<PAGE>
As filed with the Securities and Exchange Commission on April 29, 1997
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. 37
AND
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 27
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 30, 1997 pursuant to paragraph (b)
|_| 60 days after filing pursuant to paragraph (a)(i)
|_| on [date] pursuant to paragraph (a)(i)
|_| 75 days after filing pursuant to paragraph (a)(ii)
|_| on [date] pursuant to paragraph (a)(ii) of rule 485.
If appropriate, check the following box:
|_| this post-effective amendment designates a new effective date for a
previously filed post-effective amendment
Pursuant to Rule 24f-2, the Registrant has registered an indefinite number of
its Shares of Beneficial Interest (without par value), under the Securities Act
of 1933. The Registrant filed a Rule 24f-2 Notice with respect to its fiscal
year ended December 31, 1996 on February 26, 1997.
<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>
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) Management of the Fund - *
Investment Adviser
(d) Management of the Fund - *
Administrator
(e) Management of the Fund - *
Shareholder Servicing Agent;
Back Cover Page *
(f) Expense Summary; Condensed *
Financial Information
(g) Information Concerning Shares of *
the Fund - Purchases
(h) * *
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
(d) Front Cover Page; Information *
Concerning Shares of the Fund -
Purchases
(e) Information Concerning Shares of *
the Fund - Distribution Plan;
Expense Summary
(f) Information Concerning Shares of *
the Fund - Distribution Plan
(g) Expense Summary; Information *
Concerning Shares of the Fund -
Purchases; Information Concerning
Shares of the Fund - Exchanges;
Information Concerning Shares of
the Fund - Redemptions and
Repurchases; Information Concerning
Shares of the Fund - Distribution Plan;
Information Concerning Shares of the
Fund - Distributions; Information
Concerning Shares of the Fund -
Performance Information; Shareholder
Services
8 (a) Information Concerning Shares of *
the Fund - 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
- ----------------- ------------------ -------------------
<S> <C> <C>
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;
Trustee Compensation Table
15 (a) * *
(b), (c) * Management of the Fund -
Trustees and Officers
16 (a) Management of the Fund - Management of the Fund -
Investment Adviser Investment Adviser;
Management of the Fund -
Trustees and Officers
(b) Management of the Fund - Management of the Fund -
Investment Adviser Investment Adviser
(c) * *
(d) * Management of the Fund -
Investment Adviser;
Administrator
(e) * Portfolio Transactions and
Brokerage Commissions
(f) Information Concerning Shares of Distribution Plan
the Fund - Distribution Plan
(g) * *
(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
Plan
(c) * *
22 (a) * *
(b) * Determination of Net Asset
Value and Performance;
Performance Information
23 * Independent Auditors and
Financial Statements
</TABLE>
- -----------------------------
* Not Applicable
** Contained in Annual Report
<PAGE>
MFS GROWTH OPPORTUNITIES FUND
Supplement to the May 1, 1997 Prospectus and Statement of Additional Information
The following information should be read in conjunction with the Fund's
Prospectus and Statement of Additional Information ("SAI"), dated May 1, 1997,
and contains a description of Class I shares.
Class I shares are available for purchase only by certain investors as
described under the caption "Eligible Purchasers" below.
EXPENSE SUMMARY
SHAREHOLDER TRANSACTION EXPENSES: CLASS I
-------
Maximum Initial Sales Charge Imposed on Purchases of Fund
Shares (as a percentage of offering price)................. None
Maximum Contingent Deferred Sales Charge (as a percentage
of original purchase price or redemption proceeds, as
applicable) ............................................... None
ANNUAL OPERATING EXPENSES OF THE FUND (AS A PERCENTAGE OF
AVERAGE NET ASSETS):
Management Fees.............................................. 0.42%
Rule 12b-1 Fees.............................................. None
Other Expenses(1)(2)......................................... 0.255%
-----
Total Operating Expenses..................................... 0.675%
- ----------------
(1) "Other Expenses" is based on Class A expenses incurred during the fiscal
year ended December 31, 1996.
(2) 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 Class I shares of the Fund, assuming (a) a 5% annual return and
(b) redemption at the end of each of the time periods indicated:
PERIOD CLASS I
------ -------
1 year........................................ $ 7
3 years....................................... 22
The purpose of the expense table above is to assist investors in
understanding the various costs and expenses that a shareholder of the Fund will
bear directly or indirectly. A more complete description of the Fund's
management fee is set forth under the caption "Management of the Fund" in the
Prospectus.
THE "EXAMPLE" SET FORTH ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST
OR FUTURE EXPENSES OF THE FUND; ACTUAL EXPENSES MAY BE GREATER OR LESS THAN
THOSE SHOWN.
ELIGIBLE PURCHASERS
Class I shares are available for purchase only by the following purchasers
("Eligible Purchasers"):
(i) certain retirement plans established for the benefit of employees of
Massachusetts Financial Services Company ("MFS"), the Fund's investment
adviser, and employees of MFS' affiliates; and
(ii) any fund distributed by MFS Fund Distributors, Inc. ("MFD"), the Fund's
distributor, if the fund seeks to achieve its investment objective by
investing primarily in shares of the Fund and other funds distributed by
MFD.
In no event will the Fund, MFS, MFD or any of their affiliates pay any sales
commissions or compensation to any third party in connection with the sale of
Class I shares; the payment of any such sales commission or compensation would,
under the Fund's policies, disqualify the purchaser as an eligible investor of
Class I shares.
SHARE CLASSES OFFERED BY THE FUND
Three classes of shares of the Fund currently are offered for sale, Class A
shares, Class B shares and Class I shares. Class I shares are available for
purchase only by Eligible Purchasers, as defined above, and are described in
this Supplement. Class A shares and Class B shares are described in the Fund's
Prospectus and are available for purchase by the general public.
Class A shares are offered at net asset value plus an initial sales charge
up to a maximum of 5.75% of the offering price (or a contingent deferred sales
charge (a "CDSC") upon redemption of 1.00% during the first year in the case of
purchases of $1 million or more and certain purchases by retirement plans), and
are subject to an annual distribution fee and service fee up to a maximum of
0.35% per annum. Class B shares are offered at net asset value without an
initial sales charge but are subject to a CDSC upon redemption (declining from
4.00% during the first year to 0% after six years) and an annual distribution
fee and service fee up to a maximum of 1.00% per annum; Class B shares convert
to Class A shares approximately eight years after purchase. Class I shares are
offered at net asset value without an initial sales charge or CDSC and are not
subject to a distribution or service fee. Class I shares do not convert to any
other class of shares of the Fund.
OTHER INFORMATION
Eligible Purchasers may purchase Class I shares only directly through MFD.
Eligible Purchasers may exchange Class I shares of the Fund for Class I shares
of any other MFS Fund available for purchase by such Eligible Purchasers at
their net asset value (if available for sale), and may exchange Class I shares
of the Fund for shares of the MFS Money Market Fund (if available for sale), and
may redeem Class I shares of the Fund at net asset value. Distributions paid by
the Fund with respect to Class I shares generally will be greater than those
paid with respect to Class A shares and Class B shares because expenses
attributable to Class A shares and Class B shares shares generally will be
higher.
THE DATE OF THIS SUPPLEMENT IS MAY 1, 1997.
<PAGE>
PROSPECTUS
MFS(R) GROWTH May 1, 1997
OPPORTUNITIES FUND Class A Shares of Beneficial
(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 ........................................... 18
Redemptions and Repurchases ......................... 19
Distribution Plan ................................... 21
Distributions ....................................... 22
Tax Status .......................................... 22
Net Asset Value ..................................... 23
Description of Shares, Voting Rights and Liabilities 23
Performance Information ............................. 24
9. Shareholder Services .................................... 24
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 dated May 1, 1997, as amended or supplemented from time to time
(the "SAI), which contains more detailed information about the Fund. The SAI
is incorporated into this Prospectus by reference. See page 26 for a further
description of the information set forth in the SAI. A copy of the SAI may be
obtained without charge by contacting the Shareholder Servicing Agent (see
back cover for address and phone number). The SEC maintains an Internet World
Wide Web site that contains the SAI, materials that are incorporated by
reference into this Prospectus and the SAI, and other information regarding
the Fund. This Prospectus is available on the Adviser's Internet World Wide
Web site at http://www.mfs.com.
INVESTORS SHOULD READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE REFERENCE.
<PAGE>
1. EXPENSE SUMMARY
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES: CLASS A CLASS B
------- -------
<S> <C> <C>
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 ........................................................ 0.42 % 0.42 %
Rule 12b-1 Fees ........................................................ 0.16 %(2) 1.00 %(3)
Other Expenses(4) ...................................................... 0.255% 0.255%
----- -----
Total Operating Expenses ............................................... 0.835% 1.675%
- ----------
(1) Purchases of $1 million or more and certain purchases by retirement plans are not subject to an initial
sales charge; however, a contingent deferred sales charge (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 shares in accordance with Rule 12b-1 under the
Investment Company Act of 1940, as amended (the "1940 Act") (the "Distribution Plan"), which provides
that it will pay 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. 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 the Plan, together with the initial sales charge, may cause
long-term shareholders to pay more than the maximum sales charge that would have been permissible if
imposed entirely as an initial sales charge. (See "Information Concerning Shares of the Fund --
Distribution Plan" below).
(3) The Fund's Distribution Plan 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. Distribution expenses
paid under the Distribution Plan with respect to Class B shares, together with any CDSC payable upon
redemption of Class B shares, may cause long-term shareholders to pay more than the maximum sales charge
that would have been permissible if imposed entirely as an initial sales charge. (See "Information
Concerning Shares of the Fund -- Distribution Plan" below).
(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."
</TABLE>
EXAMPLE OF EXPENSES
An investor would pay the following dollar amounts of expenses on a $1,000
investment in the Fund, assuming (a) 5% annual return and (b) redemption at the
end of each of the time periods indicated unless otherwise noted:
PERIOD CLASS A CLASS B
- ------ ------- ----------------------
(1)
1 year .......................... $ 66 $ 57 $ 17
3 years ......................... 83 83 53
5 years ......................... 101 111 91
10 years ......................... 155 176(2) 176(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.
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 Plan."
THE "EXAMPLE" SET FORTH ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES OF THE FUND; ACTUAL EXPENSES MAY BE GREATER OR LESS
THAN THOSE SHOWN.
2. THE FUND
The Fund is an open-end, diversified management investment company which was
organized as a business trust under the laws of The Commonwealth of
Massachusetts in 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 for sale to the general public. Class A shares
are offered at net asset value plus an initial sales charge up to a maximum of
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. In addition, the Fund offers an additional class of shares, Class I
shares, exclusively to certain institutional investors. Class I shares are made
available by means of a separate Prospectus Supplement provided to institutional
investors eligible to purchase Class I shares and are offered at net asset value
without an initial sales charge or CDSC upon redemption and without an annual
distribution and service fee.
The 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>
FINANCIAL HIGHLIGHTS
<CAPTION>
CLASS A SHARES
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989
- ----------------------------------------------------------------------------------------------------------------------------------
CLASS A
- ----------------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD):
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value -- beginning of period ........ $11.94 $10.17 $11.56 $11.17 $10.75 $ 9.97 $10.93 $10.96
------ ------ ------ ------ ------ ------ ------ ------
Income from investment operations# --
Net investment income (loss)(S) ............. $(0.02) $ 0.03 $ 0.02 $ 0.07 $ 0.15 $ 0.24 $ 0.30 $ 0.36
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions .............................. 2.62 3.46 (0.50) 1.73 0.67 1.94 (0.77) 2.74
------ ------ ------ ------ ------ ------ ------ ------
Total from investment operations .......... $ 2.60 $ 3.49 $(0.48) $ 1.80 $ 0.82 $ 2.18 $(0.47) $ 3.10
------ ------ ------ ------ ------ ------ ------ ------
Less distributions declared to shareholders --
From net investment income .................. $ -- $ -- $(0.01) $(0.07) $(0.14) $(0.18) $(0.33) $(0.36)
From net realized gain on investments and
foreign currency transactions ............. (1.57) (1.72) (0.83) (1.32) (0.26) (1.22) (0.16)(++) (2.77)
In excess of net investment income .......... -- -- (0.02) (0.02) -- -- -- --
In excess of net realized gain on investments
and foreign currency transactions ......... -- -- (0.05) -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------
Total distributions declared to
shareholders ............................ $(1.57) $(1.72) $(0.91) $(1.41) $(0.40) $(1.40) $(0.49) $(3.13)
------ ------ ------ ------ ------ ------ ------ ------
Net asset value -- end of period .............. $12.97 $11.94 $10.17 $11.56 $11.17 $10.75 $ 9.97 $10.93
====== ====== ====== ====== ====== ====== ====== ======
Total return(+) ............................... 21.87% 34.49% (4.15)% 16.19% (8.06)% 9.29% (4.57)% 28.23%
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA(S):
Expenses## .................................. 0.84% 0.87% 0.86% 0.84% 0.89% 0.88% 0.80% 0.77%
Net investment income (loss) ................ (0.15)% 0.21% 0.21% 0.60% 1.40% 2.14% 2.91% 2.79%
PORTFOLIO TURNOVER ............................ 65% 100% 78% 79% 102% 131% 89% 83%
AVERAGE COMMISSION RATE### ................... $0.0438 -- -- -- -- -- -- --
NET ASSETS AT END OF PERIOD (000 OMITTED) ..... $807,657 $721,467 $589,260 $709,839 $694,084 $739,791 $687,847 $805,712
- ----------
(+)Total returns for Class A shares do not include the applicable 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.
###Average commission rate is calculated for funds with fiscal years beginning on or after September 1, 1995.
(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>
FINANCIAL HIGHLIGHTS -- continued
<TABLE>
<CAPTION>
CLASS A AND B SHARES
YEAR ENDED YEAR ENDED
DECEMBER 31, MARCH 31, YEAR ENDED DECEMBER 31,
------------------------------------ ------------------------------------------
1988 1987* 1987 1996 1995 1994 1993**
- ----------------------------------------------------------------------------------------------------------------------------------
CLASS A CLASS A CLASS B
- ----------------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD):
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value -- beginning of period ........... $10.81 $13.41 $13.51 $11.79 $10.08 $11.53 $12.52
------ ------ ------ ------ ------ ------ ------
Income from investment operations# --
Net investment income (loss) ................... $ 0.22 $ 0.11 $ 0.17 $(0.14) $(0.09) $(0.08) $ --
Net realized and unrealized gain (loss) on
investments and foreign currency transactions 0.76 (2.13) 1.20 2.57 3.42 (0.49) 0.36
------ ------ ------ ------ ------ ------ ------
Total from investment operations ............. $ 0.98 $(2.02) $ 1.37 $ 2.43 $ 3.33 $(0.57) $ 0.36
------ ------ ------ ------ ------ ------ ------
Less distributions declared to shareholders --
From net investment income ..................... $(0.19) $(0.11) $(0.17) $ -- $ -- $ -- $ --
From net realized gain on investments and
foreign currency transactions ................ (0.64) (0.47) (1.30) (1.49) (1.62) (0.83) (1.32)
In excess of net investment income ............. -- -- -- -- -- -- (0.03)
In excess of net realized gain on investments
and foreign currency transactions ............ -- -- -- -- -- (0.05) --
------ ------ ------ ------ ------ ------ ------
Total distributions declared to shareholders . $(0.83) $(0.58) $(1.47) $(1.49) $(1.62) $(0.88) $(1.35)
------ ------ ------ ------ ------ ------ ------
Net asset value -- end of period ................. $10.96 $10.81 $13.41 $12.73 $11.79 $10.08 $11.53
====== ====== ====== ====== ====== ====== ======
Total return(+) .................................. 8.90% (20.45)%+ 11.57% 20.72% 33.20% (4.96)% 9.29%+
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA:
Expenses## ..................................... 0.86% 0.72%+ 0.71% 1.75% 1.81% 1.81% 1.33%+
Net investment income (loss) ................... 1.90% 1.08%+ 1.28% (1.06)% (0.75)% (0.70)% --
PORTFOLIO TURNOVER ............................... 68% 40% 109% 65% 100% 78% 79%
AVERAGE COMMISSION RATE### ...................... -- -- -- $0.0438 -- -- --
NET ASSETS AT END OF PERIOD (000 OMITTED) ........ $767,924 $834,359 $1,090,764 $15,170 $6,673 $3,166 $805
- ----------
*For the nine months ended December 31, 1987.
**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 applicable 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.
###Average commission rates is calculated for funds with fiscal years beginning on or after September 1, 1995.
</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 and convertible securities 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 fixed-income 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 Services ("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 non-convertible
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% 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 Objective, 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"). A determination is made, 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, retains oversight,
focusing on factors, such as valuation, liquidity and availability of
information. Investing in Rule 144A securities 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 changes in the value of one or more
specified underlying instruments. Indexed securities may be positively or
negatively indexed (i.e., their principal value or interest rates 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 and could involve the loss of all
or a portion of the principal amount of the instrument.
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. However, the writing of Options constitutes only a
partial hedge, up to the amount of the premium, less any transaction costs. In
contrast, 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. 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 Conduct Rules
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. Under the Advisory Agreement, the
Adviser provides the Fund with overall investment advisory services. 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, 1996, MFS
received fees under the Fund's Advisory Agreement of $3,318,022, equivalent on
an annualized basis to 0.42% 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,
MFS/Sun Life Series Trust and seven variable accounts, each of which is a
registered investment company established by Sun Life Assurance Company of
Canada (U.S.) ("Sun Life of Canada (U.S.)") in connection with the sale of
various fixed/variable annuity contracts. MFS and its wholly owned subsidiary,
MFS Institutional Advisors, Inc., provide investment advice to substantial
private clients.
MFS is America's oldest mutual fund organization. MFS and its predecessor
organizations have a history of money management dating from 1924 and the
founding of the first mutual fund in the United States, Massachusetts Investors
Trust. Net assets under the management of the MFS organization were
approximately $51.5 billion on behalf of approximately 2.4 million investor
accounts as of March 31, 1997. 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 Donald A. Stewart. Mr. Brodkin is
the Chairman, Mr. Shames is the President, and Mr. Scott is the Secretary and a
Senior Executive Vice President of MFS. Messrs. McNeil and Stewart are the
Chairman and President, respectively, of Sun Life. Sun Life, a mutual life
insurance company, is one of the largest international life insurance companies
and has been operating in the United States since 1895, establishing a
headquarters office here in 1973. The executive officers of MFS report to the
Chairman of Sun Life.
A. Keith Brodkin, the Chairman 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 share their views
on a variety of investment related issues, such as the economy, securities
markets, portfolio securities and their issuers, investment recommendations,
strategies and techniques, risk analysis, trading strategies and other portfolio
management matters. MFS has access to the extensive international equity
investment expertise of Foreign & Colonial, and Foreign & Colonial has access to
the extensive U.S. equity investment expertise of MFS. MFS and Foreign &
Colonial each have investment personnel working in each other's offices in
Boston and London, respectively.
In certain instances there may be securities which are suitable for the Fund's
portfolio as well as for portfolios of other clients of MFS or clients of
Foreign & Colonial. Some simultaneous transactions are inevitable when several
clients receive investment advice from MFS and Foreign & Colonial, particularly
when the same security is suitable for more than one client. While in some cases
this arrangement could have a detrimental effect on the price or availability of
the security as far as the Fund is concerned, in other cases, however, it may
produce increased investment opportunities for the Fund.
ADMINISTRATOR -- MFS provides the Fund with certain administrative services
pursuant to a Master Administrative Services Agreement dated March 1, 1997.
Under this Agreement, MFS provides the Fund with certain financial, legal,
compliance, shareholder communications and other administrative services. As a
partial reimbursement for the cost of providing these services, the Fund pays
MFS an administrative fee up to 0.015% per annum of the Fund's average daily net
assets, provided that the administrative fee is not assessed on Fund assets that
exceed $3 billion.
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
Class A and B 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.
This Prospectus offers Class A and B shares to the general public 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:
<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**
- ------------
*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.
</TABLE>
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 four circumstances, Class A shares are offered at net asset value
without an initial sales charge but subject to a CDSC, equal to 1% of the lesser
of the value of the shares redeemed (exclusive of reinvested dividend and
capital gain distributions) or the total cost of such shares, in the event of a
share redemption within 12 months following the purchase:
(i) on investments of $1 million or more in Class A shares;
(ii) on investments in Class A shares by certain retirement plans subject to
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
if, prior to July 1, 1996: (a) the Plan had established an account with the
Shareholder Servicing Agent and (b) the sponsoring organization has
demonstrated to the satisfaction of MFD that either (i) the employer had at
least 25 employees or (ii) the aggregate purchases by the retirement plan of
Class A shares of the MFS Funds would be in an amount of at least $250,000
within a reasonable period of time, as determined by MFD in its sole
discretion;
(iii) on investments in Class A shares by certain retirement plans subject
to ERISA, if: (a) the retirement plan and/or sponsoring organization
subscribes to the MFS FUNDamental 401(k) Program or any similar
recordkeeping system made available by the Shareholder Servicing Agent
(the "MFS Participant Recordkeeping System"); (b) the plan establishes
an account with the Shareholder Servicing Agent on or after July 1,
1996; and (c) the aggregate purchases by the retirement plan of Class
A shares of the MFS Funds will be in an aggregate amount of at least
$500,000 within a reasonable period of time, as determined by MFD in
its sole discretion; and
(iv) on investments in Class A shares by certain retirement plans subject to
ERISA, if: (a) the plan establishes an account with the Shareholder
Servicing Agent on or after July 1, 1996 and (b) the plan has, at the
time of purchase, a market value of $500,000 or more invested in shares
of any class or classes of the MFS Funds. THE RETIREMENT PLAN WILL
QUALIFY UNDER THIS CATEGORY ONLY IF THE PLAN OR ITS SPONSORING
ORGANIZATION INFORMS THE SHAREHOLDER SERVICING AGENT PRIOR TO THE
PURCHASES THAT THE PLAN HAS A MARKET VALUE OF $500,000 OR MORE INVESTED
IN SHARES OF ANY CLASS OR CLASSES OF THE MFS FUNDS. THE SHAREHOLDER
SERVICING AGENT HAS NO OBLIGATION INDEPENDENTLY TO DETERMINE WHETHER
SUCH A PLAN QUALIFIES UNDER THIS CATEGORY.
In the case of all such purchases, MFD will pay commissions to dealers on new
investments in Class A shares made through such dealers, as follows:
COMMISSION PAID
BY MFD
TO DEALERS CUMULATIVE PURCHASE AMOUNT
--------------- --------------------------
1.00% On the first $2,000,000, plus
0.80% Over $2,000,000 to $3,000,000, plus
0.50% Over $3,000,000 to $50,000,000, plus
0.25% Over $50,000,000
For purposes of determining the level of commissions to be paid to dealers
with respect to a shareholder's new investment in Class A shares made on or
after April 1, 1996, purchases for each shareholder account (and certain other
accounts for which the shareholder is a record or beneficial holder) will be
aggregated over a 12-month period (commencing from the date of the first such
purchase).
See "Redemptions and Repurchases -- Contingent Deferred Sales Charge" for
further discussion of the CDSC.
WAIVERS OF INITIAL SALES CHARGE AND CDSC. In certain circumstances, the
initial sales charge imposed upon purchases of Class A shares and the CDSC
imposed upon redemptions of Class A shares is waived. These circumstances are
described in Appendix A to this Prospectus. In addition to these circumstances,
the CDSC imposed upon the redemption of Class A shares is waived with respect to
shares held by certain retirement plans qualified under Section 401(a) or 403(b)
of the Internal Revenue Code of 1986, as amended (the "Code"), and subject to
ERISA, where:
(i) the retirement plan and/or sponsoring organization does not subscribe
to the MFS Participant Recordkeeping System; and
(ii) the retirement plan and/or sponsoring organization demonstrates to the
satisfaction of, and certifies to the Shareholder Servicing Agent that
the retirement plan has, at the time of certification or will have
pursuant to a purchase order placed with the certification, a market
value of $500,000 or more invested in shares of any class or classes of
the MFS Funds and aggregate assets of at least $10 million;
provided, however, that the CDSC will not be waived (i.e., it will be imposed)
in the event that there is a change in law or regulations which results in a
material adverse change to the tax advantaged nature of the plan, or in the
event that the plan and/or sponsoring organization: (i) becomes insolvent or
bankrupt; (ii) is terminated or partially terminated under ERISA or is
liquidated or dissolved; or (iii) is acquired by, merged into, or consolidated
with, any other entity.
CLASS B SHARES: Class B shares are offered at net asset value without an initial
sales charge but subject to a CDSC 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.
See "Redemptions and Repurchases -- Contingent Deferred Sales Charge" for
further discussion of the CDSC.
Except as described below, MFD will pay commissions to dealers of 3.75% of the
purchase price of Class B shares purchased through dealers. MFD will also
advance to dealers the first year service fee payable under the Fund's
Distribution Plan (see "Distribution Plan" below) at a rate equal to 0.25% of
the purchase price of such shares. Therefore, the total amount paid to a dealer
upon the sale of Class B shares is 4% of the purchase price of the shares
(commission rate of 3.75% plus a service fee equal to 0.25% of the purchase
price).
Class B shares purchased by a retirement plan whose sponsoring organization
subscribes to the MFS Participant Recordkeeping System and which has established
its account with the Shareholder Servicing Agent on or after July 1, 1996, will
be subject to the CDSC described above, only under limited circumstances, as
explained below under "Waivers of CDSC." With respect to such purchases, MFD
pays an amount to dealers equal to 3.00% of the amount purchased through such
dealers (rather than the 4.00% payment described above), which is comprised of a
commission of 2.75% plus the advancement of the first year service fee equal to
0.25% of the purchase price payable under the Fund's Distribution Plan. As
discussed above, such retirement plans are eligible to purchase Class A shares
of the Fund at net asset value without an initial sales charge but subject to a
1% CDSC if the plan has, at the time of purchase, a market value of $500,000 or
more invested in shares of any class or classes of the MFS Funds. IN THIS EVENT,
THE PLAN OR ITS SPONSORING ORGANIZATION SHOULD INFORM THE SHAREHOLDER SERVICING
AGENT THAT THE PLAN IS ELIGIBLE TO PURCHASE CLASS A SHARES UNDER THIS CATEGORY;
THE SHAREHOLDER SERVICING AGENT HAS NO OBLIGATION INDEPENDENTLY TO DETERMINE
WHETHER SUCH A PLAN QUALIFIES UNDER THIS CATEGORY FOR THE PURCHASE OF CLASS A
SHARES.
WAIVERS OF CDSC. In certain circumstances, the CDSC imposed upon redemption
of Class B shares is waived. These circumstances are described in Appendix A to
this Prospectus. In addition to these circumstances, the CDSC imposed upon the
redemption of Class B shares is waived with respect to shares held by a
retirement plan whose sponsoring organization subscribes to the MFS Participant
Recordkeeping System and which has established an account with the Shareholder
Servicing Agent on or after July 1, 1996; provided, however, that the CDSC will
not be waived (i.e., it will be imposed) in the event that there is a change in
law or regulations which results in a material adverse change to the tax
advantaged nature of the plan, or in the event that the plan and/or sponsoring
organization: (i) becomes insolvent or bankrupt; (ii) is terminated or partially
terminated under ERISA or is liquidated or dissolved; or (iii) is acquired by,
merged into, or consolidated with, any other entity.
CONVERSION OF CLASS B SHARES. Class B shares of the Fund that remain
outstanding for approximately eight years will convert to Class A shares of the
Fund. Shares purchased through the reinvestment of distributions paid in respect
of Class B shares will be treated as Class B shares for purposes of the payment
of the distribution and service fees under the Fund's Distribution Plan. See
"Distribution Plan" below. However, for purposes of conversion to Class A
shares, all shares in a shareholder's account that were purchased through the
reinvestment of dividends and distributions paid in respect of Class B shares
(and which have not converted to Class A shares as provided in the following
sentence) will be held in a separate sub-account. Each time any Class B shares
in the shareholder's account (other than those in the sub-account) convert to
Class A shares, a portion of the Class B shares then in the sub-account will
also convert to Class A shares. The portion will be determined by the ratio that
the shareholder's Class B shares not acquired through reinvestment of dividends
and distributions that are converting to Class A shares bear to the
shareholder's total Class B shares not acquired through reinvestment. The
conversion of Class B shares to Class A shares is subject to the continuing
availability of a ruling from the Internal Revenue Service or an opinion of
counsel that such conversion will not constitute a taxable event for federal tax
purposes. There can be no assurance that such ruling or opinion will be
available, and the conversion of Class B shares to Class A shares will not occur
if such ruling or opinion is not available. In such event, Class B shares would
continue to be subject to higher expenses than Class A shares for an indefinite
period.
The CDSC imposed is assessed against the lesser of the value of the shares
redeemed (exclusive of reinvested dividend and capital gain distributions) or
the total cost of such shares. No CDSC is assessed against shares acquired
through the automatic reinvestment of dividend or capital gain distributions.
See "Redemptions and Repurchases -- Contingent Deferred Sales Charge" below
for further discussion of the CDSC.
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.
SUBSEQUENT INVESTMENT BY TELEPHONE: -- Each shareholder may purchase additional
shares of any MFS Fund by telephoning the Shareholder Servicing Agent toll-free
at (800) 225-2606. The minimum purchase amount is $50 and the maximum purchase
amount is $100,000. Shareholders wishing to avail themselves of this telephone
purchase privilege must so elect on their Account Application and designate
thereon a bank and account number from which purchases will be made. If a
telephone purchase request is received by the Shareholder Servicing Agent on any
business day prior to the close of regular trading on the Exchange (generally,
4:00 p.m., Eastern time), the purchase will occur at the closing net asset value
of the shares purchased on that day. The Shareholder Servicing Agent may be
liable for any losses resulting from unauthorized telephone transactions if it
does not follow reasonable procedures designed to verify the identity of the
caller. The Shareholder Servicing Agent will request personal or other
information from the caller, and will normally also record calls. Shareholders
should verify the accuracy of confirmation statements immediately after their
receipt.
RIGHT TO REJECT PURCHASE ORDERS/MARKET TIMING. Purchases and exchanges
should be made for investment purposes only. The Fund and MFD each reserve the
right to reject or restrict any specific purchase or exchange request. In the
event that the Fund or MFD rejects an exchange request, neither the redemption
nor the purchase side of the exchange will be processed.
The Fund is not designed for professional market timing organizations or other
entities using programmed or frequent exchanges. The Fund defines a "market
timer" as an individual, or organization acting on behalf of one or more
individudals, if (i) the individual or organization makes three or more exchange
requests out of the Fund per calender year and (ii) any one of such exchange
requests represents shares equal in value to 1/2 of 1% or more of the Fund's net
assets at the time of the request. Accounts under common ownership or control,
including accounts administered by market timers, will be aggregated for
purposes of this definition.
As noted above, the Fund and MFD each reserves the right to reject or restrict
any specific purchase and exchange request and, in addition, may impose specific
limitations with respect to market timers, including delaying for up to seven
days the purchase side of an exchange request by market timers or specifically
rejecting or otherwise restricting purchase or exchange requests by market
timers. Other funds in the MFS Family of Funds may have different and/or more
restrictive policies with respect to market timers than the Fund. These policies
are disclosed in the prospectuses of these other MFS Funds.
DEALER CONCESSIONS. Dealers may receive different compensation with respect
to sales of Class A 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.
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). Shares of one class
may not be exchanged for shares of any other class.
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.
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 (i) with respect
to Class A shares, 12 months (however the CDSC on Class A shares is only imposed
with respect to purchases of $1 million or more of Class A shares or purchases
by certain retirement plans of Class A shares) or (ii) with respect to Class B
shares, six years. Purchases of Class A shares made during a calendar month,
regardless of when during the month the investment occurred, will age one month
on the last day of the month and each subsequent month. Class 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. The Trust agrees to redeem shares of the Fund solely
in cash up to the lesser of $250,000 or 1% of the net asset value of the Fund
during any 90-day period for any one shareholder. The Fund has reserved the
right to pay other redemptions, either totally or partially, by a distribution
in-kind of securities (instead of cash) from the Fund's portfolio. The
securities distributed in such a distribution would be valued at the same amount
as that assigned to them in calculating the net asset value for the shares being
sold. If a shareholder received a distribution in-kind, the shareholder could
incur brokerage or transaction charges when converting the securities to cash.
INVOLUNTARY REDEMPTIONS/SMALL ACCOUNTS. Due to the relatively high cost of
maintaining small accounts, the Fund reserves the right to redeem shares in any
account for their then-current value if at any time the total investment in such
account drops below $500 because of redemptions or exchanges, except in the case
of accounts being established for monthly automatic investments and certain
payroll savings programs, Automatic Exchange Plan accounts and tax-deferred
retirement plans, for which there is a lower minimum investment requirement. See
"Purchases -- General -- Minimum Investment." Shareholders will be notified that
the value of their account is less than the minimum investment requirement and
allowed 60 days to make an additional investment before the redemption is
processed.
DISTRIBUTION PLAN
The Trustees have adopted a Distribution Plan for Class A and Class B shares
pursuant to Section 12(b) of the 1940 Act and Rule 12b-1 thereunder (the
"Distribution Plan"), after having concluded that there is a reasonable
likelihood that the Plan would benefit the Fund and its shareholders.
In certain circumstances, the fees described below may not be imposed or are
being waived. These circumstances, if any, are described below under the heading
"Current Level of Distribution and Service Fees."
FEATURES COMMON TO EACH CLASS OF SHARES: There are certain features of the
Distribution Plan that are common to each class of shares, as described below.
SERVICE FEES. The Distribution Plan provides that the Fund may pay MFD a
service fee of up to 0.25% of the average daily net assets attributable to the
class of shares to which the Distribution Plan relates (i.e., Class A 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 the Distribution Plan for which there is
no dealer of record or for which qualification standards have not been met as
partial consideration for personal services and/or account maintenance services
performed by MFD or its affiliates to shareholder accounts.
DISTRIBUTION FEES. The Distribution Plan provides that the Fund may pay MFD
a distribution fee based on the average daily net assets attributable to the
Designated Class as partial consideration for distribution services performed
and expenses incurred in the performance of MFD's obligations under its
distribution agreement with the Fund. See "Management of the Fund --
Distributor" in the SAI. The amount of the distribution fee paid by the Fund
with respect to each class differs under the Distribution Plans, as does the use
by MFD of such distribution fees. Such amounts and uses are described below in
the discussion of the provisions of the Distribution Plan relating to each Class
of shares. While the amount of compensation received by MFD in the form of
distribution fees during any year may be more or less than the expense incurred
by MFD under its distribution agreement with the Fund, the Fund is not liable to
MFD for any losses MFD may incur in performing services under its distribution
agreement with the Fund.
OTHER COMMON FEATURES. Fees payable under the Distribution Plan are charged
to, and therefore reduce, income allocated to shares of the Designated Class.
The provisions of the Distribution Plan relating to operating policies as well
as initial approval, renewal, amendment and termination are substantially
identical as they relate to each class of shares covered by the Distribution
Plan.
FEATURES UNIQUE TO EACH CLASS OF SHARES: There are certain features of the
Distribution Plan that are unique to each class of shares, as described below.
CLASS A SHARES. Class A shares are generally offered pursuant to an initial
sales charge, a substantial portion of which is paid to or retained by the
dealer making the sale (the remainder of which is paid to MFD). See "Purchases
- -- Class A Shares" above. In addition to the initial sales charge, the dealer
also generally receives the ongoing 0.25% per annum service fee, as discussed
above.
The distribution fee paid to MFD under the Distribution Plan is equal, on an
annual basis, to 0.10% of the Fund's average daily net assets attributable to
Class A shares. As noted above, MFD may use the distribution fee to cover
distribution-related expenses incurred by it under its distribution agreement
with the Fund, including commissions to dealers and payments to wholesalers
employed by MFD (e.g., MFD pays commissions 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 Distribution Plan do not exceed 0.35% per annum
of the average daily net assets of the Fund attributable to Class A shares, the
Fund is permitted to pay such distribution-related expenses or other
distribution-related expenses.
CLASS B SHARES. Class B shares are offered at net asset value without an
initial sales charge but subject to a CDSC. See "Purchases -- Class B Shares"
above. MFD will advance to dealers the first year service fee described above at
a rate equal to 0.25% of the purchase price of such shares and, as compensation
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 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 0.16% 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").
Because the Fund intends to distribute all of its net investment income and net
realized capital gains to its shareholders in accordance with the timing
requirements imposed by the Code, it is not expected that the Fund will be
required to pay any federal income or excise taxes, although the Fund's
foreign-source income 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 the distribution is 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 be sent a statement setting forth the federal income tax
status of all dividends and distributions for that year, including the portion
taxable as ordinary income, the portion taxable as long-term capital gain, the
portion, if any, representing a return of capital (which is free of current
taxes, but results in a basis reduction), and the amount, if any, of federal
income tax withheld.
Fund distributions will reduce the Fund's net asset value per share.
Shareholders who buy shares shortly before the Fund makes a distribution may
thus pay the full price for the shares and then effectively receive a portion of
the purchase price back as a taxable distribution.
The Fund intends to withhold U.S. federal income tax at the rate of 30% on
dividends and other payments that are subject to such withholding and that are
made to persons who are neither citizens nor residents of the U.S., regardless
of whether a lower rate may be permitted under an applicable treaty. The Fund is
also required in certain circumstances to apply backup withholding at the rate
of 31% on taxable dividends and redemption proceeds paid to any shareholder
(including a shareholder who is neither a citizen nor a resident of the U.S.)
who does not furnish to the Fund certain information and certifications or who
is otherwise subject to backup withholding. Backup withholding will not,
however, be applied to payments that have been subject to 30% withholding.
Prospective investors should read the Fund's Account Application for additional
information regarding backup withholding of federal income tax and should
consult their own tax advisers as to the tax consequences to them of an
investment in the Fund.
NET ASSET VALUE
The net asset value per share of 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, which it offers to the general public,
entitled Class A and Class B Shares of Beneficial Interest (without par value).
The Fund also has a class of shares which it offers exclusively to certain
institutional investors, entitled Class I shares. 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 the Distribution Plan or on any other matter
that affects solely that class of shares, but will otherwise vote together with
all other classes of shares of the 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 Securities
Corporation 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 will give effect to the imposition of any applicable 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 offers multiple classes of shares which were
initially offered for sale to the public on different dates. The calculation of
total rate of return for a class of shares which initially was offered for sale
to the public subsequent to another class of shares of the Fund is based both on
(i) the performance of the Fund's newer class from the date it initially was
offered for sale to the public and (ii) the performance of the Fund's oldest
class from the date it initially was offered for sale to the public up to the
date that the newer class initially was offered for sale to the public. See the
SAI for further information on the calculation of total rate of return for share
classes initially offered for sale to the public on different dates.
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, 1996, 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 or
the shareholder does not respond to mailings from the Shareholder Servicing
Agent with regard to uncashed distribution checks, such shareholder's
distribution option will automatically be converted to having all dividends and
other distributions reinvested in additional shares. Any request to change a
distribution option must be received by the Shareholder Servicing Agent by the
record date for a dividend or distribution in order to be effective for that
dividend or distribution. No interest will accrue on amounts represented by
uncashed distribution or redemption checks.
INVESTMENT AND WITHDRAWAL PROGRAMS -- For the convenience of shareholders, the
Fund makes available the following programs designed to enable shareholders to
add to their investment in an account with the Fund or withdraw from it with a
minimum of paper work. The programs involve no extra charge to shareholders
(other than a sales charge in the case of certain Class A share purchases) and
may be changed or discontinued at any time by a shareholder or the Fund.
LETTER OF INTENT: If a shareholder (other than a group purchaser as
described in the SAI) anticipates purchasing $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 Class A, B and C 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 on any day of the month. If the
shareholder does not specify a date, the investment will automatically occur on
the first business day of the month. Required forms are available from the
Shareholder Servicing Agent or investment dealers.
AUTOMATIC EXCHANGE PLAN: Shareholders having account balances of at least
$5,000 in any MFS Fund may 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 six
different funds. A shareholder should consider the objectives and policies of a
fund and review its prospectus before electing to exchange money into such fund
through the Automatic Exchange Plan. No transaction fee is imposed in connection
with exchange transactions under the Automatic Exchange Plan. However, exchanges
of shares of MFS Money Market Fund, MFS Government Money Market Fund or Class A
shares of MFS Cash Reserve Fund will be subject to any applicable sales charge.
For federal and (generally) state income tax purposes, an exchange is treated as
a sale of the shares exchanged and, therefore, could result in a capital gain or
loss to the shareholder making the exchange. See the SAI for further information
concerning the Automatic Exchange Plan. Investors should consult their tax
advisers for information regarding the potential capital gain and loss
consequences of transactions under the Automatic Exchange Plan.
Because a dollar cost averaging program involves periodic purchases of shares
regardless of fluctuating share offering prices, a shareholder should consider
his financial ability to continue his purchases through periods of low price
levels. Maintaining a dollar cost averaging program concurrently with a
withdrawal program could be disadvantageous because of the sales charges
included in share purchases in the case of Class A shares, and because of the
assessment of the CDSC for certain share redemptions in the case of Class A
shares.
TAX-DEFERRED RETIREMENT PLANS -- Shares of the Fund may be purchased by all
types of tax-deferred retirement plans, including IRAs, SEP-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, 1997, as amended or supplemented from time to time,
contains more detailed information about the Fund, including, but not limited
to, information related to (i) 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 Distribution Plan, 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
o Shares acquired through dividend or capital gain reinvestment;
and
o Shares acquired by automatic reinvestment of distributions of
dividends and capital gains of any fund in the MFS Family of
Funds ("MFS Funds") pursuant to the Distribution Investment
Program.
2. CERTAIN ACQUISITIONS/LIQUIDATIONS
o Shares acquired on account of the acquisition or liquidation of
assets of other investment companies or personal holding
companies.
3. AFFILIATES OF AN MFS FUND/CERTAIN DEALERS. Shares acquired by:
o Officers, eligible directors, employees (including retired
employees) and agents of MFS, Sun Life Assurance Company of
Canada ("Sun Life") or any of their subsidiary companies;
o Trustees and retired trustees of any investment company for which
MFS Fund Distributors, Inc. ("MFD") serves as distributor;
o Employees, directors, partners, officers and trustees of any sub-
adviser to any MFS Fund;
o Employees or registered representatives of dealers and other
financial institution ("dealers") which have a sales agreement
with MFD;
o Certain family members of any such individual and their spouses
identified above and certain trusts, pension, profit-sharing or
other retirement plans for the sole benefit of such persons,
provided the shares are not resold except to the MFS Fund which
issued the shares; and
o Institutional Clients of MFS or MFS Institutional Advisors, Inc.
("MFSI").
4. INVOLUNTARY REDEMPTIONS (CDSC WAIVER ONLY)
o Shares redeemed at an MFS Fund's direction due to the small size
of a shareholder's account. See "Redemptions and Repurchases --
General -- Involuntary Redemptions/ Small Accounts" in the
Prospectus.
5. RETIREMENT PLANS (CDSC WAIVER ONLY). Shares redeemed on account of
distributions made under the following circumstances:
INDIVIDUAL RETIREMENT ACCOUNTS ("IRA'S")
o Death or disability of the IRA owner.
SECTION 401(a) PLANS ("401(a) PLANS") AND SECTION 403(b) EMPLOYER
SPONSORED PLANS ("ESP PLANS")
o Death, disability or retirement of 401(a) or ESP Plan
participant;
o Loan from 401(a) or ESP Plan (repayment of loans, however, will
constitute new sales for purposes of assessing sales charges);
o Financial hardship (as defined in Treasury Regulation Section
1.401(k)-1 (d)(2), as amended from time to time);
o Termination of employment of 401(a) or ESP Plan participant
(excluding, however, a partial or other termination of the 401(a)
or ESP Plan);
o Tax-free return of excess 401(a) or ESP Plan contributions;
o To the extent that redemption proceeds are used to pay expenses
(or certain participant expenses) of the 401(a) or ESP Plan
(e.g., participant account fees), provided that the Plan sponsor
subscribes to the MFS FUNDamental 401 (k) Plan or another similar
recordkeeping system made available by the Shareholder Servicing
Agent; and
o Distributions from a 401(a) or ESP Plan that has invested its
assets in one or more of the MFS Funds for more than 10 years
from the later to occur of: (i) January 1, 1993 or (ii) the date
such 401(a) or ESP Plan first invests its assets in one or more
of the MFS Funds. The sales charges will be waived in the case of
a redemption of all of the 401(a) or ESP Plan's shares in all MFS
Funds (i.e., all the assets of the 401(a) or ESP Plan invested in
the MFS Funds are withdrawn), unless immediately prior to the
redemption, the aggregate amount invested by the 401(a) or ESP
Plan in shares of the MFS Funds (excluding the reinvestment of
distributions) during the prior four years equals 50% or more of
the total value of the 401(a) or ESP Plan's assets in the MFS
Funds, in which case the sales charges will not be waived.
SECTION 403(b) SALARY REDUCTION ONLY PLANS ("SRO PLANS")
o Death or disability of SRO Plan participant.
6. CERTAIN TRANSFERS OF REGISTRATION (CDSC WAIVER ONLY). Shares
transferred:
o To an IRA rollover account where any sales charges with respect
to the shares being reregistered would have been waived had they
been redeemed; and
o From a single account maintained for a 401(a) Plan to multiple
accounts maintained by the Shareholder Servicing Agent on behalf
of individual participants of such Plan, provided that the Plan
sponsor subscribes to the MFS FUNDamental 401(k) Plan or another
similar recordkeeping system made available by the Shareholder
Servicing Agent.
II. WAIVERS OF CLASS A SALES CHARGES
In addition to the waivers set forth in Section I above, in the following
circumstances the initial sales charge imposed on purchases of Class A
shares and the CDSC imposed on certain redemptions of Class A shares is
waived:
1. INVESTMENT OF REDEMPTION PROCEEDS FROM UNAFFILIATED MUTUAL FUNDS
o Shares acquired through the investment of redemption proceeds
from another open-end management investment company not
distributed or managed by MFD or its affiliates if: (i) the
investment is made through a dealer and appropriate documentation
is submitted to MFD; (ii) the redeemed shares were subject to an
initial sales charge or deferred sales charge (whether or not
actually imposed); (iii) the redemption occurred no more than 90
days prior to the purchase of Class A shares; and (iv) the MFS
Fund, MFD or its affiliates have not agreed with such company or
its affiliates, formally or informally, to waive sales charges on
Class A shares or provide any other incentive with respect to
such redemption and sale.
2. WRAP ACCOUNT INVESTMENTS
o Shares acquired by investments through certain dealers which have
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
o Shares acquired by insurance company separate accounts.
4. RETIREMENT PLANS
ADMINISTRATIVE SERVICES ARRANGEMENTS
o Shares acquired by retirement plans whose third party
administrators, or dealers have entered into an administrative
services agreement with MFD or one of its affiliates to perform
certain administrative services, subject to certain operational
and minimum size requirements specified from time to time by MFD
or one or more of its affiliates.
REINVESTMENT OF DISTRIBUTIONS FROM QUALIFIED RETIREMENT PLANS
o Shares acquired through the automatic reinvestment in Class A
shares of Class A or Class B distributions which constitute
required withdrawals from qualified retirement plans.
Shares redeemed on account of distributions made under the following
circumstances:
IRA'S
o Distributions made on or after the IRA owner has attained the age
of 59 1/2 years old; and
o Tax-free returns of excess IRA contributions.
401(a) PLANS
o Distributions made on or after the 401(a) Plan participant has
attained the age of 59 1/2 years old; and
o Certain involuntary redemptions and redemptions in connection
with certain automatic withdrawals from a Plan.
ESP PLANS AND SRO PLANS
o Distributions made on or after the ESP or SRO Plan participant
has attained the age of 59 1/2 years old.
III. WAIVERS OF CLASS B 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
o Systematic Withdrawal Plan redemptions with respect to up to 10%
per year of the account value at the time of establishment.
2. DEATH OF OWNER
o Shares redeemed on account of the death of the account owner if
the shares are held solely in the deceased individual's name or
in a living trust for the benefit of the deceased individual.
3. DISABILITY OF OWNER
o Shares redeemed on account of the disability of the account owner
if shares are held either solely or jointly in the disabled
individual's name or in a living trust for the benefit of the
disabled individual (in which case a disability certification
form is required to be submitted to the Shareholder Servicing
Agent.).
4. RETIREMENT PLANS. Shares redeemed on account of distributions made
under the following circumstances:
IRA'S, 401(a) PLANS, ESP PLANS AND SRO PLANS
o Distributions made on or after the IRA owner or the 401(a), ESP
or SRO Plan participant, as applicable, has attained the age of
70 1/2 years old, but only with respect to the minimum
distribution under applicable Internal Revenue Code ("Code")
rules.
SALARY REDUCTION SIMPLIFIED EMPLOYEE PENSION PLANS ("SAR-SEP PLANS")
o Distributions made on or after the SAR-SEP Plan participant has
attained the age of 70 1/2 years old, but only with respect to
the minimum distribution under applicable Code rules;
o 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, MA 02110
[logo] M F S(SM)
INVESTMENT MANAGEMENT
We invented the mutual fund(SM)
MFS(R) GROWTH
OPPORTUNITIES FUND
500 Boylston Street
Boston, MA 02116
MGO-1-5/97/115 16/216
[logo] M F S(SM)
INVESTMENT MANAGEMENT
We invented the mutual fund(SM)
MFS(R) GROWTH OPPORTUNITIES FUND
Prospectus
May 1, 1997
<PAGE>
[LOGO] M F S(SM)
INVESTMENT MANAGEMENT
MFS(R) GROWTH STATEMENT OF
OPPORTUNITIES FUND ADDITIONAL INFORMATION
(A member of the MFS Family of Funds(R)) May 1, 1997
- --------------------------------------------------------------------------------
Page
----
1. Definitions ............................................. 2
2. The Fund ................................................ 2
3. Investment Objective, Policies and Restrictions ......... 2
4. Management of the Fund .................................. 9
Trustees ............................................. 9
Officers ............................................. 10
Trustee Compensation Table ........................... 10
Investment Adviser ................................... 11
Administrator ........................................ 11
Custodian ............................................ 11
Shareholder Servicing Agent .......................... 11
Distributor .......................................... 12
5. Portfolio Transactions and Brokerage Commissions ........ 12
6. Shareholder Services .................................... 14
Investment and Withdrawal Programs ................... 14
Exchange Privilege ................................... 16
Tax-Deferred Retirement Plans ........................ 16
7. Tax Status .............................................. 16
8. Determination of Net Asset Value and Performance ........ 17
9. Distribution Plan ....................................... 19
10. Description of Shares, Voting Rights and Liabilities .... 20
11. Independent Auditors and Financial Statements ........... 21
Appendix A (Description of Bond Ratings) ................ 22
Appendix B (Performance Information) .................... 24
MFS GROWTH OPPORTUNITIES FUND
500 Boylston Street, Boston, Massachusetts 02116
(617) 954-5000
This Statement of Additional Information as amended or supplemented from time to
time (the "SAI"), sets forth information which may be of interest to investors
but which is not necessarily included in the Fund's Prospectus, dated May 1,
1997. This SAI should be read in conjunction with the Prospectus, a copy of
which may be obtained without charge by contacting the Shareholder Servicing
Agent (see last page for address and phone number).
THIS SAI IS NOT A PROSPECTUS AND IS AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE
INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS.
<PAGE>
1. DEFINITIONS
"Fund" -- MFS 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, 1997, 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
liquid assets 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% 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 Services
("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, American Stock or NASDAQ National Market
Issues 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 liquid assets in a
segregated account with its custodian. A put option written by the Fund would be
"covered" if the Fund maintained liquid assets 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 liquid assets. 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 liquid assets in a segregated account with its custodian. The Fund may cover
put options on stock indices by maintaining liquid assets 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 liquid assets 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
liquid assets 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, liquid assets, 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 liquid assets 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 (born 8/4/35)
Massachusetts Financial Services Company, Chairman and Director
RICHARD B. BAILEY* (born 9/14/26)
Private investor; Massachusetts Financial Services Company, former Chairman
and Director (prior to September 1991); Cambridge Bancorp, Director;
Cambridge Trust Company, Director.
PETER J. HARWOOD (born 4/3/26)
Private Investor
Address: 211 Lindsay Pond Road, Concord, Massachusetts
J. ATWOOD IVES (born 5/1/36)
Eastern Enterprises (diversified services company), Chairman and Chief
Executive Officer
Address: 9 Riverside Road, Weston, Massachusetts
LAWRENCE T. PERERA (born 6/23/35)
Hemenway & Barnes (attorneys), Partner
Address: 60 State Street, Boston, Massachusetts
WILLIAM J. POORVU (born 4/10/35)
Harvard University Graduate School of Business Administration, Adjunct
Professor; CBL & Associates Properties, Inc. (a real estate investment trust),
Director; The Baupost Fund (a registered investment company), Vice Chairman
(since November 1993), Chairman and Trustee (prior to November 1993)
Address: Harvard Business School, Soldiers Field Road, Cambridge,
Massachusetts
CHARLES W. SCHMIDT (born 3/18/28)
Private investor; OHM Corporation, Director; The Boston Company, Director;
Boston Safe Deposit and Trust Company, Director; Mohawk Paper Company,
Director
Address: 30 Colpitts Road, Weston, Massachusetts
ARNOLD D. SCOTT* (born 12/16/42)
Massachusetts Financial Services Company, Senior Executive Vice President,
Secretary and Director
JEFFREY L. SHAMES* (born 6/2/55)
Massachusetts Financial Services Company, President and Director
ELAINE R. SMITH (born 4/25/46)
Independent Consultant; Brigham and Women's Hospital, Executive Vice President
and Chief Operating Officer (from August 1990 to September 1992)
Address: Weston, Massachusetts
DAVID B. STONE (born 9/2/27)
North American Management Corp. (investment adviser), Chairman and Director;
Eastern Enterprises, Director
Address: 10 Post Office Square, Suite 300, Boston, Massachusetts
OFFICERS
A. KEITH BRODKIN,* Chairman and President (born 8/4/35)
Massachusetts Financial Services Company, Chairman President and Director
W. THOMAS LONDON,* Treasurer (born 3/1/44)
Massachusetts Financial Services Company, Senior Vice President
STEPHEN E. CAVAN,* Secretary and Clerk (born 11/6/53)
Massachusetts Financial Services Company, Senior Vice President, General
Counsel and Assistant Secretary
JAMES R. BORDEWICK, JR.,* Assistant Secretary (3/6/59)
Massachusetts Financial Services Company, Senior Vice President and Associate
General Counsel
JAMES O. YOST,* Assistant Treasurer (born 6/12/60)
Massachusetts Financial Services Company, Vice President
- ----------
*"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 below is certain information concerning the cash compensation paid to
the Trustees and benefits accrued, and estimated benefits payable, under the
retirement plan.
TRUSTEE COMPENSATION TABLE
<TABLE>
<CAPTION>
RETIREMENT
BENEFIT ACCRUED ESTIMATED TOTAL TRUSTEE FEES
TRUSTEE FEES 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 $4,185 $1,102 8 $247,168
A. Keith Brodkin --0-- --0-- N/A --0--
Peter G. Harwood 4,585 736 5 105,995
J. Atwood Ives 4,285 1,147 17 98,750
Lawrence T. Perera 4,250 2,283 26 98,310
William Poorvu 4,450 2,383 25 102,840
Charles W. Schmidt 4,585 2,272 20 105,995
Arnold D. Scott --0-- --0-- N/A --0--
Jeffrey L. Shames --0-- --0-- N/A --0--
Elaine R. Smith 4,585 1,136 27 105,995
David B. Stone 4,685 2,389 14 108,710
</TABLE>
(1) For fiscal year ended December 31, 1996.
(2) Based on normal retirement age of 73.
(3) Information provided is provided for calendar year 1996. All Trustees
receiving compensation served as Trustees of 23 funds within the MFS fund
complex (having aggregate net assets at December 31, 1996, of approximately
$21.2 billion) except Mr. Bailey, who served as Trustee of 81 funds within
the MFS fund complex (having aggregate net assets at December 31, 1996, of
approximately $38.5 billion).
ESTIMATED ANNUAL BENEFITS PAYABLE BY
FUND UPON RETIREMENT(4)
<TABLE>
<CAPTION>
YEARS OF SERVICE
AVERAGE TRUSTEE ------------------------------------------------------------------------------------
FEES 3 5 7 10 OR MORE
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$3,767 $565 $ 942 $1,318 $1,883
4,022 603 1,005 1,408 2,011
4,277 642 1,069 1,497 2,139
4,533 680 1,133 1,586 2,266
4,788 718 1,197 1,676 2,394
5,044 757 1,261 1,765 2,522
</TABLE>
(4) Other funds in the MFS fund complex provide similar retirement benefits to
the Trustees.
As of March 31, 1997 all Trustees and officers as a group owned less than 1% of
the outstanding shares of the Fund.
As of March 31, 1997, Nationwide Life Insurance Co., MFS Variable Account, Dept.
1748, Columbus, OH 43721 owned 14.23% of the outstanding Class A shares of the
Fund. As of March 31, 1997, Merrill Lynch, Pierce, Fenner & Smith Inc., Attn:
Fund Administration, 4800 Deer Lake Drive East, Jacksonville, Florida 32246-6484
owned 7.36% of the outstanding Class B shares of the Fund. As of March 31, 1997,
MFS Defined Contribution Plan, c/o Mark Leary, Massachusetts Financial Services,
500 Boylston Street, Boston, MA 02116-3740, owned 100% of the outstanding Class
I shares of the Fund.
The Fund's Declaration of Trust provides that it will indemnify its Trustees and
officers against liabilities and expenses incurred in connection with litigation
in which they may be involved because of their offices with the Fund, unless, as
to 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. Under the Advisory Agreement, the
Adviser provides the Fund with overall investment advisory services. Subject to
such policies as the Trustees may determine, the Adviser makes investment
decisions for the Fund. For these services and facilities, the Adviser receives
a management fee, 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, 1996, MFS received fees under the
Advisory Agreement of $3,318,022, equivalent on an annualized basis to 0.42% of
the Fund's average daily net assets. For the Fund's fiscal year ended December
31, 1995, MFS received fees under the Advisory Agreement of $2,892,782,
equivalent on an annualized basis to 0.43% of the Fund's average daily net
assets. For the Fund's fiscal year ended December 31, 1994, MFS received fees
under the Advisory Agreement of $2,779,813, equivalent on an annualized basis to
0.43% of the Fund's average daily net assets. 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, 1996, 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, 1997, 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.
ADMINISTRATOR
MFS provides the Fund with certain administrative services pursuant to a Master
Administrative Services Agreement dated March 1, 1997. Under this Agreement, MFS
provides the Fund with certain financial, legal, compliance, shareholder
communications and other administrative services. As a partial reimbursement for
the cost of providing these services, the Fund pays MFS an administrative fee up
to 0.015% per annum of the Fund's average daily net assets, provided that the
administrative fee is not assessed on Fund assets that exceed $3 billion.
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 the Fund at an effective annual rate of 0.13%. In
addition, the Shareholder Servicing Agent will be reimbursed by the Fund for
certain expenses incurred by the Shareholder Servicing Agent on behalf of the
Fund. 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 AND CLASS I SHARES: MFD acts as agent in selling Class B shares
and Class I shares of the Fund to dealers. The public offering price of Class B
shares and Class I shares is their net asset value next computed after the sale
(see "Purchases" in the Prospectus and the Prospectus Supplement to which Class
I shares are offered).
GENERAL: Neither MFD nor dealers are permitted to delay placing orders to
benefit themselves by a price change. 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, 1996, MFD received sales
charges of $66,024 and dealers received sales charges of $422,680 (as their
concession on gross sales charges of $488,704) for selling Class A shares of the
Fund; the Fund received $32,598,483 representing the aggregate net asset value
of such 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 years ended December 31, 1996, 1995 and 1994, the
Contingent Deferred Sales Charge ("CDSC") imposed on redemption of Class A
shares was approximately $651, $2,157 and $3,245, respectively. During the
Fund's fiscal years ended December 31, 1996, 1995 and 1994, the CDSC imposed on
redemption of Class B shares was approximately $14,022, $7,176 and $2,336,
respectively.
The Distribution Agreement will remain in effect until August 1, 1997, 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 Conduct Rules 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 $39,100 of commission business from the MFS
Funds to the Pershing Division of Donaldson, Lufkin & Jenrette as consideration
for the annual renewal of certain publications provided by Lipper Analytical
Securities Corporation (which provides information useful to the Trustees in
reviewing the relationship between the Fund and the Adviser).
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, 1996, 1995 and 1994, the Fund paid
brokerage commissions of $1,066,930, $2,027,522 and $1,558,456, respectively, on
total transactions (excluding transactions involving U.S. Government securities
and short-term obligations for which no brokerage commissions are paid) of
$624,384,822, $1,097,162,218 and $1,081,634,537, respectively. For the fiscal
year ended December 31, 1996, the Fund acquired and retained securities issued
by Charles Schwab Corp., a regular broker-dealer of the Fund, which securities
had a value of $14,874,000.
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 Class A, B and C 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.
SUBSEQUENT INVESTMENT BY TELEPHONE: Each shareholder may purchase additional
shares of any MFS Fund by telephoning the Shareholder Servicing Agent toll-free
at (800) 225-2606. The minimum purchase amount is $50 and the maximum purchase
amount is $100,000. Shareholders wishing to avail themselves of this telephone
purchase privilege must so elect on their Account Application and designate
thereon a bank and account number from which purchases will be made. If a
telephone purchase request is received by the Shareholder Servicing Agent on any
business day prior to the close of regular trading on the Exchange (generally,
4:00 p.m., Eastern time), the purchase will occur at the closing net asset value
of the shares purchased on that day. The Shareholder Servicing Agent may be
liable for any losses resulting from unauthorized telephone transactions if it
does not follow reasonable procedures designed to verify the identity of the
caller. The Shareholder Servicing Agent will request personal or other
information from the caller, and will normally also record calls. Shareholders
should verify the accuracy of confirmation statements immediately after their
receipt.
DISTRIBUTION INVESTMENT PROGRAM: Distributions of dividends and capital gains
made by the Fund with respect to a particular class of shares may be
automatically invested in shares of the same class of one of the other MFS
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 six 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 and if the purchaser
is eligible to purchase the Class of shares) 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.
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. Dividends from ordinary income and any distributions from
net short-term capital gains are taxable to shareholders as ordinary income for
federal income tax purposes, whether the distributions are paid in cash or
reinvested in additional shares. A portion of the Fund's ordinary income
dividends 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. 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 of net capital gains (i.e., the excess of net
long-term capital gains over net short-term capital losses), whether paid in
cash or reinvested in additional shares, are taxable to shareholders as
long-term capital gains without regard to the length of time the shareholders
have held their shares. Any Fund dividend that is declared in October, November
or December of any calendar year, that is payable to shareholders of record in
such a month, and that is paid the following January will be treated as if
received by the shareholders on December 31 of the year in which the dividend is
declared. The Fund will notify shareholders regarding the federal tax status of
its distributions after the end of each calendar year.
Any Fund distribution will have the effect of reducing the per share net asset
value of shares in the Fund by the amount of the distribution. Shareholders
purchasing shares shortly before the record date of any distribution may thus
pay the full price for the shares and then effectively receive a portion of the
purchase price back as a taxable distribution.
In general, any gain or loss realized upon a taxable disposition of shares of
the Fund by a shareholder that holds such shares as a capital asset will be
treated as a long-term capital gain or loss if the shares have been held for
more than 12 months and otherwise as a short-term capital gain or loss. However,
any loss realized upon a disposition of shares in the Fund held for six months
or less will be treated as a long-term capital loss to the extent of any
distributions of net capital gain made with respect to those shares. Any loss
realized upon a disposition of shares may also be disallowed under rules
relating to wash sales. Gain may be increased (or loss reduced) upon a
redemption of Class A shares 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 current dividend and accounting policies will affect the amount,
timing and character of distributions to shareholders, and may, under certain
circumstances, make an economic return of capital taxable to shareholders. Any
investment in zero coupon bonds, deferred interest bonds, payment in kind bonds
and certain securities purchased at a market discount will cause the Fund to
recognize income prior to the receipt of cash payments with respect to those
securities. In order to distribute this income and avoid a tax on the Fund, the
Fund may be required to liquidate portfolio securities that it might otherwise
have continued to hold, potentially resulting in additional taxable gain or loss
to the Fund.
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 Fund income and distributions to shareholders. For example, certain positions
held by the Fund on the last business day of each taxable year will be marked to
market (i.e., treated as if closed out) on that day, and any gain or loss
associated with the 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 Fund losses, adjustments in the holding periods of
Fund securities, and conversion of short-term into long-term capital losses.
Certain tax elections exist for straddles that may alter the effects of these
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.
Special tax considerations apply with respect to foreign investments of the
Fund. Foreign exchange gains and losses realized by the Fund will generally be
treated as ordinary income and losses. Use 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 a tax on the Fund.
Investment income received by the Fund from foreign securities may be subject to
foreign income taxes withheld at the source; the Fund does not expect to be able
to pass through to shareholders foreign tax credits with respect to such foreign
taxes. 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 not possible, 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 a rate of 30%. The Fund intends to
withhold U.S. federal income tax at the rate of 30% on dividends and other
payments made to Non-U.S. Persons that are subject to such withholding,
regardless of whether a lower rate may be permitted under an applicable treaty.
Any amounts overwithheld may be recovered by such persons by filing a claim for
refund with the U.S. Internal Revenue Service within the time period appropriate
to such claims. Distributions received from the Fund by non-U.S. persons may
also be subject to tax under the laws of their own jurisdictions. The Fund is
also required in certain circumstances to apply backup withholding at the rate
of 31% on taxable dividends and redemption proceeds paid to any shareholder
(including a Non-U.S. Person) who does not furnish to the Fund certain
information and certifications or who is otherwise subject to backup
withholding. Backup withholding will not, however, be applied to payments that
have been subject to 30% withholding.
As long as it qualifies as a "regulated investment company" under the Code, the
Fund will not be required to pay Massachusetts income or excise taxes.
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 offers multiple classes of shares which were initially offered for sale
to the public on different dates. The calculation of total rate of return for a
class of shares which initially was offered for sale to the public subsequent to
another class of shares of the Fund is based both on (i) the performance of the
Fund's newer class from the date it initially was offered for sale to the public
and (ii) the performance of the Fund's oldest class from the date it initially
was offered for sale to the public up to the date that the newer class initially
was offered for sale to the public.
As discussed in the Prospectus, the sales charges, expenses and expense ratios,
and therefore the performance, of the Fund's classes of shares differ. In
calculating total rate of return for a newer class of shares in accordance with
certain formulas required by the SEC, the performance will be adjusted to take
into account the fact that the newer class is subject to a different sales
charge than the oldest class (e.g., if the newer class is Class A shares, the
total rate of return quoted will reflect the deduction of the initial sales
charge applicable to Class A shares; if the newer class is Class B shares, the
total rate of return quoted will reflect the deduction of the CDSC applicable to
Class B shares). However, the performance will not be adjusted to take into
account the fact that the newer class of shares bears different class specific
expenses than the oldest shares (e.g., Rule 12b-1 fees). Therefore, the total
rate of return quoted for a newer class of shares will differ from the return
that would be quoted had the newer class of shares been outstanding for the
entire period over which the calculation is based (i.e., the total rate of
return quoted for the newer class will be higher than the return that would have
been quoted had the newer class of shares been outstanding for the entire period
over which the calculation is based if the class specific expenses for the newer
class are higher than the class specific expenses of the oldest class, and the
total rate of return quoted for the newer class will be lower than the return
that would be quoted had the newer class of shares been outstanding for this
entire period if the class specific expenses for the newer class are lower than
the class specific expenses of the oldest class).
Total rate of return quotations for each class are presented in Appendix A
attached hereto under the heading "Performance Quotations."
PERFORMANCE RESULTS: The performance results for Class A shares presented in
Appendix A attached hereto under the heading "Performance Results", assume an
initial investment of $10,000 in Class A shares, and cover the period from
January 1, 1987 through December 31, 1996. It has been assumed that dividends
and capital gain distributions were reinvested in additional shares. These
performance results, as well as any 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).
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 and other similar or related matters.
From time to time the Fund may also discuss or quote the views of its
distributor, its investment adviser and other financial planning, legal, tax,
accounting, insurance, estate planning and other professionals, or from surveys,
regarding individual and family financial planning. Such views may include
information regarding: retirement planning; tax management strategies; estate
planning; general investment techniques (e.g., asset allocation and disciplined
saving and investing); business succession; ideas and information provided
through the MFS Heritage Planningsm program, an inter-generational financial
planning assistance program; issues with respect to insurance (e.g., disability
and life insurance and Medicare supplemental insurance); issues regarding
financial and health care management for elderly family members; and other
similar or related matters.
MFS FIRSTS: MFS has a long history of innovations.
-- 1924 -- Massachusetts Investors Trust is established
as the first open-end mutual fund in America.
-- 1924 -- Massachusetts Investors Trust is the first mutual fund
to make full public disclosure of its operations in shareholder
reports.
-- 1932 -- One of the first internal research departments is
established to provide in-house analytical capability for an
investment management firm.
-- 1933 -- Massachusetts Investors Trust is the first mutual fund
to register under the Securities Act of 1933 ("Truth in
Securities Act" or "Full Disclosure
Act").
-- 1936 -- Massachusetts Investors Trust is the first mutual fund
to allow shareholders to take capital gain distributions either
in additional shares or cash.
-- 1976 -- MFS(R) Municipal Bond Fund is among the first municipal
bond funds established.
-- 1979 -- Spectrum becomes the first combination fixed/ variable
annuity with no initial sales charge.
-- 1981 -- MFS(R) World Governments Fund is established as
America's first globally diversified fixed-income mutual fund.
-- 1984 -- MFS(R) Municipal High Income Fund is the first open-end
mutual fund to seek high tax-free income from lower-rated
municipal securities.
-- 1986 -- MFS(R) Managed Sectors Fund becomes the first mutual
fund to target and shift investments among industry sectors for
shareholders.
-- 1986 -- MFS(R) Municipal Income Trust is the first closed-end,
high-yield municipal bond fund traded on the New York Stock
Exchange.
-- 1987 -- MFS(R) Multimarket Income Trust is the first
closed-end, multimarket high income fund listed on the New York
Stock Exchange.
-- 1989 -- MFS(R) Regatta becomes America's first non-qualified
market-value-adjusted fixed/variable annuity.
-- 1990 -- MFS(R) World Total Return Fund is the first
global balanced fund.
-- 1993 -- MFS(R) World Growth Fund is the first global emerging
markets fund to offer the expertise of two sub-advisers.
-- 1993 -- MFS becomes money manager of MFS(R) Union Standard
Trust, the first trust to invest in companies deemed to be
union-friendly by an Advisory Board of senior labor officials,
senior managers of companies with significant labor contracts,
academics and other national labor leaders or experts.
9. DISTRIBUTION PLAN
The Trustees have adopted a Distribution Plan for Class A and Class B shares
(the "Distribution Plan") pursuant to Section 12(b) of the 1940 Act and Rule
12b-1 thereunder (the "Rule") after having concluded that there is a reasonable
likelihood that the Distribution Plan would benefit the Fund and each respective
class of shareholders. The provisions of the Distribution Plan are severable
with respect to each class of shares offered by the Fund. The Distribution Plan
is designed to promote sales, thereby increasing the net assets of the Fund.
Such an increase may reduce the Fund's expense ratio to the extent 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 Plan is are described in the Prospectus under the caption
"Distribution Plan," which is incorporated herein by reference. The following
information supplements this Prospectus discussion.
SERVICE FEES: With respect to Class A shares, no service fees will be paid: (i)
to any dealer who is the holder or dealer of record for investors who own Class
A shares having an aggregate net asset value less than $750,000, or such other
amount as may be determined from time to time by MFD (MFD, however, may waive
this minimum amount requirement from time to time); or (ii) to any insurance
company which has entered into an agreement with the Fund and MFD that permits
such insurance company to purchase Class A shares from the Fund at their net
asset value in connection with annuity agreements issued in connection with the
insurance company's separate accounts. Dealers may from time to time be required
to meet certain other criteria in order to receive service fees.
With respect to the Class B shares, except in the case of the first year service
fee, no service fees will be paid to any securities dealer who is the holder or
dealer of record for investors who own Class B shares having an aggregate net
asset value of less than $750,000 or such other amount as may be determined by
MFD from time to time. MFD, however, may waive this minimum amount requirement
from time to time. Dealers may from time to time be required to meet certain
other criteria in order to receive service fees.
MFD or its affiliates shall be entitled to receive any service fee payable under
the Distribution Plan for which there is no dealer of record or for which
qualification standards have not been met as partial consideration for personal
services and/or account maintenance services performed by MFD or its affiliates
for shareholder accounts.
DISTRIBUTION FEES: The purpose of distribution payments to MFD under the
Distribution Plan is to compensate MFD for its distribution services to the
Fund. MFD pays commissions to dealers as well as expenses of printing
prospectuses and reports used for sales purposes, expenses with respect to the
preparation and printing of sales literature and other distribution related
expenses, including, without limitation, the cost necessary to provide
distribution-related services, or personnel, travel, office expenses and
equipment.
DISTRIBUTION AND SERVICE FEES PAID DURING THE FUND'S LAST FISCAL YEAR: During
the fiscal year ended December 31, 1996, 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
CLASSES OF SHARES BY FUND BY MFD BY DEALERS
- ----------------- ------- ------------- -------------
Class A shares $1,221,225 $647,559 $573,666
Class B shares $ 101,393 $ 78,991 $ 22,402
GENERAL: The Distribution Plan will remain in effect until August 1, 1997, and
will continue in effect thereafter only if such continuance is specifically
approved at least annually by vote of both the Trustees and a majority of the
Trustees who are not "interested persons" or financially interested parties of
such Plan ("Distribution Plan Qualified Trustees"). The Distribution Plan also
requires that the Fund and MFD each shall provide the Trustees, and the Trustees
shall review, at least quarterly, a written report of the amounts expended (and
purposes therefor) under such Plan. The Distribution Plan may be terminated at
any time by vote of a majority of the Distribution Plan Qualified Trustees or by
vote of the holders of a majority of the respective class of the Fund's shares
(as defined in "Investment Restrictions"). All agreements relating to the
Distribution Plan entered into between the Fund or MFD and other organizations
must be approved by the Board of Trustees, including a majority of the
Distribution Plan Qualified Trustees. Agreements under the Distribution Plan
must be in writing, will be terminated automatically if assigned, and may be
terminated at any time without payment of any penalty, by vote of a majority of
the Distribution Plan Qualified Trustees or by vote of the holders of a majority
of the respective class of the Fund's shares. The Distribution Plan may not be
amended to increase materially the amount of permitted distribution expenses
without the approval of a majority of the respective class of the Fund's shares
(as defined in "Investment Restrictions") or may not be materially amended in
any case without a vote of the Trustees and a majority of the Distribution Plan
Qualified Trustees. The selection and nomination of Distribution Plan Qualified
Trustees shall be committed to the discretion of the non-interested Trustees
then in office. No Trustee who is not an "interested person" has any financial
interest in the Distribution Plan or in any related agreement.
10. DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional Shares of Beneficial Interest (without par value)
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 three classes of shares of the Fund, Class A
shares and Class B shares as well as Class I shares for the Fund. 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, 1996, the Statement of Assets and
Liabilities at December 31, 1996, the Statement of Operations for the year ended
December 31, 1996, the Statement of Changes in Net Assets for each of the years
in the two-year period ended December 31, 1996, the Notes to Financial
Statements and the Independent Auditors' Report, each of which is included in
the Annual Report to shareholders of the Fund, are incorporated by reference
into this SAI 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
PERFORMANCE INFORMATION
The performance results and quotations below should not be considered as
representative of the performance of the Fund in the future since the net asset
value and public offering price of shares of the Fund will vary. See
"Determination of Net Asset Value and Performance" in the SAI.
PERFORMANCE RESULTS -- CLASS A SHARES
VALUE OF VALUE OF VALUE OF
INITIAL $10,000 GAIN REINVESTED TOTAL
YEAR ENDED INVESTMENT DISTRIBUTIONS DIVIDENDS VALUE
---------- --------------- ------------- --------- -----
December 31, 1987 $ 9,091 $ 572 $ 136 $ 9,799
December 31, 1988 9,217 1,161 305 10,683
December 31, 1989 9,192 3,896 638 13,726
December 31, 1990 8,385 3,766 977 13,128
December 31, 1991 9,041 5,740 1,289 16,070
December 31, 1992 9,394 6,361 1,553 17,308
December 31, 1993 9,722 8,306 2,083 20,111
December 31, 1994 8,553 8,834 1,888 19,275
December 31, 1995 10,042 12,572 3,309 25,923
December 31, 1996 10,908 15,937 4,746 31,591
Explanatory Notes: The results in the table assume that income dividends and
capital gain distributions were invested in additional shares. The results also
assume that the initial investment in Class A shares was reduced by the current
maximum applicable sales charge. No adjustment has been made for income taxes,
if any, payable by shareholders.
PERFORMANCE QUOTATIONS
All performance quotations are for the fiscal year ended December 31, 1996.
AVERAGE ANNUAL TOTAL RETURNS
--------------------------------
1 YEAR 5 YEAR 10 YEAR
------ ------ -------
Class A shares with sales charge ......... 14.84% 13.13% 12.19%
Class A shares without sales charge ...... 21.87% 14.47% 12.85%
Class B shares with CDSC ................. 16.72% 13.53%(1) 12.51%(1)
Class B shares without CDSC .............. 20.72% 13.77%(1) 12.51%(1)
(1) Class B share performance includes the performance of the Fund's Class A
shares for periods prior to the commencement of offering of Class B shares on
September 7, 1993. Sales charges, expenses and expense ratios, and therefore
performance, for Class A and Class B shares differ. Class B share performance
has been adusted to reflect that Class B shares generally are subject to CDSC
(unless the performance quotation does not give effect to the CDSC) whereas
Class A shares generally are subject to an initial sales charge. Class B
share performance has not, however, been adjusted to reflect differences in
operating expenses (e.g., Rule 12b-1 fees), which generally are lower for
Class A shares.
<PAGE>
INVESTMENT ADVISER
Massachusetts Financial Services Company
500 Boylston Street, Boston, MA 02116
(617) 954-5000
DISTRIBUTOR
MFS Fund Distributors, Inc.
500 Boylston Street, Boston, MA 02116
(617) 954-5000
CUSTODIAN AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company 225
Franklin Street, Boston, MA 02110
SHAREHOLDER SERVICING AGENT
MFS Service Center, Inc.
500 Boylston Street, Boston, MA 02116
Toll free: (800) 225-2606
MAILING ADDRESS
P.O. Box 2281, Boston, MA 02107-9906
INDEPENDENT AUDITORS
Deloitte & Touche LLP
125 Summer Street, Boston, MA 02110
[logo] MFS(SM)
INVESTMENT MANAGEMENT
We invented the mutual fund(SM)
MFS(R) GROWTH OPPORTUNITIES FUND
500 Boylston Street
Boston, MA 02116
MGO-13-5/97/525 16/216
<PAGE>
[cover]
[logo] MFS(SM)
INVESTMENT MANAGEMENT
Annual Report
for Year Ended
December 31, 1996
MFS(R) Growth Opportunities Fund
[graphic photo of microchip]
<PAGE>
Table of Contents
Letter from the Chairman 1
A Discussion with the Portfolio Manager 2
Portfolio Manager's Profile 4
Performance Summary 5
Fund Facts 7
Portfolio of Investments 8
Financial Statements 12
Notes to Financial Statements 18
Independent Auditors' Report 24
Trustees and Officers 25
[graphic box]
Highlights
(bullet) For the year ended December 31, 1996, Class A shares of the Fund
provided a total return at net asset value of 21.87%, while Class B
shares returned 20.72%.
(bullet) The Fund benefited from a significant weighting in
large-capitalization technology stocks, such as Intel Corp. and
Microsoft Corp. Other important technology holdings included Oracle
Systems, Corp. and Cisco Systems, Inc.
(bullet) Holdings in the leisure area, such as Hospitality Franchise Systems
and Promus Hotels Corp., also contributed to performance.
(bullet) We believe the economy's moderate growth rate, combined with low
inflation, should continue to provide a favorable backdrop for
companies that can deliver good earnings growth.
<PAGE>
Letter from the Chairman
[photo of A. Keith Brodkin]
Dear Shareholders:
After more than six years of expansion, the U.S. economy appears to be headed
toward another year of moderate growth in 1997, although a few signs point to
the possibility of a modest rise in inflation during the year. On the
positive side, the pattern of moderate growth and inflation set over the past
few years now seems fairly well entrenched in the economy and, short of a
major international or domestic crisis, appears to have enough momentum to
remain on track for some time. Also, recent gains in important sectors such
as housing, automobiles, industrial production, and exports indicate a fair
amount of underlying strength in the economy. However, some reason for
caution can be seen in the continuing high levels of consumer debt and the
attendant rise in personal bankruptcies, as well as the modestly
disappointing levels of holiday sales. Also, the ongoing tightness in labor
markets, and price rises in such important sectors as energy, could add some
inflationary pressures to the economy. Given these somewhat conflicting
indicators, we expect real (inflation-adjusted) growth to revolve around 2%
in 1997, which would represent a modest decline from 1996.
We continue to urge U.S. equity investors to lower their expectations for
1997 and to point out that the impressive gains of the past two years are not
sustainable. Just as the slowdown in corporate earnings growth and increases
in interest rates in 1996 raised some near-term concerns, further interest
rate increases and an acceleration of inflation could negatively affect the
stock market in 1997. However, to the extent that some slowdown in earnings
means that the economy is not overheating, this may be beneficial for the
equity market in the long run. We also believe many of the technology-driven
productivity gains that U.S. companies have made in recent years will
continue to enhance corporate America's competitiveness and profitability.
Therefore, while we have some near-term concerns, we remain reasonably
positive about the long-term viability of the equity market.
We appreciate your support and welcome any questions or comments you may
have.
Respectfully,
/s/ A. Keith Brodkin
A. Keith Brodkin
Chairman and President
January 13, 1997
1
<PAGE>
A Discussion with the Portfolio Manager
[photo]
Paul M. McMahon
For the year ended December 31, 1996, Class A shares of the Fund provided a
total return of 21.87%, while Class B shares returned 20.72%. These returns,
which include the reinvestment of distributions but exclude the effects of
any sales charges, compare to a 22.64% return for the Standard & Poor's 500
Composite Index (the S&P 500) for the same period. The S&P 500 is a popular,
unmanaged index of common stock performance.
Q. What do you see as some of the reasons for this performance, Paul?
A. The Fund benefited from a significant weighting in large-capitalization
technology stocks, such as Intel Corp. and Microsoft Corp., which were
leading performers due to the continued strong demand for personal computers.
Other significant technology holdings, such as Oracle Systems Corp. and Cisco
Systems, Inc., also benefited from continued strong demand for their
products. Holdings in the leisure area, such as Hospitality Franchise Systems
(HFS) and Promus Hotels Corp., were significant contributors to performance.
Other names such as Tyco International, a fire control and health care
products manufacturer, and Wisconsin Central Transportation, a railroad, also
contributed significantly to the current year's results.
Q. How would you describe the overall business and economic environment you
faced over the past year, particularly as it relates to the Fund?
A. The economy continues to grow at a moderate rate with real (gross domestic
product) growth of around 2.5% while inflation remains at a moderate level of
2.5% a year. This period of both moderate economic growth and inflation has
provided a positive backdrop for further growth in corporate earnings and
continued appreciation of the stock market.
Q. We noticed that technology stocks make up the largest sector in the Fund.
What is it you like about this sector, and could you discuss any sub-groups
within technology that you find particularly attractive?
A. The technology weighting is high and added to performance in 1996 because
of the strong results that specific holdings delivered during the year. Due
to a low inflationary environment and an inability to raise prices,
corporations must rely on continued improvement in productivity to improve
their operation and generate higher earnings. One of the driving forces in
2
<PAGE>
A Discussion with the Portfolio Manager -- continued
improving productivity is the use of the advancements in technology to drive
costs lower or to improve product features and competitive position. The Fund
has a large weighting in semiconductor companies and software applications
companies, which are part of this broader trend of improving productivity.
Companies that are focused on the personal computer, such as Intel, which
makes microprocessor semiconductors, and Microsoft, which develops the
operating system and application software, continue to increase functionality
to the personal computer. This expands its uses and adds to further
productivity throughout the economy, from small entrepreneurial firms to
large corporations. This sector can be volatile at times, but we believe its
high long-term past performance results make it attractive. It is important
to emphasize that the names in the sector are selected individually and the
large weightings represent the number of well-positioned companies that we
have identified in this area.
Q. Your second-largest sector is leisure. What do you like about this sector?
A. The large weighting in the leisure sector is concentrated in specific
names within hospitality such as HFS and Promus. HFS has strong brand
positions in a number of businesses which generate significant cash flow such
as hotel franchising where it controls the Days' Inn, Super 8 Motel, and
Ramada Inn brands; real estate agency franchising, with brands such as
Century 21; and car rental agency franchising with Avis. The strong cash flow
generated from these businesses allows for additional acquisitions and share
buybacks to help increase earnings further into the future. Promus Hotel is
one of the fastest growing hotel franchises with brands such as Embassy
Suite, Hampton Inn, and Homewood Suites. The rapid development of new units
under these three brands is leading to continued strong earnings growth.
Q. In general, what characteristics or qualities do you look for when
selecting stocks for the Fund?
A. I look for five key characteristics in selecting stocks to add to the
Fund. These are good earnings momentum, good management, the ability to
benefit from positive secular trends in the economy, a good balance sheet
with positive cash flow generation, and reasonable valuation. Earnings
momentum is important because ultimately earnings drive stock prices over the
long term. Good management adds significantly to an enterprise's value by
making the right strategic and competitive decisions over time. This is why
we feel it is important to visit with corporate managements to understand
3
<PAGE>
A Discussion with the Portfolio Manager -- continued
their strategies and evaluate their abilities to execute them. A good
financial position and strong cash flow from the operations provide a company
with the ability to take advantage of competitive opportunities as they
present themselves in the marketplace. Trying to buy stocks at a reasonable
valuation is accomplished by comparing earnings growth to a company's price-
to-earnings ratio (P/E), which helps determine whether it is reasonable
relative to the market as a whole. Sell ideas are generated when a holding
violates one or more of these same characteristics, for example, if earnings
begin to slow significantly or the P/E relative to the growth rate makes a
stock overvalued.
Q. As you look ahead, what changes do you see in the overall market or
economic environment, particularly as it relates to the Fund, and how are you
positioning the Fund to try and take advantage of those changes?
A. The most important factor is that the economy remains at a moderate growth
level with inflation also at a moderate pace. This environment provides a
good backdrop for companies that can deliver good earnings growth. We believe
this combination should help result in stock price appreciation under the
current economic conditions. We remain committed to finding the best earnings
growth available, at the most reasonable valuations in trying to shape the
Fund for the future.
Respectfully,
/s/ Paul M. McMahon
Paul M. McMahon
Portfolio Manager
[graphic box]
Portfolio Manager's Profile
Paul M. 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 in 1992.
4
<PAGE>
Performance Summary
The information below and on the following page illustrates the historical
performance of MFS Growth Opportunities Fund Class A shares in comparison to
various market indicators. Class A share performance results reflect the
deduction of the 5.75% maximum sales charge; benchmark comparisons are
unmanaged and do not reflect any fees or expenses. The performance of other
share classes will be greater than or less than the line shown, based on the
differences in loads and fees paid by shareholders investing in the different
classes. You cannot invest in an index. All results are historical and assume
the reinvestment of dividends and capital gains.
Investment return and principal value will fluctuate, and shares, when
redeemed, may be worth more or less than their original cost. Past
performance is no guarantee of future results.
Growth of a Hypothetical $10,000 Investment
(For the 5-Year Period Ended December 31, 1996)
[line chart]
MFS Growth
Opportunities Consumer S&P 500 Composite
Fund (Class A) Price Index--U.S. Index
12/91 9,422 10,000 10,000
12/92 10,147 10,287 10,760
12/93 11,791 10,573 11,843
12/94 11,301 10,856 11,992
12/95 15,198 11,124 16,483
12/96 18,521 11,523 20,249
Growth of a Hypothetical $10,000 Investment
(For the 10-Year Period Ended December 31, 1996)
[line chart]
MFS Growth
Opportunities Consumer S&P 500 Composite
Fund (Class A) Price Index--U.S. Index
12/86 9,428 10,000 10,000
9,799 10,441 10,522
12/88 10,684 10,899 12,255
13,727 11,406 16,127
12/90 13,128 12,102 15,622
16,070 12,473 20,374
12/92 17,308 12,831 21,922
20,111 13,188 24,128
12/94 19,276 13,541 24,432
25,923 13,875 33,582
12/96 31,591 14,373 41,254
5
<PAGE>
Performance Summary - continued
<TABLE>
<CAPTION>
Average Annual Total Returns 1 Year 3 Years 5 Years 10 Years
----------------------------------------- --------- --------- --------- -----------
<S> <C> <C> <C> <C>
MFS Growth Opportunities Fund (Class A)
including 5.75% sales charge +14.84% +13.96% +13.13% +12.19%
----------------------------------------- --------- --------- --------- -----------
MFS Growth Opportunities Fund (Class A)
at net asset value +21.87% +16.25% +14.47% +12.85%
----------------------------------------- --------- --------- --------- -----------
MFS Growth Opportunities Fund (Class B)
with CDSC +16.72% +14.42% +13.53% +12.51%
----------------------------------------- --------- --------- --------- -----------
MFS Growth Opportunities Fund (Class B)
without CDSC +20.72% +15.18% +13.77% +12.51%
----------------------------------------- --------- --------- --------- -----------
Average growth fund+ +19.24% +15.23% +13.04% +13.47%
----------------------------------------- --------- --------- --------- -----------
Standard & Poor's 500 Composite Index+ +22.64% +19.58% +15.15% +15.23%
----------------------------------------- --------- --------- --------- -----------
Consumer Price Index* + 3.56% + 2.91% + 2.88% + 3.69%
----------------------------------------- --------- --------- --------- -----------
</TABLE>
*The Consumer Price Index is a popular measure of change in prices.
+Source: Lipper Analytical Services.
Class B results including the contingent deferred sales charge (CDSC),
reflect the applicable CDSC, which declines over six years as follows: 4%,
4%, 3%, 3%, 2%, 1%, 0%. Class B shares have no initial sales charge but have
higher annual fees and expenses than Class A shares.
Class B share performance includes the performance of the Fund's Class A
shares for periods prior to the commencement of offering of Class B shares on
September 7, 1993. Sales charges and operating expenses for Class A and Class
B shares differ. The Class A share performance, which is included within the
Class B share performance, including CDSC, has been adjusted to reflect the
CDSC generally applicable to Class B shares rather than the initial sales
charge generally applicable to Class A shares. Class B share performance has
not been adjusted, however, to reflect differences in operating expenses
(e.g., Rule 12b-1 fees), which generally are lower for Class A shares.
Fund results reflect any applicable expense subsidies and waivers, without
which the performance results would have been less favorable. Subsidies and
waivers may be rescinded at any time. See the prospectus for details.
[graphic box]
Tax Form Summary
In January 1997, shareholders will be mailed a Tax Form Summary reporting the
federal tax status of all distributions paid during the calendar year 1996.
The Trust has designated $59,654,925 as a long-term capital gain distribution
for tax purposes. This distribution was made to shareholders of record as of
December 23, 1996, payable January 2, 1997.
Dividends-Received Deduction
For the year ended December 31, 1996, the amount of distributions from income
eligible for the 70% dividends-received deduction for corporations came to
13.76%.
6
<PAGE>
Performance Summary - continued
[graphic box]
Fund Facts
Strategy: 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.
Commencement of
investment operations: September 9, 1970
Size: $822.8 million net assets as of December 31, 1996
Portfolio Concentration
Top Ten Equity Holdings as of December 31, 1996
Intel Corp.
Semiconductor manufacturer
HFS, Inc.
Franchiser of hotels and real estate companies
Tyco International Ltd.
Manufacturer of fire protection, packaging, and electronic equipment
Philip Morris Cos., Inc.
Tobacco, food, and beverage conglomerate
Microsoft Corp.
Computer software and systems company
Cadence Design Systems, Inc.
Computer software and systems company
Wisconsin Central Transportation Corp.
Midwestern railroad company
Oracle Systems Corp.
Database software developer and manufacturer
Cisco Systems, Inc.
Computer network developer
Promus Hotel Corp.
Hotel operator
Largest Sectors
[pie chart]
Other 41.2%*
Technology 27.8%
Leisure 12.7%
Industrial Goods & Services 10.6%
Financial Services 7.7%
*For a more complete breakdown, refer to the Portfolio of Investments.
7
<PAGE>
Portfolio of Investments - December 31, 1996
Stocks - 99.6%
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Issuer Shares Value
--------------------------------------------------------------------- -------------
<S> <C> <C>
U.S. Common Stocks - 93.1%
Advertising - 0.2%
Tmp Worldwide, Inc. 27,600 $ 351,900
Universal Outdoor Holdings, Inc.* 54,500 1,280,750
-------------
$ 1,632,650
--------------------------------------------------------------------- -------------
Aerospace - 3.6%
Lockheed Martin Corp. 85,372 $ 7,811,538
McDonnell-Douglas Corp. 215,500 13,792,000
United Technologies Corp. 122,200 8,065,200
-------------
$29,668,738
--------------------------------------------------------------------- -------------
Agricultural Products - 2.3%
AGCO Corp. 223,000 $ 6,383,375
Case Corp. 234,300 12,769,350
-------------
$19,152,725
--------------------------------------------------------------------- -------------
Airlines - 0.9%
America West Airlines, "B"* 146,400 $ 2,324,100
Southwest Airlines Co. 241,200 5,336,550
-------------
$ 7,660,650
--------------------------------------------------------------------- -------------
Automotive - 0.6%
APS Holding Corp., "A"* 85,600 $ 1,326,80
Goodrich (B.F.) Co. 95,200 3,855,600
-------------
$ 5,182,400
--------------------------------------------------------------------- -------------
Banks and Credit Companies - 0.7%
Fleet/Norstar Financial Group, Inc. 116,500 $ 5,810,438
--------------------------------------------------------------------- -------------
Business Machines - 0.8%
Sun Microsystems, Inc.* 246,200 $ 6,324,263
--------------------------------------------------------------------- -------------
Business Services - 6.0%
AccuStaff, Inc.* 99,800 $ 2,108,275
ADT Ltd.* 504,700 11,545,013
ALCO Standard Corp. 244,100 12,601,662
Ceridian Corp.* 150,800 6,107,400
Corestaff, Inc.* 88,725 2,101,673
DST Systems, Inc.* 250,300 7,853,163
Loewen Group, Inc. 122,200 4,781,075
Sabre Group Holding, Inc., "A"* 75,400 2,101,775
-------------
$49,200,036
--------------------------------------------------------------------- -------------
Chemicals - 0.6%
Betzdearborn, Inc. 22,300 $ 1,304,550
Praxair, Inc. 84,100 3,879,113
-------------
$ 5,183,663
--------------------------------------------------------------------- -------------
Computer Software - Personal Computers - 4.1%
Electronic Arts, Inc.* 128,400 $ 3,843,975
First Data Corp. 149,800 5,467,700
Microsoft Corp.* 297,600 24,589,200
-------------
$33,900,875
--------------------------------------------------------------------- -------------
Computer Software - Systems - 8.9%
Adobe Systems, Inc. 293,800 $10,980,775
BMC Software, Inc.* 37,200 1,539,150
Cadence Design Systems, Inc.* 561,175 22,306,706
Computer Associates International, Inc. 177,650 8,838,088
8
<PAGE>
Portfolio of Investments - continued
Stocks - continued
- --------------------------------------------------------------------------------
Issuer Shares Value
--------------------------------------------------------------------- -------------
U.S. Common Stocks - continued
Computer Software - Systems - continued
Micros Systems, Inc.* 156,400 $ 4,809,300
Oracle Systems Corp.* 442,650 18,480,637
Sybase, Inc.* 181,900 3,035,456
Synopsys, Inc.* 70,000 3,237,500
-------------
$73,227,612
--------------------------------------------------------------------- -------------
Consumer Goods and Services - 7.6%
Colgate-Palmolive Co. 79,900 $ 7,370,775
Gillette Co. 28,900 2,246,975
Philip Morris Cos., Inc. 235,300 26,500,662
Tyco International Ltd. 503,000 26,596,125
-------------
$62,714,537
--------------------------------------------------------------------- -------------
Defense Electronics - 1.7%
Loral Space & Communications Corp.* 759,100 $13,948,463
--------------------------------------------------------------------- -------------
Electrical Equipment - 1.0%
General Electric Co. 86,800 $ 8,582,350
--------------------------------------------------------------------- -------------
Electronics - 8.8%
Altera Corp.* 176,700 $12,843,881
Analog Devices, Inc.* 284,050 9,622,194
Intel Corp. 286,800 37,552,875
LSI Logic Corp.* 230,300 6,160,525
Maxim Integrated Products, Inc.* 53,500 2,313,875
Xilinx, Inc.* 97,000 3,570,812
-------------
$72,064,162
--------------------------------------------------------------------- -------------
Entertainment - 4.3%
Clear Channel Communications, Inc.* 84,700 $ 3,059,787
Cox Radio, Inc., "A"* 7,400 129,500
Harrah's Entertainment, Inc.* 590,100 11,728,237
Infinity Broadcasting Corp., "A"* 40,900 1,375,263
Jacor Communications, Inc., "A"* 229,200 6,274,350
LIN Television Corp.* 132,500 5,598,125
Mirage Resorts, Inc.* 320,600 6,932,975
Univision Communications, Inc., "A"* 5,000 185,000
-------------
$35,283,237
--------------------------------------------------------------------- -------------
Financial Institutions - 5.9%
Associates First Capital Corp., "A" 36,400 $ 1,606,150
Federal Home Loan Mortgage Corp. 95,000 10,461,875
Financial Federal Corp.* 137,650 2,305,638
Finova Group, Inc. 118,300 7,600,775
Franklin ReSources, Inc. 59,900 4,095,662
Green Tree Financial Corp. 204,500 7,898,812
Schwab (Charles) Corp. 464,800 14,873,600
-------------
$48,842,512
--------------------------------------------------------------------- -------------
Food and Beverage Products - 0.8%
PepsiCo, Inc. 214,700 $ 6,279,975
--------------------------------------------------------------------- -------------
Insurance - 0.7%
Amerin Corp.* 55,800 $ 1,436,850
Chubb Corp. 77,800 4,181,750
-------------
$ 5,618,600
--------------------------------------------------------------------- -------------
9
<PAGE>
Portfolio of Investments - continued
Stocks - continued
- --------------------------------------------------------------------------------
Issuer Shares Value
--------------------------------------------------------------------- -------------
U.S. Common Stocks - continued
Machinery - 1.4%
Deere & Co., Inc. 170,600 $ 6,930,625
IDEX Corp. 120,900 4,820,888
-------------
$11,751,513
--------------------------------------------------------------------- -------------
Medical and Health Products - 1.7%
Johnson & Johnson 238,300 $11,855,425
Omnicare, Inc. 57,600 1,850,400
-------------
$13,705,825
--------------------------------------------------------------------- -------------
Medical and Health Technology and Services - 4.3%
HealthSource, Inc.* 468,400 $ 6,147,750
HealthSouth Corp.* 212,600 8,211,675
Oxford Health Plans, Inc.* 111,400 6,523,863
United Healthcare Corp. 313,500 14,107,500
-------------
$34,990,788
--------------------------------------------------------------------- -------------
Metals and Minerals - 0.5%
Minerals Technologies, Inc. 101,100 $ 4,145,100
--------------------------------------------------------------------- -------------
Oils - 1.1%
Mobil Corp. 73,500 $ 8,985,375
Titan Exploration, Inc.* 22,900 274,800
-------------
$ 9,260,175
--------------------------------------------------------------------- -------------
Photographic Products - 1.5%
Eastman Kodak Co. 149,800 $12,021,450
--------------------------------------------------------------------- -------------
Railroads - 3.1%
Burlington Northern Santa Fe Railway Co. 42,900 $ 3,705,488
Wisconsin Central Transportation Corp.* 541,300 21,449,012
-------------
$25,154,500
--------------------------------------------------------------------- -------------
Restaurants and Lodging - 6.3%
HFS, Inc.* 550,700 $32,904,325
Promus Hotel Corp.* 533,750 15,812,344
Renaissance Hotel Group N.V.* 148,900 3,499,150
-------------
$52,215,819
--------------------------------------------------------------------- -------------
Stores - 5.1%
Ann Taylor Stores Corp.* 173,400 $ 3,034,500
Corporate Express, Inc.* 57,200 1,683,825
Duty Free International, Inc. 26,900 390,050
Federated Department Stores, Inc.* 228,500 7,797,562
General Nutrition Cos., Inc.* 393,300 6,636,937
Linens "N" Things, Inc.* 31,700 622,113
Micro Warehouse, Inc.* 233,800 2,747,150
Office Depot, Inc.* 467,900 8,305,225
Officemax, Inc.* 222,100 2,359,813
Sears, Roebuck & Co. 107,400 4,953,825
Staples, Inc.* 193,400 3,493,287
-------------
$42,024,287
--------------------------------------------------------------------- -------------
Supermarkets - 1.5%
Safeway, Inc.* 278,900 $11,922,975
--------------------------------------------------------------------- -------------
Telecommunications - 7.1%
Ascend Communications, Inc.* 62,400 $ 3,876,600
Cisco Systems, Inc.* 262,600 16,707,925
10
<PAGE>
Portfolio of Investments - continued
Stocks - continued
- --------------------------------------------------------------------------------
Issuer Shares Value
--------------------------------------------------------------------- -------------
U.S. Common Stocks - continued
Telecommunications - continued
Glenayre Technologies, Inc.* 532,600 $ 11,484,187
Lucent Technologies, Inc. 47,100 2,178,375
MFS Communications Co., Inc.* 55,300 3,013,850
Tel-Save Holdings, Inc.* 60,050 1,741,450
Telco Communications Group* 40,000 700,000
Teleport Communications Group, Inc., "A"* 108,600 3,312,300
Tellabs, Inc.* 106,200 3,995,775
WorldCom, Inc.* 445,900 11,621,269
-------------
$ 58,631,731
--------------------------------------------------------------------- -------------
Total U.S. Common Stocks $766,102,049
---------------------------------------------------------------------- -------------
Foreign Stocks - 6.5%
Canada - 0.7%
Loewen Group, Inc. (Business Services)## 75,000 $ 2,928,191
Canadian National Railway Co. (Railroads)* 74,600 2,834,800
-------------
$ 5,762,991
--------------------------------------------------------------------- -------------
Finland - 0.5%
Nokia Corp., ADR (Telecommunications) 74,700 $ 4,304,588
--------------------------------------------------------------------- -------------
Germany - 0.7%
Sap AG, Preferred (Computer Software - Systems) 43,400 $ 6,064,998
--------------------------------------------------------------------- -------------
Hong Kong - 0.4%
Peregrine Investment Holdings (Finance) 1,662,000 $ 2,847,362
--------------------------------------------------------------------- -------------
Italy - 1.5%
Gucci Group Designs N.V. (Apparel and Textiles) 37,600 $ 2,401,700
Telecom Italia S.p.A. (Telecommunications) 4,846,200 6,910,603
Telecom Italia S.p.A., Saving Shares
(Telecommunications) 1,201,600 3,035,163
-------------
$ 12,347,466
--------------------------------------------------------------------- -------------
Singapore - 0.3%
Mandarin Oriental International, Ltd. (Restaurants
and Lodging) 1,953,429 $ 2,754,335
--------------------------------------------------------------------- -------------
South Korea - 0.7%
Korea Mobile Telecom (Telecommunications) 468,032 $ 6,025,912
--------------------------------------------------------------------- -------------
Sweden - 1.7%
Astra AB, "B" (Pharmaceuticals) 245,500 $ 11,851,724
Nobel Biocare AB (Medical and Health Products) 93,600 1,648,129
-------------
$ 13,499,853
--------------------------------------------------------------------- -------------
Total Foreign Stocks $ 53,607,505
---------------------------------------------------------------------- -------------
Total Stocks (Identified Cost, $602,692,690) $819,709,554
---------------------------------------------------------------------- -------------
Warrants
Peregrine Investment Holdings
(Identified Cost, $32,793) 264,400 $ 84,612
--------------------------------------------------------------------- -------------
Total Investments (Identified Cost, $602,725,483) $819,794,166
Other Assets, Less Liabilities - 0.4% 3,033,051
---------------------------------------------------------------------- -------------
Net Assets - 100.0% $822,827,217
---------------------------------------------------------------------- -------------
</TABLE>
*Non-income producing security.
##SEC Rule 144A restriction.
See notes to financial statements
11
<PAGE>
Financial Statements
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, 1996
- ------------------------------------------------------------------------------------ -----
<S> <C>
Assets:
Investments, at value (identified cost, $602,725,483) $819,794,166
Cash 11,147,009
Receivable for Fund shares sold 1,133,576
Dividends receivable 719,341
Other assets 7,832
-------------
Total assets $832,801,924
-------------
Liabilities:
Distributions payable $ 3,736,515
Payable for investments purchased 250,387
Payable for Fund shares reacquired 5,394,717
Payable to affiliates -
Management fee 28,857
Shareholder servicing agent fee 9,516
Distribution fee 312,076
Accrued expenses and other liabilities 242,639
-------------
Total liabilities $ 9,974,707
-------------
Net assets $822,827,217
-------------
Net assets consist of:
Paid-in capital $607,325,371
Unrealized appreciation on investments 217,068,683
Accumulated distributions in excess of net realized gain on
investments and foreign currency transactions (1,498,157)
Accumulated net investment loss (68,680)
-------------
Total $822,827,217
-------------
Shares of beneficial interest outstanding 63,480,991
-------------
Class A shares:
Net asset value per share
(net assets of $807,657,296 / 62,289,208 shares of beneficial
interest outstanding) $12.97
-------------
Offering price per share (100 / 94.25) $13.76
-------------
Class B shares:
Net asset value and offering price per share
(net assets of $15,169,921 / 1,191,783 shares of beneficial interest
outstanding) $12.73
-------------
</TABLE>
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
12
<PAGE>
Financial Statements - continued
Statement of Operations
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31, 1996
------------------------------------------------------------------------- -------------
<S> <C>
Net investment income:
Income -
Dividends $ 5,034,859
Interest 245,422
Foreign taxes withheld (41,521)
-------------
Total investment income $ 5,238,760
-------------
Expenses -
Management fee $ 3,318,022
Trustees' compensation 53,020
Shareholder servicing agent fee (Class A) 1,073,238
Shareholder servicing agent fee (Class B) 22,306
Distribution and service fee (Class A) 1,221,225
Distribution and service fee (Class B) 101,393
Custodian fee 297,117
Postage 125,836
Printing 66,634
Auditing fees 35,290
Legal fees 4,882
Miscellaneous 309,608
-------------
Total expenses $ 6,628,571
Fees paid indirectly (157,578)
-------------
Net expenses $ 6,470,993
-------------
Net investment loss $ (1,232,233)
-------------
Realized and unrealized gain (loss) on investments:
Realized gain (identified cost basis) -
Investment transactions $ 89,740,771
Foreign currency transactions 20,931
-------------
Net realized gain on investments and foreign currency transactions $ 89,761,702
-------------
Change in unrealized appreciation (depreciation) -
Investments $ 64,893,347
Translation of assets and liabilities in foreign currencies (54,448)
-------------
Net unrealized gain on investments and foreign currency translation $ 64,838,899
-------------
Net realized and unrealized gain on investments and foreign
currency $154,600,601
-------------
Increase in net assets from operations $153,368,368
-------------
</TABLE>
See notes to financial statements
13
<PAGE>
Financial Statements - continued
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31, 1996 1995
----------------------------------------------- ---------------- ----------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income (loss) $ (1,232,233) $ 1,360,815
Net realized gain on investments and foreign
currency transactions 89,761,702 93,753,834
Net unrealized gain on investments and foreign
currency translation 64,838,899 100,603,997
---------------- ----------------
Increase in net assets from operations $ 153,368,368 $ 195,718,646
---------------- ----------------
Distributions declared to shareholders -
From net realized gain on investments and
foreign currency transactions (Class A) $ (88,077,143) $ (90,832,129)
From net realized gain on investments and
foreign currency transactions (Class B) (1,583,683) (804,857)
---------------- ----------------
Total distributions declared to shareholders $ (89,660,826) $ (91,636,986)
---------------- ----------------
Fund share (principal) transactions -
Net proceeds from sale of shares $ 277,719,578 $ 103,860,834
Net asset value of shares issued to
shareholders in reinvestment of
distributions 85,916,601 87,980,013
Cost of shares reacquired (332,657,111) (160,208,262)
---------------- ----------------
Increase in net assets from Fund share
transactions $ 30,979,068 $ 31,632,585
---------------- ----------------
Total increase in net assets $ 94,686,610 $ 135,714,245
Net assets:
At beginning of period 728,140,607 592,426,362
---------------- ----------------
At end of period (including accumulated net
investment loss and accumulated
distributions in excess of net investment
income of $68,680 and $55,622, respectively) $ 822,827,217 $ 728,140,607
---------------- ----------------
</TABLE>
See notes to financial statements
14
<PAGE>
Financial Statements - continued
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31, 1996 1995 1994 1993 1992
- --------------------------------------------------- -------------- -------------- -------------- -------------- --------------
Class A
- --------------------------------------------------- -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $ 11.94 $ 10.17 $ 11.56 $ 11.17 $ 10.75
-------------- -------------- -------------- -------------- --------------
Income from investment operations# -
Net investment income (loss)(sec.sign) $ (0.02) $ 0.03 $ 0.02 $ 0.07 $ 0.15
Net realized and unrealized gain (loss) on
investments and foreign currency transactions 2.62 3.46 (0.50) 1.73 0.67
-------------- -------------- -------------- -------------- --------------
Total from investment operations $ 2.60 $ 3.49 $ (0.48) $ 1.80 $ 0.82
-------------- -------------- -------------- -------------- --------------
Less distributions declared to shareholders -
From net investment income $ -- $ -- $ (0.01) $ (0.07) $ (0.14)
From net realized gain on investments and foreign
currency transactions (1.57) (1.72) (0.83) (1.32) (0.26)
In excess of net investment income -- -- (0.02) (0.02) --
In excess of net realized gain on investments and
foreign currency transactions -- -- (0.05) -- --
-------------- -------------- -------------- -------------- --------------
Total distributions declared to shareholders $ (1.57) $ (1.72) $ (0.91) $ (1.41) $ (0.40)
-------------- -------------- -------------- -------------- --------------
Net asset value - end of period $ 12.97 $ 11.94 $ 10.17 $ 11.56 $ 11.17
-------------- -------------- -------------- -------------- --------------
Total return++ 21.87% 34.49% (4.15)% 16.19% (8.06)%
Ratios (to average net assets)/
Supplemental data(sec.sign):
Expenses## 0.84% 0.87% 0.86% 0.84% 0.89%
Net investment income (loss) (0.15)% 0.21% 0.21% 0.60% 1.40%
Portfolio turnover 65% 100% 78% 79% 102%
Average commission rate### $ 0.0438 -- -- -- --
Net assets at end of period (000 omitted) $807,657 $721,467 $589,260 $709,839 $694,084
#Per share data for the periods 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.
###Average commission rate is calculated for funds with fiscal years beginning on or after September 1, 1995.
++Total returns for Class A shares do not include the applicable sales charge. If the charge had been included, the results
would have been lower.
(sec.sign)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>
15
<PAGE>
Financial Statements - continued
Financial Highlights - continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31, 1991 1990 1989 1988 1987*
- ----------------------------------------------------- -------------- -------------- -------------- ----------------------------
Class A
- ----------------------------------------------------- -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $ 9.97 $ 10.93 $ 10.96 $ 10.81 $ 13.41
-------------- -------------- -------------- ----------------------------
Income from investment operations -
Net investment income $ 0.24 $ 0.30 $ 0.36 $ 0.22 $ 0.11
Net realized and unrealized gain (loss) on
investments and foreign currency transactions 1.94 (0.77) 2.74 0.76 (2.13)
-------------- -------------- -------------- ----------------------------
Total from investment operations $ 2.18 $ (0.47) $ 3.10 $ 0.98 $ (2.02)
-------------- -------------- -------------- ----------------------------
Less distributions declared to shareholders -
From net investment income $ (0.18) $ (0.33) $ (0.36) $ (0.19) $ (0.11)
From net realized gain on investments and foreign
currency transactions (1.22) (0.16)++++ (2.77) (0.64) (0.47)
-------------- -------------- -------------- ----------------------------
Total distributions declared to shareholders $ (1.40) $ (0.49) $ (3.13) $ (0.83) $ (0.58)
-------------- -------------- -------------- ----------------------------
Net asset value - end of period $ 10.75 $ 9.97 $ 10.93 $ 10.96 $ 10.81
-------------- -------------- -------------- ----------------------------
Total return++ 9.29% (4.57)% 28.23% 8.90% (20.45)%+
Ratios (to average net assets)/Supplemental data:
Expenses 0.88% 0.80% 0.77% 0.86% 0.72%+
Net investment income 2.14% 2.91% 2.79% 1.90% 1.08%+
Portfolio turnover 131% 89% 83% 68% 40%
Net assets at end of period (000 omitted) $739,791 $687,847 $805,712 $767,924 $834,359
*For the nine months ended December 31, 1987.
+Annualized
++Total returns for Class A shares do not include the applicable 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.
</TABLE>
See notes to financial statements
16
<PAGE>
Financial Statements - continued
Financial Highlights - continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
March 31, Year Ended December 31,
--------------- -------------------------------------------------------------
1987 1996 1995 1994 1993**
--------------- ----------------------------- --------------- ---------------
Class A Class B
--------------- -------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $ 13.51 $ 11.79 $10.08 $11.53 $12.52
--------------- ------------------------------ --------------- ---------------
Income from investment operations# -
Net investment income (loss) $ 0.17 $ (0.14) $(0.09) $(0.08) $ --
Net realized and unrealized gain (loss) on
investments and foreign currency transactions 1.20 2.57 3.42 (0.49) 0.36
--------------- ------------------------------ --------------- ---------------
Total from investment operations $ 1.37 $ 2.43 $ 3.33 $(0.57) $ 0.36
--------------- ------------------------------ --------------- ---------------
Less distributions declared to shareholders -
From net investment income $ (0.17) $ -- $ -- $ -- $ --
From net realized gain on investments and
foreign currency transactions (1.30) (1.49) (1.62) (0.83) (1.32)
In excess of net investment income -- -- -- -- (0.03)
In excess of net realized gain on investments
and foreign currency transactions -- -- -- (0.05) --
--------------- ------------------------------ --------------- ---------------
Total distributions declared to shareholders $ (1.47) $ (1.49) $(1.62) $(0.88) $(1.35)
--------------- ------------------------------ --------------- ---------------
Net asset value - end of period $ 13.41 $ 12.73 $11.79 $10.08 $11.53
--------------- ------------------------------ --------------- ---------------
Total return++ 11.57% 20.72% 33.20% (4.96)% 9.29%+
Ratios (to average net assets)/
Supplemental data:
Expenses## 0.71% 1.75% 1.81% 1.81% 1.33%+
Net investment income (loss) 1.28% (1.06)% (0.75)% (0.70)% --
Portfolio turnover 109% 65% 100% 78% 79%
Average commission rate### -- $0.0438 -- -- --
Net assets at end of period (000 omitted) $1,090,764 $15,170 $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
#Per share data for the periods 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.
###Average commission rate is calculated for funds with fiscal years beginning on or after September 1, 1995.
++Total returns for Class A shares do not include the applicable sales charge (except for reinvested dividends prior to March
1, 1991). If the charge had been included, the results would have been lower.
</TABLE>
See notes to financial statements
17
<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 management investment company.
(2) Significant Accounting Policies
General - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Investment Valuations - 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.
Securities 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
Trustees.
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 result 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
18
<PAGE>
Notes to Financial Statements - continued
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. The Fund 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.
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 payments received in additional securities are recorded on the
ex-dividend 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
19
<PAGE>
Notes to Financial Statements - continued
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 tax return
of capital. Differences in the recognition or classification of income
between the financial statements and tax earnings and profits which result in
temporary over-distributions for financial statement purposes, are classified
as distributions in excess of net investment income or accumulated net
realized gains. During the year ended December 31, 1996, $1,425,890 was
reclassified from accumulated net realized gain on investments and $1,219,175
and $206,715 were reclassified to accumulated undistributed net investment
income and paid-in-capital, respectively, due to differences between book and
tax accounting for currency transactions and operating losses. This change
had no effect on the net assets or net asset value per share.
Multiple Classes of Shares of Beneficial Interest - The Fund offers both
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 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 0.42% 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 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
$17,410 for the year ended December 31, 1996.
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$66,024 for the year ended December 31, 1996, as its portion of the sales
charge on sales of Class A shares of the Fund.
20
<PAGE>
Notes to Financial Statements - continued
The Trustees have adopted separate distribution plans 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 who enters into a sales agreement with MFD of
up to 0.25% per annum (reduced to 0.15% per annum for assets sold prior to
March 1, 1991) 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 $647,559 for the year ended December 31, 1996. Payment of the
0.10% per annum Class A distribution fee will commence on such date as the
Trustees of the Trust may determine. Fees incurred under the distribution
plan during the year ended December 31, 1996 were 0.16% 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 the dealer with respect to Class B shares. MFD retains the service fee for
accounts not attributable to a securities dealer, which amounted to $2,946
for Class B shares for the year ended December 31, 1996. Fees incurred under
the distribution plan during the year ended December 31, 1996 were 1.00% of
average daily net assets attributable to Class B shares on an annualized
basis.
Purchases over $1 million of Class A shares and certain purchases into
retirement plans are subject to a contingent deferred sales charge in the
event of a shareholder redemption within 12 months following such purchase. A
contingent deferred sales charge is imposed on shareholder redemptions of
Class B shares in the event of a shareholder redemption within six years of
purchase. MFD receives all contingent deferred sales charges. Contingent
deferred sales charges imposed during the year ended December 31, 1996 were
$651 and $14,022 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
21
<PAGE>
Notes to Financial Statements - continued
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.
(4) Portfolio Securities
Purchases and sales of investments, other than U.S. government securities and
short-term obligations, aggregated $505,648,600 and $562,613,685,
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 $604,223,639
---------------
Gross unrealized appreciation $242,343,505
Gross unrealized depreciation (26,772,978)
---------------
Net unrealized appreciation $215,570,527
---------------
(5) Shares of Beneficial Interest
The Fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without par
value). Transactions in Fund shares were as follows:
Class A Shares
<TABLE>
<CAPTION>
Year Ended December 31, 1996 Year Ended December 31, 1995
-------------------------------- --------------------------------
Shares Amount Shares Amount
------------------ --------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Shares sold 20,081,505 $ 265,741,600 7,715,800 $ 96,726,782
Shares issued to
shareholders in
reinvestment of
distributions 6,559,488 84,484,449 7,389,814 87,274,151
Shares reacquired (24,769,912) (327,523,302) (12,623,569) (155,238,811)
--------------- ---------------- --------------- ----------------
Net increase 1,871,081 $ 22,702,747 2,482,045 $ 28,762,122
--------------- ---------------- --------------- ----------------
</TABLE>
Class B Shares
<TABLE>
<CAPTION>
Year Ended December 31, 1996 Year Ended December 31, 1995
-------------------------------- --------------------------------
Shares Amount Shares Amount
------------------ --------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Shares sold 901,449 $ 11,977,978 604,258 $ 7,134,052
Shares issued to
shareholders in
reinvestment of
distributions 113,216 1,432,152 60,477 705,862
Shares reacquired (388,694) (5,133,809) (412,933) (4,969,451)
--------------- ---------------- --------------- ----------------
Net increase 625,971 $ 8,276,321 251,802 $ 2,870,463
--------------- ---------------- --------------- ----------------
</TABLE>
22
<PAGE>
Notes to Financial Statements - continued
(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, 1996 was $8,137.
23
<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, 1996, the related statement of operations for the year then
ended, the statement of changes in net assets for the years ended December
31, 1996 and 1995, and the financial highlights for each of the years in the
eleven- year period ended December 31, 1996. 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, 1996 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 statement and financial highlights present
fairly, in all material respects, the financial position of MFS Growth
Opportunities Fund at December 31, 1996, 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 7, 1997
- --------------------------------------------------------------------------------
This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by a current prospectus.
24
<PAGE>
MFS(r) 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
*Affiliated with the Investment Adviser
Auditors
Deloitte & Touche LLP
Investor Information
For MFS stock and bond market outlooks, call toll free: 1-800-637-4458
anytime from a touch-tone telephone.
For information on MFS mutual funds, call your financial adviser or, for an
information kit, call toll free: 1-800-637-2929 any business day from 9 a.m.
to 5 p.m. Eastern time (or leave a message anytime).
Investor Service
MFS Service Center, Inc.
P.O. Box 2281
Boston, MA 02107-9906
For general information, call toll free: 1-800-225-2606 any business day from
8 a.m to 8 p.m. Eastern time.
For service to speech- or hearing-impaired, call toll free: 1-800-637-6576
any business day from 9 a.m. to 5 p.m. Eastern time. (To use this service,
your phone must be equipped with a Telecommunications Device for the Deaf.)
For share prices, account balances and exchanges, call toll free:
1-800-MFS-TALK (1-800-637-8255) anytime from a touch-tone telephone.
World Wide Web
www.mfs.com
[graphic box]
[dalbar logo]
For the third year in a row, MFS earned a #1 ranking in the DALBAR, Inc.
Broker/Dealer Survey, Main Office Operations Service Quality Category. The
firm achieved a 3.48 overall score on a scale of 1 to 4 in the 1996 survey. A
total of 110 firms responded, offering input on the quality of service they
received from 29 mutual fund companies nationwide. The survey contained
questions about service quality in 15 categories, including "knowledge of
phone service contacts," "accuracy of transaction processing," and "overall
ease of doing business with the firm."
25
<PAGE>
[back cover]
MFS(R) Growth
Opportunities
Fund
500 Boylston Street
Boston, MA 02116
[dalbar logo]
[indicia]
Bulk Rate
U.S. Postage
PAID
Permit #55638
Boston, MA
[logo] MFS(SM)
INVESTMENT MANAGEMENT
We invented the mutual fund(SM)
(C)1997 MFS Fund Distributors, Inc., 500 Boylston Street, Boston, MA 02116
MGO-2/97 60M 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, 1996:
Financial Highlights
FINANCIAL STATEMENTS INCLUDED IN PART B:
At December 31, 1996:
Portfolio of Investments*
Statement of Assets and Liabilities*
For the year ended December 31, 1996:
Statement of Operations*
For the two years in the period ended December 31,
1996:
Statement of Changes in Net Assets*
- --------------------------
* Incorporated herein by reference to the Fund's Annual Report to
shareholders dated December 31, 1996 which was filed with the SEC on
February 24, 1997.
(B) EXHIBITS
1 (a) Amended and Restated Declaration of
Trust, dated February 17, 1995. (3)
(b) Amendment to Declaration of Trust, dated
June 20, 1996. (8)
(c) Amendment to Declaration of Trust, dated
December 19, 1996 to redesignate Class P
Shares as Class I Shares; filed herewith.
2 Amended and Restated By-Laws, dated December
21, 1994. (3)
3 Not Applicable.
4 Form of Share Certificate for Classes of
Shares. (7)
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 January 1, 1997, to amend
fee schedule; filed herewith.
(c) Exchange Privilege Agreement, dated
September 1, 1993 as amended and restated
through and including January 1, 1997. (11)
(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) Master Administrative Services Agreement,
dated March 1, 1997. (9)
(f) Dividend Disbursing Agency Agreement among
MFS Funds and State Street Bank and Trust
Company, dated February 1, 1986. (4)
10 Consent and Opinion of Counsel filed with
the Registrant's Rule 24f-2 Notice on
February 26, 1997, for the fiscal year ended
December 31, 1996.
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 Master Distribution Plan pursuant to Rule
2b-1 under the Investment Company
Act of 1940, effective January 1, 1997. (10)
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 Plan pursuant to Rule 18f-3(d) under the
Investment Company Act of 1940. (8)
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 I (File Nos. 33-7638 and
811-4777) Post-Effective Amendment No. 25 filed with the SEC via EDGAR on
August 27, 1996.
(8) Incorporated by reference to Registrant's Post-Effective Amendment No. 36
filed with the SEC via EDGAR on August 29, 1996.
(9) Incorporated by reference to MFS/Sun Life Series Trust (File Nos. 2-83616
and 811-3732) Post-Effective Amendment No. 19 filed with the SEC via EDGAR
on March 18, 1997.
(10) Incorporated by reference to MFS Series Trust I (File Nos. 33-7638 and
811-4777) Post-Effective Amendment No. 27 filed with the SEC via EDGAR on
December 27, 1996.
(11) Incorporated by reference to MFS Series Trust VIII (File Nos. 33-37972 and
811-5262) Post-Effective Amendment No. 13 filed with the SEC via EDGAR on
February 27, 1997.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
Not Applicable.
<PAGE>
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
(1) (2)
TITLE OF CLASS NUMBER OF RECORD HOLDERS
Class A Shares of Beneficial Interest 4,215
(without par value) (as of March 31, 1997)
Class B Shares of Beneficial Interest 2,181
(without par value) (as of March 31, 1997)
Class I Shares of Beneficial Interest 2
(without par value) (as of March 31, 1997)
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 thirteen series: MFS Managed Sectors Fund, MFS Cash Reserve
Fund, MFS World Asset Allocation Fund, MFS Aggressive Growth Fund, MFS Research
Growth and Income Fund, MFS Core Growth Fund, MFS Equity Income Fund, MFS
Special Opportunities Fund, MFS Convertible Securities Fund, MFS Blue Chip Fund,
MFS New Discovery Fund, MFS Science and Technology Fund and MFS Research
International Fund), MFS Series Trust II (which has four series: MFS Emerging
Growth Fund, MFS Capital Growth Fund, MFS Intermediate Income Fund and MFS Gold
& Natural Resources Fund), MFS Series Trust III (which has two series: MFS High
Income Fund and MFS Municipal High Income Fund), MFS Series Trust IV (which has
four series: MFS Money Market Fund, MFS Government Money Market Fund, MFS
Municipal Bond Fund and MFS OTC Fund), MFS Series Trust V (which has two series:
MFS Total Return Fund and MFS Research Fund), MFS Series Trust VI (which has
three series: MFS World Total Return Fund, MFS Utilities Fund and MFS World
Equity Fund), MFS Series Trust VII (which has two series: MFS World Governments
Fund and MFS Value Fund), MFS Series Trust VIII (which has two series: MFS
Strategic Income Fund and MFS World Growth Fund), MFS Series Trust IX (which has
three series: MFS Bond Fund, MFS Limited Maturity Fund and MFS Municipal Limited
Maturity Fund), MFS Series Trust X (which has four series: MFS Government
Mortgage Fund, MFS/Foreign & Colonial Emerging Markets Equity Fund, MFS/Foreign
& Colonial International Growth Fund and MFS/Foreign & Colonial International
Growth and Income Fund), and MFS Municipal Series Trust (which has 16 series:
MFS Alabama Municipal Bond Fund, MFS Arkansas Municipal Bond Fund, MFS
California Municipal Bond Fund, MFS Florida Municipal Bond Fund, MFS Georgia
Municipal Bond Fund, MFS Maryland Municipal Bond Fund, MFS Massachusetts
Municipal Bond Fund, MFS Mississippi Municipal Bond Fund, MFS New York Municipal
Bond Fund, MFS North Carolina Municipal Bond Fund, MFS Pennsylvania Municipal
Bond Fund, MFS South Carolina Municipal Bond Fund, MFS Tennessee Municipal Bond
Fund, MFS Virginia Municipal Bond Fund, MFS West Virginia Municipal Bond Fund
and MFS Municipal Income Fund) (the "MFS Funds"). The principal business address
of each of the MFS Funds is 500 Boylston Street, Boston, Massachusetts 02116.
MFS also serves as investment adviser of the following
no-load, open-end Funds: MFS Institutional Trust ("MFSIT") (which has seven
series), MFS Variable Insurance Trust ("MVI") (which has twelve series) and MFS
Union Standard Trust ("UST"). The principal business address of each of the
aforementioned funds is 500 Boylston Street, Boston, Massachusetts 02116.
In addition, MFS serves as investment adviser to the following
closed-end funds: MFS Municipal Income Trust, MFS Multimarket Income Trust, MFS
Government Markets Income Trust, MFS Intermediate Income Trust, MFS Charter
Income Trust and MFS Special Value Trust (the "MFS Closed-End Funds"). The
principal business address of each of the MFS Closed-End Funds is 500 Boylston
Street, Boston, Massachusetts 02116.
Lastly, MFS serves as investment adviser to MFS/Sun Life
Series Trust ("MFS/SL"), Money Market Variable Account, High Yield Variable
Account, Capital Appreciation Variable Account, Government Securities Variable
Account, World Governments Variable Account, Total Return Variable Account and
Managed Sectors Variable Account. The principal business address of each of the
aforementioned funds is One Sun Life Executive Park, Wellesley Hills,
Massachusetts 02181.
MFS International Ltd. ("MIL"), a limited liability company
organized under the laws of Bermuda and a subsidiary of MFS, whose principal
business address is Cedar House, 41 Cedar Avenue, Hamilton HM12 Bermuda, serves
as investment adviser to and distributor for MFS American Fund (which has six
portfolios: MFS American Funds-U.S. Equity Fund, MFS American Funds-U.S.
Emerging Growth Fund, MFS American Funds-U.S. High Yield Bond Fund, MFS American
Funds - U.S. Dollar Reserve Fund, MFS American Funds-Charter Income Fund and MFS
American Funds-U.S. Research Fund) (the "MIL Funds"). The MIL Funds are
organized in Luxembourg and qualify as an undertaking for collective investments
in transferable securities (UCITS). The principal business address of the MIL
Funds is 47, Boulevard Royal, L-2449 Luxembourg.
MIL also serves as investment adviser to and distributor for
MFS Meridian U.S. Government Bond Fund, MFS Meridian Charter Income Fund, MFS
Meridian Global Government Fund, MFS Meridian U.S. Emerging Growth Fund, MFS
Meridian Global Equity Fund, MFS Meridian Limited Maturity Fund, MFS Meridian
World Growth Fund, MFS Meridian Money Market Fund, MFS Meridian World Total
Return Fund, MFS Meridian U.S. Equity Fund, MFS Meridian Research Fund and MFS
Emerging Markets Debt Fund (collectively the "MFS Meridian Funds"). Each of the
MFS Meridian Funds is organized as an exempt company under the laws of the
Cayman Islands. The principal business address of each of the MFS Meridian Funds
is P.O. Box 309, Grand Cayman, Cayman Islands, British West Indies.
MFS International (U.K.) Ltd. ("MIL-UK"), a private limited
company registered with the Registrar of Companies for England and Wales whose
current address is 4 John Carpenter Street, London, England ED4Y 0NH, is
involved primarily in marketing and investment research activities with respect
to private clients and the MIL Funds and the MFS Meridian Funds.
MFS Fund Distributors, Inc. ("MFD"), a wholly owned subsidiary
of MFS, serves as distributor for the MFS Funds, MVI, UST and MFSIT.
Clarendon Insurance Agency, Inc. ("CIAI"), a wholly owned
subsidiary of MFS, serves as distributor for certain life insurance and annuity
contracts issued by Sun Life Assurance Company of Canada (U.S.).
MFS Service Center, Inc. ("MFSC"), a wholly owned subsidiary
of MFS, serves as shareholder servicing agent to the MFS Funds, the MFS
Closed-End Funds, MFSIT, MVI and UST.
MFS Institutional Advisors, Inc. ("MFSI"), a wholly owned
subsidiary of MFS, provides investment advice to substantial private clients.
MFS Retirement Services, Inc. ("RSI"), a wholly owned
subsidiary of MFS, markets MFS products to retirement plans and provides
administrative and record keeping services for retirement plans.
MFS
The Directors of MFS are A. Keith Brodkin, Jeffrey L. Shames,
Arnold D. Scott, Donald A. Stewart and John D. McNeil. Mr. Brodkin is the
Chairman, Mr. Shames is the President, Mr. Scott is a Senior Executive Vice
President and Secretary, Bruce C. Avery, William S. Harris, William W. Scott,
Jr., and Patricia A. Zlotin are Executive Vice Presidents, Stephen E. Cavan is a
Senior Vice President, General Counsel and an Assistant Secretary, Robert T.
Burns is a Senior Vice President, Associate General Counsel and an Assistant
Secretary of MFS, and Thomas B. Hastings is a Vice President and Treasurer of
MFS.
MASSACHUSETTS INVESTORS TRUST
MASSACHUSETTS INVESTORS GROWTH STOCK FUND
MFS GROWTH OPPORTUNITIES FUND
MFS GOVERNMENT SECURITIES FUND
MFS SERIES TRUST I
MFS SERIES TRUST V
MFS SERIES TRUST VI
MFS SERIES TRUST X
MFS GOVERNMENT LIMITED MATURITY FUND
A. Keith Brodkin is the Chairman and President, Stephen E.
Cavan is the Secretary, W. Thomas London is the Treasurer, James O. Yost, Vice
President of MFS, is the Assistant Treasurer, James R. Bordewick, Jr., Senior
Vice President and Associate General Counsel of MFS, is the Assistant Secretary.
MFS SERIES TRUST II
A. Keith Brodkin is the Chairman and President, Leslie J.
Nanberg, Senior Vice President of MFS, is a Vice President, Stephen E. Cavan is
the Secretary, W. Thomas London is the Treasurer, James O. Yost 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, 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 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, Assistant Vice President of MFS, and Daniel E. McManus, Vice
President of MFS, are Assistant Vice Presidents, Stephen E. Cavan is the
Secretary, W. Thomas London is the Treasurer, James O. Yost 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, 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, 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 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/SUN LIFE SERIES TRUST
John D. McNeil, Chairman and Director of Sun Life Assurance
Company of Canada, is the Chairman, Stephen E. Cavan is the Secretary, W. Thomas
London is the Treasurer, James O. Yost, is the Assistant Treasurer and James R.
Bordewick, Jr., is the Assistant Secretary.
MONEY MARKET VARIABLE ACCOUNT
HIGH YIELD VARIABLE ACCOUNT
CAPITAL APPRECIATION VARIABLE ACCOUNT
GOVERNMENT SECURITIES VARIABLE ACCOUNT
TOTAL RETURN VARIABLE ACCOUNT
WORLD GOVERNMENTS VARIABLE ACCOUNT
MANAGED SECTORS VARIABLE ACCOUNT
John D. McNeil is the Chairman, Stephen E. Cavan is the
Secretary, and James R. Bordewick, Jr., is the Assistant Secretary.
MIL
A. Keith Brodkin is a Director and the Chairman, Arnold D.
Scott and Jeffrey L. Shames are Directors, 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, Senior Vice President and Chief Financial Officer of MFS, is the
Treasurer and Thomas B. Hastings is the Assistant Treasurer.
MIL-UK
A. Keith Brodkin is a Director and the Chairman, Arnold D.
Scott, Jeffrey L. Shames, and James R. Bordewick, Jr., are Directors, Stephen E.
Cavan is a Director and the Secretary, 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, Richard W. S. Baker and William F. Waters
are Directors, Stephen E. Cavan is the Secretary, W. Thomas London is the
Treasurer, James O. Yost is the Assistant Treasurer and James R. Bordewick, Jr.,
is the Assistant Secretary, 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,
Jeffrey L. Shames and William F. Waters are Directors, Stephen E. Cavan is the
Secretary, W. Thomas London is the Treasurer, James R. Bordewick, Jr., is the
Assistant Secretary, 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.
MFSI
A. Keith Brodkin is the Chairman and a Director, Jeffrey L.
Shames, and Arnold D. Scott are Directors, Thomas J. Cashman, Jr., is the
President and a Director, Leslie J. Nanberg is a Senior Vice President, a
Managing Director and a Director, George F. Bennett, Carol A. Corley, John A.
Gee, Brianne Grady and Kevin R. Parke are Senior Vice Presidents and Managing
Directors, Joseph W. Dello Russo is the Treasurer, Thomas B. Hastings is the
Assistant Treasurer and Robert T. Burns is the Secretary.
RSI
William W. Scott, Jr. and Bruce C. Avery are Directors, Arnold
D. Scott is the Chairman and a Director, Joseph W. Dello Russo is the Treasurer,
Thomas B. Hastings is the Assistant Treasurer, Stephen E. Cavan is the
Secretary, Robert T. Burns is the Assistant Secretary and Sharon A. Brovelli and
Martin E. Beaulieu are Senior Vice Presidents.
In addition, the following persons, Directors or officers of
MFS, have the affiliations indicated:
A. Keith Brodkin Director, Sun Life Assurance
Company of Canada (U.S.), One
Sun Life Executive Park,
Wellesley Hills, Massachusetts
Director, Sun Life Insurance and
Annuity Company of New York,
67 Broad Street, New York, New
York
Donald A. Stewart President and a Director, Sun
Life Assurance Company of
Canada, Sun Life Centre, 150
King Street West, Toronto,
Ontario, Canada (Mr. Stewart
is also an officer and/or
Director of various
subsidiaries and affiliates of
Sun Life)
John D. McNeil Chairman, Sun Life Assurance
Company of Canada, Sun Life
Centre, 150 King Street West,
Toronto, Ontario, Canada (Mr.
McNeil is also an officer
and/or Director of various
subsidiaries and affiliates of
Sun Life)
Joseph W. Dello Russo Director of Mutual Fund
Operations, The Boston
Company, Exchange Place,
Boston, Massachusetts (until
August, 1994)
ITEM 29. DISTRIBUTORS
(a) Reference is hereby made to Item 28 above.
(b) Reference is hereby made to Item 28 above; the principal
business address of each of these persons is 500 Boylston Street, Boston,
Massachusetts 02116.
(c) Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
The accounts and records of the Registrant are located, in
whole or in part, at the office of the Registrant and the following locations:
NAME ADDRESS
---- -------
Massachusetts Financial Services 500 Boylston Street
(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 29th day of April, 1997.
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 29, 1997.
SIGNATURE TITLE
--------- -----
Chairman, President (Principal
A. KEITH BRODKIN* Executive Officer) and Trustee
- ----------------------------
A. Keith Brodkin
Treasurer (Principal Financial Officer
W. THOMAS LONDON* 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
<PAGE>
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.
1 (c) Amendment to Declaration of Trust, dated
December 19, 1996.
9 (b) Amendment to Shareholder Servicing Agent
Agreement to amend fee schedule.
11 Consent of Deloitte & Touche LLP.
17 Financial Data Schedules.
<PAGE>
EXHIBIT NO. 99.1(c)
MFS GROWTH OPPORTUNITIES FUND
CERTIFICATION OF AMENDMENT
TO THE DECLARATION OF TRUST
REDESIGNATION
OF CLASS P SHARES AS CLASS I SHARES
The undersigned, being a majority of the Trustees of MFS Growth
Opportunities Fund (the "Trust"), a business trust organized under the laws of
The Commonwealth of Massachusetts pursuant to an Amended and Restated
Declaration of Trust dated February 15, 1995 as amended (the "Declaration"),
acting pursuant to Section 6.10 of the Declaration, do hereby redesignate the
shares previously designated as Class P shares of the Trust as Class I shares.
IN WITNESS WHEREOF, a majority of the Trustees of the Trust have executed
this amendment, in one or more counterparts, all constituting a single
instrument, as an instrument under seal in The Commonwealth of Massachusetts, as
of this 18th day of December, 1996.
A. KEITH BRODKIN CHARLES W. SCHMIDT
- ---------------------------- ----------------------------
A. Keith Brodkin Charles W. Schmidt
76 Farm Road 63 Claypit Hill Road
Sherborn, MA 01770 Wayland, MA 01778
RICHARD B. BAILEY ARNOLD D. SCOTT
- ---------------------------- ----------------------------
Richard B. Bailey Arnold D. Scott
63 Atlantic Avenue 20 Rowes Wharf
Boston, MA 02110 Boston, MA 02110
PETER G. HARWOOD
- ---------------------------- ----------------------------
Peter G. Harwood Jeffrey L. Shames
211 Lindsay Pond Road 36 Lake Avenue
Concord, MA 01742 Newton, MA 02159
J. ATWOOD IVES ELAINE R. SMITH
- ---------------------------- ----------------------------
J. Atwood Ives Elaine R. Smith
1 Bennington Road 75 Scotch Pine Road
Lexington, MA 02173 Weston, MA 02193
LAWRENCE T. PERERA DAVID B. STONE
- ---------------------------- ----------------------------
Lawrence T. Perera David B. Stone
18 Marlborough Street 282 Beacon Street
Boston, MA 02116 Boston, MA 02116
WILLIAM J. POORVU
- ----------------------------
William J. Poorvu
975 Memorial Drive
Cambridge, MA 02138
EXHIBIT NO. 99.9(b)
MFS GROWTH OPPORTUNITIES FUND
500 Boylston Street o Boston o Massachusetts o 02116
January 1, 1997
MFS Service Center, Inc.
500 Boylston Street
Boston, MA 02116
Dear Sir/Madam:
This will confirm our understanding that Exhibit B to the Shareholder
Servicing Agent Agreement between us, dated August 1, 1985, as amended, is
hereby amended, effective immediately, to read in its entirety as set forth on
Attachment 1 hereto.
Please indicate your acceptance of the foregoing by signing below.
Sincerely,
MFS GROWTH OPPORTUNITIES FUND
By: W. THOMAS LONDON
------------------------------
W. Thomas London
Treasurer
Accepted and Agreed:
MFS SERVICE CENTER, INC.
By: JOSEPH W. DELLO RUSSO
---------------------------
Joseph W. Dello Russo
Treasurer
<PAGE>
ATTACHMENT 1
January 1, 1997
EXHIBIT B TO THE SHAREHOLDER
SERVICING AGENT AGREEMENT BETWEEN
MFS SERVICE CENTER, INC. ("MFSC")
AND MFS GROWTH OPPORTUNITIES FUND (the "Fund")
The fees to be paid by the Fund on behalf of its series with respect to all
shares of each series of the Fund to MFSC, for MFSC's services as shareholder
servicing agent, shall be 0.13% of the average daily net assets of the Fund.
<PAGE>
EXHIBIT NO. 99.11
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Post-Effective
Amendment No. 37 to Registration Statement No. 2-36431 of MFS Growth
Opportunities Fund of our report dated February 7, 1997 appearing in the annual
report to shareholders for the year ended December 31, 1996, 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.
Boston, Massachusetts
April 25, 1997
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000063067
<NAME> MFS GROWTH OPPORTUNITIES FUND
<SERIES>
<NUMBER> 011
<NAME> MFS GROWTH OPPORTUNITIES FUND CLASS A
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 602725483
<INVESTMENTS-AT-VALUE> 819794166
<RECEIVABLES> 1852917
<ASSETS-OTHER> 7832
<OTHER-ITEMS-ASSETS> 11147009
<TOTAL-ASSETS> 832801924
<PAYABLE-FOR-SECURITIES> 250387
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 9724320
<TOTAL-LIABILITIES> 9974707
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 607325371
<SHARES-COMMON-STOCK> 60418127
<SHARES-COMMON-PRIOR> 163272441
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (68680)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (1498157)
<ACCUM-APPREC-OR-DEPREC> 217068683
<NET-ASSETS> 822827217
<DIVIDEND-INCOME> 5034859
<INTEREST-INCOME> 245422
<OTHER-INCOME> (41521)
<EXPENSES-NET> 6470993
<NET-INVESTMENT-INCOME> (1232233)
<REALIZED-GAINS-CURRENT> 89761702
<APPREC-INCREASE-CURRENT> 64838899
<NET-CHANGE-FROM-OPS> 153368368
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (88077143)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 20081505
<NUMBER-OF-SHARES-REDEEMED> (24769912)
<SHARES-REINVESTED> 6559488
<NET-CHANGE-IN-ASSETS> 94686610
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (55622)
<OVERDIST-NET-GAINS-PRIOR> (173143)
<GROSS-ADVISORY-FEES> 3318022
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6628571
<AVERAGE-NET-ASSETS> 779524982
<PER-SHARE-NAV-BEGIN> 11.94
<PER-SHARE-NII> (0.02)
<PER-SHARE-GAIN-APPREC> 2.62
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (1.57)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.97
<EXPENSE-RATIO> 0.84
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000063067
<NAME> MFS GROWTH OPPORTUNITIES FUND
<SERIES>
<NUMBER> 012
<NAME> MFS GROWTH OPPORTUNITIES FUND CLASS B
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 602725483
<INVESTMENTS-AT-VALUE> 819794166
<RECEIVABLES> 1852917
<ASSETS-OTHER> 7832
<OTHER-ITEMS-ASSETS> 11147009
<TOTAL-ASSETS> 832801924
<PAYABLE-FOR-SECURITIES> 250387
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 9724320
<TOTAL-LIABILITIES> 9974707
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 607325371
<SHARES-COMMON-STOCK> 1191783
<SHARES-COMMON-PRIOR> 565812
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (68680)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (1498157)
<ACCUM-APPREC-OR-DEPREC> 217068683
<NET-ASSETS> 822827217
<DIVIDEND-INCOME> 5034859
<INTEREST-INCOME> 245422
<OTHER-INCOME> (41521)
<EXPENSES-NET> 6470993
<NET-INVESTMENT-INCOME> (1232233)
<REALIZED-GAINS-CURRENT> 89761702
<APPREC-INCREASE-CURRENT> 64838899
<NET-CHANGE-FROM-OPS> 153368368
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (88077143)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 901449
<NUMBER-OF-SHARES-REDEEMED> (388694)
<SHARES-REINVESTED> 113216
<NET-CHANGE-IN-ASSETS> 94686610
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (55622)
<OVERDIST-NET-GAINS-PRIOR> (173143)
<GROSS-ADVISORY-FEES> 3318022
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6628571
<AVERAGE-NET-ASSETS> 779524982
<PER-SHARE-NAV-BEGIN> 11.79
<PER-SHARE-NII> (0.14)
<PER-SHARE-GAIN-APPREC> 2.57
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (1.49)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.73
<EXPENSE-RATIO> 1.75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
