTAL-ASSETS> 1114390
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 47
<TOTAL-LIABILITIES> 47
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1068446
<SHARES-COMMON-STOCK> 10745
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 10713
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 8745
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 26439
<NET-ASSETS> 1114343
<DIVIDEND-INCOME> 6991
<INTEREST-INCOME> 23215
<OTHER-INCOME> 0
<EXPENSES-NET> (19313)
<NET-INVESTMENT-INCOME> 10893
<REALIZED-GAINS-CURRENT> 8517
<APPREC-INCREASE-CURRENT> 26439
<NET-CHANGE-FROM-OPS> 45849
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 10745
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 1114343
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 10778
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 42903
<AVERAGE-NET-ASSETS> 1137701
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .11
<PER-SHARE-GAIN-APPREC> .36
<PER-SHARE-DIVIDEND> .00
<PER-SHARE-DISTRIBUTIONS> .00
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.47
<EXPENSE-RATIO> 1.75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000200489
<NAME> MFS SERIES TRUST V
<SERIES>
<NUMBER> 031
<NAME> MFS ASIA PACIFIC FUND - CLASS A
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 1955141
<INVESTMENTS-AT-VALUE> 1618521
<RECEIVABLES> 8918
<ASSETS-OTHER> 12
<OTHER-ITEMS-ASSETS> 330048
<TOTAL-ASSETS> 1957499
<PAYABLE-FOR-SECURITIES> 38030
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 229220
<TOTAL-LIABILITIES> 267250
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2508020
<SHARES-COMMON-STOCK> 206690
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 16935
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (481741)
<ACCUM-APPREC-OR-DEPREC> (352965)
<NET-ASSETS> 1690249
<DIVIDEND-INCOME> 31838
<INTEREST-INCOME> 12991
<OTHER-INCOME> (3051)
<EXPENSES-NET> (25477)
<NET-INVESTMENT-INCOME> 16301
<REALIZED-GAINS-CURRENT> (476161)
<APPREC-INCREASE-CURRENT> (352965)
<NET-CHANGE-FROM-OPS> (812825)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (4075)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 213642
<NUMBER-OF-SHARES-REDEEMED> (7450)
<SHARES-REINVESTED> 498
<NET-CHANGE-IN-ASSETS> 1690249
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 18922
<INTEREST-EXPENSE> 1015
<GROSS-EXPENSE> 53287
<AVERAGE-NET-ASSETS> 1950584
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.07
<PER-SHARE-GAIN-APPREC> (3.53)
<PER-SHARE-DIVIDEND> (0.02)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 6.52
<EXPENSE-RATIO> 1.36
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000200489
<NAME> MFS SERIES TRUST V
<SERIES>
<NUMBER> 032
<NAME> MFS ASIA PACIFIC FUND - CLASS I
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-09-1997
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 1955141
<INVESTMENTS-AT-VALUE> 1618521
<RECEIVABLES> 8918
<ASSETS-OTHER> 12
<OTHER-ITEMS-ASSETS> 330048
<TOTAL-ASSETS> 1957499
<PAYABLE-FOR-SECURITIES> 38030
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 229220
<TOTAL-LIABILITIES> 267250
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2508020
<SHARES-COMMON-STOCK> 52399
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 16935
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (481741)
<ACCUM-APPREC-OR-DEPREC> (352965)
<NET-ASSETS> 1690249
<DIVIDEND-INCOME> 31838
<INTEREST-INCOME> 12991
<OTHER-INCOME> (3051)
<EXPENSES-NET> (25477)
<NET-INVESTMENT-INCOME> 16301
<REALIZED-GAINS-CURRENT> (476161)
<APPREC-INCREASE-CURRENT> (352965)
<NET-CHANGE-FROM-OPS> (812825)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (871)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 59916
<NUMBER-OF-SHARES-REDEEMED> (7623)
<SHARES-REINVESTED> 106
<NET-CHANGE-IN-ASSETS> 1690249
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 18922
<INTEREST-EXPENSE> 1015
<GROSS-EXPENSE> 53287
<AVERAGE-NET-ASSETS> 1950584
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.08
<PER-SHARE-GAIN-APPREC> (3.53)
<PER-SHARE-DIVIDEND> (0.02)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 6.53
<EXPENSE-RATIO> 1.33
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
