<PAGE>
As filed with the Securities and Exchange Commission on April 26, 1996
1933 Act File No. 2-36431
1940 Act File No. 811-2032
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
FORM N-1A
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 35 AND
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 25
MFS GROWTH OPPORTUNITIES FUND
(Exact Name of Registrant as Specified in Charter)
500 Boylston Street, Boston, Massachusetts 02116
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: 617-954-5000
Stephen E. Cavan, Massachusetts Financial Services Company,
500 Boylston Street, Boston, Massachusetts 02116
(Name and Address of Agent for Service)
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
It is proposed that this filing will become effective (check appropriate box)
|_| immediately upon filing pursuant to paragraph (b)
|X| on April 29, 1996 pursuant to paragraph (b)
|_| 60 days after filing pursuant to paragraph (a)(i)
|_| on [date] pursuant to paragraph (a)(i)
|_| 75 days after filing pursuant to paragraph (a)(ii)
|_| on [date] pursuant to paragraph (a)(ii) of rule 485.
If appropriate, check the following box:
|_| this post-effective amendment designates a new effective date for a
previously filed post-effective amendment
Pursuant to Rule 24f-2, the Registrant has registered an indefinite number of
its Shares of Beneficial Interest (without par value), under the Securities Act
of 1933. The Registrant filed a Rule 24f-2 Notice with respect to its fiscal
year ended December 31, 1995 on February 26, 1996.
<TABLE>
CALCULATION OF REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
NUMBER OF PROPOSED PROPOSED
TITLE OF SECURITIES SHARES BEING MAXIMUM OFFERING MAXIMUM AGGREGATE AMOUNT OF
BEING REGISTERED REGISTERED PRICE PER SHARE OFFERING PRICE REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares of Beneficial
Interest (without par value) 4,739,171 12.76 $290,000 $100
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
Registrant elects to calculate the maximum aggregate offering price pursuant to
Rule 24e-2. 13,036,502 shares were redeemed during the fiscal year ended
December 31, 1995. 8,320,058 shares were used for reductions pursuant to
paragraph (c) of Rule 24f-2 during the current fiscal year. 4,716,444 shares is
the amount of redeemed shares used for reduction in this Amendment. Pursuant to
Rule 457(d) under the Securities Act of 1933, the maximum public offering price
of $12.76 per share (for Class B Shares) on April 19, 1996) is the price used as
the basis for calculating the registration fee. While no fee is required for the
4,716,444 shares, Registrant has elected to register, for $100, an additional
$290,000 of shares (22,727 shares at $12.76 per share).
===============================================================================
<PAGE>
MFS GROWTH OPPORTUNITIES FUND
CROSS REFERENCE SHEET
(Pursuant to Rule 404 showing location in Prospectus and/or Statement of
Additional Information of the responses to the Items in Parts A and B of Form
N-1A)
<TABLE>
<CAPTION>
STATEMENT OF
ITEM NUMBER ADDITIONAL
FORM N-1A, PART A PROSPECTUS CAPTION INFORMATION CAPTION
- ----------------- ------------------ -------------------
<S> <C> <C> <C>
1 (a), (b) Front Cover Page *
2 (a) Expense Summary *
(b), (c) * *
3 (a) Condensed Financial Information *
(b) * *
(c) Information Concerning Shares of *
the Fund - Performance Information
(d) Condensed Financial Information *
4 (a) The Fund; Investment Objective *
and Policies
(b), (c) Investment Objective and Policies *
5 (a) The Fund; Management of the Fund - *
Investment Adviser
(b) Front Cover Page; Management of *
the Fund - Investment Adviser; Back
Cover Page
(c), (d) Management of the Fund - *
Investment Adviser
(e) Management of the Fund - *
Shareholder Servicing Agent;
Back Cover Page *
<PAGE>
<CAPTION>
STATEMENT OF
ITEM NUMBER ADDITIONAL
FORM N-1A, PART A PROSPECTUS CAPTION INFORMATION CAPTION
- ----------------- ------------------ -------------------
(f) Expense Summary; Condensed *
Financial Information
(g) Information Concerning Shares of *
the Fund - Purchases
5A (a), (b), (c) ** **
6 (a) Information Concerning Shares of *
the Fund - Description of Shares,
Voting Rights and Liabilities;
Information Concerning Shares of
the Fund - Redemptions and
Repurchases; Information Concerning
Shares of the Fund - Purchases;
Information Concerning Shares of
the Fund - Exchanges
(b), (c), (d) * *
(e) Shareholder Services *
(f) Information Concerning Shares of *
the Fund - Distributions; Shareholder
Services - Distribution Options
(g) Information Concerning Shares of *
the Fund - Tax Status; Information
Concerning Shares of the Fund -
Distributors
(h) * *
7 (a) Front Cover Page; Management of *
the Fund - Distributor; Back Cover
Page
(b) Information Concerning Shares of *
the Fund - Purchases; Net Asset Value
(c) Information Concerning Shares of *
the Fund - Purchases; Information
Concerning Shares of the Fund -
Exchanges; Shareholder Services
<PAGE>
<CAPTION>
STATEMENT OF
ITEM NUMBER ADDITIONAL
FORM N-1A, PART A PROSPECTUS CAPTION INFORMATION CAPTION
- ----------------- ------------------ -------------------
(d) Front Cover Page; Information *
Concerning Shares of the Fund -
Purchases
(e) Information Concerning Shares of *
the Fund - Distribution Plans;
Expense Summary
(f) Information Concerning Shares of *
the Fund - Distribution Plans
8 (a) Information Concerning Shares of *
the Fund - Purchases; Information
Concerning Shares of the Fund -
Redemptions and Repurchases
(b), (c), (d) Information Concerning Shares of *
the Fund - Redemptions and
Repurchases
9 * *
<PAGE>
<CAPTION>
STATEMENT OF
ITEM NUMBER ADDITIONAL
FORM N-1A, PART B PROSPECTUS CAPTION INFORMATION CAPTION
- ----------------- ------------------ -------------------
10 (a), (b) * Front Cover Page
11 * Front Cover Page
12 * Definitions
13 (a), (b), (c) * Investment Objective,
Policies and Restrictions
(d) * *
14 (a), (b) * Management of the Fund -
Trustees and Officers
(c) * Management of the Fund -
Trustees and Officers;
Appendix A
15 (a) * *
(b), (c) * Management of the Fund -
Trustees and Officers
16 (a) Management of the Fund - Management of the Fund -
Investment Adviser Investment Adviser;
Management of the Fund -
Trustees and Officers
(b) Management of the Fund - Management of the Fund -
Investment Adviser Investment Adviser
(c) * *
(d) * Management of the Fund -
Investment Adviser
(e) * Portfolio Transactions and
Brokerage Commissions
(f) Information Concerning Shares of Distribution Plans
the Fund - Distribution Plans
(g) * *
<PAGE>
<CAPTION>
STATEMENT OF
ITEM NUMBER ADDITIONAL
FORM N-1A, PART B PROSPECTUS CAPTION INFORMATION CAPTION
- ----------------- ------------------ -------------------
(h) * Management of the Fund -
Custodian; Independent
Auditors and Financial
Statements; Back Cover
Page
(i) * Management of the Fund -
Shareholder Servicing
Agent
17 (a), (b), (c), * Portfolio Transactions and
(d), (e) Brokerage Commissions
18 (a) Information Concerning Shares of Description of Shares,
the Fund - Description of Shares, Voting Rights and
Voting Rights and Liabilities Liabilities
(b) * *
19 (a) Information Concerning Shares of Shareholder Services
the Fund - Purchases; Shareholder
Services
(b) Information Concerning Shares of Management of the Fund -
the Fund - Net Asset Value; Distributor; Determination
Information Concerning Shares of Net Asset Value and
of the Fund - Purchases Performance - Net Asset
Value
(c) * *
20 * Tax Status
21 (a), (b) * Management of the Fund -
Distributor; Distribution
Plans
(c) * *
22 (a) * *
(b) * Determination of Net Asset
Value and Performance
23 * Independent Auditors and
Financial Statements
</TABLE>
- -----------------------------
* Not Applicable
** Contained in Annual Report
<PAGE>
PROSPECTUS
MFS(R) GROWTH May 1, 1996
OPPORTUNITIES FUND Class A Shares of Beneficial Interest
(A member of the MFS Family of Funds(R)) Class B Shares of Beneficial Interest
- --------------------------------------------------------------------------------
Page
----
1. Expense Summary ................................................... 2
2. The Fund .......................................................... 3
3. Condensed Financial Information ................................... 4
4. Investment Objective and Policies ................................. 6
5. Investment Techniques ............................................. 6
6. Additional Risks Factors .......................................... 10
7. Management of the Fund ............................................ 12
8. Information Concerning Shares of the Fund ......................... 13
Purchases ..................................................... 13
Exchanges ..................................................... 17
Redemptions and Repurchases ................................... 18
Distribution Plans ............................................ 20
Distributions ................................................. 21
Tax Status .................................................... 21
Net Asset Value ............................................... 22
Description of Shares, Voting Rights and Liabilities .......... 22
Performance Information ....................................... 22
9. Shareholder Services .............................................. 23
Appendix A ........................................................ A-1
Appendix B ........................................................ B-1
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
MFS GROWTH OPPORTUNITIES FUND
500 Boylston Street, Boston, Massachusetts 02116 (617) 954-5000
The investment objective of MFS Growth Opportunities Fund (the "Fund") is to
seek growth of capital (see "Investment Objective and Policies"). The minimum
initial investment is generally $1,000 per account (see "Information
Concerning Shares of the Fund -- Purchases"). THE FUND IS DESIGNED FOR
INVESTORS WHO UNDERSTAND AND ARE WILLING TO ACCEPT THE RISKS INHERENT IN
SEEKING CAPITAL APPRECIATION.
The Fund's investment adviser and distributor are Massachusetts Financial
Services Company ("MFS" or the "Adviser") and MFS Fund Distributors, Inc.
("MFD"), respectively, both of which are located at 500 Boylston Street,
Boston, Massachusetts 02116.
INVESTMENT PRODUCTS ARE NOT INSURED BY THE FDIC OR ANY OTHER GOVERNMENT
AGENCY, AND ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR GUARANTEED BY, ANY
FINANCIAL INSTITUTION. SHARES OF MUTUAL FUNDS ARE SUBJECT TO INVESTMENT RISK,
INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED, AND WILL FLUCTUATE
IN VALUE. YOU MAY RECEIVE MORE OR LESS THAN YOU PAID WHEN YOU REDEEM YOUR
SHARES.
This Prospectus sets forth concisely the information concerning the Fund that
a prospective investor ought to know before investing. The Fund has filed with
the Securities and Exchange Commission (the "SEC") a Statement of Additional
Information (the "SAI"), dated May 1, 1996, as amended or supplemented from
time to time, which contains more detailed information about the Fund. The SAI
is incorporated into this Prospectus by reference. See page 24 for a further
description of the information set forth in the SAI. A copy of the SAI may be
obtained without charge by contacting the Shareholder Servicing Agent (see
back cover for address and phone number).
INVESTORS SHOULD READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE REFERENCE.
<PAGE>
1. EXPENSE SUMMARY
<TABLE>
<CAPTION>
CLASS A CLASS B
------- -------
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Initial Sales Charge Imposed on Purchases of Fund Shares (as a
percentage of offering price) ........................................ 5.75% 0.00%
Maximum Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable) ................ See Below(1) 4.00%
ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS):
Management Fees ........................................................ 0.43% 0.43%
Rule 12b-1 Fees ........................................................ 0.15%(2) 1.00%(3)
Other Expenses(4) ...................................................... 0.29% 0.38%
----- -----
Total Operating Expenses ............................................... 0.87% 1.81%
</TABLE>
- ----------
(1) Purchases of $1 million or more are not subject to an initial sales
charge; however, a contingent deferred sales charge (a "CDSC") of 1% will
be imposed on such purchases in the event of certain redemption
transactions within 12 months following such purchases (see "Information
Concerning Shares of the Fund -- Purchases" below).
(2) The Fund has adopted a Distribution Plan for its Class A shares in
accordance with Rule 12b-1 under the Investment Company Act of 1940, as
amended (the "1940 Act"), which provides that it will pay certain
distribution/service fees aggregating up to (but not necessarily all of)
0.35% per annum of the average daily net assets attributable to Class A
shares. Payment of the 0.10% per annum Class A distribution fee will
commence on such date as the Trustees of the Trust may determine (see
"Information Concerning Shares of the Fund -- Distribution Plans" below).
Assets attributable to Class A shares sold prior to March 1, 1991 are
subject to a service fee of 0.15% per annum. Distribution expenses paid
under this Plan, together with the initial sales charge, may cause long-
term shareholders to pay more than the maximum sales charge that would
have been permissible if imposed entirely as an initial sales charge.
(3) The Fund has adopted a Distribution Plan for its Class B shares in
accordance with Rule 12b-1 under the 1940 Act, which provides that it will
pay distribution/service fees aggregating up to 1.00% per annum of the
average daily net assets attributable to Class B shares (see "Information
Concerning Shares of the Fund -- Distribution Plans" below). Distribution
expenses paid under this Plan, together with any CDSC, may cause long-term
shareholders to pay more than the maximum sales charge that would have
been permissible if imposed entirely as an initial sales charge.
(4) The Fund has an expense offset arrangement which reduces the Fund's
custodian fee based upon the amount of cash maintained by the Fund with
its custodian and dividend disbursing agent, and may enter into other such
arrangements and directed brokerage arrangements (which would also have
the effect of reducing the Fund's expenses). Any such fee reductions are
not reflected under "Other Expenses."
EXAMPLE OF EXPENSES
-------------------
An investor would pay the following dollar amounts of expenses on a $1,000
investment in the Fund, assuming (a) 5% annual return and (b) redemption at
the end of each of the time periods indicated unless otherwise noted:
PERIOD CLASS A CLASS B
------ ------- --------------
(1)
1 year ...................................... $ 66 $ 58 $ 18
3 years ..................................... 84 87 57
5 years ..................................... 103 118 98
10 years ..................................... 159 188(2) 188(2)
- ----------
(1) Assumes no redemption.
(2) Class B shares convert to Class A shares approximately eight years after
purchase; therefore, years nine and ten reflect Class A expenses.
<PAGE>
The purpose of the above expense table is to assist investors in
understanding the various costs and expenses that a shareholder of the Fund
will bear directly or indirectly. More complete descriptions of the following
expenses are set forth in the following sections: (i) varying sales charges on
share purchases -- "Purchases"; (ii) varying CDSCs -- "Purchases"; (iii)
management fees -- "Investment Adviser" and (iv) Rule 12b-1 (i.e.,
distribution plan) fees -- "Distribution Plans."
THE "EXAMPLE" SET FORTH ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES OF THE FUND; ACTUAL EXPENSES MAY BE GREATER OR LESS
THAN THOSE SHOWN.
2. THE FUND
The Fund is an open-end, diversified management investment company which was
organized as a business trust under the laws of The Commonwealth of
Massachusetts in 1985. The Fund is the successor to the business of
Massachusetts Capital Development Fund, Inc. (the "Company") which was
incorporated under the laws of The Commonwealth of Massachusetts in 1970. All
references in this Prospectus to the Fund's past activities are intended to
include those of the Company, unless the context indicates otherwise. Shares
of the Fund are continuously sold to the public and the Fund buys securities
(stocks, bonds and other instruments) for its portfolio. Two classes of shares
of the Fund are currently offered to the general public. Class A shares are
offered at net asset value plus an initial sales charge up to a maximum of
5.75% of the offering price (or a CDSC of 1.00% upon redemption during the
first year in the case of certain purchases of $1 million or more and certain
purchases by retirement plans) and are subject to an annual distribution fee
and service fee up to a maximum of 0.35% per annum. Class B shares are offered
at net asset value without an initial sales charge but are subject to a CDSC
upon redemption (declining from 4.00% during the first year to 0% after 6
years) and an annual distribution fee and service fee up to a maximum of 1.00%
per annum. Class B shares will convert to Class A shares approximately eight
years after purchase.
The Fund's Board of Trustees provides broad supervision over the affairs of
the Fund. A majority of the Trustees are not affiliated with the Adviser. The
Adviser is responsible for the management of the Fund's assets and the
officers of the Fund are responsible for its operations. The Adviser manages
the portfolio from day to day in accordance with the Fund's investment
objective and policies. The selection of investments and the way they are
managed depend on the conditions and trends in the economy and the financial
marketplaces. The Fund also offers to buy back (redeem) its shares from its
shareholders at any time at net asset value, less any applicable CDSC.
<PAGE>
3. CONDENSED FINANCIAL INFORMATION
The following information has been audited for at least the latest five fiscal
years of the Fund and should be read in conjunction with the financial
statements included in the Fund's Annual Report to shareholders which are
incorporated by reference into the SAI in reliance upon the report of the
Fund's independent auditors, given upon their authority as experts in
accounting and auditing. The Fund's independent auditors are Deloitte & Touche
LLP.
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
CLASS A SHARES
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987*
- ----------------------------------------------------------------------------------------------------------------------------------
CLASS A
- ----------------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD):
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value -- beginning of period . $10.17 $11.56 $11.17 $10.75 $ 9.97 $10.93 $10.96 $10.81 $13.41
------ ------ ------ ------ ------ ------ ------ ------ ------
Income from investment operations# --
Net investment income(S) ............. $ 0.03 $ 0.02 $ 0.07 $ 0.15 $ 0.24 $ 0.30 $ 0.36 $ 0.22 $ 0.11
Net realized and unrealized gain
currency transactions .............. 3.46 (0.50) 1.73 0.67 1.94 (0.77) 2.74 0.76 (2.13)
------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment operations ... $ 3.49 $(0.48) $ 1.80 $ 0.82 $ 2.18 $(0.47) $ 3.10 $ 0.98 (2.02)
------ ------ ------ ------ ------ ------ ------ ------ ------
Less distributions declared to
shareholders --
From net investment income ........... $ -- $(0.01) $(0.07) $(0.14) $(0.18) (0.33) $(0.36) $(0.19) $(0.11)
In excess of net investment income ... -- (0.02) (0.02) -- -- -- -- -- --
From net realized loss on investments
and foreign currency transactions .. (1.72) (0.83) (1.32) (0.26) (1.22) (0.16)++ (2.77) (0.64) (0.47)
In excess of net realized loss on
investments and foreign currency
transactions ....................... -- (0.05) -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions declared to
shareholders ..................... $(1.72) $(0.91) $(1.41) $(0.40) $(1.40) $(0.49) $(3.13) $(0.83) $(0.58)
------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value -- end of period ....... $11.94 $10.17 $11.56 $11.17 $10.75 $ 9.97 $10.93 $10.96 $10.81
====== ====== ====== ====== ====== ====== ====== ====== ======
Total return(+) ........................ 34.49% (4.15)% 16.19% (8.06)% 9.29% (4.57)% 28.23% 8.90% (20.45)%+
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA(S):
Expenses## ........................... 0.87% 0.86% 0.84% 0.89% 0.88% 0.80% 0.77% 0.86% 0.72%+
Net investment income ................ 0.21% 0.21% 0.60% 1.40% 2.14% 2.91% 2.79% 1.90% 1.08%+
PORTFOLIO TURNOVER ..................... 100% 78% 79% 102% 131% 89% 83% 68% 40%
NET ASSETS AT END OF PERIOD
(000 OMITTED) ........................ $721,467 $589,260 $709,839 $694,084 $739,791 $687,847 $805,702 $767,924 $834,359
- ----------
*For the nine months ended December 31, 1987.
+Annualized.
(+)Total returns for Class A shares do not include the sales charge (except for reinvested dividends prior to March 1, 1991). If
the charge had been included, the results would have been lower.
++Includes a per share distribution from paid-in capital of $0.0006.
#Per share data for the period subsequent to December 31, 1992 is based on average shares outstanding.
##For fiscal years ending after September 1, 1995, the Fund's expenses are calculated without reduction for fees paid indirectly.
(S)The distributor did not impose a portion of its distribution fee for certain of the periods indicated. If this fee had been
incurred by the Fund, the net investment income per share and ratios would have been:
Net investment income ............... $ 0.02 $ 0.01 $ 0.07 -- -- -- -- -- --
RATIOS (TO AVERAGE NET ASSETS):
Expenses .......................... 0.97% 0.96% 0.87% -- -- -- -- -- --
Net investment income ............. 0.11% 0.11% 0.56% -- -- -- -- -- --
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS -- continued
CLASS A AND B SHARES
YEAR ENDED MARCH 31, YEAR ENDED DECEMBER 31,
------------------------------ ---------------------------------------------
1987 1986 1995 1994 1993**
- -----------------------------------------------------------------------------------------------------------------------------------
CLASS A CLASS B
- -----------------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD):
<S> <C> <C> <C> <C> <C>
Net asset value -- beginning of period ....... $13.51 $10.77 $10.08 $11.53 $12.52
------ ------ ------ ------ ------
Income from investment operations# --
Net investment income (loss) ............... $ 0.17 $ 0.22 $(0.09) $(0.08) $ --
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions ............................. 1.20 3.63 3.42 (0.49) 0.36
------ ------ ------ ------ ------
Total from investment operations ......... $ 1.37 $ 3.85 $ 3.33 $(0.57) $ 0.36
------ ------ ------ ------ ------
Less distributions declared to shareholders --
From net investment income ................. $(0.17) $(0.22) $ -- $ -- $ --
In excess of net investment income ......... -- -- -- -- (0.03)
From net realized loss on investments and
foreign currency transactions ............ (1.30) (0.89) (1.62) (0.83) (1.32)
In excess of net realized gain (loss) on
investments and foreign currency
transactions ............................. -- -- -- (0.05) --
------ ------ ------ ------ ------
Total distributions declared to
shareholders ........................... $(1.47) $(1.11) $(1.62) $(0.88) $(1.35)
------ ------ ------ ------ ------
Net asset value -- end of period ............. $13.41 $13.51 $11.79 $10.08 $11.53
====== ====== ====== ====== ======
Total return++ ............................... 11.57% 35.92% 33.20% (4.96)% 9.29%+
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA:
Expenses## ................................. 0.71% 0.71% 1.81% 1.81% 1.33%+
Net investment income (loss) ............... 1.28% 1.85% (0.75)% (0.70)% --
PORTFOLIO TURNOVER ........................... 109% 117% 100% 78% 79%
NET ASSETS AT END OF PERIOD (000 OMITTED) .... $1,090,764 $989,980 $6,673 $3,166 $ 805
**For the period from the commencement of offering of Class B shares, September 7, 1993 to December 31, 1993.
+Annualized.
++Total returns for Class A shares do not include the sales charge (except for reinvested dividends prior to March 1, 1991).
If the charge had been included, the results would have been lower.
#Per share data for the period subsequent to December 31, 1992 is based on average shares outstanding.
##For fiscal years ending after September 1, 1995, the Fund's expenses are calculated without reduction for fees paid indirectly.
</TABLE>
<PAGE>
4. INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE -- The Fund's investment objective is to seek growth of
capital. Dividend income, if any, is a consideration incidental to the Fund's
objective of growth of capital. Any investment involves risk and there can be
no assurance that the Fund will achieve its investment objective.
INVESTMENT POLICIES -- In seeking to achieve its investment objective, the
Fund maintains a flexible approach towards types of companies as well as types
of securities, depending upon the economic environment and the relative
attractiveness of the various securities markets. Generally, emphasis is
placed upon companies believed to possess above average growth opportunities.
While the Fund's policy is to invest primarily in common stocks, it may seek
appreciation in other types of securities such as fixed income securities
(which may be unrated), convertible bonds, convertible preferred stocks and
warrants when relative values make such purchases appear attractive either as
individual issues or as types of securities in certain economic environments.
It is contemplated that the Fund's non-convertible long-term debt investments
will consist primarily of "investment grade" securities (rated at least Baa by
Moody's Investors Service, Inc. ("Moody's") or BBB by Standard & Poor's
Ratings Service ("S&P") or Fitch Investors Service, Inc. ("Fitch") (and
comparable unrated securities)). The Fund does not intend to invest more than
5% of its net assets in fixed income securities rated Ba or lower by Moody's
or BB or lower by S&P or Fitch (or in comparable unrated securities). See
"Additional Risk Factors -- Lower-Rated Fixed-Income Securities" below for
information concerning securities rated Baa or lower by Moody's and BBB or
lower by S&P or Fitch. See Appendix A to the SAI for a description of these
ratings.
The Fund may invest up to 50% (and expects generally to invest between 0% and
50%) of its total assets in foreign securities which are not traded on a U.S.
exchange (not including American Depositary Receipts.) See "Additional Risk
Factors -- Foreign Securities" below. The Fund may also invest in emerging
market securities (see "Additional Risk Factors -- Emerging Market Securities"
below.
There is no formula as to the percentage of assets that may be invested in any
one type of security. Cash, commercial paper, repurchase agreements or other
forms of debt securities are held to provide a reserve for future purchases of
common stock or other securities and may also be held as a defensive measure
when the Adviser determines security markets to be overvalued.
Fixed income securities that the Fund may invest in also include zero coupon
bonds, deferred interest bonds and bonds on which the interest is payable in
kind ("PIK bonds"). See the SAI for further information regarding these
securities.
5. INVESTMENT TECHNIQUES
Consistent with the Fund's investment objective and policies, the Fund may
engage in the following investment techniques, many of which are described
more fully in the SAI. See "Investment Objectives, Policies and Restrictions"
in the SAI.
LENDING OF SECURITIES: The Fund may make loans of its portfolio securities.
Such loans will usually be made only to member banks of the Federal Reserve
System and member firms (and subsidiaries thereof) of the New York Stock
Exchange (the "Exchange") and would be required to be secured continuously by
collateral in cash, U.S. Government Securities or an irrevocable letter of
credit maintained on a current basis at an amount at least equal to the market
value of the securities loaned. The Fund would continue to collect the
equivalent of the interest on the securities loaned and would also receive
either interest (through investment of cash collateral) or a fee (if the
collateral is U.S. Government Securities or a letter of credit). The value of
securities loaned will not exceed 30% of the value of the Fund's total assets.
REPURCHASE AGREEMENTS: The Fund may enter into repurchase agreements in order
to earn income on available cash or as a temporary defensive measure. Under a
repurchase agreement, the Fund acquires securities subject to the seller's
agreement to repurchase at a specified time and price. If the seller becomes
subject to a proceeding under the bankruptcy laws or its assets are otherwise
subject to a stay order, the Fund's right to liquidate the securities may be
restricted (during which time the value of the securities could decline). As
discussed in the SAI, the Fund has adopted certain procedures intended to
minimize risk.
AMERICAN DEPOSITARY RECEIPTS: The Fund may invest in American Depositary
Receipts ("ADRs") which are certificates issued by a U.S. depository (usually
a bank) and represent a specified quantity of shares of an underlying non-U.S.
stock on deposit with a custodian bank as collateral. Because ADRs trade on
United States securities exchanges, the Adviser does not treat them as foreign
securities. However, they are subject to many of the risks of foreign
securities such as changes in exchange rates and more limited information
about foreign issuers. See the SAI for further discussion of foreign
securities and the holding of foreign currency, as well as the associated
risks.
EMERGING MARKET SECURITIES: Consistent with the Fund's objective and policies,
the Fund may invest in securities of issuers whose principal activities are
located in emerging market countries. Emerging market countries include any
country determined by the Adviser to have an emerging market economy, taking
into account a number of factors, including whether the country has a low-to
middle-income economy according to the International Bank for Reconstruction
and Development, the country's foreign currency debt rating, its political and
economic stability and the development of its financial and capital markets.
The Adviser determines whether an issuer's principal activities are located in
an emerging market country by considering such factors as its country of
organization, the principal trading market for its securities and the source
of its revenues and assets. The issuer's principal activities generally are
deemed to be located in a particular country if: (a) the security is issued or
guaranteed by the government of that country or any of its agencies,
authorities or instrumentalities; (b) the issuer is organized under the laws
of, and maintains a principal office in, that country; (c) the issuer has its
principal securities trading market in that country; (d) the issuer derives
50% or more of its total revenues from goods sold or services performed in
that country; or (e) the issuer has 50% or more of its assets in that country.
BRADY BONDS: The Fund may invest in Brady Bonds, which are securities created
through the exchange of existing commercial bank loans to public and private
entities in certain emerging markets for new bonds in connection with debt
restructurings under a debt restructuring plan introduced by former U.S.
Secretary of the Treasury, Nicholas F. Brady (the "Brady Plan"). Brady Plan
debt restructurings have been implemented to date in Argentina, Brazil,
Bulgaria, Costa Rica, Dominican Republic, Ecuador, Jordan, Mexico, Nigeria,
Panama, the Philippines, Poland, Uruguay and Venezuela. Brady Bonds have been
issued only recently, and for that reason do not have a long payment history.
Brady Bonds may be collateralized or uncollateralized, are issued in various
currencies (but primarily the U.S. dollar) and are actively traded in over-
the-counter secondary markets. U.S. dollar-denominated, collateralized Brady
Bonds, which may be fixed-rate bonds or floating-rate bonds, are generally
collateralized in full as to principal by U.S. Treasury zero coupon bonds
having the same maturity as the bonds. Brady Bonds are often viewed as having
three or four valuation components: the collateralized repayment of principal
at final maturity; the collateralized interest payments; the uncollateralized
interest payments; and any uncollateralized repayment of principal at maturity
(these uncollateralized amounts constituting the "residual risk"). In light of
the residual risk of Brady Bonds and the history of defaults of countries
issuing Brady Bonds with respect to commercial bank loans by public and
private entities, investments in Brady Bonds may be viewed as speculative.
RESTRICTED SECURITIES: The Fund may also purchase securities that are not
registered under the Securities Act of 1933 (the "1933 Act") ("restricted
securities"), including those that can be offered and sold to "qualified
institutional buyers" under Rule 144A under the 1933 Act ("Rule 144A
securities"). The Fund's Board of Trustees determines, based upon a continuing
review of the trading markets for a specific Rule 144A security, whether such
security is liquid and thus not subject to the Fund's limitation on investing
not more than 10% of its net assets in illiquid investments. The Board of
Trustees has adopted guidelines and delegated to MFS the daily function of
determining and monitoring the liquidity of Rule 144A securities. The Board,
however, will retain sufficient oversight and be ultimately responsible for
the determinations. The Board will carefully monitor the Fund's investments in
Rule 144A securities, focusing on such important factors, among others, as
valuation, liquidity and availability of information. This investment practice
could have the effect of decreasing the level of liquidity in the Fund to the
extent that qualified institutional buyers become for a time uninterested in
purchasing Rule 144A securities held in the Fund's portfolio. Subject to the
Fund's 10% limitation on investments in illiquid investments, the Fund may
also invest in restricted securities that may not be sold under Rule 144A,
which presents certain risks. As a result, the Fund might not be able to sell
these securities when the Adviser wishes to do so, or might have to sell them
at less than fair value. In addition, market quotations are less readily
available. Therefore, judgment may at times play a greater role in valuing
these securities than in the case of unrestricted securities.
"WHEN-ISSUED" SECURITIES: The Fund may purchase some securities on a "when-
issued" or on a "forward delivery" basis, which means that the securities will
be delivered to the Fund at a future date usually beyond customary settlement
time. The commitment to purchase a security for which payment will be made on
a future date may be deemed a separate security. The Fund does not pay for the
securities until received, and does not start earning interest on the
securities until the contractual settlement date. In order to invest its
assets immediately, while awaiting delivery of securities purchased on such
bases, the Fund will normally invest in cash, short-term money market
instruments and high quality debt securities.
INDEXED SECURITIES: The Fund may invest in indexed securities whose value is
linked to foreign currencies, interest rates, commodities, indices or other
financial indicators. Most indexed securities are short to intermediate term
fixed-income securities whose values at maturity (i.e. principal value) or
interest rates rise or fall according to the change in one or more specified
underlying instruments. Indexed securities may be positively or negatively
indexed (i.e., their principal value or interest rate may increase or decrease
if the underlying instrument appreciates), and may have return characteristics
similar to direct investments in the underlying instrument or to one or more
options on the underlying instrument. Indexed securities may be more volatile
than the underlying instrument itself.
OPTIONS ON SECURITIES: The Fund may write (sell) covered put and call options
on securities and purchase put and call options on securities. The Fund will
write such options for the purpose of increasing its return and/or to protect
the value of its portfolio. In particular, where the Fund writes an option
which expires unexercised or is closed out by the Fund at a profit, it will
retain the premium paid for the option, which will increase its gross income
and will offset in part the reduced value of a portfolio security in
connection with which the option may have been written or the increased cost
of portfolio securities to be acquired. In contrast, however, if the price of
the security underlying the option moves adversely to the Fund's position, the
option may be exercised and the Fund will be required to purchase or sell the
security at a disadvantageous price, resulting in losses which may only be
partially offset by the amount of the premium. The Fund may also write
combinations of put and call options on the same security, known as
"straddles." Such transactions can generate additional premium income but also
present increased risk.
The Fund may purchase put or call options in anticipation of declines in the
value of portfolio securities or increases in the value of securities to be
acquired. In the event that such declines or increases occur, the Fund may be
able to offset the resulting adverse effect on its portfolio, in whole or in
part, through the options purchased. The risk assumed by the Fund in
connection with such transactions is limited to the amount of the premium and
related transaction costs associated with the option, although the Fund may be
required to forfeit such amounts in the event that the prices of securities
underlying the options do not move in the direction or to the extent
anticipated.
The staff of the SEC has taken the position that purchased over-the-counter
options and assets used to cover written over-the-counter options are illiquid
and, therefore, together with other illiquid securities, cannot exceed a
certain percentage (the "SEC illiquidity ceiling") of the Fund's assets.
Although the Adviser disagrees with this position, the Adviser intends to
limit the Fund's writing of over-the-counter options in accordance with the
following procedure. Except as provided below, the Fund intends to write over-
the-counter options only with primary U.S. Government securities dealers
recognized by the Federal Reserve Bank of New York. Also, the contracts the
Fund has in place with such primary dealers will provide that the Fund has the
absolute right to repurchase an option it writes at any time at a price which
represents the fair market value, as determined in good faith through
negotiation between the parties, but which in no event will exceed a price
determined pursuant to a formula in the contract. Although the specific
formula may vary between contracts with different primary dealers, the formula
will generally be based on a multiple of the premium received by the Fund for
writing the option, plus the amount, if any of the option's intrinsic value
(i.e., the amount that the option is in-the-money). The formula may also
include a factor to account for the difference between the price of the
security and the strike price of the option if the option is written out-of-
the-money. The Fund will treat all or a portion of the formula as illiquid for
purposes of the SEC illiquidity ceiling. The Fund may also write over-the-
counter options with non-primary dealers, including foreign dealers, and will
treat the assets used to cover these options as illiquid for purposes of such
SEC illiquidity ceiling.
OPTIONS ON STOCK INDICES: The Fund may write (sell) covered put and call
options and purchase put and call options on stock indices. The Fund will
write options on stock indices for the purpose of increasing its gross income
and to protect its portfolio against declines in the value of securities it
owns or increases in the value of securities to be acquired. When the Fund
writes an option on a stock index, and the value of the index moves adversely
to the holder's position, the option will not be exercised, and the Fund will
either close out the option at a profit or allow it to expire unexercised. The
Fund will thereby retain the amount of the premium, which will increase its
gross income and offset part of the reduced value of portfolio securities or
the increased cost of securities to be acquired. Such transactions, however,
will constitute only partial hedges against adverse price fluctuations, since
any such fluctuations will be offset only to the extent of the premium
received by the Fund for the writing of the option. In addition, if the value
of an underlying index moves adversely to the Fund's option position, the
option may be exercised, and the Fund will experience a loss which may only be
partially offset by the amount of the premium received.
The Fund may also purchase put or call options on stock indices in order,
respectively, to hedge its investments against a decline in value or to
attempt to reduce the risk of missing a market or industry segment advance.
The Fund's possible loss in either case will be limited to the premium paid
for the option, plus related transaction costs.
FUTURES CONTRACTS: The Fund may enter into stock index futures contracts or
interest rate futures contracts ("Futures Contracts"). Purchases or sales of
stock index Futures Contracts may be used to attempt to protect the Fund's
current or intended stock investments from broad fluctuations in stock prices.
Purchases or sales of interest rate Futures Contracts (i.e., Futures Contracts
on fixed income securities) may be used to attempt to protect the Fund's
current or intended investments in fixed income securities from the effect of
interest rate changes as well as for non-hedging purposes, to the extent
permitted by applicable law. In the event that an anticipated decrease in the
value of portfolio securities occurs as a result of a general stock market
decline or a general increase in interest rates, the adverse effects of such
changes may be offset, in whole or part, by gains on the sale of Futures
Contracts. Conversely, the increased cost of portfolio securities to be
acquired, caused by a general rise in the stock market or a general decline in
interest rates, may be offset, in whole or part, by gains on Futures Contracts
purchased by the Fund. The Fund will incur brokerage fees when it purchases
and sells Futures Contracts, and it will be required to make and maintain
margin deposits.
OPTIONS ON FUTURES CONTRACTS: The Fund may purchase and write options on
Futures Contracts ("Options on Futures Contracts") in order to protect against
declines in the values of portfolio securities or against increases in the
cost of securities to be acquired, as well as for non-hedging purposes to the
extent permitted by applicable law. Purchases of Options on Futures Contracts
may present less risk in hedging the Fund's portfolio than the purchase or
sale of the underlying Futures Contracts since the potential loss is limited
to the amount of the premium plus related transaction costs, although it may
be necessary to exercise an option purchased in order to realize profits or
limit losses. The writing of Options on Futures Contracts, however, does not
present less risk than the trading of Futures Contracts and will constitute
only a partial hedge, up to the amount of the premium received. In addition,
if an option is exercised, the Fund may suffer a loss on the transaction.
FORWARD CONTRACTS: The Fund may enter into forward foreign currency exchange
contracts for the purchase and sale of a fixed quantity of a foreign currency
at a future date ("Forward Contracts") in order to attempt to minimize the
risk to the Fund from adverse changes in the relationship between the U.S.
dollar and foreign currencies. These transactions will include forward
purchases or sales of foreign currencies for the purpose of protecting the
dollar value of securities denominated in a foreign currency or protecting the
dollar equivalent of interest or dividends to be paid on such securities. By
entering into such transactions, however, the Fund may be required to forego
the benefits of advantageous changes in exchange rates. Forward Contracts are
traded over-the-counter, and not on organized commodities or securities
exchanges. As a result, such contracts operate in a manner distinct from
exchange-traded instruments, and their use involves certain risks beyond those
associated with transactions in options or Futures Contracts traded on
exchanges. The Fund may also enter into a Forward Contract on one currency in
order to hedge against risk of loss arising from fluctuations in the value of
a second currency (referred to as a "cross-hedge") if, in the judgment of the
Adviser, a reasonable degree of correlation can be expected between movements
in the values of the two currencies. The Fund may also be required to, or may
elect to, receive delivery of foreign currencies underlying Forward Contracts,
which may involve certain risks. See "Additional Risk Factors -- Options,
Futures Contracts and Forward Contracts" below. The Fund has established
procedures consistent with statements of the SEC and its staff regarding the
use of Forward Contracts by registered investment companies, which requires
the use of segregated assets or "cover" in connection with the purchase and
sale of such contracts.
See Appendix B to this Prospectus for a description of the characteristics of
options, Futures Contracts, Options on Futures Contracts and Forward
Contracts.
6. ADDITIONAL RISK FACTORS
The following discussion of additional risk factors supplements the risk
factors described above. Additional information concerning risk factors can be
found under the caption "Investment Objective, Policies and Restrictions" in
the SAI.
OPTIONS, FUTURES CONTRACTS AND FORWARD CONTRACTS: Although the Fund will enter
into transactions in Futures Contracts, Options on Futures Contracts, Forward
Contracts and certain options for hedging purposes, their use does involve
certain risks. For example, a lack of correlation between the index or
instrument underlying an option or Futures Contract and the assets being
hedged, or unexpected adverse price movements, could render the Fund's hedging
strategy unsuccessful and could result in losses. The Fund also may enter into
transactions in such instruments for other than hedging purposes to the extent
permitted by applicable law, which involves greater risk and may result in
losses. In addition, there can be no assurance that a liquid secondary market
will exist for any contract purchased or sold, and the Fund may be required to
maintain a position until exercise or expiration, which could result in
losses. Further, Forward Contracts entail particular risks related to
conditions affecting the underlying currency. Over-the-counter transactions in
options on securities and Forward Contracts also involve risks arising from
the lack of an organized exchange trading environment. Transactions in Futures
Contracts, Options on Futures Contracts, Forward Contracts and options are
subject to other risks as well.
As a result of its investments in foreign securities, the Fund may receive
interest or dividend payments, or the proceeds of the sale or redemption of
such securities, in the foreign currencies in which such securities are
denominated. The Fund may also choose to, or be required to, receive delivery
of the foreign currencies underlying Forward Contracts it has entered into.
Under certain circumstances, such as where the Adviser believes that the
applicable exchange rate is unfavorable at the time the currencies are
received or the Adviser anticipates, for any other reason, that the exchange
rate will improve, the Fund may hold such currencies for an indefinite period
of time. While the holding of currencies will permit the Fund to take
advantage of favorable movements in the applicable exchange rate, such
strategy also exposes the Fund to risk of loss if exchange rates move in a
direction adverse to the Fund's position. Such losses could reduce any profits
or increase any losses sustained by the Fund from the sale or redemption of
securities and could reduce the dollar value of interest or dividend payments
received.
LOWER-RATED FIXED-INCOME SECURITIES: As noted above, the Fund may invest in
fixed income securities that are rated Ba or lower by Moody's or BB or lower
by S&P or Fitch, and comparable unrated securities (commonly known as "junk
bonds"). These securities are considered speculative and, while generally
providing greater income than investments in higher-rated securities, will
involve greater risk of principal and income (including the possibility of
default or bankruptcy of the issuers of such securities) and may involve
greater volatility of price than securities in the higher rating categories.
The market for these lower-rated fixed income securities may be less liquid
than the market for investment grade fixed income securities. Furthermore, the
liquidity of these lower rated securities may be affected by the market's
perception of their credit quality. Therefore, judgment may at times play a
greater role in valuing these securities than in the case of investment grade
fixed income securities, and it also may be more difficult during certain
adverse market conditions to sell these lower-rated securities to meet
redemption requests or to respond to changes in the market.
As noted above, the Fund may also invest in fixed income securities rated Baa
by Moody's or BBB by S&P or Fitch and comparable unrated securities. These
securities, while normally exhibiting adequate protection parameters, may have
speculative characteristics and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than in the case of higher grade fixed income
securities.
FOREIGN SECURITIES: Investing in securities of foreign issuers generally
involves risks not ordinarily associated with investing in securities of
domestic issuers. These include changes in currency rates, exchange control
regulations, governmental administration or economic or monetary policy (in
the United States or abroad) or circumstances in dealings between nations.
Costs may be incurred in connection with conversions between various
currencies. Special considerations may also include more limited information
about foreign issuers, higher brokerage costs, different accounting standards
and thinner trading markets. Foreign securities markets may also be less
liquid, more volatile and less subject to government supervision than in the
United States. Investments in foreign countries could be affected by other
factors including expropriation, confiscatory taxation and potential
difficulties in enforcing contractual obligations and could be subject to
extended settlement periods. The Fund may hold foreign currency received in
connection with investments in foreign securities when, in the judgment of the
Adviser, it would be beneficial to convert such currency into U.S. dollars at
a later date, based on anticipated changes in the relevant exchange rate. The
Fund may also hold foreign currency in anticipation of purchasing foreign
securities. See the SAI for further discussion of foreign securities, American
Depositary Receipts ("ADRs") and the holding of foreign currency, as well as
the associated risks.
EMERGING MARKET SECURITIES: The risks of investing in foreign securities may
be intensified in the case of investments in emerging markets. Securities of
many issuers in emerging markets may be less liquid and more volatile than
securities of comparable domestic issuers. Emerging markets also have
different clearance and settlement procedures, and in certain markets there
have been times when settlements have been unable to keep pace with the volume
of securities transactions, making it difficult to conduct such transactions.
Delays in settlement could result in temporary periods when a portion of the
assets of the Fund is uninvested and no return is earned thereon. The
inability of the Fund to make intended security purchases due to settlement
problems could cause the Fund to miss attractive investment opportunities.
Inability to dispose of portfolio securities due to settlement problems could
result in losses to the Fund due to subsequent declines in value of the
portfolio securities, a decrease in the level of liquidity in the Fund's
portfolio or, if the Fund has entered into a contract to sell the security, in
possible liability to the purchaser. Certain markets may require payment for
securities before delivery, and in such markets, the Fund bears the risk that
the securities will not be delivered and that the Fund's payments will not be
returned. Securities prices in emerging markets can be significantly more
volatile than in the more developed nations of the world, reflecting the
greater uncertainties of investing in less established markets and economies.
In particular, countries with emerging markets may have relatively unstable
governments, present the risk of nationalization of businesses, restrictions
on foreign ownership, or prohibitions of repatriation of assets, and may have
less protection of property rights than more developed countries. The
economies of countries with emerging markets may be predominantly based on
only a few industries, may be highly vulnerable to changes in local or global
trade conditions, and may suffer from extreme and volatile debt burdens or
inflation rates. Local securities markets may trade a small number of
securities and may be unable to respond effectively to increases in trading
volume, potentially making prompt liquidation of substantial holdings
difficult or impossible at times. Securities of issuers located in countries
with emerging markets may have limited marketability and may be subject to
more abrupt or erratic price movements.
Certain emerging markets may require governmental approval for the
repatriation of investment income, capital or the proceeds of sales of
securities by foreign investors. In addition, if a deterioration occurs in an
emerging market's balance of payments or for other reasons, a country could
impose temporary restrictions on foreign capital remittances. The Fund could
be adversely affected by delays in, or a refusal to grant, any required
governmental approval for repatriation of capital, as well as by the
application to the Fund of any restrictions on investments.
Investment in certain foreign emerging market debt obligations may be
restricted or controlled to varying degrees. These restrictions or controls
may at times preclude investment in certain foreign emerging market debt
obligations and increase the expenses of the Fund.
PORTFOLIO TRADING: While it is not the Fund's policy generally to invest or
trade for short-term profits, portfolio securities may be disposed of without
regard to the length of time held whenever the Adviser is of the opinion that
a security no longer has an appropriate appreciation potential or has reached
its anticipated level of performance, or when another security appears to
offer relatively greater appreciation potential or a relatively greater
anticipated level of performance. The Fund's relative equity, fixed income and
cash positions may also be increased or decreased when, in the judgment of the
Adviser, a period of substantial rise or decline in securities price levels is
anticipated. Portfolio changes are made without regard to the length of time a
security has been held, or whether a sale would result in a profit or loss.
Therefore, the rate of portfolio turnover is not a limiting factor when
changes are appropriate. The Fund's annual portfolio turnover rate for each of
the past 10 years is listed in the table under the caption "Condensed
Financial Information." The higher levels of portfolio activity result in
higher brokerage commissions and may also result in taxes on realized capital
gains to be borne by the Fund's shareholders. (See "Tax Status" below and
"Portfolio Transactions and Brokerage Commissions" in the SAI.)
The primary consideration in placing portfolio security transactions with
broker-dealers for execution is to obtain, and maintain the availability of,
execution at the most favorable prices and in the most effective manner
possible. Consistent with the foregoing primary consideration, the Rules of
Fair Practice of the National Association of Securities Dealers, Inc.
("NASD"), and such other policies as the Trustees may determine, the Adviser
may consider sales of shares of the Fund and of the other investment company
clients of MFD as a factor in the selection of broker-dealers to execute the
Fund's portfolio transactions. From time to time, the Adviser may direct
certain portfolio transactions to broker-dealer firms which, in turn, have
agreed to pay a portion of the Fund's operating expenses (e.g., fees charged
by the custodian of the Fund's assets). For a further discussion of portfolio
transactions and brokerage commissions, see "Portfolio Transactions and
Brokerage Commissions" in the SAI.
----------------
The investment policies described above are not fundamental and may be changed
without shareholder approval, as may the Fund's investment objective. A change
in the Fund's investment objective may result in the Fund having an investment
objective different from the objective which the shareholder considered
appropriate at the time of investment in the Fund.
The SAI includes a discussion of other investment policies and a listing of
specific investment restrictions which govern the Fund's investment policies.
The specific investment restrictions listed in the SAI may be changed without
shareholder approval unless indicated otherwise (see "Investment Restrictions"
in the SAI). The Fund's investment limitations and policies are adhered to at
the time of purchase or utilization of assets; a subsequent change in
circumstances will not be considered to result in a violation of policy.
7. MANAGEMENT OF THE FUND
INVESTMENT ADVISER -- The Adviser manages the Fund pursuant to an Investment
Advisory Agreement, dated July 19, 1985, as amended (the "Fund's Advisory
Agreement") between the Adviser and the Fund. The Adviser provides the Fund
with overall investment advisory and administrative services, as well as
general office facilities. Paul M. McMahon, a Senior Vice President of the
Adviser, has been the Fund's portfolio manager since October of 1992. Mr.
McMahon joined the Adviser in 1981 as an Industry Analyst. Subject to such
policies as the Trustees may determine, the Adviser makes investment decisions
for the Fund. For these services and facilities, the Adviser receives a
management fee, computed and paid monthly, at an annual rate equal to 0.5% of
the Fund's average daily net assets not in excess of $200 million and 0.4% of
the Fund's average daily net assets in excess of $200 million. For the Fund's
fiscal year ended December 31, 1995, MFS received fees under the Fund's
Advisory Agreement of $2,892,782, equivalent on an annualized basis to 0.43%
of the Fund's average daily net assets.
MFS also serves as investment adviser to each of the other funds in the MFS
Family of Funds (the "MFS Funds") and to MFS(R) Municipal Income Trust, MFS
Multimarket Income Trust, MFS Government Markets Income Trust, MFS
Intermediate Income Trust, MFS Charter Income Trust, MFS Special Value Trust,
MFS Institutional Trust, MFS Union Standard Trust, MFS Variable Insurance
Trust, Sun Growth Variable Annuity Fund, Inc., MFS/Sun Life Series Trust and
seven variable accounts, each of which is a registered investment company
established by Sun Life Assurance Company of Canada (U.S.) ("Sun Life of
Canada (U.S.)") in connection with the sale of various fixed/variable annuity
contracts. MFS and its wholly owned subsidiary, MFS Asset Management, Inc.,
provide investment advice to substantial private clients.
MFS is America's oldest mutual fund organization. MFS and its predecessor
organizations have a history of money management dating from 1924 and the
founding of the first mutual fund in the United States, Massachusetts
Investors Trust. Net assets under the management of the MFS organization were
approximately $44.3 billion on behalf of approximately 1.9 million investor
accounts as of March 31, 1996. MFS is a subsidiary of Sun Life of Canada
(U.S.), which in turn is a wholly owned subsidiary of Sun Life Assurance
Company of Canada ("Sun Life"). The Directors of MFS are A. Keith Brodkin,
Jeffrey L. Shames, Arnold D. Scott, John D. McNeil and John R. Gardner. Mr.
Brodkin is the Chairman, Mr. Shames is the President, and Mr. Scott is the
Secretary and a Senior Executive Vice President of MFS. Messrs. McNeil and
Gardner are the Chairman and President, respectively, of Sun Life. Sun Life, a
mutual life insurance company, is one of the largest international life
insurance companies and has been operating in the United States since 1895,
establishing a headquarters office here in 1973. The executive officers of MFS
report to the Chairman of Sun Life.
A. Keith Brodkin, the Chairman and a Director of MFS, is also the Chairman,
President and a Trustee of the Fund. W. Thomas London, Stephen E. Cavan, James
O. Yost and James R. Bordewick, Jr., all of whom are officers of MFS, are
officers of the Fund.
MFS has established a strategic alliance with Foreign & Colonial Management
Ltd. ("Foreign & Colonial"). Foreign & Colonial is a subsidiary of two of the
world's oldest financial services institutions, the London-based Foreign &
Colonial Investment Trust PLC, which pioneered the idea of investment
management in 1868, and HYPO-BANK (Bayerische Hypotheken-und Wechsel-Bank AG),
the oldest publicly listed bank in Germany, founded in 1835. As part of this
alliance, the portfolio managers and investment analysts of MFS and Foreign &
Colonial will share their views on a variety of investment related issues,
such as the economy, securities markets, portfolio securities and their
issuers, investment recommendations, strategies and techniques, risk analysis,
trading strategies and other portfolio management matters. MFS will have
access to the extensive international equity investment expertise of Foreign &
Colonial, and Foreign & Colonial will have access to the extensive U.S. equity
investment expertise of MFS. One or more MFS investment analysts are expected
to work for an extended period with Foreign & Colonial's portfolio managers
and investment analysts at their offices in London. In return, one or more
Foreign & Colonial employees are expected to work in a similar manner at MFS'
Boston offices.
In certain instances there may be securities which are suitable for the Fund's
portfolio as well as for portfolios of other clients of MFS or clients of
Foreign & Colonial. Some simultaneous transactions are inevitable when several
clients receive investment advice from MFS and Foreign & Colonial,
particularly when the same security is suitable for more than one client.
While in some cases this arrangement could have a detrimental effect on the
price or availability of the security as far as the Fund is concerned, in
other cases, however, it may produce increased investment opportunities for
the Fund.
DISTRIBUTOR -- MFD, a wholly owned subsidiary of MFS, is the distributor of
shares of the Fund and also serves as distributor for each of the other MFS
Funds.
SHAREHOLDER SERVICING AGENT -- MFS Service Center, Inc. (the "Shareholder
Servicing Agent"), a wholly owned subsidiary of MFS, performs transfer agency,
certain dividend disbursing agency and other services for the Fund.
8. INFORMATION CONCERNING SHARES OF THE FUND
PURCHASES
Shares of the Fund may be purchased at the public offering price through any
dealer and other financial institutions ("dealers") having a selling agreement
with MFD. Dealers may also charge their customers fees relating to investments
in the Fund.
The Fund offers two classes of shares (Class A and B shares) which bear sales
charges and distribution fees in different forms and amounts, as described
below:
CLASS A SHARES: Class A shares are generally offered at net asset value plus
an initial sales charge, but in certain cases are offered at net asset value
without an initial sales charge but subject to a CDSC.
PURCHASES SUBJECT TO INITIAL SALES CHARGE. Class A shares are offered at
net asset value plus an initial sales charge as follows:
<PAGE>
<TABLE>
<CAPTION>
SALES CHARGE* AS
PERCENTAGE OF:
-------------------------------- DEALER ALLOWANCE
NET AMOUNT AS A PERCENTAGE
AMOUNT OF PURCHASE OFFERING PRICE INVESTED OF OFFERING PRICE
- ------------------ -------------- -------- -----------------
<S> <C> <C> <C>
Less than $50,000 .................................................. 5.75% 6.10% 5.00%
$50,000 but less than $100,000 ..................................... 4.75 4.99 4.00
$100,000 but less than $250,000 .................................... 4.00 4.17 3.20
$250,000 but less than $500,000 .................................... 2.95 3.04 2.25
$500,000 but less than $1,000,000 .................................. 2.20 2.25 1.70
$1,000,000 or more ................................................. None** None** See Below**
</TABLE>
- ----------
*Because of rounding in the calculation of offering price, actual sales
charges may be more or less than those calculated using the percentages above.
**A CDSC will apply to such purchases, as discussed below.
MFD allows discounts to dealers (which are alike for all dealers) from the
applicable public offering price, as shown in the above table. In the case of
the maximum sales charge, the dealer retains 5% and MFD retains approximately
3/4 of 1% of the public offering price. The sales charge may vary depending on
the number of shares of the Fund as well as certain other MFS Funds owned or
being purchased, the existence of an agreement to purchase additional shares
during a 13-month period (or 36-month period for purchases of $1 million or
more) or other special purchase programs. A description of the Right of
Accumulation, Letter of Intent and Group Purchase privileges by which the
sales charge may be reduced is set forth in the SAI.
PURCHASES SUBJECT TO A CDSC (but not subject to an initial sales charge).
In the following two circumstances, Class A shares are also offered at net
asset value without an initial sales charge but subject to a CDSC, equal to 1%
of the lesser of the value of the shares redeemed (exclusive of reinvested
dividend and capital gain distributions) or the total cost of such shares, in
the event of a share redemption within 12 months following the purchase:
(i) on investments of $1 million or more in Class A shares; and
(ii) on investments in Class A shares by certain retirement plans subject
to the Employee Retirement Income Security Act of 1974, as amended, if the
sponsoring organization demonstrates to the satisfaction of MFD that
either (a) the employer has at least 25 employees or (b) the aggregate
purchases by the retirement plan of Class A shares of the MFS Funds will
be in an amount of at least $250,000 within a reasonable period of time,
as determined by MFD in its sole discretion.
In the case of such purchases, MFD will pay commissions to dealers on new
investments in Class A shares made through such dealers, as follows:
COMMISSION PAID
BY MFD
TO DEALERS CUMULATIVE PURCHASE AMOUNT
----------------- --------------------------
1.00% On the first $2,000,000, plus
0.80% Over $2,000,000 to $3,000,000, plus
0.50% Over $3,000,000 to $50,000,000, plus
0.25% Over $50,000,000
For purposes of determining the level of commissions to be paid to dealers
with respect to a shareholder's new investment in Class A shares made on or
after April 1, 1996, purchases for each shareholder account (and certain other
accounts for which the shareholder is a record or beneficial holder) will be
aggregated over a 12-month period (commencing from the date of the first such
purchase).
See "Redemptions and Repurchases -- Contingent Deferred Sales Charge" for
further discussion of the CDSC.
WAIVERS OF INITIAL SALES CHARGE AND CDSC. In certain circumstances, the
initial sales charge imposed upon purchases of Class A shares and the CDSC
imposed upon redemptions of Class A shares is waived. These circumstances are
described in Appendix A to this Prospectus.
CLASS B SHARES: Class B shares are offered at net asset value without an
initial sales charge but subject to a CDSC upon redemption as follows:
YEAR OF CONTINGENT
REDEMPTION DEFERRED SALES
AFTER PURCHASE CHARGE
-------------- --------------
First ........................................................ 4%
Second ....................................................... 4%
Third ........................................................ 3%
Fourth ....................................................... 3%
Fifth ........................................................ 2%
Sixth ........................................................ 1%
Seventh and following ........................................ 0%
The CDSC imposed is assessed against the lesser of the value of the shares
redeemed (exclusive of reinvested dividends and capital gain distributions) or
the total cost of such shares. No CDSC is assessed against shares acquired
through the automatic reinvestment of dividends or capital gain distributions.
MFD will pay commissions to dealers of 3.75% of the purchase price of Class B
shares purchased through dealers. MFD will also advance to dealers the first
year service fee payable under the Fund's Class B Distribution Plan (see
"Distribution Plans" below) at a rate equal to 0.25% of the purchase price of
such shares. Therefore, the total amount paid to a dealer upon the sale of
Class B shares is 4% of the purchase price of the shares (commission rate of
3.75% plus a service fee equal to 0.25% of the purchase price).
See "Redemptions and Repurchases -- Contingent Deferred Sales Charge" for
further discussion of the CDSC.
WAIVERS OF CDSC. In certain circumstances, the CDSC imposed upon
redemption of Class B shares is waived. These circumstances are described in
Appendix A to this Prospectus.
CONVERSION OF CLASS B SHARES. Class B shares of the Fund that remain
outstanding for approximately eight years will convert to Class A shares of
the Fund. Shares purchased through the reinvestment of distributions paid in
respect of Class B shares will be treated as Class B shares for purposes of
the payment of the distribution and service fees under the Distribution Plan
applicable to Class B shares. See "Distribution Plans" below. However, for
purposes of conversion to Class A shares, all shares in a shareholder's
account that were purchased through the reinvestment of dividends and
distributions paid in respect of Class B shares (and which have not converted
to Class A shares as provided in the following sentence) will be held in a
separate sub-account. Each time any Class B shares in the shareholder's
account (other than those in the sub-account) convert to Class A shares, a
portion of the Class B shares then in the sub-account will also convert to
Class A shares. The portion will be determined by the ratio that the
shareholder's Class B shares not acquired through reinvestment of dividends
and distributions that are converting to Class A shares bear to the
shareholder's total Class B shares not acquired through reinvestment. The
conversion of Class B shares to Class A shares is subject to the continuing
availability of a ruling from the Internal Revenue Service or an opinion of
counsel that such conversion will not constitute a taxable event for federal
tax purposes. There can be no assurance that such ruling or opinion will be
available, and the conversion of Class B shares to Class A shares will not
occur if such ruling or opinion is not available. In such event, Class B
shares would continue to be subject to higher expenses than Class A shares for
an indefinite period.
GENERAL: The following information applies to purchases of both classes of the
Fund's shares.
MINIMUM INVESTMENT. Except as described below, the minimum initial
investment is $1,000 per account and the minimum additional investment is $50
per account. Accounts being established for monthly automatic investments and
under payroll savings programs and tax-deferred retirement programs (other
than IRAs) involving the submission of investments by means of group remittal
statements are subject to a $50 minimum on initial and additional investments
per account. The minimum initial investment for IRAs is $250 per account and
the minimum additional investment is $50 per account. Accounts being
established for participation in the Automatic Exchange Plan are subject to a
$50 minimum on initial and additional investments per account. There are also
other limited exceptions to these minimums for certain tax-deferred retirement
programs. Any minimums may be changed at any time at the discretion of MFD.
The Fund reserves the right to cease offering its shares at any time.
RIGHT TO REJECT PURCHASE ORDERS/MARKET TIMING. Purchases and exchanges
should be made for investment purposes only. The Fund and MFD each reserve the
right to reject any specific purchase order or to restrict purchases by a
particular purchaser (or group of related purchasers). The Fund or MFD may
reject or restrict any purchases by a particular purchaser or group, for
example, when such purchase is contrary to the best interests of the Fund's
other shareholders or otherwise would disrupt the management of the Fund.
MFD may enter into an agreement with shareholders who intend to make exchanges
among certain classes of shares of certain MFS Funds (as determined by MFD)
which follow a timing pattern, and with individuals or entities acting on such
shareholders' behalf (collectively, "market timers"), setting forth the terms,
procedures and restrictions with respect to such exchanges. In the absence of
such an agreement, it is the policy of the Fund and MFD to reject or restrict
purchases by market timers if (i) more than two exchange purchases are
effected in a timed account in the same calendar quarter or (ii) a purchase
would result in shares being held in timed accounts by market timers
representing more than (x) one percent of the Fund's net assets or (y)
specified dollar amounts in the case of certain MFS Funds which may include
the Fund and which may change from time to time. The Fund and MFD each reserve
the right to request market timers to redeem their shares at net asset value,
less any applicable CDSC, if either of these restrictions is violated.
DEALER CONCESSIONS. Dealers may receive different compensation with
respect to sales of Class A and Class B shares. In addition, from time to
time, MFD may pay dealers 100% of the applicable sales charge on sales of
Class A shares of certain specified MFS Funds sold by such dealer during a
specified sales period. In addition, MFD or its affiliates may, from time to
time, pay dealers an additional commission equal to 0.50% of the net asset
value of all of the Class B shares of certain specified MFS Funds sold by such
dealer during a specified sales period. In addition, from time to time, MFD,
at its expense, may provide additional commissions, compensation or
promotional incentives ("concessions") to dealers which sell shares of the
Fund. Such concessions provided by MFD may include financial assistance to
dealers in connection with preapproved conferences or seminars, sales or
training programs for invited registered representatives, payment for travel
expenses, including lodging, incurred by registered representatives for such
seminars or training programs, seminars for the public, advertising and sales
campaigns regarding one or more MFS Funds, and/or other dealer-sponsored
events. From time to time, MFD may make expense reimbursements for special
training of a dealer's registered representatives in group meetings or to help
pay the expenses of sales contests. Other concessions may be offered to the
extent not prohibited by state laws or any self-regulatory agency, such as the
NASD.
SPECIAL INVESTMENT PROGRAMS. For shareholders who elect to participate in
certain investment programs (e.g., the Automatic Investment Plan) or other
shareholder services, MFD or its affiliates may either (i) give a gift of
nominal value, such as a hand-held calculator, or (ii) make a nominal
charitable contribution on their behalf.
RETIREMENT PLAN ACCOUNTS. Following the termination of any agreement
between a plan sponsor and the Shareholder Servicing Agent or its affiliates
with respect to the MFS FUNDamental 401(k) Plan or another similar
recordkeeping system made available by the Shareholder Servicing Agent, the
Shareholder Servicing Agent shall combine all plan participant accounts into a
single omnibus or pooled account for each Fund in which the plan invests.
RESTRICTIONS ON ACTIVITIES OF NATIONAL BANKS. The Glass-Steagall Act
prohibits national banks from engaging in the business of underwriting,
selling or distributing securities. Although the scope of the prohibition has
not been clearly defined, MFD believes that such Act should not preclude banks
from entering into agency agreements with MFD. If, however, a bank were
prohibited from so acting, the Trustees would consider what actions, if any,
would be necessary to continue to provide efficient and effective shareholder
services in respect of Shareholders who invested in the Fund through a
national bank. It is not expected that shareholders would suffer any adverse
financial consequence as a result of these occurrences. In addition, state
securities laws on this issue may differ from the interpretation of federal
law expressed herein and banks and financial institutions may be required to
register as broker-dealers pursuant to state law.
------------------------
A shareholder whose shares are held in the name of, or controlled by, a dealer
might not receive many of the privileges and services from the Fund (such as
Right of Accumulation, Letter of Intent and certain recordkeeping services)
that the Fund ordinarily provides.
EXCHANGES
Subject to the requirements set forth below, some or all of the shares in an
account with the Fund for which payment has been received by the Fund (i.e.,
an established account) may be exchanged for shares of the same class of any
of the other MFS Funds at net asset value (if available for sale).
EXCHANGES AMONG MFS FUNDS (EXCLUDING MFS MONEY MARKET FUNDS): No initial sales
charges or CDSC will be imposed in connection with an exchange from shares of
an MFS Fund to shares of any other MFS Fund, except with respect to exchanges
from an MFS money market fund to another MFS Fund which is not an MFS money
market fund (discussed below). With respect to an exchange involving shares
subject to a CDSC, the CDSC will be unaffected by the exchange and the holding
period for purposes of calculating the CDSC will carry over to the acquired
shares.
EXCHANGES FROM AN MFS MONEY MARKET FUND: Special rules apply with respect to
the imposition of an initial sales charge or a CDSC for exchanges from an MFS
money market fund to another MFS Fund which is not an MFS money market fund.
These rules are described under the caption "Exchanges" in the Prospectuses of
those MFS money market funds.
EXCHANGES INVOLVING THE MFS FIXED FUND: Class A shares of any MFS Fund held by
certain qualified retirement plans may be exchanged for units of
participation of the MFS Fixed Fund (a bank collective investment fund) (the
"Units"), and Units may be exchanged for Class A shares of any MFS Fund. With
respect to exchanges between of Class A shares subject to a CDSC and Units,
the CDSC will carry over to the acquired shares or Units and will be deducted
from the redemption proceeds when such shares or Units are subsequently
redeemed, assuming the CDSC is then payable (the period during which the Class
A shares and the Units were held will be aggregated for purposes of
calculating the applicable CDSC). In the event that a shareholder initially
purchases Units and then exchanges into Class A shares subject to an initial
sales charge of an MFS Fund, the initial sales charge shall be due upon such
exchange, but will not be imposed with respect to any subsequent exchanges
between such Class A shares and Units with respect to shares on which the
initial sales charge has already been paid. In the event that a shareholder
initially purchases Units and then exchanges into Class A shares subject to a
CDSC of an MFS Fund, the CDSC period will commence upon such exchange, and the
applicability of the CDSC with respect to subsequent exchanges shall be
governed by the rules set forth in this paragraph above.
GENERAL: A shareholder should read the prospectus of the other MFS Fund and
consider the differences in objectives, policies and restrictions before
making any exchange. Exchanges will be made only after instructions in writing
or by telephone (an "Exchange Request") are received for an established
account by the Shareholder Servicing Agent in proper form (i.e., if in writing
- -- signed by the record owner(s) exactly as the shares are registered; if by
telephone -- proper account identification is given by the dealer or
shareholder of record) and each exchange must involve either shares having an
aggregate value of at least $1,000 ($50 in the case of retirement plan
participants whose sponsoring organizations subscribe to the MFS FUNDamental
401(k) Plan or another similar 401(k) recordkeeping system made available by
the Shareholder Servicing Agent) or all the shares in the account. If an
Exchange Request is received by the Shareholder Servicing Agent on any
business day prior to the close of regular trading on the New York Stock
Exchange (generally, 4:00 p.m., Eastern time) (the "Exchange"), the exchange
will occur on that day if all the requirements set forth above have been
complied with at that time and subject to the Fund's right to reject purchase
orders. No more than five exchanges may be made in any one Exchange Request by
telephone. Additional information concerning this exchange privilege and
prospectuses for any of the other MFS Funds may be obtained from dealers or
the Shareholder Servicing Agent. For federal and (generally) state income tax
purposes, an exchange is treated as a sale of the shares exchanged and,
therefore, an exchange could result in a gain or loss to the shareholder
making the exchange. Exchanges by telephone are automatically available to
most non-retirement plan accounts and certain retirement plan accounts. For
further information regarding exchanges by telephone, see "Redemptions by
Telephone." The exchange privilege (or any aspect of it) may be changed or
discontinued and is subject to certain limitations, including certain
restrictions on purchases by market timers. Special procedures, privileges and
restrictions with respect to exchanges may apply to market timers who enter
into an agreement with MFD, as set forth in such agreement. See "Purchases --
General -- Right to Reject Purchase Orders/Market Timing."
REDEMPTIONS AND REPURCHASES
A shareholder may withdraw all or any portion of the value of his account on
any date on which the Fund is open for business by redeeming shares at their
net asset value (a redemption) or by selling such shares to the Fund through a
dealer (a repurchase). Certain redemptions and repurchases are, however,
subject to a CDSC. See "Contingent Deferred Sales Charge" below. Because the
net asset value of shares of the account fluctuates, redemptions or
repurchases, which are taxable transactions, are likely to result in gains or
losses to the shareholder. When a shareholder withdraws an amount from his
account, the shareholder is deemed to have tendered for redemption a
sufficient number of full and fractional shares in his account to cover the
amount withdrawn. The proceeds of a redemption or repurchase will normally be
available within seven days, except for shares purchased or received in
exchange for shares purchased by check (including certified checks or
cashier's checks). Payment of redemption proceeds may be delayed for up to 15
days from the purchase date in an effort to assure that such check has
cleared. See "Tax Status" below.
REDEMPTION BY MAIL: Each shareholder may redeem all or any portion of the
shares in his account by mailing or delivering to the Shareholder Servicing
Agent (see back cover for address) a stock power with a written request for
redemption or letter of instruction, together with his share certificates (if
any were issued), all in "good order" for transfer. "Good order" generally
means that the stock power, written request for redemption, letter of
instruction or certificate must be endorsed by the record owner(s) exactly as
the shares are registered and the signature(s) must be guaranteed in the
manner set forth below under the caption "Signature Guarantee." In addition,
in some cases "good order" will require the furnishing of additional
documents. The Shareholder Servicing Agent may make certain de minimis
exceptions to the above requirements for redemption. Within seven days after
receipt of a redemption request in "good order" by the Shareholder Servicing
Agent, the Fund will make payment in cash of the net asset value of the shares
next determined after such redemption request was received, reduced by the
amount of any applicable CDSC described above and the amount of any income tax
required to be withheld, except during any period in which the right of
redemption is suspended or date of payment is postponed because the Exchange
is closed or trading on such Exchange is restricted or to the extent otherwise
permitted by the 1940 Act if an emergency exists.
REDEMPTION BY TELEPHONE: Each shareholder may redeem an amount from his
account by telephoning the Shareholder Servicing Agent toll-free at (800) 225-
2606. Shareholders wishing to avail themselves of this telephone redemption
privilege must so elect on their Account Application, designate thereon a bank
and account number to receive the proceeds of such redemption, and sign the
Account Application Form with the signature(s) guaranteed in the manner set
forth below under the caption "Signature Guarantee." The proceeds of such a
redemption, reduced by the amount of any applicable CDSC and the amount of any
income tax required to be withheld, are mailed by check to the designated
account, without charge, if the redemption proceeds do not exceed $1,000, and
are wired in federal funds to the designated account if the redemption
proceeds exceed $1,000. If a telephone redemption request is received by the
Shareholder Servicing Agent by the close of regular trading on the Exchange on
any business day, shares will be redeemed at the closing net asset value of
the Fund on that day. Subject to the conditions described in this section,
proceeds of a redemption are normally mailed or wired on the next business day
following the date of receipt of the order for redemption. The Shareholder
Servicing Agent will not be responsible for any losses resulting from
unauthorized telephone transactions if it follows reasonable procedures
designed to verify the identity of the caller. The Shareholder Servicing Agent
will request personal or other information from the caller, and will normally
also record calls. Shareholders should verify the accuracy of confirmation
statements immediately after their receipt.
REPURCHASE THROUGH A DEALER: If a shareholder desires to sell his shares
through his dealer (a repurchase), the shareholder can place a repurchase
order with his dealer, who may charge the shareholder a fee. IF THE DEALER
RECEIVES THE SHAREHOLDER'S ORDER PRIOR TO THE CLOSE OF REGULAR TRADING ON THE
EXCHANGE AND COMMUNICATES IT TO MFD BEFORE THE CLOSE OF BUSINESS ON THE SAME
DAY, THE SHAREHOLDER WILL RECEIVE THE NET ASSET VALUE CALCULATED ON THAT DAY,
REDUCED BY THE AMOUNT OF ANY APPLICABLE CDSC AND THE AMOUNT OF ANY INCOME TAX
REQUIRED TO BE WITHHELD.
CONTINGENT DEFERRED SALES CHARGE: Investments in Class A or Class B shares
("Direct Purchases") will be subject to a CDSC for a period of 12 months (in
the case of purchases of $1 million or more of Class A shares or purchases by
certain retirement plans of Class A shares) or six years (in the case of
purchases of Class B shares). Purchases of Class A shares made during a
calendar month, regardless of when during the month the investment occurred,
will age one month on the last day of the month and each subsequent month.
Class B shares purchased on or after January 1, 1993 will be aggregated on a
calendar month basis -- all transactions made during a calendar month,
regardless of when during the month they have occurred, will age one year at
the close of business on the last day of such month in the following calendar
year and each subsequent year. For Class B shares of the Fund purchased prior
to January 1, 1993, transactions will be aggregated on a calendar year basis
- -- all transactions made during a calendar year, regardless of when during the
year they have occurred, will age one year at the close of business on
December 31 of that year and each subsequent year.
At the time of a redemption, the amount by which the value of a shareholder's
account for a particular class of shares represented by Direct Purchases
exceeds the sum of the six calendar year aggregations (12 months in the case
of purchases of $1 million or more of Class A shares or purchases by certain
retirement plans of Class A shares) of Direct Purchases may be redeemed
without charge ("Free Amount"). Moreover, no CDSC is ever assessed on
additional shares acquired through the automatic reinvestment of dividends or
capital gain distributions ("Reinvested Shares"). Therefore, at the time of
redemption of a particular class, (i) any Free Amount is not subject to the
CDSC and (ii) the amount of the redemption equal to the then-current value of
Reinvested Shares is not subject to the CDSC, but (iii) any amount of the
redemption in excess of the aggregate of the then-current value of Reinvested
Shares and the Free Amount is subject to a CDSC. The CDSC will first be
applied against the amount of Direct Purchases which will result in any such
charge being imposed at the lowest possible rate. The CDSC to be imposed upon
redemptions of shares will be calculated as set forth in "Purchases" above.
The applicability of a CDSC will be unaffected by exchanges or transfers of
registration, except as described in Appendix A hereto.
GENERAL: The following information applies to redemptions and repurchases of
all classes of the Fund's shares.
SIGNATURE GUARANTEE. In order to protect shareholders against fraud, the
Fund requires, in certain instances as indicated above, that the shareholder's
signature be guaranteed. In these cases the shareholder's signature must be
guaranteed by an eligible bank, broker, dealer, credit union, national
securities exchange, registered securities association, clearing agency or
savings association. Signature guarantees shall be accepted in accordance with
policies established by the Shareholder Servicing Agent.
REINSTATEMENT PRIVILEGE. Shareholders of the Fund who have redeemed their
shares have a one-time right to reinvest the redemption proceeds in the same
class of shares of any of the MFS Funds (if shares of such Fund are available
for sale) at net asset value (with a credit for any CDSC paid) within 90 days
of the redemption pursuant to the Reinstatement Privilege. If the shares
credited for any CDSC paid are then redeemed within six years of the initial
purchase in the case of Class B shares or within 12 months of the initial
purchase for certain Class A share purchases, a CDSC will be imposed upon
redemption. Such purchases under the Reinstatement Privilege are subject to
all limitations in the SAI regarding this privilege.
IN-KIND DISTRIBUTIONS. Subject to compliance with applicable regulations,
the Fund has reserved the right to pay the redemption or repurchase price of
shares of the Fund, either totally or partially, by a distribution in-kind of
securities (instead of cash) from the Fund's portfolio. The securities
distributed in such a distribution would be valued at the same amount as that
assigned to them in calculating the net asset value for the shares being sold.
If a shareholder received a distribution in-kind, the shareholder could incur
brokerage or transaction charges when converting the securities to cash.
INVOLUNTARY REDEMPTIONS/SMALL ACCOUNTS. Due to the relatively high cost of
maintaining small accounts, the Fund reserves the right to redeem shares in
any account for their then-current value if at any time the total investment
in such account drops below $500 because of redemptions, except in the case of
accounts being established for monthly automatic investments and certain
payroll savings programs, Automatic Exchange Plan accounts and tax-deferred
retirement plans, for which there is a lower minimum investment requirement.
See "Purchases -- General -- Minimum Investment." Shareholders will be
notified that the value of their account is less than the minimum investment
requirement and allowed 60 days to make an additional investment before the
redemption is processed.
DISTRIBUTION PLANS
The Trustees have adopted separate Distribution Plans for Class A and Class B
shares pursuant to Section 12(b) of the 1940 Act and Rule 12b-1 thereunder
(the "Distribution Plans"), after having concluded that there is a reasonable
likelihood that the Distribution Plans would benefit the Fund and its
shareholders.
In certain circumstances, the fees described below have not yet been imposed
or are being waived. These circumstances are described below under the
heading "Current Level of Distribution and Service Fees."
FEATURES COMMON TO EACH DISTRIBUTION PLAN: The Distribution Plans have certain
common features, as described below.
SERVICE FEES. Each Distribution Plan provides that the Fund may pay MFD a
service fee of up to 0.25% of the average daily net assets attributable to the
class of shares to which the Distribution Plan relates (i.e., Class A or Class
B shares, as appropriate) (the "Designated Class") annually in order that MFD
may pay expenses on behalf of the Fund relating to the servicing of shares of
the Designated Class. The service fee is used by MFD to compensate dealers
which enter into a sales agreement with MFD in consideration for all personal
services and/or account maintenance services rendered by the dealer with
respect to shares of the Designated Class owned by investors for whom such
dealer is the dealer or holder of record. MFD may from time to time reduce
the amount of the service fees paid for shares sold prior to a certain date.
Service fees may be reduced for a dealer that is the holder or dealer of
record for an investor who owns shares of the Fund having an aggregate net
asset value at or above a certain dollar level. Dealers may from time to time
be required to meet certain criteria in order to receive service fees. MFD or
its affiliates are entitled to retain all service fees payable under each
Distribution Plan for which there is no dealer of record or for which
qualification standards have not been met as partial consideration for
personal services and/or account maintenance services performed by MFD or its
affiliates to shareholder accounts.
DISTRIBUTION FEES. Each Distribution Plan provides that the Fund may pay
MFD a distribution fee based on the average daily net assets attributable to
the Designated Class as partial consideration for distribution services
performed and expenses incurred in the performance of MFD's obligations under
its distribution agreement with the Fund. See "Management of the Fund --
Distributor" in the SAI. The amount of the distribution fee paid by the Fund
with respect to each class differs under the Distribution Plans, as does the
use by MFD of such distribution fees. Such amounts and uses are described
below in the discussion of the separate Distribution Plans. While the amount
of compensation received by MFD in the form of distribution fees during any
year may be more or less than the expense incurred by MFD under its
distribution agreement with the Fund, the Fund is not liable to MFD for any
losses MFD may incur in performing services under its distribution agreement
with the Fund.
OTHER COMMON FEATURES. Fees payable under each Distribution Plan are
charged to, and therefore reduce, income allocated to shares of the Designated
Class. The Distribution Plans have substantially identical provisions with
respect to their operating policies and their initial approval, renewal,
amendment and termination.
FEATURES UNIQUE TO EACH DISTRIBUTION PLAN: The Distribution Plans have certain
features that are unique to each class of shares, as described below.
CLASS A DISTRIBUTION PLAN. Class A shares are generally offered pursuant
to an initial sales charge, a substantial portion of which is paid to or
retained by the dealer making the sale (the remainder of which is paid to
MFD). See "Purchases -- Class A Shares" above. In addition to the initial
sales charge, the dealer also generally receives the ongoing 0.25% per annum
service fee, as discussed above.
The distribution fee paid to MFD under the Class A Distribution Plan is equal,
on an annual basis, to 0.10% of the Fund's average daily net assets
attributable to Class A shares. As noted above, MFD may use the distribution
fee to cover distribution-related expenses incurred by it under its
distribution agreement with the Fund, including commissions to dealers and
payments to wholesalers employed by MFD (e.g., MFD pays commission to dealers
with respect to purchases of $1 million or more of Class A shares which are
sold at net asset value but which are subject to a 1% CDSC for one year after
purchase). See "Purchases -- Class A Shares" above. In addition, to the
extent that the aggregate service and distribution fees paid under the Class A
Distribution Plan do not exceed 0.35% per annum of the average daily net
assets of the Fund attributable to Class A shares, the Fund is permitted to
pay such distribution-related expenses or other distribution-related expenses.
CLASS B DISTRIBUTION PLAN. Class B shares are offered at net asset value
without an initial sales charge but subject to a CDSC. See "Purchases --
Class B Shares" above. MFD will advance to dealers the first year service fee
described above at a rate equal to 0.25% of the purchase price of such shares
and, as compensation therefore, MFD may retain the service fee paid by the
Fund with respect to such shares for the first year after purchase. Dealers
will become eligible to receive the ongoing 0.25% per annum service fee with
respect to such shares commencing in the thirteenth month following purchase.
Under the Class B Distribution Plan, the Fund pays MFD a distribution fee
equal, on an annual basis, to 0.75% of the Fund's average daily net assets
attributable to Class B shares. As noted above, this distribution fee may be
used by MFD to cover its distribution-related expenses under its distribution
agreement with the Fund (including the 3.75% commission it pays to dealers
upon purchase of Class B shares, as described under "Purchases -- Class B
Shares" above).
CURRENT LEVEL OF DISTRIBUTION AND SERVICE FEES: The Fund's Class A and Class B
distribution and service fees for its current fiscal year are 0.15% and 1.00%
per annum, respectively. Assets attributable to Class A shares sold prior to
March 1, 1991 are subject to a service fee of 0.15% per annum. Payment of the
0.10% per annum Class A distribution fee will commence on such date as the
Trustees of the Trust may determine.
DISTRIBUTIONS
The Fund intends to pay substantially all of its net investment income for any
calendar year to its shareholders as dividends on an annual basis. The Fund
may make one or more distributions during the calendar year to its
shareholders from any long-term capital gains and also may make one or more
distributions during the calendar year to its shareholders from short-term
capital gains. Shareholders may elect to receive dividends and capital gain
distributions in either cash or additional shares of the same class to which a
distribution is made. See "Tax Status" and "Shareholder Services --
Distribution Options" below. Distributions paid by the Fund with respect to
Class A shares will generally be greater than those paid with respect to Class
B shares because expenses attributable to Class B shares will generally be
higher.
TAX STATUS
In order to minimize the taxes the Fund would otherwise be required to pay,
the Fund intends to qualify each year as a "regulated investment company"
under Subchapter M of the Internal Revenue Code of 1986 as amended (the
"Code"), and to make distributions to its shareholders in accordance with the
timing requirements imposed by the Code. It is expected that the Fund will not
be required to pay entity level federal income or excise taxes, although
foreign-source income received by the Fund may be subject to foreign
withholding taxes.
Shareholders of the Fund normally will have to pay federal income taxes and
any state or local taxes on the dividends and capital gain distributions they
receive from the Fund, whether paid in cash or in additional shares. A portion
of the dividends received from the Fund (but none of the Fund's capital gain
distributions) may qualify for the dividends-received deduction for
corporations. Shortly after the end of each calendar year, each Fund
shareholder will receive a statement setting forth the federal income status
of all dividends and distributions for that year, including the portion
taxable as ordinary income, any portion taxable as long-term capital gains,
the portion, if any, representing a return of capital (which is generally free
of current taxes, but results in a basis reduction), and the amount, if any,
of federal income tax withheld.
Fund distributions will reduce the Fund's net asset value per share.
Shareholders who buy shares shortly before the Fund makes a distribution may
thus pay the full price for the shares and then effectively receive a portion
of the purchase price back as a taxable distribution.
The Fund intends to withhold U.S. federal income tax at the rate of 30% on
dividends and other payments that are subject to such withholding and that are
made to persons who are neither citizens nor residents of the U.S., regardless
of whether a lower rate may be permitted under an applicable treaty. The Fund
is also required in certain circumstances to apply backup withholding at the
rate of 31% on taxable dividends and redemption proceeds paid to any
shareholder (including a shareholder who is neither a citizen nor a resident
of the U.S.) who does not furnish to the Fund certain information and
certifications or who is otherwise subject to backup withholding. However,
backup withholding will not be applied to payments that have been subject to
30% withholding. Prospective investors should read the Fund's Account
Application for additional information regarding backup withholding of federal
income tax and should consult their own tax advisers as to the tax
consequences to them of an investment in the Fund.
NET ASSET VALUE
The net asset value per share of each class of the Fund is determined each day
during which the Exchange is open for trading. This determination is made
once each day as of the close of regular trading on the Exchange by deducting
the amount of the liabilities attributable to the class from the value of the
assets attributable to the class and dividing the difference by the number of
shares of the class outstanding. Values of assets in the Fund's portfolio are
determined on the basis of their market or other fair value, as described in
the SAI. The net asset value per share of each class of shares is effective
for orders received by the dealer prior to its calculation and received by MFD
prior to the close of that business day.
DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Fund has two classes of shares, entitled Class A and Class B Shares of
Beneficial Interest (without par value). Each share of a class of the Fund
represents an equal proportionate interest in the Fund with each other share
of that class of the Fund subject to any liabilities of the particular class.
Shareholders are entitled to one vote for each share held and may vote in the
election of Trustees and on other matters submitted to meetings of
shareholders. Each class of shares of the Fund will vote separately on any
material increase in the fees under its Distribution Plan or on any other
matter that affects solely that class of shares, but will otherwise vote
together with all other classes of shares of the Fund on all other matters.
The Fund does not intend to hold annual shareholder meetings. The Fund's
Declaration of Trust provides that a Trustee may be removed from office in
certain instances (see "Description of Shares, Voting Rights and Liabilities"
in the SAI).
Shares have no pre-emptive or conversion rights (except as set forth above in
"Purchases -- Conversion of Class B Shares"). Shares are fully paid and non-
assessable. Should the Fund be liquidated, shareholders of each class are
entitled to share pro rata in the net assets attributable to that class
available for distribution to shareholders. Shares will remain on deposit with
the Shareholder Servicing Agent and certificates will not be issued except in
connection with pledges and assignments and in certain other limited
circumstances.
The Fund reserves the right to create and issue a number of series and
additional classes of shares, in which case the shares of each class of a
series would participate equally in the earnings, dividends and assets
attributable to that class of that particular series. Shares of each series
would be entitled to vote separately to approve investment advisory agreements
or changes in investment restrictions but shares of all series would vote
together in the election or selection of Trustees and accountants.
The Fund is an entity of the type commonly known as a "Massachusetts business
trust." Under Massachusetts law, shareholders of such a trust may, under
certain circumstances, be held personally liable as partners for its
obligations. However, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which both
inadequate insurance (e.g., fidelity bonding and errors and omissions
insurance) existed and the Fund itself was unable to meet its obligations.
PERFORMANCE INFORMATION
From time to time, the Fund will provide total rate of return quotations for
each class of shares and may also quote fund rankings in the relevant fund
category from various sources, such as the Lipper Analytical Services, Inc.
and Weisenberger Investment Companies Service. Total rate of return quotations
will reflect the average annual percentage change over stated periods in the
value of an investment in a class of shares of the Fund made at the maximum
public offering price of the shares of that class with all distributions
reinvested and which, if quoted for periods of six years or less, will give
effect to the imposition of the CDSC assessed upon redemptions of the Fund's
Class B shares. Such total rate of return quotations may be accompanied by
quotations which do not reflect the reduction in value of the initial
investment due to the sales charge, and which will thus be higher. The Fund's
total rate of return quotations are based on historical performance and are
not intended to indicate future performance. The Fund's quotations may from
time to time be used in advertisements, shareholder reports or other
communications to shareholders. For a discussion of the manner in which the
Fund will calculate its total rate of return, see the SAI. For further
information about the Fund's performance for the fiscal year ended December
31,1995, please see the Fund's Annual Report. A copy of the Annual Report may
be obtained without charge by contacting the Shareholder Servicing Agent (see
back cover for address and phone number). In addition to information provided
in shareholder reports, the Fund may, in its discretion, from time to time,
make a list of all or a portion of its holdings available to investors upon
request.
9. SHAREHOLDER SERVICES
Shareholders with questions concerning the shareholder services described
below or concerning other aspects of the Fund should contact the Shareholder
Servicing Agent (see back cover for address and phone number).
ACCOUNT AND CONFIRMATION STATEMENTS: Each shareholder will receive
confirmation statements showing the transaction activity in his account. At
the end of each calendar year, each shareholder will receive information
regarding the tax status of reportable dividends and distributions for that
year (see "Tax Status" above).
DISTRIBUTION OPTIONS: The following options are available to all accounts
(except Systematic Withdrawal Plan accounts) and may be changed as often as
desired by notifying the Shareholder Servicing Agent:
-- Dividends and capital gain distributions reinvested in additional
shares. This option will be assigned if no other option is specified;
-- Dividends in cash; capital gain distributions reinvested in additional
shares;
-- Dividends and capital gain distributions in cash.
Reinvestments (net of any tax withholding) will be made in additional full and
fractional shares of the same class of shares at the net asset value in effect
at the close of business on the record date. Dividends and capital gain
distributions in amounts less than $10 will automatically be reinvested in
additional shares of the Fund. If a shareholder has elected to receive
dividends and/or capital gain distributions in cash and the postal or other
delivery service is unable to deliver checks to the shareholder's address of
record, such shareholder's distribution option will automatically be converted
to having all dividends and other distributions reinvested in additional
shares. Any request to change a distribution option must be received by the
Shareholder Servicing Agent by the record date for a dividend or distribution
in order to be effective for that dividend or distribution. No interest will
accrue on amounts represented by uncashed distribution or redemption checks.
INVESTMENT AND WITHDRAWAL PROGRAMS -- For the convenience of shareholders, the
Fund makes available the following programs designed to enable shareholders to
add to their investment in an account with the Fund or withdraw from it with a
minimum of paper work. The programs involve no extra charge to shareholders
(other than a sales charge in the case of certain Class A share purchases) and
may be changed or discontinued at any time by a shareholder or the Fund.
LETTER OF INTENT: If a shareholder (other than a group purchaser as
described in the SAI) anticipates purchasing $50,000 or more of Class A shares
of the Fund alone or in combination with shares of any classes of other MFS
Funds or MFS Fixed Fund (a bank collective investment fund) within a 13-month
period (or a 36-month period for purchases of $1 million or more), the
shareholder may obtain such shares at the same reduced sales charge as though
the total quantity were invested in one lump sum, subject to escrow agreements
and the appointment of an attorney for redemptions from the escrow amount if
the intended purchases are not completed, by completing the Letter of Intent
section of the Account Application.
RIGHT OF ACCUMULATION: A shareholder qualifies for cumulative quantity
discounts on the purchase of Class A shares when his new investment, together
with the current offering price value of all holdings of all classes of shares
of that shareholder in the MFS Funds or MFS Fixed Fund reaches a discount
level.
DISTRIBUTION INVESTMENT PROGRAM: Shares of a particular class of the Fund
may be sold at net asset value (and without any applicable CDSC) through the
automatic reinvestment of dividend and capital gain distributions from the
same class of another MFS Fund. Furthermore, distributions made by the Fund
may be automatically invested at net asset value (and without any applicable
CDSC) in shares of the same class of another MFS Fund, if shares of such Fund
are available for sale.
SYSTEMATIC WITHDRAWAL PLAN: A shareholder may direct the Shareholder
Servicing Agent to send him (or anyone he designates) regular periodic
payments, based upon the value of his account. Each payment under a Systematic
Withdrawal Plan (a "SWP") must be at least $100, except in certain limited
circumstances. The aggregate withdrawals of Class B shares in any year
pursuant to a SWP will not be subject to a CDSC and are generally limited to
10% of the value of the account at the time of the establishment of the SWP.
The CDSC will not be waived in the case of SWP redemptions of Class A shares
which are subject to a CDSC.
DOLLAR COST AVERAGING PROGRAMS --
AUTOMATIC INVESTMENT PLAN: Cash investments of $50 or more may be made
through a shareholder's checking account twice monthly, monthly or quarterly.
Required forms are available from the Shareholder Servicing Agent or
investment dealers.
AUTOMATIC EXCHANGE PLAN: Shareholders having account balances of at least
$5,000 in any MFS Fund may exchange their shares for the same class of shares
of other MFS Funds if such fund is available for sale under the Automatic
Exchange Plan, a dollar cost averaging program. The Automatic Exchange Plan
provides for automatic monthly or quarterly exchanges of funds from the
shareholder's account in an MFS Fund for investment in the same class of
shares of other MFS Funds selected by the shareholder if such fund is
available for sale. Under the Automatic Exchange Plan, exchanges of at least
$50 each may be made to up to four different funds. A shareholder should
consider the objectives and policies of a fund and review its prospectus
before electing to exchange money into such fund through the Automatic
Exchange Plan. No transaction fee is imposed in connection with exchange
transactions under the Automatic Exchange Plan. However, exchanges of shares
of MFS Money Market Fund, MFS Government Money Market Fund or Class A shares
of MFS Cash Reserve Fund will be subject to any applicable sales charge. For
federal and (generally) state income tax purposes, an exchange is treated as a
sale of the shares exchanged and, therefore, could result in a capital gain or
loss to the shareholder making the exchange. See the SAI for further
information concerning the Automatic Exchange Plan. Investors should consult
their tax advisers for information regarding the potential capital gain and
loss consequences of transactions under the Automatic Exchange Plan.
Because a dollar cost averaging program involves periodic purchases of shares
regardless of fluctuating share offering prices, a shareholder should consider
his financial ability to continue his purchases through periods of low price
levels. Maintaining a dollar cost averaging program concurrently with a
withdrawal program could be disadvantageous because of the sales charges
included in share purchases in the case of Class A shares, and because of the
assessment of the CDSC for certain share redemptions in the case of Class A
shares.
TAX-DEFERRED RETIREMENT PLANS -- Shares of the Fund may be purchased by all
types of tax-deferred retirement plans, including IRAs, SEP-IRAs, 401(k)
plans, 403(b) plans and other corporate pension and profit-sharing plans.
Investors should consult with their tax advisers before establishing any of
the tax-deferred retirement plans described above.
----------------
The Fund's SAI, dated May 1, 1996, contains more detailed information about
the Fund, including, but not limited to, information related to (i)
investment objective, policies and restrictions, (ii) Trustees, officers and
investment adviser, (iii) portfolio transactions and brokerage commissions,
(iv) the method used to calculate total rate of return quotations, (v) the
Class A and Class B Distribution Plans, and (vi) various services and
privileges provided for the benefit of its shareholders, including additional
information with respect to the exchange privilege.
<PAGE>
APPENDIX A
WAIVERS OF SALES CHARGES
This Appendix sets forth the various circumstances in which all applicable
sales charges are waived (Section I), the initial sales charge and the
contingent deferred sales charge ("CDSC") for Class A shares is waived
(Section II), and the CDSC for Class B shares is waived (Section III).
I. WAIVERS OF ALL APPLICABLE SALES CHARGES
In the following circumstances, the initial sales charge imposed on
purchases of Class A shares and the CDSC imposed on certain redemptions of
Class A shares and on redemptions of Class B shares, as applicable, is
waived:
1. DIVIDEND REINVESTMENT
* Shares acquired through dividend or capital gain reinvestment; and
* Shares acquired by automatic reinvestment of distributions of
dividends and capital gains of any fund in the MFS Family of Funds
("MFS Funds") pursuant to the Distribution Investment Program.
2. CERTAIN ACQUISITIONS/LIQUIDATIONS
* Shares acquired on account of the acquisition or liquidation of assets
of other investment companies or personal holding companies.
3. AFFILIATES OF AN MFS FUND/CERTAIN DEALERS. Shares acquired by:
* Officers, eligible directors, employees (including retired employees)
and agents of MFS, Sun Life Assurance Company of Canada ("Sun Life")
or any of their subsidiary companies;
* Trustees and retired trustees of any investment company for which
MFD serves as distributor;
* Employees, directors, partners, officers and trustees of any sub-
adviser to any MFS Fund;
* Employees or registered representatives of dealers and other
financial institution ("dealers") which have a sales agreement with
MFD;
* Certain family members of any such individual and their spouses
identified above and certain trusts, pension, profit-sharing or
other retirement plans for the sole benefit of such persons,
provided the shares are not resold except to the MFS Fund which
issued the shares; and
* Institutional Clients of MFS or MFS Asset Management, Inc. ("AMI").
4. INVOLUNTARY REDEMPTIONS (CDSC WAIVER ONLY)
* Shares redeemed at an MFS Fund's direction due to the small size of a
shareholder's account. See "Redemptions and Repurchases -- General --
Involuntary Redemptions/Small Accounts" in the Prospectus.
5. RETIREMENT PLANS (CDSC WAIVER ONLY). Shares redeemed on account of
distributions made under the following circumstances:
INDIVIDUAL RETIREMENT ACCOUNTS ("IRA'S")
* Death or disability of the IRA owner.
SECTION 401(A) PLANS ("401(A) PLANS") AND SECTION 403(B) EMPLOYER
SPONSORED PLANS ("ESP PLANS")
* Death, disability or retirement of Plan participant;
* Loan from Plan (repayment of loans, however, will constitute new sales
for purposes of assessing sales charges);
* Financial hardship (as defined in Treasury Regulation Section 1.401
(k)-1(d)(2), as amended from time to time);
* Termination of employment of Plan participant (excluding, however, a
partial or other termination of the Plan);
* Tax-free return of excess Plan contributions;
* To the extent that redemption proceeds are used to pay expenses (or
certain participant expenses) of the Plan (e.g., participant account
fees), provided that the Plan sponsor subscribes to the MFS
FUNDamental 401(k) Plan or another similar recordkeeping system made
available by the Shareholder Servicing Agent; and
* Distributions from a Plan that has invested its assets in one or more
of the MFS Funds for more than 10 years from the later to occur of:
(i) January 1, 1993 or (ii) the date such Plan first invests its
assets in one or more of the MFS Funds. The sales charges will be
waived in the case of a redemption of all of the Plan's shares in all
MFS Funds (i.e., all the assets of the Plan invested in the MFS Funds
are withdrawn), unless immediately prior to the redemption, the
aggregate amount invested by the Plan in shares of the MFS Funds
(excluding the reinvestment of distributions) during the prior four
years equals 50% or more of the total value of the Plan's assets in
the MFS Funds, in which case the sales charges will not be waived.
SECTION 403(B) SALARY REDUCTION ONLY PLANS ("SRO PLANS")
* Death or disability of Plan participant.
6. CERTAIN TRANSFERS OF REGISTRATION (CDSC WAIVER ONLY). Shares
transferred:
* To an IRA rollover account where any sales charges with respect to the
shares being reregistered would have been waived had they been
redeemed; and
* From a single account maintained for a 401(a) Plan to multiple
accounts maintained by the Shareholder Servicing Agent on behalf of
individual participants of such Plan, provided that the Plan sponsor
subscribes to the MFS FUNDamental 401(k) Plan or another similar
recordkeeping system made available by the Shareholder Servicing
Agent.
II. WAIVERS OF CLASS A SALES CHARGES
In addition to the waivers set forth in Section I above, in the following
circumstances the initial sales charge imposed on purchases of Class A
shares and the contingent deferred sales charge imposed on certain
redemptions of Class A shares is waived:
1. INVESTMENT OF REDEMPTION PROCEEDS FROM UNAFFILIATED MUTUAL FUNDS
* Shares acquired through the investment of redemption proceeds from
another open-end management investment company not distributed or
managed by MFD or its affiliates if: (i) the investment is made
through a dealer and appropriate documentation is submitted to MFD;
(ii) the redeemed shares were subject to an initial sales charge or
deferred sales charge (whether or not actually imposed); (iii) the
redemption occurred no more than 90 days prior to the purchase of
Class A shares; and (iv) the MFS Fund, MFD or its affiliates have not
agreed with such company or its affiliates, formally or informally, to
waive sales charges on Class A shares or provide any other incentive
with respect to such redemption and sale.
2. WRAP ACCOUNT INVESTMENTS
* Shares acquired by investments through certain dealers which have
entered into an agreement with MFD which includes a requirement that
such shares be sold for the sole benefit of clients participating in a
"wrap" account or a similar program under which such clients pay a fee
to such dealer.
3. INVESTMENT BY INSURANCE COMPANY SEPARATE ACCOUNTS
* Shares acquired by insurance company separate accounts.
4. RETIREMENT PLANS
ADMINISTRATIVE SERVICES ARRANGEMENTS
* Shares acquired by retirement plans whose third party administrators,
or dealers have entered into an administrative services agreement with
MFD or one of its affiliates to perform certain administrative
services, subject to certain operational and minimum size requirements
specified from time to time by MFD or one or more of its affiliates.
REINVESTMENT OF DISTRIBUTIONS FROM QUALIFIED RETIREMENT PLANS
* Shares acquired through the automatic reinvestment in Class A shares
of Class A or Class B distributions which constitute required
withdrawals from qualified retirement plans.
Shares redeemed on account of distributions made under the following
circumstances:
IRA'S
* Distributions made on or after the IRA owner has attained the age of
59 1/2 years old; and
* Tax-free returns of excess IRA contributions.
401(A) PLANS
* Distributions made on or after the Plan participant has attained the
age of 59 1/2 years old; and
* Certain involuntary redemptions and redemptions in connection with
certain automatic withdrawals from a Plan.
ESP PLANS AND SRO PLANS
* Distributions made on or after the Plan participant has attained the
age of 59 1/2 years old.
III. WAIVERS OF CLASS B SALES CHARGES
In addition to the waivers set forth in Section I above, in the following
circumstances the CDSC imposed on redemptions of Class B shares is waived:
1. SYSTEMATIC WITHDRAWAL PLAN
* Systematic Withdrawal Plan redemptions with respect to up to 10% per
year of the account value at the time of establishment.
2. DEATH OF OWNER
* Shares redeemed on account of the death of the account owner if the
shares are held solely in the deceased individual's name or in a
living trust for the benefit of the deceased individual.
3. DISABILITY OF OWNER
* Shares redeemed on account of the disability of the account owner if
shares are held either solely or jointly in the disabled individual's
name or in a living trust for the benefit of the disabled individual
(in which case a disability certification form is required to be
submitted to the Shareholder Servicing Agent.).
4. RETIREMENT PLANS. Shares redeemed on account of distributions made under
the following circumstances:
IRA'S, 401(A) PLANS, ESP PLANS AND SRO PLANS
* Distributions made on or after the IRA owner or the Plan participant,
as applicable, has attained the age of 70 1/2 years old, but only with
respect to the minimum distribution under applicable Internal Revenue
Code ("Code") rules.
SALARY REDUCTION SIMPLIFIED EMPLOYEE PENSION PLANS ("SAR-SEP PLANS")
* Distributions made on or after the SAR-SEP Plan participant has
attained the age of 70 1/2 years old, but only with respect to the
minimum distribution under applicable Code rules;
* Death or disability of a SAR-SEP Plan participant.
<PAGE>
APPENDIX B
DESCRIPTION OF OPTIONS, FUTURES AND FORWARD CONTRACTS
OPTIONS ON SECURITIES
An option on a security provides the purchaser, or "holder," with the right,
but not the obligation, to purchase, in the case of a "call" option, or sell,
in the case of a "put" option, the security or securities underlying the
option, for a fixed exercise price up to a stated expiration date or, in the
case of certain options, on such date. The holder pays a non-refundable
purchase price for the option, known as the "premium." The maximum amount of
risk the purchaser of the option assumes is equal to the premium plus related
transaction costs, although this entire amount may be lost. The risk of the
seller, or "writer," however, is potentially unlimited, unless the option is
"covered" which is generally accomplished, for example, through the writer's
ownership of the underlying security, in the case of a call option, or the
writer's segregation of an amount of cash or securities equal to the exercise
price in the case of a put option. If the writer's obligation is not so
covered, it is subject to the risk of the full change in value of the
underlying security from the time the option is written until exercise.
Upon exercise of the option, the holder is required to pay the purchase price
of the underlying security, in the case of a call option, or to deliver the
security in return for the purchase price in the case of a put option.
Conversely, the writer is required to deliver the security, in the case of a
call option, or to purchase the security, in the case of a put option. Options
on securities which have been purchased or written may be closed out prior to
exercise or expiration by entering into an offsetting transaction on the
exchange on which the initial position was established, subject to the
availability of a liquid secondary market.
Options on securities and options on indexes of securities, discussed below,
are traded on national securities exchanges, such as the Chicago Board Options
Exchange and the New York Stock Exchange, which are regulated by the SEC. The
Options Clearing Corporation guarantees the performance of each party to an
exchange-traded option, by in effect taking the opposite side of each such
option. A holder or writer may engage in transactions in exchange-traded
options on securities and options on indexes of securities only through a
registered broker-dealer which is a member of the exchange on which the option
is traded.
In addition, options on securities and options on indexes of securities are
traded over-the-counter through financial institutions dealing in such
options. Such options are traded in a manner substantially similar to
exchange-traded options, except that many of the protections offered in an
exchange environment, such as a clearing house performance guarantee, are not
available. The particular risks of over-the-counter transactions are set forth
more fully in the SAI.
OPTIONS ON STOCK INDICES
In contrast to an option on a security, an option on a stock index provides
the holder with the right to make or receive a cash settlement upon exercise
of the option, rather than the right to purchase or sell a security. The
amount of this settlement is equal to (i) the amount, if any, by which the
fixed exercise price of the option exceeds (in the case of a call) or is below
(in the case of a put) the closing value of the underlying index on the date
of exercise, multiplied by (ii) a fixed "index multiplier." The purchaser of
the option receives this cash settlement amount if the closing level of the
stock index on the day of exercise is greater than, in the case of a call, or
less than, in the case of a put, the exercise price of the option. The writer
of the option is obligated, in return for the premium received, to make
delivery of this amount if the option is exercised. As in the case of options
on securities, the writer or holder may liquidate positions in stock index
options prior to exercise or expiration by entering into closing transactions
on the exchange on which such positions were established, subject to the
availability of a liquid secondary market.
The index underlying a stock index option may be a "broad-based" index, such
as the Standard & Poor's 500 Index or the New York Stock Exchange Composite
Index, the changes in value of which ordinarily will reflect movements in the
stock market in general. In contrast, certain options may be based on narrower
market indexes, such as the Standard & Poor's 100 Index, or on indexes of
securities of particular industry groups, such as those of oil and gas or
technology companies. A stock index assigns relative values to the stocks
included in the index and the index fluctuates with changes in the market
values of the stocks so included.
FUTURES CONTRACTS
A "sale" of a Futures Contract means a contractual obligation to make or
receive a cash settlement, in the case of a stock index Futures Contract, or
to deliver the securities called for by the contract at a specified price in a
fixed delivery month, in the case of an interest rate Futures Contract. A
"purchase" of a Futures Contract means a contractual obligation to make or
receive a cash settlement, in the case of a stock index Futures Contract, or
to acquire the securities called for by the contract at a specified price in a
fixed delivery month, in the case of an interest rate Futures Contract.
Futures Contracts differ from options in that they are bilateral agreements,
with both the purchaser and the seller equally obligated to complete the
transaction. In addition, Futures Contracts call for settlement only on the
expiration date, and cannot be "exercised" at any other time during their
term.
The purchase or sale of a Futures Contract also differs from the purchase or
sale of a security or the purchase of an option in that no purchase price is
paid or received. Instead, an amount of cash or cash equivalents, which varies
but may be as low as 5% or less of the value of the contract, must be
deposited with the broker as "initial margin." Subsequent payments to and from
the broker, referred to as "variation margin," are made on a daily basis as
the value of the index or security underlying the Futures Contract fluctuates,
making positions in the Futures Contract more or less valuable, a process
known as "marking to the market."
A Futures Contract may be purchased or sold only on an exchange, known as a
"contract market," designated by the Commodity Futures Trading Commission for
the trading of such contracts, and only through a registered futures
commission merchant which is a member of such contract market. A commission
must be paid on each completed purchase and sale transaction. The contract
market clearing house guarantees the performance of each clearing member party
to a Futures Contract, by in effect taking the opposite side of such Contract.
At any time prior to the expiration of a Futures Contract, a trader may elect
to close out its position by taking an opposite position on the contract
market on which the position was entered into, subject to the availability of
a secondary market, which will operate to terminate the initial position. At
that time, a final determination of variation margin is made and any loss
experienced by the trader is required to be paid to the contract market
clearing house while any profit due to the trader must be delivered to it.
OPTIONS ON FUTURES CONTRACTS
An Option on a Futures Contract provides the holder with the right to enter
into a "long" position in the underlying Futures Contract (i.e., the purchase
of a Futures Contract), in the case of a call option, or a "short" position in
the underlying Futures Contract (i.e., the sale of a Futures Contract), in the
case of a put option, at a fixed exercise price up to a stated expiration date
or, in the case of certain options, on such date. Upon exercise of the option
by the holder, the contract market clearing house establishes a corresponding
short position for the writer of the option, in the case of a call option, or
a corresponding long position in the case of a put option. In the event that
an option is exercised, the parties will be subject to all the risks
associated with the trading of Futures Contracts, such as payment of margin
deposits. In addition, the writer of an Option on a Futures Contract, unlike
the holder, is subject to initial and variation margin requirements on the
option position. Options on Futures Contracts that are written or purchased by
the Fund are traded on the same contract market as the underlying Futures
Contract.
A position in an Option on a Futures Contract may be terminated by the
purchaser or seller prior to expiration by effecting a closing purchase or
sale transaction, subject to the availability of a liquid secondary market,
which is the purchase or sale of an option of the same series (i.e., the same
exercise price and expiration date) as the option previously purchased or
sold. The difference between the premiums paid and received represents the
trader's profit or loss on the transaction.
An option, whether on a security, an index or a Futures Contract, becomes
worthless to the holder when it expires. Upon exercise of an option, the
exchange or contract market clearing house assigns exercise notices on a
random basis to those of its members which have written options of the same
series and with the same expiration date. A brokerage firm receiving such
notices then assigns them on a random basis to those of its customers which
have written options of the same series and expiration date. A writer
therefore has no control over whether an option will be exercised against it,
nor over the timing of such exercise.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
A Forward Contract is a contractual obligation to purchase or sell a specific
quantity of a given foreign currency for a fixed exchange rate at a future
date. Forward Contracts are individually negotiated and are traded through the
"interbank currency market," an informal network of banks and brokerage firms
which operates around the clock and throughout the world. Transactions in the
interbank market may be executed only through financial institutions acting as
market-makers in the interbank market, or through brokers executing purchases
and sales through such institutions. Market-makers in the interbank market
generally act as principals in taking the opposite side of their customers'
positions in Forward Contracts, and ordinarily charge a mark-up or commission
which may be included in the cost of the Forward Contract. In addition,
market-makers may require their customers to deposit collateral upon entering
into a Forward Contract, as security for the customer's obligation to make or
receive delivery of currency, and to deposit additional collateral if exchange
rates move adversely to the customer's position. Such deposits may function in
a manner similar to the margining of Futures Contracts, described above.
Prior to the stated maturity date of a Forward Contract, it may be possible to
liquidate the transaction by entering into an offsetting Contract. In order to
do so, however, a customer may be required to maintain both Contracts as open
positions until maturity and to make or receive a settlement of the difference
owed to or from the market-maker or broker at that time.
<PAGE>
Investment Adviser
Massachusetts Financial Services Company
500 Boylston Street
Boston, MA 02116
(617) 954-5000
Distributor
MFS Fund Distributors, Inc.
500 Boylston Street
Boston, MA 02116
(617) 954-5000
Custodian and Dividend Disbursing Agent
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
Shareholder Servicing Agent
MFS Service Center, Inc.
500 Boylston Street
Boston, MA 02116
Toll-free: (800) 225-2606
Mailing Address:
P.O. Box 2281
Boston, MA 02107-9906
Independent Auditors
Deloitte & Touche LLP
125 Summer Street
Boston, MA02110
[LOGO] MFS(R)
THE FIRST NAME IN MUTUAL FUNDS
MFS(R) GROWTH OPPORTUNITIES FUND
Prospectus
May 1, 1996
MFS(R) GROWTH
OPPORTUNITIES FUND
500 Boylston Street
Boston, MA 02116
MGO-1 5/96/99M 16/216
<PAGE>
[LOGO] MFS(R)
THE FIRST NAME IN MUTUAL FUNDS
MFS(R) GROWTH STATEMENT OF
OPPORTUNITIES FUND ADDITIONAL INFORMATION
(A member of the MFS Family of Funds(R)) May 1, 1996
- -------------------------------------------------------------------------------
Page
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1. Definitions ....................................................... 2
2. The Fund .......................................................... 2
3. Investment Objective, Policies and Restrictions ................... 2
4. Management of the Fund ............................................ 9
Trustees ....................................................... 9
Officers ....................................................... 10
Investment Adviser ............................................. 10
Custodian ...................................................... 11
Shareholder Servicing Agent .................................... 11
Distributor .................................................... 11
5. Portfolio Transactions and Brokerage Commissions .................. 12
6. Shareholder Services .............................................. 13
Investment and Withdrawal Programs ............................. 13
Exchange Privilege ............................................. 15
Tax-Deferred Retirement Plans .................................. 16
7. Tax Status ........................................................ 16
8. Determination of Net Asset Value and Performance .................. 17
9. Distribution Plans ................................................ 19
10. Description of Shares, Voting Rights and Liabilities .............. 19
11. Independent Auditors and Financial Statements ..................... 20
Appendix A (Description of Bond Ratings) .......................... 21
Appendix B (Trustee Compensation Table) ........................... 23
MFS GROWTH OPPORTUNITIES FUND
500 Boylston Street, Boston, Massachusetts 02116
(617) 954-5000
This Statement of Additional Information (the "SAI"), as amended or
supplemented from time to time, sets forth information which may be of
interest to investors but which is not necessarily included in the Fund's
Prospectus, dated May 1, 1996. This SAI should be read in conjunction with the
Prospectus, a copy of which may be obtained without charge by contacting the
Shareholder Servicing Agent (see last page for address and phone number).
THIS SAI IS NOT A PROSPECTUS AND IS AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE
INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS.
<PAGE>
1. DEFINITIONS
"Fund" -- MFS Growth Opportunities Fund, a
Massachusetts business trust.
The Fund was known as MFS
Capital Development Fund until
August 17, 1993 and was known as
Massachusetts Capital
Development Fund, Inc. until
August 3, 1992.
"MFS" or the "Adviser" -- Massachusetts Financial Services
Company, a Delaware corporation.
"MFD" -- MFS Fund Distributors, Inc., a
Delaware corporation.
"Prospectus" -- The Prospectus of the Fund,
dated May 1, 1996, as amended or
supplemented from time to time.
2. THE FUND
The predecessor of the Fund -- Massachusetts Capital Development Fund, Inc.
(the "Company") -- was incorporated under the laws of The Commonwealth of
Massachusetts in 1970. The Fund was reorganized as a Massachusetts business
trust on July 29, 1985 pursuant to an Agreement and Plan of Reorganization
dated July 16, 1985. The reorganization received shareholder approval on March
29, 1985. All references in this SAI to the Fund's past activities are
intended to include those of the Company, unless the context indicates
otherwise.
3. INVESTMENT OBJECTIVE, POLICIES AND
RESTRICTIONS
INVESTMENT OBJECTIVE. The Fund's investment objective is to seek growth of
capital. Dividend income, if any, is a consideration incidental to the Fund's
objective of growth of capital. There are risks involved in any investment and
there can be no assurance that the Fund's investment objective will be
achieved.
INVESTMENT POLICIES. While the Fund's policy is to invest primarily in common
stocks, it may seek appreciation in other types of securities such as fixed
income securities (which may be unrated), convertible bonds, convertible
preferred stocks and warrants when relative values make such purchases appear
attractive either as individual issues or as types of securities in certain
economic environments. There is no formula as to the percentage of assets that
may be invested in any one type of security. The Prospectus contains a
discussion of the various types of securities in which the Fund may invest and
the risks involved in such investments some of which are described further
below.
ZERO COUPON BONDS, DEFERRED INTEREST BONDS AND PIK BONDS: Fixed income
securities that the Fund may invest in also include zero coupon bonds,
deferred interest bonds and bonds on which the interest is payable in kind
("PIK bonds"). Zero coupon and deferred interest bonds are debt obligations
which are issued at a significant discount from face value. The discount
approximates the total amount of interest the bonds will accrue and compound
over the period until maturity or the first interest payment date at a rate of
interest reflecting the market rate of the security at the time of issuance.
While zero coupon bonds do not require the periodic payment of interest,
deferred interest bonds provide for a period of delay before the regular
payment of interest begins. PIK bonds are debt obligations which provide that
the issuer may, at its option, pay interest on such bonds in cash or in the
form of additional debt obligations. Such investments benefit the issuer by
mitigating its need for cash to meet debt service, but also require a higher
rate of return to attract investors who are willing to defer receipt of such
cash. Such investments may experience greater volatility in market value than
debt obligations which make regular payments of interest. The Fund will accrue
income on such investments for tax and accounting purposes, which is
distributable to shareholders and which, because no cash is received at the
time of accrual, may require the liquidation of other portfolio securities to
satisfy the Fund's distribution obligations.
LENDING OF SECURITIES: The Fund may seek to increase its income by lending
portfolio securities. Such loans will usually be made only to member banks of
the Federal Reserve System and to member firms (and subsidiaries thereof) of
the New York Stock Exchange (the "Exchange") and would be required to be
secured continuously by collateral in cash, or U.S. Government securities or
an irrevocable letter of credit maintained on a current basis at an amount at
least equal to the market value of the securities loaned. The Fund would have
the right to call a loan and obtain the securities loaned at any time on
customary industry settlement notice (which will usually not exceed five
days). During the existence of a loan, the Fund would continue to receive the
equivalent of the interest or dividends paid by the issuer on the securities
loaned and would also receive compensation based on investment of cash
collateral or a fee. The Fund would not, however, have the right to vote any
securities having voting rights during the existence of the loan, but would
call the loan in anticipation of an important vote to be taken among holders
of the securities or of the giving or withholding of their consent on a
material matter affecting the investment. As with other extensions of credit,
there are risks of delay in recovery or even loss of rights in the collateral
should the borrower fail financially. However, the loans would be made only to
firms deemed by the Adviser to be of good standing, and when, in the judgment
of the Adviser, the consideration which could be earned currently from
securities loans of this type justifies the attendant risk. If the Adviser
determines to make securities loans, it is not intended that the value of the
securities loaned would exceed 30% of the value of the Fund's total assets.
REPURCHASE AGREEMENTS: The Fund may enter into repurchase agreements with
sellers who are member firms (or a subsidiary thereof) of the Exchange or
members of the Federal Reserve System, recognized primary U.S. Government
securities dealers or institutions which the Adviser has determined to be of
comparable creditworthiness. The securities that the Fund purchases and holds
through its agent are U.S. Government securities, the values of which are
equal to or greater than the repurchase price agreed to be paid by the seller.
The repurchase price may be higher than the purchase price, the difference
being income to the Fund, or the purchase and repurchase prices may be the
same, with interest at a standard rate due to the Fund together with the
repurchase price on repurchase. In either case, the income to the Fund is
unrelated to the interest rate on the U.S. Government securities.
The repurchase agreement provides that in the event the seller fails to pay
the price agreed upon on the agreed upon delivery date or upon demand, as the
case may be, the Fund will have the right to liquidate the securities. If at
the time the Fund is contractually entitled to exercise its right to liquidate
the securities, the seller is subject to a proceeding under the bankruptcy
laws or its assets are otherwise subject to a stay order, the Fund's exercise
of its right to liquidate the securities may be delayed and result in certain
losses and costs to the Fund. The Fund has adopted and follows procedures
which are intended to minimize the risks of repurchase agreements. For
example, the Fund only enters into repurchase agreements after the Adviser has
determined that the seller is creditworthy, and the Adviser monitors that
seller's creditworthiness on an ongoing basis. Moreover, under such
agreements, the value of the securities (which are marked to market every
business day) is required to be greater than the repurchase price, and the
Fund has the right to make margin calls at any time if the value of the
securities falls below the agreed upon margin.
"WHEN-ISSUED" SECURITIES: When the Fund commits to purchase a security on a
"when-issued" or "forward delivery" basis, it will set up procedures
consistent with policies promulgated by the Securities and Exchange Commission
(the "SEC") concerning such purchases. Since that policy currently recommends
that an amount of the Fund's assets equal to the amount of the purchase be
held aside or segregated to be used to pay for the commitment, the Fund will
always have cash, short-term money market instruments or high quality debt
securities sufficient to cover any commitments or to limit any potential risk.
However, although the Fund does not intend to make such purchases for
speculative purposes and intends to adhere to policies promulgated by the SEC,
purchases of securities on such bases may involve more risk than other types
of purchases. For example, the Fund may have to sell assets which have been
set aside in order to meet redemptions. Also, if the Fund determines it
necessary to sell the "when-issued" or "forward delivery" securities before
delivery, it may incur a loss because of market fluctuations since the time
the commitment to purchase such securities was made.
FOREIGN SECURITIES: The Fund may invest up to 50% (and expects generally to
invest between 0% and 50%) of its total assets in foreign securities (not
including American Depositary Receipts). As discussed in the Prospectus,
investing in foreign securities generally represent a greater degree of risk
than investing in domestic securities, due to possible exchange rate
fluctuations, less publicly available information, more volatile markets, less
securities regulation, less favorable tax provisions, war or expropriation. As
a result of its investments in foreign securities, the Fund may receive
interest or dividend payments, or the proceeds of the sale or redemption of
such securities, in the foreign currencies in which such securities are
denominated. Under certain circumstances, such as where the Adviser believes
that the applicable exchange rate is unfavorable at the time the currencies
are received or the Adviser anticipates, for any other reason, that the
exchange rate will improve, the Fund may hold such currencies for an
indefinite period of time. While the holding of currencies will permit the
Fund to take advantage of favorable movements in the applicable exchange rate,
such strategy also exposes the Fund to risk of loss if exchange rates move in
a direction adverse to the Fund's position. Such losses could reduce any
profits or increase any losses sustained by the Fund from the sale or
redemption of securities and could reduce the dollar value of interest or
dividend payments received. The Fund may also hold foreign currency in
anticipation of purchasing foreign securities.
AMERICAN DEPOSITARY RECEIPTS: American Depositary Receipts ("ADRs") are
certificates issued by a U.S. depository (usually a bank) and represent a
specified quantity of shares of an underlying non-U.S. stock on deposit with a
custodian bank as collateral. ADRs may be sponsored or unsponsored. A
sponsored ADR is issued by a depository which has an exclusive relationship
with the issuer of the underlying security. An unsponsored ADR may be issued
by any number of U.S. depositories. Under the terms of most sponsored
arrangements, depositories agree to distribute notices of shareholder meetings
and voting instructions, and to provide shareholder communications and other
information to the ADR holders at the request of the issuer of the deposited
securities. The depository of an unsponsored ADR, on the other hand, is under
no obligation to distribute shareholder communications received from the
issuer of the deposited securities or to pass through voting rights to ADR
holders in respect of the deposited securities. The Fund may invest in either
type of ADR. Although the U.S. investor holds a substitute receipt of
ownership rather than direct stock certificates, the use of the depository
receipts in the United States can reduce costs and delays as well as potential
currency exchange and other difficulties. The Fund may purchase securities in
local markets and direct delivery of these ordinary shares to the local
depository of an ADR agent bank in the foreign country. Simultaneously, the
ADR agents create a certificate which settles at the Fund's custodian in five
days. The Fund may also execute trades on the U.S. markets using existing
ADRs. A foreign issuer of the security underlying an ADR is generally not
subject to the same reporting requirements in the United States as a domestic
issuer. Accordingly, the information available to a U.S. investor will be
limited to the information the foreign issuer is required to disclose in its
own country and the market value of an ADR may not reflect undisclosed
material information concerning the issuer of the underlying security. ADRs
may also be subject to exchange rate risks if the underlying foreign
securities are denominated in foreign currency.
RISKS OF INVESTING IN LOWER-RATED FIXED INCOME SECURITIES: As noted in the
Prospectus, the Fund may invest in fixed income securities rated Baa by
Moody's Investors Service, Inc. ("Moody's") or BBB by Standard & Poor's
Ratings Service ("S&P") or Fitch Investors Service, Inc. ("Fitch") and
comparable unrated securities. These securities, while normally exhibiting
adequate protection parameters, may have speculative characteristics and
changes in economic conditions or other circumstances are more likely to lead
to a weakened capacity to make principal and interest payments than in the
case of higher grade fixed income securities.
The Fund may also invest in securities rated Ba or lower by Moody's or BB or
lower by S&P or Fitch and comparable unrated securities (commonly known as
"junk bonds"). While no minimum rating standard is required by the Fund, it is
contemplated that the Fund's non-convertible long-term debt investments will
consist primarily of "investment grade" securities rated at least Baa by
Moody's or BBB by S&P or Fitch (and comparable unrated securities). Securities
rated BB or lower by S&P or Fitch or Ba or lower by Moody's are considered
speculative and, while generally providing greater income than investments in
higher rated securities, will involve greater risk of principal and income
(including the possibility of default or bankruptcy of the issuers of such
securities) and may involve greater volatility of price (especially during
periods of economic uncertainty or change) than securities in the higher
rating categories and because yields vary over time, no specific level of
income can ever be assured. These lower-rated high yielding fixed income
securities generally tend to reflect economic changes (and the outlook for
economic growth), short-term corporate and industry developments and the
market's perception of their credit quality (especially during times of
adverse publicity) to a greater extent than higher rated securities which
react primarily to fluctuations in the general level of interest rates
(although these lower-rated fixed income securities are also affected by
changes in interest rates). In the past, economic downturns or an increase in
interest rates have, under certain circumstances, caused a higher incidence of
default by the issuers of these securities and may do so in the future,
especially in the case of highly leveraged issuers. The prices for these
securities may be affected by legislative and regulatory developments. For
example, federal rules require that savings and loan associations gradually
reduce their holdings of high-yield securities. An effect of such legislation
may be to depress the prices of outstanding lower-rated high yielding fixed
income securities. The market for these lower-rated fixed income securities
may be less liquid than the market for investment grade fixed income
securities. Furthermore, the liquidity of these lower-rated securities may be
affected by the market's perception of their credit quality. Therefore,
judgment may at times play a greater role in valuing these securities than in
the case of investment grade fixed income securities, and it also may be more
difficult during times of certain adverse market conditions to sell these
lower-rated securities to meet redemption requests or to respond to changes in
the market.
While the Adviser may refer to ratings issued by established credit rating
agencies, it is not the Fund's policy to rely exclusively on ratings issued by
these rating agencies, but rather to supplement such ratings with the
Adviser's own independent and ongoing review of credit quality. To the extent
the Fund invests in these lower-rated securities, the achievement of its
investment objective may be more dependent on the Adviser's own credit
analysis than in the case of a fund investing in higher quality fixed income
securities.
OTHER INVESTMENT POLICIES: The Fund has also adopted the following policies:
The Fund's purchases of warrants will not exceed 5% of its net assets.
Included within that amount, but not exceeding 2% of its net assets, may be
warrants which are not listed on the New York or American Stock Exchange. Any
such warrants will be valued at their market value except that warrants which
are attached to securities at the time such securities are acquired by the
Fund will be deemed to be without value for the purpose of this restriction.
The investment policies described above, as well as the policies described
below regarding options, Futures Contracts, Options on Futures Contracts and
Forward Contracts, are not fundamental and may be changed without shareholder
approval, as may the Fund's investment objective.
INDEXED SECURITIES: The Fund may purchase securities whose prices are indexed
to the prices of other securities, securities indices, currencies, precious
metals or other commodities, or other financial indicators. Indexed securities
typically, but not always, are debt securities or deposits whose value at
maturity (i.e. principal value) or coupon rate is determined by reference to a
specific instrument or statistic. Gold-indexed securities, for example,
typically provide for a maturity value that depends on the price of gold,
resulting in a security whose price tends to rise and fall together with gold
prices. Currency-indexed securities typically are short-term to intermediate-
term debt securities whose maturity values or interest rates are determined by
reference to the values of one or more specified foreign currencies, and may
offer higher yields than U.S. dollar-denominated securities of equivalent
issuers. Currency-indexed securities may be positively or negatively indexed;
that is, their maturity value may increase when the specified currency value
increases, resulting in a security that performs similarly to a foreign-
denominated instrument, or their maturity value may decline when foreign
currencies increase, resulting in a security whose price characteristics are
similar to a put on the underlying currency. Currency-indexed securities may
also have prices that depend on the values of a number of different foreign
currencies relative to each other.
The performance of indexed securities depends to a great extent on the
performance of the security, currency, or other instrument to which they are
indexed, and may also be influenced by interest rate changes in the U.S. and
abroad. At the same time, indexed securities are subject to the credit risks
associated with the issuer of the security, and their values may decline
substantially if the issuer's creditworthiness deteriorates. Recent issuers of
indexed securities have included banks, corporations, and certain U.S.
government agencies.
OPTIONS ON SECURITIES: The Fund may write (sell) covered call and put options
on securities and purchase call and put options on securities. The Fund may
write options on securities for the purpose of increasing its return on such
securities and for hedging purposes. A call option written by the Fund would
be covered if the Fund owned the security underlying the call or had an
absolute and immediate right to acquire that security without additional cash
consideration (or for additional cash consideration held in a segregated
account by its custodian) upon conversion or exchange of other securities held
in its portfolio. A call option would also be covered if the Fund held a call
on the same security and in the same principal amount as the call written
where the exercise price of the call held (a) is equal to or less than the
exercise price of the call written or (b) is greater than the exercise price
of the call written if the difference is maintained by the Fund in cash,
short-term money market instruments or high grade fixed income securities in a
segregated account with its custodian. A put option written by the Fund would
be "covered" if the Fund maintained cash, short-term money market instruments
or high grade government securities with a value equal to the exercise price
in a segregated account with its custodian, or else held a put on the same
security and in the same principal amount as the put written where the
exercise price of the put held is equal to or greater than the exercise price
of the put written. Put and call options on securities written by the Fund may
also be covered in such other manner as may be in accordance with the
requirements of the exchange on which, or the counterparty with which, they
are traded and applicable laws and regulations.
Effecting a closing transaction in the case of a written call option will
permit the Fund to write another call option on the underlying security with
either a different exercise price or expiration date or both, or in the case
of a written put option will permit the Fund to write another put option to
the extent that the exercise price thereof is secured by deposited cash or
short-term securities. Such transactions permit the Fund to generate
additional premium income, which will partially offset declines in the value
of portfolio securities or increases in the cost of securities to be acquired.
Also, effecting a closing transaction will permit the cash or proceeds from
the concurrent sale of any securities subject to the option to be used for
other investments of the Fund, provided that another option on such security
is not written. If the Fund desires to sell a particular security from its
portfolio on which it has written a call option, it will effect a closing
transaction in connection with the option prior to or concurrent with the sale
of the security.
The Fund will realize a profit from a closing transaction if the premium paid
in connection with the closing of an option written by the Fund is less than
the premium received from writing the option, or if the premium received in
connection with the closing of an option purchased by the Fund is more than
the premium paid for the original purchase. Conversely, the Fund will suffer a
loss if the premium paid or received in connection with a closing transaction
is more or less, respectively, than the premium received or paid in
establishing the option position. Because increases in the market price of a
call option will generally reflect increases in the market price of the
underlying security, any loss resulting from the closing out of a call option
previously written by the Fund is likely to be offset in whole or in part by
appreciation of the underlying security owned by the Fund.
The Fund may write options in connection with buy-and-write transactions; that
is, the Fund may purchase a security and then write a call option against that
security. The exercise price of the call option the Fund determines to write
will depend upon the expected price movement of the underlying security. The
exercise price of a call option may be below ("in-the-money"), equal to ("at-
the-money") or above ("out-of-the-money") the current value of the underlying
security at the time the option is written. If the call options are exercised
in such transactions, the Fund's maximum gain will be the premium received by
it for writing the option, adjusted upwards or downwards by the difference
between the Fund's purchase price of the security and the exercise price. If
the options are not exercised and the price of the underlying security
declines, the amount of such decline will be offset in part, or entirely, by
the premium received.
The writing of covered put options is similar in terms of risk/return
characteristics to buy-and-write transactions. Put options could be used by
the Fund in the same market environments that call options would be used in
equivalent buy-and-write transactions.
The Fund may write combinations of put and call options on the same security,
a practice known as a "straddle." By writing a straddle, the Fund undertakes a
simultaneous obligation to sell and purchase the same security in the event
that one of the options is exercised. If the price of the security
subsequently rises sufficiently above the exercise price to cover the amount
of the premium and transaction costs, the call will likely be exercised and
the Fund will be required to sell the underlying security at a below market
price. This loss may be offset, however, in whole or in part, by the premiums
received on the writing of the two options. Conversely, if the price of the
security declines by a sufficient amount, the put will likely be exercised.
The writing of straddles will likely be effective, therefore, only where the
price of a security remains stable and neither the call nor the put is
exercised. In an instance where one of the options is exercised, the loss on
the purchase or sale of the underlying security may exceed the amount of the
premiums received.
By writing a call option, the Fund limits its opportunity to profit from any
increase in the market value of the underlying security above the exercise
price of the option. By writing a put option, the Fund assumes the risk that
it may be required to purchase the underlying security for an exercise price
above its then-current market value, resulting in a loss unless the security
subsequently appreciated in value. The writing of options on securities will
be undertaken by the Fund for purposes in addition to hedging, and could
involve certain risks which are not present in the case of hedging
transactions. Moreover, even where options are written for hedging purposes,
such transactions will constitute only a partial hedge against declines in the
value of portfolio securities or against increases in the value of securities
to be acquired, up to the amount of the premium.
The Fund also may purchase put and call options on securities. Put options
would be purchased to hedge against a decline in the value of securities held
in the Fund's portfolio. If such a decline occurs, the put options will permit
the Fund to sell the underlying securities at the exercise price, or to close
out the options at a profit. By using put options in this way, the Fund will
reduce any profit it might otherwise have realized in the underlying security
by the amount of the premium paid for the put option and related transaction
costs. The Fund may purchase call options to hedge against an increase in the
price of securities that the Fund anticipates purchasing in the future. If
such an increase occurs, the call option will permit the Fund to purchase the
securities at the exercise price or to close out the option at a profit. The
premium paid for a call or put option plus any transaction costs will reduce
the benefit, if any, realized by the Fund upon exercise of the option, and,
unless the price of the underlying security rose or declined sufficiently, the
option may expire worthless to the Fund.
OPTIONS ON STOCK INDICES: The Fund may write (sell) covered call and put
options on stock indices and purchase call and put options on stock indices
for the purpose of increasing its gross income and to protect its portfolio
against declines in the value of securities it owns or increases in the value
of securities to be acquired.
The Fund may cover call options on stock indices by owning securities whose
price changes, in the opinion of the Adviser, are expected to be similar to
those of the index, or by having an absolute and immediate right to acquire
such securities without additional cash consideration (or for additional cash
consideration held in a segregated account by its custodian) upon conversion
or exchange of other securities in its portfolio. Where the Fund covers a call
option on a stock index through ownership of securities, such securities may
not match the composition of the index and, in that event, the Fund will not
be fully covered and could be subject to risk of loss in the event of adverse
changes in the value of the index. The Fund may also cover call options on
stock indices by holding a call on the same index and in the same principal
amount as the call written where the exercise price of the call held (a) is
equal to or less than the exercise price of the call written or (b) is greater
than the exercise price of the call written if the difference is maintained by
the Fund in cash, short-term money market instruments or high grade fixed
income securities in a segregated account with its custodian. The Fund may
cover put options on stock indices by maintaining cash, short-term money
market instruments or high grade fixed income securities with a value equal to
the exercise price in a segregated account with its custodian, or else by
holding a put on the same index and in the same principal amount as the put
written where the exercise price of the put held is equal to or greater than
the exercise price of the put written. Put and call options on stock indices
written by the Fund may also be covered in such other manner as may be in
accordance with the requirements of the exchange on which, or the counterparty
with which, they are traded and applicable laws and regulations.
The Fund will receive a premium from writing a put or call option, which
increases the Fund's gross income in the event the option expires unexercised
or is closed out at a profit. If the value of an index on which the Fund has
written a call option falls or remains the same, the Fund will realize a
profit in the form of the premium received (less transaction costs) that could
offset all or a portion of any decline in the value of the securities it owns.
If the value of the index rises, however, the Fund will realize a loss in its
call option position, which will reduce the benefit of any unrealized
appreciation in the Fund's stock investments. By writing a put option, the
Fund assumes the risk of a decline in the index. To the extent that the price
changes of securities owned by the Fund correlate with changes in the value of
the index, writing covered put options on indices will increase the Fund's
losses in the event of a market decline, although such losses will be offset
in part by the premium received for writing the option.
The purchase of call options on stock indexes may be used by the Fund to
attempt to reduce the risk of missing a broad market advance, or an advance in
an industry or market segment, at a time when the Fund holds uninvested cash
or short-term debt securities awaiting investment. When purchasing call
options for this purpose, the Fund will also bear the risk of losing all or a
portion of the premium paid, and related transaction costs, if the value of
the index does not rise. The purchase of call options on stock indices when
the Fund is substantially fully invested is a form of leverage, up to the
amount of the premium and related transaction costs, and involves risks of
loss and of increased volatility similar to those involved in purchasing calls
on securities the Fund owns.
The Fund also may purchase put options on stock indices to hedge its
investments against a decline in value. By purchasing a put option on a stock
index, the Fund will seek to offset a decline in the value of securities it
owns through appreciation of the put option. If the value of the Fund's
investments does not decline as anticipated, or if the value of the option
does not increase, the Fund's loss will be limited to the premium paid for the
option, plus related transaction costs. The success of this strategy will
largely depend on the accuracy of the correlation between the changes in value
of the index and the changes in value of the Fund's security holdings.
FUTURES CONTRACTS: The Fund may enter into stock index or interest rate
futures contracts ("Futures Contracts") in order to attempt to protect the
Fund's current or intended stock investments from broad fluctuations in stock
prices. For example, the Fund may sell Futures Contracts in anticipation of or
during a decline in market prices or a rise in interest rates to attempt to
offset the decrease in market value of the Fund's securities portfolio that
might otherwise result. If such market decline or interest rate increase
occurs, the loss in value of portfolio securities may be offset, in whole or
in part, by gains on the futures position. When the Fund is not fully invested
in the securities market and anticipates a significant market advance or
decrease in interest rates, it may purchase Futures Contracts in order to gain
rapid market exposure that may, in part or in whole, offset increases in the
cost of securities that the Fund intends to purchase. As such acquisitions are
made, the corresponding positions in Futures Contracts will be closed out. In
a substantial majority of these transactions, the Fund will purchase such
securities upon the termination of the futures position, but under unusual
market conditions, a long futures position may be terminated without a related
purchase of securities. The Fund may also enter into Futures Contracts for
non-hedging purposes, to the extent permitted by applicable law.
OPTIONS ON FUTURES CONTRACTS: The Fund may write or purchase options to buy or
sell Futures Contracts ("Options on Futures Contracts"). The writing of a call
Option on a Futures Contract may constitute a partial hedge against declining
prices of the security, or the securities comprising the index, underlying the
Futures Contract. If the futures price at expiration of the option is below
the exercise price, the Fund will retain the full amount of the option
premium, less related transaction costs, which provides a partial hedge
against any decline that may have occurred in the Fund's portfolio holdings.
The writing of a put Option on a Futures Contract may constitute a partial
hedge against increasing prices of the security, or the securities comprising
the index, underlying the Futures Contract. If the futures price at expiration
of the option is higher than the exercise price, the Fund will retain the full
amount of the option premium, less related transaction costs, which provides a
partial hedge against any increase in the price of securities which the Fund
intends to purchase. If a put or call option the Fund has written is
exercised, the Fund will incur a loss which will be reduced by the amount of
the premium it receives. Depending on the degree of correlation between
changes in the value of its portfolio securities and changes in the value of
its futures positions, the Fund's losses from existing Options on Futures
Contracts may to some extent be reduced or increased by changes in the value
of portfolio securities.
The Fund may cover the writing of call Options on Futures Contracts (a)
through purchases of the underlying Futures Contract, (b) through ownership of
the security, or securities included in the index, underlying the Futures
Contract or (c) through the holding of a call on the same Futures Contract and
in the same principal amount as the call written where the exercise price of
the call held (i) is equal to or less than the exercise price of the call
written or (ii) is greater than the exercise price of the call written if the
difference is maintained by the Fund in cash, short-term money market
instruments or high grade fixed income securities in a segregated account with
its custodian. The Fund may cover the writing of put Options on Futures
Contracts (a) through sales of the underlying Futures Contract, (b) through
segregation of cash, short-term money market instruments or high grade fixed
income securities in an amount equal to the value of the security or index
underlying the Futures Contract or (c) through the holding of a put on the
same Futures Contract and in the same principal amount as the put written
where the exercise price of the put held is equal to or greater than the
exercise price of the put written. Put and call Options on Futures Contracts
written by the Fund may also be covered in such other manner as may be in
accordance with the requirements of the exchange on which they are traded and
applicable laws and regulations. Upon the exercise of a call Option on a
Futures Contract written by the Fund, the Fund will be required to sell the
underlying Futures Contract which, if the Fund has covered its obligation
through the purchase of such Contract, will serve to liquidate its futures
position. Similarly, where a put Option on a Futures Contract written by the
Fund is exercised, the Fund will be required to purchase the underlying
Futures Contract which, if the Fund has covered its obligation through the
sale of such Contract, will close out its futures position.
The Fund may purchase Options on Futures Contracts in part for hedging
purposes as an alternative to purchasing or selling the underlying Futures
Contracts. For example, where a decrease in the value of portfolio securities
is anticipated as a result of a projected market-wide decline or increase in
interest rates, the Fund could, in lieu of selling Futures Contracts, purchase
put options thereon. In the event that such decrease occurs, it may be offset,
in whole or part, by a profit on the option. Conversely, where it is projected
that the value of securities to be acquired by the Fund will increase prior to
acquisition, due to a market advance or decrease in interest rates, the Fund
could purchase call Options on Futures Contracts, rather than purchasing the
underlying Futures Contracts. The Fund may also enter into transactions in
Options on Futures Contracts for non-hedging purposes subject to applicable
law.
FORWARD CONTRACTS: The Fund may enter into contracts for the purchase or sale
of a specific currency at a future date at a price set at the time the
contract is entered into (a "Forward Contract"), for hedging purposes as well
as for non-hedging purpose. The Fund may also enter into Forward Contracts for
"cross-hedging" purposes as noted in the Prospectus. The Fund will enter into
Forward Contracts for the purpose of protecting its current or intended
investments from fluctuations in currency exchange rates.
A Forward Contract to sell a currency may be entered into where the Fund seeks
to protect against an anticipated increase in the exchange rate for a specific
currency which could reduce the dollar value of portfolio securities
denominated in such currency. Conversely, the Fund may enter into a Forward
Contract to purchase a given currency to protect against a projected increase
in the dollar value of securities denominated in such currency which the Fund
intends to acquire.
If a hedging transaction in Forward Contracts is successful, the decline in
the value of portfolio securities or the increase in the cost of securities to
be acquired may be offset, at least in part, by profits on the Forward
Contract. Nevertheless, by entering into such Forward Contracts, the Fund may
be required to forego all or a portion of the benefits which otherwise could
have been obtained from favorable movements in exchange rates. The Fund does
not presently intend to hold Forward Contracts entered into until maturity,
at which time it would be required to deliver or accept delivery of the
underlying currency, but will seek in most instances to close out positions
in such Contracts by entering into offsetting transactions, which will serve
to fix the Fund's profit or loss based upon the value of the Contracts at the
time the offsetting transaction is executed.
The Fund has established procedures consistent with statements by the SEC and
its staff regarding the use of Forward Contracts by registered investment
companies, which require the use of segregated assets or "cover" in connection
with the purchase and sale of such Contracts. In those instances in which the
Fund satisfies this requirement through segregation of assets, it will
maintain, in a segregated account, cash, cash equivalents or high grade debt
securities, which will be marked to market on a daily basis, in an amount
equal to the value of its commitments under Forward Contracts.
RISK FACTORS: IMPERFECT CORRELATION OF HEDGING INSTRUMENTS WITH THE FUND'S
PORTFOLIO -- The Fund's ability effectively to hedge all or a portion of its
portfolio through transactions in options, Futures Contracts and Forward
Contracts will depend on the degree to which price movements in the underlying
index or instrument correlate with price movements in the relevant portion of
the Fund's portfolio. Because the securities in the Fund's portfolio will most
likely not be the same as those securities comprising a stock index or
underlying interest rate Futures Contracts, the correlation between movements
in the portfolio and in the securities underlying the index or Futures
Contract will not be perfect. The trading of Futures Contracts and options
entails the additional risk of imperfect correlation between movements in the
futures or option price and the price of the underlying index or obligation.
The anticipated spread between the prices may be distorted due to the
differences in the nature of the markets, such as differences in margin
requirements, the liquidity of such markets and the participation of
speculators in such markets. In this regard, trading by speculators in options
and Futures Contracts has in the past occasionally resulted in market
distortions, which may be difficult or impossible to predict, particularly
near the expiration of such contracts. It should be noted that Futures
Contracts or options based upon a narrower index of securities, such as those
of a particular industry group, may present greater risk than options or
Futures Contracts based on a broad market index, because a narrower index is
more susceptible to rapid and extreme fluctuations as a result of changes in
the value of a small number of securities. The trading of Options on Futures
Contracts also entails the risk that changes in the value of the underlying
Futures Contracts will not be fully reflected in the value of the option.
Further, with respect to options on securities, options on stock indices and
Options on Futures Contracts, the Fund is subject to the risk of market
movements between the time that the option is exercised and the time of
performance thereunder. In writing a covered call option on a security, index
or Futures Contract, the Fund also incurs the risk that changes in the value
of the instruments used to cover the position will not correlate closely with
changes in the value of the option or underlying index or instrument.
The Fund will invest in a hedging instrument only if, in the judgment of its
Adviser, there would be expected to be a sufficient degree of correlation
between movements in the value of the instrument and movements in the value of
the relevant portion of the Fund's portfolio for such hedge to be effective.
There can be no assurance that the Adviser's judgment will be accurate.
It should also be noted that the Fund may purchase and sell options on
securities and stock indices, Futures Contracts, Options on Futures Contracts
and Forward Contracts not only for hedging purposes, but also for non-hedging
purposes, to the extent permitted by applicable law, for the purpose of
increasing its return on portfolio securities. As a result, in the event of
adverse market movements, the Fund might be subject to losses which would not
be offset by increases in the value of portfolio securities or declines in the
cost of securities to be acquired. In addition, the method of covering an
option employed by the Fund may not fully protect it against risk of loss and,
in any event, the Fund could suffer losses on the option position which might
not be offset by corresponding portfolio gains.
With respect to the writing of straddles on securities, the Fund would incur
the risk that the price of the underlying security will not remain stable,
that one of the options written will be exercised and that the resulting loss
will not be offset by the amount of the premiums received.
POTENTIAL LACK OF A LIQUID SECONDARY MARKET -- Prior to exercise or
expiration, a futures or option position can only be terminated by entering
into a closing purchase or sale transaction. This requires a secondary market
for such instruments on the exchange on which the initial transaction was
entered into. While the Fund will enter into options or futures positions only
if there appears to be a liquid secondary market therefor, there can be no
assurance that such a market will exist for any particular contracts at any
specific time. In that event, it may not be possible to close out a position
held by the Fund and the Fund could be required to purchase or sell the
instrument underlying an option, make or receive a cash settlement or meet
ongoing variation margin requirements. Under such circumstances, if the Fund
had insufficient cash available to meet margin requirements, it might be
necessary to liquidate portfolio securities at a time when it would be
disadvantageous to do so. The inability to close out options and futures
positions, therefore, could have an adverse impact on the Fund's ability to
hedge its portfolios effectively and could result in trading losses. The
liquidity of a secondary market in a Futures Contract or options thereon may
also be adversely affected by "daily price fluctuation limits," established by
exchanges, which limit the amount of fluctuation in the price of a contract
during a single trading day. The trading of Futures Contracts and options is
also subject to the risk of trading halts, suspensions, exchange or clearing
house equipment failures, government intervention, insolvency of a brokerage
firm or clearing house or other disruptions of normal trading activity, which
could at times make it difficult or impossible to liquidate existing positions
or to recover excess variation margin payments.
MARGIN -- Because of low initial margin deposits made upon the opening of a
futures position and the writing of an option, such transactions involve
substantial leverage. As a result, relatively small movements in the price of
the contract can result in substantial unrealized gains or losses. Where the
Fund engages in the purchase or sale of options, Futures Contracts, Options on
Futures Contracts and Forward Contracts for hedging purposes, however, and any
losses incurred in connection therewith should, if the hedging strategy is
successful, be offset, in whole or in part, by increases in the value of
securities held by the Fund or decreases in the prices of securities the Fund
intends to acquire. Where the Fund purchases such investments for other than
hedging purposes, the margin requirements associated with such transactions
could expose the Fund to greater risk.
TRADING AND POSITION LIMITS -- The exchanges on which Futures Contracts and
options are traded may impose limitations governing the maximum number of
positions on the same side of the market and involving the same underlying
instrument which may be held by a single investor, whether acting alone or in
concert with others (regardless of whether such contracts are held on the same
or different exchanges or held or written in one or more accounts or through
one or more brokers). In addition, the Commodity Futures Trading Commission
(the "CFTC") and the various contract markets have established limits,
referred to as "speculative position limits," on the maximum net long or net
short position which any person may hold or control in a particular futures or
option contract. An exchange may order the liquidation of positions found to
be in violation of these limits and it may impose other sanctions or
restrictions. The Adviser does not believe that these trading and position
limits will have any adverse impact on the strategies for hedging the
portfolio of the Fund.
RISK OF OPTIONS ON FUTURES CONTRACTS -- The amount of risk the Fund assumes
when it purchases an Option on a Futures Contract is the premium paid for the
option, plus related transaction costs. In order to profit from an option
purchased, however, it may be necessary to exercise the option and to
liquidate the underlying Futures Contract, subject to the risks of the
availability of a liquid offset market described herein. The writer of an
Option on a Futures Contract is subject to the risks of commodity futures
trading, including the requirement of initial and variation margin payments,
as well as the additional risk that movements in the price of the option may
not correlate with movements in the price of the underlying index or Futures
Contract.
ADDITIONAL RISKS OF TRANSACTIONS NOT CONDUCTED ON EXCHANGES -- Transactions in
Forward Contracts are subject to all of the correlation, liquidity and other
risks outlined above. In addition, however, such transactions are subject to
the risk of governmental actions affecting trading in, or the prices of,
currencies underlying such Contracts, which could restrict or eliminate
trading and could have a substantial adverse effect on the value of positions
held by the Fund. In addition, the value of such positions could be adversely
affected by a number of other complex political and economic factors
applicable to the countries issuing the underlying currencies. Further, unlike
trading in most other types of instruments, there is no systematic reporting
of last sale information with respect to the foreign currencies underlying
contracts thereon. As a result, the available information on which trading
systems will be based may not be as complete as the comparable data on which
the Fund makes investment and trading decisions in connection with other
transactions. Moreover, because the foreign currency market is a global, 24-
hour market, events could occur on that market which would not be reflected in
the forward markets until the following day, thereby preventing the Fund from
responding to such events in a timely manner. Settlements of exercises of
Forward Contracts generally must occur within the country issuing the
underlying currency, which in turn requires traders to accept or make delivery
of such currencies in conformity with any United States or foreign
restrictions and regulations regarding the maintenance of foreign banking
relationships, fees, taxes or other charges.
Forward Contracts and over-the-counter options on securities are not traded on
exchanges regulated by the CFTC or the SEC, but through financial institutions
acting as market-makers. In an over-the-counter trading environment, many of
the protections afforded to exchange participants will not be available. In
addition, over-the-counter transactions can only be entered into with a
financial institution willing to take the opposite side, as principal, of the
Fund's position unless the institution acts as broker and is able to find
another counterparty willing to enter into the transaction with the Fund.
Where no such counterparty is available, it will not be possible to enter into
a desired transaction. There also may be no liquid secondary market in the
trading of over-the-counter contracts, and the Fund could be required to
retain options purchased or written, or Forward Contracts entered into, until
exercise, expiration or maturity. This in turn could limit the Fund's ability
to profit from open positions or to reduce losses experienced, and could
result in greater losses. Further, over-the-counter transactions are not
subject to the performance guarantee of an exchange clearing house, and the
Fund will therefore be subject to the risk of default by, or the bankruptcy
of, the financial institution serving as its counterparty. In addition, where
the Fund enters into Forward Contracts as a "cross-hedge" (i.e., the purchase
or sale of a Forward Contract on one currency to hedge against risk of loss
arising from changes in value of a second currency), the Fund incurs the risk
of imperfect correlation between changes in the values of the two currencies,
which could result in losses.
While Forward Contracts are not presently subject to regulation by the CFTC,
the CFTC may in the future assert or be granted authority to regulate such
instruments. In such event, the Fund's ability to utilize Forward Contracts in
the manner set forth above could be restricted.
FURTHER POLICIES ON THE USE OF OPTIONS AND FUTURES -- In order to assure that
the Fund will not be deemed to be a "commodity pool" for purposes of the
Commodity Exchange Act, regulations of the CFTC require that the Fund enter
into transactions in Futures Contracts and options on Futures Contracts only
(i) for bona fide hedging purposes (as defined in CFTC regulations), or (ii)
for non-hedging purposes, provided that the aggregate initial margin and
premiums on such non-hedging positions does not exceed 5% of the liquidation
value of the Fund's assets. In addition, the Fund must comply with the
requirements of various state securities laws in connection with such
transactions.
The Fund has adopted the additional policy that it will not enter into a
Futures Contract if, immediately thereafter, the value of securities and other
obligations underlying all such Futures Contracts would exceed 50% of the
value of the Fund's total assets. Moreover, the Fund will not purchase put and
call options if, as a result, more than 5% of its total assets would be
invested in such options.
When the Fund purchases a Futures Contract, an amount of cash and cash
equivalents will be deposited in a segregated account with the Fund's
custodian so that the amount so segregated will at all times equal the value
of the Futures Contract, thereby assuring that the leveraging effect of such
Futures Contract is minimized.
INVESTMENT RESTRICTIONS. The Fund has adopted the following restrictions which
cannot be changed without the approval of the holders of a majority of its
Fund's shares (which, as used in this SAI, means the lesser of (i) more than
50% of the outstanding shares of the Fund (or a class, as applicable) or (ii)
67% or more of the outstanding shares of the Fund (or a class, as applicable),
present at a meeting at which holders of more than 50% of the outstanding
shares of the Fund (or a class, as applicable) are represented in person or by
proxy):
The Fund may not:
(1) borrow money in an amount in excess of 5% of its gross assets, and
then only as a temporary measure for extraordinary or emergency purposes, or
pledge, mortgage or hypothecate an amount of its assets (taken at market
value) in excess of 15% of its gross assets, in each case taken at the lower
of cost or market value (for the purpose of this restriction, collateral
arrangements with respect to options, Futures Contracts, Options on Futures
Contracts and Forward Contracts and payments of initial and variation margin
in connection therewith are not considered a pledge of assets);
(2) underwrite securities issued by other persons except insofar as the
Fund may technically be deemed an underwriter under the Securities Act of
1933 in selling a portfolio security;
(3) concentrate its investments in any particular industry, but if it is
deemed appropriate for the attainment of its investment objective, the Fund
may invest up to 25% of its assets (taken at market value at the time of
each investment) in securities of issuers in any one industry;
(4) purchase or sell real estate (including limited partnership interests
but excluding securities of companies, such as real estate investment
trusts, which deal in real estate or interests therein), or mineral leases,
commodities or commodity contracts (except for Futures Contracts, Options on
Futures Contracts and Forward Contracts) in the ordinary course of its
business. The Fund reserves the freedom of action to hold and to sell real
estate or mineral leases, commodities or commodity contracts acquired as a
result of the ownership of securities. The Fund will not purchase securities
for the purpose of acquiring real estate or mineral leases, commodities or
commodity contracts (except for Futures Contracts, Options on Futures
Contracts and Forward Contracts);
(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) purchase the securities of any issuer if such purchase, at the time
thereof, would cause more than 5% of its total assets (taken at market
value) to be invested in the securities of such issuer, other than U.S.
Government securities;
(7) purchase voting securities of any issuer if such purchase, at the time
thereof, would cause more than 10% of the outstanding voting securities of
such issuer to be held by the Fund; or purchase securities of any issuer if
such purchase at the time thereof would cause more than 10% of any class of
securities of such issuer to be held by the Fund. For this purpose all
indebtedness of an issuer shall be deemed a single class and all preferred
stock of an issuer shall be deemed a single class;
(8) invest for the purpose of exercising control or management;
(9) purchase securities issued by any other registered investment company
or registered investment trust except by purchase in the open market where
no commission or profit to a sponsor or dealer results from such purchase
other than the customary broker's commission, or except when such purchase,
though not made in the open market, is part of a plan of merger or
consolidation; provided, however, that the Fund shall not purchase the
securities of any investment company or investment trust if such purchase at
the time thereof would cause more than 10% of its total assets (taken at
market value) to be invested in the securities of such issuers; and,
provided further, that the Fund shall not purchase securities issued by any
open-end investment company;
(10) invest more than 5% of its assets in companies which, including
predecessors, have a record of less than three years' continuous operation;
(11) purchase or retain in its portfolio any securities issued by an
issuer any of whose officers, directors, trustees or security holders is an
officer or Trustee of the Fund, or is 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;
(12) purchase any securities or evidences of interest therein on margin,
except that the Fund may obtain such short-term credit as may be necessary
for the clearance of purchases and sales of securities and except that the
Fund may make deposits on margin in connection with options, Futures
Contracts, Options on Futures Contracts and Forward Contracts;
(13) sell any security which the Fund does not own unless by virtue of its
ownership of other securities the Fund has at the time of sale a right to
obtain securities without payment of further consideration equivalent in
kind and amount to the securities sold and provided that if such right is
conditional the sale is made upon the same conditions;
(14) 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 warrants where the grantor of the warrants is the issuer of the
underlying securities or the writing, purchasing and selling of puts, calls
or combinations thereof with respect to securities, indexes of securities
and Futures Contracts; or
(15) invest in securities which are subject to legal or contractual
restrictions on resale, or for which there is no readily available market
(e.g., trading in the security is suspended or, in the case of unlisted
securities, market makers do not exist or will not entertain bids or
offers), unless the Board of Trustees has determined that such securities
are liquid based upon trading markets for the specific security, if more
than 10% of the Fund's assets (taken at market value) would be invested in
such securities.
These investment restrictions are adhered to at the time of purchase or
utilization of assets; a subsequent change in circumstances will not be
considered to result in a violation of policy.
4. MANAGEMENT OF THE FUND
The Board of Trustees of the Fund provides broad supervision over the affairs
of the Fund. The Adviser is responsible for the management of the Fund's
assets, and the officers of the Fund are responsible for its operations. The
Trustees and officers are listed below, together with their principal
occupations during the past five years. (Their titles may have varied during
that period.)
TRUSTEES
A. KEITH BRODKIN,* Chairman and President
Massachusetts Financial Services Company, Chairman and Director
RICHARD B. BAILEY*
Private investor; Massachusetts Financial Services Company, former Chairman
and Director (prior to September 1991); Cambridge Bancorp, Director;
Cambridge Trust Company, Director.
PETER J. HARWOOD
Private Investor
Address: 211 Lindsay Pond Road, Concord, Massachusetts
J. ATWOOD IVES
Eastern Enterprises (diversified holding company), Chairman and Chief
Executive Officer (since December 1991); General Cinema Corporation, Vice
Chairman and Chief Financial Officer (prior to December 1991); The Neiman
Marcus Group, Inc., Vice Chairman and Chief Financial Officer (prior to
February, 1992)
Address: 9 Riverside Road, Weston, Massachusetts
LAWRENCE T. PERERA
Hemenway & Barnes (attorneys), Partner
Address: 60 State Street, Boston, Massachusetts
WILLIAM J. POORVU
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
Private investor; OHM Corporation, Director; The Boston Company, Director;
Boston Safe Deposit and Trust Company, Director; Mohawk Paper Company,
Director
Address: 30 Colpitts Road, Weston, Massachusetts
ARNOLD D. SCOTT*
Massachusetts Financial Services Company, Senior Executive Vice President,
Secretary and Director
JEFFREY L. SHAMES*
Massachusetts Financial Services Company, President and Director
ELAINE R. SMITH
Independent Consultant; Brigham and Women's Hospital, Executive Vice President
and Chief Operating Officer (from August 1990 to September 1992)
Address: Weston, Massachusetts
DAVID B. STONE
North American Management Corp. (investment adviser), Chairman and Director;
Eastern Enterprises, Director
Address: 10 Post Office Square, Suite 300, Boston, Massachusetts
OFFICERS
A. KEITH BRODKIN,* Chairman and President
Massachusetts Financial Services Company, Chairman President and Director
W. THOMAS LONDON,* Treasurer
Massachusetts Financial Services Company, Senior Vice President
STEPHEN E. CAVAN,* Secretary and Clerk
Massachusetts Financial Services Company, Senior Vice President, General
Counsel and Assistant Secretary
JAMES R. BORDEWICK, JR.,* Assistant Secretary
Massachusetts Financial Services Company, Vice President and Associate General
Counsel
JAMES O. YOST,* Assistant Treasurer
Massachusetts Financial Services Company, Vice President
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*"Interested persons" (as defined in the Investment Company Act of 1940 ("the
1940 Act")) of the Adviser, whose address is 500 Boylston Street, Boston,
Massachusetts 02116.
Each Trustee and officer holds comparable positions with certain MFS
affiliates or with certain other funds of which MFS or a subsidiary of MFS is
the investment adviser or distributor. Mr. Brodkin, the Chairman of MFD,
Messrs. Shames and Scott, Directors of MFD, and Mr. Cavan, the Secretary of
MFD, hold similar positions with certain other MFS affiliates. Mr. Bailey is
a Director of Sun Life Assurance Company of Canada (U.S.) ("Sun Life of Canada
(U.S.)"), the corporate parent of MFS.
The Fund pays the compensation of non-interested Trustees and Mr. Bailey (who
currently receive a fee of $2,500 per year plus $135 per meeting and $100 per
committee meeting attended, together with such Trustees' out-of-pocket
expenses) and has adopted a retirement plan for non-interested Trustees and
Mr. Bailey. Under this plan, a Trustee will retire upon reaching age 73 and if
the Trustee has completed at least five years of service, he would be entitled
to annual payments during his lifetime of up to 50% of such Trustee's average
annual compensation (based on the three years prior to his retirement)
depending on his length of service. A Trustee may also retire prior to age 73
and receive reduced payments if he has completed at least five years of
service. Under the plan, a Trustee (or his beneficiaries) will also receive
benefits for a period of time in the event the Trustee is disabled or dies.
These benefits will also be based on the Trustee's average annual compensation
and length of service. There is no retirement plan provided by the Fund for
Messrs. Brodkin, Scott and Shames. The Fund will accrue compensation expenses
each year to cover current year's service and amortize past service cost.
Set forth in Appendix B hereto is certain information concerning the cash
compensation paid to the Trustees and benefits accrued, and estimated benefits
payable, under the retirement plan.
As of March 31, 1996 all Trustees and officers as a group owned less than 1%
of the outstanding shares of the Fund.
As of March 31, 1996, Nationwide Life Insurance Co., MFS Variable Account, c/o
IPO Co. 51, P.O. Box 182029, Columbus, OH 43218-2029 owned 14.82% of the
outstanding Class A shares of the Fund. As of March 31, 1996, Merrill Lynch,
Pierce, Fenner & Smith Inc., P.O. Box 45286, Jacksonville, Florida owned 8.99%
of the outstanding Class B shares of the Fund.
The Fund's Declaration of Trust provides that it will indemnify its Trustees
and officers against liabilities and expenses incurred in connection with
litigation in which they may be involved because of their offices with the
Fund, unless, as to liabilities to the Fund or its shareholders, it is finally
adjudicated that they engaged in willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in their offices, or
with respect to any matter, unless it is adjudicated that they did not act in
good faith in the reasonable belief that their actions were in the best
interest of the Fund. In the case of settlement, such indemnification will not
be provided unless it has been determined pursuant to the Declaration of Trust
that such officers or Trustees have not engaged in willful misfeasance, bad
faith, gross negligence or reckless disregard of their duties.
INVESTMENT ADVISER
MFS and its predecessor organizations have a history of money management
dating from 1924. MFS is a subsidiary of Sun Life of Canada (U.S.), which in
turn is a wholly owned subsidiary of Sun Life Assurance Company of Canada
("Sun Life").
INVESTMENT ADVISORY AGREEMENT -- The Adviser manages the assets of the Fund
pursuant to an Advisory Agreement, dated July 19, 1985 (the "Advisory
Agreement") between the Adviser and the Fund. The Adviser provides the Fund
with overall investment advisory and administrative services, as well as
general office facilities. Subject to such policies as the Trustees may
determine, the Adviser makes investment decisions for the Fund. For these
services and facilities, the Adviser receives a management fee, computed and
paid monthly, at an annual rate equal to 0.5% of the Fund's average daily net
assets not in excess of $200 million and 0.4% of the Fund's average daily net
assets in excess of $200 million, in each case on an annualized basis.
For the Fund's fiscal year ended December 31, 1993, MFS received fees under
the Advisory Agreement of $2,996,895. For the Fund's fiscal year ended
December 31, 1994, MFS received fees under the Advisory Agreement of
$2,779,813. For the Fund's fiscal year ended December 31, 1995, MFS received
fees under the Advisory Agreement of $2,892,782. In order to comply with the
expense limitations of certain state securities commissions, the Adviser will
reduce its management fee or otherwise reimburse the Fund for any expense,
exclusive of interest, taxes and brokerage commissions, incurred by the Fund
in any fiscal year to the extent such expenses exceed the most restrictive of
such state expense limitations. The Adviser will make appropriate adjustments
to such reimbursements in response to any amendment or recission of the
various state requirements. Any such adjustment would not become effective
until the beginning of the Fund's next fiscal year following the date of such
amendments or the date on which such requirements become no longer applicable.
The Fund pays all of its expenses (other than those assumed by the Adviser or
MFD) including: Trustee fees discussed above, governmental fees; interest
charges; taxes; membership dues in the Investment Company Institute allocable
to the Fund; fees and expenses of independent auditors, of legal counsel, and
of any transfer agent, registrar or dividend disbursing agent of the Fund;
expenses of repurchasing and redeeming shares; expenses of preparing, printing
and mailing share certificates, periodic reports, notices and proxy statements
to shareholders and to governmental officers and commissions; brokerage and
other expenses connected with the execution, recording and settlement of
portfolio security transactions; insurance premiums; fees and expenses of
State Street Bank and Trust Company, the Fund's Custodian, for all services to
the Fund, including safekeeping of funds and securities and maintaining
required books and accounts; expenses of calculating the net asset value of
shares of the Fund; and expenses of shareholder meetings. Expenses relating to
the issuance, registration and qualification of shares of the Fund and the
preparation, printing and mailing of prospectuses for such purposes are borne
by the Fund except that the Fund's Distribution Agreement with MFD requires
MFD to pay for prospectuses that are to be used for sales purposes. For a list
of the Fund's expenses, including the compensation paid to the Trustees who
are not officers of the Adviser, during the Fund's fiscal year ended December
31, 1995, see "Financial Statements -- Statement of Operations" in the Annual
Report. Payment by the Fund of brokerage commissions for brokerage and
research services of value to the Adviser in serving its clients is discussed
under the caption "Portfolio Transactions and Brokerage Commissions."
MFS pays the compensation of the Fund's officers and of any Trustee who is an
officer of the Adviser. The Adviser also furnishes at its own expense all
necessary administrative services, including office space, equipment, clerical
personnel, investment advisory facilities and all executive and supervisory
personnel necessary for managing the Fund's investments, effecting the Fund's
portfolio transactions and, in general, administering the Fund's affairs.
The Advisory Agreement will remain in effect until August 1, 1996, and will
continue in effect thereafter only if such continuance is specifically
approved at least annually by the Board of Trustees or by vote of a majority
of the Fund's shares (as defined in "Investment Restrictions") and, in either
case, by a majority of the Trustees who are not parties to the Fund's Advisory
Agreement or interested persons of any such party. The Advisory Agreement
terminates automatically if it is assigned and may be terminated without
penalty by vote of a majority of the Fund's outstanding shares (as defined
above) or by either party on not more than 60 days' nor less than 30 days'
written notice. The Advisory Agreement provides that MFS may render services
to others and that neither the Adviser nor its personnel shall be liable for
any error of judgment or mistake of law or for any loss arising out of any
investment or for any act or omission in the execution and management of the
Fund, except for willful misfeasance, bad faith or gross negligence in the
performance of its or their duties or by reason of reckless disregard of its
or their obligations and duties under the Advisory Agreement.
CUSTODIAN
State Street Bank and Trust Company (the "Custodian") is the custodian of the
Fund's assets. The Custodian's responsibilities include safekeeping and
controlling the Fund's cash and securities, handling the receipt and delivery
of securities, determining income and collecting interest and dividends on the
Fund's investments, maintaining books of original entry for portfolio and fund
accounting and other required books and accounts, and calculating the daily
net asset value of each class of shares of the Fund. The Custodian does not
determine the investment policies of the Fund or decide which securities the
Fund will buy or sell. The Fund may, however, invest in securities, including
repurchase agreements, issued by the Custodian and may deal with the Custodian
as principal in securities transactions. The Custodian also acts as dividend
disbursing agent of the Fund. The Custodian has contracted with the Adviser
for the Adviser to perform certain accounting functions related to options
transactions for which the Adviser receives remuneration on a cost basis.
SHAREHOLDER SERVICING AGENT
MFS Service Center, Inc. (the "Shareholder Servicing Agent"), a wholly owned
subsidiary of MFS, is the Fund's shareholder servicing agent, pursuant to a
Shareholder Servicing Agent Agreement, effective August 1, 1985 (the "Agency
Agreement") with the Fund. The Shareholder Servicing Agent's responsibilities
under the Agency Agreement include administering and performing transfer agent
functions and keeping records in connection with the issuance, transfer and
redemption of each class of the shares of the Fund. For these services, the
Shareholder Servicing Agent will receive a fee calculated as a percentage of
the average daily net assets of each class of shares at an effective annual
rate of up to 0.15% and up to 0.22% attributable to Class A and Class B
shares, respectively. In addition, the Shareholder Servicing Agent will be
reimbursed by the Fund for certain expenses incurred by the Shareholder
Servicing Agent on behalf of the Fund. State Street Bank and Trust Company,
the dividend and distribution disbursing agent of the Fund, has contracted
with the Shareholder Servicing Agent to administer and perform certain
dividend and distribution disbursing functions for the Fund.
DISTRIBUTOR
MFD, a wholly owned subsidiary of MFS, serves as distributor for the
continuous offering of shares of the Fund pursuant to a Distribution
Agreement, dated January 1, 1995 (the "Distribution Agreement"). Prior to
January 1, 1995, MFS Financial Services, Inc. ("FSI"), another wholly owned
subsidiary of MFS, was the Fund's distributor. Where this SAI refers to MFD in
relation to the receipt or payment of money with respect to a period or
periods prior to January 1, 1995, such reference shall be deemed to include
FSI, as the predecessor in interest to MFD.
CLASS A SHARES: MFD acts as agent in selling Class A shares of the Fund to
dealers. The public offering price of Class A shares of the Fund is their net
asset value next computed after the sale plus a sales charge which varies
based upon the quantity purchased. The public offering price of Class A shares
of the Fund is calculated by dividing net asset value of a Class A share by
the difference (expressed as a decimal) between 100% and the sales charge
percentage of offering price applicable to the purchase (see "Purchases" in
the Prospectus). The sales charge scale set forth in the Prospectus applies to
purchases of Class A shares of the Fund alone or in combination with shares of
all classes of certain other funds in the MFS Family of Funds (the "MFS
Funds") and other Funds (as noted under Right of Accumulation) by any person,
including members of a family unit (e.g., husband, wife and minor children)
and bona fide trustees, and also applies to purchases made under the Right of
Accumulation or a Letter of Intent (see "Investment and Withdrawal Programs"
below). A group might qualify to obtain quantity sales charge discounts (see
"Investment and Withdrawal Programs" in this SAI).
Class A shares of the Fund may be sold at their net asset value to certain
persons and in certain instances as described in the Prospectus. Such sales
are made without a sales charge to promote good will with employees and others
with whom MFS, MFD and/or the Fund have business relationships, and because
the sales effort, if any, involved in making such sales is negligible.
MFD allows discounts to dealers (which are alike for all dealers) from the
applicable public offering price of the Class A shares. Dealer allowances
expressed as a percentage of offering price for all offering prices are set
forth in the Prospectus (see "Purchases"). The difference between the total
amount invested and the sum of (a) the net proceeds to the Fund and (b) the
dealer commission is the commission paid to the distributor. Because of
rounding in the computation of offering price, the portion of the sales charge
paid to the distributor may vary and the total sales charge may be more or
less than the sales charge calculated using the sales charge expressed as a
percentage of offering price or as a percentage of the net amount invested as
listed in the Prospectus. In the case of the maximum sales charge, the dealer
retains 5% and MFD retains approximately 3/4 of 1% of the public offering
price. In addition, MFD, on behalf of the Fund, pays commissions to dealers
who initiate and are responsible for purchases of $1 million or more as
described in the Prospectus.
CLASS B SHARES: MFD acts as agent in selling Class B shares of the Fund to
dealers. The public offering price of Class B shares is their net asset value
next computed after the sale (see "Purchases" in the Prospectus).
GENERAL: Neither MFD nor dealers are permitted to delay placing orders to
benefit themselves by a price change. Occasionally, MFD may obtain brokers
loans from various banks, including the custodian banks for the MFS Funds, to
facilitate the settlement of sales of shares of the Fund to dealers. MFD may
benefit from its temporary holding of funds paid to it by investment dealers
for the purchase of Fund shares.
During the Fund's fiscal year ended December 31, 1995, MFD received sales
charges of $54,989 and dealers received sales charges of $379,375 (as their
concession on gross sales charges of $434,364) for selling Class A shares of
the Fund; the Fund received $24,614,273 representing the aggregate net asset
value of such shares. During the Fund's fiscal year ended December 31, 1994,
MFD received sales charges of $56,405 and dealers received sales charges of
$361,275 (as their concession on gross sales charges of $417,680) for selling
Class A shares of the Fund; the Fund received $22,722,275 representing the
aggregate net asset value of such shares. During the Fund's fiscal year ended
December 31, 1993, MFD received sales charges of $67,696 and dealers received
sales charges of $440,129 (as their concession on gross sales charges of
$507,825) for selling Class A shares of the Fund; the Fund received
$28,264,381 representing the aggregate net asset value of such shares. During
the Fund's fiscal years ended December 31, 1995 and 1994, the Contingent
Deferred Sales Charge ("CDSC") imposed on redemption of Class A shares was
approximately $2,157 and $3,245, respectively. During the Fund's fiscal years
ended December 31, 1995 and 1994, the CDSC imposed on redemption of Class B
shares was approximately $7,176 and $2,336, respectively. During the period
September 7, 1993 through December 31, 1993, the CDSC imposed on redemption of
Class B shares was approximately $500.
The Distribution Agreement will remain in effect until August 1, 1996, and
will continue in effect thereafter only if such continuance is specifically
approved at least annually by the Board of Trustees or by vote of a majority
of the Fund's shares (as defined in "Investment Restrictions") and, in either
case, by a majority of the Trustees who are not parties to the Distribution
Agreement or interested persons of any such party. The Distribution Agreement
terminates automatically if it is assigned and may be terminated without
penalty by either party on not more than 60 days' nor less than 30 days'
notice.
5. PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
Specific decisions to purchase or sell securities for the Fund are made by a
portfolio committee which consists of employees of the Adviser who are
appointed and supervised by its senior officers. Changes in the Fund's
investments are reviewed by the Board of Trustees. Members of the Fund's
portfolio committee may serve other clients of the Adviser or any subsidiary
of the Adviser in a similar capacity.
The primary consideration in placing portfolio security transactions with
broker-dealers for execution is to obtain, and maintain the availability of,
execution at the most favorable prices and in the most effective manner
possible. The Adviser attempts to achieve this result by selecting broker-
dealers to execute portfolio transactions on behalf of the Fund and other
clients of the Adviser on the basis of their professional capability, the
value and quality of their brokerage services and the level of their brokerage
commissions. In the case of securities traded in the over-the-counter market
(where no stated commissions are paid but the prices include a dealer's markup
or markdown), the Adviser normally seeks to deal directly with the primary
market makers, unless in its opinion, best execution is available elsewhere.
In the case of securities purchased from underwriters, the cost of such
securities generally includes a fixed underwriting commission or concession.
Securities firms or futures commission merchants may receive brokerage
commissions on transactions involving options, Futures Contracts and Options
on Futures Contracts and the purchase and sale of underlying securities upon
exercise of options. The brokerage commissions associated with buying and
selling options may be proportionately higher than those associated with
general securities transactions. From time to time, soliciting dealer fees may
be available to the Adviser on the tender of the Fund's portfolio securities
in so-called tender or exchange offers. Such soliciting dealer fees will be in
effect recaptured for the Fund by the Adviser to the extent possible. At
present no other recapture arrangements are in effect.
Consistent with the foregoing primary consideration, the Rules of Fair
Practice of the National Association of Securities Dealers, Inc. ("NASD"), and
such other policies as the Trustees may determine, the Adviser may consider
sales of shares of the Fund and of the other investment company clients of MFD
as a factor in the selection of broker-dealers to execute the Fund's portfolio
transactions.
Under the Advisory Agreement and as permitted by Section 28(e) of the
Securities Exchange Act of 1934, the Adviser may cause the Fund to pay a
broker-dealer, which provides brokerage and research services to the Fund and
to the Adviser, an amount of commission for effecting a securities transaction
for the Fund in excess of the amount other broker-dealers would have charged
for the transaction, if the Adviser determines in good faith that the greater
commission is reasonable in relation to the value of the brokerage and
research services provided by the executing broker-dealer viewed in terms of
either a particular transaction or the Adviser's overall responsibilities to
the Fund or to its other clients. Not all of such services are useful or of
value in advising the Fund.
The term "brokerage and research services" includes: advice as to the value of
securities, the advisability of investing in, purchasing, or selling
securities, and the availability of securities or of purchasers or sellers of
securities; furnishing analyses and reports concerning issues, industries,
securities, economic factors and trends, portfolio strategy and the
performance of accounts; and effecting securities transactions and performing
functions incidental thereto, such as clearance and settlement.
Although commissions paid on every transaction will, in the judgment of the
Adviser, be reasonable in relation to the value of the brokerage services
provided, commissions exceeding those which another broker might charge may be
paid to broker-dealers who were selected to execute transactions on behalf of
the Fund and the Adviser's other clients in part for providing advice as to
the availability of securities or of purchasers or sellers of securities and
services in effecting securities transactions and performing functions
incidental thereto, such as clearance and settlement.
Broker-dealers may be willing to furnish statistical, research and other
factual information or services ("Research") to the Adviser for no
consideration other than brokerage or underwriting commissions. Securities may
be bought or sold from time to time through such broker-dealers on behalf of
the Fund.The Trustees of the Fund (together with the Trustees of the other MFS
Funds) have directed the Adviser to allocate a total of $23,100 of commission
business from the MFS Funds to the Pershing Division of Donaldson, Lufkin &
Jenrette as consideration for the annual renewal of the Lipper Directors'
Analytical Data Service (which provides information useful to the Trustees in
reviewing the relationship between the Fund and the Adviser).
The Adviser's investment management personnel attempt to evaluate the quality
of Research provided by brokers. Results of this effort are sometimes used by
the Adviser as a consideration in the selection of brokers to execute
portfolio transactions. However, the Adviser is unable to quantify the amount
of commissions set forth below which were paid as a result of such Research
because a substantial number of transactions were effected through brokers
which provide Research but which were selected principally because of their
execution capabilities.
The management fee paid by the Fund to the Adviser will not be reduced as a
consequence of the Adviser's receipt of brokerage and research services. To
the extent the Fund's portfolio transactions are used to obtain such services,
the brokerage commissions paid by the Fund will exceed those that might
otherwise be paid by an amount which cannot be presently determined. Such
services would be useful and of value to the Adviser in serving both the Fund
and other clients and conversely, such services obtained by the placement of
brokerage business of other clients would be useful to the Adviser in carrying
out its obligations to the Fund. While such services are not expected to
reduce the expenses of the Adviser, the Adviser would, through use of the
services, avoid the additional expenses which would be incurred if it should
attempt to develop comparable information through its own staff.
For the fiscal years ended December 31, 1995, 1994 and 1993, the Fund paid
brokerage commissions of $2,027,522, $1,558,456 and $1,683,016, respectively,
on total transactions (excluding transactions involving U.S. Government
securities and short-term obligations for which no brokerage commissions are
paid) of $1,097,162,218, $1,081,634,537 and $1,136,122,516, respectively. For
the fiscal year ended December 31, 1995, the Fund acquired and retained
securities issued by Charles Schwab Corp., a regular broker-dealer of the
Fund, which securities had a value of $10,295,950.
In certain instances there may be securities which are suitable for the Fund's
portfolio as well as for that of one or more of the other clients of the
Adviser or any subsidiary of the Adviser. Investment decisions for the Fund
and for such other clients are made with a view to achieving their respective
investment objectives. It may develop that a particular security is bought or
sold for only one client even though it might be held by, or bought or sold
for, other clients. Likewise, a particular security may be bought for one or
more clients when one or more other clients are selling that same security.
Some simultaneous transactions are inevitable when several clients receive
investment advice from the same investment adviser, particularly when the same
security is suitable for the investment objectives of more than one client.
When two or more clients are simultaneously engaged in the purchase or sale of
the same security, the securities are allocated among clients in a manner
believed by the Adviser to be equitable to each. It is recognized that in some
cases this system could have a detrimental effect on the price or volume of
the security as far as the Fund is concerned. In other cases, however, the
Fund believes that its ability to participate in volume transactions will
produce better executions for the Fund.
6. SHAREHOLDER SERVICES
INVESTMENT AND WITHDRAWAL PROGRAMS -- The Fund makes available the following
programs designed to enable shareholders to add to their investment or
withdraw from it with a minimum of paper work. These are described below and,
in certain cases, in the Prospectus. The programs involve no extra charge to
shareholders (other than a sales charge in the case of certain Class A share
purchases) and may be changed or discontinued at any time by a shareholder or
the Fund.
LETTER OF INTENT: If a shareholder (other than a group purchaser described
below) anticipates purchasing $50,000 or more of Class A shares of the Fund
alone or in combination with shares of any classes of other MFS Funds or MFS
Fixed Fund within a 13-month period (or a 36-month period for purchases of $1
million or more), the shareholder may obtain Class A shares of the Fund at the
same reduced sales charge as though the total quantity were invested in one
lump sum by completing the Letter of Intent section of the Fund's Account
Application or filing a separate Letter of Intent application (available from
the Shareholder Servicing Agent) within 90 days of the commencement of
purchases. Subject to acceptance by MFD and the conditions mentioned below,
each purchase will be made at a public offering price applicable to a single
transaction of the dollar amount specified in the Letter of Intent
application. The shareholder or his dealer must inform MFD that the Letter of
Intent is in effect each time shares are purchased. The shareholder makes no
commitment to purchase additional shares, but if his purchases within 13
months (or 36 months in the case of purchases of $1 million or more) plus the
value of shares credited toward completion of the Letter of Intent do not
total the sum specified, he will pay the increased amount of the sales charge
as described below. Instructions for issuance of shares in the name of a
person other than the person signing the Letter of Intent application must be
accompanied by a written statement from the dealer stating that the shares
were paid for by the person signing such Letter. Neither income dividends nor
capital gain distributions taken in additional shares will apply toward the
completion of the Letter of Intent. Dividends and distributions of other MFS
Funds automatically reinvested in shares of the Fund pursuant to the
Distribution Investment Program will also not apply toward completion of the
Letter of Intent.
Out of the shareholder's initial purchase (or subsequent purchases if
necessary), 5% of the dollar amount specified in the Letter of Intent
application shall be held in escrow by the Shareholder Servicing Agent in the
form of shares registered in the shareholder's name. All income dividends and
capital gain distributions on escrowed shares will be paid to the shareholder
or to his order. When the minimum investment so specified is completed (either
prior to or by the end of the 13-month or 36-month period, as applicable), the
shareholder will be notified and the escrowed shares will be released.
If the intended investment is not completed, the Shareholder Servicing Agent
will redeem an appropriate number of the escrowed shares in order to realize
such difference. Shares remaining after any such redemption will be released
by the Shareholder Servicing Agent. By completing and signing the Account
Application or separate Letter of Intent application, the shareholder
irrevocably appoints the Shareholder Servicing Agent his attorney to surrender
for redemption any or all escrowed shares with full power of substitution in
the premises.
RIGHT OF ACCUMULATION: A shareholder qualifies for cumulative quantity
discounts on the purchase of Class A shares when his new investment, together
with the current offering price value of all holdings of all classes of shares
of that shareholder in the MFS Funds or MFS Fixed Fund reaches a discount
level. See "Purchases" in the Prospectus for the sales charges on quantity
discounts. For example, if a shareholder owns shares with a current offering
price value of $37,500 and purchases an additional $12,500 of Class A shares
of the Fund, the sales charge for the $12,500 purchase would be at the rate of
4.75% (the rate applicable to single transactions of $50,000). A shareholder
must provide the Shareholder Servicing Agent (or his investment dealer must
provide MFD) with information to verify that the quantity sales charge
discount is applicable at the time the investment is made.
DISTRIBUTION INVESTMENT PROGRAM: Distributions of dividends and capital
gains made by the Fund with respect to a particular class of shares may be
automatically invested in shares of the same class of one of the other MFS
Family of Funds, if such shares of the fund are available for sale. Such
investments will be subject to additional purchase minimums. Distributions
will be invested at net asset value (exclusive of any sales charge) and not
subject to any CDSC. Distributions will be invested at the close of business
on the payable date for the distribution. A shareholder considering the
Distribution Investment Program should obtain and read the prospectus of the
other fund and consider the differences in objectives and policies before
making any investment.
SYSTEMATIC WITHDRAWAL PLAN: A shareholder may direct the Shareholder
Servicing Agent to send him (or anyone he designates) regular periodic
payments based upon the value of his account. Each payment under a Systematic
Withdrawal Plan (a "SWP") must be at least $100, except in certain limited
circumstances. The aggregate withdrawals of Class B shares in any year
pursuant to a SWP generally are limited to 10% of the value of the account at
the time of the establishment of the SWP. SWP payments are drawn from the
proceeds of share redemptions held in the shareholder's account (which would
be a return of principal and, if reflecting a gain, would be taxable).
Redemptions of Class B shares will be made in the following order: (i) to the
extent necessary, any "Free Amount"; (ii) any "Reinvested Shares"; and (iii)
to the extent necessary, the "Direct Purchase" subject to the lowest CDSC (as
such terms are defined in "Contingent Deferred Sales Charge" in the
Prospectus). The CDSC will be waived in the case of redemptions of Class B
shares pursuant to a SWP, but will not be waived in the case of SWP
redemptions of Class A shares which are subject to a CDSC. To the extent that
redemptions for such periodic withdrawals exceed dividend income reinvested in
the account, such redemptions will reduce and may eventually exhaust the
number of shares in the shareholder's account. All dividend and capital gain
distributions for an account with a SWP will be reinvested in additional full
and fractional shares of the Fund at the net asset value in effect at the
close of business on the record date for such distributions. To initiate this
service, shares generally having an aggregate value of at least $5,000 either
must be held on deposit by, or certificates for such shares must be deposited
with, the Shareholder Servicing Agent. With respect to Class A shares,
maintaining a withdrawal plan concurrently with an investment program would be
disadvantageous because of the sales charges included in share purchases and
the imposition of a CDSC on certain redemptions. The shareholder may deposit
into the account additional shares of the Fund, change the payee or change the
dollar amount of each payment. The Shareholder Servicing Agent may charge the
account for services rendered and expenses incurred beyond those normally
assumed by the Fund with respect to the liquidation of shares. No charge is
currently assessed against the account, but one could be instituted by the
Shareholder Servicing Agent on 60 days' notice in writing to the shareholder
in the event that the Fund ceases to assume the cost of these services. The
Fund may terminate any SWP for an account if the value of the account falls
below $5,000 as a result of share redemptions (other than as a result of a
SWP) or an exchange of shares of the Fund for shares of another MFS Fund. Any
SWP may be terminated at any time by either the shareholder or the Fund.
INVEST BY MAIL: Additional investments of $50 or more may be made at any
time by mailing a check payable to the Fund directly to the Shareholder
Servicing Agent. The shareholder's account number and the name of his
investment dealer must be included with each investment.
GROUP PURCHASES: A bona fide group and all its members may be treated as a
single purchaser and, under the Right of Accumulation (but not a Letter of
Intent), obtain quantity sales charge discounts on the purchase of Class A
shares if the group (1) gives its endorsement or authorization to the
investment program so it may be used by the investment dealer to facilitate
solicitation of the membership, thus effecting economies of sales effort; (2)
has been in existence for at least six months and has a legitimate purpose
other than to purchase mutual fund shares at a discount; (3) is not a group of
individuals whose sole organizational nexus is as credit cardholders of a
company, policyholders of an insurance company, customers of a bank or broker-
dealer, clients of an investment adviser or other similar groups; and (4)
agrees to provide certification of membership of those members investing money
in the MFS Funds upon the request of MFD.
AUTOMATIC EXCHANGE PLAN: Shareholders having account balances of at least
$5,000 in any MFS Fund may exchange their shares for the same class of shares
of other MFS Funds (if available for sale) under the Automatic Exchange Plan.
The Automatic Exchange Plan provides for automatic exchanges of funds from the
shareholder's account in an MFS Fund for investment in the same class of
shares of other MFS Funds selected by the shareholder. Under the Automatic
Exchange Plan, exchanges of at least $50 may be made to up to four different
funds effective on the seventh day of each month or every third month,
depending on whether monthly or quarterly exchanges are elected by the
shareholder. If the seventh day of the month is not a business day, the
transaction will be processed on the next business day. Generally, the initial
exchange will occur after receipt and processing by the Shareholder Servicing
Agent of an application in good order. Exchanges will continue to be made from
a shareholder's account in any MFS Fund, as long as the balance of the account
is sufficient to complete the exchanges. Additional payments made to a
shareholder's account will extend the period that exchanges will continue to
be made under the Automatic Exchange Plan. However, if additional payments are
added to an account subject to the Automatic Exchange Plan shortly before the
exchange is scheduled, such funds may not be available for exchange until the
following month; therefore, care should be used to avoid inadvertently
terminating the Automatic Exchange Plan through exhaustion of the account
balance.
No transaction fee for exchanges will be charged in connection with the
Automatic Exchange Plan. However, exchanges of shares of MFS Money Market
Fund, MFS Government Money Market Fund and Class A shares of MFS Cash Reserve
Fund will be subject to any applicable sales charge. Changes in amounts to be
exchanged to each fund, the funds to which exchanges are to be made, the
timing of exchanges (monthly or quarterly), or termination of a shareholder's
participation in the Automatic Exchange Plan will be made after instructions
in writing or by telephone (an "Exchange Change Request") have been received
by the Shareholder Servicing Agent in proper form (i.e., if in writing --
signed by the record owner(s) exactly as shares are registered; if by
telephone -- proper account identification given by the dealer or shareholder
of record). Each Exchange Change Request (other than termination of
participation in the program) must involve at least $50. Generally, if an
Exchange Change Request is received by telephone or in writing before the
close of business on the last business day of a month, the Exchange Change
Request will be effective for the following month's exchange.
A shareholder's right to make additional investments in any of the MFS Funds,
to make exchanges of shares from one MFS Fund to another and to withdraw from
an MFS Fund, as well as a shareholder's other rights and privileges, are not
affected by a shareholder's participation in the Automatic Exchange Plan.
The Automatic Exchange Plan is part of the exchange privilege. For additional
information regarding the Automatic Exchange Plan, including the treatment of
any CDSC, see "Exchange Privilege" below.
REINSTATEMENT PRIVILEGE: Shareholders of the Fund and shareholders of the
other MFS Funds (except MFS Money Market Fund, MFS Government Money Market
Fund and Class A shares of MFS Cash Reserve Fund in the case where the shares
are acquired through direct purchase or reinvested dividends) who have
redeemed their shares have a one-time right to reinvest the redemption
proceeds in the same class of shares of any of the MFS Funds (if shares of the
fund are available for sale) at net asset value (without a sales charge) and,
if applicable, with credit for any CDSC paid. In the case of proceeds
reinvested in MFS Money Market Fund, MFS Government Money Market Fund and
Class A shares of MFS Cash Reserve Fund, the shareholder has the right to
exchange the acquired shares for shares of another MFS Fund at net asset value
pursuant to the exchange privilege described below. Such a reinvestment must
be made within 90 days of the redemption and is limited to the amount of the
redemption proceeds. If the shares credited for any CDSC paid are then
redeemed within six years of their initial purchase in the case of Class B
shares or within 12 months of the initial purchase in the case of certain
Class A shares, a CDSC will be imposed upon redemption. Although redemptions
and repurchases of shares are taxable events, a reinvestment within a certain
period of time in the same fund may be considered a "wash sale" and may result
in the inability to recognize currently all or a portion of a loss realized on
the original redemption for federal income tax purposes. Please see your tax
adviser for further information.
EXCHANGE PRIVILEGE -- Subject to the requirements set forth below, some or
all of the shares in an account with the Fund for which payment has been
received by the Fund (i.e., an established account) may be exchanged for
shares of the same class of any of the other MFS Funds (if available for sale)
at net asset value. Exchanges will be made only after instructions in writing
or by telephone (an "Exchange Request") are received for an established
account by the Shareholder Servicing Agent.
Each Exchange Request must be in proper form (i.e., if in writing -- signed by
the record owner(s) exactly as the shares are registered; if by telephone --
proper account identification is given by the dealer or shareholder of
record), and each exchange must involve either shares having an aggregate
value of at least $1,000 ($50 in the case of retirement plan participants
whose sponsoring organizations subscribe to the MFS FUNDamental 401(k) Plan or
another similar 401(k) recordkeeping system made available by the Shareholder
Servicing Agent or all the shares in the account. Each exchange involves the
redemption of the shares of the Fund to be exchanged and the purchase at net
asset value (i.e., without a sales charge) of shares of the same class of the
other MFS Fund. Any gain or loss on the redemption of the shares exchanged is
reportable on the shareholder's federal income tax return, unless both the
shares received and the shares surrendered in the exchange are held in a tax-
deferred retirement plan or other tax-exempt account. No more than five
exchanges may be made in any one Exchange Request by telephone. If the
Exchange Request is received by the Shareholder Servicing Agent prior to the
close of regular trading on the Exchange, the exchange usually will occur on
that day if all the requirements set forth above have been complied with at
that time. However, payment of the redemption proceeds by the Fund, and thus
the purchase of shares of the other MFS Fund, may be delayed for up to seven
days if the Fund determines that such a delay would be in the best interest of
all its shareholders. Investment dealers which have satisfied criteria
established by MFD may also communicate a shareholder's exchange instruction
to MFD by facsimile subject to the requirements set forth above.
No CDSC is imposed on exchanges among the MFS Funds, although liability for
the CDSC is carried forward to the exchanged shares. For purposes of
calculating the CDSC upon redemption of shares acquired in an exchange, the
purchase of shares acquired in one or more exchanges is deemed to have
occurred at the time of the original purchase of the exchanged shares.
Additional information with respect to any of the MFS Funds, including a copy
of its current prospectus, may be obtained from investment dealers or the
Shareholder Servicing Agent. A shareholder considering an exchange should
obtain and read the prospectus of the other MFS Fund and consider the
differences in objectives and policies before making any exchange.
Shareholders of the other MFS Funds (except shares of MFS Money Market Fund,
MFS Government Money Market Fund and Class A shares of MFS Cash Reserve Fund
acquired through direct purchase or dividends reinvested prior to June 1,
1992) have the right to exchange their shares for shares of the Fund, subject
to the conditions, if any, set forth in their respective prospectuses. In
addition, unitholders of the MFS Fixed Fund have the right to exchange their
units (except units acquired through direct purchases) for shares of the Fund,
subject to the conditions, if any, imposed upon such unitholders by the MFS
Fixed Fund.
Any state income tax advantages for investment in shares of each state-
specific series of MFS Municipal Series Trust may only benefit residents of
such states. Investors should consult with their own tax advisers to be sure
this is an appropriate investment, based on their residency and each state's
income tax laws.
The exchange privilege (or any aspect of it) may be changed or discontinued
and is subject to certain limitations (see "Purchases" in the Prospectus).
TAX-DEFERRED RETIREMENT PLANS -- Shares of the Fund may be purchased by all
types of tax-deferred retirement plans. MFD makes available, through
investment dealers, plans and/or custody agreements for the following:
Individual Retirement Accounts (IRAs) (for individuals and their non-
employed spouses who desire to make limited contributions to a tax-
deferred retirement program and, if eligible, to receive a federal income
tax deduction for amounts contributed);
Simplified Employee Pension (SEP-IRA) Plans;
Retirement Plans Qualified under Section 401(k) of the Internal Revenue
Code of 1986 (the "Code"), as amended;
403(b) Plans (deferred compensation arrangements for employees of public
school systems and certain non-profit organizations); and
Certain other qualified pension and profit-sharing plans.
The plan documents and forms provided by MFD designate a trustee or custodian
(unless another trustee or custodian is designated by the individual or group
establishing the plan) and contain specific information about the plans. Each
plan provides that dividends and distributions will be reinvested
automatically. For further details with respect to any plan, including fees
charged by the trustee, custodian or MFD, tax consequences and redemption
information, see the specific documents for that plan. Plan documents other
than those provided by MFD may be used to establish any of the plans described
above. Third party administrative services, available for some corporate
plans, may limit or delay the processing of transactions.
Investors should consult with their tax adviser before establishing any of the
tax-deferred retirement plans described above.
7. TAX STATUS
The Fund has elected to be treated and intends to qualify each year as a
"regulated investment company" under Subchapter M of the Code, by meeting all
applicable requirements of Subchapter M, including requirements as to the
nature of the Fund's gross income, the amount of Fund distributions, and the
composition and holding period of the Fund's portfolio assets. Because the
Fund intends to distribute all of its net investment income and net realized
capital gains to shareholders in accordance with the timing requirements
imposed by the Code, it is not expected that the Fund will be required to pay
any federal income or excise taxes, although the Fund's foreign-source income
may be subject to foreign withholding taxes. If the Fund should fail to
qualify as a "regulated investment company" in any year, the Fund would incur
a regular corporate federal income tax upon its taxable income and Fund
distributions would generally be taxable as ordinary dividend income to
shareholders. As long as it qualifies as a "regulated investment company"
under the Code, the Fund will not be required to pay Massachusetts income or
excise taxes.
Shareholders of the Fund normally will have to pay federal income taxes, and
any state and local taxes, on the dividends and capital gain distributions
which they receive from the Fund. Dividends from ordinary income and
distributions from net short-term capital gains, whether paid in cash or
reinvested in additional shares, are taxable to the Fund's shareholders as
ordinary income for federal income tax purposes. A portion of the dividends
from ordinary income (but none of the Fund's capital gains) is normally
eligible for the dividends-received deduction for corporations if the
recipient otherwise qualifies for that deduction with respect to its holding
of Fund shares. For the Fund's last fiscal year, 12% of the dividends the Fund
paid to its shareholders were eligible for the deduction. Availability of the
deduction for particular corporate shareholders is subject to certain
limitations and deducted amounts may be subject to the alternative minimum tax
or result in certain basis adjustments. Distributions from net capital gains
(i.e., the excess of net long-term capital gains over net short-term capital
losses), whether paid in cash or reinvested in additional shares, are taxable
to the Fund's shareholders as long-term capital gains for federal income tax
purposes without regard to the length of time the shareholders have owned
their shares.
Fund dividends that are declared in October, November or December, that are
payable to shareholders of record in such a month, and that are paid the
following January will be taxable to the shareholders as if received on
December 31 of the year in which they are declared. Any dividend or
distribution will have the effect of reducing the per share net asset value of
shares in the Fund by the amount of the dividend or distribution. Shareholders
purchasing shares shortly before the record date of any taxable dividend or
other distribution may thus pay the full price for the shares and then
effectively receive a portion of the purchase price back as a taxable
distribution.
In general, any gain or loss realized upon a taxable disposition of shares of
the Fund by a shareholder that holds such shares as a capital asset will be
treated as long-term capital gain or loss if the shares have been held for
more than 12 months and otherwise as short-term capital gain or loss. However,
any loss realized upon a disposition of shares in the Fund held for six months
or less will be treated as long-term capital loss to the extent of any
distributions of net capital gain made with respect to those shares. Any loss
realized upon a redemption of shares may also be disallowed under rules
relating to wash sales. Gain may be increased (or loss reduced) upon a
redemption of Class A shares of the Fund within ninety days after their
purchase followed by any purchase (including purchases by exchange or by
reinvestment) without payment of an additional sales charge of Class A shares
of the Fund or of another MFS Fund (or any other shares of an MFS Fund
generally sold subject to a sales charge).
The Fund's transactions in options, Futures Contracts and Forward Contracts
will be subject to special tax rules that may affect the amount, timing and
character of distributions to shareholders. For example, certain positions
held by the Fund on the last business day of each fiscal year would be marked
to market (i.e., treated as if closed out) on such day, and any gain or loss
associated with such positions will be treated as 60% long-term and 40% short-
term capital gain or loss. Certain positions held by the Fund that
substantially diminish its risk of loss with respect to other positions in its
portfolio may constitute "straddles," and may be subject to special tax rules
that would cause deferral of losses, adjustments in the holding periods of the
Fund's securities and conversion of short term into long term capital losses.
Certain tax elections exist for "straddles" which could alter certain effects
of the above rules. The Fund will limit its activities in options, Futures
Contracts and Forward Contracts to the extent necessary to meet the
requirements of Subchapter M of the Code.
The Fund's current dividend and accounting policies will affect the amount,
timing and character of distributions to shareholders, and may, under certain
circumstances, make an economic return of capital taxable to shareholders. The
Fund's investment in zero coupon securities, securities calling for deferred
interest or payment of interest in kind and certain securities purchased at a
market discount will cause it to realize income prior to the receipt of cash
payments with respect to these securities. In order to distribute this income
and avoid a tax on the Fund, the Fund may be required to liquidate portfolio
securities that it might otherwise have continued to hold, potentially
resulting in additional taxable gain or loss to the Fund.
Special tax considerations apply with respect to foreign investments of the
Fund. For example, foreign exchange gains and losses realized by the Fund will
generally be treated as ordinary income and losses. The holding of foreign
currencies for non-hedging purposes and investment by the Fund in certain
"passive foreign investment companies" may be limited in order to avoid
imposition of a tax on the Fund. Furthermore, the Fund may be subject to
foreign taxes on its income from foreign securities and will generally be
unable to pass through to shareholders foreign tax credits and deductions with
respect to foreign taxes paid by the Fund. The United States has entered into
tax treaties with many foreign countries that may entitle the Fund to a
reduced rate of tax or an exemption from tax on such income; the Fund intends
to qualify for treaty reduced rates where available. It is impossible,
however, to determine the Fund's effective rate of foreign tax in advance
since the amount of the Fund's assets to be invested within various countries
is not known.
Dividends and certain other payments to persons who are not citizens or
residents of the United States or U.S. entities ("Non-U.S. Persons") are
generally subject to U.S. tax withholding at the rate of 30%. The Fund intends
to withhold U.S. federal income tax at the rate of 30% on any payments made to
Non-U.S. Persons that are subject to such withholding, regardless of whether a
lower treaty rate may be permitted. Any amounts overwithheld may be recovered
by such persons by filing a claim for refund with the U.S. Internal Revenue
Service within the time period applicable to such claims. Non-U.S. persons may
also be subject to tax under the laws of their own jurisdictions. The Fund is
also required in certain circumstances to apply backup withholding at the rate
of 31% on taxable dividends and the proceeds of redemptions and exchanges paid
to any shareholder (including a Non-U.S. Person) who does not furnish to the
Fund certain information and certifications or who is otherwise subject to
backup withholding. However, backup withholding will not be applied to
payments which have been subject to 30% withholding.
8. DETERMINATION OF NET ASSET VALUE AND PERFORMANCE
NET ASSET VALUE
The net asset value per share of each class of the Fund is determined each day
during which the Exchange is open for trading. As of the date of this SAI, the
Exchange is open for trading every week day except for the following holidays
(or the days on which they are observed): New Year's Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day). This determination is made once during each such day as of the
close of regular trading on the Exchange by deducting the amount of the
liabilities attributable to the class from the value of the assets
attributable to the class and dividing the difference by the number of shares
of the class outstanding. Equity securities in the Fund's portfolio are valued
at the last sale price on the exchange on which they are primarily traded or
on the NASDAQ system for unlisted national market issues, or at the last
quoted bid price for listed securities in which there were no sales during the
day or for unlisted securities not reported on the NASDAQ system. Bonds and
other fixed income securities (other than short-term obligations) in the
Fund's portfolio are valued on the basis of valuations furnished by a pricing
service which utilizes both dealer-supplied valuations and electronic data
processing techniques which take into account appropriate factors such as
institutional-size trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, trading characteristics and other market
data, without exclusive reliance upon quoted prices or exchange or over-the-
counter prices, since such valuations are believed to reflect more accurately
the fair value of such securities. Use of the pricing service has been
approved by the Board of Trustees. Short-term obligations with a remaining
maturity in excess of 60 days will be valued based upon dealer supplied
valuations. Other short-term obligations in the Fund's portfolio are valued at
amortized cost, which constitutes fair value as determined by the Board of
Trustees. Positions in listed options, Futures Contracts and Options on
Futures Contracts will normally be valued at the settlement price on the
exchange on which they are primarily traded. Positions in over-the-counter
options will be valued using dealer-supplied valuations. Forward Contracts
will be valued using a pricing model taking into consideration market data
from an extended pricing source and over-the-counter options for which there
are no such quotations or valuations are valued at fair value as determined in
good faith by or at the direction of the Board of Trustees.
PERFORMANCE INFORMATION
TOTAL RATE OF RETURN: The Fund will calculate its total rate of return for
each class of shares for certain periods by determining the average annual
compounded rates of return over those periods that would cause an investment
of $1,000 (made with all distributions reinvested and reflecting the CDSC or
maximum offering price), to reach the value of that investment at the end of
the periods. The Fund may also calculate (i) a total rate of return, which is
not reduced by the CDSC (4% maximum for Class B shares) and therefore may
result in a higher rate of return, (ii) a total rate of return assuming an
initial account value of $1,000, which will result in a higher rate of return
since the value of the initial account will not be reduced by the sales charge
(5.75% maximum), and/or (iii) total rates of return which represent aggregate
performance over a period or year-by-year performance, and which may or may
not reflect the effect of the maximum or other sales charge or CDSC. The
Fund's average annual total rate of return for Class A shares reflecting the
initial investment at the maximum public offering price for the one-year,
five-year and ten-year periods ended December 31, 1995 was, respectively,
26.76%, 13.23% and 10.61%. The Fund's average annual total rate of return for
Class A shares not giving effect to the sales charge on the initial investment
for the one-year, five-year and ten-year periods ended December 31, 1995 was,
respectively, 34.49%, 14.58% and 11.26%. The Fund's average annual total rate
of return for Class B shares, reflecting the CDSC, for the one-year period
ended December 31, 1995 and for the period from commencement of offering on
September 7, 1993 through the Fund's fiscal year ended December 31, 1995 was
29.20% and 11.04%, respectively. The Fund's average annual total rate of
return for Class B shares, not giving effect to the CDSC, for the one-year
period ended December 31, 1995 and for the period from commencement of
offering on September 7, 1993 through the Fund's fiscal year ended December
31, 1995 was 33.20% and 12.10%, respectively. The total rates of return
presented above may not be indicative of future performance.
PERFORMANCE RESULTS: The performance results for Class A shares below, based
on an assumed initial investment of $10,000 in Class A shares, cover the
period from January 1, 1986 through December 31, 1995. It has been assumed
that dividends and capital gain distributions were reinvested in additional
shares. These performance results, as well as any total rate of return
quotation provided by the Fund, should not be considered as representative of
the performance of the Fund in the future since the net asset value and public
offering price of shares of the Fund will vary based not only on the type,
quality and maturities of the securities held in the Fund's portfolio, but
also on changes in the current value of such securities and on changes in the
expenses of the Fund. These factors and possible differences in the methods
used to calculate total rates of return should be considered when comparing
the total rate of return of the Fund to total rates of return published for
other investment companies or other investment vehicles. Total rate of return
reflects the performance of both principal and income. Current net asset value
and account balance information may be obtained by calling 1-800-MFS-TALK
(637-8255).
MFS GROWTH OPPORTUNITIES FUND-CLASS A SHARES
--------------------------------------------
VALUE OF SHARES
---------------------------------------------------------------
YEAR ENDED DIRECT CAP GAIN DIVIDEND TOTAL
DECEMBER 31 INVESTMENT REINVESTMENT REINVESTMENT VALUE
----------- ---------- ------------ ------------ -----
1986 $8,466 $ 1,377 $ 123 $ 9,966
1987 8,164 1,934 260 10,358
1988 8,277 2,574 442 11,293
1989 8,255 5,462 793 14,510
1990 7,530 5,206 1,141 13,877
1991 8,119 7,389 1,479 16,987
1992 8,436 8,097 1,763 18,296
1993 8,731 10,201 2,327 21,259
1994 7,681 10,588 2,106 20,375
1995 9,018 14,757 3,628 27,403
EXPLANATORY NOTES: The results in the table assume that the initial investment
on January 1, 1986, has been reduced by the current maximum applicable sales
charge of 5.75%. No adjustment has been made for any income taxes payable by
shareholders.
GENERAL: From time to time the Fund may, as appropriate, quote Fund rankings
or reprint all or a portion of evaluations of fund performance and operations
appearing in various independent publications, including but not limited to
the following: Money, Fortune, U.S. News and World Report, Kiplinger's
Personal Finance, The Wall Street Journal, Barron's, Investors Business Daily,
Newsweek, Financial World, Financial Planning, Investment Advisor, USA Today,
Pensions and Investments, SmartMoney, Forbes, Global Finance, Registered
Representative, Institutional Investor, the Investment Company Institute,
Johnson's Charts, Morningstar, Lipper Analytical Services, Inc., CDA
Wiesenberger, Shearson Lehman and Salomon Bros. Indices, Ibbotson, Business
Week, Lowry Associates, Media General, Investment Company Data, The New York
Times, Your Money, Strangers Investment Advisor, Financial Planning on Wall
Street, Standard and Poor's, Individual Investor, The 100 Best Mutual Funds
You Can Buy, by Gordon K. Williamson, Consumer Price Index, and Sanford C.
Bernstein & Co. Fund performance may also be compared to the performance of
other mutual funds tracked by financial or business publications or
periodicals. The Fund may also quote evaluations mentioned in independent
radio or television broadcasts, and use charts and graphs to illustrate the
past performance of various indices such as those mentioned above and
illustrations using hypothetical rates of return to illustrate the effects of
compounding and tax-deferral. The Fund may advertise examples of the effects
of periodic investment plans, including the principle of dollar cost
averaging. In such a program, an investor invests a fixed dollar amount in a
fund at periodic intervals, thereby purchasing fewer shares when prices are
high and more shares when prices are low. While such a strategy does not
assure a profit or guard against a loss in a declining market, the investor's
average cost per share can be lower than if fixed numbers of shares are
purchased at the same intervals.
From time to time, the Fund may discuss or quote its current portfolio manager
as well as other investment personnel, including such persons' views on: the
economy; securities markets; portfolio securities and their issuers;
investment philosophies, strategies, techniques and criteria used in the
selection of securities to be purchased or sold for the Fund; the Fund's
portfolio holdings; the investment research and analysis process; the
formulation and evaluation of investment recommendations; and the assessment
and evaluation of credit, interest rate, market and economic risks.
MFS FIRSTS: MFS has a long history of innovations.
-- 1924 -- Massachusetts Investors Trust is established
as the first open-end mutual fund in America.
-- 1924 -- Massachusetts Investors Trust is the first
mutual fund to make full public disclosure of its
operations in shareholder reports.
-- 1932 -- One of the first internal research departments
is established to provide in-house analytical
capability for an investment management firm.
-- 1933 -- Massachusetts Investors Trust is the first
mutual fund to register under the Securities Act of
1933 ("Truth in Securities Act" or "Full Disclosure
Act").
-- 1936 -- Massachusetts Investors Trust is the first
mutual fund to allow shareholders to take capital gain
distributions either in additional shares or cash.
-- 1976 -- MFS(R) Municipal Bond Fund is among the first
municipal bond funds established.
-- 1979 -- Spectrum becomes the first combination fixed/
variable annuity with no initial sales charge.
-- 1981 -- MFS(R) World Governments Fund is established as
America's first globally diversified fixed-income
mutual fund.
-- 1984 -- MFS(R) Municipal High Income Fund is the first
open-end mutual fund to seek high tax-free income from
lower-rated municipal securities.
-- 1986 -- MFS(R) Managed Sectors Fund becomes the first
mutual fund to target and shift investments among
industry sectors for shareholders.
-- 1986 -- MFS(R) Municipal Income Trust is the first
closed-end, high-yield municipal bond fund traded on
the New York Stock Exchange.
-- 1987 -- MFS(R) Multimarket Income Trust is the first
closed-end, multimarket high income fund listed on the
New York Stock Exchange.
-- 1989 -- MFS(R) Regatta becomes America's first non-
qualified market-value-adjusted fixed/variable annuity.
-- 1990 -- MFS(R) World Total Return Fund is the first
global balanced fund.
-- 1993 -- MFS(R) World Growth Fund is the first global
emerging markets fund to offer the expertise of two
sub-advisers.
-- 1993 -- MFS becomes money manager of MFS(R) Union
Standard Trust, the first trust to invest in companies
deemed to be union-friendly by an Advisory Board of
senior labor officials, senior managers of companies
with significant labor contracts, academics and other
national labor leaders or experts.
9. DISTRIBUTION PLANS
The Trustees have adopted separate Distribution Plans for Class A and Class B
shares (the "Distribution Plans") pursuant to Section 12(b) of the 1940 Act
and Rule 12b-1 thereunder (the "Rule") after having concluded that there is a
reasonable likelihood that each Distribution Plan would benefit the Fund and
the respective class of shareholders. The Distribution Plans are designed to
promote sales, thereby increasing the net assets of the Fund. Such an increase
may reduce the Fund's expense ratio to the extent the Fund's fixed costs are
spread over a larger net asset base. Also, an increase in net assets may
lessen the adverse effects that could result were the Fund required to
liquidate portfolio securities to meet redemptions. There is, however, no
assurance that the net assets of the Fund will increase or that the other
benefits referred to above will be realized.
The Distribution Plans are described in the Prospectus under the caption
"Distribution Plans," which is incorporated herein by reference. The following
information supplements this Prospectus discussion.
SERVICE FEES: With respect to the Class A Distribution Plan, no service fees
will be paid: (i) to any dealer who is the holder or dealer of record for
investors who own Class A shares having an aggregate net asset value less than
$750,000, or such other amount as may be determined from time to time by MFD
(MFD, however, may waive this minimum amount requirement from time to time);
or (ii) to any insurance company which has entered into an agreement with the
Fund and MFD that permits such insurance company to purchase Class A shares
from the Fund at their net asset value in connection with annuity agreements
issued in connection with the insurance company's separate accounts. Dealers
may from time to time be required to meet certain other criteria in order to
receive service fees.
With respect to the Class B Distribution Plan, except in the case of the first
year service fee, no service fees will be paid to any securities dealer who is
the holder or dealer of record for investors who own Class B shares having an
aggregate net asset value of less than $750,000 or such other amount as may be
determined by MFD from time to time. MFD, however, may waive this minimum
amount requirement from time to time. Dealers may from time to time be
required to meet certain other criteria in order to receive service fees.
MFD or its affiliates shall be entitled to receive any service fee payable
under any Distribution Plan for which there is no dealer of record or for
which qualification standards have not been met as partial consideration for
personal services and/or account maintenance services performed by MFD or its
affiliates for shareholder accounts.
DISTRIBUTION FEES: The purpose of distribution payments to MFD under the
Distribution Plans is to compensate MFD for its distribution services to the
Fund. MFD pays commissions to dealers as well as expenses of printing
prospectuses and reports used for sales purposes, expenses with respect to the
preparation and printing of sales literature and other distribution related
expenses, including, without limitation, the cost necessary to provide
distribution-related services, or personnel, travel, office expenses and
equipment.
DISTRIBUTION AND SERVICE FEES PAID DURING THE FUND'S LAST FISCAL YEAR: During
the fiscal year ended December 31, 1995, the Fund paid the following
Distribution Plan expenses:
AMOUNT OF AMOUNT OF AMOUNT OF
DISTRIBUTION DISTRIBUTION DISTRIBUTION
AND SERVICE AND SERVICE AND SERVICE
FEES PAID FEES RETAINED FEES RECEIVED
DISTRIBUTION PLANS BY FUND BY MFD BY DEALERS
- ------------------ ------- ------------- ----------
Class A Distribution Plan $1,019,261 $528,444 $490,817
Class B Distribution Plan $ 55,403 $ 42,634 $ 12,769
GENERAL: Each of the Distribution Plans will remain in effect until August 1,
1996, and will continue in effect thereafter only if such continuance is
specifically approved at least annually by vote of both the Trustees and a
majority of the Trustees who are not "interested persons" or financially
interested parties of such Plan ("Distribution Plan Qualified Trustees"). Each
of the Distribution Plans also requires that the Fund and MFD each shall
provide the Trustees, and the Trustees shall review, at least quarterly, a
written report of the amounts expended (and purposes therefor) under such
Plan. Each of the Distribution Plans may be terminated at any time by vote of
a majority of the Distribution Plan Qualified Trustees or by vote of the
holders of a majority of the respective class of the Fund's shares (as defined
in "Investment Restrictions"). All agreements relating to any of the
Distribution Plans entered into between the Fund or MFD and other
organizations must be approved by the Board of Trustees, including a majority
of the Distribution Plan Qualified Trustees. Agreements under any of the
Distribution Plans must be in writing, will be terminated automatically if
assigned, and may be terminated at any time without payment of any penalty, by
vote of a majority of the Distribution Plan Qualified Trustees or by vote of
the holders of a majority of the respective class of the Fund's shares. None
of the Distribution Plans may be amended to increase materially the amount of
permitted distribution expenses without the approval of a majority of the
respective class of the Fund's shares (as defined in "Investment
Restrictions") or may be materially amended in any case without a vote of the
Trustees and a majority of the Distribution Plan Qualified Trustees. The
selection and nomination of Distribution Plan Qualified Trustees shall be
committed to the discretion of the non-interested Trustees then in office. No
Trustee who is not an "interested person" has any financial interest in any of
the Distribution Plans or in any related agreement.
10. DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional Shares of Beneficial Interest (without par
value) and to divide or combine the shares into a greater or lesser number of
shares without thereby changing the proportionate beneficial interests in the
Fund. The Declaration of Trust further authorizes the Trustees to classify or
reclassify the shares of the Fund into one or more classes. Pursuant thereto,
the Trustees have authorized the issuance of two classes of shares of the
Fund, Class A shares and Class B shares. Each share of a class of the Fund
represents an equal proportionate interest in the assets of the Fund allocable
to that class. The Fund reserves the right to create and issue a number of
series and additional classes of shares, in which case the shares of each
series would participate equally in the earnings, dividends and assets of the
particular series (subject to any class expenses) and would be entitled to
vote separately to approve investment advisory agreements or changes in the
investment restrictions, but shares of all series would vote together in the
election of Trustees and selection of accountants. Upon liquidation of the
Fund, the shareholders of each class of the Fund are entitled to share pro
rata in the net assets allocable to such class available for distribution to
its shareholders.
Shareholders are entitled to one vote for each share held and may vote in the
election of Trustees and on other matters submitted to meetings of
shareholders. Although Trustees are not elected annually by the shareholders,
shareholders have, under certain circumstances, the right to remove one or
more Trustees. No material amendment may be made to the Fund's Declaration of
Trust without the affirmative vote of the holders of a majority of the Fund's
shares. The Fund may be terminated (i) upon the merger or consolidation of the
Fund with another organization or upon the sale of all or substantially all
its assets, if approved by the vote of the holders of two-thirds of the
outstanding shares of the Fund, except that if the Trustees recommend such
merger, consolidation or sale, the approval by vote of the holders of a
majority of the Fund's outstanding shares will be sufficient, (ii) upon
liquidation and distribution of the assets of the Fund, if approved by the
vote of the holders of two-thirds of its outstanding shares or (iii) by the
Trustees by written notice to the Fund's shareholders. If not so terminated,
the Fund will continue indefinitely.
The Fund is an entity of the type commonly known as a "Massachusetts business
trust." Under Massachusetts law, shareholders of such a trust may, under
certain circumstances, be held personally liable as partners for its
obligations. However, the Declaration of Trust contains an express disclaimer
of shareholder liability for acts, obligations or affairs of the Fund and
provides for indemnification and reimbursement of expenses out of the Fund
property for any shareholder held personally liable for the obligations of the
Fund. The Declaration of Trust also provides that the Fund shall maintain
appropriate insurance (for example, fidelity bonding and errors and omissions
insurance) for the protection of the Fund, its shareholders, Trustees,
officers, employees and agents covering possible tort and other liabilities.
Thus, the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which both inadequate
insurance existed and the Fund itself was unable to meet its obligations.
The Declaration of Trust further provides that obligations of the Fund are not
binding upon the Trustees individually but only upon the property of the Fund
and that the Trustees will not be liable for any action or failure to act, but
nothing in the Declaration of Trust protects a Trustee against any liability
to which he would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office.
11. INDEPENDENT AUDITORS AND FINANCIAL STATEMENTS
Deloitte & Touche LLP are the Fund's independent auditors, providing audit
services, tax return preparation and assistance and consultation with respect
to the preparation of filings with the SEC.
The Portfolio of Investments at December 31, 1995, the Statement of Assets and
Liabilities at December 31, 1995, the Statement of Operations for the year
ended December 31, 1995, the Statement of Changes in Net Assets for each of
the two years in the period ended December 31, 1995, the Notes to Financial
Statements and the Independent Auditors' Report, each of which is included in
the Annual Report to shareholders of the Fund, are incorporated by reference
into this SAI in reliance upon the report of Deloitte & Touche LLP,
independent auditors, given upon their authority as experts in accounting and
auditing. A copy of the Annual Report accompanies this SAI.
<PAGE>
APPENDIX A
DESCRIPTION OF BOND RATINGS
MOODY'S
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat larger than in Aaa
securities.
A: Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
Baa: Bonds which are rated Baa are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during other good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
ABSENCE OF RATING: Where no rating has been assigned or where a rating has
been suspended or withdrawn, it may be for reasons unrelated to the quality of
the issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies that
are not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise,
the effects of which preclude satisfactory analysis; if there is no longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.
NOTE: Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa to B. The modifier 1 indicates that the company ranks
in the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the company ranks in the
lower end of its generic rating category.
S & P
AAA: Debt rated AAA has the highest rating assigned by S & P. Capacity to pay
interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB: Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B: Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness
to pay interest and repay principal. The B rating category is also used for
debt subordinated to senior debt that is assigned an actual or implied BB or
BB- rating.
CCC: Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, it is not likely to have
the capacity to pay interest and repay principal. The CCC rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied B or B- rating.
CC: The rating CC is typically applied to debt subordinated to senior debt
that is assigned an actual or implied CCC rating.
C: The rating C is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC- debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
CI: The rating CI is reserved for income bonds on which no interest is being
paid.
D: Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The "D" rating also will be
used upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
PLUS (+) OR MINUS (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
categories.
NR: indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate
a particular type of obligation as a matter of policy.
FITCH INVESTORS SERVICE, INC.
AAA: Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA: Bonds considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated "AAA". Because bonds rated in the
"AAA" and "AA" categories are not significantly vulnerable to foreseeble
future developments, short-term debt of these issuers is generally rated
"F-1+".
A: Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions
and circumstances than bonds with higher ratings.
BBB: Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions, however,
are more likely to have adverse impact on these bonds, and therefore impair
timely payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
BB: Bonds are considered speculative. The obligor's ability to pay interest
and repay principal may be affected over time by adverse economic changes.
However, business and financial alternatives can be identified which could
assist the obligor in satisfying its debt service requirements.
B: Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued
timely payment of principal and interest reflects the obligor's limited margin
of safety and the need for reasonable business and economic activity
throughout the life of the issue.
CCC: Bonds have certain identifiable characteristics which, if not remedied,
may lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC: Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C: Bonds are in imminent default in payment of interest or principal.
PLUS (+) MINUS (-): Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the "AAA" category.
NR: Indicates that Fitch does not rate the specific issue.
CONDITIONAL: A conditional rating is premised on the successful completion of
a project or the occurrence of a specific event.
SUSPENDED: A rating is suspended when Fitch deems the amount of information
available from the issuer to be inadequate for rating purposes.
WITHDRAWN: A rating will be withdrawn when an issue matures or is called or
refinanced, and, at Fitch's discretion, when an issuer fails to furnish proper
and timely information.
FITCHALERT: Ratings are placed on FitchAlert to notify investors of an
occurrence that is likely to result in a rating change and the likely
direction of such change. These are designated as "Positive," indicating a
potential upgrade, "Negative," for potential downgrade, or "Evolving," where
ratings may be raised or lowered. FitchAlert is relatively short-term, and
should be resolved within 12 months.
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
TRUSTEE COMPENSATION TABLE
RETIREMENT BENEFIT ESTIMATED TOTAL TRUSTEE FEES
TRUSTEE FEES ACCRUED AS PART OF CREDITED YEARS FROM FUND AND
TRUSTEE FROM FUND(1) FUND EXPENSE(1) OF SERVICE(2) FUND COMPLEX(3)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Richard B. Bailey $4,455 $ 875 8 $263,815
A. Keith Brodkin --0-- --0-- N/A --0--
Peter G. Harwood 5,060 475 5 111,366
J. Atwood Ives 4,590 892 17 101,356
Lawrence T. Perera 4,725 2,322 26 102,546
William Poorvu 5,060 2,316 25 111,366
Charles W. Schmidt 4,860 2,199 20 105,411
Arnold D. Scott --0-- --0-- N/A --0--
Jeffrey L. Shames --0-- --0-- N/A --0--
Elaine R. Smith 4,860 852 27 105,411
David B. Stone 5,260 2,019 14 115,521
</TABLE>
(1) For fiscal year ended December 31, 1995.
(2) Based on normal retirement age of 73.
(3) Information provided is provided for calendar year 1995. All Trustees
receiving compensation served as Trustees of 23 funds within the MFS fund
complex (having aggregate net assets at December 31, 1995 of approximately
$17.6 billion) except Mr. Bailey, who served as Trustee of 73 funds within
the MFS fund complex (having aggregate net assets at December 31, 1995 of
approximately $31.7 billion).
<TABLE>
<CAPTION>
ESTIMATED ANNUAL BENEFITS PAYABLE BY FUND UPON RETIREMENT(4)
YEARS OF SERVICE
------------------------------------------------------------------------
AVERAGE TRUSTEE FEES 3 5 7 10 OR MORE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$4,010 $601 $1,002 $1,403 $2,005
4,365 655 1,091 1,528 2,182
4,720 708 1,180 1,652 2,360
5,075 761 1,269 1,776 2,538
5,431 815 1,358 1,901 2,715
5,786 868 1,447 2,025 2,893
(4) Other funds in the MFS fund complex provide similar retirement benefits to the Trustees.
</TABLE>
<PAGE>
INVESTMENT ADVISER
Massachusetts Financial Services Company
500 Boylston Street, Boston, MA 02116
(617) 954-5000
DISTRIBUTOR
MFS Fund Distributors, Inc.
500 Boylston Street, Boston, MA 02116
(617) 954-5000
CUSTODIAN AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company
225 Franklin Street, Boston, MA 02110
SHAREHOLDER SERVICING AGENT
MFS Service Center, Inc.
500 Boylston Street, Boston, MA 02116
Toll free: (800) 225-2606
MAILING ADDRESS
P.O. Box 2281, Boston, MA 02107-9906
INDEPENDENT AUDITORS
Deloitte & Touche LLP
125 Summer Street, Boston, MA 02110
MFS(R)
GROWTH
OPPORTUNITIES FUND
500 BOYLSTON STREET
BOSTON, MA 02116
[LOGO] MFS(R)
THE FIRST NAME IN MUTUAL FUNDS
MGO-13-5/96/500 16/216
<PAGE>
<PAGE>
[MFS LOGO] ANNUAL REPORT FOR
YEAR ENDED
DECEMBER 31, 1995
MFS [Registration Mark] GROWTH OPPORTUNITIES FUND
Front Cover
A photo of computer disks.
<PAGE>
MFS [Registration Mark] GROWTH OPPORTUNITIES FUND
TRUSTEES
A. Keith Brodkin* - Chairman and President
Richard B. Bailey* - Private Investor; Former Chairman and Director (until
1991), Massachusetts Financial Services Company; Director, Cambridge Bancorp;
Director, Cambridge Trust Company
Peter G. Harwood - Private Investor
J. Atwood Ives - Chairman and Chief Executive Officer, Eastern Enterprises
Lawrence T. Perera - Partner, Hemenway & Barnes
William J. Poorvu - Adjunct Professor, Harvard University Graduate School of
Business Administration
Charles W. Schmidt - Private Investor
Arnold D. Scott* - Senior Executive Vice President, Director and Secretary,
Massachusetts Financial Services Company
Jeffrey L. Shames* - President and Director, Massachusetts Financial Services
Company
Elaine R. Smith - Independent Consultant
David B. Stone - Chairman, North American Management Corp. (investment advisers)
INVESTMENT ADVISER
Massachusetts Financial Services Company
500 Boylston Street
Boston, MA 02116-3741
DISTRIBUTOR
MFS Fund Distributors, Inc.
500 Boylston Street
Boston, MA 02116-3741
PORTFOLIO MANAGER
Paul M. Mcmahon*
TREASURER
W. Thomas London*
ASSISTANT TREASURER
James O. Yost*
SECRETARY
Stephen E. Cavan*
ASSISTANT SECRETARY
James R. Bordewick, Jr.*
CUSTODIAN
State Street Bank and Trust Company
AUDITORS
Deloitte & Touche LLP
INVESTOR INFORMATION
For MFS stock and bond market outlooks, call toll-free: 1-800-637-4458 anytime
from a touch-tone telephone.
For information on MFS mutual funds, call your financial adviser or, for an
information kit, call toll free: 1-800-637-2929 any business day from 9 a.m. to
5 p.m. Eastern time (or leave a message anytime).
INVESTOR SERVICE
MFS Service Center, Inc.
P.O. Box 2281
Boston, MA 02107-9906
For general information, call toll free: 1-800-225-2606 any business day from 8
a.m. to 8 p.m. Eastern time.
For service to speech- or hearing-impaired, call toll free: 1-800-637-6576 any
business day from 9 a.m. to 5 p.m. Eastern time. (To use this service, your
phone must be equipped with a Telecommunications Device for the Deaf.)
- --------------------------------------------------------------------------------
TOP-RATED SERVICE
[DALBAR LOGO]
For the second year in a row, MFS earned a #1 ranking in DALBAR, Inc.'s
Broker/Dealer Survey, Main Office Operations Service Quality category. The firm
achieved a 3.49 overall score - on a scale of 1 to 4 - in the 1995 survey. A
total of 71 firms responded, offering input on the quality of service they
receive from 36 mutual fund companies nationwide. The survey contained questions
about service quality in 17 categories, including "knowledge of phone service
contacts," "accuracy of transaction processing," and "overall ease of doing
business with the firm."
- --------------------------------------------------------------------------------
*Affiliated with the Investment Adviser
<PAGE>
LETTER TO SHAREHOLDERS
Dear Shareholders:
During the fiscal year ended December 31, 1995, the total return for Class A
shares of the Fund was +34.49%, while the total return for Class B shares was
+33.20%. Both of these figures assume the reinvestment of distributions but
exclude the effects of any sales charges. The Standard & Poor's 500 Composite
Index (the S&P 500), a popular, unmanaged index of common stock performance, had
a return of +37.53% over the same period. A discussion of some of the factors
which impacted the Fund's performance relative to the S&P 500 is included in the
Portfolio Performance and Strategy section of this letter.
Economic Outlook
Moderate but sustainable growth was the hallmark of the economic expansion's
fifth year. While initial estimates showed the U.S. economy growing at an annual
rate of 4.2% in the third quarter, this surprisingly strong growth was mainly
driven by a pickup in consumer spending and an increase in business and
government outlays. Although this rate of growth was impressive, it is not
expected to continue into 1996. Recent retail sales have been disappointing, in
part because of rising levels of consumer debt. An extended period of lower
mortgage rates seems to have relieved much of the pent-up dema nd for housing.
Growth is not expected to get much help from the manufacturing sector, either,
as order flows from manufacturers have moderated. Export activity, meanwhile, is
also expected to remain modest as continued weakness abroad limits demand for
many U.S. goods. However, the Federal Reserve Board's consistent and, so far,
successful efforts to fight inflation seem to be giving consumers and businesses
enough longer-term confidence to help maintain modest growth in real (adjusted
for inflation) gross domestic product into 1996.
Stock Market
After some volatility late in the third quarter, the stock market continued to
strengthen. Although many companies reported solid third-quarter results, there
was some weakness in the earnings of retail, financial services and even some
technology companies. However, a slowdown in earnings may be a positive
development if it is an indication that the economy is not overheating and
inflation is under control. While we see a deceleration of corporate earnings as
the inevitable consequence of traditional business cycles, we remain encouraged
by the high absolute level of profitability among U.S. companies. Also, many
companies' increasing emphasis on cost containment and their growing use of
technology have helped keep them highly competitive and reasonably profitable.
Looking ahead, we believe that a stabilizing interest rate environment, coupled
with reasonable earnings reports, could justify current market valuations.
1
<PAGE>
LETTER TO SHAREHOLDERS - continued
Portfolio Performance and Strategy
The Fund's performance benefited from a significant weighting in the technology
sector, which had strong performance from stocks related to the personal
computer business such as Intel and Microsoft. Stocks of lodging companies such
as HFS, Inc., a franchiser in the lodging and real estate brokerage business,
also staged a strong rally during the year. Health care holdings such as United
Healthcare helped performance in the second half as investors' confidence in the
earnings outlooks for these companies improved. The Fund's performance was
negatively impacted by underweightings in consumer staples such as food and
household products and in financial services. These sectors outperformed the S&P
500 during the second half of the year as investors became more concerned about
a moderation in economic growth.
The Fund continues to seek companies possessing five key factors: earnings
momentum, reasonable valuations, good management, a strong balance sheet, and
positive secular trends. Given that current price/earnings multiples appear to
be reasonable, the focus now is on companies with earnings momentum favorable to
achieving further stock price appreciation.
Our largest concentration remains in the technology area, which is seeing
strong spending by corporations focusing on ways to increase productivity. Other
large weightings are in entertainment and medical services, as well as a number
of agricultural-equipment holdings that we believe will benefit from a
continuing strong farm economy over the coming year. The Fund's foreign
weighting remains low, but it is likely to increase as growth accelerates
overseas during the coming year.
We appreciate your support and welcome any questions or comments you may
have.
Respectfully,
[Signature] [Signature]
A. Keith Brodkin Paul M. McMahon
Chairman and President Portfolio Manager
January 12, 1996
2
<PAGE>
PORTFOLIO MANAGER PROFILE
Paul McMahon joined the MFS Research Department in 1981 as an industry
specialist. A graduate of Holy Cross College and the Amos Tuck School of
Business Administration of Dartmouth College, he was named Investment Officer in
1983; Assistant Vice President - Investments in 1984; Vice President -
Investments in 1986; and Senior Vice President and Portfolio Manager of MFS
Growth Opportunities Fund.
OBJECTIVE AND POLICIES
The Fund's investment objective is to seek growth of capital. Dividend income,
if any, is incidental to the Fund's objective. Generally, emphasis is placed
upon companies believed to possess above-average growth opportunities. The Fund
invests primarily in common stocks, but may seek appreciation in other types of
securities, including fixed-income securities, convertible bonds, convertible
preferred stocks and warrants.
TAX FORM SUMMARY
In January 1996, shareholders will be mailed a Tax Form Summary reporting the
federal tax status of all distributions paid during the calendar year 1995.
DIVIDENDS RECEIVED DEDUCTION
For the year ended December 31, 1995, the amount of distributions from income
eligible for the 70% dividends-received deduction for corporations came to
12.37%.
3
<PAGE>
PERFORMANCE
The information below and on the following page illustrates the historical
performance of MFSGrowth Opportunities Fund Class A shares in comparison to
various market indicators. Fund results in the graph reflect the deduction of
the 5.75% maximum sales charge; benchmark comparisons are unmanaged and do not
reflect any fees or expenses. You cannot invest in an index. All results reflect
the reinvestment of all dividends and capital gains.
Please note that effective September 7, 1993, Class B shares were offered.
Information on Class B share performance appears on the next page.
In the table on the following page, we have included the average annual total
returns of all growth funds (including the Fund) tracked by Lipper Analytical
Services, Inc. (an independent firm which rates mutual fund performance) for the
applicable time periods. Because these returns do not reflect any applicable
sales charges, we have also included the Fund's results at net asset value (no
sales charge) for comparison.
All results are historical and, therefore, are not an indication of future
results. The investment return and principal value of an investment in a mutual
fund will vary with changes in market conditions, and shares, when redeemed, may
be worth more or less than their original cost.
All Class A results reflect the applicable expense subsidy which is explained in
the Notes to Financial Statements. Had the subsidy not been in effect, the
results would have been less favorable.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the 5-Year Period Ended December 31, 1995)
[Line graph representing the growth of a $10,000 investment for the 5-year
period ended December 31, 1995. The graph is scaled from $5,000 to $30,000 in
$5,000 to $30,000 in $5,000 segments. The years are marked from 1991 to 1995.
There are three lines drawn to scale. One is a solid line representing Growth
Opportunities Fund (Class A), a second line of short dashes represents the S&P
500, and the third line of long dashes represents the Consumer Price Index.]
Growth Opportunities (Class A) $18,607
S&P 500 $21,519
Consumer Price Index $11,472
The performance of other classes will be greater than or less than the line
shown, based on the differences in loads and fees paid by shareholders investing
in the different classes.
4
<PAGE>
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the 10-Year Period Ended December 31, 1995)
[Line graph representing the growth of a $10,000 investment for the 10-year
period ended December 31, 1995. The graph is scaled from $10,000 to $50,000 in
$10,000 segments. The years are marked from 1986 to 1995. There are three lines
drawn to scale. One is a solid line representing Growth Opportunities Fund
(Class A), a second line of short dashes represents the S&P 500, and a third
line of long dashes represents the Consumer Price Index.]
Growth Opportunities (Class A) $27,403
S&P 500 $39,955
Consumer Price Index $14,045
AVERAGE ANNUAL TOTAL RETURNS
1 Year 3 Years 5 Years 10 Years
================================================================================
MFS Growth Opportunities Fund (Class A)
including 5.75% sales charge +26.76% +12.18% +13.23% +10.61%
- --------------------------------------------------------------------------------
MFS Growth Opportunities Fund (Class A)
at net asset value +34.49% +14.41% +14.58% +11.26%
- --------------------------------------------------------------------------------
MFS Growth Opportunities Fund (Class B)
with CDSC+ +29.20% -- -- +11.04%*
- --------------------------------------------------------------------------------
MFS Growth Opportunities Fund (Class B)
without CDSC +33.20% -- -- +12.10%*
- --------------------------------------------------------------------------------
Average growth fund** +30.79% +12.45% +16.01% +12.95%
- --------------------------------------------------------------------------------
Standard & Poor's 500 Composite Index** +37.53% +15.32% +16.56% +14.86%
- --------------------------------------------------------------------------------
Consumer Price Index[ss]** + 2.54% + 2.65% + 2.79% + 3.46%
- --------------------------------------------------------------------------------
+ These returns reflect the current Class B contingent deferred sales charge
(CDSC) of 4% for the 1-year period and 3% for the period commencing
September 7, 1993.
* For the period from the commencement of offering of Class B shares,
September 7, 1993 to December 31, 1995.
[ss] The Consumer Price Index is a popular measure of change in prices.
** Source: Lipper Analytical Services, Inc.
5
<PAGE>
PORTFOLIO OF INVESTMENTS - December 31, 1995
Common Stocks - 98.7%
================================================================================
Issuer Shares Value
- --------------------------------------------------------------------------------
U.S. Common Stocks - 93.9%
Aerospace - 3.2%
General Dynamic Corp. 58,000 $ 3,429,250
Lockheed Martin Corp. 103,500 8,176,500
McDonnell Douglas Corp. 129,800 11,941,600
------------
$ 23,547,350
- --------------------------------------------------------------------------------
Agricultural Products - 4.1%
AGCO Corp. 254,600 $ 12,984,600
Case Corp. 49,500 6,839,625
Deere & Co., Inc. 286,200 10,088,550
------------
$ 29,912,775
- --------------------------------------------------------------------------------
Airlines - 1.6%
Southwest Airlines Co. 498,600 $ 11,592,450
- --------------------------------------------------------------------------------
Apparel and Textiles - 1.0%
Nike, Inc., B 104,000 $ 7,241,000
- --------------------------------------------------------------------------------
Automotive - 3.4%
APS Holding Corp.,"A"* 251,600 $ 5,661,000
General Motors Corp. 169,500 8,962,312
Harley-Davidson, Inc. 256,300 7,368,625
Varity Corp.* 83,300 3,092,512
------------
$ 25,084,449
- --------------------------------------------------------------------------------
Broadcasting - 0.6%
Infinity Broadcasting Corp.,"A"* 125,000 $ 4,656,250
- --------------------------------------------------------------------------------
Business Services - 3.9%
ADT Ltd.* 472,700 $ 7,090,500
ALCO Standard Corp. 182,200 8,312,875
Ceridian Corp.* 225,100 9,285,375
Corestaff, Inc.* 10,700 390,550
Policy Management Systems Corp.* 64,900 3,090,862
------------
$ 28,170,162
- --------------------------------------------------------------------------------
Cellular Phones - 0.4%
AirTouch Communications, Inc.* 108,500 $ 3,065,125
- --------------------------------------------------------------------------------
Chemicals - 0.7%
Geon Co. 220,700 $ 5,379,562
- --------------------------------------------------------------------------------
Computer Software - Personal Computers - 5.0%
Acclaim Entertainment, Inc.* 52,900 $ 654,637
Arbor Software Corp.* 2,200 103,950
Autodesk, Inc. 166,700 5,709,475
Electronic Arts, Inc.* 420,900 10,996,012
Microsoft Corp.* 198,500 17,418,375
Spectrum Holobyte Industries* 178,700 1,161,550
------------
$ 36,043,999
- --------------------------------------------------------------------------------
6
<PAGE>
PORTFOLIO OF INVESTMENTS - continued
Common Stocks - continued
================================================================================
Issuer Shares Value
- --------------------------------------------------------------------------------
U.S. Common Stocks - continued
Computer Software - Systems - 12.5%
Adobe Systems, Inc. 178,900 $ 11,091,800
BMC Software, Inc.* 342,500 14,641,875
Cadence Design Systems, Inc.* 340,650 14,307,300
Compaq Computer Corp.* 16,500 792,000
Computer Associates International, Inc. 197,400 11,227,125
DST Systems, Inc.* 120,400 3,431,400
General Motors Corp.,"E" 101,800 5,293,600
Micros System, Inc.* 143,600 7,072,300
Oracle Systems Corp.* 252,100 10,682,737
Sybase, Inc.* 340,700 12,265,200
System Software Associates, Inc. 23,100 502,425
------------
$ 91,307,762
- --------------------------------------------------------------------------------
Consumer Goods and Services - 7.3%
Kimberly-Clark Corp. 91,200 $ 7,546,800
Philip Morris Cos., Inc. 225,400 20,398,700
Service Corp. International 40,800 1,795,200
Tyco International Ltd. 653,700 23,288,063
------------
$ 53,028,763
- --------------------------------------------------------------------------------
Defense Electronics - 1.2%
Loral Corp. 237,100 $ 8,387,413
- --------------------------------------------------------------------------------
Electronics - 5.4%
Altera Corp* 18,000 $ 895,500
Analog Devices, Inc.* 108,100 3,824,038
ESS Technology, Inc.* 25,600 588,800
Intel Corp. 299,500 16,996,625
LSI Logic Corp.* 323,800 10,604,450
National Semiconductor Corp.* 107,800 2,398,550
Xilinx, Inc.* 128,500 3,919,250
------------
$ 39,227,213
- --------------------------------------------------------------------------------
Entertainment - 3.9%
Argosy Gaming Corp * 75,800 $ 577,975
Harrahs Entertainment, Inc.* 751,800 18,231,150
Mirage Resorts, Inc.* 186,700 6,441,150
National Gaming Corp.* 18,800 223,250
Sky City Ltd.* 135,000 2,798,064
------------
$ 28,271,589
- --------------------------------------------------------------------------------
Financial Institutions - 4.1%
Federal Home Loan Mortgage Corp. 151,000 $ 12,608,500
Financial Federal Corp.* 95,500 2,136,813
Finova Group, Inc. 102,700 4,955,275
Schwab (Charles) Corp. 511,600 10,295,950
------------
$ 29,996,538
- --------------------------------------------------------------------------------
Food and Beverage Products - 2.1%
General Mills, Inc. 126,100 $ 7,282,275
Universal Foods Corp. 198,800 7,976,850
------------
$ 15,259,125
- --------------------------------------------------------------------------------
7
<PAGE>
PORTFOLIO OF INVESTMENTS - continued
Common Stocks - continued
================================================================================
Issuer Shares Value
- --------------------------------------------------------------------------------
U.S. Common Stocks - continued
Insurance - 1.3%
Amerin Corp.* 115,200 $ 3,081,600
Lasalle Re Holdings Ltd.* 59,000 1,349,625
Prudential Reinsurance Holdings, Inc. 209,900 4,906,413
------------
$ 9,337,638
- --------------------------------------------------------------------------------
Machinery - 0.2%
IDEX Corp. 34,500 $ 1,405,875
- --------------------------------------------------------------------------------
Medical and Health Products - 1.6%
Johnson & Johnson 109,900 $ 9,410,188
Sofamor Danek Group, Inc.* 66,900 1,898,288
------------
$ 11,308,476
- --------------------------------------------------------------------------------
Medical and Health Technology and Services - 6.8%
Community Health Systems* 47,500 $ 1,692,187
Foundation Health Corp.* 146,000 6,278,000
Genesis Health Ventures, Inc.* 106,300 3,879,950
Health Care & Retirement Corp.* 120,300 4,210,500
Living Centers of America* 103,000 3,605,000
Manor Care, Inc. 210,000 7,350,000
Schein (Henry), Inc.* 6,200 182,900
United Healthcare Corp. 343,300 22,486,150
------------
$ 49,684,687
- --------------------------------------------------------------------------------
Metals and Minerals - 3.4%
Allegheny Ludlum Corp. 192,300 $ 3,557,550
J & L Specialty Steel, Inc. 155,600 2,917,500
Minerals Technologies, Inc. 78,400 2,861,600
Nucor Corp. 178,700 10,208,238
Phelps Dodge Corp. 85,500 5,322,375
------------
$ 24,867,263
- --------------------------------------------------------------------------------
Oils - 1.6%
Enron Oil & Gas Co. 89,000 $ 2,136,000
Mobil Corp. 78,500 8,792,000
Union Pacific Resources, Inc. 32,300 819,613
------------
$ 11,747,613
- --------------------------------------------------------------------------------
Photographic Products - 1.0%
Eastman Kodak Co. 110,200 $ 7,383,400
- --------------------------------------------------------------------------------
Railroad - 1.3%
Wisconsin Central Transportation Corp.* 138,900 $ 9,132,675
- --------------------------------------------------------------------------------
Restaurants and Lodging - 4.6%
Felcor Suite Hotels, Inc. 66,500 $ 1,845,375
HFS, Inc.* 182,600 14,927,550
Promus Hotel Corp.* 553,650 12,318,713
Renaissance Hotel Group N.V 170,800 4,355,400
------------
$ 33,447,038
- --------------------------------------------------------------------------------
8
<PAGE>
PORTFOLIO OF INVESTMENTS - continued
Common Stocks - continued
================================================================================
Issuer Shares Value
- --------------------------------------------------------------------------------
U.S. Common Stocks - continued
Stores - 5.7%
Circuit City Stores, Inc. 203,000 $ 5,607,875
Corporate Express, Inc.* 80,900 2,437,113
Duty Free International, Inc. 43,700 699,200
Federated Department Store, Inc.* 366,900 10,089,750
Intelligent Electronics, Inc. 403,800 2,422,800
Micro Warehouse, Inc.* 86,300 3,732,475
Office Depot, Inc.* 516,000 10,191,000
Officemax, Inc.* 282,300 6,316,463
------------
$ 41,496,676
- --------------------------------------------------------------------------------
Telecommunications - 5.8%
3Com Corp.* 197,678 $ 9,216,737
Cabletron Systems, Inc.* 113,800 9,217,800
Novell, Inc.* 413,000 5,885,250
Tel-Save Holdings, Inc.* 99,100 1,375,013
Tellabs, Inc.* 181,700 6,722,900
U.S. Robotics Corp.* 46,700 4,097,925
Worldcom, Inc.* 163,300 5,756,325
------------
$ 42,271,950
- --------------------------------------------------------------------------------
Utilities - Telephone - 0.2%
MCI Communications Corp. 46,700 $ 1,220,038
- --------------------------------------------------------------------------------
Total U.S. Common Stocks $683,474,854
- --------------------------------------------------------------------------------
Foreign Stocks - 4.8%
Canada - 0.3%
Canadian National Railway Co. (Railroad)* 13,800 $ 207,000
Potash Corp. of Saskatchewan, Inc.
(Precious Metals and Minerals) 24,800 1,757,700
------------
$ 1,964,700
- --------------------------------------------------------------------------------
Hong Kong - 0.5%
Peregrine Investment Holdings (Finance) 2,620,000 $ 3,388,516
- --------------------------------------------------------------------------------
Italy - 1.4%
Telecom Italia Mobile (Telecommunications) 1,855,800 $ 3,268,405
Telecom Italia Mobile, Saving Shares
(Telecommunications) 6,333,000 6,664,216
------------
$ 9,932,621
- --------------------------------------------------------------------------------
Sweden - 1.4%
ASTRA AB, "B" (Medical and Health Products) 244,600 $ 9,681,807
TV 4 AB (Broadcasting) 48,400 837,697
------------
$ 10,519,504
- --------------------------------------------------------------------------------
United Kingdom - 1.2%
PowerGen PLC, ADR (Utilities - Electric) 1,095,800 $ 3,759,718
Reuters Holdings PLC, ADR
(Printing and Publishing) 97,700 5,385,712
------------
$ 9,145,430
- --------------------------------------------------------------------------------
Total Foreign Stocks $ 34,950,771
- --------------------------------------------------------------------------------
Total Common Stocks (Identified Cost, $566,015,389) $718,425,625
- --------------------------------------------------------------------------------
9
<PAGE>
PORTFOLIO OF INVESTMENTS - continued
Convertible Bonds - 0.1%
================================================================================
Principal Amount
Issuer (000 Omitted) Value
- --------------------------------------------------------------------------------
Spectrum Holobyte, Inc., 6.5s, 2002## $ 870 $ 635,100
(Identified Cost, $870,000)
- --------------------------------------------------------------------------------
Short-Term Obligations - 1.7%
================================================================================
Federal Home Loan Mortgage, due 1/05/96 $ 7,870 $ 7,864,972
Federal Home Loan Mortgage, due 1/11/96 2,600 2,596,064
Ford Motor Credit Corp., due 1/02/96 2,055 2,054,658
Transamerica Corp., due 1/02/96 5 4,999
- --------------------------------------------------------------------------------
Total Short-Term Obligations, at Amortized Cost $ 12,520,693
- --------------------------------------------------------------------------------
Total Investments (Identified Cost, $579,406,082) $731,581,418
Other Assets, Less Liabilities - (0.5)% (3,440,811)
================================================================================
Net Assets - 100.0% $728,140,607
- --------------------------------------------------------------------------------
* Non-income producing security.
## SEC-Rule 144A restriction.
See notes to financial statements
10
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
================================================================================
December 31, 1995
- --------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $ 579,406,082) $731,581,418
Cash 3,079
Net receivable for forward foreign currency
exchange contracts sold 54,033
Receivable for Fund shares sold 3,179,742
Receivable for investments sold 1,738,262
Dividends and interest receivable 585,187
Other assets 8,163
------------
Total assets $737,149,884
------------
Liabilities:
Distributions payable $ 3,665,913
Payable for Fund shares reacquired 920,760
Payable for investments purchased 3,868,528
Payable to affiliates -
Management fee 22,302
Shareholder servicing agent fee 7,476
Distribution fee 251,883
Accrued expenses and other liabilities 272,415
------------
Total liabilities $ 9,009,277
------------
Net assets $728,140,607
============
Net assets consist of:
Paid-in capital $576,139,588
Unrealized appreciation on investments and translation
of assets and liabilities in foreign currencies 152,229,784
Accumulated distributions in excess of net realized
gain on investments and foreign currency transactions (173,143)
Distributions in excess of net investment income (55,622)
------------
Total $728,140,607
============
Shares of beneficial interest outstanding 60,983,939
============
Class A shares:
Net asset value and redemption price per share
(net assets of $721,467,110 / 60,418,127 shares of
beneficial interest outstanding) $11.94
======
Offering price per share (100/94.25) $12.67
======
Class B shares:
Net asset value, and offering price per share
(net assets of $6,673,497 / 565,812 shares of
beneficial interest outstanding) $11.79
======
On sales of $50,000 or more, the offering price of Class A shares is reduced. A
contingent deferred sales charge may be imposed on redemptions of Class A and
Class B shares.
See notes to financial statements
11
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Operations
================================================================================
Year Ended December 31, 1995
- --------------------------------------------------------------------------------
Net investment income:
Income -
Dividend $ 6,557,079
Interest 603,745
Foreign taxes withheld (13,547)
------------
Total investment income $ 7,147,277
------------
Expenses -
Management fee $ 2,892,782
Trustees' compensation 54,184
Shareholder servicing agent fee (Class A) 951,427
Shareholder servicing agent fee (Class B) 12,189
Distribution and service fee (Class A) 1,684,980
Distribution and service fee (Class B) 55,403
Custodian fee 297,829
Postage 105,334
Printing 89,253
Auditing fees 43,150
Legal fees 7,982
Miscellaneous 340,920
------------
Total expenses $ 6,535,433
Fees paid indirectly (83,252)
Reduction of expenses by distributor (665,719)
------------
Net expenses $ 5,786,462
------------
Net investment income $ 1,360,815
------------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $ 94,960,904
Foreign currency transactions (1,207,070)
------------
Net realized gain on investments $ 93,753,834
------------
Change in unrealized appreciation (depreciation) -
Investments $101,758,940
Translation of assets and liabilities in
foreign currencies (1,181,943)
------------
Net unrealized gain on investments $100,603,997
------------
Net realized and unrealized gain
on investments and foreign currency $194,357,831
------------
Increase in net assets from operations $195,718,646
============
See notes to financial statements
12
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
=============================================================================================
Year Ended December 31, 1995 1994
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 1,360,815 $ 1,335,181
Net realized gain on investments and
foreign currency transactions 93,753,834 42,060,255
Net unrealized gain (loss) on investments and
foreign currency translation 100,603,997 (70,715,857)
------------ ------------
Increase (decrease) in net assets from operations $195,718,646 $(27,320,421)
------------ ------------
Distributions declared to shareholders -
From net investment income (Class A) $ -- $ (724,008)
From net realized gain on investments and foreign
currency transactions (Class A) (90,832,129) (44,286,419)
From net realized gain on investments and foreign
currency transactions (Class B) (804,857) --
In excess of net investment income (Class A) -- (985,537)
In excess of net realized gain on investment and
foreign currency transactions -- (2,720,891)
------------ ------------
Total distributions declared to shareholders $(91,636,986) $(48,716,855)
------------ ------------
Fund share (principal) transactions -
Net proceeds from sale of shares $103,860,834 $ 30,868,624
Net asset value of shares issued to shareholders
in reinvestment of distributions 87,980,013 46,865,238
Cost of shares reacquired (160,208,262) (119,914,672)
------------ ------------
Increase (decrease) in net assets from
Fund share transactions $ 31,632,585 $(42,180,810)
------------ ------------
Total increase (decrease) in net assets $135,714,245 $(118,218,086)
Net assets:
At beginning of period 592,426,362 710,644,448
------------ ------------
At end of period (including accumulated distributions
in excess of net investment income of $55,622 and
$985,537, respectively) $728,140,607 $592,426,362
------------ ------------
</TABLE>
See notes to financial statements
13
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Financial Highlights
====================================================================================================================================
Year Ended December 31, 1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------------
Class A
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $ 10.17 $ 11.56 $ 11.17 $ 10.75 $ 9.97
-------- -------- -------- -------- --------
Income from investment operations# -
Net investment income [ss] $ 0.03 $ 0.02 $ 0.07 $ 0.15 $ 0.24
Net realized and unrealized gain (loss) on
investments and foreign
currency transactions 3.46 (0.50) 1.73 0.67 1.94
-------- -------- -------- -------- --------
Total from investment operations $ 3.49 $ (0.48) $ 1.80 $ 0.82 $ 2.18
-------- -------- -------- -------- --------
Less distributions declared to shareholders -
From net investment income $ -- $ (0.01) $ (0.07) $ (0.14) $ (0.18)
In excess of net investment income -- (0.02) (0.02) -- --
From net realized loss on investments
and foreign currency transactions (1.72) (0.83) (1.32) (0.26) (1.22)
In excess of net realized loss on
investments and foreign currency
transactions -- (0.05) -- -- --
-------- -------- -------- -------- --------
Total distributions declared
to shareholders $ (1.72) $ (0.91) $ (1.41) $ (0.40) $ (1.40)
-------- -------- -------- -------- --------
Net asset value - end of period $ 11.94 $ 10.17 $ 11.56 $ 11.17 $ 10.75
-------- -------- -------- -------- --------
Total return++ 34.49% (4.15)% 16.19% (8.06)% 9.29%
Ratios (to average net assets)/Supplemental data [ss]:
Expenses## 0.87% 0.86% 0.84% 0.89% 0.88%
Net investment income 0.21% 0.21% 0.60% 1.40% 2.14%
Portfolio turnover 100% 78% 79% 102% 131%
Net assets at end of period (000 omitted) $721,467 $589,260 $709,839 $694,084 $739,791
<FN>
++ Total returns for Class A shares do not include the sales charge (except for reinvested dividends prior to March 1,
1991). If the charge had been included, the results would have been lower.
# Per share data for the period subsequent to December 31, 1992 is based on average shares outstanding.
## For fiscal years ending after September 1, 1995, the Fund's expenses are calculated without reduction for fees paid
indirectly.
[ss] The distributor did not impose a portion of its distribution fee for certain of the periods indicated. If this fee had been
incurred by the Fund, the net investment income per share and ratios would have been:
Net investment income $ 0.02 $ 0.01 $ 0.07 -- --
Ratios (to average net assets):
Expenses 0.97% 0.96% 0.87% -- --
Net investment income 0.11% 0.11% 0.56% -- --
</FN>
</TABLE>
See notes to financial statements
14
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Financial Highlights - continued
====================================================================================================================================
Year Ended
Year ended December 31, March 31,
------------------------------------------------------
1990 1989 1988 1987* 1987
- ------------------------------------------------------------------------------------------------------------------------------------
Class A
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $ 10.93 $ 10.96 $ 10.81 $ 13.41 $ 13.51
-------- -------- -------- -------- --------
Income from investment operations -
Net investment income $ 0.30 $ 0.36 $ 0.22 $ 0.11 $ 0.17
Net realized and unrealized gain on
investments and foreign
currency transactions (0.77) 2.74 0.76 (2.13) 1.20
-------- -------- -------- -------- --------
Total from investment operation $ (0.47) $ 3.10 $ 0.98 $ (2.02) $ 1.37
-------- -------- -------- -------- --------
Less distributions declared to shareholders -
From net investment income $ (0.33) $ (0.36) $ (0.19) $ (0.11) $ (0.17)
From net realized loss on investments
and foreign currency transactions (0.16) (2.77) (0.64) (0.47) (1.30)
-------- -------- -------- -------- --------
Total distributions declared
to shareholders $ (0.49) $ (3.13) $ (0.83) $ (0.58) $ (1.47)
-------- -------- -------- -------- --------
Net asset value - end of period $ 9.97 $ 10.93 $ 10.96 $ 10.81 $ 13.41
-------- -------- -------- -------- --------
Total return ++ (4.57)% 28.23% 8.90% (20.45)% 11.57%
Ratios (to average net assets)/Supplemental data:
Expenses 0.80% 0.77% 0.86% 0.72% 0.71%
Net investment income 2.91% 2.79% 1.90% 1.08% 1.28%
Portfolio turnover 89% 83% 68% 40% 109%
Net assets at end of period (000 omitted) $687,847 $805,702 $767,924 $834,359 $1,090,764
<FN>
* For the nine months ended December 31, 1987.
+ Annualized.
++ Total returns for Class A shares do not include the sales charge (except for reinvested dividends prior to March 1, 1991).
If the charge had been included, the results would have been lower.
++ ++ Includes a per share distributions from paid-in capital of $0.0006.
</FN>
</TABLE>
See notes to financial statements
15
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Financial Highlights - continued
====================================================================================================================================
Year Ended March 31, Year Ended December 31,
-------------------- ----------------------------------------
1986 1995 1994 1993**
- ------------------------------------------------------------------------------------------------------------------------------------
Class A Class B
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $ 10.77 $ 10.08 $ 11.53 $ 12.52
-------- -------- -------- --------
Income from investment operations# -
Net investment income (loss) $ 0.22 $ (0.09) $ (0.08) $ --
Net realized and unrealized gain (loss) on
investments and foreign
currency transactions 3.63 3.42 (0.49) 0.36
-------- -------- -------- --------
Total from investment operations $ 3.85 $ 3.33 $ (0.57) $ 0.36
-------- -------- -------- --------
Less distributions declared to shareholders -
From net investment income $ (0.22) $ -- $ -- $ --
In excess of net investment income -- -- -- (0.03)
From net realized loss on investments
and foreign currency transactions (0.89) (1.62) (0.83) (1.32)
In excess of net realized gains on investments -- -- (0.05) --
-------- -------- -------- --------
Total distributions declared to
shareholders $ (1.11) $ (1.62) $ (0.88) $ (1.35)
-------- -------- -------- --------
Net asset value - end of period $ 13.51 $ 11.79 $ 10.08 $ 11.53
-------- -------- -------- --------
Total return 35.92% 33.20% (4.96)% 9.29%
Ratios (to average net assets)/Supplemental data:
Expenses## 0.71% 1.81% 1.81% 1.33%
Net investment income (loss) 1.85% (0.75)% (0.70)% --
Portfolio turnover 117% 100% 78% 79%
Net assets at end of period (000 omitted) $989,980 $ 6,673 $ 3,166 $ 805
<FN>
** For the period from the commencement of offering of Class B shares, September 7, 1993 to December 31, 1993.
+ Annualized.
++ Total returns for Class A shares do not include the sales charge (except for reinvested dividends prior to March 1, 1991). If the
charge had been included, the results would have been lower.
# Per share data for the period subsequent to December 31, 1992 is based on average shares outstanding.
## For fiscal years ending after September 1, 1995, the Fund's expenses are calculated without reduction for fees paid indirectly.
</FN>
</TABLE>
See notes to financial statements
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
MFS Growth Opportunities Fund (the Fund) is organized as a Massachusetts
business trust and is registered under the Investment Company Act of 1940, as
amended, as a diversified, open-end managment investment company.
(2) Significant Accounting Policies
Investment Valuations - Equity securities listed on securities exchanges or
reported through the NASDAQ system are valued at last sale prices. Unlisted
equity securities or listed equity securities for which last sale prices are not
available are valued at last quoted bid prices. Debt securities (other than
short-term obligations which mature in 60 days or less), including listed issues
and forward contracts, are valued on the basis of valuations furnished by
dealers or by a pricing service with consideration to factors such as
institutional-size trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, trading characteristics and other market
data, without exclusive reliance upon exchange or over-the-counter prices.
Short-term obligations, which mature in 60 days or less, are valued at amortized
cost, which approximates market value.
Foreign Currency Translation - Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars based upon current exchange rates. Purchases and
sales of foreign investments, income and expenses are converted into U.S.
dollars based upon currency exchange rates prevailing on the respective dates of
such transactions. Gains and losses attributable to foreign currency exchange
rates on sales of securities are recorded for financial statement purposes as
net realized gains and losses on investments. Gains and losses attributable to
foreign exchange rate movements on income and expenses are recorded for
financial statement purposes as foreign currency transaction gains and losses.
That portion of both realized and unrealized gains and losses on investments
that results from fluctuations in foreign currency exchange rates is not
separately disclosed.
Forward Foreign Currency Exchange Contracts - The Fund may enter into forward
foreign currency exchange contracts for the purchase or sale of a specific
foreign currency at a fixed price on a future date. Risks may arise upon
entering into these contracts from the potential inability of counterparties to
meet the terms of their contracts and from unanticipated movements in the value
of a foreign currency relative to the U.S. dollar. The Fund will enter into
forward contracts for hedging purposes as well as for non-hedging purposes. For
hedging purposes, the Fund may enter into contracts to deliver or receive
foreign currency it will receive from or require for its normal investment
activities. It may also use contracts in a manner intended to protect foreign
currency-denominated securities from declines in value due to unfavorable
exchange rate movements. For non-hedging purposes, the Fund may enter into
contracts with the intent of changing the relative exposure of the Fund's
portfolio of securities to different currencies to take advantage of anticipated
changes. The forward foreign currency exchange contracts are adjusted by the
daily exchange rate of the underlying currency and any gains or losses are
recorded for financial statement purposes as unrealized until the contract
settlement date.
17
<PAGE>
NOTES TO FINANCIAL STATEMENTS - continued
Investment Transactions and Income - Investment transactions are recorded on the
trade date. Interest income is recorded on the accrual basis. All premium and
original issue discount are amortized or accreted for financial statement and
tax reporting purposes as required by federal income tax regulations. Dividend
income is recorded on the ex-dividend date for dividends received in cash.
Dividend and interest payments received in additional securities are recorded on
the ex-dividend or ex-interest date in an amount equal to the value of the
security on such date.
Fees Paid Indirectly - The Fund's custodian bank calculates its fee based on the
Fund's average daily net assets. The fee is reduced according to a fee
arrangement, which provides for custody fees to be reduced based on a formula
developed to measure the value of cash deposited with the custodian by the Fund.
This amount is shown as a reduction of expenses on the Statement of Operations.
Tax Matters and Distributions - The Fund's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided. The Fund files a tax
return annually using tax accounting methods required under provisions of the
Code which may differ from generally accepted accounting principles, the basis
on which these financial statements are prepared. Accordingly, the amount of net
investment income and net realized gain reported on these financial statements
may differ from that reported on the Fund's tax return and, consequently, the
character of distributions to shareholders reported in the financial highlights
may differ from that reported to shareholders on Form 1099-DIV. Foreign taxes
have been provided for on interest and dividend income earned on foreign
investments in accordance with the applicable country 's tax rates and to the
extent unrecoverable are recorded as a reduction of investment income.
Distributions to shareholders are recorded on the ex-dividend date.
The Fund distinguishes between distributions on a tax basis and a financial
reporting basis and requires that only distributions in excess of tax basis
earnings and profits are reported in the financial statements as a return of
capital. Differences in the recognition or classification of income between the
financial statements and tax earnings and profits which result in temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or accumulated net realized
gains. During the year ended December 31, 1995, $430,900 was reclassified from
accumulated undistributed net investment income to accumulated net realized gain
on investments, due to differences between book and tax accounting currency
transactions. This change had no effect on the net assets or net asset value per
share. At December 31, 1995, accumulated realized gain on investments and
foreign currency transactions under book accounting were different from tax
accounting due to temporary differences in accounting for foreign currency
transactions.
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS - continued
Multiple Classes of Shares of Beneficial Interest - The Fund offers Class A and
Class B shares. The two classes of shares differ in their respective shareholder
servicing agent, distribution and service fees. All shareholders bear the common
expenses of the Fund pro rata based on the average daily net assets of each
class, without distinction between share classes. Dividends are declared
separately for each class. No class has preferential dividend rights;
differences in per share dividend rates are generally due to differences in
separate class expenses.
(3) Transactions with Affiliates
Investment Adviser - The Fund has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an effective annual rate of
0.43% of average daily net assets.
The Fund pays no compensation directly to its Trustees who are officers of the
investment adviser, or to officers of the Fund, all of whom receive remuneration
for their services to the Fund from MFS. Certain of the officers and Trustees of
the Fund are officers or directors of MFS, MFS Fund Distributors, Inc. (MFD) and
MFS Service Center, Inc. (MFSC). The Fund has an unfunded defined benefit plan
for all of its independent Trustees and Mr. Bailey. Included in Trustees'
compensation is a net periodic pension expense of $15,314 for the year ended
December 31, 1995.
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$54,989 for the year ended December 31, 1995, as its portion of the sales charge
on sales of Class A shares of the Fund. The Trustees have adopted a separate
distribution plan for Class A and Class B shares pursuant to Rule 12b-1 of the
Investment Company Act of 1940 as follows:
The Class A distribution plan provides that the Fund will pay MFD up to 0.35%
per annum of its average daily net assets attributable to Class A shares in
order that MFD may pay expenses on behalf of the Fund related to the
distribution and servicing of its shares. These expenses include a service fee
to each securities dealer that enters into a sales agreement with MFD of up to
0.25% per annum of the Fund's average daily net assets attributable to Class A
shares which are attributable to that securities dealer, a distribution fee to
MFD of up to 0.10% per annum of the Fund's average daily net assets attributable
to Class A shares, commissions to dealers and payments to MFD wholesalers for
sales at or above a certain dollar level, and other such distribution-related
expenses that are approved by the Fund. MFD retains the service fee for accounts
not attributable to a securities dealer which amounted to $528,444 for the year
ended December 31, 1995. MFD is not imposing the 0.10% distribution fee for an
indefinite period. Fees incurred under the distribution plan during the year
ended December 31, 1995 were 0.15% of average daily net assets attributable to
Class A shares on an annualized basis.
The Class B distribution plan provides that the Fund will pay MFD a distribution
fee of 0.75% per annum, and a service fee of up to 0.25% per annum, of the
Fund's average daily net assets attributable to Class B shares. MFD will pay to
securities dealers that enter into a sales agreement with MFD all or a portion
of the service fee attributable to Class B shares. The service fee is intended
to be additional consideration for services rendered by
19
<PAGE>
NOTES TO FINANCIAL STATEMENTS - continued
the dealer with respect to Class B shares. MFD retains the service fee for
accounts not attributable to a securities dealer, which amounted to $1,082 for
Class B shares for the year ended December 31, 1995. Fees incurred under the
distribution plans during the year ended December 31, 1995 were 1.0% of average
daily net assets attributable to Class B shares on an annualized basis.
A contingent deferred sales charge is imposed on shareholder redemptions of
Class A shares, on purchases of $1 million or more, in the event of a
shareholder redemption within twelve months following the share purchase. A
contingent deferred sales charge is imposed on shareholder redemptions of Class
B shares in the event of a shareholder redemption within six years of purchase.
MFD receives all contingent deferred sales charges. Contingent deferred sales
charges imposed during the year ended December 31, 1995 were $2,157 and $7,176
for Class A and Class B shares, respectively.
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earns a
fee for its services as shareholder servicing agent. The fee is calculated as a
percentage of the average daily net assets of each class of share at an
effective annual rate of up to 0.15% and up to 0.22% attributable to Class A and
Class B shares, respectively.
(4) Portfolio Securities
Purchases and sales of investments, other than U.S. government securities, and
short-term obligations, aggregated $662,086,779 and $699,765,620, respectively.
The cost and unrealized appreciation or depreciation in value of the investments
owned by the Fund, as computed on a federal income tax basis, are as follows:
Aggregate cost $ 579,406,082
=============
Gross unrealized appreciation $ 171,335,786
Gross unrealized depreciation (19,160,450)
-------------
Net unrealized appreciation $ 152,175,336
=============
(5) Shares of Beneficial Interest
The Fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Class A Shares
1995 1994
---------------------------- -----------------------------
Year Ended December 31, Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 7,715,800 $ 96,726,782 2,325,560 $ 26,182,936
Shares issued to shareholders in
reinvestment of distributions 7,389,814 87,274,151 4,590,008 46,634,106
Shares reacquired (12,623,569) (155,238,811) (10,394,202) (117,718,886)
----------- ------------ ----------- ------------
Net increase (decrease) 2,482,045 $ 28,762,122 (3,478,634) $ (44,901,844)
=========== ============= =========== =============
</TABLE>
20
<PAGE>
NOTES TO FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Class B Shares
1995 1994
---------------------------- -----------------------------
Year Ended December 31, Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 604,258 $ 7,134,052 419,077 $ 4,685,688
Shares issued to shareholders in
reinvestment of distributions 60,477 705,862 22,946 231,132
Shares reacquired (412,933) (4,969,451) (197,864) (2,195,786)
----------- ------------ ----------- ------------
Net increase 251,802 $ 2,870,463 244,159 $ 2,721,034
=========== ============= =========== =============
</TABLE>
(6) Line of Credit
The Fund entered into an agreement which enables it to participate with other
funds managed by MFS in an unsecured line of credit with a bank which permits
borrowings up to $350 million, collectively. Borrowings may be made to
temporarily finance the repurchase of Fund shares. Interest is charged to each
fund, based on its borrowings, at a rate equal to the bank's base rate. In
addition, a commitment fee, based on the average daily unused portion of the
line of credit, is allocated among the participating funds at the end of each
quarter. The commitment fee allocated to the Fund for the year ended December
31, 1995 was $8,850.
(7) Financial Instruments
The Fund trades financial instruments with off-balance sheet risk in the normal
course of its investing activities in order to manage exposure to market risks
such as interest rates and foreign currency exchange rates. These financial
instruments include forward foreign currency exchange contracts. The notional or
contractual amounts of these instruments represent the investment the Fund has
in particular classes of financial instruments and does not necessarily
represent the amounts potentially subject to risk. The measurement of the risks
associated with these instruments is meaningful only when all related and
offsetting transactions are considered.
Forward Foreign Currency Exchange Contracts
Settlement Contracts to Contracts In Exchange Net Unrealized
Date Deliver at Value for Appreciation
================================================================================
Sales 2/2/96 SEK 59,091,600 $8,872,190 $8,962,223 $54,033
---------- ---------- -------
At December 31, 1995, the Fund had sufficient cash and/or securities to cover
any commitments under these contracts
Abbreviations have been used throughout this report to indicate amounts shown in
currencies other than the U.S. dollar. A list of abbreviations is shown below.
SEK = Swedish Kronor
21
<PAGE>
NOTES TO FINANCIAL STATEMENTS - continued
(8) Restricted Securities
The Fund may invest not more than 10% of its total assets in securities which
are subject to legal or contractual restrictions on resale. At December 31,
1995, the Fund owned the following restricted security (constituting 0.1% of
total assets) which may not be publicly sold without registration under the
Securities Act of 1933 (the 1933 Act). The Fund does not have the right to
demand that such securities be registered. The value of this security is
determined by valuations supplied by a pricing service or brokers or, if not
available, in good faith by or at the direction of the Trustees. This security
may be offered and sold to "qualified institutional buyers'' under Rule 144A of
the 1933 Act.
Date of Par
Description Acquisition Amount Cost Value
================================================================================
Spectrum Holobyte, Inc.,
6.5s, 2002 9/27/95 $870,000 $870,000 $635,100
-------- --------
22
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees and Shareholders of Mfs Growth Opportunities Fund:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of MFS Growth Opportunities Fund as of December
31, 1995, the related statement of operations for the year then ended, the
statement of changes in net assets for the years ended December 31, 1995 and
1994, and the financial highlights for each of the years in the eleven-year
period ended December 31, 1995. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned at
December 31, 1995 by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other auditing procedures.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of MFS Growth
Opportunities Fund at December 31, 1995, the results of its operations, the
changes in its net assets, and its financial highlights for the respective
stated periods in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 1, 1996
------------------------------------------------------------
This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by a current prospectus.
23
<PAGE>
A WORD ABOUT MFS PRODUCTS AND SERVICES
MAKING ADDITIONAL INVESTMENTS AT YOUR CONVENIENCE
There are several easy ways to make additional single investments of at least
$50:
o send a check with the lower portion of your account statement
o contact your financial adviser to purchase shares on your behalf
o wire additional investments through your bank; call us first for
instructions.
MAKING ADDITIONAL INVESTMENTS AUTOMATICALLY
By investing a set amount at regular intervals, over time you will buy more
shares when prices are low, and fewer shares when prices are high. Because
dollar cost averaging involves periodic purchases regardless of fluctuating
share prices, you should consider your financial ability to continue investing
in periods of low prices. MFS offers two dollar-cost-averaging programs. See the
prospectus for further details. Dollar cost averaging does not assure a profit
or avoid a loss.
THE AUTOMATIC INVESTMENT PLAN offers a simple way to make regular investments of
at least $50 through automatic withdrawals from your checking account.
THE AUTOMATIC EXCHANGE PLAN automatically exchanges shares from any MFS fund
with $5,000 or more into the same class of shares in up to four other MFS funds.
You choose the amounts of the exchanges (as little as $50) and their frequency.
- --------------------------------------------------------------------------------
A HYPOTHETICAL EXAMPLE OF AUTOMATIC MONTHLY INVESTING
COMPOUNDING AT 8% YEAR
Amount 5 Years 10 15 20 25
----------------------------------------------------------------
$50 3,671 9,064 16,989 28,633 45,742
$75 5,506 13,596 25,483 42,950 68,613
$100 7,341 18,128 33,978 57,266 91,484
$200 14,683 36,257 67,956 114,532 182,968
- --------------------------------------------------------------------------------
For applications or further information call 1-800-225-2606 any business day
from 8 a.m. to 8 p.m. Eastern time.
If you are a participant in a retirement plan, check with your plan sponsor
regarding the availability of these options.
24
<PAGE>
A FINANCIAL ADVISER CAN HELP YOU BE A BETTER INVESTOR
Financial advisers can be valuable resources for their clients, providing
ongoing education and guidance about investments, as well as a wide range of
services. Here are just some of the ways your financial adviser may be able to
help you be a better investor:
# Day-to-day monitoring of your portfolio
# Tax recordkeeping
# In-depth information on fund managers, their track records and their tenure
# Risk/reward analyses of current or potential holdings
# Asset allocation advice
# Construction of a detailed personal financial profile
# Order and confirmation processing
# Information on a fund group's range of shareholder services
# Portfolio adjustments based on lifestyle changes
# Assistance with business retirement planning
# Evaluation of lump-sum distribution options
# Recommendations on a selection of fund groups
# Specialized research and investment information not readily available
to individuals
# In-depth knowledge of markets and products, kept current by
ongoing tracking
# Estate, tax, insurance, and business planning
# Help with possible savings on sales charges through breakpoints, rights of
accumulation, and letters of intent
25
<PAGE>
MFS INVESTMENT OPPORTUNITIES
MUTUAL FUNDS
The MFS Family of Funds, shown on the facing page, falls into the eight general
categories below. All offer full-time professional management, a diversified
portfolio, and a wide array of shareholder services.
STOCK FUNDS seek growth of capital rather than income through investments in
stocks.
STOCK AND BOND FUNDS seek current income and growth of capital through
investments in both stocks and bonds.
BOND FUNDS seek current income through investments in debt securities.
WORLD FUNDS seek stock, balanced, and bond fund objectives through investments
in U.S. and foreign stocks and bonds.
LIMITED-MATURITY FUNDS seek current income and preservation of capital through
investments in debt securities with remaining maturities of five years or less.
NATIONAL TAX-FREE BOND FUNDS seek current income exempt from federal income tax
through investments in debt securities issued by states and municipalities.[1]
STATE TAX-FREE BOND FUNDS seek current income exempt from federal and state
income taxes through investments in debt securities issued by a single state and
its municipalities.[1]
MONEY MARKET FUNDS seek preservation of capital and current income through
investments in short-term debt securities.[2]
To determine which MFS fund may be appropriate for you, please contact your
financial adviser, who can help you relate these investment opportunities to
your financial goals. If you prefer, you may call MFS Investor Information for
literature[3] on MFS products and services: 1-800-637-2929, from 9 a.m. to 5
p.m. Eastern time any business day (leave a message anytime).
[1] A small portion of the income may be subject to federal, state and/or
alternative minimum tax.
[2] Investments in money market funds are not issued or guaranteed by the U.S.
government and there is no assurance that the fund will be able to maintain
a stable net asset value.
[3] Including a prospectus containing more complete information including
charges and expenses. Read the prospectus carefully before investing.
26
<PAGE>
THE MFS FAMILY OF FUNDS [Registration Mark]
AMERICA'S OLDEST MUTUAL FUND GROUP
The members of the MFS Family of Funds are grouped below according to the types
of securities in their portfolios. For free prospectuses containing more
complete information, including the exchange privilege and all charges and
expenses, please contact your financial adviser or call MFS at 1-800-637-2929
any business day from 9 a.m. to 5 p.m. Eastern time (or leave a message
anytime). This material should be read carefully before investing or sending
money.
STOCK
================================================================================
Massachusetts Investors Trust
- --------------------------------------------------------------------------------
Massachusetts Investors Growth Stock Fund
- --------------------------------------------------------------------------------
MFS [Registration Mark] Capital Growth Fund
- --------------------------------------------------------------------------------
MFS [Registration Mark] Emerging Growth Fund
- --------------------------------------------------------------------------------
MFS [Registration Mark] Gold & Natural Resources Fund
- --------------------------------------------------------------------------------
MFS [Registration Mark] Growth Opportunities Fund
- --------------------------------------------------------------------------------
MFS [Registration Mark] Managed Sectors Fund
- --------------------------------------------------------------------------------
MFS [Registration Mark] OTC Fund
- --------------------------------------------------------------------------------
MFS [Registration Mark] Research Fund
- --------------------------------------------------------------------------------
MFS [Registration Mark] Value Fund
- --------------------------------------------------------------------------------
STOCK AND BOND
================================================================================
MFS [Registration Mark] Total Return Fund
- --------------------------------------------------------------------------------
MFS [Registration Mark] Utilities Fund
- --------------------------------------------------------------------------------
BOND
================================================================================
MFS [Registration Mark] Bond Fund
- --------------------------------------------------------------------------------
MFS [Registration Mark] Government Mortgage Fund
- --------------------------------------------------------------------------------
MFS [Registration Mark] Government Securities Fund
- --------------------------------------------------------------------------------
MFS [Registration Mark] High Income Fund
- --------------------------------------------------------------------------------
MFS [Registration Mark] Intermediate Income Fund
- --------------------------------------------------------------------------------
MFS [Registration Mark] Strategic Income Fund
- --------------------------------------------------------------------------------
LIMITED MATURITY BOND
================================================================================
MFS [Registration Mark] Government Limited Maturity Fund
- --------------------------------------------------------------------------------
MFS [Registration Mark] Limited Maturity Fund
- --------------------------------------------------------------------------------
MFS [Registration Mark] Municipal Limited Maturity Fund
- --------------------------------------------------------------------------------
WORLD
================================================================================
MFS [Registration Mark]/Foreign & Colonial Emerging Market Equity Fund
- --------------------------------------------------------------------------------
MFS [Registration Mark]/Foreign & Colonial International Growth Fund
- --------------------------------------------------------------------------------
MFS [Registration Mark]/Foreign & Colonial International Growth and Income Fund
- --------------------------------------------------------------------------------
MFS [Registration Mark] World Asset Allocation Fund [Service Mark]
- --------------------------------------------------------------------------------
MFS [Registration Mark] World Equity Fund
- --------------------------------------------------------------------------------
MFS [Registration Mark] World Governments Fund
- --------------------------------------------------------------------------------
MFS [Registration Mark] World Growth Fund
- --------------------------------------------------------------------------------
MFS [Registration Mark] World Total Return Fund
- --------------------------------------------------------------------------------
NATIONAL TAX-FREE BOND
================================================================================
MFS [Registration Mark] Municipal Bond Fund
- --------------------------------------------------------------------------------
MFS [Registration Mark] Municipal High Income Fund
(closed to new investors)
- --------------------------------------------------------------------------------
MFS [Registration Mark] Municipal Income Fund
- --------------------------------------------------------------------------------
STATE TAX-FREE BOND
================================================================================
Alabama, Arkansas, California, Florida, Georgia, Louisiana, Maryland,
Massachusetts, Mississippi, New York, North Carolina, Pennsylvania, South
Carolina, Tennessee, Texas, Virginia, Washington, West Virginia
- --------------------------------------------------------------------------------
MONEY MARKET
================================================================================
MFS [Registration Mark] Cash Reserve Fund
- --------------------------------------------------------------------------------
MFS [Registration Mark] Government Money Market Fund
- --------------------------------------------------------------------------------
MFS [Registration Mark] Money Market Fund
- --------------------------------------------------------------------------------
27
<PAGE>
IT'S EASY TO CONTACT US
[GRAPHIC OMITTED]
MFS AUTOMATED INFORMATION
ACCOUNT INFORMATION:
Call 1-800-MFS-TALK (1-800-637-8255)
anytime.
MARKET OUTLOOK:
Call 1-800-637-4458 anytime for the MFS outlook
on the bond and stock markets.
[GRAPHIC OMITTED]
MFS PERSONAL SERVICE
ACCOUNT SERVICE:
Call 1-800-225-2606 any business day
from 8 a.m. to 8 p.m. Eastern time.
PRODUCT INFORMATION:
Call 1-800-637-2929 any business day
from 9 a.m. to 5 p.m. Eastern time.
IRA SERVICE:
Call 1-800-637-1255 any business day
from 8 a.m. to 6 p.m. Eastern time.
SERVICE FOR THE HEARING-IMPAIRED:
Call 1-800-637-6576 any business day
from 9 a.m. to 5 p.m. Eastern time (TDD required).
[GRAPHIC OMITTED]
MFS MAILING ADDRESSES
FOR PERSONAL ACCOUNTS:
MFS Service Center, Inc.
P.O. Box 2281
Boston, MA 02107-9906
FOR IRA ACCOUNTS:
MFS Service Center, Inc.
J.W. McCormack Station
P.O. Box 4501
Boston, MA 02101-9817
28
<PAGE>
MFS [Registration Mark] Growth Bulk Rate
Opportunities Fund U.S. Postage
PAID
500 Boylston Street Permit #55638
Boston, MA 02116 Boston, MA
[MFS LOGO]
MGO-2 2/96/52M 16/216
<PAGE>
PART C
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS INCLUDED IN PART A:
For the ten years ended December 31, 1995:
Financial Highlights
FINANCIAL STATEMENTS INCLUDED IN PART B:
At December 31, 1995:
Portfolio of Investments*
Statement of Assets and Liabilities*
For the year ended December 31, 1995:
Statement of Operations*
For the two years in the period ended December 31, 1995:
Statement of Changes in Net Assets*
- --------------------------
* Incorporated herein by reference to the Fund's Annual Report to shareholders
dated December 31, 1995 which was filed with the SEC on March 5, 1996.
(b) EXHIBITS
1 Amended and Restated Declaration of Trust, dated February
17, 1995. (3)
2 Amended and Restated By-Laws, dated December 21, 1994. (3)
3 Not Applicable.
4 Form of Share Certificate for Class A and Class B shares.
(4)
5 Investment Advisory Agreement dated July 19, 1985, by and
between the Registrant and Massachusetts Financial Services
Company. (6)
6(a) Distribution Agreement, dated January 1, 1995. (3)
(b) Dealer Agreement between MFS Fund Distributors, Inc.
("MFD"), and a dealer dated December 28, 1994 and the
Mutual Fund Agreement between MFD and a bank or NASD
affiliate, dated December 28, 1994. (1)
7 Retirement Plan for Non-Interested Person Trustees, dated
January 1, 1991. (6)
8(a) Custodian Contract between Registrant and State Street Bank
and Trust Company, dated April 25, 1988. (6)
(b) Amendment to Custodian Contract, dated April 25, 1988. (6)
(c) Amendment to Custodian Agreement, dated October 1, 1989.
(6)
(d) Amendment to Custodian Agreement, dated September 17, 1991.
(6)
9(a) Shareholder Servicing Agent Agreement between Registrant
and Massachusetts Financial Service Center, dated August 1,
1985. (6)
(b) Amendment to Shareholder Servicing Agent Agreement, dated
September 7, 1993. (6)
(c) Exchange Privilege Agreement, dated February 8, 1989 as
amended through September 1, 1995. (7)
(d) Loan Agreement by and among the Banks named therein, the
MFS Funds named therein, and The First National Bank of
Boston, dated as of February 21, 1995. (2)
(e) Dividend Disbursing Agency Agreement among MFS Funds and
State Street Bank and Trust Company, dated February 1,
1986. (4)
10 Rule 24e-2 Consent and Opinion of Counsel; filed herewith.
11 Consent of Deloitte & Touche LLP; filed herewith.
12 Not Applicable.
13 Not Applicable.
14(a) Forms for Individual Retirement Account Disclosure
Statement as currently in effect. (5)
(b) Forms for MFS 403(b) Custodial Account Agreement as
currently in effect. (5)
(c) Forms for MFS Prototype Paired Defined Contribution Plans
and Fund Agreement as currently in effect. (5)
15(a) Amended and Restated Distribution Plan for Class A
Shares, dated December 21, 1994. (3)
(b) Distribution Plan for Class B Shares, dated December 21,
1994. (3)
16 Schedule for Computation of Performance Quotations -
Average Annual Total Rate of Return, Aggregate Total Rate
of Return and Standardized Yield. (1)
17 Financial Data Schedules; filed herewith.
18 Not Applicable.
Power of Attorney, dated September 21, 1994. (3)
- -----------------------------
(1) Incorporated by reference to MFS Municipal Series Trust (File Nos. 2-92915
and 811-4096) Post-Effective Amendment No. 26 filed with the SEC via EDGAR
on February 22, 1995.
(2) Incorporated by reference to Amendment No. 8 on Form N-2 for MFS Municipal
Income Trust (File No. 811-4841) filed with the SEC via EDGAR on February
28, 1995.
(3) Incorporated by reference to Registrant's Post-Effective Amendment No. 33
filed with the SEC via EDGAR on April 28, 1995.
(4) Incorporated by reference to MFS Municipal Series Trust (File Nos. 2-92915
and 811-4096) Post-Effective Amendment No. 28 filed with the SEC via EDGAR
on July 28, 1995.
(5) Incorporated by reference to MFS Series Trust IX (File Nos. 2-50409 and
811-2464) Post-Effective Amendment No. 32 filed with the SEC via EDGAR on
August 28, 1995.
(6) Incorporated by reference to Registrant's Post-Effective Amendment No. 34
filed with the SEC via EDGAR on October 2, 1995.
(7) Incorporated by reference to MFS Series Trust X (File Nos. 33-1657 and
811-4492) Post-Effective Amendment No. 13 filed with the SEC via EDGAR on
November 28, 1995.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
Not Applicable.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
(1) (2)
TITLE OF CLASS NUMBER OF RECORD HOLDERS
Class A Shares of Beneficial Interest 43,540
(without par value) (as of March 31, 1996)
Class B Shares of Beneficial Interest 1,126
(without par value) (as of March 31, 1996)
ITEM 27. INDEMNIFICATION
Reference is hereby made to (a) Article V of Registrant's Amended and
Restated Declaration of Trust, incorporated by reference to the Registrant's
Post-Effective Amendment No. 33, filed with the SEC on April 28, 1995; (b) the
undertaking of the Registrant regarding indemnification set forth in its
Registration Statement on Form S-5 and (c) Section 9 of the Shareholder
Servicing Agent Agreement, incorporated by reference to the Registrant's
Post-Effective Amendment No. 34 filed with the SEC via EDGAR on October 2, 1995.
The Trustees and officers of the Registrant and the personnel of the
Registrant's Investment adviser are insured under an errors and omissions
liability insurance policy. The Registrant and its officers are also insured
under the fidelity bond required by Rule 17g-1 under the Investment Company Act
of 1940.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
MFS serves as investment adviser to the following open-end Funds
comprising the MFS Family of Funds: Massachusetts Investors Trust, Massachusetts
Investors Growth Stock Fund, MFS Growth Opportunities Fund, MFS Government
Securities Fund, MFS Government Limited Maturity Fund, MFS Series Trust I (which
has eight series: MFS Managed Sectors Fund, MFS Cash Reserve Fund, MFS World
Asset Allocation Fund, MFS Aggressive Growth Fund, MFS Research Growth and
Income Fund, MFS Core Growth Fund, MFS Equity Income Fund and MFS Special
Opportunities Fund), MFS Series Trust II (which has four series: MFS Emerging
Growth Fund, MFS Capital Growth Fund, MFS Intermediate Income Fund and MFS Gold
& Natural Resources Fund), MFS Series Trust III (which has two series: MFS High
Income Fund and MFS Municipal High Income Fund), MFS Series Trust IV (which has
four series: MFS Money Market Fund, MFS Government Money Market Fund, MFS
Municipal Bond Fund and MFS OTC Fund), MFS Series Trust V (which has two series:
MFS Total Return Fund and MFS Research Fund), MFS Series Trust VI (which has
three series: MFS World Total Return Fund, MFS Utilities Fund and MFS World
Equity Fund), MFS Series Trust VII (which has two series: MFS World Governments
Fund and MFS Value Fund), MFS Series Trust VIII (which has two series: MFS
Strategic Income Fund and MFS World Growth Fund), MFS Series Trust IX (which has
three series: MFS Bond Fund, MFS Limited Maturity Fund and MFS Municipal Limited
Maturity Fund), MFS Series Trust X (which has four series: MFS Government
Mortgage Fund, MFS/Foreign & Colonial Emerging Markets Equity Fund, MFS/Foreign
& Colonial International Growth Fund and MFS/Foreign & Colonial International
Growth and Income Fund), and MFS Municipal Series Trust (which has 19 series:
MFS Alabama Municipal Bond Fund, MFS Arkansas Municipal Bond Fund, MFS
California Municipal Bond Fund, MFS Florida Municipal Bond Fund, MFS Georgia
Municipal Bond Fund, MFS Louisiana Municipal Bond Fund, MFS Maryland Municipal
Bond Fund, MFS Massachusetts Municipal Bond Fund, MFS Mississippi Municipal Bond
Fund, MFS New York Municipal Bond Fund, MFS North Carolina Municipal Bond Fund,
MFS Pennsylvania Municipal Bond Fund, MFS South Carolina Municipal Bond Fund,
MFS Tennessee Municipal Bond Fund, MFS Texas Municipal Bond Fund, MFS Virginia
Municipal Bond Fund, MFS Washington Municipal Bond Fund, MFS West Virginia
Municipal Bond Fund and MFS Municipal Income Fund) (the "MFS Funds"). The
principal business address of each of the aforementioned Funds is 500 Boylston
Street, Boston, Massachusetts 02116.
MFS also serves as investment adviser of the following no-load,
open-end Funds: MFS Institutional Trust ("MFSIT") (which has seven series), MFS
Variable Insurance Trust ("MVI") (which has twelve series) and MFS Union
Standard Trust ("UST") (which has two series). The principal business address of
each of the aforementioned Funds is 500 Boylston Street, Boston, Massachusetts
02116.
In addition, MFS serves as investment adviser to the following
closed-end Funds: MFS Municipal Income Trust, MFS Multimarket Income Trust, MFS
Government Markets Income Trust, MFS Intermediate Income Trust, MFS Charter
Income Trust and MFS Special Value Trust (the "MFS Closed-End Funds"). The
principal business address of each of the aforementioned Funds is 500 Boylston
Street, Boston, Massachusetts 02116.
Lastly, MFS serves as investment adviser to MFS/Sun Life Series Trust
("MFS/SL"), Sun Growth Variable Annuity Funds, Inc. ("SGVAF"), Money Market
Variable Account, High Yield Variable Account, Capital Appreciation Variable
Account, Government Securities Variable Account, World Governments Variable
Account, Total Return Variable Account and Managed Sectors Variable Account. The
principal business address of each is One Sun Life Executive Park, Wellesley
Hills, Massachusetts 02181.
MFS International Ltd. ("MIL"), a limited liability company organized
under the laws of the Republic of Ireland and a subsidiary of MFS, whose
principal business address is 41-45 St. Stephen's Green, Dublin 2, Ireland,
serves as investment adviser to and distributor for MFS International Fund
(which has four portfolios: MFS International Funds-U.S. Equity Fund, MFS
International Funds-U.S. Emerging Growth Fund, MFS International Funds-Global
Governments Fund and MFS International Funds-Charter Income Fund) (the "MIL
Funds"). The MIL Funds are organized in Luxembourg and qualify as an undertaking
for collective investments in transferable securities (UCITS). The principal
business address of the MIL Funds is 47, Boulevard Royal, L-2449 Luxembourg.
MIL also serves as investment adviser to and distributor for MFS
Meridian U.S. Government Bond Fund, MFS Meridian Charter Income Fund, MFS
Meridian Global Government Fund, MFS Meridian U.S. Emerging Growth Fund, MFS
Meridian Global Equity Fund, MFS Meridian Limited Maturity Fund, MFS Meridian
World Growth Fund, MFS Meridian Money Market Fund, MFS Meridian World Total
Return Fund, MFS Meridian U.S. Equity Fund and MFS Meridian Research Fund
(collectively the "MFS Meridian Funds"). Each of the MFS Meridian Funds is
organized as an exempt company under the laws of the Cayman Islands. The
principal business address of each of the MFS Meridian Funds is P.O. Box 309,
Grand Cayman, Cayman Islands, British West Indies.
MFS International (U.K.) Ltd. ("MIL-UK"), a private limited company
registered with the Registrar of Companies for England and Wales whose current
address is 4 John Carpenter Street, London, England ED4Y 0NH, is involved
primarily in marketing and investment research activities with respect to
private clients and the MIL Funds and the MFS Meridian Funds.
MFS Fund Distributors, Inc. ("MFD"), a wholly owned subsidiary of MFS,
serves as distributor for the MFS Funds, MVI, UST and MFSIT.
Clarendon Insurance Agency, Inc. ("CIAI"), a wholly owned subsidiary
of MFS, serves as distributor for certain life insurance and annuity contracts
issued by Sun Life Assurance Company of Canada (U.S.).
MFS Service Center, Inc. ("MFSC"), a wholly owned subsidiary of MFS,
serves as shareholder servicing agent to the MFS Funds, the MFS Closed-End
Funds, MFSIT, MVI and UST.
MFS Asset Management, Inc. ("AMI"), a wholly owned subsidiary of MFS,
provides investment advice to substantial private clients.
MFS Retirement Services, Inc. ("RSI"), a wholly owned subsidiary of
MFS, markets MFS products to retirement plans and provides administrative and
record keeping services for retirement plans.
MFS
The Directors of MFS are A. Keith Brodkin, Jeffrey L. Shames, Arnold
D. Scott, John R. Gardner and John D. McNeil. Mr. Brodkin is the Chairman, Mr.
Shames is the President, Mr. Scott is a Senior Executive Vice President and
Secretary, Bruce C. Avery, William S. Harris, William W. Scott, Jr., and
Patricia A. Zlotin are Executive Vice Presidents, Stephen E. Cavan is a Senior
Vice President, General Counsel and an Assistant Secretary, Joseph W. Dello
Russo is a Senior Vice President, Chief Financial Officer and Treasurer, Robert
T. Burns is a Vice President, Associate General Counsel and an Assistant
Secretary of MFS, and Thomas B. Hastings is a Vice President and Assistant
Treasurer.
MASSACHUSETTS INVESTORS TRUST
MASSACHUSETTS INVESTORS GROWTH STOCK FUND
MFS GROWTH OPPORTUNITIES FUND
MFS GOVERNMENT SECURITIES FUND
MFS SERIES TRUST I
MFS SERIES TRUST V
MFS SERIES TRUST VI
MFS SERIES TRUST X
MFS Government Limited Maturity Fund
A. Keith Brodkin is the Chairman and President, Stephen E. Cavan is
the Secretary, W. Thomas London is the Treasurer, James O. Yost, Vice President
of MFS, is the Assistant Treasurer, James R. Bordewick, Jr., Vice President
and Associate General Counsel of MFS, is the Assistant Secretary.
MFS SERIES TRUST II
A. Keith Brodkin is the Chairman and President, Leslie J. Nanberg,
Senior Vice President of MFS, is a Vice President, Stephen E. Cavan is the
Secretary, W. Thomas London is the Treasurer, James O. Yost is the Assistant
Treasurer, and James R. Bordewick, Jr., is the Assistant Secretary.
MFS GOVERNMENT MARKETS INCOME TRUST
MFS INTERMEDIATE INCOME TRUST
A. Keith Brodkin is the Chairman and President, Patricia A. Zlotin,
Executive Vice President of MFS and Leslie J. Nanberg, Senior Vice President of
MFS, are Vice Presidents, Stephen E. Cavan is the Secretary, W. Thomas London is
the Treasurer, James O. Yost is the Assistant Treasurer, and James R. Bordewick,
Jr., is the Assistant Secretary.
MFS SERIES TRUST III
A. Keith Brodkin is the Chairman and President, James T. Swanson,
Robert J. Manning, Cynthia M. Brown and Joan S. Batchelder, Senior Vice
Presidents of MFS, Bernard Scozzafava, Vice President of MFS, and Matthew
Fontaine, Assistant Vice President of MFS, are Vice Presidents, Sheila
Burns-Magnan and Daniel E. McManus, Assistant Vice Presidents of MFS, are
Assistant Vice Presidents, Stephen E. Cavan is the Secretary, W. Thomas London
is the Treasurer, James O. Yost is the Assistant Treasurer, and James R.
Bordewick, Jr., is the Assistant Secretary.
MFS SERIES TRUST IV
MFS SERIES TRUST IX
A. Keith Brodkin is the Chairman and President, Robert A. Dennis and
Geoffrey L. Kurinsky, Senior Vice Presidents of MFS, are Vice Presidents,
Stephen E. Cavan is the Secretary, W. Thomas London is the Treasurer, James O.
Yost is the Assistant Treasurer and James R. Bordewick, Jr., is the Assistant
Secretary.
MFS SERIES TRUST VII
A. Keith Brodkin is the Chairman and President, Leslie J. Nanberg and
Stephen C. Bryant, Senior Vice Presidents of MFS, are Vice Presidents, Stephen
E. Cavan is the Secretary, W. Thomas London is the Treasurer, James O. Yost is
the Assistant Treasurer and James R. Bordewick, Jr., is the Assistant Secretary.
MFS SERIES TRUST VIII
A. Keith Brodkin is the Chairman and President, Jeffrey L. Shames,
Leslie J. Nanberg, Patricia A. Zlotin, James T. Swanson and John D. Laupheimer,
Jr., Vice President of MFS, are Vice Presidents, Stephen E. Cavan is the
Secretary, W. Thomas London is the Treasurer, James O. Yost is the Assistant
Treasurer and James R. Bordewick, Jr., is the Assistant Secretary.
MFS MUNICIPAL SERIES TRUST
A. Keith Brodkin is the Chairman and President, Cynthia M. Brown and
Robert A. Dennis are Vice Presidents, David B. Smith, Geoffrey L. Schechter and
David R. King, Vice Presidents of MFS, are Vice Presidents, Daniel E. McManus,
Assistant Vice President of MFS, is an Assistant Vice President, Stephen E.
Cavan is the Secretary, W. Thomas London is the Treasurer, James O. Yost is the
Assistant Treasurer and James R. Bordewick, Jr., is the Assistant Secretary.
MFS VARIABLE INSURANCE TRUST
MFS UNION STANDARD TRUST
MFS INSTITUTIONAL TRUST
A. Keith Brodkin is the Chairman and President, Stephen E. Cavan is
the Secretary, W. Thomas London is the Treasurer, James O. Yost is the Assistant
Treasurer and James R. Bordewick, Jr., is the Assistant Secretary.
MFS MUNICIPAL INCOME TRUST
A. Keith Brodkin is the Chairman and President, Cynthia M. Brown and
Robert J. Manning are Vice Presidents, Stephen E. Cavan is the Secretary, W.
Thomas London is the Treasurer, James O. Yost, is the Assistant Treasurer and
James R. Bordewick, Jr., is the Assistant Secretary.
MFS MULTIMARKET INCOME TRUST
MFS CHARTER INCOME TRUST
A. Keith Brodkin is the Chairman and President, Patricia A. Zlotin,
Leslie J. Nanberg and James T. Swanson are Vice Presidents, Stephen E. Cavan is
the Secretary, W. Thomas London is the Treasurer, James O. Yost, Vice President
of MFS, is the Assistant Treasurer and James R. Bordewick, Jr., is the Assistant
Secretary.
MFS SPECIAL VALUE TRUST
A. Keith Brodkin is the Chairman and President, Jeffrey L. Shames,
Patricia A. Zlotin and Robert J. Manning are Vice Presidents, Stephen E. Cavan
is the Secretary, W. Thomas London is the Treasurer, and James O. Yost, is the
Assistant Treasurer and James R. Bordewick, Jr., is the Assistant Secretary.
SGVAF
W. Thomas London is the Treasurer.
MIL
A. Keith Brodkin is a Director and the Chairman, Arnold D. Scott and
Jeffrey L. Shames are Directors, Ziad Malek, Senior Vice President of MFS, is
the President, Thomas J. Cashman, Jr., a Senior Vice President of MFS, is a
Senior Vice President, Stephen E. Cavan is a Director, Senior Vice President and
the Clerk, James R. Bordewick, Jr. is a Director, Vice President and an
Assistant Clerk, Robert T. Burns is an Assistant Clerk, Joseph W. Dello Russo is
the Treasurer and Thomas B. Hastings is the Assistant Treasurer.
MIL-UK
A. Keith Brodkin is a Director and the Chairman, Arnold D. Scott,
Jeffrey L. Shames, and James R. Bordewick, Jr., are Directors, Stephen E. Cavan
is a Director and the Secretary, Ziad Malek is the President, James E.
Russell is the Treasurer, and Robert T. Burns is the Assistant Secretary.
MIL FUNDS
A. Keith Brodkin is the Chairman, President and a Director, Richard B.
Bailey, John A. Brindle and Richard W. S. Baker are Directors, Stephen E. Cavan
is the Secretary, W. Thomas London is the Treasurer, James O. Yost is the
Assistant Treasurer and James R. Bordewick, Jr., is the Assistant Secretary, and
Ziad Malek is a Senior Vice President.
MFS MERIDIAN FUNDS
A. Keith Brodkin is the Chairman, President and a Director, Richard B.
Bailey, John A. Brindle, Richard W. S. Baker, Arnold D. Scott and Jeffrey L.
Shames are Directors, Stephen E. Cavan is the Secretary, W. Thomas London is the
Treasurer, James R. Bordewick, Jr., is the Assistant Secretary, James O. Yost is
the Assistant Treasurer, and Ziad Malek is a Senior Vice President.
MFD
A. Keith Brodkin is the Chairman and a Director, Arnold D. Scott and
Jeffrey L. Shames are Directors, William W. Scott, Jr., an Executive Vice
President of MFS, is the President, Stephen E. Cavan is the Secretary, Robert T.
Burns is the Assistant Secretary, Joseph W. Dello Russo is the Treasurer, and
Thomas B. Hastings is the Assistant Treasurer.
CIAI
A. Keith Brodkin is the Chairman and a Director, Arnold D. Scott and
Jeffrey L. Shames are Directors, Cynthia Orcott is President, Bruce C. Avery is
the Vice President, Joseph W. Dello Russo is the Treasurer, Thomas B. Hastings
is the Assistant Treasurer, Stephen E. Cavan is the Secretary, and Robert T.
Burns is the Assistant Secretary.
MFSC
A. Keith Brodkin is the Chairman and a Director, Arnold D. Scott and
Jeffrey L. Shames are Directors, Joseph A. Recomendes, a Senior Vice President
of MFS, is Vice Chairman and a Director, Janet A. Clifford is the Executive Vice
President, Joseph W. Dello Russo is the Treasurer, Thomas B. Hastings is the
Assistant Treasurer, Stephen E. Cavan is the Secretary, and Robert T. Burns is
the Assistant Secretary.
AMI
A. Keith Brodkin is the Chairman and a Director, Jeffrey L. Shames,
and Arnold D. Scott are Directors, Thomas J. Cashman, Jr., is the President and
a Director, Leslie J. Nanberg is a Senior Vice President, a Managing Director
and a Director, George F. Bennett, Carol A. Corley, John A. Gee, Brianne Grady
and Kevin R. Parke are Senior Vice Presidents and Managing Directors, Joseph W.
Dello Russo is the Treasurer, Thomas B. Hastings is the Assistant Treasurer and
Robert T. Burns is the Secretary.
RSI
William W. Scott, Jr., Joseph A. Recomendes and Bruce C. Avery are
Directors, Arnold D. Scott is the Chairman and a Director, Douglas C. Grip, a
Senior Vice President of MFS, is the President, Joseph W. Dello Russo is the
Treasurer, Thomas B. Hastings is the Assistant Treasurer, Stephen E. Cavan is
the Secretary, Robert T. Burns is the Assistant Secretary and Sharon A. Brovelli
is a Senior Vice President.
In addition, the following persons, Directors or officers of MFS, have
the affiliations indicated:
A. Keith Brodkin Director, Sun Life Assurance Company
of Canada (U.S.), One Sun Life
Executive Park, Wellesley Hills,
Massachusetts
Director, Sun Life Insurance and
Annuity Company of New York, 67
Broad Street, New York, New York
John R. Gardner President and a Director, Sun Life
Assurance Company of Canada, Sun
Life Centre, 150 King Street West,
Toronto, Ontario, Canada (Mr.
Gardner is also an officer and/or
Director of various subsidiaries and
affiliates of Sun Life)
John D. McNeil Chairman, Sun Life Assurance Company
of Canada, Sun Life Centre, 150 King
Street West, Toronto, Ontario,
Canada (Mr. McNeil is also an
officer and/or Director of various
subsidiaries and affiliates of Sun
Life)
Joseph W. Dello Russo Director of Mutual Fund Operations,
The Boston Company, Exchange Place,
Boston, Massachusetts (until August,
1994)
ITEM 29. DISTRIBUTORS
(a) Reference is hereby made to Item 28 above.
(b) Reference is hereby made to Item 28 above; the principal business
address of each of these persons is 500 Boylston Street, Boston, Massachusetts
02116.
(c) Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
The accounts and records of the Registrant are located, in whole or in
part, at the office of the Registrant and the following locations:
NAME ADDRESS
Massachusetts Financial Services 500 Boylston Street
(investment adviser) Boston, Mass. 02116
MFS Fund Distributors, Inc. 500 Boylston Street
(principal underwriter)
Boston, Mass. 02116
State Street Bank and State Street South
Trust Company 5 - West
(custodian) North Quincy, Mass. 02171
MFS Service Center, Inc. 500 Boylston Street
(transfer agent) Boston, Mass. 02116
ITEM 31. MANAGEMENT SERVICES
Not Applicable.
ITEM 32. UNDERTAKINGS
(a) Not Applicable.
(b) Not Applicable.
(c) Registrant undertakes to furnish each person to whom a
prospectus is delivered with a copy of its latest annual report to shareholders
upon request and without charge.
(d) Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to trustees, officers and controlling
persons of the Registrant pursuant to the provisions set forth in Item 27 of
this Part C, or otherwise, the Registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a trustee, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the Securities being Registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Post-Effective Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereto duly authorized, in the City of Boston and
The Commonwealth of Massachusetts on the 26th day of April, 1996.
MFS GROWTH OPPORTUNITIES FUND
By: JAMES R. BORDEWICK, JR.
Name: James R. Bordewick, Jr.
Title: Assistant Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to its Registration Statement has been signed below by
the following persons in the capacities indicated on April 26, 1996.
SIGNATURE TITLE
A. KEITH BRODKIN* Chairman, President (Principal Executive
- -------------------------- Officer) and Trustee
A. Keith Brodkin
W. THOMAS LONDON* Treasurer (Principal Financial Officer
- -------------------------- and Principal Accounting Officer)
W. Thomas London
RICHARD B. BAILEY* Trustee
- --------------------------
Richard B. Bailey
PETER G. HARWOOD* Trustee
- --------------------------
Peter G. Harwood
J. ATWOOD IVES* Trustee
- --------------------------
J. Atwood Ives
LAWRENCE T. PERERA* Trustee
- --------------------------
Lawrence T. Perera
WILLIAM J. POORVU* Trustee
- --------------------------
William J. Poorvu
CHARLES W. SCHMIDT* Trustee
- --------------------------
Charles W. Schmidt
ARNOLD D. SCOTT* Trustee
- --------------------------
Arnold D. Scott
JEFFREY L. SHAMES* Trustee
- --------------------------
Jeffrey L. Shames
ELAINE R. SMITH* Trustee
- --------------------------
Elaine R. Smith
DAVID B. STONE* Trustee
- --------------------------
David B. Stone
*By: JAMES R. BORDEWICK, JR.
Name: James R. Bordewick, Jr.
as Attorney-in-fact
Executed by James R. Bordewick, Jr. on
behalf of those indicated pursuant to a
Power of Attorney dated September 21,
1994, incorporated by reference to the
Registrant's Post-Effective Amendment
No. 33 filed with the Securities and
Exchange Commission via EDGAR on
April 28, 1995.
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION OF EXHIBIT PAGE NO.
10 Rule 24e-2 Consent and Opinion of Counsel.
11 Consent of Deloitte & Touche LLP.
17 Financial Data Schedules.
<PAGE>
EXHIBIT NO. 99.10
April 26, 1996
MFS Growth Opportunities Fund
500 Boylston Street
Boston, MA 02116
Re: Post-Effective Amendment No. 35 to Registration Statement on Form N-1A
(File No. 2-36431) (the "Registration Statement") for MFS Growth Opportunities
Fund (the "Fund")
Gentlemen:
I am Vice President and Associate General Counsel of Massachusetts
Financial Services Company, which serves as investment adviser to the Fund. I am
admitted to practice law in The Commonwealth of Massachusetts. The Fund was
created under a written Declaration of Trust dated March 4, 1985, and executed
and delivered in Boston, Massachusetts, as amended and restated February 17,
1995 (the "Declaration of Trust"). The beneficial interest thereunder is
represented by transferable shares without par value. The Trustees have the
powers set forth in the Declaration of Trust, subject to the terms, provisions
and conditions therein provided.
I am of the opinion that the legal requirements have been complied with
in the creation of the Fund, and that said Declaration of Trust is legal and
valid.
Under Article III, Section 3.4 and Article VI, Section 6.4 of the
Declaration of Trust, the Trustees are empowered, in their discretion, from time
to time to issue shares of the Fund for such amount and type of consideration,
at such time or times and on such terms as the Trustees may deem best. Under
Article VI, Section 6.1, it is provided that the number of Shares of Beneficial
Interest (without par value) ("Shares") authorized to be issued under the
Declaration of Trust is unlimited.
By vote adopted on January 18, 1995, the Trustees of the Fund determined
to sell to the public the authorized but unissued shares of beneficial interest
of the Fund for cash at a price which will net the Fund (before taxes) not less
than the net asset value thereof, as defined in the Fund's By-Laws, determined
next after the sale is made or at some later time after such sale.
The Fund is about to register under the Securities Act of 1933, as
amended, 4,739,171 shares of beneficial interest by Post-Effective Amendment No.
35 to the Fund's Registration Statement. W. Thomas London, Treasurer of the
Fund, has certified that the Fund received cash consideration for the issuance
of each of the Shares of the Fund sold during the Fund's fiscal year ended
December 31, 1995, including the 12,406,160 Shares which were sold in reliance
upon Rule 24f-2 of the General Rules and Regulations under the Investment
Company Act of 1940, as amended, at a price which netted the Fund (before taxes)
not less than the net asset value per share, as defined in the Fund's
Declaration of Trust, determined next after the sale was made.
I am of the opinion that all necessary Fund action precedent to the issue
of the Shares of the Fund, comprising the shares covered by Post-Effective
Amendment No. 35 to the Registration Statement has been duly taken, and that all
such shares may legally and validly be issued for cash, and when sold will be
fully paid and nonassessable by the Fund upon receipt by the Fund or its agent
of consideration thereof in accordance with the terms described in the
Registration Statement, subject to compliance with the Securities Act of 1933,
the Investment Company Act of 1940 and applicable state laws regulating the sale
of securities.
I consent to your filing this opinion with the Securities and Exchange
Commission as an exhibit to Post-Effective Amendment No. 35 to the Registration
Statement.
Very truly yours,
JAMES R. BORDEWICK, JR.
James R. Bordewick, Jr.
JRB/bjn
EXHIBIT NO. 99.11
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Post-Effective
Amendment No. 35 to Registration Statement No. 2-36431 of MFS Growth
Opportunities Fund of our report dated February 1, 1996 appearing in the annual
report to shareholders for the year ended December 31, 1995, of MFS Growth
Opportunities Fund and to the references to us under the headings "Condensed
Financial Information" in the Prospectus and "Independent Auditors and Financial
Statements" in the Statement of Additional Information, which are part of such
Registration Statement.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
April 24, 1996
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF MFS GROWTH OPPORTUNITIES FUND CLASS A AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000063067
<NAME> MFS GROWTH OPPORTUNITIES FUND CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 579406082
<INVESTMENTS-AT-VALUE> 731581418
<RECEIVABLES> 5557224
<ASSETS-OTHER> 8163
<OTHER-ITEMS-ASSETS> 3079
<TOTAL-ASSETS> 737149884
<PAYABLE-FOR-SECURITIES> 3868528
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5140749
<TOTAL-LIABILITIES> 9009277
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 576139588
<SHARES-COMMON-STOCK> 60418127
<SHARES-COMMON-PRIOR> 57936082
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 55622
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 176143
<ACCUM-APPREC-OR-DEPREC> 152229784
<NET-ASSETS> 728140607
<DIVIDEND-INCOME> 6557079
<INTEREST-INCOME> 603745
<OTHER-INCOME> (13547)
<EXPENSES-NET> 5786462
<NET-INVESTMENT-INCOME> 1360815
<REALIZED-GAINS-CURRENT> 93753834
<APPREC-INCREASE-CURRENT> 100603997
<NET-CHANGE-FROM-OPS> 195718646
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 90832129
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7715800
<NUMBER-OF-SHARES-REDEEMED> 12623569
<SHARES-REINVESTED> 7389814
<NET-CHANGE-IN-ASSETS> 135714245
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 985537
<OVERDIST-NET-GAINS-PRIOR> 2720891
<GROSS-ADVISORY-FEES> 2892782
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6535433
<AVERAGE-NET-ASSETS> 671244590
<PER-SHARE-NAV-BEGIN> 10.17
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 3.46
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 1.72
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.94
<EXPENSE-RATIO> 0.87
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF MFS GROWTH OPPORTUNITIES FUND CLASS B AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000063067
<NAME> MFS GROWTH OPPORTUNITIES FUND CLASS B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 579406082
<INVESTMENTS-AT-VALUE> 731581418
<RECEIVABLES> 5557224
<ASSETS-OTHER> 8163
<OTHER-ITEMS-ASSETS> 3079
<TOTAL-ASSETS> 737149884
<PAYABLE-FOR-SECURITIES> 3868528
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5140749
<TOTAL-LIABILITIES> 9009277
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 576139588
<SHARES-COMMON-STOCK> 565812
<SHARES-COMMON-PRIOR> 314010
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 55622
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 173143
<ACCUM-APPREC-OR-DEPREC> 152229784
<NET-ASSETS> 728140607
<DIVIDEND-INCOME> 6557079
<INTEREST-INCOME> 603745
<OTHER-INCOME> (13547)
<EXPENSES-NET> 5786462
<NET-INVESTMENT-INCOME> 1360815
<REALIZED-GAINS-CURRENT> 93753834
<APPREC-INCREASE-CURRENT> 100603997
<NET-CHANGE-FROM-OPS> 195718646
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 804857
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 604258
<NUMBER-OF-SHARES-REDEEMED> 412933
<SHARES-REINVESTED> 60477
<NET-CHANGE-IN-ASSETS> 135714245
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 985537
<OVERDIST-NET-GAINS-PRIOR> 2720891
<GROSS-ADVISORY-FEES> 2892782
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6535433
<AVERAGE-NET-ASSETS> 671244590
<PER-SHARE-NAV-BEGIN> 10.08
<PER-SHARE-NII> (0.09)
<PER-SHARE-GAIN-APPREC> 3.42
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 1.62
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.79
<EXPENSE-RATIO> 1.81
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
