<PAGE>
As filed with the Securities and Exchange Commission on June 27, 1997
1933 Act File No. 2-74959
1940 Act File No. 811-3327
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM N-1A
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 21
AND
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 22
MFS GOVERNMENT SECURITIES FUND
(Exact name of Registrant as specified in Charter)
500 Boylston, Street, Boston, Massachusetts 02116
(Address of principal executive offices)
Registrant's Telephone Number, Including Area Code: 617-954-5000
Stephen E. Cavan, Massachusetts Financial Services Company,
500 Boylston Street, Boston, Massachusetts 02116
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering:
It is proposed that this filing will become effective (check appropriate box)
|_| immediately upon filing pursuant to paragraph (b)
|X| on June 28, 1997 pursuant to paragraph (b)
|_| 60 days after filing pursuant to paragraph (a)(i)
|_| on [date] pursuant to paragraph (a)(i)
|_| 75 days after filing pursuant to paragraph (a)(ii)
|_| on [date] pursuant to paragraph (a)(ii) of rule 485.
If appropriate, check the following box:
|_| this post-effective amendment designates a new effective date for a
previously filed post-effective amendment
Pursuant to Rule 24f-2, the Registrant has registered an indefinite number of
its Shares of Beneficial Interest (without par value), under the Securities Act
of 1933. The Registrant filed a Rule 24f-2 Notice with respect to its fiscal
year ended February 28, 1997 on April 29, 1997.
================================================================================
<PAGE>
MFS GOVERNMENT SECURITIES FUND
CROSS REFERENCE SHEET
(Pursuant to Rule 404 showing location in Prospectus and/or Statement
of Additional Information of the responses to the Items in Parts A and B of Form
N-1A)
<TABLE>
<CAPTION>
ITEM NUMBER STATEMENT OF ADDITIONAL
FORM N-1A, PART A PROSPECTUS CAPTION INFORMATION
- ----------------- ------------------ -----------
<S> <C> <C>
1 (a),(b) Front Cover Page *
2 (a) Expense Summary *
(b),(c) * *
3 (a) Condensed Financial Information *
(b) * *
(c) Information Concerning Shares of the *
Fund - Performance Information
(d) Performance Information *
4 (a) The Fund; Investment Objective and *
Policies
(b),(c) Investment Objective and Policies *
5 (a) The Fund; Management of the Fund - *
Investment Adviser
(b) Front Cover Page; Management of *
the Fund - Investment Adviser;
Back Cover Page
(c) Management of the Fund - Investment *
Adviser
(d) Management of the Fund -
Administrator *
(e) Management of the Fund - Investment *
Adviser; Back Cover Page
(f) Expense Summary; Condensed *
Financial Information
(g) Investment Objective and Policies; *
Information Concerning Shares
of the Fund - Purchases
(h) * *
5A (a),(b),(c) ** **
6 (a) Information Concerning Shares of
the Fund - Purchases;
Information Concerning Shares
of the Fund - Exchanges;
Information Concerning Shares
of the Fund - Description of
Shares, Voting Rights and
Liabilities; Information
Concerning Shares of the Fund -
Redemptions and Repurchases
(b),(c),(d) * *
(e) Shareholder Services *
(f) Information Concerning Shares of *
the Fund - Distributions;
Shareholder Services -
Distribution Options
(g) Information Concerning Shares of *
the Fund - Tax Status; Information
Concerning Shares of the Fund -
Distributions
(h) * *
7 (a) Front Cover Page; Management of *
the Fund - Distributor; Back Cover
Page
(b) Information Concerning Shares of *
the Fund - Purchases; Information
Concerning Shares of the Fund -
Net Asset Value
(c) Information Concerning Shares of *
the Fund - Purchases; Information
Concerning Shares of the Fund -
Exchanges; Shareholder Services
(d) Front Cover Page; Information *
Concerning Shares of the Fund -
Purchases; Shareholder Services
(e) Information Concerning Shares of *
the Fund - Distribution Plans;
Expense Summary; Information
Concerning Shares of the Fund -
Purchases
(f) Information Concerning Shares of *
the Fund - Distribution Plans
(g) Expense Summary; Information *
Concerning Shares of the Fund -
Purchases; Information
Concerning Shares of the Fund
Exchanges; Information
Concerning Shares of the Fund
Redemptions and Repurchases;
Information Concerning Shares
of the Fund - Distribution
Plan; Information Concerning
Shares of the Fund -
Distributions; Information
Concerning Shares of the Fund -
Performance Information;
Shareholder Services
8 (a) Information Concerning Shares of *
the Fund - Redemptions and
Repurchases; Information
Concerning Shares of the Fund -
Purchases; Shareholder Services
(b),(c),(d) Information Concerning Shares of *
the Fund - Redemptions and
Repurchases
9 * *
10 (a),(b) * Front Cover Page
11 * Front Cover Page
12 The Fund Definitions; The Fund
ITEM NUMBER STATEMENT OF ADDITIONAL
FORM N-1A, PART B PROSPECTUS CAPTION INFORMATION
- ----------------- ------------------ -----------
13 (a),(b),(c), * Investment Objective,Policies and
Restrictions
(d) * *
14 (a),(b),(c) * Management of the Fund - Trustees
and Officers; Management of the
Fund -Trustees and Officers;
Trustee Compensation Table
15 (a) * *
(b),(c) * Management of the Fund - Trustees
and Officers
16 (a) Management of the Fund - Management of the Fund -
Investment Adviser Investment Adviser; Management
of the Fund - Trustees and Officers
(b) Management of the Fund - Management of the Fund -
Investment Adviser Investment Adviser; Management
(c) * *
(d) * Management of the Fund -
Investment Adviser;
Administrator
(e) * Portfolio Trading
(f) Information Concerning Shares Distribution Plans
of the Fund - Distribution
Plans
(g) * *
(h) * Management of the Fund -
Custodian; Independent
Accountants and Financial
Statements; Back Cover Page
(i) * Management of Fund - Shareholder
Servicing Agent
17 (a),(b),(c) * Portfolio Trading
(d),(e)
18 (a) Information Concerning Shares Description of Shares, Voting
of the Fund - Description of Rights and Liabilities
Shares, Voting Rights and
Liabilities
(b) * *
19 (a) Information Concerning Shares Shareholder Services
of the Fund - Purchases;
Shareholder Services
(b) Information Concerning Shares Management of the Fund -
of the Fund - Net Asset Value; Distributor; Determination of
Information Concerning Shares Net Assets Value and
of the Fund - Purchases Performance - Net Asset Value
(c) * *
20 * Tax Status
21 (a),(b) * Management of the Fund -
Distributor; Distribution Plans
(c) * *
22 (a) * *
(b) * Determination of Net Asset Value
and Performance; Performance
Information
23 * Independent Accountants and
Financial Statements
</TABLE>
- -----------------------------
* Not Applicable
** Contained in annual report
<PAGE>
MFS GOVERNMENT SECURITIES FUND
SUPPLEMENT TO THE JULY 1, 1997 PROSPECTUS AND
STATEMENT OF ADDITIONAL INFORMATION
THE FOLLOWING INFORMATION SHOULD BE READ IN CONJUNCTION WITH THE FUND'S
PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION ("SAI"), DATED JULY 1, 1997,
AND CONTAINS A DESCRIPTION OF CLASS I SHARES.
CLASS I SHARES ARE AVAILABLE FOR PURCHASE ONLY BY CERTAIN INVESTORS AS
DESCRIBED UNDER THE CAPTION "ELIGIBLE PURCHASERS" BELOW.
EXPENSE SUMMARY
SHAREHOLDER TRANSACTION EXPENSES: CLASS I
Maximum Initial Sales Charge Imposed on Purchases of Fund
Shares (as a percentage of offering price)....................... None
Maximum Contingent Deferred Sales Charge (as a percentage
of original purchase price or redemption proceeds, as applicable) None
ANNUAL OPERATING EXPENSES OF THE FUND (AS A PERCENTAGE OF AVERAGE NET ASSETS):
Management Fees (after expense limitation)(1)...................... 0.30 %
Rule 12b-1 Fees.................................................... None
Other Expenses(2)(3)............................................... 0.305%
------
Total Operating Expenses (after expense limitation)(4)............. 0.605%
.........
(1) As of April 1, 1997, the Adviser voluntarily reduced the management fee to
0.30% per annum of the Fund's average daily net assets for an indefinite
period of time. Absent this reduction, the management fee would have been
0.40%.
(2) "Other Expenses" is based on Class A expenses incurred during the fiscal
year ended February 28, 1997.
(3) The Fund has an expense offset arrangement which reduces the Fund's
custodian fee based upon the amount of cash maintained by the Fund with its
custodian and dividend disbursing agent, and may enter into other such
arrangements and directed brokerage arrangements (which would also have the
effect of reducing the Fund's expenses). Any such fee reductions are not
reflected under "Other Expenses."
(4) Absent the expense limitation described in footnote (1) above, "Total
Operating Expenses" would have been 0.705% of the Fund's average daily
net assets.
EXAMPLE OF EXPENSES
An investor would pay the following dollar amounts of expenses on a $1,000
investment in Class I shares of the Fund, assuming (a) a 5% annual return and
(b) redemption at the end of each of the time periods indicated:
PERIOD CLASS I
1 year........................................ $ 6
3 years....................................... 19
The purpose of the expense table above is to assist investors in
understanding the various costs and expenses that a shareholder of the Fund will
bear directly or indirectly. A more complete description of the Fund's
management fee is set forth under the caption "Management of the Fund" in the
Prospectus.
THE "EXAMPLE" SET FORTH ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST
OR FUTURE EXPENSES OF THE FUND; ACTUAL EXPENSES MAY BE GREATER OR LESS THAN
THOSE SHOWN.
<PAGE>
CONDENSED FINANCIAL INFORMATION
The following information has been audited and should be read in
conjunction with the financial statements included in the Fund's Annual Report
to Shareholders which are incorporated by reference into the SAI in reliance
upon the report of the Fund's independent auditors, given upon their authority
as experts in accounting and auditing. The Fund's independent auditors are
Deloitte & Touche LLP.
FINANCIAL HIGHLIGHTS - CLASS I SHARES
1997**
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $ 9.41
Income from investment operations# -
Net investment income@ $ 0.10
Net realized and unrealized loss on investments (0.01)
Total from investment operations $ 0.09
Less distributions declared to shareholders from net investment
income $(0.10)
Net asset value - end of period $ 9.40
Total return 1.03%++
Ratios (to average net assets)/Supplemental data@:
Expenses## 0.48%+
Net investment income 7.22%+
Portfolio turnover 339%
Net assets, end of period (000 omitted) $ 470
** For the period from the commencement of offering of Class I shares, January
2, 1997 to February 28, 1997.
+ Annualized.
++ Not annualized.
# Per share data is based on average shares outstanding.
## The Fund's expenses are calculated without reduction for fees paid
indirectly.
@ The investment adviser did not impose a portion of its management fee for
certain of the periods indicated. If this fee had been incurred by the Fund,
the net investment income per share and ratios would have been:
Net investment income $ 0.09
Ratios (to average net assets):
Expenses## 0.63%+
Net investment income 7.07%+
ELIGIBLE PURCHASERS
Class I shares are available for purchase only by the following purchasers
("Eligible Purchasers"):
(i) certain retirement plans established for the benefit of employees of
Massachusetts Financial Services Company ("MFS"), the Fund's investment
adviser, and employees of MFS' affiliates; and
(ii) any fund distributed by MFS Fund Distributors, Inc. ("MFD"), the Fund's
distributor, if the fund seeks to achieve its investment objective by
investing primarily in shares of the Fund and other funds distributed by
MFD.
In no event will the Fund, MFS, MFD or any of their affiliates pay any sales
commissions or compensation to any third party in connection with the sale of
Class I shares; the payment of any such sales commission or compensation would,
under the Fund's policies, disqualify the purchaser as an eligible investor of
Class I shares.
SHARE CLASSES OFFERED BY THE FUND
Four classes of shares of the Fund currently are offered for sale, Class A
shares, Class B shares, Class C shares and Class I shares. Class I shares are
available for purchase only by Eligible Purchasers, as defined above, and are
described in this Supplement. Class A shares, Class B shares and Class C shares
are described in the Fund's Prospectus and are available for purchase by the
general public.
Class A shares are offered at net asset value plus an initial sales charge
up to a maximum of 4.75% of the offering price (or a contingent deferred sales
charge (a "CDSC") upon redemption of 1.00% during the first year in the case of
purchases of $1 million or more and certain purchases by retirement plans), and
are subject to an annual distribution fee and service fee up to a maximum of
0.35% per annum. Class B shares are offered at net asset value without an
initial sales charge but are subject to a CDSC upon redemption (declining from
4.00% during the first year to 0% after six years) and an annual distribution
fee and service fee up to a maximum of 1.00% per annum; Class B shares convert
to Class A shares approximately eight years after purchase. Class C shares are
offered at net asset value without an initial sales charge but are subject to a
CDSC upon redemption of 1.00% during the first year and an annual distribution
fee and service fee up to a maximum of 1.00% per annum. Class I shares are
offered at net asset value without an initial sales charge or CDSC and are not
subject to a distribution or service fee. Class C and Class I shares do not
convert to any other class of shares of the Fund.
OTHER INFORMATION
Eligible Purchasers may purchase Class I shares only directly through MFD.
Eligible Purchasers may exchange Class I shares of the Fund for Class I shares
of any other MFS Fund available for purchase by such Eligible Purchasers at
their net asset value (if available for sale), and may exchange Class I shares
of the Fund for shares of the MFS Money Market Fund (if available for sale), and
may redeem Class I shares of the Fund at net asset value. Distributions paid by
the Fund with respect to Class I shares generally will be greater than those
paid with respect to Class A shares, Class B shares and Class C shares because
expenses attributable to Class A shares, Class B shares and Class C shares
generally will be higher.
The Adviser has voluntarily reduced its management fee to 0.30% per annum
of the Fund's average daily net assets for an indefinite period of time. This
arrangement may be revised or terminated at any time without notice to
shareholders.
THE DATE OF THIS SUPPLEMENT IS JULY 1, 1997
<PAGE>
PROSPECTUS
July 1, 1997
MFS(R) GOVERNMENT Class A Shares of Beneficial Interest
SECURITIES FUND Class B Shares of Beneficial Interest
(A member of the MFS Family of Funds(R)) Class C Shares of Beneficial Interest
- -------------------------------------------------------------------------------
Page
----
1. Expense Summary ..................................................... 2
2. The Fund ............................................................ 3
3. Condensed Financial Information ..................................... 4
4. Investment Objective and Policies ................................... 6
5. Management of the Fund .............................................. 9
6. Information Concerning Shares of the Fund ........................... 11
Purchases ........................................................ 11
Exchanges ........................................................ 15
Redemptions and Repurchases ...................................... 16
Distribution Plan ................................................ 19
Distributions .................................................... 21
Tax Status ....................................................... 21
Net Asset Value .................................................. 21
Description of Shares, Voting Rights and Liabilities ............. 22
Performance Information .......................................... 22
7. Shareholder Services ................................................ 23
Appendix A .......................................................... A-1
Appendix B .......................................................... B-1
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
MFS GOVERNMENT SECURITIES FUND
500 Boylston Street, Boston, MA 02116 (617) 954-5000
The investment objective of MFS Government Securities Fund (the "Fund") is to
provide current income and preservation of principal. The Fund seeks to achieve
this objective by investing in securities that are issued or guaranteed as to
principal and interest by the U.S. Government, its agencies, authorities or
instrumentalities ("Government Securities") and by investing in obligations that
are fully collateralized or otherwise fully secured by Government Securities
(see "Investment Objective and Policies" below). The minimum initial investment
is generally $1,000 per account (see "Purchases" below).
The Fund's investment adviser and distributor are Massachusetts Financial
Services Company ("MFS" or the "Adviser") and MFS Fund Distributors, Inc.
("MFD"), respectively, both of which are located at 500 Boylston Street, Boston,
Massachusetts 02116.
INVESTMENT PRODUCTS ARE NOT INSURED BY THE FDIC OR ANY OTHER GOVERNMENT AGENCY,
AND ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR GUARANTEED BY, ANY FINANCIAL
INSTITUTION. SHARES OF MUTUAL FUNDS ARE SUBJECT TO INVESTMENT RISK, INCLUDING
POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED, AND WILL FLUCTUATE IN VALUE. YOU
MAY RECEIVE MORE OR LESS THAN YOU PAID WHEN YOU REDEEM YOUR SHARES.
This Prospectus sets forth concisely the information concerning the Fund that a
prospective investor ought to know before investing. The Fund has filed with the
Securities and Exchange Commission ("SEC") a Statement of Additional
Information, dated July 1, 1997, as amended or supplemented from time to time
(the "SAI"), which contains more detailed information about the Fund and is
incorporated into this Prospectus by reference. See page 24 for a further
description of the information set forth in the SAI. A copy of the SAI may be
obtained without charge by contacting the Shareholder Servicing Agent (see back
cover for address and phone number). The SEC maintains an Internet World Wide
Web site that contains the SAI, materials that are incorporated by reference
into this Prospectus and the SAI, and other information regarding the Fund. This
Prospectus is available on the Adviser's Internet World Wide Web site at
http://www.mfs.com.
INVESTORS SHOULD READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE REFERENCE.
<PAGE>
1. EXPENSE SUMMARY
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------- ------- -------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Initial Sales Charge Imposed on Purchases of Fund Shares
(as a percentage of offering price) ............................ 4.75 % 0.00 % 0.00 %
Maximum Contingent Deferred Sales Charge (as a percentage of
original purchase price or redemption proceeds, as applicable) . See Below(1) 4.00 % 1.00 %
ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS):
Management Fees (after applicable fee reduction)(2)............... 0.30 % 0.30 % 0.30 %
Rule 12b-1 Fees .................................................. 0.35 %(3) 1.00 %(4) 1.00 %(4)
Other Expenses(5) ................................................ 0.305% 0.305% 0.305%
----- ----- -----
Total Operating Expenses (after applicable fee reduction)(6) ..... 0.955% 1.605% 1.605%
- ------------
(1) Purchases of $1 million or more and certain purchases by retirement plans are not subject to an initial sales
charge; however, a contingent deferred sales charge ("CDSC") of 1% will be imposed on such purchases in the
event of certain redemption transactions within 12 months following such purchases (see "Information Concerning
Shares of the Fund -- Purchases" below).
(2) As of April 1, 1997, the Adviser voluntarily reduced its management fee to 0.30% per annum of the Fund's average
daily net assets for an indefinite period of time. Prior to that date, the Adviser voluntarily reduced its
management fee to 0.25% per annum of the Fund's average daily net assets. Absent such reduction, "Management
Fees" would have been 0.40%.
(3) The Fund has adopted a distribution plan for its shares in accordance with Rule 12b-1 under the Investment
Company Act of 1940, as amended (the "1940 Act") (the "Distribution Plan"), which provides that it will pay
distribution/service fees aggregating up to (but not necessarily all of) 0.35% per annum of the average daily
net assets attributable to Class A shares. Distribution expenses paid under the Distribution Plan, together with
the initial sales charge, may cause long-term shareholders to pay more than the maximum sales charge that would
have been permissible if imposed entirely as an initial sales charge. See "Information Concerning Shares of the
Fund -- Distribution Plan" below.
(4) The Fund's Distribution Plan provides that it will pay distribution/service fees aggregating up to (but not
necessarily all of) 1.00% per annum of the average daily net assets attributable to Class B and Class C shares,
respectively. Distribution expenses paid under the Distribution Plan with respect to Class B or Class C shares,
together with any CDSC payable upon redemption of Class B or Class C shares, may cause long-term shareholders to
pay more than the maximum sales charge that would have been permissible if imposed entirely as an initial sales
charge. See "Information Concerning Shares of the Fund -- Distribution Plan" below.
(5) The Fund has an expense offset arrangement which reduces the Fund's custodian fee based upon the amount of cash
maintained by the Fund with its custodian and dividend disbursing agent, and may enter into other such
arrangements and directed brokerage arrangements (which would also have the effect of reducing the Fund's
expenses). Any such fee reductions are not reflected under "Other Expenses."
(6) Absent the reduction in the Fund's management fees, "Total Operating Expenses" for Class A, Class B and Class C
shares of the Fund would have been 1.055%, 1.705% and 1.705%, respectively, of the Fund's average daily net
assets attributable to such shares on an annualized basis.
</TABLE>
EXAMPLE OF EXPENSES
An investor would pay the following dollar amounts of expenses on a $1,000
investment in the Fund, assuming (a) 5% annual return and (b) redemption at the
end of each of the time periods indicated (unless otherwise noted):
PERIOD CLASS A CLASS B CLASS C
- ------ ------ ------------------------ -------------------------
(1) (1)
1 year .......... $ 57 $ 56 $ 16 $ 26 $ 16
3 years ......... 76 81 51 51 51
5 years ......... 98 107 87 87 87
10 years ......... 159 173(2) 173(2) 191 191
- ----------
(1) Assumes no redemption.
(2) Class B shares convert to Class A shares approximately eight years after
purchase; therefore, years nine and ten reflect Class A expenses.
The purpose of the expense table above is to assist investors in understanding
the various costs and expenses that a shareholder of the Fund will bear directly
or indirectly. More complete descriptions of the following expenses of the Fund
are set forth in the following sections of this Prospectus: (i) varying sales
charges on share purchases -- "Purchases"; (ii) varying CDSCs -- "Purchases";
(iii) management fees -- "Investment Adviser"; and (iv) Rule 12b-1 (i.e.,
distribution plan) fees -- "Distribution Plan."
THE "EXAMPLE" SET FORTH ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES OF THE FUND; ACTUAL EXPENSES MAY BE GREATER OR LESS
THAN THOSE SHOWN.
2. THE FUND
The Fund is an open-end, diversified management investment company which was
organized as a business trust under the laws of The Commonwealth of
Massachusetts in 1981, but which commenced business with its current investment
objective in 1984. Shares of the Fund are sold continuously to the public and
the Fund then uses the proceeds to buy securities for its portfolio. Three
classes of shares of the Fund currently are offered for sale to the general
public. Class A shares are offered at net asset value plus an initial sales
charge up to a maximum of 4.75% of the offering price (or a CDSC upon redemption
of 1.00% during the first year in the case of purchases of $1 million or more
and certain purchases by retirement plans) and subject to an annual distribution
fee and service fee up to a maximum of 0.35% per annum. Class B shares are
offered at net asset value without an initial sales charge but subject to a CDSC
upon redemption (declining from 4.00% during the first year to 0% after six
years) and an annual distribution fee and service fee up to a maximum of 1.00%
per annum; Class B shares will convert to Class A shares approximately eight
years after purchase. Class C shares are offered at net asset value without an
initial sales charge but are subject to a CDSC upon redemption of 1.00% during
the first year and an annual distribution fee and service fee up to a maximum of
1.00% per annum. Class C shares do not convert to any other class of shares of
the Fund. In addition, the Fund offers an additional class of shares, Class I
shares, exclusively to certain institutional investors. Class I shares are made
available by means of a separate Prospectus Supplement provided to institutional
investors eligible to purchase Class I shares, and are offered at net asset
value without an initial sales charge or CDSC upon redemption and without an
annual distribution and service fee.
The Board of Trustees provides broad supervision over the affairs of the Fund.
MFS is the Fund's investment adviser. A majority of the Trustees are not
affiliated with the Adviser. The Adviser is responsible for the management of
the Fund's assets and the officers of the Fund are responsible for its
operations. The Adviser manages the portfolio from day to day in accordance with
the Fund's investment objective and policies. The selection of investments and
the way they are managed depend on the conditions and trends in the economy and
the financial marketplaces. The Fund also offers to buy back (redeem) its shares
from its shareholders at any time at net asset value less any applicable CDSC.
3. CONDENSED FINANCIAL INFORMATION
The following information has been audited for at least the latest five fiscal
years of the Fund and should be read in conjunction with the financial
statements included in the Fund's Annual Report to shareholders which are
incorporated by reference into the SAI in reliance upon the report of the Fund's
independent auditors given upon their authority as experts in accounting and
auditing. The Fund's current independent auditors are Deloitte & Touche LLP.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
ELEVEN
YEAR ENDED MONTHS
-------------------------------------------------- ENDED YEAR ENDED MARCH 31,
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28, ------------------------
1997 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------------
CLASS A
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD):
Net asset value
-- beginning of
period $ 9.67 $ 9.22 $ 9.79 $10.00 $ 9.43 $ 9.29
------ ------ ------ ------ ------ ------
Income from investment operations# --
Net investment
income(S) $ 0.62 $ 0.66 $ 0.67 $ 0.63 $ 0.67 $ 0.75
Net realized and
unrealized gain
(loss) on investments (0.28) 0.45 (0.58) (0.20) 0.60 0.14
------ ------ ------ ------ ------ ------
Total from investment
operations $ 0.34 $ 1.11 $ 0.09 $ 0.43 $ 1.27 $ 0.89
------ ------ ------ ------ ------ ------
Less distributions declared to shareholders --
From net investment
income $(0.61) $(0.66) $(0.66) $(0.58)(++) $(0.70) $(0.75)
In excess of
net realized
gain on investments -- -- -- (0.06) -- --
------ ------ ------ ------ ------ ------
Total distributions
declared to
shareholders $(0.61) $(0.66) $(0.66) $(0.64) $(0.70) $(0.75)
------ ------ ------ ------ ------ ------
Net asset value
-- end of period $ 9.40 $ 9.67 $ 9.22 $ 9.79 $10.00 $ 9.43
====== ====== ====== ====== ====== ======
Total return(+) 3.67% 12.29% 1.21% 6.57%+ 13.94% 9.96%
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA(S):
Expenses## 0.91% 0.84% 0.79% 0.68%+ 1.20% 1.25%
Net investment
income 6.56% 6.83% 7.24% 6.83%+ 7.18% 7.95%
PORTFOLIO TURNOVER 339% 352% 385% 167% 264% 270%
NET ASSETS AT
END OF PERIOD
(000 OMITTED) $293,286 $322,740 $318,116 $372,702 $356,735 $356,366
- ----------
+ Annualized.
(+) Total returns for Class A shares do not include the applicable sales charge. If the charge had been included, the results
would have been lower.
(++) Amount includes distribution in excess of net investment income of less than $0.001 per share for the period indicated.
# Per share data for the periods subsequent to February 28, 1994 is based on average shares outstanding.
## For fiscal years ending after September 1, 1995, the Fund's expenses are calculated without reduction for fees paid
indirectly.
(S) The investment adviser did not impose a portion of its management fee for certain periods indicated. If this fee had been
incurred by the Fund, the net investment income per share and ratios would have been:
Net investment
income $ 0.61 $ 0.64 $ 0.65 $ 0.59 -- --
RATIOS (TO AVERAGE NET ASSETS):
Expenses## 1.06% 1.05% 1.05% 1.17%+ -- --
Net investment
income 6.41% 6.62% 6.98% 6.34%+ -- --
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS -- CONTINUED
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------------------------------------------------------------------
1991 1990 1989 1988 1987
----------------------------------------------------------------------------------------
CLASS A
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD):
Net asset value -- beginning of period $ 9.10 $ 9.05 $ 9.56 $10.22 $10.53
------ ------ ------ ------ ------
Income from investment operations --
Net investment income $ 0.78 $ 0.82 $ 0.86 $ 0.87 $ 0.94
Net realized and unrealized gain
(loss) on investments 0.19 0.04 (0.51) (0.59) (0.20)
------ ------ ------ ------ ------
Total from investment operations $ 0.97 $ 0.86 $ 0.35 $ 0.28 $ 0.74
------ ------ ------ ------ ------
Less distributions declared to shareholders --
From net investment income $(0.78) $(0.81) $(0.86) $(0.88) $(0.94)
In excess of net realized gain on
investments -- -- -- (0.06) (0.11)
------ ------ ------ ------ ------
Total distributions declared to
shareholders $(0.78) $(0.81) $(0.86) $(0.94) $(1.05)
------ ------ ------ ------ ------
Net asset value -- end of period $ 9.29 $ 9.10 $ 9.05 $ 9.56 $10.22
====== ====== ====== ====== ======
Total return(+) 11.13% 9.72% 3.84% 3.11% 7.48%
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA:
Expenses 1.28% 1.29% 1.40% 1.18% 1.18%
Net investment income 8.56% 8.81% 9.25% 9.10% 9.14%
PORTFOLIO TURNOVER 95% 260% 346% 417% 191%
NET ASSETS AT END OF PERIOD (000
OMITTED) $323,612 $327,877 $348,617 $397,239 $487,975
- ----------
(+) Total returns for Class A shares do not include the applicable sales charge. If the charge had been included, the results
would have been lower.
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS -- CONTINUED
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
--------------------------------------------------------------------------- -------------------
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28,
1997 1996 1995 1994* 1997**
- -------------------------------------------------------------------------------------------------------------- ------------------
CLASS B CLASS C
- -------------------------------------------------------------------------------------------------------------- ------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD):
Net asset value -- beginning
of period $ 9.66 $ 9.22 $ 9.78 $10.16 $ 9.51
------ ------ ------ ------ ------
Income from investment operations# --
Net investment income(S) $ 0.55 $ 0.59 $ 0.59 $ 0.30 $ 0.47
Net realized and unrealized
gain (loss) on investments (0.28) 0.44 (0.56) (0.43) (0.09)
------ ------ ------ ------ ------
Total from investment
operations $ 0.27 $ 1.03 $ 0.03 $(0.13) $ 0.38
------ ------ ------ ------ ------
Less distributions declared to shareholders --
From net investment income $(0.54) $(0.59) $(0.59) $(0.25)(++) $(0.46)
------ ------ ------ ------ ------
Net asset value -- end of
period $ 9.39 $ 9.66 $ 9.22 $ 9.78 $ 9.43
====== ====== ====== ====== ======
Total return(+) 2.92% 11.46% 0.57% (1.29)% 4.06%++
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA(S):
Expenses## 1.62% 1.56% 1.51% 1.39%+ 1.55%+
Net investment income 5.85% 6.09% 6.52% 5.92%+ 5.97%+
PORTFOLIO TURNOVER 339% 352% 385% 167% 339%
NET ASSETS AT END OF PERIOD
(000 OMITTED) $114,861 $124,921 $105,178 $113,107 $6,046
- ----------
* For the period from the commencement of offering of Class B shares, August 30, 1993 to February 28, 1994.
** For the period from the commencement of offering of Class C shares, April 1, 1996 to February 28, 1997.
+ Annualized.
++ Not annualized.
# Per share data for the periods subsequent to February 28, 1994 is based on average shares outstanding.
## For fiscal years ending after September 1, 1995, the Fund's expenses are calculated without reduction for fees paid
indirectly.
(++) Amount includes distribution in excess of net investment income of less than $0.001 per share for the period indicated.
(S) The investment adviser did not impose a portion of its management fee for certain of the periods indicated. If this fee
had been incurred by the Fund, the net investment income per share and ratios would have been:
Net investment income $ 0.54 $ 0.57 $ 0.57 $ 0.28 $ 0.46
RATIOS (TO AVERAGE NET ASSETS):
Expenses## 1.77% 1.77% 1.77% 1.87%+ 1.70%+
Net investment income 5.70% 5.88% 6.26% 5.44%+ 5.82%+
</TABLE>
4. INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE -- The Fund's investment objective is to provide current
income and preservation of principal. Any investment involves risk and there can
be no assurance that the Fund will achieve its investment objective.
INVESTMENT POLICIES -- The Fund seeks to achieve its investment objective by
investing in Government Securities and by investing in obligations that are
fully collateralized or otherwise fully secured by Government Securities as
described below. Government Securities include (1) U.S. Treasury obligations,
which differ only in their interest rates, maturities and times of issuance:
U.S. Treasury bills (maturity of one year or less); U.S. Treasury notes
(maturities of one to 10 years); and U.S. Treasury bonds (generally maturities
of greater than 10 years), all of which are backed by the full faith and credit
of the U.S. Government; and (2) obligations issued or guaranteed by U.S.
Government agencies, authorities or instrumentalities; some of which are backed
by the full faith and credit of the U.S. Treasury, e.g., direct pass-through
certificates of the Government National Mortgage Association ("GNMA"); some of
which are supported by the right of the issuer to borrow from the U.S.
Government, e.g., obligations of Federal Home Loan Banks; some of which are
backed only by the credit of the issuer itself, e.g., obligations of the Student
Loan Marketing Association; and some of which are supported by the discretionary
authority of the U.S. Government to purchase the agency's obligations, e.g.
obligations of the Federal National Mortgage Association ("FNMA"). No assurance
can be given that the U.S. Government will provide financial support to these
entities because it is not obligated by law, in certain instances, to do so. The
primary types of Government Securities in which the Fund invests are listed in
Appendix B.
The Fund may invest a significant portion of its assets in GNMA Certificates.
Such Certificates are mortgage-backed securities which represent a partial
ownership interest in a pool of mortgage loans issued by lenders such as
mortgage bankers, commercial banks and savings and loan associations. Each
mortgage loan included in the pool is either insured by the Federal Housing
Administration or guaranteed by the Veterans Administration. For a further
description of these and other such obligations and of the consequences of the
prepayment of mortgages underlying these Certificates, see "Mortgage Pass-
Through Securities" below and Appendix B.
When and if available, Government Securities may be purchased at a discount from
face value. However, the Fund does not intend to hold such securities to
maturity for the purpose of achieving potential capital gains, unless current
yields on these securities remain attractive.
Government Securities do not generally involve the credit risks associated with
other types of fixed income securities. However, like other fixed income
securities, the values of Government Securities change as interest rates
fluctuate. THE NET ASSET VALUE OF THE SHARES OF AN OPEN-END INVESTMENT COMPANY
SUCH AS THE FUND, WHICH INVESTS IN FIXED INCOME SECURITIES, CHANGES AS THE
GENERAL LEVELS OF INTEREST RATES FLUCTUATE. WHEN INTEREST RATES DECLINE, THE
VALUE OF A PORTFOLIO INVESTED AT HIGHER YIELDS CAN BE EXPECTED TO RISE.
CONVERSELY, WHEN INTEREST RATES RISE, THE VALUE OF A PORTFOLIO INVESTED AT LOWER
YIELDS CAN BE EXPECTED TO DECLINE. Although changes in the value of the Fund's
portfolio securities subsequent to their acquisition are reflected in the net
asset value of shares of the Fund, such changes will not affect the income
received by the Fund from such securities. However, since available yields vary
over time, no specific level of income can ever be assured. The dividends paid
by the Fund will increase or decrease in relation to the income received by the
Fund from its investments, which will in any case be reduced by the Fund's
expenses before being distributed to the Fund's shareholders.
In order to make the Fund an eligible investment for Federal Credit Unions
("FCUs") and national banks, the Fund will invest in Government Securities that
are eligible for investment by such institutions without limitation, and will
also generally be managed so as to qualify as an eligible investment for such
institutions. The Fund will comply with all investment limitations applicable to
FCUs including the requirement that a FCU may only purchase Collateralized
Mortgage Obligations (as described below) which would be eligible under the high
risk securities test of Part 703 of the National Credit Union Administration
Rules and Regulations.
ALTHOUGH THE FUND INVESTS IN GOVERNMENT SECURITIES, SHARES OF THE FUND ARE
NEITHER GUARANTEED NOR INSURED BY THE U.S. GOVERNMENT OR ITS AGENCIES,
AUTHORITIES OR INSTRUMENTALITIES.
ZERO COUPON SECURITIES: Government Securities may also include zero coupon
Government Securities which are debt obligations which do not require the
periodic payment of interest and are issued at a significant discount from face
value. The discount approximates the total amount of interest the Government
Securities will accrue and compound over the period until maturity or the first
interest payment date at a rate of interest reflecting the market rate of the
security at the time of issuance. Such investments benefit the issuer by
mitigating its need for cash to meet debt service, but also require a higher
rate of return to attract investors who are willing to defer receipt of such
cash. Such investments may experience greater volatility in market value due to
changes in interest rates than Government Securities which make regular payments
of interest. The Fund will accrue income on such investments for tax and
accounting purposes, as required, which is distributable to shareholders and
which, because no cash is received at the time of accrual, may require the
liquidation of other portfolio securities to satisfy the Fund's distribution
obligations. The Fund will not invest in zero coupon Government Securities with
maturities that exceed 10 years.
MORTGAGE PASS-THROUGH SECURITIES: The Fund may invest in mortgage pass-through
securities where the payment of principal and interest on the mortgage
pass-through securities or the underlying mortgages is guaranteed by the U.S.
Government, its agencies, authorities or instrumentalities. Mortgage
pass-through securities are securities representing interests in "pools" of
mortgage loans. Monthly payments of interest and principal by the individual
borrowers on mortgages are passed through to the holders of the securities (net
of fees paid to the issuer or guarantor of the securities) as the mortgages in
the underlying mortgage pools are paid off. The average lives of mortgage
pass-throughs are variable when issued because their average lives depend on
prepayment rates. The average life of these securities is likely to be
substantially shorter than their stated final maturity as a result of
unscheduled principal prepayments. Prepayments on underlying mortgages result in
a loss of anticipated interest, and all or part of a premium if any has been
paid, and the actual yield (or total return) to the Fund may be different than
the quoted yield on the securities. Mortgage prepayments generally increase with
falling interest rates and decrease with rising interest rates. Like other fixed
income securities, when interest rates rise the value of a mortgage pass-through
security generally will decline; however, when interest rates are declining, the
value of mortgage pass-through securities with prepayment features may not
increase as much as that of other fixed income securities. For a further
description of mortgage pass-through securities, see the SAI.
The Fund may also invest in obligations that are fully collateralized or
otherwise fully secured by Government Securities, some of which are described
below.
COLLATERALIZED MORTGAGE OBLIGATIONS AND MULTICLASS PASS-THROUGH SECURITIES: The
Fund may invest a portion of its assets in collateralized mortgage obligations
or "CMOs," which are debt obligations collateralized by mortgage loans or
mortgage pass-through securities. Typically, CMOs are collateralized by
certificates issued by GNMA, FNMA or the Federal Home Loan Mortgage Corporation
and, in the case of the Fund, must be collateralized by Government Securities
(such collateral collectively hereinafter referred to as "Mortgage Assets").
CMOs also include multiclass pass-through securities which are interests in a
trust composed of Mortgage Assets, unless otherwise noted. CMOs may be issued by
U.S. agencies, authorities or instrumentalities or by private originators of, or
investors in, mortgage loans, including savings and loan associations, mortgage
banks, commercial banks, investment banks and special purpose subsidiaries of
the foregoing. Payments of principal of and interest on the Mortgage Assets, and
any reinvestment income thereon, provide the funds to pay debt service on the
CMOs or make scheduled distributions on the multiclass pass-through securities.
In a CMO, a series of bonds or certificates are usually issued in multiple
classes with different maturities. Each class of CMOs, often referred to as a
"tranche," is issued at a specific fixed or floating coupon rate and has a
stated maturity or final distribution date. Principal prepayments on the
Mortgage Assets may cause the CMOs to be retired substantially earlier than
their stated maturities or final distribution dates, resulting in a loss of all
or part of the premium, if any has been paid. The Fund may also invest in
parallel pay CMOs and Planned Amortization Class CMOs ("PAC Bonds"). Parallel
pay CMOs are structured to provide payments of principal on each payment date to
more than one class. PAC Bonds generally require payments of a specified amount
of principal on each payment date. PAC Bonds are always parallel pay CMOs with
the required principal payment on such securities having the highest priority
after interest has been paid to all classes. For a further description of CMOs
and the risks related to transactions therein, see the SAI.
REPURCHASE AGREEMENTS: The Fund may enter into repurchase agreements with
primary reporting dealers that report to the Federal Reserve Bank of New York
and with the 100 largest U.S. commercial banks in order to earn income on
available cash or as a temporary defensive measure. Under a repurchase
agreement, the Fund acquires securities subject to the seller's agreement to
repurchase at a specified time and price. If the seller becomes subject to a
proceeding under the bankruptcy laws or its assets are otherwise subject to a
stay order, the Fund's right to liquidate the securities may be restricted
(during which time the value of the securities could decline). As discussed in
the SAI, the Fund has adopted certain procedures intended to minimize risk.
LENDING OF SECURITIES: The Fund may seek to increase its income by lending
portfolio securities. Such loans will usually be made to member firms (and
subsidiaries thereof) of the New York Stock Exchange (the "Exchange") and to
member banks of the Federal Reserve System, and would be required to be secured
continuously by collateral in cash, U.S. Government securities or an irrevocable
letter of credit maintained on a current basis at an amount at least equal to
the market value of the securities loaned. The Fund will continue to collect the
equivalent of interest on the securities loaned and will also receive either
interest (through investment of cash collateral) or a fee (if the collateral is
Government Securities or a letter of credit). If the Adviser determines to make
securities loans, it is intended that the value of the securities loaned would
not exceed 30% of the value of the total assets of the Fund.
"WHEN-ISSUED" SECURITIES: Some Government Securities may be purchased on a
"when-issued" or on a "forward delivery" basis, which means that the obligations
will be delivered to the Fund at a future date beyond customary settlement time.
The commitment to purchase an obligation for which payment will be made on a
future date may be deemed a separate security. Although the Fund is not limited
as to the amount of Government Securities for which it may have commitments to
purchase on such bases, it is expected that under normal circumstances the Fund
will not commit more than 30% of its total assets to such purchases. The Fund
does not pay for such obligations until received, and does not start earning
interest on the obligations until the contractual settlement date. In order to
invest its assets immediately, while awaiting delivery of the obligations
purchased on such bases, the Fund will invest in cash, cash equivalents or
Government Securities. For additional information concerning these securities,
see the Fund's SAI.
MORTGAGE "DOLLAR ROLL" TRANSACTIONS: The Fund may enter into mortgage "dollar
roll" transactions with selected banks and broker-dealers pursuant to which the
Fund sells mortgage-backed securities for delivery in the future (generally
within 30 days) and simultaneously contracts to repurchase substantially similar
(same type, coupon and maturity) securities on a specified future date. The Fund
will only enter into covered rolls. A "covered roll" is a specific type of
dollar roll for which there is an offsetting cash position or a cash equivalent
security position which matures on or before the forward settlement date of the
dollar roll transaction.
PORTFOLIO MANAGEMENT: The Fund intends to fully manage its portfolio by buying
and selling Government Securities, as well as holding selected obligations to
maturity. The Fund seeks to maximize the return on its portfolio by taking
advantage of market developments and yield disparities. For a description of the
strategies which may be used by the Fund in managing its portfolio, see the SAI.
The primary consideration in placing portfolio security transactions with
broker-dealers is to obtain, and maintain the availability of, execution at the
most favorable prices and in the most effective manner possible. Consistent with
the foregoing primary consideration, the Conduct Rules of the National
Association of Securities Dealers, Inc. (the "NASD") and such other policies as
the Trustees may determine, the Adviser may consider sales of shares of the Fund
and of the other investment company clients of MFD as a factor in the selection
of broker-dealers to execute the Fund's portfolio transactions. From time to
time, the Adviser may direct certain portfolio transactions to broker-dealer
firms which, in turn, have agreed to pay a portion of the Fund's operating
expenses (e.g., fees charged by the custodian of the Fund's assets). For the
fiscal year ended February 28, 1997, the Fund had a portfolio turnover rate of
over 100%. Transaction costs incurred by the Fund and the realized capital gains
and losses of the Fund may be greater than that of a fund with a lesser
portfolio turnover rate. For a further discussion of portfolio trading, see the
SAI.
--------------------
The investment objective and the policies described above may be changed without
shareholder approval.
The SAI includes a discussion of other investment policies and a listing of
specific investment restrictions which govern the Fund's investment policies.
The specific investment restrictions listed in the SAI may be changed without
shareholder approval unless indicated otherwise. The Fund's investment
limitations and policies are adhered to at the time of purchase or utilization
of assets; a subsequent change in circumstances will not be considered to result
in a violation of policy.
5. MANAGEMENT OF THE FUND
INVESTMENT ADVISER -- The Adviser manages the assets of the Fund pursuant to an
Investment Advisory Agreement, dated July 18, 1984 as amended February 1, 1994
(the "Advisory Agreement"). Under the Advisory Agreement, the Adviser provides
the Fund with overall investment advisory services. Steven E. Nothern, a Senior
Vice President of the Adviser, has been the Fund's portfolio manager since
January 1991. Mr. Nothern has been employed as a portfolio manager by the
Adviser since 1986. Subject to such policies as the Trustees may determine, the
Adviser makes investment decisions for the Fund. For these services and
facilities, the Adviser receives a management fee equal to the lesser of (i)
0.40% of the Fund's average daily net assets or (ii) 0.25% of the Fund's average
daily net assets plus 3.40% of the Fund's gross income (i.e., income other than
from the sale of securities), in each case on an annualized basis for the Fund's
then-current fiscal year. Effective April 1, 1997, the Adviser has voluntarily
agreed to reduce the Fund's management fee to 0.30% of the Fund's average daily
net assets for an indefinite period of time. This arrangement may be revised or
terminated at any time without notice to shareholders.
For the fiscal year ended February 28, 1997, MFS received management fees under
the Advisory Agreement of $1,076,326, equivalent to 0.25% of the Fund's average
daily net assets. Due to the voluntary reduction of management fees, $645,570 of
management fees were not imposed on the Fund.
MFS also serves as investment adviser to each of the other funds in the MFS
Family of Funds (the "MFS Funds"), MFS Institutional Trust, MFS Municipal Income
Trust, MFS Multimarket Income Trust, MFS Government Markets Income Trust, MFS
Intermediate Income Trust, MFS Charter Income Trust, MFS Special Value Trust,
MFS Union Standard Trust, MFS Variable Insurance Trust, MFS/Sun Life Series
Trust and seven variable accounts, each of which is a registered investment
company established by Sun Life Assurance Company of Canada (U.S.) ("Sun Life of
Canada (U.S.)") in connection with the sale of various fixed/ variable annuity
contracts. MFS and its wholly owned subsidiary, MFS Institutional Advisors,
Inc., provide investment advice to substantial private clients.
MFS is America's oldest mutual fund organization. MFS and its predecessor
organizations have a history of money management dating from 1924 and the
founding of the first mutual fund in the United States, Massachusetts Investors
Trust. Net assets under the management of the MFS organization were
approximately $58.27 billion on behalf of approximately 2.5 million investor
accounts as of May 31, 1997. As of such date, the MFS organization managed
approximately $34.19 billion of assets in equity securities and approximately
$19.93 billion of assets in fixed income securities. MFS is a subsidiary of Sun
Life of Canada (U.S.), a subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.,
which in turn is a wholly owned subsidiary of Sun Life Assurance Company of
Canada ("Sun Life"). The Directors of MFS are A. Keith Brodkin, Jeffrey L.
Shames, Donald A. Stewart, John D. McNeil and Arnold D. Scott. Mr. Brodkin is
the Chairman, Mr. Shames is the President and Mr. Scott is the Secretary and a
Senior Executive Vice President of MFS. Messrs. McNeil and Stewart are the
Chairman and President, respectively, of Sun Life. Sun Life, a mutual life
insurance company, is one of the largest international life insurance companies
and has been operating in the United States since 1895, establishing a
headquarters office here in 1973. The executive officers of MFS report to the
Chairman of Sun Life.
A. Keith Brodkin, the Chairman of MFS, is also the Chairman, President and a
Trustee of the Fund. W. Thomas London, James O. Yost, Stephen E. Cavan and
James R. Bordewick, Jr., Ellen M. Moynihan and Mark E. Bradley, all of whom
are officers of MFS, are officers of the Fund.
MFS has established a strategic alliance with Foreign & Colonial Management Ltd.
("Foreign & Colonial"). Foreign & Colonial is a subsidiary of two of the world's
oldest financial services institutions, the London-based Foreign & Colonial
Investment Trust PLC, which pioneered the idea of investment management in 1868,
and HYPO-BANK (Bayerische Hypotheken-und Wechsel-Bank AG), the oldest publicly
listed bank in Germany, founded in 1835. As part of this alliance, the portfolio
managers and investment analysts of MFS and Foreign & Colonial share their views
on a variety of investment related issues, such as the economy, securities
markets, portfolio securities and their issuers, investment recommendations,
strategies and techniques, risk analysis, trading strategies and other portfolio
management matters. MFS has access to the extensive international equity
investment expertise of Foreign & Colonial, and Foreign & Colonial has access to
the extensive U.S. equity investment expertise of MFS. MFS and Foreign &
Colonial each have investment personnel working in each other's offices in
Boston and London, respectively.
In certain instances there may be securities which are suitable for the Fund's
portfolio as well as for portfolios of other clients of MFS or clients of
Foreign & Colonial. Some simultaneous transactions are inevitable when several
clients receive investment advice from MFS and Foreign & Colonial, particularly
when the same security is suitable for more than one client. While in some cases
this arrangement could have a detrimental effect on the price or availability of
the security as far as the Fund is concerned, in other cases, however, it may
produce increased investment opportunities for the Fund.
ADMINISTRATOR -- MFS provides the Fund with certain financial, legal,
compliance, shareholder communications and other administrative services
pursuant to a Master Administrative Services Agreement dated March 1, 1997.
Under this Agreement, the Fund pays MFS an administrative fee of up to 0.015%
per annum of the Fund's average daily net assets. This fee reimburses MFS for a
portion of the costs it incurs to provide such services.
DISTRIBUTOR -- MFD, a wholly owned subsidiary of MFS, is the distributor of
shares of the Fund and each of the other MFS Funds.
SHAREHOLDER SERVICING AGENT -- MFS Service Center, Inc. (the "Shareholder
Servicing Agent"), a wholly owned subsidiary of MFS, performs transfer agency,
certain dividend disbursing agency and other services for the Fund.
6. INFORMATION CONCERNING SHARES OF THE FUND
PURCHASES
Class A, B and C shares of the Fund may be purchased at the public offering
price through any dealer and other financial institution ("dealers") having a
selling agreement with MFD. Dealers may also charge their customers fees
relating to investments in the Fund.
This Prospectus offers Class A, B and C shares which bear sales charges and
distribution fees in different forms and amounts, as described below:
CLASS A SHARES: Class A shares are generally offered at net asset value plus an
initial sales charge, but in certain cases are offered at net asset value
without an initial sales charge but subject to a CDSC.
PURCHASES SUBJECT TO INITIAL SALES CHARGE. Class A shares are offered at
net asset value plus an initial sales charge as follows:
- -------------------------------------------------------------------------------
SALES CHARGE* AS PERCENTAGE OF:
--------------------------- DEALER ALLOWANCE
NET AMOUNT AS A PERCENTAGE
AMOUNT OF PURCHASE OFFERING PRICE INVESTED OF OFFERING PRICE
------------------ -------------- -------- -----------------
Less than $100,000 .............. 4.75% 4.99% 4.00%
$100,000 but less than $250,000 . 4.00 4.17 3.20
$250,000 but less than $500,000 . 2.95 3.04 2.25
$500,000 but less than $1,000,000 2.20 2.25 1.70
$1,000,000 or more .............. None** None** See Below**
- -------------------------------------------------------------------------------
* Because of rounding in the calculation of offering price, actual sales
charges may be more or less than those calculated using the percentages
above.
** A CDSC will apply to such purchases, as discussed below.
MFD allows discounts to dealers (which are alike for all dealers) from the
applicable public offering price, as shown in the above table. In the case of
the maximum sales charge, the dealer retains 4% and MFD retains approximately
3/4 of 1% of the public offering price. The sales charge may vary depending on
the number of shares of the Fund as well as certain other MFS Funds owned or
being purchased, the existence of an agreement to purchase additional shares
during a 13-month period (or 36-month period for purchases of $1 million or
more) or other special purchase programs. A description of the Right of
Accumulation, Letter of Intent and Group Purchase privileges by which the sales
charge may be reduced is set forth in the SAI.
PURCHASES SUBJECT TO A CDSC (BUT NOT SUBJECT TO AN INITIAL SALES CHARGE). In
the following four circumstances, Class A shares are offered at net asset value
without an initial sales charge but subject to a CDSC, equal to 1% of the lesser
of the value of the shares redeemed (exclusive of reinvested dividend and
capital gain distributions) or the total cost of such shares, in the event of a
share redemption within 12 months following the purchase:
(i) on investments of $1 million or more in Class A shares;
(ii) on investments in Class A shares by certain retirement plans subject
to the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), if, prior to July 1, 1996: (a) the Plan had established an
account with the Shareholder Servicing Agent and (b) the sponsoring
organization has demonstrated to the satisfaction of MFD that either
(i) the employer had at least 25 employees or (ii) the aggregate
purchases by the retirement plan of Class A shares of funds in the MFS
Family of Funds (the "MFS Funds") would be in an aggregate amount of
at least $250,000 within a reasonable period of time, as determined by
MFD in its sole discretion;
(iii) on investments in Class A shares by certain retirement plans subject
to ERISA, if: (a) the retirement plan and/or sponsoring organization
subscribes to the MFS FUNDamental 401(k) Program or any similar
recordkeeping system made available by the Shareholder Servicing Agent
(the "MFS Participant Recordkeeping System"); (b) the plan establishes
an account with the Shareholder Servicing Agent on or after July 1,
1996; and (c) the aggregate purchases by the retirement plan of Class
A shares of the MFS Funds will be in an aggregate amount of at least
$500,000 within a reasonable period of time, as determined by MFD in
its sole discretion; and
(iv) on investments in Class A shares by certain retirement plans subject to
ERISA, if: (a) the plan establishes an account with the Shareholder
Servicing Agent on or after July 1, 1996 and (b) the plan has, at the
time of purchase, a market value of $500,000 or more invested in shares
of any class or classes of the MFS Funds. THE RETIREMENT PLAN WILL
QUALIFY UNDER THIS CATEGORY ONLY IF THE PLAN OR ITS SPONSORING
ORGANIZATION INFORMS THE SHAREHOLDER SERVICING AGENT PRIOR TO THE
PURCHASE THAT THE PLAN HAS A MARKET VALUE OF $500,000 OR MORE INVESTED
IN SHARES OF ANY CLASS OR CLASSES OF THE MFS FUNDS. THE SHAREHOLDER
SERVICING AGENT HAS NO OBLIGATION INDEPENDENTLY TO DETERMINE WHETHER
SUCH A PLAN QUALIFIES UNDER THIS CATEGORY.
In the case of such purchases, MFD will pay commissions to dealers on new
investments in Class A shares made through such dealers, as follows:
COMMISSION PAID
BY MFD
TO DEALERS CUMULATIVE PURCHASE AMOUNT
---------- --------------------------
1.00% On the first $2,000,000, plus
0.80% Over $2,000,000 to $3,000,000, plus
0.50% Over $3,000,000 to $50,000,000, plus
0.25% Over $50,000,000
For purposes of determining the level of commissions to be paid to dealers with
respect to a shareholder's new investment in Class A shares made on or after
April 1, 1996, purchases for each shareholder account (and certain other
accounts for which the shareholder is a record or beneficial holder) will be
aggregated over a 12-month period (commencing from the date of the first such
purchase).
See "Redemptions and Repurchases -- Contingent Deferred Sales Charge" for
further discussion of the CDSC.
WAIVERS OF INITIAL SALES CHARGE AND CDSC. In certain circumstances, the initial
sales charge imposed upon purchases of Class A shares and the CDSC imposed upon
redemptions of Class A shares is waived. These circumstances are described in
Appendix A to this Prospectus. In addition to these circumstances, the CDSC
imposed upon the redemption of Class A shares is waived with respect to shares
held by certain retirement plans qualified under Section 401(a) or 403(b) of the
Internal Revenue Code of 1986, as amended (the "Code"), and subject to ERISA,
where:
(i) the retirement plan and/or sponsoring organization does not subscribe
to the MFS Participant Recordkeeping System; and
(ii) the retirement plan and/or sponsoring organization demonstrates to the
satisfaction of, and certifies to, the Shareholder Servicing Agent that
the retirement plan has, at the time of certification or will have
pursuant to a purchase order placed with the certification, a market
value of $500,000 or more invested in shares of any class or classes of
the MFS Funds and aggregate assets of at least $10 million;
provided, however, that the CDSC will not be waived (i.e., it will be imposed)
in the event that there is a change in law or regulations which results in a
material adverse change to the tax advantaged nature of the plan, or in the
event that the plan and/or sponsoring organization: (i) becomes insolvent or
bankrupt; (ii) is terminated or partially terminated under ERISA or is
liquidated or dissolved; or (iii) is acquired by, merged into, or consolidated
with, any other entity.
CLASS B SHARES: Class B shares are offered at net asset value without an
initial sales charge but subject to a CDSC as follows:
YEAR OF CONTINGENT
REDEMPTION DEFERRED SALES
AFTER PURCHASE CHARGE
-------------- ------
First ............................................. 4%
Second ............................................ 4%
Third ............................................. 3%
Fourth ............................................ 3%
Fifth ............................................. 2%
Sixth ............................................. 1%
Seventh and following ............................. 0%
The CDSC imposed is assessed against the lesser of the value of the shares
redeemed (exclusive of reinvested dividends and capital gain distributions) or
the total cost of such shares. No CDSC is assessed against shares acquired
through the automatic reinvestment of dividends or capital gain distributions.
See "Redemptions and Repurchases -- Contingent Deferred Sales Charge" for
further discussion of the CDSC.
Except as described below, MFD will pay commissions to dealers of 3.75% of the
purchase price of Class B shares purchased through dealers. MFD will also
advance to dealers the first year service fee payable under the Fund's
Distribution Plan (see "Distribution Plan" below) at a rate equal to 0.25% of
the purchase price of such shares. Therefore, the total amount paid to a dealer
upon the sale of Class B shares is 4% of the purchase price of the shares
(commission rate of 3.75% plus a service fee equal to 0.25% of the purchase
price).
Class B shares purchased by a retirement plan whose sponsoring organization
subscribes to the MFS Participant Recordkeeping System and which has established
its account with the Shareholder Servicing Agent on or after July 1, 1996, will
be subject to the CDSC described above, only under limited circumstances, as
explained below under "Waivers of CDSC." With respect to such purchases, MFD
pays an amount to dealers equal to 3.00% of the amount purchased through such
dealers (rather than the 4.00% payment described above), which is comprised of a
commission of 2.75% plus the advancement of the first year service fee equal to
0.25% of the purchase price payable under the Fund's Distribution Plan. As
discussed above, such retirement plans are eligible to purchase Class A shares
of the Fund at net asset value without an initial sales charge but subject to a
1% CDSC if the plan has, at the time of purchase, a market value of $500,000 or
more invested in shares of any class or classes of the MFS Funds. IN THIS EVENT,
THE PLAN OR ITS SPONSORING ORGANIZATION SHOULD INFORM THE SHAREHOLDER SERVICING
AGENT THAT THE PLAN IS ELIGIBLE TO PURCHASE CLASS A SHARES UNDER THIS CATEGORY;
THE SHAREHOLDER SERVICING AGENT HAS NO OBLIGATION INDEPENDENTLY TO DETERMINE
WHETHER SUCH A PLAN QUALIFIES UNDER THIS CATEGORY FOR THE PURCHASE OF CLASS A
SHARES.
WAIVERS OF CDSC. In certain circumstances, the CDSC imposed upon redemption
of Class B shares is waived. These circumstances are described in Appendix A to
this Prospectus. In addition to these circumstances, the CDSC imposed upon the
redemption of Class B shares is waived with respect to shares held by a
retirement plan whose sponsoring organization subscribes to the MFS Participant
Recordkeeping System and which has established an account with the Shareholder
Servicing Agent on or after July 1, 1996; provided, however, that the CDSC will
not be waived (i.e., it will be imposed) in the event that there is a change in
law or regulations which results in a material adverse change to the tax
advantaged nature of the plan, or in the event that the plan and/or sponsoring
organization: (i) becomes insolvent or bankrupt; (ii) is terminated or partially
terminated under ERISA or is liquidated or dissolved; or (iii) is acquired by,
merged into, or consolidated with, any other entity.
CONVERSION OF CLASS B SHARES. Class B shares of the Fund that remain
outstanding for approximately eight years will convert to Class A shares of the
same Fund. Shares purchased through the reinvestment of distributions paid in
respect of Class B shares will be treated as Class B shares for purposes of the
payment of the distribution and service fees under the Fund's Distribution Plan.
See "Distribution Plan" below. However, for purposes of conversion to Class A
shares, all shares in a shareholder's account that were purchased through the
reinvestment of dividends and distributions paid in respect of Class B shares
(and which have not converted to Class A shares as provided in the following
sentence) will be held in a separate sub-account. Each time any Class B shares
in the shareholder's account (other than those in the sub-account) convert to
Class A shares, a portion of the Class B shares then in the sub-account will
also convert to Class A shares. The portion will be determined by the ratio that
the shareholder's Class B shares not acquired through reinvestment of dividends
and distributions that are converting to Class A shares bear to the
shareholder's total Class B shares not acquired through reinvestment. The
conversion of Class B shares to Class A shares is subject to the continuing
availability of a ruling from the Internal Revenue Service or an opinion of
counsel that such conversion will not constitute a taxable event for federal tax
purposes. There can be no assurance that such ruling or opinion will be
available, and the conversion of Class B shares to Class A shares will not occur
if such ruling or opinion is not available. In such event, Class B shares would
continue to be subject to higher expenses than Class A shares for an indefinite
period.
CLASS C SHARES: Class C shares are offered at net asset value without an initial
sales charge but are subject to a CDSC upon redemption of 1.00% during the first
year. Class C shares do not convert to any other class of shares of the Fund.
The maximum investment in Class C shares that may be made is up to $1,000,000
per transaction.
The CDSC imposed is assessed against the lesser of the value of the shares
redeemed (exclusive of reinvested dividend and capital gain distributions) or
the total cost of such shares. No CDSC is assessed against shares acquired
through the automatic reinvestment of dividend or capital gain distributions.
See "Redemptions and Repurchases -- Contingent Deferred Sales Charge" below
for further discussion of the CDSC.
MFD will pay dealers 1.00% of the purchase price of Class C shares purchased
through dealers and, as compensation therefor, MFD will retain the 1.00% per
annum distribution and service fee paid under the Fund's Distribution Plan to
MFD for the first year after purchase (see "Distribution Plan" below).
Class C shares are not currently available for purchase by any retirement plan
qualified under Sections 401(a) or 403(b) of the Internal Revenue Code of 1986,
as amended (the "Code") if the retirement plan and/or the sponsoring
organization subscribe to the MFS FUNDamental 401(k) Plan or another similar
recordkeeping program made available by the Shareholder Servicing Agent.
WAIVERS OF CDSC. In certain circumstances, the CDSC imposed upon
redemption of Class C shares is waived. These circumstances are described in
Appendix A to this Prospectus.
GENERAL: The following information applies to purchases of all classes of the
Fund's shares.
MINIMUM INVESTMENT. Except as described below, the minimum initial
investment is $1,000 per account and the minimum additional investment is $50
per account. Accounts being established for monthly automatic investments and
under payroll savings programs and tax deferred retirement programs (other than
IRAs) involving the submission of investments by means of group remittal
statements are subject to a $50 minimum on initial and additional investments
per account. The minimum initial investment for IRAs is $250 per account and the
minimum additional investment is $50 per account. Accounts being established for
participation in the Automatic Exchange Plan are subject to a $50 minimum on
initial and additional investments per account. There are also other limited
exceptions to these minimums for certain tax-deferred retirement programs. Any
minimums may be changed at any time at the discretion of MFD. The Fund reserves
the right to cease offering its shares at any time.
SUBSEQUENT INVESTMENT BY TELEPHONE. Each shareholder may purchase additional
shares of any MFS Fund by telephoning the Shareholder Servicing Agent toll-free
at (800) 225-2606. The minimum purchase amount is $50 and the maximum purchase
amount is $100,000. Shareholders wishing to avail themselves of this telephone
purchase privilege must so elect on their Account Application and designate
thereon a bank and account number from which purchases will be made. If a
telephone purchase request is received by the Shareholder Servicing Agent on any
business day prior to the close of regular trading on the Exchange (generally,
4:00 p.m., Eastern time), the purchase will occur at the closing net asset value
of the shares purchased on that day. The Shareholder Servicing Agent may be
liable for any losses resulting from unauthorized telephone transactions if it
does not follow reasonable procedures designed to verify the identity of the
caller. The Shareholder Servicing Agent will request personal or other
information from the caller, and will normally also record calls. Shareholders
should verify the accuracy of confirmation statements immediately after their
receipt.
RIGHT TO REJECT PURCHASE ORDERS/MARKET TIMING. Purchases and exchanges
should be made for investment purposes only. The Fund and MFD each reserves the
right to reject or restrict any specific purchase or exchange request. In the
event that the Fund or MFD rejects an exchange request, neither the redemption
nor the purchase side of the exchange will be processed.
The Fund is not designed for professional market timing organizations or other
entities using programmed or frequent exchanges. The Fund defines a "market
timer" as an individual, or organization acting on behalf of one or more
individudals, if (i) the individual or organization makes three or more exchange
requests out of the Fund per calendar year and (ii) any one of such exchange
requests represents shares equal in value to 1/2 of 1% or more of the Fund's net
assets at the time of the request. Accounts under common ownership or control,
including accounts administered by market timers, will be aggregated for
purposes of this definition.
As noted above, the Fund and MFD each reserves the right to reject or restrict
any specific purchase and exchange request and, in addition, may impose specific
limitations with respect to market timers, including delaying for up to seven
days the purchase side of an exchange request by market timers or specifically
rejecting or otherwise restricting purchase or exchange requests by market
timers. Other funds in the MFS Family of Funds may have different and/or more
restrictive policies with respect to market timers than the Fund. These policies
are disclosed in the prospectuses of these other MFS Funds.
DEALER CONCESSIONS. Dealers may receive different compensation with respect
to sales of Class A, Class B and Class C shares. In addition, from time to time,
MFD may pay dealers 100% of the applicable sales charge on sales of Class A
shares of certain specified MFS Funds sold by such dealer during a specified
sales period. In addition, MFD or its affiliates may, from time to time, pay
dealers an additional commission equal to 0.50% of the net asset value of all of
the Class B and/or Class C shares of certain specified MFS Funds sold by such
dealer during a specified sales period. In addition, from time to time, MFD, at
its expense, may provide additional commissions, compensation or promotional
incentives ("concessions") to dealers which sell shares of the Fund. Such
concessions provided by MFD may include financial assistance to dealers in
connection with preapproved conferences or seminars, sales or training programs
for invited registered representatives, payment for travel expenses, including
lodging, incurred by registered representatives for such seminars or training
programs, seminars for the public, advertising and sales campaigns regarding one
or more MFS Funds, and/or other dealer-sponsored events. From time to time, MFD
may make expense reimbursements for special training of a dealer's registered
representatives in group meetings or to help pay the expenses of sales contests.
Other concessions may be offered to the extent not prohibited by state laws or
any self-regulatory agency, such as the NASD.
SPECIAL INVESTMENT PROGRAMS. For shareholders who elect to participate in
certain investment programs (e.g., the Automatic Investment Plan) or other
shareholder services, MFD or its affiliates may either (i) give a gift of
nominal value, such as a hand-held calculator, or (ii) make a nominal charitable
contribution on their behalf.
RESTRICTIONS ON ACTIVITIES OF NATIONAL BANKS. The Glass-Steagall Act
prohibits national banks from engaging in the business of underwriting,
selling or distributing securities. Although the scope of the prohibition has
not been clearly defined, MFD believes that such Act should not preclude banks
from entering into agency agreements with MFD. If, however, a bank were
prohibited from so acting, the Trustees would consider what actions, if any,
would be necessary to continue to provide efficient and effective shareholder
services in respect of shareholders who invested in the Fund through a
national bank. It is not expected that shareholders would suffer any adverse
financial consequence as a result of these occurrences. In addition, state
securities laws on this issue may differ from the interpretation of federal
law expressed herein and banks and financial institutions may be required to
register as broker-dealers pursuant to state law.
--------------------
A shareholder whose shares are held in the name of, or controlled by, a dealer
might not receive many of the privileges and services from the Fund (such as
Right of Accumulation, Letter of Intent and certain recordkeeping services) that
the Fund ordinarily provides.
EXCHANGES
Subject to the requirements set forth below, some or all of the shares in an
account with the Fund for which payment has been received by the Fund (i.e., an
established account) may be exchanged for shares of the same class of any of the
other MFS Funds in the MFS Family of Funds (the "MFS Funds") at net asset value
(if available for sale). Shares of one class may not be exchanged for shares of
any other class.
EXCHANGES AMONG MFS FUNDS (EXCLUDING EXCHANGES FROM MFS MONEY MARKET FUNDS): No
initial sales charges or CDSC will be imposed in connection with an exchange
from shares of an MFS Fund to shares of any other MFS Fund, except with respect
to exchanges from an MFS money market fund to another MFS Fund which is not an
MFS money market fund (discussed below). With respect to an exchange involving
shares subject to a CDSC, the CDSC will be unaffected by the exchange and the
holding period for purposes of calculating the CDSC will carry over to the
acquired shares.
EXCHANGES FROM AN MFS MONEY MARKET FUND: Special rules apply with respect to the
imposition of an initial sales charge or a CDSC for exchanges from an MFS money
market fund to another MFS Fund which is not an MFS money market fund. These
rules are described under the caption "Exchanges" in the Prospectuses of those
MFS money market funds.
EXCHANGES INVOLVING THE MFS FIXED FUND: Class A shares of any MFS Fund held by
certain qualified retirement plans may be exchanged for units of participation
of the MFS Fixed Fund (a bank collective investment fund) (the "Units"), and
Units may be exchanged for Class A shares of any MFS Fund. With respect to
exchanges between Class A shares subject to a CDSC and Units, the CDSC will
carry over to the acquired shares or Units and will be deducted from the
redemption proceeds when such shares or Units are subsequently redeemed,
assuming the CDSC is then payable (the period during which the Class A shares
and the Units were held will be aggregated for purposes of calculating the
applicable CDSC). In the event that a shareholder initially purchases Units and
then exchanges into Class A shares subject to an initial sales charge of an MFS
Fund, the initial sales charge shall be due upon such exchange, but will not be
imposed with respect to any subsequent exchanges between such Class A shares and
Units with respect to shares on which the initial sales charge has already been
paid. In the event that a shareholder initially purchases Units and then
exchanges into Class A shares subject to a CDSC of an MFS Fund, the CDSC period
will commence upon such exchange, and the applicability of the CDSC with respect
to subsequent exchanges shall be governed by the rules set forth above in this
paragraph.
GENERAL: A shareholder should read the prospectus of the other MFS Fund into
which an exchange is made and consider the differences in objectives, policies
and restrictions before making any exchange. Exchanges will be made only after
instructions in writing or by telephone (an "Exchange Request") are received for
an established account by the Shareholder Servicing Agent in proper form (i.e.,
if in writing -- signed by the record owner(s) exactly as the shares are
registered; if by telephone -- proper account identification is given by the
dealer or shareholder of record) and each exchange must involve either shares
having an aggregate value of at least $1,000 ($50 in the case of retirement plan
participants whose sponsoring organizations subscribe to the MFS FUNDamental
401(k) Plan or another similar 401(k) recordkeeping system made available by the
Shareholder Servicing Agent) or all the shares in the account. If an Exchange
Request is received by the Shareholder Servicing Agent on any business day prior
to the close of regular trading on the New York Stock Exchange (generally, 4:00
p.m., Eastern time) (the "Exchange"), the exchange will occur on that day if all
the requirements set forth above have been complied with at that time and
subject to the Fund's right to reject purchase orders. No more than five
exchanges may be made in any one Exchange Request by telephone. Additional
information concerning this exchange privilege and prospectuses for any of the
other MFS Funds may be obtained from dealers or the Shareholder Servicing Agent.
For federal and (generally) state income tax purposes, an exchange is treated as
a sale of the shares exchanged and, therefore, an exchange could result in a
gain or loss to the shareholder making the exchange. Exchanges by telephone are
automatically available to most non-retirement plan accounts and certain
retirement plan accounts. For further information regarding exchanges by
telephone, see "Redemptions by Telephone." The exchange privilege (or any aspect
of it) may be changed or discontinued and is subject to certain limitations,
including certain restrictions on purchases by market timers.
REDEMPTIONS AND REPURCHASES
A shareholder may withdraw all or any portion of the value of his account on any
date on which the Fund is open for business by redeeming shares at their net
asset value (a redemption) or by selling such shares to the Fund through a
dealer (a repurchase). Certain redemptions and repurchases are, however, subject
to a CDSC. See "Contingent Deferred Sales Charge" below. Because the net asset
value of shares of the account fluctuates, redemptions or repurchases, which are
taxable transactions, are likely to result in gains or losses to the
shareholder. When a shareholder withdraws an amount from his account, the
shareholder is deemed to have tendered for redemption a sufficient number of
full and fractional shares in his account to cover the amount withdrawn. The
proceeds of a redemption or repurchase will normally be available within seven
days, except for shares purchased or received in exchange for shares purchased
by check (including certified checks or cashier's checks). Payment of redemption
proceeds may be delayed for up to 15 days from the purchase date in an effort to
assure that such check has cleared. See "Tax Status" below.
REDEMPTION BY MAIL: Each shareholder may redeem all or any portion of the shares
in his account by mailing or delivering to the Shareholder Servicing Agent (see
back cover for address) a stock power with a written request for redemption or
letter of instruction, together with his share certificates (if any were
issued), all in "good order" for transfer. "Good order" generally means that the
stock power, written request for redemption, letter of instruction or
certificate must be endorsed by the record owner(s) exactly as the shares are
registered and the signature(s) must be guaranteed in the manner set forth below
under the caption "Signature Guarantee." In addition, in some cases "good order"
will require the furnishing of additional documents. The Shareholder Servicing
Agent may make certain de minimis exceptions to the above requirements for
redemption. Within seven days after receipt of a redemption request in "good
order" by the Shareholder Servicing Agent, the Fund will make payment in cash of
the net asset value of the shares next determined after such redemption request
was received, reduced by the amount of any applicable CDSC described above and
the amount of any income tax required to be withheld, except during any period
in which the right of redemption is suspended or date of payment is postponed
because the Exchange is closed or trading on such Exchange is restricted or to
the extent otherwise permitted by the 1940 Act if an emergency exists.
REDEMPTION BY TELEPHONE: Each shareholder may redeem an amount from his account
by telephoning the Shareholder Servicing Agent toll-free at (800) 225-2606.
Shareholders wishing to avail themselves of this telephone redemption privilege
must so elect on their Account Application, designate thereon a bank and account
number to receive the proceeds of such redemption, and sign the Account
Application Form with the signature(s) guaranteed in the manner set forth below
under the caption "Signature Guarantee." The proceeds of such a redemption,
reduced by the amount of any applicable CDSC and the amount of any income tax
required to be withheld, are mailed by check to the designated account, without
charge, if the redemption proceeds do not exceed $1,000, and are wired in
federal funds to the designated account if the redemption proceeds exceed
$1,000. If a telephone redemption request is received by the Shareholder
Servicing Agent by the close of regular trading on the Exchange on any business
day, shares will be redeemed at the closing net asset value of the Fund on that
day. Subject to the conditions described in this section, proceeds of a
redemption are normally mailed or wired on the next business day following the
date of receipt of the order for redemption. The Shareholder Servicing Agent may
be liable for any losses resulting from unauthorized telephone transactions if
it does not follow reasonable procedures designed to verify the identity of the
caller. The Shareholder Servicing Agent will request personal or other
information from the caller, and will normally also record calls. Shareholders
should verify the accuracy of confirmation statements immediately after their
receipt.
REPURCHASE THROUGH A DEALER: If a shareholder desires to sell his shares through
his dealer (a repurchase), the shareholder can place a repurchase order with his
dealer, who may charge the shareholder a fee. IF THE DEALER RECEIVES THE
SHAREHOLDER'S ORDER PRIOR TO THE CLOSE OF REGULAR TRADING ON THE EXCHANGE AND
COMMUNICATES IT TO MFD BEFORE THE CLOSE OF BUSINESS ON THE SAME DAY, THE
SHAREHOLDER WILL RECEIVE THE NET ASSET VALUE CALCULATED ON THAT DAY, REDUCED BY
THE AMOUNT OF ANY APPLICABLE CDSC AND THE AMOUNT OF ANY INCOME TAX REQUIRED TO
BE WITHHELD.
REDEMPTION BY CHECK: Only Class A and Class C shares may be redeemed by check. A
shareholder owning Class A or Class C shares of the Fund may elect to have a
special account with State Street Bank and Trust Company (the "Bank") for the
purpose of redeeming Class A or Class C shares from his or her account by check.
The Bank will provide each Class A or Class C shareholder, upon request, with
forms of checks drawn on the Bank. Only shareholders having accounts in which no
share certificates have been issued will be permitted to redeem shares by check.
Checks may be made payable in any amount not less than $500. Shareholders
wishing to avail themselves of this redemption by check privilege should so
request on their Account Application, must execute signature cards (for
additional information, see the Account Application) with signature guaranteed
in the manner set forth under the caption "Signature Guarantee" below, and must
return any Class A or Class C share certificates issued to them. Additional
documentation will be required from corporations, partnerships, fiduciaries or
other such institutional investors. All checks must be signed by the
shareholder(s) of record exactly as the account is registered before the Bank
will honor them. The shareholders of joint accounts may authorize each
shareholder to redeem by check. The check may not draw on monthly dividends
which have been declared but not distributed. SHAREHOLDERS WHO PURCHASE CLASS A
AND CLASS C SHARES BY CHECK (INCLUDING CERTIFIED CHECKS OR CASHIER'S CHECKS) MAY
WRITE CHECKS AGAINST THOSE SHARES ONLY AFTER THEY HAVE BEEN ON THE FUND'S BOOKS
FOR 15 DAYS. WHEN SUCH A CHECK IS PRESENTED TO THE BANK FOR PAYMENT, A
SUFFICIENT NUMBER OF FULL AND FRACTIONAL SHARES WILL BE REDEEMED TO COVER THE
AMOUNT OF THE CHECK, ANY APPLICABLE CDSC AND THE AMOUNT OF ANY INCOME TAX
REQUIRED TO BE WITHHELD. IF THE AMOUNT OF THE CHECK, PLUS ANY APPLICABLE CDSC
AND THE AMOUNT OF ANY INCOME TAX REQUIRED TO BE WITHHELD IS GREATER THAN THE
VALUE OF CLASS A OR CLASS C SHARES HELD IN THE SHAREHOLDER'S ACCOUNT, THE CHECK
WILL BE RETURNED UNPAID, AND THE SHAREHOLDER MAY BE SUBJECT TO EXTRA CHARGES. TO
AVOID DISHONOR OF CHECKS DUE TO FLUCTUATIONS IN ACCOUNT VALUE, SHAREHOLDERS ARE
ADVISED AGAINST REDEEMING ALL OR MOST OF THEIR ACCOUNT BY CHECK. CHECKS SHOULD
NOT BE USED TO CLOSE A FUND ACCOUNT BECAUSE WHEN THE CHECK IS WRITTEN, THE
SHAREHOLDER WILL NOT KNOW THE EXACT TOTAL VALUE OF THE ACCOUNT ON THE DAY THE
CHECK CLEARS. There is presently no charge to the shareholder for the
maintenance of this special account or for the clearance of any checks, but the
Fund and the Bank reserve the right to impose such charges or to modify or
terminate the redemption by check privilege at any time.
CONTINGENT DEFERRED SALES CHARGE: Investments in Class A, Class B and Class C
shares ("Direct Purchases") will be subject to a CDSC for a period of: (i) with
respect to Class A and Class C shares, 12 months (however, the CDSC on Class A
shares is only imposed with respect to purchases of $1 million or more of Class
A shares or purchases by certain retirement plans of Class A shares); or (ii)
with respect to Class B shares, six years. Purchases of Class A shares made
during a calendar month, regardless of when during the month the investment
occurred, will age one month on the last day of the month and each subsequent
month. Class C and Class B shares purchased on or after January 1, 1993 will be
aggregated on a calendar month basis -- all transactions made during a calendar
month, regardless of when during the month they have occurred, will age one year
at the close of business on the last day of such month in the following calendar
year and each subsequent year. For Class B shares of the Fund purchased prior to
January 1, 1993, transactions will be aggregated on a calendar year basis -- all
transactions made during a calendar year, regardless of when during the year
they have occurred, will age one year at the close of business on December 31 of
that year and each subsequent year.
At the time of a redemption, the amount by which the value of a shareholder's
account for a particular class of shares represented by Direct Purchases exceeds
the sum of the six calendar year aggregations (12 months in the case of
purchases of Class C shares and of purchases of $1 million or more of Class A
shares or purchases by certain retirement plans of Class A shares) of Direct
Purchases may be redeemed without charge ("Free Amount"). Moreover, no CDSC is
ever assessed on additional shares acquired through the automatic reinvestment
of dividends or capital gain distributions ("Reinvested Shares"). Therefore, at
the time of redemption of a particular class, (i) any Free Amount is not subject
to the CDSC and (ii) the amount of the redemption equal to the then-current
value of Reinvested Shares is not subject to the CDSC, but (iii) any amount of
the redemption in excess of the aggregate of the then-current value of
Reinvested Shares and the Free Amount is subject to a CDSC. The CDSC will first
be applied against the amount of Direct Purchases which will result in any such
charge being imposed at the lowest possible rate. The CDSC to be imposed upon
redemptions of shares will be calculated as set forth in "Purchases" above.
The applicability of a CDSC will be unaffected by exchanges or transfers of
registration, except as described in Appendix A hereto.
GENERAL: The following information applies to redemptions and repurchases of
all classes of the Fund's shares.
SIGNATURE GUARANTEE: In order to protect shareholders against fraud, the
Fund requires, in certain instances as indicated above, that the shareholder's
signature be guaranteed. In these cases the shareholder's signature must be
guaranteed by an eligible bank, broker, dealer, credit union, national
securities exchange, registered securities association, clearing agency or
savings association. Signature guarantees shall be accepted in accordance with
policies established by the Shareholder Servicing Agent.
REINSTATEMENT PRIVILEGE: Shareholders of the Fund who have redeemed their
shares have a one-time right to reinvest the redemption proceeds in the same
class of shares of any of the MFS Funds (if shares of such Fund are available
for sale) at net asset value (with a credit for any CDSC paid) within 90 days of
the redemption pursuant to the Reinstatement Privilege. If the shares credited
for any CDSC paid are then redeemed within six years of the initial purchase in
the case of Class B shares or within 12 months of the initial purchase for Class
C shares and certain Class A share purchases, a CDSC will be imposed upon
redemption. Such purchases under the Reinstatement Privilege are subject to all
limitations in the SAI regarding this privilege.
IN-KIND DISTRIBUTIONS: The Fund agrees to redeem shares of the Fund solely
in cash up to the lesser of $250,000 or 1% of the net asset value of the Fund
during any 90-day period for any one shareholder. The Fund has reserved the
right to pay other redemptions, either totally or partially, by a distribution
in-kind of securities (instead of cash) from the Fund's portfolio. The
securities distributed in such a distribution would be valued at the same amount
as that assigned to them in calculating the net asset value for the shares being
sold. If a shareholder received a distribution in-kind, the shareholder could
incur brokerage or transaction charges when converting the securities to cash.
INVOLUNTARY REDEMPTIONS/SMALL ACCOUNTS: Due to the relatively high cost of
maintaining small accounts, the Fund reserves the right to redeem shares in any
account for their then-current value if at any time the total investment in such
account drops below $500 because of redemptions or exchanges, except in the case
of accounts being established for monthly automatic investments and certain
payroll savings programs, Automatic Exchange Plan accounts and tax-deferred
retirement plans, for which there is a lower minimum investment requirement. See
"Purchases -- General -- Minimum Investment." Shareholders will be notified that
the value of their account is less than the minimum investment requirement and
allowed 60 days to make an additional investment before the redemption is
processed.
DISTRIBUTION PLAN
The Trustees have adopted a Distribution Plan for Class A, Class B and Class C
shares pursuant to Section 12(b) of the 1940 Act and Rule 12b-1 thereunder (the
"Distribution Plan"), after having concluded that there is a reasonable
likelihood that the Plan would benefit the Fund and its shareholders.
In certain circumstances, the fees described below may not be imposed or are
being waived. These circumstances, if any, are described below under the heading
"Current Level of Distribution and Service Fees."
FEATURES COMMON TO EACH CLASS OF SHARE: There are features of the Distribution
Plan that are common to each class of shares, as described below.
SERVICE FEES. The Distribution Plan provides that the Fund may pay MFD a
service fee of up to 0.25% of the average daily net assets attributable to the
class of shares to which the Distribution Plan relates (i.e., Class A, Class B
or Class C shares, as appropriate) (the "Designated Class") annually in order
that MFD may pay expenses on behalf of the Fund relating to the servicing of
shares of the Designated Class. The service fee is used by MFD to compensate
dealers which enter into a sales agreement with MFD in consideration for all
personal services and/or account maintenance services rendered by the dealer
with respect to shares of the Designated Class owned by investors for whom such
dealer is the dealer or holder of record. MFD may from time to time reduce the
amount of the service fees paid for shares sold prior to a certain date. Service
fees may be reduced for a dealer that is the holder or dealer of record for an
investor who owns shares of the Fund having an aggregate net asset value at or
above a certain dollar level. Dealers may from time to time be required to meet
certain criteria in order to receive service fees. MFD or its affiliates are
entitled to retain all service fees payable under the Distribution Plan for
which there is no dealer of record or for which qualification standards have not
been met as partial consideration for personal services and/or account
maintenance services performed by MFD or its affiliates to shareholder accounts.
DISTRIBUTION FEES. The Distribution Plan provides that the Fund may pay MFD
a distribution fee based on the average daily net assets attributable to the
Designated Class as partial consideration for distribution services performed
and expenses incurred in the performance of MFD's obligations under its
distribution agreement with the Fund. See "Management of the Fund --
Distributor" in the SAI. The amount of the distribution fee paid by the Fund
with respect to each class differs under the Distribution Plan, as does the use
by MFD of such distribution fees. Such amounts and uses are described below in
the discussion of the provisions of the Distribution Plan relating to each class
of shares. While the amount of compensation received by MFD in the form of
distribution fees during any year may be more or less than the expense incurred
by MFD under its distribution agreement with the Fund, the Fund is not liable to
MFD for any losses MFD may incur in performing services under its distribution
agreement with the Fund.
OTHER COMMON FEATURES. Fees payable under the Distribution Plan are charged
to, and therefore reduce, income allocated to shares of the Designated Class.
The provisions of the Distribution Plan relating to operating policies as well
as initial approval, renewal, amendment and termination are substantially
identical as they relate to each class of shares covered by the Distribution
Plan.
FEATURES UNIQUE TO EACH CLASS OF SHARES: There are certain features of the
Distribution Plan that are unique to each class of shares, as described below.
CLASS A SHARES. Class A shares are generally offered pursuant to an initial
sales charge, a substantial portion of which is paid to or retained by the
dealer making the sale (the remainder of which is paid to MFD). See "Purchases
- -- Class A Shares" above. In addition to the initial sales charge, the dealer
also generally receives the ongoing 0.25% per annum service fee, as discussed
above.
The distribution fee paid to MFD under the Distribution Plan is equal, on an
annual basis, to 0.10% of the Fund's average daily net assets attributable to
Class A shares. As noted above, MFD may use the distribution fee to cover
distribution-related expenses incurred by it under its distribution agreement
with the Fund, including commissions to dealers and payments to wholesalers
employed by MFD (e.g., MFD pays commission to dealers with respect to purchases
of $1 million or more and purchases by certain retirement plans of Class A
shares which are sold at net asset value but which are subject to a 1% CDSC for
one year after purchase). See "Purchases -- Class A Shares" above. In addition,
to the extent that the aggregate service and distribution fees paid under the
Distribution Plan do not exceed 0.35% per annum of the average daily net assets
of the Fund attributable to Class A shares, the Fund is permitted to pay such
distribution-related expenses or other distribution-related expenses.
CLASS B SHARES. Class B shares are offered at net asset value without an
initial sales charge but subject to a CDSC. See "Purchases -- Class B Shares"
above. MFD will advance to dealers the first year service fee described above at
a rate equal to 0.25% of the purchase price of such shares and, as compensation
therefor, MFD may retain the service fee paid by the Fund with respect to such
shares for the first year after purchase. Dealers will become eligible to
receive the ongoing 0.25% per annum service fee with respect to such shares
commencing in the thirteenth month following purchase.
Under the Distribution Plan, the Fund pays MFD a distribution fee equal, on an
annual basis, to 0.75% of the Fund's average daily net assets attributable to
Class B shares. As noted above, this distribution fee may be used by MFD to
cover its distribution-related expenses under its distribution agreement with
the Fund (including the 3.75% commission it pays to dealers upon purchase of
Class B shares, as described under "Purchases -- Class B Shares" above).
CLASS C SHARES. Class C shares are offered at net asset value without an
initial sales charge but subject to a CDSC. See "Purchases -- Class C shares"
above. MFD will pay a commission to dealers of 1.00% of the purchase price of
Class C shares purchased through dealers at the time of purchase. In
compensation for this 1.00% commission paid by MFD to dealers, MFD will retain
the 1.00% per annum Class C distribution and service fees paid by the Fund with
respect to such shares for the first year after purchase, and dealers will
become eligible to receive from MFD the ongoing 1.00% per annum distribution and
service fees paid by the Fund to MFD with respect to such shares commencing in
the thirteenth month following purchase.
This ongoing 1.00% fee is comprised of the 0.25% per annum service fee paid to
MFD under the Distribution Plan (which MFD in turn pays to dealers), as
discussed above, and a distribution fee paid to MFD (which MFD also in turn pays
to dealers) under the Distribution Plan equal, on an annual basis, to 0.75% of
the Fund's average daily net assets attributable to Class C shares.
CURRENT LEVEL OF DISTRIBUTION AND SERVICE FEES. The Fund's Class A, Class B
and Class C distribution and service fees for its current fiscal year are 0.35%,
1.00% and 1.00%, respectively.
DISTRIBUTIONS
The Fund intends to pay substantially all of its net investment income to its
shareholders as dividends on a monthly basis. In determining the net investment
income available for distributions, the Fund may rely on projections of its
anticipated net investment income over a longer term, rather than its actual net
investment income for the period. The Fund may make one or more distributions
during the calendar year to its shareholders from any long-term capital gains,
and may also make one or more distributions to its shareholders from short-term
capital gains. Shareholders may elect to receive dividends and capital gain
distributions in either cash or additional shares of the same class with respect
to which a distribution is made. See "Tax Status" and "Shareholder Services --
Distribution Options" below. Distributions paid by the Fund with respect to
Class A shares will generally be greater than those paid with respect to Class B
and Class C shares because expenses attributable to Class B and Class C shares
will generally be higher.
TAX STATUS
In order to minimize the taxes the Fund would otherwise be required to pay, the
Fund intends to qualify each year as a "regulated investment company" under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code").
Because the Fund intends to distribute all of its net investment income and net
realized capital gains to its shareholders in accordance with the timing
requirements imposed by the Code, it is not expected that the Fund will be
required to pay any entity level federal income or excise taxes.
Shareholders of the Fund normally will have to pay federal income taxes on the
dividends and capital gain distributions they receive from the Fund, whether the
distribution is paid in cash or reinvested in additional shares. The Fund
expects that none of its distributions will be eligible for the dividends
received deduction for corporations. Shareholders may not have to pay state or
local taxes on dividends derived from interest on U.S. Government obligations.
Investors should consult with their tax advisers in this regard. Shortly after
the end of each calendar year, each shareholder will be sent a statement setting
forth the federal income tax status of all dividends and distributions for that
year, including the portion taxable as ordinary income, the portion, if any,
taxable as long-term capital gain, the portion, if any, representing a return of
capital (which is free of current taxes but results in a basis reduction), the
portion representing interest on U.S. Government obligations, and the amount, if
any, of federal income tax withheld.
Fund distributions will reduce the Fund's net asset value per share.
Shareholders who buy shares shortly before the Fund makes a distribution may
thus pay the full price for the shares and then effectively receive a portion of
the purchase price back as a taxable distribution.
The Fund intends to withhold U.S. federal income tax at the rate of 30% on
dividends and other payments that are subject to such withholding and that are
made to persons who are neither citizens nor residents of the U.S., regardless
of whether a lower rate may be permitted under an applicable treaty. The Fund is
also required in certain circumstances to apply backup withholding at the rate
of 31% on taxable dividends and redemption proceeds paid to any shareholder
(including a shareholder who is neither a citizen nor a resident of the U.S.)
who does not furnish to the Fund certain information and certifications or who
is otherwise subject to backup withholding. Backup withholding will not,
however, be applied to payments that have been subject to 30% withholding.
Prospective investors should read the Fund's Account Application for additional
information regarding backup withholding of federal income tax and should
consult their own tax advisers as to the tax consequences to them of an
investment in the Fund.
NET ASSET VALUE
The net asset value per share of shares of each class of the Fund is determined
each day during which the Exchange is open for trading. This determination is
made once each day as of the close of regular trading on the Exchange by
deducting the amount of the liabilities attributable to the class from the value
of the assets attributable to the class and dividing the difference by the
number of shares of the class outstanding. Assets in the Fund's portfolio are
valued on the basis of their market values or otherwise at their fair values, as
described in the SAI. The net asset value per share of each class of shares is
effective for orders received in "good order" by the dealer prior to its
calculation and received by MFD prior to the close of that business day.
DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Fund has three classes of shares which it offers to the general public,
entitled Class A, Class B and Class C Shares of Beneficial Interest (without par
value). The Fund also has a class of shares which it offers exclusively to
certain institutional investors, entitled Class I Shares. The Fund has reserved
the right to create and issue additional classes and series of shares, in which
case each class of shares of a series would participate equally in the earnings,
dividends and assets attributable to that class of that particular series.
Shareholders are entitled to one vote for each share held and shares of each
series would be entitled to vote separately to approve investment advisory
agreements or changes in a fundamental investment policy or in investment
restrictions, but shares of all series would vote together in the election of
Trustees and selection of accountants. Additionally, each class of shares of a
series will vote separately on any material increases in the fees under the
Distribution Plan or on any other matter that affects solely that class of
shares, but will otherwise vote together with all other classes of shares of the
series on all other matters. The Fund does not intend to hold annual shareholder
meetings. The Fund's Declaration of Trust provides that a Trustee may be removed
from office in certain instances (see "Description of Shares, Voting Rights and
Liabilities" in the SAI).
Each share of a class of the Fund represents an equal proportionate interest in
the Fund with each other class share, subject to the liabilities of the
particular class. Shares have no pre-emptive or conversion rights except as set
forth in "Purchases -- Conversion of Class B Shares." Shares are fully paid and
non-assessable. Should the Fund be liquidated, shareholders of each class are
entitled to share pro rata in the net assets attributable to that class
available for distribution to shareholders. Shares will remain on deposit with
the Shareholder Servicing Agent and certificates will not be issued except in
connection with pledges, assignments and in certain other limited circumstances.
The Fund is an entity of the type commonly known as a "Massachusetts business
trust." Under Massachusetts law, shareholders of such a trust may, under certain
circumstances, be held personally liable as partners for its obligations.
However, the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which both inadequate
insurance existed (e.g., fidelity bonding and errors and omissions insurance)
and the Fund itself was unable to meet its obligations.
Merrill Lynch Pierce Fenner & Smith Inc., P.O. Box 45286, Jacksonville, Florida
owns of record 31.29% of the Fund's shares.
PERFORMANCE INFORMATION
From time to time, the Fund will provide yield, current distribution rate and
total rate of return quotations for each class of shares and may also quote fund
rankings in the relevant fund category from various sources, such as the Lipper
Analytical Services, Inc. and Wiesenberger Investment Companies Service. Yield
quotations are based on the annualized net investment income per share of each
class over a 30-day period stated as a percent of the maximum public offering
price of the shares of that class on the last day of that period. The yield
calculation for Class B and Class C shares assumes no CDSC is paid. The current
distribution rate for each class is generally based upon the total amount of
dividends per share paid by the Fund to shareholders of that class during the
past twelve months and is computed by dividing the amount of such dividends by
the maximum public offering price of that class at the end of such period.
Current distribution rate calculations for Class B and Class C shares assume no
CDSC is paid. The current distribution rate differs from the yield calculation
because it may include distributions to shareholders from sources other than
dividends and interest, such as premium income from option writing, short-term
capital gains, and return of invested capital, and is calculated over a
different period of time. Total rate of return quotations will reflect the
average annual percentage change over stated periods in the value of an
investment in each class of shares of the Fund made at the maximum public
offering price of the shares of that class with all distributions reinvested and
which will give effect to the imposition of any applicable CDSC assessed upon
redemptions of the Fund's Class B and Class C shares. Such total rate of return
quotations may be accompanied by quotations which do not reflect the reduction
in value of the initial investment due to the sales charge or the deduction of a
CDSC, and which will thus be higher. The Fund offers multiple classes of shares
which were initially offered for sale to the public on different dates. The
calculation of total rate of return for a class of shares which initially was
offered for sale to the public subsequent to another class of shares of the Fund
is based both on (i) the performance of the Fund's newer class from the date it
initially was offered for sale to the public and (ii) the performance of the
Fund's oldest class from the date it initially was offered for sale to the
public up to the date that the newer class initially was offered for sale to the
public. See the SAI for further information on the calculation of total rate of
return for share classes initially offered for sale to the public on different
dates.
All performance quotations are based on historical performance and are not
intended to indicate future performance. Yield reflects only net portfolio
income as of a stated time and current distribution rate reflects only the rate
of distributions paid by the Fund over a stated period of time, while total rate
of return reflects all components of investment return over a stated period of
time. The Fund's quotations may from time to time be used in advertisements,
shareholder reports or other communications to shareholders. For a discussion of
the manner in which the Fund will calculate its yield, current distribution rate
and total rate of return, see the SAI. For further information about the Fund's
performance for the fiscal year ended February 28, 1997, please see the Fund's
Annual Report. A copy of the Annual Report may be obtained without charge by
contacting the Shareholder Servicing Agent (see back cover for address and phone
number). In addition to information provided in shareholder reports, the Fund
may, in its discretion, from time to time, make a list of all or a portion of
its holdings available to investors upon request.
7. SHAREHOLDER SERVICES
Shareholders with questions concerning the shareholder services described below
or concerning other aspects of the Fund should contact the Shareholder Servicing
Agent (see back cover for address and phone number).
ACCOUNT AND CONFIRMATION STATEMENTS -- Each shareholder will receive
confirmation statements showing the transaction activity in his account. At the
end of each calendar year, each shareholder will receive income tax information
regarding any reportable dividends and any capital gain distributions for that
year (see "Tax Status").
DISTRIBUTION OPTIONS -- The following options are available to all accounts
(except Systematic Withdrawal Plan accounts) and may be changed as often as
desired by notifying the Shareholder Servicing Agent:
-- Dividends and capital gain distributions reinvested in additional
shares. This option will be assigned if no other option is specified;
-- Dividends in cash; capital gain distributions reinvested in additional
shares;
-- Dividends and capital gain distributions in cash.
Reinvestments (net of any tax withholding) will be made in additional full and
fractional shares of the same class of shares at the net asset value in effect
at the close of business on the record date. Dividends and capital gain
distributions in amounts less than $10 will automatically be reinvested in
additional shares of the Fund. If a shareholder has elected to receive dividends
and/or capital gain distributions in cash, and the postal or other delivery
service is unable to deliver checks to the shareholder's address of record, or
the shareholder does not respond to mailings from the Shareholder Servicing
Agent with regard to uncashed distribution checks, such shareholder's
distribution option will automatically be converted to having all dividends and
other distributions reinvested in additional shares. Any request to change a
distribution option must be received by the Shareholder Servicing Agent by the
record date for a dividend or distribution in order to be effective for that
dividend or distribution. No interest will accrue on amounts represented by
uncashed distribution or redemption checks.
INVESTMENT AND WITHDRAWAL PROGRAMS -- For the convenience of shareholders, the
Fund makes available the following programs designed to enable shareholders to
add to their investment in an account with the Fund or withdraw from it with a
minimum of paper work. The programs involve no extra charge to shareholders
(other than a sales charge in the case of certain Class A share purchases) and
may be changed or discontinued at any time by a shareholder or the Fund.
LETTER OF INTENT: If a shareholder (other than a group purchaser as
described in the SAI) anticipates purchasing $100,000 or more of Class A shares
of the Fund alone or in combination with shares of any class of other MFS Funds
or the MFS Fixed Fund (a bank collective investment fund) within a 13-month
period (or 36-month period for purchases of $1 million or more), the shareholder
may obtain such shares at the same reduced sales charge as though the total
quantity were invested in one lump sum, subject to escrow agreements and the
appointment of an attorney for redemptions from the escrow amount if the
intended purchases are not completed, by completing the Letter of Intent section
of the Account Application.
RIGHT OF ACCUMULATION: A shareholder qualifies for cumulative quantity
discounts on purchases of Class A shares when his new investment, together with
the current offering price value of all holdings of Class A, B and C shares of
that shareholder in the MFS Funds or the MFS Fixed Fund reaches a discount
level.
DISTRIBUTION INVESTMENT PROGRAM: Shares of a particular class of the Fund
may be sold at net asset value (and without any applicable CDSC) through the
automatic reinvestment of dividend and capital gain distributions from the same
class of another MFS Fund. Furthermore, distributions made by the Fund may be
automatically invested at net asset value (and without any applicable CDSC) in
shares of the same class of one of the other MFS Funds, if shares of such Fund
are available for sale.
SYSTEMATIC WITHDRAWAL PLAN: A shareholder may direct the Shareholder
Servicing Agent to send him (or anyone he designates) regular periodic payments
based upon the value of his account. Each payment under a Systematic Withdrawal
Plan (a "SWP") must be at least $100, except in certain limited circumstances.
The aggregate withdrawals of Class B and Class C shares in any year pursuant to
a SWP will not be subject to a CDSC and are generally limited to 10% of the
value of the account at the establishment of the SWP. The CDSC will not be
waived in the case of a SWP redemption of Class A shares which are subject to a
CDSC.
DOLLAR COST AVERAGING PROGRAMS --
AUTOMATIC INVESTMENT PLAN: Cash investments of $50 or more may be made
through a shareholder's checking account on any day of the month. If the
shareholder does not specify a date, the investment will automatically occur on
the first business day of the month. Required forms are available from the
Shareholder Servicing Agent or investment dealers.
AUTOMATIC EXCHANGE PLAN: Shareholders having account balances of at least
$5,000 in any MFS Fund may participate in the Automatic Exchange Plan, a dollar
cost averaging program. The Automatic Exchange Plan provides for automatic
monthly or quarterly exchanges of funds from the shareholder's account in an MFS
Fund for investment in the same class of other MFS Funds selected by the
shareholder if such fund is available for sale. Under the Automatic Exchange
Plan, exchanges of at least $50 each may be made to up to six different funds. A
shareholder should consider the objectives and policies of a fund and review its
prospectus before electing to exchange money into such fund through the
Automatic Exchange Plan. No transaction fee is imposed in connection with
exchange transactions under the Automatic Exchange Plan. However, exchanges of
shares of MFS Money Market Fund, MFS Government Money Market Fund or Class A
shares of MFS Cash Reserve Fund will be subject to any applicable sales charge.
For federal and (generally) state income tax purposes, an exchange is treated as
a sale of the shares exchanged and, therefore, could result in a capital gain or
loss to the shareholder making the exchange. See the SAI for further information
concerning the Automatic Exchange Plan. Investors should consult their tax
advisers for information regarding the potential capital gain and loss
consequences of transactions under the Automatic Exchange Plan.
Because a dollar cost averaging program involves periodic purchases of shares
regardless of fluctuating share offering prices, a shareholder should consider
his financial ability to continue his purchases through periods of low price
levels. Maintaining a dollar cost averaging program concurrently with a
withdrawal program could be disadvantageous because of the sales charges
included in share purchases in the case of Class A shares, and because of the
assessment of the CDSC for certain share redemptions in the case of Class A
shares.
TAX-DEFERRED RETIREMENT PLANS -- Shares of the Fund may be purchased by all
types of tax-deferred retirement plans, including IRAs, SEP-IRA plans, 401(k)
plans, 403(b) plans and other corporate pension and profit-sharing plans.
Investors should consult with their tax advisers before establishing any of the
tax-deferred retirement plans described above.
--------------------
The Fund's SAI, dated July 1, 1997, as amended or supplemented from time to
time, contains more detailed information about the Fund, including, but not
limited to, information related to (i) the Fund's investment objective, policies
and restrictions, (ii) its Trustees, officers and investment adviser, (iii)
portfolio trading, (iv) the method used to calculate performance quotations of
the Fund, (v) the Fund's Distribution Plan, and (vi) various services and
privileges provided by the Fund for the benefit of its shareholders, including
additional information with respect to the exchange privilege.
<PAGE>
APPENDIX A
WAIVERS OF SALES CHARGES
This Appendix sets forth the various circumstances in which all applicable sales
charges are waived (Section I), the initial sales charge and the contingent
deferred sales charge ("CDSC") for Class A shares are waived (Section II), and
the CDSC for Class B and Class C shares is waived (Section III).
I. WAIVERS OF ALL APPLICABLE SALES CHARGES
In the following circumstances, the initial sales charge imposed on
purchases of Class A shares and the CDSC imposed on certain redemptions of
Class A shares and on redemptions of Class B and Class C shares, as
applicable, are waived:
1. DIVIDEND REINVESTMENT
o Shares acquired through dividend or capital gain reinvestment; and
o Shares acquired by automatic reinvestment of distributions of
dividends and capital gains of any fund in the MFS Family of Funds
("MFS Funds") pursuant to the Distribution Investment Program.
2. CERTAIN ACQUISITIONS/LIQUIDATIONS
o Shares acquired on account of the acquisition or liquidation of
assets of other investment companies or personal holding companies.
3. AFFILIATES OF AN MFS FUND/CERTAIN DEALERS. Shares acquired by:
o Officers, eligible directors, employees (including retired
employees) and agents of Massachusetts Financial Services Company
("MFS"), Sun Life Assurance Company of Canada ("Sun Life") or any of
their subsidiary companies;
o Trustees and retired trustees of any investment company for which
MFS Fund Distributors, Inc. ("MFD") serves as distributor;
o Employees, directors, partners, officers and trustees of any sub-
adviser to any MFS Fund;
o Employees or registered representatives of dealers and other
financial institutions ("dealers") which have a sales agreement with
MFD;
o Certain family members of any such individual and their spouses
identified above and certain trusts, pension, profit-sharing or
other retirement plans for the sole benefit of such persons,
provided the shares are not resold except to the MFS Fund which
issued the shares; and
o Institutional Clients of MFS or MFS Institutional Advisors, Inc.
4. INVOLUNTARY REDEMPTIONS (CDSC WAIVER ONLY)
o Shares redeemed at an MFS Fund's direction due to the small size of
a shareholder's account. See "Redemptions and Repurchases -- General
-- Involuntary Redemptions/ Small Accounts" in the Prospectus.
5. RETIREMENT PLANS (CDSC WAIVER ONLY). Shares redeemed on account of
distributions made under the following circumstances:
INDIVIDUAL RETIREMENT ACCOUNTS ("IRAS")
o Death or disability of the IRA owner.
SECTION 401(a) PLANS ("401(a) PLANS") AND SECTION 403(b) EMPLOYER
SPONSORED PLANS ("ESP PLANS")
o Death, disability or retirement of 401(a) or ESP Plan participant;
o Loan from 401(a) or ESP Plan (repayment of loans, however, will
constitute new sales for purposes of assessing sales charges);
o Financial hardship (as defined in Treasury Regulation Section
1.401(k)-1(d)(2), as amended from time to time);
o Termination of employment of 401(a) or ESP Plan participant
(excluding, however, a partial or other termination of the Plan);
o Tax-free return of excess 401(a) or ESP Plan contributions;
o To the extent that redemption proceeds are used to pay expenses (or
certain participant expenses) of the 401(a) or ESP Plan (e.g.,
participant account fees), provided that the Plan sponsor subscribes
to the MFS FUNDamental 401(k) Plan or another similar recordkeeping
system made available by MFS Service Center, Inc. ( the "Shareholder
Servicing Agent"); and
o Distributions from a 401(a) or ESP Plan that has invested its assets
in one or more of the MFS Funds for more than 10 years from the
later to occur of: (i) January 1, 1993 or (ii) the date such 401(a)
or ESP Plan first invests its assets in one or more of the MFS
Funds. The sales charges will be waived in the case of a redemption
of all of the 401(a) or ESP Plan's shares in all MFS Funds (i.e.,
all the assets of the 401(a) or ESP Plan invested in the MFS Funds
are withdrawn), unless immediately prior to the redemption, the
aggregate amount invested by the 401(a) or ESP Plan in shares of the
MFS Funds (excluding the reinvestment of distributions) during the
prior four years equals 50% or more of the total value of the 401(a)
or ESP Plan's assets in the MFS Funds, in which case the sales
charges will not be waived.
SECTION 403(b) SALARY REDUCTION ONLY PLANS ("SRO PLANS")
o Death or disability of SRO Plan participant.
6. CERTAIN TRANSFERS OF REGISTRATION (CDSC WAIVER ONLY). Shares
transferred:
o To an IRA rollover account where any sales charges with respect to
the shares being reregistered would have been waived had they been
redeemed; and
o From a single account maintained for a 401(a) Plan to multiple
accounts maintained by the Shareholder Servicing Agent on behalf of
individual participants of such Plan, provided that the Plan sponsor
subscribes to the MFS FUNDamental 401(k) Plan or another similar
recordkeeping system made available by the Shareholder Servicing
Agent.
II. WAIVERS OF CLASS A SALES CHARGES
In addition to the waivers set forth in Section I above, in the following
circumstances the initial sales charge imposed on purchases of Class A
shares and the CDSC imposed on certain redemptions of Class A shares are
waived:
1. INVESTMENT OF REDEMPTION PROCEEDS FROM UNAFFILIATED MUTUAL FUNDS
o Shares acquired through the investment of redemption proceeds from
another open-end management investment company not distributed or
managed by MFD or its affiliates if: (i) the investment is made
through a dealer and appropriate documentation is submitted to MFD;
(ii) the redeemed shares were subject to an initial sales charge or
deferred sales charge (whether or not actually imposed); (iii) the
redemption occurred no more than 90 days prior to the purchase of
Class A shares; and (iv) the MFS Fund, MFD or its affiliates have
not agreed with such company or its affiliates, formally or
informally, to waive sales charges on Class A shares or provide any
other incentive with respect to such redemption and sale.
2. WRAP ACCOUNT INVESTMENTS
o Shares acquired by investments through certain dealers which have
established certain operational arrangements with MFD which include
a requirement that such shares be sold for the sole benefit of
clients participating in a "wrap" account or a similar program under
which such clients pay a fee to such dealer.
3. INVESTMENT BY INSURANCE COMPANY SEPARATE ACCOUNTS
o Shares acquired by insurance company separate accounts.
4. RETIREMENT PLANS
ADMINISTRATIVE SERVICES ARRANGEMENTS
o Shares acquired by retirement plans whose third party administrators
or dealers have entered into an administrative services agreement
with MFD or one of its affiliates to perform certain administrative
services, subject to certain operational and minimum size
requirements specified from time to time by MFD or one or more of
its affiliates.
REINVESTMENT OF DISTRIBUTIONS FROM QUALIFIED RETIREMENT PLANS
o Shares acquired through the automatic reinvestment in Class A shares
of Class A or Class B distributions which constitute required
withdrawals from qualified retirement plans.
SHARES REDEEMED ON ACCOUNT OF DISTRIBUTIONS MADE UNDER THE FOLLOWING
CIRCUMSTANCES:
IRAS
o Distributions made on or after the IRA owner has attained the age of
59 1/2 years old; and
o Tax-free returns of excess IRA contributions.
401(a) PLANS
o Distributions made on or after the 401(a) Plan participant has
attained the age of 59 1/2 years old; and
o Certain involuntary redemptions and redemptions in connection with
certain automatic withdrawals from a 401(a) Plan.
ESP PLANS AND SRO PLANS
o Distributions made on or after the ESP or SRO Plan participant has
attained the age of 59 1/2 years old.
III. WAIVERS OF CLASS B AND CLASS C SALES CHARGES
In addition to the waivers set forth in Section I above, in the following
circumstances the CDSC imposed on redemptions of Class B and Class C shares
is waived:
1. SYSTEMATIC WITHDRAWAL PLAN
o Systematic Withdrawal Plan redemptions with respect to up to 10% per
year of the account value at the time of establishment.
2. DEATH OF OWNER
o Shares redeemed on account of the death of the account owner if the
shares are held solely in the deceased individual's name or in a
living trust for the benefit of the deceased individual.
3. DISABILITY OF OWNER
o Shares redeemed on account of the disability of the account owner if
shares are held either solely or jointly in the disabled
individual's name or in a living trust for the benefit of the
disabled individual (in which case a disability certification form
is required to be submitted to the Shareholder Servicing Agent).
4. RETIREMENT PLANS. Shares redeemed on account of distributions made
under the following circumstances:
IRAS, 401(a) PLANS, ESP PLANS AND SRO PLANS
o Distributions made on or after the IRA owner or the 401(a), ESP or
SRO Plan participant, as applicable, has attained the age of 70 1/2
years old, but only with respect to the minimum distribution under
applicable Internal Revenue Code ("Code") rules.
SALARY REDUCTION SIMPLIFIED EMPLOYEE PENSION PLANS ("SAR-SEP PLANS")
o Distributions made on or after the SAR-SEP Plan participant has
attained the age of 70 1/2 years old, but only with respect to the
minimum distribution under applicable Code rules; and
o Death or disability of a SAR-SEP Plan participant.
<PAGE>
APPENDIX B
DESCRIPTION OF OBLIGATIONS ISSUED OR GUARANTEED BY
U.S. GOVERNMENT AGENCIES, AUTHORITIES OR INSTRUMENTALITIES
EXPORT-IMPORT BANK CERTIFICATES -- are certificates of beneficial interest and
participation certificates issued and guaranteed by the Export-Import Bank of
the United States.
FEDERAL AGRICULTURAL MORTGAGE CORPORATION CERTIFICATES -- are certificates of
beneficial interest guaranteed by the Federal Agricultural Mortgage Corporation.
FEDERAL AGRICULTURAL MORTGAGE CORPORATION BONDS AND NOTES -- are bonds and notes
guaranteed by the Federal Agricultural Mortgage Corporation.
FEDERAL FARM CREDIT BANKS CONSOLIDATED SYSTEMWIDE NOTES AND BONDS -- are bonds
issued and guaranteed by a cooperatively owned nationwide system of banks and
associations supervised by the Farm Credit Administration.
FEDERAL HOME LOAN BANK NOTES AND BONDS -- are notes and bonds issued by the
Federal Home Loan Bank System.
FEDERAL HOME LOAN BANK CERTIFICATES -- are certificates of beneficial interest
and participation certificates issued and guaranteed by the Federal Home Loan
Bank System.
FHA DEBENTURES -- are debentures issued by the Federal Housing Authority of
the U.S. Government.
FHLMC BONDS -- are bonds issued and guaranteed by the Federal Home Loan
Mortgage Corporation and are not guaranteed by the U.S. Government.
FICO BONDS AND NOTES -- are bonds and notes issued and guaranteed by the
Financing Corporation.
FNMA BONDS -- are bonds issued and guaranteed by the Federal National Mortgage
Association and are not guaranteed by the U.S. Government.
GNMA CERTIFICATES -- are mortgage-backed securities which represent a partial
ownership interest in a pool of mortgage loans issued by lenders such as
mortgage bankers, commercial banks and savings and loan associations. Each
mortgage loan included in the pool is either insured by the Federal Housing
Administration or guaranteed by the Veterans Administration.
The Fund will purchase only GNMA Certificates of the "modified pass-through"
type, which entitle the holder to receive its proportionate share of all
interest and principal payments owed on the mortgage pool, net of fees paid to
the issuer and GNMA. Payment of principal of and interest on GNMA Certificates
of the "modified pass-through" type is guaranteed by GNMA.
The average life of a GNMA Certificate is likely to be substantially less than
the original maturity of the mortgage pools underlying the securities.
Prepayments of principal by mortgagors and mortgage foreclosures will usually
result in the return of the greater part of principal invested far in advance of
the maturity of the mortgages in the pool. Foreclosures impose no risk to
principal investment because of the GNMA guarantee.
As the prepayment rates of individual mortgage pools will vary widely, it is not
possible to accurately predict the average life of a particular issue of GNMA
Certificates. However, statistics published by the FHA indicate that the average
life of a single-family dwelling mortgage with a 25-to 30-year maturity, the
type of mortgage which backs the vast majority of GNMA Certificates, is
approximately 12 years. It is therefore customary practice to treat GNMA
Certificates as 30-year mortgage-backed securities which prepay fully in the
twelfth year.
As a consequence of the fees paid to GNMA and the issuer of GNMA Certificates,
the coupon rate of interest of GNMA Certificates is lower than the interest paid
on the VA-guaranteed or FHA-insured mortgages underlying the GNMA Certificates.
The yield which will be earned on GNMA Certificates may vary from their coupon
rates for the following reasons: (i) Certificates may be issued at a premium or
discount, rather than at par; (ii) Certificates may trade in the secondary
market at a premium or discount after issuance; (iii) interest is earned and
compounded monthly which has the effect of raising the effective yield earned on
the Certificates; and (iv) the actual yield of each Certificate is affected by
the prepayment of mortgages included in the mortgage pool underlying the
Certificates and the rate at which principal so prepaid is reinvested. In
addition, prepayment of mortgages included in the mortgage pool underlying a
GNMA Certificate purchased at a premium may result in a loss to the Fund.
Due to the large amount of GNMA Certificates outstanding and active
participation in the secondary market by securities dealers and investors, GNMA
Certificates are highly liquid instruments. Prices of GNMA Certificates are
readily available from securities dealers and depend on, among other things, the
level of market rates, the Certificate's coupon rate and the prepayment
experience of the pool of mortgages backing each Certificate.
GSA PARTICIPATION CERTIFICATES -- are participation certificates issued by the
General Services Administration of the U.S. Government.
MARITIME ADMINISTRATION BONDS -- are bonds issued by the Department of
Transportation of the U.S. Government.
NEW COMMUNITIES DEBENTURES -- are debentures issued in accordance with the
provisions of Title IV of the Housing and Urban Development Act of 1968, as
supplemented and extended by Title VII of the Housing and Urban Development Act
of 1970, the payment of which is guaranteed by the U.S. Government.
REFCORP BONDS AND NOTES -- are bonds and notes issued and guaranteed by the
Resolution Funding Corporation.
SBA DEBENTURES -- are debentures fully guaranteed as to principal and interest
by the Small Business Administration of the U.S. Government.
SLMA DEBENTURES -- are debentures backed by the Student Loan Marketing
Association.
TITLE XI BONDS -- are bonds issued in accordance with the provisions of Title XI
of the Merchant Marine Act of 1936, as amended, the payment of which is
guaranteed by the U.S. Government.
TVA BONDS AND NOTES -- are bonds and notes issued and guaranteed by the
Tennessee Valley Authority.
U.S. DEPARTMENT OF VETERAN AFFAIRS CERTIFICATES -- are certificates of
beneficial interest guaranteed by the U.S. Department of Veteran Affairs.
WASHINGTON METROPOLITAN AREA TRANSIT AUTHORITY BONDS -- are bonds issued by the
Washington Metropolitan Area Transit Authority and guaranteed by the Secretary
of Transportation of the U.S. Government.
Although this list includes the primary types of Government Securities in which
the Fund invests, the Fund may also invest in Government Securities other than
those listed above.
THE MFS FAMILY OF FUNDS(R)
AMERICA'S OLDEST MUTUAL FUND GROUP
The members of the MFS Family of Funds are grouped below according to the types
of securities in their portfolios. For free prospectuses containing more
complete information, including the exchange privilege and all charges and
expenses, please contact your financial adviser or call MFS at 1-800-225-2606
any business day from 8 a.m. to 8 p.m. Eastern time. This material should be
read carefully before investing or sending money.
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
STOCK WORLD
- ---------------------------------------------------- ----------------------------------------------------
Massachusetts Investors Trust MFS(R)/Foreign & Colonial Emerging Markets
Massachusetts Investors Growth Stock Fund Equity Fund
MFS(R) Capital Growth Fund MFS(R)/Foreign & Colonial International Growth Fund
MFS(R) Emerging Growth Fund MFS(R)/Foreign & Colonial International Growth
MFS(R) Growth Opportunities Fund and Income Fund
MFS(R) Managed Sectors Fund MFS(R) World Asset Allocation FundSM
MFS(R) OTC Fund MFS(R) World Equity Fund
MFS(R) Research Fund MFS(R) World Governments Fund
MFS(R) Research Growth and Income Fund MFS(R) World Growth Fund
MFS(R) Strategic Growth Fund MFS(R) World Total Return Fund
MFS(R) Value Fund
NATIONAL TAX-FREE BOND
STOCK AND BOND ----------------------------------------------------
- ---------------------------------------------------- MFS(R) Municipal Bond Fund
MFS(R) Total Return Fund MFS(R) Municipal High Income Fund
MFS(R) Utilities Fund MFS(R) Municipal Income Fund
BOND STATE TAX-FREE BOND
- ---------------------------------------------------- ----------------------------------------------------
MFS(R) Bond Fund Alabama, Arkansas, California, Florida,
MFS(R) Government Mortgage Fund Georgia, Maryland, Massachusetts,
MFS(R) Government Securities Fund Mississippi, New York, North Carolina,
MFS(R) High Income Fund Pennsylvania, South Carolina, Tennessee,
MFS(R) Intermediate Income Fund Virginia, West Virginia
MFS(R) Strategic Income Fund
MONEY MARKET
LIMITED MATURITY BOND ----------------------------------------------------
- ---------------------------------------------------- MFS(R) Cash Reserve Fund
MFS(R) Government Limited Maturity Fund MFS(R) Government Money Market Fund
MFS(R) Limited Maturity Fund MFS(R) Money Market Fund
MFS(R) Municipal Limited Maturity Fund
</TABLE>
<PAGE>
Investment Adviser
Massachusetts Financial Services Company
500 Boylston Street
Boston, MA 02116
(617) 954-5000
Distributor
MFS Fund Distributors, Inc.
500 Boylston Street
Boston, MA 02116
(617) 954-5000
Custodian and Dividend Disbursing Agent
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
Shareholder Servicing Agent
MFS Service Center, Inc.
500 Boylston Street
Boston, MA 02116
Toll-free: (800) 225-2606
Mailing Address:
P.O. Box 2281
Boston, MA 02107-9906
Independent Auditors
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
[LOGO] M F S (SM)
INVESTMENT MANAGEMENT
We invented the mutual fund(sm)
MFS(R) GOVERNMENT
SECURITIES FUND
500 Boylston Street
Boston, MA 02116
[LOGO] M F S (SM)
INVESTMENT MANAGEMENT
We invented the mutual fund(sm)
MFS(R) GOVERNMENT SECURITIES FUND
Prospectus
July 1, 1997
MGS-1-7/97/160M 26/226/326
<PAGE>
[GRAPHIC OMITTED]
INVESTMENT MANAGEMENT
MFS(R) GOVERNMENT
SECURITIES FUND STATEMENT OF
ADDITIONAL INFORMATION
(A Member of the MFS Family of Funds(R))
July 1, 1997
- -------------------------------------------------------------------------------
Page
1. Definitions ................................................. 2
2. The Fund .................................................... 2
3. Investment Objective, Policies and Restrictions ............. 2
4. Management of the Fund ...................................... 5
Trustees ................................................. 5
Officers ................................................. 5
Trustee Compensation Table ............................... 6
Investment Adviser ....................................... 6
Custodian ................................................ 7
Shareholder Servicing Agent .............................. 7
Distributor .............................................. 7
5. Portfolio Trading ........................................... 8
6. Shareholder Services ........................................ 8
Investment and Withdrawal Programs ....................... 8
Exchange Privilege ....................................... 10
Tax-Deferred Retirement Plans ............................ 11
7. Tax Status .................................................. 11
8. Determination of Net Asset Value and Performance ............ 12
9. Distribution Plan ........................................... 14
10. Description of Shares, Voting Rights and Liabilities ........ 15
11. Independent Auditors and Financial Statements ............... 15
Appendix A -- Performance Information ....................... 17
MFS GOVERNMENT SECURITIES FUND
500 Boylston Street, Boston, Massachusetts 02116
(617) 954-5000
This Statement of Additional Information, as amended or supplemented from time
to time (the "SAI"), sets forth information which may be of interest to
investors but which is not necessarily included in the Fund's Prospectus, dated
July 1, 1997. This SAI should be read in conjunction with the Prospectus, a copy
of which may be obtained without charge by contacting the Shareholder Servicing
Agent (see last page for address and phone number).
THIS SAI IS NOT A PROSPECTUS AND IS AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE
INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS.
<PAGE>
1. DEFINITIONS
"Fund" -- MFS(R) Government Securities Fund,
a Massachusetts business trust.
"MFS" or the "Adviser" -- Massachusetts Financial Services
Company, a Delaware corporation.
"MFD" -- MFS Fund Distributors, Inc., a
Delaware corporation.
"Prospectus" -- The Prospectus of the Fund, dated
July 1, 1997, as amended or
supplemented from time to time.
2. THE FUND
MFS Government Securities Fund is an open-end, diversified management investment
company which was organized as a business trust under the laws of The
Commonwealth of Massachusetts in 1981 and functioned as a taxable money market
fund under the name "Working Capital Trust." During the period from May 15, 1984
to July 24, 1984, the Fund's management, with the approval of its shareholders,
reorganized the Fund with the objective set forth in the Prospectus and this
SAI. The Fund was known as "MFS Government Guaranteed Securities Trust" until
December 1990, then as "MFS Government Securities Trust" until its name was
changed effective August 1992.
3. INVESTMENT OBJECTIVE, POLICIES AND
RESTRICTIONS
INVESTMENT OBJECTIVE. The Fund's investment objective is to provide current
income and preservation of principal. Any investment involves risk and there can
be no assurance that the Fund will achieve its investment objective.
INVESTMENT POLICIES. The investment policies of the Fund are described in the
Prospectus. In addition, certain of the Fund's investment policies are
described in greater detail below.
MORTGAGE PASS-THROUGH SECURITIES: The Fund may invest in mortgage pass-through
securities as described in the Prospectus. Interests in pools of
mortgage-related securities differ from other forms of debt securities, which
normally provide for periodic payment of interest in fixed amounts with
principal payments at maturity or specified call dates. Instead, these
securities provide a monthly payment which consists of both interest and
principal payments. In effect, these payments are a "pass-through" of the
monthly payments made by the individual borrowers on their mortgage loans, net
of any fees paid to the issuer or guarantor of such securities. Additional
payments are caused by prepayments of principal resulting from the sale,
refinancing or foreclosure of the underlying property, net of fees or costs
which may be incurred. Some mortgage pass-through securities (such as securities
issued by the Government National Mortgage Association ("GNMA")) are described
as "modified pass-through." These securities entitle the holder to receive all
interest and principal payments owed on the mortgages in the mortgage pool, net
of certain fees, at the scheduled payment dates regardless of whether the
mortgagor actually makes the payment.
The principal governmental guarantor of mortgage pass-through securities is the
GNMA. GNMA is a wholly owned U.S. Government corporation within the Department
of Housing and Urban Development. GNMA is authorized to guarantee, with the full
faith and credit of the U.S. Government, the timely payment of principal and
interest on securities issued by institutions approved by GNMA (such as savings
and loan institutions, commercial banks and mortgage bankers) and backed by
pools of FHA-insured or VA-guaranteed mortgages. These guarantees, however, do
not apply to the market value or yield of mortgage pass-through securities. GNMA
securities are often purchased at a premium over the maturity value of the
underlying mortgages. This premium is not guaranteed and will be lost if
prepayment occurs.
Government-related guarantors (i.e., whose guarantees are not backed by the full
faith and credit of the U.S. Government) include the Federal National Mortgage
Association ("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC").
FNMA is a government-sponsored corporation owned entirely by private
stockholders. It is subject to general regulation by the Secretary of Housing
and Urban Development. FNMA purchases conventional residential mortgages (i.e.,
mortgages not insured or guaranteed by any governmental agency) from a list of
approved seller/servicers which include state and federally-chartered savings
and loan associations, mutual savings banks, commercial banks, credit unions and
mortgage bankers. Pass-through securities issued by FNMA are guaranteed as to
timely payment by FNMA of principal and interest.
FHLMC was created by Congress in 1970 as a corporate instrumentality of the U.S.
Government for the purpose of increasing the availability of mortgage credit for
residential housing. FHLMC issues Participation Certificates ("PCs") which
represent interests in conventional mortgages (i.e., not federally insured or
guaranteed) from FHLMC's national portfolio. FHLMC guarantees timely payment of
interest and ultimate collection of principal regardless of the status of the
underlying mortgage loans.
REPURCHASE AGREEMENTS: As described in the Prospectus, the Fund may enter into
repurchase agreements with primary reporting dealers that report to the Federal
Reserve Bank of New York and with the 100 largest U.S. commercial banks. The
securities that the Fund purchases and holds through its agent are securities
that are issued or guaranteed as to principal and interest by the U.S.
Government, its agencies, authorities or instrumentalities ("Government
Securities"), the values of which are equal to or greater than the repurchase
price agreed to be paid by the seller. The repurchase price may be higher than
the purchase price, the difference being income to the Fund, or the purchase and
repurchase prices may be the same, with interest at a standard rate due to the
Fund together with the repurchase price on repurchase. In either case, the
income to the Fund is unrelated to the interest rate on the Government
Securities.
The repurchase agreement provides that in the event the seller fails to pay the
price agreed upon on the agreed upon delivery date or upon demand, as the case
may be, the Fund will have the right to liquidate the securities. If at the time
the Fund is contractually entitled to exercise its right to liquidate the
securities, the seller is subject to a proceeding under the bankruptcy laws or
its assets are otherwise subject to a stay order, the Fund's exercise of its
right to liquidate the securities may be delayed and result in certain losses
and costs to the Fund. The Fund has adopted and follows procedures which are
intended to minimize the risks of repurchase agreements. For example, the Fund
only enters into repurchase agreements after the Adviser has determined that the
seller is creditworthy, and the Adviser monitors that seller's creditworthiness
on an ongoing basis. Moreover, under such agreements, the value of the
securities (which are marked to market every business day) is required to be
greater than the repurchase price, and the Fund has the right to make margin
calls at any time if the value of the securities falls below the agreed upon
margin.
"WHEN-ISSUED" SECURITIES: The Fund may purchase securities on a "when-issued" or
on a "forward delivery" basis. When the Fund commits to purchase Government
Securities on a "when-issued" or "forward delivery" basis, it will set up
procedures consistent with the General Statement of Policy of the Securities and
Exchange Commission (the "SEC") concerning such purchases. Since that policy
currently recommends that an amount of the Fund's assets equal to the amount of
the purchase be held aside or segregated to be used to pay for the commitment,
the Fund will always have liquid assets sufficient to cover any commitments or
to limit any potential risk. The Fund does not intend to make such purchases for
speculative purposes. The Fund will only make commitments to purchase securities
on a "when-issued" or delayed-delivery basis with the intention of actually
acquiring the securities. However, the Fund may sell these securities before the
settlement date if it is deemed advisable as a matter of investment strategy.
When the time comes to pay for "when-issued" or delayed-delivery securities, the
Fund will meet its obligations from the then available cash flow or the sale of
securities, or, although it would not normally expect to do so, from the sale of
the "when-issued" or delayed- delivery securities themselves (which may have a
value greater or less than the Fund's payment obligation).
MORTGAGE "DOLLAR-ROLL" TRANSACTIONS: As described in the Prospectus, the Fund
may enter into mortgage "dollar roll" transactions pursuant to which it sells
mortgage-backed securities for delivery in the future and simultaneously
contracts to repurchase substantially similar securities on a specified future
date. The Fund records these transactions as sale and purchase transactions
rather than as borrowing transactions. During the roll period, the Fund foregoes
principal and interest paid on the mortgage-backed securities. The Fund is
compensated for the lost interest by the difference between the current sales
price and the lower price for the future purchase (often referred to as the
"drop") as well as by the interest earned on the cash proceeds of the initial
sale. The Fund may also be compensated by receipt of a commitment fee.
COLLATERALIZED MORTGAGE OBLIGATIONS AND MULTICLASS PASS-THROUGH SECURITIES: The
Fund may invest a portion of its assets in collateralized mortgage obligations
or "CMOs," which are debt obligations collateralized by mortgage loans or
mortgage pass-through securities. Typically, CMOs are collateralized by
certificates issued by GNMA, FNMA or the FHLMC and, in the case of the Fund,
must be collateralized by Government Securities (such collateral collectively
hereinafter referred to as "Mortgage Assets"). CMOs also include multiclass
pass-through securities which are interests in a trust composed of Mortgage
Assets, unless otherwise noted. CMOs may be issued by U.S. agencies, authorities
or instrumentalities or by private originators of, or investors in, mortgage
loans, including savings and loan associations, mortgage banks, commercial
banks, investment banks and special purpose subsidiaries of the foregoing.
Payments of principal of and interest on the Mortgage Assets, and any
reinvestment income thereon, provide the funds to pay debt service on the CMOs
or make scheduled distributions on the multiclass pass-through securities.
In a CMO, a series of bonds or certificates is usually issued in multiple
classes with different maturities. Each class of CMOs, often referred to as a
"tranche," is issued at a specific fixed or floating coupon rate and has a
stated maturity or final distribution date. Principal prepayments on the
Mortgage Assets may cause the CMOs to be retired substantially earlier than
their stated maturities or final distribution dates resulting in a loss of all
or part of the premium if any has been paid. Certain classes of CMOs have
priority over others with respect to the receipt of prepayments on the
mortgages. Therefore, depending on the type of CMO in which the Fund invests,
the instrument may be subject to a greater or lesser risk of prepayment than
other types of mortgage-related securities. The principal of and interest on the
Mortgage Assets may be allocated among the several classes of a series of a CMO
in innumerable ways. In a common structure, payments of principal, including any
principal prepayments, on the Mortgage Assets are applied to the classes of the
series of a CMO in the order of their respective stated maturities or final
distribution dates, so that no payment of principal will be made on any class of
CMOs until all other classes having an earlier stated maturity or final
distribution date have been paid in full.
CMOs also include parallel-pay CMOs and Planned Amortization Class CMOs ("PAC
Bonds"). Parallel-pay CMOs are structured to provide payments of principal on
each payment date to more than one class. These simultaneous payments are taken
into account in calculating the stated maturity date or final distribution date
of each class, which, as with other CMO structures, must be retired by its
stated maturity date or final distribution date but may be retired earlier. PAC
Bonds generally require payments of a specified amount of principal on each
payment date. PAC Bonds are always parallel-pay CMOs with the required principal
payment on such securities having the highest priority after interest has been
paid to all classes.
LENDING OF PORTFOLIO SECURITIES: The Fund may seek to increase its income by
lending portfolio securities. Such loans will usually be made only to member
firms (and subsidiaries thereof) of the New York Stock Exchange (the "Exchange")
and member banks of the Federal Reserve System, and would be required to be
secured continuously by collateral in cash, U.S. Government securities or an
irrevocable letter of credit maintained on a current basis at an amount at least
equal to the market value of the securities loaned. The Fund would have the
right to call a loan and obtain the securities loaned at any time on customary
industry settlement notice (which will not usually exceed five days). During the
existence of a loan, the Fund would continue to receive the equivalent of the
interest or dividends paid by the issuer on the securities loaned and would also
receive compensation based on investment of the cash collateral or a fee. The
Fund would not, however, have the right to vote any securities having voting
rights during the existence of the loan, but would call the loan in anticipation
of an important vote to be taken among holders of the securities or of the
giving or withholding of their consent on a material matter affecting the
investment. As with other extensions of credit, there are risks of delay in
recovery or even loss of rights in the collateral should the borrower of the
securities fail financially. However, the loans would be made only to firms
deemed by the Adviser to be of good standing, and when, in the judgment of the
Adviser, the consideration which could be earned currently from securities loans
of this type justifies the attendant risk. If the Adviser determines to make
securities loans, it is not intended that the value of the securities loaned
would exceed 30% of the value of the Fund's total assets.
The objective and the policies described above and the policies with respect to
portfolio management described below may be changed without shareholder
approval.
PORTFOLIO MANAGEMENT: The Fund intends to fully manage its portfolio by buying
and selling Government Securities, as well as holding selected Government
Securities to maturity. In managing its portfolio the Fund seeks to maximize the
return on its portfolio by taking advantage of market developments and yield
disparities, which may include use of the following strategies:
(1) shortening the average maturity of its portfolio in anticipation of a
rise in interest rates so as to minimize depreciation of principal;
(2) lengthening the average maturity of its portfolio in anticipation of a
decline in interest rates so as to maximize appreciation of principal;
(3) selling one type of Government Security (e.g., Treasury bonds) and
buying another (e.g., GNMA direct pass-through certificates) when disparities
arise in the relative values of each; and
(4) changing from one Government Security to an essentially similar
Government Security when their respective yields are distorted due to market
factors.
These strategies may result in increases or decreases in the Fund's current
income available for distribution to the Fund's shareholders and in the holding
by the Fund of Government Securities which sell at moderate to substantial
premiums or discounts from face value. Moreover, if the Fund's expectations of
changes in interest rates or its evaluation of the normal yield relationship
between two Government Securities proves to be incorrect, the Fund's income, net
asset value per share and potential capital gain may be decreased or its
potential capital loss may be increased.
INVESTMENT RESTRICTIONS. The Fund has adopted the following restrictions which
cannot be changed without the approval of the holders of a majority of its
shares (which, as used in this SAI, means the lesser of (i) more than 50% of the
outstanding shares of the Fund (or a class, as applicable) or (ii) 67% or more
of the outstanding shares of the Fund (or a class, as applicable) present at a
meeting if holders of more than 50% of the outstanding shares of the Fund (or a
class, as applicable) are represented at such meeting in person or by proxy):
The Fund may not:
(1) borrow money or pledge, mortgage or hypothecate in excess of 1/3 of its
assets, and then only as a temporary measure for extraordinary or emergency
purposes (the Fund intends to borrow money only from banks and only to
accommodate requests for the repurchase of shares of the Fund while effecting
an orderly liquidation of portfolio securities); for additional related
restrictions, see paragraph (i) under the caption "State and Federal
Restrictions";
(2) purchase any security or evidence of interest therein on margin, except
that the Fund may obtain such short-term credit as may be necessary for the
clearance of purchases and sales of securities and except that the Fund may
make deposits on margin in connection with interest rate futures contracts;
(3) purchase or sell any put or call option or any combination thereof,
provided that this shall not prevent the purchase, ownership, holding or sale
of contracts for the future delivery of fixed income securities;
(4) underwrite securities issued by other persons except insofar as the Fund
may technically be deemed an underwriter under the Securities Act of 1933 in
selling a portfolio security;
(5) make loans to other persons. For these purposes, the purchase of
short-term commercial paper, the purchase of a portion or all of an issue of
debt securities in accordance with its investment objectives and policies, the
lending of portfolio securities, or the investment of the Fund's assets in
repurchase agreements, shall not be considered the making of a loan;
(6) knowingly invest in securities which are subject to legal or contractual
restrictions on resale (other than repurchase agreements) if, as a result
thereof, more than 10% of the Fund's total assets (taken at market value)
would be so invested;
(7) purchase or sell real estate (including limited partnership interests
but excluding securities secured by real estate or interests therein),
interests in oil, gas or mineral leases, commodities or commodity contracts
(except contracts for the future acquisition or delivery of fixed income
securities) in the ordinary course of the Fund's business (the Fund reserves
the freedom of action to hold and to sell real estate acquired as a result of
the ownership of securities);
(8) 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;
(9) sell any security which it does not own unless by virtue of its
ownership of other securities the Fund has at the time of sale a right to
obtain securities, without payment of further consideration, equivalent in
kind and amount to the securities sold and provided that if such right is
conditional the sale is made upon the same conditions;
(10) purchase securities of any issuer if such purchase at the time thereof
would cause more than 5% of the Fund's assets (taken at market value) to be
invested in the securities of such issuer (other than securities or
obligations issued or guaranteed by the United States, any state or political
subdivision thereof, or any political subdivision of any such state, or any
agency or instrumentality of the United States or of any state or of any
political subdivision of any state or the United States); or
(11) issue any senior security (as that term is defined in the Investment
Company Act of 1940 (the "1940 Act")), if such issuance is specifically
prohibited by the 1940 Act or the rules and regulations promulgated
thereunder.
STATE AND FEDERAL RESTRICTIONS: In order to comply with certain state and
federal statutes and policies, the Fund will not, as a matter of operating
policy, (i) borrow money for any purpose in excess of 10% of its assets (taken
at market value) (moreover, the Fund will not purchase any securities for its
portfolio at any time at which borrowings exceed 5% of its assets (taken at
market value)), (ii) invest more than 5% of its total assets at the time of
investment in companies which, including predecessors, have a record of less
than three years' continuous operation, (iii) purchase or retain in its
portfolio any securities issued by an issuer any of whose officers, directors,
trustees or security holders is an officer or Trustee of the Fund, or is an
officer or Director of the Adviser if, after the purchase of the securities of
such issuer by the Fund, one or more of such persons owns beneficially more than
1/2 of 1% of the shares or securities, or both, of such issuer and such persons
owning more than 1/2 of 1% of such shares or securities together own
beneficially more than 5% of such shares or securities, or both, (iv) invest for
the purpose of exercising control or management, (v) purchase securities issued
by any registered investment company except by purchase in the open market where
no commission or profit to a sponsor or dealer results from such purchase other
than the customary broker's commission, or except when such purchase, though not
made in the open market, is part of a plan of merger or consolidation; provided,
however, that the Fund shall not purchase the securities of any registered
investment company if such purchase at the time thereof would cause more than 5%
of the net assets of the Fund (taken at market value) to be invested in the
securities of such issuers or would cause more than 3% of the outstanding voting
securities of any such issuer to be held by the Fund and; provided further, that
the Fund shall not purchase securities issued by any open-end investment
company, or (vi) invest more than 10% of its assets (taken at market value) in
securities (including repurchase agreements maturing in more than seven days)
for which there are no readily available market quotations. These policies are
not fundamental and may be changed by the Fund without shareholder approval only
in response to changes in the various state and federal requirements.
APPLICABILITY OF RESTRICTIONS: These investment restrictions are adhered to at
the time of purchase or utilization of assets; a subsequent change in
circumstances will not be considered to result in a violation of policy.
4. MANAGEMENT OF THE FUND
The Fund's Board of Trustees provides broad supervision over the affairs of the
Fund. The Adviser is responsible for the management of the Fund's assets, and
the officers of the Fund are responsible for its operations. The Trustees and
officers are listed below, together with their principal occupations during the
past five years. (Their titles may have varied during that period.)
TRUSTEES
A. KEITH BRODKIN*, Chairman and President (born 8/4/35)
Massachusetts Financial Services Company, Chairman and Director
RICHARD B. BAILEY* (born 9/14/26)
Private Investor; Massachusetts Financial Services Company, former Chairman
(prior to September 30, 1991); Cambridge Bancorp, Director; Cambridge Trust
Company, Director
PETER G. HARWOOD (born 4/3/26)
Private Investor
Address: 211 Lindsay Pond Road, Concord, Massachusetts
J. ATWOOD IVES (born 5/1/36)
Eastern Enterprises (diversified services company), Chairman and Chief
Executive Officer
Address: 9 Riverside Road, Weston, Massachusetts
LAWRENCE T. PERERA (born 6/23/35)
Hemenway & Barnes (attorneys), Partner
Address: 60 State Street, Boston, Massachusetts
WILLIAM J. POORVU (born 4/10/35)
Harvard University Graduate School of Business Administration, Adjunct
Professor; CBL & Associates Properties, Inc. (a real estate investment trust),
Director; The Baupost Fund (a registered investment company), Vice Chairman
(since November 1993), Chairman and Trustee (prior to November 1993)
Address: Harvard Business School, Soldiers Field Road, Cambridge,
Massachusetts
CHARLES W. SCHMIDT (born 3/18/28)
Private Investor; OHM Corporation, Director; The Boston Company, Director;
Boston Safe Deposit and Trust Company, Director; Mohawk Paper Company,
Director
Address: 30 Colpitts Road, Weston, Massachusetts
ARNOLD D. SCOTT* (born 12/16/42)
Massachusetts Financial Services Company, Senior Executive Vice President and
Secretary
JEFFREY L. SHAMES* (born 6/2/55)
Massachusetts Financial Services Company, President
ELAINE R. SMITH (born 4/25/46)
Independent Consultant; Brigham and Women's Hospital, Executive Vice President
and Chief Operating Officer (prior to September 1992)
Address: Weston, Massachusetts
DAVID B. STONE (born 9/2/27)
North American Management Corp. (investment advisers), Chairman and Director;
Eastern Enterprises, Director
Address: Ten Post Office Square, Suite 300, Boston, Massachusetts
OFFICERS
W. THOMAS LONDON*, Treasurer (born 3/1/44)
Massachusetts Financial Services Company, Senior Vice President
JAMES O. YOST*, Assistant Treasurer (born 6/12/60)
Massachusetts Financial Service Company, Vice President
MARK E. BRADLEY*, Assistant Treasurer (born 11/23/59)
Massachusetts Financial Services Company, Vice President (since March 1997);
Putnam Investments, Vice President (from September 1994 until March 1997);
Ernst & Young, Senior Tax Manager (until September 1994).
ELLEN M. MOYNIHAN*, Assistant Treasurer (born 11/13/57)
Massachusetts Financial Services Company, Vice President (since September
1996); Deloitte & Touche LLP, Senior Manager (until September 1996).
STEPHEN E. CAVAN*, Secretary and Clerk (born 11/6/53)
Massachusetts Financial Services Company, Senior Vice President, General
Counsel and Assistant Secretary
JAMES R. BORDEWICK, JR.*, Assistant Secretary (born 3/6/59)
Massachusetts Financial Services Company, Senior Vice President and Associate
General Counsel
- ----------
*"Interested persons" (as defined in the 1940 Act) of the Adviser, whose address
is 500 Boylston Street, Boston, Massachusetts 02116.
Each Trustee and officer holds comparable positions with certain MFS
affiliates or with certain other funds of which MFS or a subsidiary of MFS is
the investment adviser or distributor. Mr. Brodkin, the Chairman of MFD,
Messrs. Shames and Scott, Directors of MFD, and Mr. Cavan, the Secretary of
MFD, hold similar positions with certain other MFS affiliates. Mr. Bailey is a
Director of Sun Life Assurance Company of Canada (U.S.) ("Sun Life of Canada
(U.S.)"), the corporate parent of MFS.
The Fund pays the compensation of non-interested Trustees and Mr. Bailey, (who
currently receive a fee of $1,500 per year plus $90 per meeting and $70 per
committee meeting attended, together with such Trustees' out-of-pocket expenses)
and has adopted a retirement plan for non-interested Trustees and Mr. Bailey.
Under this plan, a Trustee will retire upon reaching age 73 and if the Trustee
has completed at least five years of service, he would be entitled to annual
payments during his lifetime of up to 50% of such Trustee's average annual
compensation (based on the three years prior to his retirement) depending on his
length of service. A Trustee may also retire prior to age 73 and receive reduced
payments if he has completed at least five years of service. Under the plan, a
Trustee (or his beneficiaries) will also receive benefits for a period of time
in the event the Trustee is disabled or dies. These benefits will also be based
on the Trustee's average annual compensation and length of service. There is no
retirement plan provided by the Fund for Messrs. Brodkin, Scott and Shames. The
Fund will accrue compensation expenses each year to cover current year's service
and amortize past service cost.
TRUSTEE COMPENSATION TABLE
RETIREMENT
BENEFIT ESTIMATED TOTAL TRUSTEE
ACCRUED AS CREDITED FEES FROM
TRUSTEE FEES PART OF FUND YEARS OF FUND AND FUND
TRUSTEE FROM FUND(1) EXPENSE(1) SERVICE(2) COMPLEX(3)
- -----------------------------------------------------------------------------
Richard B. Bailey $2,630 $ 762 8 $247,168
A. Keith Brodkin -0- -0- N/A -0-
Peter G. Harwood 2,910 503 5 105,995
J. Atwood Ives 2,700 795 17 98,750
Lawrence T. Perera 2,960 1,550 24 98,310
William J. Poorvu 2,820 1,663 24 102,840
Charles W. Schmidt 2,910 1,615 17 105,995
Arnold D. Scott -0- -0- N/A -0-
Jeffrey L. Shames -0- -0- N/A -0-
Elaine R. Smith 3,260 807 27 105,995
David B. Stone 2,980 1,191 11 108,710
(1) For fiscal year ended February 28, 1997.
(2) Based on normal retirement age of 73.
(3) For calendar year 1996. All Trustees receiving compensation served as
Trustees of 23 funds within the MFS fund complex (having aggregate net
assets at December 31, 1996, of approximately $21.2 billion) except Mr.
Bailey, who served as Trustee of 81 funds within the MFS fund complex
(having aggregate net assets at December 31, 1996, of approximately $38.5
billion).
ESTIMATED ANNUAL BENEFITS PAYABLE BY
FUND UPON RETIREMENT(4)
YEARS OF SERVICE
AVERAGE ---------------------------------------------------------------
TRUSTEE FEES 3 5 7 10 OR MORE
- ------------------------------------------------------------------------------
$2,367 $355 $592 $ 828 $1,184
2,611 392 653 914 1,305
2,855 428 714 999 1,427
3,098 465 775 1,084 1,549
3,342 501 836 1,170 1,671
3,586 538 897 1,255 1,793
(4) Other funds in the MFS fund complex provide similar retirement benefits to
the Trustees.
As of May 31, 1997, all Trustees and officers as a group owned less than 1% of
the outstanding shares of the Fund.
As of May 31, 1997, Merrill Lynch Pierce Fenner & Smith Inc., P.O. Box 45286,
Jacksonville, Florida was the record owner of approximately 6.29%, 7.08% and
17.92%, respectively, of the outstanding Class A, Class B and Class C shares of
the Fund. As of May 31, 1997, Morongo Bank of Mission Indians, Designated
Reserves Account, Attn: Elaine Mathews, 11581 Potrero Road, Banning, CA
92220-6946, Morongo Bank of Mission Indians, Administrative Reserve Account,
11581 Potrero Road, Banning, CA 92220-6946 and Phillip L. Wright and Suzanne J.
Wright, Tenants by Entirety, 5550 Morningside Drive, San Jose, CA 95138-2228,
were the record owners of approximately 5.11%, 6.72% and 13.48%, respectively,
of the outstanding shares of Class C shares of the Fund.
As of May 31, 1997, Trustees of the MFS Defined Contribution Plan, c/o Mark
Leary, Mass. Financial Services, 500 Boylston Street, Boston, MA was the record
owner of approximately 99.99% of the outstanding shares of Class I shares of the
Fund.
The Fund's Declaration of Trust provides that it will indemnify its Trustees and
officers against liabilities and expenses incurred in connection with litigation
in which they may be involved because of their offices with the Fund, unless, as
to liability to the Fund or its shareholders, it is finally adjudicated that
they engaged in willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in their offices, or with respect to any
matter, unless it is adjudicated that they did not act in good faith in the
reasonable belief that their actions were in the best interest of the Fund. In
the case of settlement, such indemnification will not be provided unless it has
been determined pursuant to the Declaration of Trust that such officers or
Trustees have not engaged in willful misfeasance, bad faith, gross negligence or
reckless disregard of their duties.
INVESTMENT ADVISER
MFS and its predecessor organizations have a history of money management dating
from 1924. MFS is a subsidiary of Sun Life of Canada (U.S.), which is an
indirect wholly owned subsidiary of Sun Life Assurance Company of Canada ("Sun
Life").
The Adviser manages the Fund pursuant to an Investment Advisory Agreement, dated
July 18, 1984, as amended February 1, 1994 (the "Advisory Agreement"). Under the
Advisory Agreement, the Adviser provides the Fund with overall investment
advisory services. Subject to such policies as the Trustees may determine, the
Adviser makes investment decisions for the Fund. For these services and
facilities, the Adviser receives a management fee, as described in the
Prospectus.
For the Fund's fiscal years ended February 28, 1997, February 29, 1996 and
February 28, 1995, MFS earned fees under the Advisory Agreement of $1,721,896
(all of which was calculated as a percentage of average daily net assets),
$1,769,675 (all of which was calculated as a percentage of average daily net
assets) and $1,735,790 (all of which was calculated as a percentage of average
daily net assets), respectively. Due to voluntary reductions of fees by the
Adviser, $645,570, $930,351 and $1,126,931 of management fees were not imposed
on the Fund for the years ended February 28, 1997, February 29, 1996 and
February 28, 1995, respectively.
The Fund pays all the Fund's expenses (other than those assumed by the Adviser
or MFD), including: governmental fees; interest charges; taxes; membership dues
in the Investment Company Institute allocable to the Fund; fees and expenses of
independent auditors, of legal counsel, and of any transfer agent, registrar or
dividend disbursing agent of the Fund; expenses of repurchasing and redeeming
shares; expenses of preparing, printing and mailing share certificates,
shareholder reports, notices, proxy statements to shareholders and reports to
governmental officers and commissions; brokerage and other expenses connected
with the execution, recording and settlement of portfolio security transactions;
insurance premiums; fees and expenses of State Street Bank and Trust Company,
the Fund's Custodian, for all services to the Fund, including safekeeping of
funds and securities and maintaining required books and accounts; expenses of
calculating the net asset value of shares of the Fund; and expenses of
shareholder meetings. Expenses relating to the issuance, registration and
qualification of shares of the Fund and the preparation, printing and mailing of
prospectuses for such purposes are borne by the Fund except that the Fund's
Distribution Agreement with MFD requires MFD to pay for prospectuses that are to
be used for sales purposes. For a list of the Fund's expenses, including the
compensation paid to the Trustees who are not officers of MFS during the fiscal
year ended February 28, 1997, see "Financial Statements -- Statement of
Operations" in the Fund's Annual Report incorporated by reference into this SAI.
MFS pays the compensation of the Fund's officers and of any Trustee who is an
officer of MFS. The Adviser also furnishes at its own expense all necessary
administrative services, including office space, equipment, clerical personnel,
investment advisory facilities, and all executive and supervisory personnel
necessary for managing the Fund's investments, effecting the Fund's portfolio
transactions and, in general, administering the Fund's affairs.
The Advisory Agreement will remain in effect until August 1, 1998, and will
continue in effect thereafter only if such continuance is specifically approved
at least annually by the Board of Trustees or by vote of a majority of the
Fund's shares (as defined in "Investment Restrictions") and, in either case, by
a majority of the Trustees who are not parties to the Advisory Agreement or
interested persons of any such party. The Advisory Agreement terminates
automatically if it is assigned and may be terminated without penalty by vote of
a majority of the Fund's outstanding voting securities or by either party on not
more than 60 days' nor less than 30 days' written notice. The Advisory Agreement
provides that if MFS ceases to serve as the Adviser to the Fund, the Fund will
change its name so as to delete the initials "MFS." The Advisory Agreement
further provides that MFS may render services to others and may permit fund
clients in addition to the Fund to use the initials "MFS" in their names. The
Advisory Agreement also provides that neither the Adviser nor its personnel
shall be liable for any error of judgment or mistake of law or for any loss
arising out of any investment or for any act or omission in the execution and
management of the Fund, except for willful misfeasance, bad faith or gross
negligence in the performance of its or their duties or by reason of reckless
disregard of its or their obligations and duties under the Advisory Agreement.
CUSTODIAN
State Street Bank and Trust Company (the "Custodian") is the custodian of the
Fund's assets. The Custodian's responsibilities include safekeeping and
controlling the Fund's cash and securities, handling the receipt and delivery of
securities, determining income and collecting interest and dividends on the
Fund's investments, maintaining books of original entry for portfolio and fund
accounting and other required books and accounts, and calculating the daily net
asset value of shares of the Fund. The Custodian does not determine the
investment policies of the Fund or decide which securities the Fund will buy or
sell. The Fund may, however, invest in securities, including repurchase
agreements, issued by the Custodian and may deal with the Custodian as principal
in securities transactions. The Custodian also acts as the dividend disbursing
agent of the Fund.
SHAREHOLDER SERVICING AGENT
MFS Service Center, Inc. (the "Shareholder Servicing Agent"), a wholly owned
subsidiary of MFS, is the Fund's shareholder servicing agent, pursuant to a
Shareholder Servicing Agreement, effective August 1, 1985 (the "Agency
Agreement") with the Fund. The Shareholder Servicing Agent's responsibilities
under the Agency Agreement include administering and performing transfer agent
functions and keeping records, in connection with the issuance, transfer and
redemption of the shares of the Fund. For these services, the Shareholder
Servicing Agent will receive a fee calculated as a percentage of the average
daily net assets of the Fund at an effective annual rate of 0.13%. In addition,
the Shareholder Servicing Agent will be reimbursed by the Fund for certain
expenses incurred by the Shareholder Servicing Agent on behalf of the Fund. The
Custodian has contracted with the Shareholder Servicing Agent to perform certain
dividend and distribution disbursing functions for the Fund.
DISTRIBUTOR
MFD, a wholly owned subsidiary of MFS, serves as distributor for the continuous
offering of shares of the Fund pursuant to a Distribution Agreement, dated as of
January 1, 1995 (the "Distribution Agreement"), with the Fund. Prior to January
1, 1995, MFS Financial Services, Inc. ("FSI"), another wholly owned subsidiary
of MFS, was the Fund's distributor. Where this SAI refers to MFD in relation to
the receipt or payment of money with respect to a period or periods prior to
January 1, 1995, such reference shall be deemed to include FSI, as the
predecessor in interest to MFD.
CLASS A SHARES: MFD acts as agent in selling Class A shares of the Fund to
dealers. The public offering price of Class A shares of the Fund is their net
asset value next computed after the sale plus a sales charge which varies based
upon the quantity purchased. The public offering price of a Class A share of the
Fund is calculated by dividing the net asset value of a Class A share by the
difference (expressed as a decimal) between 100% and the sales charge percentage
of offering price applicable to the purchase (see "Purchases" in the
Prospectus). The sales charge scale set forth in the Prospectus applies to
purchases of Class A shares of the Fund alone or in combination with shares of
the other funds in the MFS Family of Funds (the "MFS Funds") (except MFS Money
Market Fund, MFS Government Money Market Fund and Class A shares of MFS Cash
Reserve Fund) by any person, including members of a family unit (e.g., husband,
wife and minor children) and bona fide trustees, and also applies to purchases
made under the Right of Accumulation or a Letter of Intent (see "Investment and
Withdrawal Programs" below). A group might qualify to obtain quantity sales
charge discounts (see "Investment and Withdrawal Programs" below).
Class A shares of the Fund may be sold at their net asset value to certain
persons and in certain instances as described in the Prospectus. Such sales are
made without a sales charge to promote good will with employees and others with
whom MFS, MFD and/or the Fund have business relationships, and because the sales
effort, if any, involved in making such sales is negligible.
MFD allows discounts to dealers (which are alike for all dealers) from the
applicable public offering price of the Class A shares. Dealer allowances
expressed as a percentage of offering price for all offering prices are set
forth in the Prospectus (see "Purchases" in the Prospectus). The difference
between the total amount invested and the sum of (a) the net proceeds to the
Fund and (b) the dealer commission, is the commission paid to the distributor.
Because of rounding in the computation of offering price, the portion of the
sales charge paid to the distributor may vary and the total sales charge may be
more or less than the sales charge calculated using the sales charge expressed
as a percentage of offering price or as a percentage of the net amount invested
as listed in the Prospectus. In the case of the maximum sales charge, the dealer
retains 4% and MFD retains approximately 3/4 of 1% of the public offering price.
In addition, MFD pays commissions to dealers who initiate and are responsible
for purchases of $1 million or more as described in the Prospectus.
During the Fund's fiscal year ended February 28, 1997, MFD, and dealers and
certain other financial institutions received sales charges of $60,477 and
$387,431, respectively (as their concession on gross sales charges of $447,908),
for selling Class A shares of the Fund. The Fund received $40,582,379
representing the aggregate net asset value of such shares. During the Fund's
fiscal year ended February 29, 1996, MFD, and dealers and certain other
financial institutions received sales charges of $90,655 and $476,017,
respectively (as their concession on gross sales charges of $566,672), for
selling Class A shares of the Fund. The Fund received $47,199,968 representing
the aggregate net asset value of such shares. During the Fund's fiscal year
ended February 28, 1995, MFD, and dealers and certain other financial
institutions received sales charges of $75,367 and $382,567, respectively (as
their concession on gross sales charges of $457,934), for selling Class A shares
of the Fund. The Fund received $41,528,058 representing the aggregate net asset
value of such shares.
CLASS B, CLASS C AND CLASS I SHARES: MFD acts as agent in selling Class B, Class
C and Class I shares of the Fund. The public offering price of Class B, Class C
and Class I shares is their net asset value next computed after the sale (see
"Purchases" in the Prospectus and the Prospectus Supplement pursuant to which
Class I shares are offered).
GENERAL: Neither MFD nor dealers are permitted to delay placing orders to
benefit themselves by a price change. On occasion, MFD may obtain brokers loans
from various banks, including the custodian bank for the MFS Funds, to
facilitate the settlement of sales of shares of the Fund to dealers. MFD may
benefit from its temporary holding of funds paid to it by investment dealers for
the purchase of Fund shares.
For the fiscal year ended February 28, 1997, the contingent deferred sales
charge ("CDSC") imposed on redemption of Class A, Class B and Class C shares was
approximately $3,861, $279,385 and $789, respectively. For the fiscal year ended
February 29, 1996, the CDSC imposed on redemption of Class A and Class B shares
was approximately $1,066 and $310,387, respectively. For the fiscal year ended
February 28, 1995, no CDSC was imposed on Class A Shares. For the fiscal year
ended February 28, 1995, the CDSC imposed on redemption of Class B shares was
approximately $371,474. (Class C shares were not available as of the Fund's
fiscal years ended February 29, 1996 and February 28, 1995.)
The Distribution Agreement will remain in effect until August 1, 1998, and will
continue in effect thereafter only if such continuance is specifically approved
at least annually by the Board of Trustees or by vote of a majority of the
Fund's shares (as defined in "Investment Restrictions") and, in either case, by
a majority of the Trustees who are not parties to the Distribution Agreement or
interested persons of any such party. The Distribution Agreement terminates
automatically if it is assigned and may be terminated without penalty by either
party on not more than 60 days' nor less than 30 days' notice.
5. PORTFOLIO TRADING
Specific decisions to purchase or sell securities for the Fund are made by a
portfolio manager who is an employee of the Adviser and who is appointed and
supervised by its senior officers. Changes in the Fund's investments are
reviewed by the Board of Trustees. The Fund's portfolio manager may serve other
clients of the Adviser or any subsidiary of the Adviser in a similar capacity.
The primary consideration in placing portfolio security transactions is
execution at the most favorable prices. The Adviser has complete freedom as to
the markets in and broker-dealers through which it seeks this result. Debt
securities are traded principally in the over-the-counter market on a net basis
through dealers acting for their own account and not as brokers. The cost of
securities purchased from underwriters includes an underwriter's commission or
concession, and the prices at which securities are purchased and sold from and
to dealers include a dealer's mark-up or mark-down. The Adviser attempts to
negotiate with underwriters to decrease the commission or concession for the
benefit of the Fund. The Adviser normally seeks to deal directly with the
primary market makers unless, in its opinion, better prices are available
elsewhere. Securities firms or futures commission merchants may receive
brokerage commissions on transactions involving Futures Contracts. Subject to
the requirement of seeking execution at the most favorable price, securities
may, as authorized by the Advisory Agreement, be bought from or sold to dealers
who have furnished statistical, research and other information or services to
the Adviser. At present no arrangements for the recapture of commission payments
are in effect.
Consistent with the foregoing primary consideration, the Conduct Rules of the
National Association of Securities Dealers, Inc. (the "NASD") and such other
policies as the Trustees may determine, the Adviser may consider sales of shares
of the Fund and of the other investment company clients of MFD as a factor in
the selection of broker-dealers to execute the Fund's portfolio transactions.
In certain instances there may be securities which are suitable for the Fund's
portfolio as well as for that of one or more of the other clients of the Adviser
or any subsidiary of the Adviser. Investment decisions for the Fund and for such
other clients are made with a view to achieving their respective investment
objectives. It may develop that a particular security is bought or sold for only
one client even though it might be held by, or bought or sold for, other
clients. Likewise, a particular security may be bought for one or more clients
when one or more other clients are selling that same security. Some simultaneous
transactions are inevitable when several clients receive investment advice from
the same investment adviser, particularly when the same security is suitable for
the investment objectives of more than one client. When two or more clients are
simultaneously engaged in the purchase or sale of the same security, the
securities are allocated among clients in a manner believed by the Adviser to be
equitable to each. It is recognized that in some cases this system could have a
detrimental effect on the price or volume of the security as far as the Fund is
concerned. In some cases, however, the Fund believes that its ability to
participate in volume transactions will produce better executions for the Fund.
6. SHAREHOLDER SERVICES
INVESTMENT AND WITHDRAWAL PROGRAMS -- The Fund makes available the following
programs designed to enable shareholders to add to their investment or withdraw
from it with a minimum of paper work. These are described below and, in certain
cases, in the Prospectus. The programs involve no extra charge to shareholders
(other than a sales charge in the case of certain Class A share purchases) and
may be changed or discontinued at any time by a shareholder or the Fund.
LETTER OF INTENT: If a shareholder (other than a group purchaser described
below) anticipates purchasing $100,000 or more of Class A shares of the Fund
alone or in combination with shares of any class of MFS Funds or MFS Fixed Fund
(a bank collective investment fund) within a 13-month period (or 36-month
period, in the case of purchases of $1 million or more), the shareholder may
obtain Class A shares of the Fund at the same reduced sales charge as though the
total quantity were invested in one lump sum by completing the Letter of Intent
section of the Fund's Account Application or filing a separate Letter of Intent
application (available from the Shareholder Servicing Agent) within 90 days of
the commencement of purchases. Subject to acceptance by MFD and the conditions
mentioned below, each purchase will be made at a public offering price
applicable to a single transaction of the dollar amount specified in the Letter
of Intent application. The shareholder or his dealer must inform MFD that the
Letter of Intent is in effect each time shares are purchased. The shareholder
makes no commitment to purchase additional shares, but if his purchases within
13 months (or 36 months in the case of purchases of $1 million or more) plus the
value of shares credited toward completion of the Letter of Intent do not total
the sum specified, he will pay the increased amount of the sales charge as
described below. Instructions for issuance of shares in the name of a person
other than the person signing the Letter of Intent application must be
accompanied by a written statement from the dealer stating that the shares were
paid for by the person signing such Letter. Neither income dividends nor capital
gain distributions taken in additional shares will apply toward the completion
of the Letter of Intent. Dividends and distributions of other MFS Funds
automatically reinvested in shares of the Fund at net asset value pursuant to
the Distribution Investment Program also will not apply toward completion of the
Letter of Intent.
Out of the shareholder's initial purchase (or subsequent purchases if
necessary), 5% of the dollar amount specified in the Letter of Intent
application shall be held in escrow by the Shareholder Servicing Agent in the
form of shares registered in the shareholder's name. All income dividends and
capital gain distributions on escrowed shares will be paid to the shareholder or
to his order. When the minimum investment so specified is completed (either
prior to or by the end of the 13-month period or 36-month period, as
applicable), the shareholder will be notified and the escrowed shares will be
released.
If the intended investment is not completed, the Shareholder Servicing Agent
will redeem an appropriate number of the escrowed shares in order to realize
such difference. Shares remaining after any such redemption will be released by
the Shareholder Servicing Agent. By completing and signing the Account
Application, or separate Letter of Intent application, the shareholder
irrevocably appoints the Shareholder Servicing Agent his attorney to surrender
for redemption any or all escrowed shares with full power of substitution in the
premises.
RIGHT OF ACCUMULATION: A shareholder qualifies for cumulative quantity
discounts on the purchase of Class A shares when his new investment, together
with the current offering price value of all holdings of Class A, B and C shares
of that shareholder in the MFS Funds or the MFS Fixed Fund reaches a discount
level. See "Purchases" in the Prospectus for the sales charges on quantity
discounts. For example, if a shareholder owns shares with a current offering
price value of $75,000 and purchases an additional $25,000 of Class A shares of
the Fund, the sales charge for the $25,000 purchase would be at the rate of 4%
(the rate applicable to single transactions of $100,000). A shareholder must
provide the Shareholder Servicing Agent (or his investment dealer must provide
MFD) with information to verify that the quantity sales charge discount is
applicable at the time the investment is made.
SUBSEQUENT INVESTMENT BY TELEPHONE: Each shareholder may purchase additional
shares of any MFS Fund by telephoning the Shareholder Servicing Agent toll-free
at (800) 225-2606. The minimum purchase amount is $50 and the maximum purchase
amount is $100,000. Shareholders wishing to avail themselves of this telephone
purchase privilege must so elect on their Account Application and designate
thereon a bank and account number from which purchases will be made. If a
telephone purchase request is received by the Shareholder Servicing Agent on any
business day prior to the close of regular trading on the Exchange (generally,
4:00 p.m., Eastern time), the purchase will occur at the closing net asset value
of the shares purchased on that day. The Shareholder Servicing Agent may be
liable for any losses resulting from unauthorized telephone transactions if it
does not follow reasonable procedures designed to verify the identity of the
caller. The Shareholder Servicing Agent will request personal or other
information from the caller, and will normally also record calls. Shareholders
should verify the accuracy of confirmation statements immediately after their
receipt.
DISTRIBUTION INVESTMENT PROGRAM: Distributions of dividends and capital gains
made by the Fund with respect to a particular class of shares may be
automatically invested in shares of the same class of one of the other MFS
Funds, if shares of the fund are available for sale. Such investments will be
subject to additional purchase minimums. Distributions will be invested at net
asset value (exclusive of any sales charge) and will not be subject to any CDSC.
Distributions will be invested at the close of business on the payable date for
the distribution. A shareholder considering the Distribution Investment Program
should obtain and read the prospectus of the other fund and consider the
differences in objectives and policies before making any investment.
SYSTEMATIC WITHDRAWAL PLAN: A shareholder may direct the Shareholder Servicing
Agent to send him (or anyone he designates) regular periodic payments based upon
the value of his account. Each payment under a Systematic Withdrawal Plan
("SWP") must be at least $100, except in certain limited circumstances. The
aggregate withdrawals of Class B and Class C shares in any year pursuant to a
SWP generally are limited to 10% of the value of the account at the time of
establishment of the SWP. SWP payments are drawn from the proceeds of share
redemptions (which would be a return of principal and, if reflecting a gain,
would be taxable). Redemptions of Class B and Class C shares will be made in the
following order: (i) any "Free Amount"; (ii) to the extent necessary, any
"Reinvested Shares" and (iii) to the extent necessary, the "Direct Purchase"
subject to the lowest CDSC (as such terms are defined in "Contingent Deferred
Sales Charge" in the Prospectus). The CDSC will be waived in the case of
redemptions of Class B and Class C shares pursuant to a SWP, but will not be
waived in the case of SWP redemptions of Class A shares which are subject to a
CDSC. To the extent that redemptions for such periodic withdrawals exceed
dividend income reinvested in the account, such redemptions will reduce and may
eventually exhaust the number of shares in the shareholder's account. All
dividend and capital gain distributions for an account with a SWP will be
reinvested in additional full and fractional shares of the Fund at the net asset
value in effect at the close of business on the record date for such
distributions. To initiate this service, shares having an aggregate value of at
least $5,000 either must be held on deposit by, or certificates for such shares
must be deposited with, the Shareholder Servicing Agent. With respect to Class A
shares, maintaining a withdrawal plan concurrently with an investment program
would be disadvantageous because of the sales charges included in share
purchases and the imposition of a CDSC on certain redemptions. The shareholder
may deposit into the account additional shares of the Fund, change the payee or
change the dollar amount of each payment. The Shareholder Servicing Agent may
charge the account for services rendered and expenses incurred beyond those
normally assumed by the Fund with respect to the liquidation of shares. No
charge is currently assessed against the account, but one could be instituted by
the Shareholder Servicing Agent on 60 days' notice in writing to the shareholder
in the event that the Fund ceases to assume the cost of these services. The Fund
may terminate any SWP for an account if the value of the account falls below
$5,000 as a result of share redemptions (other than as a result of a SWP) or an
exchange of shares of the Fund for shares of another MFS Fund. Any SWP may be
terminated at any time by either the shareholder or the Fund.
INVEST BY MAIL: Additional investments of $50 or more may be made at any time
by mailing a check payable to the Fund directly to the Shareholder Servicing
Agent. The shareholder's account number and the name of his investment dealer
must be included with each investment.
GROUP PURCHASES: A bona fide group and all its members may be treated as a
single purchaser and, under the Right of Accumulation (but not a Letter of
Intent), obtain quantity sales charge discounts on the purchase of Class A
shares if the group (1) gives its endorsement or authorization to the investment
program so it may be used by the investment dealer to facilitate solicitation of
the membership, thus effecting economies of sales effort; (2) has been in
existence for at least six months and has a legitimate purpose other than to
purchase mutual fund shares at a discount; (3) is not a group of individuals
whose sole organizational nexus is as credit cardholders of a company,
policyholders of an insurance company, customers of a bank or broker-dealer,
clients of an investment adviser or other similar groups; and (4) agrees to
provide certification of membership of those members investing money in the MFS
Funds upon the request of MFD.
AUTOMATIC EXCHANGE PLAN: Shareholders having account balances of at least
$5,000 in any MFS Fund may participate in the Automatic Exchange Plan. The
Automatic Exchange Plan provides for automatic exchanges of funds from the
shareholder's account in an MFS Fund for investment in the same class of shares
of other MFS Funds selected by the shareholder. Under the Automatic Exchange
Plan, exchanges of at least $50 each may be made to up to six different funds
effective on the seventh day of each month or of every third month, depending
whether monthly or quarterly exchanges are elected by the shareholder. If the
seventh day of the month is not a business day, the transaction will be
processed on the next business day. Generally, the initial exchange will occur
after receipt and processing by the Shareholder Servicing Agent of an
application in good order. Exchanges will continue to be made from a
shareholder's account in any MFS Fund, as long as the balance of the account is
sufficient to complete the exchanges. Additional payments made to a
shareholder's account will extend the period that exchanges will continue to be
made under the Automatic Exchange Plan. However, if additional payments are
added to an account subject to the Automatic Exchange Plan shortly before an
exchange is scheduled, such funds may not be available for exchanges until the
following month; therefore, care should be used to avoid inadvertently
terminating the Automatic Exchange Plan through exhaustion of the account
balance.
No transaction fee for exchanges will be charged in connection with the
Automatic Exchange Plan. However, exchanges of shares of MFS Money Market Fund,
MFS Government Money Market Fund and Class A shares of MFS Cash Reserve Fund
will be subject to any applicable sales charge. Changes in amounts to be
exchanged to each fund, the funds to which exchanges are to be made and the
timing of exchanges (monthly or quarterly), or termination of a shareholder's
participation in the Automatic Exchange Plan will be made after instructions in
writing or by telephone (an "Exchange Change Request") are received by the
Shareholder Servicing Agent in proper form (i.e., if in writing -- signed by the
record owner(s) exactly as shares are registered; if by telephone -- proper
account identification is given by the dealer or shareholder of record). Each
Exchange Change Request (other than termination of participation in the program)
must involve at least $50. Generally, if an Exchange Change Request is received
by telephone or in writing before the close of business on the last business day
of a month, the Exchange Change Request will be effective for the following
month's exchange.
A shareholder's right to make additional investments in any of the MFS Funds, to
make exchanges of shares from one MFS Fund to another and to withdraw from an
MFS Fund, as well as a shareholder's other rights and privileges are not
affected by a shareholder's participation in the Automatic Exchange Plan.
The Automatic Exchange Plan is part of the Exchange Privilege. For additional
information regarding the Automatic Exchange Plan, including the treatment of
any CDSC, see "Exchange Privilege" below.
REINSTATEMENT PRIVILEGE: Shareholders of the Fund and shareholders of the
other MFS Funds (except MFS Money Market Fund, MFS Government Money Market Fund
and holders of Class A shares of MFS Cash Reserve Fund in the case where the
shares are acquired through direct purchase or reinvested dividends) who have
redeemed their shares have a one-time right to reinvest the redemption proceeds
in the same class of shares of any of the MFS Funds (if shares of the fund are
available for sale) at net asset value (without a sales charge) and, if
applicable, with credit for any CDSC paid. In the case of shares reinvested in
MFS Money Market Fund, MFS Government Money Market Fund and Class A shares of
MFS Cash Reserve Fund, the shareholder has the right to exchange the acquired
shares for shares of the same class of another MFS Fund at net asset value
pursuant to the exchange privilege described below. Such a reinvestment must be
made within 90 days of the redemption and is limited to the amount of the
redemption proceeds. If the shares credited for any CDSC paid are then redeemed
within 12 months of the initial purchase in the case of certain Class A shares
and in the case of Class C shares or within six years of the initial purchase in
the case of Class B shares, a CDSC will be imposed upon redemption. Although
redemptions and repurchases of shares are taxable events, a reinvestment within
a certain period of time in the same fund may be considered a "wash sale" and
may result in the inability to recognize currently all or a portion of any loss
realized on the original redemption for federal income tax purposes. Please see
your tax adviser for further information.
EXCHANGE PRIVILEGE -- Subject to the requirements set forth below, some or all
of the shares in an account with the Fund for which payment has been received by
the Fund (i.e., an established account) may be exchanged for shares of the same
class of any of the other MFS Funds (if available for sale and if the purchaser
is eligible to purchase the class of shares) at their net asset value. Exchanges
will be made only after instructions in writing or by telephone (an "Exchange
Request") are received for an established account by the Shareholder Servicing
Agent.
Each Exchange Request must be in proper form (i.e., if in writing -- signed by
the record owner(s) exactly as the shares are registered; if by telephone --
proper account identification is given by the dealer or shareholder of record),
and each exchange must involve either shares having an aggregate value of at
least $1,000 ($50 in the case of retirement plan participants whose sponsoring
organizations subscribe to the MFS FUNDamental 401(k) Plan or another similar
401(k) recordkeeping system made available by the Shareholder Servicing Agent)
or all the shares in the account. Each exchange involves the redemption of
shares of the Fund to be exchanged and the purchase at net asset value (i.e.,
without a sales charge) of shares of the same class of the other MFS Fund. Any
gain or loss on the redemption of the shares exchanged is reportable on the
shareholder's federal income tax return, unless both the shares received and the
shares surrendered in the exchange are held in a tax-deferred retirement plan or
other tax-exempt account. No more than five exchanges may be made in any one
Exchange Request by telephone. If an Exchange Request is received by the
Shareholder Servicing Agent prior to the close of regular trading on the
Exchange, the exchange usually will occur on that day if all the requirements
set forth above have been complied with at that time. However, payment of the
redemption proceeds by the Fund, and thus the purchase of shares of the other
MFS Fund, may be delayed for up to seven days if the Fund determines that such a
delay would be in the best interest of all its shareholders. Investment dealers
which have satisfied criteria established by MFD may also communicate a
shareholder's Exchange Request to the Shareholder Servicing Agent by facsimile
subject to the requirements set forth above.
No CDSC is imposed on exchanges among the MFS Funds, although liability for the
CDSC is carried forward to the exchanged shares. For purposes of calculating the
CDSC upon redemption of shares acquired in an exchange, the purchase of shares
acquired in one or more exchanges is deemed to have occurred at the time of the
original purchase of the exchanged shares.
Additional information with respect to any of the MFS Funds, including a copy of
its current prospectus, may be obtained from investment dealers or the
Shareholder Servicing Agent. A shareholder considering an exchange should obtain
and read the prospectus of the other MFS Fund and consider the differences in
objectives and policies before making any exchange. Shareholders of the other
MFS Funds (except MFS Money Market Fund and MFS Government Money Market Fund for
shares acquired through direct purchase and dividends reinvested prior to June
1, 1992) have the right to exchange their shares for shares of the MFS Funds,
subject to the conditions, if any, set forth in their respective prospectuses.
In addition, unitholders of the MFS Fixed Fund have the right to exchange their
units (except units acquired through direct purchases) for shares of the Fund,
subject to the conditions, if any, imposed upon such unitholders by the MFS
Fixed Fund.
Any state income tax advantages for investment in shares of each state- specific
series of MFS Municipal Series Trust may only benefit residents of such states.
Investors should consult with their own tax advisers to be sure this is an
appropriate investment, based on their residency and each state's income tax
laws.
The exchange privilege (or any aspect of it) may be changed or discontinued and
is subject to certain limitations (see "Purchases" in the Prospectus).
TAX-DEFERRED RETIREMENT PLANS -- Shares of the Fund may be purchased by all
types of tax-deferred retirement plans. MFD makes available through investment
dealers plans and/or custody agreements for the following:
Individual Retirement Accounts (IRAs) (for individuals and their non- employed
spouses who desire to make limited contributions to a tax-deferred retirement
program and, if eligible, to receive a federal income tax deduction for
amounts contributed);
Simplified Employee Pension (SEP-IRA) Plans;
Retirement Plans Qualified under Section 401(k) of the Internal Revenue Code
of 1986, as amended;
403(b) Plans (deferred compensation arrangements for employees of public
school systems and certain non-profit organizations); and
Certain other qualified pension and profit-sharing plans.
The plan documents provided by MFD designate a trustee or custodian (unless
another trustee or custodian is designated by the individual or group
establishing the plan) and contain specific information about the plans. Each
plan provides that dividends and distributions will be reinvested automatically.
For further details with respect to any plan, including fees charged by the
trustee, custodian or MFD, tax consequences and redemption information, see the
specific documents for that plan. Plan documents other than those provided by
MFD may be used to establish any of the plans described above. Third party
administrative services, available for some corporate plans, may limit or delay
the processing of transactions.
Investors should consult with their tax advisers before establishing any of the
tax-deferred retirement plans described above.
7. TAX STATUS
The Fund has elected to be treated and intends to qualify each year as a
"regulated investment company" under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code"), by meeting all applicable requirements of
Subchapter M, including requirements as to the nature of the Fund's gross
income, the amount of Fund distributions, and the composition and holding period
of the Fund's portfolio assets. Because the Fund intends to distribute all of
its net investment income and net realized capital gains to its shareholders in
accordance with the timing requirements imposed by the Code, it is not expected
that the Fund will be required to pay any federal income or excise taxes. If the
Fund should fail to qualify as a "regulated investment company" in any year, the
Fund would incur a regular corporate federal income tax upon its taxable income
and Fund distributions would generally be taxable as ordinary dividend income to
the shareholders.
Shareholders of the Fund normally will have to pay federal income taxes on the
dividends and capital gain distributions they receive from the Fund. Dividends
from ordinary income and any distributions from net short-term capital gains are
taxable to shareholders as ordinary income for federal income tax purposes,
whether the distributions are paid in cash or reinvested in additional shares.
Because the Fund expects to earn primarily interest income, it is expected that
no Fund dividends will qualify for the dividends-received deduction for
corporations. Distributions of net capital gains, (i.e., the excess of net
long-term capital gains over net short-term capital losses), whether paid in
cash or reinvested in additional shares, are taxable to shareholders as
long-term capital gains for federal income tax purposes without regard to the
length of time the shareholders have held their shares. Any Fund dividend that
is declared in October, November or December of any calendar year, that is
payable to shareholders of record in such a month, and that is paid the
following January will be treated as if received by shareholders on December 31
of the year in which the dividend is declared. The Fund will notify shareholders
regarding the Federal tax status of its distributions after the end of each
calendar year.
Any Fund distribution will have the effect of reducing the per share net asset
value of shares in the Fund by the amount of the distribution. Shareholders
purchasing shares shortly before the record date of any distribution may thus
pay the full price for the shares and then effectively receive a portion of the
purchase price back as a taxable distribution.
In general, any gain or loss realized upon a taxable disposition of shares of
the Fund by a shareholder that holds such shares as a capital asset will be
treated as a long-term capital gain or loss if the shares have been held for
more than twelve months and otherwise as a short-term capital gain or loss.
However, any loss realized upon a disposition of shares in the Fund held for six
months or less will be treated as a long-term capital loss to the extent of any
distributions of net capital gain made with respect to those shares. Any loss
realized upon a disposition of shares may also be disallowed under rules
relating to wash sales. Gain may be increased (or loss reduced) upon a
redemption of Class A shares within 90 days after their purchase followed by any
purchase (including purchases by exchange or by reinvestment) without payment of
an additional sales charge of Class A shares of the Fund or of another MFS Fund
(or any other shares of an MFS Fund generally sold subject to a sales charge).
The Fund's current dividend and accounting policies will affect the amount,
timing and character of distributions to shareholders and may, under certain
circumstances, make an economic return of capital taxable to shareholders. Any
investment in zero coupon securities and certain securities purchased at a
market discount will cause the Fund to recognize income prior to the receipt of
cash payments with respect to those securities. In order to distribute this
income and avoid a tax on the Fund, the Fund may be required to liquidate
portfolio securities that it might otherwise have continued to hold, potentially
resulting in additional taxable gain or loss to the Fund. An investment in
residual interests of a CMO that has elected to be treated as a real estate
mortgage investment conduit, or "REMIC," can create complex tax problems,
especially if the Fund has state or local governments or other tax-exempt
organizations as shareholders.
Dividends and certain other payments to persons who are not citizens or
residents of the United States or U.S. entities ("Non-U.S. Persons") are
generally subject to U.S. tax withholding at the rate of 30%. The Fund intends
to withhold U.S. federal income tax at the rate of 30% on taxable dividends and
other payments to Non-U.S. Persons that are subject to such withholding,
regardless of whether a lower rate may be permitted under an applicable treaty.
Any amounts overwithheld may be recovered by such persons by filing a claim for
refund with the U.S. Internal Revenue Service within the time period appropriate
to such claims. Distributions received from the Fund by Non-U.S. Persons may
also be subject to tax under the laws of their own jurisdiction. The Fund is
also required in certain circumstances to apply backup withholding at the rate
of 31% on taxable dividends and redemption proceeds paid to any shareholder
(including a Non-U.S. Person) who does not furnish to the Fund certain
information and certifications or who is otherwise subject to backup
withholding. Backup withholding will not, however, be applied to payments that
have been subject to 30% withholding.
As long as it qualifies as a regulated investment company under the Code, the
Fund will not be required to pay Massachusetts income or excise taxes.
Distributions of the Fund that are derived from interest on obligations of the
U.S. Government and certain of its agencies and instrumentalities (but generally
not from capital gains realized upon the disposition of such obligations) may be
exempt from state and local taxes. The Fund intends to advise shareholders of
the extent, if any, to which its distributions consist of such interest.
Shareholders are urged to consult their tax advisers regarding the possible
exclusion of such portion of their dividends for state and local income tax
purposes as well as regarding the tax consequences of an investment in the Fund.
8. DETERMINATION OF NET ASSET VALUE AND
PERFORMANCE
NET ASSET VALUE: The net asset value per share of each class of the Fund is
determined each day during which the Exchange is open for trading. (As of the
date of this SAI, the Exchange is open for trading every weekday except for the
following holidays (or the days on which they are observed): New Year's Day,
Martin Luther King Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day.) This determination is made
once during each such day as of the close of regular trading on such Exchange by
deducting the amount of the liabilities attributable to the class from the value
of the assets attributable to the class and dividing the difference by the
number of shares of the class outstanding. Debt securities (other than
short-term obligations) in the Fund's portfolio are valued on the basis of
valuations furnished by a pricing service which utilizes both dealer-supplied
valuations and electronic data processing techniques which take into account
appropriate factors such as institutional- size trading in similar groups of
securities, yield, quality, coupon rate, maturity, type of issue, trading
characteristics and other market data, without exclusive reliance upon exchange
or over-the-counter prices, since such valuations are believed to reflect more
accurately the fair value of such securities. Futures Contracts will be valued
using a pricing model taking into consideration market data from an external
pricing source. Use of the pricing service has been approved by the Board of
Trustees. Short-term obligations with a remaining maturity in excess of 60 days
will be valued based upon dealer-supplied valuations. Other short-term
obligations in the Fund's portfolio are valued at amortized cost, which
constitutes fair value as determined by the Board of Trustees. Portfolio
securities and other assets for which there are no such quotations or valuations
are valued at fair value as determined in good faith by or at the direction of
the Board of Trustees. A share's net asset value is effective for orders
received by the dealer prior to its calculation and received by MFD, the Fund's
principal underwriter, prior to the close of that business day.
PERFORMANCE INFORMATION
TOTAL RATE OF RETURN: The Fund will calculate its total rate of return for each
class of shares for certain periods by determining the average annual compounded
rates of return over those periods that would cause an investment of $1,000
(made with all distributions reinvested and reflecting the CDSC or the maximum
public offering price) to reach the value of that investment at the end of the
periods. The Fund may also calculate (i) a total rate of return, which is not
reduced by the CDSC (4% maximum for Class B shares and 1% maximum for Class C
shares) and therefore may result in a higher rate of return, (ii) a total rate
of return assuming an initial account value of $1,000, which will result in a
higher rate of return on Class A shares since the value of the initial account
will not be reduced by the maximum sales charge (currently 4.75% on Class A
shares), and/or (iii) total rates of return which represent aggregate
performance over a period or year-by-year performance, and which may or may not
reflect the effect of the maximum or other sales charge or CDSC. The Fund offers
multiple classes of shares which were initially offered for sale to the public
on different dates. The calculation of total rate of return for a class of
shares which initially was offered for sale to the public subsequent to another
class of shares of the Fund is based both on (i) the performance of the Fund's
newer class from the date it initially was offered for sale to the public and
(ii) the performance of the Fund's oldest class from the date it initially was
offered for sale to the public up to the date that the newer class initially was
offered for sale to the public.
As discussed in the Prospectus, the sales charges, expenses and expense ratios,
and therefore the performance, of the Fund's classes of shares differ. In
calculating total rate of return for a newer class of shares in accordance with
certain formulas required by the SEC, the performance will be adjusted to take
into account the fact that the newer class is subject to a different sales
charge than the oldest class (e.g., if the newer class is Class A shares, the
total rate of return quoted will reflect the deduction of the initial sales
charge applicable to Class A shares; if the newer class is Class B shares, the
total rate of return quoted will reflect the deduction of the CDSC applicable to
Class B shares). However, the performance will not be adjusted to take into
account the fact that the newer class of shares bears different class specific
expenses than the oldest shares (e.g., Rule 12b-1 fees). Therefore, the total
rate of return quoted for a newer class of shares will differ from the return
that would be quoted had the newer class of shares been outstanding for the
entire period over which the calculation is based (i.e., the total rate of
return quoted for the newer class will be higher than the return that would have
been quoted had the newer class of shares been outstanding for the entire period
over which the calculation is based if the class specific expenses for the newer
class are higher than the class specific expenses of the oldest class, and the
total rate of return quoted for the newer class will be lower than the return
that would be quoted had the newer class of shares been outstanding for this
entire period if the class specific expenses for the newer class are lower than
the class specific expenses of the oldest class).
Total rate of return quotations for each class are presented in Appendix A
attached hereto under the heading "Performance Quotations."
PERFORMANCE RESULTS: The performance results for Class A shares presented in
Appendix A attached hereto under the heading "Performance Results" assume an
initial investment of $10,000 in Class A shares and cover the period from
December 31, 1987 to December 31, 1996. It has been assumed that dividends and
capital gain distributions were reinvested in additional shares. These
performance results, as well as any yield or total rate of return quotation
provided by the Fund, should not be considered as representative of the
performance of the Fund in the future since the net asset value and public
offering price of shares of the Fund will vary based not only on the type,
quality and maturities of the securities held in the Fund's portfolio, but also
on changes in the current value of such securities and on changes in the
expenses of the Fund. These factors and possible differences in the methods used
to calculate yields and total rates of return should be considered when
comparing the yield and total rate of return of the Fund to yields and total
rates of return published for other investment companies or other investment
vehicles. Total rate of return reflects the performance of both principal and
income. Current net asset value of shares and account balance information may be
obtained by calling 1-800-MFS-TALK (637-8255).
YIELD: Any yield quotation for a class of shares of the Fund is based on the
annualized net investment income per share of that class of over a 30-day
period. The yield is calculated by dividing the net investment income per share
allocated to a particular class of the Fund earned during the period by the
maximum offering price per share of such class on the last day of that period.
The resulting figure is then annualized. Net investment income per share of a
class is determined by dividing (i) the dividends and interest earned by the
Fund allocated to the class during the period, minus accrued expenses of such
class for the period by (ii) the average number of shares of such class entitled
to receive dividends during the period multiplied by the maximum offering price
per share of such class on the last day of the period. The Fund's yield
calculations assume a maximum sales charge of 4.75% in the case of Class A
shares and no payment of any CDSC in the case of Class B and Class C shares.
Yield quotations for each class of shares are presented in Appendix A attached
hereto under the heading "Performance Quotations."
CURRENT DISTRIBUTION RATE: Yield, which is calculated according to a formula
prescribed by the SEC, is not indicative of the amounts which were or will be
paid to the Fund's shareholders. Amounts paid to shareholders of each class are
reflected in the quoted "current distribution rate" for that class. The current
distribution rate for a class is computed by dividing the total amount of
dividends per share paid by the Fund to shareholders of that class during the
past twelve months by the maximum public offering price of that class at the end
of such period. Under certain circumstances, such as when there has been a
change in the amount of dividend payout, or a fundamental change in investment
policies, it might be appropriate to annualize the dividends paid over the
period such policies were in effect, rather than using the dividends paid during
the past twelve months. The current distribution rate differs from the yield
computation because it may include distributions to shareholders from sources
other than dividends and interest, such as premium income for option writing,
short-term capital gains and return of invested capital, and is calculated over
a different period of time. The Fund's current distribution rate calculation for
Class A shares assumes a maximum sales charge of 4.75%. Current distribution
rate quotations for each class of shares are presented in Appendix A attached
hereto under the heading "Performance Quotations."
From time to time each Fund may, as appropriate, quote Fund rankings or reprint
all or a portion of evaluations of fund performance and operations appearing in
various independent publications, including but not limited to the following:
Money, Fortune, U.S. News and World Report, Kiplinger's Personal Finance, The
Wall Street Journal, Barron's, Investors Business Daily, Newsweek, Financial
World, Financial Planning, Investment Advisor, USA Today, Pensions and
Investments, SmartMoney, Forbes, Global Finance, Registered Representative,
Institutional Investor, the Investment Company Institute, Johnson's Charts,
Morningstar, Lipper Analytical Services, Inc., CDA Wiesenberger, Shearson Lehman
and Salomon Bros. Indices, Ibbotson, Business Week, Lowry Associates, Media
General, Investment Company Data, The New York Times, Your Money, Strangers
Investment Advisor, Financial Planning on Wall Street, Standard and Poor's,
Individual Investor, The 100 Best Mutual Funds You Can Buy by Gordon K.
Williamson, Consumer Price Index, and Sanford C. Bernstein & Co. Fund
performance may also be compared to the performance of other mutual funds
tracked by financial or business publications or periodicals.
From time to time, the Fund may discuss or quote its current portfolio manager
as well as other investment personnel, including such persons' views on: the
economy; securities markets; portfolio securities and their issuers; investment
philosophies, strategies, techniques and criteria used in the selection of
securities to be purchased or sold for the Fund; the Fund's portfolio holdings;
the investment research and analysis process; the formulation and evaluation of
investment recommendations; and the assessment and evaluation of credit,
interest rate, market and economic risks, and similar or related matters.
The Fund may also quote evaluations mentioned in independent radio or television
broadcasts.
From time to time the Fund may use charts and graphs to illustrate the past
performance of various indices such as those mentioned above and illustrations
using hypothetical rates of return to illustrate the effects of compounding and
tax-deferral.
From time to time the Fund may also discuss or quote the views of its
distributor, its investment adviser and other financial planning, legal, tax,
accounting, insurance, estate planning and other professionals, or from surveys,
regarding individual and family financial planning. Such views may include
information regarding: retirement planning; tax management strategies; estate
planning; general investment techniques (e.g., asset allocation and disciplined
saving and investing); business succession; ideas and information provided
through the MFS Heritage Planningsm program, an inter-generational financial
planning assistance program; issues with respect to insurance (e.g., disability
and life insurance and Medicare supplemental insurance); issues regarding
financial and health care management for elderly family members; and other
similar or related matters.
The Fund may advertise examples of the effects of periodic investment plans,
including the principle of dollar cost averaging. In such a program, an investor
invests a fixed dollar amount in a fund at periodic intervals, thereby
purchasing fewer shares when prices are high and more shares when prices are
low. While such a strategy does not assure a profit or guard against a loss in a
declining market, the investor's average cost per share can be lower than if
fixed numbers of shares are purchased at the same intervals.
MFS FIRSTS: MFS has a long history of innovations.
-- 1924 -- Massachusetts Investors Trust is established
as the first open-end mutual fund in America.
-- 1924 -- Massachusetts Investors Trust is the first mutual fund
to make full public disclosure of its operations in shareholder
reports.
-- 1932 -- One of the first internal research departments is
established to provide in-house analytical capability for an
investment management firm.
-- 1933 -- Massachusetts Investors Trust is the first
mutual fund to register under the Securities Act of
1933. ("Truth in Securities Act" or "Full Disclosure
Act").
-- 1936 -- Massachusetts Investors Trust is the first mutual fund
to allow shareholders to take capital gain distributions either
in additional shares or cash.
-- 1976 -- MFS(R) Municipal Bond Fund is among the first municipal
bond funds established.
-- 1979 -- Spectrum becomes the first combination fixed/ variable
annuity with no initial sales charge.
-- 1981 -- MFS(R) World Governments Fund is established as
America's first globally diversified fixed-income mutual fund.
-- 1984 -- MFS(R) Municipal High Income Fund is the first open-end
mutual fund to seek high tax-free income from lower-rated
municipal securities.
-- 1986 -- MFS(R) Managed Sectors Fund becomes the first mutual
fund to target and shift investments among industry sectors for
shareholders.
-- 1986 -- MFS(R) Municipal Income Trust is the first closed-end,
high-yield municipal bond fund traded on the New York Stock
Exchange.
-- 1987 -- MFS(R) Multimarket Income Trust is the first
closed-end, multimarket high income fund listed on the New York
Stock Exchange.
-- 1989 -- MFS(R) Regatta becomes America's first non-qualified
market-value-adjusted fixed/variable annuity.
-- 1990 -- MFS(R) World Total Return Fund is the first
global balanced fund.
-- 1993 -- MFS(R) World Growth Fund is the first global emerging
markets fund to offer the expertise of two sub-advisers.
-- 1993 -- MFS becomes money manager of MFS(R) Union Standard
Trust, the first trust to invest in companies deemed to be
union-friendly by an Advisory Board of senior labor officials,
senior managers of companies with significant labor contracts,
academics and other national labor leaders or experts.
9. DISTRIBUTION PLAN
The Trustees have adopted a Distribution Plan for Class A, Class B and Class C
shares (the "Distribution Plan") pursuant to Section 12(b) of the 1940 Act and
Rule 12b-1 thereunder (the "Rule") after having concluded that there is a
reasonable likelihood that the Distribution Plan would benefit the Fund and the
respective class of shareholders. The Distribution Plan is designed to promote
sales, thereby increasing the net assets of the Fund. Such an increase may
reduce the Fund's expense ratio to the extent that the Fund's fixed costs are
spread over a larger net asset base. Also, an increase in net assets may lessen
the adverse effect that could result were the Fund required to liquidate
portfolio securities to meet redemptions. There is, however, no assurance that
the net assets of the Fund will increase or that the other benefits referred to
above will be realized.
The Distribution Plan is described in the Prospectus under the caption
"Distribution Plan," which is incorporated herein by reference. The following
information supplements this Prospectus discussion.
SERVICE FEES: With respect to Class A shares, no service fees will be paid: (i)
to any dealer who is the holder or dealer of record for investors who own Class
A shares having an aggregate net asset value less than $750,000, or such other
amount as may be determined from time to time by MFD (MFD, however, may waive
this minimum amount requirement from time to time); or (ii) to any insurance
company which has entered into an agreement with the Fund and MFD that permits
such insurance company to purchase Class A shares from the Fund at their net
asset value in connection with annuity agreements issued in connection with the
insurance company's separate accounts. Dealers may from time to time be required
to meet certain other criteria in order to receive service fees.
With respect to Class B shares, except in the case of the first year service
fee, no service fees will be paid to any securities dealer who is the holder or
dealer of record for investors who own Class B shares having an aggregate net
asset value of less than $750,000 or such other amount as may be determined by
MFD from time to time. MFD, however, may waive this minimum amount requirement
from time to time. Dealers may from time to time be required to meet certain
other criteria in order to receive service fees.
MFD or its affiliates shall be entitled to receive any service fee payable under
the Distribution Plan for which there is no dealer of record or for which
qualification standards have not been met as partial consideration for personal
services and/or account maintenance services performed by MFD or its affiliates
for shareholder accounts.
DISTRIBUTION FEES: The purpose of distribution payments to MFD under the
Distribution Plan is to compensate MFD for Its distribution services to the
Fund. MFD pays commissions to dealers as well as expenses of printing
prospectuses and reports used for sales purposes, expenses with respect to the
preparation and printing of sales literature and other distribution related
expenses, including, without limitation, the cost necessary to provide
distribution-related services, or personnel, travel, office expense and
equipment.
DISTRIBUTION AND SERVICE FEES PAID DURING THE FUND'S LAST FISCAL YEAR:
During the fiscal year ended February 28, 1997, the Fund paid the following
Distribution Plan expenses:
AMOUNT OF AMOUNT OF AMOUNT OF
DISTRIBUTION DISTRIBUTION DISTRIBUTION
AND SERVICE AND SERVICE AND SERVICE
FEES PAID BY FEES RETAINED FEES RECEIVED
CLASSES OF SHARES FUND BY MFD BY DEALERS
- ----------------- --------------------------------------------
Class A Shares $1,073,126 $414,069 $659,057
Class B Shares $1,206,275 $943,448 $262,827
Class C Shares $ 32,245 $ 92 $ 32,153
GENERAL: The Distribution Plan will remain in effect until August 1, 1998, and
will continue in effect thereafter only if such continuance is specifically
approved at least annually by vote of both the Trustees and a majority of the
Trustees who are not interested persons" or financially interested parties of
such Plan ("Distribution Plan Qualified Trustees"). The Distribution Plan also
requires that the Fund and MFD each shall provide the Trustees, and the Trustees
shall review, at least quarterly, a written report of the amounts expended (and
purposes therefor) under such Plan. The Distribution Plan may be terminated at
any time by vote of a majority of the Distribution Plan Qualified Trustees or by
vote of the holders of a majority of the respective class of the Fund's shares
(as defined in "Investment Restrictions"). All agreements relating to the
Distribution Plan entered into between the Fund or MFD and other organizations
must be approved by the Board of Trustees, including a majority of the
Distribution Plan Qualified Trustees. Agreements under the Distribution Plan
must be in writing, will be terminated automatically if assigned, and may be
terminated at any time without payment of any penalty, by vote of a majority of
the Distribution Plan Qualified Trustees or by vote of the holders of a majority
of the respective class of the Fund's shares. The Distribution Plan may not be
amended to increase materially the amount of permitted distribution expenses
without the approval of a majority of the respective class of the Fund's shares
(as defined in "Investment Restrictions") or may not be materially amended in
any case without a vote of the Trustees and a majority of the Distribution Plan
Qualified Trustees. The selection and nomination of Distribution Plan Qualified
Trustees shall be committed to the discretion of the non-interested Trustees
then in office. No Trustee who is not an "interested person" has any financial
interest in the Distribution Plan or in any related agreement.
10. DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional Shares of Beneficial Interest (without par value)
of one or more separate series and to divide or combine the shares of any series
into a greater or lesser number of shares without thereby changing the
proportionate beneficial interests in that series. The Declaration of Trust
further authorizes the Trustees to classify or reclassify any series of shares
into one or more classes. Pursuant thereto, the Trustees have authorized the
issuance of four classes of shares of the Fund, Class A shares, Class B shares,
Class C shares and Class I shares. Each share of a class of the Fund represents
an equal proportionate interest in the assets of the Fund allocable to that
class. Upon liquidation of the Fund, shareholders of each class of the Fund are
entitled to share pro rata in the Fund's net assets allocable to such class
available for distribution to shareholders. The Fund reserves the right to
create and issue a number of series and additional classes of shares, in which
case the shares of each class of a series would participate equally in the
earnings, dividends and assets allocable to that class of the particular series.
Shareholders are entitled to one vote for each share held and may vote in the
election of Trustees and on other matters submitted to meetings of shareholders.
To the extent any Fund's shareholder owns a controlling percentage of the Fund's
shares, such shareholder may affect the outcome of such matters to a greater
extent than other Fund shareholders (see "Description of Shares. Voting Rights
and Liabilities" in the Prospectus). Although Trustees are not elected annually
by the shareholders, the Declaration of Trust provides that a Trustee may be
removed from office at a meeting of shareholders by a vote of two-thirds of the
outstanding shares of the Fund. A meeting of shareholders will be called upon
the request of shareholders of record holding in the aggregate not less than 10%
of the outstanding voting securities of the Fund. No material amendment may be
made to the Fund's Declaration of Trust without the affirmative vote of a
majority of the Fund's outstanding shares (as defined in "Investment
Restrictions"). The Fund may be terminated (i) upon the merger or consolidation
of the Fund with another organization or upon the sale of all or substantially
all of its assets, if approved by the vote of the holders of two-thirds of the
Fund's outstanding shares, except that if the Trustees recommend such merger,
consolidation or sale, the approval by vote of the holders of a majority of the
Fund's outstanding shares will be sufficient, or (ii) upon liquidation and
distribution of the assets of the Fund, if approved by the vote of the holders
of two-thirds of its outstanding shares of the Fund, or (iii) by the Trustees by
written notice to its shareholders. If not so terminated, the Fund will continue
indefinitely.
The Fund is an entity of the type commonly known as a "Massachusetts business
trust." Under Massachusetts law, shareholders of such a trust may, under certain
circumstances, be held personally liable as partners for its obligations.
However, the Fund's Declaration of Trust contains an express disclaimer of
shareholder liability for acts or obligations of the Fund and provides for
indemnification and reimbursement of expenses out of Fund property for any
shareholder held personally liable for the obligations of the Fund. The Fund's
Declaration of Trust also provides that the Fund shall maintain appropriate
insurance (for example, fidelity bonding and errors and omissions insurance) for
the protection of the Fund and its shareholders and the Trustees, officers,
employees and agents of the Fund covering possible tort and other liabilities.
Thus, the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which both inadequate
insurance existed and the Fund itself was unable to meet its obligations.
The Fund's Declaration of Trust further provides that obligations of the Fund
are not binding upon the Trustees individually but only upon the property of the
Fund and that the Trustees will not be liable for any action or failure to act,
but nothing in the Declaration of Trust protects a Trustee against any liability
to which he would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office.
11. INDEPENDENT AUDITORS AND FINANCIAL STATEMENTS
Deloitte & Touche LLP are the Fund's independent auditors, providing audit
services, tax return preparation, and assistance and consultation with respect
to the preparation of filings with the SEC.
The Portfolio of Investments at February 28, 1997, the Statement of Assets and
Liabilities at February 28, 1997, the Statement of Operations for the year ended
February 28, 1997, the Statement of Changes in Net Assets for the year ended
February 28, 1997, and the year ended February 29, 1996, the Notes to Financial
Statements and the Independent Auditors' Report, each of which is included in
the Annual Report to shareholders of the Fund, are incorporated by reference
into this SAI and have been so incorporated in reliance upon the report of
Deloitte & Touche LLP, independent auditors, as experts in accounting and
auditing. A copy of the Annual Report accompanies this SAI.
<PAGE>
APPENDIX A
PERFORMANCE INFORMATION
The performance results and quotations below should not be considered as
representative of the performance of the Fund in the future since the net asset
value and public offering price of shares of the Fund will vary. See
"Determination of Net Asset Value and Performance" in the SAI.
PERFORMANCE RESULTS -- CLASS A SHARES
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE OF VALUE OF VALUE OF
YEAR ENDED INITIAL $10,000 CAP. GAIN REINVESTED TOTAL
DECEMBER 31 INVESTMENT DISTRIBUTIONS DIVIDENDS VALUE
----------- --------------- ------------- ----------- -----
<S> <C> <C> <C> <C> <C>
1987 $8,661 $ 43 $ 933 $ 9,637
1988 8,402 42 1,807 10,251
1989 8,614 43 2,827 11,484
1990 8,587 43 3,751 12,381
1991 9,039 45 5,057 14,141
1992 9,002 45 6,113 15,160
1993 9,205 46 7,369 16,620
1994 8,245 41 7,789 16,075
1995 9,242 46 9,923 19,211
1996 8,734 43 10,586 19,363
- ------------
Explanatory Notes: The results in the table assume that income dividends and capital gain distributions were invested in additional
shares. The results also assume that the initial investment in Class A shares was reduced by the current maximum applicable sales
charge. No adjustment has been made for income taxes, if any, payable by shareholders.
</TABLE>
PERFORMANCE QUOTATIONS
All performance quotations are for the period ended February 28, 1997.
<TABLE>
<CAPTION>
ACTUAL
30-DAY 30-DAY
AVERAGE ANNUAL TOTAL REURNS YIELD YIELD
------------------------------------ (INCLUDING (WITHOUT CURRENT
LIFE OF ANY ANY DISTRIBUTION
1 YEAR 5 YEAR FUND WAIVERS) WAIVERS) RATE
------ ------ ------ ------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Class A Shares with sales charge ............. -1.23% 5.80% 6.72% 5.82% 5.67% 6.15%
Class A Shares without sales charge .......... 3.67% 6.84% 7.24% N/A N/A N/A
Class B Shares with CDSC ..................... -0.97% 5.99%(1) 6.97%(1) N/A N/A N/A
Class B Shares without CDSC .................. 2.92% 6.30%(1) 6.97%(1) 5.45% 5.29% 5.73%
Class C Shares with CDSC ..................... 2.03% 6.70%(2) 7.17%(2) N/A N/A N/A
Class C Shares without CDSC .................. 3.00% 6.70%(2) 7.17%(2) 5.45% 5.29% 4.92%
Class I Shares ............................... 3.75%(3) 6.85%(3) 7.25%(3) 6.48% 6.32% 6.74%(3)
(1) Class B share performance includes the performance of the Fund's Class A shares for periods prior to the commencement of
offering of Class B shares on August 30, 1993. Sales charges, expenses and expense ratios, and therefore a performance, for
Class A and Class B shares differ. Class B share performance has been adjusted to reflect that Class B shares generally are
subject to a CDSC (unless the performance quotation does not give effect to the CDSC) whereas Class A shares generally are
subject to an initial sales charge. Class B share performance has not, however, been adjusted to reflect differences in
operating expenses (e.g., Rule 12b-1 fees), which generally are lower for Class A shares.
(2) Class C share performance includes the performance of the Fund's Class A shares for periods prior to the commencement of
offering of Class C shares on April 1, 1996. Sales charges, expenses and expense ratios, and therefore performance, for Class A
and Class C shares differ. Class C share performance has been adjusted to reflect that Class C shares generally are subject to a
CDSC (unless the performance quotation does not give effect to the CDSC) whereas Class A shares generally are subject to an
initial sales charge. Class C share performance has not, however, been adjusted to reflect differences in operating expenses
(e.g., Rule 12b-1 fees), which generally are lower for Class A shares.
(3) Class I share performance includes the performance of the Fund's Class A shares for the periods prior to the commencement of
offering of Class I shares on January 2, 1997. Sales charges, expenses and expense ratios, and therefore performance for Class I
and A shares differ. Class I share performance has been adjusted to reflect that Class I shares are not subject to an initial
sales charge, whereas Class A shares generally are subject to an initial sales charge. Class I share performance has not,
however, been adjusted to reflect differences in operating expenses (e.g., Rule 12b-1 fees), which generally are lower for Class
I shares. The current distribution rate for Class I shares is calculated by annualizing the last dividend.
</TABLE>
<PAGE>
INVESTMENT ADVISER
Massachusetts Financial Services Company
500 Boylston Street, Boston, MA 02116
(617) 954-5000
DISTRIBUTOR
MFS Fund Distributors, Inc.
500 Boylston Street, Boston, MA 02116
(617) 954-5000
CUSTODIAN AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company 225
Franklin Street, Boston, MA 02110
SHAREHOLDER SERVICING AGENT
MFS Service Center, Inc.
500 Boylston Street, Boston, MA 02116
Toll free: (800) 225-2606
MAILING ADDRESS:
P.O. Box 2281, Boston, MA 02107-9906
AUDITORS
Deloitte & Touche LLP
125 Summer Street, Boston, MA 02110
MFS(R)
GOVERNMENT
SECURITIES FUND
500 BOYLSTON STREET
BOSTON, MA 02116
[GRAPHIC OMITTED]
INVESTMENT MANAGEMENT
We invented the mutual fund)(SM)
MGS-13-7/97/525 26/226/326
<PAGE>
[Front Cover]
[MFS logo]
INVESTMENT MANAGEMENT
Annual Report
for Year Ended
February 28, 1997
MFS(R) Government Securities Fund
[close up pictures of a flag]
<PAGE>
Table of Contents
<TABLE>
<S> <C>
Letter from the Chairman ..................... 1
A Discussion with the Portfolio Manager ...... 2
Portfolio Manager's Profile .................. 5
Fund Facts .................................... 6
Performance Summary ........................... 6
Portfolio of Investments ..................... 9
Financial Statements ........................ 11
Notes to Financial Statements ............... 18
Independent Auditors' Report .................. 24
Trustees and Officers ........................ 25
</TABLE>
Highlights
[bullet] For the 12 months ended February 28, 1997, Class A shares of the Fund
provided a total return at net asset value of 3.67%, Class B shares
2.92%, Class C shares 3.00%, and Class I shares 3.75%.
[bullet] The fixed-income market has vacillated between concern that, with the
economy operating near full employment, inflationary pressures could be
building, and belief that, by some measures, inflationary pressures are
abating.
[bullet] The mortgage-backed pass-through sector posted strong relative
performance in the past 12 months. We anticipated a continuation of
this trend as mortgage-backed securities tend to outperform U.S.
Treasuries in uncertain market environments.
[bullet] The portfolio is shifting from intermediate-maturity Treasuries toward
an increased allocation in cash, offset by a greater emphasis on
longer-maturity 20-year Treasuries, in an effort to reduce overall
interest rate sensitivity.
<PAGE>
Letter from the Chairman
[PICTURE OF A. KEITH BRODKIN]
Dear Shareholders:
After more than six years of expansion, the U.S. economy appears to be
experiencing another year of moderate growth in 1997, although a few signs point
to the possibility of a modest rise in inflation during the year. On the
positive side, the pattern of moderate growth and inflation set over the past
few years now seems fairly well entrenched in the economy and, short of a major
international or domestic crisis, appears to have enough momentum to remain on
track for some time. Also, gains in such important sectors as housing,
automobiles, industrial production, and exports indicate a fair amount of
underlying strength in the economy. However, some reason for caution can be seen
in the continuing high levels of consumer debt and rising personal bankruptcies,
as well as in the ongoing tightness in labor markets, which could add some
inflationary pressures to the economy. Given these somewhat conflicting
indicators, we expect real (inflation-adjusted) growth to revolve around 2% in
1997, which would represent a modest decline from 1996.
In the bond markets, conflicting signals over the strength of the economy have
created near-term volatility, while comments by Federal Reserve Board Chairman
Alan Greenspan late in 1996 and earlier this year created some uncertainty about
the Federal Reserve's next move. However, we expect the Fed to maintain its
anti-inflationary stance should signs of more rapid economic growth and,
particularly, of higher inflation resurface. While inflationary forces largely
remained in check in 1996, the continued strength in the labor market means that
a pickup in inflation is still possible. At the same time, the U.S. budget
deficit continues to decline and, as a percentage of gross domestic product, is
now less than 2%, which we consider a positive development for the bond markets.
Although interest rates may move higher over the coming months, we believe that,
at current levels, fixed-income markets remain equitably valued.
We appreciate your support and welcome any questions or comments you may have.
Respectfully,
[Signature A. Keith Brodkin]
A. Keith Brodkin
Chairman and President
March 12, 1997
1
<PAGE>
A Discussion with the Portfolio Manager
[PICTURE OF STEVEN E. NORTHERN]
For the 12 months ended February 28, 1997, Class A shares of the Fund provided a
total return of 3.67%, Class B shares 2.92%, Class C shares, which became
available on April 1, 1996, 3.00%, and Class I shares 3.75%. These returns
assume the reinvestment of distributions but exclude the effects of any sales
charges. During the same period, the Lehman Brothers Government/Mortgage Index
(Lehman Index), an unmanaged index of Treasury, government agency and
mortgage-backed securities, returned 5.27%, while the average general U.S.
government fund returned 4.01% according to Lipper Analytical Services, an
independent firm that reports mutual fund performance.
Q. What do you see as some of the reasons for this performance?
A. Our underperformance over the past 12 months was experienced almost entirely
in the early part of 1996, and it was the result of our misjudging an important
turn in the momentum of economic activity. Whereas growth had been an anemic
1.3% during 1995 and the Federal Reserve Board, in response, had begun easing
interest rates, early indications in the first months of 1996 were that these
trends would continue. However, it turned out that this seemingly weaker growth
was, in large part, the result of severe weather conditions and the government
shutdown during the winter months. This apparent weakness served to mask the
fact that economic conditions were on the threshold of a significant rebound to
above-trend growth. As this shift took place, the risks in the market shifted
accordingly to reflect concern that full employment could lead to inflationary
pressures. Though these pressures have been slow to develop, the market was
quick to factor in the added risk by sharply increasing interest rates. We were
positioned incorrectly for this shift and lagged the market as a consequence.
Q. In general, how would you describe the fixed-income environment over the past
year?
A. With a backdrop of an economy operating near its long-term growth potential
for much of the year, the fixed-income market vacillated somewhat between two
opposing themes. The first was concern that, five years into this business
expansion and with the economy operating near what is commonly viewed as full
employment, inflationary pressures could be building. The second was belief
that, by some measures, inflationary pressures were actually abating. Stronger
momentum in the economy during the first half of 1996 led the fixed-income
market to focus on inflationary
2
<PAGE>
A Discussion with the Portfolio Manager - continued
risks, pushing yields on two-year and 30-year Treasury securities from lows of
5.19% and 6.33%, respectively, in March, to highs of 6.44% and 7.20% by the
summer. Slackening of growth later in the third quarter, accompanied by
encouraging reports that inflationary pressures remained contained, led the
market to rally, bringing yields back to 5.60% on two-year Treasuries and to
6.40% on 30-year Treasuries. By December, however, sentiment once again focused
on the risks to the market, and yields rose 30 to 40 basis points (0.30% to
0.40%) across all maturities.
As the fixed-income environment shifted from pessimism to optimism and back,
the underlying performance of the economy remained healthy as inflation remained
low and the economy continued to expand.
Q. And what about the government/mortgage environment? Has it seen any major
developments?
A. The government/mortgage sector has been largely bypassed by many traditional
domestic investors for some time now. Current conditions of low and stable
inflation and seemingly sustainable economic growth have generated healthy
financial market outcomes, notably a strong stock market and narrowing risk
premiums in corporate bonds relative to Treasuries. Though growth prospects are
expected to falter at some point and investors will inevitably adopt a less
sanguine attitude toward risk, until that time, domestic asset flows into this
sector will likely remain limited.
In the meantime, foreign flows into Treasuries have accelerated to record
levels, and it is likely that this trend will continue. The magnitude of these
flows raises some concern that their interruption or reversal would expose an
important vulnerability to our market. These concerns are, I believe,
exaggerated, as past experience confirms that even in an environment of net
foreign outflows, yields need not rise. Ultimately, domestic interest rates are
determined by domestic economic and monetary fundamentals.
Q. The biggest weighting in the Fund is in the mortgage-backed pass-through
sector, at about 40% of net assets. Why have you put so much emphasis on this
sector?
A. The mortgage-backed pass-through sector posted strong relative performance in
the past 12 months, and we anticipate a continuation of this trend in the months
ahead. Mortgage securities tend to outperform Treasuries in uncertain market
environments for two important reasons. The first is that they are, on average,
shorter in maturity than outstanding Treasuries and thus decline less in price
as yields increase, as they did in 1996. Also, because they are higher-yielding
securities, the additional coupon income provides a total return cushion to help
offset price declines (although, the
3
<PAGE>
A Discussion with the Portfolio Manager - continued
principal value and interest on Treasury securities are guaranteed by the U.S.
government if held to maturity).
An index or average allocation to this sector would be about 36%. For 1997, we
anticipate an economy that would produce growth close to current trends with
only modest inflationary pressures -- in other words, an environment in which we
expect mortgages would continue to provide good value.
Q. Another 22% of the portfolio is invested in U.S. Treasuries. What range of
maturities are you selecting in this sector, and why?
A. We are currently shifting our Treasury emphasis away from
intermediate-maturity Treasuries toward an increased allocation to cash, offset
by a slightly greater emphasis on longer-maturity 20-year Treasuries. Though it
remains uncertain whether the Federal Reserve Board will elect to raise
short-term interest rates during the next several months, the risks are
increasing that the Fed will perceive the need for a modest tightening. Should
it choose to raise interest rates, short- and intermediate-maturity securities
would be the most adversely affected. By repositioning our Treasury exposure
between cash and longer maturities, we believe we can reduce overall interest
rate sensitivity in the portfolio, while reducing exposure to intermediate
maturities.
Q. The third sector, government agency securities, makes up another 22% of the
portfolio. What kinds of agencies are represented here?
A. This includes agencies backed by the full faith and credit of the U.S.
government, such as the Small Business Administration and the Government
Financing Corporation. We feel these securities are attractive long-term
holdings for the portfolio and add significant incremental yield relative to
Treasury securities.
Q. In general, how do you decide how to allocate assets among the
mortgage-backed, Treasury, and government-agency sectors?
A. The allocation decision is guided by our outlook for interest rates and the
forces that shape the fixed-income environment. Generally, we would favor a
larger allocation to Treasuries and noncallable agencies if we believed the
environment was favorable for fixed-income markets. Conversely, in a
narrow-range or declining market environment, we would favor higher-yield
securities with call features, such as callable agencies or mortgage-backed
securities.
4
<PAGE>
A Discussion with the Portfolio Manager - continued
Q. Do you see any reason why these allocations might see significant changes in
the next several months?
A. One likely change would be an increase in mortgage-backed securities
weightings should their spreads over Treasuries increase over the next few
months. Also, we are always on the lookout to increase our holdings of
attractively priced agencies, so we might add to this sector opportunistically
over the coming year.
Q. How does the Fund's duration, or interest rate sensitivity, compare to your
benchmark, the Lehman Index, and why are you at that level?
A. A neutral, or index, duration would be 4.6 years. That is close to the
average duration of the portfolio today. Given that we believe our market will
likely continue to fret over the risk of late business-cycle inflationary
pressures, we think a cautious duration stance is warranted. Longer term,
however, these pressures will likely remain contained. Inflation is generated by
excess demand when growth exceeds the nation's long-term capacity to grow. But
as long as monetary policy constrains growth in spending and limits excess
demand, we see no inconsistency between low unemployment and low inflation.
[Signature of Steven E. Nothern]
Steven E. Nothern
Portfolio Manager
Portfolio Manager's Profile
Steven E. Nothern joined MFS in 1986 in the Fixed Income Department. He was
named Vice President in 1989 and Senior Vice President in 1993, and has been
Portfolio Manager of MFS Government Securities Fund since January 1991. Mr.
Nothern is a graduate of Middlebury College and holds a Master's of Business
Administration degree from Boston University. He is a Chartered Financial
Analyst and a member of the Boston Security Analysts Society.
5
<PAGE>
Fund Facts
Strategy: The Fund's investment objective is to seek current
income and preservation of capital. Government
guarantees apply to individual securities only and
not to prices and yields of shares in a managed
portfolio.
Commencement of
investment operations: Class A: July 25, 1984
Class B: August 30, 1993
Class C: April 1, 1996
Class I: January 2, 1997
Size: $414.7 million net assets as of February 28, 1997
Performance Summary
The information below and on the following page illustrates the historical
performance of MFS Government Securities Fund -- Class A shares in comparison to
various market indicators. Class A share performance results reflect the
deduction of the 4.75% maximum sales charge; benchmark comparisons are unmanaged
and do not reflect any fees or expenses. The performance of other share classes
will be greater than or less than the line shown, based on the differences in
loads and fees paid by shareholders investing in the different classes. It is
not possible to invest in an index.
Growth of a Hypothetical $10,000 Investment
(For the 5-Year Period Ended February 28, 1997)
MFS Government
Securities Fund Consumer Price Lehman Brothers
-Class A Index-U.S. Government/Mortgage Index
3/92 9521 10000 10000
2/93 10710 10325 11183
2/94 11248 10584 11758
2/95 11384 10887 11975
2/96 12783 11167 13396
2/97 13182 11515 14102
6
<PAGE>
Performance Summary - continued
Growth of a Hypothetical $10,000 Investment
(For the 10-Year Period Ended February 28, 1997)
MFS Government
Securities Fund Consumer Price Lehman Brothers
-Class A Index-U.S. Government/Mortgage Index
3/87 9529 10000 9955
2/89 10100 10890 10924
2/91 12288 12072 13867
2/93 15381 12816 17426
2/95 16349 13514 18659
2/97 18931 14294 21973
Average Annual Total Returns
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MFS Government Securities Fund (Class A)
including 4.75% sales charge -1.23% +3.91% +5.80% +6.72%
- ------------------------------------------------------------------------------------------------
MFS Government Securities Fund (Class A)
at net asset value +3.67% +5.62% +6.84% +7.24%
- ------------------------------------------------------------------------------------------------
MFS Government Securities Fund (Class B) with CDSC -0.97% +4.00% +5.99% +6.97%
- ------------------------------------------------------------------------------------------------
MFS Government Securities Fund (Class B)
at net asset value +2.92% +4.88% +6.30% +6.97%
- ------------------------------------------------------------------------------------------------
MFS Government Securities Fund (Class C) with CDSC +2.03% +5.39% +6.70% +7.17%
- ------------------------------------------------------------------------------------------------
MFS Government Securities Fund (Class C)
at net asset value +3.00% +5.39% +6.70% +7.17%
- ------------------------------------------------------------------------------------------------
MFS Government Securities Fund (Class I)
at net asset value +3.75% +5.65% +6.85% +7.25%
- ------------------------------------------------------------------------------------------------
Average general U.S. government fund++ +3.86% +4.82% +6.18% +6.75%
- ------------------------------------------------------------------------------------------------
Lehman Brothers Government/Mortgage Index** +5.27% +6.24% +7.12% +8.19%
- ------------------------------------------------------------------------------------------------
Consumer Price Index*+ +3.12% +2.85% +2.86% +3.64%
- ------------------------------------------------------------------------------------------------
</TABLE>
*The Consumer Price Index is published by the U.S. Bureau of Statistics and
measures the cost of living (inflation).
**Source: AIM.
+Source: CDA/Wiesenberger.
++Source: Lipper Analytical Services.
All results are historical and assume the reinvestment of dividends and capital
gains. Investment return and principal value will fluctuate, and shares, when
redeemed, may be worth more or less than their original cost. Past performance
is no guarantee of future results.
Class B results reflect the applicable contingent deferred sales charge (CDSC),
which declines over six years as follows: 4%, 4%, 3%, 3%, 2%, 1%, 0%. Class C
shares have no initial sales charge but, along with Class B shares, have higher
annual fees and expenses than Class A shares. Class C share purchases are
subject
7
<PAGE>
Performance Summary - continued
to a 1% CDSC if redeemed within 12 months of purchase. Class I shares, which
became available on January 2, 1997 have no sales load or 12b-1 fees and are
only available to certain institutional investors.
Class B and Class C share results include the performance and operating expenses
(e.g., Rule 12b-1) of the Fund's Class A shares for periods prior to the
commencement of offering of Class B and Class C shares. Because operating
expenses attributable to Class B and Class C shares are higher than those of
Class A shares, Class B and Class C share performance would have been lower had
Class B and Class C shares been outstanding during the entire period. The Class
A share performance included in the Class B and Class C share performance with
CDSC, had been adjusted to reflect the CDSC generally applicable to Class B and
Class C shares rather than the sales charge generally applicable to Class A
shares.
Class I share results include the performance and operating expenses (e.g., Rule
12b-1) of Class A shares, for periods prior to the commencement of offering of
Class I shares. Because operating expenses attributable to Class A shares are
greater than those of Class I shares, Class I share performance would have been
higher had Class I shares been outstanding during the entire period. The Class A
share performance included in Class I share performance has been adjusted to
reflect the fact that Class I shares have no initial sales load.
Performance results reflect any applicable expense subsidies and waivers,
without which the results would have been less favorable. Current subsidies and
waivers may be discontinued at any time.
Portfolio Concentration as of February 28, 1997
Largest Sectors
[pie chart]
Cash 16%
Mortgage Backed 40%
Other Government Agencies 22%
U.S. Treasuries 22%
For a more complete breakdown, refer to Portfolio of Investments.
Tax Form Summary
In January 1997, shareholders were mailed a tax form summary reporting the
federal tax status of all distributions paid during the calendar year 1996.
8
<PAGE>
Portfolio of Investments - February 28, 1997
Bonds - 83.9%
- --------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
- -------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Federal Agencies - 22.5%
Federal National Mortgage Assn., 6.95s, 2006 $10,000 $ 9,870,300
Federal National Mortgage Assn., 7s, 2026 21,455 20,912,166
Federal National Mortgage Assn., 8.46s, 2002 5,699 5,941,638
Financing Corp., 9.8s, 2018 16,500 21,176,760
Financing Corp., 10.35s, 2018 5,000 6,725,800
Financing Corp., 10.7s, 2017 20,790 28,622,009
------------
Total U.S. Federal Agencies (Identified Cost, $94,701,420) $ 93,248,673
- -------------------------------------------------------------------------------------
U.S. Government Guaranteed - 61.4%
Government National Mortgage Association - 31.1%
GNMA, 7s, 2022-2025 $45,325 $ 44,149,076
GNMA, 7.5s, 2002-2027 32,066 32,225,360
GNMA, 8s, 2026-2027 19,713 20,100,620
GNMA, 8.5s, 2001-2026 27,682 28,758,463
GNMA, 10.75s, 2015-2016 350 395,873
GNMA, 11.5s, 2010-2019 1,258 1,453,931
GNMA, 12s, 2013-2019 747 874,778
GNMA, 12.5s, 2011 932 1,099,870
------------
$129,057,971
-------------------------------------------------------------------------------------
Small Business Administration - 8.3%
SBA, 8.625s, 2011 $ 3,824 $ 4,062,094
SBA, 8.8s, 2011 1,900 2,036,678
SBA, 9.05s, 2009 2,276 2,432,159
SBA, 9.1s, 2009 3,010 3,225,972
SBA, 9.25s, 2010 2,927 3,163,065
SBA, 9.3s, 2010 4,581 4,978,228
SBA, 9.45s, 2010 6,914 7,518,503
SBA, 9.5s, 2010 284 309,997
SBA, 9.65s, 2010 1,449 1,586,818
SBA, 9.7s, 2010 1,362 1,492,482
SBA, 9.9s, 2008 1,109 1,213,355
SBA, 10.05s, 2008-2009 1,349 1,486,883
SBA, 10.35s, 1997 941 956,244
------------
$ 34,462,478
- -------------------------------------------------------------------------------------
U.S. Treasury Obligations - 22.0%
U.S. Treasury Bonds, 10.75s, 2005 $17,400 $ 22,035,534
U.S. Treasury Bonds, 11.25s, 2015 24,350 35,288,477
U.S. Treasury Bonds, 12.375s, 2004 10,650 14,181,114
U.S. Treasury Notes, 7.75s, 2000 15,000 15,595,350
U.S. Treasury Notes, 9.125s, 1999 3,750 3,976,763
------------
$ 91,077,238
- -------------------------------------------------------------------------------------
Total U.S. Government Guaranteed (Identified Cost, $254,494,467) $254,597,687
- -------------------------------------------------------------------------------------
Total Bonds (Identified Cost, $349,195,887) $347,846,360
- -------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
Portfolio of Investments - continued
Short-Term Obligations - 9.4%
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
- -------------------------------------------------------------------------------------
<S> <C> <C>
Federal Home Loan Bank, due 03/03/97 $24,245 $ 24,237,861
Federal National Mortgage Assn., due 03/07/97 15,000 14,987,075
------------
Total Short-Term Obligations, at Amortized Cost $ 39,224,936
- -------------------------------------------------------------------------------------
Total Investments (Identified Cost, $388,420,823) $387,071,296
Other Assets, Less Liabilities - 6.7% 27,591,002
- -------------------------------------------------------------------------------------
Net Assets - 100.0% $414,662,298
- -------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements
10
<PAGE>
Financial Statements
Statement of Assets and Liabilities
- --------------------------------------------------------------------
<TABLE>
<CAPTION>
February 28, 1997
- ------------------------------------------------------------------------------------------
<S> <C>
Assets:
Investments, at value (identified cost, $388,420,823) $387,071,296
Cash 12,703
Receivable for investments sold 58,918,714
Receivable for Fund shares sold 738,547
Interest receivable 4,360,819
Other assets 5,118
------------
Total assets $451,107,197
------------
Liabilities:
Payable for investments purchased $ 35,409,554
Payable for Fund shares reaquired 639,261
Payable to affiliates -
Management fee 2,847
Shareholder servicing agent fee 1,481
Distribution fee 188,954
Accrued expenses and other liabilities 202,802
------------
Total liabilities $ 36,444,899
------------
Net assets $414,662,298
------------
Net assets consist of:
Paid-in capital $453,489,324
Unrealized depreciation on investments (1,349,527)
Accumulated net realized loss on investments (37,505,539)
Accumulated undistributed net investment income 28,040
------------
Total $414,662,298
------------
Shares of beneficial interest outstanding 44,116,083
------------
Class A shares:
Net asset value per share (net assets of $293,286,201 [divided by] 31,194,051 shares of
beneficial interest outstanding) $9.40
-----
Offering price per share (100 [divided by] 95.25) $9.87
-----
Class B shares:
Net asset value and offering price per share (net assets of $114,860,559 [divided by]
12,230,642 shares of beneficial interest outstanding) $9.39
-----
Class C shares:
Net asset value and offering price per share (net assets of $6,045,806 [divided by]
641,442 shares of beneficial interest outstanding) $9.43
-----
Class I shares:
Net asset value per share (net assets of $469,732 [divide by] 49,948 shares of beneficial
interest outstanding) $9.40
-----
</TABLE>
On sales of $100,000 or more, the offering price of Class A shares is reduced. A
contingent deferred sales charge may be imposed on redemptions of Class A, Class
B, and Class C shares.
See notes to financial statements
11
<PAGE>
Financial Statements - continued
Statement of Operations
- --------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended February 28, 1997
- --------------------------------------------------------------------
<S> <C>
Net investment income:
Interest income $ 32,056,488
------------
Expenses -
Management fee $ 1,721,896
Trustees' compensation 36,325
Shareholder servicing agent fee (Class A) 388,145
Shareholder servicing agent fee (Class B) 223,729
Shareholder servicing agent fee (Class C) 3,462
Shareholder servicing agent fee (Common) 88,093
Distribution and service fee (Class A) 1,073,126
Distribution and service fee (Class B) 1,206,275
Distribution and service fee (Class C) 32,245
Custodian fee 176,004
Postage 104,664
Printing 55,219
Auditing fees 34,105
Legal fees 5,376
Miscellaneous 275,229
------------
Total expenses $ 5,423,893
Fees paid indirectly (79,065)
Reduction of expenses by investment adviser (645,570)
------------
Net expenses $ 4,699,258
------------
Net investment income $ 27,357,230
------------
Realized and unrealized gain (loss) on investments:
Realized loss (identified cost basis) on investment transactions $(16,888,266)
Change in unrealized appreciation on investments 4,038,792
------------
Net realized and unrealized loss on investments $(12,849,474)
------------
Increase in net assets from operations $ 14,507,756
------------
</TABLE>
See notes to financial statements
12
<PAGE>
Financial Statements - continued
Statement of Changes in Net Assets
- --------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
February 28, 1997 February 29, 1996
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 27,357,230 $ 29,371,282
Net realized gain (loss) on investments (16,888,266) 21,953,585
Net unrealized gain (loss) on investments 4,038,792 (1,577,449)
------------- -------------
Increase in net assets from operations $ 14,507,756 $ 49,747,418
------------- -------------
Distributions declared to shareholders -
From net investment income (Class A) $ (19,813,814) $ (22,143,801)
From net investment income (Class B) (6,922,954) (7,225,640)
From net investment income (Class C) (177,171) --
From net investment income (Class I) (5,243) --
------------- -------------
Total distributions declared to
shareholders $ (26,919,182) $ (29,369,441)
------------- -------------
Fund share (principal) transactions -
Net proceeds from sale of shares $ 78,440,786 $ 127,188,219
Net asset value of shares issued to
shareholders in reinvestment of
distributions 16,963,649 18,255,772
Cost of shares reacquired (115,991,226) (141,455,811)
------------- -------------
Increase (decrease) in net assets from Fund
share transactions $ (20,586,791) $ 3,988,180
------------- -------------
Total increase (decrease) in net assets $ (32,998,217) $ 24,366,157
Net assets:
At beginning of period 447,660,515 423,294,358
------------- -------------
At end of period (including accumulated
undistributed net investment income of
$28,040 and $25,391, respectively) $ 414,662,298 $ 447,660,515
------------- -------------
</TABLE>
See notes to financial statements.
13
<PAGE>
Financial Statements - continued
Financial Highlights
- --------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
-----------------------------------------------
February 28, February 29, February 28,
1997 1996 1995
--------------- --------------- ---------------
Class A
-----------------------------------------------
<S> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning
of period $ 9.67 $ 9.22 $ 9.79
------- ------- -------
Income from investment operations# -
Net investment income[sec] $ 0.62 $ 0.66 $ 0.67
Net realized and unrealized
gain (loss) on
investments (0.28) 0.45 (0.58)
------- ------- -------
Total from investment
operations $ 0.34 $ 1.11 $ 0.09
------- ------- -------
Less distributions declared to shareholders -
From net investment
income $ (0.61) $ (0.66) $ (0.66)
In excess of net realized
gain on investments -- -- --
------- ------- -------
Total distributions
declared to
shareholders $ (0.61) $ (0.66) $ (0.66)
------- ------- -------
Net asset value - end of
period $ 9.40 $ 9.67 $ 9.22
------- ------- -------
Total return[dbldag] 3.67% 12.29% 1.21%
Ratios (to average net assets)/Supplemental data[sec]:
Expenses## 0.91% 0.84% 0.79%
Net investment income 6.56% 6.83% 7.24%
Portfolio turnover 339% 352% 385%
Net assets, end of period
(000 omitted) $293,286 $322,740 $318,116
+Annualized.
[dbldag]Total returns for Class A shares do not include the applicable sales
charge. If the charge had been included, the results would have been lower.
[dbldag][dbldag]Amount includes distribution in excess of net investment income
of less than $0.001 per share for the period indicated. #Per share data for the
periods subsequent to February 28, 1994 is based on average shares outstanding.
##For fiscal years ending after September 1, 1995, the Fund's expenses are
calculated without reduction for fees paid indirectly.
[sec]The investment adviser did not impose a portion of its management fee for
certain periods indicated. If this fee had been incurred by the Fund, the net
investment income per share and ratios would have been:
Net investment income $ 0.61 $ 0.64 $ 0.65
Ratios (to average net assets):
Expenses## 1.06% 1.05% 1.05%
Net investment income 6.41% 6.62% 6.98%
<CAPTION>
Eleven
Months
Ended Year Ended March 31,
February 28, ---------------------
1994 1993 1992
------------------------------------------ ---------- ----------
Class A
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning
of period $10.00 $ 9.43 $ 9.29
--------- ------- -------
Income from investment operations# -
Net investment income[sec] $ 0.63 $ 0.67 $ 0.75
Net realized and unrealized
gain (loss) on
investments (0.20) 0.60 0.14
--------- ------- -------
Total from investment
operations $ 0.43 $ 1.27 $ 0.89
--------- ------- -------
Less distributions declared to shareholders -
From net investment
income $(0.58)[dbldag][dbldag] $ (0.70) $ (0.75)
In excess of net realized
gain on investments (0.06) -- --
--------- ------- -------
Total distributions
declared to
shareholders $(0.64) $ (0.70) $ (0.75)
--------- ------- -------
Net asset value - end of
period $ 9.79 $ 10.00 $ 9.43
--------- ------- -------
Total return[dbldag] 6.57%+ 13.94% 9.96%
Ratios (to average net assets)/Supplemental data[sec]:
Expenses## 0.68%+ 1.20% 1.25%
Net investment income 6.83%+ 7.18% 7.95%
Portfolio turnover 167% 264% 270%
Net assets, end of period
(000 omitted) $372,702 $356,735 $356,366
+Annualized.
[dbldag]Total returns for Class A shares do not include the applicable sales charge.
If the charge had been included, the results would have been lower.
[dbldag][dbldag]Amount includes distribution in excess of net investment income
of less than $0.001 per share for the period indicated. #Per share data for the
periods subsequent to February 28, 1994 is based on average shares outstanding.
##For fiscal years ending after September 1, 1995, the Fund's expenses are
calculated without reduction for fees paid indirectly.
[sec]The investment adviser did not impose a portion of its management fee for
certain periods indicated. If this fee had been incurred by the Fund, the net
investment income per share and ratios would have been:
Net investment income $0.59 -- --
Ratios (to average net assets):
Expenses## 1.17%+ -- --
Net investment income 6.34%+ -- --
</TABLE>
See notes to financial statements
14
<PAGE>
Financial Statements - continued
Financial Highlights - continued
- --------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended March 31, 1991 1990 1989 1988 1987
- -------------------------------------------------------------------------------------------
Class A
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning
of period $ 9.10 $ 9.05 $ 9.56 $ 10.22 $ 10.53
------- ------- ------- ------- -------
Income from investment operations -
Net investment income $ 0.78 $ 0.82 $ 0.86 $ 0.87 $ 0.94
Net realized and unrealized
gain (loss) on investments 0.19 0.04 (0.51) (0.59) (0.20)
------- ------- ------- ------- -------
Total from investment
operations $ 0.97 $ 0.86 $ 0.35 $ 0.28 $ 0.74
------- ------- ------- ------- -------
Less distributions declared to shareholders -
From net investment income $ (0.78) $ (0.81) $ (0.86) $ (0.88) $ (0.94)
In excess of net realized gain
on investments -- -- -- (0.06) (0.11)
------- ------- ------- ------- -------
Total distributions
declared to shareholders $ (0.78) $ (0.81) $ (0.86) $ (0.94) $ (1.05)
------- ------- ------- ------- -------
Net asset value - end of period $ 9.29 $ 9.10 $ 9.05 $ 9.56 $ 10.22
------- ------- ------- ------- -------
Total return[dbldag] 11.13% 9.72% 3.84% 3.11% 7.48%
Ratios (to average net assets)/
Supplemental data:
Expenses 1.28% 1.29% 1.40% 1.18% 1.18%
Net investment income 8.56% 8.81% 9.25% 9.10% 9.14%
Portfolio turnover 95% 260% 346% 417% 191%
Net assets, end of period
(000 omitted) $323,612 $327,877 $348,617 $397,239 $487,975
[dbldag]Total returns for Class A shares do not include the applicable sales charge.
If the charge had been included, the results would have been lower.
</TABLE>
See notes to financial statements
15
<PAGE>
Financial Statements - continued
Financial Highlights - continued
- --------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
-------------------------------
February 28, February 29,
1997 1996
--------------- ---------------
Class B
-------------------------------
<S> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of
period $ 9.66 $ 9.22
------- -------
Income from investment operations# -
Net investment income[sec] $ 0.55 $ 0.59
Net realized and unrealized gain
(loss) on investments (0.28) 0.44
------- -------
Total from investment
operations $ 0.27 $ 1.03
------- -------
Less distributions declared to
shareholders from net investment
income $ (0.54) $ (0.59)
------- -------
Net asset value - end of period $ 9.39 $ 9.66
------- -------
Total return 2.92% 11.46%
Ratios (to average net assets)/Supplemental
data[sec]:
Expenses## 1.62% 1.56%
Net investment income 5.85% 6.09%
Portfolio turnover 339% 352%
Net assets, end of period
(000 omitted) $114,861 $124,921
*For the period from the commencement of offering of Class B shares, August 30,
1993 to February 28, 1994.
+Annualized.
#Per share data for the periods subsequent to February 28, 1994 is based on
average shares outstanding.
##For fiscal years ending after September 1, 1995, the Fund's expenses are
calculated without reduction for fees paid indirectly.
[dbldag][dbldag]Amount includes distribution in excess of net investment income
of less than $0.001 per share for the period indicated.
[sec]The investment adviser did not impose a portion of its management fee for
certain of the periods indicated. If this fee had been incurred by the Fund, the
net investment income per share and ratios would have been:
Net investment income $ 0.54 $ 0.57
Ratios (to average net assets):
Expenses 1.77% 1.77%
Net investment income 5.70% 5.88%
<CAPTION>
Year Ended Period Ended
--------------- --------------------
February 28, February 28,
1995 1994*
--------------- ---------------------
Class B
-------------------------------------
<S> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of
period $ 9.78 $10.16
------- ------
Income from investment operations# -
Net investment income[sec] $ 0.59 $ 0.30
Net realized and unrealized gain
(loss) on investments (0.56) (0.43)
------- ------
Total from investment
operations $ 0.03 $(0.13)
------- ------
Less distributions declared to
shareholders from net investment
income $ (0.59) $(0.25)[dbldag][dbldag]
------- ------
Net asset value - end of period $ 9.22 $ 9.78
------- ------
Total return 0.57% (1.29)%
Ratios (to average net assets)/Supplemental
data[sec]:
Expenses## 1.51% 1.39%+
Net investment income 6.52% 5.92%+
Portfolio turnover 385% 167%
Net assets, end of period
(000 omitted) $105,178 $113,107
*For the period from the commencement of offering of Class B shares, August
30, 1993 to February 28, 1994.
+Annualized.
#Per share data for the periods subsequent to February 28, 1994 is based on
average shares outstanding.
##For fiscal years ending after September 1, 1995, the Fund's expenses are
calculated without reduction for fees paid indirectly.
[dbldag][dbldag]Amount includes distribution in excess of net investment income
of less than $0.001 per share for the period indicated.
[sec]The investment adviser did not impose a portion of its management fee for
certain of the periods indicated. If this fee had been incurred by the Fund, the
net investment income per share and ratios would have been:
Net investment income $0.57 $0.28
Ratios (to average net assets):
Expenses 1.77% 1.87%+
Net investment income 6.26% 5.44%+
</TABLE>
See notes to financial statements
16
<PAGE>
Financial Statements - continued
Financial Highlights - continued
- --------------------------------------------------------------------
<TABLE>
<CAPTION>
Period Ended Period Ended
February 28, February 28,
1997* 1997**
--------------- ---------------
Class C Class I
--------------- ---------------
<S> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $ 9.51 $ 9.41
-------- --------
Income from investment operations# -
Net investment income[sec] $ 0.47 $ 0.10
Net realized and unrealized loss on investments (0.09) (0.01)
-------- --------
Total from investment operations $ 0.38 $ 0.09
-------- --------
Less distributions declared to shareholders from net
investment income $ (0.46) $ (0.10)
-------- --------
Net asset value - end of period $ 9.43 $ 9.40
-------- --------
Total return 4.06%++ 1.03%++
Ratios (to average net assets)/Supplemental data[sec]:
Expenses## 1.55%+ 0.48%+
Net investment income 5.97%+ 7.22%+
Portfolio turnover 339% 339%
Net assets, end of period (000 omitted) $ 6,046 $ 470
*For the period from the commencement of offering of Class C shares, April 1,
1996 to February 28, 1997.
**For the period from the commencement of offering of Class I shares, January 2,
1997 to February 28, 1997 +Annualized.
++Not annualized.
#Per share data is based on average shares outstanding.
##The Fund's expenses are calculated without reduction for fees paid indirectly.
[sec]The investment adviser did not impose a portion of its management fee for
certain of t periods indicated. If this fee had been incurred by the Fund, the
net investment income per share and ratios would have been:
Net investment income $ 0.46 $ 0.09
Ratios (to average net assets):
Expenses 1.70%+ 0.63%+
Net investment income 5.82%+ 7.07%+
</TABLE>
See notes to financial statements
17
<PAGE>
Notes to Financial Statements
(1) Business and Organization
MFS Government Securities Fund (the Fund) is organized as a Massachusetts
business trust and is registered under the Investment Company Act of 1940, as
amended, as a diversified, open-end management investment company.
(2) Significant Accounting Policies
General - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Investment Valuations - Debt securities (other than short-term obligations which
mature in 60 days or less), including listed issues, are valued on the basis of
valuations furnished by dealers or by a pricing service with consideration to
factors such as institutional-size trading in similar groups of securities,
yield, quality, coupon rate, maturity, type of issue, trading characteristics
and other market data, without exclusive reliance upon exchange or
over-the-counter prices. Short-term obligations, which mature in 60 days or
less, are valued at amortized cost, which approximates market value.
Repurchase Agreements - The Fund may enter into repurchase agreements with
institutions that the Fund's investment adviser has determined are creditworthy.
Each repurchase agreement is recorded at cost. The Fund requires that the
securities purchased in a repurchase transaction be transferred to the custodian
in a manner sufficient to enable the Fund to obtain those securities in the
event of a default under the repurchase agreement. The Fund monitors, on a daily
basis, the value of the securities transferred to ensure that the value,
including accrued interest, of the securities under each repurchase agreement is
greater than amounts owed to the Fund under each such repurchase agreement. The
Fund, along with other affiliated entities of Massachusetts Financial Services
Company (MFS), may utilize a joint trading account for the purpose of entering
into one or more repurchase agreements.
Investment Transactions and Income - Investment transactions are recorded on the
trade date. Interest income is recorded on the accrual basis. All premium and
original issue discount are amortized or accreted for financial statement and
tax reporting purposes as required by federal income tax regulations.
Fees Paid Indirectly - The Fund's custodian bank calculates its fee based on the
Fund's average daily net assets. The fee is reduced according to a fee
arrangement, which provides for custody fees to be reduced based on a formula
developed to measure the value of cash deposited with the custodian by the Fund.
This amount is shown as a reduction of expenses on the Statement of Operations.
18
<PAGE>
Notes to Financial Statements - continued
Tax Matters and Distributions - The Fund's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided. The Fund files a tax
return annually using tax accounting methods required under provisions of the
Code which may differ from generally accepted accounting principles, the basis
on which these financial statements are prepared. Accordingly, the amount of net
investment income and net realized gain reported on these financial statements
may differ from that reported on the Fund's tax return and, consequently, the
character of distributions to shareholders reported in the financial highlights
may differ from that reported to shareholders on Form 1099-DIV. Distributions to
shareholders are recorded on the ex-dividend date.
The Fund distinguishes between distributions on a tax basis and a financial
reporting basis and requires that only distributions in excess of tax basis
earnings and profits are reported in the financial statements as a tax return of
capital. Differences in the recognition or classification of income between the
financial statements and tax earnings and profits which result in temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or accumulated net realized
gains. During the year ended February 28, 1997, $435,399 was reclassified from
accumulated undistributed net investment income to accumulated net realized loss
on investments due to differences between book and tax accounting for
mortgage-backed securities. This change had no effect on the net assets or net
asset value per share. At February 28, 1997, accumulated undistributed net
investment income and accumulated net realized loss on investments under book
accounting were different from tax accounting due to significant temporary
differences in accounting for capital losses.
As of February 28, 1997, the Fund, for federal income tax purposes, had a
capital loss carryforward of $37,119,277 which may be applied against any net
taxable realized gains of each succeeding year until the earlier of its
utilization or expiration on February 28, 1999 ($272,762), February 28, 2003
($20,719,753), and February 28, 2005 ($16,126,762).
Multiple Classes of Shares of Beneficial Interest - The Fund offers Class A,
Class B, Class C, and Class I shares. The four classes of shares differ in their
respective distribution and service fees. All shareholders bear the common
expenses of the Fund pro rata based on the average daily net assets of each
class, without distinction between share classes. Dividends are declared
separately for each class. No class has preferential dividend rights;
differences in per share dividend rates are generally due to differences in
separate class expenses.
19
<PAGE>
Notes to Financial Statements - continued
(3) Transactions with Affiliates
Investment Adviser - The Fund has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an effective annual rate
equal to the lesser of (i) 0.40% of average daily net assets or (ii) 0.25% of
average daily net assets plus 3.40% of investment income. The investment adviser
did not impose a portion of its fee, which is reflected as a reduction of
expenses in the Statement of Operations.
The Fund pays no compensation directly to its Trustees who are officers of the
investment adviser, or to officers of the Fund, all of whom receive remuneration
for their services to the Fund from MFS. Certain officers and Trustees of the
Fund are officers or directors of MFS, MFS Fund Distributors, Inc. (MFD) and MFS
Service Center, Inc. (MFSC). The Fund has an unfunded defined benefit plan for
all of its independent Trustees and Mr. Bailey. Included in Trustees'
compensation is a net periodic pension expense of $13,154 for the year ended
February 28, 1997.
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$60,477 for the year ended February 28, 1997, as its portion of the sales charge
on sales of Class A shares of the Fund.
The Trustees have adopted a distribution plan for Class A, Class B, and Class C
shares pursuant to Rule 12b-1 of the Investment Company Act of 1940 as follows:
The Fund's distribution plan provides that the Fund will pay MFD up to 0.35% per
annum of its average daily net assets attributable to Class A shares in order
that MFD may pay expenses on behalf of the Fund related to the distribution and
servicing of its shares. These expenses include a service fee to each securities
dealer that enters into a sales agreement with MFD of up to 0.25% of the Fund's
average daily net assets attributable to Class A shares which are attributable
to that securities dealer, a distribution fee to MFD of up to 0.10% per annum of
the Fund's average daily net assets attributable to Class A shares, commissions
to dealers and payments to MFD wholesalers for sales at or above a certain
dollar level, and other such distribution-related expenses that are approved by
the Fund. MFD retains the service fee for accounts not attributable to a
securities dealer which amounted to $107,462 for the year ended February 28,
1997. Fees incurred under the distribution plan during the year ended February
28, 1997 were 0.35% of average daily net assets attributable to Class A shares
on an annualized basis.
The Fund's distribution plan provides that the Fund will pay MFD a distribution
fee of 0.75% per annum, and a service fee of up to 0.25% per annum, of the
Fund's average daily net assets attributable to Class B and Class
20
<PAGE>
Notes to Financial Statements - continued
C shares. MFD will pay to securities dealers that enter into a sales agreement
with MFD all or a portion of the service fee attributable to Class B and Class C
shares, and will pay to such securities dealers all of the distribution fee
attributable to Class C shares. The service fee is intended to be additional
consideration for services rendered by the dealer with respect to Class B and
Class C shares. MFD retains the service fee for accounts not attributable to a
securities dealer, which amounted to $38,742 and $92 for Class B and Class C
shares, respectively, for the year ended February 28, 1997. Fees incurred under
the distribution plans during the year ended February 28, 1997 were 1.00% of
average daily net assets attributable to Class B and Class C shares on an
annualized basis.
Purchases over $1 million of Class A shares and certain purchases into
retirement plans are subject to a contingent deferred sales charge in the event
of a shareholder redemption within 12 months following such purchase. A
contingent deferred sales charge is imposed on shareholder redemptions of Class
B shares in the event of a shareholder redemption within six years of purchase.
A contingent deferred sales charge is imposed on shareholder redemptions of
Class C shares in the event of a shareholder redemption within twelve months of
purchases made on or after April 1, 1996. MFD receives all contingent deferred
sales charges. Contingent deferred sales charges imposed during the year ended
February 28, 1997 were $3,861, $279,385 and $789 for Class A, Class B and Class
C shares, respectively.
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earns a
fee for its services as shareholder servicing agent. The fee is calculated as a
percentage of the Fund's average daily net assets at an effective annual rate of
0.13%. Prior to January 1, 1997, the fee was calculated as a percentage of the
average daily net assets of each class of shares at an effective annual rate of
up to 0.15%, up to 0.22% and up to 0.15% attributable to Class A, Class B, and
Class C shares, respectively.
(4) Portfolio Securities
Purchases and sales of investments, other than purchased option transactions and
short-term obligations, aggregated $1,371,991,466 and $1,436,922,251,
respectively.
The cost and unrealized appreciation or depreciation in value of the investments
owned by the Fund, as computed on a federal income tax basis, are as follows:
<TABLE>
<S> <C>
Aggregate cost $388,427,073
------------
Gross unrealized depreciation $ (4,461,164)
Gross unrealized appreciation 3,105,387
------------
Net unrealized depreciation $ (1,355,777)
------------
</TABLE>
21
<PAGE>
Notes to Financial Statements - continued
(5) Shares of Beneficial Interest
The Fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
Class A Shares
<TABLE>
<CAPTION>
February 28, 1997 February 29, 1996
----------------------------- --------------------------------
Shares Amount Shares Amount
------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
Shares sold 4,140,119 $ 38,922,278 5,924,628 $ 57,343,342
Shares issued to
shareholders in
reinvestment of
distributions 1,321,595 12,427,596 1,417,405 13,598,580
Shares transferred to
Class I (49,744) (468,094)
Shares reacquired (7,593,288) (71,389,880) (8,453,776) (81,475,284)
----------- ------------ ----------- ------------
Net decrease (2,181,318) $(20,508,100) (1,111,743) $(10,533,362)
----------- ------------ ----------- ------------
</TABLE>
Class B Shares
<TABLE>
<CAPTION>
February 28, 1997 February 29, 1996
----------------------------- --------------------------------
Shares Amount Shares Amount
------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
Shares sold 3,497,240 $ 32,902,922 7,243,533 $ 69,844,877
Shares issued to
shareholders in
reinvestment of
distributions 466,248 4,381,846 485,387 4,657,192
Shares reacquired (4,666,881) (43,848,545) (6,202,442) (59,980,527)
----------- ------------ ----------- ------------
Net decrease (703,393) $ (6,563,777) 1,526,478 $ 14,521,542
----------- ------------ ----------- ------------
</TABLE>
Class C Shares
<TABLE>
<CAPTION>
Period Ended
February 28, 1997*
-----------------------
Shares Amount
---------- ------------
<S> <C> <C>
Shares sold 655,092 $6,142,479
Shares issued to
shareholders in
reinvestment of
distributions 15,823 148,965
Shares reacquired (29,473) (276,397)
-------- ----------
Net increase 641,442 $6,015,047
-------- ----------
</TABLE>
*For the period from the commencement of offering of Class C shares, April 1,
1996 to February 28, 1997.
22
<PAGE>
Notes to Financial Statements - continued
Class I Shares
<TABLE>
<CAPTION>
Period Ended
February 28, 1997**
-----------------------
Shares Amount
---------- ------------
<S> <C> <C>
Shares sold 529 $ 5,013
Shares issued to
shareholders in
reinvestment of
distributions 558 5,242
Shares transferred
from Class A 49,744 468,094
Shares reacquired (883) (8,310)
------ -------
Net increase
(decrease) 49,948 $470,039
------ -------
**For the period from the commencement of offering of Class I February 28, 1997.
</TABLE>
(7) Line of Credit
The Fund entered into an agreement which enables it to participate with other
funds managed by MFS in an unsecured line of credit with a bank which permits
borrowings up to $400 million, collectively. Borrowings may be made to
temporarily finance the repurchase of Fund shares. Interest is charged to each
fund, based on its borrowings, at a rate equal to the bank's base rate. In
addition, a commitment fee, based on the average daily unused portion of the
line of credit, is allocated among the participating funds at the end of each
quarter. The commitment fee allocated to the Fund for the year ended February
28, 1997 was $4,341.
23
<PAGE>
Independent Auditors' Report
To the Trustees and Shareholders of MFS Government Securities Fund:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of MFS Government Securities Fund as of February
28, 1997, the related statement of operations for the year then ended, the
statement of changes in net assets for the years ended February 28, 1997 and
February 29, 1996, and the financial highlights for each of the years in the
three-year period ended February 28, 1997, the eleven months ended February 28,
1994 and for each of the years in the seven-year period ended March 31, 1993.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned at
February 28, 1997 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of MFS Government
Securities Fund at February 28, 1997, the results of its operations, the changes
in its net assets, and its financial highlights for the respective stated
periods in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
April 3, 1997
---------------------------------------------------------------------
This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by a current prospectus.
24
<PAGE>
MFS(R) Government Securities Fund
Trustees
A. Keith Brodkin* - Chairman and President
Richard B. Bailey* - Private Investor;
Former Chairman and Director (until 1991), Massachusetts Financial Services
Company; Director, Cambridge Bancorp; Director, Cambridge Trust Company
Peter G. Harwood - Private Investor
J. Atwood Ives - Chairman and Chief Executive Officer, Eastern Enterprises
Lawrence T. Perera - Partner, Hemenway & Barnes
William J. Poorvu - Adjunct Professor, Harvard University Graduate School of
Business Administration
Charles W. Schmidt - Private Investor
Arnold D. Scott* - Senior Executive Vice President, Director and Secretary,
Massachusetts Financial Services Company
Jeffrey L. Shames* - President and Director, Massachusetts Financial Services
Company
Elaine R. Smith - Independent Consultant
David B. Stone - Chairman, North American Management Corp. (investment advisers)
Investment Adviser
Massachusetts Financial Services Company
500 Boylston Street
Boston, MA 02116-3741
Distributor
MFS Fund Distributors, Inc.
500 Boylston Street
Boston, MA 02116-3741
Portfolio Manager
Steven E. Nothern*
Treasurer
W. Thomas London*
Assistant Treasurer
James O. Yost*
Secretary
Stephen E. Cavan*
Assistant Secretary
James R. Bordewick, Jr.*
Custodian
State Street Bank and Trust Company
*Affiliated with the Investment Adviser
Auditors
Deloitte & Touche LLP
Investor Information
For MFS stock and bond market outlooks, call toll free: 1-800-637-4458 anytime
from a touch-tone telephone.
For information on MFS mutual funds, call your financial adviser or, for an
information kit, call toll free: 1-800-637-2929 any business day from 9 a.m. to
5 p.m. Eastern time (or leave a message anytime).
Investor Service
MFS Service Center, Inc.
P.O. Box 2281
Boston, MA 02107-9906
For general information, call toll free: 1-800-225-2606 any business day from 8
a.m. to 8 p.m. Eastern time.
For service to speech- or hearing-impaired, call toll free: 1-800-637-6576
any business day from 9 a.m. to 5 p.m. Eastern time. (To use this service,
your phone must be equipped with a Telecommunications Device for the Deaf.)
For share prices, account balances, and exchanges, call toll free:
1-800-MFS-TALK (1-800-637-8255) anytime from a touch-tone telephone.
World Wide Web
www.mfs.com
[DALBAR LOGO]
For the third year in a row, MFS earned a #1 ranking in the DALBAR, Inc.
Broker/Dealer Survey, Main Office Operations Service Quality Category. The firm
achieved a 3.48 overall score on a scale of 1 to 4 in the 1996 survey. A total
of 110 firms responded, offering input on the quality of service they received
from 29 mutual fund companies nationwide. The survey contained questions about
service quality in 15 categories, including "knowledge of phone service
contacts," "accuracy of transaction processing," and "overall ease of doing
business with the firm."
25
<PAGE>
MFS(R) Government [DALBAR LOGO] ----------------
Securities Fund Bulk Rate
U.S. Postage
P A I D
500 Boylston Street Permit #55638
Boston, MA 02116-3741 Boston, MA
----------------
[MFS Investment Management Logo]
We invented the mutual fund(SM)
(C) 1997 MFS Fund Distributors, Inc., 500 Boylston Street, Boston, MA 02116-3741
MGS-2 4/97 31M 26/226/326
<PAGE>
PART C
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS INCLUDED IN PART A:
For the seven years ended March 31, 1993, the
period ended February 28, 1994, and the three years
ended, February 28, 1997:
Financial Highlights
FINANCIAL STATEMENTS INCLUDED IN PART B:
At February 28, 1997:
Portfolio of Investments*
Statement of Assets and Liabilities*
For the year ended February 28, 1997:
Statement of Operations*
For the year ended February 29, 1996 and the year ended
February 28, 1997:
Statement of Changes in Net Assets*
- -------------------------------
* Incorporated herein by reference to the Fund's Annual Report to
shareholders dated February 28, 1997, which was filed with the SEC via
EDGAR on May 2, 1997.
(b) EXHIBITS:
1 (a) Amended and Restated Declaration of Trust, dated March
20, 1995. (3)
(b) Amendment to the Declaration of Trust, dated March 13,
1996. (7)
(c) Amendment to the Declaration of Trust, dated June 20, 1996.
(9)
(d) Amendment to the Declaration of Trust - Redesignation of
Class P Shares as Class I Shares, dated December 19, 1996;
filed herewith.
2 Amended and Restated By-Laws, dated December 21, 1994. (3)
3 Not Applicable.
4 Form of Share Certificate for Classes of Shares. (8)
5 (a) Investment Advisory Agreement dated July 18, 1984 by and
between the Registrant and Massachusetts Financial
Services Company. (6)
(b) Amendment to the Investment Advisory Agreement, dated
February 1, 1994. (6)
6 (a) Distribution Agreement, dated January 1, 1995. (3)
(b) Dealer Agreement between MFS Fund Distributors Inc. and a
dealer, and the Mutual Fund Agreement between MFD and a
bank or NASD affiliate, dated December 28, 1994, as amended
on April 11, 1997. (13)
7 Retirement Plan for Non-Interested Person Trustees, dated
April 1, 1991. (6)
8 (a) Custodian Contract between Registrant and State Street Bank
& Trust Company, dated May 24, 1988. (6)
(b) Amendment to Custodian Contract, dated May 24, 1988. (6)
(c) Amendment to Custodian Contract, dated October 1, 1989. (6)
(d) Amendment to Custodian Contract, dated September 17, 1991.
(6)
9 (a) Shareholder Servicing Agreement between Registrant and
Massachusetts Financial Service Center, dated August 1,
1985. (6)
(b) Amendment to Shareholder Servicing Agent Agreement, dated
January 1, 1997, to amend Fee Schedule; filed herewith.
(c) Dividend Disbursing Agency Agreement, dated February 1,
1986. (4)
(d) Exchange Privilege Agreement, dated September 1, 1993. (4)
(e) Exchange Privilege Agreement, dated September 1, 1993, as
amended and restated through and including January 1, 1997.
(11)
(f) Loan Agreement by and among The Banks Named Therein, The
MFS Borrowers Named Therein, and The First National Bank of
Boston as Agent, dated February 21, 1995. (2)
(g) Third Amendment, dated February 14, 1997, to the Loan
Agreement, dated February 21, 1995, as heretofore amended,
by and among the Borrowers , the Banks and the Agent. (14)
(h) Master Administrative Services Agreement, dated March 1,
1997. (13)
10 Consent and Opinion of Counsel filed with Registrant's Rule
24f-2 Notice for the fiscal year ended February 28, 1997,
on April 29, 1997.
11 Consent of Deloitte & Touche LLP; filed herewith.
12 Not Applicable.
13 Not Applicable.
14 (a) Forms for Individual Retirement Account Disclosure
Statement as currently in effect. (5)
(b) Forms for MFS 403(b) Custodial Account Agreement as
currently in effect. (5)
(c) Forms for MFS Prototype Paired Defined Contribution Plans
and Trust Agreement as currently in effect. (5)
15 Master Distribution Plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940, effective January 1, 1997. (10)
16 (a) Schedule for Computation of Performance Quotations -
Average Annual Total Rate of Return, Aggregate Total Rate
of Return and Standardized Yield. (1)
17 Financial Data Schedules for Class A, Class B, Class C and
Class I shares of the Fund; filed herewith.
18 Plan pursuant to Rule 18f-3(d) under the Investment Company Act
of 1940. (8)
Power of Attorney dated September 21, 1994; filed herewith.
- ----------------------------
(1) Incorporated by reference to MFS Municipal Series Trust (File Nos. 2-92915
and 811-4096) Post-Effective Amendment No. 26 filed with the SEC via EDGAR
on February 22, 1995.
(2) Incorporated by reference to Amendment No. 8 on Form N-2 for MFS Municipal
Income Trust (File No. 811-4841) filed with the SEC via EDGAR on February
28, 1995.
(3) Incorporated by reference to Registrant's Post-Effective Amendment No. 16
filed with the SEC via EDGAR on June 28, 1995.
(4) 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.
(5) Incorporated by reference to MFS Series Trust IX (File Nos. 2-50409 and
811-2464) Post-Effective Amendment No. 32 filed with the SEC via EDGAR on
August 28, 1995.
(6) Incorporated by reference to Registrant's Post-Effective Amendment No. 17
filed with the SEC via EDGAR on October 13, 1995.
(7) Incorporated by reference to Registrant's Post-Effective Amendment No. 18
filed with the SEC via EDGAR on March 29, 1996.
(8) 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.
(9) Incorporated by reference to Registrant's Post-Effective Amendment No. 21
filed with the SEC via EDGAR on August 29, 1996.
(10) Incorporated by reference to MFS Series Trust IV (File Nos. 2-54607 and
811-2594) Post-Effective Amendment No. 30 filed with the SEC via EDGAR on
December 27, 1996.
(11) Incorporated by reference to MFS Series Trust VIII (File Nos. 33-37972 and
811-5262) Post-Effective Amendment No. 13 filed with the SEC via EDGAR on
February 27, 1997.
(12) Incorporated by reference to MFS/Sun Life Series Trust (File Nos. 2-83616
and 811-3732) Post-Effective Amendment No. 19 filed with the SEC via EDGAR
on March 18, 1997.
(13) Incorporated by reference to MFS Series Trust III (File Nos. 2-60491 and
811-2794) Post-Effective Amendment No. 24 filed with the SEC via EDGAR on
May 29, 1997.
(14) Incorporated by reference to MFS Series Trust I (File Nos. 33-7638 and
811-4777) Post-Effective Amendment No. 28 filed with the SEC via EDGAR on
June 26, 1997.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Not applicable.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
(1) (2)
TITLE OF CLASS NUMBER OF RECORD HOLDERS
Class A Shares of Beneficial Interest 17,214
(without par value) (as of May 31, 1997)
Class B Shares of Beneficial Interest 6,754
(without par value) (as of May 31, 1997)
Class C Shares of Beneficial Interest 131
(without par value) (as of May 31, 1997)
Class I Shares of Beneficial Interest 2
(without par value) (as of May 31, 1997)
ITEM 27. INDEMNIFICATION
Reference is hereby made to (a) Article V of Registrant's Declaration
of Trust, incorporated by reference to the Registrant's Post-Effective Amendment
No. 16, filed with the SEC on June 28, 1995 and (b) Section 9 of the Shareholder
Servicing Agent Agreement, incorporated by reference to Registrant's
Post-Effective Amendment No. 17, 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 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, as amended.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
MFS serves as investment adviser to the following open-end Funds
comprising the MFS Family of Funds: Massachusetts Investors Trust, Massachusetts
Investors Growth Stock Fund, MFS Growth Opportunities Fund, MFS Government
Securities Fund, MFS Government Limited Maturity Fund, The MFS Series Trust
(which has one series: MFS Aggressive Small Cap Equity Fund), MFS Series Trust I
(which has thirteen series: MFS Managed Sectors Fund, MFS Cash Reserve Fund, MFS
World Asset Allocation Fund, MFS Aggressive Growth Fund, MFS Research Growth and
Income Fund, MFS Core Growth Fund, MFS Equity Income Fund, MFS Special
Opportunities Fund, MFS Convertible Securities Fund, MFS Blue Chip Fund, MFS New
Discovery Fund, MFS Science and Technology Fund and MFS Research International
Fund), MFS Series Trust II (which has four series: MFS Emerging Growth Fund, MFS
Capital Growth Fund, MFS Intermediate Income Fund and MFS Gold & Natural
Resources Fund), MFS Series Trust III (which has two series: MFS High Income
Fund and MFS Municipal High Income Fund), MFS Series Trust IV (which has four
series: MFS Money Market Fund, MFS Government Money Market Fund, MFS Municipal
Bond Fund and MFS OTC Fund), MFS Series Trust V (which has two series: MFS Total
Return Fund and MFS Research Fund), MFS Series Trust VI (which has three series:
MFS World Total Return Fund, MFS Utilities Fund and MFS World Equity Fund), MFS
Series Trust VII (which has two series: MFS World Governments Fund and MFS Value
Fund), MFS Series Trust VIII (which has two series: MFS Strategic Income Fund
and MFS World Growth Fund), MFS Series Trust IX (which has three series: MFS
Bond Fund, MFS Limited Maturity Fund and MFS Municipal Limited Maturity Fund),
MFS Series Trust X (which has four series: MFS Government Mortgage Fund,
MFS/Foreign & Colonial Emerging Markets Equity Fund, MFS/Foreign & Colonial
International Growth Fund and MFS/Foreign & Colonial International Growth and
Income Fund), and MFS Municipal Series Trust (which has 16 series: MFS Alabama
Municipal Bond Fund, MFS Arkansas Municipal Bond Fund, MFS California Municipal
Bond Fund, MFS Florida Municipal Bond Fund, MFS Georgia Municipal Bond Fund, MFS
Maryland Municipal Bond Fund, MFS Massachusetts Municipal Bond Fund, MFS
Mississippi Municipal Bond Fund, MFS New York Municipal Bond Fund, MFS North
Carolina Municipal Bond Fund, MFS Pennsylvania Municipal Bond Fund, MFS South
Carolina Municipal Bond Fund, MFS Tennessee Municipal Bond Fund, MFS Virginia
Municipal Bond Fund, MFS West Virginia Municipal Bond Fund and MFS Municipal
Income Fund) (the "MFS Funds"). The principal business address of each of the
MFS Funds is 500 Boylston Street, Boston, Massachusetts 02116. MFS also serves
as investment adviser of the following no-load, open-end Funds: MFS
Institutional Trust ("MFSIT") (which has seven series), MFS Variable Insurance
Trust ("MVI") (which has twelve series) and MFS Union Standard Trust ("UST").
The principal business address of each of the aforementioned funds is 500
Boylston Street, Boston, Massachusetts 02116.
In addition, MFS serves as investment adviser to the following
closed-end funds: MFS Municipal Income Trust, MFS Multimarket Income Trust, MFS
Government Markets Income Trust, MFS Intermediate Income Trust, MFS Charter
Income Trust and MFS Special Value Trust (the "MFS Closed-End Funds"). The
principal business address of each of the MFS Closed-End Funds is 500 Boylston
Street, Boston, Massachusetts 02116.
Lastly, MFS serves as investment adviser to MFS/Sun Life Series Trust
("MFS/SL"), Money Market Variable Account, High Yield Variable Account, Capital
Appreciation Variable Account, Government Securities Variable Account, World
Governments Variable Account, Total Return Variable Account and Managed Sectors
Variable Account. The principal business address of each of the aforementioned
funds is One Sun Life Executive Park, Wellesley Hills, Massachusetts 02181.
MFS International Ltd. ("MIL"), a limited liability company organized
under the laws of Bermuda and a subsidiary of MFS, whose principal business
address is Cedar House, 41 Cedar Avenue, Hamilton HM12 Bermuda, serves as
investment adviser to and distributor for MFS American Funds (which has six
portfolios: MFS American Funds-U.S. Equity Fund, MFS American Funds-U.S.
Emerging Growth Fund, MFS American Funds-U.S. High Yield Bond Fund, MFS American
Funds - U.S. Dollar Reserve Fund, MFS American Funds-Charter Income Fund and MFS
American Funds-U.S. Research Fund) (the "MIL Funds"). The MIL Funds are
organized in Luxembourg and qualify as an undertaking for collective investments
in transferable securities (UCITS). The principal business address of the MIL
Funds is 47, Boulevard Royal, L-2449 Luxembourg.
MIL also serves as investment adviser to and distributor for MFS
Meridian U.S. Government Bond Fund, MFS Meridian Charter Income Fund, MFS
Meridian Global Government Fund, MFS Meridian U.S. Emerging Growth Fund, MFS
Meridian Global Equity Fund, MFS Meridian Limited Maturity Fund, MFS Meridian
World Growth Fund, MFS Meridian Money Market Fund, MFS Meridian World Total
Return Fund, MFS Meridian U.S. Equity Fund, MFS Meridian Research Fund, MFS
Meridian U.S. High Yield Fund and MFS Emerging Markets Debt Fund (collectively
the "MFS Meridian Funds"). Each of the MFS Meridian Funds is organized as an
exempt company under the laws of the Cayman Islands. The principal business
address of each of the MFS Meridian Funds is P.O. Box 309, Grand Cayman, Cayman
Islands, British West Indies.
MFS International (U.K.) Ltd. ("MIL-UK"), a private limited company
registered with the Registrar of Companies for England and Wales whose current
address is 4 John Carpenter Street, London, England ED4Y 0NH, is involved
primarily in marketing and investment research activities with respect to
private clients and the MIL Funds and the MFS Meridian Funds.
MFS Fund Distributors, Inc. ("MFD"), a wholly owned subsidiary of MFS,
serves as distributor for the MFS Funds, MVI, UST and MFSIT.
Clarendon Insurance Agency, Inc. ("CIAI"), a wholly owned subsidiary
of MFS, serves as distributor for certain life insurance and annuity contracts
issued by Sun Life Assurance Company of Canada (U.S.).
MFS Service Center, Inc. ("MFSC"), a wholly owned subsidiary of MFS,
serves as shareholder servicing agent to the MFS Funds, the MFS Closed-End
Funds, MFSIT, MVI and UST.
MFS Institutional Advisors, Inc. ("MFSI"), a wholly owned subsidiary
of MFS, provides investment advice to substantial private clients.
MFS Retirement Services, Inc. ("RSI"), a wholly owned subsidiary of
MFS, markets MFS products to retirement plans and provides administrative and
record keeping services for retirement plans.
MFS
The Directors of MFS are A. Keith Brodkin, Jeffrey L. Shames, Arnold
D. Scott, Donald A. Stewart and John D. McNeil. Mr. Brodkin is the Chairman, Mr.
Shames is the President, Mr. Scott is a Senior Executive Vice President and
Secretary, Bruce C. Avery, William S. Harris, William W. Scott, Jr., Patricia A.
Zlotin, John W. Ballen, Thomas J. Cashman, Jr., Joseph W. Dello Russo and Kevin
R. Parke are Executive Vice Presidents, Stephen E. Cavan is a Senior Vice
President, General Counsel and an Assistant Secretary, Robert T. Burns is a
Senior Vice President, Associate General Counsel and an Assistant Secretary of
MFS, and Thomas B. Hastings is a Vice President and Treasurer of MFS.
MASSACHUSETTS INVESTORS TRUST
MASSACHUSETTS INVESTORS GROWTH STOCK FUND
MFS GROWTH OPPORTUNITIES FUND
MFS GOVERNMENT SECURITIES FUND
MFS SERIES TRUST I
MFS SERIES TRUST V
MFS SERIES TRUST VI
MFS SERIES TRUST X
MFS GOVERNMENT LIMITED MATURITY FUND
A. Keith Brodkin is the Chairman and President, Stephen E. Cavan is
the Secretary, W. Thomas London is the Treasurer, James O. Yost, Ellen M.
Moynihan and Mark E. Bradley, Vice Presidents of MFS, are the Assistant
Treasurers, James R. Bordewick, Jr., Senior Vice President and Associate General
Counsel of MFS, is the Assistant Secretary.
MFS SERIES TRUST II
A. Keith Brodkin is the Chairman and President, Leslie J. Nanberg,
Senior Vice President of MFS, is a Vice President, Stephen E. Cavan is the
Secretary, W. Thomas London is the Treasurer, James O. Yost, Ellen M. Moynihan
and Mark E. Bradley are the Assistant Treasurers, and James R. Bordewick, Jr.,
is the Assistant Secretary.
MFS GOVERNMENT MARKETS INCOME TRUST
MFS INTERMEDIATE INCOME TRUST
A. Keith Brodkin is the Chairman and President, Leslie J. Nanberg,
Senior Vice President of MFS, is a Vice President, Stephen E. Cavan is the
Secretary, W. Thomas London is the Treasurer, James O. Yost, Ellen M. Moynihan
and Mark E. Bradley are the Assistant Treasurers, and James R. Bordewick, Jr.,
is the Assistant Secretary.
MFS SERIES TRUST III
A. Keith Brodkin is the Chairman and President, James T. Swanson,
Robert J. Manning, Cynthia M. Brown and Joan S. Batchelder, Senior Vice
Presidents of MFS, and Bernard Scozzafava, Vice President of MFS, are Vice
Presidents, Sheila Burns-Magnan, Assistant Vice President of MFS, and Daniel E.
McManus, Vice President of MFS, are Assistant Vice Presidents, Stephen E. Cavan
is the Secretary, W. Thomas London is the Treasurer, James O. Yost, Ellen M.
Moynihan and Mark E. Bradley are the Assistant Treasurers, and James R.
Bordewick, Jr., is the Assistant Secretary.
MFS SERIES TRUST IV
MFS SERIES TRUST IX
A. Keith Brodkin is the Chairman and President, Robert A. Dennis and
Geoffrey L. Kurinsky, Senior Vice Presidents of MFS, are Vice Presidents,
Stephen E. Cavan is the Secretary, W. Thomas London is the Treasurer, James O.
Yost, Ellen M. Moynihan and Mark E. Bradley are the Assistant Treasurers and
James R. Bordewick, Jr., is the Assistant Secretary.
MFS SERIES TRUST VII
A. Keith Brodkin is the Chairman and President, Leslie J. Nanberg and
Stephen C. Bryant, Senior Vice Presidents of MFS, are Vice Presidents, Stephen
E. Cavan is the Secretary, W. Thomas London is the Treasurer, James O. Yost,
Ellen M. Moynihan and Mark E. Bradley are the Assistant Treasurers and James R.
Bordewick, Jr., is the Assistant Secretary.
MFS SERIES TRUST VIII
A. Keith Brodkin is the Chairman and President, Jeffrey L. Shames,
Leslie J. Nanberg, Patricia A. Zlotin, James T. Swanson and John D. Laupheimer,
Jr., Vice President of MFS, are Vice Presidents, Stephen E. Cavan is the
Secretary, W. Thomas London is the Treasurer, James O. Yost, Ellen M. Moynihan
and Mark E. Bradley are the Assistant Treasurers and James R. Bordewick, Jr., is
the Assistant Secretary.
MFS MUNICIPAL SERIES TRUST
A. Keith Brodkin is the Chairman and President, Cynthia M. Brown and
Robert A. Dennis are Vice Presidents, David B. Smith, Geoffrey L. Schechter and
David R. King, Vice Presidents of MFS, are Vice Presidents, Daniel E. McManus,
Vice President of MFS, is an Assistant Vice President, Stephen E. Cavan is the
Secretary, W. Thomas London is the Treasurer, James O. Yost, Ellen M. Moynihan
and Mark E. Bradley are the Assistant Treasurers and James R. Bordewick, Jr., is
the Assistant Secretary.
MFS VARIABLE INSURANCE TRUST
MFS UNION STANDARD TRUST
MFS INSTITUTIONAL TRUST
A. Keith Brodkin is the Chairman and President, Stephen E. Cavan is
the Secretary, W. Thomas London is the Treasurer, James O. Yost is the Assistant
Treasurer and James R. Bordewick, Jr., is the Assistant Secretary.
MFS MUNICIPAL INCOME TRUST
A. Keith Brodkin is the Chairman and President, Cynthia M. Brown and
Robert J. Manning are Vice Presidents, Stephen E. Cavan is the Secretary, W.
Thomas London is the Treasurer, James O. Yost, Ellen M. Moynihan and Mark E.
Bradley are the Assistant Treasurers and James R. Bordewick, Jr., is the
Assistant Secretary.
MFS MULTIMARKET INCOME TRUST
MFS CHARTER INCOME TRUST
A. Keith Brodkin is the Chairman and President, Leslie J. Nanberg and
James T. Swanson are Vice Presidents, Stephen E. Cavan is the Secretary, W.
Thomas London is the Treasurer, James O. Yost, Ellen M. Moynihan and Mark E.
Bradley are the Assistant Treasurers and James R. Bordewick, Jr., is the
Assistant Secretary.
MFS SPECIAL VALUE TRUST
A. Keith Brodkin is the Chairman and President, Jeffrey L. Shames and
Robert J. Manning are Vice Presidents, Stephen E. Cavan is the Secretary, W.
Thomas London is the Treasurer, James O. Yost, Ellen M. Moynihan and Mark E.
Bradley are the Assistant Treasurers and James R. Bordewick, Jr., is the
Assistant Secretary.
MFS/SUN LIFE SERIES TRUST
John D. McNeil, Chairman and Director of Sun Life Assurance Company of
Canada, is the Chairman, Stephen E. Cavan is the Secretary, W. Thomas London is
the Treasurer, James O. Yost, Ellen M. Moynihan and Mark E. Bradley are the
Assistant Treasurers and James R. Bordewick, Jr., is the Assistant Secretary.
MONEY MARKET VARIABLE ACCOUNT
HIGH YIELD VARIABLE ACCOUNT
CAPITAL APPRECIATION VARIABLE ACCOUNT
GOVERNMENT SECURITIES VARIABLE ACCOUNT
TOTAL RETURN VARIABLE ACCOUNT
WORLD GOVERNMENTS VARIABLE ACCOUNT
MANAGED SECTORS VARIABLE ACCOUNT
John D. McNeil is the Chairman, Stephen E. Cavan is the Secretary, and
James R. Bordewick, Jr., is the Assistant Secretary.
MIL
A. Keith Brodkin is a Director and the Chairman, Arnold D. Scott and
Jeffrey L. Shames are Directors, Thomas J. Cashman, Jr., an Executive Vice
President of MFS, is a Senior Vice President, Stephen E. Cavan is a Director,
Senior Vice President and the Clerk, James R. Bordewick, Jr. is a Director, Vice
President and an Assistant Clerk, Robert T. Burns is an Assistant Clerk, Joseph
W. Dello Russo, Executive Vice President and Chief Financial Officer of MFS, is
the Treasurer and Thomas B. Hastings is the Assistant Treasurer.
MIL-UK
A. Keith Brodkin is a Director and the Chairman, Arnold D. Scott,
Jeffrey L. Shames, and James R. Bordewick, Jr., are Directors, Stephen E. Cavan
is a Director and the Secretary, James E. Russell is the Treasurer, and Robert
T. Burns is the Assistant Secretary.
MIL FUNDS
A. Keith Brodkin is the Chairman, President and a Director, Richard B.
Bailey, John A. Brindle, Richard W. S. Baker and William F. Waters are
Directors, Stephen E. Cavan is the Secretary, W. Thomas London is the Treasurer,
James O. Yost is the Assistant Treasurer and James R. Bordewick, Jr., is the
Assistant Secretary.
MFS MERIDIAN FUNDS
A. Keith Brodkin is the Chairman, President and a Director, Richard B.
Bailey, John A. Brindle, Richard W. S. Baker, Arnold D. Scott, Jeffrey L. Shames
and William F. Waters are Directors, Stephen E. Cavan is the Secretary, W.
Thomas London is the Treasurer, James R. Bordewick, Jr., is the Assistant
Secretary and James O. Yost is the Assistant Treasurer.
MFD
A. Keith Brodkin is the Chairman and a Director, Arnold D. Scott and
Jeffrey L. Shames are Directors, William W. Scott, Jr., an Executive Vice
President of MFS, is the President, Stephen E. Cavan is the Secretary, Robert T.
Burns is the Assistant Secretary, Joseph W. Dello Russo is the Treasurer, and
Thomas B. Hastings is the Assistant Treasurer.
CIAI
A. Keith Brodkin is the Chairman and a Director, Arnold D. Scott and
Jeffrey L. Shames are Directors, Cynthia Orcott is President, Bruce C. Avery is
the Vice President, Joseph W. Dello Russo is the Treasurer, Thomas B. Hastings
is the Assistant Treasurer, Stephen E. Cavan is the Secretary, and Robert T.
Burns is the Assistant Secretary.
MFSC
A. Keith Brodkin is the Chairman and a Director, Arnold D. Scott and
Jeffrey L. Shames are Directors, Joseph A. Recomendes, a Senior Vice President
of MFS, is Vice Chairman and a Director, Janet A. Clifford is the Executive Vice
President, Joseph W. Dello Russo is the Treasurer, Thomas B. Hastings is the
Assistant Treasurer, Stephen E. Cavan is the Secretary, and Robert T. Burns is
the Assistant Secretary.
MFSI
A. Keith Brodkin is the Chairman and a Director, Jeffrey L. Shames,
and Arnold D. Scott are Directors, Thomas J. Cashman, Jr., is the President and
a Director, Leslie J. Nanberg is a Senior Vice President, a Managing Director
and a Director, George F. Bennett, Carol A. Corley, John A. Gee, Brianne Grady
and Kevin R. Parke (who is an Executive Vice President of MFS) are Senior Vice
Presidents and Managing Directors, Joseph W. Dello Russo is the Treasurer,
Thomas B. Hastings is the Assistant Treasurer and Robert T. Burns is the
Secretary.
RSI
William W. Scott, Jr. and Bruce C. Avery are Directors, Arnold D.
Scott is the Chairman and a Director, Joseph W. Dello Russo is the Treasurer,
Thomas B. Hastings is the Assistant Treasurer, Stephen E. Cavan is the
Secretary, Robert T. Burns is the Assistant Secretary and Sharon A. Brovelli and
Martin E. Beaulieu are Senior Vice Presidents.
In addition, the following persons, Directors or officers of MFS, have
the affiliations indicated:
A. Keith Brodkin Director, Sun Life Assurance Company of Canada
(U.S.), One Sun Life Executive Park, Wellesley
Hills, Massachusetts Director, Sun Life
Insurance and Annuity Company of New York,
67 Broad Street, New York, New York
Donald A. Stewart President and a Director, Sun Life Assurance
Company of Canada, Sun Life Centre, 150
King Street West, Toronto, Ontario, Canada
(Mr. Stewart is also an officer and/or
Director of various subsidiaries and
affiliates of Sun Life)
John D. McNeil Chairman, Sun Life Assurance Company
of Canada, Sun Life Centre, 150 King Street
West, Toronto, Ontario, Canada (Mr. McNeil is
also an officer and/or Director of various
subsidiaries and affiliates of Sun Life)
Joseph W. Dello Russo Director of Mutual Fund Operations, The Boston
Company, Exchange Place, Boston, Massachusetts
(until August, 1994)
ITEM 29. DISTRIBUTORS
(a) Reference is hereby made to Item 28 above.
(b) Reference is hereby made to Item 28 above; the principal business
address of each of these persons is 500 Boylston Street, Boston,
Massachusetts 02116.
(c) Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
The accounts and records of the Registrant are located, in whole or in
part, at the office of the Registrant and the following locations:
NAME ADDRESS
Massachusetts Financial Services 500 Boylston Street
Company (investment adviser) Boston, MA 02116
MFS Fund Distributors, Inc. 500 Boylston Street
(principal underwriter) Boston, MA 02116
State Street Bank and State Street South
Trust Company (custodian) 5 - West
North Quincy, MA 02171
MFS Service Center, Inc. 500 Boylston Street
(transfer agent) Boston, MA 02116
ITEM 31. MANAGEMENT SERVICES
Not applicable.
ITEM 32. UNDERTAKINGS
(a) Not applicable.
(b) Not applicable.
(c) Registrant undertakes to furnish each person to whom a prospectus
is delivered with a copy of its latest Annual Report to
shareholders upon request and without charge.
(d) Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to trustees, officers and
controlling persons of the Registrant pursuant to the provisions
set forth in Item 27 of this Part C, or otherwise, the Registrant
has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or
paid by a trustee, officer or controlling person of the
Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the Securities being Registered, the
Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Post-Effective Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereto duly authorized, in the City of Boston and
The Commonwealth of Massachusetts on the 24th day of June, 1997.
MFS GOVERNMENT SECURITIES FUND
By: JAMES R. BORDEWICK, JR.
-----------------------------
Name: James R. Bordewick, Jr.
Title: Assistant Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to its Registration Statement has been signed below by
the following persons in the capacities indicated on June 24, 1997.
SIGNATURE TITLE
A. KEITH BRODKIN* Chairman, President (Principal Executive
- -------------------------- Officer) and Trustee
A. Keith Brodkin
W. THOMAS LONDON* Treasurer (Principal Financial Officer
- -------------------------- and Principal Accounting Officer)
W. Thomas London
RICHARD B. BAILEY* Trustee
- --------------------------
Richard B. Bailey
PETER G. HARWOOD* Trustee
- --------------------------
Peter G. Harwood
J. ATWOOD IVES* Trustee
- --------------------------
J. Atwood Ives
LAWRENCE T. PERERA* Trustee
- --------------------------
Lawrence T. Perera
WILLIAM J. POORVU* Trustee
- --------------------------
William J. Poorvu
CHARLES W. SCHMIDT* Trustee
- --------------------------
Charles W. Schmidt
ARNOLD D. SCOTT* Trustee
- --------------------------
Arnold D. Scott
JEFFREY L. SHAMES* Trustee
- --------------------------
Jeffrey L. Shames
ELAINE R. SMITH* Trustee
- --------------------------
Elaine R. Smith
DAVID B. STONE* Trustee
- --------------------------
David B. Stone
*By: JAMES R. BORDEWICK, JR.
-----------------------------
Name: James R. Bordewick, Jr.
as Attorney-in-fact
Executed by James R. Bordewick, Jr. on
behalf of those indicated pursuant to a
Power of Attorney dated September 21,
1994; filed herewith.
<PAGE>
POWER OF ATTORNEY
MFS GOVERNMENT SECURITIES FUND
The undersigned, Trustees and officers of MFS Government Securities
Fund (the "Registrant"), hereby severally constitute and appoint A. Keith
Brodkin, W. Thomas London, Stephen E. Cavan 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 21st day of September, 1994.
SIGNATURES TITLE(S)
A. KEITH BRODKIN Chairman of the Board; Trustee;
- -------------------------- and Principal Executive Officer
A. Keith Brodkin
RICHARD B. BAILEY Trustee
- --------------------------
Richard B. Bailey
PETER G. HARWOOD Trustee
- --------------------------
Peter G. Harwood
J. ATWOOD IVES Trustee
- --------------------------
J. Atwood Ives
LAWRENCE T. PERERA Trustee
- --------------------------
Lawrence T. Perera
WILLIAM J. POORVU Trustee
- --------------------------
William J. Poorvu
CHARLES W. SCHMIDT Trustee
- --------------------------
Charles W. Schmidt
ARNOLD D. SCOTT Trustee
- --------------------------
Arnold D. Scott
JEFFREY L. SHAMES Trustee
- --------------------------
Jeffrey L. Shames
ELAINE R. SMITH Trustee
- --------------------------
Elaine R. Smith
DAVID B. STONE Trustee
- --------------------------
David B. Stone
W. THOMAS LONDON Principal Financial and Accounting
- -------------------------- Officer
W. Thomas London
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION OF EXHIBIT PAGE NO.
1 (d) Amendment to the Declaration of Trust - Redesignation
of Class P Shares as Class I Shares, dated December
19, 1996
9 (b) Amendment to Shareholder Servicing Agreement , dated
January 1, 1997, to amend Fee Schedule
11 Consent of Deloitte & Touche LLP
17 Financial Data Schedules for Class A, Class B, Class C
and Class I shares of the Fund
<PAGE>
EXHIBIT 1(d)
MFS GOVERNMENT SECURITIES FUND
CERTIFICATION OF AMENDMENT
TO THE DECLARATION OF TRUST
REDESIGNATION
OF CLASS P SHARES AS CLASS I SHARES
The undersigned, being a majority of the Trustees of MFS Government
Securities Fund (the "Trust"), a business trust organized under the laws of The
Commonwealth of Massachusetts pursuant to an Amended and Restated Declaration of
Trust dated March 15, 1995 as amended (the "Declaration"), acting pursuant to
Section 6.10 of the Declaration, do hereby redesignate the shares previously
designated as Class P shares of the Trust as Class I shares.
IN WITNESS WHEREOF, a majority of the Trustees of the Trust have executed
this amendment, in one or more counterparts, all constituting a single
instrument, as an instrument under seal in The Commonwealth of Massachusetts, as
of this 18th day of December, 1996.
A. KEITH BRODKIN CHARLES W. SCHMIDT
- -------------------------- -------------------------
A. Keith Brodkin Charles W. Schmidt
76 Farm Road 63 Claypit Hill Road
Sherborn, MA 01770 Wayland, MA 01778
RICHARD B. BAILEY ARNOLD D. SCOTT
- -------------------------- -------------------------
Richard B. Bailey Arnold D. Scott
63 Atlantic Avenue 20 Rowes Wharf
Boston, MA 02110 Boston, MA 02110
PETER G. HARWOOD JEFFREY L. SHAMES
- -------------------------- -------------------------
Peter G. Harwood Jeffrey L. Shames
211 Lindsay Pond Road 36 Lake Avenue
Concord, MA 01742 Newton, MA 02159
J. ATWOOD IVES ELAINE R. SMITH
- -------------------------- -------------------------
J. Atwood Ives Elaine R. Smith
1 Bennington Road 75 Scotch Pine Road
Lexington, MA 02173 Weston, MA 02193
LAWRENCE T. PERERA DAVID B. STONE
- -------------------------- -------------------------
Lawrence T. Perera David B. Stone
18 Marlborough Street 282 Beacon Street
Boston, MA 02116 Boston, MA 02116
WILLIAM J. POORVU
- --------------------------
William J. Poorvu
975 Memorial Drive
Cambridge, MA 02138
<PAGE>
EXHIBIT 9(b)
MFS GOVERNMENT SECURITIES FUND
500 BOYLSTON STREET o BOSTON o MASSACHUSETTS o 02116
(617) o 954-5000
January 1, 1997
MFS Service Center, Inc.
500 Boylston Street
Boston, MA 02116
Dear Sir/Madam:
This will confirm our understanding that Exhibit B to the Shareholder Servicing
Agent Agreement between us, dated August 1, 1985, as amended, is hereby amended,
effective immediately, to read in its entirety as set forth on Attachment 1
hereto.
Please indicate your acceptance of the foregoing by signing below.
Sincerely,
MFS GOVERNMENT SECURITIES FUND
By: W. THOMAS LONDON
--------------------------
W. Thomas London
Treasurer
Accepted and Agreed:
MFS SERVICE CENTER, INC.
By: JOSEPH W. DELLO RUSSO
- ---------------------------
Joseph W. Dello Russo
Treasurer
<PAGE>
ATTACHMENT 1
January 1, 1997
EXHIBIT B TO THE SHAREHOLDER
SERVICING AGENT AGREEMENT BETWEEN
MFS SERVICE CENTER, INC. ("MFSC")
AND MFS GOVERNMENT SECURITIES FUND (THE "FUND")
The fees to be paid by the Fund on behalf of its series with respect to all
shares of each series of the Fund to MFSC, for MFSC's services as shareholder
servicing agent, shall be 0.13% of the average daily net assets of the Fund.
<PAGE>
EXHIBIT 11
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Post-Effective
Amendment No. 21 to Registration Statement No. 2-74959 of MFS Government
Securities Fund, of our report dated April 3, 1997 appearing in the annual
report to shareholders for the year ended February 28, 1997, and to the
references to us under the headings "Condensed Financial Information" in the
Prospectus and "Independent Auditors and Financial Statements" in the Statement
of Additional Information, which are part of such Registration Statement.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
June 25, 1997
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000356349
<NAME> MFS GOVERNMENT SECURITIES FUND
<SERIES>
<NUMBER> 011
<NAME> CLASS A
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> MAR-01-1996
<PERIOD-END> FEB-28-1997
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