<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 1, 2000
1933 ACT FILE NO.
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-14
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
MFS SERIES TRUST III
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
500 Boylston Street, Boston, Massachusetts 02116
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code: (617) 954-5000
STEPHEN E. CAVAN, ESQ.
MASSACHUSETTS FINANCIAL SERVICES COMPANY
500 BOYLSTON STREET
BOSTON, MASSACHUSETTS 02116
(NAME AND ADDRESS OF AGENT FOR SERVICE)
-------------------
With copies to:
JEREMIAH J. BRESNAHAN, ESQ.
BINGHAM DANA LLP
150 FEDERAL STREET
BOSTON, MASSACHUSETTS 02110
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APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
As soon as practicable after the effective date of the registration statement.
TITLE OF SECURITIES BEING REGISTERED:
Shares of Beneficial Interest (without par value) of the Registrant
NO FILING FEE IS REQUIRED BECAUSE AN INDEFINITE NUMBER OF SHARES HAVE PREVIOUSLY
BEEN REGISTERED PURSUANT TO RULE 24F-2 UNDER THE INVESTMENT COMPANY ACT OF 1940.
PURSUANT TO RULE 429, THIS REGISTRATION STATEMENT RELATES TO SHARES PREVIOUSLY
REGISTERED ON FORM N-1A (FILE NO. 2-60491).
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE ON
DECEMBER 31, 2000 PURSUANT TO RULE 488.
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<PAGE>
PROXY INFORMATION
The enclosed proxy statement discusses important issues affecting your
investment in PaineWebber Municipal High Income Fund. To make voting faster and
more convenient for you, we're offering the options of voting on the internet,
by fax, or by telephone instead of completing and mailing the enclosed proxy
card. All three methods are generally available 24 hours a day. If you vote via
the internet or by telephone, your vote will be confirmed and posted
immediately. If you choose to vote via the internet, by fax, or by phone, do not
mail the proxy card.
However you choose to vote, it is important that you vote to save the expense of
additional solicitations.
WAYS TO VOTE:
TO VOTE ON THE INTERNET
1. Read the proxy statement.
2. Go to [**WWW.PROXYVOTE.COM**] or the "Proxy voting" link on
[**WWW._______.COM**].
3. Enter the [___]-digit control number on your proxy card.
4. Follow the instructions on the site.
TO VOTE BY FAX
1. Read the proxy statement.
2. Complete and sign the proxy card.
3. Fax the completed proxy card toll-free to [_____________]
TO VOTE BY TELEPHONE
1. Read the proxy statement.
2. Call toll-free [_____________].
3. Enter the [___]-digit control number on your proxy card.
4. Follow the recorded instructions.
YOUR VOTE IS IMPORTANT TO US, PLEASE VOTE NOW.
QUESTIONS:
[_________________________], a professional proxy solicitation firm, has been
selected to assist shareholders in the voting process. If we have not received
your proxy card as the date of the meeting approaches, [___] may call you to
remind you to exercise your right to vote.
If you have any questions, please call [___]toll-free at [_____________] any
business day between ___ a.m. and ___ p.m. Eastern time.
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
Facing Page
A Message from the President
Notice of Shareholder Meeting
Combined Prospectus/Proxy Statement
Form of Proxy Card
Statement of Additional Information
Other Information
Signature Page
Exhibits
<PAGE>
PAINEWEBBER MUNICIPAL HIGH INCOME FUND
JANUARY 1, 2001
Dear Shareholder:
I am writing to ask for your vote on an important matter that will affect
your investment in PaineWebber Municipal High Income Fund (the "PaineWebber
Fund"). While you are, of course, welcome to attend the PaineWebber Fund's
special meeting of shareholders described in the attached Prospectus/Proxy
Statement, most shareholders cast their vote by filling out, signing and then
mailing or faxing the enclosed proxy card or by voting via telephone or the
internet.
You are being asked to vote on an Agreement and Plan of Reorganization
under which all of the assets of the PaineWebber Fund will be transferred in a
tax-free reorganization to the MFS Municipal High Income Fund (the "MFS Fund"),
in exchange for shares of the MFS Fund.
If the Agreement and Plan of Reorganization is approved and consummated,
you will no longer be a shareholder of the PaineWebber Fund; you will become a
shareholder of the MFS Fund. You should know that the reorganization of the
PaineWebber Fund will not affect the value of your account.
The MFS Fund is advised by Massachusetts Financial Services Company
("MFS"). MFS advises a large and diverse family of more than 140 mutual funds,
including 23 municipal bond funds. MFS and its predecessor organizations have a
history of money management dating from 1924 and the founding of the nation's
first mutual fund, Massachusetts Investors Trust.
Each Fund is a municipal bond fund that seeks to invest a significant
portion of its assets in high-yield municipal securities. The MFS Fund and the
PaineWebber Fund have similar investment goals and policies. Historically the
MFS Fund has had greater net assets than the PaineWebber Fund. Combining the
assets of the PaineWebber Fund with a larger mutual fund such as the MFS Fund
could result in more efficient mutual fund operations due to economies of scale
without substantially changing the PaineWebber Fund's investment profile. In
addition, PaineWebber Fund shareholders will become part of a larger and more
diverse family of MFS mutual funds, including a greater variety of municipal
bond funds, and will be able to exchange their shares among all MFS funds
available for sale.
After careful consideration, the PaineWebber Fund's Trustees have
unanimously agreed that a tax-free reorganization of the PaineWebber Fund into
the MFS Fund will benefit the PaineWebber Fund shareholders. For this reason,
your Trustees recommend that you vote FOR the proposed reorganization, by
signing and returning the enclosed proxy card or by following the instructions
on the proxy card to vote via telephone or the internet. This proposed
reorganization is detailed in the enclosed Prospectus/Proxy Statement. For your
convenience, a summary of the reorganization in question and answer format is
included in the beginning of the Prospectus/Proxy Statement. I suggest you read
both thoroughly before voting.
YOUR VOTE MAKES A DIFFERENCE
No matter what size your investment may be, your vote is critical. I urge
you to review the enclosed materials and to complete, sign and return the
enclosed proxy card to us or to vote via telephone or the internet immediately.
Your prompt response will help avoid the need for further solicitations. For
your convenience, we have provided a postage-paid envelope.
If you have any questions or need additional information, please contact
your Financial Advisor or call [_____________________] at [______________],
Monday through Friday between [__________] and [___________]. I thank you for
your prompt vote on this matter.
Sincerely,
Brian M. Storms
President
<PAGE>
PAINEWEBBER MUNICIPAL HIGH INCOME FUND
A SERIES OF PAINEWEBBER MUNICIPAL SERIES
51 WEST 52ND STREET, NEW YORK, NEW YORK 10019-6114
NOTICE OF A SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD MARCH 1, 2001
A Special Meeting of Shareholders of PaineWebber Municipal High Income Fund (the
"PaineWebber Fund"), a series of PaineWebber Municipal Series, a Massachusetts
business trust, will be held at 1285 Avenue of the Americas, 14th Floor, New
York, New York 10019, on [Thursday, March 1, 2001, at ________ a.m./p.m.] for
the following purposes:
ITEM 1. To consider and act upon a proposal to approve an Agreement
and Plan of Reorganization (the "Agreement") providing for
(i) the transfer of all of the PaineWebber Fund's assets to
MFS Municipal High Income Fund (the "MFS Fund") in exchange
for shares of the designated classes of the MFS Fund of equal
value and the assumption by the MFS Fund of the PaineWebber
Fund's stated liabilities, (ii) the distribution of the MFS
Fund shares to the shareholders of the PaineWebber Fund, and
(iii) the termination of the PaineWebber Fund.
ITEM 2. To transact such other business as may properly come before
the meeting and any adjournments thereof.
YOUR TRUSTEES UNANIMOUSLY RECOMMEND THAT YOU
VOTE IN FAVOR OF ITEM 1.
Only shareholders of record as of the close of business on December 22, 2000
will be entitled to vote at the meeting or any adjournment thereof.
By Order of the Board of Trustees,
Dianne E. O'Donnell, Secretary
January 1, 2001
YOUR VOTE IS IMPORTANT. WE WOULD APPRECIATE YOUR PROMPTLY VOTING, SIGNING AND
RETURNING THE ENCLOSED PROXY OR VOTING VIA TELEPHONE OR THE INTERNET. THIS
WILL HELP IN AVOIDING THE ADDITIONAL EXPENSE OF A SECOND SOLICITATION. THE
ENCLOSED ADDRESSED ENVELOPE REQUIRES NO POSTAGE AND IS INTENDED FOR YOUR
CONVENIENCE.
<PAGE>
INSTRUCTIONS FOR SIGNING PROXY CARDS
The following general rules for signing proxy cards may be of assistance
to you and avoid the time and expense involved in validating your vote if you
fail to sign your proxy card properly.
1. Individual Accounts: Sign your name exactly as it appears in the
registration on the proxy card.
2. Joint Accounts: Either party may sign, but the name of the party
signing should conform exactly to the name shown in the registration on the
proxy card.
3. All Other Accounts: The capacity of the individual signing the proxy
card should be indicated unless it is reflected in the form of registration. For
example:
REGISTRATION VALID SIGNATURE
------------ ---------------
Corporate Accounts
(1) ABC Corp. ..................................... ABC Corp.
John Doe, Treasurer
(2) ABC Corp. ..................................... John Doe, Treasurer
(3) ABC Corp. c/o John Doe, Treasurer ............. John Doe
(4) ABC Corp. Profit Sharing Plan ................. John Doe, Trustee
Partnership Accounts
(1) The XYZ Partnership ........................... Jane B. Smith, Partner
(2) Smith and Jones Limited Partnership ........... Jane B. Smith, General
Partner
Trust Accounts
(1) ABC Trust Account ............................. Jane B. Doe, Trustee
(2) Jane B. Doe, Trustee u/t/d 12/18/78 ........... Jane B. Doe
Custodial or Estate Accounts
(1) John B. Smith, Cust. f/b/o John B. Smith, Jr.,
UGMA/UTMA ..................................... John B. Smith
(2) Estate of John B. Smith ....................... John B. Smith, Jr.,
Executor
<PAGE>
PROSPECTUS/PROXY STATEMENT
JANUARY 1, 2001
ACQUISITION OF THE ASSETS OF
PAINEWEBBER MUNICIPAL HIGH INCOME FUND
A SERIES OF PAINEWEBBER MUNICIPAL SERIES
51 WEST 52ND STREET
NEW YORK, NEW YORK 10019-6114
(800) 647-1568
BY AND IN EXCHANGE FOR SHARES OF
MFS MUNICIPAL HIGH INCOME FUND
A SERIES OF MFS SERIES TRUST III
500 BOYLSTON STREET
BOSTON, MASSACHUSETTS 02116
(617) 954-5000
* * * * *
This document will give you the information you need to vote on the proposed
reorganization. Much of the information is required under rules of the
Securities and Exchange Commission (the "SEC") and may be technical. If there is
anything you do not understand, please contact your PaineWebber Financial
Advisor.
This Prospectus/Proxy Statement relates to the proposed reorganization
(the "Reorganization") of PaineWebber Municipal High Income Fund (the
"PaineWebber Fund") into MFS Municipal High Income Fund (the "MFS Fund"). As a
result of the Reorganization, each Class A, Class B and Class C shareholder of
the PaineWebber Fund will receive a number of full and fractional Class A, Class
B and Class C shares, respectively, of the MFS Fund equal in value on the date
of the exchange to the total value of the shareholder's PaineWebber Fund shares.
Because the MFS Fund does not offer Class Y shares, each Class Y shareholder of
the PaineWebber Fund will receive a number of full and fractional Class A shares
of the MFS Fund equal in value on the date of the exchange to the total value of
the shareholder's PaineWebber Class Y shares. The MFS Fund is in the family of
funds managed by Massachusetts Financial Services Company ("MFS") and is a
series of a registered open-end management investment company (mutual fund). The
MFS Fund and the PaineWebber Fund are collectively referred to herein as the
"Funds," and each is sometimes referred to individually as a "Fund."
This Prospectus/Proxy Statement explains concisely what you should know
before voting on the Reorganization or investing in the MFS Fund. Please read it
and keep it for future reference. This Prospectus/Proxy Statement is accompanied
by (i) the Prospectus, dated June 1, 2000, of the MFS Fund (the "MFS Fund
Prospectus"), (ii) the Report of Independent Accountants and financial
statements included in the MFS Fund's Annual Report to Shareholders for the
fiscal year ended January 31, 2000, and (iii) the unaudited financial statements
included in the MFS Fund's Semi-Annual Report to Shareholders for the six-month
period ended July 31, 2000. Additional information is available in the Statement
of Additional Information relating to this Prospectus/Proxy Statement dated
January 1, 2001, and the Statement of Additional Information of the MFS Fund
dated June 1, 2000. The MFS Fund Prospectus, the MFS Fund's Annual and
Semi-Annual Reports, and the Statement of Additional Information dated January
1, 2001 are incorporated into this Prospectus/Proxy Statement by reference. For
a free copy of the Statement of Additional Information, dated January 1, 2001,
relating to the Reorganization or any of the documents relating to the MFS Fund,
please contact the MFS Fund at its toll-free number (1-800-225-2606).
The following documents have been filed with the Securities and Exchange
Commission with respect to the PaineWebber Fund and are also incorporated into
this Prospectus/Proxy Statement by reference: (i) the Prospectus of the
PaineWebber Fund, dated June 30, 2000; (ii) the Statement of Additional
Information of the PaineWebber Fund, dated June 30, 2000; (iii) the Report of
Independent Accountants and financial statements included in the PaineWebber
Fund's Annual Report to Shareholders for the fiscal year ended February 29,
2000; and (iv) the PaineWebber Fund's Semiannual Report to Shareholders for the
six-month period ended August 31, 2000. For a free copy of any of the documents
relating to the PaineWebber Fund, please contact the PaineWebber Fund at its
toll-free number (1-800-647-1568).
Proxy materials, registration statements and other information filed by
the Funds can be inspected and copied at the Public Reference Room maintained by
the Securities and Exchange Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549. Copies of such material can also be obtained from the Public
Reference Branch, Office of Consumer Affairs and Information Services,
Securities and Exchange Commission, Washington, D.C. 20549 at prescribed rates.
You may also access reports and other information about the Funds on the
Commission's Internet site at http://www.sec.gov.
The securities offered by the accompanying Prospectus/Proxy Statement have
not been approved or disapproved by the Securities and Exchange Commission nor
has the Securities and Exchange Commission passed upon the accuracy or adequacy
of such Prospectus/Proxy Statement. Any representation to the contrary is a
criminal offense.
* * * * *
<PAGE>
TABLE OF CONTENTS
PAGE
----
Synopsis .......................................................... [___]
Risk Factors ...................................................... [___]
General ........................................................... [___]
Proposal Regarding Approval of Reorganization
and Related Agreement and Plan or Reorganization ................ [___]
Background and Reasons for the Proposed Reorganization ............ [___]
Information About the Reorganization .............................. [___]
Voting Information ................................................ [___]
Agreement and Plan of Reorganization .............................. A-1
Enclosures
Prospectus of the MFS Municipal High Income Fund, dated June 1, 2000
Annual Report of the MFS Municipal High Income Fund for the fiscal year ended
January 31, 2000
Semi-Annual Report of the MFS Municipal High Income Fund for the six-month
period ended July 31, 2000
<PAGE>
SYNOPSIS
The responses to the questions that follow provide an overview of key
points typically of concern to shareholders considering a proposed
reorganization between funds. These responses are qualified in their entirety by
the remainder of the Prospectus/Proxy Statement, which contains additional
information and further details regarding the Reorganization.
1. WHAT IS BEING PROPOSED?
The Trustees who oversee the PaineWebber Fund (the "PaineWebber Trustees")
are recommending that shareholders of the PaineWebber Fund approve its
Reorganization into the MFS Fund. If approved by shareholders, the PaineWebber
Fund will transfer all its assets to the MFS Fund in exchange for shares of the
MFS Fund with a value equal to those assets net of liabilities (the
"Reorganization Shares") and for the assumption by the MFS Fund of all of the
PaineWebber Fund's stated liabilities. Immediately following the transfer, the
PaineWebber Fund will distribute the Reorganization Shares to its shareholders,
pro rata.
2. WHAT WILL HAPPEN TO MY SHARES OF THE PAINEWEBBER FUND AS A RESULT OF THE
REORGANIZATION?
Your shares of the PaineWebber Fund will, in effect, be exchanged for
Reorganization Shares of the MFS Fund with an equal total net asset value. If
you do not wish to participate in the Reorganization, you may redeem your shares
of the PaineWebber Fund at net asset value or exchange your shares for
corresponding shares of another eligible PaineWebber fund, but you generally
will recognize a gain or loss for tax purposes upon redemption or exchange of
your PaineWebber Fund shares.
3. WHY ARE THE PAINEWEBBER TRUSTEES PROPOSING THIS REORGANIZATION?
The proposal is the result of a review by the PaineWebber Fund's
investment adviser and administrator, Mitchell Hutchins Asset Management Inc.
("MHAM"), of the investment strategies and position of the municipal bond funds
in the PaineWebber fund complex. The PaineWebber Fund has remained relatively
small in comparison to other mutual funds managed by MHAM and has not achieved
the growth in assets that was originally anticipated. As a result, MHAM has
advised the PaineWebber Trustees that the PaineWebber Fund may benefit from a
combination with a larger municipal bond fund with similar investment
strategies, such as the MFS Fund.
4. WHAT ARE THE BENEFITS OF MERGING THE PAINEWEBBER FUND INTO THE MFS FUND?
As discussed in more detail below, the two Funds have similar investment
strategies and policies. The PaineWebber Trustees believe that the
Reorganization offers PaineWebber Fund shareholders the opportunity to become
part of a larger and more diverse family of MFS mutual funds, including 23
municipal bond funds, which PaineWebber Fund shareholders will be able to access
through the exchange privilege once the Reorganization has been approved and
completed. Through the Reorganization, PaineWebber Fund shareholders will have
the opportunity to invest in a municipal bond fund managed by an investment
adviser that has historically devoted substantial resources towards its
municipal bond funds. In addition, the MFS Fund, established in 1984, has a long
track record. The PaineWebber Trustees also believe that combining the
PaineWebber Fund with the larger MFS Fund could result in more efficient mutual
fund operations due to economies of scale without changing in any significant
way the essential investment profile of the PaineWebber Fund.
5. HOW DO THE INVESTMENT GOALS, POLICIES AND RESTRICTIONS OF THE TWO FUNDS
COMPARE?
The investment goals and policies of the two Funds are similar. The
investment goal of the PaineWebber Fund is to provide high current income exempt
from federal income tax. The investment goal of the MFS Fund is to provide high
current income exempt from federal income taxes by investing primarily in
municipal bonds and notes which may be of medium and lower quality.
The MFS Fund invests, under normal market conditions, at least 80% of its
total assets in municipal securities and participation interests in municipal
securities issued by banks, the interest on which is exempt from federal income
tax. This policy may be changed without shareholder approval. Shareholders may
need to include the interest income on some or all of the municipal securities
in which the MFS Fund invests when calculating their federal alternative minimum
tax liability. The PaineWebber Fund invests, under normal market conditions, at
least 80% of its net assets in municipal securities. This policy is fundamental
and cannot be changed without a shareholder vote. The PaineWebber Fund normally
invests substantially all of its assets in municipal securities that are exempt
from federal income tax. Shareholders may need to include the interest income on
some or all of the municipal securities in which the PaineWebber Fund invests
when calculating their federal alternative minimum tax liability.
Under normal circumstances, the MFS Fund will invest at least 65% of its
total assets in municipal securities that offer a current yield above that
generally available on municipal securities in the three highest categories of
recognized rating agencies. Tax-exempt securities offering the high current
income sought by the MFS Fund are ordinarily in the medium and lower rating
categories of recognized rating agencies or are unrated and considered by MFS to
be of comparable quality. Securities rated below investment grade are commonly
known as junk bonds, and the MFS Fund may invest up to 100% of its net assets in
these junk bonds. The PaineWebber Fund normally invests at least 65% of its
total assets, and seeks to invest substantially all of its assets, in medium
grade and high yield lower grade municipal bonds, including junk bonds.
As of September 30, 2000, the MFS Fund had a slightly higher average
portfolio credit quality rating of B, as compared to the PaineWebber Fund's
average portfolio credit quality rating of ______. While a portfolio with a
higher average credit quality rating may present less risks, a Fund with a
higher percentage of its portfolio invested in junk bonds may generate higher
yields.
Each Fund is a non-diversified mutual fund. This means that each Fund may
invest a relatively high percentage of its assets in a small number of issuers.
The MFS Fund may invest a high percentage of its assets in securities of issuers
located in the same state, that derive income from similar types of projects and
that are otherwise related. Similarly, the PaineWebber Fund may invest more than
25% of its total assets in municipal bonds that are issued to finance similar
types of projects.
The risks associated with the principal investment techniques and
practices of the MFS Fund are described below under "Risk Factors." In addition
to the Funds' principal investment strategies referred to above, the Funds may
engage in a number of other investment techniques and practices. Both principal
and non-principal investment techniques and practices are described, together
with their risks, in each Fund's Statement of Additional Information.
Among its permitted non-principal investment strategies, the MFS Fund may
(but is not required to) use various types of derivatives including futures
contracts, options on futures contracts, options on securities and swaps and
related agreements. The PaineWebber Fund may (but is not required to) use
interest rate futures contracts and other derivatives to help manage its
portfolio duration, and is also permitted to invest in futures contracts and
options on futures contracts, securities and indices, although it is not
permitted to invest in swaps and related agreements as is the MFS Fund.
6. HOW DO THE EXPENSES OF THE TWO FUNDS COMPARE, AND WHAT ARE THEY ESTIMATED TO
BE FOLLOWING THE REORGANIZATION?
All Classes
As shown in the Annual Fund Operating Expense table below, in the year
ended September 30, 2000 the MFS Fund paid a management fee of 0.55% of the
Fund's average daily net assets, which is, on a pro forma basis after giving
effect to the Reorganization, 0.05% lower than that of the PaineWebber Fund. The
MFS Fund's lower management fee reflects a contractual agreement by MFS to waive
its right to receive the management fee in excess of 0.55% annually of the
Fund's average daily net assets. Absent this contractual waiver, which will
remain in effect at least until June 2001, the MFS Fund would have paid a higher
management fee of 0.63% annually of its average daily net assets, as compared to
the PaineWebber Fund which pays a management fee of 0.60% annually of its
average daily net assets. Also as shown in the table, the MFS Fund's "Other
Expenses" were less than, on a per share basis, those of the PaineWebber Fund
for the twelve-month period ended September 30, 2000. The pro forma
post-Reorganization total annual fund operating expenses of the MFS Fund are
also lower than those of the PaineWebber Fund on a per share basis, except with
respect to Class C shares.
Class A Shares
Class A shares of each Fund are sold at net asset value plus a front-end
sales charge. The front-end sales charge on purchases of Class A shares of the
MFS Fund is higher than the charge applicable to purchases of Class A shares of
the PaineWebber Fund. A maximum front-end sales charge of 4.75% is imposed on
Class A shares of the MFS Fund as compared to a maximum front-end sales charge
of 4.00% on Class A shares of the PaineWebber Fund. However, no initial sales
charge will be charged to PaineWebber Fund shareholders in connection with the
Reorganization of the Funds. You do not pay an initial sales charge when you
purchase $1,000,000 or more of Class A shares of either Fund, but if you redeem
these shares within one year of purchase you will pay a deferred sales charge of
1%.
Each Fund has established certain policies waiving or reducing the Class A
initial sales charge for certain types of investors under certain circumstances.
For example, the MFS Fund provides for letter of intent privileges,
reinstatement privileges and rights of accumulation as well as other waivers
available to eligible investors to reduce the Class A initial sales charge.
Similarly, the PaineWebber Fund provides for rights of accumulation,
reinstatement privileges and combined purchase privileges as well as other
waivers available to eligible investors to reduce the Class A initial sales
charge. Holders of Class A shares of the PaineWebber Fund who are permitted to
purchase additional Class A shares of that Fund at net asset value pursuant to
the terms of the PaineWebber Fund's current Prospectus and Statement of
Additional Information will be permitted, after the Reorganization, to purchase
additional Class A shares of the MFS Fund at net asset value. Other shareholders
who wish to purchase Class A shares of the MFS Fund after the Reorganization
should review the Fund's Prospectus and Statement of Additional Information for
additional information about the applicable waivers.
The PaineWebber Fund has adopted a Rule 12b-1 distribution plan for its
Class A shares. Under this plan, Class A shares of the PaineWebber Fund pay
service fees in the amount of 0.25%. The MFS Fund has not adopted a Rule 12b-1
distribution plan for its Class A shares, and therefore Class A shares of the
MFS Fund do not pay any such fees.
As shown by the Annual Fund Operating Expenses table below, the pro forma
post-Reorganization total operating expenses for the Class A shares of the MFS
Fund are 0.87% of the Fund's average daily net assets, which is 0.23% lower than
the total operating expenses of 1.10% for the Class A shares of the PaineWebber
Fund for the twelve-month period ended September 30, 2000.
Class B Shares
Class B shares of each Fund are sold without a front-end sales load, but
shareholders are charged a contingent deferred sales charge ("CDSC") if they
sell their Class B shares within six years after purchase. The CDSC applicable
to sales of Class B shares of each Fund is the same, except that the CDSC
applicable to sales of Class B shares of the MFS Fund is lower during the first
year after purchase and higher during the fourth year after purchase than that
applicable to the Class B shares of the PaineWebber Fund. For purposes of
determining the applicable CDSC, PaineWebber Fund shareholders who acquire Class
B shares of the MFS Fund as a result of the Reorganization will be deemed to
have held those shares since the date occurring twenty-four months prior to the
date of their original purchase of their Class B shares of the PaineWebber Fund.
As a result, the CDSCs applicable to Class B Reorganization Shares will be lower
than the CDSCs applicable to the PaineWebber Fund Class B Shares.
Each Fund has established certain policies waiving or reducing the Class B
CDSC for certain types of investors under certain circumstances. For example,
the CDSC on Class B shares of the MFS Fund and the PaineWebber Fund will
generally be waived for redemptions pursuant to a Systematic Withdrawal Plan, or
on account of the death of the account owner, subject to certain limitations.
You should review the Prospectus and Statement of Additional Information of the
MFS Fund for a more complete description of the CDSC waiver policies that may be
applicable after the Reorganization.
After eight years, Class B shares of the MFS Fund automatically convert
into Class A shares. Class B shares of the PaineWebber Fund automatically
convert into Class A shares after six years. For each Fund, Class A shares have
lower total annual operating expenses. For purposes of determining when Class B
Reorganization Shares automatically convert into Class A shares of the MFS Fund,
such shares will be deemed to have been purchased on the date occurring
twenty-four months prior to the date of their original purchase. As a result,
Class B Reorganization Shares will take no longer to convert to Class A shares
of the MFS Fund than Class B shares of the PaineWebber Fund take to convert to
Class A shares.
Each Fund has adopted a Rule 12b-1 distribution plan for its Class B
shares under which it pays distribution and service fees. For the year ended
September 30, 2000, distribution and service fees applicable to the MFS Fund's
Class B shares are 0.79%, which are lower than those of 1.00% applicable to the
Class B shares of the PaineWebber Fund. The 12b-1 plan for the MFS Fund provides
that the annual distribution and service fees may represent up to 1.00% (a 0.75%
distribution fee and a 0.25% service fee) of the Fund's average daily net assets
attributable to Class B shares. The Fund currently pays the 0.75% distribution
fee, but only pays the 0.25% service fee for the sale of Class B shares in the
first year after purchase. The payment of the service fee after the first year
after purchase is suspended until such date as the Trustees of the MFS Fund may
determine.
As shown by the Annual Fund Operating Expenses table below, the pro forma
post-Reorganization total operating expenses for the Class B shares of the MFS
Fund are 1.66% of the Fund's average daily net assets, which is 0.20% lower than
the total operating expenses of 1.86% for the Class B shares of the PaineWebber
Fund for the twelve-month period ended September 30, 2000.
Class C Shares
Class C shares of each Fund are sold without a front-end sales load, but
shareholders are charged a CDSC if they sell their Class C shares within one
year after purchase. The CDSC applicable to sales of Class C shares of the MFS
Fund is 1.00%, which is higher than the CDSC of 0.75% applicable to the Class C
shares of the PaineWebber Fund. For purposes of determining whether this CDSC
applies, PaineWebber Fund shareholders who acquire Class C Reorganization Shares
will be deemed to have held those shares since the date of their original
purchase of their PaineWebber Fund Class C shares.
Each Fund has established certain policies waiving or reducing the Class C
CDSC for certain types of investors under certain circumstances. For example,
the CDSC on Class C shares of the MFS Fund and the PaineWebber Fund will
generally be waived for redemptions pursuant to a Systematic Withdrawal Plan, or
on account of the death of the account owner, subject to certain limitations.
You should review the Prospectus and Statement of Additional Information of the
MFS Fund for a more complete description of the CDSC waiver policies that may be
applicable after the Reorganization.
Each Fund has adopted a Rule 12b-1 distribution plan for its Class C
shares. Under these plans, each Fund pays distribution and service fees. The
distribution and service fees applicable to the MFS Fund's Class C shares are
1.00%, which are higher than those of 0.75% applicable to the Class C shares of
the PaineWebber Fund.
As shown by the Annual Fund Operating Expenses table below, the pro forma
post-Reorganization total operating expenses for the Class C shares of the MFS
Fund are 1.87% of the Fund's average net assets, which is 0.26% higher than the
total operating expenses of 1.61% for the Class C shares of the PaineWebber Fund
for the twelve-month period ended September 30, 2000.
Class Y Shares
Class Y shares of the PaineWebber Fund are not subject to any sales
charges or distribution and service fees and are available only to certain types
of investors. In the Reorganization, Class Y shareholders of the PaineWebber
Fund will receive Class A shares of the MFS Fund, which, as noted above, are
sold with a front-end sales load. Class Y shareholders will not, however, have
to pay any front-end or back-end sales charge in connection with the
Reorganization. Please see the description of "Class A Shares" above for more
information about the Class A shares of the MFS Fund that Class Y shareholders
will receive in the Reorganization. Holders of Class Y shares of the PaineWebber
Fund will be permitted, after the Reorganization, to purchase additional Class A
shares of the MFS Fund at net asset value.
As shown by the Annual Fund Operating Expenses table below, the pro forma
post-Reorganization total operating expenses for the Class A shares of the MFS
Fund are 0.87% of the Fund's average daily net assets, which is 0.02% higher
than the total operating expenses of 0.85% for the Class Y shares of the
PaineWebber Fund for the twelve-month period ended September 30, 2000. However,
after waivers, the MFS Fund's net expenses are 0.79% which are lower than the
total operating expenses of the Class Y shares of the PaineWebber Fund.
The following tables summarize the maximum fees and expenses you may pay
when investing in the Funds, expenses that each of the Funds incurred in the 12
months ended September 30, 2000 and pro forma expenses which assume that the
Reorganization was completed on October 1, 1999.
CLASS A CLASS B CLASS C CLASS Y
SHARES SHARES SHARES SHARES
Fees (fees paid directly from your
investment)
Maximum Sales Charge (Load) Imposed
on Purchases (as a percentage of
offering price)
PaineWebber Fund 4.00% None None None
MFS Fund 4.75%+ None None N/A
Maximum Deferred Sales Charge (Load)
(as a percentage of the original
purchase price or redemption
proceeds, whichever is lower)
PaineWebber Fund None* 5.00%** 0.75%*** None
MFS Fund None* 4.00%** 1.00%*** N/A
----------
+ No sales charge will be paid on shares of the MFS Fund issued in connection
with this Reorganization.
* A contingent deferred sales charge of 1.00% of the shares' offering price or
the net asset value at the time of sale by the shareholder, whichever is
less, is assessed on certain redemptions of Class A shares of either Fund
made within one year of the purchase date that were purchased without an
initial sales charge as part of an investment of $1 million or more or, with
respect to the MFS Fund, as part of a purchase through a retirement plan.
** In the first year, declining to 1.0% in the sixth year, and eliminated
thereafter. For purposes of determining the applicable CDSC, PaineWebber
Fund shareholders who acquire Class B shares of the MFS Fund as a result of
the Reorganization will be deemed to have held those shares since the date
occurring twenty-four months prior to the date of their original purchase of
their Class B shares of the PaineWebber Fund.
*** A CDSC will be charged on certain redemptions made within one year of the
purchase date.
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
<TABLE>
<CAPTION>
Fee Waiver
and/or
Management Distribution Other Total Annual Fund Expense Net
Fees (12b-1) Fees Expenses Operating Expenses Reimbursement Expenses
---------- ------------ -------- ------------------ ------------- --------
<S> <C> <C> <C> <C> <C>
PAINEWEBBER FUND
Class A 0.60% 0.25% 0.25% 1.10% n/a 1.10%
Class B 0.60% 1.00% 0.26% 1.86% n/a 1.86%
Class C 0.60% 0.75% 0.26% 1.61% n/a 1.61%
Class Y 0.60% 0.00% 0.25% 0.85% n/a 0.85%
MFS FUND
Class A 0.63% n/a 0.24% 0.87% -0.08%* 0.79%+
Class B 0.63% 0.79%** 0.24% 1.66% -0.08%* 1.58%+
Class C 0.63% 1.00% 0.24% 1.87% -0.08%* 1.79%+
MFS FUND
(PRO FORMA COMBINED)***
Class A 0.63% n/a 0.24% 0.87% -0.08%* 0.79%+
Class B 0.63% 0.79%** 0.24% 1.66% -0.08%* 1.58%+
Class C 0.63% 1.00% 0.24% 1.87% -0.08%* 1.79%+
* MFS has contractually agreed to waive its right to receive a management fee greater than 0.55% annually of the
average daily net assets of the Fund. This contractual arrangement will remain in effect until at least June 1,
2001, absent an earlier change approved by the Fund's Board of Trustees.
** The 12b-1 Plan for the MFS Fund provides that the annual distribution and service fees may represent up to
1.00% (a 0.75% distribution fee and a 0.25% service fee) of the Fund's average daily net assets attributable to
Class B shares. The Fund currently pays the 0.75% distribution fee, but only pays the 0.25% service fee for the
sale of Class B shares in the first year after purchase. The payment of the service fee after the first year
after purchase is suspended until such date as the Trustees of the MFS Fund may determine.
*** Assumes that the reorganization was completed on October 1, 1999.
+ The MFS Fund has an expense offset arrangement which reduces the Fund's custodian fee based upon the amount of
cash maintained by the Fund with its custodian and dividend disbursing agent and may enter into similar
arrangements and directed brokerage arrangements (which would also have the effect of reducing the Fund's
expenses). Any such fee reductions are not reflected in the table. Had these fee reductions been taken into
account, "Net Expenses" would be 0.77%, 1.56% and 1.77% for class A, class B and class C, respectively.
</TABLE>
The tables are provided to help you understand the expenses of investing in the
Funds, including pro forma expenses of the MFS Fund after giving effect to the
Reorganization, and your share of the operating expenses that each Fund incurs.
The expenses shown in the table do not reflect the application of credits
related to expense offset arrangements that reduce certain MFS Fund expenses.
EXAMPLES
These examples translate the expense percentages shown in the preceding table
into dollar amounts. By doing this, you can more easily compare the cost of
investing in the Funds. The examples assume that you invest $10,000 in a Fund
for the time periods shown and then, except as shown for Class B and Class C
shares, redeem all your shares at the end of these periods. They also assume a
5% return on your investment each year and that a Fund's operating expenses
remain the same, except for the one year period when the expenses are lower due
to MFS's fee waivers. The examples are hypothetical; your actual costs and
returns may be higher or lower.
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
PAINEWEBBER FUND
Class A ........................ $508 $736 $ 982 $1,687
Class B ........................ $689 $885 $1,206 $1,799*
Class B (no redemption) ........ $189 $585 $1,006 $1,799*
Class C ........................ $239 $508 $ 876 $1,911
Class C (no redemption) ........ $164 $508 $ 876 $1,911
Class Y ........................ $ 87 $271 $ 471 $1,049
MFS FUND
Class A ........................ $552 $732 $ 927 $1,490
Class B ........................ $561 $816 $1,095 $1,748*
Class B (no redemption) ........ $161 $516 $ 895 $1,748*
Class C ........................ $282 $580 $1,004 $2,184
Class C (no redemption) ........ $182 $580 $1,004 $2,184
MFS FUND
(PRO FORMA COMBINED)**
Class A ........................ $552 $732 $ 927 $1,490
Class B ........................ $561 $816 $1,095 $1,748*+
Class B (no redemption) ........ $161 $516 $ 895 $1,748*+
Class C ........................ $282 $580 $1,004 $2,184
Class C (no redemption) ........ $182 $580 $1,004 $2,184
* Reflects conversion of Class B shares to Class A shares (which pay lower
ongoing expenses) approximately six years (with respect to the PaineWebber
Fund) and eight years (with respect to the MFS Fund and the pro forma
combined fund) after purchase.
** Assumes that the reorganization was completed on October 1, 1999.
+ For purposes of determining the applicable CDSC and the time period for
conversion to Class A shares, PaineWebber Fund shareholders who acquire Class
B shares of the MFS Fund as a result of the Reorganization will be deemed to
have held those shares as of the date occurring twenty-four months prior to
the date of their original purchase of their Class B shares of the
PaineWebber Fund. As a result, the Class B Reorganization Shares held by
former PaineWebber Fund shareholders will convert to Class A shares after six
years. If calculated based on a six year conversion, the expenses paid by
former PaineWebber Fund shareholders on Class B Reorganization Shares after
10 years for the pro forma combined fund would be $1554.
7. HOW HAS THE MFS FUND PERFORMED?
Set forth in the table below are the average annual total returns of each
class of shares of the MFS Fund, at net asset value, for the periods specified:
AVERAGE ANNUAL TOTAL RETURNS AS OF SEPTEMBER 30, 2000
1 year 5 years 10 years
------ ------- --------
Class A shares 2.76% 4.92% 6.21%
Class B shares 1.95% 4.03% 5.53%
Class C shares 1.74% 4.51% 6.00%
The yield for MFS Fund shares for the 30-day period ended September 30,
2000 was 6.29% for Class A shares, 5.81% for Class B shares, and 5.56% for Class
C shares.
The MFS Fund commenced investment operations on February 24, 1984 with the
offering of Class A shares and subsequently offered Class B shares on September
7, 1993 and Class C shares on September 25, 1998. Class B and Class C share
performance for the MFS Fund includes the performance of the Fund's Class A
shares for periods prior to the offering of Class B and Class C 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
Class C shares are higher than those of Class A shares, this blended Class B and
Class C share performance is higher than the performance of Class B and Class C
shares would have been had Class B and Class C shares been offered for the
entire period.
Set forth below is average annual total return information for the Class A
shares of the MFS Fund and the PaineWebber Fund for the one year periods ending
on the dates stated:
AVERAGE ANNUAL TOTAL RETURN (TOTAL INVESTMENT RETURN AT NAV)
Year Ended PAINEWEBBER
December 31, MFS FUND FUND
------------ -------- -----------
1999 (3.07)% (3.49)%
1998 5.77% 5.07%
1997 8.79% 10.73%
1996 4.17% 5.94%
1995 16.19% 15.55%
1994 (2.91)% (7.77)%
1993 9.72% 12.14%
1992 8.00% 9.79%
1991 10.45% 13.32%
1990 3.16% 5.52%
Of course the Funds' past performance is not an indication of future
performance. The performance information in the table above reflects
reinvestment of dividends and other earnings, but does not reflect any
applicable sales charges. The total returns for other classes of each Fund would
have been lower than the returns of the Class A shares of such Fund because such
other classes of shares have higher total annual expense ratios (except with
respect to Class Y shares of the PaineWebber Fund, which have a lower expense
ratio than that of the Fund's Class A shares).
To review the MFS Fund in more detail, please refer to the MFS Fund's
prospectus and most recent annual and semi-annual reports, all of which are
enclosed.
8. WHAT ARE THE DIFFERENCES IN PORTFOLIO TURNOVER RATES OF THE TWO FUNDS?
Portfolio turnover is a measure of how frequently a fund trades
portfolio securities. Frequent trading of portfolio securities increases
transaction costs, which could detract from a Fund's performance. Additionally,
active and frequent trading may result in the realization and distribution to a
Fund of higher capital gains, which would increase the tax liability for the
Fund's shareholders. During its fiscal year ended February 29, 2000, the
PaineWebber Fund had a portfolio turnover rate of 19%. The MFS Fund's portfolio
turnover rate was 27% during its fiscal year ended January 31, 2000.
9. WHO MANAGES THE MFS FUND?
Michael Roberge, a Senior Vice President of MFS, manages the MFS Fund. Mr.
Roberge has been employed in the investment management area of MFS since 1996
and has managed the MFS Fund since December 1997.
10. HOW DO I VOTE?
Shareholders can vote in any of the following ways:
o by proxy: by completing, signing and either returning the enclosed proxy
card using the postage-paid envelope provided or faxing the proxy card to
____________; or
o by telephone: by calling the toll-free number listed on your proxy card,
entering the [____]-digit control number on your proxy card and following
the recorded instructions; or
o by internet: by going to [**www.proxyvote.com**] or clicking on the "Proxy
voting" link on [____________], entering the [___]-digit control number on
your proxy card and following the instructions on the site.
If you prefer to vote in person, you are cordially invited to attend a
meeting of shareholders of your Fund, which will be held at [_____ a.m./p.m.] on
Thursday, March 1, 2001 at 1285 Avenue of the Americas, 14th Floor, New York,
New York 10019. If you vote now, you will help avoid the expense of further
solicitations.
11. HOW WILL THE REORGANIZATION HAPPEN?
If the Reorganization is approved, your PaineWebber Fund shares will be
converted to Reorganization Shares of the MFS Fund, using the Funds' net asset
value share prices, excluding sales charges, as of the close of trading on March
9, 2001. This conversion will not affect the total dollar value of your
investment. The net asset value of the PaineWebber Fund for purposes of the
Reorganization will be determined in accordance with the MFS Fund's procedures
for determining net asset value set forth in its Prospectus and Statement of
Additional Information and its charter documents in consultation with MHAM.
Prior to the Reorganization, the PaineWebber Fund's custodian will begin to use
the securities pricing sources and vendors that are used by the MFS Fund for the
purposes of valuing the assets of the PaineWebber Fund. The use of these
procedures may increase or decrease the net asset value of the PaineWebber Fund
as compared to the net asset value determined through use of the PaineWebber
Fund's procedures.
Any PaineWebber Fund certificate which remains outstanding on the closing
date of the Reorganization shall be deemed to be cancelled, shall no longer
evidence ownership of shares of the PaineWebber Fund and shall not represent
ownership of the Reorganization Shares issued by the MFS Fund.
12. WILL THE REORGANIZATION HAVE TAX CONSEQUENCES?
Although any taxable dividends and capital gain distributions will be paid
prior to the Reorganization, the Reorganization itself will be a non-taxable
event for federal income tax purposes and will not need to be reported on your
2001 federal tax return. You should consult your tax advisers regarding the
effect, including state and local tax consequences, if any, of the
Reorganization in light of your individual circumstances.
13. WHAT PAYMENTS WILL BE MADE IN CONNECTION WITH THE REORGANIZATION?
Upon the consummation of the Reorganization and the reorganizations of
certain other PaineWebber funds into MFS funds, and upon the satisfaction of
certain other obligations and conditions, MFS has agreed to make payments to
MHAM based on the value of the net assets of the PaineWebber Fund and the other
acquired PaineWebber funds immediately preceding the closing date of the
reorganizations. MFS also has agreed to pay MHAM an amount equal to the net
present value of the expected Class B distribution fees to be paid to MFS on the
Class B shareholder accounts of the acquired PaineWebber funds. In addition, on
the first year anniversary of the closing of the reorganizations, MFS has agreed
to pay MHAM an additional amount based upon the value of the net assets
transferred from the PaineWebber Fund and the other acquired PaineWebber funds
which remain in the MFS funds plus the other net assets of the MFS funds for
which PaineWebber Incorporated is listed as the broker-dealer of record. Because
of these payments, which may be substantial, MHAM has an interest in the
approval of the proposed Reorganization.
14. WILL MY DIVIDEND BE AFFECTED BY THE REORGANIZATION?
After the Reorganization you will continue to receive distributions of any
net investment income once a month and any net realized capital gains at least
once a year. Except as described below, your distributions will continue to be
either reinvested or paid in cash, according to the option you selected with the
PaineWebber Fund. Of course, the amount of these distributions will reflect the
investment performance of the MFS Fund.
15. DO THE PROCEDURES FOR PURCHASING, REDEEMING AND EXCHANGING SHARES OF
THE TWO FUNDS DIFFER?
Yes. Although the procedures for purchasing and redeeming shares of
each Fund and for exchanging shares of each Fund for shares of other funds are
generally similar, there are certain differences. These differences are
discussed below.
PURCHASE POLICIES. You may purchase shares of each Fund at the Fund's net
asset value, plus any applicable sales charge, that is next calculated after the
Fund receives your purchase request in good order. You may establish an account
with the MFS Fund by having your financial adviser process your initial
purchase. If you are a PaineWebber client or a client of a PaineWebber
correspondent firm, you may purchase shares of the PaineWebber Fund through your
Financial Advisor. Otherwise, you may purchase shares of the PaineWebber Fund by
mailing a check and completed application to the Fund's transfer agent. Each
Fund may reject any purchase order in its discretion including, without
limitation, when the Fund believes an investor to be engaging in excessive
trading or market-timing practices.
Each Fund imposes certain minimum initial and subsequent investment
requirements. The MFS Fund imposes the following investment minimums:
Initial investments $1,000
Additional investments $50
Automatic investment plans $50
Automatic exchange plans $50
Certain tax-deferred $50
retirement plans
(non-IRA)
Employer-sponsored $50
investment programs
IRAs $250
The MFS Fund permits additional purchases to be made by wire transfer and has
certain other features for adding to a shareholder's MFS Fund account that are
discussed at greater length in the MFS Fund's Prospectus.
The PaineWebber Fund requires initial investments of $1000 and additional
investments of at least $100. The PaineWebber Fund may waive these investment
minimums for employees of PaineWebber or its affiliates, participants in certain
pension plans, retirement accounts, unaffiliated investment plans, or automatic
investment plans.
REDEMPTIONS. Shares of each Fund are redeemable on any business day at a
price equal to the net asset value of the shares the next time it is calculated
after receipt of your redemption request in good order. Shareholders of the MFS
Fund may redeem their shares by having their financial advisers process
redemption requests or by contacting the Fund's shareholder servicing agent, MFS
Service Center, Inc. ("MFSC") directly in writing or by telephone. PaineWebber
Fund shareholders that have an account with PaineWebber or a PaineWebber
correspondent firm may redeem shares by contacting their Financial Advisors.
Other PaineWebber Fund shareholders must send their redemption requests in
writing to the Fund's transfer agent. Each Fund may require a signature
guarantee or supporting documentation in connection with a redemption request.
If you purchased your shares by check, each Fund may delay the payment of
redemption proceeds until the check has cleared. Additionally, each Fund may
suspend redemption privileges or postpone payment of redemption proceeds under
unusual circumstances such as when the New York Stock Exchange is closed,
trading on the Exchange is restricted or if there is an emergency.
Each Fund has reserved the right to automatically redeem shares from
accounts that contain less than $500 due to redemptions or exchanges. Before
making such an automatic redemption, each Fund will notify the shareholder and
give him or her 60 days to make additional investments to avoid having his or
her shares redeemed. Additionally, each Fund has reserved the right to pay
redemption proceeds by a distribution in-kind of portfolio securities rather
than cash.
EXCHANGES. Shareholders of the MFS Fund may exchange Fund shares for
shares of the same class of all MFS funds available for sale. Shareholders of
Class A, B or C shares of the PaineWebber Fund may exchange those shares for
shares of the same class of other PaineWebber funds. Class Y shares of the
PaineWebber Fund are not exchangeable. Each Fund imposes minimum restrictions on
the dollar value of exchanges. The MFS Fund requires that exchanges be in
amounts of $1,000 or greater (or $50 for automatic exchanges under an automatic
exchange plan). The PaineWebber Fund requires that any exchange must meet the
minimum investment amount for the PaineWebber fund for which shares are to be
exchanged.
Neither Fund will assess a sales charge upon an exchange but the
transaction will be treated as a sale of the first fund's shares and taxed
accordingly. Your deferred sales charge (if any) will continue to be measured
from the date of your original purchase (which, for the Class B Reorganization
Shares received by the PaineWebber Fund shareholders, will be deemed to be the
date twenty-four months prior to the date of the original purchase of the Class
B shares of the PaineWebber Fund).
Shareholders of the MFS Fund may place exchange orders through their
financial advisers or by contacting MFSC directly. Shareholders of the
PaineWebber Fund who purchased their shares through PaineWebber or a PaineWebber
correspondent firm may place exchange orders by contacting their Financial
Advisors. Otherwise, PaineWebber Fund shareholders may exchange shares by
writing to the Fund's transfer agent.
PURCHASE AND REDEMPTION PROGRAMS. The MFS Fund offers additional purchase
and redemption programs, including an automatic investment plan, automatic
exchange plan, distribution investment program, and a systematic withdrawal
plan. The PaineWebber Fund also offers an automatic investment plan and a
systematic withdrawal plan. More information about these plans is available in
the Prospectus and Statement of Additional Information of the applicable Fund.
16. HOW WILL I BE NOTIFIED OF THE OUTCOME OF THE REORGANIZATION?
If the Reorganization is approved by shareholders, you will receive
confirmation after the Reorganization is completed, indicating your new Fund
account number and the number of shares you are receiving. If the Reorganization
is not approved, shareholders will be notified, and the results of the meeting
will be provided in the next annual report of the PaineWebber Fund. In that
case, you will continue to own your PaineWebber Fund shares, the PaineWebber
Fund will continue to be managed as a separate fund in accordance with its
current investment objectives and policies, and the PaineWebber Trustees may
consider such alternatives as may be in the best interest of PaineWebber Fund
shareholders.
17. WILL THE NUMBER OF SHARES I OWN CHANGE?
Yes, but the total value of the Reorganization Shares of the MFS Fund you
receive will equal the total value of the shares of the PaineWebber Fund that
you hold at the time of the Reorganization. Even though the net asset value per
share of each Fund is different, the total value of a shareholder's holdings
will not change as a result of the Reorganization.
RISK FACTORS
WHAT ARE THE PRINCIPAL RISK FACTORS ASSOCIATED WITH AN INVESTMENT IN THE
MFS FUND, AND HOW DO THEY COMPARE WITH THOSE FOR THE PAINEWEBBER FUND?
Because the Funds share similar goals and policies, the risks of an
investment in the MFS Fund are similar to the risks of an investment in the
PaineWebber Fund. A more detailed description of certain risks associated with
an investment in each Fund is contained in the Fund's Prospectus. Each Fund is
principally subject to the following risks:
o Interest Rate Risk: As with any fixed income security, the prices of
municipal securities in the Funds' portfolios will generally fall when
interest rates rise. Conversely, when interest rates fall, the prices of
municipal securities in the Funds' portfolios will generally rise.
o Maturity Risk: Interest rate risk will affect the price of a municipal
security more if the security has a longer maturity. Municipal securities
with longer maturities will therefore be more volatile than other fixed
income securities with shorter maturities. Conversely, municipal securities
with shorter maturities will be less volatile but generally provide lower
returns than municipal securities with longer maturities. The average
maturity of the Funds' municipal security investments will affect the
volatility of the Funds' share prices.
o Credit Risk: Credit risk is the risk that the issuer of a municipal security
will be unable or unwilling to pay principal and interest when due. Rating
agencies assign credit ratings to certain municipal securities to indicate
their credit risk. The price of a municipal security will generally fall if
the issuer defaults on its obligation to pay principal or interest, the
rating agencies downgrade the issuer's credit rating or other news affects
the market's perception of the issuer's credit risk.
Each Fund may invest in participation interests, which are interests in
holdings of municipal obligations backed by a letter of credit or guarantee
from the issuing bank. These participation interests are also subject to the
risk of default by the issuing bank.
o Municipal Lease Obligations Risk: Each of the Funds may invest in municipal
lease securities, but, unlike the MFS Fund, the PaineWebber Fund may not
invest more than 5% of its total assets in uninsured "non-appropriation"
municipal lease obligations. Municipal leases frequently have special risks
not normally associated with general obligation or revenue bonds, and
"non-appropriation" clauses provide that the governmental issuer has no
obligation to make future payments under the lease or contract unless money
is appropriated for such purpose by the appropriate legislative body on a
yearly or other periodic basis.
o General Obligations and Revenue Obligations Risk: The Funds may invest in
municipal bonds that are general obligations backed by the full faith and
credit of the municipal issuer. The Funds may also invest in municipal bonds
called revenue obligations which are subject to a higher degree of credit
risk than general obligations. Revenue obligations finance specific
projects, such as building a hospital, and are not backed by the full faith
and credit of the municipal issuer. Because revenue obligations are repaid
from the revenues generated by the facility that used the bonds for
financing, they are subject to a risk of default in payments of principal
and interest if the facility does not generate enough revenue to make
repayment possible.
o Liquidity Risk: The fixed income securities purchased by the Funds may be
illiquid and/or restricted and may be traded in the over-the-counter market
rather than on an organized exchange. These securities are therefore subject
to liquidity risk, which means that they may be harder to purchase or sell
at a fair price. The inability to purchase or sell these fixed income
securities at a fair price could have a negative impact on the Funds'
performance.
o Speculative Municipal Securities Risk: Speculative bonds (those rated in the
lowest investment grade category by credit rating agencies or which are
unrated and considered by the adviser to be comparable to speculative
securities) are subject to a higher risk that the issuer will default on
payments of principal and interest then higher rated investment grade bonds.
Although the issuer's ability to make interest and principal payments
appears adequate, an adverse change in economic conditions or other
circumstances is more likely to cause a default by the issuer of a
speculative bond than the issuer of a higher rated investment grade bond.
o Lower Rated Municipal Securities Risk
^ Higher Credit Risk: Junk bonds are subject to a substantially higher
degree of credit risk than higher-rated bonds. During recessions, a high
percentage of issuers of junk bonds may default on payments of principal
and interest. The price of a junk bond may therefore fluctuate
drastically in response to negative news about the particular issuer or
the economy in general.
^ Higher Liquidity Risk: During recessions and periods of broad market
declines, junk bonds could become less liquid, meaning that they will be
harder to value or sell at a fair price.
o Non-Diversified Status Risk: Because each Fund may invest its assets in a
small number of issuers, each Fund is more susceptible to any single
economic, political or regulatory event affecting those issuers than is a
diversified fund. Because each Fund may invest in municipal bonds that are
issued to finance similar projects, economic, business or political
developments or changes that affect one municipal bond also may affect other
municipal bonds in the same sector. The MFS Fund may not 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.
o Active or Frequent Trading Risk: The Funds may engage in active and frequent
trading to achieve their principal investment strategies. This may result in
the realization and distribution to shareholders of higher capital gains, as
compared to a Fund with less active trading policies, and an increase in
your tax liability. Frequent trading also increases transaction costs, which
could detract from the Funds' performance.
o Political Risk: The Funds' investments are significantly affected by
political changes, including legislative proposals which may make municipal
bonds less attractive in comparison to taxable bonds.
o Temporary Defensive Policies: Each Fund may depart from its principal
investment strategies by temporarily investing for defensive purposes when
adverse market, economic or political conditions exist. While the Funds
invest defensively, they may not be able to pursue their investment
objectives. A Fund's defensive investment position, therefore, may not be
effective in protecting its value.
o As with any mutual fund, you could lose money on your investment in a Fund.
An investment in a Fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
Other Investments. In addition to the Funds' main investment strategies of
investing in municipal bonds which may be of medium and lower quality, the Funds
may also buy and sell other types of investments. The risks associated with the
principal investment techniques and practices used by the Funds are summarized
above. The non-principal investment techniques in which the Funds are permitted
to engage are described, together with their risks, in each Fund's Statement of
Additional Information.
Among other non-principal investment techniques, the MFS Fund may invest
in derivatives, including futures contracts, options on futures contracts,
options on securities, and swaps and related agreements. The PaineWebber Fund
may also invest in derivatives, including futures contracts and options on
futures contracts, securities, and indices although it does not invest in swap
agreements and its investments in futures contracts and options are subject to
certain limitations not applicable to the MFS Fund. Derivatives may present the
Funds with special risks and investments in derivatives may rise and fall more
rapidly than other investments. Please see the MFS Fund's Statement of
Additional Information for a further description of the risks of the MFS Fund's
derivative investments.
Certain of the non-principal investments and related risk factors may
differ for each Fund. For example, the MFS Fund may invest in securities in
which the PaineWebber Fund may not invest, including certain types of
mortgage-backed and asset-backed securities, equity securities, and mortgage
dollar-rolls. To the extent a Fund engages in these non-principal investment
strategies, it may be subject to special risks. Please see the Statement of
Additional Information for further details. The MFS Fund may not engage in short
sales "against the box," lend its portfolio securities or invest in stand-by
commitments, transactions which are permitted for the PaineWebber Fund, subject
to some restrictions.
Among the MFS Fund's non-principal investment techniques, the MFS Fund may
be permitted to invest in certain investments subject to different limitations
than the PaineWebber Fund. For example, the MFS Fund may not knowingly invest in
securities (other than repurchase agreements) which are subject to legal or
contractual restrictions on resale if more than 15% of the MFS Fund's net assets
(taken at market value) would be so invested. By contrast, the PaineWebber Fund
may invest up to 10% of its net assets in illiquid securities. A Fund may not be
able to readily liquidate its investments in illiquid securities, and the lack
of a liquid secondary market for illiquid securities may make it more difficult
for a Fund to assign a value to those securities for purposes of valuing its
portfolio and calculating its net asset value. The PaineWebber Fund may not
invest more than 10% of its total assets in inverse floaters, while the MFS Fund
does not have a similar limitation. The market value of an inverse floater may
be more volatile than that of a fixed-rate obligation. The PaineWebber Fund may
borrow for temporary or emergency purposes, but not in excess of 10% of its
total assets, and may not purchase portfolio securities while borrowings in
excess of 5% of its total assets are outstanding. By contrast, the MFS Fund may
not 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.
For additional information, please see the MFS Fund's Statement of Additional
Information.
GENERAL
This Prospectus/Proxy Statement is furnished in connection with the
Reorganization of the PaineWebber Fund into the MFS Fund and the solicitation of
proxies by and on behalf of the PaineWebber Trustees for use at the Meeting of
Shareholders. The Meeting is to be held on Thursday, March 1, 2001 at [_______
a.m./p.m.] at 1285 Avenue of the Americas, 14th Floor, New York, New York 10019.
The Notice of the Meeting, the combined Prospectus/Proxy Statement and the
enclosed proxy card are being mailed to shareholders on or about January 5,
2001.
Any shareholder giving a proxy has the power to revoke it by mail
(addressed to the PaineWebber Fund's Secretary at the principal office of the
PaineWebber Fund, 51 West 52nd Street, New York, New York 10019-6114), by
attending the Meeting and voting in person, by executing a superseding proxy, or
by submitting a notice of revocation to the PaineWebber Fund. All properly
executed proxies received in time for the Meeting will be voted as specified in
the proxy, or, if no specification is made, FOR the proposal (set forth in
Proposal 1 of the Notice of Meeting) to implement the Reorganization of the
PaineWebber Fund by the transfer of all of its assets to the MFS Fund in
exchange for the Reorganization Shares and the assumption by the MFS Fund of all
of the stated liabilities of the PaineWebber Fund.
As of December 22, 2000, each class of the PaineWebber Fund had the number
of shares outstanding and entitled to be voted as set forth below:
Shares Outstanding and
Entitled to Vote
Class A __________
Class B __________
Class C __________
Class Y __________
Only shareholders of record on December 22, 2000 will be entitled to notice of
and to vote at the Meeting. Each share is entitled to one vote, with fractional
shares voting proportionally.
The PaineWebber Trustees know of no matters other than those set forth
herein to be brought before the Meeting. If, however, any other matters properly
come before the Meeting, it is the Fund's intention that proxies will be voted
on such matters in accordance with the judgment of the persons named in the
enclosed proxy card.
PROPOSAL REGARDING APPROVAL OF REORGANIZATION
AND RELATED AGREEMENT AND PLAN OF REORGANIZATION
The shareholders of the PaineWebber Fund are being asked to approve a
reorganization of the PaineWebber Fund into the MFS Fund pursuant to an
Agreement and Plan of Reorganization between PaineWebber Municipal Series, on
behalf of the PaineWebber Fund, and MFS Series Trust III, on behalf of the MFS
Fund, dated as of November 30, 2000 (the "Agreement"), a copy of which is
attached to this Prospectus/Proxy Statement as Exhibit A.
The Reorganization is structured as a transfer of all of the assets of the
PaineWebber Fund to the MFS Fund in exchange for the assumption by the MFS Fund
of all of the stated liabilities of the PaineWebber Fund and for that number of
the Class A, Class B, and Class C Reorganization Shares equal in total net asset
value to the net value of assets transferred to the MFS Fund, all as more fully
described below under "Information about the Reorganization."
After receipt of the Reorganization Shares, the PaineWebber Fund will
distribute the Class A Reorganization Shares to its Class A and Class Y
shareholders, the Class B Reorganization Shares to its Class B shareholders, and
the Class C Reorganization Shares to its Class C shareholders, in proportion to
their existing shareholdings as part of the complete liquidation of the
PaineWebber Fund, and the legal existence of the PaineWebber Fund as a separate
series of the PaineWebber Municipal Series, a Massachusetts business trust,
under Massachusetts law will be terminated. Each shareholder of the PaineWebber
Fund will receive a number of full and fractional Class A, Class B, or Class C
Reorganization Shares equal in value at the date of the exchange to the
aggregate value of the shareholder's PaineWebber Fund shares of the applicable
class.
Prior to the date of the transfer (the "Exchange Date"), the PaineWebber
Fund will declare and pay a distribution to shareholders which, together with
all previous distributions, will have the effect of distributing to shareholders
all of its investment company taxable income (computed without regard to the
deduction for dividends paid) plus its net interest income exempt from federal
income tax and net realized gains, if any, through the Exchange Date.
The PaineWebber Trustees have voted unanimously to approve the
Reorganization and to recommend that shareholders also approve the
Reorganization. The transactions contemplated by the Agreement will be
consummated only if approved by the affirmative vote of the holders of the
lesser of (a) 67% or more of the voting securities present at the Meeting or
represented by proxy if the holders of more than 50% of the outstanding voting
securities are present or represented by proxy or (b) more than 50% of the
outstanding voting securities of the PaineWebber Fund. The Reorganization does
not require the approval of the shareholders of the MFS Fund.
If this proposal is not approved by the shareholders of the PaineWebber
Fund, you will continue to own your PaineWebber Fund shares, the PaineWebber
Fund will continue to be managed as a separate fund in accordance with its
current investment objectives and policies, and the PaineWebber Trustees may
consider such alternatives as may be in the best interests of its shareholders.
BACKGROUND AND REASONS FOR THE PROPOSED REORGANIZATION The
PaineWebber Trustees, including all Trustees who are not
"interested persons" of the PaineWebber Fund, have determined that the
Reorganization would be in the best interests of the PaineWebber Fund's
shareholders. The PaineWebber Trustees have unanimously approved the
Reorganization and have recommended its approval by shareholders.
The proposal is the result of a review by the PaineWebber Fund's
investment adviser and administrator, MHAM, of the investment strategies and
position of the municipal bond funds in the PaineWebber fund complex. The
PaineWebber Fund has remained relatively small in comparison to other mutual
funds managed by MHAM and has not achieved the growth in assets that was
originally anticipated. As a result, MHAM has advised the PaineWebber Trustees
that the PaineWebber Fund may benefit from a combination with a larger municipal
bond fund with similar investment strategies, such as the MFS Fund. As discussed
above, while not identical, the Funds have similar investment policies, each
investing a significant portion of its assets in high-yield municipal
securities.
In light of the similarity of the Funds, MHAM advised the PaineWebber
Trustees that combining the PaineWebber Fund with the MFS Fund would be in the
best interests of shareholders of the PaineWebber Fund. The PaineWebber Trustees
believe that the Reorganization will be advantageous to the Fund's shareholders
for several reasons and considered the following matters, among others, in
unanimously approving the proposal:
1. The investment objectives, policies and restrictions of the MFS Fund
are compatible with those of the PaineWebber Fund.
2. The Reorganization offers PaineWebber Fund shareholders the
opportunity to become part of a larger and more diverse family of
more than 140 mutual funds, including 23 municipal bond funds.
PaineWebber Fund shareholders will be able to exchange their shares
among all MFS funds available for sale upon completion of the
Reorganization.
3. MFS and its predecessor organizations have a history of money
management dating from 1924. Net assets under the management of the
MFS organization were approximately $158.6 billion as of
September 30, 2000, including $5.3 billion in municipal bond fund
assets under management. The Reorganization offers PaineWebber Fund
shareholders the opportunity to invest in a municipal bond fund
managed by an investment adviser with a proven track record.
4. The MFS Fund has historically had greater net assets than the
PaineWebber Fund. Some of the fixed expenses currently paid by the
PaineWebber Fund, such as accounting, legal, and printing costs,
would be spread over a larger asset base upon the combination of the
MFS Fund and the PaineWebber Fund. Shareholders may benefit from
economies of scale through lower operating expenses over time. In
addition, Class A and Class Y shareholders of the PaineWebber Fund
will benefit from the lower total annual operating expenses of the
Class A shares of the MFS Fund, and the Class B shareholders of the
PaineWebber Fund will benefit from the lower total annual operating
expenses of the Class B shares of the MFS Fund. The total annual
operating expenses of the Class C shares of the MFS Fund are higher
than the total annual operating expenses of the Class C shares of
the PaineWebber Fund.
5. The greater net assets of the combined Fund may allow it to invest
its assets in a greater variety of municipal investments.
6. While past performance is not a guarantee of future results, the
performance history of the MFS Fund is fairly comparable to the
performance history of the PaineWebber Fund, although the
PaineWebber Fund outperformed the MFS Fund in certain years.
7. The Reorganization is intended to qualify as a tax-free
reorganization for federal income tax purposes, pursuant to which no
gain or loss will be recognized by the PaineWebber Fund or its
shareholders for federal income tax purposes as a result of
transactions included in the Reorganization.
8. The PaineWebber Trustees also took into consideration that, absent
the Reorganization, it appeared unlikely that the PaineWebber Fund
would experience a material growth in assets in the future.
9. MFS has warranted and represented that it has no current intention
to ask the Board of Trustees which oversees the MFS Fund (the "MFS
Trustees") to increase the management fee applicable to the MFS Fund
above the maximum fee provided in its Investment Advisory Agreement
during the twelve months immediately following the closing date of
the Reorganization.
10. MHAM and MFS Series Trust III, on behalf of the MFS Fund, would
enter into a cross-indemnity agreement under which each party
would indemnify the other and certain affiliated parties for
certain omissions or misstatements relating to the Fund-specific
disclosure in the Prospectus/Proxy Statement. MHAM would also
provide indemnification for losses arising out of compliance of
the PaineWebber Fund with tax and securities laws, the use of
share certificates, and the representations, warranties and
covenants contained in the Agreement.
11. MFS and MHAM would enter into an agreement under which MFS would
pay MHAM certain amounts if the Reorganization, along with the
reorganizations of certain other PaineWebber funds ("PW Funds")
into MFS funds, is completed, and upon satisfaction of certain
obligations and conditions. First, MFS would pay MHAM an amount
equal to 0.50% of the aggregate value of the PW Funds' net assets
as of the last business day prior to the closing date of the
reorganizations minus any distributions made on that business day
(including any final distribution). Second, within 30 days after
the closing date of the reorganizations, MFS would pay MHAM an
amount equal to the net present value of the expected Class B
share distribution fees to be paid to MFS based on shareholder
accounts transferred from the PW Funds. Third, MFS may pay MHAM
a fee based on the aggregate value of the net assets transferred
from the PW Funds, and remaining in the MFS Funds, together with
other net assets of the MFS Funds with respect to which
PaineWebber Incorporated is listed as the broker-dealer of
record, as of the last business day preceding the first year
anniversary of the closing date of the reorganizations. This fee
can be as much as 0.60% of the value of the PW Funds' net assets
on the last business day preceding the closing date of the
reorganizations.
In approving the Reorganization, the MFS Trustees considered that the
Reorganization presents an opportunity for the MFS Fund to acquire investment
assets without the need to pay brokerage commissions or other transaction costs
that are normally associated with the purchase of securities. The MFS Trustees
also considered that the expenses that the MFS Fund would incur as a result of
the Reorganization were reasonable in relation to the benefits the MFS Fund
would realize as a result of the Reorganization. The MFS Trustees believe that
the MFS Fund shareholders will over time also benefit from economies of scale as
a result of the Reorganization.
Exchange without recognition of gain or loss for federal income tax
purposes. If a PaineWebber Fund shareholder were to redeem his or her shares to
invest in another fund, like the MFS Fund, that shareholder generally would
recognize gain or loss for federal income tax purposes. Also, if the PaineWebber
Fund were liquidated or were reorganized in a taxable reorganization, the
transaction would likely result in a taxable event for its shareholders. By
contrast, the Reorganization will permit the PaineWebber Fund's shareholders to
exchange their investment for an investment in the MFS Fund without recognizing
gain or loss for federal income tax purposes. After the Reorganization,
shareholders will be free to redeem any or all of the Reorganization Shares at
net asset value at any time, at which point a taxable gain or loss generally
would be recognized.
INFORMATION ABOUT THE REORGANIZATION
Agreement and Plan of Reorganization. The Reorganization will be governed
by the Agreement. The Agreement provides that the MFS Fund will acquire the
assets of the PaineWebber Fund in exchange for the assumption by the MFS Fund of
the stated liabilities of the PaineWebber Fund and for the issuance of Class A,
Class B and Class C Reorganization Shares equal in value to the value of the
transferred assets net of assumed liabilities. The shares will be issued on the
Exchange Date, which will be the next full business day following the time as of
which the Funds' shares are valued for determining net asset value for the
Reorganization (4:00 p.m. Eastern time on March 9, 2001 or such other date as
may be agreed upon by the parties). The following discussion of the Agreement is
qualified in its entirety by the full text of the Agreement, which is attached
as Exhibit A to this Prospectus/Proxy Statement.
The PaineWebber Fund will transfer all of its assets to the MFS Fund, and
in exchange, the MFS Fund will assume all of the stated liabilities of the
PaineWebber Fund and will deliver to the PaineWebber Fund (i) a number of full
and fractional Class A Reorganization Shares having an aggregate net asset value
equal to the value of assets of the PaineWebber Fund attributable to its Class A
and Class Y shares, less the value of the liabilities of the PaineWebber Fund
assumed by the MFS Fund attributable thereto; (ii) a number of full and
fractional Class B Reorganization Shares having a net asset value equal to the
value of assets of the PaineWebber Fund attributable to its Class B shares, less
the value of the liabilities of the PaineWebber Fund assumed by the MFS Fund
attributable thereto, and (iii) a number of full and fractional Class C
Reorganization Shares having a net asset value equal to the value of assets of
the PaineWebber Fund attributable to its Class C shares, less the value of the
liabilities of the PaineWebber Fund assumed by the MFS Fund attributable
thereto.
On the Exchange Date, the PaineWebber Fund will distribute pro rata to its
shareholders of record as of the close of business on the day before the
Exchange Date the full and fractional Reorganization Shares received by the
PaineWebber Fund, with Class A Reorganization Shares being distributed to
holders of Class A and Class Y shares of the PaineWebber Fund, Class B
Reorganization Shares being distributed to holders of Class B shares of the
PaineWebber Fund, and Class C Reorganization Shares being distributed to holders
of Class C shares of the PaineWebber Fund. As a result of the Reorganization,
each holder of Class A, Class B, Class C and Class Y shares of the PaineWebber
Fund will receive a number of Class A, Class B and Class C Reorganization Shares
equal in aggregate value on the Exchange Date to the value of the Class A and
Class Y, Class B, and Class C shares, respectively, of the PaineWebber Fund held
by the shareholder. This distribution will be accomplished by the establishment
of accounts on the share records of the MFS Fund in the name of such PaineWebber
Fund shareholders, each account representing the respective number of full and
fractional Class A, Class B and Class C Reorganization Shares due such
shareholder. Share certificates for Reorganization Shares will not be issued.
The PaineWebber Trustees have determined that the Reorganization is in the
best interests of the PaineWebber Fund.
The consummation of the Reorganization is subject to the conditions set
forth in the Agreement. The Agreement may be terminated and the Reorganization
abandoned at any time, before or after approval by the shareholders, prior to
the Exchange Date by mutual consent of the Funds or, if any condition set forth
in the Agreement has not been fulfilled and has not been waived by the party
entitled to its benefits, by that party.
The fees and expenses for the Reorganization are estimated to be
[$80,000]. MHAM has agreed to pay all of the expenses associated with
typesetting, printing and mailing this combined Prospectus/Proxy Statement, and
for the solicitation and meeting expenses associated with the special meeting of
PaineWebber Fund shareholders. If the shareholders of the PaineWebber Fund do
not approve the Reorganization, then MHAM shall pay one-half of the costs and
expenses incurred by MFS and the MFS Fund in connection with matters
contemplated by the Agreement. Otherwise, MHAM shall bear the PaineWebber Fund's
fees and expenses, including legal and accounting expenses, portfolio transfer
taxes (if any) or other similar expenses incurred in connection with the
consummation of the transactions contemplated by the Agreement, and the MFS Fund
shall bear its own fees and expenses.
Upon the consummation of this Reorganization and reorganizations of
certain other PaineWebber funds into MFS funds, and upon the satisfaction of
certain other obligations and conditions, MFS has agreed to pay MHAM an amount
equal to 0.50% of the value of the net assets of the PaineWebber Fund and the
other acquired PaineWebber funds as of the last business day preceding the
closing date of the reorganizations (minus certain distributions). MFS also has
agreed to pay MHAM an amount equivalent to the net present value of expected
distribution fees on Class B shares to be paid out of the assets acquired from
the PaineWebber Fund and the other acquired PaineWebber funds. In addition, on
the first year anniversary of the closing of the reorganizations, MFS has agreed
to pay MHAM an amount up to 0.60% of the value of the net assets of the
PaineWebber Fund and the other acquired PaineWebber funds as of the last
business day preceding the closing date of the reorganizations (minus certain
distributions) depending upon the aggregate value as of the first year
anniversary of (i) the net assets transferred from the PaineWebber Fund and the
other acquired PaineWebber funds which remain in the MFS funds and (ii) other
net assets of MFS funds with respect to which PaineWebber Incorporated is listed
as the broker-dealer of record. Because of these payments, which may be
substantial, MHAM has an interest in the approval of the Reorganization.
Description of the Reorganization Shares. Reorganization Shares will be
issued to the PaineWebber Fund's shareholders in accordance with the procedures
under the Agreement as described above. The Reorganization Shares are Class A,
Class B and Class C shares of the MFS Fund.
Investors purchasing Class A shares of the MFS Fund pay a sales charge at
the time of purchase, but Class A and Class Y PaineWebber Fund shareholders
receiving Class A Reorganization Shares in the Reorganization will not pay a
sales charge on such shares. If a PaineWebber Fund shareholder is permitted to
purchase additional Class A or Class Y shares of the PaineWebber Fund at net
asset value in accordance with the then-current Prospectus and Statement of
Additional Information of the PaineWebber Fund, then the PaineWebber Fund
shareholder will be permitted to purchase additional Class A shares of the MFS
Fund at net asset value. Class A shares of the MFS Fund are not subject to
distribution and service fees (Rule 12b-1 fees).
Class B shares of the MFS Fund are sold without a sales charge, but are
subject to a CDSC of up to 4% if redeemed within six years of purchase. For
purposes of determining the CDSC payable on redemption of Class B Reorganization
Shares received by holders of Class B shares of the PaineWebber Fund, such
shares will be treated as having a holding period that started 24 months before
the date such shareholders originally acquired their PaineWebber Fund Class B
shares. Class B shares are also subject to a Rule 12b-1 fee at the annual rate
of up to 1.00% of the MFS Fund's average daily net assets attributable to Class
B shares. Except in the case of the 0.25% per annum Class B service fee payable
by the MFS Fund upon the sale of Class B shares in the first year, payment of
the Class B service fee will be suspended until such date as the MFS Trustees
determine. Class B shares will automatically convert to Class A shares, based on
relative net asset value, approximately eight years after purchase. For purposes
of determining the conversion date of Class B Reorganization Shares, such shares
will be treated as having a holding period that started 24 months before the
date such shareholders originally acquired their PaineWebber Fund Class B
shares.
Class C shares of the MFS Fund are sold at net asset value without an
initial sales charge, but if you redeem your shares within the first year you
may be subject to a CDSC of 1.00%. For purposes of determining the CDSC payable
on redemption of Class C Reorganization Shares received by PaineWebber Fund
Class C shareholders such shares will be treated as having been acquired as of
the dates such shareholders originally acquired their Class C shares of the
PaineWebber Fund. Class C shares of the MFS Fund are subject to distribution and
service fees up to a maximum of 1.00% of net assets annually. Class C shares do
not convert to any other class of shares of the MFS Fund.
Each of the Reorganization Shares will be fully paid and nonassessable
when issued, will be transferable without restriction, and will have no
preemptive or conversion rights, except that Class B Reorganization Shares will
have the conversion rights specified above. The Amended and Restated Declaration
of Trust (the "Declaration of Trust") of MFS Series Trust III, of which the MFS
Fund is a series, permits the Fund to divide its shares, without shareholder
approval, into two or more classes of shares having such preferences and special
or relative rights and privileges as the MFS Trustees may determine. The MFS
Fund's shares are currently divided into three classes -- Class A, Class B, and
Class C shares.
Under Massachusetts law, shareholders could, under certain circumstances,
be held personally liable for the obligations of the MFS Fund. However, the
Declaration of Trust disclaims shareholder liability for acts or obligations of
the MFS Fund and requires that notice of such disclaimer be given in each
agreement, obligation, or instrument entered into or executed by MFS Series
Trust III, on behalf of the MFS Fund or the MFS Trustees. The Declaration of
Trust provides for indemnification out of Fund property for all loss and expense
of any shareholder held personally liable for the obligations of the MFS Fund.
Thus, the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which the MFS Fund would be
unable to meet its obligations. The likelihood of such circumstances is remote.
The shareholders of the PaineWebber Fund are currently subject to a similar risk
of shareholder liability.
Federal Income Tax Consequences. As a condition to each party's obligation
to consummate the Reorganization, the PaineWebber Fund and the MFS Fund will
receive an opinion from Bingham Dana LLP (which opinion will be based on certain
factual representations and subject to certain qualifications) substantially to
the effect that, on the basis of the provisions of the Internal Revenue Code in
effect as of the date of the opinion (the "Code"), and the regulations, rulings,
and interpretations thereof in force as of the same date, for federal income tax
purposes:
(a) The acquisition by the MFS Fund of all of the assets of the
PaineWebber Fund, in exchange solely for Reorganization Shares and the
assumption by the MFS Fund of the stated liabilities (collectively the
"Liabilities") of the PaineWebber Fund as set forth in the Statement of
Assets and Liabilities, followed by the distribution by the PaineWebber
Fund of the Reorganization Shares to the shareholders of the PaineWebber
Fund in exchange for their PaineWebber Fund shares and in complete
liquidation of the PaineWebber Fund, will constitute a reorganization
within the meaning of Section 368(a) of the Code, and each Fund will be a
"party to a reorganization" within the meaning of Section 368(b) of the
Code;
(b) No gain or loss will be recognized by the PaineWebber Fund upon
the transfer of all of its assets to the MFS Fund in exchange solely for
Reorganization Shares and the assumption by the MFS Fund of the
Liabilities, or upon the distribution to the PaineWebber Fund shareholders
of such Reorganization Shares pursuant to the Agreement;
(c) No gain or loss will be recognized by the MFS Fund upon the
receipt of the assets of the PaineWebber Fund in exchange solely for
Reorganization Shares and the assumption by the MFS Fund of the
Liabilities;
(d) The basis of the assets of the PaineWebber Fund acquired by the
MFS Fund will be, in each instance, the same as the basis of those assets
in the hands of the PaineWebber Fund immediately prior to the transfer;
(e) The holding period of the assets of the PaineWebber Fund in the
hands of the MFS Fund will include, in each instance, the holding period
of those assets in the hands of the PaineWebber Fund;
(f) The PaineWebber Fund shareholders will not recognize gain or
loss upon the exchange of all of their PaineWebber Fund shares solely for
Reorganization Shares as part of the Reorganization;
(g) The basis of the Reorganization Shares to be received by each
PaineWebber Fund shareholder will be, in the aggregate, the same as the
basis, in the aggregate, of the PaineWebber Fund shares surrendered by
such shareholder in exchange therefor; and
(h) The holding period of the Reorganization Shares to be received
by each PaineWebber Fund shareholder will include, in each instance, the
holding period of the PaineWebber Fund shares surrendered by such
shareholder in exchange therefor, provided the PaineWebber Fund shares
were held by such shareholder as capital assets on the Exchange Date.
Capitalization. The following table shows the capitalization of the Funds
as of September 30, 2000, and on a pro forma combined basis, giving effect to
the proposed acquisition of assets at net asset value as of that date:
<PAGE>
UNAUDITED
SHARES
NET ASSETS OUTSTANDING NET ASSET VALUE
(000'S OMITTED) (000'S OMITTED) PER SHARE
--------------------------------------------------------------------------------
MFS FUND
Class A $ 981,330 119,621 $8.20
Class B $ 342,727 41,735 $8.21
Class C $ 20,852 2,539 $8.21
PAINEWEBBER FUND
Class A $ 58,358 5,910 $9.87
Class B $ 12,463 1,263 $9.87
Class C $ 17,391 1,762 $9.87
Class Y $ 219 22 $9.88
PRO FORMA COMBINED
FUND*
Class A** $1,039,907 126,764 $8.20
Class B $ 355,190 43,253 $8.21
Class C $ 38,243 4,657 $8.21
--------------------------------------------------------------------------------
* If the Reorganization had taken place on September 30, 2000, the
PaineWebber Fund would have received 7,143,555, 1,518,046 and 2,118,258
Class A, B and C shares, respectively, of the MFS Fund, which would be
available for distribution to its shareholders. No assurances can be given
as to the number of Reorganization Shares the PaineWebber Fund will
receive on the Exchange Date. The foregoing is merely an example of what
the PaineWebber Fund would have received and distributed had the
Reorganization been consummated on September 30, 2000, and should not be
relied upon to reflect the amount that will actually be received on or
after the Exchange Date.
** Class A and Class Y shareholders of the PaineWebber Fund will receive Class A
Reorganization Shares. The pro forma combined Class A information includes
the combination of the Class A shares of the MFS Fund and the Class A and
Class Y shares of the PaineWebber Fund.
THE PAINEWEBBER TRUSTEES, INCLUDING THE INDEPENDENT TRUSTEES, UNANIMOUSLY
RECOMMEND APPROVAL OF THE AGREEMENT.
VOTING INFORMATION
Required Vote. Proxies are being solicited from the PaineWebber Fund's
shareholders by the PaineWebber Trustees for the Special Meeting of Shareholders
to be held on March 1, 2001 at [________ a.m./p.m.] (the "Meeting"), at 1285
Avenue of the Americas, 14th Floor, New York, New York 10019, or at such later
time made necessary by adjournment. Unless revoked, all valid proxies will be
voted in accordance with the specification thereon or, in the absence of
specifications, FOR approval of the Agreement. The transactions contemplated by
the Agreement will be consummated only if approved by the affirmative vote of a
"majority of the outstanding voting securities" of the PaineWebber Fund entitled
to vote. Under the Investment Company Act of 1940, as amended, the vote of a
"majority of the outstanding voting securities" means the affirmative vote of
the lesser of (a) 67% or more of the voting securities present at the Meeting or
represented by proxy if the holders of more than 50% of the outstanding voting
securities are present or represented by proxy or (b) more than 50% of the
outstanding voting securities.
Record Date, Quorum and Method of Tabulation. Shareholders of record of
the PaineWebber Fund at the close of business on December 22, 2000 (the "record
date") will be entitled to vote at the Meeting or any adjournment thereof. The
holders of a majority of the shares of the PaineWebber Fund outstanding at the
close of business on the record date present in person or represented by proxy
will constitute a quorum for the Meeting. Shareholders are entitled to one vote
for each share held, with fractional shares voting proportionally.
Votes cast by proxy or in person at the Meeting will be counted by
person(s) appointed by the PaineWebber Fund as the vote tabulator(s) for the
Meeting. The vote tabulator(s) will count the total number of votes cast "for"
approval of the proposal for purposes of determining whether sufficient
affirmative votes have been cast. The vote tabulator(s) will count shares
represented by proxies that are marked with an abstention or that reflect
"broker non-votes" (i.e., shares held by brokers or nominees as to which (i)
instructions have not been received from the beneficial owners or the persons
entitled to vote and (ii) the broker or nominee does not have the discretionary
voting power on a particular matter) as shares that are present and entitled to
vote on the matter for purposes of determining the presence of a quorum but not
as shares voted for or against any proposal or adjournment. Thus, abstentions
and broker non-votes have the effect of a negative vote on the proposal.
As of December 22, 2000, the officers and Trustees of the PaineWebber Fund
as a group beneficially owned less than 1% of any class of the outstanding
shares of the PaineWebber Fund. To the best of the knowledge of the PaineWebber
Fund, the following shareholders owned of record or beneficially 5% or more of
the following classes of the PaineWebber Fund's outstanding shares:
PERCENTAGE OWNED
CLASS SHAREHOLDER NAME AND ADDRESS PERCENTAGE OWNED POST-REORGANIZATION
----- ---------------------------- ---------------- -------------------
The votes of the shareholders of the MFS Fund are not being solicited
because their approval or consent is not necessary for this transaction. As of
December 22, 2000, the officers and Trustees of the MFS Fund as a group
beneficially owned less than 1% of any class of the outstanding shares of the
MFS Fund. To the best of the knowledge of the MFS Fund, the following
shareholders owned of record or beneficially 5% or more of the following classes
of the MFS Fund's outstanding shares:
PERCENTAGE OWNED
CLASS SHAREHOLDER NAME AND ADDRESS PERCENTAGE OWNED POST-REORGANIZATION
----- ---------------------------- ---------------- -------------------
Solicitation of Proxies. In addition to soliciting proxies by mail, the
PaineWebber Trustees and employees of PaineWebber [**and
_____________________**] may solicit proxies in person or by telephone. In
addition, the PaineWebber Fund has authorized the use of ____________________ to
aid in the solicitation of instructions for nominee and registered accounts.
MHAM will pay ____________ a fee of approximately $_____, plus reasonable
out-of-pocket expenses for mailing and phone costs. The PaineWebber Fund also
has arranged to have votes recorded by telephone. The telephonic voting
procedure is designed to authenticate shareholders' identities, to allow
shareholders to authorize the voting of their shares in accordance with their
instructions and to confirm that their instructions have been properly recorded.
Shareholders who vote by telephone will be asked for their social security
numbers or other identifying information. The shareholders would then be given
an opportunity to authorize their proxies to vote their shares in accordance
with their instructions. To ensure that the shareholders' instructions have been
recorded correctly, they will also receive a confirmation of their instructions
in the mail. A toll-free number will be available in the event the information
in the confirmation is incorrect. If we do not hear from a shareholder, that
shareholder may also be called at the phone number the PaineWebber Fund has in
its records for the account, and would be given an opportunity to vote by
telephone.
Depending on how you own your shares you may also be able to vote by
signing and faxing the completed proxy card toll-free to the fax number included
on your proxy card.
Shareholders have the opportunity to vote via the Internet by utilizing a
program provided through [______________________]. The giving of such a proxy
will not affect your right to vote in person should you decide to attend the
Meeting. To vote via the internet, you will need the [___]-digit "control"
number that appears with your proxy materials. To vote via the Internet, please
access [____] on the World Wide Web at [**www.proxyvote.com,**]. The internet
voting procedures are designed to authenticate shareholder identities, to allow
shareholders to give their voting instructions, and to confirm that
shareholders' instructions have been recorded properly. Shareholders voting via
the internet should understand that there may be costs associated with
electronic access, such as usage charges from Internet access providers and
telephone companies, that must be borne by the shareholders.
Persons holding shares as nominees will, upon request, be reimbursed for
their reasonable expenses in soliciting instructions from their principals.
Revocation of Proxies. Proxies, including proxies given by telephone,
facsimile or via the internet, may be revoked at any time before they are voted
by a written revocation received by the Secretary of the PaineWebber Fund, by
properly executing a later-dated proxy or by attending the Meeting and voting in
person.
Shareholder Proposals. The PaineWebber Fund does not hold annual
shareholder meetings. If the Reorganization is not approved, any shareholder who
wishes to submit a proposal to be considered by the Fund's shareholders at the
next meeting of shareholders should send the proposal to the PaineWebber Fund,
c/o Dianne E. O'Donnell, Secretary, at 51 West 52nd St., New York, New York
10019-6114, so as to be received within a reasonable time before the PaineWebber
Trustees make the solicitation relating to such meeting. Shareholder proposals
that are submitted in a timely manner will not necessarily be included in the
PaineWebber Fund's proxy materials. Including shareholder proposals in proxy
materials is subject to limitations under federal securities laws.
Adjournment. If sufficient votes in favor of the proposal are not received
by the time scheduled for the Meeting, the persons named as proxies may propose
adjournments of the Meeting for a reasonable period of time to permit further
solicitation of proxies. Any adjournment will require the affirmative vote of a
majority of the votes cast on the question in person or by proxy at the session
of the Meeting to be adjourned. The persons named as proxies will vote in favor
of such adjournment those proxies which they are entitled to vote in favor of
the proposal. They will vote against any such adjournment those proxies required
to be voted against the proposal. Shares represented by proxies marked with an
abstention or that reflect broker non-votes will not be voted for or against
such adjournment and thus will have the effect of a vote against the
adjournment. MHAM pays the costs of any additional solicitation and of any
adjourned session.
MISCELLANEOUS
INDEPENDENT AUDITORS
The audited financial statements of the MFS Fund and the PaineWebber Fund
for the fiscal years ended January 31, 2000 and February 29, 2000, respectively,
included in the Funds' Statements of Additional Information have been audited by
Ernst & Young LLP, independent auditors, whose reports thereon are included in
the respective Statements of Additional Information and in the Annual Reports to
Shareholders for the fiscal years ended January 31, 2000 and February 29, 2000,
respectively. The financial statements audited by Ernst & Young LLP have been
incorporated by reference in reliance on their reports given on their authority
as experts in auditing and accounting. The unaudited financial statements of the
MFS Fund for the six months ended July 31, 2000 and of the PaineWebber Fund for
the six months ended August 31, 2000 are included in the Statement of Additional
Information to this Prospectus/Proxy Statement.
AVAILABLE INFORMATION
The PaineWebber Fund and the MFS Fund are each subject to the
informational requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, and in accordance with these laws, they each
file reports, proxy material and other information with the Commission. Such
reports, proxy material and other information can be inspected and copied at the
Public Reference Room maintained by the Commission at 450 Fifth Street, N.W.,
Washington D.C. 20549 and 7 World Trade Center, New York, NY 10048. Copies of
such material can also be obtained from the Public Reference Branch, Office of
Consumer Affairs and Information Services, Securities and Exchange Commission,
Washington D.C. 20549, at prescribed rates, or at the Commission's website
(http://www.sec.gov).
OTHER BUSINESS
Management of the PaineWebber Fund knows of no business other than the
matters specified above which will be presented at the Meeting. Because matters
not known at the time of the solicitation may come before the Meeting, the proxy
as solicited confers discretionary authority with respect to such matters as
properly come before the Meeting, including any adjournment or adjournments
thereof, and it is the intention of the persons named as proxies to vote the
proxy in accordance with their judgment on such matters.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY.
JANUARY 1, 2001
PAINEWEBBER MUNICIPAL HIGH INCOME FUND, a series of
PAINEWEBBER MUNICIPAL SERIES
51 West 52nd Street
New York, New York 10019-6114
<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made this
30th day of November, 2000, by and between PaineWebber Municipal Series, a
Massachusetts business trust (the "PW Trust"), on behalf of PaineWebber
Municipal High Income Fund, a series thereof (the "Acquired Fund"), and MFS
Series Trust III, a Massachusetts business trust (the "MFS Trust"), on behalf of
MFS Municipal High Income Fund, a series thereof (the "Surviving Fund"). The
principal place of business of the Acquired Fund is 51 West 52nd Street, New
York, New York, 10019-6114, and of the Surviving Fund is 500 Boylston Street,
Boston, Massachusetts 02116.
This Agreement is intended to be and is adopted as a plan of
reorganization within the meaning of Section 368(a) of the United States
Internal Revenue Code of 1986, as amended (the "Code"), and the regulations
thereunder. The reorganization will consist of (i) the transfer of all of the
assets of the Acquired Fund to the Surviving Fund in exchange solely for the
assumption by the Surviving Fund of stated liabilities of the Acquired Fund and
the issuance to the Acquired Fund of shares of beneficial interest of the
Surviving Fund (the "Surviving Fund Shares"), (ii) the distribution, promptly
after the Closing Date hereinafter referred to, of the Surviving Fund Shares to
the shareholders of the Acquired Fund as part of the liquidation of the Acquired
Fund as provided herein and (iii) the termination of the Acquired Fund as a
series of the PW Trust, all upon the terms and conditions hereinafter set forth
in this Agreement (the "Reorganization"). The Acquired Fund and the Surviving
Fund are each referred to herein individually as a "Fund," and collectively as
the "Funds."
Shares of beneficial interest of the Acquired Fund ("Acquired Fund
Shares") are divided into four classes of shares, designated Class A, Class B,
Class C, and Class Y shares. Surviving Fund Shares are divided into three
classes of shares, designated Class A, Class B and Class C shares.
All representations, warranties, covenants and obligations of the
Surviving Fund and the Acquired Fund contained herein shall be deemed to be
representations, warranties, covenants and obligations of the MFS Trust and the
PW Trust, respectively, acting on behalf of the Surviving Fund and the Acquired
Fund, respectively, and all rights and benefits created hereunder in favor of
the Surviving Fund and the Acquired Fund shall inure to the MFS Trust and the PW
Trust, respectively, and shall be enforceable by the MFS Trust and the PW Trust,
respectively, acting on behalf of the Surviving Fund and the Acquired Fund,
respectively.
In consideration of the premises of the covenants and agreements
hereinafter set forth, the parties hereto covenant and agree as follows:
1. THE REORGANIZATION
1.1. The Acquired Fund agrees to assign, sell, convey, transfer, and
deliver its assets described in Section 1.2 hereof (the "Assets") to the
Surviving Fund. The Surviving Fund agrees in exchange therefor:
(a) to issue and deliver to the Acquired Fund the number of full and
fractional (i) Class A Surviving Fund Shares determined by
dividing the portion of the net value of the Assets (such net
value computed as set forth in Section 2 hereof and referred to
as the "Acquired Fund Value") attributable to the Class A
Acquired Fund Shares by the net asset value ("NAV") of a Class A
Surviving Fund Share (computed as set forth in Section 2), (ii)
Class B Surviving Fund Shares determined by dividing the portion
of the Acquired Fund Value attributable to the Class B Acquired
Fund Shares by the NAV of a Class B Surviving Fund Share
(computed as set forth in Section 2), (iii) Class C Surviving
Fund Shares determined by dividing the portion of the Acquired
Fund Value attributable to the Class C Acquired Fund Shares by
the NAV of a Class C Surviving Fund Share (computed as set forth
in Section 2), and (iv) Class A Surviving Fund Shares determined
by dividing the portion of the Acquired Fund Value attributable
to the Class Y Acquired Fund Shares by the NAV of a Class A
Surviving Fund Share (computed as set forth in Section 2), and
(b) to assume the Acquired Fund's liabilities described in Section
1.3 hereof (the "Liabilities").
Such transactions shall take place on the Closing Date (as defined in Section
1.5 hereof).
1.2. The Assets shall consist of all cash, cash equivalents, securities,
receivables (including interest and dividends receivable), deferred and prepaid
expenses and other property owned by the Acquired Fund as of the Valuation Time
(as defined in Section 1.5 hereof). The Assets shall be set forth in the
Statement of Assets and Liabilities (as defined in Section 7.2 hereof).
1.3. The Liabilities shall mean all of the Acquired Fund's liabilities,
debts and obligations known as of the Valuation Time. The Liabilities shall be
set forth in the Statement of Assets and Liabilities.
1.4. The Acquired Fund has provided the Surviving Fund with a list of the
current securities holdings of the Acquired Fund as of the date of execution of
this Agreement. The Acquired Fund reserves the right to sell any of these
securities (except to the extent sales may be limited by representations made in
connection with issuance of the tax opinion described in Section 8.6 hereof) but
will not, without the prior approval of the Surviving Fund, acquire any
additional securities other than securities of the type in which the Surviving
Fund is permitted to invest.
1.5. On or as soon after the closing date established in Section 3.1
hereof (the "Closing Date") as is conveniently practicable, the Acquired Fund
will liquidate and distribute pro rata to its shareholders of record ("Acquired
Fund shareholders"), determined as of the close of business on the last business
day preceding the Closing Date (the "Valuation Time"), the Surviving Fund Shares
received by the Acquired Fund pursuant to Section 1.1 hereof in actual or
constructive exchange for Acquired Fund Shares held by the Acquired Fund
shareholders. Acquired Fund shareholders owning (i) Class A Acquired Fund Shares
shall receive Class A Surviving Fund Shares therefor, (ii) Class B Acquired Fund
Shares shall receive Class B Surviving Fund Shares therefor, (iii) Class C
Acquired Fund Shares shall receive Class C Surviving Fund Shares therefor, and
(iv) Class Y Acquired Fund Shares shall receive Class A Surviving Fund Shares
therefor. Such distribution will be accomplished by the transfer of the
Surviving Fund Shares then credited to the account of the Acquired Fund on the
books of the Surviving Fund to open accounts on those books in the names of the
Acquired Fund shareholders in amounts representing the respective pro rata
number of the Surviving Fund Shares due such shareholders. The Surviving Fund
will not issue share certificates representing the Surviving Fund Shares in
connection with such exchange.
1.6. Any Acquired Fund Share certificate that remains outstanding on the
Closing Date shall be deemed to be cancelled, shall no longer evidence ownership
of shares of beneficial interest of the Acquired Fund and shall not evidence
ownership of the Surviving Fund Shares.
1.7. Any transfer taxes payable upon issuance of the Surviving Fund Shares
in a name other than the registered holder of the Surviving Fund Shares on the
books of the Acquired Fund as of that time shall, as a condition of such
issuance and transfer, be paid by the person to whom such Surviving Fund Shares
are to be issued and transferred.
1.8. The Acquired Fund shall be terminated as a series of the PW Trust as
soon as practicable following the Closing Date, but in no event later than 6
months following the Closing Date.
2. VALUATION
2.1 The NAV of each class of the Surviving Fund Shares and the Acquired
Fund Value shall in each case be determined as of the Valuation Time. The NAV of
the Surviving Fund Shares shall be computed by State Street Bank and Trust
Company, each Fund's custodian (the "Custodian"), in the manner set forth in the
MFS Trust's Amended and Restated Declaration of Trust (the "MFS Trust's
Declaration of Trust") or By-Laws and the Surviving Fund's then current
prospectus and statement of additional information and shall be computed to not
fewer than two decimal places. The Acquired Fund Value shall be computed by the
Custodian (in consultation with Mitchell Hutchins Asset Management Inc. ("MH"),
the Acquired Fund's investment adviser, and subject to final approval by MH as
delegate of the PW Trust Board of Trustees) in a manner identical to that being
used by the Surviving Fund as described in the preceding sentence.
3. CLOSING AND CLOSING DATE
3.1 The Closing Date shall be as soon as practicable after the
Reorganization is approved by shareholders of the Acquired Fund, but in no event
later than April 30, 2001 (or such other date as the parties may agree in
writing). The closing shall be held at 8:00 a.m., Eastern time, at the offices
of the Surviving Fund, 500 Boylston Street, Boston, Massachusetts 02116, or at
such other time and/or place as the parties may agree.
3.2 Portfolio securities shall be delivered by the Acquired Fund to the
Custodian for the account of the Surviving Fund on the Closing Date, duly
endorsed in proper form for transfer, in such condition as to constitute good
delivery thereof in accordance with the custom of brokers, and shall be
accompanied by all necessary federal and state stock transfer stamps or a check
for the appropriate purchase price thereof. The cash delivered shall be in the
form of currency, certified or official bank check or federal fund wire, payable
to the order of "State Street Bank and Trust Company, Custodian for the MFS
Municipal High Income Fund" or in the name of any successor organization.
3.3 If at the Valuation Time (a) the New York Stock Exchange shall be
closed to trading or trading thereon shall be restricted, or (b) trading or the
reporting of trading on said Exchange or elsewhere shall be disrupted so that
accurate appraisal of the net value of the assets of the Surviving Fund or the
Acquired Fund is impracticable, the Closing Date shall be postponed until the
first business day after the day when trading shall have been fully resumed and
reporting shall have been restored; provided that if trading shall not be fully
resumed and reporting restored on or before April 30, 2001, this Agreement may
be terminated by the MFS Trust or the PW Trust upon the giving of written notice
to the other party.
3.4 The Acquired Fund shall deliver on the Closing Date the names,
addresses, federal taxpayer identification numbers and backup withholding and
nonresident alien withholding status of the Acquired Fund shareholders and the
number of outstanding shares of beneficial interest of the Acquired Fund owned
by each such shareholder, all as of the Valuation Time (the "Shareholder List").
The Surviving Fund shall issue and deliver to the Acquired Fund a confirmation
evidencing the Surviving Fund Shares to be credited on the Closing Date, or
provide evidence satisfactory to the Acquired Fund that such Surviving Fund
Shares have been credited to Acquired Fund shareholder accounts on the books of
the Surviving Fund. On the Closing Date each party shall deliver to the other
such bills of sale, checks, assignments, stock certificates, receipts or other
documents as such other party or its counsel may reasonably request.
4. REPRESENTATIONS AND WARRANTIES
4.1 The PW Trust represents and warrants, on its behalf and on behalf of
the Acquired Fund, to the MFS Trust as follows:
(a) The PW Trust is a business trust duly organized and validly
existing under the laws of The Commonwealth of Massachusetts and
has the power to own all of its properties and assets and, subject
to approval by the shareholders of the Acquired Fund, to carry out
this Agreement. Neither the PW Trust nor the Acquired Fund is
required to qualify to do business in any other jurisdiction where
it is not duly qualified. This Agreement has been duly authorized
by the PW Trust, subject to the approval of the shareholders of
the Acquired Fund. The PW Trust has all necessary federal, state
and local authorizations to own all of the properties and assets
of the PW Trust and to carry on its business as now being
conducted;
(b) The PW Trust is a duly registered investment company classified as
a management company of the open-end type and its registration
with the Securities and Exchange Commission (the "Commission") as
an investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"), is in full force and effect;
(c) The PW Trust is not, and the execution, delivery and performance
of this Agreement by the PW Trust will not result, in violation of
any provision of the Declaration of Trust or By-Laws of the PW
Trust or of any agreement, indenture, instrument, contract, lease
or other undertaking to which the PW Trust or the Acquired Fund is
a party or by which the PW Trust or the Acquired Fund is bound;
(d) All material contracts of the PW Trust (other than this Agreement
and investment contracts) will be terminated without liability to
the Acquired Fund at or prior to the Closing Date;
(e) Except as previously disclosed in writing to and accepted by the
MFS Trust, no material litigation or administrative proceeding or
investigation of or before any court or governmental body is
currently pending or (to the PW Trust's knowledge) threatened as
to the Acquired Fund or any of its properties or assets. The PW
Trust knows of no facts that might form the basis for the
institution of such proceedings, and the PW Trust is not a party
to or subject to the provisions of any order, decree or judgment
of any court or governmental body which materially and adversely
affects its business or its ability to consummate the transactions
herein contemplated;
(f) The statement of assets and liabilities, including the schedule of
portfolio investments, of the Acquired Fund as of February 29,
2000 and the related statement of operations for the year then
ended, and the statement of changes in net assets for the years
ended February 29, 2000 and February 28, 1999 (copies of which
have been furnished to the MFS Trust) have been audited by Ernst &
Young, LLP, independent auditors, and present fairly in all
material respects the financial position of the Acquired Fund as
of February 29, 2000 and the results of its operations and changes
in net assets for the respective stated periods in accordance with
generally accepted accounting principles consistently applied, and
there are no known actual or contingent liabilities of the
Acquired Fund as of the respective dates thereof not disclosed
therein;
(g) Since February 29, 2000, there has not been any material adverse
change in the Acquired Fund's financial condition, assets,
liabilities or business other than changes occurring in the
ordinary course of business, or any incurrence by the Acquired
Fund of indebtedness maturing more than one year from the date
such indebtedness was incurred, except as otherwise disclosed to
and accepted by the MFS Trust. For the purposes of this
subparagraph (g), a decline in NAV per share of beneficial
interest of the Acquired Fund resulting from losses upon the
disposition of investments or from changes in the value of
investments held by the Acquired Fund, or a distribution or a
payment of dividends, shall not constitute a material adverse
change;
(h) At the date hereof and at the Closing Date, all federal, state and
other tax returns and reports, including information returns and
payee statements, of the Acquired Fund required by law to have
been filed or furnished by such dates shall have been filed or
furnished, and all federal, state and other taxes, interest and
penalties shall have been paid so far as due, and to the best of
the Acquired Fund's knowledge no such return is currently under
audit and no assessment has been asserted with respect to such
returns or reports;
(i) The Acquired Fund has elected to be a regulated investment company
for federal tax purposes, has qualified for treatment as such for
each taxable year of its operation and intends as of the date of
execution of this Agreement to qualify, and will as of the Closing
Date qualify, for treatment as such for its taxable year ending on
the Closing Date;
(j) The authorized capital of the PW Trust consists of an unlimited
number of shares of beneficial interest, $0.001 par value per
share, divided into two series and, with respect to the Acquired
Fund, into four classes at the date hereof. All issued and
outstanding Acquired Fund Shares are, and on the Closing Date will
be, duly and validly issued and outstanding, fully paid and
nonassessable by the PW Trust. All of the issued and outstanding
Acquired Fund Shares will, on the Closing Date, be held by the
persons and in the amounts set forth in the Shareholder List. The
PW Trust does not have outstanding any options, warrants or other
rights to subscribe for or purchase any Acquired Fund Shares, nor
is there outstanding any security convertible into any Acquired
Fund Shares;
(k) Except as previously disclosed to the MFS Trust, on the Closing
Date the PW Trust will have good and marketable title to the
Assets and full right, power and authority to sell, assign,
transfer and deliver the Assets, and upon delivery and payment for
the Assets, the Surviving Fund will acquire good and marketable
title thereto subject to no restrictions on the full transfer
thereof, including such restrictions as might arise under the
Securities Act of 1933, as amended (the "1933 Act");
(l) The execution, delivery and performance of this Agreement have
been duly authorized by all necessary action on the part of the PW
Trust (with the exception of the approval of this Agreement by
Acquired Fund shareholders holding at least a majority of the
outstanding voting securities (as defined by the 1940 Act) of the
Acquired Fund), and this Agreement constitutes a valid and binding
obligation of the PW Trust enforceable in accordance with its
terms, subject to the approval by the Acquired Fund shareholders,
except as the same may be limited by bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws
relating to or affecting creditors' rights and by general
principles of equity;
(m) The information to be furnished by the PW Trust for use in
applications for orders, registration statements, proxy materials
and other documents which may be necessary in connection with the
transactions contemplated hereby shall be accurate and complete
and shall comply fully with federal securities and other laws and
regulations thereunder applicable thereto;
(n) The written information furnished by the PW Trust or by its agents
or representatives for inclusion in the proxy statement of the
Acquired Fund (the "Proxy Statement") to be included in the
Registration Statement referred to in Section 5.7 hereof, on the
effective date of the Registration Statement, on the date of the
meeting of the Acquired Fund shareholders (the "Meeting") and on
the Closing Date, will not contain any untrue statement of a
material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in
light of the circumstances under which such statements were made,
not misleading;
(o) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by the PW
Trust and the Acquired Fund of the transactions contemplated by
this Agreement, except such as have been obtained under the 1933
Act, the Securities Exchange Act of 1934, as amended (the "1934
Act") and the 1940 Act (collectively, the "Acts"), and such as may
be required under state securities laws;
(p) All of the issued and outstanding Acquired Fund Shares have been
offered for sale and sold in conformity with all applicable
federal and state securities laws, except as may have been
previously disclosed in writing to the MFS Trust; and
(q) The current prospectus and statement of additional information of
the Acquired Fund, each dated June 30, 2000 as supplemented and
updated from time to time (collectively, the "Acquired Fund
Prospectus"), will conform in all material respects to the
applicable requirements of the 1933 Act and the 1940 Act and the
rules and regulations of the Commission thereunder on the date of
the Proxy Statement, on the date of the Meeting and on the Closing
Date and will not on such dates include any untrue statement of a
material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not
misleading.
4.2 The MFS Trust represents and warrants, on its behalf and on behalf of
the Surviving Fund, to the PW Trust as follows:
(a) The MFS Trust is a business trust duly organized and validly
existing under the laws of The Commonwealth of Massachusetts and
has the power to own all of its properties and assets and to carry
out this Agreement. Neither the MFS Trust nor the Surviving Fund
is required to qualify to do business in any other jurisdiction
where it is not duly qualified. This Agreement has been duly
authorized by the MFS Trust. The MFS Trust has all necessary
federal, state and local authorizations to own all of its
properties and assets and to carry on its business as now being
conducted;
(b) The Surviving Fund is a duly established and designated segregated
portfolio of assets ("series") of the MFS Trust;
(c) The MFS Trust is a duly registered investment company classified
as a management company of the open-end type and its registration
with the Commission as an investment company under the 1940 Act is
in full force and effect;
(d) The current prospectus and statement of additional information of
the Surviving Fund, each dated June 1, 2000, as supplemented and
updated from time to time (collectively, the "Surviving Fund
Prospectus"), and the Registration Statement referred to in
Section 5.7 hereof (other than written information furnished by
the PW Trust for inclusion therein as covered by the PW Trust's
warranties in Sections 4.1(m) and 4.1(n) hereof) will conform in
all material respects to the applicable requirements of the 1933
Act and the 1940 Act and the rules and regulations of the
Commission thereunder on the date of the Proxy Statement, on the
date of the Meeting and on the Closing Date and will not on such
dates include any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances
under which they were made, not misleading;
(e) On the Closing Date, the MFS Trust will have good and marketable
title to the Assets;
(f) The MFS Trust is not, and the execution, delivery and performance
of this Agreement by the MFS Trust will not result, in violation
of any provision of the MFS Trust's Declaration of Trust or
By-Laws or of any agreement, indenture, instrument, contract,
lease or other undertaking to which the MFS Trust is a party or by
which the MFS Trust or the Surviving Fund is bound;
(g) Except as previously disclosed in writing to and accepted by the
PW Trust, no material litigation or administrative proceeding or
investigation of or before any court or governmental body is
currently pending or (to the MFS Trust's knowledge) threatened as
to the Surviving Fund or any of its properties or assets. The MFS
Trust knows of no facts that might form the basis for the
institution of such proceedings, and the MFS Trust is not a party
to or subject to the provisions of any order, decree or judgment
of any court or governmental body which materially and adversely
affects its business or its ability to consummate the transaction
herein contemplated;
(h) The statements of assets and liabilities, including the schedule
of portfolio investments, of the Surviving Fund as of January 31,
2000, and the related statement of operations for the year then
ended, and the statement of changes in net assets for the years
ended January 31, 2000 and January 31, 1999 (copies of which have
been furnished to the PW Trust) have been audited by Ernst & Young
LLP, independent auditors, and present fairly in all material
respects the financial position of the Surviving Fund as of
January 31, 2000 and the results of its operations and changes in
net assets for the respective stated periods in accordance with
generally accepted accounting principles consistently applied, and
there are no known actual or contingent liabilities of the
Surviving Fund as of the respective dates thereof not disclosed
therein;
(i) Since January 31, 2000, there has not been any material adverse
change in the Surviving Fund's financial condition, assets,
liabilities or business other than changes occurring in the
ordinary course of business or any incurrence by the Surviving
Fund of indebtedness maturing more than one year from the date
such indebtedness was incurred, except as otherwise disclosed to
the PW Trust. For the purposes of this subparagraph (h), a decline
in net asset value per share of beneficial interest of the
Surviving Fund resulting from losses upon the disposition of
investments or from changes in the value of investments held by
the Surviving Fund, or a distribution or a payment of dividends,
shall not constitute a material adverse change;
(j) The Surviving Fund has elected to be a regulated investment
company for federal tax purposes, has qualified for treatment as
such for each taxable year of its operation, and, to the best of
the Surviving Fund's knowledge, will qualify for treatment as such
for its taxable year in which the Reorganization occurs;
(k) At the date hereof and on the Closing Date, all federal, state and
other tax returns and reports, including information returns and
payee statements, of the Surviving Fund required by law to have
been filed or furnished by such dates shall have been filed or
furnished, and all federal, state and other taxes, interest and
penalties shall have been paid so far as due, or provision shall
have been made for the payment thereof, and to the best of the
Surviving Fund's knowledge no such return is currently under audit
and no assessment has been asserted with respect to such returns
or reports;
(l) The authorized capital of the MFS Trust consists of an unlimited
number of shares of beneficial interest, no par value, divided
into three series and, with respect to the Surviving Fund, into
three classes, at the date hereof. All issued and outstanding
Surviving Fund Shares are, and on the Closing Date will be, duly
and validly issued and outstanding, fully paid and nonassessable
by the MFS Trust. The MFS Trust does not have outstanding any
options, warrants or other rights to subscribe for or purchase any
Surviving Fund Shares, nor is there outstanding any security
convertible into any Surviving Fund Shares;
(m) The execution, delivery and performance of this Agreement have
been duly authorized by all necessary action on the part of the
MFS Trust, and this Agreement constitutes a valid and binding
obligation of the MFS Trust enforceable in accordance with its
terms, except as the same may be limited by bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and
similar laws relating to or affecting creditors' rights and by
general principles of equity;
(n) The Surviving Fund Shares to be issued and delivered to the PW
Trust pursuant to the terms of this Agreement will have been duly
authorized on the Closing Date, and when so issued and delivered
will be duly and validly issued shares and will be fully paid and
nonassessable by the MFS Trust;
(o) The information to be furnished by the MFS Trust for use in
applications for orders, registration statements, proxy materials
and other documents which may be necessary in connection with the
transactions contemplated hereby shall be accurate and complete
and shall comply fully with federal securities and other laws and
regulations applicable thereto;
(p) The written information furnished by the MFS Trust or by its
agents or representatives for inclusion in the Proxy Statement to
be included in the Registration Statement referred to in Section
5.7 hereof, on the effective date of the Registration Statement,
on the date of the meeting and on the Closing Date, will not
contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under with
such statements were made, not misleading;
(q) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by the MFS
Trust and the Surviving Fund of the transactions contemplated by
this Agreement, except such as have been obtained under the Acts,
and such as may be required under state securities laws; and
(r) All of the Surviving Fund Shares will be offered and sold in
conformity with all applicable federal and state securities laws,
except as may have been previously disclosed in writing to the PW
Trust.
5. COVENANTS
5.1 Each Fund will operate its business in the ordinary course between the
date hereof and the Closing Date, it being understood that such ordinary course
of business will include the declaration and payment of customary dividends and
distributions.
5.2 The PW Trust will call a meeting of shareholders of the Acquired Fund
(as earlier defined, the "Meeting") to consider and act upon this Agreement and
to take all other action necessary to obtain approval of the transactions
contemplated herein.
5.3 The PW Trust covenants that the Surviving Fund Shares to be issued
hereunder are not being acquired for the purpose of making any distribution
thereof other than in accordance with the terms of this Agreement.
5.4 The PW Trust will provide such information as the MFS Trust reasonably
requests concerning the ownership of the Acquired Fund Shares, including the
Shareholder List.
5.5 Subject to the provisions of this Agreement, the PW Trust and the MFS
Trust each will take, or cause to be taken, all action, and do or cause to be
done all things, reasonably necessary, proper or advisable to consummate and
make effective the transactions contemplated by this Agreement.
5.6 As promptly as practicable, but in any case within 60 days after the
Closing Date, the PW Trust or its designee shall furnish to the MFS Trust, in
such form as is reasonably satisfactory to the MFS Trust, a statement of the
earnings and profits of the Acquired Fund for federal income tax purposes, and
of any capital loss carryovers and other items that the Surviving Fund will
succeed to and take into account as a result of Section 381 of the Code.
5.7 The MFS Trust will prepare and file with the Commission a Registration
Statement on Form N-14 (the "Registration Statement"), in compliance with the
1933 Act and the 1940 Act, in connection with the issuance of the Surviving Fund
Shares as contemplated herein.
5.8 The MFS Trust will prepare the Proxy Statement, to be included in the
Registration Statement, in compliance with the Acts in connection with the
Meeting. The PW Trust agrees to provide the MFS Trust with information
applicable to the PW Trust and the Acquired Fund required under the Acts for
inclusion in the Proxy Statement.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE PW TRUST
The obligations of the PW Trust to consummate the transactions provided
for herein shall be, at its election, subject to the performance by the MFS
Trust of all the obligations to be performed by it or the Surviving Fund
hereunder on or before the Closing Date, and, in addition thereto, the following
further conditions:
6.1 All representations and warranties of the MFS Trust contained in this
Agreement shall be true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions contemplated by
this Agreement, as of the Closing Date with the same force and effect as if made
on and as of the Closing Date;
6.2 The MFS Trust shall have delivered to the PW Trust on the Closing Date
a certificate executed in its name by its President, Secretary or Assistant
Secretary and Treasurer or Assistant Treasurer, in form and substance
satisfactory to the PW Trust and dated as of the Closing Date, to the effect
that the representations and warranties of the MFS Trust made in this Agreement
are true and correct at and as of the Closing Date, except as they may be
affected by the transactions contemplated by this Agreement, and as to such
other matters as the PW Trust shall reasonably request; and
6.3 The PW Trust shall have received on the Closing Date a favorable
opinion from James R. Bordewick, Jr., Associate General Counsel and Senior Vice
President of Massachusetts Financial Services Company ("MFS"), the MFS Trust's
investment adviser, dated as of the Closing Date, in a form reasonably
satisfactory to the PW Trust, to the effect that:
(a) the MFS Trust is a business trust duly organized and validly
existing under the laws of The Commonwealth of Massachusetts and
has power to own all of its properties and assets and to carry on
its business as currently conducted;
(b) this Agreement has been duly authorized, executed and delivered by
the MFS Trust and, assuming the due authorization, execution and
delivery of this Agreement by the PW Trust and the due
authorization by shareholders of the Acquired Fund, is a valid and
binding obligation of the MFS Trust enforceable against the MFS
Trust in accordance with its terms, except as the same may be
limited by bankruptcy, insolvency, reorganization or other similar
laws affecting the enforcement of creditors' rights generally and
other equitable principles;
(c) the Surviving Fund Shares to be issued to the Acquired Fund
shareholders as provided by this Agreement are duly authorized and
upon such delivery will be validly issued and outstanding and
fully paid and nonassessable by the MFS Trust, and no shareholder
of the Surviving Fund has any preemptive right to subscription or
purchase in respect thereof pursuant to any federal or
Massachusetts law or the Declaration of Trust or By-laws of the
MFS Trust;
(d) the execution and delivery of this Agreement did not, and the
consummation of the transactions contemplated hereby will not,
violate the MFS Trust's Declaration of Trust or By-Laws, or any
material provision of any agreement (known to such counsel) to
which the MFS Trust is a party or by which it or the Surviving
Fund is bound;
(e) to the knowledge of such counsel, no consent, approval,
authorization or order of any court or governmental authority is
required for the consummation by the MFS Trust of the transactions
contemplated herein, except such as have been obtained under the
Acts, and such as may be required under state securities laws;
(f) the descriptions in the Registration Statement of statutes, legal
and governmental proceedings and contracts and other documents, if
any, only insofar as they relate to the MFS Trust and the
Surviving Fund, are accurate in all material respects;
(g) such counsel does not know of any legal or governmental
proceedings existing on or before the date of mailing of the Proxy
Statement or the Closing Date, only insofar as they relate to the
MFS Trust or the Surviving Fund, required to be described in the
Proxy Statement which are not described as required;
(h) to the knowledge of such counsel, the MFS Trust is a duly
registered investment company and its registration with the
Commission as an investment company under the 1940 Act is in full
force and effect; and
(i) to the best knowledge of such counsel, no litigation or
administrative proceeding or investigation of or before any court
or governmental body currently is pending or threatened as to the
MFS Trust or any of its properties or assets, and the MFS Trust is
not a party to or subject to the provisions of any order, decree
or judgment of any court or governmental body, which materially
and adversely affects its business or its ability to consummate
the transactions contemplated hereby.
Such opinion shall also state that while such counsel has not verified,
and is not passing upon and does not assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the Registration
Statement, he generally reviewed and discussed certain of such statements with
certain officers of the MFS Trust and that in the course of such review and
discussion no facts came to the attention of such counsel that led him to
believe that, on the effective date of the Registration Statement or on the date
of the Meeting and only insofar as such statements relate to the MFS Trust or
the Surviving Fund, the Registration Statement contained any statement that, in
the light of the circumstances under which it was made, was false or misleading
with respect to any material fact or that omitted to state any material fact
required to be stated therein or necessary to make the statements therein not
false or misleading.
In rendering such opinion, counsel may rely, as to matters governed by the
laws of the State of New York, on an opinion of competent New York counsel. Such
opinion may state that such counsel does not express any opinion or belief as to
the financial statements or other financial or statistical data, or as to the
information relating to the PW Trust or the Acquired Fund, contained in the
Registration Statement. Such opinion may also state that such opinion is solely
for the benefit of the PW Trust, its Board of Trustees and its officers. Such
opinion shall also include such other matters incidental to the transactions
contemplated hereby as the PW Trust may reasonably request.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE MFS TRUST
The obligations of the MFS Trust to complete the transactions provided for
herein shall be, at its election, subject to the performance by the PW Trust of
all the obligations to be performed by it or the Acquired Fund hereunder on or
before the Closing Date and, in addition thereto, the following conditions:
7.1 All representations and warranties of the PW Trust contained in this
Agreement shall be true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions contemplated by
this Agreement, as of the Closing Date with the same force and effect as if made
on and as of the Closing Date;
7.2 The PW Trust shall have delivered to the MFS Trust a statement of
assets and liabilities, which shall be prepared in accordance with generally
accepted accounting principles, together with a list of the Acquired Fund's
portfolio securities showing the federal income tax bases and holding periods of
such securities, as of the Valuation Time, certified by the Treasurer or
Assistant Treasurer of the PW Trust (the "Statement of Assets and Liabilities");
7.3 The PW Trust shall have delivered to the MFS Trust on the Closing Date
a certificate executed in its name by its President, Vice President, Secretary
or Assistant Secretary and Treasurer or Assistant Treasurer, in form and
substance satisfactory to the MFS Trust and dated as of the Closing Date, to the
effect that the representations and warranties of the PW Trust in this Agreement
are true and correct at and as of the Closing Date, except as they may be
affected by the transactions contemplated by this Agreement, and as to such
other matters as the MFS Trust shall reasonably request;
7.4 The MFS Trust shall have received on the Closing Date a favorable
opinion from Dianne E. O'Donnell, Deputy General Counsel and Senior Vice
President, or Amy Doberman, General Counsel and Senior Vice President, of MH,
dated as of the Closing Date, in a form reasonably satisfactory to the MFS Trust
to the effect that:
(a) the PW Trust is a business trust duly organized and validly
existing under the laws of The Commonwealth of Massachusetts and
has power to own all of its properties and assets and to carry on
its business as currently conducted;
(b) this Agreement has been duly authorized, executed and delivered by
the PW Trust and, assuming the due authorization, execution and
delivery of this Agreement by the MFS Trust, is a valid and
binding obligation of the PW Trust enforceable against the PW
Trust in accordance with its terms, except as the same may be
limited by bankruptcy, insolvency, reorganization or other similar
laws affecting the enforcement of creditors' rights generally and
other equitable principles;
(c) the execution and delivery of this Agreement did not, and the
consummation of the transactions contemplated hereby will not,
violate the PW Trust's Declaration of Trust or By-Laws, or any
material provision of any agreement (known to such counsel) to
which the PW Trust is a party or by which it or the Acquired Fund
is bound;
(d) to the knowledge of such counsel, no consent, approval,
authorization or order of any court or governmental authority is
required for the consummation by the PW Trust of the transactions
contemplated herein, except such as have been obtained under the
Acts, and such as may be required under state securities laws;
(e) the descriptions in the Registration Statement of statutes, legal
and governmental proceedings and contracts and other documents, if
any, only insofar as they relate to the PW Trust and the Acquired
Fund, are accurate in all material respects;
(f) such counsel does not know of any legal or governmental
proceedings existing on or before the date of mailing the Proxy
Statement or the Closing Date, only insofar as they relate to the
PW Trust or the Acquired Fund, required to be described in the
Proxy Statement which are not described as required;
(g) to the knowledge of such counsel, the PW Trust is a duly
registered investment company and its registration with the
Commission as an investment company under the 1940 Act is in full
force and effect; and
(h) to the best knowledge of such counsel, no litigation or
administrative proceeding or investigation of or before any court
or governmental body is currently pending or threatened as to the
PW Trust or any of its properties or assets, and the PW Trust is
not a party to or subject to the provisions of any order, decree
or judgment of any court or governmental body, which materially
and adversely affects its business or its ability to consummate
the transactions contemplated hereby.
Such opinion shall also state that while such counsel has not verified,
and is not passing upon and does not assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the Registration
Statement, she generally reviewed and discussed certain of such statements with
certain officers of the PW Trust and that in the course of such review and
discussion no facts came to the attention of such counsel that led her to
believe that, on the effective date of the Registration Statement or on the date
of the Meeting and only insofar as such statements relate to the PW Trust or the
Acquired Fund, the Registration Statement contained any statement that, in the
light of the circumstances under which it was made, was false or misleading with
respect to any material fact or that omitted to state any material fact required
to be stated therein or necessary to make the statements therein not false or
misleading.
In rendering such opinion, counsel may rely, as to matters governed by the
laws of The Commonwealth of Massachusetts, on an opinion of competent
Massachusetts counsel. Such opinion may state that such counsel does not express
any opinion or belief as to the financial statements or other financial or
statistical data, or as to the information relating to the MFS Trust or the
Surviving Fund, contained in the Registration Statement. Such opinion may also
state that such opinion is solely for the benefit of the MFS Trust, its Board of
Trustees and its officers. Such opinion shall also include such other matters
incident to the transactions contemplated hereby as the MFS Trust may reasonably
request.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE MFS TRUST AND THE PW TRUST
The obligations of the PW Trust hereunder are, at the option of the MFS
Trust, and the obligations of the MFS Trust hereunder are, at the option of the
PW Trust, each subject to the further conditions that on or before the Closing
Date:
8.1 This Agreement and the transactions contemplated herein shall have
been approved by the requisite vote of the holders of the outstanding Acquired
Fund Shares in accordance with the provisions of the PW Trust's Declaration of
Trust and By-Laws, and certificates evidencing such approval shall have been
delivered to the MFS Trust;
8.2 On the Closing Date no action, suit or other proceeding shall be
pending before any court or governmental agency in which it is sought to
restrain or prohibit, or obtain damages or other relief in connection with, this
Agreement or the transactions contemplated herein;
8.3 All consents of other parties and all other consents, orders and
permits of federal, state and local regulatory authorities (including those of
the Commission and of state Blue Sky and securities authorities, including
"no-action" positions of such federal or state authorities) deemed necessary by
the MFS Trust or the PW Trust to permit consummation, in all material respects,
of the transactions contemplated hereby shall have been obtained, except where
failure to obtain any such consent, order or permit would not involve a risk of
a material adverse effect on the assets or properties of either Fund, provided
that either the MFS Trust or the PW Trust may waive any such conditions for
itself or for the Surviving Fund or the Acquired Fund, respectively;
8.4 The Registration Statement shall have become effective under the 1933
Act and no stop orders suspending the effectiveness thereof shall have been
issued and, to the best knowledge of the parties hereto, no investigation or
proceeding for that purpose shall have been instituted or be pending, threatened
or contemplated under the 1933 Act;
8.5 The Acquired Fund shall have distributed to its shareholders all of
its investment company taxable income referred to in Section 852(a)(1)(A) of the
Code, plus all of the excess of (i) its interest income excludable from gross
income under Section 103(a) of the Code over (ii) its deductions disallowed
under Sections 265 and 171(a)(2) of the Code, for its taxable year ending on the
Closing Date and all of its net capital gain (as defined in Section 1222(11) of
the Code), after reduction by any capital loss carryforward, for such taxable
year.
8.6 The parties shall have received an opinion of Bingham Dana LLP,
reasonably satisfactory to the PW Trust and the MFS Trust, substantially to the
effect that for federal income tax purposes:
(a) The acquisition by the Surviving Fund of all of the Assets, in
exchange solely for Surviving Fund Shares and the assumption by
the Surviving Fund of the Liabilities, followed by the
distribution by the Acquired Fund of the Surviving Fund Shares to
the Acquired Fund shareholders in exchange for their Acquired Fund
Shares and the termination of the Acquired Fund pursuant to this
Agreement, will constitute a reorganization within the meaning of
Section 368(a) of the Code, and each Fund will be "a party to a
reorganization" within the meaning of Section 368(b) of the Code;
(b) No gain or loss will be recognized by the Acquired Fund upon the
transfer of all of its Assets to the Surviving Fund in exchange
solely for Surviving Fund Shares and the assumption by the
Surviving Fund of the Liabilities or upon the distribution to the
Acquired Fund shareholders of such Surviving Fund Shares pursuant
to this Agreement;
(c) No gain or loss will be recognized by the Surviving Fund upon the
receipt of the Assets in exchange solely for Surviving Fund Shares
and the assumption by the Surviving Fund of the Liabilities;
(d) The basis of the Assets acquired by the Surviving Fund will be, in
each instance, the same as the basis of those Assets in the hands
of the Acquired Fund immediately prior to the transfer;
(e) The holding period of the Assets in the hands of the Surviving
Fund will include, in each instance, the holding period of those
Assets in the hands of the Acquired Fund;
(f) The Acquired Fund shareholders will not recognize gain or loss
upon the exchange of all of their Acquired Fund Shares solely for
Surviving Fund Shares as part of the Reorganization;
(g) The basis of the Surviving Fund Shares to be received by each
Acquired Fund shareholder will be, in the aggregate, the same as
the basis, in the aggregate, of the Acquired Fund Shares
surrendered by such shareholder in exchange therefor; and
(h) The holding period of the Surviving Fund Shares to be received by
each Acquired Fund shareholder will include, in each instance, the
holding period of the Acquired Fund Shares surrendered by such
shareholder in exchange therefor, provided the Acquired Fund
shares were held by such shareholder as capital assets on the date
of the exchange.
The MFS Trust and the PW Trust each agrees to make and provide
representations with respect to the Surviving Fund and the Acquired Fund,
respectively, that are reasonably requested by Bingham Dana LLP in connection
with the opinion to be delivered pursuant to this Section 8.6. Notwithstanding
anything herein to the contrary, the MFS Trust and the PW Trust may not waive in
any material respect the conditions set forth in this Section 8.6.
9. FURTHER REPRESENTATIONS, WARRANTIES AND AGREEMENTS
9.1 The MFS Trust and the PW Trust each represents and warrants to the
other that there are no brokers or finders entitled to receive any payments from
either party to this Agreement in connection with the transactions provided for
herein.
9.2 The MFS Trust and the PW Trust agree that the Surviving Fund Shares
received by the Acquired Fund shareholders in the Reorganization shall be
subject to all of the terms (including sales commissions, distribution/service
fees, sales charges, operating expenses and shareholding servicing requirements)
applicable to the Surviving Fund Shares received as if the Acquiring Fund
shareholder had originally purchased such Surviving Fund Shares, except as
follows:
(i) If an Acquired Fund shareholder is permitted to purchase additional
Class A Acquired Fund Shares at NAV, in accordance with the Acquired
Fund Prospectus, then such shareholder will be permitted to purchase
additional Class A Surviving Fund Shares at NAV;
(ii) Acquired Fund shareholders owning Class Y Acquired Fund Shares will
be permitted to purchase additional Class A Surviving Fund Shares at
NAV; and
(iii) If, as of the Closing Date or thereafter an Acquired Fund
shareholder's Class B Acquired Fund Shares are subject to a
contingent deferred sales charge (a "CDSC"), then an additional
twenty-four months will be added to the so-called "aging period" of
the Class B Surviving Fund Shares received in exchange therefor, for
the purposes of determining the date on which such Class B shares
would be converted into Class A Surviving Fund Shares and the
calculation of any applicable CDSC.
9.3 Each Fund will be liable for its own expenses incurred in connection
with entering into and carrying out the provisions of this Agreement whether or
not the Reorganization is consummated, except to the extent that, pursuant to an
agreement dated October 30, 2000, between MH and MFS, MH has agreed to pay the
following expenses associated with the Reorganization:
(i) typesetting the Registration Statement and the proxy card (but not
the expenses of converting these documents into so-called EDGAR
format, which shall be an expense of the MFS Fund);
(ii) printing the Proxy Statement and combined statement of additional
information contained in the Registration Statement and the proxy
card;
(iii) mailing the Proxy Statement and combined statement of additional
information (if required to be mailed) contained in the Registration
Statement, the proxy card and the Surviving Fund prospectus (and the
Surviving Fund annual or semi-annual report and statement of
additional information, if required to be mailed) to shareholders of
the Acquired Fund in connection with the Meeting and for the
solicitation and meeting expenses associated therewith; and
(iv) one half of the costs and expenses incurred by MFS and the Surviving
Fund in connection with the matters contemplated by this Agreement
if the shareholders of the Acquired Fund do not approve the
Reorganization.
9.4 The PW Trust agrees that it or its designee shall, on behalf of the
Acquired Fund, file or furnish by such dates as required by law all federal,
state and other tax returns, forms and reports, including information returns
and payee statements, if applicable, of the Acquired Fund required by law to be
filed or furnished, and shall provide such other federal and state tax
information to shareholders of the Acquired Fund as has been customarily
provided by the Acquired Fund, all with respect to the fiscal period that
commenced March 1, 2000 and ending on the Closing Date.
9.5 The PW Trust agrees that it or its designee shall, on behalf of the
Acquired Fund, deliver to the MFS Trust on the Closing Date or as soon
thereafter as possible: (i) copies of Acquired Fund shareholder statements and
Forms 1099 for the year ended December 31, 2000 and the period that commenced
January 1, 2001 through the Closing Date (all on microfilm or microfiche, if
available); (ii) detailed records indicating the status of all outstanding
certificates representing ownership of the Acquired Fund Shares; and (iii) for
each Acquired Fund shareholder, a record indicating the dollar amount of such
shareholder's Acquired Fund shareholdings as of the Closing Date representing
the respective portions of such holdings subject and not subject to a CDSC as of
such date, together with such other information with respect thereto as the MFS
Trust may reasonably request.
10. ENTIRE AGREEMENT
The MFS Trust and the PW Trust agree that neither party has made any
representation, warranty or covenant not set forth herein or referred to in
Section 4 hereof or required in connection with Section 8.6 hereof and that this
Agreement constitutes the entire agreement between the parties.
11. TERMINATION
11.1 This Agreement may be terminated by the mutual agreement of the MFS
Trust and the PW Trust. In addition, either party may at its option terminate
this Agreement at or prior to the Closing Date because of:
(a) a material breach by the other of any representation, warranty or
agreement contained herein to be performed at or prior to the
Closing Date; or
(b) a condition herein expressed to be precedent to the obligations
of the terminating party which has not been met and which
reasonably appears will not or cannot be met.
11.2 In the event of any such termination, there shall be no liability for
damages on the part of either the MFS Trust or the PW Trust, or their respective
trustees or officers, to the other party or its trustees or officers.
12. AMENDMENTS
This Agreement may be amended, modified or supplemented in such manner as
may be mutually agreed upon in writing by the authorized officers of the PW
Trust and the MFS Trust; provided, however, that following the Meeting, no such
amendment may have the effect of changing the provisions for determining the
number of Surviving Fund Shares to be issued to the Acquired Fund shareholders
under this Agreement to the detriment of such shareholders without their further
approval; and provided further that nothing contained in this Section 12 shall
be construed to prohibit the parties from amending this Agreement to change the
Closing Date or the Valuation Time.
13. NOTICES
Any notice, report, statement or demand required or permitted by any
provisions of this Agreement shall be in writing and shall be given by prepaid
telecopy or certified mail addressed to the MFS Trust or the PW Trust (as
applicable):
For the MFS Trust:
MFS Series Trust III, on behalf of MFS Municipal High Income Fund
500 Boylston Street
Boston, Massachusetts 02116
Attention: Stephen E. Cavan
General Counsel and Senior Vice President of MFS
For the PW Trust:
PaineWebber Municipal Series, on behalf of PaineWebber
Municipal High Income Fund
51 West 52nd Street
New York, New York 10019-6114
Attention: Dianne E. O'Donnell
Deputy General Counsel and Senior Vice President of MH
14. MISCELLANEOUS
14.1 The section headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
14.2 This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
14.3 This Agreement shall be governed by and construed in accordance with
the laws of the State of New York.
14.4 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by any
party without the written consent of the other party. Nothing herein expressed
or implied is intended or shall be construed to confer upon or give any person,
firm or corporation, other than the parties hereto and their respective
successors and assigns, any rights or remedies under or by reason of this
Agreement.
14.5 A copy of the MFS Trust's Declaration of Trust and the PW Trust's
Declaration of Trust is on file with the Secretary of State of The Commonwealth
of Massachusetts. Each party hereto acknowledges that the obligations of or
arising out of this instrument are not binding upon any of the MFS Trust's or
the PW Trust's trustees, officers, employees, agents or shareholders
individually, but are binding solely upon the assets and property of the MFS
Trust and the PW Trust, respectively, in accordance with its proportionate
interest hereunder. Each party hereto further acknowledges that the assets and
liabilities of each series of the MFS Trust and the PW Trust are separate and
distinct and that the obligations of or arising out of this instrument are
binding solely upon the assets or property of the Surviving Fund and the
Acquiring Fund, respectively.
14.6 Notwithstanding Section 12 of this Agreement, but subject to the
first proviso contained therein, either party to this Agreement, with the
consent of its President, Vice President, Secretary or its Assistant Secretary,
may waive any condition or covenant to which the other party is subject or may
modify such condition or covenant in a manner deemed appropriate by any such
officer.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed by its Chairman, President or a Trustee and attested by its
Secretary or Assistant Secretary.
Attest: PAINEWEBBER MUNICIPAL SERIES, on its
behalf and on behalf of PAINEWEBBER
MUNICIPAL HIGH INCOME FUND, one of
its series
DIANNE E. O'DONNELL BY: BRIAN STORMS
-------------------------------------- ----------------------------------
Dianne E. O'Donnell Brian Storms
Vice President and Secretary President
Attest: MFS SERIES TRUST III on its behalf
and on behalf of MFS MUNICIPAL HIGH
INCOME FUND, one of its series
JAMES R. BORDEWICK, JR. BY: STEPHEN E. CAVAN
-------------------------------------- ----------------------------------
James R. Bordewick, Jr. Stephen E. Cavan
Assistant Secretary Secretary
<PAGE>
PROXY PAINEWEBBER MUNICIPAL HIGH INCOME FUND PROXY
(A SERIES OF PAINEWEBBER MUNICIPAL SERIES)
SPECIAL MEETING OF SHAREHOLDERS - MARCH 1, 2001
THIS PROXY IS BEING SOLICITED FOR THE BOARD OF TRUSTEES OF PAINEWEBBER MUNICIPAL
SERIES ("TRUST") ON BEHALF OF PAINEWEBBER MUNICIPAL HIGH INCOME FUND, A SERIES
OF THE TRUST. The undersigned hereby appoints as proxies SCOTT GRIFF and ROBYN
GREEN and each of them (with the power of substitution) to vote for the
undersigned all shares of beneficial interest of the undersigned in PaineWebber
Municipal High Income Fund at the above referenced meeting and any adjournment
thereof, with all the power the undersigned would have if personally present.
The shares represented by this proxy will be voted as instructed on the reverse
side of this proxy card. UNLESS INDICATED TO THE CONTRARY, THIS PROXY SHALL BE
DEEMED TO GRANT AUTHORITY TO VOTE "FOR" THE PROPOSAL RELATING TO PAINEWEBBER
Municipal High Income FUND.
YOUR VOTE IS IMPORTANT
VOTE VIA MAIL USING ENCLOSED ENVELOPE
VOTE VIA THE INTERNET: http://
VOTE VIA TELEPHONE:
VOTE VIA FACSIMILE:
CONTROL NUMBER: [999 9999 9999 999]
If shares are held by an individual, sign your
name exactly as it appears on this card. If
shares are held jointly, either party may sign,
but the name of the party signing should
conform exactly to the name shown on this proxy
card. If shares are held by a corporation,
partnership or similar account, the name and
the capacity of the individual signing the
proxy card should be indicated - for example:
"ABC Corp., John Doe, Treasurer."
----------------------------------------------
Signature
----------------------------------------------
Signature (if held jointly)
--------------------------------------, 200---
Date
10740/PWU
PLEASE MARK YOUR VOTE ON THE REVERSE SIDE OF THIS CARD.
<PAGE>
THE BOARD OF TRUSTEES OF THE TRUST RECOMMENDS A VOTE "FOR" THE PROPOSAL. PLEASE
INDICATE YOUR VOTE BY FILLING IN THE BOX COMPLETELY. EXAMPLE: []
FOR AGAINST ABSTAIN
1. Approval of the Agreement and Plan of [ ] [ ] [ ]
Reorganization providing for (i) the transfer of
all of the assets of PaineWebber Municipal
High Income Fund ("PaineWebber Fund"), a
series of PaineWebber Municipal Series, to MFS
Municipal High Income Fund ("MFS Fund"), a
series of MFS Series Trust III, in exchange
for shares of the designated classes of the
MFS Fund of equal value and the assumption by
the MFS Fund of the PaineWebber Fund's stated
liabilities, (ii) the distribution of the MFS Fund
shares to the shareholders of the PaineWebber Fund
and (iii) the termination of the PaineWebber Fund.
PLEASE DATE AND SIGN THE REVERSE SIDE OF THIS CARD.
<PAGE>
YOUR PROXY VOTE IS IMPORTANT
[Insert Graphic]
AND NOW YOU CAN VOTE YOUR
PROXY ON THE PHONE OR ON
THE INTERNET
It saves Money! Telephone and Internet voting saves
postage costs.
Savings which can help to minimize fund expenses.
It saves Time! Telephone and Internet voting is
instantaneous-24 hours a day.
It's Easy! Just follow these simple steps:
1. Read your proxy statement and have it at hand.
2. Call toll-free _________ for automated instructions, or go
to website http://vote_proxy-direct.com
3. Enter your ___ digit Control Number from your Proxy Card.
4. Follow the recorded or on-screen directions.
5. Do NOT mail your Proxy Card when you vote by phone or
internet.
6. If you have any questions regarding the meeting agenda or
the execution of your proxy, please call Toll Free
_________.
<PAGE>
FORM N-14
PART B
MFS SERIES TRUST III
ON BEHALF OF
MFS MUNICIPAL HIGH INCOME FUND
STATEMENT OF ADDITIONAL INFORMATION
JANUARY 1, 2001
This Statement of Additional Information contains material that may be of
interest to investors but that is not included in the Prospectus/Proxy Statement
(the "Prospectus/Proxy Statement") of MFS Municipal High Income Fund (the "MFS
Fund") dated January 1, 2001 relating to the transfer of all the assets of
PaineWebber Municipal High Income Fund (the "PaineWebber Fund") to the MFS Fund.
The MFS Fund's Statement of Additional Information dated June 1, 2000, and the
PaineWebber Fund's Statement of Additional Information dated June 30, 2000, have
been filed with the Securities and Exchange Commission and are incorporated
herein by reference. This Statement is not a Prospectus and is authorized for
distribution only when it accompanies or follows delivery of the
Prospectus/Proxy Statement.
This Statement should be read in conjunction with the Prospectus/Proxy
Statement. Investors may obtain a free copy of the Prospectus/Proxy Statement
and/or the Statement of Additional Information relating to the MFS Fund by
writing MFS Service Center, Inc., 2 Avenue de Lafayette, Boston, MA 02111 or by
calling 1-800-225-2606. Investors may obtain a free copy of the Statement of
Additional Information relating to the PaineWebber Fund by calling
1-800-647-1568.
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS
Ernst & Young LLP are the independent auditors for each Fund, providing
audit services, tax return review and other tax consulting services and
assistance and consultation in connection with the review of various Securities
and Exchange Commission filings for the Funds. The following documents are
incorporated by reference into this Statement of Additional Information: (i) the
Report of Independent Accountants and financial statements included in the MFS
Fund's Annual Report for the fiscal year ended January 31, 2000, filed
electronically on March 22, 2000 (File No. 811-02794); (ii) the Report of
Independent Accountants and financial statements included in the PaineWebber
Fund's Annual Report for the fiscal year ended February 29, 2000, filed
electronically on May 10, 2000 (File No. 811-05014); (iii) the unaudited
financial statements included in the MFS Fund's Semiannual Report for the
six-month period ended July 31, 2000, filed electronically on September 21, 2000
(File No. 811-02794); and (iv) the unaudited financial statements included in
the PaineWebber Fund's Semiannual Report for the six-month period ended August
31, 2000, filed electronically on November 6, 2000 (File No. 811-05014). The
audited financial statements for the MFS Fund and the PaineWebber Fund
incorporated by reference into the Prospectus/Proxy Statement and this Statement
of Additional Information have been so included and incorporated in reliance
upon the reports of Ernst & Young LLP, given on their authority as experts in
auditing and accounting.
Pro forma financial statements are not included in this Statement of
Additional Information because the net asset value of the PaineWebber Fund does
not exceed 10% of the MFS Fund's net asset value as of November 10, 2000.
<PAGE>
MFS MUNICIPAL HIGH INCOME FUND
FORM N-14
PART C
OTHER INFORMATION
ITEM 15. INDEMNIFICATION
Reference is hereby made to (a) Article V of Registrant's Amended and
Restated Declaration of Trust, incorporated by reference to Post-Effective
Amendment No. 20, filed with the SEC on May 31, 1995 and (b) Section 9 of the
Shareholder Servicing Agent Agreement, incorporated by reference to Registrant's
Post-Effective Amendment No. 21 filed with the SEC via EDGAR on October 13,
1995.
The Trustees and Officers of the Registrant and the personnel of the
Registrant's investment adviser and principal underwriter are insured under an
errors and omissions liability insurance policy. The Registrant and its officers
are also insured under the fidelity bond required by Rule 17g-1 under the
Investment Company Act of 1940.
ITEM 16. EXHIBITS
1(a) Amended and Restated Declaration of Trust, dated February 17,
1995. (1)
1(b) Amendment to Declaration of Trust to add Class P Shares, dated
June 20, 1996. (6)
1(c) Amendment to Declaration of Trust dated December 19, 1996 to
redesignate Class P Shares as Class I Shares. (9)
1(d) Amendment to Declaration of Trust, dated May 14, 1998, to establish
MFS High Yield Opportunities Fund as a new series. (12)
1(e) Amendment to Declaration of Trust, dated September 16, 1998, to
add Class C Shares. (8)
2 Amended and Restated By-Laws, dated December 21, 1994. (1)
3 Not applicable.
4 Agreement and Plan of Reorganization, filed herewith as Exhibit A to
the MFS Municipal High Income Fund Prospectus set forth as Part A to
the Registration Statement on Form N-14.
5 Form of Share Certificate for Classes of Shares. (5)
6(a) Investment Advisory Agreement for MFS High Income Fund, dated May
20, 1987. (1)
6(b) Investment Advisory Agreement for MFS Municipal High Income Fund
dated September 1, 1993. (3)
6(c) Amendment to Investment Advisory Agreement for MFS Municipal High
Income Fund, dated August 1, 1995. (4)
6(d) Investment Advisory Agreement dated June 29, 1998 for MFS High
Yield Opportunities Fund. (8)
7(a) Distribution Agreement, dated January 1, 1995. (1)
7(b) Dealer Agreement between MFS Fund Distributors, Inc. ("MFD"), and
a dealer and the Mutual Fund Agreement between MFS and a bank,
effective November 29, 1999. (13)
8 Retirement Plan for Non-Interested Person Trustees, as amended
and restated February 17, 1999. (11)
9(a) Custodian Agreement, dated May 24, 1988. (3)
9(b) Amendment to Custodian Agreement, dated May 24, 1988. (3)
9(c) Amendment to Custodian Agreement, dated October 1, 1989. (3)
9(d) Amendment to Custodian Agreement, dated September 17, 1991. (3)
10(a) Master Distribution Plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940, effective January 1, 1997, as
amended and restated on November 17, 1999. (13)
10(b) Plan pursuant to Rule 18f-3(d) under the Investment Company Act of
1940, as amended and restated July 30, 1998 (Exhibit A dated April
12, 2000). (7)
11 Opinion of James R. Bordewick, Jr., to MFS Series Trust III, as to
the legality of securities being issued, including consent, filed
herewith.
12 Form of Opinion of Bingham Dana LLP as to Tax Matters, including
consent, filed herewith.
13(a) Shareholder Servicing Agent Agreement, dated August 1, 1985. (3)
13(b) Amendment to the Shareholder Servicing Agreement dated April 1,
1999 to amend fee schedule. (14)
13(c) Exchange Privilege Agreement, dated July 30, 1997. (10)
13(d) Dividend Disbursing Agency Agreement, dated February 1, 1986. (2)
13(e) Master Administrative Services Agreement, dated March 1, 1997 as
amended and restated April 1, 1999. (8)
14(a) Consent of Ernst & Young LLP, independent auditors to MFS Municipal
High Income Fund, filed herewith.
14(b) Consent of Ernst & Young LLP, independent auditors to PaineWebber
Municipal High Income Fund, filed herewith.
15 Not Applicable.
16(a) Power of Attorney, dated September 21, 1994. (1)
16(b) Power of Attorney, dated July 1, 2000, filed herewith.
17(a) MFS Municipal High Income Fund Prospectus dated June 1, 2000 and
Statement of Additional Information dated June 1, 2000. (14)
17(b) MFS Municipal High Income Fund's Annual Report to Shareholders for
the fiscal year ended January 31, 2000. (15)
17(c) MFS Municipal High Income Fund's Semiannual Report to Shareholders
for the six month period ended July 31, 2000. (16)
17(d) PaineWebber Municipal High Income Fund Prospectus and Statement of
Additional Information dated June 30, 2000. (17)
17(e) PaineWebber Municipal High Income Fund's Annual Report to
Shareholders for the fiscal year ended February 29, 2000. (18)
17(f) PaineWebber Municipal High Income Fund's Semi-Annual Report to
Shareholders for the six month period ended August 31, 2000. (19)
----------
(1) Incorporated by reference to the Registrant's Post-Effective Amendment No.
20 filed with the SEC via EDGAR on May 31, 1995.
(2) Incorporated by reference to MFS Municipal Series Trust (File Nos.
2-92915 and 811-4096) Post-Effective Amendment No. 28 filed with the
SEC via EDGAR on July 28, 1995.
(3) Incorporated by reference to the Registrant's Post-Effective Amendment No.
21 filed with the SEC via EDGAR on October 13, 1995.
(4) Incorporated by reference to the Registrant's Post-Effective Amendment No.
22 filed with the SEC via EDGAR on May 29, 1996.
(5) Incorporated by reference to MFS Series Trust I (File Nos. 33-7638 and
811-4777) Post-Effective Amendment No. 25 filed with the SEC via EDGAR on
August 27, 1996.
(6) Incorporated by reference to Registrant's Post-Effective Amendment No. 23
filed with the SEC via EDGAR on August 27, 1996.
(7) Incorporated by reference to MFS Government Limited Maturity Fund
(File Nos. 2-96738 and 811-4253) Post-Effective Amendment No. 22 filed
with the SEC via EDGAR on April 28, 2000.
(8) Incorporated by reference to Registrant's Post-Effective Amendment No. 28
filed with the SEC via EDGAR on March 30, 1999.
(9) Incorporated by reference to the Registrant's Post-Effective Amendment No.
24 filed with the SEC via EDGAR on May 29, 1997.
(10) Incorporated by reference to Massachusetts Investors Growth Stock Fund
(File Nos. 2-14677 and 811-859) Post-Effective Amendment No. 64 filed
with the SEC via EDGAR on October 29, 1997.
(11) Incorporated by reference to MFS Growth Opportunities Fund (File Nos.
2-36431 and 811-2032) Post-Effective Amendment No. 39 filed with the
SEC via EDGAR on February 26, 1999.
(12) Incorporated by reference to Registrant's Post-Effective Amendment No. 25
filed with the SEC via EDGAR on May 15, 1998.
(13) Incorporated by reference to MFS Series Trust V (File Nos. 2-38613 and
811-2031) Post Effective Amendment No. 48 filed with the SEC via EDGAR
on November 29, 1999.
(14) Incorporated by reference to Registrant's Post-Effective Amendment No. 29
filed with the SEC via EDGAR on May 30, 2000.
(15) Incorporated by reference to Registrant's Form N-30D (File No. 811-02794)
filed with the SEC via EDGAR on March 22, 2000.
(16) Incorporated by reference to Registrant's Form N-30D (File No. 811-02794)
filed with the SEC via EDGAR on September 30, 2000.
(17) Incorporated by reference to the PaineWebber Municipal Series'
Post-Effective Amendment No. 26 (File No. 811-05014) filed with the SEC
via EDGAR on June 27, 2000.
(18) Incorporated by reference to the PaineWebber Municipal High Income Fund's
Form N-30D (File No. 811-05014) filed with the SEC via EDGAR on May 10,
2000.
(19) Incorporated by reference to the PaineWebber Municipal High Income Fund's
Form N-30D (File No. 811-05014) filed with the SEC via EDGAR on November
6, 2000.
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant agrees that prior to any public reoffering
of the securities registered through the use of a prospectus which is a part of
this registration statement by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c) of the Securities Act of 1933, the
reoffering prospectus will contain the information called for by the applicable
registration form for reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other items of the applicable
form.
(b) The undersigned Registrant agrees that every prospectus that is filed
under paragraph (a) above will be filed as a part of an amendment to the
registration statement and will not be used until the amendment is effective,
and that, in determining any liability under the 1933 Act, each post-effective
amendment shall be deemed to be a new registration statement for the securities
offered therein, and the offering of the securities at that time shall be deemed
to be the initial bona fide offering of them.
(c) The Registrant agrees to file an executed copy of an opinion of
counsel supporting the tax consequences of the Reorganization as an amendment to
this Registration Statement within a reasonable time after receipt of such
opinion.
NOTICE
A copy of the Amended and Restated Declaration of Trust, as amended, of
MFS Series Trust III, is on file with the Secretary of State of The Commonwealth
of Massachusetts, and notice is hereby given that this Registration Statement
has been executed on behalf of the Registrant by an officer of the Registrant as
an officer and not individually, and the obligations of or arising out of this
Registration Statement are not binding upon any of the Trustees, officers, or
shareholders of the Registrant individually, but are binding only upon the
assets and property of the Registrant.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereto duly authorized, in the City of Boston and The Commonwealth
of Massachusetts on the 29th day of November, 2000.
MFS(R) SERIES TRUST III
ON BEHALF OF ONE OF ITS SERIES,
MFS MUNICIPAL HIGH INCOME FUND
By: JAMES R. BORDEWICK, JR.
---------------------------------------
Name: James R. Bordewick, Jr.
Title: Assistant Clerk and Assistant Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form N-14 has been signed below by the following
persons in the capacities indicated on November 29, 2000.
SIGNATURE TITLE
JEFFREY L. SHAMES* Chairman, President (Principal Executive
------------------------------ Officer) and Trustee
Jeffrey L. Shames
JAMES O. YOST* Treasurer (Principal Financial Officer
------------------------------ and Principal Accounting Officer)
James O. Yost
MARSHALL N. COHAN* Trustee
------------------------------
Marshall N. Cohan
LAWRENCE H. COHN, M.D.* Trustee
------------------------------
Lawrence H. Cohn, M.D.
SIR J. DAVID GIBBONS* Trustee
------------------------------
Sir J. David Gibbons
ABBY M. O'NEILL* Trustee
------------------------------
Abby M. O'Neill
WALTER E. ROBB, III* Trustee
------------------------------
Walter E. Robb, III
ARNOLD D. SCOTT* Trustee
------------------------------
Arnold D. Scott
J. DALE SHERRATT* Trustee
------------------------------
J. Dale Sherratt
WARD SMITH* Trustee
------------------------------
Ward Smith
*By: JAMES R. BORDEWICK, JR.
-------------------------------
Name: James R. Bordewick, Jr.
as Attorney-in-fact
Executed by James R. Bordewick, Jr.
on behalf of those indicated
pursuant to a Power of Attorney
dated July 1, 2000, filed herewith.
<PAGE>
POWER OF ATTORNEY
MFS Series Trust III
The undersigned, Trustees and officers of MFS Series Trust III (the
"Registrant"), hereby severally constitute and appoint Jeffrey L. Shames, Arnold
D. Scott, Stephen E. Cavan, James O. Yost and James R. Bordewick, Jr., and each
of them singly, as true and lawful attorneys, with full power to them and each
of them to sign for each of the undersigned, in the names of, and in the
capacities indicated below, any Registration Statement and any and all
amendments thereto and to file the same with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission
for the purpose of registering the Registrant as a management investment company
under the Investment Company Act of 1940 and/or the shares issued by the
Registrant under the Securities Act of 1933 granting unto our said attorneys,
and each of them, acting alone, full power and authority to do and perform each
and every act and thing requisite or necessary or desirable to be done in the
premises, as fully to all intents and purposes as he or she might or could do in
person, hereby ratifying and confirming all that said attorneys or any of them
may lawfully do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned have hereunto set their hand on this
1st day of July, 2000.
JEFFREY L. SHAMES Chairman of the Board; Trustee;
--------------------------- and Principal Executive Officer
Jeffrey L. Shames
JAMES O. YOST Principal Financial and Accounting Officer
---------------------------
James O. Yost
J. ATWOOD IVES Trustee
---------------------------
J. Atwood Ives
LAWRENCE T. PERERA Trustee
---------------------------
Lawrence T. Perera
WILLIAM J. POORVU Trustee
---------------------------
William J. Poorvu
CHARLES W. SCHMIDT Trustee
---------------------------
Charles W. Schmidt
ARNOLD D. SCOTT Trustee
---------------------------
Arnold D. Scott
ELAINE R. SMITH Trustee
---------------------------
Elaine R. Smith
DAVID B. STONE Trustee
---------------------------
David B. Stone
<PAGE>
EXHIBIT INDEX
The following exhibits are filed as a part of this Registration
Statement pursuant to General Instruction G of Form N-14
Exhibits Description Page
-------- ----------- ----
4 Agreement and Plan of Reorganization dated
November 30, 2000; filed herewith as Exhibit A to the
MFS Municipal High Income Fund Prospectus set forth as
Part A to the Registration Statement on Form N-14.
11 Opinion of James R. Bordewick, Jr., to the
MFS Series Trust III Fund, as to the legality of
securities being issued, including consent.
12 Form of Opinion of Bingham Dana LLP as to Tax Matters,
including consent.
14a. Consent of Ernst & Young LLP, independent auditors to
MFS Municipal High Income Fund.
14b. Consent of Ernst & Young, independent auditors to
PaineWebber Municipal High Income Fund.
