<PAGE>
- -----------------------
MFS(R) HIGH INCOME FUND
- -----------------------
JUNE 1, 1999 AS AMENDED SEPTEMBER 22, 1999
[logo] M F S (R) STATEMENT OF ADDITIONAL
INVESTMENT MANAGEMENT INFORMATION
75 YEARS
WE INVENTED THE MUTUAL FUND(R)
A SERIES OF MFS SERIES TRUST III
500 BOYLSTON STREET, BOSTON, MA 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
June 1, 1999. This SAI should be read in conjunction with the Prospectus. The
Fund's financial statements are incorporated into this SAI by reference to the
Fund's most recent Annual Report to shareholders. A copy of the Annual Report
accompanies this SAI. You may obtain a copy of the Fund's Prospectus and Annual
Report without charge by contacting MFS Service Center, Inc. (see back cover of
Part II of this SAI for address and phone number).
This SAI is divided into two Parts -- Part I and Part II. Part I contains
information that is particular to the Fund, while Part II contains information
that generally applies to each of the funds in the MFS Family of Funds (the "MFS
Funds"). Each Part of the SAI has a variety of appendices which can be found at
the end of Part I and Part II, respectively.
THIS SAI IS NOT A PROSPECTUS AND IS AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE
INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS.
MHI-13 5/99 1M 18/218/318/818
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART I
Part I of this SAI contains information that is particular to the Fund.
TABLE OF CONTENTS
Page
I Definitions .......................................................... 3
II Management of the Fund ............................................... 3
The Fund ............................................................. 3
Trustees and Officers -- Identification and Background ............... 3
Trustees Compensation ................................................ 3
Affiliated Service Provider Compensation ............................. 3
III Sales Charges and Distribution Plan Payments ......................... 3
Sales Charges ........................................................ 3
Distribution Plan Payments .......................................... 3
IV Portfolio Transactions and Brokerage Commissions ..................... 3
V Share Ownership ...................................................... 3
VI Performance Information .............................................. 3
VII Investment Techniques, Practices, Risks and Restrictions ............. 3
Investment Techniques, Practices and Risks ........................... 3
Investment Restrictions .............................................. 3
VIII Tax Considerations ................................................... 5
IX Independent Auditors and Financial Statements ........................ 5
Appendix A -- Trustees and Officers -- Identification and Background . A-1
Appendix B -- Trustee Compensation ................................... B-1
Appendix C -- Affiliated Service Provider Compensation ............... C-1
Appendix D -- Sales Charges and Distribution Plan Payments ........... D-1
Appendix E -- Portfolio Transactions and Brokerage Commissions ....... E-1
Appendix F -- Share Ownership ........................................ F-1
Appendix G -- Performance Information ................................ G-1
<PAGE>
I DEFINITIONS
"Fund" - MFS High Income Fund, a series of the Trust.
"Trust" - MFS Series Trust III, a Massachusetts business trust, organized
on December 15, 1977. The Trust was known as "Massachusetts Financial High
Income Trust" until its name was changed on August 20, 1993.
"MFS" or the "Adviser" - Massachusetts Financial Services Company, a
Delaware corporation.
"MFD" - MFS Fund Distributors, Inc., a Delaware corporation.
"MFSC" - MFS Service Center, Inc., a Delaware corporation.
"Prospectus" - The Prospectus of the Fund, dated June 1, 1999, as amended
or supplemented from time to time.
II MANAGEMENT OF THE FUND
THE FUND
The Fund is a diversified series of the Trust. The Trust is an open-end
management investment company.
TRUSTEES AND OFFICERS - IDENTIFICATION AND BACKGROUND
The identification and background of the Trustees and officers of the
Trust are set forth in Appendix A of this Part I.
TRUSTEE COMPENSATION
Compensation paid to the non-interested Trustees and to Trustees who are
not officers of the Trust, for certain specified periods, is set forth in
Appendix B of this Part I.
AFFILIATED SERVICE PROVIDER COMPENSATION
Compensation paid by the Fund to its affiliated service providers -- to
MFS, for investment advisory and administrative services, and to MFSC, for
transfer agency services -- for certain specified periods is set forth in
Appendix C to this Part I.
III SALES CHARGES AND DISTRIBUTION PLAN PAYMENTS
SALES CHARGES
Sales charges paid in connection with the purchase and sale of Fund shares
for certain specified periods are set forth in Appendix D to this Part I,
together with the Fund's schedule of dealer reallowances.
DISTRIBUTION PLAN PAYMENTS
Payments made by the Fund under the Distribution Plan for its most recent
fiscal year end are set forth in Appendix D to this Part I.
IV PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
Brokerage commissions paid by the Fund for certain specified periods, and
information concerning purchases by the Fund of securities issued by its
regular broker-dealers for its most recent fiscal year, are set forth in
Appendix E to this Part I.
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 Trustees (together with the Trustees of certain
other MFS funds) have directed the Adviser to allocate a total of $53,050
of commission business from certain MFS funds (including the Fund) 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).
V SHARE OWNERSHIP
Information concerning the ownership of Fund shares by Trustees and
officers of the Trust as a group, by investors who control the Fund, if
any, and by investors who own 5% or more of any class of Fund shares, if
any, is set forth in Appendix F to this Part I.
VI PERFORMANCE INFORMATION
Performance information, as quoted by the Fund in sales literature and
marketing materials, is set forth in Appendix G to this Part I.
VII INVESTMENT TECHNIQUES, PRACTICES, RISKS AND RESTRICTIONS
INVESTMENT TECHNIQUES, PRACTICES AND RISKS
The investment objective and principal investment policies of the Fund are
described in the Prospectus. In pursuing its investment objective and
principal investment policies, the Fund may engage in a number of
investment techniques and practices, which involve certain risks. These
investment techniques and practices, which may be changed without
shareholder approval unless indicated otherwise, are identified in
Appendix A to the Prospectus, and are more fully described, together with
their associated risks, in Part II of this SAI. The following percentage
limitations apply to these investment techniques and practices.
o Foreign Securities Exposure may not exceed 25% of the Fund's net assets
o Emerging Markets Exposure may not exceed 5% of the Fund's net assets.
o The Fund may invest up to 100% of net assets in Lower Rated Bonds.
o Lending of Portfolio Securities may not exceed 30% of the Fund's net
assets.
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 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).
Terms used below (such as Options and Futures Contracts) are defined in
Part II of this SAI.
The Fund may not:
(1) Borrow amounts in excess of 10% of its gross assets, and then only
as a temporary measure for extraordinary or emergency purposes, or
pledge, mortgage or hypothecate its assets taken at market value to
an extent greater than 15% of its gross assets, in each case taken
at the lower of cost or market value and subject to a 300% asset
coverage requirement (for the purpose of this restriction,
collateral arrangements with respect to options on fixed income
securities, Futures Contracts, Options on Futures Contracts,
Forward Contracts and options on foreign currencies and payments of
initial and variation margin in connection therewith are not
considered a pledge of assets).
(2) 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.
(3) Invest more than 25% of the market value of its total assets in
securities of issuers in any one industry, except that up to 40% of
the Fund's total assets, taken at market value, may be invested in
each of the electric utility and telephone industries.
(4) Purchase or sell real estate (including limited partnership
interests but excluding securities secured by real estate or
interests therein), interests in oil, gas or mineral leases,
commodities or commodity contracts (except Futures Contracts,
Options on Futures Contracts, Forward Contracts and options on
foreign currencies) in the ordinary course of the business of the
Fund. The Fund reserves the freedom of action to hold and to sell
real estate acquired as a result of the ownership of securities.
(5) Make loans to other persons except through the lending of its
portfolio securities in accordance with, and to the extent
permitted by, its investment objective and policies and except
through repurchase agreements. Not more than 10% of the Fund's
assets will be invested in repurchase agreements maturing in more
than seven days. For these purposes the purchase of commercial
paper or of all or a portion of a private or public issue of debt
securities shall not be considered the making of a loan.
(6) Purchase the securities of any issuer if such purchase, at the time
thereof, would cause more than 5% of the total assets of the Fund
taken at market value to be invested in the securities of such
issuer, other than securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities, and provided
further that up to 25% of the total assets of the Fund may be
invested in securities issued or guaranteed by any foreign
government, its agencies or instrumentalities.
(7) 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 more than 10% of any class of securities of such issuer to be
held by the Fund. 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.
(8) Invest for the purpose of exercising control or management.
(9) Purchase securities issued by any registered investment company
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 registered investment companies 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 issuers; and provided, further, that the Fund
shall not purchase securities issued by any open-end investment
company.
(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 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 Fund, or is a partner,
officer, director or trustee of the investment adviser of the Fund,
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.
(12) Purchase any securities or evidences of interest therein on margin
except to make deposits on margin in connection with options on
fixed income securities, Futures Contracts, Options on Futures
Contracts, Forward Contracts and options on foreign currencies,
and, except that the Fund may obtain such short-term credit as may
be necessary for the clearance of purchases and sales of securities
and provided that this shall not prevent the purchase, ownership,
holding or sale of contracts for the future acquisition or delivery
of fixed income securities.
(13) Sell any security which the Fund does not own unless by virtue of
its ownership of other securities it 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.
(14) 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, Futures Contracts and foreign currencies.
In addition, the Fund has the following non-fundamental policies which
may be changed without shareholder approval. The Fund will not (i) invest
in securities (other than repurchase agreements) which are restricted as
to disposition under the federal securities laws (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
would be invested in such securities and (ii) invest 25% or more of the
market value of its total assets in securities of issuers in any one
industry.
Except for investment restriction no. 1 and the Fund's non-fundamental
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.
VIII TAX CONSIDERATIONS
For a discussion of tax considerations, see Part II of this SAI.
IX INDEPENDENT AUDITORS AND FINANCIAL STATEMENTS
Deloitte & Touche LLP are the Fund's independent auditors, providing audit
services, tax services, and assistance and consultation with respect to
the preparation of filings with the Securities and Exchange Commission.
The Portfolio of Investments and the Statement of Assets and Liabilities
at January 31, 1999, the Statement of Operations for the year ended
January 31, 1999, the Statement of Changes in Net Assets for the two years
ended January 31, 1999, the Notes to Financial Statements and the Report
of the Independent Auditors, each of which is included in the Annual
Report to Shareholders of the Fund, are incorporated by reference into
this SAI in reliance upon the report of Deloitte & Touche LLP, independent
auditors, given upon their authority as experts in accounting and
auditing. A copy of the Annual Report accompanies this SAI.
<PAGE>
- -----------------------
PART I - APPENDIX A
- -----------------------
TRUSTEES AND OFFICERS - IDENTIFICATION AND BACKGROUND
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
JEFFREY L. SHAMES,* Chairman and President (born 6/2/55)
Massachusetts Financial Services Company, Chairman and Chief Executive
Officer
RICHARD B. BAILEY* (born 9/14/26)
Private Investor; Massachusetts Financial Services Company, former Chairman
and Director (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 Corporation, Director; Mohawk
Paper Company, Director
Address: 30 Colpitts Road, Weston, Massachusetts
ARNOLD D. SCOTT* (born 12/16/42)
Massachusetts Financial Services Company, Senior Executive Vice President,
Secretary and Director
ELAINE R. SMITH (born 4/25/46)
Independent Consultant; Brigham and Women's Hospital, Executive Vice
President and Chief Operating Officer (from August 1990 to September 1992)
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
JOAN S. BATCHELDER,* Vice President (born 4/12/44)
Massachusetts Financial Services Company, Senior Vice President
ROBERT J. MANNING,* Vice President (born 10/20/63)
Massachusetts Financial Services Company, Senior Vice President
BERNARD SCOZZAFAVA,* Vice President (born 1/28/61)
Massachusetts Financial Services Company, Vice President
JAMES T. SWANSON,* Vice President (born 6/12/49)
Massachusetts Financial Services Company, Senior Vice President
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
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, Senior 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)
----------------
* "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.
<PAGE>
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PART I - APPENDIX B
- -----------------------
TRUSTEE COMPENSATION
The Fund pays the compensation of non-interested Trustees and of Trustees
who are not officers of the Trust, who currently receive a fee of $3,250 per
year plus $165 per meeting and $130 per committee meeting attended, together
with such Trustee's out-of-pocket expenses. In addition, the Trust has a
retirement plan for these Trustees as described under the caption
"Management of the Fund -- Trustee Retirement Plan" in Part II. The
Retirement Age under the plan is 73.
<TABLE>
TRUSTEE COMPENSATION TABLE
.............................................................................................................................
<CAPTION>
RETIREMENT BENEFIT TOTAL TRUSTEE
TRUSTEE FEES ACCRUED AS PART ESTIMATED CREDITED FEES FROM FUND
TRUSTEE FROM FUND(1) OF FUND EXPENSES(1) YEARS OF SERVICE(2) AND FUND COMPLEX(3)
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Richard B. Bailey $4,783 $1,668 8 $259,430
Peter G. Harwood 6,139 1,326 5 150,511
J. Atwood Ives 5,999 1,755 17 149,491
Lawrence T. Perera 5,219 2,477 26 129,371
William J. Poorvu 5,644 2,547 25 139,006
Charles W. Schmidt 5,149 2,487 20 129,301
Arnold D. Scott 0 0 N/A 0
Jeffrey L. Shames 0 0 N/A 0
David B. Stone 6,684 2,514 11 165,826
Elaine R. Smith 6,139 1,895 27 150,511
----------------
(1) For the fiscal year ended January 31, 1999.
(2) Based upon normal retirement age (73).
(3) Information provided is for calendar year 1998. All Trustees served as Trustees of 31 funds within the MFS Fund complex
(having aggregate net assets at December 31, 1998, of approximately $43.3 billion) except Mr. Bailey, who served as Trustee
of 74 funds within the MFS complex (having aggregate net assets at December 31, 1998 of approximately $68.2 billion).
</TABLE>
ESTIMATED ANNUAL BENEFITS PAYABLE BY FUND UPON RETIREMENT(4)
..........................................................................
YEARS OF SERVICE
AVERAGE
TRUSTEE FEES 3 5 7 10 OR MORE
--------------------------------------------------------------------------
$4,305 $ 646 $1,076 $1,507 $2,152
4,914 737 1,229 1,720 2,457
5,524 829 1,381 1,933 2,762
6,133 920 1,533 2,147 3,067
6,743 1,011 1,686 2,360 3,371
7,352 1,103 1,838 2,573 3,676
----------------
(4) Other funds in the MFS Fund complex provide similar retirement benefits
to the Trustees.
<PAGE>
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PART I - APPENDIX C
- -----------------------
AFFILIATED SERVICE PROVIDER COMPENSATION
..........................................................................
The Fund paid compensation to its affiliated service providers over the
specified periods as follows:
<TABLE>
<CAPTION>
PAID TO MFS AMOUNT PAID TO MFS FOR PAID TO MFSC AMOUNT AGGREGATE
FOR ADVISORY WAIVED ADMINISTRATIVE FOR TRANSFER WAIVED AMOUNT PAID TO
FISCAL YEAR ENDED SERVICES BY MFS SERVICES AGENCY SERVICES BY MFSC MFS AND MFSC
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
January 31, 1999 $5,666,195 N/A $153,152 $1,433,291 N/A $7,252,638
January 31, 1998 $4,780,801 N/A $137,896* $1,380,008 N/A $6,298,705
January 31, 1997 $4,238,339 N/A N/A $ 109,715 N/A $4,348,054
- --------------------
*From March 1, 1997, the commencement of the Master Administrative Service Agreement.
</TABLE>
<PAGE>
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PART I - APPENDIX D
- -----------------------
SALES CHARGES AND DISTRIBUTION PLAN PAYMENTS
SALES CHARGES
..........................................................................
The following sales charges were paid during the specified periods:
<TABLE>
<CAPTION>
CLASS A INITIAL SALES CHARGES: CDSC PAID TO MFD ON:
RETAINED REALLOWED CLASS A CLASS B CLASS C
FISCAL YEAR END TOTAL BY MFD TO DEALERS SHARES SHARES SHARES
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
January 31, 1999 $3,145,628 $546,538 $2,599,090 $27,558 $735,066 $48,263
January 31, 1998 $1,964,839 $293,651 $1,671,188 $25,627 $442,794 $24,613
January 31, 1997 $1,124,575 $193,347 $ 931,228 $24,467 $441,696 $ 3,591
</TABLE>
DEALER REALLOWANCES
..........................................................................
As shown above, MFD pays (or "reallows") a portion of the Class A initial
sales charge to dealers. The dealer reallowance as expressed as a
percentage of the Class A shares' offering price is:
DEALER REALLOWANCE AS A
AMOUNT OF PURCHASE PERCENT OF OFFERING PRICE
--------------------------------------------------------------------------
Less than $100,000 4.00%
$100,000 but less than $250,000 3.20%
$250,000 but less than $500,000 2.25%
$500,000 but less than $1,000,000 1.70%
$1,000,000 or more None*
----------------
* A CDSC will apply to such purchase.
DISTRIBUTION PLAN PAYMENTS
..........................................................................
During the fiscal year ended January 31, 1999, the Fund made the following
Distribution Plan payments:
AMOUNT OF DISTRIBUTION AND SERVICE FEES:
CLASS OF SHARES PAID BY FUND RETAINED BY MFD PAID TO DEALERS
- -------------------------------------------------------------------------------
Class A Shares $2,274,686 $ 679,713 $1,594,973
Class B Shares $4,370,497 $3,316,502 $1,053,995
Class C Shares $ 748,223 $ 642 $ 747,581
Distribution plan payments retained by MFD are used to compensate MFD for
commissions advanced by MFD to dealers upon sale of Fund shares.
<PAGE>
- -----------------------
PART I - APPENDIX E
- -----------------------
PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
BROKERAGE COMMISSIONS
..........................................................................
The following brokerage commissions were paid by the Fund during the
specified time periods:
BROKERAGE COMMISSIONS
FISCAL YEAR END PAID BY FUND
--------------------------------------------------------------------------
January 31, 1999 $ 17,086
January 31, 1998 $ 12,641
January 31, 1997 $ - 0 -
SECURITIES ISSUED BY REGULAR BROKER-DEALERS
..........................................................................
During the fiscal year ended January 31, 1999, the Fund purchased securities
issued by the following regular broker-dealers of the Fund, which had the
following values as of January 31, 1999:
VALUE OF SECURITIES
BROKER-DEALER AS OF JANUARY 31, 1999
----------------------------------------------------------------------------
Merrill Lynch Mortgage Investors, Inc. $ 4,265,859
General Electric Capital Corp. $14,270,000
<PAGE>
- -----------------------
PART I - APPENDIX F
- -----------------------
SHARE OWNERSHIP
OWNERSHIP BY TRUSTEES AND OFFICERS
As of February 28, 1999, the Trustees and officers of the Trust as a group
owned less than 1% of any class of the Fund's shares, not including
1,675,976 Class I shares of the Fund (which represent approximately 94% of
the outstanding Class I shares of the Fund) owned of record by certain
employee benefit plans of MFS of which Messrs. Scott and Shames are
Trustees.
25% OR GREATER OWNERSHIP
The following table identifies those investors who own 25% or more of the
Fund's shares (all share classes taken together) as of February 28, 1999,
and are therefore presumed to control the Fund:
<TABLE>
<CAPTION>
JURISDICTION OF ORGANIZATION
NAME AND ADDRESS OF INVESTOR (IF A COMPANY) PERCENTAGE OWNERSHIP
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
None
</TABLE>
5% OR GREATER OWNERSHIP OF SHARE CLASS
The following table identifies those investors who own 5% or more of any
class of the Fund's shares as of February 28, 1999:
NAME AND ADDRESS OF INVESTOR OWNERSHIP PERCENTAGE
...........................................................................
MLPF&S for the Sole Benefit of its Customers 12.14% of Class B shares
Attn: Fund Administration 97GT4
4800 Deer Lake Drive E - 3rd Floor
Jacksonville, FL 32246-6484
...........................................................................
MLPF&S for the Sole Benefit of its Customers 22.60% of Class C shares
Attn: Fund Administration 97N52
4800 Deer Lake Drive E - 3rd Floor
Jacksonville, FL 32246-6484
...........................................................................
TRS MFS DEF Contribution Plan 40.08% of Class I shares
c/o Mark Leary
Mass Financial Services
500 Boylston Street - 19th Floor
Boston, MA 02116-3740
...........................................................................
TRS of the MFS Pension Plan 53.86% of Class I shares
c/o Mark Leary
Massachusetts Financial Services
500 Boylston Street
Boston, MA 02116-3740
...........................................................................
<PAGE>
- -----------------------
PART I - APPENDIX G
- -----------------------
PERFORMANCE INFORMATION
.....................................................
All performance quotations are as of January 31, 1999.
<TABLE>
<CAPTION>
AVERAGE ANNUAL ACTUAL 30-
TOTAL RETURNS DAY YIELD 30-DAY YIELD CURRENT
-------------------------------------- (INCLUDING (WITHOUT ANY DISTRIBUTION
1 YEAR 5 YEAR TEN YEAR WAIVERS) WAIVERS) RATE+
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A Shares, with initial sales
charge (4.75%) (3.74)% 6.87% 9.08% 8.13% 8.13% 8.78%
Class A Shares, at net asset value 1.06% 7.92% 9.61% N/A N/A N/A
Class B Shares, with CDSC (declining
over 6 years from 4% to 0%) (3.35)% 6.80% 9.15% N/A N/A N/A
Class B Shares, at net asset value 0.35% 7.09% 9.15% 7.83% 7.83% 8.50%
Class C Shares, with CDSC (1% for
first year) (0.58)% 7.16% 9.21% N/A N/A N/A
Class C Shares, at net asset value 0.35% 7.16% 9.21% 7.82% 7.82% 8.49%
Class I Shares, at net asset value 1.55% 8.06% 9.68% 8.85% 8.85% 9.52%
----------------------
+ Annualized, based upon the last distribution.
</TABLE>
The Fund commenced investment operations on February 17, 1978 with the
offering of class A shares and subsequently offered class B shares on
September 27, 1993, class C shares on January 3, 1994, and class I shares on
January 2, 1997. Class B and class C share performance include the
performance of the Fund's class A shares for periods prior to the offering
of class B and class C shares. This blended class B and class C share
performance has been adjusted to take into account the CDSC applicable to
class B and class C shares, rather than the initial sales charge (load)
applicable to class A shares. This blended performance has not been adjusted
to take into account differences in class specific operating expenses.
Because operating expenses of class B and C shares are higher than those of
class A shares, this blended class B and C share performance is higher than
the performance of class B and C shares would have been had class B and C
shares been offered for the entire period. If you would like the Fund's
current yield, contact the MFS Service Center at the toll free number set
forth on the back cover page of Part II of this SAI.
Class I share performance includes the performance of the Fund's class A
shares for periods prior to the offering of class I shares. Class I share
performance generally would have been higher than class A share performance
had class I shares been offered for the entire period, because operating
expenses (e.g., distribution and service fees) attributable to class I
shares are lower than those of class A shares. Class I share performance has
been adjusted to take into account the fact that class I shares have no
initial sales charge.
Performance results include any applicable expense subsidies and waivers,
which may cause the results to be more favorable.
<PAGE>
- ---------------------------------
MFS(R) MUNICIPAL HIGH INCOME FUND
- ---------------------------------
JUNE 1, 1999 AS AMENDED SEPTEMBER 22, 1999
[logo] M F S (R) STATEMENT OF ADDITIONAL
INVESTMENT MANAGEMENT INFORMATION
75 YEARS
WE INVENTED THE MUTUAL FUND(R)
A SERIES OF MFS SERIES TRUST III
500 BOYLSTON STREET, BOSTON, MA 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
June 1, 1999. This SAI should be read in conjunction with the Prospectus. The
Fund's financial statements are incorporated into this SAI by reference to the
Fund's most recent Annual Report to shareholders. A copy of the Annual Report
accompanies this SAI. You may obtain a copy of the Fund's Prospectus and Annual
Report without charge by contacting MFS Service Center, Inc. (see back cover of
Part II of this SAI for address and phone number).
This SAI is divided into two Parts -- Part I and Part II. Part I contains
information that is particular to the Fund, while Part II contains information
that generally applies to each of the funds in the MFS Family of Funds (the "MFS
Funds"). Each Part of the SAI has a variety of appendices which can be found at
the end of Part I and Part II, respectively.
THIS SAI IS NOT A PROSPECTUS AND IS AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE
INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS.
MMH-13 5/99 1M 25/225
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART I
Part I of this SAI contains information that is particular to the Fund.
TABLE OF CONTENTS
Page
I Definitions .......................................................... 3
II Management of the Fund ............................................... 3
The Fund ............................................................. 3
Trustees and Officers -- Identification and Background ............... 3
Trustees Compensation ................................................ 3
Affiliated Service Provider Compensation ............................. 3
III Sales Charges and Distribution Plan Payments ......................... 3
Sales Charges ........................................................ 3
Distribution Plan Payments .......................................... 3
IV Portfolio Transactions and Brokerage Commissions ..................... 3
V Share Ownership ...................................................... 3
VI Performance Information .............................................. 3
VII Investment Techniques, Practices, Risks and Restrictions ............. 3
Investment Techniques, Practices and Risks ........................... 3
Investment Restrictions .............................................. 3
VIII Tax Considerations ................................................... 5
IX Independent Auditors and Financial Statements ........................ 5
Appendix A -- Trustees and Officers -- Identification and Background A-1
Appendix B -- Trustee Compensation ................................... B-1
Appendix C -- Affiliated Service Provider Compensation ............... C-1
Appendix D -- Sales Charges and Distribution Plan Payments ........... D-1
Appendix E -- Portfolio Transactions and Brokerage Commissions ....... E-1
Appendix F -- Share Ownership ........................................ F-1
Appendix G -- Performance Information ................................ G-1
<PAGE>
I DEFINITIONS
"Fund" - MFS Municipal High Income Fund, a series of the Trust.
"Trust" - MFS Series Trust III, a Massachusetts business trust, organized
on December 15, 1977. The Trust was known as "Massachusetts Financial High
Income Trust" until its name was changed on August 20, 1993.
"MFS" or the "Adviser" - Massachusetts Financial Services Company, a
Delaware corporation.
"MFD" - MFS Fund Distributors, Inc., a Delaware corporation.
"MFSC" - MFS Service Center, Inc., a Delaware corporation.
"Prospectus" - The Prospectus of the Fund, dated June 1, 1999, as amended
or supplemented from time to time.
II MANAGEMENT OF THE FUND
THE FUND
The Fund is a non-diversified series of the Trust. The Trust is an open-
end management investment company.
TRUSTEES AND OFFICERS - IDENTIFICATION AND BACKGROUND
The identification and background of the Trustees and officers of the
Trust are set forth in Appendix A of this Part I.
TRUSTEE COMPENSATION
Compensation paid to the non-interested Trustees and to Trustees who are
not officers of the Trust, for certain specified periods, is set forth in
Appendix B of this Part I.
AFFILIATED SERVICE PROVIDER COMPENSATION
Compensation paid by the Fund to its affiliated service providers -- to
MFS, for investment advisory and administrative services, and to MFSC, for
transfer agency services -- for certain specified periods is set forth in
Appendix C to this Part I.
III SALES CHARGES AND DISTRIBUTION PLAN PAYMENTS
SALES CHARGES
Sales charges paid in connection with the purchase and sale of Fund shares
for certain specified periods are set forth in Appendix D to this Part I,
together with the Fund's schedule of dealer reallowances.
DISTRIBUTION PLAN PAYMENTS
Payments made by the Fund under the Distribution Plan for its most recent
fiscal year end are set forth in Appendix D to this Part I.
IV PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
Brokerage commissions paid by the Fund for certain specified periods, and
information concerning purchases by the Fund of securities issued by its
regular broker-dealers for its most recent fiscal year, are set forth in
Appendix E to this Part I.
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 Trustees (together with the Trustees of certain
other MFS funds) have directed the Adviser to allocate a total of $53,050
of commission business from certain MFS funds (including the Fund) 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.)
V SHARE OWNERSHIP
Information concerning the ownership of Fund shares by Trustees and
officers of the Trust as a group, by investors who control the Fund, if
any, and by investors who own 5% or more of any class of Fund shares, if
any, is set forth in Appendix F to this Part I.
VI PERFORMANCE INFORMATION
Performance information, as quoted by the Fund in sales literature and
marketing materials, is set forth in Appendix G to this Part I.
VII INVESTMENT TECHNIQUES, PRACTICES, RISKS AND RESTRICTIONS
INVESTMENT TECHNIQUES, PRACTICES AND RISKS
The investment objective and principal investment policies of the Fund are
described in the Prospectus. In pursuing its investment objective and
principal investment policies, the Fund may engage in a number of
investment techniques and practices, which involve certain risks. These
investment techniques and practices, which may be changed without
shareholder approval unless indicated otherwise, are identified in
Appendix A to the Prospectus, and are more fully described, together with
their associated risks, in Part II of this SAI. The following percentage
limitations apply to these investment techniques and practices.
o Lower Rated Bonds may be up to 100% of the Fund's net assets.
o Revenue Bonds may be up to 100% of the Fund's net assets.
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 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).
Terms used below (such as Options and Futures Contracts) are defined in
Part II of this SAI.
The Fund may not:
(1) borrow money or pledge, mortgage or hypothecate in excess of 1/3 of
its assets, except as a temporary measure for extraordinary or
emergency purposes (the Fund intends to borrow money only from banks
and only to accommodate requests for the repurchase of shares of the
Fund while effecting an orderly liquidation of portfolio securities)
(for the purpose of this restriction, collateral arrangements with
respect to options on fixed income securities, Futures Contracts and
Options on Futures Contracts and payments of initial and variation
margin in connection therewith are not considered a pledge of assets);
(2) purchase any security or evidence of interest therein 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 deposits on margin in connection with
options on fixed income securities, Futures Contracts and Options on
Futures Contracts;
(3) purchase or sell any put or call option or any combination thereof,
provided that this shall not prevent the writing, purchasing and
selling of puts, calls or combinations thereof with respect to
securities and Futures Contracts;
(4) underwrite securities issued by other persons except insofar as the
Fund may technically be deemed an underwriter under the Securities Act
of 1933, as amended, in selling a portfolio security;
(5) purchase or sell real estate (including limited partnership interests
but excluding securities secured by real estate or interests therein),
interests in oil, gas or mineral leases, commodities or commodity
contracts (except Futures Contracts and Options on Futures Contracts)
in the ordinary course of the business of the Fund (the Fund reserves
the freedom of action to hold and to sell real estate acquired as a
result of the ownership of securities);
(6) purchase securities of any issuer if such purchase at the time thereof
would cause more than 10% of the voting securities of such issuer to
be held by the Fund;
(7) issue any senior security (as that term is defined in the Investment
Company Act of 1940, as amended (the "1940 Act")), if such issuance is
specifically prohibited by the 1940 Act or the rules and regulations
promulgated thereunder; and
(8) make loans to other persons except through the use of repurchase
agreements, the purchase of commercial paper or the purchase of all or
a portion of an issue of debt securities in accordance with its
investment objective, policies and restrictions, and provided that not
more than 10% of the Fund's assets will be invested in repurchase
agreements maturing in more than seven days.
As a matter of non-fundamental policy, the Fund may not knowingly invest
in securities (other than repurchase agreements), which are subject to
legal or contractual restrictions on resale 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 net assets
(taken at market value) would be so invested.
Except for Investment Restriction (1) and the Fund's nonfundamental
investment policy regarding illiquid securities, 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.
For purposes of the investment restrictions described above and the
state and federal restrictions described below, the issuer of a tax-exempt
security is deemed to be the entity (public or private) ultimately
responsible for the payment of the principal of and interest on the
security.
STATE AND FEDERAL RESTRICTIONS: In order to comply with certain state and
federal statutes, the Fund will not, as a matter of operating policy, (i)
invest more than 5% of its total assets at the time of investment in
unsecured obligations of issuers which, including predecessors,
controlling persons, general partners and guarantors, have a record of
less than three years' continuous business operation or relevant business
experience, (ii) 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 Fund, or is a member, partner,
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), (iii) sell any security which it 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, (iv) invest for
the purpose of exercising control or management, or (v) purchase
securities issued by any registered investment company 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 registered investment company if
such purchase at the time thereof would cause more than 10% of the total
assets of the Fund (taken at market value) to be invested in the
securities of such issuers or would cause more than 3% of the outstanding
voting securities of any such issuer to be held by the Fund, and provided
further, that the Fund shall not purchase securities issued by any
open-end investment company. These policies are not fundamental and may be
changed by the Fund without shareholder approval in response to changes in
the various state and federal requirements.
VIII TAX CONSIDERATIONS
For a discussion of tax considerations, see Part II of this SAI.
IX INDEPENDENT AUDITORS AND FINANCIAL STATEMENTS
Ernst & Young LLP are the Fund's independent auditors, providing audit
services, tax services, and assistance and consultation with respect to
the preparation of filings with the Securities and Exchange Commission.
The Portfolio of Investments and the Statement of Assets and Liabilities
at January 31, 1999, the Statement of Operations for the year ended
January 31, 1999, the Statement of Changes in Net Assets for the years
ended January 31, 1998 and January 31, 1999, the Notes to Financial
Statements and the Report of the Independent Auditors, each of which is
included in the Annual Report to Shareholders of the Fund, are
incorporated by reference into this SAI in reliance upon the report of
Ernst & Young LLP, independent auditors, given upon their authority as
experts in accounting and auditing. A copy of the Annual Report
accompanies this SAI.
<PAGE>
- -----------------------
PART I - APPENDIX A
- -----------------------
TRUSTEES AND OFFICERS - IDENTIFICATION AND BACKGROUND
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
JEFFREY L. SHAMES,* Chairman and President (born 6/2/55)
Massachusetts Financial Services Company, Chairman and Chief Executive
Officer
RICHARD B. BAILEY* (born 9/14/26)
Private Investor; Massachusetts Financial Services Company, former
Chairman and Director (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 OHM Corporation, Director;
Mohawk Paper Company, Director
Address: 30 Colpitts Road, Weston, Massachusetts
ARNOLD D. SCOTT* (born 12/16/42)
Massachusetts Financial Services Company, Senior Executive Vice President,
Secretary and Director
ELAINE R. SMITH (born 4/25/46)
Independent consultant; Brigham and Women's Hospital, Executive Vice
President and Chief Operating Officer (from August 1990 to September 1992)
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
JOAN S. BATCHELDER,* Vice President (born 4/12/44)
Massachusetts Financial Services Company, Senior Vice
President
ROBERT J. MANNING,* Vice President (born 10/20/63)
Massachusetts Financial Services Company, Senior Vice
President
BERNARD SCOZZAFAVA,* Vice President (born 1/28/61)
Massachusetts Financial Services Company, Vice President
JAMES T. SWANSON,* Vice President (born 6/12/49)
Massachusetts Financial Services Company, Senior Vice
President
STEPHEN E. CAVAN,* Secretary and Clerk (born 11/6/53)
Massachusetts Financial Services Company, Senior Vice President, General
Counsel and Assistant Secretary
W. THOMAS LONDON,* Treasurer (born 3/1/44)
Massachusetts Financial Services Company, Senior Vice
President
JAMES R. BORDEWICK, JR.,* Assistant Secretary (born 3/6/59)
Massachusetts Financial Services Company, Senior Vice President and
Associate General Counsel
JAMES O. YOST,* Assistant Treasurer (born 6/12/60)
Massachusetts Financial Services Company, Senior 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)
----------------
* "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.
<PAGE>
- -----------------------
PART I - APPENDIX B
- -----------------------
TRUSTEE COMPENSATION
The Fund pays the compensation of non-interested Trustees and of Trustees
who are not officers of the Trust, who currently receive a fee of $3,250 per
year plus $165 per meeting and $130 per committee meeting attended, together
with such Trustee's out-of-pocket expenses. In addition, the Trust has a
retirement plan for these Trustees as described under the caption
"Management of the Fund -- Trustee Retirement Plan" in Part II. The
Retirement Age under the plan is 73.
<TABLE>
<CAPTION>
TRUSTEE COMPENSATION TABLE
...............................................................................................................................
RETIREMENT BENEFIT TOTAL TRUSTEE
TRUSTEE FEES ACCRUED AS PART ESTIMATED CREDITED FEES FROM FUND
TRUSTEE FROM FUND(1) OF FUND EXPENSES(1) YEARS OF SERVICE(2) AND FUND COMPLEX(3)
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Richard B. Bailey $5,219 $1,941 8 $259,430
Peter G. Harwood 6,139 1,539 5 150,511
J. Atwood Ives 5,999 2,028 17 149,491
Lawrence T. Perera 5,219 2,897 24 129,371
William J. Poorvu 5,644 2,967 24 139,006
Charles W. Schmidt 5,149 2,912 17 129,301
Arnold D. Scott 0 0 N/A 0
Jeffrey L. Shames 0 0 N/A 0
David B. Stone 6,684 2,910 11 165,826
Elaine R. Smith 6,139 2,207 27 150,511
----------------
(1) For the fiscal year ending January 31, 1999.
(2) Based upon normal retirement age (73).
(3) Information provided is for calendar year 1998. All Trustees served as Trustees of 31 funds within the MFS fund complex
(having aggregate net assets at December 31, 1998, of approximately $43.3 billion) except Mr. Bailey, who served as
Trustee of 74 funds within the MFS complex (having aggregate net assets at December 31, 1998 of approximately $68.2
billion).
<CAPTION>
ESTIMATED ANNUAL BENEFITS PAYABLE BY FUND UPON RETIREMENT(4)
..........................................................................................................................
YEARS OF SERVICE
AVERAGE
TRUSTEE FEES 3 5 7 10 OR MORE
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$4,634 $ 695 $1,159 $1,622 $2,317
5,178 777 1,294 1,812 2,589
5,722 858 1,430 2,003 2,861
6,265 940 1,566 2,193 3,133
6,809 1,021 1,702 2,383 3,404
7,353 1,103 1,838 2,573 3,676
----------------
(4) Other funds in the MFS Fund complex provide similar retirement benefits to the Trustees.
</TABLE>
<PAGE>
- -----------------------
PART I - APPENDIX C
- -----------------------
<TABLE>
AFFILIATED SERVICE PROVIDER COMPENSATION
..........................................................................
The Fund paid compensation to its affiliated service providers over the specified periods as follows:
<CAPTION>
PAID TO MFS AMOUNT PAID TO MFS FOR PAID TO MFSC AGGREGATE
FOR ADVISORY WAIVED ADMINISTRATIVE FOR TRANSFER AMOUNT PAID TO
FISCAL YEAR ENDED FUND SERVICES BY MFS SERVICES AGENCY SERVICES MFS AND MFSC
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
January 31, 1999 $8,620,229 $201,831 $170,901 $1,629,155 N/A $10,420,285
January 31, 1998 $7,934,130 N/A $155,713* $1,580,544 N/A $ 9,670,387
January 31, 1997 $7,154,011 N/A N/A $1,499,918 N/A $ 8,653,929
--------------------
* From March 1, 1997, the commencement of the Master Administrative Service Agreement.
</TABLE>
<PAGE>
- -----------------------
PART I - APPENDIX D
- -----------------------
<TABLE>
SALES CHARGES AND DISTRIBUTION PLAN PAYMENTS
SALES CHARGES
..........................................................................
The following sales charges were paid during the specified periods:
<CAPTION>
CLASS A INITIAL SALES CHARGES: CDSC PAID TO MFD ON:
RETAINED REALLOWED CLASS A CLASS B CLASS C*
FISCAL YEAR END TOTAL BY MFD TO DEALERS SHARES SHARES SHARES
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
January 31, 1999 $4,840,402 $ 871,931 $3,968,471 $45,596 $767,533 $92
January 31, 1998 $6,296,882 $1,044,362 $5,252,520 $42,903 $397,579 N/A
January 31, 1997 $3,806,205 $ 667,359 $3,138,846 $23,523 $190,546 N/A
----------------
* From September 25, 1998, the commencement of Class C Shares.
DEALER REALLOWANCES
..........................................................................
As shown above, MFD pays (or "reallows") a portion of the Class A initial
sales charge to dealers. The dealer reallowance as expressed as a
percentage of the Class A shares' offering price is:
<CAPTION>
DEALER REALLOWANCE AS A
AMOUNT OF PURCHASE PERCENT OF OFFERING PRICE
--------------------------------------------------------------------------------------------------
<S> <C>
Less than $100,000 4.00%
$100,000 but less than $250,000 3.20%
$250,000 but less than $500,000 2.25%
$500,000 but less than $1,000,000 1.70%
$1,000,000 or more None*
----------------
* A CDSC will apply to such purchases.
DISTRIBUTION PLAN PAYMENTS
..........................................................................
During the fiscal year ended January 31, 1999, the Fund made the following Distribution Plan payments:
<CAPTION>
AMOUNT OF DISTRIBUTION AND SERVICE FEES:
CLASS OF SHARES PAID BY FUND RETAINED BY MFD PAID TO DEALERS
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class B Shares $2,756,789 $2,362,551 $394,238
Class C Shares $ 4,219 $ -0- $ 4,219
Distribution plan payments retained by MFD are used to compensate MFD for commissions advanced by MFD to
dealers upon sale of fund shares.
</TABLE>
<PAGE>
- ----------------------
PART I - APPENDIX E
- ----------------------
PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
BROKERAGE COMMISSIONS
...........................................................................
The following brokerage commissions were paid by the Fund during the
specified time periods:
BROKERAGE COMMISSIONS
FISCAL YEAR END PAID BY FUND
---------------------------------------------------------------------------
January 31, 1999 $ 0
January 31, 1998 $ 0
January 31, 1997 $ 0
SECURITIES ISSUED BY REGULAR BROKER-DEALERS
..........................................................................
During the fiscal year ended January 31, 1999, the Fund purchased
securities issued by the following regular broker-dealers of the Fund,
which had the following values as of January 31, 1999:
VALUE OF SECURITIES
BROKER-DEALER AS OF JANUARY 31, 1999
---------------------------------------------------------------------------
None Not Applicable
<PAGE>
- -----------------------
PART I - APPENDIX F
- -----------------------
SHARE OWNERSHIP
OWNERSHIP BY TRUSTEES AND OFFICERS
As of February 28, 1999, the Trustees and officers of the Trust as a group
owned less than 1% of any class of the Fund's shares.
25% OR GREATER OWNERSHIP
The following table identifies those investors who own 25% or more of the
Fund's shares (all share classes taken together) as of February 28, 1999,
and are therefore presumed to control the Fund:
JURISDICTION
OF ORGANIZATION
NAME AND ADDRESS OF INVESTOR (IF A COMPANY) PERCENTAGE OWNERSHIP
----------------------------------------------------------------------------
None
5% OR GREATER OWNERSHIP OF SHARE CLASS
The following table identifies those investors who own 5% or more of any
class of the Fund's shares as of February 28, 1999:
NAME AND ADDRESS OF INVESTOR OWNERSHIP PERCENTAGE
............................................................................
MLPF&S for the Sole Benefit of its Customers 12.48% of Class A shares
Attn: Fund Administration 97GT4
4800 Deer Lake Drive E. - 3rd Floor
Jacksonville, FL 32246-6484
............................................................................
MLPF&S for the Sole Benefit of its Customers 26.84% of Class B shares
Attn: Fund Administration 97GT4
4800 Deer Lake Drive E. - 3rd Floor
Jacksonville, FL 32246-6484
............................................................................
MLPF&S for the Sole Benefit of its Customers 20.87% of Class C shares
Attn: Fund Administration 97N52
4800 Deer Lake Drive E. - 3rd Floor
Jacksonville, FL 32246-6484
............................................................................
Prudential Securities Inc. FBO 12.11% of Class C shares
Mr. Richard Simon TTEE
Richard Simon Rev Trust
UA DTD 01/17/96
FBO Richard Simon
Aventura, FL 33180
............................................................................
Norwest Investment Services, Inc. 5.22% of Class C shares
FBO 012656691
Northstar Building East, - 9th Floor
608 Second Avenue, South
Minneapolis, MN 55402-1916
<PAGE>
- -----------------------
PART I - APPENDIX G
- -----------------------
PERFORMANCE INFORMATION
..........................................................................
All performance quotations are as of January 31, 1999.
<TABLE>
<CAPTION>
TAX EQUIVALENT
30-DAY YIELD
(WITHOUT ANY
AVERAGE ANNUAL ACTUAL 30- WAIVERS) -
TOTAL RETURNS DAY YIELD 30-DAY YIELD TAX BRACKETS CURRENT
------------------------------- (INCLUDING (WITHOUT ANY ------------------ DISTRIBUTION
1 YEAR 5 YEARS 10 YEARS WAIVERS) WAIVERS) 28% 31% RATE+
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A Shares, with initial sales
charge (4.75%) 0.53% 5.26% 6.75% 5.69% 5.64% 7.83% 8.17% 5.57%
Class A Shares, at net asset value 5.54% 6.29% 7.27% N/A N/A N/A N/A N/A
Class B Shares, with CDSC (declining
over 6 years from 4% to 0%) 0.64% 4.97% 6.73% N/A N/A N/A N/A N/A
Class B Shares, at net asset value 4.62% 5.29% 6.73% 5.08% 5.02% 6.97% 7.28% 4.93%
Class C Shares, with CDSC (1% for
first year) N/A N/A N/A N/A N/A N/A N/A N/A
Class C Shares, at net asset value 5.05% 6.19% 7.22% 4.80% 4.74% 6.58% 6.87% 4.81%
----------------------
+Annualized, based upon the last distribution.
</TABLE>
The Fund initially offered class A shares on February 24, 1984, class B
shares on September 7, 1993 and class C shares on September 25, 1998.
Class B share performance includes the performance of the Fund's class A
shares for periods prior to the offering of class B shares. Class B share
performance generally would have been lower than class A share performance
had class B shares been offered for the entire period, because the
operating expenses (e.g., distribution and service fees) attributable to
class B shares are higher than those of class A shares. Class B share
performance has been adjusted to take into account the CDSC applicable to
class B shares, rather than the initial sales charge applicable to class A
shares.
Performance results include any applicable expense subsidies and waivers,
which may cause the results to be more favorable.
<PAGE>
- ------------------------------------
MFS(R) HIGH YIELD OPPORTUNITIES FUND
- ------------------------------------
JUNE 1, 1999 AS AMENDED SEPTEMBER 22, 1999
[logo] M F S (R) STATEMENT OF ADDITIONAL
INVESTMENT MANAGEMENT INFORMATION
75 YEARS
WE INVENTED THE MUTUAL FUND(R)
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
June 1, 1999. This SAI should be read in conjunction with the Prospectus. The
Fund's financial statements are incorporated into this SAI by reference to the
Fund's most recent Annual Report to shareholders. A copy of the Annual Report
accompanies this SAI. You may obtain a copy of the Fund's Prospectus and Annual
Report without charge by contacting MFS Service Center, Inc. (see back cover of
Part II of this SAI for address and phone number).
This SAI is divided into two Parts -- Part I and Part II. Part I contains
information that is particular to the Fund, while Part II contains information
that generally applies to each of the funds in the MFS Family of Funds (the "MFS
Funds"). Each Part of the SAI has a variety of appendices which can be found at
the end of Part I and Part II, respectively.
THIS SAI IS NOT A PROSPECTUS AND IS AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE
INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS.
MHO-13 5/99 1M 70/270/370/870
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PART I
Part I of this SAI contains information that is particular to the Fund.
- -----------------
TABLE OF CONTENTS
- -----------------
Page
I Definitions ................................................... 3
II Management of the Fund ........................................ 3
The Fund ...................................................... 3
Trustees and Officers -- Identification and Background ........ 3
Trustees Compensation ......................................... 3
Affiliated Service Provider Compensation ...................... 3
III Sales Charges and Distribution Plan Payments .................. 3
Sales Charges ................................................. 3
Distribution Plan Payments ................................... 3
IV Portfolio Transactions and Brokerage Commissions .............. 3
V Share Ownership ............................................... 3
VI Performance Information ....................................... 3
VII Investment Techniques, Practices, Risks and Restrictions ...... 3
Investment Techniques, Practices and Risks .................... 3
Investment Restrictions ....................................... 4
VIII Tax Considerations ............................................ 4
IX Independent Auditors and Financial Statements ................. 5
Appendix A -- Trustees and Officers -- Identification and
Background .................................................. A-1
Appendix B -- Trustee Compensation ............................ B-1
Appendix C -- Affiliated Service Provider Compensation ........ C-1
Appendix D -- Sales Charges and Distribution Plan Payments .... D-1
Appendix E -- Portfolio Transactions and Brokerage Commissions E-1
Appendix F -- Share Ownership ................................. F-1
Appendix G -- Performance Information ......................... G-1
<PAGE>
I DEFINITIONS
"Fund" - MFS High Yield Opportunities Fund, a series of the Trust.
"Trust" - MFS Series Trust III, a Massachusetts business trust, organized
on December 15, 1977. The Trust was known as "Massachusetts Financial High
Income Trust until its name was changed on August 20, 1993.
"MFS" or the "Adviser" - Massachusetts Financial Services Company, a
Delaware corporation.
"MFD" - MFS Fund Distributors, Inc., a Delaware corporation.
"MFSC" - MFS Service Center, Inc., a Delaware corporation.
"Prospectus" - The Prospectus of the Fund, dated June 1, 1999, as amended
or supplemented from time to time.
II MANAGEMENT OF THE FUND
THE FUND
The Fund is a diversified series of the Trust. The Trust is an open-end
management investment company.
TRUSTEES AND OFFICERS - IDENTIFICATION AND BACKGROUND
The identification and background of the Trustees and officers of the
Trust are set forth in Appendix A of this Part I.
TRUSTEE COMPENSATION
Compensation paid to the non-interested Trustees and to Trustees who are
not officers of the Trust, for certain specified periods, is set forth in
Appendix B of this Part I.
AFFILIATED SERVICE PROVIDER COMPENSATION
Compensation paid by the Fund to its affiliated service providers -- to
MFS, for investment advisory and administrative services, and to MFSC, for
transfer agency services -- for certain specified periods is set forth in
Appendix C to this Part I.
III SALES CHARGES AND DISTRIBUTION PLAN PAYMENTS
SALES CHARGES
Sales charges paid in connection with the purchase and sale of Fund shares
for certain specified periods are set forth in Appendix D to this Part I,
together with the Fund's schedule of dealer reallowances.
DISTRIBUTION PLAN PAYMENTS
Payments made by the Fund under the Distribution Plan for its most recent
fiscal year end are set forth in Appendix D to this Part I.
IV PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
Brokerage commissions paid by the Fund for certain specified periods, and
information concerning purchases by the Fund of securities issued by its
regular broker-dealers for its most recent fiscal year, are set forth in
Appendix E to this Part I.
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 Trustees (together with the Trustees of certain
other MFS funds) have directed the Adviser to allocate a total of $53,050
of commission business from certain MFS funds (including the Fund) 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.)
V SHARE OWNERSHIP
Information concerning the ownership of Fund shares by Trustees and
officers of the Trust as a group, by investors who control the Fund, if
any, and by investors who own 5% or more of any class of Fund shares, if
any, is set forth in Appendix F to this Part I.
VI PERFORMANCE INFORMATION
Performance information, as quoted by the Fund in sales literature and
marketing materials, is set forth in Appendix G to this Part I.
VII INVESTMENT TECHNIQUES, PRACTICES, RISKS AND RESTRICTIONS
INVESTMENT TECHNIQUES, PRACTICES AND RISKS
The investment objective and principal investment policies of the Fund are
described in the Prospectus. In pursuing its investment objective and
principal investment policies, the Fund may engage in a number of
investment techniques and practices, which involve certain risks. These
investment techniques and practices, which may be changed without
shareholder approval unless indicated otherwise, are identified in
Appendix A to the Prospectus, and are more fully described, together with
their associated risks, in Part II of this SAI. The following percentage
limitations apply to these investment techniques and practices.
o Foreign Securities Exposure (including Emerging Markets) may not
exceed 25% of the Fund's net assets
o The Fund may invest up to 100% of net assets in Lower Rated Bonds.
o Lending of Portfolio Securities may not exceed 30% of the Fund's net
assets.
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 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).
Terms used below (such as Options and Futures Contracts) are defined in
Part II of this SAI.
The Fund may not:
(1) borrow amounts from banks in excess of 33 1/3% of its total assets,
including amounts borrowed;
(2) 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;
(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
of 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. The 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 Investment
Company Act of 1940, as amended (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), 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 the 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) and non-fundamental
investment policy (1), these investment restrictions are adhered to at the
time of purchase or utilization of assets; a subsequent change in
circumstances will not be considered to result in a violation of policy.
In addition, the Fund has the following nonfundamental policies which
may be changed without shareholder approval. The 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 the 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 the 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 delegatee), will
not be subject to this 15% limitation;
(2) invest for the purpose of exercising control or management;
(3) pledge, mortgage or hypothecate in excess of 33 1/3% of its gross
assets. For purposes of this restriction, collateral arrangements
with respect to any type of option (incuding 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; or
(4) invest 25% or more of the market value of its total assets in
securities of issuers in any one industry.
VIII TAX CONSIDERATIONS
For a discussion of tax considerations, see Part II of this SAI.
IX INDEPENDENT AUDITORS AND FINANCIAL STATEMENTS
Deloitte & Touche LLP are the Fund's independent auditors, providing audit
services, tax services, and assistance and consultation with respect to
the preparation of filings with the Securities and Exchange Commission.
The Portfolio of Investments and the Statement of Assets and Liabilities
at January 31, 1999, the Statement of Operations for the period ended
January 31, 1999, the Statement of Changes in Net Assets for the period
ended January 31, 1999, the Notes to Financial Statements and the Report
of the Independent Auditors, each of which is included in the Annual
Report to Shareholders of the Fund, are incorporated by reference into
this SAI in reliance upon the report of Deloitte & Touche LLP, independent
auditors, given upon their authority as experts in accounting and
auditing. A copy of the Annual Report accompanies this SAI.
<PAGE>
- -----------------------
PART I - APPENDIX A
- -----------------------
TRUSTEES AND OFFICERS - IDENTIFICATION AND BACKGROUND
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
JEFFREY L. SHAMES,* Chairman and President (born 6/2/55)
Massachusetts Financial Services Company, Chairman and Chief Executive
Officer
RICHARD B. BAILEY* (born 9/14/26)
Private Investor; Massachusetts Financial Services Company, former
Chairman and Director (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 Corporation,
Director; Mohawk Paper Company, Director
Address: 30 Colpitts Road, Weston, Massachusetts
ARNOLD D. SCOTT* (born 12/16/42)
Massachusetts Financial Services Company, Senior Executive Vice President
and Secretary
ELAINE R. SMITH (born 4/25/46)
Independent Consultant; Brigham and Women's Hospital, Executive Vice
President and Chief Operating Officer (from August 1990 to September 1992)
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
JOAN S. BATCHELDER,* Vice President (born 4/12/44)
Massachusetts Financial Services Company, Senior Vice President
ROBERT J. MANNING,* Vice President (born 10/20/63)
Massachusetts Financial Services Company, Senior Vice President
BERNARD SCOZZAFAVA,* Vice President (born 1/28/61)
Massachusetts Financial Services Company, Vice President
JAMES T. SWANSON,* Vice President (born 6/12/49)
Massachusetts Financial Services Company, Senior Vice President
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
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, Senior 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)
----------------
*"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.
<PAGE>
- -----------------------
PART I - APPENDIX B
- -----------------------
TRUSTEE COMPENSATION
The Fund pays the compensation of non-interested Trustees and of Trustees
who are not officers of the Trust, who currently receive a fee of $250 per
year plus $25 per meeting and $20 per committee meeting attended, together
with such Trustee's out-of-pocket expenses. In addition, the Trust has a
retirement plan for these Trustees as described under the caption
"Management of the Fund -- Trustee Retirement Plan" in Part II. The
Retirement Age under the plan is 73.
<TABLE>
<CAPTION>
TRUSTEE COMPENSATION TABLE
...............................................................................................................................
RETIREMENT BENEFIT TOTAL TRUSTEE
TRUSTEE FEES ACCRUED AS PART ESTIMATED CREDITED FEES FROM FUND
TRUSTEE FROM FUND(1) OF FUND EXPENSES(1) YEARS OF SERVICE(2) AND FUND COMPLEX(3)
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Richard B. Bailey $270 $13 2 $259,430
Peter G. Harwood 290 14 1 150,511
J. Atwood Ives 350 17 11 149,491
Lawrence T. Perera 270 13 10 129,371
William J. Poorvu 290 14 10 139,006
Charles W. Schmidt 290 14 3 129,301
Arnold D. Scott 0 0 N/A 0
Jeffrey L. Shames 0 0 N/A 0
David B. Stone 390 19 3 165,826
Elaine R. Smith 290 14 21 150,511
----------------
(1) For the fiscal year ended January 31, 1999.
(2) Based upon normal retirement age (73).
(3) Information provided is for calendar year 1998. All Trustees served as Trustees of 31 funds within the MFS fund complex
(having aggregate net assets at December 31, 1998, of approximately $43.3 billion) except Mr. Bailey, who served as
Trustee of 74 funds within the MFS complex (having aggregate net assets at December 31, 1998 of approximately $68.2
billion).
<CAPTION>
ESTIMATED ANNUAL BENEFITS PAYABLE BY FUND UPON RETIREMENT(4)
...............................................................................................................................
YEARS OF SERVICE
AVERAGE
TRUSTEE FEES 3 5 7 10 OR MORE
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$243 $36 $ 61 $ 85 $122
280 42 70 98 140
317 48 79 111 159
355 53 89 124 177
392 59 98 137 196
429 64 107 150 215
----------------
(4) Other funds in the MFS Fund complex provide similar retirement benefits to the Trustees.
</TABLE>
<PAGE>
- -----------------------
PART I - APPENDIX C
- -----------------------
<TABLE>
AFFILIATED SERVICE PROVIDER COMPENSATION
...............................................................................................................................
The Fund paid compensation to its affiliated service providers over the specified periods as follows:
<CAPTION>
PAID TO MFS AMOUNT PAID TO MFS FOR PAID TO MFSC AGGREGATE
FOR ADVISORY WAIVED ADMINISTRATIVE FOR TRANSFER AMOUNT PAID TO
FISCAL YEAR ENDED FUND SERVICES BY MFS SERVICES AGENCY SERVICES MFS AND MFSC
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
January 31, 1999* $16,977 $ 0 $ 0 $2,936 $2,936 $16,977
--------------------
* From July 1, 1998, the commencement of the Fund's investment operations.
</TABLE>
<PAGE>
- -----------------------
PART I - APPENDIX D
- -----------------------
SALES CHARGES AND DISTRIBUTION PLAN PAYMENTS
<TABLE>
SALES CHARGES
...............................................................................................................................
The following sales charges were paid during the specified periods:
<CAPTION>
CLASS A INITIAL SALES CHARGES: CDSC PAID TO MFD ON:
RETAINED REALLOWED CLASS A CLASS B CLASS C
PERIOD ENDED TOTAL BY MFD TO DEALERS SHARES SHARES SHARES
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
January 31, 1999* $28,714 $4,701 $24,013 $0 $212 $0
----------------
*From July 1, 1998, the commencement date of the Fund's investment operations.
DEALER REALLOWANCES
...............................................................................................................................
As shown above, MFD pays (or "reallows") a portion of the Class A initial sales charge to dealers. The dealer reallowance as
expressed as a percentage of the Class A shares" offering price is:
<CAPTION>
DEALER REALLOWANCE AS A
AMOUNT OF PURCHASE PERCENT OF OFFERING PRICE
--------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Less than $100,000 4.00%
$100,000 but less than $250,000 3.20%
$250,000 but less than $500,000 2.25%
$500,000 but less than $1,000,000 1.70%
$1,000,000 or more None*
----------------
* A CDSC will apply to such purchase.
DISTRIBUTION PLAN PAYMENTS
...............................................................................................................................
During the period ended January 31, 1999, the Fund made the following Distribution Plan payments:
<CAPTION>
AMOUNT OF DISTRIBUTION AND SERVICE FEES:
CLASS OF SHARES PAID BY FUND RETAINED BY MFD PAID TO DEALERS
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A Shares $ 3,889 $1,603 $2,286
Class B Shares $12,566 $9,627 $2,939
Class C Shares $ 2,441 $2,441 $ 0
Distribution plan payments retained by MFD are used to compensate MFD for commissions advanced by MFD to dealers upon sale of
fund shares.
</TABLE>
<PAGE>
- -----------------------
PART I - APPENDIX E
- -----------------------
PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
BROKERAGE COMMISSIONS
...........................................................................
The following brokerage commissions were paid by the Fund during the
specified time periods:
BROKERAGE COMMISSIONS
PERIOD END PAID BY FUND
----------------------------------------------------------------------------
January 31, 1999* $ 0
----------------
* From July 1, 1998, the commencement date of the Fund's investment
operations.
SECURITIES ISSUED BY REGULAR BROKER-DEALERS
...........................................................................
During the period ended January 31, 1999, the Fund purchased securities
issued by the following regular broker-dealers of the Fund, which had the
following values as of January 31, 1999:
VALUE OF SECURITIES
BROKER-DEALER AS OF JANUARY 31, 1999
---------------------------------------------------------------------------
None Not applicable
<PAGE>
- -----------------------
PART I - APPENDIX F
- -----------------------
SHARE OWNERSHIP
OWNERSHIP BY TRUSTEES AND OFFICERS
As of February 28, 1999, the Trustees and officers of the Trust as a group
owned less than 1% of any class of the Fund's shares.
25% OR GREATER OWNERSHIP
The following table identifies those investors who own 25% or more of the
Fund's shares (all share classes taken together) as of February 28, 1999,
and are therefore presumed to control the Fund:
JURISDICTION
OF ORGANIZATION
NAME AND ADDRESS OF INVESTOR (IF A COMPANY) PERCENTAGE OWNERSHIP
----------------------------------------------------------------------------
None
5% OR GREATER OWNERSHIP OF SHARE CLASS
The following table identifies those investors who own 5% or more of any
class of the Fund's shares as of February 28, 1999:
NAME AND ADDRESS OF INVESTOR OWNERSHIP PERCENTAGE
............................................................................
Raymond James & Associates, Inc. for
Elite Account #85581990 10.68% of Class A shares
FAO Susan Lee Loder Vehon
4 Rue Christophe Colomb
75008 Paris
France
............................................................................
Frederick A. Dolan II 8.01% of Class A shares
P.O. Box 1406
Bloomington, IL 61702-1406
............................................................................
Geoffrey L. Kurinsky 11.45% of Class A shares
1 Bridle Trail Rd.
Needham, MA 02492-1478
............................................................................
Sharon Kay Woodman TTEE 11.44% of Class A shares
Sharon Kay Woodman Trust
U/A Dated 4/19/95
12252 N 119th St.
Scottsdale, AZ 85259-3232
............................................................................
Painewebber for the benefit of 6.15% of Class B shares
Donald A. Gill & Deborah B. Gill
TTEES FBO Donald A. Gill Trust
U/A/D 8-23-95
9992 Mackey Circle
Overland Park, KS 66212-3458
............................................................................
Donaldson Lufkin Jenrette Securities
Corporation Inc. 7.66% of Class B shares
P.O. Box 2052
Jersey City, NJ 07303-2052
............................................................................
Dean Witter Reynolds custodian for Beatrice Russell 5.91% of Class B shares
IRA Rollover
Dated 10/17/89
4 Maple Hill Rd.
Lebanon, NH 03766-2722
............................................................................
MLPF&S for the sole benefit of its customers 20.66% of Class B shares
Attn. Fund Administration 98426
4800 Deer Lake Drive E. -- 3rd FL
Jacksonville, FL 32246-6484
............................................................................
Registration 5.35% of Class C shares
NFSC FEBO #041-081400
George A. Nikoras
304 Columbus Ave.
Lee High Acres, FL 33972-5548
............................................................................
Loffland Limited 35.54% of Class C shares
Partnership SPECACNT
6300 Ridglea PL STE 717
Fort Worth, TX 76116-5733
............................................................................
Thomas H. Irlbeck and/or Kathleen D. Irlbeck 6.18% of Class C shares
Trustees Thomas & Kathleen Irlbeck Living Trust
Dated 10-19-98
1619 County Road I
Somerset, WI 54025-7109
............................................................................
MLPF&S for the sole benefit of its customers 18.96% of Class C shares
Attn Fund Administration 98426
4800 Deer Lake Dr. E. -- 3rd Floor
Jacksonville, FL 32246-6484
............................................................................
BankBoston NA Trustee 31.83% of Class I shares
Audit Account IRA
Corporate Actions 10th floor
Attn: Tom Jordan
500 Boylston St.
Boston, MA 02116-3740
............................................................................
Massachusetts Financial Services Co. 6.21% of Class I shares
c/o Robert Blake 15th Floor
500 Boylston Street
Boston, MA 02116-3740
............................................................................
MFS Service Center Inc. 30.13% of Class I shares
Audit Account Cash
Corporate Actions -- 10th Floor
Attn: Tom Jordan
500 Boylston Street
Boston, MA 02116-3740
............................................................................
MFS Service Center Inc. 31.83% of Class I shares
Audit Account Reinvest
Corporate Actions -- 10th Floor
Attn: Tom Jordan
500 Boylston Street
Boston, MA 02116-3740
............................................................................
<PAGE>
- -----------------------
PART I - APPENDIX G
- -----------------------
PERFORMANCE INFORMATION
............................................................................
All performance quotations are as of January 31, 1999.
<TABLE>
<CAPTION>
AVERAGE ANNUAL ACTUAL 30-
TOTAL RETURNS DAY YIELD 30-DAY YIELD CURRENT
---------------- (INCLUDING (WITHOUT ANY DISTRIBUTION
LIFE OF FUND* WAIVERS) WAIVERS) RATE+
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares, with initial sales
charge (4.75%) (13.75)% 9.55 9.17 10.05%
Class A Shares, at net asset value ( 9.45)% N/A N/A N/A
Class B Shares, with CDSC (declining over 6 years
from 4% to 0%) (13.11)% N/A N/A N/A
Class B Shares, at net asset value ( 9.69)% 9.28 8.89 9.84%
Class C Shares, with CDSC (1% for first year) (10.74)% N/A N/A N/A
Class C Shares, at net asset value ( 9.89)% 9.26 8.86 9.9%
Class I Shares, at net asset value ( 8.96)% 10.47 10.47 10.87%
----------------------
* From the class inception date on July 1, 1998.
+ Annualized, based upon the last distribution.
</TABLE>
The Fund initially offered class A shares, class B shares, class C shares
and class I shares on July 1, 1998.
Performance results include any applicable expense subsidies and waivers,
which may cause the results to be more favorable.
