MFS(R) GOVERNMENT SECURITIES FUND
JULY 1, 1999
Supplement to the Prospectus
Class A Shares
Class B Shares
Class C Shares
- --------------------------------------------------------------------------------
This Supplement describes the fund's class I shares, and it supplements certain
information in the fund's Prospectus dated July 1, 1999. The caption headings
used in this Supplement correspond with the caption headings used in the
Prospectus.
You may purchase class I shares only if you are an eligible institutional
investor, as described under the caption "Description of Share Classes" below.
<PAGE>
I RISK RETURN SUMMARY
o Performance Table
The "Performance Table" is intended to show how the average annual total
returns of the Class I shares of the fund compare to a broad measure of
market performance. The table is supplemented as follows:
Average Annual Total Returns as of December 31, 1998
...........................................................................
<TABLE>
<CAPTION>
1 Year 5 Years 10 Years
<S> <C> <C> <C>
Class I shares 8.72% 6.79% 8.46%
Lehman Brothers Government/Mortgage
Bond Index*+ 8.72% 7.18% 9.14%
</TABLE>
-----------
* The Lehman Brothers Government/Mortgage Bond Index (the Lehman Index)
is an unmanaged index of U.S. Treasury, government-agency and
mortgage-backed securities.
+ Source: AIM
The fund commenced investment operations on July 25, 1984 with the offering
of class A shares and subsequently offered class I shares on January 2,
1997. Class I share performance includes the performance of the fund's class
A shares for periods prior to the offering of class I shares. This blended
class I share performance has been adjusted to take into account the fact
that class I shares have no initial sales charge (load). This blended
performance has not been adjusted to take into account differences in class
specific operating expenses. Because operating expenses of class I shares
are lower than those of class A shares, this blended class I share
performance is lower than the performance of class I shares would have been
had class I shares been offered for the entire period.
1
<PAGE>
II EXPENSE SUMMARY
o Expense Table
The "Expense Table" is supplemented as follows:
Annual Fund Operating Expenses (expenses that are deducted from fund assets)
............................................................................
<TABLE>
<S> <C>
Management Fees ............................... 0.40%
Distribution and Service (12b-1) Fees ......... 0.00%
Other Expenses(1) ............................. 0.26%
-----
Total Annual Fund Operating Expenses .......... 0.66
Fee Waiver(2) ............................... (0.10)%
Net Expenses ................................ 0.56%
</TABLE>
--------
(1) The fund has an expense offset arrangement which reduces the fund's
custodian fee based upon the amount of cash maintained by the fund with
its custodian and dividend disbursing agent. The fund may enter into
other similar arrangements and directed brokerage arrangements, which
would also have the effect of reducing the fund's expenses. "Other
Expenses" do not take into account these expense reductions, and
therefore do not represent the actual expenses of the fund.
(2) MFS has contractually agreed to waive its right to receive the
management fee to a maximum of 0.30% annually of the average daily net
assets of the fund. This contractual fee arrangement will remain in
effect until at least July 1, 2000, absent an earlier modification
approved by the Board of Trustees which oversees the fund.
2
<PAGE>
o Example of Expenses
These examples are intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. The "Example of
Expenses" table is supplemented as follows:
The examples assume that:
o You invest $10,000 in the fund for the time periods indicated and you
redeem your shares at the end of the time periods;
o Your investment has a 5% return each year and dividends and other
distributions are reinvested; and
o The fund's operating expenses remain the same.
Although your actual costs may be higher or lower, under these assumptions
your costs would be:
<TABLE>
<CAPTION>
Share Class Year 1 Year 3 Year 5 Year 10
- --------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Class I shares $57 $201 $358 $813
</TABLE>
3
<PAGE>
III DESCRIPTION OF SHARE CLASSES
The "Description of Share Classes" is supplemental as follows:
If you are an eligible institutional investor (as described below), you may
purchase class I shares at net asset value without an initial sales charge
or CDSC upon redemption. Class I shares do not have annual distribution and
service fees, and do not convert to any other class of shares of the fund.
The following eligible institutional investors may purchase class I shares:
o certain retirement plans established for the benefit of employees of MFS
and employees of MFS' affiliates; and
o any fund distributed by MFS, if the fund seeks to achieve its investment
objective by investing primarily in shares of the fund and other MFS
funds.
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 in class I shares.
4
<PAGE>
IV HOW TO PURCHASE, EXCHANGE AND REDEEM SHARES
The discussion of "How to Purchase, Exchange and Redeem Shares" is
supplemented as follows:
You may purchase, redeem and exchange class I shares only through your MFD
representative or by contacting MFSC (see the back cover of the Prospectus
for address and phone number). You may exchange your class I shares for
class I shares of another MFS fund (if you are eligible to purchase them)
and for shares of the MFS Money Market Fund at net asset value.
5
<PAGE>
V FINANCIAL HIGHLIGHTS
The "Financial Highlights" table is intended to help you understand the
fund's financial performance. It is supplemented as follows:
Financial Statements -- Class I Shares
...........................................................................
<TABLE>
<CAPTION>
Year Ended
---------------------
February 28,
---------------------
Period Ended
1999 1998 2/28/97*
---------- ---------- -------------
<S> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value -- beginning of period .......................... $ 9.69 $ 9.40 $ 9.41
------ ------ ------
Income from investment operations# --
Net investment income[sec] ..................................... $ 0.59 $ 0.62 $ 0.10
Net realized and unrealized gain (loss) on investments ......... 0.01 0.31 (0.01)
------ ------ ------
Total from investment operations .............................. $ 0.60 $ 0.93 $ 0.09
------ ------ ------
Less distributions declared to shareholders
from net investment income ...................................... $(0.60) $(0.64) $(0.10)
Net asset value -- end of period ................................. $ 9.69 $ 9.69 $ 9.40
====== ====== ======
Total return .................................................. 6.37% 10.31% 1.03%++
Ratios (to average net assets)/ Supplemental data[sec]:
Expenses## ...................................................... 0.57% 0.53% 0.48%+
Net investment income ........................................... 6.13% 6.85% 7.22%+
Portfolio turnover ............................................... 176% 212% 339%
Net assets at end of period (000 omitted) ........................ $6,634 $7,560 $ 470
</TABLE>
--------
* For the period from the inception of Class I shares, January 2, 1997,
through February 28, 1997.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## 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. The fund's expenses are
calculated without reduction for this expense offset arrangement.
[sec] The investment adviser voluntarily waived a portion of its management
fee for the periods indicated. If this fee had been incurred by the
fund, the net investment income per share and ratios would have been:
<TABLE>
<S> <C> <C> <C>
Net investment income .................................... $0.58 $0.61 $0.09
Ratios (to average net assets):
Expenses## .............................................. 0.67% 0.63% 0.63%+
Net Investment income ................................... 6.03% 6.75% 7.07%+
</TABLE>
The date of this Supplement is July 1, 1999.
6
<PAGE>
MFS(R) GOVERNMENT SECURITIES FUND
JULY 1, 1999
Prospectus
Class A Shares
Class B Shares
Class C Shares
- --------------------------------------------------------------------------------
This Prospectus describes the MFS Government Securities Fund. The investment
objective of the fund is current income and preservation of principal.
The Securities and Exchange Commission has not approved the fund's shares or
determined whether this prospectus is accurate or complete. Anyone who tells
you otherwise is committing a crime.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
I Risk Return Summary ........................................ 1
II Expense Summary ............................................ 5
III Certain Investment Strategies and Risks .................... 7
IV Management of the Fund ..................................... 8
V Description of Share Classes ............................... 9
VI How to Purchase, Exchange and Redeem Shares ................ 13
VII Investor Services and Programs ............................. 17
VIII Other Information .......................................... 19
IX Financial Highlights ....................................... 22
Appendix A -- Investment Techniques and Practices .......... A-1
</TABLE>
<PAGE>
I RISK RETURN SUMMARY
o Investment Objective
Current income and preservation of principal.
The fund's objective may be changed without shareholder approval.
o Principal Investment Policies
The fund invests, under normal market conditions, at least 80% of its total
assets in U.S. Government securities, which are bonds or other debt
obligations issued by, or whose principal and interest payments are
guaranteed or supported by, the U.S. Government or one of its agencies or
instrumentalities.
In order to make the fund an eligible investment for federal credit unions
and national banks, the fund will invest in U.S. 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 federal credit unions.
In selecting fixed income investments for the fund, the fund's investment
adviser, Massachusetts Financial Services Company (referred to as MFS or
the adviser), considers the views of its large group of fixed income
portfolio managers and research analysts. This group periodically assesses
the three-month total return outlook for various segments of the fixed
income markets. This three-month "horizon" outlook is used by the portfolio
manager(s) of MFS' fixed income oriented funds (including the fund) as a
tool in making or adjusting a fund's asset allocations to various segments
of the fixed income markets.
o Principal Risks of an Investment
The principal risks of investing in the fund and the circumstances
reasonably likely to cause - the value of your investment in the fund to
decline are described below. The share price of the fund may change daily
based on market conditions and other factors. Please note that there are
many circumstances which could cause the value of your investment in the
fund to decline, and which could prevent the fund from achieving its
objective, that are not described here.
The principal risks of investing in the fund are:
o Interest Rate Risk: When interest rates rise, the prices of fixed income
securities in the fund's portfolio will generally fall. Conversely, when
interest rates fall, the prices of fixed income securities in the fund's
portfolio will generally rise.
o Maturity Risk: Interest rate risk will generally affect the price of a
fixed income security more if the security has a longer maturity. Fixed
income securities with longer maturities will therefore be more volatile
than other fixed income securities with shorter maturities. Conversely,
fixed income securities with shorter maturities will be less volatile but
generally provide lower returns than fixed income securities with longer
maturities. The
1
<PAGE>
average maturity of the fund's fixed income investments will affect the
volatility of the fund's share price.
o Mortgage-Backed Securities:
- Maturity Risk:
+ Mortgage-Backed Securities: A mortgage-backed security will
mature when all the mortgages in the pool mature or are prepaid.
Therefore, mortgage-backed securities do not have a fixed
maturity, and their expected maturities may vary when interest
rates rise or fall.
# When interest rates fall, homeowners are more likely to
prepay their mortgage loans. An increased rate of
prepayments on the fund's mortgage-backed securities will
result in an unforeseen loss of interest income to the
fund as the fund may be required to reinvest assets at a
lower interest rate. Because prepayments increase when
interest rates fall, the price of mortgage-backed
securities does not increase as much as other fixed income
securities when interest rates fall.
# When interest rates rise, homeowners are less likely to
prepay their mortgage loans. A decreased rate of
prepayments lengthens the expected maturity of a
mortgage-backed security. Therefore, the prices of
mortgage-backed securities may decrease more than prices
of other fixed income securities when interest rates rise.
+ Collateralized Mortgage Obligations: The fund may invest in
mortgage-backed securities called collateralized mortgage
obligations (CMOs). CMOs are issued in separate classes with
different stated maturities. As the mortgage pool experiences
prepayments, the pool pays off investors in classes with shorter
maturities first. By investing in CMOs, the fund may manage the
prepayment risk of mortgage-backed securities. However,
prepayments may cause the actual maturity of a CMO to be
substantially shorter than its stated maturity.
- Credit Risk: As with any fixed income security, mortgage-backed
securities are subject to the risk that the issuer will default on
principal and interest payments. It may be difficult to enforce
rights against the assets underlying mortgage-backed securities in
the case of default. However, the U.S. Government or its agencies
will guarantee the payment of principal and interest on the
mortgage-backed securities purchased by the fund.
o Active or Frequent Trading Risk: The fund has and may engage in active
and frequent trading to achieve its principal investment strategies. This
may result in the realization and distribution to shareholders of higher
capital gains as compared to a fund with less active trading policies,
which would increase your tax liability. Frequent trading also increases
transaction costs, which could detract from the fund's performance.
o As with any mutual fund, you could lose money on your investment in the
fund.
2
<PAGE>
An investment in the fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
o Bar Chart and Performance Table
The bar chart and performance table below are intended to indicate some of
the risks of - investing in the fund by showing changes in the fund's
performance over time. The performance table also shows how the fund's
performance over time compares with that of one or more broad measures of
market performance. The chart and table provide past performance
information. The fund's past performance does not necessarily indicate how
the fund will perform in the future. The performance information in the
chart and table is based upon calendar year periods, while the performance
information presented under the caption "Financial Highlights" and in the
fund's shareholder reports is based upon the fund's fiscal year. Therefore,
these performance results differ.
Bar Chart
The bar chart shows changes in the annual total returns of the fund's class
A shares for each calendar year for the past ten years. The chart and
related notes do not take into account any sales charges (loads) that you
may be required to pay upon purchase or redemption of the fund's shares,
but do include the reinvestment of distributions. Any sales charge will
reduce your return. The return of the fund's other classes of shares will
differ from the class A returns shown in the bar chart, depending upon the
expenses of those classes.
<TABLE>
<CAPTION>
<S> <C>
1989 12.02%
1990 7.81%
1991 14.21%
1992 7.21%
1993 9.63%
1994 (3.28)%
1995 19.51%
1996 .79%
1997 9.24%
1998 8.33%
</TABLE>
The total return for the fund's class A shares for the three month period
ended March 31, 1999 was (0.77)%. During the period shown in the bar chart,
the highest quarterly return was 6.76% (for the calendar quarter ended June
30, 1989) and the lowest quarterly return was (3.35)% (for the calendar
quarter ended March 31, 1996).
3
<PAGE>
Performance Table
This table shows how the average annual total returns of each class of the
fund compare to a broad measure of market performance and assumes the
reinvestment of distributions.
Average Annual Total Returns as of December 31, 1998
...........................................................................
<TABLE>
<CAPTION>
1 Year 5 Year 10 Year
<S> <C> <C> <C>
Class A shares 3.18% 5.60% 7.85%
Class B shares 3.62% 5.59% 7.97%
Class C shares 6.74% 6.26% 8.19%
Lehman Brothers Government/Mortgage Bond
Index (the Lehman Index)*+ 8.72% 7.18% 9.14%
</TABLE>
--------
* The Lehman Brothers Government/Mortgage Bond Index (the Lehman Index)
is an unmanaged index of U.S. Treasury, government-agency and
mortgage-backed securities.
+ Source: AIM
Share performance is calculated according to Securities and Exchange
Commission rules. Class A share performance takes into account the deduction
of the 4.75% maximum sales charge. Class B share performance takes into
account the deduction of the applicable contingent deferred sales charge
(referred to as a CDSC), which declines over six years from 4% to 0%. Class
C share performance takes into account the deduction of the 1% CDSC.
The fund commenced investment operations on July 25, 1984 with the offering
of Class A shares, and subsequently offered class B shares on August 30,
1993, and Class C shares on April 1, 1996. Class B and class C share
performance includes the performance of the fund's class A shares for
periods prior to the offering of class B and class C shares. This blended
class B and class C share performance has been adjusted to take into account
the CDSC applicable to class B and class C shares, rather than the initial
sales charge (load) applicable to class A shares. This blended performance
has not been adjusted to take into account differences in class specific
operating expenses. Because operating expenses of class B and class C shares
are higher than those of class A shares, this blended class B and class C
share performance is lower than the performance of class B and class C
shares would have been had class B and class C shares been offered for the
entire period. If you would like the fund's current yield, contact the MFS
Service Center at the toll free number set forth on the back cover page.
4
<PAGE>
II EXPENSE SUMMARY
o Expense Table
This table describes the fees and expenses that you may pay when you buy,
redeem and hold shares of the fund.
Shareholder Fees (fees paid directly from your investment):
.........................................................................
<TABLE>
<CAPTION>
Class A Class B Class C
<S> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on
Purchases (as a percentage of offering price) ......... 4.75% 0.00% 0.00%
Maximum Deferred Sales Charge (Load)
(as a percentage of original purchase price or
redemption proceeds, whichever is less) ............... See Below(1) 4.00% 1.00%
Annual Fund Operating Expenses (expenses that are deducted from fund assets):
.............................................................................
Management Fees .................................. 0.40% 0.40% 0.40%
Distribution and Service (12b-1) Fees(2) ......... 0.35% 1.00% 1.00%
Other Expenses(3) ................................ 0.26% 0.26% 0.26%
----- ----- -----
Total Annual Fund Operating Expenses ............. 1.01% 1.66% 1.66%
Fee Waiver(4) .................................. (0.10)% (0.10)% (0.10)%
----- ----- -----
Net Expenses ................................... 0.91% 1.56% 1.56%
</TABLE>
---------
(1) An initial sales charge will not be deducted from your purchase if you
buy $1 million or more of class A shares, or if you are investing
through a retirement plan and your class A purchase meets certain
requirements. However, in this case, a contingent deferred sales charge
(referred to as a CDSC) of 1% may be deducted from your redemption
proceeds if you redeem your investment within 12 months.
(2) The fund adopted a distribution plan under Rule 12b-1 that permits it to
pay marketing and other fees to support the sale and distribution of
class A, B and C shares and the services provided to you by your
financial adviser (referred to as distribution and service fees).
(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. The fund may enter into
other similar arrangements and directed brokerage arrangements, which
would also have the effect of reducing the fund's expenses. "Other
Expenses" do not take into account these expense reductions, and are
therefore higher than the actual expenses of the fund.
(4) MFS has contractually agreed to waive its right to receive the
management fee to a maximum of 0.30% annually of the average daily net
assets of the fund. This contractual fee arrangements will remain in
effect until at least July 1, 2000 absent an earlier modification
approved by the Board of Trustees which oversees the fund.
5
<PAGE>
o Example of Expenses
These examples are intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds.
The examples assume that:
o You invest $10,000 in the fund for the time periods indicated and you
redeem your shares at the end of the time periods;
o Your investment has a 5% return each year and dividends and other
distributions are reinvested; and
o The fund's operating expenses remain the same.
Although your actual costs may be higher or lower, under these assumptions
your costs would be:
<TABLE>
<CAPTION>
Share Class Year 1 Year 3 Year 5 Year 10
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A shares $ 563 $ 772 $ 997 $1,644
Class B shares
Assuming redemption at end of period $ 559 $ 814 $1,093 $1,784
Assuming no redemption $ 159 $ 514 $ 893 $1,784
Class C shares
Assuming redemption at end of period $ 259 $ 514 $ 893 $1,957
Assuming no redemption $ 159 $ 514 $ 893 $1,957
</TABLE>
6
<PAGE>
o III CERTAIN INVESTMENT STRATEGIES AND RISKS
Further Information on Investment Strategies and Risks
The fund may invest in various types of securities and engage in various
investment techniques and practices which are not the principal focus of
the fund and therefore are not described in this Prospectus. The types of
securities and investment techniques and practices in which the fund may
engage, including the principal investment techniques and practices
described above, are identified in Appendix A to this Prospectus, and are
discussed, together with their risks, in the fund's Statement of Additional
Information (referred to as the SAI), which you may obtain by contacting
MFS Service Center, Inc. (see back cover for address and phone number).
o Temporary Defensive Policies
In addition, the fund may depart from its principal investment strategies
by temporarily investing for defensive purposes when adverse market,
economic or political conditions exist. While the fund invests defensively,
it may not be able to pursue its investment objective. The fund's defensive
investment position may not be effective in protecting its value.
7
<PAGE>
IV MANAGEMENT OF THE FUND
o Investment Adviser
Massachusetts Financial Services Company (referred to as MFS or the
adviser) is the fund's investment adviser. 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, Massachusetts Investors Trust. Net assets under the management of the
MFS organization were approximately $103.71 billion on behalf of
approximately 4.1 million investor accounts as of March 31, 1999. As of
such date, the MFS organization managed approximately $82.77 billion of net
assets in equity funds and equity portfolios. Approximately $20.95 billion
of the assets managed by MFS are invested in fixed income securities. MFS
is located at 500 Boylston Street, Boston, Massachusetts 02116.
MFS provides investment management and related administrative services and
facilities to the fund, including portfolio management and trade execution.
For these services, the fund pays MFS an annual 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). MFS has contractually
agreed to waive its right to receive a portion of this fee as described
under "Expense Summary."
For the fund's fiscal year ended February 28, 1999, MFS received management
fees of 0.40% of the fund's average daily net assets.
o Portfolio Manager
The fund's portfolio manager is Steven E. Nothern, a Senior Vice President
of MFS. Mr. Nothern has been the portfolio manager of the fund since
January, 1991 and has been employed as a portfolio manager by MFS since
1986.
o Administrator
MFS provides the fund with certain financial, legal, compliance,
shareholder communications and other administrative services. MFS is
reimbursed by the fund for a portion of the costs it incurs in providing
these services.
o Distributor
MFS Fund Distributors, Inc. (referred to as MFD), a wholly owned subsidiary
of MFS, is the distributor of shares of the fund.
o Shareholder Servicing Agent
MFS Service Center, Inc. (referred to as MFSC), a wholly owned subsidiary
of MFS, - performs transfer agency and certain other services for the fund,
for which it receives compensation from the fund.
8
<PAGE>
V DESCRIPTION OF SHARE CLASSES
The fund offers class A, B and C shares through this prospectus. The fund
also offers an additional class of shares, class I shares, exclusively to
certain institutional investors. Class I shares are made available through
a separate prospectus supplement provided to institutional investors
eligible to purchase them.
o Sales Charges
You may be subject to an initial sales charge when you purchase, or a CDSC
when you redeem, class A, B or C shares. These sales charges are described
below. In certain circumstances, these sales charges are waived. These
circumstances are described in the SAI. Special considerations concerning
the calculation of the CDSC that apply to each of these classes of shares
are described below under the heading "Calculation of CDSC."
If you purchase your fund shares through a financial adviser (such as a
broker or bank), the adviser may receive commissions or other concessions
which are paid from various sources, such as from the sales charges and
distribution and service fees, or from MFS or MFD. These commissions and
concessions are described in the SAI.
o Class A Shares
You may purchase class A shares at net asset value plus an initial sales
charge (referred to as the offering price), but in some cases you may
purchase class A shares without an initial sales charge but subject to a 1%
CDSC upon redemption within one year. Class A shares have annual
distribution and service fees up to a maximum of 0.35% of net assets
annually.
Purchases Subject to an Initial Sales Charge. The amount of the initial
sales charge you pay when you buy class A shares differs depending upon the
amount you invest, as follows:
<TABLE>
<CAPTION>
Sales Charge* as Percentage of:
-------------------------------
Offering Net Amount
Amount of Purchase Price Invested
<S> <C> <C>
Less than $100,000 4.75% 4.99
$100,000 but less than $250,000 4.00 4.17
$250,000 but less than $500,000 2.95 3.04
$500,000 but less than $1,000,000 2.20 2.25
$1,000,000 or more None** None**
</TABLE>
--------
* Because of rounding in the calculation of offering price, actual sales
charges you pay may be more or less than those calculated using these
percentages.
** A 1% CDSC will apply to such purchases, as discussed below.
9
<PAGE>
Purchases Subject to a CDSC (but not an initial sales charge). You pay no
initial sales charge when you invest $1 million or more in class A shares.
However, a CDSC of 1% will be deducted from your redemption proceeds if you
redeem within 12 months of your purchase.
In addition, purchases made under the following four categories are not
subject to an initial sales charge. However, a CDSC of 1% will be deducted
from redemption proceeds if the redemption is made within 12 months of
purchase:
o Investments in class A shares by certain retirement plans subject to the
Employee Retirement Income Security Act of 1974, as amended (referred to
as ERISA), if, prior to July 1, 1996
- the plan had established an account with MFSC; and
- the sponsoring organization had demonstrated to the satisfaction of
MFD that either;
+ the employer had at least 25 employees; or
+ the total purchases by the retirement plan of class A shares of the
MFS Family of Funds (the MFS funds) would be in the amount of at
least $250,000 within a reasonable period of time, as determined by
MFD in its sole discretion.
o Investments in class A shares by certain retirement plans subject to
ERISA, if
- the retirement plan and/or sponsoring organization participates in
the MFS Fundamental 401(k) Program or any similar recordkeeping
system made available by MFSC (referred to as the MFS participant
recordkeeping system);
- the plan establishes an account with MFSC on or after July 1, 1996;
- the total purchases by the retirement plan of class A shares of the
MFS Funds will be in the amount of at least $500,000 within a
reasonable period of time, as determined by MFD in its sole
discretion; and
- the plan has not redeemed its class B shares in the MFS funds in
order to purchase class A shares under this category.
o Investments in class A shares by certain retirement plans subject to
ERISA, if
- the plan establishes an account with MFSC on or after July 1, 1996;
and
- 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 MFSC prior to the purchases
that the plan has a market value of $500,000 or more invested in
shares of any class or classes of the MFS Funds; MFSC has no
obligation independently to determine whether such a plan qualifies
under this category; and
o Investments in class A shares by certain retirement plans subject to
ERISA, if
10
<PAGE>
- the plan establishes an account with MFSC on or after July 1, 1997;
- the plan's records are maintained on a pooled basis by MFSC; and
- the sponsoring organization demonstrates to the satisfaction of MFD
that, at the time of purchase, the employer has at least 200
eligible employees and the plan has aggregate assets of at least
$2,000,000.
o Class B Shares
You may purchase class B shares at net asset value without an initial sales
charge, but if you redeem your shares within the first six years you may be
subject to a CDSC (declining from 4.00% during the first year to 0% after
six years). Class B shares have annual distribution and service fees up to
a maximum of 1.00% of net assets annually.
The CDSC is imposed according to the following schedule:
<TABLE>
<CAPTION>
Contingent Deferred
Year of Redemption After Purchase Sales Charge
- ----------------------------------- --------------------
<S> <C>
First 4%
Second 4%
Third 3%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and following 0%
</TABLE>
If you hold class B shares for approximately eight years, they will convert
to class A shares of the fund. All class B shares you purchased through the
reinvestment of dividends and distributions will be held in a separate
sub-account. Each time any class B shares in your account convert to class
A shares, a proportionate number of the class B shares in the sub-account
will also convert to class A shares.
o Class C Shares
You may purchase class C shares at net asset value without an initial sales
charge, but if you redeem your shares within the first year you may be
subject to a CDSC of 1.00%. Class C shares have annual distribution and
service fees up to a maximum of 1.00% of net assets annually. Class C
shares do not convert to any other class of shares of the fund.
o Calculation of CDSC
As discussed above, certain investments in class A, B and C shares will be
subject to a CDSC. Three different aging schedules apply to the calculation
of the CDSC:
o Purchases of class A shares made on any day during a calendar month will
age one month on the last day of the month, and each subsequent month.
11
<PAGE>
o Purchases of class C shares, and purchases of class B shares on or after
January 1, 1993, made on any day during a calendar month will age one
year at the close of business on the last day of that month in the
following calendar year, and each subsequent year.
o Purchases of class B shares prior to January 1, 1993 made on any day
during a calendar year will age one year at the close of business on
December 31 of that year, and each subsequent year.
No CDSC is assessed on the value of your account represented by
appreciation or additional shares acquired through the automatic
reinvestment of dividends or capital gain distributions. Therefore, when
you redeem your shares, only the value of the shares in excess of these
amounts (i.e., your direct investment) is subject to a CDSC.
The CDSC will be applied in a manner that results in the CDSC being imposed
at the lowest possible rate, which means that the CDSC will be applied
against the lesser of your direct investment or the total cost of your
shares. The applicability of a CDSC will not be affected by exchanges or
transfers of registration, except as described in the SAI.
o Distribution and Service Fees
The fund has adopted a plan under Rule 12b-1 that permits it to pay
marketing and other fees to support the sale and distribution of class A, B
and C shares and the services provided to you by your financial adviser.
These annual distribution and service fees may equal up to 0.35% for class
A shares (a 0.10% distribution fee and a 0.25% service fee) and 1.00% for
each of class B and class C shares (a 0.75% distribution fee and a 0.25%
service fee), and are paid out of the assets of these classes. Over time,
these fees will increase the cost of your shares and may cost you more than
paying other types of sales charges.
12
<PAGE>
VI HOW TO PURCHASE, EXCHANGE AND REDEEM SHARES
You may purchase, exchange and redeem class A, B and C shares of the fund
in the manner described below. In addition, you may be eligible to
participate in certain investor services and programs to purchase, exchange
and redeem these classes of shares, which are described in the next section
under the caption "Investor Services and Programs."
o How to Purchase Shares
Initial Purchase. You can establish an account by having your financial
adviser process your purchase. The minimum initial investment is $1,000.
However, in the following circumstances the minimum initial investment is
only $50 per account:
o if you establish an automatic investment plan;
o if you establish an automatic exchange plan; or
o if you establish an account under either:
- tax-deferred retirement programs (other than IRAs) where investments
are made by means of group remittal statements; or
- employer sponsored investment programs.
The minimum initial investment for IRAs is $250 per account. The maximum
investment in class C shares is $1,000,000 per transaction. Class C shares
are not available for purchase by any retirement plan qualified under
Section 401(a) or 403(b) of the Internal Revenue Code if the plan or its
sponsor subscribes to certain recordkeeping services made available by
MFSC, such as the MFS Fundamental 401(k) Plan.
Adding to Your Account. There are several easy ways you can make
additional investments of at least $50 to your account:
o send a check with the returnable portion of your statement;
o ask your financial adviser to purchase shares on your behalf;
o wire additional investments through your bank (call MFSC first for
instructions); or
o authorize transfers by phone between your bank account and your MFS
account (the maximum purchase amount for this method is $100,000). You
must elect this privilege on your account application if you wish to use
it.
o How to Exchange Shares
You can exchange your shares for shares of the same class of certain other
MFS funds at net asset value by having your financial adviser process your
exchange request or by contacting MFSC directly. The minimum exchange
amount is generally $1,000 ($50 for exchanges made under the automatic
exchange plan). Shares otherwise subject to a CDSC will not be charged a
CDSC in an exchange. However, when you redeem the shares
13
<PAGE>
acquired through the exchange, the shares you redeem may be subject to a
CDSC, depending upon when you originally purchased the shares you
exchanged. For purposes of computing the CDSC, the length of time you have
owned your shares will be measured from the date of original purchase and
will not be affected by any exchange.
Sales charges may apply to exchanges made from the MFS money market
funds. Certain qualified retirement plans may make exchanges between the
MFS funds and the MFS Fixed Fund, a bank collective investment fund, and
sales charges may also apply to these exchanges. Call MFSC for information
concerning these sales charges.
Exchanges may be subject to certain limitations and are subject to the
MFS funds' policies concerning excessive trading practices, which are
policies designed to protect the fund and their shareholders from the
harmful effect of frequent exchanges. These limitations and policies are
described below under the captions "Right to Reject or Restrict Purchase
and Exchange Orders" and "Excessive Trading Practices." You should read the
prospectus of the MFS fund into which you are exchanging and consider the
differences in objectives, policies and rules before making any exchange.
o How to Redeem Shares
You may redeem your shares either by having your financial adviser process
your redemption or by contacting MFSC directly. The fund sends out your
redemption proceeds within seven days after your request is received in
good order. "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. In
addition, you need to have your signature guaranteed and/or submit
additional documentation to redeem your shares. See "Signature
Guarantee/Additional Documentation" below, or contact MFSC for details (see
back cover page for address and phone number).
Under unusual circumstances such as when the New York Stock Exchange is
closed, trading on the Exchange is restricted or if there is an emergency,
the fund may suspend redemptions or postpone payment. If you purchased the
shares you are redeeming by check, the fund may delay the payment of the
redemption proceeds until the check has cleared which may take up to 15
days from the purchase date.
Redeeming Directly Through MFSC
o By telephone. You can call MFSC to have shares redeemed from your account
and the proceeds wired or mailed (depending on the amount redeemed)
directly to a pre-designated bank account. MFSC will request personal or
other information from you and will generally record the calls. MFSC will
be responsible for losses that result from unauthorized telephone
transactions if it does not follow reasonable procedures designed to
verify your identity. You must elect this privilege on your account
application if you wish to use it.
o By mail. To redeem shares by mail, you can send a letter to MFSC with the
name of your fund, your account number, and the number of shares or
dollar amount to be sold.
14
<PAGE>
Redeeming Through Your Financial Adviser. You can call your financial
adviser to process a redemption on your behalf. Your financial adviser will
be responsible for furnishing all necessary documents to MFSC and may
charge you for this service.
Signature Guarantee/Additional Documentation. In order to protect against
fraud, the fund requires that your signature be guaranteed in order to
redeem your shares. Your signature may be guaranteed by an eligible bank,
broker, dealer, credit union, national securities exchange, registered
securities association, clearing agency, or savings association. MFSC may
require additional documentation for certain types of registrations and
transactions. Signature guarantees and this additional documentation shall
be accepted in accordance with policies established by MFSC, and MFSC may
make certain de minimis exceptions to these requirements.
o Other Considerations
Right to Reject or Restrict Purchase and Exchange Orders. Purchases and
exchanges should be made for investment purposes only. The MFS funds each
reserve the right to reject or restrict any specific purchase or exchange
request. Because an exchange request involves both a request to redeem
shares of one fund and to purchase shares of another fund, the MFS funds
consider the underlying redemption and purchase requests conditioned upon
the acceptance of each of these underlying requests. Therefore, in the
event that the MFS funds reject an exchange request, neither the redemption
nor the purchase side of the exchange will be processed. When a fund
determines that the level of exchanges on any day may be harmful to its
remaining shareholders, the fund may delay the payment of exchange proceeds
for up to seven days to permit cash to be raised through the orderly
liquidation of its portfolio securities to pay the redemption proceeds. In
this case, the purchase side of the exchange will be delayed until the
exchange proceeds are paid by the redeeming fund.
Excessive Trading Practices. The MFS funds do not permit market-timing or
other excessive trading practices. Excessive, short-term (market-timing)
trading practices may disrupt portfolio management strategies and harm fund
performance. As noted above, the MFS funds reserve the right to reject or
restrict any purchase order (including exchanges) from any investor. To
minimize harm to the MFS funds and their shareholders, the MFS funds will
exercise these rights if an investor has a history of excessive trading or
if an investor's trading, in the judgment of the MFS funds, has been or may
be disruptive to a fund. In making this judgment, the MFS funds may
consider trading done in multiple accounts under common ownership or
control.
Reinstatement Privilege. After you have redeemed shares, you have a
one-time right to reinvest the proceeds within 90 days of the redemption at
the current net asset value (without an initial sales charge). If the
redemption involved a CDSC, your account will be credited with the
appropriate amount of the CDSC paid; however, your new shares will be
subject to a CDSC which will be determined from the date you originally
purchased the shares redeemed. This privilege applies to shares of the MFS
money market funds only under certain circumstances.
15
<PAGE>
In-kind Distributions. The MFS funds have reserved the right to pay
redemption proceeds by a distribution in-kind of portfolio securities
(rather than cash). In the event that the fund makes an in-kind
distribution, you could incur the brokerage and transaction charges when
converting the securities to cash. The fund does not expect to make in-kind
distributions, and if it does, the fund will pay, during any 90-day period,
your redemption proceeds in cash up to either $250,000 or 1% of the fund's
net assets, whichever is less.
Involuntary Redemptions/Small Accounts. Because it is costly to maintain
small accounts, the MFS funds have generally reserved the right to
automatically redeem shares and close your account when it contains less
than $500 due to your redemptions or exchanges. Before making this
automatic redemption, you will be notified and given 60 days to make
additional investments to avoid having your shares redeemed.
16
<PAGE>
VII INVESTOR SERVICES AND PROGRAMS
As a shareholder of the fund, you have available to you a number of
services and investment programs. Some of these services and programs may
not be available to you if your shares are held in the name of your
financial adviser or if your investment in the fund is made through a
retirement plan.
o Distribution Options
The following distribution options are generally available to all accounts
and you may change your distribution option as often as you desire by
notifying MFSC:
o Dividends and capital gain distributions reinvested in additional shares
(this option will be assigned if no other option is specified);
o Dividends in cash; capital gain distributions reinvested in additional
shares; or
o Dividends and capital gain distributions in cash.
Reinvestments (net of any tax withholding) will be made in additional full
and fractional shares of the same class of shares at the net asset value as
of 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 you have elected to receive dividends
and/or capital gain distributions in cash, and the postal or other delivery
service is unable to deliver checks to your address of record, or you do
not respond to mailings from MFSC with regard to uncashed distribution
checks, your distribution option will automatically be converted to having
all dividends and other distributions reinvested in additional shares. Your
request to change a distribution option must be received by MFSC 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.
o Purchase and Redemption Programs
For your convenience, the following purchase and redemption programs are
made available to you with respect to class A, B and C shares, without
extra charge:
Automatic Investment Plan. You can make cash investments of $50 or more
through your checking account or savings account on any day of the month.
If you do not specify a date, the investment will automatically occur on
the first business day of the month.
Automatic Exchange Plan. If you have an account balance of at least $5,000
in any MFS fund, you may participate in the automatic exchange plan, a
dollar-cost averaging program. This plan permits you to make automatic
monthly or quarterly exchanges from your account in an MFS fund for shares
of the same class of shares of other MFS funds. You may make exchanges of
at least $50 to up to six different funds under this plan. Exchanges will
generally be made at net asset value without any sales charges. If you
exchange shares out of the MFS Money Market Fund or MFS Government Money
Market Fund, or if you exchange class A shares out of the MFS Cash Reserve
Fund, into class
17
<PAGE>
A shares of any other MFS fund, you will pay the initial sales charge if
you have not already paid this charge on these shares.
Reinvest Without a Sales Charge. You can reinvest dividend and capital gain
distributions into your account without a sales charge to add to your
investment easily and automatically.
Distribution Investment Program. You may purchase shares of any MFS fund
without paying an initial sales charge or a CDSC upon redemption by
automatically reinvesting a minimum of $50 of dividend and capital gain
distributions from the same class of another MFS fund.
Letter of Intent (LOI). If you intend to invest $50,000 or more in the MFS
funds (including the MFS Fixed Fund) within 13 months, you may buy class A
shares of the funds at the reduced sales charge as though the total amount
were invested in class A shares in one lump sum. If you intend to invest $1
million or more under this program, the time period is extended to 36
months. If the intended purchases are not completed within the time period,
shares will automatically be redeemed from a special escrow account
established with a portion of your investment at the time of purchase to
cover the higher sales charge you would have paid had you not purchased
your shares through this program.
Right of Accumulation. You will qualify for a lower sales charge on your
purchases of class A shares when your new investment in class A shares,
together with the current (offering price) value of all your holdings in
the MFS funds (including the MFS Fixed Fund), reaches a reduced sales
charge level.
Systematic Withdrawal Plan. You may elect to automatically receive (or
designate someone else to receive) regular periodic payments of at least
$100. Each payment under this systematic withdrawal is funded through the
redemption of your fund shares. For class B and C shares, you can receive
up to 10% (15% for certain IRA distributions) of the value of your account
through these payments in any one year (measured at the time you establish
this plan). You will incur no CDSC on class B and C shares redeemed under
this plan. For class A shares, there is no similar percentage limitation;
however, you may incur the CDSC (if applicable) when class A shares are
redeemed under this plan.
Free Checkwriting. You may redeem your class A or class C shares by writing
checks against your account. Checks must be for at least $500 and
investments made by check must have been in your account for at least 15
days before you can write checks against them. There is no charge for this
service. To authorize your account for checkwriting, contact MFSC (see back
cover page for address and phone number).
Shares in your account equal in value to the amount of the check plus the
applicable CDSC (if any) and any income tax required to be withheld (if
any) are redeemed to cover the amount of the check. If your account value
is not great enough to cover these amounts, your check will be dishonored.
18
<PAGE>
VIII OTHER INFORMATION
o Pricing of Fund Shares
The price of each class of the fund's shares is based on its net asset
value. The net asset value of each class of shares is determined at the
close of regular trading each day that the New York Stock Exchange is open
for trading (generally, 4:00 p.m., Eastern time) (referred to as the
valuation time). To determine net asset value, the fund values its assets
at current market values, or at fair value as determined by the Adviser
under the direction of the Board of Trustees that oversees the fund if
current market values are unavailable. Fair value pricing may be used by
the fund when current market values are unavailable or when an event occurs
after the close of the exchange on which the fund's portfolio securities
are principally traded that is likely to have changed the value of the
securities. The use of fair value pricing by the fund may cause the net
asset value of its shares to differ significantly from the net asset value
that would be calculated using current market values.
You will receive the net asset value next calculated, after the deduction
of applicable sales charges and any required tax withholding, if your order
is complete (has all required information) and MFSC receives your order by:
o the valuation time, if placed directly by you (not through a financial
adviser such as a broker or bank) to MFSC; or
o MFSC's close of business, if placed through a financial adviser, so long
as the financial adviser (or its authorized designee) received your order
by the valuation time.
o Distributions
The fund intends to pay substantially all of its net income (excluding any
realized net capital gains) to shareholders as dividends at least monthly.
Any realized net capital gains are distributed at least annually.
o Tax Considerations
The following discussion is very general. You are urged to consult your tax
adviser regarding the effect that an investment in the fund may have on
your particular tax situation.
Taxability of Distributions. As long as the fund qualifies for treatment as
a regulated investment company (which it has in the past and intends to do
in the future), it pays no federal income tax on the earnings it
distributes to shareholders.
You will normally have to pay federal income taxes, and any state or local
taxes, on the distributions you receive from the fund, whether you take the
distributions in cash or reinvest them in additional shares. Distributions
designated as capital gain dividends are taxable as long-term capital
gains. Other distributions are generally taxable as ordinary income.
Distributions derived from interest on U.S. Government securities (but not
distributions of gain
19
<PAGE>
from the sale of such securities) may be exempt from state and local taxes.
Some dividends paid in January may be taxable as if they had been paid the
previous December.
The Form 1099 that is mailed to you every January details your
distributions and how they are treated for federal tax purposes.
Fund distributions will reduce the fund's net asset value per share.
Therefore, if you buy shares shortly before the record date of a
distribution, you may pay the full price for the shares and then
effectively receive a portion of the purchase price back as a taxable
distribution.
If you are neither a citizen nor a resident of the U.S., the fund will
withhold U.S. federal income tax at the rate of 30% on taxable dividends
and other payments that are subject to such withholding. You may be able to
arrange for a lower withholding rate under an applicable tax treaty if you
supply the appropriate documentation required by the fund. 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.
Taxability of Transactions. When you redeem, sell or exchange shares, it is
generally considered a taxable event for you. Depending on the purchase
price and the sale price of the shares you redeem, sell or exchange, you may
have a gain or a loss on the transaction. You are responsible for any tax
liabilities generated by your transaction.
o Unique Nature of Fund
MFS may serve as the investment adviser to other funds which have similar
investment goals and principal investment policies and risks to the fund,
and which may be managed by the fund's portfolio manager(s). While the fund
may have many similarities to these other funds, its investment performance
will differ from their investment performance. This is due to a number of
differences between the funds, including differences in sales charges,
expense ratios and cash flows.
o Year 2000 Readiness Disclosure
The fund could be adversely affected if the computer systems used by MFS,
the fund's other service providers or the companies in which the fund
invests do not properly process date-related information from and after
January 1, 2000. MFS recognizes the importance of the Year 2000 issue and,
to address Year 2000 compliance, created a separately funded Year 2000
Program Management Office in 1996 comprised of a specialized staff
reporting directly to MFS senior management. The Office, with the help of
external consultants, is responsible for overall coordination, strategy,
strategy formulation, communications and issues resolution with respect to
Year 2000 issues. While MFS systems will be tested for
20
<PAGE>
Year 2000 readiness before the turn of the century, there are significant
systems interdependencies in the domestic and foreign markets for
securities, the business environments in which companies held by the fund
operate and in MFS' own business environment. MFS has been working with the
fund's other service providers to identify and respond to potential
problems with respect to Year 2000 readiness and to develop contingency
plans. Year 2000 readiness is also one of the factors considered by MFS in
its ongoing assessment of companies in which the fund invests. There can be
no assurance, however, that these steps will be sufficient to avoid any
adverse impact on the fund.
o Provision of Annual and Semiannual Reports
To avoid sending duplicate copies of materials to households, only one copy
of the fund's annual and semiannual report will be mailed to shareholders
having the same residential address on the fund's records. However, any
shareholder may contact MFSC (see back cover for address and phone number)
to request that copies of these reports be sent personally to that
shareholder.
21
<PAGE>
IX FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
fund's financial performance for the past 5 years. Certain information
reflects financial results for a single fund share. The total returns in
the table represent the rate by which an investor would have earned (or
lost) on an investment in the fund (assuming reinvestment of all
distributions). This information has been audited by the fund's independent
auditors, whose report, together with the fund's financial statements, are
included in the fund's Annual Report to shareholders. The fund's Annual
Report is available upon request by contacting MFSC (see back cover for
address and telephone number). These financial statements are incorporated
by reference into the SAI. The fund's independent auditors are Deloitte &
Touche LLP.
Class A Shares
.........................................................................
<TABLE>
<CAPTION>
Year Ended
-------------------------------------------------------------------
February 28,
--------------------------------------
February 29, February 28,
1999 1998 1997 1996 1995
------------ ------------ ------------ -------------- -------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value -- beginning of period ..... $ 9.69 $ 9.40 $ 9.67 $ 9.22 $ 9.79
------- ------- ------- ------- -------
Income from investment operations# --
Net investment income[sec] ................ $ 0.56 $ 0.62 $ 0.62 $ 0.66 $ 0.67
Net realized and unrealized gain (loss)
on investments ........................... 0.01 0.28 (0.28) 0.45 (0.58)
------- ------- -------- ------- --------
Total from investment operations ......... $ 0.57 $ 0.90 $ 0.34 $ 1.11 $ 0.09
------- ------- -------- ------- --------
Less distributions declared to shareholders
from net investment income ................. $ (0.57) $ (0.61) $ (0.61) $ (0.66) $ (0.66)
Net asset value -- end of period ............ $ 9.69 $ 9.69 $ 9.40 $ 9.67 $ 9.22
======== ======== ======== ======== ========
Total return++ .............................. 6.00% 9.91% 3.67% 12.29% 1.21%
Ratios (to average net assets)/
Supplemental data[sec]:
Expenses## ................................. 0.92% 0.94% 0.91% 0.84% 0.79%
Net investment income ...................... 5.76% 6.50% 6.56% 6.83% 7.24%
Portfolio turnover .......................... 176% 212% 339% 352% 385%
Net assets at end of period
(000 omitted) .............................. $335,993 $282,809 $293,286 $322,740 $318,116
</TABLE>
-----------
# Per share data are based on average shares outstanding.
## 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 dispursing agent. For fiscal years ending
after September 1, 1995, the fund's expenses are calculated without
reduction for this expense offset arrangement.
++ 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.
[sec] The investment adviser voluntarily waived 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:
<TABLE>
<S> <C> <C> <C> <C> <C>
Net investment income .......... $0.55 $0.61 $0.61 $0.64 $0.65
Ratios (to average net assets):
Expenses## .................... 1.02% 1.04% 1.06% 1.05% 1.05%
Net investment income ......... 5.66% 6.40% 6.41% 6.62% 6.98%
</TABLE>
22
<PAGE>
Class B Shares
.........................................................................
<TABLE>
<CAPTION>
Year Ended
-------------------------------------------------------------------
February 28,
--------------------------------------
February 29, February 28,
1999 1998 1997 1996 1995
------------ ------------ ------------ -------------- -------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value -- beginning of period ..... $ 9.68 $ 9.39 $ 9.66 $ 9.22 $ 9.78
-------- -------- -------- -------- --------
Income from investment operations# --
Net investment income[sec] ................ $ 0.50 $ 0.55 $ 0.55 $ 0.59 $ 0.59
Net realized and unrealized gain (loss)
on investments ........................... 0.01 0.28 (0.28) 0.44 (0.56)
-------- -------- -------- -------- --------
Total from investment operations ......... $ 0.51 $ 0.83 $ 0.27 $ 1.03 $ 0.03
-------- -------- -------- -------- --------
Less distributions declared to shareholders
from net investment income ................. $ (0.51) $ (0.54) $ (0.54) $ (0.59) $ (0.59)
-------- -------- -------- -------- --------
Net asset value -- end of period ............ $ 9.68 $ 9.68 $ 9.39 $ 9.66 $ 9.22
======== ======== ======== ======== ========
Total return ................................ 5.32% 9.17% 2.92% 11.46% 0.57%
Ratios (to average net assets)/
Supplemental data[sec]:
Expenses## ................................. 1.57% 1.59% 1.62% 1.56% 1.51%
Net investment income ...................... 5.08% 5.84% 5.85% 6.09% 6.52%
Portfolio turnover .......................... 176% 212% 339% 352% 385%
Net assets at end of period
(000 omitted) .............................. $173,569 $117,077 $114,861 $124,921 $105,178
</TABLE>
----------
# Per share data for the periods subsequent to February 28, 1994, are based
on average shares outstanding.
## 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 dispursing agent. For fiscal years ending
after September 1, 1995, the fund's expenses are calculated without
reduction for this expense offset arrangement.
[sec]The investment adviser voluntarily waived 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:
<TABLE>
<S> <C> <C> <C> <C> <C>
Net investment income .......... $ 0.48 $ 0.54 $ 0.54 $ 0.57 $ 0.57
Ratios (to average net assets):
Expenses## .................... 1.67% 1.69% 1.77% 1.77% 1.77%
Net investment income ......... 4.98% 5.74% 5.70% 5.88% 6.26%
</TABLE>
23
<PAGE>
Class C Shares
.........................................................................
<TABLE>
<CAPTION>
Year Ended Year Ended Period Ended
February 28, February 28, February 28,
1999 1998 1997**
-------------- -------------- -------------
<S> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value -- beginning of period ........... $ 9.72 $ 9.43 $ 9.51
------- ------- ------
Income from investment operations# --
Net investment income[sec] ...................... $ 0.49 $ 0.55 $ 0.47
Net realized and unrealized gain (loss)
on investments ................................. 0.01 0.29 (0.09)
------- ------- ------
Total from investment operations ............... $ 0.50 $ 0.84 $ 0.38
------- ------- ------
Less distributions declared to shareholders
from net investment income ...................... $ (0.51) $ (0.55) $(0.46)
------- ------- ------
Net asset value -- end of period ................. $ 9.71 $ 9.72 $ 9.43
======= ======= ======
Total return ................................... 5.23% 9.15% 4.06%++
Ratios (to average net assets)/Supplemental data[sec]:
Expenses## ....................................... 1.57% 1.59% 1.55%+
Net investment income ............................ 5.03% 5.85% 5.97%+
Portfolio turnover ................................ 176% 212% 339%
Net assets at end of period (000 omitted) ......... $36,340 $11,354 $6,046
</TABLE>
--------
** For the period from the inception of Class C, April 1, 1996, through
February 28, 1997.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## 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. The fund's expenses
are calculated without reduction for this expense offset arrangement.
[sec] The investment adviser voluntarily waived a portion of its management
fee for the periods indicated. If this fee had been incurred by the
fund, the net investment income per share and ratios would have been:
<TABLE>
<S> <C> <C> <C>
Net investment income ......................... $0.48 $0.54 $0.46
Ratios (to average net assets):
Expenses## ................................... 1.67% 1.69% 1.70%+
Net investment income ........................ 4.93% 5.75% 5.82%+
</TABLE>
24
<PAGE>
Appendix A
o Investment Techniques and Practices
In pursuing its investment objective, the fund may engage in the following
principal and non-principal investment techniques and practices. Investment
techniques and practices which are the principal focus of the fund are
described in the Risk Return Summary of the prospectus. Both principal and
non-principal investment techniques and practices are described, together
with their risks, in the SAI.
Investment Techniques/Practices
.........................................................................
<TABLE>
<CAPTION>
Symbols [check]permitted -- not permitted
-------------------------------------------------------------------------
<S> <C>
Debt Securities
Asset-Backed Securities
Collateralized Mortgage Obligations and Multiclass
Pass-Through Securities [check]
Corporate Asset-Backed Securities --
Mortgage Pass-Through Securities [check]
Stripped Mortgage-Backed Securities --
Corporate Securities --
Loans and Other Direct Indebtedness --
Lower Rated Bonds --
Municipal Bonds --
Speculative Bonds --
U.S. Government Securities [check]
Variable and Floating Rate Obligations [check]
Zero Coupon Bonds, Deferred Interest Bonds and PIK Bonds [check]
Equity Securities --
Foreign Securities Exposure
Brady Bonds --
Depositary Receipts --
Dollar-Denominated Foreign Debt Securities --
Emerging Markets --
Foreign Securities --
Forward Contracts --
Futures Contracts --
Indexed Securities/Structured Products --
Inverse Floating Rate Obligations --
</TABLE>
A-1
<PAGE>
Investment Techniques/Practices (continued)
.........................................................................
<TABLE>
<CAPTION>
Symbols [check]permitted -- not permitted
-------------------------------------------------------------------------
<S> <C>
Investment in Other Investment Companies --
Open-End Funds [check]
Closed-End Funds [check]
Lending of Portfolio Securities [check]
Leveraging Transactions
Bank Borrowings *
Mortgage "Dollar-Roll" Transactions *
Reverse Repurchase Agreements *
Options
Options on Foreign Currencies --
Options on Futures Contracts --
Options on Securities --
Options on Stock Indices --
Reset Options --
"Yield Curve" Options --
Repurchase Agreements [check]
Restricted Securities [check]
Short Sales *
Short Sales Against the Box --
Short Term Instruments [check]
Swaps and Related Derivative Instruments --
Temporary Borrowings [check]
Temporary Defensive Positions [check]
Warrants --
"When-issued" Securities [check]
</TABLE>
--------
* May be modified only with shareholder approval.
A-2
<PAGE>
The MFS Family of Funds(R)
Americas Oldest Mutual Fund Group
MFS offers a range of mutual funds to meet investors' varying financial needs
and goals. The funds are grouped below according to the types of securities in
their portfolios. For information on the specific risks, charges, and expenses
associated with any MFS fund, obtain a prospectus
Stock
- -------------------------------------
Massachusetts Investors Trust
Massachusetts Investors Growth
Stock Fund
MFS(R) Capital Opportunities Fund
MFS(R) Emerging Growth Fund
MFS(R) Equity Income Fund
MFS(R) Growth Opportunities Fund
MFS(R) Large Cap Growth Fund
MFS(R) Managed Sectors Fund
MFS(R) Mid Cap Growth Fund
MFS(R) New Discovery Fund
MFS(R) Research Fund
MFS(R) Research Growth and
Income Fund
MFS(R) Strategic Growth Fund
MFS(R) Union Standard(R) Equity Fund
Stock and Bond
- -------------------------------------
MFS(R) Total Return Fund
MFS(R) Utilities Fund
Bond
- -------------------------------------
MFS(R) Bond Fund
MFS(R) Government Mortgage Fund
MFS(R) Government Securities Fund
MFS(R) High Income Fund
MFS(R) High Yield Opportunities Fund
MFS(R) Intermediate Income Fund
MFS(R) Strategic Income Fund
Limited Maturity
- -------------------------------------
MFS(R) Government Limited
Maturity Fund
MFS(R) Limited Maturity Fund
MFS(R) Municipal Limited Maturity Fund
Global+
- -------------------------------------
MFS(R)/Foreign & Colonial Emerging
Markets Equity Fund
MFS(R) International Growth Fund
MFS(R) International Growth
and Income Fund
MFS(R) Global Asset Allocation Fund
MFS(R) Global Equity Fund
MFS(R) Global Governments Fund
MFS(R) Global Growth Fund
MFS(R) Global Total Return Fund
MFS(R) Research International Fund
National Tax-Free Bond
- -------------------------------------
MFS(R) Municipal Bond Fund
MFS(R) Municipal High Income Fund
MFS(R) Municipal Income Fund
State Tax-Free Bond
- -------------------------------------
Alabama, Arkansas, California, Florida,
Georgia, Maryland, Massachusetts,
Mississippi, New York, North Carolina,
Pennsylvania, South Carolina, Tennessee,
Virginia, West Virginia
Money Market
- -------------------------------------
MFS(R) Cash Reserve Fund
MFS(R) Government Money Market Fund
MFS(R) Money Market Fund
+ MFS(R) "global" funds were formerly "world" funds. As of August 24, 1998,
their names changed but their objectives remain the same.
<PAGE>
MFS(R) GOVERNMENT SECURITIES FUND
If you want more information about the fund, the following documents are
available free upon request:
Annual/Semiannual Reports. These reports contain information about the
fund's actual investments. Annual reports discuss the effect of recent
market conditions and the fund's investment strategy on the fund's
performance during its last fiscal year.
Statement of Additional Information (SAI). The SAI, dated July 1, 1999,
provides more detailed information about the fund and is incorporated into
this prospectus by reference.
You can get free copies of the annual/semiannual reports, the SAI and other
information about the fund, and make inquiries about the fund, by
contacting:
MFS Service Center, Inc.
2 Avenue de Lafayette
Boston, MA 02111-1738
Telephone: 1-800-225-2606
Internet: http://www.mfs.com
Information about the fund (including its prospectus, SAI and shareholder
reports) can be reviewed and copied at the:
Public Reference Room
Securities and Exchange Commission
Washington, D.C., 20549-6009
Information on the operation of the Public Reference Room may be obtained by
calling the Commission at 1-800-SEC-0330. Reports and other information
about the fund are available on the Commission's Internet website at
http://www.sec.gov, and copies of this information may be obtained, upon
payment of a duplicating fee, by writing the Public Reference Section at the
above address.
The fund's Investment Company Act file number is 811-3327
MGS-1 6/99 401M 26/226/326/826
<PAGE>
MFS(R) GOVERNMENT SECURITIES FUND
JULY 1, 1999
[LOGO MFS 75 Years] Statement of Additional
Information
500 Boylston Street, Boston, MA 02116
(617) 954-5000
This Statement of Additional Information, as amended or supplemented from time
to time (the "SAI"), sets forth information which may be of interest to
investors but which is not necessarily included in the Fund's Prospectus dated
July 1, 1999. This SAI should be read in conjunction with the Prospectus. The
Fund's financial statements are incorporated into this SAI by reference to the
Fund's most recent Annual Report to shareholders. A copy of the Annual Report
accompanies this SAI. You may obtain a copy of the Fund's Prospectus and Annual
Report without charge by contacting MFS Service Center, Inc. (see back cover of
Part II of this SAI for address and phone number).
This SAI is divided into two Parts -- Part I and Part II. Part I contains
information that is particular to the Fund, while Part II contains information
that generally applies to each of the funds in the MFS Family of Funds (the "MFS
Funds"). Each Part of the SAI has a variety of appendices which can be found at
the end of Part I and Part II, respectively.
This SAI is NOT a prospectus and is authorized for distribution to prospective
investors only if preceded or accompanied by a current prospectus.
MGS-13 6/99 600 26/226/326/826
<PAGE>
Statement of Additional Information
PART I
Part I of this SAI contains information that is particular to the Fund.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
I Definitions ............................................................... 1
II Management of the Fund .................................................... 1
The Fund .................................................................. 1
Trustees and Officers -- Identification and Background .................... 1
Trustee Compensation ...................................................... 1
Affiliated Service Provider Compensation .................................. 1
III Sales Charges and Distribution Plan Payments .............................. 1
Sales Charges ............................................................. 1
Distribution Plan Payments ................................................ 1
IV Portfolio Transactions and Brokerage Commissions .......................... 1
V Share Ownership ........................................................... 1
VI Performance Information ................................................... 1
VII Investment Techniques, Practices, Risks and Restrictions .................. 1
Investment Techniques, Practices and Risks ................................ 1
Investment Restrictions ................................................... 2
VIII Tax Considerations ........................................................ 3
IX Independent Auditors and Financial Statements ............................. 3
Appendix A -- Trustees and Officers -- Identification and Background ...... A-1
Appendix B -- Trustee Compensation ........................................ B-1
Appendix C -- Affiliated Service Provider Compensation .................... C-1
Appendix D -- Sales Charges and Distribution Plan Payments ................ D-1
Appendix E -- Portfolio Transactions and Brokerage Commissions ............ E-1
Appendix F -- Share Ownership ............................................. F-1
Appendix G -- Performance Information ..................................... G-1
</TABLE>
<PAGE>
I DEFINITIONS
"Fund" - MFS Government Securities Fund, a Massachusetts business trust
organized in 1981.
"MFS" or the "Adviser" - Massachusetts Financial Services Company, a
Delaware corporation.
"MFD" - MFS Fund Distributors, Inc., a Delaware corporation.
"MFSC" - MFS Service Center, Inc., a Delaware corporation.
"Prospectus" - The Prospectus of the Fund, dated July 1, 1999, as
amended or supplemented from time to time.
II MANAGEMENT OF THE FUND
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.
Trustees and Officers -- Identification and Background The
identification and background of the Trustees and officers of the Trust
are set forth in Appendix A of this Part I.
Trustee Compensation
Compensation paid to the non-interested Trustees and to Trustees who are
not officers of the Fund, for certain specified periods, is set forth in
Appendix B of this Part I.
Affiliated Service Provider Compensation
Compensation paid by the Fund to its affiliated service providers -- to
MFS, for investment advisory and administrative services, and to MFSC,
for transfer agency services -- for certain specified periods is set
forth in Appendix C to this Part I.
III SALES CHARGES AND DISTRIBUTION PLAN
PAYMENTS
Sales Charges
Sales charges paid in connection with the purchase and sale of Fund
shares for certain specified periods are set forth in Appendix D to this
Part I, together with the Fund's schedule of dealer reallowances.
Distribution Plan Payments
Payments made by the Fund under the Distribution Plan for its most
recent fiscal year end are set forth in Appendix D to this Part I.
IV PORTFOLIO TRANSACTIONS AND BROKERAGE
COMMISSIONS
Brokerage commissions paid by the Fund for certain specified periods,
and information concerning purchases by the Fund of securities issued by
its regular broker-dealers for its most recent fiscal year, are set
forth in Appendix E to this Part I.
Broker-dealers may be willing to furnish statistical, research and other
factual information or services ("Research") to the Adviser for no
consideration other than brokerage or underwriting commissions.
Securities may be bought or sold from time to time through such
broker-dealers, on behalf of the fund. The Trustees (together with the
Trustees of certain other MFS funds) have directed the Adviser to
allocate a total of $53,050 of commission business from certain MFS
funds (including the fund) to the Pershing Division of Donaldson Lufkin
& Jenrette as consideration for the annual renewal of certain
publications provided by Lipper Analytical Securities Corporation (which
provides information useful to the Trustees in reviewing the
relationship between the fund and the Adviser).
V SHARE OWNERSHIP
Information concerning the ownership of Fund shares by Trustees and
officers of the Fund as a group, by investors who control the Fund, if
any, and by investors who own 5% or more of any class of Fund shares, if
any, is set forth in Appendix F to this Part I.
VI PERFORMANCE INFORMATION
Performance information, as quoted by the Fund in sales literature and
marketing materials, is set forth in Appendix G to this Part I.
VII INVESTMENT TECHNIQUES, PRACTICES, RISKS
AND RESTRICTIONS
Investment Techniques, Practices and Risks
The investment objective and principal investment policies of the Fund
are described in the Prospectus. In pursuing its investment objective
and principal investment policies, the Fund may engage in a number of
investment techniques and practices, which involve certain risks. These
investment techniques and practices, which may be changed without
shareholder approval unless indicated otherwise, are identified in
Appendix A to the Prospectus, and are more fully described, together
with their associated risks, in Part II of this SAI. The following
percentage limitation applies to these investment techniques and
practices:
o Lending of Portfolio Securities may not exceed 30% of the Fund's net
assets
Investment Restrictions
The Fund has adopted the following restrictions which cannot be changed
without the approval of the holders of a majority of the Fund's shares
(which, as used in this SAI, means the lesser of (i) more
Part I -- 1
<PAGE>
than 50% of the outstanding shares of the Fund or a series or class, as
applicable or (ii) 67% or more of the outstanding shares of the Fund or
a series or class, as applicable, present at a meeting at which holders
of more than 50% of the outstanding shares of the Fund or a series or
class, as applicable are represented in person or by proxy).
Terms used below (such as Options and Futures Contracts) are defined
in Part II of this SAI.
The Fund may not:
(1) borrow money or pledge, mortgage or hypothecate in excess of 1/3
of its assets, 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
interest 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 of 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) 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.
Part I -- 2
<PAGE>
Applicability of Restrictions: Except for Investment Restriction (1) and
(6), these investment restrictions are adhered to at the time of
purchase or utilization of assets; a subsequent change in circumstances
will not be considered to result in a violation of policy.
VIII TAX CONSIDERATIONS
For a discussion of tax considerations, see Part II of this SAI.
IX INDEPENDENT AUDITORS AND FINANCIAL
STATEMENTS
Deloitte & Touche LLP are the Fund's independent auditors, providing
audit services, tax services, and assistance and consultation with
respect to the preparation of filings with the Securities and Exchange
Commission.
The Portfolio of Investments and the Statement of Assets and
Liabilities at February 28, 1999, the Statement of Operations for the
year ended February 28, 1999, the Statement of Changes in Net Assets for
the two years ended February 28, 1998, the Notes to Financial Statements
and the Report of the Independent Auditors, each of which is included in
the Annual Report to Shareholders of the Fund, are incorporated by
reference into this SAI in reliance upon the report of Deloitte & Touche
LLP, independent auditors, given upon their authority as experts in
accounting and auditing. A copy of the Annual Report accompanies this
SAI.
Part I -- 3
<PAGE>
PART I -- APPENDIX A
TRUSTEES AND OFFICERS -- IDENTIFICATION
AND BACKGROUND
The Trustees and officers of the Trust are listed below, together with
their principal occupations during the past five years. (Their titles may
have varied during that period.)
Trustees
JEFFREY L. SHAMES,* Chairman and President (born 6/2/55) Massachusetts
Financial Services Company, Chairman and Chief Executive Officer
RICHARD B. BAILEY* (born 9/14/26)
Private Investor; Massachusetts Financial Services Company, former
Chairman and Director (prior to September 30, 1991); Cambridge Bancorp,
Director; Cambridge Trust Company, Director
J. ATWOOD IVES (born 5/1/36)
Eastern Enterprises (diversified services company), Chairman, Trustee and
Chief Executive Officer
Address: 9 Riverside Road, Weston, Massachusetts
LAWRENCE T. PERERA (born 6/23/35)
Hemenway & Barnes (attorneys), Partner
Address: 60 State Street, Boston, Massachusetts
WILLIAM J. POORVU (born 4/10/35)
Harvard University Graduate School of Business Administration, Adjunct
Professor; CBL & Associates Properties, Inc. (a real estate investment
trust), Director; The Baupost Fund (a registered investment company),
Vice Chairman (since November 1993), Chairman and Trustee (prior to
November 1993)
Address: Harvard Business School, Soldiers Field Road,
Cambridge, Massachusetts
CHARLES W. SCHMIDT (born 3/18/28)
Private investor; International Technology Corporation, Director; The
Boston 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
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 adviser), Chairman and
Director; Eastern Enterprises, Trustee
Address: Ten Post Office Square, Suite 300, Boston, Massachusetts
Officers
W. THOMAS LONDON,* Treasurer (born 3/1/44)
Massachusetts Financial Services Company, Senior Vice President
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
JAMES O. YOST,* Assistant Treasurer (born 6/12/60)
Massachusetts Financial Services Company, Senior Vice President
ELLEN MOYNIHAN,* Assistant Treasurer (born 11/13/57)
Massachusetts Financial Services Company, Vice President (since September
1996); Deloitte & Touche LLP, Senior Manager (prior to September 1996)
MARK E. BRADLEY,* Assistant Treasurer (born 11/23/59)
Massachusetts Financial Services Company, Vice President (since March
1997); Putnam Investments, Vice President (from September 1994 until
March 1997); Ernst & Young LLP, Senior Tax Manager (prior to September
1994)
------------------------------
* "Interested persons" (as defined in the 1940 Act) of the Adviser,
whose address is 500 Boylston Street, Boston, Massachusetts 02116.
Each Trustee and officer holds comparable positions with certain
affiliates of MFS or with certain other funds of which MFS or a subsidiary
is the investment adviser or distributor. Messrs. Shames and Scott,
Directors of MFD, and Mr. Cavan, the Secretary of MFD, hold similar
positions with certain other MFS affiliates. Mr. Bailey is a Director of
Sun Life Assurance Company of Canada (U.S.), a subsidiary of Sun Life
Assurance Company of Canada.
Part I -- A-1
<PAGE>
PART I -- APPENDIX B
TRUSTEE COMPENSATION
The Fund pays the compensation of non-interested Trustees and of Trustees
who are not officers of the Trust, who currently receive a fee of $2,500
per year plus $135 per meeting and $100 per committee meeting attended,
together with such Trustee's out-of-pocket expenses. In addition, the
Trust has a retirement plan for these Trustees as described under the
caption "Management of the Fund -- Trustee Retirement Plan" in Part II.
The Retirement Age under the plan is 73.
Trustee Compensation Table
................................................................................
<TABLE>
<CAPTION>
Retirement Benefit Total Trustee
Trustee Fees Accrued as Part Estimated Credited Fees from Fund
Trustee from Fund(1) of Fund Expense(1) Years of Service(2) and Fund Complex(3)
- ----------------------- -------------- -------------------- --------------------- --------------------
<S> <C> <C> <C> <C>
Richard B. Bailey $3,282 $ 825 8 $259,430
J. Atwood Ives 3,702 832 17 149,491
Lawrence T. Perera 3,382 1,325 24 129,371
William J. Poorvu 3,612 1,359 24 139,006
Charles W. Schmidt 3,242 1,352 17 129,301
Arnold D. Scott 0 0 N/A 0
Jeffrey L. Shames 0 0 N/A 0
Elaine R. Smith 3,882 925 27 150,511
David B. Stone 3,728 1,267 11 165,826
</TABLE>
- --------------
(1) For the fiscal year ended February 28, 1999.
(2) Based upon normal retirement age (73).
(3) Information provided is provided for calendar year 1998. All Trustees
served as Trustees of 31 funds within the MFS fund complex (having
aggregate net assets at December 31, 1998, of approximately $43 billion)
except Mr. Bailey, who served as Trustee of 74 funds within the MFS complex
(having aggregate net assets at December 31, 1998 of approximately $68
billion).
Estimated Annual Benefits Payable by Fund Upon Retirement(4)
................................................................................
<TABLE>
<CAPTION>
Years of Service
Average
Trustee Fees 3 5 7 10 or more
- ---------------------------------------------------------------
<S> <C> <C> <C> <C>
$2,918 $438 $ 729 $1,021 $1,459
3,188 478 797 1,116 1,594
3,459 519 865 1,211 1,729
3,729 559 932 1,305 1,865
4,000 600 1,000 1,400 2,000
4,270 641 1,068 1,495 2,135
</TABLE>
- --------------
(4) Other funds in the MFS Fund complex provide similar retirement benefits
to the Trustees.
Part I -- B-1
<PAGE>
PART I -- APPENDIX C
AFFILIATED SERVICE PROVIDER COMPENSATION
................................................................................
The Fund paid compensation to its affiliated service providers over the
specified periods as follows:
<TABLE>
<CAPTION>
Paid to MFS Amount Paid to MFS for Paid To MFSC Amount Aggregate
for Advisory Waived Administrative for Transfer Waived Amount Paid
Fiscal Year Ended Services By MFS Services Agency Services by MFSC To MFS and MFSC
- --------------------- -------------- ----------- ----------------- ----------------- --------- -----------------
<S> <C> <C> <C> <C> <C> <C>
February 28, 1999 $1,452,331 $485,623 $59,509 $544,624 N/A $2,056,464
February 28, 1998 $1,214,387 $420,618 $57,901* $520,789 N/A $1,793,077
February 28, 1997 $1,076,326 $645,570 N/A $803,429 N/A $1,879,755
</TABLE>
- --------------
* From March 1, 1997, the commencement of the Master Administrative Service
Agreement.
Part I -- C-1
<PAGE>
PART I -- APPENDIX D
SALES CHARGES AND DISTRIBUTION PLAN PAYMENTS
Sales Charges
............................................................................
The following sales charges were paid during the specified periods:
<TABLE>
<CAPTION>
Class A Initial Sales Charges: CDSC Paid to MFD on:
Retained Reallowed Class A Class B Class C
Fiscal Year End Total By MFD to Dealers Shares Shares Shares
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
February 28, 1999 $1,200,098 $199,411 $1,000,687 $3,509 $429,961 $21,937
February 28, 1998 $ 422,293 $ 58,857 $ 363,436 $3,470 $279,216 $ 2,556
February 28, 1997 $ 447,908 $ 60,477 $ 387,431 $3,861 $279,385 $ 789
</TABLE>
Dealer Reallowances
............................................................................
As shown above, MFD pays (or "reallows") a portion of the Class A initial
sales charge to dealers. The dealer reallowance as expressed as a percentage
of the Class A shares' offering price is:
<TABLE>
<CAPTION>
Dealer Reallowance as a
Amount of Purchase percent of Offering Price
<S> <C>
Less than $100,000 4.00%
$100,000 but less than $250,000 3.20%
$250,000 but less than $500,00 0 2.25%
$500,000 but less than $1,000,000 1.70%
$1,000,000 or more None*
</TABLE>
- --------------
* A CDSC will apply to such purchase.
Distribution Plan Payments
................................................................................
During the fiscal year ended February 28, 1999, the Fund made the following
Distribution Plan payments:
<TABLE>
<CAPTION>
Amount of Distribution and Service Fees:
Class of Shares Paid By Fund Retained By MFD Paid To Dealers
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A Shares $1,076,050 $ 383,816 $692,234
Class B Shares $1,444,726 $1,105,268 $339,458
Class C Shares $ 245,257 $ 571 $244,686
</TABLE>
Distribution plan payments retained by MFD are used to compensate MFD for
commissions advanced by MFD to dealers upon sale of fund shares.
Part I -- D-1
<PAGE>
PART I -- APPENDIX E
PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
Brokerage Commissions
...............................................................................
The following brokerage commissions were paid by the Fund during the specified
time periods:
<TABLE>
<CAPTION>
Brokerage Commissions
Fiscal Year End Paid by Fund
- --------------------------------------------------------------------------------
<S> <C>
February 28, 1999 $-0-
February 28, 1998 $-0-
February 28, 1997 $-0-
</TABLE>
Securities Issued By Regular Broker-Dealers
................................................................................
During the fiscal year ended February 28, 1999, the Fund did not purchase any
securities issued by regular broker-dealers of the Fund.
Part I -- E-1
<PAGE>
PART I -- APPENDIX F
SHARE OWNERSHIP
Ownership By Trustees and Officers
As of March 31, 1999, the Trustees and officers of the Trust as a group
owned less than 1% of any class of the Fund's shares.
25% or Greater Ownership
The following table identifies those investors who own 25% or more of the
Fund's shares (all share classes taken together) as of March 31, 1999, and
are therefore presumed to control the Fund:
<TABLE>
<CAPTION>
Jurisdiction of Organization
Name and Address of Investor (if a Company) Percentage Ownership
- ----------------------------------------------------------------------------------
<S> <C> <C>
None
</TABLE>
5% or Greater Ownership of Share Class
The following table identifies those investors who own 5% or more of any
class of the Fund's shares as of March 31, 1999:
<TABLE>
<CAPTION>
Name and Address of Investor Ownership Percentage
..........................................................................
<S> <C>
MLPF&S for the Sole Benefit of its Customers 12.13% of Class B Shares
Attn: Fund Administration 97B92
4800 Deer Lake Drive E--3rd Floor
Jacksonville, FL 32246-6484
..........................................................................
MLPF&S for the Sole Benefit of its Customers 24.35% of Class C Shares
Attn: Fund Administration 97JT5
4800 Deer Lake Drive E--3rd Floor
Jacksonville, FL 32246-6484
..........................................................................
TRS MFS DEF Contribution Plan 8.86% of Class I Shares
c/o Mark Leary--19th Floor
Mass Financial Services
500 Boylston Street
Boston, MA 02116-3740
..........................................................................
TRS of the MFS Pension Plan 91.14% of Class I Shares
c/o Mark Leary
Mass Financial Services
500 Boylston Street
Boston, MA 02116-3740
.....................................................................
</TABLE>
Part I -- F-1
<PAGE>
PART I -- APPENDIX G
PERFORMANCE INFORMATION
..............................................................................
All performance quotations are as of February 28, 1999.
<TABLE>
<CAPTION>
Average Annual Actual 30-
Total Returns Day Yield 30-Day Yield Current
------------------------------- (Including (Without Any Distribution
1 Year 5 Year 10 Year Waivers) Waivers) Rate
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A Shares, with initial sales charge
(4.75%) 0.96% 5.51% 7.66% 4.69 4.60 5.31
Class A Shares, at net asset value 6.00% 6.54% 8.18% N/A N/A N/A
Class B Shares, with CDSC
(declining over 6 years from 4% to 0%) 1.32% 5.50% 7.77% N/A N/A N/A
Class B Shares, at net asset value 5.32% 5.81% 7.77% 4.27 4.17 4.91
Class C Shares, with CDSC
(1% for first year) 4.23% 6.12% 7.97% N/A N/A N/A
Class C Shares, at net asset value 5.23% 6.12% 7.97% 4.26 4.16 4.92
Class I Shares, at net asset value 6.37% 6.71% 8.27% 5.28 5.18 5.93
</TABLE>
--------------
+Annualized, based upon the last distribution.
The fund initially offered class A shares on July 25, 1984, class B shares on
August 30, 1993, class C shares on April 1, 1996 and class I shares on
January 2, 1997. Class B and class C share performance includes the
performance of the fund's class A shares for periods prior to the offering of
class B and class C shares. Class B and class C share performance generally
would have been lower than class A share performance had class B and class C
shares been offered for the entire period, because the operating expenses
(e.g., distribution and service fees) attributable to class B and class C
shares are higher than those of class A shares. Class B and class C share SEC
performance has been adjusted to take into account the CDSC applicable to
class B and class C shares, rather than the initial sales charge applicable
to class A shares.
Class I share performance includes the performance of the fund's class A
shares for periods prior to the offering of class I shares. Class I share
performance generally would have been higher than class A share performance
had class I shares been offered for the entire period, because operating
expenses (e.g., distribution and service fees) attributable to class I shares
are lower than those of class A shares. Class I share performance has been
adjusted to take into account the fact that class I shares have no initial
sales charge.
Performance results include any applicable expense subsidies and waivers,
which may cause the results to be more favorable. Current subsidies and
waivers may be discontinued at any time.
Part I -- G-1
