<PAGE> 1
As filed with the Securities and Exchange Commission on February 28, 1995
1933 Act File No. 2-54607
1940 Act File No. 811-2594
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 26
AND
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 22
MFS SERIES TRUST IV
(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 February 28, 1995 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, 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 on behalf of MFS Money Market
Fund, MFS Government Money Market Fund, MFS Municipal Bond Fund and MFS OTC
Fund for the fiscal year ended August 31, 1994 on October 31, 1994.
================================================================================
<PAGE> 2
MFS SERIES TRUST IV
MFS MONEY MARKET FUND
MFS GOVERNMENT MONEY MARKET FUND
MFS MUNICIPAL BOND FUND
MFS OTC FUND
CROSS REFERENCE SHEET
(Pursuant to Rule 404 showing location in Prospectus and/or Statement of
Additional Information of the responses to the Items in Parts A and B of Form
N-1A)
<TABLE>
<CAPTION>
STATEMENT OF
ITEM NUMBER ADDITIONAL
FORM N-1A, PART A PROSPECTUS CAPTION INFORMATION CAPTION
- ------------------ ------------------ -------------------
<S> <C> <C> <C>
1 (a), (b) Front Cover Page *
2 (a) Expense Summary *
(b), (c) * *
3 (a) Condensed Financial Information *
(b) * *
(c) Information Concerning Shares *
of the Fund - Performance
Information
(d) Condensed Financial Information *
4 (a) The Fund; Investment Objectives *
and Policies
(b), (c) Investment Objectives 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
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
STATEMENT OF
ITEM NUMBER ADDITIONAL
FORM N-1A, PART A PROSPECTUS CAPTION INFORMATION CAPTION
- ------------------ ------------------ -------------------
<S> <C> <C> <C>
(c), (d) Management of the Fund - *
Investment Adviser
(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
5A (a), (b) ** **
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 - Distributions
7 (a) Front Cover Page; Management *
of the Fund - Distributor; Back
Cover Page
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
STATEMENT OF
ITEM NUMBER ADDITIONAL
FORM N-1A, PART A PROSPECTUS CAPTION INFORMATION CAPTION
- ------------------ ------------------ -------------------
<S> <C> <C> <C>
(b) Information Concerning Shares *
of the Fund - Purchases; Information
Concerning Shares of the Fund -
Net Asset Value
(c) Information Concerning Shares *
of the Fund - Purchases; Information
Concerning Shares of the Fund -
Exchanges; Shareholder Services
(d) Front Cover Page; Information *
Concerning Shares of the Fund -
Purchases
(e) Information Concerning Shares *
of the Fund - Distribution Plans;
Expense Summary
(f) Information Concerning Shares *
of the Fund - Distribution Plans
8 (a) Information Concerning Shares *
of the Fund - Redemptions and
Repurchases; Information
Concerning Shares of the Fund -
Purchases
(b), (c), (d) Information Concerning Shares *
of the Fund - Redemptions and
Repurchases
9 * *
</TABLE>
<PAGE> 5
<TABLE>
<CAPTION>
STATEMENT OF
ITEM NUMBER ADDITIONAL
FORM N-1A, PART B PROSPECTUS CAPTION INFORMATION CAPTION
- ------------------ ------------------ -------------------
<S> <C> <C> <C>
10 (a), (b) * Front Cover Page
11 * Front Cover Page
12 The Fund Definitions
13 (a), (b), (c) * Investment Objectives; Policies
and Restrictions
(d) * *
14 (a), (b), (c) * Management of the Fund -
Trustees and Officers
15 (a) * *
(b), (c) * Management of the Fund -
Trustees and Officers
16 (a) Management of the Fund - Management of the Fund -
Investment Adviser Investment Adviser;
Management of the Fund -
Trustees and Officers
(b) Management of the Fund - Management of the Fund -
Investment Adviser Investment Adviser
(c) * *
(d) * Management of the Fund -
Investment Adviser
(e) * Portfolio Transactions and
Brokerage Commissions
(f) Information Concerning Distribution Plans
Shares of the Fund -
Distribution Plans
(g) * *
(h) * Management of the Fund -
Custodian; Independent
Accountants and Financial
Statements; Back Cover Page
</TABLE>
<PAGE> 6
<TABLE>
<CAPTION>
STATEMENT OF
ITEM NUMBER ADDITIONAL
FORM N-1A, PART B PROSPECTUS CAPTION INFORMATION CAPTION
- ------------------ ------------------ -------------------
<S> <C> <C> <C>
(i) * Management of the Fund -
Shareholder Servicing Agent
17 (a), (b), (c), * Portfolio Transactions and
(d), (e) Brokerage Commissions
18 (a) Information Concerning Shares Description of Shares Voting
of the Fund - Description of Rights and Liabilities
Shares, Voting Rights and
Liabilities
(b) * *
19 (a) Information Concerning Shares Shareholder Services
of the Fund - Purchases;
Shareholder Services
(b) Information Concerning Shares Management of the Fund -
of the Fund - Net Asset Distributor; Determination of
Value; Information Concerning Net Asset Value and
Shares of the Fund - Performance - Net Asset Value
Purchases
(c) * *
20 * Tax Status
21 (a), (b) * Management of the Fund -
Distributor; Distribution Plans
(c) * *
22 (a) * *
(b) * Determination of Net Asset
Value and Performance
23 * Independent Accountants and
Financial Statements
- -----------------------------
</TABLE>
* Not Applicable
** Contained in Annual Report
<PAGE> 7
MFS(R) MONEY MARKET FUND
MFS(R) GOVERNMENT MONEY MARKET FUND
(Members of the MFS Family of Funds(R))
PROSPECTUS
March 1, 1995
Shares of Beneficial Interest
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
1. Expense Summary.................................................................... 2
2. The Funds.......................................................................... 2
3. Condensed Financial Information.................................................... 3
4. Investment Objective and Policies.................................................. 4
5. Management of the Funds............................................................ 5
6. Information Concerning Shares of the Funds......................................... 6
Purchases...................................................................... 6
Exchanges...................................................................... 7
Redemptions.................................................................... 8
Determination of Net Asset Value............................................... 9
Distributions.................................................................. 10
Tax Status..................................................................... 10
Description of Shares, Voting Rights and Liabilities........................... 10
7. Shareholder Services............................................................... 11
Appendix A......................................................................... A-1
</TABLE>
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(R) MONEY MARKET FUND
MFS(R) GOVERNMENT MONEY MARKET FUND
500 Boylston Street, Boston, Massachusetts 02116 (617) 954-5000
This Prospectus pertains to the MFS Money Market Fund and the MFS Government
Money Market Fund (collectively referred to as either the "Money Market Funds"
or the "Funds"), each a portfolio of MFS Series Trust IV (the "Trust"). The
Trust presently consists of four series of shares, each of which represents a
separate diversified portfolio with separate investment policies. The investment
objective of each of the Money Market Funds is to seek as high a level of
current income as is considered consistent with the preservation of capital and
liquidity. The MFS Money Market Fund seeks to achieve this investment objective
by investing primarily in short-term money market instruments, including U.S.
Government securities and repurchase agreements collateralized by such
securities, obligations of the larger banks, prime commercial paper and high
quality corporate obligations. The MFS Government Money Market Fund, seeks to
achieve the investment objective by investing only in short-term securities
issued or guaranteed by the U.S. Treasury or agencies or instrumentalities of
the U.S. Government and repurchase agreements collateralized by such securities.
See "Investment Objective and Policies." The minimum initial investment in a
Fund is generally $1,000 per account (see "Purchases").
INVESTMENTS IN THE FUNDS ARE NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT AND THERE IS NO ASSURANCE THAT THE FUNDS WILL BE ABLE TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE.
The investment adviser and distributor for each Fund is 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.
This Prospectus sets forth concisely the information concerning the Funds that a
prospective investor ought to know before investing. The Trust has filed with
the Securities and Exchange Commission (the "SEC") a Statement of Additional
Information, dated March 1, 1995 which contains more detailed information about
each of the Funds and the Trust and is incorporated into this Prospectus by
reference. See page 12 for a further description of the information set forth in
the Statement of Additional Information. A copy of the Statement of Additional
Information may be obtained without charge by contacting the Shareholder
Servicing Agent (see back cover for address and phone number).
INVESTORS SHOULD READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE REFERENCE.
<PAGE> 8
1. EXPENSE SUMMARY
SHAREHOLDER TRANSACTION EXPENSES FOR EACH FUND:
Redemption Fee (where proceeds of the redemption are mailed by
check)......................................................................None
ANNUAL OPERATING EXPENSES OF THE FUNDS (AS A PERCENTAGE OF AVERAGE NET ASSETS):*
<TABLE>
<CAPTION>
MFS MONEY MFS GOVERNMENT
MARKET FUND MONEY MARKET FUND
----------- -----------------
<S> <C> <C>
Management Fees................................................ 0.50% 0.50%
Other Expenses................................................. 0.28% 0.55%
---- ----
Total Operating Expenses....................................... 0.78% 1.05%
</TABLE>
- ---------------
* Percentages based on fees incurred during the fiscal year ended August 31,
1994.
EXAMPLE OF EXPENSES
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C> <C>
An investor would pay the following dollar
amounts of MFS MONEY MARKET
expenses on a hypothetical $1,000 investment in a
Fund, FUND $ 8 $23 $38 $ 75
assuming (1) a 5% annual return and (2)
redemption at the MFS GOVERNMENT
end of each of the time periods indicated: MONEY MARKET FUND $ 10 $31 $51 $100
</TABLE>
The purpose of the expense table provided above is to assist investors in
understanding the various costs and expenses that a shareholder in a Fund will
bear directly or indirectly. A more complete description of management fees of
the Funds is set forth in -- "Management of the Funds -- Investment Adviser."
THE "EXAMPLE" SET FORTH ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST
OR FUTURE EXPENSES OF A FUND; ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN.
2. THE FUNDS
The Funds are diversified series of the Trust, an open-end management investment
company which was organized as a business trust under the laws of The
Commonwealth of Massachusetts in 1975. The Trust presently consists of four
series of shares, each of which represents a portfolio with separate investment
policies. Shares of the Funds are continuously sold to the public and the Funds
use the proceeds to buy money market instruments for the Fund for which such
shares were sold. The Trust's Board of Trustees provides broad supervision over
the affairs of the Trust. Massachusetts Financial Services Company, a Delaware
corporation ("MFS" or the "Adviser"), is the Funds' investment adviser. A
majority of the Trustees of the Trust are not affiliated with the Adviser. The
Adviser is responsible for the management of the Funds' assets and the officers
of the Trust are responsible for their operations. The Adviser manages each Fund
from day to day in accordance with the investment objective and the investment
policies of that Fund. The selection of investments and the way they are managed
depend on the conditions and trends in the economy and the financial
marketplaces. Each Fund also offers to buy back (redeem) their shares from their
shareholders at any time at net asset value.
2
<PAGE> 9
3. CONDENSED FINANCIAL INFORMATION
The following information should be read in conjunction with the financial
statements included in the Funds' Annual Report to Shareholders which are
incorporated by reference into the Statement of Additional Information in
reliance upon the report of Deloitte & Touche LLP, independent certified public
accountants, as experts in accounting and auditing. During 1994 each Fund
changed its fiscal year end from October 31 to August 31. The Financial
Highlights in 1994 are thus being presented for the ten-month period ended
August 31, 1994.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
MFS MONEY MARKET FUND
-------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
-------------------------------------------------------------------------------------
1994* 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA (FOR A SHARE
OUTSTANDING THROUGHOUT EACH
PERIOD):
Net asset value -- beginning of
period........................... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
Income from investment
operations --
Net investment income............ $0.02 $0.02 $0.03 $0.06 $0.07 $0.08 $0.07 $0.06 $0.06 $0.08 $0.10
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Less distributions declared to
shareholders from net investment
income........................... (0.02) (0.02) (0.03) (0.06) (0.07) (0.08) (0.07) (0.06) (0.06) (0.08) (0.10)
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Net asset value -- end of period... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
===== ===== ===== ===== ===== ===== ===== ===== ===== ===== =====
Total return....................... 2.91%+ 2.39% 3.35% 6.07% 7.99% 8.84% 7.12% 6.06% 6.80% 8.19% 10.14%
RATIOS (TO AVERAGE NET ASSETS)/
SUPPLEMENTAL DATA:
Expenses........................... 0.78%+ 0.83% 0.87% 0.82% 0.76% 0.83% 0.83% 0.82% 0.78% 0.73% 0.72%
Net investment income.............. 2.95%+ 2.39% 3.36% 5.94% 7.60% 8.45% 6.72% 5.77% 6.53% 7.86% 9.74%
NET ASSETS AT END OF PERIOD
($000 OMITTED).....................435,780 350,316 448,825 541,945 677,164 676,382 664,895 716,528 623,568 657,000 711,867
</TABLE>
- ---------------
* For the ten months ended August 31, 1994.
+ Annualized.
<TABLE>
<CAPTION>
MFS GOVERNMENT MONEY MARKET FUND
-------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
-------------------------------------------------------------------------------------
1994* 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA (FOR A SHARE
OUTSTANDING THROUGHOUT EACH
PERIOD):
Net asset value -- beginning of
period........................... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
Income from investment
operations --
Net investment income............ $0.02 $0.02 $0.03 $0.06 $0.07 $0.08 $0.06 $0.05 $0.06 $0.07 $0.09
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Less distributions declared to
shareholders from net investment
income........................... (0.02) (0.02) (0.03) (0.06) (0.07) (0.08) (0.06) (0.05) (0.06) (0.07) (0.09)
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Net asset value -- end of period... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
===== ===== ===== ===== ===== ===== ===== ===== ===== ===== =====
Total return+...................... 2.64% 2.23% 3.27% 5.68% 7.55% 8.61% 6.47% 5.73% 6.33% 7.63% 9.56%
RATIOS (TO AVERAGE NET ASSETS)/
SUPPLEMENTAL DATA:
Expenses........................... 1.05%+ 0.99% 0.87% 0.83% 0.80% 0.85% 0.74% 0.59% 0.66% 0.72% 0.71%
Net investment income.............. 2.64%+ 2.20% 3.28% 5.53% 7.34% 8.29% 6.29% 5.63% 6.07% 7.39% 9.19%
NET ASSETS AT END OF PERIOD
($000 OMITTED)..................... 38,347 35,576 47,629 50,655 53,701 51,619 50,343 59,875 63,331 45,894 30,181
</TABLE>
- ---------------
* For the ten months ended August 31, 1994.
+ Annualized.
3
<PAGE> 10
4. INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE -- The investment objective of each Fund is to seek as high
a level of current income as is considered consistent with the preservation of
capital and liquidity. The investment objective of a Fund will not be changed
without first obtaining shareholder approval from the shareholders of that Fund.
Any investment involves risk and there can be no assurance that either Fund will
achieve its investment objective.
INVESTMENT POLICIES -- The MFS Money Market Fund seeks to achieve its investment
objective by investing primarily (i.e., at least 80% of its assets under normal
circumstances) in the following instruments:
(i) obligations issued or guaranteed as to interest and principal by the
U.S. Government or any agency or instrumentality thereof (including
repurchase agreements collateralized by such securities);
(ii) obligations of banks (including certificates of deposit and
bankers' acceptances) which at the date of investment have capital, surplus,
and undivided profits (as of the date of their most recently published
financial statements) in excess of $100,000,000; and obligations of other
banks or savings and loan associations if such obligations are insured by
the Federal Deposit Insurance Corporation, provided that not more than 10%
of the total assets of the MFS Money Market Fund will be invested in such
insured obligations;
(iii) commercial paper which at the date of investment is rated A-1 by
Standard & Poor's Corporation ("S&P") or P-1 by Moody's Investors Service,
Inc. ("Moody's"), or, if not rated, is issued or guaranteed as to payment of
principal and interest by companies which at the date of investment have an
outstanding debt issue rated AA or better by S&P or Aa or better by Moody's;
and
(iv) short-term (maturing in 13 months or less) corporate obligations
which at the date of investment are rated AA or better by S&P or Aa or
better by Moody's.
The MFS Money Market Fund may also invest up to 20% of its total assets in debt
instruments not specifically described in (i) through (iv) above, provided that
such instruments are deemed by the Trustees of the Trust to be of comparable
high quality and liquidity. The MFS Money Market Fund may invest its assets in
the securities of foreign issuers and in the securities of foreign branches of
U.S. banks such as negotiable certificates of deposit (Eurodollars). Since the
portfolio of the MFS Money Market Fund may contain such securities, an
investment therein may involve a greater degree of risk than an investment in
the MFS Government Money Market Fund or in a fund which invests only in debt
obligations of U.S. domestic issuers, due to the possibility that there may be
less publicly available information concerning foreign issuers, more volatile
markets, less securities regulation, less favorable tax provisions, war or
expropriation.
In addition, the MFS Money Market Fund may invest up to 75% of its assets in all
finance companies as a group, all banks and bank holding companies as a group
and all utility companies as a group when in the opinion of management yield
differentials and money market conditions suggest such investments are advisable
and when cash is available for such investments and instruments are available
for purchase which fulfill the Fund's objective in terms of quality and
marketability.
The MFS Government Money Market Fund seeks to achieve its investment objective
by investing only in securities issued or guaranteed as to principal and
interest by the U.S. Treasury or agencies or instrumentalities of the U.S.
Government (including repurchase agreements collateralized by such securities).
------------------------
For a description of the instruments discussed above and the risks associated
with investments in repurchase agreements, see Appendix A to this Prospectus.
For a description of the ratings discussed above see Appendix A to the Statement
of Additional Information.
All the assets of both the MFS Money Market Fund and the MFS Government Money
Market Fund will be invested in obligations which mature in 13 months or less
and substantially all of these investments will be held to maturity; however,
securities collateralizing repurchase agreements may have maturities in excess
of 13 months. Both the MFS Money Market Fund and the
4
<PAGE> 11
MFS Government Money Market Fund will, to the extent feasible, make portfolio
investments primarily in anticipation of or in response to changing economic and
money market conditions and trends. Currently, the dollar weighted average
maturity of the investments of either Fund may not exceed 90 days.
The Statement of Additional Information includes a discussion of specific
investment restrictions which govern the investment policies of each Money
Market Fund. The specific investment restrictions listed in the Statement of
Additional Information may not be changed without shareholder approval. See
"Investment Objective, Policies and Restrictions -- Investment Restrictions" in
the Statement of Additional Information. The Trust's investment limitations,
policies and rating standards are adhered to at the time of purchase or
utilization of assets subject to compliance with the Investment Company Act of
1940, as amended and rules adopted thereunder (the "1940 Act"); a subsequent
change in circumstances will not be considered to result in a violation of
policy.
YIELD INFORMATION -- From time to time, each Fund may advertise its yield and
effective yield. Both yield and effective yield are based on historical earnings
and are not intended to indicate future performance. The yield of a Fund refers
to the income generated by an investment in that series over a seven-day period
(which period will be stated in the advertisement). This income is then
annualized; that is, the amount of income generated by the investment during
that week is assumed to be generated each week over a 52-week period and is
shown as a percentage of the investment. The effective yield is calculated
similarly but, when annualized, the income earned by an investment in a Fund is
assumed to be reinvested. The effective yield will be slightly higher than the
yield because of the compounding effect of this assumed reinvestment.
The current annualized yield of the MFS Money Market Fund for the seven-day
period ended August 31, 1994 (the end of the Trust's fiscal year) was 2.72% and
the effective annualized yield of the MFS Money Market Fund for such period was
2.68%. The current annualized yield of the MFS Government Money Market Fund for
that seven-day period was 2.42% and the effective annualized yield of the MFS
Government Money Market Fund for that period was 2.45%. Current yield and
account balance information may be obtained by calling 1-800-MFS-TALK
(637-8255).
The yield of each Fund will vary based on the type, quality, and maturities of
the securities held in the portfolio of the particular series, fluctuations in
short-term interest rates and changes in the Trust's expenses. For a discussion
of the manner in which each Fund will calculate its yield, see the Statement of
Additional Information. 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.
5. MANAGEMENT OF THE FUNDS
INVESTMENT ADVISER -- MFS manages each Fund pursuant to an Investment Advisory
Agreement dated August 1, 1993 (the "Advisory Agreement"). The Adviser provides
each Fund with overall investment advisory and administrative services, as well
as general office facilities. Geoffrey L. Kurinsky, a Senior Vice President of
the Adviser, has been each Fund's portfolio manager since 1992 and has been
employed by the Adviser since 1987. Subject to such policies as the Trustees may
determine, the Adviser makes investment decisions for each 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 first $300 million of the average
aggregate daily net assets of the MFS Government Money Market Fund and the MFS
Money Market Fund; 0.45% of the next $400 million of such assets; 0.4% of the
next $300 million of such assets; and 0.35% of such assets in excess of $1
billion. For the Trust's fiscal year ended August 31, 1994, MFS received fees
under the Advisory Agreement of $160,327 and $1,621,026 from the MFS Money
Market Fund and MFS Government Money Market Fund, respectively, the total of
which is equivalent, on an annualized basis, to 0.47% and 0.48%, respectively,
of the Fund's average daily net assets.
MFS also serves as investment adviser to the other funds in the MFS Family of
Funds (the "MFS Funds"), 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, Sun Growth Variable Annuity Fund, Inc. and seven variable
accounts, each of which is a
5
<PAGE> 12
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
Compass-2 and Compass-3 combination fixed/variable annuity contracts. MFS and
its wholly-owned subsidiary, MFS Asset Management, Inc., provide investment
advice to substantial private clients.
MFS is America's oldest mutual fund organization. MFS and its predecessor
organizations have a history of money management dating from 1924 and the
founding of the first mutual fund in the United States, Massachusetts Investors
Trust. Net assets under the management of the MFS organization were
approximately $33.4 billion on behalf of approximately 1.6 million investor
accounts as of January 31, 1995. As of such date, the MFS organization managed
approximately $18.7 billion of assets in fixed income securities and
approximately $10.8 billion of assets in equity securities. MFS is a
wholly-owned subsidiary of Sun Life of Canada (U.S.), which in turn is a
wholly-owned subsidiary of Sun Life Assurance Company of Canada ("Sun Life").
The Directors of MFS are A. Keith Brodkin, Jeffrey L. Shames, Arnold D. Scott,
John D. McNeil and John R. Gardner. Mr. Brodkin is the Chairman, Mr. Shames is
the President and Mr. Scott is the Secretary and a Senior Executive Vice
President of MFS. Messrs. McNeil and Gardner are the Chairman and the 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 the Chairman, President
and a Trustee of the Trust. W. Thomas London, Stephen E. Cavan, James O. Yost,
James R. Bordewick, Jr., Robert A. Dennis and Geoffrey L. Kurinsky, all of whom
are officers of MFS, are officers of the Trust.
DISTRIBUTOR -- MFD, a wholly-owned subsidiary of MFS, is the distributor of the
shares of each Fund and also serves as distributor for each of the other MFS
Funds.
SHAREHOLDER SERVICING AGENT -- MFS Service Center, Inc. ("Shareholder Servicing
Agent"), a wholly-owned subsidiary of MFS, performs transfer agency, certain
dividend disbursing agency and other services for the Funds.
6. INFORMATION CONCERNING SHARES OF THE FUNDS
PURCHASES
Shares of each Fund may be purchased without a sales charge at their net asset
value. It is anticipated that the net asset value of $1.00 per share will remain
constant and the Trust will employ specific investment policies and procedures
to accomplish this result, although no assurance can be given that it will be
able to do so on a continuing basis (see "Net Income and Distributions"). Except
as described below, the minimum initial investment in either Fund is $1,000 per
account and the minimum additional investment is $50 per account. While there is
no sales charge, brokers may charge for their services in connection with a
purchase of Trust shares.
Accounts being established for monthly automatic investments and under payroll
savings programs and tax-deferred retirement programs (other than Individual
Retirement Accounts ("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. There
are also other limited exceptions to these minimums for certain tax-deferred
programs. The minimum initial investment per account for participation in the
Automatic Transfer Plan is $5,000. Any minimums may be changed at any time at
the discretion of the Trust.
Each Fund intends to be as fully invested at all times as is reasonably
practicable in order to maximize the yield on their respective assets. The money
markets in which each Fund will purchase and sell portfolio securities normally
require immediate settlement of transactions in federal funds. Accordingly, in
order to make investments which will immediately generate income, each Fund must
have federal funds available to it (i.e., monies credited to its custodian bank
by a Federal Reserve Bank). Therefore, a non-federal funds investment will
remain idle for two business days after it is received by the Shareholder
Servicing Agent. Information on how to procure a "Federal Reserve Draft" is
available at any national bank or any state bank which is a member of the
Federal Reserve System. (Checks drawn on the U.S. Treasury are not federal
funds.)
6
<PAGE> 13
All investments in each Fund are credited to the shareholder's account in the
form of full and fractional shares of that Fund at the rate of one share for
each dollar invested. The Trust does not issue share certificates for either
Fund, but the Shareholder Servicing Agent maintains an account for each
shareholder and mails to each shareholder a confirmation of purchases or sales
in his account.
Purchases and exchanges should be made for investment purposes only. The Fund
and MFD each reserve the right to reject any specific purchase order or to
restrict purchases by a particular purchaser (or group of related purchasers).
The Fund or MFD may reject or restrict any purchases by a particular purchaser
or group, for example, when such purchase is contrary to the best interests of
the Fund's other shareholders or otherwise would disrupt the management of the
Fund.
MFD may enter into an agreement with shareholders who intend to make exchanges
among certain classes of certain MFS Funds (as determined by MFD) which follow a
timing pattern, and with individuals or entities acting on such shareholders'
behalf (collectively, "market timers"), setting forth the terms, procedures and
restrictions with respect to such exchanges. In the absence of such an
agreement, it is the policy of the Fund and MFD to reject or restrict purchases
by market timers if (i) more than two exchange purchases are effected in a timed
account in the same calendar quarter or (ii) a purchase would result in shares
being held in timed accounts by market timers representing more than (x) one
percent of the Fund's net assets or (y) specified dollar amounts in the case of
certain MFS Funds which may include the Fund and which may change from time to
time. The Fund and MFD each reserve the right to request market timers to redeem
their shares at net asset value, less any applicable CDSC, if either of these
restrictions is violated.
OPENING AN ACCOUNT:
BY MAIL
Payment may be made by check or other negotiable bank draft payable to the order
of MFS Service Center, Inc., and mailed with the Account Application Form to the
Shareholder Servicing Agent:
MFS Service Center, Inc.
P.O. Box 2281
Boston, Massachusetts 02107-9906.
THE FUND TO BE PURCHASED SHOULD BE DESIGNATED ON THE ACCOUNT APPLICATION FORM.
BY WIRE
Payment may be wired in federal funds to the Custodian of the Trust as follows:
State Street Bank and Trust Company, Boston, MA, Attn: Mutual Funds Division,
For the Account of: [Shareholder's name], Re: MFS Money Market Fund (4423-744-4)
or MFS Government Money Market Fund (4423-710-5) and Wire Number: [assigned by
telephone]. Information on how to wire federal funds is available at any
national bank or any state bank which is a member of the Federal Reserve System.
A SHAREHOLDER CHOOSING THIS METHOD FOR AN INVESTMENT SHOULD FIRST TELEPHONE THE
SHAREHOLDER SERVICING AGENT TOLL-FREE AT (800) 225-2606 TO ADVISE OF HIS
INTENDED ACTION AND THE FUND TO BE PURCHASED, AND TO OBTAIN A WIRE ORDER NUMBER.
EXCHANGES
Shares of either Fund which are acquired through direct purchase for which
payment has been received by the Trust (i.e., an established account) may be
exchanged at net asset value only for shares of the other Money Market Fund .
However, shares of either Fund may be redeemed and shares of any of the other
MFS Funds acquired at net asset value plus their normal sales charge (if
available for sale). Shares of either Money Market Fund acquired by an exchange
from any of the other MFS Funds or by automatic investment of Fund dividends
paid after June 1, 1992 may be exchanged for shares of any of such other MFS
Funds if available for sale. 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 shares having an
aggregate value of at least $1,000 ($50 in the case of
7
<PAGE> 14
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 in writing
or by telephone on any business day prior to the close of regular trading on the
New York Stock Exchange (the "Exchange"), the exchange will usually occur that
day if all the requirements set forth above have been complied with at that
time. No more than five exchanges may be made in any one Exchange Request by
telephone. Exchanges by telephone are automatically available to most
non-retirement plan accounts and certain retirement plan accounts. For further
information regarding exchanges by telephone see "Redemptions By Telephone." The
exchange privilege (or any aspect of it) may be changed or discontinued and is
subject to certain limitations, including certain restrictions on purchases by
market timers. Special procedures, privileges and restrictions with respect to
exchanges may apply to market timers who enter into an agreement with MFD, as
set forth in such agreement (see "Purchases").
REDEMPTIONS
A shareholder in either Fund may withdraw all or any portion of the amount in
his account on any date on which the Trust is open for business by redeeming
shares at their net asset value, normally $1.00 per share. For the convenience
of shareholders and to enable them to continue earning daily dividends for as
long as possible, the Trust has arranged for several different procedures for
redemption. The proceeds of a redemption will normally be available within one
business day or, in any event, within seven days (except, in certain cases,
redemptions of shares purchased by check -- see below).
A. BY CHECK -- State Street Bank and Trust Company (the "Bank") will provide
each shareholder, upon request, with forms of checks drawn on the Bank. Checks
may be payable in any amount not less than $500. Shareholders wishing to avail
themselves of this redemption by check privilege must so elect on their Account
Application Form and must execute signature cards (for additional information,
see the reverse side of the signature card) with signature guaranteed in the
manner set forth under the caption "Signature Guarantee." Additional
documentation will be required from corporations, partnerships, fiduciaries or
other institutional investors. All checks must be signed by the shareholder(s)
of record exactly as the account is registered before the Bank will honor them.
The shareholders of joint accounts may authorize each shareholder to redeem by
check. When such a check is presented to the Bank for payment, a sufficient
number of full and fractional shares will be redeemed to cover the amount of the
check and the amount of any income tax required to be withheld. The Bank will
not honor checks in amounts exceeding the value of the account when the check is
presented for payment. The check may not draw on month-to-date dividends which
have been declared but not distributed. Because of daily fluctuations in the
value of each account, shareholders are advised against closing accounts by
means of a check. There is presently no charge to the shareholder for the
maintenance of this special checking account or for the clearance of any checks,
but the Trust reserves the right to impose such charges or to modify or
terminate the redemption by check privilege at any time.
B. BY MAIL -- Each shareholder has the right to 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 together with a written request
for redemption, or a letter of instructions, all in "good order" for transfer.
"Good order" generally means that a stock power, written request for redemption,
or letter of instruction 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" may require the furnishing of additional documents.
C. BY TELEPHONE -- Each shareholder may redeem an amount from his account by
telephoning toll-free at (800) 225-2606. Shareholders wishing to avail
themselves of this telephone redemption privilege must so elect on their Account
Application Form, designate thereon a commercial 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 are mailed by check to
the designated account, without charge. As a special service, investors may
arrange to have proceeds in excess of $1,000 wired in federal funds to the
designated account. 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
8
<PAGE> 15
receipt of the order for redemption. During times of drastic economic or market
changes, a shareholder may experience delays in reaching the above telephone
number. This redemption privilege (or any aspect of it) may be changed or
discontinued without notice to shareholders. 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.
D. GENERAL -- 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. 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 insure
that such check has cleared.
Due to the relatively high cost of maintaining small accounts, each Fund
reserves the right to redeem shares in any account for their then-current value
(which will be promptly paid to the shareholder) if at any time the total
investment in such account drops below $500 because of redemptions, except in
the case of accounts established for monthly automatic investments and certain
payroll savings programs and tax-deferred retirement plans, for which the
minimum investment requirement is either $250 or $50. 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.
The right of redemption can be suspended and the payment of the redemption
proceeds deferred during any period in which the Exchange is closed or trading
on the Exchange is restricted or to the extent otherwise permitted by the 1940
Act if an emergency exists.
The Shareholder Servicing Agent may make certain de minimis exceptions to the
requirements for redemption.
SIGNATURE GUARANTEE: In order to protect shareholders against fraud to the
greatest extent possible, the Trust 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.
DETERMINATION OF NET ASSET VALUE
Securities are valued at amortized cost, which the Trustees have determined in
good faith constitutes fair value for the purposes of complying with the 1940
Act. This valuation method will continue to be used until such time as the
Trustees determine that it does not constitute fair value for such purposes.
Since the Net Income, as defined in the Statement of Additional Information of
each Fund is declared as a dividend each time the Net Income of that Fund is
determined the net asset value per share of that Fund (i.e., the value of the
net assets of that Fund divided by the number of shares of that Fund
outstanding) remains at $1.00 per share immediately after each such
determination and dividend declaration. Any increase in the value of a
shareholder's investment in either Fund, representing the reinvestment of
dividend income, is reflected by an increase in the number of shares of that
Fund in his account.
It is expected that each Fund will have a positive Net Income at the time of
each determination thereof. If for any reason the Net Income of either Fund
determined at any time is a negative amount, that Fund will first offset the
negative amount with respect to each shareholder account in that Fund from the
dividends declared during the month with respect to such account. Then, to the
extent necessary, such Fund will reduce the number of its outstanding shares by
treating each of its shareholders as having contributed to its capital that
number of full and fractional shares in the account of such shareholder which
represents his proportion of such excess. Each shareholder of that Fund will be
deemed to have agreed to such contribution in these circumstances by his
investment in that Fund. This procedure will permit the net asset value per
share of each Fund to be maintained at a constant $1.00 per share.
9
<PAGE> 16
DISTRIBUTIONS
The Net Income of each Fund is determined each day during which the Exchange is
open for trading. This determination is made once during each such day as of the
close of regular trading. All the Net Income of each Fund so determined is
declared in shares of the respective Fund at the time of such determination.
Shares purchased become entitled to dividends declared as of the first day
following the date of investment. Dividends are generally distributed on the
last business day of each month in the form of additional shares of the
respective Fund at the rate of one share (and fraction thereof) for each one
dollar (and fraction thereof) of dividend income attributable to that Fund, or,
at the election of the shareholder, in cash; except that if a shareholder
redeems the entire amount in his account with that Fund at any time during the
month, all dividends declared on that series during the month through the date
of redemption will be paid to him at the same time as the proceeds from the
redemption of his shares. The Fund may make one or more distributions during the
calendar year to its shareholders from any long-term capital gains, and may also
make one or more distributions during the calendar year to its shareholders from
short-term capital gains.
TAX STATUS
Each Fund is treated as an entity separate from the other series of the Trust
for federal income tax purposes. In order to minimize the taxes each Fund would
otherwise be required to pay, each Fund intends to qualify each year as a
"regulated investment company" under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code") and to make distributions to its shareholders
in accordance with the timing requirements set out in the Code. It is expected
that the Funds will not be required to pay entity level federal income or excise
taxes. Shareholders of each Fund normally will have to pay federal income taxes,
(and any state or local taxes) on the dividends and capital gain distributions
they receive from the Fund, whether paid in cash or in additional shares. The
Funds expect that none of their distributions will be eligible for the
dividends-received deduction for corporations. Shareholders should consult with
their tax advisers regarding the possible exemption from state and local taxes
of distributions of a Fund that are derived from interest on obligations of the
U.S. government and certain of its agencies and instrumentalities (but generally
not from capital gains realized upon the disposition of such obligations).
A statement setting forth the federal income tax status of all dividends and
distributions for each calendar year, including the portion taxable as ordinary
income; the portion taxable as long-term capital gain; the portion representing
interest on U.S. Government obligations; 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 will be sent
to each shareholder promptly after the end of such calendar year.
Each 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 law or treaty. Each
Fund is also required in certain circumstances to apply backup withholding 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 a Fund certain information and certifications or who is
otherwise subject to backup withholding. However, backup withholding will not be
applied to payments which have had 30% withholding taken. Prospective
shareholders should read the Account Application for information regarding
backup withholding of federal income tax and should consult their own tax
advisers as to the tax consequences of an investment in a Fund.
DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
Each Fund has only one class of shares, entitled Shares of Beneficial Interest
(without par value). The Trust presently has four series of shares and has
reserved the right to create and issue additional series of shares. Each share
of a series represents an equal proportionate interest in that series with each
other share of that series. The shares of each series participate equally in the
earnings, dividends and assets of the particular series. Shares have no
pre-emptive or conversion rights. Shares when issued are fully paid and
non-assessable. Shareholders are entitled to one vote for each share held.
Shares of each series vote separately to approve investment advisory agreements
or changes in investment objective or restrictions, but shares of all series
vote together
10
<PAGE> 17
in the election or selection of Trustees and accountants. Shareholders of each
series would be entitled to share pro rata in the net assets of their respective
portfolio available for distribution to shareholders upon liquidation of the
Trust or that series.
The Trust 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 Trust itself was unable to meet its obligations.
7. SHAREHOLDER SERVICES
Shareholders with questions concerning the shareholder services described below
or concerning other aspects of the Funds, should contact the Shareholder
Servicing Agent (see back cover for address and phone number). The Shareholder
Servicing Agent, which is a wholly-owned subsidiary of the Adviser, performs
transfer agency, certain dividend disbursing agency and other services for the
Trust.
ACCOUNT AND CONFIRMATION STATEMENTS -- Each shareholder will receive a
confirmation statement showing the activity in his account. At the end of each
calendar year, each shareholder will receive income tax information regarding
distributions made by the Fund for that year and the amount, if any, of federal
income tax withheld.
DISTRIBUTION OPTIONS -- The following options are available to all accounts
(except Systematic Withdrawal Plan accounts described below) and may be changed
as often as desired by notifying the Shareholder Servicing Agent:
-- Dividends reinvested in additional shares. This option will be
assigned if no other option is specified.
-- Dividends in cash.
Checks for dividends in amounts less than $10 will automatically be reinvested
in additional shares of the applicable Fund. If a shareholder has elected to
receive dividends in cash and the postal or other delivery service is unable to
deliver checks to the shareholder's address of record, such shareholder's
distribution option will automatically be converted to having all dividends
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 in order to be effective for that dividend. No interest will accrue on
amounts represented by uncashed distribution or redemption checks.
INVESTMENT OR WITHDRAWAL PROGRAMS -- For the convenience of shareholders, the
Funds make available the following programs designed to enable shareholders to
add to their investment in an account with the Funds 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 share purchases) and may be
changed or discontinued at any time by a shareholder or the Fund.
DISTRIBUTION INVESTMENT PROGRAM: Dividend distributions made by either Fund
may be automatically invested in shares of one of the other MFS Funds, if shares
of the particular 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,
as designated on the Account Application and based upon the value of his
account. Each payment under a Systematic Withdrawal Plan must be at least $100,
except in certain limited circumstances.
DOLLAR COST AVERAGING PROGRAMS
AUTOMATIC INVESTMENT PLAN: Cash investments of $50 or more may be made
through a shareholder's checking account biweekly, monthly or quarterly.
Required forms are available from the Shareholder Servicing Agent or investment
dealers.
AUTOMATIC EXCHANGE PLAN: Shareholders having account balances of at least
$5,000 in any MFS Fund, may exchange their shares for the same class of shares
of other MFS Funds under the Automatic Exchange Plan. 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
11
<PAGE> 18
the same class of shares of other MFS Funds selected by the shareholder. Under
the Automatic Exchange Plan, exchanges of at least $50 each may be made to up to
four different funds. A shareholder should consider the differences in
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 FROM EITHER OF THE MONEY MARKET
FUNDS 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 Statement of Additional Information 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.
------------------------
TAX-DEFERRED RETIREMENT PLANS -- Shares of either Fund may be purchased by all
types of tax-deferred retirement plans, including IRAs; SEP-IRAs; 401(k) plans;
403(b) plans and other qualified 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 Statement of Additional Information, dated March 1, 1995, contains
more detailed information about the Funds, including information related to (i)
investment policies and restrictions, (ii) Trustees, officers and investment
adviser, (iii) portfolio transactions, (iv) the Funds' shares, including rights
and liabilities of shareholders, (v) the method used to calculate the yield and
effective yield of each Fund, and (vi) various services and privileges provided
by the Funds for the benefit of their shareholders.
12
<PAGE> 19
APPENDIX A
DESCRIPTION OF CERTAIN PERMITTED FUND INVESTMENTS:
U.S. GOVERNMENT OBLIGATIONS -- are issued by the U.S. Treasury and include
bills, certificates of indebtedness, notes and bonds. Agencies and
instrumentalities of the U.S. Government are established under the authority of
an act of Congress and include, but are not limited to, the Government National
Mortgage Association ("GNMA"), the Tennessee Valley Authority, the Bank for
Cooperatives, the Farmers Home Administration, Federal Home Loan Banks ("FHLB"),
Federal Intermediate Credit Banks, Federal Land Banks, and the Federal National
Mortgage Association ("FNMA").
REPURCHASE AGREEMENTS -- may be entered into by each Fund in order to earn
additional 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 Statement of Additional Information, the Trust has adopted
certain procedures intended to minimize any risk.
CERTIFICATES OF DEPOSIT -- are certificates issued against funds deposited in a
bank (including eligible foreign branches of U.S. banks), are for a definite
period of time, earn a specified rate of return, and are normally negotiable.
BANKERS' ACCEPTANCES -- are short-term credit instruments used to finance the
import, export, transfer or storage of goods. They are termed "accepted" when a
bank guarantees their payment at maturity.
COMMERCIAL PAPER -- refers to promissory notes issued by corporations in order
to finance their short-term credit needs.
CORPORATE OBLIGATIONS -- include bonds and notes issued by corporations in order
to finance long-term credit needs. The MFS Money Market Fund will invest only in
corporate obligations which have a maturity when purchased of 13 months or less.
A-1
<PAGE> 20
[MFS LOGO]
Investment Adviser
Massachusetts Financial Services Company
500 Boylston Street
Boston, MA 02116 MFS(R) MONEY MARKET FUND
(617) 954-5000 MFS(R) GOVERNMENT MONEY MARKET FUND
Distributor Prospectus
MFS Fund Distributors, Inc. March 1, 1995
500 Boylston Street
Boston, MA 02116
(617) 954-5000
Custodian and Dividend Disbursing Agent
State Street Bank & Trust Company
225 Franklin Street
Boston, MA 02110
Shareholder Servicing Agent
MFS Service Center, Inc.
500 Boylston Street
Boston, MA 02116
Toll-free: (800) 225-2606
Mailing Address:
P.O. Box 2281
Boston, MA 02107-9906
Auditors
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
[MFS LOGO]
MFS(R) MONEY MARKET FUND
MFS(R) GOVERNMENT MONEY
MARKET FUND
500 Boylston Street
Boston, MA 02116
MCM-1 3/95 140M 10/22/310
<PAGE> 21
MFS(R) MONEY MARKET FUND
MFS(R) GOVERNMENT MONEY
MARKET FUND
STATEMENT OF
ADDITIONAL INFORMATION
(Members of the MFS Family of Funds(R))
March 1, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
-----
<C> <S> <C>
1. Definitions........................................................................... 2
2. Investment Objective, Policies and Restrictions....................................... 2
3. Management of the Funds............................................................... 3
Trustees.......................................................................... 3
Officers.......................................................................... 4
Investment Adviser................................................................ 5
Distributor....................................................................... 6
Custodian......................................................................... 6
Shareholder Servicing Agent....................................................... 6
4. Portfolio Transactions and Brokerage Commissions...................................... 6
5. Shareholder Services.................................................................. 7
Investment and Withdrawal Programs................................................ 7
Exchange Privilege................................................................ 8
Tax-Deferred Retirement Plans..................................................... 8
6. Tax Status............................................................................ 9
7. Description of Shares, Voting Rights and Liabilities.................................. 9
8. Net Income and Distributions.......................................................... 10
9. Independent Accountants and Financial Statements...................................... 11
Appendix A (Commercial Paper and Bond Ratings)........................................ 12
</TABLE>
MFS MONEY MARKET FUND
MFS GOVERNMENT MONEY MARKET FUND
Series of MFS Series Trust IV
500 Boylston Street, Boston, Massachusetts 02116
(617) 954-5000
This Statement of Additional Information sets forth information which may be of
interest to investors but which is not necessarily included in the Funds'
Prospectus, dated March 1, 1995. This Statement of Additional Information 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 STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS AUTHORIZED
FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY A
CURRENT PROSPECTUS.
<PAGE> 22
1. DEFINITIONS
<TABLE>
<S> <C> <C>
"Trust" -- MFS Series Trust IV, a
Massachusetts business
trust.
"Money Market Funds" -- The MFS Money Market Fund
or "Fund" and MFS Government Money
Market Fund both are series
of the Trust.
"MFS" or the "Adviser" -- Massachusetts Financial
Services Company, a
Delaware corporation.
"Prospectus" -- The Prospectus, dated March
1, 1995, of the Funds.
</TABLE>
2. INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
INVESTMENT OBJECTIVE. The investment objective of each Money Market Fund is to
seek as high a level of current income as is considered consistent with the
preservation of capital and liquidity. The investment objective of a Fund will
not be changed without first obtaining shareholder approval from the
shareholders of that Fund. Any investment involves risk and there can be no
assurance that either Money Market Fund will achieve its investment objective.
INVESTMENT POLICIES. The investment policies of the Funds are described in the
Prospectus. In addition, certain of the Funds' investment policies are described
in greater detail below.
REPURCHASE AGREEMENTS: Each Fund may enter into repurchase agreements with
sellers who are member firms (or a subsidiary thereof) of the New York Stock
Exchange (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 a 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 applicable 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 series'
exercise of its right to liquidate the securities may be delayed and result in
certain losses and costs to the Fund. The Trust has adopted and follows
procedures which are intended to minimize the risks of repurchase agreements.
For example, a Fund only enters into repurchase agreements after the Adviser has
determined that the seller is creditworthy, and the Adviser monitors the
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.
INVESTMENT RESTRICTIONS. The Trust has adopted the following investment
restrictions which apply to each of the Funds and which cannot be changed with
respect to either Fund without the approval of the holders of a majority of the
shares of that Fund (which, as used in this Statement of Additional Information,
means the lesser of (i) more than 50% of the outstanding shares of that Fund, or
(ii) 67% or more of the outstanding shares of that Fund present at a meeting if
holders of more than 50% of the outstanding shares of that Fund are represented
at such meeting in person or by proxy):
Neither Fund may:
(1) Borrow money or pledge, mortgage or hypothecate its assets, except as a
temporary measure in an amount not to exceed one-third of its total assets
(taken at current value) to facilitate redemptions (a loan limitation in
excess of 5% is generally associated with a leveraged fund, but, since neither
Fund anticipates paying interest on borrowed money at rates comparable to its
yield, neither Fund has any intention of attempting to increase its net income
by means of borrowing. Each Fund will borrow money only to accommodate
requests for the repurchase of its shares while effecting an orderly
liquidation of portfolio securities); and except that either Fund may enter
into repurchase agreements (see description above);
(2) Underwrite securities except insofar as the Trust may technically be
deemed an underwriter under the Securities Act of 1933 in selling a portfolio
security;
(3) Purchase voting securities of any issuer or purchase the securities of
any issuer if, as a result thereof, more than 25% of that Fund's total assets
(taken at current value) would be concentrated in any one industry; provided,
however, that (a) there is no limitation in respect to investments in
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, and (b) each Fund may invest up to 75% of its assets in all
finance companies as a group, all banks and bank holding companies as a group
and all utility companies as a group when in the opinion of management yield
differentials and money market conditions suggest and when cash is available
for such investment and instruments are available for purchase which fulfill
the Fund's objective in terms of quality and marketability;
(4) Purchase or retain real estate (including limited partnership interests
but excluding securities of companies which deal in real estate or interests
therein), mineral leases, commodities or commodity contracts;
(5) Make loans to other persons except by the purchase of obligations in
which that Fund is authorized to invest and by entering into repurchase
agreements, (see description above.) Not more than 10% of the total assets of
either Fund
2
<PAGE> 23
(taken at current value) will be subject to repurchase agreements maturing in
more than seven days.
(6) Purchase the securities of any issuer if such purchase, at the time
thereof, would cause more than 5% of that Fund's total assets (taken at
current value) to be invested in the securities of such issuer, other than
securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities;
(7) Purchase securities of any issuer (other than securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities) if
such purchase at the time thereof would cause that Fund to hold more than 10%
of any class of securities of such issuer. For this purpose all debt
obligations of an issuer maturing in less than one year shall be deemed a
single class;
(8) Invest in companies for the purpose of exercising control or management;
(9) Purchase securities issued by any registered investment company except
by purchase in the open market where no commission or profit to a sponsor or
dealer results from such purchase other than the customary broker's
commission, or except when such purchase, though not made in the open market,
is part of a plan of merger or consolidation; provided, however, that neither
Fund will purchase the securities of any registered investment company if such
purchase at the time thereof would cause more than 10% of the total assets of
that Fund (taken at current value) to be invested in the securities of such
issuers; and provided, further, that neither Fund will purchase securities
issued by any open-end investment company;
(10) Invest more than 5% of its total assets (taken at current value) in
companies which, including predecessors, have a record of less than three
years' continuous operation;
(11) Purchase or retain securities of any issuer any of whose officers,
directors, or security-holders is a Trustee or officer of the Trust, or is an
officer or Director of the Adviser, if or so long as one or more of such
persons owns beneficially more than 1/2 of 1% of any class of securities,
taken at market value, of such issuer, and such persons owning more than 1/2
of 1% of such securities together own beneficially more than 5% of any class
of securities, taken at market value;
(12) Purchase securities on margin except that either Fund may obtain such
credits as may be necessary for the clearance of purchases and sales of
securities;
(13) Make short sales of securities;
(14) Write or purchase any put or call option; or
(15) Invest in securities which are restricted as to disposition under
federal securities laws, or securities with other legal or contractual
restrictions on resale, except for repurchase agreements.
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.
YIELD INFORMATION. Each Fund will provide current annualized and effective
annualized yield quotations based on the daily dividends of the particular Fund.
These quotations may from time to time be used in advertisements, shareholder
reports or other communications to shareholders. However, these yield quotations
should not be considered as representative of the yield of either Fund in the
future since the yield of each Fund will vary based on the type, quality and
maturities of the securities held in the portfolio of the particular Fund,
fluctuations in short-term interest rates and changes in the Fund's expenses.
Any current yield quotation of either Fund which is used in such a manner as to
be subject to the provisions of Rule 482(d), under the Securities Act of 1933,
as amended, shall consist of an annualized historical yield, carried at least to
the nearest hundredth of one percent, based on a specific seven calendar day
period and shall be calculated by dividing the net change in the value of an
account having a balance of one share at the beginning of the period by the
value of the account at the beginning of the period and multiplying the quotient
by 365/7. For this purpose the net change in account value would reflect the
value of additional shares purchased with dividends declared on the original
share and dividends declared on both the original share and any such additional
shares, but would not reflect any realized gains or losses from the sale of
securities or any unrealized appreciation or depreciation on portfolio
securities. In addition, any effective yield quotation of either Fund so used
shall be calculated by compounding the current yield quotation for such period
by multiplying such quotation by 7/365, adding 1 to the product, raising the sum
to a power equal to 365/7, and subtracting 1 from the result.
3. MANAGEMENT OF THE FUNDS
The Board of Trustees provides broad supervision over the affairs of the Trust.
The Adviser is responsible for the investment management of each Fund, and the
officers of the Trust are responsible for its operations. The Trustees and
officers of the Trust are listed below, together with their principal
occupations during the past five years. (Their titles may have varied during
that period.)
TRUSTEES
A. KEITH BRODKIN,* Chairman and President
Massachusetts Financial Services Company, Chairman and Director
RICHARD B. BAILEY*
Private Investor; Massachusetts Financial Services Company, former Chairman and
Director (until September 30, 1991)
PETER G. HARWOOD
Loomis, Sayles & Co. (investment counsel firm), Financial Vice President,
Treasurer and Director (retired October 1988)
Address: 211 Lindsay Pond Road, Concord, Massachusetts
J. ATWOOD IVES
Eastern Enterprises (diversified holding company), Chairman and Chief Executive
Officer (since December 1991); General Cinema Corporation, Vice
3
<PAGE> 24
Chairman and Chief Financial Officer (until December 1991); The Neiman Marcus
Group, Inc., Vice Chairman and Chief Financial Officer (from August 1987 to
December 1991); United States Filter Corporation, Director
Address: 9 Riverside Road, Weston, Massachusetts
LAWRENCE T. PERERA
Hemenway & Barnes (attorneys), Partner
Address: 60 State Street, Boston, Massachusetts
WILLIAM J. POORVU
Harvard University Graduate School of Business Administration, Adjunct
Professor; CBL & Associates Properties, Inc. (a real estate investment trust),
Director; The Baupost Fund, (a registered investment company) Vice Chairman
(since November 1993), Chairman and Trustee (from June 1990 until November
1993)
Address: Harvard Business School, Soldiers Field Road, Cambridge, Massachusetts
CHARLES W. SCHMIDT
Private Investor; Raytheon Company (diversified electronics manufacturer),
Senior Vice President (June, 1986 until retirement in December 1990); OHM
Corporation, Director; The Boston Company, Director; Boston Safe Deposit and
Trust Company, Director
Address: 30 Colpitts Road, Weston, Massachusetts
ARNOLD D. SCOTT*
Massachusetts Financial Services Company, Senior Executive Vice President and
Secretary
JEFFREY L. SHAMES*
Massachusetts Financial Services Company, President
ELAINE R. SMITH
Independent Consultant; Brigham and Women's Hospital, Executive Vice President
and Chief Operating Officer (from August 1990 to September 1992); Ernst &
Young (accountants), Consultant (from February to July 1990)
Address: Weston, Massachusetts
DAVID B. STONE
North American Management Corp. (investment advisers), Chairman
Address: 10 Post Office Square, Suite 300, Boston, Massachusetts
OFFICERS
W. THOMAS LONDON,* Treasurer
Massachusetts Financial Services Company, Senior Vice President and Assistant
Treasurer
STEPHEN E. CAVAN,* Secretary and Clerk
Massachusetts Financial Services Company, Senior Vice President, General Counsel
and Assistant Secretary
JAMES R. BORDEWICK, JR.,* Assistant Secretary
Massachusetts Financial Services Company, Vice President and Associate General
Counsel (since September 1990); associated with major law firm (prior to
August 1990)
ROBERT A. DENNIS,* Vice President
Massachusetts Financial Services Company, Senior Vice President
GEOFFREY L. KURINSKY,* Vice President
Massachusetts Financial Services Company, Senior Vice President
JAMES O. YOST,* Assistant Treasurer
Massachusetts Financial Services Company, Vice President
- ---------------
*"Interested persons" (as defined in the 1940 Act) of the Adviser, whose address
is 500 Boylston Street, Boston, Massachusetts 02116.
Each Trustee and officer holds comparable positions with certain MFS affiliates
or with certain other funds of which MFS or a subsidiary of MFS is the
investment adviser or distributor. Mr. Brodkin, the Chairman of MFS Fund
Distributors, Inc. ("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 compensation of non-interested Trustees (who currently receive a
fee of $1,750 per year plus $90 per meeting and $70 per committee meeting
attended, together with such Trustee's out-of-pocket expenses) and has adopted a
retirement plan for non-interested Trustees. Under this plan, a Trustee will
retire upon reaching age 73 and if the Trustee has completed at least 5 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
5 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
Trust for the interested Trustees. The Trust will accrue its allocable share of
compensation expenses each year to cover current years service and amortize past
service costs.
Set forth in Exhibit A and B hereto is certain information concerning the cash
compensation paid to non-interested Trustees and benefits accrued, and estimated
benefits payable, under the retirement plan.
As of January 31, 1995, all Trustees and officers as a group owned less than 1%
of the shares of the MFS Money Market Fund (not including 6,782,547.961 shares
representing approximately 2.08% of the outstanding shares of the MFS Money
Market Fund owned of record by an employee benefit plan of MFS of which Mr.
Brodkin is a Trustee) and owned less than 1% of the shares of the MFS Government
Money Market Fund (not including 2,515,893.227 shares representing approximately
9.2% of the outstanding shares of the MFS Government Money Market Fund owned of
record by an employee benefit plan of MFS of which Mr. Brodkin is a Trustee).
As of January 30, 1995, Nationwide Life Insurance Company, c/o IPO CO 51, P.O.
Box 182029, Columbus, OH 43218-2029, was the record owner of approximately
13.90% of the outstanding shares of the MFS Money Market Fund, which it held for
the benefit of its policy holders. As of January 30, 1995, South Bay Mental
Health Center Inc. c/o Peter Scanlon - Business A/C, 37 Belmont St., Brockton,
MA 02401-5299, was the record owner of approximately 5.89% of the outstanding
shares of MFS Money Market Fund. Vickie Williamson General Partner, Clara
Pierce, Family Limited Partnership, Tyler, TX, was the record owner of
approximately 8.04% of the outstanding shares of MFS Money Market Fund. James F.
Hart, Wooster, OH, was the record owner of approximately 5.25% of the
outstanding shares of MFS Money Market Fund. As of January 30, 1995, MFS Defined
Contribution Plan, c/o Massachusetts Financial Ser-
4
<PAGE> 25
vices, 500 Boylston Street, Boston, MA 02116-3740, was the record owner of
approximately, 5.05% of the outstanding shares of MFS Government Money Market
Fund. As of January 30, 1995, Brigadier & Co., P.O. Box 1024, Boston, MA
02103-1024, was the record owner of approximately, 5.86% of the outstanding
shares of the MFS Government Money Market Fund, which it held for the benefit of
its policy holders.
The Trust'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
Trust, unless, as to liabilities to the Trust 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 Trust. In the case of settlement, such indemnification will not be
provided unless it has been determined by a court or other body approving the
settlement or other disposition or by a reasonable determination based upon a
review of readily available facts by vote of a majority of disinterested
Trustees or in a written opinion of independent counsel, 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 wholly-owned 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 Prospectus contains information with respect to the management
of the Adviser and other investment companies for which MFS serves as investment
adviser.
The Adviser manages each Fund pursuant to an Investment Advisory Agreement dated
August 1, 1993 (the "Advisory Agreement"). The Adviser provides each Fund with
overall investment advisory and administrative services, as well as general
office facilities. Subject to such policies as the Trustees may determine, the
Adviser makes investment decisions for each Fund. For these services and
facilities, the Adviser receives a management fee computed and paid monthly at
the annual rate of 0.5% of the first $300 million of the average aggregate net
assets of the MFS Money Market Fund and the MFS Government Money Market Fund;
0.45% of the next $400 million of such assets; 0.4% of the next $300 million of
such assets; and 0.35% of such assets in excess of $1 billion.
For the Trust's fiscal years ended August 31, 1992, 1993 and 1994 MFS received
management fees under the Trust's Advisory Agreement of $2,296,190, $1,807,419
and $1,621,026 respectively, from the MFS Money Market Fund and $222,632,
$200,112 and $160,327, respectively, from the MFS Government Money Market Fund.
The Trust's advisory fee is allocated between the MFS Money Market Fund and the
MFS Government Money Market Fund in the ratio each fund's average daily net
assets bears to the aggregate average daily net assets of the Trust.
In order to comply with the expense limitations of certain state securities
commissions, the Adviser will reduce its management fee or otherwise reimburse
each Fund for any expenses, exclusive of interest, taxes and brokerage
commissions, incurred by each 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 rescission of the various state requirements. Any such
adjustment would not become effective until the beginning of each 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 MFS) including:
Trustees fees discussed above; governmental fees; interest charges; taxes;
membership dues in the Investment Company Institute allocable to the Trust; fees
and expenses of independent auditors, of legal counsel, and of any transfer
agent, registrar or dividend disbursing agent of the Trust; expenses of
repurchasing and redeeming shares; expenses of preparing, printing and mailing
prospectuses, shareholder reports, notices, proxy statements and reports to
governmental officers and commissions; 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 Trust's Custodian,
for all services to the Trust, including safekeeping of funds and securities and
maintaining required books and accounts; expenses of calculating the net asset
value of shares of the Trust; expenses of shareholder meetings; and expenses
relating to the issuance, registration and qualification of shares of the Trust.
Such expenses are allocated between the MFS Money Market Fund and the MFS
Government Money Market Fund in a manner believed to be fair and equitable to
each. For a list of the Trust's expenses, including the compensation paid to
Trustees who are not officers of MFS, during the Trust's fiscal year ended
August 31, 1994, see the financial statements included in the Trust's Annual
Report to Shareholders which is incorporated by reference into this Statement of
Additional Information.
The Adviser pays the compensation of the Trust's officers and of the Trustees
who are officers 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 Trust's investments, effecting
its portfolio transactions, and, in general, administering its affairs.
The Advisory Agreement will remain in effect until August 1, 1995, 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
Trust's outstanding voting securities and, in either case, by a majority of the
Trustees who are not parties to the Advisory Agreement or interested persons of
any such party. The Advisory Agreement
5
<PAGE> 26
terminates automatically if it is assigned and may be terminated without penalty
by vote of a majority of the Trust's outstanding voting securities or by either
party on not more than 60 days' nor less than 30 days' written notice. The
Advisory Agreement further provides that the Adviser 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
Trust, 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.
DISTRIBUTOR
MFD, a wholly-owned subsidiary of MFS, serves as distributor for the continuous
offering of shares of each 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.
The Distribution Agreement will remain in effect until August 1, 1996, and will
continue in effect thereafter only of such continuance is specifically approved
at least annually by the Board of Trustees or by vote of a majority of the
Trust'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.
CUSTODIAN
State Street Bank and Trust Company (the "Custodian") is the custodian of the
Trust's assets. The Custodian's responsibilities include safekeeping and
controlling the Trust's cash and securities, handling the receipt and delivery
of securities, determining income and collecting interest and dividends on the
Trust's investments, maintaining books of original entry for portfolio and fund
accounting and other required books and accounts, and calculating the daily net
income on shares of the Trust. The Custodian does not determine the investment
policies of the Trust or decide which securities the Trust will buy or sell. The
Trust may, however, invest in securities of the Custodian and may deal with the
Custodian as principal in securities transactions. The Custodian also acts as
the dividend disbursing agent of the Trust.
SHAREHOLDER SERVICING AGENT
MFS Service Center, Inc. (the "Shareholder Servicing Agent" or the "Agent"), a
wholly-owned subsidiary of MFS, is the Trust's shareholder servicing agent,
pursuant to a Shareholder Servicing Agreement, effective August 1, 1985 (the
"Agency Agreement") with the Trust. The Agent's responsibilities under the
Agency Agreement include administering and performing transfer functions and
keeping records in connection with the issuance, transfer and redemption of the
shares of the Trust. For these services, the Agent will receive a fee based on
the number of accounts in the portfolio of the Trust, computed and paid monthly.
In addition, the Agent will be reimbursed by the Trust for certain expenses
incurred by the Agent on behalf of the Trust. For the fiscal year ended August
31, 1994, the Shareholder Servicing Agent received fees of $506,238 and $50,711
from the MFS Money Market Fund and MFS Government Money Market Fund,
respectively, under the Agency Agreement. State Street Bank and Trust Company,
the dividend disbursing agent of the Trust, has contracted with the Shareholder
Servicing Agent to administer and perform certain dividend and distribution
disbursing functions for the Trust.
4. PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
Specific decisions to purchase or sell securities for each Fund are made by the
Funds' portfolio manager who is an employee of the Adviser and who is appointed
and supervised by its senior officers. Changes in the Funds' investments are
reviewed by the Board of Trustees. The Funds' portfolio manager may serve other
clients of the Adviser or any subsidiary of the Adviser in a similar capacity.
The primary consideration in placing portfolio security transactions for each
series is "best execution", i.e., execution at the most favorable prices and in
the most effective manner possible. The Adviser at all times attempts to achieve
"best execution", and it has complete freedom as to the markets in and the
broker-dealers through which it seeks this result. It is expected that most
transactions will be with the issuer or with major dealers acting for their own
account and not as brokers. Subject to the requirement of seeking "best
execution", securities may be bought from or sold to broker-dealers who have
furnished research and investment services to the Adviser. Such research and
investment services are those which brokerage houses customarily provide to
institutional investors and include statistical and economic data and research
reports on particular companies and industries. In placing orders with such
broker-dealers the Adviser will, where possible, take into account the
comparative usefulness of such research and investment services. Such research
and investment services are useful to the Adviser even though their dollar value
may be indeterminable and their receipt or availability generally does not
reduce the Adviser's normal research activities or expenses.
Consistent with the foregoing primary consideration, the Rules of Fair Practice
of the National Association of Securities Dealers, Inc. and such other policies
as the Trustees may determine, the Adviser may consider sales of shares of the
Trust and of other investment company clients of MFS as a factor in the
selection of broker-dealers to execute the Trust's portfolio transactions.
6
<PAGE> 27
During the Fund's fiscal year ended August 31, 1994, the MFS Money Market Fund
acquired and sold securities issued by an affiliate of Kidder, Peabody & Co.
In certain instances there may be securities which are suitable for one or both
of the Trust's portfolios 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 each 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
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
either Fund is concerned. In other cases, however, the Trust believes that the
ability of each Fund to participate in volume transactions will produce better
executions for that Fund.
5. SHAREHOLDER SERVICES
INVESTMENT AND WITHDRAWAL PROGRAMS: Each 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. The programs involve no extra charge to
shareholders other than a sales charge in the case of certain share purchases
and may be changed or discontinued at any time by a shareholder or the Fund.
DISTRIBUTION INVESTMENT PROGRAM: Distributions of dividends made by either Fund
may be automatically invested in shares of one of the other funds in the MFS
Family of Funds (the "MFS Funds"), if shares of the fund are available for sale.
Such investments will be subject to initial investment minimums, as well as
additional purchase minimums. Distributions invested in one of the other MFS
funds will be invested at net asset value (exclusive of any sales charge).
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 monthly, quarterly or
semi-annual payments, as designated on the Account Application and based upon
the value of his account. Each payment under a Systematic Withdrawal Plan
("SWP") must be at least $100, except in certain limited circumstances. Such
payments are drawn from the proceeds of the redemption of shares held in the
shareholder's account. 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. To initiate this service, a shareholder must own 10,000 or more shares
of the Fund. The shareholder, by written instruction to the Shareholder
Servicing Agent, may deposit into the account additional shares of the Fund,
change the payee or change the dollar amount of each payment. The Fund may
terminate any SWP for an account if the number of shares in 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 such
plan may be terminated at any time by either the shareholder or the Fund.
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 under the Automatic Exchange Plan. The Automatic Exchange Plan
provides for automatic monthly or quarterly exchanges of funds from the
shareholder's Fund account for investment in the same class of shares of other
MFS funds selected by the shareholder. Under the Automatic Exchange Plan,
exchanges of at least $50 each may be made to up to four different funds
effective on the seventh day of each month or of 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 the Fund as long as the balance of the account is
sufficient to complete the exchanges. Additional payments made to a
shareholder's account will extend the period that exchanges will continue to be
made under the Automatic Exchange Plan. However, if additional payments are
added to an account subject to the Automatic Exchange Plan shortly before an
exchange is scheduled, such funds may not be available for exchanges until the
following month; therefore, care should be used to avoid inadvertently
terminating the Automatic Exchange Plan through exhaustion of the account
balance.
No transaction fee for exchanges will be charged in connection with the
Automatic Exchange Plan. However, exchanges of shares of the Funds will be
subject to any applicable sales charge. Changes in amounts to be exchanged to
each fund, the funds to which exchanges are to be made and the timing of
exchanges (monthly or quarterly), or termination of a shareholder's
participation in the Automatic Exchange Plan will be made after instructions in
writing or by telephone (an "Exchange Change Request") are received by the
Shareholder Servicing Agent in proper form (i.e., if in writing -- signed by the
record owner(s) exactly as shares are registered; if by telephone -- proper
account identification is given by the dealer or shareholder of record). Each
Exchange Change Request (other than termination of participation in the program)
must involve at least $50. Generally, if an Exchange Change Request
7
<PAGE> 28
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, see "Exchange Privilege"
below.
INVEST BY MAIL OR WIRE: Additional investments of $50 or more may be made at any
time either by mailing a check payable to the Trust directly to the Shareholder
Servicing Agent or by wire, as described in the Trust's Prospectus under the
caption "Information Concerning Shares of the Trust -- Opening an Account: By
Wire". The shareholder's account number must be included with each investment.
REINSTATEMENT PRIVILEGE: Shareholders of the Funds who have redeemed their
shares (other than shares acquired through direct purchase or reinvested
dividends) and shareholders of the other MFS Funds who have redeemed their
shares have a one-time right to reinvest the redemption proceeds in 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 CSDC
paid. In the case of proceeds reinvested in the money market funds, the
shareholder has the right to exchange such 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 12 months of the initial purchase, such CDSC will be
imposed upon redemption. Although redemptions and repurchases of shares are
taxable events, a reinvestment within such 90-day period in the same fund may be
considered a "wash sale" and may result in the inability to recognize currently
all or a portion of any loss realized on the original redemption for federal
income tax purposes. Please see your tax advisor for further information.
EXCHANGE PRIVILEGE: Shares of either Fund which are acquired through direct
purchase for which payment has been received by the Fund (i.e., an established
account) may be exchanged at net asset value for shares of the other Fund.
However, shares of either Fund may be redeemed and shares of any of the other
MFS Funds acquired at net asset value plus their normal sales charge. Shares of
either Fund acquired by an exchange from any of the other MFS Funds or by
automatic reinvestment of Fund dividends paid after June 1, 1992, may be
exchanged for shares of any of such other MFS Funds (if available for sale).
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 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 the Exchange Request is received by the
Shareholder Servicing Agent in writing or by telephone on any business day prior
to the close of regular trading on the Exchange, the exchange will usually occur
that day if all the requirements set forth above have been complied with at that
time. No more than five exchanges may be made in any one Exchange Request 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 timer accounts (see "Purchases" in the
Prospectus). Required forms are available from the Shareholder Servicing Agent
or investment dealers.
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 should obtain and read the prospectus
of the other MFS Fund and consider the differences in objectives and policies
before making any exchange. Unitholders of the MFS Fixed Fund (a bank collective
investment fund) have the right to exchange their units (except units acquired
through direct purchases) for shares of either Fund, subject to the conditions,
if any, imposed upon such unitholders by the MFS Fixed Fund.
Any state income tax advantage for investment in shares of each portfolio of MFS
Municipal Bond Series and 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.
TAX-DEFERRED RETIREMENT PLANS -- Shares of either Fund may be purchased by all
types of tax-deferred retirement plans. MFD, a wholly-owned subsidiary of MFS,
makes available through investment dealers plans and/or custody agreements for
the following:
Individual Retirement Accounts (IRAs) (for individuals and their nonemployed
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;
403(b) Plans (deferred compensation arrangements for employees of public
school systems and certain non-profit organizations); and
Certain other qualified pension and profit-sharing plans.
The plan documents provided by MFD designate The First National Bank of Boston
as trustee or custodian (unless another trustee or custodian is designated by
the individual or group
8
<PAGE> 29
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
First National Bank of Boston or MFD, tax consequences and redemption
information, see the specific documents for that plan. Plan documents other than
those provided by MFD may be used to establish any of the plans described above.
Third party administrative services, available for some corporate plans, may
limit or delay the processing of transactions.
Investors should consult with their tax advisers before establishing any of the
tax-deferred retirement plans described above.
6. TAX STATUS
Under the Internal Revenue Code of 1986, as amended (the "Code"), each Fund is
treated as a separate entity for federal income tax purposes.
The Trust intends to qualify each Fund each year as a "regulated investment
company" under Subchapter M of the Internal Revenue Code of 1986, as amended
(the "Code") by having each of them meet 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 each Fund's portfolio assets. Because each Fund intends to distribute all of
its net investment income and net realized capital gains to shareholders of that
Fund in accordance with the timing requirements imposed by the Code, it is
expected that neither Fund will be required to pay any federal income or excise
taxes. If either Fund should fail to qualify as a "regulated investment company"
in any year, it would incur a regular corporate federal income tax upon its
taxable income and its distributions would generally be taxable as ordinary
dividend income to the shareholders.
Shareholders of each Fund normally will have to pay federal income taxes, and
any state or local taxes, on the dividends and capital gains distributions they
receive from that Fund. Dividends from income and any distributions from net
short-term capital gains (whether received in cash or reinvested in additional
shares) are taxable to the Fund's shareholders as ordinary income for federal
income tax purposes. Because the Funds expect to earn primarily interest income,
it is expected that no Fund dividends will qualify for the dividends-received
deduction for corporations. Fund dividends declared in October, November or
December and paid the following January will be taxable to shareholders as if
received on December 31 of the year in which they are declared.
Special tax considerations apply with respect to foreign investments of the MFS
Money Market Fund. Foreign exchange gains and losses realized by that Fund will
generally be treated as ordinary income and losses. Investment income received
by the MFS Money Market Fund from sources within foreign countries 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 MFS Money Market Fund to a reduced rate
of tax or an exemption from tax on such income; the Fund intends to qualify for
treaty reduced rates where available. It is impossible to determine the
effective rate of foreign tax in advance since the amount of the Fund's assets
to be invested within various countries is not known.
Dividends and certain other payments to persons who are not citizens or
residents of the United States or U.S. entities ("Non-U.S. Persons") are
generally subject to U.S. tax withholding at the rate of 30%. The Funds intend
to withhold U.S. federal income tax at the rate of 30% on taxable dividends and
other payments to Non-U.S. Persons that are subject to such withholding,
regardless of whether a lower treaty rate may be permitted. Any amounts
overwithheld may be recovered by such persons by filing a claim for refund with
the U.S. Internal Revenue Service within the time period appropriate to such
claims. Each Fund is also required in certain circumstances to apply backup
withholding of 31% on taxable dividends paid to any shareholder 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. Distributions received
from a Fund by Non-U.S. Persons also may be subject to tax under the laws of
their own jurisdiction.
As long as it qualifies as a regulated investment company under the Code, the
Fund will not be required to pay Massachusetts income or excise taxes.
Distributions of each Fund that are derived from interest on obligations of the
U.S. government and certain of its agencies and instrumentalities (but generally
not from capital gains realized upon the disposition of such obligations) may be
exempt from state and local taxes in certain states. Shareholders are urged to
consult their tax advisers regarding the possible exclusion of such portion of
their dividends for state and local income tax purposes as well as regarding the
tax consequences of an investment in the Fund.
7. DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Trust presently has four series of shares and has reserved the right to
create additional series of shares. Each share of a series represents an equal
proportionate interest in that series with each other share of that series. The
shares of each series participate equally in the earnings, dividends and assets
of the particular portfolio. Shares have no pre-emptive or conversion rights.
Shares when issued are fully paid and non-assessable. Shareholders are entitled
to one vote for each share held. Shares of each series vote separately to
approve investment advisory agreements or changes in investment objective or
restrictions, but shares of all series vote together in the election of Trustees
and the selection of accountants. Although Trustees are not elected annually by
the shareholders, shareholders have under certain circumstances the right to
remove one or more Trustees. Shareholders of each series would be entitled to
share pro rata in the net assets of their respective portfolio available
9
<PAGE> 30
for distribution to shareholders upon liquidation of the Trust or that series.
The Trust may merge or consolidate with another organization or sell all or
substantially all its assets, if approved by the vote of the holders of
two-thirds of the outstanding shares of the Trust, except that if the Trustees
recommend such merger, consolidation or sale, the approval by vote of the
holders of a majority of the Trust's outstanding shares will be sufficient. The
Trust may be terminated upon liquidation and distribution of the assets of the
Trust, if approved by the vote of the holders of two-thirds of the outstanding
shares of the Trust. If not so terminated, the Trust will continue indefinitely.
The Trust 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 or obligations of the Trust and provides for indemnification
and reimbursement of expenses out of the Trust property for any shareholder held
personally liable for the obligations of the Trust. The Declaration of Trust
also provides that the Trust shall maintain appropriate insurance (for example,
fidelity bonding and errors and omissions insurance) for the protection of the
Trust, 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 Trust itself was unable to
meet its obligations.
The Declaration of Trust further provides that obligations of the Trust are not
binding upon the Trustees individually but only upon the property of the Trust
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.
8. NET INCOME AND DISTRIBUTIONS
The Net Income of each Fund is determined each day during which the New York
Stock Exchange is open for trading. (As of the date of this Statement of
Additional Information, the Exchange is open for trading every weekday except
for the following holidays or the days on which they are observed: New Year's
Day, 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. All the Net Income,
as defined below, of each Fund so determined is declared in shares of the
respective Fund as a dividend to shareholders of record of that Fund at the time
of such determination. Shares purchased become entitled to dividends declared as
of the first day following the date of investment. Dividends are generally
distributed on the last business day of each month in the form of additional
shares of the respective Fund at the rate of one share (and fraction thereof)
for each one dollar (and fraction thereof) of dividend income attributable to
that Fund, or, at the election of the shareholder, in cash; except that if a
shareholder redeems the entire amount in his account with that Fund at any time
during the month, all dividends declared on that Fund during the month through
the date of redemption will be paid to him at the same time as the proceeds from
the redemption of his shares.
For this purpose the Net Income of either Fund (from the time of the immediately
preceding determination thereof) shall consist of (i) all interest income
accrued on the portfolio assets of that Fund, (ii) less all actual and accrued
expenses of that Fund determined in accordance with generally accepted
accounting principles, and (iii) plus or minus net realized gains and losses and
net unrealized appreciation or depreciation on the assets of that Fund. Interest
income shall include discount earned (including both original issue and market
discount) on discount paper accrued ratably to the date of maturity. Securities
are valued at amortized cost, which the Trustees have determined in good faith
constitutes fair value for the purposes of complying with the 1940 Act. This
valuation method will continue to be used until such time as the Trustees
determine that it does not constitute fair value for such purposes. The Trust
will limit the portfolio investments of each Fund to those U.S.
dollar-denominated instruments which the Board of Trustees or its delegate
determines present minimal credit risks, and which are of high quality as
determined by the 1940 Act and the rules thereunder. The Trust has also agreed
to maintain a dollar weighted average maturity for each series of 90 days or
less and to invest only in securities maturing in 13 months or less. The Board
of Trustees has also established procedures designed to stabilize the net asset
value per share of each series, as computed for the purposes of sales and
redemptions, at $1.00 per share. If the Trustees determine that a deviation from
the $1.00 per share price may exist which may result in a material dilution or
other unfair result to investors or existing shareholders, they will take such
corrective action as they regard as necessary and appropriate, which action
could include the sale of instruments prior to maturity (to realize capital
gains or losses); shortening average portfolio maturity; withholding dividends;
or using market quotations for valuation purposes.
Since the Net Income of each Fund is declared as a dividend each time the Net
Income of that Fund is determined, the net asset value per share of that Fund
(i.e., the value of the net assets of that series divided by the number of
shares of that Fund outstanding) remains at $1.00 per share immediately after
each such determination and dividend declaration. Any increase in the value of a
shareholder's investment in either Fund, representing the reinvestment of
dividend income, is reflected by an increase in the number of shares of that
Fund in his account.
It is expected that each Fund will have a positive Net Income at the time of
each determination thereof. If for any reason the Net Income of either Fund
determined at any time is a negative amount, which could occur, for instance,
upon default by an issuer of a portfolio security, that Fund would first offset
the
10
<PAGE> 31
negative amount with respect to each shareholder account in that Fund from the
dividends declared during the month with respect to each such account. If and to
the extent that such negative amount exceeds such declared dividends at the end
of the month (or during the month in the case of an account liquidated in its
entirety), that Fund could reduce the number of its outstanding shares by
treating each shareholder of that Fund as having contributed to its capital that
number of full and fractional shares of that Fund in the account of such
shareholder which represents his proportion of such excess. Each shareholder of
that Fund will be deemed to have agreed to such contribution in these
circumstances by his investment in that Fund. This procedure would permit the
net asset value per share of each Fund to be maintained at a constant $1.00 per
share.
9. INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS
Deloitte & Touche LLP are the Trust's independent certified public accountants.
The Portfolios of Investments at August 31, 1994, the Statements of Assets and
Liabilities at August 31, 1994, the Statements of Operations for the ten months
ended August 31, 1994 and for the year ended October 31, 1993, the Statements of
Changes in Net Assets for the ten months ended August 31, 1994 and for each of
the two years in the period ended October 31, 1994, the Financial Highlights for
the ten months ended August 31, 1994 and for each of the years in the ten-year
period ended October 31, 1993, the Notes to Financial Statements and the
Independent Auditors' Report, each of which is included in the Annual Report to
shareholders of the Trust, are incorporated by reference into this Statement of
Additional Information and have been so incorporated in reliance upon the report
of Deloitte & Touche LLP, independent certified public accountants, as experts
in accounting and auditing. A copy of the Annual Report accompanies this
Statement of Additional Information.
11
<PAGE> 32
APPENDIX A
DESCRIPTION OF STANDARD & POOR'S RATINGS GROUP ("S&P") AND MOODY'S INVESTORS
SERVICE, INC. ("MOODY'S") HIGHEST COMMERCIAL PAPER AND BOND RATINGS:
A-1 AND P-1 COMMERCIAL PAPER RATINGS
The rating "A-1" is the highest commercial paper rating assigned by S&P, and
issues so rated are regarded as having the greatest capacity for timely payment.
Issues in the "A" category are delineated with the numbers 1, 2 and 3 to
indicate the relative degree of safety. The A-1 designation indicates that the
degree of safety regarding timely payment is strong. Those A-1 issues determined
to possess extremely strong safety characteristics will be denoted with a plus
(+) sign designation.
The rating P-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated P-1 (or supporting institutions) have a superior ability for
repayment of senior short-term debt obligations. P-1 repayment ability will
often be evidenced by many of the following characteristics: (1) leading market
positions in well-established industries; (2) high rates of return on funds
employed; (3) conservative capitalization structure with moderate reliance on
debt and ample asset protection; (4) broad margins in earnings coverage of fixed
financial charges and high internal cash generation; (5) well-established access
to a range of financial markets and assured sources of alternate liquidity.
AAA, AA AND AAA, AA BONDS RATINGS
Debt rated AA by S&P are judged by S&P to be high-quality obligations, and
differ only in small degree from issues rated AAA. AAA is S&P's highest rating
and indicates an extremely strong capacity to pay interest and repay principal.
Bonds rated Aa by Moody's are judged by Moody's 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 Aaa securities 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 risks appear somewhat larger than in Aaa securities.
12
<PAGE> 33
EXHIBIT A
<TABLE>
<CAPTION>
RETIREMENT BENEFIT TOTAL TRUSTEE
TRUSTEE FEES ACCRUED AS ESTIMATED FEES FROM
FROM PART OF FUND CREDITED YEARS FUND AND
TRUSTEE FUND(1) EXPENSE(1) OF SERVICE(2) FUND COMPLEX(3)
- ----------------------------------------------------- ------------ ------------------ -------------- ---------------
<S> <C> <C> <C> <C>
Richard B. Bailey.................................... 2,235 501 8 226,221
Lawrence T. Perera................................... 2,295 1,783 23 96,592
William Poorvu....................................... 2,340 1,752 23 106,482
Charles W. Schmidt................................... 2,235 1,674 16 98,397
David B. Stone....................................... 2,360 996 12 104,007
Elaine R. Smith...................................... 2,235 477 27 98,397
J. Atwood Ives....................................... 2,420 495 17 106,482
Peter G. Harwood..................................... 2,360 130 5 105,812
</TABLE>
- ---------------
(1) For fiscal year ended August 31, 1994.
(2) Based on normal retirement age of 73.
(3) Information provided is provided for calendar year 1994. All Trustees served
as Trustees of 20 funds within the MFS fund complex (having aggregate net
assets at December 31, 1994, of approximately 14,727,659,069) except Mr.
Bailey, who served as Trustee of 56 funds within the MFS fund complex
(having aggregate net assets at December 31, 1994, of approximately
24,474,119,825).
ESTIMATED ANNUAL BENEFITS PAYABLE BY FUND UPON RETIREMENT(4)
<TABLE>
<CAPTION>
YEARS OF SERVICE
AVERAGE ---------------------------------------
TRUSTEE 10 OR
FEES 3 5 7 MORE
- ------ ---- ---- ---- ------
<S> <C> <C> <C> <C>
$2,000 ................................................... $300 $500 $700 $1,000
2,140 ................................................... 321 535 749 1,070
2,280 ................................................... 342 570 798 1,140
2,420 ................................................... 363 605 847 1,210
2,560 ................................................... 384 640 896 1,280
2,700 ................................................... 405 675 945 1,350
</TABLE>
- ---------------
(4) Other funds in the MFS fund complex provide similar retirement benefits to
the Trustees.
13
<PAGE> 34
EXHIBIT B
<TABLE>
<CAPTION>
RETIREMENT BENEFIT TOTAL TRUSTEE
TRUSTEE FEES ACCRUED AS ESTIMATED FEES FROM
FROM PART OF FUND CREDITED YEARS FUND AND
TRUSTEE FUND(1) EXPENSE(1) OF SERVICE(2) FUND COMPLEX(3)
- ----------------------------------------------------- ------------ ------------------ -------------- ---------------
<S> <C> <C> <C> <C>
Lawrence T. Perera................................... 252 258 23 96,592
William Poorvu....................................... 257 262 23 106,482
Charles W. Schmidt................................... 242 260 16 98,397
David B. Stone....................................... 257 114 11 104,007
Elaine R. Smith...................................... 242 47 27 98,397
J. Atwood Ives....................................... 267 49 17 106,482
Richard B. Bailey.................................... 242 49 8 226,221
Peter G. Harwood..................................... 257 14 5 105,812
</TABLE>
- ---------------
(1) For fiscal year ended August 31, 1994.
(2) Based on normal retirement age of 73.
(3) Information provided is provided for calendar year 1994. All Trustees served
as Trustees of 20 funds within the MFS fund complex (having aggregate net
assets at December 31, 1994, of approximately 14,727,659,069) except Mr.
Bailey, who served as Trustee of 56 funds within the MFS fund complex
(having aggregate net assets at December 31, 1994, of approximately
24,474,119,825.
ESTIMATED ANNUAL BENEFITS PAYABLE BY FUND UPON RETIREMENT(4)
<TABLE>
<CAPTION>
YEARS OF SERVICE
-----------------------------------
AVERAGE 10
TRUSTEE OR
FEES 3 5 7 MORE
- ---- --- --- ---- ----
<S> <C> <C> <C> <C>
$200 ........................................................ $30 $50 $ 70 $100
220 ........................................................ 33 55 77 $110
240 ........................................................ 36 60 84 $120
260 ........................................................ 39 65 91 $130
280 ........................................................ 42 70 98 $140
300 ........................................................ 45 75 105 $150
</TABLE>
- ---------------
(4) Other funds in the MFS fund complex provide similar retirement benefits to
the Trustees.
14
<PAGE> 35
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
AUDITORS
Deloitte & Touche LLP
125 Summer Street, Boston, MA 02110
MFS(R) MONEY
MARKET FUND
MFS(R) GOVERNMENT
MONEY MARKET FUND
500 BOYLSTON STREET
BOSTON, MA 02116
MCM-13 3/95 2.25M 10/22/310
<PAGE> 36
PORTFOLIO OF INVESTMENTS - August 31, 1994MFS MONEY MARKET
FUNDCommercial Paper - 36.0%
Issuer
Principal Amount
(000 Omitted)
Value
American Telephone & Telegraph Co., due 9/29/94 -11/23/94
$ 15,000
$ 14,908,033
Beneficial Corp., due 10/04/94 - 10/05/94
18,000
17,921,007
Ford Motor Credit Co., due 9/09/94 - 9/30/94
16,600
16,555,371
General Electric Co., due 9/13/94
9,800
9,784,646
Heinz (H.J.) Co., due 9/06/94 - 10/06/94
9,500
9,476,587
Hershey Foods Corp., due 10/31/94
5,600
5,555,667
Hewlett Packard Co., due 9/20/94
4,700
4,688,937
Kimberly-Clark Corp., due 9/28/94 - 9/29/94
19,000
18,931,719
Knight-Ridder, Inc., due 9/19/94
9,600
9,577,440
Motorola, Inc., due 9/09/94
6,700
6,693,374
PepsiCo, Inc., due 9/20/94
20,000
19,950,231
Philip Morris Co., due 9/07/94
7,000
6,994,808
Procter & Gamble Co., due 10/14/94
9,100
9,049,457
Raytheon Co., due 9/08/94
7,000
6,993,902
Total Commercial Paper $157,081,179
U.S. Government and Agency Obligations - 67.0%
Federal Farm Credit Bank, due 9/08/94 - 10/12/94
$ 20,100
$ 20,064,092
Federal Home Loan Bank, due 9/12/94 - 10/03/94
22,000
21,943,527
Federal Home Loan Mortgage Corp., due 9/01/94 - 11/03/94
107,750
107,297,262
Federal National Mortgage Assn., due 9/01/94 - 10/27/94
86,000
85,768,156
Student Loan Marketing Assn., due 9/02/94 - 9/23/94
20,980
20,944,042
Tennessee Valley Authority, due 9/13/94 - 10/25/94
35,895
35,771,474
Total U.S. Government and Agency Obligations $291,788,553
Total Investments, at Amortized Cost
$448,869,732
Other Assets, Less Liabilities - (3.0)%
(13,090,201)
Net Assets - 100.0%
$435,779,531
See notes to financial statements
PORTFOLIO OF INVESTMENTS - continuedMFS GOVERNMENT MONEY MARKET
FUNDU.S. Government and Agency Obligations - 97.8%
Issuer
Principal Amount
(000 Omitted)
Value
Federal Home Loan Bank, due 9/07/94 - 11/14/94
$ 9,200
$ 9,165,281
Federal Home Loan Mortgage Corp., due 9/01/94 - 11/03/94
9,400
9,372,372
Federal National Mortgage Assn., due 9/06/94 - 10/27/94
7,400
7,374,013
Federal Farm Credit Bank, due 9/08/94 - 10/07/94
3,425
3,415,234
Student Loan Marketing Assn., due 9/20/94 - 9/26/94
2,900
2,891,926
Tennessee Valley Authority, due 9/14/94 - 10/25/94
5,300
5,276,771
Total U.S. Government and Agency Obligations $ 37,495,597
Repurchase Agreement - 2.6%
Morgan (J.P.), dated 8/31/94, due 9/01/94, total tobereceived $1,000,133
(secured by U.S. Treasury Bonds,12.5s, due 8/15/14,market value $1,020,170)
$ 1,000
$ 1,000,000
Total Investments, at Amortized Cost
$ 38,495,597
Other Assets, Less Liabilities - (0.4)%
(148,600)
Net Assets - 100.0%
$ 38,346,997
See notes to financial statements
FINANCIAL STATEMENTSStatements of Assets and Liabilities
August 31, 1994
MFS Money
Market Fund
MFS Government Money
Market Fund
Assets:
Investments, at amortized cost and value
$448,869,732
$38,495,597
Cash
177,662
29,942
Receivable for Fund shares sold
18,565,857
26,122
Other assets
4,545
603
Total assets
$467,617,796
$38,552,264
Liabilities:
Distributions payable
$ 78,640
$ 6,040
Payable for Fund shares reacquired
31,513,282
125,489
Payable to affiliates -
Management fee
6,093
524
Shareholder servicing agent fee
1,877
157
Accrued expenses and other liabilities
238,373
73,057
Total liabilities
$ 31,838,265
$ 205,267
Net assets (represented by paid-in capital)
$435,779,531
$38,346,997
Shares of beneficial interest outstanding
435,779,531
38,346,997
Net asset value, offering price and redemption price pershare(net assets
shares of beneficial interest outstanding)
$1.00
$1.00
See notes to financial statements
FINANCIAL STATEMENTS - continuedStatement of Operations
MFS Money Market Fund
Ten Months Ended
August 31, 1994
Year Ended
October 31, 1993
Net investment income:
Interest
$12,630,540
$11,919,791
Expenses -
Management fee
$ 1,621,026
$ 1,807,419
Trustees' compensation
28,139
34,738
Shareholder servicing agent fee
506,238
640,099
Custodian fee
92,584
135,806
Postage
57,577
113,317
Printing
36,265
70,195
Auditing fees
37,139
50,361
Legal fees
457
21,795
Miscellaneous
250,287
188,998
Total expenses
$ 2,629,712
$ 3,062,728
Net investment income
$10,000,828
$ 8,857,063
FINANCIAL STATEMENTS - continued
Statement of Operations
MFS Government Money Market Fund
Ten Months Ended
August 31, 1994
Year Ended
October 31, 1993
Net investment income:
Interest
$1,249,456
$1,296,190
Expenses -
Management fee
$ 160,327
$ 200,112
Trustees' compensation
3,528
3,914
Shareholder servicing agent fee
50,711
62,028
Custodian fee
33,414
35,185
Printing
25,566
5,077
Auditing fees
20,864
37,586
Legal fees
5,524
11,315
Postage
2,942
7,456
Miscellaneous
52,203
39,854
Total expenses
$ 355,079
$ 402,527
Net investment income
$ 894,377
$ 893,663
See notes to financial statements
FINANCIAL STATEMENTS - continued
Statement of Changes in Net Assets
MFS Money Market Fund
Ten Months Ended
August 31, 1994
Year Ended
October 31, 1993
Year Ended
October 31, 1992
Increase (decrease) in net assets:
From operations -
Net investment income, declared asdistributions to shareholders
$ 10,000,828
$ 8,857,063
$ 16,271,959
Fund share (principal) transactions at net asset value of $1.00 pershare -
Net proceeds from sale of shares
$1,171,346,513
$479,475,355
$575,453,527
Net asset value of shares issued to shareholders in reinvestment
ofdistributions
8,997,225
8,547,220
15,673,256
Cost of shares reacquired
(1,094,880,512)
(586,530,807)
(684,247,277)
Total increase (decrease) in net assets
$ 85,463,226
<PAGE> 37
$ (98,508,232)
$ (93,120,494)
Net assets:
At beginning of period
350,316,305
448,824,537
541,945,031
At end of period$ 435,779,531
$350,316,305
$448,824,537
See notes to financial statements
FINANCIAL STATEMENTS - continuedStatement of Changes in Net Assets
MFS Government Money Market Fund
Ten Months Ended
August 31, 1994
Year Ended
October 31, 1993
Year Ended
October 31, 1992
Increase (decrease) in net assets:
From operations -
Net investment income, declared asdistributions to shareholders
$ 894,377
$ 893,663
$ 1,532,080
Fund share (principal) transactions at net asset value of $1.00 pershare -
Net proceeds from sale of shares
$63,018,558
$ 36,011,225
$45,582,216
Net asset value of shares issued to shareholders in reinvestment
ofdistributions
815,492
817,778
1,400,789
Cost of shares reacquired
(61,062,849)
(48,882,554)
(50,008,426)
Total increase (decrease) in net assets
$ 2,771,201
$ (12,053,551)
$ (3,025,421)
Net assets:
At beginning of period
35,575,796
47,629,347
50,654,768
At end of period$38,346,997
$ 35,575,796
$47,629,347
See notes to financial statements
FINANCIAL STATEMENTS - continued
Financial Highlights
MFS Money Market Fund
Year Ended October 31,
1994*
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
Per share data (for a share outstanding throughout eachperiod):
Net asset value - beginning of period
$ 1.00
$ 1.00
$ 1.00
$ 1.00
$ 1.00
$ 1.00
$ 1.00
$ 1.00
$ 1.00
$ 1.00
$ 1.00
Income from investment operations -
Net investment income
$ 0.02
$ 0.02
$ 0.03
$ 0.06
$ 0.07
$ 0.08
$ 0.07
$ 0.06
$ 0.06
$ 0.08
$ 0.10
Less distributions declared to shareholders from net investmentincome
(0.02)
(0.02)
(0.03)
(0.06)
(0.07)
(0.08)
(0.07)
(0.06)
(0.06)
(0.08)
(0.10)
Net asset value -end of period
$ 1.00
$ 1.00
$ 1.00
$ 1.00
$ 1.00
$ 1.00
$ 1.00
$ 1.00
$ 1.00
$ 1.00
$ 1.00
Total return
2.91%
2.39%
3.35%
6.07%
7.99%
8.84%
7.12%
6.06%
6.80%
8.19%
10.14%
+
Ratios (to average net assets)/Supplemental data:
Expenses
0.78%
0.83%
0.87%
0.82%
0.76%
0.83%
0.83%
0.82%
0.78%
0.73%
0.72%
+
Net investment income
2.95%
2.39%
3.36%
5.94%
7.60%
8.45%
6.72%
5.77%
6.53%
7.86%
9.74%
+
Net assets at end ofperiod (000 omitted)
$435,780
$350,316
$448,825
$541,945
$677,164
$676,382
$664,895
$716,528
$623,568
$657,000
$711,867
*For the ten months ended August 31, 1994.
+ Annualized.
See notes to financial statements
FINANCIAL STATEMENTS - continued
Financial Highlights - continued
MFS Government Money Market Fund
Year Ended October 31,
1994*
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
Per share data (for a share outstanding throughout eachperiod):
Net asset value -beginning of period
$ 1.00
$ 1.00
$ 1.00
$ 1.00
$ 1.00
$ 1.00
$ 1.00
$ 1.00
$ 1.00
$ 1.00
$ 1.00
Income from investment operations -
Net investment income
$ 0.02
$ 0.02
$ 0.03
$ 0.06
$ 0.07
$ 0.08
$ 0.06
$ 0.05
$ 0.06
$ 0.07
$ 0.09
Less distributions declaredto shareholders from netinvestment income
(0.02)
(0.02)
(0.03)
(0.06)
(0.07)
(0.08)
(0.06)
(0.05)
(0.06)
(0.07)
(0.09)
Net asset value -end of period
$ 1.00
$ 1.00
$ 1.00
$ 1.00
$ 1.00
$ 1.00
$ 1.00
$ 1.00
$ 1.00
$ 1.00
$ 1.00
Total return
2.64%
2.23%
3.27%
5.68%
7.55%
8.61%
6.47%
<PAGE> 38
5.73%
6.33%
7.63%
9.56%
+
Ratios (to average net assets)/Supplemental data:
Expenses
1.05%
0.99%
0.87%
0.83%
0.80%
0.85%
0.74%
0.59%
0.66%
0.72%
0.71%
+
Net investment income
2.64%
2.20%
3.28%
5.53%
7.34%
8.29%
6.29%
5.63%
6.07%
7.39%
9.19%
+
Net assets at end ofperiod (000 omitted)
$38,347
$35,576
$47,629
$50,655
$53,701
$51,619
$50,343
$59,875
$63,331
$45,894
$30,181
*For the ten months ended August 31, 1994.
+ Annualized.
See notes to financial statements
NOTES TO FINANCIAL STATEMENTS(1) Business and OrganizationMFS Money
Market Fund and MFS Government Money Market Fund are each aseparate,
diversified series of MFS Series Trust IV (the Trust). The Trust isorganized
as a Massachusetts business trust and is registered under theInvestment
Company Act of 1940, as amended, as an open-end managementinvestment company.
During 1994 the Funds changed their year end from October31 to August 31, and
financial statements are thus being presented for the tenmonth period ended
August 31, 1994.
(2) Significant Accounting PoliciesInvestment Valuations - Money market
instruments are valued atamortized cost, which the Trustees have determined in
good faith constitutesfair value. The Trust's use of amortized cost is subject
to the Trust'scompliance with certain conditions as specified under Rule 2a-7
of theInvestment Company Act of 1940.
Repurchase Agreements - The Trust may enter into repurchaseagreements with
institutions that the Trust's investment adviser hasdetermined are
creditworthy. Each repurchase agreement is recorded at cost.The Trust requires
that the securities purchased in a repurchase transactionbe transferred to the
custodian in a manner sufficient to enable the Trust toobtain those securities
in the event of a default under the repurchaseagreement. The Trust monitors,
on a daily basis, the value of the securitiestransferred to ensure that the
value, including accrued interest, of thesecurities under each repurchase
agreement is greater than amounts owed to theTrust under each such repurchase
agreement.
Investment Transactions and Income - Investment transactions arerecorded on
the trade date. Interest income is recorded on the accrual basis.All premium
and original issue discount are amortized or accreted for bothfinancial
statement and tax reporting purposes as required by federal incometax
regulations.
Tax Matters and Distributions - The Trust's policy is to complywith the
provisions of the Internal Revenue Code (the Code) applicable toregulated
investment companies and to distribute to shareholders all of itsnet income.
Accordingly, no provision for federal income or excise tax isprovided. The net
income of each Fund is determined once daily, as of theclose of the New York
Stock Exchange, and all of the net income so determinedis declared in shares
as a dividend to shareholders of record at the time ofsuch determination.
Distributions are made in the form of additional shares ofeach Fund or, at the
election of the shareholder, in cash, on the lastbusiness day of the month.
(3) Transactions with AffiliatesInvestment Adviser - The Funds have an
investment advisoryagreement with Massachusetts Financial Services Company
(MFS) to provideoverall investment advisory and administrative services, and
general officefacilities. The management fee, computed daily and paid monthly,
is based uponthe combined average daily net assets of the MFS Money Market
Fund and MFSGovernment Money Market Fund. The annual rates are reduced as
average dailynet assets exceed certain levels. The fee for the MFS Money
Market Fundamounted to $1,621,026 and $1,807,419, representing 0.48%
(annualized) and0.49% of average daily net assets, for the periods ended
August 31, 1994 andOctober 31, 1993, respectively. The fee for the MFS
Government Money MarketFund amounted to $160,327 and $200,112, representing
0.48% (annualized) and0.49% of average daily net assets, for the periods ended
August 31, 1994 andOctober 31, 1993, respectively.
NOTES TO FINANCIAL STATEMENTS - continuedThe Trust pays no compensation
directly to its Trustees whoare officers of the investment adviser, or to
officers of the Trust, all ofwhom receive remuneration for their services to
the Trust from MFS. Certain ofthe officers and Trustees of the Trust are
officers or directors of MFS, MFSFinancial Services, Inc. (FSI) and MFS
Service Center, Inc. (MFSC). The Trusthas an unfunded defined benefit plan for
all its independent Trustees.Included in Trustees' compensation is a net
periodic pension expense of $9,172and $10,070 for the MFS Money Market Fund
for the ten months ended August 31,1994 and the year ended October 31, 1993,
respectively. Included in Trustees'compensation is a net periodic pension
expense of $1,460 and $1,319 for theMFS Government Money Market Fund for the
ten months ended August 31, 1994 andthe year ended October 31, 1993,
respectively.
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary ofMFS, earned
$506,238 and $640,099 from the MFS Money Market Fund for the tenmonths ended
August 31, 1994 and the year ended October 31, 1993,respectively, for its
services as shareholder servicing agent. MFSC earned$50,711 and $62,028 from
the MFS Government Money Market Fund for the tenmonths ended August 31, 1994
and the year ended October 31, 1993,respectively, for its services as
shareholder servicing agent. The fee iscalculated as a percentage of the
average daily net assets of each Fund at aneffective annual rate of 0.15%.
(4) Portfolio SecuritiesPurchases and maturities and sales of money market
investments, exclusiveof securities purchased subject to repurchase
agreements, were as follows:
MFS Money
Market Fund
MFS Government Money
Market Fund
Purchases
U.S. government securities
$1,986,649,823
$282,465,434
Other
$1,282,482,279
$
--
MFS Money
Market Fund
MFS Government Money
Market Fund
Maturities and sales
U.S. government securities
$1,941,127,790
$280,872,847
Other
$1,272,661,000
$
--
(5) Shares of Beneficial InterestThe Declaration of Trust permits the
Trustees to issue an unlimitednumber of full and fractional shares of
beneficial interest (without parvalue) of each Fund.
(6) Line of CreditThe Trust entered into an agreement which enables it to
participate withother funds managed by MFS, or an affiliate of MFS, in an
unsecured line ofcredit with a bank which permits borrowings up to $300
million, collectively.Borrowings may be made to temporarily finance the
repurchase of Trust shares.Interest is charged to each fund, based on its
borrowings, at a rate equal tothe bank's base rate. In addition, a commitment
fee, based on the averagedaily unused portion of the line of credit, is
allocated among theparticipating funds at the end of each quarter. The
commitment fee allocatedto the MFS Money Market Fund was $5,646 and $4,200 for
the ten months endedAugust 31, 1994 and the year ended October 31, 1993,
respectively. Thecommitment fee allocated to the MFS Government Money Market
Fund was $556 and$493 for the ten months ended August 31, 1994 and the year
ended October 31,1993, respectively.
INDEPENDENT AUDITORS' REPORTTo the Trustees of MFS Series Trust IV and the
Shareholders of MFS Money Market Fund and
MFS Government Money Market Fund:
We have audited the accompanying statements of assets and liabilities,
including the portfolios of investments, of MFS Money Market Fund and MFS
Government Money Market Fund as of August 31, 1994, the related statements of
operations for the ten months then ended and the year ended October 31, 1993,
the statements of changes in net assets for the ten months ended August 31,
1994 and the years ended October 31, 1993 and 1992, and the financial
highlights for the ten months ended August 31, 1994 and for each of the years
in the ten-year period ended October 31, 1993. These financial statements and
financial highlights are the responsibility of the Funds' 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 August 31, 1994 by correspondence with the custodian. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of MFS Money Market
Fund and MFS Government Money Market Fund at August 31, 1994, the results of
their operations, the changes in their net assets, and their financial
highlights for the respective stated periods in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLPBoston, MassachusettsOctober 7, 1994
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.
<PAGE> 39
<TABLE>
<S> <C>
PROSPECTUS
MFS(R) MUNICIPAL March 1, 1995
BOND FUND Class A Shares of Beneficial Interest
(A member of the MFS Family of Funds(R)) Class B Shares of Beneficial Interest
- --------------------------------------------------------------------------------------------
<CAPTION>
PAGE
----
<S> <C>
1. Expense Summary..................................................................... 2
2. The Fund............................................................................ 3
3. Condensed Financial Information..................................................... 4
4. Investment Objective and Policies................................................... 5
5. Management of the Fund.............................................................. 9
6. Information Concerning Shares of the Fund........................................... 10
Purchases....................................................................... 10
Exchanges....................................................................... 16
Redemptions and Repurchases..................................................... 17
Distribution Plan............................................................... 19
Distributions................................................................... 20
Tax Status...................................................................... 20
Net Asset Value................................................................. 21
Description of Shares, Voting Rights and Liabilities............................ 21
Performance Information......................................................... 22
7. Shareholder Services................................................................ 22
Appendix A............................................................................. 25
Appendix B............................................................................. 26
</TABLE>
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 MUNICIPAL BOND FUND
500 Boylston Street, Boston, Massachusetts 02116 (617) 954-5000
The investment objective of MFS Municipal Bond Fund (the "Fund") is to provide
as high a level of current income exempt from federal income taxes as is
considered consistent with prudent investing while seeking protection of
shareholders' capital (see "Investment Objective and Policies"). The Fund is a
diversified series of MFS Series Trust IV (the "Trust"), an open-end management
investment company. The minimum initial investment generally is $1,000 per
account (see "Purchases").
The Fund's investment adviser and distributor are Massachusetts Financial
Services Company ("MFS") and MFS Fund Distributors, Inc. ("MFD"), respectively,
both of which are located at 500 Boylston Street, Boston, Massachusetts 02116.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK AND THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
This Prospectus sets forth concisely the information concerning the Trust and
the Fund that a prospective investor ought to know before investing. The Trust,
on behalf of the Fund, has filed with the Securities and Exchange Commission
(the "SEC") a Statement of Additional Information, dated March 1, 1995, which
contains more detailed information about the Trust and the Fund and is
incorporated into this Prospectus by reference. See page 24 for a further
description of the information set forth in the Statement of Additional
Information. A copy of the Statement of Additional Information may be obtained
without charge by contacting the Shareholder Servicing Agent (see back cover for
address and phone number).
INVESTORS SHOULD READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE REFERENCE.
<PAGE> 40
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).............................. 4.75% 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 OF THE FUND (AS A PERCENTAGE OF AVERAGE NET ASSETS):(2)
Management Fees.................................................... 0.41% 0.41%
Rule 12b-1 Fees.................................................... 0.00% 1.00%(3)
Other Expenses..................................................... 0.18% 0.29%
---- ----
Total Operating Expenses........................................... 0.59% 1.70%
</TABLE>
- ---------------
(1) Purchases of $1 million or more are not subject to an initial sales charge;
however, a contingent deferred sales charge (a "CDSC") of 1% will be imposed
on such purchases in the event of certain redemption transactions within 12
months following such purchases (see "Purchases" below).
(2) Percentages are based on fees incurred during the fiscal year ended August
31, 1994.
(3) The Fund has adopted a Distribution Plan for its Class B shares in
accordance with Rule 12b-1 under the Investment Company Act of 1940, as
amended (the "1940 Act"), which provides that it will pay
distribution/service fees aggregating up to 1.00% per annum of the average
daily net assets attributable to the Class B shares (see "Distribution
Plan"). After a substantial period of time, distribution expenses paid under
this Plan, together with any CDSC, may total more than the maximum sales
charge that would have been permissible if imposed entirely as an initial
sales charge.
EXAMPLE OF EXPENSES
An investor would pay the following dollar amounts of expenses on a $1,000
investment in the Fund, assuming (a) a 5% annual return and (b) redemption at
the end of each of the time periods indicated (unless otherwise noted):
<TABLE>
<CAPTION>
PERIOD CLASS A CLASS B
------ ------- ----------------
(1)
<S> <C> <C> <C>
1 year................................................ $ 53 $ 57 $ 17
3 years............................................... 66 84 54
5 years............................................... 79 112 92
10 years............................................... 118 171(2) 171(2)
</TABLE>
- ---------------
(1) Assumes no redemption.
(2) Class B shares convert to Class A shares approximately eight years after
purchase; therefore, years nine and ten reflect Class A expenses.
The purpose of the expense table above is to assist investors in
understanding the various costs and expenses that a shareholder of the Fund will
bear directly or indirectly. More complete descriptions of the following Fund
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
<PAGE> 41
2. THE FUND
MFS(R)Municipal Bond Fund (the "Fund") is a diversified series of MFS Series
Trust IV (the "Trust"), an open-end management investment company which was
organized as a business trust under the laws of The Commonwealth of
Massachusetts in 1975. The Trust presently consists of four series, each of
which represents a portfolio with separate investment policies. Shares of the
Fund are continuously sold to the public and the Fund uses the proceeds to buy
securities (primarily municipal bonds and other instruments the interest on
which is exempt from federal income tax) for its portfolio. Two classes of
shares of the Fund currently are offered to the general public. Class A shares
are offered at net asset value plus an initial sales charge (or a CDSC in the
case of certain purchases of $1 million or more). Class B shares are offered at
net asset value without an initial sales charge but subject to a CDSC and a
Distribution Plan providing for a distribution fee and a service fee. Class B
shares will convert to Class A shares approximately eight years after purchase.
The Trust's Board of Trustees provides broad supervision over the affairs of the
Fund. Massachusetts Financial Services Company, a Delaware corporation ("MFS" or
the "Adviser"), is the Fund's investment adviser. The Adviser is responsible for
the management of the Fund's assets and the officers of the Trust are
responsible for the Fund's operations. The Adviser manages the portfolio from
day to day in accordance with the Fund's investment objective and policies. The
selection of investments and the way they are managed depend on the conditions
and trends in the economy and the financial marketplaces. The Fund also offers
to buy back (redeem) its shares from its shareholders at any time at net asset
value, less any applicable CDSC.
3
<PAGE> 42
3. CONDENSED FINANCIAL INFORMATION
The following information 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 Statement of Additional Information in
reliance upon the report of Deloitte & Touche LLP, independent certified public
accountants, as experts in accounting and auditing. During 1994 the Fund changed
its fiscal year end from October 31 to August 31. The Financial Highlights for
1994 are thus being presented for the ten-month period ended August 31, 1994.
FINANCIAL HIGHLIGHTS
CLASS A AND CLASS B SHARES
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED OCTOBER 31,
AUGUST 31, --------------------------------------------------------
1994++ 1993 1992 1991 1990 1989 1988
------------ ------ ------ ------ ------ ------ ------
CLASS A
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA (FOR A SHARE OUTSTANDING
THROUGHOUT EACH PERIOD):
Net asset value -- beginning of period.............. $11.64 $10.73 $10.80 $10.11 $10.53 $10.57 $ 9.71
------ ------ ------ ------ ------ ------ ------
Income from investment operations# --
Net investment income............................. $ 0.51 $ 0.61 $ 0.66 $ 0.68 $ 0.68 $ 0.72 $ 0.73
Net realized and unrealized gain
(loss) on investments........................... (0.77) 1.14 0.09 0.69 (0.13) 0.04 0.86
------ ------ ------ ------ ------ ------ ------
Total from investment operations............ $(0.26) $ 1.75 $ 0.75 $ 1.37 $ 0.55 $ 0.76 $ 1.59
------ ------ ------ ------ ------ ------ ------
Less distributions declared to shareholders --
From net investment income........................ $(0.47) $(0.66) $(0.66) $(0.68) $(0.69) $(0.72) $(0.73)
In excess of net investment income................ (0.04) (0.03) -- -- -- -- --
From paid-in capital.............................. -- -- -- -- (0.01) -- --
From net realized gain on investments............. (0.16) (0.15) (0.16) -- (0.27) (0.08) --
In excess of net realized gain on investments..... (0.03) -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------
Total distributions declared
to shareholders........................... $(0.70) $(0.84) $(0.82) $(0.68) $(0.97) $(0.80) $(0.73)
------ ------ ------ ------ ------ ------ ------
Net asset value -- end of period.................... $10.68 $11.64 $10.73 $10.80 $10.11 $10.53 $10.57
====== ====== ====== ====== ====== ====== ======
Total return*....................................... (2.33)% 16.97% 7.35% 13.85% 5.42% 7.54% 16.95%
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA:
Expenses.......................................... 0.59%+ 0.59% 0.57% 0.59% 0.60% 0.64% 0.65%
Net investment income............................. 5.49%+ 5.63% 6.12% 6.47% 6.69% 6.87% 7.16%
PORTFOLIO TURNOVER.................................. 74% 56% 87% 98% 160% 199% 190%
NET ASSETS AT END OF PERIOD (000,000 OMITTED)....... $2,031 $2,195 $1,878 $1,715 $1,409 $1,259 $1,003
</TABLE>
- ---------------
+ Annualized.
++ For the period from November 1, 1993 to August 31, 1994.
* Total returns for Class A shares do not include the sales charge. If the
sales charge had been included, the results would have been lower.
# For periods ending after October 31, 1993, calculation based on average
shares outstanding.
4
<PAGE> 43
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, PERIOD ENDED YEAR ENDED
------------------------------------ AUGUST 31, OCTOBER 31,
1987 1986 1985 1984 1994++ 1993**
------ ------ ------ ------ ------------ -----------
CLASS A CLASS B
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT
EACH PERIOD):
Net asset value -- beginning of period................. $11.00 $10.02 $ 9.12 $ 9.16 $11.63 $ 11.68
------ ------ ------ ------ ------ -----------
Income from investment operations# --
Net investment income................................ $ 0.72 $ 0.78 $ 0.82 $ 0.78 $ 0.40 $ 0.07
Net realized and unrealized gain (loss) on
investments........................................ (0.90) 1.27 0.89 (0.03) (0.77) (0.05)
------ ------ ------ ------ ------ -----------
Total from investment operations............... $(0.18) $ 2.05 $ 1.71 $ 0.75 $(0.37) $ 0.02
------ ------ ------ ------ ------ -----------
Less distributions declared to shareholders --
From net investment income........................... $(0.72) $(0.78) $(0.81) $(0.79) $(0.40) $ (0.07)***
From net realized gain on investments................ (0.39) (0.29) -- -- (0.16) --
In excess of net realized gain on investments........ -- -- -- -- (0.03) --
------ ------ ------ ------ ------ -----------
Total distributions declared to shareholders... $(1.11) $(1.07) $(0.81) $(0.79) $(0.59) $ (0.07)
------ ------ ------ ------ ------ -----------
Net asset value -- end of period....................... $ 9.71 $11.00 $10.02 $ 9.12 $10.67 $ 11.63
====== ====== ====== ====== =========== ==========
Total return*.......................................... (1.98)% 21.79% 19.64% 8.65% (3.25)% 1.49%+
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA:
Expenses............................................. 0.61% 0.64% 0.69% 0.75% 1.72%+ 1.70%+
Net investment income................................ 6.96% 7.45% 8.50% 8.70% 4.41%+ 3.85%+
PORTFOLIO TURNOVER..................................... 218% 164% 225% 348% 74% 56%
NET ASSETS AT END OF PERIOD (000,000 OMITTED).......... $ 903 $ 844 $ 469 $ 318 $ 45 $ 10
</TABLE>
- ---------------
+ Annualized.
++ For the period from November 1, 1993 to August 31, 1994.
* Total returns for Class A shares do not include the sales charge. If the
sales charge had been included, the results would have been lower.
** For the period from the commencement of offering of Class B shares,
September 7, 1993 to October 31, 1993.
*** Includes a per share distribution in excess of net investment income of
$0.002.
# For periods ending after October 31, 1993, calculation based on average
shares outstanding.
4. INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE -- The Fund's investment objective is to provide as high a
level of current income exempt from federal income taxes as is considered
consistent with prudent investing and protection of shareholders' capital. Any
investment involves risk and there can be no assurance that the Fund will
achieve its investment objective.
INVESTMENT POLICIES -- The Fund's policy under normal conditions is to invest
substantially all (i.e., at least 80%) of the Fund's portfolio in debt
securities issued by or on behalf of states, territories and possessions of the
United States and the District of Columbia and their political subdivisions,
agencies or instrumentalities, the interest on which is exempt from federal
income tax ("Municipal Bonds" or "tax-exempt securities"). As a defensive
measure during times of adverse market conditions, up to 50% of the Fund's
portfolio may be invested in short-term investments described in paragraphs 3
and 4 below. All of the Fund's investments will be made in accordance with the
following investment policies:
The Fund's total assets will be invested in:
(1) Tax-exempt securities which are rated AAA, AA or A by Standard &
Poor's Ratings Group ("S&P") or by Fitch Investors Service, Inc.
("Fitch"), or are rated Aaa, Aa or A by Moody's Investors Service, Inc.
("Moody's");
(2) Notes of issuers having an issue of outstanding Municipal Bonds
rated AAA, AA or A by S&P or by Fitch or Aaa, Aa or A by Moody's or which
are guaranteed by the U.S. Government;
(3) Obligations issued or guaranteed by the U.S. Government or its
agencies or instrumentalities;
5
<PAGE> 44
(4) Commercial paper, obligations of banks (including certificates of
deposit, bankers' acceptances and repurchase agreements) with $1 billion
of assets, and cash;
(5) Tax-exempt securities which are not rated but which, in the
opinion of the Adviser, are of at least comparable quality to the three
highest grades of S&P, Fitch or Moody's; however, not more than 10% of
the Fund's total assets will be invested in such securities;
(6) Tax-exempt securities which are rated BBB by S&P or Fitch or are
rated Baa by Moody's (and comparable unrated securities); however, not
more than 20% of the Fund's total assets will be invested in such
securities.
Interest income from the short-term investments described in paragraphs 3 and 4
above will be taxable to shareholders as ordinary income. The Fund may purchase
Municipal Bonds the interest on which may be subject to an alternative minimum
tax (see "Tax Status"), but for purposes of this Prospectus, such interest is
nonetheless considered to be tax-exempt. For a comparison of yields on Municipal
Bonds and taxable securities, see the Taxable Equivalent Yield Table in Appendix
A to this Prospectus. For a general discussion of Municipal Bonds and
descriptions of short-term investments permitted as investments and the ratings
of S&P, Fitch and Moody's for Municipal Bonds, see Appendix B to this Prospectus
and Appendix A to the Statement of Additional Information, respectively.
Although higher quality tax-exempt securities may produce lower yields, they are
generally more marketable.
As noted above, the Fund may invest in tax-exempt 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, 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 tax-exempt securities. If
a security purchased by the Fund is subsequently downgraded to below BBB by S&P
or Fitch or Baa by Moody's or comparable standards for unrated securities, the
security will be sold only if the Adviser believes it is advantageous to do so.
The net asset value of the shares of an open-end investment company such as the
Fund, which invests primarily in fixed income tax-exempt securities, changes as
the general levels of interest rates fluctuate. When interest rates decline, the
value of the portfolio can be expected to rise. Conversely, when interest rates
rise, the value of the portfolio can be expected to decline.
From time to time, proposals have been introduced before Congress for the
purpose of restricting or eliminating the federal income tax exemption for
interest on Municipal Bonds. For the effect of current federal tax law on this
exemption, see the "Tax Status" section of this Prospectus.
ZERO COUPON BONDS: Municipal Bonds in which the Fund may invest also include
zero coupon bonds. Zero coupon bonds are debt obligations which are issued at a
significant discount from face value and do not require the periodic payment of
interest. The discount approximates the total amount of interest the bonds will
accrue and compound over the period until maturity at a rate of interest
reflecting the market rate of the security at the time of issuance. Zero coupon
bonds benefit the issuer by mitigating its need for cash to meet debt service,
but also require a higher rate of return to attract investors who are willing to
defer receipt of such cash. Such investments may experience greater volatility
in market value due to changes in interest rates than debt obligations which
make regular payments of interest. The Fund will accrue income on such
investments for tax and accounting purposes, as required, which is distributable
to shareholders and which, because no cash is received at the time of accrual,
may require the liquidation of other portfolio securities to satisfy the Fund's
distribution obligations.
REPURCHASE AGREEMENTS: The Fund may enter into repurchase agreements in order to
earn additional 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 Statement of Additional Information, the Fund has adopted
certain procedures intended to minimize any such risk.
6
<PAGE> 45
RESTRICTED SECURITIES: The Fund may also purchase securities that are not
registered under the Securities Act of 1933, as amended (the "1933 Act"),
("restricted securities") but can be offered and sold to "qualified
institutional buyers" under Rule 144A under the 1933 Act ("Rule 144A
Securities"). The Trust's Board of Trustees determines, based upon a continuing
review of the trading markets for the specific Rule 144A Security, whether a
restricted security is illiquid and thus subject to the Fund's limitation on
investing not more than 15% of its net assets in illiquid investments, or liquid
and thus not subject to such limitation. The Board of Trustees has adopted
guidelines and delegated to the Adviser the daily function of determining and
monitoring liquidity of Rule 144A Securities. The Board, however, retains
oversight and is ultimately responsible for the determinations. The Board will
carefully monitor the Fund's investments in Rule 144A Securities, focusing on
such important factors, among others, as valuation, liquidity and availability
of information. This investment practice could have the effect of increasing the
level of illiquidity 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 15% 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, the judgment of the Adviser may at times
play a greater role in valuing these securities than in the case of unrestricted
securities.
"WHEN-ISSUED" SECURITIES: Some tax-exempt securities may be purchased 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 them
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 or high
quality debt securities. For additional information concerning the use, risks
and costs of "when-issued" and "forward delivery" securities, see the Fund's
Statement of Additional Information.
INVERSE FLOATING RATE OBLIGATIONS: The Fund may invest in so-called "inverse
floating rate obligations" or "residual interest" bonds, or other obligations or
certificates structured to have similar features. Such obligations generally
have floating or variable interest rates that move in the opposite direction of
short-term interest rates and generally increase or decrease in value in
response to changes in short-term interest rates at a rate which is a multiple
(typically two) of the rate at which fixed-rate long-term tax-exempt securities
increase or decrease in response to such changes. As a result, such obligations
have the effect of providing investment leverage and may be more volatile than
fixed-rate long-term tax-exempt obligations.
OPTIONS: The Fund may write (sell) "covered" put and call options on fixed
income securities. Call options written by the Fund give the holder the right to
buy the underlying securities from the Fund at a fixed exercise price up to a
stated expiration date or, in the case of certain options, on such date. Put
options written by the Fund give the holder the right to sell the underlying
securities to the Fund during the term of the option at a fixed exercise price
up to a stated expiration date or, in the case of certain options, on such date.
Call options are "covered" by the Fund, for example, when it owns the underlying
securities, and put options are "covered" by the Fund, for example, when it has
established a segregated account of cash, short-term money market instruments or
high quality debt securities which can be liquidated promptly to satisfy any
obligation of the Fund to purchase the underlying securities. The Fund may also
write straddles (combinations of puts and calls on the same underlying
security). The writing of straddles generates additional premium income but may
present greater risk.
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. The amount of the premium will reflect, among other
things, the relationship of the exercise price to the market price and
volatility of the underlying security, the remaining term of the option, supply
and demand and interest rates. 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
7
<PAGE> 46
that it may be required to purchase the underlying security for an exercise
price higher than its then-current market value, resulting in a potential
capital loss unless the security subsequently appreciates in value.
The Fund may terminate an option that it has written prior to its expiration by
entering into a closing purchase transaction in which it purchases an option
having the same terms as the option written. It is possible, however, that
illiquidity in the options markets may make it difficult from time to time for
the Fund to close out its written option positions.
The Fund may also purchase put or call options in anticipation of changes in
interest rates which may adversely affect the value of its portfolio or the
prices of securities that the Fund wants to purchase at a later date. The
premium paid for a put or call 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 changes sufficiently, the option may expire
without value to the Fund.
In addition, the Fund may purchase warrants on fixed income securities. A
warrant on a fixed income security is a long-dated call option conveying to the
holder of the warrant the right, but not the obligation, to purchase a fixed
income security of a specific description from the issuer on a certain date or
dates (the exercise date) at a fixed exercise price.
The Fund intends to write and purchase options on securities primarily for
hedging purposes and also in an effort to increase current income. Options on
securities, including warrants, that are written or purchased by the Fund will
be traded on U.S. securities exchanges and over-the-counter.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS: The Fund may purchase and
sell futures contracts on fixed income securities or indices of such securities,
including Municipal Bond indices and any other indices of fixed income
securities which may become available for trading ("Futures Contracts"). The
Fund may also purchase and write options on such Futures Contracts ("Options on
Futures Contracts"). These instruments will be used to hedge against anticipated
future changes in interest rates which otherwise might either adversely affect
the value of the Fund's portfolio securities or adversely affect the price of
securities which the Fund intends to purchase at a later date. These instruments
may also be used for non-hedging, subject to applicable law. For example, the
Fund may sell Futures Contracts on an index of securities in order to profit
from any anticipated decline in the value of the securities comprising the
underlying index. Should interest rates move in an unexpected manner, however,
the Fund may not achieve the anticipated benefits of the hedging transactions
and may realize a loss.
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 Commodity Futures
Trading Commission (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 restriction 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 on securities or on Futures Contracts, if, as a result, more than 5% of
its total assets would be invested in such options.
Futures Contracts and Options on Futures Contracts that are entered into by the
Fund will be traded on U.S. commodities exchanges.
RISK FACTORS: Although the Fund will enter into transactions in Futures
Contracts and Options on Futures Contracts for hedging purposes, and will enter
into certain option transactions for hedging purposes, such transactions
nevertheless involve risks. For example, a lack of correlation between the
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 options for non-hedging purposes, which involves greater risk.
In particular, such transactions may result in losses for the Fund which are not
offset by gains on other portfolio positions, thereby reducing gross income.
Also, there can be no assurance that a liquid secondary market will exist for
any contract purchased or sold, and the Fund
8
<PAGE> 47
may be required to maintain a position until exercise or expiration, which could
result in a loss. The markets for such instruments may be extremely volatile
from time to time, as discussed in the Statement of Additional Information,
which could increase the risks incurred by the Fund in making such transactions.
The Statement of Additional Information contains a further description of
options, Futures Contracts and Options on Futures Contracts, and a discussion of
the risks related to transactions therein.
Transactions in options may be entered into on U.S. exchanges regulated by the
SEC and in the over-the-counter market, while Futures Contracts and Options on
Futures Contracts may be entered into on U.S. commodities exchanges regulated by
the CFTC. Over-the-counter transactions involve certain risks which may not be
present in exchange-traded transactions.
Gains recognized from options and futures transactions engaged in by the Fund
are taxable income to shareholders upon distribution.
PORTFOLIO TRADING: The Fund intends to engage in buying and selling securities,
as well as holding securities to maturity. In buying and selling portfolio
securities, the Fund seeks to take advantage of market developments, yield
disparities and variations in the creditworthiness of issuers. For a description
of the strategies which may be used by the Fund in buying and selling portfolio
securities, see the Statement of Additional Information.
The primary consideration in placing portfolio security transactions is
execution at the most favorable price. Consistent with the foregoing primary
consideration, the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. (the "NASD") and such other policies as the Trustees
may determine, the Adviser may consider sales of shares of the Fund and of the
other investment company clients of MFD, the Fund's distributor, as a factor in
the selection of broker-dealers to execute the portfolio transactions of the
Fund. 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 the Statement of Additional Information.
----------------------------------
The investment objective and policies described above may be changed without
shareholder approval.
The Statement of Additional Information 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 Statement of Additional Information may not be changed without
shareholder approval (see "Investment Restrictions" in the Statement of
Additional Information). The Fund's investment limitations, policies and rating
standards are adhered to at the time of purchase or utilization of assets; a
subsequent change in circumstances will not be considered to result in a
violation of policy.
5. MANAGEMENT OF THE FUND
INVESTMENT ADVISER -- The Adviser manages the Fund pursuant to an Investment
Advisory Agreement dated September 1, 1993 (the "Advisory Agreement"). The
Adviser provides the Fund with overall investment advisory and administrative
services, as well as general office facilities. Robert A. Dennis, a Senior Vice
President of the Adviser, has been the Fund's portfolio manager since 1984 and
has been employed by the Adviser since 1980. 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 on the basis of a formula based upon a percentage of the Fund's
average daily net assets plus a percentage of its gross income (i.e., income
other than gains from the sale of securities) in each case on an annualized
basis for the Fund's then current fiscal year. The applicable percentages are
reduced as assets and income reach the following levels:
<TABLE>
<CAPTION>
ANNUAL RATE OF MANAGEMENT FEE ANNUAL RATE OF MANAGEMENT FEE
BASED ON AVERAGE DAILY NET ASSETS BASED ON GROSS INCOME
-------------------------------------------------------- --------------------------------------------------------
<S> <C>
.220% of the first $200 million 4.12% of the first $16 million
.187% of average daily net assets in excess of $200
million 3.51% of gross income in excess of $16 million
.168% of average daily net assets in excess of $2
billion 3.16% of gross income in excess of $160 million
</TABLE>
9
<PAGE> 48
For the Fund's fiscal year ended August 31, 1994, MFS received management fees
under the Fund's investment advisory agreement of $7,253,533 equivalent on an
annualized basis to 0.41% 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"), to MFS Municipal Income Trust, MFS Government
Markets Income Trust, MFS Multimarket Income Trust, MFS Intermediate Income
Trust, MFS Charter Income Trust, MFS Special Value Trust, MFS Institutional
Trust, MFS Union Standard Trust, MFS Variable Insurance Trust, Sun Growth
Variable Annuity Fund, Inc., MFS/Sun Life Series Trust and seven variable
accounts, each of which is a registered investment company established by Sun
Life Assurance Company of Canada (U.S.) ("Sun Life of Canada (U.S.)") in
connection with the sale of Compass-2 and Compass-3 combination fixed/variable
annuity contracts. MFS and its wholly-owned subsidiary, MFS Asset Management,
Inc., provide investment advice to substantial private clients.
MFS is America's oldest mutual fund organization. MFS and its predecessor
organizations have a history of money management dating from 1924 and the
founding of the first mutual fund in the United States, Massachusetts Investors
Trust. Net assets under the management of the MFS organization were
approximately $33.4 billion on behalf of approximately 1.6 million accounts as
of January 31, 1995. As of such date, the MFS organization managed approximately
$6.4 billion of assets in municipal obligations and approximately $18.7 billion
of assets in fixed income funds and fixed income portfolios. MFS is a
wholly-owned subsidiary of Sun Life of Canada (U.S.) which in turn is a
wholly-owned subsidiary of Sun Life Assurance Company of Canada ("Sun Life").
The Directors of MFS are A. Keith Brodkin, Jeffrey L. Shames, Arnold D. Scott,
John D. McNeil and John R. Gardner. Mr. Brodkin is the Chairman, Mr. Shames is
the President and Mr. Scott is the Secretary and a Senior Executive Vice
President of MFS. Messrs. McNeil and Gardner are the Chairman and the 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 the Chairman, President
and a Trustee of the Trust. James R. Bordewick, Jr., Stephen E. Cavan, Robert A.
Dennis, Geoffrey L. Kurinsky, W. Thomas London, and James O. Yost, all of whom
are officers of MFS, are officers of the Trust.
DISTRIBUTOR -- MFD, a wholly-owned subsidiary of the Adviser, 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. ("Shareholder Servicing
Agent"), a wholly-owned subsidiary of MFS, performs transfer agency, certain
dividend disbursing agency and certain other services for the Fund.
6. INFORMATION CONCERNING SHARES OF THE FUND
PURCHASES
Shares of the Fund may be purchased at the public offering price through any
securities dealer, certain banks and other financial institutions having selling
agreements with MFD. Non-securities dealer financial institutions will receive
transaction fees that are the same as commission fees to dealers. Securities
dealers and other financial institutions may also charge their customers fees
relating to investment in the Fund.
10
<PAGE> 49
The Fund offers two classes of shares, which bear sales charges and distribution
fees in different forms and amounts:
CLASS A SHARES. Class A shares are offered at net asset value plus an initial
sales charges (or a CDSC in the case of certain purchases of $1 million or more)
as follows:
<TABLE>
<CAPTION>
INITIAL SALES CHARGE* AS
PERCENTAGE OF: DEALER ALLOWANCE
--------------------------------- AS A PERCENTAGE
NET AMOUNT OF OFFERING
AMOUNT OF PURCHASE OFFERING PRICE INVESTED PRICE
<S> <C> <C> <C>
Less than $100,000.............................. 4.75% 4.99% 4.00%
$100,000 but less than $250,000................. 4.00 4.17 3.20
$250,000 but less than $500,000................. 2.95 3.04 2.25
$500,000 but less than $1,000,000............... 2.20 2.25 1.70
$1,000,000 or more.............................. None** None** See below**
</TABLE>
- ---------------
*Because of rounding in the calculation of offering price, actual sales charges
may be more or less than those calculated using the percentages above.
**A CDSC may apply in certain circumstances. MFD pays a commission on purchases
of $1 million or more.
No sales charge is payable at the time of purchase of Class A shares on
investments of $1 million or more. However, a CDSC shall be imposed on such
investments in the event of a share redemption within 12 months following the
share purchase, at the rate of 1% on the lesser of the value of the shares
redeemed (exclusive of reinvested dividends and capital gain distributions) or
the total cost of such shares.
In determining whether a CDSC on such Class A shares is payable, and, if so, the
amount of the charge, it is assumed that shares not subject to the CDSC are the
first redeemed followed by other shares held for the longest period of time. All
investments 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. Except as noted below, the CDSC will be waived in the
case of: (i) exchanges (except that if the shares acquired by exchange were then
redeemed within 12 months of the initial purchase (other than in connection with
subsequent exchanges to other MFS Funds), the charge would not be waived); (ii)
distributions to participants from a retirement plan qualified under section
401(a) of the Internal Revenue Code of 1986, as amended (the "Code") (a
"Retirement Plan") due to: (a) a loan from the plan (repayments of loans,
however, will constitute new sales for purposes of assessing the CDSC); (b)
"financial hardship" of the participant in the plan, as that term is defined in
Treasury Regulation Section 1.401(k)-1(d)(2), as amended from time to time; or
(c) the death of a participant; (iii) distributions from a 403(b) plan or an
Individual Retirement Account ("IRA") due to death, disability or attainment of
age 59 1/2; (iv) tax-free returns of excess contributions to an IRA; (v)
distributions by other employee benefit plans to pay benefits; and (vi) certain
involuntary redemptions and redemptions in connection with certain automatic
withdrawals from a qualified retirement plan. The CDSC on Class A shares will
not be waived, however, if the Retirement Plan withdraws from the Fund except
that if the Retirement Plan has invested its assets in Class A shares of 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 Retirement Plan first invests its assets
in Class A shares of one or more of the MFS Funds, the CDSC on Class A shares
will be waived in the case of a redemption of all of the Retirement Plan's
shares (including shares of any other class) in all MFS Funds (i.e., all the
assets of the Retirement Plan invested in the MFS Funds are withdrawn), unless,
immediately prior to the redemption, the aggregate amount invested by the
Retirement Plan in Class A shares of the MFS Funds (excluding the reinvestment
of distributions) during the prior four year period equals 50% or more of the
total value of the Retirement Plan's assets in the MFS Funds, in which case the
CDSC will not be waived. The CDSC on Class A shares will be waived upon
redemption by a Retirement Plan where the redemption proceeds are used to pay
expenses of the Retirement Plan or certain expenses of participants under the
Retirement Plan (e.g., participant account fees), provided that the Retirement
Plan's sponsor subscribes to the MFS Fundamental 401(k) Plansm or another
similar recordkeeping system made available by the Shareholder Servicing Agent.
The CDSC on Class A shares will be waived upon the transfer of registration from
shares held by a Retirement
11
<PAGE> 50
Plan through a single account maintained by the Shareholder Servicing Agent to
multiple Class A share accounts maintained by the Shareholder Servicing Agent on
behalf of individual participants in the Retirement Plan, provided that the
Retirement Plan's sponsor subscribes to the MFS Fundamental 401(k) Plansm or
another similar recordkeeping system made available by the Shareholder Servicing
Agent. Any applicable CDSC will be deferred upon an exchange of Class A shares
of the Fund for units of participation of the MFS Fixed Fund (a bank collective
investment fund) (the "Units"), and the CDSC will be deducted from the
redemption proceeds when such Units are subsequently redeemed (assuming the CDSC
is then payable). No CDSC will be assessed upon an exchange of Units for Class A
shares of the Fund. For purposes of calculating the CDSC payable upon redemption
of Class A shares of the Fund or Units acquired pursuant to one or more
exchanges, the period during which the Units are held will be aggregated with
the period during which the Class A shares are held. MFD shall receive all CDSCs
which it intends to apply for the benefit of the Fund.
MFD allows discounts to dealers (which are alike for all dealers) from the
applicable public offering price, as shown in the above table. In the case of
the maximum sales charge, the dealer retains 4% and MFD retains approximately
3/4 of 1% of the public offering price. The sales charge may vary depending on
the number of shares of the Fund as well as certain MFS Funds and other funds
owned or being purchased, the existence of an agreement to purchase additional
shares during a 13-month period (or a 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 Purchases privileges by which the
sales charge may be reduced is set forth in the Statement of Additional
Information. In addition, MFD will pay a commission to dealers who initiate and
are responsible for purchases of $1 million or more as follows: 1.00% on sales
up to $5 million, plus 0.25% on the amount in excess of $5 million. Purchases of
$1 million or more for each shareholder account will be aggregated over a
12-month period (commencing from the date of the first such purchase) for
purposes of determining the level of commissions to be paid during that period
with respect to such account.
Class A shares of the Fund may be sold at their net asset value to the officers
of the Trust, to any of the subsidiary companies of Sun Life, to eligible
Directors, officers, employees (including retired employees) and agents of MFS,
Sun Life or any of their subsidiary companies, to any trust, pension,
profit-sharing or any other benefit plan for such persons, to trustees and
retired trustees of any investment company for which MFD serves as distributor
or principal underwriter, and to certain family members of such individuals and
their spouses, provided the shares will not be resold except to the Fund. Class
A shares of the Fund may be sold at net asset value to any employee, partner,
officer or trustee of any sub-adviser to any MFS Fund and to certain family
members of such individuals and their spouses, or to any trust, pension,
profit-sharing or other retirement plan for the sole benefit of such employee or
representative, provided such shares will not be resold except to the Fund.
Class A shares of the Fund may also be sold at their net asset value to any
employee or registered representative of any dealer or other financial
institution which has a sales agreement with MFD or its affiliates, to certain
family members of such employees or representatives and their spouses, or to any
trust, pension, profit-sharing or other retirement plan for the sole benefit of
such employee or representative, as well as to clients of MFS Asset Management,
Inc. Class A shares may be sold at net asset value, subject to appropriate
documentation, through a dealer where the amount invested represents redemption
proceeds from a registered open-end management investment company not
distributed or managed by MFD or its affiliates if: (i) the redeemed shares were
subject to an initial sales charge or a deferred sales charge (whether or not
actually imposed); (ii) such redemption has occurred no more than 90 days prior
to the purchase of Class A shares of the Fund; and (iii) the Fund, MFD or its
affiliates have not agreed with such company or its affiliates, formally or
informally, to sell Class A shares at net asset value or provide any other
incentive with respect to such redemption and sale. In addition, Class A shares
of the Fund may be sold at net asset value in connection with the acquisition or
liquidation of the assets of other investment companies or personal holding
companies. Insurance company separate accounts may also purchase Class A shares
of the Fund at their net asset value. Class A shares of the Fund may be
purchased at net asset value by retirement plans whose third party
administrators have entered into an administrative services agreement with MFD
or one or more of its affiliates to perform certain administrative services,
subject to certain operational requirements specified from time to time by MFD
or one or more of its affiliates. Class A shares of the Fund may also be sold at
net asset value through the automatic investment of Class A and Class B periodic
distributions which constitute required
12
<PAGE> 51
withdrawals from qualified retirement plans. Class A shares of the Fund may be
purchased at net asset value through certain broker-dealers and other financial
institutions which have entered into an agreement with MFD which includes a
requirement that such shares be sold for the benefit of clients participating in
a "wrap account" or a similar program under which such clients pay a fee to such
broker-dealer or other financial institution.
Class A shares of the Fund may be purchased at net asset value by certain
retirement plans subject to the Employee Retirement Income Security Act of 1974,
as amended, subject to the following:
(i) the sponsoring organization must demonstrate to the satisfaction of MFD
that either (a) the employer has at least 25 employees or (b) the aggregate
purchases by the retirement plan of Class A shares of the MFS Funds will be
in an amount of at least $250,000 within a reasonable period of time, as
determined by MFD in its sole discretion; and
(ii) a CDSC of 1% will be imposed on such purchases in the event of certain
redemption transactions within 12 months following such purchases.
Dealers who initiate and are responsible for purchases of Class A shares of the
Fund in this manner will be paid a commission by MFD, as follows: 1.00% on sales
up to $5 million, plus 0.25% on the amount in excess of $5 million; provided,
however, that MFD may pay a commission, on sales in excess of $5 million to
certain retirement plans, of 1.00% to certain dealers which, at MFD's
invitation, enter into an agreement with MFD in which the dealer agrees to
return any commission paid to it on the sale (or on a pro rata portion thereof)
if the shareholder redeems his or her shares within a period of time after
purchase as specified by MFD. Purchases of $1 million or more for each
shareholder account will be aggregated over a 12-month period (commencing from
the date of the first such purchase) for purposes of determining the level of
commissions to be paid during that period with respect to such account.
Furthermore, Class A shares of the Fund may be sold at net asset value through
the automatic reinvestment of distributions of dividends and capital gains of
other MFS Funds pursuant to the Distribution Investment Program (see
"Shareholder Services" in the Statement of Additional Information).
CLASS B SHARES: Class B shares are offered at net asset value without an initial
sales charge but subject to a CDSC as follows:
<TABLE>
<CAPTION>
YEAR OF CONTINGENT
REDEMPTION DEFERRED SALES
AFTER PURCHASE CHARGE
-------------- --------------
<S> <C>
First.............................................................. 5%*
Second............................................................. 4%
Third.............................................................. 3%
Fourth............................................................. 3%
Fifth.............................................................. 2%
Sixth.............................................................. 1%
Seventh and following.............................................. 0%
</TABLE>
- ---------------
*Class B shares purchased on and after September 1, 1993, will be subject to a
CDSC of 4% in the event of a redemption within the first two years after
purchase.
13
<PAGE> 52
For Class B shares purchased prior to January 1, 1993, the Fund imposes a CDSC
as a percentage of redemption proceeds as follows:
<TABLE>
<CAPTION>
YEAR OF CONTINGENT
REDEMPTION DEFERRED SALES
AFTER PURCHASE CHARGE
-------------- --------------
<S> <C>
First................................................................ 6%
Second............................................................... 5%
Third................................................................ 4%
Fourth............................................................... 3%
Fifth................................................................ 2%
Sixth................................................................ 1%
Seventh and following................................................ 0%
</TABLE>
No CDSC is paid upon an exchange of 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. See "Redemptions and
Repurchases -- Contingent Deferred Sales Charge" for further discussion of the
CDSC.
The CDSC on Class B shares will be waived upon the death or disability (as
defined in section 72(m)(7) of the Code) of any investor, provided the account
is registered (i) in the case of a deceased individual, solely in the deceased
individual's name, (ii) in the case of a disabled individual, solely or jointly
in the disabled individual's name or (iii) in the name of a living trust for the
benefit of the deceased or disabled individual. The CDSC on Class B shares will
also be waived in the case of redemptions of shares of the Fund pursuant to a
systematic withdrawal plan. In addition, the CDSC on Class B shares will be
waived in the case of distributions from an IRA, SAR-SEP or any other retirement
plan qualified under Section 401(a) or 403(b) of the Code due to death or
disability, or in the case of required minimum distributions from any such
retirement plan due to attainment of age 70 1/2. The CDSC on Class B shares will
be waived in the case of distributions from a retirement plan qualified under
Section 401(a) of the Code due to (i) returns of excess contribution to the
plan, (ii) retirement of a participant in the plan, (iii) a loan from the plan
(repayments of loans, however, will constitute new sales for purposes of
assessing the CDSC), (iv) "financial hardship" of the participant in the plan,
as that term is defined in Treasury Regulation Section 1.401(k)-1(d)(2), as
amended from time to time, and (v) termination of employment of the participant
in the plan (excluding, however, a partial or other termination of the plan).
The CDSC on Class B shares will be waived in the case of distributions from a
SAR-SEP due to (i) returns of excess contribution to the plan, (ii) retirements
of a participant in the plan and (iii) termination of employment of the
participant in the plan (excluding, however, a partial or other termination of
the plan). The CDSC on Class B shares will also be waived upon redemption by (i)
officers of the Fund, (ii) any of the subsidiary companies of Sun Life, (iii)
eligible Directors, officers, employees (including retired and former employees)
and agents of MFS, Sun Life or any of their subsidiary companies, (iv) any
trust, pension, profit-sharing or any other benefit plan for such persons, (v)
any trustees and retired trustees of any investment company for which MFD serves
as distributor or principal underwriter, and (vi) certain family members of such
individuals and their spouses, provided in each case that the shares will not be
resold except to the Fund. The CDSC on Class B shares will also be waived in the
case of redemptions by any employee or registered representative of any dealer
or other financial institution which has a sales agreement with MFD, by certain
family members of such employee or representative and their spouses, by any
trust, pension, profit-sharing or other retirement plan for the sole benefit of
such employee or representative and by clients of MFS Asset Management, Inc. A
retirement plan qualified under Section 401(a) of the Code (a "Retirement Plan")
that has invested its assets in Class B shares of 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 the Retirement Plan first invests its assets in Class B shares of one
or more of the MFS Funds will have the CDSC on Class B shares waived in the case
of a redemption of all the Retirement Plan's shares (including shares of any
other class) in all MFS Funds (i.e., all the assets of the Retirement Plan
invested in the MFS Funds are withdrawn), except that if, immediately prior to
the redemption, the aggregate amount invested by the Retirement Plan in Class B
14
<PAGE> 53
shares of the MFS Funds (excluding the reinvestment of distributions) during the
prior four year period equals 50% or more of the total value of the Retirement
Plan's assets in the MFS Funds, then the CDSC will not be waived. The CDSC on
Class B shares will be waived upon redemption by a Retirement Plan where the
redemption proceeds are used to pay expenses of the Retirement Plan or certain
expenses of participants under the Retirement Plan (e.g., participant account
fees), provided that the Retirement Plan's sponsor subscribes to the MFS
Fundamental 401(k) Plansm or another similar recordkeeping system made available
by the Shareholder Servicing Agent. The CDSC on Class B shares will be waived
upon the transfer of registration from shares held by a Retirement Plan through
a single account maintained by the Shareholder Servicing Agent to multiple Class
B share accounts provided that the Retirement Plan's sponsor subscribes to the
MFS Fundamental 401(k) Plansm or another similar recordkeeping system made
available by the Shareholder Servicing Agent. The CDSC on Class B shares may
also be waived in connection with the acquisition or liquidation of the assets
of other investment companies or personal holding companies.
CONVERSION OF CLASS B SHARES: Class B shares of the Fund that remain outstanding
for approximately eight years will convert to Class A shares of the Fund. Shares
purchased through the reinvestment of distributions paid in respect of Class B
shares will be treated as Class B shares for purposes of the payment of the
distribution and service fees under the Distribution Plan applicable to Class B
shares. 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 bear to the shareholder's total Class B shares
not acquired through such 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 that event, Class B shares would continue to be subject to higher
expenses than Class A shares for an indefinite period.
GENERAL: 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 participation in the Automatic Exchange Plan are subject to a
$50 minimum on initial and additional investments per account. 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.
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.
Although all MFS Funds are generally available as an investment choice for
tax-deferred retirement programs such as an IRA, municipal bond funds, such as
the Fund, may not be suitable for inclusion in such programs due to their
tax-exempt nature. The minimum initial investments for IRAs is $250 and the
minimum additional investment is $50 per account. A shareholder should consult
his or her financial or tax adviser regarding any such investment.
A shareholder whose shares are held in the name of, or controlled by, an
investment dealer may not receive many of the privileges and services from the
Fund (such as Right to Accumulation, Letter of Intent and certain recordkeeping
services) that the Fund ordinarily provides.
Purchases and exchanges should be made for investment purposes only. The Fund
and MFD each reserve the right to reject any specific purchase order or to
restrict purchases by a particular purchaser (or group of related purchasers).
The Fund or MFD may reject or restrict any purchases by a particular purchaser
or group, for example, when such purchase is contrary to the best interests of
the Fund's other shareholders or otherwise would disrupt the management of the
Fund.
15
<PAGE> 54
MFD may enter into an agreement with shareholders who intend to make exchanges
among certain classes of certain MFS Funds (as determined by MFD) which follow a
timing pattern, and with individuals or entities acting on such shareholders'
behalf (collectively, "market timers"), setting forth the terms, procedures and
restrictions with respect to such exchanges. In the absence of such an
agreement, it is the policy of the Fund and MFD to reject or restrict purchases
by market timers if (i) more than two exchange purchases are effected in a timed
account in the same calendar quarter or (ii) a purchase would result in shares
being held in timed accounts by market timers representing more than one percent
of the Fund's net assets or specified dollar amounts in the case of certain MFS
Funds which may include the Fund and which may change from time to time. The
Fund and MFD each reserve the right to request market timers to redeem their
shares at net asset value, less any applicable CDSC, if either of these
restrictions is violated.
Securities dealers and other financial institutions may receive different
compensation with respect to sales of Class A and Class B shares. In some
instances, promotional incentives to dealers may be offered only to certain
dealers who have sold or may sell significant amounts of Fund shares. 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 dealers 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. From time to time MFD, at its expense, may also
provide additional commissions, compensation or promotional incentives
("concessions") to dealers which sell shares of the Fund. The staff of the SEC
has indicated that dealers who receive more than 90% of the sales charge may be
considered underwriters. 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 and
members of their families or other invited guests to various locations 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.
In some instances, these concessions may be offered to dealers or only to
certain dealers who have sold or may sell, during specified periods, certain
minimum amounts of shares of the Fund. 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 the laws of any state or any
self-regulatory agency, such as the NASD.
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. 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.
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 (if available for sale) at net asset value. Shares of one class
may not be exchanged for shares of any other class. 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 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
16
<PAGE> 55
Stock Exchange (the "Exchange"), the exchange usually will occur on that day if
all of the requirements set forth above have been complied with at that time. 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 investment dealers or the
Shareholder Servicing Agent. A shareholder should read the prospectus of the
other MFS Fund and consider the differences in objectives and policies before
making any exchange. For federal and (generally) state income tax purposes, an
exchange is treated as a sale of the shares exchanged and, therefore, an
exchange could result in a gain or loss to the shareholder making the exchange.
Exchanges by telephone are automatically available to most non-retirement plan
accounts and certain retirement plan accounts. For further information regarding
exchanges by telephone see "Redemptions By Telephone." The exchange privilege
(or any aspect of it) may be changed or discontinued and is subject to certain
limitations, including certain restrictions on purchases by market timers.
Special procedures, privileges and restrictions with respect to exchanges may
apply to market timers who enter into an agreement with MFD, as set forth in
such agreement (see "Purchases").
REDEMPTIONS AND REPURCHASES
A shareholder may withdraw all or any portion of the amount in his account on
any date on which the Fund is open for business by redeeming shares at their net
asset value or by selling such shares to the Fund through a dealer (a
repurchase). Since 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 (except, in certain cases,
redemptions of Class A shares made by check, as provided below) or repurchase
will normally be available within seven days, except that 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 15
days from the purchase date in an effort to assure that such check has cleared.
Payment of redemption proceeds may be delayed for up to seven days from the
redemption date if the Fund determines that such a delay would be in the best
interest of all its shareholders.
A. REDEMPTION BY MAIL -- Each shareholder has the right to 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 a letter of instruction, together with his share
certificates (if any were issued), all in "good order" for transfer. "Good
order" generally means that a 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" may 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 by the Shareholder Servicing Agent in "good order," 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 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 the Exchange
is restricted, or, to the extent otherwise permitted by the 1940 Act, if an
emergency exists.
B. REDEMPTION BY TELEPHONE -- Each shareholder may redeem an amount from his
account by telephoning 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 commercial 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 described above and the amount of any income tax required
to be withheld, are mailed by check to the designated account, without charge.
As a special service, investors may arrange to have proceeds in excess of $1,000
wired in federal funds to the designated account. If a telephone redemption
request is received by the Shareholder Servicing Agent by the close of regular
trading on the Exchange on any
17
<PAGE> 56
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.
C. REPURCHASE THROUGH A DEALER -- If a shareholder desires to sell his shares
at their net asset value through his securities 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 ON THE SAME
DAY BEFORE MFD CLOSES FOR BUSINESS, THE SHAREHOLDER WILL RECEIVE THE NET ASSET
VALUE CALCULATED ON THAT DAY.
D. REDEMPTION BY CHECK -- Class A shares may be redeemed by check. A
shareholder owning Class A shares of the Fund may elect to have a special
account with State Street Bank and Trust Company (the "Bank") for the purpose of
redeeming Class A shares from his or her account by check. The Bank will provide
each Class A shareholder, upon request, with forms of checks drawn on the Bank.
Only shareholders having accounts in which no share certificates have been
issued will be permitted to redeem shares by check. Checks may be made payable
in any amount not less than $500. Shareholders wishing to avail themselves of
this redemption by check privilege should so request on their Account
Application, must execute signature cards (for additional information, see the
Account Application) with signature guaranteed in the manner set forth under the
caption "Signature Guarantee", and must return any Class A share certificates
issued to them. Additional documentation will be required from corporations,
partnerships, fiduciaries or other such institutional investors. All checks must
be signed by the shareholder(s) of record exactly as the account is registered
before the Bank will honor them. The shareholders of joint accounts may
authorize each shareholder to redeem by check. The check may not draw on monthly
dividends which have been declared but not distributed. SHAREHOLDERS WHO
PURCHASE CLASS A SHARES BY CHECK (INCLUDING CERTIFIED CHECKS OR CASHIER'S
CHECKS) MAY WRITE CHECKS AGAINST THOSE SHARES ONLY AFTER THEY HAVE BEEN ON THE
FUND'S BOOKS FOR 15 DAYS. WHEN SUCH A CHECK IS PRESENTED TO THE BANK FOR
PAYMENT, A SUFFICIENT NUMBER OF FULL AND FRACTIONAL SHARES WILL BE REDEEMED TO
COVER THE AMOUNT OF THE CHECK, ANY APPLICABLE CDSC AND THE AMOUNT OF ANY INCOME
TAX REQUIRED TO BE WITHHELD. IF THE AMOUNT OF THE CHECK PLUS ANY APPLICABLE CDSC
AND THE AMOUNT OF ANY INCOME TAX REQUIRED TO BE WITHHELD IS GREATER THAN THE
VALUE OF THE CLASS A SHARES HELD IN THE SHAREHOLDER'S ACCOUNT, THE CHECK WILL BE
RETURNED UNPAID, AND THE SHAREHOLDER MAY BE SUBJECT TO EXTRA CHARGES.
SHAREHOLDERS ARE ADVISED AGAINST REDEEMING ALL OR MOST OF THEIR ACCOUNT BY CHECK
BECAUSE WHEN THE CHECK IS WRITTEN, THE SHAREHOLDER WILL NOT KNOW THE EXACT TOTAL
VALUE OF THE ACCOUNT ON THE DAY THE CHECK CLEARS. There is presently no charge
to the shareholder for the maintenance of this special account or for the
clearance of any checks, but the Fund reserves the right to impose such charges
or to modify or terminate the redemption by check privilege at any time. If a
shareholder's Class A shares are subject to a CDSC (due to a purchase of $1
million or more), the shareholder should ensure that there are sufficient funds
in the account to cover the check and the CDSC.
SIGNATURE GUARANTEE: In order to protect shareholders against fraud to the
greatest extent possible, 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.
GENERAL: 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 Statement of Additional
Information regarding this privilege.
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<PAGE> 57
Subject to the Fund's compliance with applicable regulations, the Fund has
reserved the right to pay the redemption or repurchase price of shares of the
Fund, either totally or partially, by a distribution in kind of portfolio
securities (instead of cash). The securities so distributed 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 transaction, tax or other charges when converting the
securities to cash.
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 (which
will be promptly paid to the shareholder) if at any time the total investment in
such account drops below $500 because of redemptions, except in the case of
accounts established for monthly automatic investments and certain payroll
savings programs and Automatic Exchange Plan accounts for which there is a lower
minimum investment requirement. See "Purchases". 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. No CDSC will be imposed with respect to such involuntary redemptions.
CONTINGENT DEFERRED SALES CHARGE. Investments ("Direct Purchases") in Class A
and B shares will be subject to a CDSC for a period of 12 months (in the case of
purchases of $1 million or more of Class A shares) or six years (in the case of
purchases of Class B shares). Purchases of Class A shares made during a calendar
month, regardless of when during the month the investment occurred, will age one
month on the last day of the month and each subsequent month. Class B shares
purchased on or after January 1, 1993 will be aggregated on a calendar month
basis -- all transactions made during a calendar month, regardless of when
during the month they have occurred, will age one year at the close of business
on the last day of such month in the following calendar year and each subsequent
year. For Class B shares of the Fund purchased prior to January 1, 1993,
transactions will be aggregated on a calendar year basis -- all transactions
made during a calendar year, regardless of when during the year they have
occurred, will age one year at the close of business on December 31 of that year
and each subsequent year. At the time of a redemption, the amount by which the
value of a shareholder's account 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) 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 shares 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 that, with respect to transfers of registration to an IRA
rollover account, the CDSC will be waived if the shares being reregistered would
have been eligible for a CDSC waiver had they been redeemed.
DISTRIBUTION PLAN
The Trustees have adopted a distribution plan relating solely to Class B shares
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
plan would benefit the Fund and the holders of Class B shares.
The Class B Distribution Plan provides that the Fund will pay MFD a daily
distribution fee equal on an annual basis to 0.75% of the Fund's average daily
net assets attributable to Class B shares and will pay MFD a service fee of up
to 0.25% of the Fund's average daily net assets attributable to Class B shares
(which MFD will in turn pay to securities dealers which enter into a sales
agreement with MFD at a rate of up to 0.25% of the Fund's average daily net
assets attributable to Class B shares owned by investors for whom that
securities dealer is the holder or dealer of record). This service fee is
intended to be additional
19
<PAGE> 58
consideration for all personal services and/or account maintenance services
rendered by the dealer with respect to Class B shares. Fees payable under the
Class B Distribution Plan are charged to, and therefore reduce, income allocated
to Class B shares. The Class B Distribution Plan also provides that MFD will
receive all CDSCs attributable to Class B shares (see "Redemptions and
Repurchases" above), which do not reduce the distribution fee. 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 at a rate equal to 0.25% of the purchase price of such shares and,
as compensation therefor, MFD may retain the service fee paid by the Fund with
respect to such shares for the first year after purchase. Therefore, the total
amount paid to a dealer upon the sale of shares is 4.00% of the purchase price
of the shares (commission rate of 3.75% plus service fee equal to 0.25% of the
purchase price). Dealers will become eligible for additional service fees with
respect to such shares commencing in the thirteenth month following the
purchase. Dealers may from time to time be required to meet certain criteria in
order to receive service fees. Service fee payments after the first year are
currently suspended. This suspension may be rescinded at any time without notice
to shareholders. MFD or its affiliates are entitled to retain all service fees
payable under the Class B 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. The purpose of the
payments to MFD under the Class B Rule Distribution Plan is to compensate MFD
for its distribution services to the Fund. Since MFD's compensation is not
directly tied to its expenses, the amount of compensation received by MFD during
any year may be more or less than its actual expenses. For this reason, this
type of distribution fee arrangement is characterized by the staff of the SEC as
being of the "compensation" variety. However, the Fund is not liable for any
expenses incurred by MFD in excess of the amount of compensation it receives.
The expenses incurred by MFD, including commissions to dealers, are likely to be
greater than the distribution fees for the next several years, but thereafter
such expenses may be less than the amount of the distribution fees. Certain
banks and other financial institutions that have agency agreements with MFD will
receive agency transaction and service fees that are the same as commissions and
service fees to dealers.
DISTRIBUTIONS
The Fund intends to declare daily and pay to its shareholders substantially all
of its net investment income as dividends on a monthly basis. Dividends are
generally distributed on the first business day of the following month. In
addition, the Fund may make one or more distributions during the calendar year
to its shareholders from any long-term capital gains and may also make one or
more distributions 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 with respect
to which a distribution is made (see "Tax Status" and "Shareholder Services --
Distribution Options" below). Distributions paid by the Fund with respect to
Class A shares will generally be greater than those paid with respect to Class B
shares because expenses attributable to Class B shares will generally be higher.
TAX STATUS
The Fund is treated as an entity separate from the other series of the Trust for
federal income tax purposes. 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 Code of 1986 as
amended, (the "Code") and to make distributions to its shareholders in
accordance with the timing requirements imposed by the Code. It is expected that
the Fund will not be required to pay entity level federal income or excise
taxes.
The Fund expects that the dividends paid to shareholders from interest on
Municipal Obligations will be exempt from federal income tax, because it intends
to satisfy certain requirements of the Code. One such requirement is that at the
close of each quarter of its taxable year, at least 50% of the value of the
Fund's total assets consists of obligations whose interest is exempt from
federal income tax. Certain distributions of exempt-interest dividends may also
be a tax preference item for purposes of the federal alternative minimum tax.
Distributions of income from capital gains, from investments in taxable
securities, and from certain other transactions (including options and future
transactions) will be taxable to shareholders, whether distributed in cash or
additional shares. Also, Fund distributions may be subject to state and local
income taxes, depending on the nature of the
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<PAGE> 59
distribution and the residence of the shareholder. Residents of certain states
may be subject to an intangibles tax or a personal property tax on all or a
portion of the value of their shares. Investors should consult their tax
advisers in this regard.
Interest on indebtedness incurred by shareholders to purchase or carry shares of
the Fund will not be deductible for federal income tax purposes. Exempt interest
dividends are taken into account in calculating the amount of social security
and railroad retirement benefits that may be subject to federal income tax. All
exempt interest dividends may increase a corporate shareholder's alternative
minimum tax liability. Entities or persons who are "substantial users" (or
persons related to "substantial users") of facilities financed by certain
private activity bonds should consult their tax advisers before purchasing
shares of the Fund.
A statement setting forth the federal income tax status of all dividends and
distributions for each calendar year, including the portion taxable if any 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,) the portion exempt from federal income taxes as
"exempt-interest dividends"; the portion, if any, that is a tax preference item
under the federal alternative minimum tax; and the amount, if any, of federal
income tax withheld will be sent to each shareholder promptly after the end of
such calendar year.
Fund distributions will reduce the Fund's net asset value per share.
Shareholders who buy shares shortly before the Fund makes a distribution of net
capital gains or net short-term capital gains 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 a rate of 30% on taxable
dividends and certain 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 law or
treaty. The Fund is also required in certain circumstances to apply backup
withholding of 31% on taxable dividends and redemption proceeds paid to any
shareholder (including a shareholder who is neither a citizen nor a resident of
the U.S.) who does not furnish to the Fund certain information and
certifications or who is otherwise subject to backup withholding. However,
backup withholding will not be applied to payments which have had 30%
withholding taken. Prospective shareholders should read the Account Application
for information regarding backup withholding of federal income tax and should
consult their own tax advisers as to the tax consequences 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
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 Fund's assets attributable to the class and dividing the difference by
the number of shares of the class outstanding. Assets in the Fund's portfolio
are valued on the basis of valuations furnished by a pricing service or at their
fair value as determined by the Board of Trustees, as described in the Statement
of Additional Information. The net asset value 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, one of four series of the Trust, has two classes of shares, entitled
Class A and Class B Shares of Beneficial Interest (without par value). The Trust
has reserved the right to create and issue additional classes and series of
shares, in which case each class of shares of a series would participate equally
in the earnings, dividends and assets of the particular class of shares of that
particular series. Shareholders are entitled to one vote for each share held and
shares of each series would be entitled to vote separately to approve investment
advisory agreements or changes in investment restrictions, but shares of all
series would be entitled to vote together in the election of Trustees and
selection of accountants. Additionally, each class of shares of a series will
vote separately on any material increases in the fees under its Distribution
Plan or on any other matter that affects solely that
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<PAGE> 60
class of shares, but will otherwise vote together with all other classes of
shares of the series on all other matters. The Trust does not intend to hold
annual shareholders meetings. The 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 Statement of Additional Information).
Each share of a class of the Fund represents an equal proportionate interest in
the Fund with each other class share, subject to the liabilities of that
particular class. Shares have no pre-emptive or conversion rights (except as set
forth above in "Purchases -- Conversions 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 Trust 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 Trust itself was unable to meet its obligations.
PERFORMANCE INFORMATION
From time to time, the Fund will provide yield, current distribution rate,
tax-equivalent yield and total rate of return quotations for each class of
shares and may also quote fund rankings in the relevant fund category from
various sources, such as the Lipper Analytical Services, Inc. and Wiesenberger
Investment Companies Service. Yield and tax-equivalent yield quotations are
based on the annualized net investment income per share of a class of the Fund
over a 30-day period stated as a percent of the maximum public offering price on
the last day of that period. Yield calculations for Class B shares assume no
CDSC is paid. The current distribution rate for each class is generally based
upon the total amount of dividends per share paid by the Fund to shareholders of
that class during the past twelve months and is computed by dividing the amount
of such dividends by the maximum public offering price of that class at the end
of such period. Current distribution rate calculations for Class B shares assume
no CDSC is paid. The current distribution rate differs from the yield
calculation because it may include distributions to shareholders from sources
other than dividends and interest, such as premium income from option writing,
short-term capital gains, and return of invested capital, and is calculated over
a different period of time. Total rate of return quotations reflect the average
annual percentage change over stated periods in the value of an investment in a
class of shares of the Fund made at the maximum public offering price of the
shares of that class with all distributions reinvested and which, if quoted for
periods of six years or less, will give effect to the imposition of the CDSC
assessed upon redemptions of the Fund's Class B shares. Such total rate of
return quotations may be accompanied by quotations which do not reflect the
reduction in value of the initial investment due to the sales charge or the
deduction of a CDSC, and which will thus be higher. All performance quotations
are based on historical performance and are not intended to indicate future
performance. Yield and tax-equivalent yield reflect only net portfolio income as
of a stated time and current distribution rate reflects only the rate of
distributions paid by the Fund over a stated period of time, while total rate of
return reflects all components of investment return over a stated period of
time. The Fund's quotations may from time to time be used in advertisements,
shareholder reports or other communications to shareholders. For a discussion of
the manner in which the Fund will calculate its yield, current distribution
rate, tax-equivalent yield and total rate of return, see the Statement of
Additional Information. For further information about the Fund's performance for
the fiscal year ended August 31, 1994, please see the Fund's Annual Report. A
copy of the annual report may be obtained without charge by contacting the
Shareholder Servicing Agent (see back cover for address and phone number). In
addition to information provided in shareholder reports, the Fund may, in its
discretion, from time to time, make a list of all or a portion of its holdings
available to investors upon request.
7. SHAREHOLDER SERVICES
Shareholders with questions concerning the shareholder services described below
or concerning other aspects of the Fund should contact the Shareholder Servicing
Agent (see back cover for address and phone number).
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<PAGE> 61
ACCOUNT AND CONFIRMATION STATEMENTS -- Each shareholder will receive
confirmation statements showing the transaction activity in his account.
Cancelled checks, if any, will be sent to shareholders monthly. 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").
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 gains
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 shareholder's address of record, such
shareholder's distribution option will automatically be converted to having all
dividends and other distributions reinvested in additional shares. Any request
to change a distribution option must be received by the Shareholder Servicing
Agent by the record date for a dividend or distribution in order to be effective
for that dividend or distribution. No interest will accrue on amounts
represented by uncashed distribution or redemption checks.
INVESTMENT AND WITHDRAWAL PROGRAMS -- For the convenience of shareholders, the
Fund makes available the following programs designed to enable shareholders to
add to their investment in an account with the Fund or withdraw from it with a
minimum of paper work. The programs involve no extra charge to shareholders
(other than a sales charge in the case of certain Class A share purchases) and
may be changed or discontinued at any time by a shareholder or the Fund.
LETTER OF INTENT: If a shareholder (other than a group purchaser as
described in the Statement of Additional Information) anticipates purchasing
$100,000 or more of Class A shares of the Fund alone or in combination with
shares of either class of other MFS Funds or MFS Fixed Fund (a bank collective
investment fund) within a 13-month period (or 36-month period for purchases of
$1 million or more), the shareholder may obtain such shares at the same reduced
sales charge as though the total quantity were invested in one lump sum, subject
to escrow agreements and the appointment of an attorney for redemptions from the
escrow amount if the intended purchases are not completed, by completing the
Letter of Intent section of the Account Application.
RIGHT OF ACCUMULATION: A shareholder qualifies for cumulative quantity
discounts on purchases of Class A shares when his new investment, together with
the current offering price value of all holdings of Class A and Class B shares
of that shareholder in the MFS Funds or MFS Fixed Fund (a bank collective
investment 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 dividends 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 in shares of the same class of another
MFS Fund, if shares of such Fund are available for sale (without a sales charge
and not subject to any applicable CDSC).
SYSTEMATIC WITHDRAWAL PLAN: A shareholder may direct the Shareholder
Servicing Agent to send to him (or any one he designates) regular periodic
payments, as designated on the Account Application and 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.
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<PAGE> 62
DOLLAR COST AVERAGING PROGRAMS --
AUTOMATIC INVESTMENT PLAN: Cash investments of $50 or more may be made
through a shareholder's checking account twice monthly, monthly or quarterly.
Required forms are available from the Shareholder Servicing Agent or investment
dealers.
AUTOMATIC EXCHANGE PLAN: Shareholders having account balances of at least
$5,000 in any MFS Fund may exchange their shares for the same class of shares of
the other MFS Funds under the Automatic Exchange Plan. 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. Under the Automatic Exchange
Plan, exchanges of at least $50 each may be made to up to four different funds.
A shareholder should consider the objectives and policies of a fund and review
its prospectus before electing to exchange money into such fund through the
Automatic Exchange Plan. No transaction fee is imposed in connection with
exchange transactions under the Automatic Exchange Plan. However, exchanges of
shares of MFS Money Market Fund, MFS Government Money Market Fund or Class A
shares of MFS Cash Reserve Fund will be subject to any applicable sales charge.
For federal and (generally) state income tax purposes, an exchange is treated as
a sale of the shares exchanged and, therefore, could result in a capital gain or
loss to the shareholder making the exchange. See the Statement of Additional
Information 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.
----------------------------------
The Fund's Statement of Additional Information, dated March 1, 1995, contains
more detailed information about the Trust and the Fund, including information
related to (i) the Fund's investment policies and restrictions, (ii) the
Trustees, officers and investment adviser, (iii) portfolio trading, (iv) the
method used to calculate yield, tax-equivalent yield and total rate of return
quotations of the Fund, (v) the Distribution Plan and (vi) various services and
privileges provided by the Fund for the benefit of its shareholders, including
additional information with respect to the exchange privilege.
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<PAGE> 63
APPENDIX A
TAXABLE EQUIVALENT YIELD TABLE
(UNDER FEDERAL INCOME TAX LAW AND RATES FOR 1995)
The table below shows the approximate taxable bond yields which are
equivalent to tax-exempt bond yields from 3% to 8% under federal income tax laws
that apply to 1995. (Such yields may differ under the laws applicable to
subsequent years.) Separate calculations, showing the applicable taxable income
brackets, are provided for investors who file joint returns and for those
investors who file individual returns.
<TABLE>
<CAPTION>
SINGLE RETURN JOINT RETURN INCOME TAX-EXEMPT YIELD
- ----------------- ----------------- TAX ---------------------------------------------------
(TAXABLE INCOME)* BRACKET** 3% 4% 5% 6% 7% 8%
- --------------------------------------- --------- ---- ---- ---- ---- ----- -----
1995 1995 EQUIVALENT TAXABLE YIELD
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0-$ 23,350 $ 0-$ 39,000 15.00% 3.53% 4.71% 5.88% 7.06% 8.24% 9.41%
$ 23,350-$ 56,550 $ 39,000-$ 94,250 28.00 4.17 5.56 6.94 8.33 9.72 11.11
$ 56,550-$117,950 $ 94,250-$143,600 31.00 4.35 5.80 7.25 8.70 10.14 11.59
$117,950-$256,500 $143,600-$256,500 36.00 4.69 6.25 7.81 9.38 10.94 12.50
$256,500 & Over $256,500 & Over 39.60 4.97 6.62 8.28 9.93 11.59 13.25
</TABLE>
*Net amount subject to Federal personal income tax after deductions and
exemptions.
**The effective marginal income tax rate will be increased if personal
exemptions are phased out (for the phase out period only) and if a portion of
itemized deductions are disallowed. This increase in the marginal rates, if
applicable, will cause a corresponding increase in the equivalent taxable
yields.
While it is expected that a substantial portion of the interest income
distributed to the Fund's shareholders will be exempt from federal income taxes,
portions of such distributions from time to time may be subject to federal
income taxes or a federal alternative minimum tax.
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<PAGE> 64
APPENDIX B
DESCRIPTION OF MUNICIPAL BONDS
Municipal Bonds include debt obligations issued to obtain funds for various
public purposes, including the construction of a wide range of public facilities
such as bridges, highways, housing, hospitals, mass transportation, schools,
streets and water and sewer works. Other public purposes for which Municipal
Bonds may be issued include refunding outstanding obligations, obtaining funds
for general operating expenses and obtaining funds to loan to other public
institutions and facilities. In addition, certain types of industrial
development bonds are issued by or on behalf of public authorities to obtain
funds to provide privately-operated housing facilities, sports facilities,
convention or trade show facilities, airport, mass transit, port or parking
facilities, air or water pollution control facilities for water supply, gas,
electricity or sewage or solid waste disposal. Such obligations are included in
the term Municipal Bonds if the interest paid thereon qualifies as exempt from
federal income tax. Other types of industrial development bonds, the proceeds of
which are used for the construction, equipment, repair or improvement of
privately operated industrial or commercial facilities, may constitute Municipal
Bonds, although the current federal tax laws place substantial limitations on
the size of such issues.
The two principal classifications of Municipal Bonds are "general obligation"
and "revenue" bonds. General obligation bonds are secured by the issuer's pledge
of its good faith, credit and taxing power for the payment of principal and
interest. The payment of such bonds may be dependent upon an appropriation by
the issuer's legislative body. The characteristics and enforcement of general
obligation bonds vary according to the law applicable to the particular issuer.
Revenue bonds are payable only from the revenues derived from a particular
facility or class of facilities, or, in some cases, from the proceeds of a
special excise or other specific revenue source. Industrial development bonds
which are Municipal Bonds are in most cases revenue bonds and do not generally
constitute the pledge of the credit of the issuer of such bonds.
Municipal Bonds also include participations in municipal leases. These are
undivided interests in a portion of an obligation in the form of a lease or
installment purchase which is issued by state and local governments to acquire
equipment and facilities. Municipal leases frequently have special risks not
normally associated with general obligation or revenue bonds. Leases and
installment purchase or conditional sale contracts (which normally provide for
title to the leased asset to pass eventually to the governmental issuer) have
evolved as a means for governmental issuers to acquire property and equipment
without meeting the constitutional and statutory requirements for the issuance
of debt. The debt-issuance limitations are deemed to be inapplicable because of
the inclusion in many leases or contracts of "non-appropriation" clauses that
provide that the governmental issuer has no obligation to make future payments
under the lease or contract unless money is appropriated for such purpose by the
appropriate legislative body on a yearly or other periodic basis. Although the
obligations will be secured by the leased equipment or facilities, the
disposition of the property in the event of non-appropriation or foreclosure
might, in some cases, prove difficult. In light of these concerns, the Fund has
adopted and follows procedures for determining whether municipal lease
securities purchased by the Fund are liquid and for monitoring the liquidity of
municipal lease securities held in the Fund's portfolio. The procedures require
that a number of factors be used in evaluating the liquidity of a municipal
lease security, including, the frequency of trades and quotes for the security,
the number of dealers willing to purchase or sell the security and the number of
other potential purchasers, the willingness of dealers to undertake to make a
market in the security, the nature of the marketplace in which the security
trades, the credit quality of the security and other factors which the Adviser
may deem relevant. There are, of course, variations in the security of Municipal
Bonds, both within a particular classification and between classifications,
depending on numerous factors.
The yields on Municipal Bonds are dependent on a variety of factors, including
general money market conditions, supply and demand and general conditions of the
Municipal Bond market, size of a particular offering, the maturity of the
obligation and rating of the issue.
26
<PAGE> 65
DESCRIPTION OF OTHER INVESTMENTS
U.S. GOVERNMENT OBLIGATIONS -- are issued by the Treasury and include bills,
certificates of indebtedness, notes and bonds. Agencies and instrumentalities of
the U.S. Government are established under the authority of an act of Congress
and include, but are not limited to, the Government National Mortgage
Association, the Tennessee Valley Authority, the Bank for Cooperatives, the
Farmers Home Administration, Federal Home Loan Banks, Federal Intermediate
Credit Banks, Federal Land Banks and the Federal National Mortgage Association.
CERTIFICATES OF DEPOSIT -- are certificates issued against funds deposited
in a commercial bank, are for a definite period of time, earn a specified rate
of return and are normally negotiable.
BANKERS' ACCEPTANCES -- are short-term credit instruments used to finance
the import, export, transfer or storage of goods. They are termed "accepted"
when a bank guarantees their payment at maturity.
COMMERCIAL PAPER -- refers to promissory notes issued by corporations in
order to finance their short-term credit needs.
27
<PAGE> 66
[MFS LOGO]
Investment Adviser
Massachusetts Financial Services Company
500 Boylston Street
Boston, MA 02116 MFS(R) MUNICIPAL BOND FUND
(617) 954-5000
Distributor Prospectus
MFS Fund Distributors, Inc. March 1, 1995
500 Boylston Street
Boston, MA 02116
(617) 954-5000
Custodian and Dividend Disbursing Agent
State Street Bank & Trust Company
225 Franklin Street
Boston, MA 02110
Shareholder Servicing Agent
MFS Service Center, Inc.
500 Boylston Street
Boston, MA 02116
Toll-free: (800) 225-2606
Mailing Address:
P.O. Box 2281
Boston, MA 02107-9906
Auditors
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
[MFS LOGO]
MFS(R) MUNICIPAL BOND FUND
500 Boylston Street
Boston, MA 02116
MMB-1 3/95 219.5M 17/217
<PAGE> 67
[MFS LOGO]
MFS(R) MUNICIPAL STATEMENT OF
BOND FUND ADDITIONAL INFORMATION
(A member of the MFS Family of Funds(R)) March 1, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1. Definitions......................................................................... 2
2. Investment Objective, Policies and Restrictions..................................... 2
3. Management of the Fund.............................................................. 8
Trustees......................................................................... 8
Officers......................................................................... 8
Investment Adviser............................................................... 9
Custodian........................................................................ 10
Shareholder Servicing Agent...................................................... 10
Distributor...................................................................... 10
4. Portfolio Transactions and Brokerage Commissions.................................... 11
5. Shareholder Services................................................................ 11
Investment and Withdrawal Programs............................................... 11
Exchange Privilege............................................................... 14
6. Tax Status.......................................................................... 14
7. Determination of Net Asset Value and Performance.................................... 16
8. Distribution Plan................................................................... 18
9. Description of Shares, Voting Rights and Liabilities................................ 19
10. Independent Accountants and Financial Statements.................................... 20
Appendix (Municipal Bond Ratings)................................................... 21
</TABLE>
MFS MUNICIPAL BOND FUND
A Series of MFS Series Trust IV
500 Boylston Street, Boston, Massachusetts 02116
(617) 954-5000
This Statement of Additional Information sets forth information which may be of
interest to investors but which is not necessarily included in the Fund's
Prospectus, dated March 1, 1995. This Statement of Additional Information 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 STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS AUTHORIZED
FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY A
CURRENT PROSPECTUS.
<PAGE> 68
1. DEFINITIONS
<TABLE>
<S> <C>
"Fund" -- MFS Municipal Bond Fund, a
series of MFS(R) Series
Trust IV, a Massachusetts
business trust (the
"Trust").
"MFS" or the "Adviser" -- Massachusetts Financial
Services Company, a
"MFD" -- Delaware corporation.
MFS Fund Distributors,
Inc., a Delaware
"Prospectus" -- corporation.
The Prospectus, dated
March 1, 1995, of the
Fund.
</TABLE>
2. INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
INVESTMENT OBJECTIVE. The Fund's investment objective is to provide as high a
level of current income exempt from federal income taxes as is considered
consistent with prudent investing and protection of shareholders' capital. Any
investment involves risk and there can be no assurance that the Fund will
achieve its investment objective.
INVESTMENT POLICIES. The investment policies of the Fund are described in the
Prospectus. In addition, certain of the Fund's investment policies are described
in greater detail below.
"WHEN-ISSUED" SECURITIES: The Fund may purchase securities on a "when-issued"
or on a "forward delivery" basis. When the Fund commits to purchase a security
on a "when-issued" or on a "forward delivery" basis, it will set up procedures
consistent with the General Statement of Policy of the Securities and Exchange
Commission (the "SEC") concerning such purchases. Since that policy currently
recommends that an amount of the Fund's assets equal to the amount of the
purchase be held aside or segregated to be used to pay for the commitment, the
Fund will always have cash, short-term money market instruments or high quality
debt securities sufficient to cover any commitments or to limit any potential
risk. However, although the Fund does not intend to make such purchases for
speculative purposes and intends to adhere to the provisions of the SEC policy,
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 is necessary
to sell the "when-issued" or "forward delivery" securities before delivery, the
Fund may incur a loss because of market fluctuations since the time the
commitment to purchase such securities was made and any gain or loss would not
be tax-exempt.
REPURCHASE AGREEMENTS: As described in the Prospectus, the Fund may enter into
repurchase agreements with sellers who are member firms (or a subsidiary
thereof) of the New York Stock Exchange (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. The Fund may not invest more than 15% of its assets in repurchase
agreements maturing in more than seven days.
INVERSE FLOATING RATE OBLIGATIONS
The Fund may invest in so-called "inverse floating rate obligations" or
"residual interest" bonds or certificates structured to have similar features.
In creating such an obligation, a municipality issues a certain amount of debt
and pays a fixed interest rate. A portion of the debt is issued as variable rate
short-term obligations, the interest rate of which is reset at short intervals,
typically ranging from thirty-five days to one year. The other portion of the
debt is issued as inverse floating rate obligations, the interest rate of which
is calculated based on the difference between the entire amount of interest paid
by the issuer on all of the debt and the interest paid on the short-term
obligation. Under usual circumstances, the holder of the inverse floating rate
obligation can generally purchase an equal principal amount of the short-term
obligation and link the two obligations in order to create long-term fixed-rate
bonds. Because the interest rate on the inverse floating rate obligation is
determined by subtracting the short-term rate from a fixed amount, the interest
rate will decrease as the short-term rate increases and will increase as the
short-term rate decreases. The magnitude of increases and decreases in the
market value of inverse floating rate obligations may be approximately twice as
large (or more if the inverse instrument is issued in principal amount greater
than the principal amount of the short-term piece) as the comparable change in
the market value of an equal principal amount of long-term bonds which bear
interest at the rate paid by the issuer and have similar credit quality,
redemption and maturity provisions.
2
<PAGE> 69
OPTIONS: The Fund intends to write covered put and call options and purchase
put and call options on fixed income securities that are traded on U.S.
securities exchanges and over-the-counter. Call options written by the Fund give
the holder the right to buy the underlying securities from the Fund at a fixed
exercise price; put options written by the Fund give the holder the right to
sell the underlying securities to the Fund at a fixed exercise price. A call
option written by the Fund is "covered" if the Fund owns the underlying security
covered by the call or has 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 is also
covered if the Fund holds a call on the same security and in the same principal
amount as the call written where the exercise price of the call held (a) is
equal to or less than the exercise price of the call written or (b) is greater
than the exercise price of the call written if the difference is maintained by
the Fund in cash, short-term money market instruments or high quality debt
securities in a segregated account with its custodian. A put option written by
the Fund is "covered" if the Fund maintains cash, short-term money market
instruments or high quality debt securities with a value equal to the exercise
price in a segregated account with its custodian, or else holds 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 (a) equal to or greater than the exercise
price of the put written or (b) is less than the exercise price of the put
written if the difference is maintained by the Fund in cash, short-term money
market instruments or high quality debt securities in a segregated account with
its custodian. Put and call options 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 counter party with which, the option is traded, and applicable
laws and regulations. The writer of an option may have no control over when the
underlying securities must be sold, in the case of a call option, or purchased,
in the case of a put option, since with regard to certain options, the writer
may be assigned an exercise notice at any time prior to the termination of the
obligation.
Effecting a closing transaction in the case of a written call option will permit
the Fund to write another call option on the underlying security with either a
different exercise price or expiration date or both, or in the case of a written
put option will permit the Fund to write another put option to the extent that
the exercise price thereof is secured by deposited cash, short-term money market
instruments or high quality debt securities. Such transactions permit the Fund
to generate additional premium income, which will partially offset declines in
the value of portfolio securities or increases in the cost of securities to be
acquired. Also, effecting a closing transaction will permit the cash or proceeds
from the concurrent sale of any securities subject to the option to be used for
other Fund investments. 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 prior to or concurrent with the sale of the security.
The Fund will realize a profit from a closing transaction if the price of the
transaction is less than the premium received from writing the option or is more
than the premium paid to purchase the option; the Fund will realize a loss from
a closing transaction if the price of the transaction is more than the premium
received from writing the option or is less than the premium paid to purchase
the option. 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 is likely to be offset in
whole or in part by appreciation of the underlying security owned by the Fund.
An option position may be closed out only where there exists a secondary market
for an option of the same series. If a secondary market does not exist, it might
not be possible to effect closing transactions in particular options with the
result that the Fund would have to exercise the options in order to realize any
profit. If the Fund is unable to effect a closing purchase transaction in a
secondary market, it will not be able to sell the underlying security until the
option expires or it delivers the underlying security upon exercise. Reasons for
the absence of a liquid secondary market include the following: (i) there may be
insufficient trading interest in certain options; (ii) restrictions may be
imposed by a national securities exchange on opening transactions or closing
transactions or both; (iii) trading halts, suspensions or other restrictions may
be imposed with respect to particular classes or series of options or underlying
securities; (iv) unusual or unforeseen circumstances may interrupt normal
operations on an exchange; (v) the facilities of an exchange or the Options
Clearing Corporation (the "OCC") may not at all times be adequate to handle
current trading volume; or (vi) one or more exchanges could, for economic or
other reasons, decide or be compelled at some future date to discontinue the
trading of options (or a particular class or series of options), in which event
the secondary market on that exchange (or in that class or series of options)
would cease to exist, although outstanding options on that exchange that had
been issued by the OCC as a result of trades on that exchange would continue to
be exercisable in accordance with their terms.
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 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 may be used by the
Fund in the same market environ-
3
<PAGE> 70
ments that call options are 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.
The Fund may purchase put options to hedge against a decline in the value of its
portfolio. 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 by 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. The premium paid
for the call 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 rises sufficiently, the option may expire worthless to the
Fund.
The Fund may also purchase warrants on fixed income securities. A warrant on a
fixed income security is a long-dated call option that provides the holder with
the right, but not the obligation, to purchase from an issuer a fixed income
security with a specified par value, coupon, and maturity at a fixed exercise
price on a specified date or between specified dates. Typically, the fixed
income securities that are deliverable pursuant to the warrant will be
noncallable securities. Warrants may be issued as entirely separate securities
or they may be attached to, but subsequently detachable from, a fixed income
security of the same issuer.
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 of the Fund's assets (the "SEC illiquidity ceiling"). 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 which 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 price as illiquid for purposes of the SEC illiquidity
ceiling imposed by the SEC staff. The Fund may also write over-the-counter
options with non-primary dealers and will treat the assets used to cover these
options as illiquid for purposes of such SEC illiquidity ceiling.
FUTURES CONTRACTS: The Fund may enter into contracts for the future delivery
of fixed income securities or contracts based on Municipal Bond or other
financial indices, including any index of fixed income securities, as such
contracts become available for trading ("Futures Contracts"). The Fund may enter
into Futures Contracts for hedging purposes as well as non-hedging purposes. A
"sale" of a Futures Contract means a contractual obligation to deliver the
securities called for by the contract at a specified price in a fixed delivery
month or, in the case of a Futures Contract on an index of securities, to make
or receive a cash settlement. A "purchase" of a Futures Contract means a
contractual obligation to acquire the securities called for by the contract at a
specified price in a fixed delivery month or, in the case of a Futures Contract
on an index of securities, to make or receive a cash settlement. Futures
Contracts have been designed by exchanges which have been designated as
"contract markets" by the Commodity Futures Trading Commission (the "CFTC"), and
must be executed through a futures commission merchant, or brokerage firm, which
is a member of the relevant contract market. Existing contract markets include
the Chicago Board of Trade and the International Monetary Market of the Chicago
Mercantile Exchange. Futures Contracts are traded on these markets, and, through
their clearing corporations, the exchanges guarantee performance of the
contracts as between the clearing members of the exchange.
At the same time a Futures Contract is purchased or sold, the Fund must allocate
cash or securities as a deposit payment ("initial deposit"). The initial deposit
varies but may be as low as 5% or less of the value of the contract. Daily
thereafter, the Futures Contract is valued and the payment of "variation margin"
may be required since each day the Fund would provide or receive cash that
reflects any decline or increase in the contract's value.
At the time of delivery of securities pursuant to a Futures Contract based on
fixed income securities, adjustments are made to recognize differences in value
arising from the delivery of securities with a different interest rate from that
specified in the contract. In some (but not many) cases, securities called
4
<PAGE> 71
for by a Futures Contract may not have been issued when the contract was
written.
A Futures Contract based on an index of securities, such as a Municipal Bond
index Futures Contract, provides for a cash payment, equal to the amount, if
any, by which the value of the index at maturity is above or below the value of
the index at the time the contract was entered into, times a fixed index
"multiplier". The index underlying such a Futures Contract is generally a broad
based index of securities designed to reflect movements in the relevant market
as a whole. The index assigns weighted values to the securities included in the
index, and its composition is changed periodically.
Although Futures Contracts call for the actual delivery or acquisition of
securities or, in the case of Futures Contracts based on an index, the making or
acceptance of a cash settlement at a specified future time, the contractual
obligation is usually fulfilled before such date by buying or selling, as the
case may be, on a commodities exchange, an identical Futures Contract calling
for settlement in the same month, subject to the availability of a liquid
secondary market. The Fund incurs brokerage fees when it purchases and sells
Futures Contracts.
The purpose of the acquisition or sale of a Futures Contract, in the case of a
portfolio such as that of the Fund, which holds or intends to acquire long-term
fixed income securities, is to attempt to protect the Fund from fluctuations in
interest rates without actually buying or selling long-term fixed income
securities. For example, if the Fund owns long-term bonds, and interest rates
were expected to increase, the Fund might enter into Futures Contracts for the
sale of debt securities. Such a sale would have much the same effect as selling
an equivalent value of the long-term bonds owned by the Fund. If interest rates
did increase, the value of the debt securities in the portfolio would decline,
but the value of the Futures Contracts would increase at approximately the same
rate, thereby keeping the net asset value of the Fund from declining as much as
it otherwise would have. The Fund could accomplish similar results by selling
bonds with long maturities and investing in bonds with short maturities when
interest rates are expected to increase. However, the use of Futures Contracts
as an investment technique allows the Fund to maintain a hedging position
without having to sell its portfolio securities.
Similarly, when it is expected that interest rates may decline, Futures
Contracts may be purchased to attempt to hedge against anticipated purchases of
long-term bonds at higher prices. Since the fluctuations in the value of Futures
Contracts should be similar to that of long-term bonds, the Fund could take
advantage of the anticipated rise in the value of long-term bonds without
actually buying them until the market had stabilized. At that time, the Futures
Contracts could be liquidated and the Fund could then buy long-term bonds on the
cash market. To the extent the Fund enters into Futures Contracts for this
purpose, the assets in the segregated asset account maintained to cover the
Fund's obligations with respect to such Futures Contracts will consist of cash,
short-term money market instruments or high quality debt securities from its
portfolio in an amount equal to the difference between the fluctuating market
value of such Futures Contracts and the aggregate value of the initial and
variation margin payments made by the Fund with respect to such Futures
Contracts, thereby assuring that the positions are unleveraged.
The ordinary spreads between prices in the cash and futures markets, due to
differences in the natures of those markets, are subject to distortions. First,
all participants in the futures market are subject to initial deposit and
variation margin requirements. Rather than meeting additional variation margin
requirements, investors may close out Futures Contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the futures market depends on
participants entering into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced, thus producing distortion. Third, from
the point of view of speculators, the margin deposit requirements in the futures
market are less onerous than margin requirements in the securities market.
Therefore, increased participation by speculators in the futures market may
cause temporary price distortions. Due to the possibility of distortion, a
correct forecast of general interest rate trends by the Adviser may still not
result in a successful transaction.
In addition, Futures Contracts entail risks. Although the Fund believes that use
of such contracts will benefit the Fund, if the Adviser's investment judgment
about the general direction of interest rates is incorrect, the Fund's overall
performance would be poorer than if it had not entered into any such contract.
For example, if the Fund has hedged against the possibility of an increase in
interest rates which would adversely affect the price of bonds held in its
portfolio and interest rates decrease instead, the Fund will lose part or all of
the benefit of the increased value of its bonds which it has hedged because it
will have offsetting losses in its futures positions. In addition, in such
situations, if the Fund has insufficient cash, it may have to sell bonds from
its portfolio to meet daily variation margin requirements. Such sales of bonds
may be, but will not necessarily be, at increased prices which reflect the
rising market. The Fund may have to sell securities at a time when it may be
disadvantageous to do so. The Fund may invest in Future Contracts for hedging
and for non-hedging purposes, subject to applicable law.
OPTIONS ON FUTURES CONTRACTS: The Fund may purchase and write options on
Futures Contracts ("Options on Futures Contracts") for hedging purposes and for
non-hedging purposes, subject to applicable law. An Option on a Futures Contract
provides the holder with the right to enter into a "long" position in the
underlying Futures Contract, in the case of a call option, or a "short" position
in the underlying 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. Such Options on Futures Contracts will be traded on
contract markets regulated by the CFTC. Depending on the pricing of the option
compared to either the price of the Futures Contract upon which it is based or
the price of the underlying debt securities, it may or may not be less risky
than ownership of the Futures Contract or underlying debt securities. As with
the purchase of
5
<PAGE> 72
Futures Contracts, when the Fund is not fully invested it may purchase a call
Option on a Futures Contract to hedge against a market advance due to declining
interest rates.
The writing of a call Option on a Futures Contract constitutes a partial hedge
against declining prices of the securities which are deliverable upon exercise
of the Futures Contract. If the future price at expiration of the option is
below the exercise price, the Fund will retain the full amount of the option
premium 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 constitutes a partial hedge against increasing prices of the
securities which are deliverable upon exercise of 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, less related transaction costs. 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 writer of an
Option on a Futures Contract is subject to the requirement of initial and
variation margin payments.
The Fund may cover the writing of call Options on Futures Contracts (a) through
purchases of the underlying Futures Contract, (b) through ownership of the
security, or securities included in the index, underlying the Futures Contract,
or (c) through the holding of a call on the same Futures Contract and in the
same principal amount as the call written where the exercise price of the call
held (i) is equal to or less than the exercise price of the call written or (ii)
is greater than the exercise price of the call written if the difference is
maintained by the Fund in cash, short-term money market instruments or high
quality debt securities in a segregated account with its custodian. The Fund may
cover the writing of put Options on Futures Contracts (a) through sales of the
underlying Futures Contract, (b) through segregation of cash, short-term money
market instruments or high quality debt securities in an amount equal to the
value of the security or index underlying the Futures Contract, or (c) through
the holding of a put on the same Futures Contract and in the same principal
amount as the put written where the exercise price of the put held is equal to
or greater than the exercise price of the put written, or is less than the
exercise price of the put written if the difference is maintained by the Fund in
cash, short-term money market instruments or high quality debt securities in a
segregated account with its custodian. 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.
The purchase of a put Option on a Futures Contract is similar in some respects
to the purchase of protective put options on portfolio securities. The Fund will
purchase a put Option on a Futures Contract to hedge the Fund's portfolio
against the risk of rising interest rates.
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,
although in order to realize a profit it may be necessary to exercise the option
and close out the underlying Futures Contract. In addition to the correlation
risks discussed above, the purchase of an option also entails the risk that
changes in the value of the underlying Futures Contract will not be fully
reflected in the value of the option purchased.
ADDITIONAL RISKS OF OPTIONS ON FIXED INCOME SECURITIES, FUTURES CONTRACTS AND
OPTIONS ON FUTURES CONTRACTS: Various additional risks exist with respect to the
trading of options and Futures Contracts. For example, the Fund's ability
effectively to hedge all or a portion of its portfolio through transactions in
such instruments 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. The trading of futures 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, while the
trading of options also entails the risk of imperfect correlation between
securities used to cover options written and the securities underlying such
options. The anticipated spread between the prices may be distorted because of
various factors, which are set forth under "Futures Contracts" above.
The Fund's ability to engage in options and futures strategies will also depend
on the availability of liquid markets in such instruments. "Options" above sets
forth certain reasons why a liquid secondary market may not exist. Transactions
in these instruments are also subject to the risk of brokerage firm or clearing
house insolvencies.
The liquidity of a secondary market in a Futures Contract or option thereon may
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 and prohibit trading beyond such limit. In addition,
the exchanges on which futures 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).
Options on securities may be traded over-the-counter. In an over-the-counter
trading environment, many of the protections afforded to exchange participants
will not be available. For example, there are no clearing house performance
guarantees and the Fund will be subject to the risk of default by a counter
party. In addition, there are no daily price fluctuation limits, and adverse
market movements could therefore continue to an unlimited extent over a period
of time. Although the purchaser of
6
<PAGE> 73
an option cannot lose more than the amount of the premium plus related
transaction costs, this entire amount could be lost.
It should also be noted that the Fund may enter transactions in Futures
Contracts and Options on Futures Contracts not only for hedging purposes, but
also for non-hedging purposes intended to increase portfolio returns.
Non-hedging transactions in such investments involve greater risks and may
result in losses which may not be offset by increases in the value of portfolio
securities or declines in the cost of securities to be acquired. The Fund will
only write covered options, such that cash or securities necessary to satisfy an
option exercise will be segregated at all times, unless the option is covered in
such other manner as may be in accordance with the rules of the exchange on
which the option is traded and applicable laws and regulations. Nevertheless,
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.
PORTFOLIO TRADING: The Fund intends to fully manage its portfolio by buying
and selling securities, as well as holding securities to maturity. In managing
its portfolio the Fund seeks to take advantage of market developments and yield
disparities, which may include use of the following strategies:
(1) shortening the average maturity of its portfolio in anticipation of a
rise in interest rates so as to minimize depreciation of principal;
(2) lengthening the average maturity of its portfolio in anticipation of a
decline in interest rates so as to maximize tax-exempt yield;
(3) selling one type of debt security (e.g., revenue bonds) and buying
another (e.g., general obligation bonds) when disparities arise in the
relative values of each; and
(4) changing from one debt security to an essentially similar debt security
when their respective yields are distorted due to market factors.
------------------------------
The investment objective and policies described above and the policies with
respect to portfolio trading described above may be changed without shareholder
approval.
INVESTMENT RESTRICTIONS. The Fund has adopted the following restrictions which
cannot be changed without the approval of the holders of a majority of the
Fund's shares (which, as used in this Statement of Additional Information, means
the lesser of (i) more than 50% of the outstanding shares of the Trust (or a
class or series, as applicable) or (ii) 67% or more of the outstanding shares of
the Trust (or a class or series, as applicable) present at a meeting at which
holders of more than 50% of the outstanding shares of the Trust (or a class or
series, as applicable) are represented in person or by proxy):
The Fund may not:
(1) Borrow money, except as a temporary measure for extraordinary or
emergency purposes, and then only in an amount not exceeding 10% of its gross
assets, or pledge, mortgage or hypothecate an amount of its assets taken at
market value which would exceed 15% of its gross assets, in each case taken at
the lower of cost or market value and subject to a 300% asset coverage
requirement (for the purpose of this restriction, collateral arrangements with
respect to options, Futures Contracts and Options on Futures 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) Purchase or sell real estate (including limited partnership interests
but excluding Municipal Bonds secured by real estate or interests therein),
interests in oil, gas or mineral leases, commodities or commodity contracts
(except Futures Contracts and Options on Futures Contracts) in the ordinary
course of its business;
(4) Make loans to other persons except through the use of repurchase
agreements or the purchase of commercial paper. Not more than 10% of its total
assets will be invested in repurchase agreements maturing in more than seven
days. For these purposes the purchase of a portion of an issue of debt
securities which is part of an issue to the public shall not be considered the
making of a loan;
(5) 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 securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities, or
invest more than 25% of its total assets taken at market value in securities
of issuers in any one industry;
(6) 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 Trust, or is a member, partner, 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, all taken at market value, 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, all taken
at market value;
(7) 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 and
Options on Futures Contracts;
(8) Sell any security which the Fund does not own unless by virtue of its
ownership of other securities it 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; or
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<PAGE> 74
(9) Purchase or sell any put or call option or any combination thereof,
provided that this shall not prevent the writing, purchasing and selling of
puts, calls or combinations thereof with respect to securities and Futures
Contracts.
As a matter of non-fundamental policy, the Fund may not invest in securities
(other than repurchase agreements maturing in seven days or less) which are
subject to legal or contractual restrictions on resale or for which there is no
readily available market (unless the Board of Trustees has determined that such
securities are liquid based upon trading markets for the specific security) if
more than 15% of the Fund's assets would be invested in such securities.
For the purposes of the Fund's investment restrictions, the issuer of a
tax-exempt security is deemed to be the entity (public or private) ultimately
responsible for the payment of the principal of and interest on the security.
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.
3. MANAGEMENT OF THE FUND
The Trust's Board of Trustees provides broad supervision over the affairs of the
Fund. The Adviser is responsible for the management of the Fund's assets and the
officers of the Trust are responsible for the Fund's operations. The Trustees
and officers are listed below, together with their principal occupations during
the past five years. (Their titles may have varied during that period.)
TRUSTEES
A. KEITH BRODKIN,* Chairman and President
Massachusetts Financial Services Company, Chairman, President and Director
RICHARD B. BAILEY*
Private investor; Massachusetts Financial Services Company, former Chairman and
Director (until September 30, 1991)
PETER G. HARWOOD
Loomis, Sayles & Co. (investment counsel firm), Financial Vice President,
Treasurer and Director (retired October 1988)
Address: 211 Lindsay Pond Road, Concord, Massachusetts
J. ATWOOD IVES
Eastern Enterprises (diversified holding company), Chairman and Chief Executive
Officer (since December 1991); General Cinema Corporation, Vice Chairman and
Chief Financial Officer (until December 1991); The Neiman Marcus Group, Inc.,
Vice Chairman and Chief Financial Officer (from August 1987 to December 1991);
Property Capital Trust, Trustee
Address: 9 Riverside Road, Weston, Massachusetts
LAWRENCE T. PERERA
Hemenway & Barnes (attorneys), Partner
Address: 60 State Street, Boston, Massachusetts
WILLIAM J. POORVU
Harvard University Graduate School of Business Administration, Adjunct
Professor; CBL & Associates Properties, Inc. (a real estate investment trust),
Director; The Baupost Fund (a registered investment company), Vice Chairman
(since November 1993), Chairman and Trustee (from June 1990 until November
1993)
Address: Harvard Business School, Soldiers Field Road, Cambridge, Massachusetts
CHARLES W. SCHMIDT
Private investor; Raytheon Company (diversified electronics manufacturer),
Senior Vice President and Group Executive (until December 1990); OHM
Corporation, Director; The Boston Company, Director; Boston Safe Deposit and
Trust Company, Director
Address: 30 Colpitts Road, Weston, Massachusetts
ARNOLD D. SCOTT*
Massachusetts Financial Services Company, Senior Executive Vice President and
Secretary
JEFFREY L. SHAMES*
Massachusetts Financial Services Company, President
ELAINE R. SMITH
Independent Consultant; Brigham and Women's Hospital, Executive Vice President
and Chief Operating Officer (from August 1990 to September 1992); Ernst &
Young (accountants), Consultant (from February to July 1990)
Address: Weston, Massachusetts
DAVID B. STONE
North American Management Corp. (investment advisers), Chairman
Address: 10 Post Office Square, Suite 300, Boston, Massachusetts
OFFICERS
W. THOMAS LONDON,* Treasurer
Massachusetts Financial Services Company, Senior Vice President and Assistant
Treasurer
STEPHEN E. CAVAN,* Secretary and Clerk
Massachusetts Financial Services Company, Senior Vice President, General Counsel
and Assistant Secretary
JAMES R. BORDEWICK, JR.,* Assistant Secretary
Massachusetts Financial Services Company, Vice President and Associate General
Counsel (since September 1990); associated with major law firm (prior to
August 1990)
ROBERT A. DENNIS,* Vice President
Massachusetts Financial Services Company, Senior Vice President
GEOFFREY L. KURINSKY,* Vice President
Massachusetts Financial Services Company, Senior Vice President
JAMES O. YOST,* Assistant Treasurer
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 (who currently receive
a fee of $4,500 per year plus $200 per meeting and $175 per committee meeting
attended, together with such Trustee's out-of-pocket expenses) and has adopted a
retirement plan for non-interested Trustees. 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
8
<PAGE> 75
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 Trust for the interested Trustees. The Fund will
accrue its allocable share of compensation expenses each year to cover current
year's service and amortize past service cost.
Set forth in Exhibit A hereto is certain information concerning the cash
compensation paid to non-interested Trustees and benefits accrued, and estimated
benefits payable, under the retirement plan.
As of January 31, 1995, all Trustees and officers as a group owned less than 1%
of the outstanding shares of the Fund.
As of January 30, 1995, Merrill Lynch, Pierce, Fenner & Smith P.O. Box 45286,
Jacksonville, FLA 32232-5286 was the record holder of approximately 5.62% of the
outstanding Class B shares of the Fund.
The Trust'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
Trust, unless, as to liabilities to the Trust 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 Trust. 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 wholly-owned 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 Adviser manages the Fund pursuant to an Investment Advisory Agreement, dated
September 1, 1993 (the "Advisory Agreement"). The Adviser provides the Fund with
overall investment advisory and administrative services, as well as general
office facilities. Subject to such policies as the Trustees may determine, the
Adviser makes investment decisions for the Fund. For these services and
facilities, the Adviser receives a management fee computed and paid monthly on
the basis of a formula based upon a percentage of the Fund's average daily net
assets plus a percentage of its gross income (i.e., income other than gains from
the sale of securities) in each case on an annualized basis for the Fund's then
current fiscal year. The applicable percentages are reduced as assets and income
reach the following levels:
<TABLE>
<CAPTION>
ANNUAL RATE OF MANAGEMENT FEE ANNUAL RATE OF MANAGEMENT FEE
BASED ON AVERAGE DAILY NET ASSETS BASED ON GROSS INCOME
- ---------------------------------- -------------------------------
<S> <C>
.220% of the first $200 million 4.12% of the first $16 million
.187% of average daily net 3.51% of gross income in excess
assets in excess of $200 million of $16 million
.168% of average daily net 3.16% of gross income in excess
assets in excess of $2 billion of $160 million
</TABLE>
For the Fund's fiscal years ended October 31, 1992 and 1993 and August 31, 1994,
respectively, MFS received management fees under a prior investment advisory
agreement of $7,861,514, $8,551,732 and $7,253,533. 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 expenses,
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 rescission 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 MFS or MFD),
including: Trustees 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, shareholder reports, notices, proxy statements and reports
to governmental officers and commissions; brokerage and other expenses connected
with the execution, recording and settlement of portfolio security transactions;
insurance premiums; fees and expenses of State Street Bank and Trust Company,
the Fund's custodian, for all services to the Fund, including safekeeping of
funds and securities and maintaining required books and accounts; expenses of
calculating the net asset value of the Fund's shares; 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 its
Distribution Agreement with MFD requires MFD to pay for prospectuses which 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 Fund, during the
Fund's fiscal year ended August 31, 1994, see "Financial Statements -- Statement
of Operations" in the Annual Report.
MFS pays the compensation of the Trust's officers and of any Trustee who is an
officer of MFS. The Adviser also furnishes at its own expense all necessary
administrative services, including office space, equipment, clerical personnel,
investment advisory facilities, and all executive and supervisory personnel
necessary for managing the Fund's investments, effecting the Fund's portfolio
transactions and, in general, administering the Fund's affairs.
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<PAGE> 76
The Advisory Agreement will remain in effect until August 1, 1995, 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 outstanding voting securities (as defined under "Investment
Restrictions") and, in either case, by a majority of the Trustees who are not
parties to the Advisory Agreement or interested persons of any such party. The
Advisory Agreement terminates automatically if it is assigned and may be
terminated without penalty by vote of a majority of the Fund's shares (as
defined in "Investment Restrictions") or by either party on not more than 60
days' nor less than 30 days' written notice. The Advisory Agreement provides
that if MFS ceases to serve as Adviser to the Fund, the Fund will change its
name so as to delete the initials "MFS". The Advisory Agreement further provides
that MFS may render services to others and may permit fund clients in addition
to the Fund to use the initials "MFS" in their names. The Advisory Agreement
also provides that neither MFS nor its personnel shall be liable for any error
of judgment or mistake of law or for any loss arising out of any investment or
for any act or omission in the execution and management of the Fund, except for
willful misfeasance, bad faith or gross negligence in the performance of its or
their duties or by reason of reckless disregard of its or their obligations and
duties under the Advisory Agreement.
CUSTODIAN
State Street Bank and Trust Company (the "Custodian") is the custodian of the
Fund's assets. The Custodian's responsibilities include safekeeping and
controlling the Fund's cash and securities, handling the receipt and delivery of
securities, determining income and collecting interest and dividends on the
Fund's investments, maintaining books of original entry for portfolio and fund
accounting and other required books and accounts, and calculating the daily net
asset value of each class of shares of the Fund. The Custodian does not
determine the investment policies of the Fund or decide which securities the
Fund will buy or sell. The Fund may, however, invest in securities, including
repurchase agreements, issued by the Custodian and may deal with the Custodian
as principal in securities transactions. The Custodian also acts as the dividend
disbursing agent for 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 Agreement, effective August 1, 1985, as amended (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 shares of the Fund. For these services,
the Shareholder Servicing Agent receives a fee based on the net assets of each
class of shares of the Fund, computed and paid monthly based on the net assets
of the class. In addition, the Shareholder Servicing Agent is reimbursed by the
Fund for certain expenses incurred by the Shareholder Servicing Agent on behalf
of the Fund. For the fiscal year ended August 31, 1994, the Fund paid the
Shareholder Servicing Agent $2,028,462 under the Agency Agreement ($1,970,081
for Class A shares and $58,381 for Class B shares). State Street Bank and Trust
Company, the dividend 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 the net asset value of a Class A share by the
difference (expressed as a decimal) between 100% and the sales charge percentage
of offering price applicable to the purchase (see "Purchases" in the
Prospectus). The sales charge scale set forth in the Prospectus applies to
purchases of Class A shares of the Fund alone or in combination with shares of
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"). A group might
qualify to obtain quantity sales charge discounts (see "Investment and
Withdrawal Programs").
Class A shares of the Fund may be sold at their net asset value to certain
persons and in certain instances as described in the Prospectus. Such sales are
made without a sales charge to promote good will with employees and others with
whom MFS, MFD and/or the Fund have business relationships, and because the sales
effort, if any, involved in making such sales is negligible.
MFD allows discounts to dealers (which are alike for all dealers) from the
applicable public offering price of the Class A shares. Dealer allowances
expressed as a percentage of offering price for all offering prices are set
forth in the Prospectus (see "Purchases" in the Prospectus). The difference
between the total amount invested and the sum of (a) the net proceeds to the
Fund and (b) the dealer commission, is the commission paid to the distributor.
Because of rounding in the computation of offering price, the portion of the
sales charge paid to the
10
<PAGE> 77
underwriter may vary and the total sales charge may be more or less than the
sales charge calculated using the sales charge expressed as a percentage of
offering price or as a percentage of the net amount invested as listed in the
Prospectus. In the case of the maximum sales charge, the dealer retains 4% and
MFD retains approximately 3/4 of 1% of the public offering price. In addition,
MFD pays a commission to dealers who initiate and are responsible for purchases
of $1 million or more as described in the Prospectus.
CLASS B SHARES: MFD acts as agent in selling Class B shares of the Fund to
dealers. The public offering price of Class B shares is their net asset value
next computed after the sale (see "Purchases" in the Prospectus).
GENERAL: Neither MFD nor dealers are permitted to delay placing orders to
benefit themselves by a price change. On occasion, 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 August 31, 1994, gross sales charges of the
Fund amounted to $4,049,807, of which $647,256 was retained by MFD and
$3,402,551 by dealers, banks and certain other financial institutions. The Fund
received $212,584,258 representing the aggregate net asset value of such shares.
During the Fund's fiscal year ended October 31, 1993, gross sales charges of the
Fund amounted to $8,369,259, of which $1,126,248 was retained by MFD and
$7,243,011 by dealers, banks and certain other financial institutions. The Fund
received $307,187,506 representing the aggregate net asset value of such shares.
During the Fund's fiscal year ended October 31, 1992, gross sales charges of
shares of the Fund amounted to $9,979,061, of which $1,732,673 was retained by
MFD and $8,246,388 by dealers, banks and certain other financial institutions.
The Fund received $328,855,109 representing the aggregate net asset value of
such shares.
The Distribution Agreement will remain in effect until August 1, 1996, and will
continue in effect thereafter only if such continuance is specifically approved
at least annually by the Board of Trustees or by vote of a majority of the
Trust'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.
4. PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
Specific decisions to purchase or sell securities for the Fund are made by a
portfolio committee, consisting 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 is
execution at the most favorable price. The Adviser has complete freedom as to
the markets in and broker-dealers through which it seeks this result. Municipal
Bonds and other debt securities are traded principally in the over-the-counter
market on a net basis through dealers acting for their own account and not as
brokers. The cost of securities purchased from underwriters includes an
underwriter's commission or concession, and the prices at which securities are
purchased and sold from and to dealers include a dealer's mark-up or mark-down.
The Adviser attempts to negotiate with underwriters to decrease the commission
or concession for the benefit of the Fund. The Adviser normally seeks to deal
directly with the primary market makers unless, in its opinion, better prices
are available elsewhere. Securities firms or futures commission merchants may
receive brokerage commissions on transactions involving Futures Contracts and
Options on Futures Contracts. Subject to the requirement of seeking execution at
the best available price, securities may, as authorized by the Advisory
Agreement, be bought from or sold to dealers who have furnished statistical,
research and other information or services to the Adviser. At present no
arrangements for the recapture of commission payments are in effect.
Consistent with the foregoing primary consideration, the Rules of Fair Practice
of the NASD and such other policies as the Trustees may determine, the Adviser
may consider sales of shares of the Fund and of the other investment company
clients of MFD as a factor in the selection of broker-dealers to execute the
Fund's portfolio transactions.
In certain instances there may be securities which are suitable for the Fund's
portfolio as well as for that of one or more of the other clients of the Adviser
or any subsidiary of the Adviser. Investment decisions for the Fund and for such
other clients are made with a view to achieving their respective investment
objectives. It may develop that a particular security is bought or sold for only
one client even though it might be held by, or bought or sold for, other
clients. Likewise, a particular security may be bought for one or more clients
when one or more other clients are selling that same security. Some simultaneous
transactions are inevitable when several clients receive investment advice from
the same investment adviser, particularly when the same security is suitable for
the investment objectives of more than one client. When two or more clients are
simultaneously engaged in the purchase or sale of the same security, the
securities are allocated among clients in a manner believed 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.
5. SHAREHOLDER SERVICES
INVESTMENT AND WITHDRAWAL PROGRAMS -- The Fund makes available the following
programs designed to enable sharehold-
11
<PAGE> 78
ers to add to their investment or withdraw from it with a minimum of paper work.
These are described below and, in certain cases, in the Prospectus. The programs
involve no extra charge to shareholders (other than a sales charge in the case
of certain Class A share purchases) and may be changed or discontinued at any
time by a shareholder or the Fund.
LETTER OF INTENT: If a shareholder (other than a group purchaser described
below) anticipates purchasing $100,000 or more of Class A shares of the Fund
alone or in combination with shares of either class of other MFS Funds or MFS
Fixed Fund (a bank collective investment fund) within a 13-month period (or
36-month period, in the case of purchases of $1 million or more), the
shareholder may obtain Class A shares of the Fund at the same reduced sales
charge as though the total quantity were invested in one lump sum by completing
the Letter of Intent section of the Fund's Account Application or filing a
separate Letter of Intent application (available from the Shareholder Servicing
Agent) within 90 days of the commencement of purchases. Subject to acceptance by
MFD and the conditions mentioned below, each purchase will be made at a public
offering price applicable to a single transaction of the dollar amount specified
in the Letter of Intent application. The shareholder or his dealer must inform
MFD that the Letter of Intent is in effect each time shares are purchased. The
shareholder makes no commitment to purchase additional shares, but if his
purchases within 13 months (or 36 months, in the case of purchases of $1 million
or more), plus the value of shares credited toward completion of the Letter of
Intent do not total the sum specified, he will pay the increased amount of the
sales charge as described below. Instructions for issuance of shares in the name
of a person other than the person signing the Letter of Intent application must
be accompanied by a written statement from the dealer stating that the shares
were paid for by the person signing such Letter. Neither income dividends nor
capital gain distributions taken in additional shares will apply toward the
completion of the Letter of Intent. Dividends and distributions of other MFS
Funds automatically reinvested in shares of the Fund 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 period or 36-month period, as
applicable), the shareholder will be notified and the escrowed shares will be
released.
If the intended investment is not completed, the Shareholder Servicing Agent
will redeem an appropriate number of the escrowed shares in order to realize
such difference. Shares remaining after any such redemption will be released by
the Shareholder Servicing Agent. By completing and signing the Account
Application or separate Letter of Intent application, the shareholder
irrevocably appoints the Shareholder Servicing Agent his attorney to surrender
for redemption any or all escrowed shares with full power of substitution in the
premises.
RIGHT OF ACCUMULATION: A shareholder qualifies for cumulative quantity
discounts on the purchase of Class A shares when that shareholder's new
investment, together with the current offering price value of all the holdings
of all classes of shares of that shareholder in the MFS Funds or MFS Fixed Fund
(a bank collective investment fund) reaches a discount level (see "Purchases" in
the Prospectus for the sales charges on quantity discounts). For example, if a
shareholder owns shares valued at $75,000 and purchases $25,000 of Class A
shares of the Fund, the sales charge for the $25,000 purchase would be at the
rate of 4% (the rate applicable to single transactions of $100,000). A
shareholder must provide the Shareholder Servicing Agent (or his investment
dealer must provide MFD) with information to verify that the quantity sales
charge discount is applicable at the time the investment is made.
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 shares of one of the other
MFS Funds, if shares of the fund are available for sale. Such investments will
be subject to additional purchase minimums. Distributions will be invested at
net asset value (exclusive of any sales charge) and will not 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, as
designated on the Account Application and 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 establishment of the SWP. SWP payments are drawn
from the proceeds of share redemptions (which would be a return of principal
and, if reflecting a gain, would be taxable). Redemptions of Class B shares will
be made in the following order: (i) any "Free Amount"; (ii) to the extent
necessary, any "Reinvested Shares"; and (iii) to the extent necessary, the
"Direct Purchase" subject to the lowest CDSC (as such terms are defined in
"Contingent Deferred Sales Charge" in the Prospectus). The CDSC will be waived
in the case of redemptions of Class B 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 or fractional shares of the Fund at the net asset
value in effect at
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<PAGE> 79
the close of business on the record date for such distributions. To initiate
this service, shares having an aggregate value of at least $10,000 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 by written instruction to the
Shareholder Servicing Agent 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
the 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 each may be made to up to four different funds
effective on the seventh day of each month or of every third month, depending
whether monthly or quarterly exchanges are elected by the shareholder. If the
seventh day of the month is not a business day, the transaction will be
processed on the next business day. Generally, the initial exchange will occur
after receipt and processing by the Shareholder Servicing Agent of an
application in good order. Exchanges will continue to be made from a
shareholder's account in any MFS Fund, as long as the balance of the account is
sufficient to complete the exchange. Additional payments made to a shareholder's
account will extend the period that exchanges will continue to be made under the
Automatic Exchange Plan. However, if additional payments are added to an account
subject to the Automatic Exchange Plan shortly before an exchange is scheduled,
such funds may not be available for an 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 and the
timing of exchanges (monthly or quarterly), or termination of a shareholder's
participation in the Automatic Exchange Plan will be made after instructions in
writing or by telephone (an "Exchange Change Request") are received by the
Shareholder Servicing Agent in proper form (i.e., if in writing -- signed by the
record owner(s) exactly as shares are registered; if by telephone -- proper
account identification is given by the dealer or shareholder of record). Each
Exchange Change Request (other than termination of participation in the program)
must involve at least $50. Generally, if an Exchange Change Request is received
by telephone or in writing before the close of business on the last business day
of a month, the Exchange Change Request will be effective for the following
month's exchange.
A shareholder's right to make additional investments in any of the MFS Funds, to
make exchanges of shares from one MFS Fund to another and to withdraw from an
MFS Fund, as well as a shareholder's other rights and privileges are not
affected by a shareholder's participation in the Automatic Exchange Plan.
The Automatic Exchange Plan is part of the Exchange Privilege. For additional
information regarding the Automatic Exchange Plan, including the treatment of
any CDSC, see "Exchange Privilege" below.
REINSTATEMENT PRIVILEGE: Shareholders of the Fund and shareholders of the
other MFS Funds (except MFS Money Market Fund, MFS Government Money Market Fund
and holders of Class A shares of MFS Cash Reserve Fund in the case where the
shares are acquired through direct purchase or reinvested dividends) who have
redeemed their shares have a one-time right to reinvest the redemption proceeds
in 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
13
<PAGE> 80
shares of 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 the initial purchase in the case of Class B shares or 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 such 90-day period of time in the same fund may be
considered a "wash sale" and may result in the inability to recognize currently
all or a portion of any loss realized on the original redemption for federal
income tax purposes. Please see your tax adviser for further information.
EXCHANGE PRIVILEGE -- Subject to the requirements set forth below, some or all
of the shares in an account with the Fund for which payment has been received by
the Fund (i.e., an established account) may be exchanged for shares of the same
class of any of the other MFS Funds (if available for sale) 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) record keeping 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. No more than five exchanges may
be made in any one Exchange Request by telephone. If an Exchange Request is
received by the Shareholder Servicing Agent prior to the close of regular
trading on the New York Stock Exchange (the "Exchange"), the exchange usually
will occur on that day if all of the requirements set forth above have been
complied with at that time. However, payment of the redemption proceeds by the
Fund, and thus the purchase of shares of the other MFS Fund, may be delayed for
up to seven days if the Fund determines that such a delay would be in the best
interest of all its shareholders. Investment dealers which have satisfied
criteria established by MFD may also communicate a shareholder's Exchange
Request to 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 holders of 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 reinvested dividends 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 (a bank collective investment fund) have the right to exchange their
units (except units acquired through direct purchase) 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, including certain restrictions on purchases
by market timers (see "Purchases" in the Prospectus).
6. TAX STATUS
The Fund has elected to be treated and intends to qualify each year as a
"regulated investment company" under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code"), by meeting all applicable requirements of
Subchapter M, including requirements as to the nature of the Fund's gross
income, the amount of Fund distributions, and the composition and holding period
of the Fund's portfolio assets. Because the Fund intends to distribute all of
its net investment income and net realized capital gains to shareholders in
accordance with the timing requirements imposed by the Code, it is not expected
that the Fund will be required to pay federal income or excise taxes. If the
Fund should fail to qualify as a "regulated investment company" in any year, the
Fund would incur a regular corporate federal income tax upon its taxable income
and Fund distributions would generally be taxable as ordinary dividend income to
the shareholders.
That part of the Fund's net investment income which is attributable to interest
from tax-exempt securities and which is distributed to shareholders will be
designated by the Fund as an "exempt-interest dividend" under the Code and will
generally be exempt from federal income tax in the hands of shareholders so long
as at least 50% of the total value of the Fund's assets consists of tax-exempt
securities at the close of each quarter of
14
<PAGE> 81
the Fund's taxable year. Distributions of tax-exempt interest earned from
certain securities may, however, be treated as an item of tax preference for
shareholders under the federal alternative minimum tax, and all exempt-interest
dividends may increase a corporate shareholder's alternative minimum tax. The
percentage of income designated as tax-exempt will be applied uniformly to all
distributions by the Fund of net investment income made during each fiscal year
and may differ from the actual tax-exempt percentage for any particular month.
Shareholders are required to report tax-exempt dividends received from the Fund
on their federal income tax returns. The Fund may also recognize some net
investment income that is not tax-exempt, as well as capital gains and losses as
a result of the disposition of securities and from certain options and futures
transactions. Shareholders of the Fund will have to pay federal income taxes on
the non-exempt interest dividends and capital gain distributions they receive
from the Fund.
That portion of net investment income distributions not designated as tax-exempt
and any distributions from net short-term capital gains (whether received in
cash or reinvested in additional shares) are taxable to shareholders as ordinary
income for federal income tax purposes. Because the Fund expects to earn
primarily tax-exempt interest income, it is expected that no Fund dividends will
qualify for the dividends received deduction for corporations. Distributions of
net capital gains (i.e., the excess of the net long-term capital gains over the
short-term capital losses), whether received in cash or invested in additional
shares, are taxable to the Fund's shareholders as long-term capital gains for
federal income tax purposes regardless of how long they have owned shares in the
Fund. Fund dividends declared in October, November, or December and paid the
following January, will be taxable to shareholders as if received on December 31
of the year in which they are declared.
Interest on indebtedness incurred by shareholders to purchase or carry shares of
the Fund will not be deductible for Federal income tax purposes. Exempt-interest
dividends are taken into account in calculating the amount of social security
and railroad retirement benefits that may be subject to federal income tax.
Entities or persons who are "substantial users" (or persons related to
"substantial users") of facilities financed by certain private activity bonds
should consult their tax advisers before purchasing shares of the Fund.
"Substantial user" is defined generally as including a "nonexempt person" who
regularly uses in trade or business a part of a facility financed from the
proceeds of certain private activity bonds.
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. In
general, any gain or loss realized upon a taxable disposition of shares of the
Fund by a shareholder that holds such shares as a capital asset will be treated
as long-term capital gain or loss if the shares have been held for more than
twelve months and otherwise as a short-term capital gain or loss. However, any
loss realized upon a disposition of shares in the Fund held for six months or
less will be disallowed to the extent of any exempt-interest dividends received
with respect to those shares. If not disallowed, any such loss 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 redemption of
shares may also be disallowed under rules relating to wash sales. Gain may be
increased (or loss reduced) upon a redemption of Class A shares of the Fund
within ninety days after their purchase followed by any purchase (including
purchases by exchange or by reinvestment) of the Fund or of any other MFS Fund
(or any other shares of an MFS Fund generally sold subject to a sales charge)
without payment of an additional sales charge of Class A shares.
The Fund's investment in zero coupon bonds, and certain securities purchased at
a market discount will cause it to realize 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 Options on Futures
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 such
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 Options on Futures Contracts to the extent necessary to meet the
requirements of Subchapter M of the Code.
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 taxable dividends and
other payments to Non-U.S. Persons that are subject to such withholding,
regardless of whether a lower treaty rate may be permitted. Any amounts
overwithheld may be recovered by such persons by filing a claim for refund with
the U.S. Internal Revenue Service
15
<PAGE> 82
within the time period applicable to such claims. The Fund is also required in
certain circumstances to apply backup withholding of 31% on taxable dividends
and redemption proceeds paid to any shareholder 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. The
exemption of exempt-interest dividends for federal income tax purposes does not
necessarily result in exemption under the income or other tax laws of any state
or local taxing authority. Some states do exempt from tax that portion of the
exempt-interest dividend which represents interest received by a regulated
investment company on its holding of securities of that state and its political
subdivisions and instrumentalities. Therefore, the Fund will report annually to
its shareholders the percentage of interest income earned by the Fund during the
preceding year on Municipal Bonds and will indicate, on a state-by-state basis
only, the source of such income. Each shareholder is advised to consult his own
tax adviser regarding the exemption of exempt-interest dividends under
applicable state or local law.
7. 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 Statement of Additional Information, the Exchange is open for
trading every weekday except for the following holidays or the days on which
they are observed: New Year's Day, 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. Debt securities
(other than short-term obligations), including listed issues, 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 institution-size trading in similar
groups of securities, yield, quality, coupon rate, maturity, type of issue,
trading characteristics and other market data, without exclusive reliance upon
exchange or over-the-counter prices, since such valuations are believed to
reflect more accurately the fair value of such securities. Use of the pricing
service has been approved by the Trust's 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 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. Portfolio securities for which there
are no such 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 dividends and distributions reinvested and reflecting the CDSC or
the maximum public offering price) to reach the value of that investment at the
end of the periods. The Fund may also calculate (i) a total rate of return,
which is not reduced by the CDSC (4% maximum for Class B shares) and 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 maximum sales
charge (currently 4.75%) and/or (iii) total rates of return which represent
aggregate performance over a period or year-by-year performance, and which may
or may not reflect the effect of the maximum or other sales charge or CDSC. The
Fund's average annual total rate of return for Class A shares reflecting the
initial investment at the maximum public offering price for the one-year,
five-year and ten-year periods ended August 31, 1994 was, respectively, -4.73%,
7.09% and 9.77%. The Fund's average annual total rate of return for Class A
shares, not giving effect to the sales charge on the initial investment, for the
one-year, five-year and ten-year periods ended August 31, 1994 was,
respectively, -0.94%, 8.14% and 10.31%.
The Fund's aggregate total rate of return for Class B shares, reflecting the
CDSC, for the one-year period ended August 31, 1994 was -6.82%. The Fund's
aggregate total rate of return for Class B shares, not reflecting the CDSC for
the one-year period ended August 31, 1994 was -3.04%. The figures presented for
Class B shares are not calculated on an annualized basis. The aggregate total
rate of return represents a limited time frame and, like the total rates of
return presented above for Class A shares, may not be indicative of future
performance.
PERFORMANCE RESULTS: The performance results for Class A shares below, based on
an assumed initial investment of $10,000 in Class A shares, cover the period
from January 1, 1985 to December 31, 1994. It has been assumed that dividend and
capital gain distributions were reinvested in additional shares. These
performance results, as well as any yield, tax-equivalent yield or total rate of
return quotation provided by the Fund, should not be considered as
representative of the performance of the Fund in the future since the net asset
value and public offering price of shares of the Fund will vary based not only
on the type, quality and maturities of the securities held in the Fund's
portfolio, but also on changes in the current value of such securities and on
changes in the expenses of the Fund. These factors and possible differences in
the methods used to calculate yields, tax-equivalent yields and total rates of
return should be considered when comparing the yield, tax-equivalent yield and
total rate of return of the Fund to yields, tax-equivalent
16
<PAGE> 83
yields and total rates of return published for other investment companies or
other investment vehicles. Total rate of return reflects the performance of both
principal and income. Current net asset value as well as account balance
information may be obtained by calling 1-800-MFS-TALK (637-8255).
MFS MUNICIPAL BOND FUND -- CLASS A
<TABLE>
<CAPTION>
VALUE OF VALUE OF VALUE OF
YEAR ENDED INITIAL $10,000 CAPITAL GAIN REINVESTED TOTAL
DECEMBER 31, INVESTMENT DISTRIBUTIONS DIVIDENDS VALUE
- ------------ --------------- ------------- ---------- ------
<S> <C> <C> <C> <C>
1985 10,276 325 890 11,491
1986 10,891 820 1,874 13,585
1987 10,338 778 2,711 13,827
1988 10,665 921 3,852 15,438
1989 10,645 1,358 4,934 16,937
1990 10,584 1,350 6,068 18,002
1991 11,034 1,710 7,571 20,315
1992 11,198 2,041 8,982 22,221
1993 11,793 2,309 11,163 25,265
1994 10,420 2,040 11,163 23,623
</TABLE>
EXPLANATORY NOTES: The results shown in the table assume that the initial
investment was reduced by the current maximum applicable sales charge of 4.75%.
No adjustment has been made for any income taxes payable by shareholders.
YIELD: Any yield quotation for a class of shares of the Fund is based on the
annualized net investment income per share allocated to such class of the Fund
over a 30-day period. The yield for a class of shares of the Fund is calculated
by dividing the net investment income per share of the Fund allocated to such
class earned during the period by the maximum offering price per share of such
class of the Fund on the last day of that period. The resulting figure is then
annualized. Net investment income per share of a class is determined by dividing
(i) the dividends and interest earned by the Fund and allocated to such class
during the period, minus accrued expenses of such class for the period, by (ii)
the average number of Fund shares of such class entitled to receive dividends
during the period multiplied by the maximum offering price per share of such
Class on the last day of the period for Class A shares. The Fund's yield
calculations assume a maximum sales charge of 4.75%. The yield for Class A
shares of the Fund for the 30-day period ended August 31, 1994 was 5.15%. The
yield for Class B shares of the Fund for the 30-day period ended August 31, 1994
was 4.28%.
TAX-EQUIVALENT YIELD: The Fund's tax-equivalent yield is calculated by
determining the rate of return that would have to be achieved on a fully taxable
investment to produce the after-tax equivalent of the Fund's yield. In
calculating tax-equivalent yield, the Fund assumes certain tax brackets for
shareholders. The tax-equivalent yield for Class A shares of the Fund for the
30-day period ended August 31, 1994 was 7.58% (assuming a tax bracket of 28%)
and 7.91% (assuming a tax bracket of 31%). The tax-equivalent yield for Class B
shares of the Fund for the 30-day period ended August 31, 1994 was 6.23%
(assuming a tax bracket of 28%) and 6.50% (assuming a tax bracket of 31%).
CURRENT DISTRIBUTION RATE: Yield, which is calculated according to a formula
prescribed by the Securities and Exchange Commission, is not indicative of the
amounts which were or will be paid to the Fund's shareholders. Amounts paid to
shareholders of each class are reflected in the quoted "current distribution
rate" for that class. The current distribution rate for a class is computed by
dividing the total amount of dividends per share paid by the Fund to
shareholders of that class during the past twelve months by the maximum public
offering price of that class at the end of such period. Under certain
circumstances, such as when there has been a change in the amount of dividend
payout, or a fundamental change in investment policies, it might be appropriate
to annualize the dividends paid over the period such policies were in effect,
rather than using the dividends during the past twelve months. The current
distribution rate differs from the yield computation because it may include
distributions to shareholders from sources other than dividends and interest,
such as premium income for option writing, short-term capital gains and return
of invested capital, and is calculated over a different period of time. The
Fund's current distribution rate calculation for Class A shares assumes a
maximum sales charge of 4.75%. The Fund's current distribution rate calculation
for Class B shares assumes no CDSC is paid. The current distribution rate for
Class A shares of the Fund for the twelve-month period ended on October 31, 1994
was 5.45%. The current distribution rate for Class B shares of the Fund based on
the annualization of the last dividend paid during the last fiscal year was
4.49%.
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.
From time to time the Fund may use charts and graphs to illustrate the past
performance of various indices such as those mentioned above and illustrations
using hypothetical rates of return to illustrate the effects of compounding and
tax-deferral.
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
17
<PAGE> 84
when prices are high and more shares when prices are low. While such a strategy
does not assure a profit or guard against a loss in a declining market, the
investor's average cost per share can be lower than if fixed numbers of shares
are purchased at the same intervals.
MFS FIRSTS: MFS has a long history of innovations.
-- 1924 -- Massachusetts Investors Trust is established as the first 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 let
shareholders take capital gain distributions either in additional shares
or in cash.
-- 1976 -- MFS Municipal Bond Fund is among the first municipal bond funds
established.
-- 1977 --Spectrum becomes the first combination fixed/ variable annuity with
no initial sales charge.
-- 1981 -- MFS World Governments Fund is established as America's first
globally diversified fixed-income mutual fund.
-- 1984 -- MFS Municipal High Income Fund is the first mutual fund to seek
high tax-free income from lower-rated municipal securities.
-- 1986 -- MFS Managed Sectors Fund becomes the first mutual fund to target
and shift investments among industry sectors for shareholders.
-- 1986 -- MFS Municipal Income Trust is the first closed-end, high-yield
municipal bond fund traded on the New York Stock Exchange.
-- 1987 -- MFS Multimarket Income Trust is the first closed-end, multimarket
high income fund listed on the New York Stock Exchange.
-- 1989 -- MFS Regatta becomes America's first non-qualified market-value
adjusted fixed/variable annuity.
-- 1990 -- MFS World Total Return Fund is the first global balanced fund.
-- 1993 -- MFS 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 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.
8. DISTRIBUTION PLAN
The Trustees have adopted a Distribution Plan relating to Class B shares (the
"Class B Distribution Plan") pursuant to Section 12(b) of the 1940 Act and Rule
12b-1 thereunder (the "Rule"), after having concluded that there was a
reasonable likelihood that the Class B Distribution Plan would benefit the Fund
and its Class B shareholders. The Class B Distribution Plan is designed to
promote sales, thereby increasing the net assets of the Fund. Such an increase
may reduce the 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 Class B Distribution Plan provides that the Fund shall pay MFD, as the
Fund's distributor for its Class B shares, a daily distribution fee equal on an
annual basis to 0.75% of the Fund's average daily net assets attributable to
Class B shares and will pay MFD a service fee of up to 0.25% of the Fund's
average daily net assets attributable to Class B shares (which MFD will in turn
pay to securities dealers which enter into a sales agreement with MFD at a rate
of up to 0.25% of the Fund's average daily net assets attributable to Class B
shares owned by investors for whom that securities dealer is the holder or
dealer of record). This service fee is intended to be additional consideration
for all personal services and/or account maintenance services rendered by the
dealer with respect to Class B shares. MFD will advance to dealers the
first-year service fee at a rate equal to 0.25% of the amount invested. As
compensation therefor, MFD may retain the service fee paid by the Fund with
respect to such shares for the first year after purchase. Dealers will become
eligible for additional service fees with respect to such shares commencing in
the thirteenth month following purchase. Except in the case of the first year
service fee, no service fee will be paid to any securities dealer who is the
holder or dealer or record for investors who own 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 if the dealer satisfies certain criteria. Dealers may from
time to time be required to meet certain other criteria in order to receive
service fees. Service fee payments after the first year are currently suspended.
This suspension may be rescinded at any time without notice to shareholders. MFD
or its
18
<PAGE> 85
affiliates are entitled to retain all service fees payable under the Class B
Distribution Plan for which there is no dealer or 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.
The purpose of distribution payments to MFD under the Class B 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. The Class B Distribution Plan
also provides that MFD will receive all CDSCs attributable to Class B shares
(see "Distribution Plan" and "Purchases" in the Prospectus). For the Fund's
fiscal year ended August 31, 1994, the Fund incurred expenses of $265,407 (equal
to 1.00% of the average daily net assets attributable to Class B shares)
relating to the distribution and servicing of its Class B shares, of which MFD
retained $316 and securities dealers of the Fund and certain banks and other
financial institutions received $265,091.
In accordance with the Rule, all agreements relating to the Class B 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 Trustees who are
not "interested persons" (as defined in the 1940 Act) and who have no direct or
indirect financial interest in the operation of the Class B Distribution Plan or
in any agreement related to such Plan ("Class B Distribution Plan Qualified
Trustees"). The Class B Distribution Plan further provides that the selection
and nomination of Class B Distribution Plan Qualified Trustees shall be
committed to the discretion of the non-interested Trustees then in office.
The Class B Distribution Plan will remain in effect until August 1, 1995, and
will continue in effect thereafter only if such continuance is specifically
approved at least annually by vote of the Trustees and a majority of the Class B
Distribution Plan Qualified Trustees. The Class B Distribution Plan requires
that the Fund shall provide to the Trustees, and the Trustees shall review, at
least quarterly, a written report of the amounts expended (and purposes
therefor) under such Plan. The Class B Distribution Plan may be terminated at
any time by vote of a majority of the Class B Distribution Plan Qualified
Trustees or by vote of the holders of a majority of the Class B shares of the
Fund (as defined in "Investment Restrictions" above). The Class B Distribution
Plan may not be amended to increase materially the amount of permitted
distribution expenses without the approval of Class B shareholders and may not
be materially amended in any case without a vote of the majority of both the
Trustees and the Class B Distribution Plan Qualified Trustees. No Trustee who is
not an interested person of the Fund has any financial interest in the Class B
Distribution Plan or in any related agreement.
No distribution plan has been adopted for Class A shares.
9. DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Trust's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional Shares of Beneficial Interest (without par value)
of one or more series and to divide or combine the shares of any series into a
greater or lesser number of shares without thereby changing the proportionate
beneficial interests in that series. The Trustees have currently authorized
shares of the Fund and three other series. The Declaration of Trust further
authorizes the Trustees to classify or reclassify any series of shares into one
or more classes. Pursuant thereto, the Trustees have authorized the issuance of
two classes of shares for this series of the Trust, Class A shares and Class B
shares. Each share of a class of the Fund represents an equal proportionate
interest in the assets of the Fund allocable to that class. The Trust reserves
the right to create and issue additional series or classes of shares, in which
case the shares of each class of a series would participate equally in the
earnings, dividends and assets allocable to that class of the particular series
(subject to any expenses attributable to that class. Upon liquidation of the
Fund, shareholders of each class of the Fund are entitled to share pro rata in
the Fund's net assets allocable to such class available for distribution to
shareholders.
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 in
accordance with the provisions of section 16(c) of the 1940 Act. No material
amendment may be made to the Trust's Declaration of Trust without the
affirmative vote of a majority of its shares (as defined in "Investment
Restrictions") or without a meeting by an instrument in writing, signed by a
majority of the Trustees and consented to by the holders of not less than a
majority of the shares outstanding and entitled to vote. Shares have no
preemptive or conversion rights (except as described in the Prospectus under
"Purchases -- Conversion of Class B Shares"). Shares are fully paid and
nonassessable. The Trust may enter into a merger or consolidation, or sell all
or substantially all of its assets (or all or substantially all of the assets
belonging to any series of the Trust), if approved by the vote of the holders of
two-thirds of the Trust's outstanding shares voting as a single class, or of the
affected series of the Trust, as the case may be, except that if the Trustees of
the Trust recommend such merger, consolidation or sale, the approval by vote of
the holders of a majority of the Trust's or the affected series' outstanding
shares (as defined in "Investment Restrictions") will be sufficient. The Trust
or any series of the Trust may also be terminated (i) upon liquidation and
distribution of its assets, if approved by the vote of the holders of two-thirds
of its outstanding shares, or (ii) by the Trustees by written notice to the
shareholders of the Trust or the affected series. If not so terminated the Trust
will continue indefinitely.
The Trust is an entity of the type commonly known as a "Massachusetts business
trust". Under Massachusetts law,
19
<PAGE> 86
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 or
obligations of the Trust and provides for indemnification and reimbursement of
expenses out of the Trust property for any shareholder held personally liable
for the obligations of the Trust. The Declaration of Trust also provides that
the Trust shall maintain appropriate insurance (for example, fidelity bonding
and errors and omissions insurance) for the protection of the Trust, 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 Trust itself was unable to meet its
obligations.
The Declaration of Trust further provides that obligations of the Trust are not
binding upon the Trustees individually but only upon the property of the Trust
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.
10. INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS
Deloitte & Touche LLP, are the Fund's independent certified public accountants.
The Portfolio of Investments at August 31, 1994, the Statement of Assets and
Liabilities at August 31, 1994, the Statement of Operations for the ten months
ended August 31, 1994 and for the year ended October 31, 1993, the Statement of
Changes in Net Assets for the ten months ended August 31, 1994 and for each of
the two years in the period ended October 31, 1993, the Financial Highlights for
the ten months ended August 31, 1994 and for each of the years in the ten-year
period ended October 31, 1993, 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 Statement of
Additional Information and have been so incorporated in reliance upon the report
of Deloitte & Touche LLP, independent certified public accountants, as experts
in accounting and auditing. A copy of the Annual Report accompanies this
Statement of Additional Information.
20
<PAGE> 87
APPENDIX
THE RATINGS OF MOODY'S INVESTORS SERVICE, INC. ("MOODY'S"), STANDARD & POOR'S
RATINGS GROUP ("S&P") AND FITCH INVESTORS SERVICE, INC. ("FITCH") REPRESENT
THEIR OPINIONS AS TO THE QUALITY OF VARIOUS MUNICIPAL BONDS. IT SHOULD BE
EMPHASIZED, HOWEVER, THAT RATINGS ARE NOT ABSOLUTE STANDARDS OF QUALITY.
CONSEQUENTLY, MUNICIPAL BONDS WITH THE SAME MATURITY, COUPON AND RATING MAY HAVE
DIFFERENT YIELDS WHILE BONDS OF THE SAME MATURITY AND COUPON WITH DIFFERENT
RATINGS MAY HAVE THE SAME YIELD.
DESCRIPTION OF MUNICIPAL 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 risks 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.
S&P
AAA: Bonds rated AAA have the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA: Bonds 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: Bonds 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 bonds in higher rated categories.
BBB: Bonds 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
bonds in this category than in higher rated categories.
FITCH
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 foreseeable 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 and circumstances, 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.
21
<PAGE> 88
EXHIBIT A
<TABLE>
<CAPTION>
RETIREMENT BENEFIT TOTAL TRUSTEE
TRUSTEE FEES ACCRUED AS ESTIMATED FEES FROM
FROM PART OF FUND CREDITED YEARS FUND AND
TRUSTEE FUND(1) EXPENSE(1) OF SERVICE(2) FUND COMPLEX(3)
------- ------------ ------------------ -------------- ---------------
<S> <C> <C> <C> <C>
Richard B. Bailey.................................... 4,897 826 8 226,221
Lawrence T. Perera................................... 5,027 2,962 23 96,592
William Poorvu....................................... 5,122 2,918 23 106,482
Charles W. Schmidt................................... 4,897 2,804 16 98,397
David B. Stone....................................... 5,157 1,377 11 104,007
Elaine R. Smith...................................... 4,897 793 27 98,397
J. Atwood Ives....................................... 5,287 823 17 106,482
Peter G. Harwood..................................... 5,157 279 5 105,812
</TABLE>
- ---------------
(1) For fiscal year ended August 31, 1994.
(2) Based on normal retirement age of 73.
(3) Information provided is provided for calendar year 1994. All Trustees served
as Trustees of 20 funds within the MFS fund complex (having aggregate net
assets at December 31, 1994, of approximately 14,727,659,069) except Mr.
Bailey, who served as Trustee of 56 funds within the MFS fund complex
(having aggregate net assets at December 31, 1994, of approximately
24,474,119,825.
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>
$4,500 ................................................ $675 $1,125 $1,575 $2,250
4,760 ................................................ 714 1,190 1,666 $2,380
5,020 ................................................ 753 1,255 1,757 $2,510
5,280 ................................................ 792 1,320 1,848 $2,640
5,540 ................................................ 831 1,385 1,939 $2,770
5,800 ................................................ 870 1,450 2,030 $2,900
</TABLE>
- ---------------
(4) Other funds in the MFS fund complex provide similar retirement benefits to
the Trustees.
22
<PAGE> 89
INVESTMENT ADVISER
Massachusetts Financial Services Company
500 Boylston Street, Boston, MA 02116
617-954-5000
DISTRIBUTOR
MFS Fund Distributors, Inc.
500 Boylston Street, Boston, MA 02116
(617)954-5000
CUSTODIAN AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company
225 Franklin Street, Boston, MA 02110
SHAREHOLDER SERVICING AGENT
MFS Service Center, Inc.
500 Boylston Street, Boston, MA 02116
Toll free: (800)-225-2606
Mailing Address:
P.O. Box 2281, Boston, MA 02107-9906
AUDITORS
Deloitte & Touche LLP
125 Summer Street, Boston, MA 02110
MFS(R)
MUNICIPAL
BOND FUND
500 BOYLSTON STREET
BOSTON, MA 02116
[MFS LOGO]
MMB-13 3/95 500 17/217
<PAGE> 90
PORTFOLIO OF INVESTMENTS - continuedMunicipal Bonds - continued
S&P
Bond Rating
(Unaudited)
Issuer
Principal Amount
(000 Omitted)
Value
PORTFOLIO OF INVESTMENTS - August 31, 1994Municipal Bonds - 96.4%
S&P
Bond Rating
(Unaudited)
Issuer
Principal Amount
(000 Omitted)
Value
General Obligations - 20.6%
AAA
Berks County, PA, FGIC, 10.065s, 2020
$ 3,600
$ 3,551,256
AAA
Clark County, NV, School District, MBIA, 7s, 2010
4,000
4,363,800
A+
Commonwealth of Massachusetts, 7s, 2007
16,258
17,712,258
A+
Commonwealth of Massachusetts, 6.5s, 2008
5,630
5,886,896
A+
Commonwealth of Massachusetts, 6.5s, 2008
6,400
6,789,760
A+
Commonwealth of Massachusetts, 4.875s, 2010
6,000
5,201,760
AAA
Commonwealth of Massachusetts, FGIC, 7s, 2009
7,000
7,700,140
AAA
Cook County, IL, MBIA, 7.25s, 2007
6,500
7,330,570
AAA
District of Columbia, MBIA, 6s, 2011
6,000
5,904,719
AAA
Fairfax County, VA, 5.2s, 2013
5,150
4,721,211
AA
Florida Board of Education, Capital Outlay, 9.125s, 2014
1,735
2,288,899
AA
Florida Board of Education, Capital Outlay, 7.25s, 2023
7,330
8,001,574
AA
Fulton County, GA, School District, 5.625s, 2021
6,205
5,766,865
A-
New York, NY, 7.5s, 2002
12,500
13,629,500
A-
New York, NY, 7.75s, 2004
9,020
9,941,663
A-
New York, NY, 7.5s, 2006
5,000
5,506,700
A-
New York, NY, 7.65s, 2006
5,000
5,551,100
A-
New York, NY, 7.5s, 2007
15,500
16,973,120
A-
New York, NY, 7.5s, 2008
10,000
10,950,400
A-
New York, NY, 5.75s, 2011
5,000
4,616,600
A-
New York, NY, 8.25s, 2013
3,000
3,439,380
A-
New York, NY, 8.25s, 2015
240
276,221
A-
New York, NY, 6.6s, 2016
4,000
4,089,880
A-
New York, NY, 8s, 2018
2,500
2,824,825
NR
State of California, 5.75s, 1996
20,000
20,320,200
AAA
State of California, AMBAC, 5.5s, 2013
8,720
8,061,029
AAA
State of California, AMBAC, 5.5s, 2014
10,485
9,670,524
AAA
State of California, CAP GTY, 5.125s, 2017
29,975
25,747,623
AAA
State of California, FGIC, 5.5s, 2012
5,445
5,045,718
AAA
State of California, FGIC, 6.25s, 2012**
8,750
8,900,149
AAA
State of California, FGIC, 5.5s, 2015
10,980
10,105,222
AAA
State of California, FSA, 5.15s, 2019
7,000
5,959,659
AAA
State of California, FSA, 5.5s, 2019
9,000
8,167,409
AAA
State of California, FSA, 5.5s, 2020
9,000
8,101,979
AA
State of Florida, Broward County Expressway Authority, 10s, 2014
4,350
6,138,546
AA+
State of Georgia, 6.5s, 2007
4,500
4,864,455
AA-
State of Illinois, 5.875s, 2012
6,000
5,839,859
AA
State of Michigan, Environmental Protection Projects, 6.25s, 2012
17,060
17,353,089
AA
State of Nevada, 6.5s, 2012
9,115
9,388,176
AA
State of Nevada, 6.6s, 2016
15,430
16,007,236
AA
State of Texas, 5s, 2014
25,450
22,416,357
AA
State of Texas (Veterans Land), 7.4s, 2020
8,200
8,885,765
AA
State of Washington, 6.75s, 2010
3,880
4,176,858
AA
State of Washington, 5.75s, 2011
5,000
4,852,550
AA
State of Washington, 6s, 2011
3,400
3,388,236
AA
State of Washington, 5.75s, 2012
5,000
4,819,350
AA
State of Washington, 6s, 2012
4,360
4,321,196
AA
State of Washington, 5.75s, 2013
5,500
5,268,120
AA
State of Washington, 4.875s, 2015
9,500
7,853,079
AA
State of Washington, 5.75s, 2016
5,000
4,744,250
AA
State of Washington, 5.75s, 2017
9,000
8,473,770
AA
State of Washington, 6.125s, 2017
6,400
6,395,775
General Obligations - continued
AA
State of Washington, 6.4s, 2017
$ 5,000
$ 5,163,800
AA
State of Washington, 5.75s, 2018
4,000
3,739,920
$ 427,188,996
State and Community Lease Revenue - 19.8%A-
California Public Works Board, Lease Rev. (California State
UniversityProjects), 5.25s, 2013
$ 4,200
$ 3,589,782
A-
California Public Works Board, Lease Rev. (California State
UniversityProjects), 5.5s, 2019
7,845
6,849,470
A-
California Public Works Board, Lease Rev. (Community College
Projects),5.625s, 2018
3,750
3,334,687
A-
California Public Works Board, Lease Rev. (University of California
Projects),5s, 2023
19,000
15,122,100
AAA
Chicago, IL, Board of Education Lease Certificates, MBIA,6.25s, 2009**
5,160
5,240,959
AAA
Chicago, IL, Board of Education Lease Certificates, MBIA, 6.25s, 2015
24,295
24,345,288
AAA
Chicago, IL, Public Building Rev., MBIA, 5.25s, 2011
5,400
4,918,158
AAA
Convention Center Authority, RI, MBIA, 5.25s, 2015
19,750
17,701,333
A+
Indiana Office Building Community Capital Complex Rev., MBIA, 6.9s, 2011
9,500
10,216,679
NR
Indianapolis, IN, Local Public Improvement Rev., 6.7s, 2017
3,500
3,531,360
AAA
Los Angeles, CA, Convention & Exhibition Center Authority, Lease Rev.,
MBIA,5.125s, 2013
20,595
18,017,122
A+
Massachusetts Bay Transportation Authority, 6s, 2012
5,750
5,681,402
A+
Massachusetts Bay Transportation Authority, 6.2s, 2016
10,200
10,247,430
A+
Massachusetts Bay Transportation Authority, 7s, 2021
10,185
11,239,554
A
Metropolitan Government of Nashville & Davidson Counties,TN, 7s, 2011
5,280
5,675,207
AAA
Metropolitan Transportation Authority, NY, FGIC, 5.5s, 2008
6,250
5,979,187
BBB
Metropolitan Transportation Authority, NY, Service Contract,7.4s, 2001
4,075
4,516,689
BBB
Metropolitan Transportation Authority, NY, Service Contract, 7.375s, 2008
5,000
5,508,450
BBB
Metropolitan Transportation Authority, NY, Service Contract, 7.125s, 2009
6,970
7,444,936
BBB
Metropolitan Transportation Authority, NY, Service Contract, 5.75s, 2015
13,000
12,130,949
A+
Missouri Regional Convention & Sports Complex Authority,5.5s, 2013
14,205
12,910,781
BBB
New York Dormitory Authority Rev. (City University System), 5.75s, 2009
12,455
11,842,088
BBB
New York Dormitory Authority Rev. (City University System),7s, 2009
13,765
14,831,099
BBB
New York Dormitory Authority Rev. (City University System), 7.375s, 2010
4,000
4,457,320
BBB
New York Dormitory Authority Rev. (City University System),7.5s, 2010
15,650
17,525,025
NR
New York Dormitory Authority Rev. (City University System), 10.25s, 2012
1,250
1,330,225
BBB
New York Dormitory Authority Rev. (Court Facilities Lease),5.375s, 2016
6,800
5,993,995
State and Community Lease Revenue - continued
BBB
New York Dormitory Authority Rev. (Department of Health),5.5s, 2020
$ 4,000
$ 3,506,240
BBB
New York Dormitory Authority Rev. (State University Educational
Facilities),5.5s, 2010
10,000
9,243,500
AAA
New York Dormitory Authority Rev. (State University Educational
Facilities),FGIC, 5.375s, 2007
6,000
5,734,019
A
New York Local Government Assistance Corp., 6s, 2014
13,235
12,978,770
BBB+
New York Medical Care Facilities Finance Agency, 8.875s, 2007
4,205
4,677,011
BBB+
New York Medical Care Facilities Finance Agency, 7.875s, 2020
4,050
4,509,958
BBB+
New York Medical Care Facilities Finance Agency (Mental Health
Services),5.375s, 2014
15,000
13,219,950
AAA
New York Medical Care Facilities Finance Agency (Mental Health Services),
FSA,5.375s, 2014
10,550
9,572,015
BBB
New York Urban Development Corp. (Correctional Facilities),7.5s, 2011
6,350
6,949,250
BBB
New York Urban Development Corp. (Correctional Facilities),5.75s, 2013
<PAGE> 91
6,900
6,453,224
BBB
New York Urban Development Corp. (Correctional Facilities),7.5s, 2020
5,750
6,292,628
BBB
New York Urban Development Corp. (Correctional Facilities),5.25s, 2021
5,000
4,243,600
BBB
New York Urban Development Corp. (Correctional Facilities), 5.375s, 2023
5,625
4,828,781
AAA
State of Pennsylvania, Certificates of Participation, AMBAC,5.25s, 2011
22,625
20,369,511
AAA
State of Pennsylvania, Certificates of Participation, AMBAC,5s, 2015
56,765
48,489,225
$ 411,248,957
Refunded and Special Obligations* - 26.5%AAA
Alameda County, CA, Certificates of Participation, BIGI,7.25s, 2000**
$33,115
$ 37,736,198
AAA
Austin, TX, Utility Systems Rev., 10.75s, 2000**
2,615
3,343,382
AAA
Austin, TX, Water, Sewer & Electric Rev., 14.25s, 1997
1,305
1,619,936
AAA
California Public Works Board, Lease Rev. (University of California
Projects),6.6s, 2002
5,600
6,232,296
AA
Chicago, IL, Metropolitan Water Reclamation District, 6.8s, 2000
8,000
8,787,040
AAA
Chicago, IL, Public Building Rev., MBIA, 7.125s, 2015
6,590
7,280,039
AAA
Clark County, NV, School District, FGIC, 7s, 2001
10,050
11,196,806
A+
Commonwealth of Massachusetts, 6.875s, 2001
4,825
5,395,556
AAA
Commonwealth of Massachusetts, FGIC, 7.25s, 2000
11,220
12,617,002
AAA
Cook County, IL, MBIA, 7s, 2000
4,250
4,757,450
AAA
Culver City, CA, Redevelopment Finance Authority, AMBAC,7.1s, 1999
6,775
7,583,800
AA
Cumberland County, ME, 6.95s, 2001
6,000
6,668,520
AAA
Detroit, MI, AMBAC, 7.2s, 1999
7,720
8,589,658
AAA
Detroit, MI, Water Supply System Rev., FGIC, 7.25s, 2000
4,575
5,169,384
A
Eden Township, CA, Health Facilities Authority (Eden Hospital), 7.8s, 1998
4,000
4,494,960
AA
Florida Board of Education, Capital Outlay, 7.25s, 2000
7,730
8,723,692
AAA
Florida Board of Education, Capital Outlay, 9.125s, 2014
265
355,879
NR
Indianapolis, IN, Local Public Improvement Rev., 7.4s, 2000
3,710
4,209,700
Refunded and Special Obligations* - continued
AAA
Los Angeles, CA, Convention & Exhibition Center Authority, Certificates
ofParticipation, 7.375s, 1999
$17,700
$ 19,891,260
AAA
Maryland Health & Higher Education Facilities Authority Rev. (University
ofMaryland Medical System), FGIC, 7s, 2001
7,945
8,941,144
NR
Massachusetts Health & Education Facilities Authority Rev.
(YouvilleHospital), FHA, 9.1s, 1996
4,570
4,954,748
AAA
Massachusetts Port Authority Rev., 13s, 2013
3,500
5,688,340
AAA
Massachusetts Water Resources Authority, 7.5s, 2000
15,850
18,035,398
AAA
Massachusetts Water Resources Authority, 7.625s, 2000
15,760
18,027,864
AAA
Massachusetts Water Resources Authority, 6.875s, 2001
3,870
4,346,939
BBB
Metropolitan Transportation Authority, NY, Service Contract,7.5s, 2000
4,350
4,981,403
AAA
Michigan Hospital Finance Authority Rev. (Oakwood Hospital), FGIC, 7.1s,2000
4,000
4,489,680
AAA
Michigan Hospital Finance Authority Rev. (Oakwood Hospital), FGIC, 7.2s,2000
18,590
20,984,020
AAA
Michigan Municipal Bond Authority Rev. (Wayne County Project), 7s, 2000
10,000
11,162,100
AAA
Missouri Regional Convention & Sports Complex Authority,6.8s, 2003
14,500
16,086,010
AAA
Missouri Regional Convention & Sports Complex Authority,6.9s, 2003
21,520
24,107,350
A-
New York, NY, 8.25s, 2001
2,760
3,319,066
BBB
New York Dormitory Authority Rev. (City University), 7.875s, 2000
10,600
12,308,190
AAA
New York Medical Care Facilities Finance Agency, 8.875s, 1997
3,745
4,264,244
AAA
New York Medical Care Facilities Finance Agency, 7.875s, 2000
5,590
6,521,238
NR
New York Urban Development Corp. (Correctional Facilities),7.5s, 2001
5,000
5,742,350
NR
New York Urban Development Corp. (Correctional Facilities), 7.625s, 2001
7,570
8,744,637
NR
New York Urban Development Corp. (Correctional Facilities), 7.375s, 2002
4,000
4,604,680
AAA
Pennsylvania Convention Center Authority Rev., 6.7s, 2016
27,945
29,748,546
AAA
Philadelphia, PA, Municipal Authority Rev., FGIC, 7.8s, 1998
385
430,249
AAA
Philadelphia, PA, Municipal Authority Rev., FGIC, 7.8s, 2000
3,765
4,281,106
AAA
Philadelphia, PA, Municipal Authority Rev., FGIC, 7.1s, 2001
6,000
6,816,840
AAA
Philadelphia, PA, Municipal Authority Rev., MBIA, 7.125s, 2001
4,500
5,119,335
AAA
Philadelphia, PA, School District, MBIA, 7s, 2001
9,440
10,556,374
AAA
Quincy, MA, (Quincy City Hospital), FHA, 7.875s, 1996
7,000
7,576,450
AAA
Rhode Island Depositors Economic Protection Corp., 6.9s, 2002
5,000
5,593,800
AA-
Richmond, VA, 7s, 2000
4,750
5,275,683
AA
Richmond, VA, 6.7s, 2001
4,995
5,510,484
AAA
San Diego, CA, Regional Building Authority Lease Rev., MBIA, 7.25s, 2000
4,000
4,496,560
A+
Santa Clara County, CA, Certificates of Participation (American Baptist
HomesWest), 8s, 1998
5,200
5,837,052
AAA
South Coast Air Quality Management District Building Corp., CA,
InstallmentSale Rev., AMBAC, 7.125s, 1999
5,550
6,194,799
AAA
Southern California Public Power Authority, 12s, 1997
2,400
2,873,928
AA
State of Florida, Jacksonville Transportation Authority, 7.375s, 1999
4,000
4,482,920
AAA
State of Florida, Jacksonville Transportation Authority, 9.2s, 2015
2,000
2,725,300
AA
State of Georgia, 6.25s, 2000
4,000
4,320,560
AA
State of Nevada, 6.8s, 2002
3,565
3,758,187
AAA
Sullivan County, TN, Health, Education and Housing Facilities Board
Rev.,MBIA, 7.25s, 2000
4,000
4,494,920
Refunded and Special Obligations* - continued
AA
Washington Public Power Supply System Rev., Nuclear Project
1, 8s, 2000
$ 3,000
$ 3,488,940AAA
Washington Public Power Supply System Rev., Nuclear Project
2, 7.375s,2000
28,845
32,616,195AAA
Washington Public Power Supply System Rev., Nuclear Project
2, FGIC, 7.625s,2001
10,815
12,397,883AA
Washington Public Power Supply System Rev., Nuclear Project
3, 7.25s, 2000
20,000
22,333,200AAA
Washington Suburban Sanitation District, MD, General Construction, 6.9s,2000
3,030
3,359,119
AAA
Washington Suburban Sanitation District, MD, General Construction, 6.9s,2000
3,245
3,597,471
$ 549,847,860
Multi-Family Housing Revenue - 0.2%NR
Colorado Housing Finance Authority, 8.3s, 2023
$ 4,000
$ 4,196,480
Insured Health Care Revenue - 6.7%
AAA
Augusta County, VA, Industrial Development Authority, Hospital Rev.
(AugustaHospital Corp.), AMBAC, 5.125s, 2021
$10,700
$ 9,028,659
AAA
California Health Facilities Financing Authority Rev. (Catholic West),
AMBAC,5s, 2021
5,550
4,552,665
AAA
California Statewide Community Development Authority Rev., Certificates
ofParticipation (Sutter), MBIA, 5.5s, 2013
9,000
8,273,069
AAA
Colorado Health Facilities Authority Rev. (PSL Health Systems), FSA,
7.25s,2016
4,905
5,355,083
AAA
Davenport, IA, Hospital Rev. (St. Luke's Hospital), AMBAC,7.4s, 2020
2,715
2,980,391
AAA
Delaware County, PA, Hospital Rev. (Delaware Memorial Hospital), MBIA,
7.2s,2019
4,735
5,121,565
AAA
Delaware County, PA, Hospital Rev. (Keystone Health System), MBIA, 7.2s,2019
5,440
5,884,122
AAA
Henderson, NV, Health Care Facility Rev. (Catholic West), AMBAC, 5s, 2020
5,000
4,125,550
AAA
Illinois Health Facilities Authority (Methodist Healthcare Center),
MBIA,10.328s, 2021
3,000
3,212,190
AAA
Illinois Health Facilities Authority (Presbyterian Medical Center),
MBIA,10.274s, 2024
6,000
6,305,220
AAA
Jefferson County, KY, Hospital Rev. (Alliant Health System), MBIA,
9.59s,2014
8,900
9,237,577
AAA
Loma Linda, CA, Hospital Rev. (University Medical Center), MBIA, 5s, 2013
9,550
8,231,144
A
Los Angeles, CA (Hollywood Presbyterian Hospital), 9s, 2013
5,250
5,470,395
AAA
Massachusetts Health & Education Facilities Authority (Massachusetts
GeneralHospital), AMBAC, 6.25s, 2012
5,750
5,853,902
AAA
Massachusetts Health & Education Facilities Authority (University
Hospital),MBIA, 7.25s, 2019
6,000
6,464,940
AAA
Medical Center Hospital Authority, GA, Rev., MBIA, 9.408s, 2010
5,000
5,264,250
AAA
Metro Health Facilities Development Corp., TX (Wilson N. Jones
MemorialHospital), Connie Lee, 5.6s, 2017
4,250
3,847,907
AAA
Michigan Hospital Finance Authority Rev. (Sisters of Mercy), MBIA,
5.375s,2014
7,000
6,320,369
AAA
New Jersey Health Care Facilities Finance Authority (Overlook Hospital),
FGIC,6.7s, 2013
7,000
7,412,859
Insured Health Care Revenue - continued
AAA
Peninsula Ports Authority, VA, Hospital Facilities Rev. (Whittaker
MemorialHospital), FHA, 8.7s, 2023
$ 1,595
$ 1,716,666
AAA
Salt Lake City, UT, Hospital Rev. (Intermountain Health Care), AMBAC,
10.632s,2020
2,000
2,112,320
AAA
Sayre, PA, Health Care Facilities Authority Rev. (Guthrie Healthcare
Systems),AMBAC, 7s, 2011
6,000
6,548,158
AAA
<PAGE> 92
Tarrant County, TX, Health Facilities Development Corp., Hospital Rev.
(FortWorth Osteopathic), MBIA, 6s, 2021
6,000
5,874,540
AAA
Washington County, PA, Hospital Authority (Washington Hospital), AMBAC,
7.15s,2017
9,000
9,797,760
$ 138,991,301
Health Care Revenue - 3.4%AA
California Statewide Community Development Authority Rev., Certificates
ofParticipation (St. Joseph's Hospital), 5.5s, 2014
$18,735
$ 16,865,995
AA-
Colorado Health Facilities Authority Rev. (Sisters of Charity Health
CareSystem), 5.25s, 2014
3,000
2,658,210
A+
Cuyahoga County, OH, Hospital Rev. (Cleveland Clinic), 8s, 2015
8,550
9,329,076
AA
North Central Texas, Health Facilities Development Corp. Rev.
(BaylorUniversity Medical Center), 10.435s, 2016
4,000
4,279,400
A-
San Joaquin County, CA, General Hospital, 6.25s, 2013
21,400
20,699,364
NR
Travis County, TX, Health Facilities Development Corp. (Daughters ofCharity/
Seton Medical Center), 10.125s, 2015
14,815
15,936,347
$ 69,768,392
Electric and Gas Utility Revenue - 5.4%A
Austin, TX, Water, Sewer & Electric Rev., 14s, 2001
$ 1,350
$ 1,881,266
A+
Georgia Municipal Electric Authority, 6.375s, 2016
5,000
5,113,800
AAA
Georgia Municipal Electric Authority, FGIC,6.375s, 2016
8,000
8,125,039
AA
Intermountain Power Agency, UT, 9.375s, 2018
3,300
3,501,432
AA
Los Angeles, CA, Department of Water & Power, Waterworks Rev., 5.25s, 2018
6,700
5,803,272
AAA
M-S-R Public Power Agency, CA (San Juan Project Rev.), AMBAC, 6s, 2020
4,000
3,892,200
AAA
Municipal Electric Authority of Georgia, Special Obligation,AMBAC, 6.4s,2013
3,750
3,884,775
AAA
Municipal Electric Authority of Georgia, Special Obligation,AMBAC, 6.5s,2017
8,510
8,804,701
AAA
Municipal Electric Authority of Georgia, Special Obligation, AMBAC,
7.8s,2020
7,000
7,617,819
AAA
Northern California Transmission Agency (Oregon Transmission), MBIA, 7s,2013
4,000
4,425,480
AA-
Orlando, FL, Utilities Commission, Water & Electric Rev.,6.75s, 2017
4,225
4,590,209
AAA
Piedmont Municipal Power Agency, SC, Electric Rev., FGIC,7.4s, 2018
5,000
5,362,450
AA-
Southern California Public Power Authority, Transmission Project Rev.,
0s,2005
11,185
5,906,575
A+
Tacoma, WA, Department of Public Utilities Rev., 9.375s, 2015
1,110
1,197,757
AA
Washington Public Power Supply System Rev., Nuclear Project
1, 5.7s, 2010
8,000
7,535,840AAA
Washington Public Power Supply System Rev., Nuclear Project
1, MBIA, 5.7s,2017
11,750
10,927,029AA
Washington Public Power Supply System Rev., Nuclear Project
2, 7s, 2012
13,580
14,312,098Electric and Gas Utility Revenue - continued
AA
Washington Public Power Supply System Rev., Nuclear Project
3, 0s, 2003
$10,000
$ 5,926,399AAA
Washington Public Power Supply System Rev., Nuclear Project
3, FGIC, 0s,2005
6,895
3,656,419
$ 112,464,560
Water and Sewer Utility Revenue - 4.2%AA
Birmingham, AL, Waterworks & Sewer Board, 5.5s, 2020
$ 4,600
$ 4,190,600
AAA
Calleguas-Las Virgines, CA, Public Financing Authority, FGIC,5.125s, 2014
8,500
7,427,979
AA
Los Angeles County, CA, Sanitation District Financing Authority, 5.25s,2009
5,000
4,560,150
AA
Metropolitan Water District of Southern California, 5.5s, 2019
7,625
6,907,258
AAA
New York, NY, Municipal Water Finance Authority, Water & Sewer System
Rev.,MBIA, 5.5s, 2023
9,000
8,147,069
A-
New York Environmental Facilities Corp., Pollution Control Rev., 5.875s,2014
42,670
41,232,448
AAA
Philadelphia, PA, Water & Wastewater Rev., CAP GTY,5.5s, 2015
4,500
4,163,355
AAA
San Diego, CA, Sewer Rev., AMBAC, 5.25s, 2020
5,950
5,138,360
AAA
Upper Occoquan Sewer Authority, VA, FGIC, 5s, 2021
6,595
5,497,988
$ 87,265,207
Turnpike Revenue - 3.4%AA+
Harris County, TX, Toll Road, 6.75s, 2014
$30,000
$ 31,536,000
AA+
Harris County, TX, Toll Road, 6.5s, 2015
9,600
9,957,407
AAA
Harris County, TX, Toll Road, AMBAC, 5s, 2016
5,000
4,247,450
BBB
Triborough Bridge & Tunnel Authority, NY, 7.25s, 2010
22,905
25,373,928
$ 71,114,785
Airport and Port Revenue - 0.4%AAA
Connecticut Airport Rev., FGIC, 7.65s, 2012
$ 5,000
$ 5,691,200
AA-
Port Authority, New York & New Jersey, 6.875s, 2025
3,000
3,165,120
$ 8,856,320
Sales and Excise Tax Revenue - 0.9%AA-
Connecticut Special Tax Obligation Rev., Transportation Infrastructure,
6.5s,2012
$ 5,000
$ 5,272,600
AAA
Illinois Dedicated Tax Rev. (Civic Center), AMBAC, 6.25s, 2011
3,640
3,708,432
AAA
Illinois Sales Tax Rev., 0s, 2009
8,965
3,648,037
A+
Metro Atlanta Rapid Transit Authority, GA, 6.25s, 2018
4,580
4,647,876
$ 17,276,945
Industrial Revenue (Corporate Guarantee) - 0.7%A
Darlington County, SC, Pollution Control Rev. (Carolina Power & Light),
6.6s,2010
$ 3,000
$ 3,111,300
AAA
Mercer County, ND, Pollution Control (Antelope Valley Station), AMBAC,
7.2s,2013
4,000
4,304,960
AAA
Michigan State Strategic Fund Rev. (Detroit Edison), MBIA,7s, 2008
3,000
3,305,310
AAA
Northeast Maryland Waste Disposal Authority (Harford County
ResourceRecovery), MBIA, 7.2s, 2005
3,000
3,311,130
$ 14,032,700
Universities - 1.5%
AAA
Montgomery County, PA, Higher Education & Health Authority Rev.
(St.Joseph's), Connie Lee, 6.5s, 2012
$ 3,500
$ 3,595,480
AAA
Pennsylvania Higher Education Facilities Authority, College & University
Rev.(Hahnemann University), MBIA, 7.2s, 2019
4,015
4,307,131
AA+
Texas A & M University (Permanent University Fund), 0s, 2007
6,695
3,165,730
AA+
Texas A & M University (Permanent University Fund), 0s, 2008
7,175
3,178,740
NR
University of California, Certificates of Participation (UCLA Center
Project),5.5s, 2017
8,000
7,161,439
NR
University of California, Certificates of Participation (UCLA Center
Project),5.6s, 2020
4,000
3,586,240
AAA
University of California, Multi-Purpose Projects Rev., AMBAC, 5.125s, 2018
5,635
4,832,914
AAA
University of California, Multi-Purpose Projects Rev., AMBAC, 4.875s, 2019
2,000
1,632,500
$ 31,460,174
Special Assessment District - 1.2%AAA
Corona, CA, Redevelopment Agency, FGIC, 6.25s, 2016
$ 3,000
$ 3,011,250
AAA
Culver City, CA, Redevelopment Finance Authority, AMBAC,7.1s, 2010
560
601,916
AAA
Glendale, CA, Redevelopment Agency, AMBAC, 5.5s, 2013
3,430
3,186,881
AAA
San Jose, CA, Redevelopment Agency, Tax Allocation Rev., MBIA, 6s, 2010
5,500
5,537,619
AAA
San Jose, CA, Redevelopment Agency, Tax Allocation Rev., MBIA, 5.25s, 2016
4,250
3,731,882
AAA
San Marcos, CA, Public Facilities Authority, Tax Allocation Rev., CAP
GTY,5.5s, 2023
10,000
8,928,400
$ 24,997,948
Other - 1.5%AAA
Hillsborough County, FL, Capital Improvement Program Rev., Criminal
JusticeFacilities, FGIC, 5.25s, 2016
$ 5,000
$ 4,417,550
AA+
Indianapolis, IN, Local Public Improvement Board, 6s, 2018
7,715
7,469,353
AAA
Rhode Island Depositors Economic Protection Corp., FSA,5.5s, 2020
16,520
14,938,045
AA-
York County, PA, Industrial Development Rev., 8.2s, 2014
4,250
4,626,890
$ 31,451,838
Total Municipal Bonds (Identified Cost,$1,899,547,707) $2,000,162,463
PORTFOLIO OF INVESTMENTS - continuedFloating Rate Demand Notes - 1.2%
Issuer
Principal Amount
(000 Omitted)
Value
Harris County, TX, Industrial Development Corp. (Exxon), due3/01/24
$ 400
$ 400,000
Jackson County, MS, Pollution Control Rev. (Chevron), due 12/01/16
100
100,000
Lincoln County, WY, Pollution Control Rev. (Exxon), due 11/01/14
400
400,000
Lubbock, TX, Health Facilities Development, due 7/01/13
3,100
3,100,000
New York City Municipal Water Finance Authority, due 6/15/23
4,300
4,300,000
New York City Municipal Water Finance Authority, due 6/15/24
2,700
2,700,000
New York City Municipal Water Finance Authority, due 8/15/24
600
600,000
Peninsula Ports Authority, VA, due 12/01/05
2,400
2,400,000
Sublette County, WY, Pollution Control Rev., due 11/01/14
2,500
2,500,000
Uinta County, WY, Pollution Control Rev., due 8/15/20
7,600
7,600,000
Uinta County, WY, Pollution Control Rev., due 12/01/22
1,800
1,800,000
Total Floating Rate Demand Notes, at Identified Cost $ 25,900,000
Short-Term Obligations - 0.5%
New York, NY, 4.75s, due 6/30/95
$ 3,100
$ 3,116,096
New York City Municipal Water Finance Authority, 3.75s, due 12/15/94
6,500
6,544,070
Total Short-Term Obligations, at Amortized Cost and Value $ 9,660,166
Total Investments (Identified Cost, $1,935,107,873)
$2,035,722,629
Other Assets, Less Liabilities - 1.9%39,915,668
Net Assets - 100.0%
$2,075,638,297
*Dates indicated are refunding dates.
**Security segregated as collateral for an open futures contract.
See notes to financial statements
<PAGE> 93
FINANCIAL STATEMENTSStatement of Assets and Liabilities
August 31, 1994
Assets:
Investments, at value (identified cost, $1,935,107,873)
$2,035,722,629
Cash
79,942
Receivable for investments sold
16,710,488
Receivable for Fund shares sold
22,043,875
Interest receivable
29,043,593
Other assets
29,764
Total assets
$2,103,630,291
Liabilities:
Distributions payable
$ 4,018,289
Payable for investments purchased
16,662,151
Payable for when-issued investments purchased
4,048,320
Payable for Fund shares reacquired
2,208,645
Payable for daily variation margin on open futures contracts
563,313
Payable to affiliates -
Management fee
23,415
Shareholder servicing agent fee
6,587
Distribution and service fee
19,471
Accrued expenses and other liabilities
441,803
Total liabilities
$ 27,991,994
Net assets
$2,075,638,297
Net assets consist of:
Paid-in capital
$1,988,851,766
Unrealized appreciation on investments
98,863,224
Accumulated net realized loss on investments
(5,354,109)
Accumulated distributions in excess of net investment income
(6,722,584)
Total
$2,075,638,297
Shares of beneficial interest outstanding
194,313,954
Class A shares: Net asset value and redemption price pershare
(net assets of $2,030,734,254 190,107,273 shares of
beneficialinterestoutstanding)
$10.68
Offering price per share (100/95.25)
$11.21
Class B shares: Net asset value, offering price andredemption price per share
(net assets of $44,904,043 4,206,681 shares ofbeneficialinterest outstanding)
$10.67
On sales of $100,000 or more, the offering price of Class A shares isreduced.
A contingent deferred sales charge may be imposed on redemptions ofClass A and
Class B shares.
See notes to financial statements
FINANCIAL STATEMENTS - continuedStatements of Operations
Period Ended
August 31, 1994
Year Ended
October 31, 1993
Net investment income:
Interest income
$ 108,130,577
$129,011,487
Expenses -
Management fee
$ 7,253,533
$ 8,551,732
Trustees' compensation
57,276
61,567
Shareholder servicing agent fee (Class A)
1,970,081
2,181,164
Shareholder servicing agent fee (Class B)
58,381
1,515
Distribution and service fee (Class B)
265,407
6,876
Custodian fee
363,458
403,832
Postage
142,502
236,654
Printing
78,764
87,392
Auditing fees
78,620
69,314
Legal fees
18,257
56,696
Miscellaneous
529,810
442,137
Total expenses
$ 10,816,089
$ 12,098,879
Net investment income
$ 97,314,488
$116,912,608
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions
$ (12,947,382)
$ 45,198,816
Futures contracts
7,776,913
(8,003,538)
Net realized gain (loss) on investments
$ (5,170,469)
$ 37,195,278
Change in unrealized appreciation (depreciation) -
Investments
$ (142,007,681)
$166,408,129
Futures contracts
(1,760,907)
(1,716,875)
Net unrealized gain (loss) on investments
$ (143,768,588)
$164,691,254
Net realized and unrealized gain (loss) on investments
$ (148,939,057)
$201,886,532
Increase (decrease) in net assets from operations
$ (51,624,569)
$318,799,140
See notes to financial statements
FINANCIAL STATEMENTS - continuedStatements of Changes in Net Assets
Period Ended
Year Ended October 31,
August 31, 1994
1993
1992
Increase (decrease) in net assets:
From operations -
Net investment income
$ 97,314,488
$ 116,912,608
$ 111,654,072
Net realized gain (loss) on investments
(5,170,469)
37,195,278
24,885,189
Net unrealized gain (loss) on investments
(143,768,588)
164,691,254
(9,435,385)
Increase (decrease) in net assets from operations
$ (51,624,569)
$ 318,799,140
$ 127,103,876
Equalization
$
--
$
--
$ 348,497
Distributions declared to shareholders -
From net investment income (Class A)
$
(89,895,416)
$
(120,496,324)
$
(111,540,431)
From net investment income (Class B)
(1,157,886)
(30,652)
--
In excess of net investment income (Class A)
(6,715,969)
(6,260,261)
--
In excess of net investment income (Class B)
(6,615)
(925)
--
From net realized gain on investments (Class A)
(29,910,644)
(26,678,481)
(25,596,871)
From net realized gain on investments (Class B)
(173,779)
--
--
In excess of net realized gain on investments(Class A)
(5,268,443)
--
--
In excess of net realized gain on investments(Class B)
(85,666)
--
--
Total distributions declared to shareholders
$
(133,214,418)
$
(153,466,643)
$
(137,137,302)
Fund share (principal) transactions -
Net proceeds from sale of shares
$ 419,165,214
$ 287,246,301
$ 303,522,666
Net asset value of shares issued to shareholders in reinvestment
ofdistributions
78,691,850
90,336,552
78,836,581
Cost of shares reacquired
(442,427,997)
(215,763,795)
(210,247,522)
Increase (decrease) in net assets from Fund share transactions
$ 55,429,067
$ 161,819,058
$ 172,111,725
Total increase (decrease) in net assets
$
(129,409,920)
$ 327,151,555
$ 162,426,796
Net assets:
At beginning of period
2,205,048,217
1,877,896,662
1,715,469,866
At end of period (including accumulated undistributed(distributions in
excess of) net investment income of $(6,722,584),$(6,261,186) and $9,778,168,
respectively)
$2,075,638,297
$2,205,048,217
$1,877,896,662
See notes to financial statements
FINANCIAL STATEMENTS - continuedFinancial Highlights
Period Ended
Year Ended October 31,
August 31, 1994+ +
1993
1992
1991
1990
1989
1988
Class A
Per share data (for a share outstanding throughout eachperiod):
Net asset value - beginning of period
$11.64
$10.73
$10.80
$10.11
$10.53
$10.57
$ 9.71
Income from investmentoperations -
Net investment income
$ 0.51
$ 0.61
$ 0.66
$ 0.68
$ 0.68
$ 0.72
$ 0.73
Net realized and unrealized gain (loss) on investments
(0.77)
<PAGE> 94
1.14
0.09
0.69
(0.13)
0.04
0.86
Total from investmentoperations
$ (0.26)
$ 1.75
$ 0.75
$ 1.37
$ 0.55
$ 0.76
$ 1.59
Less distributions declared to shareholders -
From net investment income
$ (0.47)
$ (0.66)
$ (0.66)
$ (0.68)
$ (0.69)
$ (0.72)
$ (0.73)
In excess of net investmentincome
(0.04)
(0.03)
--
--
--
--
--
From paid-in capital
--
--
--
--
(0.01)
--
--
(0.16)
(0.15)
(0.16)
--
(0.27)
(0.08)
--
From net realized gain on investments
In excess of net realized gain oninvestments
(0.03)
--
--
--
--
--
--
Total distributions declared to shareholders
$ (0.70)
$ (0.84)
$ (0.82)
$ (0.68)
$ (0.97)
$ (0.80)
$ (0.73)
Net asset value - end of period
$10.68
$11.64
$10.73
$10.80
$10.11
$10.53
$10.57
Total return*
(2.33)%
16.97%
7.35%
13.85%
5.42%
7.54%
16.95%
Ratios (to average net assets)/Supplemental data:
Expenses
0.59%+
0.59%
0.57%
0.59%
0.60%
0.64%
0.65%
Net investment income
5.49%+
5.63%
6.12%
6.47%
6.69%
6.87%
7.16%
Portfolio turnover
74%
56%
87%
98%
160%
199%
190%
$2,031
$2,195
$1,878
$1,715
$1,409
$1,259
$1,003
Net assets at end of period (000,000 omitted)
+
Annualized.
+ +
For the period from November 1, 1993 to August 31, 1994.
*
Total returns for Class A shares do not include the sales charge. If thesales
charge had been included, the results would have been lower.
For periods ending after October 31, 1993, calculation based on averageshares
outstanding.
See notes to financial statements
FINANCIAL STATEMENTS - continuedFinancial Highlights - continued
Year Ended October 31,
1987
1986
1985
1984
Period Ended
August 31, 1994+ +
Year Ended
October 31, 1993
**
Class A
Class B
Per share data (for a share outstanding throughout eachperiod):
Net asset value - beginning of period
$11.00
$10.02
$ 9.12
$ 9.16
$11.63
$11.68
Income from investment
operations -
Net investment income
$ 0.72
$ 0.78
$ 0.82
$ 0.78
$ 0.40
$ 0.07
Net realized and unrealized gain (loss) on investments
(0.90)
1.27
0.89
(0.03)
(0.77)
(0.05)
Total from investmentoperations
$ (0.18)
$ 2.05
$ 1.71
$ 0.75
$ (0.37)
$ 0.02
Less distributions declared toshareholders -
From net investment income
$ (0.72)
$ (0.78)
$ (0.81)
$ (0.79)
$ (0.40)
$ (0.07)
***
From net realized gain on investments
(0.39)
(0.29)
--
--
(0.16)
--
In excess of net realized gain on investments
--
--
--
--
(0.03)
--
Total distributions declared to shareholders
$ (1.11)
$ (1.07)
$ (0.81)
$ (0.79)
$ (0.59)
$ (0.07)
Net asset value - end of period
$ 9.71
$11.00
$10.02
$ 9.12
$10.67
$11.63
Total return*
(1.98)%
21.79%
19.64%
8.65%
(3.25)%
1.49%+
Ratios (to average net assets)/Supplemental data:
Expenses
0.61%
0.64%
0.69%
0.75%
1.72%+
1.70%+
Net investment income
6.96%
7.45%
8.50%
8.70%
4.41%+
3.85%+
Portfolio turnover
218%
164%
225%
348%
74%
56%
Net assets at end of period(000,000 omitted)
$ 903
$ 844
$ 469
$ 318
$ 45
$ 10
+
Annualized.
+ +
For the period from November 1, 1993 to August 31, 1994.
*
Total returns for Class A shares do not include the sales charge. If thesales
charge had been included, the results would have been lower.
**
For the period from the commencement of offering of Class B shares,September
7, 1993 to October 31, 1993.
***
Includes a per share distribution in excess of net investment income of$0.002.
For periods ending after October 31, 1993, calculation based on averageshares
outstanding.
See notes to financial statements
NOTES TO FINANCIAL STATEMENTS - continued
NOTES TO FINANCIAL STATEMENTS(1) Business and OrganizationMFS Municipal
Bond Fund (the Fund) is a diversified series of MFS SeriesTrust IV (the
Trust). The Trust is organized as a Massachusetts business trustand is
registered under the Investment Company Act of 1940, as amended, as anopen-end
management investment company. During 1994 the Fund changed its yearend from
October 31 to August 31, and financial statements are thus beingpresented for
the ten-month period ended August 31, 1994.
(2) Significant Accounting PoliciesInvestment Valuations - Debt securities
(other than short-termobligations which mature in 60 days or less), including
listed issues, arevalued on the basis of valuations furnished by dealers or by
a pricing servicewith consideration to factors such as institutional-size
trading in similargroups of securities, yield, quality, coupon rate, maturity,
type of issue,trading characteristics and other market data, without exclusive
reliance uponexchange or over-the-counter prices. Short-term obligations,
which mature in60 days or less, are valued at amortized cost, which
approximates value.Non-U.S. dollar denominated short-term obligations are
valued at amortizedcost as calculated in the base currency and translated into
U.S. dollars atthe closing daily exchange rate. Futures contracts, options and
options onfutures contracts listed on commodities exchanges are valued at
closingsettlement prices. Over-the-counter options are valued by brokers
through theuse of a pricing model which takes into account closing bond
valuations,implied volatility and short-term repurchase rates. Securities for
which thereare no such quotations or valuations are valued at fair value as
determined ingood faith by or at the direction of the Trustees.
Repurchase Agreements - The Fund may enter into repurchaseagreements with
institutions that the Fund's investment adviser has determinedare
creditworthy. Each repurchase agreement is recorded at cost. The Fundrequires
that the securities purchased in a repurchase transaction betransferred to the
custodian in a manner sufficient to enable the Fund toobtain those securities
in the event of a default under the repurchaseagreement. The Fund monitors, on
a daily basis, the value of the securitiestransferred to ensure that the
value, including accrued interest, of thesecurities under each repurchase
agreement is greater than amounts owed to theFund under each such repurchase
agreement.
Written Options - The Fund may write covered call or put optionsfor which
premiums are received and are recorded as liabilities, and aresubsequently
adjusted to the current value of the options written. Premiumsreceived from
writing options which expire are treated as realized gains.Premiums received
from writing options which are exercised or are closed areoffset against the
proceeds or amount paid on the transaction to determine therealized gain or
loss. If a put option is exercised, the premium reduces thecost basis of the
security purchased by the Fund. The Fund, as writer of anoption, may have no
<PAGE> 95
control over whether the underlying securities may be sold(call) or purchased
(put) and, as a result, bears the market risk of anunfavorable change in the
price of the securities underlying the writtenoption.
Futures Contracts - The Fund may enter into financial futurescontracts for the
delayed delivery of securities. In entering such contracts,the Fund is
required to deposit either in cash or securities an amount equalto a certain
percentage of the contract amount. Subsequent payments are madeor received by
the Fund each day, depending on the daily fluctuations in thevalue of the
underlying security, and are recorded for financial statementpurposes as
unrealized gains or losses by the Fund. The Fund's investment infinancial
futures contracts is designed to hedge against anticipated futurechanges in
interest rates or securities prices. The Fund may also enter intofutures
contracts for non-hedging purposes. Should interest rates orsecurities prices
move unexpectedly, the Fund may not achieve the anticipatedbenefits of the
financial futures contracts and may realize a loss.
Investment Transactions and Income - Investment transactions arerecorded on
the trade date. Interest income is recorded on the accrual basis.All premium
and original issue discount are amortized or accreted for bothfinancial
statement and tax reporting purposes as required by federal incometax
regulations.
Tax Matters and Distributions - The Fund's policy is to comply withthe
provisions of the Internal Revenue Code (the Code) applicable to
regulatedinvestment companies and to distribute to shareholders all of its net
income,including any net realized gain on investments. Accordingly, no
provision forfederal income or excise tax is provided. The Fund files a tax
return annuallyusing tax accounting methods required under provisions of the
Code which maydiffer from generally accepted accounting principles, the basis
on which thesefinancial statements are prepared. Accordingly, the amount of
net investmentincome and net realized gain reported on these financial
statements may differfrom that reported on the Fund's tax return and,
consequently, the characterof distributions to shareholders reported in the
financial highlights maydiffer from that reported to shareholders on Form
1099-DIV.
Distributions paid by the Fund from net interest received on tax-
exemptmunicipal bonds are not includable by shareholders as gross income for
federalincome tax purposes because the Fund intends to meet certain
requirements ofthe Code applicable to regulated investment companies, which
will enable theFund to pay exempt-interest dividends. The portion of such
interest, if any,earned on private activity bonds issued after August 7, 1986,
may beconsidered a tax preference item to shareholders. Distributions
toshareholders are recorded on the ex-dividend date.
The Fund distinguishes between distributions on a tax basis and a
financialreporting basis and requires that only distributions in excess of tax
basisearnings and profits are reported in the financial statements as a return
ofcapital. Differences in the recognition or classification of income
betweenthe financial statements and tax earnings and profits which result
intemporary over-distributions for financial statement purposes, are
classifiedas distributions in excess of net investment income or accumulated
netrealized gains.
Equalization - Prior to November 1, 1992, the Fund followed theaccounting
practice known as equalization by which a portion of the proceedsfrom sales
and costs of reacquisitions of Fund shares was allocated toundistributed net
investment income. As a result, undistributed net investmentincome per share
was unaffected by sales or reacquisitions of Fund shares. Asof November 1,
1992, the Fund discontinued the use of equalization. Thischange had no effect
on the Fund's net assets, net asset value per share, orits net increase in net
assets from operations. Discontinuing the use ofequalization will result in a
simpler and more meaningful financial statementpresentation. The cumulative
effect of the change was to decreaseundistributed net investment income and
increase paid-in capital by$5,172,059.
Multiple Classes of Shares of Beneficial Interest - The Fundoffers both Class
A and Class B shares. Class B shares were first offered tothe public on
September 7, 1993. The two classes of shares differ in theirshareholder
servicing agent, distribution and service fees. Shareholders ofeach class also
bear certain expenses that pertain only to that particularclass. All
shareholders bear the common expenses of the Fund pro rata, basedon the
average daily net assets of each class, without distinction betweenshare
classes. Dividends are declared separately for each class. Neither classhas
preferential dividend rights; differences in per share dividend rates
aregenerally due to differences in separate class expenses,
includingdistribution and shareholder service fees.
(3) Transactions with AffiliatesInvestment Adviser - The Fund has an
investment advisory agreementwith Massachusetts Financial Services Company
(MFS) to provide overallinvestment advisory and administrative services, and
general officefacilities. The management fee, computed daily and paid monthly
at aneffective annual rate of 0.16% of average daily net assets and 3.59%
ofinvestment income, amounted to $7,253,533 for the period ended August
31,1994. The management fee, computed daily and paid monthly at an
effectiveannual rate of 0.19% of average daily net assets and 3.59% of
investmentincome, amounted to $8,551,732 for the year ended October 31, 1993.
The Fund pays no compensation directly to its Trustees who are officers of
theinvestment adviser, or to officers of the Fund, all of whom
receiveremuneration for their services to the Fund from MFS. Certain of the
officersand Trustees of the Fund are officers or directors of MFS, MFS
FinancialServices, Inc. (FSI) and MFS Service Center, Inc. (MFSC). The Fund
has anunfunded defined benefit plan for all its independent Trustees. Included
inTrustees' compensation is a net periodic pension expense of $15,837
and$14,934 for the period ended August 31, 1994 and the year ended October
31,1993, respectively.
Distributor - FSI, a wholly owned subsidiary of MFS, asdistributor, received
$647,256 as its portion of the sales charge on sales ofClass A shares of the
Fund.
The Trustees have adopted a distribution plan relating solely to Class Bshares
pursuant to Rule 12b-1 of the Investment Company Act of 1940 asfollows:
The Class B Distribution Plan provides that the Fund will pay FSI a
monthlydistribution fee, equal to 0.75% per annum, and a quarterly service fee
of upto 0.25% per annum, of the Fund's average daily net assets attributable
toClass B shares. FSI will pay to securities dealers that enter into a
salesagreement with FSI, all or a portion of the service fee, attributable to
ClassB shares. The service fee is intended to be additional consideration
forservices rendered by the dealer with respect to Class B shares. Fees
incurredunder the distribution plan were 1.00% of average daily net
assetsattributable to Class B shares on an annualized basis and amounted to
$265,407and $6,876 for the period ended August 31, 1994 and the year ended
October 31,1993, respectively.
A contingent deferred sales charge is imposed on shareholder redemptions
ofClass A shares, on purchases of $1 million or more, in the event of a
shareredemption within 12 months following the share purchase. A
contingentdeferred sales charge is imposed on shareholder redemptions of Class
B sharesin the event of a share redemption within six years of purchase. FSI
receivesall contingent deferred sales charges. Contingent deferred sales
chargesimposed during the period ended August 31, 1994 were $26,330 and
$35,635 forClass A and Class B shares, respectively.
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary ofMFS, earned
$1,970,081 and $58,381 during the period ended August 31, 1994 forClass A and
Class B shares, respectively, and $2,181,164 and $1,515 for theyear ended
October 31, 1993 for Class A and Class B shares, respectively, forits services
as shareholder servicing agent. The fee is calculated as apercentage of
average daily net assets of each class of shares at an effectiveannual rate of
up to 0.15% and up to 0.22% attributable to Class A and Class Bshares,
respectively.
(4) Portfolio SecuritiesPurchases and sales of investments, other than
purchased optiontransactions and short-term obligations, were as follows:
Purchases
Sales
U.S. government securities
$ 739,784
$ 359,731
Investments (non-U.S. government securities)
$1,536,825,760
$1,505,208,878
The cost and unrealized appreciation or depreciation in value of
theinvestments owned by the Fund, as computed on a federal income tax basis,
areas follows:
Aggregate cost
$1,935,116,528
Gross unrealized appreciation
$ 118,585,213
Gross unrealized depreciation
(17,979,112)
Net unrealized appreciation
$ 100,606,101
At August 31, 1994, the Fund, for federal income tax purposes, had acapital
loss carryforward of $5,957,976, which may be applied against any nettaxable
realized gains of each succeeding year until the earlier of itsutilization or
expiration on August 31, 2002.
(5) Shares of Beneficial InterestThe Fund's Declaration of Trust permits
the Trustees to issue anunlimited number of full and fractional shares of
beneficial interest (withoutpar value). Transactions in Fund shares were as
follows:
Class A Shares
Period Ended
August 31, 1994
Shares
Amount
Year Ended
October 31, 1993
Shares
Amount
Year Ended
October 31, 1992
Shares
Amount
Shares sold
34,484,881
$374,991,526
24,520,472
$276,503,989
28,235,076
$303,522,666
Shares issued to shareholders in reinvestment of distributions
7,028,609
77,691,863
8,091,561
90,315,455
7,336,897
78,836,581
Shares reacquired
(39,960,254)
(434,165,148)
(19,054,466)
(215,497,820)
(19,487,578)
(210,247,522)
Net increase
1,553,236
$ 18,518,241
13,557,567
$151,321,624
16,084,395
$172,111,725
Class B Shares
Period Ended
August 31, 1994
Shares
Amount
Period Ended
October 31, 1993*
Shares
Amount
Shares sold
3,988,525
$ 44,173,687
917,981
$ 10,742,312
Shares issued to shareholders in reinvestment ofdistributions
91,605
999,987
1,813
21,097
Shares reacquired
(770,579)
(8,262,849)
(22,664)
(265,975)
Net increase
3,309,551
$ 36,910,825
897,130
$ 10,497,434
*For the period from the commencement of offering of Class B shares,September
7, 1993 to October 31, 1993.
(6) Line of CreditThe Fund entered into an agreement which enables it to
participate withother funds managed by MFS, or an affiliate of MFS, in an
unsecured line ofcredit with a bank which permits borrowings up to $300
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 tothe bank's base rate. In addition, a commitment
fee, based on the averagedaily unused portion of the line of credit, is
allocated among theparticipating funds at the end of each quarter. The
commitment fee allocatedto the Fund was $26,708 for the period ended August
31, 1994 and $33,427 forthe year ended October 31, 1993.
(7) Financial InstrumentsThe Fund regularly trades financial instruments with
off-balance sheetrisk in the normal course of its investing activities in
order to manageexposure to market risks such as interest rates and foreign
currency exchangerates. These financial instruments include written options
and futurescontracts. The notional or contractual amounts of these instruments
representthe investment the Fund has in particular classes of financial
instruments anddoes not necessarily represent the amounts potentially subject
to risk. Themeasurement of the risks associated with these instruments is
meaningful onlywhen all related and offsetting transactions are considered. A
summary ofobligations under these financial instruments at August 31, 1994, is
asfollows:
Futures Contracts
Expiration
Contracts
Position
Unrealized
Depreciation
September 1994
2000 U.S. Treasury Bonds
SHORT
$(1,493,750)
September 1994
225 Municipal Bonds
SHORT
(257,782)
$(1,751,532)
At August 31, 1994, the Fund had sufficient cash and/or securitiesto cover
margin requirements on open futures contracts.
INDEPENDENT AUDITORS' REPORTTo the Trustees of MFS Series Trust IV and
Shareholders of MFS Municipal Bond Fund:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of MFS Municipal Bond Fund (one of the
series constituting MFS Series Trust IV) as of August 31, 1994, the related
statements of operations for the ten months then ended and the year ended
October 31, 1993, the statements of changes in net assets for the ten months
ended August 31, 1994 and the years ended October 31, 1993 and 1992, and the
financial highlights for the ten months ended August 31, 1994 and for each of
the years in the ten-year period ended October 31, 1993. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of the
securities owned at August 31, 1994 by correspondence with the custodian and
brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of MFS Municipal Bond
Fund at August 31, 1994, the results of its operations, the changes in its net
assets, and its financial highlights for the respective stated periods in
<PAGE> 96
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
October 7, 1994
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.
<PAGE> 97
PROSPECTUS
March 1, 1995
MFS(R) OTC FUND Class A Shares of Beneficial Interest
Class B Shares of Beneficial Interest
(A member of the MFS Family of Funds(R)) Class C Shares of Beneficial Interest
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1. Expense Summary..................................................................... 2
2. The Fund............................................................................ 3
3. Condensed Financial Information..................................................... 4
4. Investment Objective and Policies................................................... 4
5. Risk Factors........................................................................ 9
6. Management of the Fund.............................................................. 11
7. Information Concerning Shares of the Fund........................................... 12
Purchases........................................................................ 12
Exchanges........................................................................ 18
Redemptions and Repurchases...................................................... 19
Distribution Plans............................................................... 21
Distributions.................................................................... 22
Tax Status....................................................................... 23
Net Asset Value.................................................................. 23
Description of Shares, Voting Rights and Liabilities............................. 23
Performance Information.......................................................... 24
8. Shareholder Services................................................................ 24
</TABLE>
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 OTC FUND
500 Boylston Street, Boston, Massachusetts 02116 (617) 954-5000
The investment objective of the MFS OTC Fund (the "Fund") is to seek to obtain
long-term growth of capital. The Fund is a non-diversified series of MFS Series
Trust IV (the "Trust"), an open-end investment company. The Fund seeks to
achieve this objective by investing at least 65% of its assets, under normal
circumstances, in securities principally traded on the over-the-counter (OTC)
securities market. THE FUND IS INTENDED FOR INVESTORS WHO UNDERSTAND AND ARE
WILLING TO ACCEPT THE RISKS ENTAILED IN SEEKING LONG-TERM GROWTH OF CAPITAL. See
"Risk Factors." The minimum initial investment generally is $1,000 per account
(see "Purchases").
The Fund's investment adviser and distributor are Massachusetts Financial
Services Company ("MFS") and MFS Fund Distributors, Inc. ("MFD"), respectively,
both of which are located at 500 Boylston Street, Boston, Massachusetts 02116.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK AND THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
This Prospectus sets forth concisely the information concerning the Trust and
the Fund that a prospective investor ought to know before investing. The Trust,
on behalf of the Fund, has filed with the Securities and Exchange Commission
(the "SEC") a Statement of Additional Information, dated March 1, 1995, which
contains more detailed information about the Trust and the Fund and is
incorporated into this Prospectus by reference. See page 26 for a further
description of the information set forth in the Statement of Additional
Information. A copy of the Statement of Additional Information may be obtained
without charge by contacting the Shareholder Servicing Agent (see back cover for
address and phone number).
INVESTORS SHOULD READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE REFERENCE.
<PAGE> 98
1. EXPENSE SUMMARY
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
---------- ------- -------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Initial Sales Charge Imposed on Purchases of
Fund Shares (as a percentage of offering price)... 5.75% 0.00% 0.00%
Maximum Contingent Deferred Sales Charge (as a
percentage of original purchase price or
redemption proceeds, as applicable)............... See Below(1) 4.00% 0.00%
ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET
ASSETS):
Management Fees..................................... 0.75% 0.75% 0.75%
Rule 12b-1 Fees (after applicable fee reduction).... 0.00%(2) .010%(3) 1.00%(3)
Other Expenses...................................... 0.61% 0.68% 0.61%(5)
Total Operating Expenses(4)......................... 1.36% 2.43% 2.36%
</TABLE>
- ---------------
(1) Purchases of $1 million or more are not subject to an initial sales charge;
however, a contingent deferred sales charge (a "CDSC") of 1% will be imposed
on such purchases in the event of certain redemption transactions within 12
months following such purchases (see "Purchases" below).
(2) The Fund has adopted a Distribution Plan for its Class A shares in
accordance with Rule 12b-1 under the Investment Company Act of 1940, as
amended (the "1940 Act"), which provides that it will pay
distribution/service fees aggregating up to (but not necessarily all of)
0.35% per annum of the average daily net assets attributable to the Class A
shares (see "Distribution Plans"). Payments under the Class A Distribution
Plan will commence the date the net assets attributable to Class A shares
first equal or exceed $40 million. It is intended that upon commencement of
payments under the Class A Distribution Plan, the 0.10% per annum
distribution fee will be waived. This waiver may be rescinded at any time
without notice to shareholders. See "Distribution Plans" below. After a
substantial period of time, distribution expenses paid under this Plan,
together with the initial sales charge, may total more than the maximum
sales charge that would have been permissible if imposed entirely as an
initial sales charge.
(3) The Fund has adopted separate Distribution Plans for its Class B and its
Class C shares in accordance with Rule 12b-1 under the 1940 Act, which
provide that it will pay distribution/service fees aggregating up to (but
not necessarily all of) 1.00% per annum of the average daily net assets
attributable to the Class B shares under the Class B Distribution Plan and
the Class C shares under the Class C Distribution Plan (see "Distribution
Plans"). After a substantial period of time, distribution expenses paid
under these Plans, together with any CDSC payable upon redemption of Class B
shares, may total more than the maximum sales charge that would have been
permissible if imposed entirely as an initial sales charge.
(4) The Adviser has voluntarily agreed to pay expenses for each class of shares
of the Fund from commencement of operations of the Fund that exceed 1.50%,
2.57% and 2.50% of the Fund's average daily net assets attributable to Class
A, Class B and Class C shares, respectively, on an annualized basis. This
temporary expense reduction may be discontinued at any time by the Adviser
without notice to shareholders as to expenses accruing after the date of
such rescission. See "Management of the Fund" below.
(5) Except for the shareholder servicing agent fee component, "Other Expenses"
for Class C shares is based on Class A expenses incurred during the fiscal
year ended August 31, 1994. The shareholder servicing agent fee component of
"Other Expenses" is a predetermined percentage based upon the Fund's net
assets attributable to each class.
2
<PAGE> 99
EXAMPLE OF EXPENSES
An investor would pay the following dollar amounts of expenses on a $1,000
investment in the Fund, assuming (a) a 5% annual return and (b) redemption at
the end of each of the time periods indicated (unless otherwise noted):
<TABLE>
<CAPTION>
PERIOD CLASS A CLASS B CLASS C
------ ------- ------------ -------
<S> <C> <C> <C> <C>
(1)
1 year...................................... $71 $ 65 $25 $24
3 years..................................... 98 106 76 74
--- ---- --- ---
</TABLE>
- ---------------
(1) Assumes no redemption.
The purpose of the expense table above is to assist investors in understanding
the various costs and expenses that a shareholder of the Fund will bear directly
or indirectly. More complete descriptions of the following expenses of the Fund
are set forth in the following sections: (i) varying sales charges on share
purchases -- "Purchases"; (ii) varying CDSCs -- "Purchases"; (iii) management
fees -- "Investment Adviser"; and (iv) Rule 12b-1 (i.e., distribution
plan) fees -- "Distribution Plans".
THE "EXAMPLE" SET FORTH ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST
OR FUTURE EXPENSES OF THE FUND; ACTUAL EXPENSES MAY BE GREATER OR LESS THAN
THOSE SHOWN.
2. THE FUND
The Fund is a non-diversified series of the Trust, an open-end management
investment company which was organized as a business trust under the laws of The
Commonwealth of Massachusetts in 1981. The Trust presently consists of four
series, each of which represents a portfolio with separate investment policies.
Shares of the Fund are continuously sold to the public and the Fund buys
securities for its portfolio. Three classes of shares of the Fund are currently
offered to the general public. Class A shares are offered at net asset value
plus an initial sales charge (or a CDSC) in the case of certain purchases of $1
million or more) and are subject to a Distribution Plan providing for a
distribution fee and a service fee. Class B shares are offered at net asset
value without an initial sales charge but are subject to a CDSC and a
Distribution Plan providing for a distribution fee and a service fee which are
greater than the Class A distribution fee and service fee. Class B shares will
convert to Class A shares approximately eight years after purchase. Class C
shares are offered at net asset value without an initial sales charge or a CDSC
but are subject to a Distribution Plan providing for an annual distribution fee
and service fee which are equal to the Class B annual distribution fee and
service fee. Class C shares do not convert to any other class of shares of the
Fund.
The Trust's Board of Trustees provides broad supervision over the affairs of the
Fund. MFS is the Fund's investment adviser. The Adviser is responsible for the
management of the Fund's assets and the officers of the Trust are responsible
for the Fund's 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 conditions and trends in the
economy and the financial marketplaces. The Trust also offers to buy back
(redeem) shares of the Fund from Fund shareholders at any time at net asset
value, less any applicable CDSC.
3
<PAGE> 100
3. CONDENSED FINANCIAL INFORMATION
The following information 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 Statement of Additional Information in
reliance upon the report of Deloitte & Touche LLP, independent certified public
accountants, as experts in accounting and auditing. The Financial Highlights for
1994 are thus being presented for the nine-month period ended August 31, 1994.
FINANCIAL HIGHLIGHTS
CLASS A, CLASS B AND CLASS C SHARES
<TABLE>
<CAPTION>
1994+ 1994+ 1994++
CLASS A CLASS B CLASS C
------- ------- -------
<S> <C> <C> <C>
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD):+++
Net asset value -- beginning of period............................... $ 7.83 $ 7.83 $ 7.80
------- ------- ------
Income from investment operations --
Net investment loss**............................................ $ (0.05) $ (0.12) $(0.04)
Net realized and unrealized gain (loss) on investments........... 0.90 0.88 0.85
------- ------- ------
Total from investment operations............................ $ 0.85 $ 0.76 $ 0.81
------- ------- ------
Net asset value -- end of period..................................... $ 8.68 $ 8.59 $ 8.61
------- ------- ------
Total return#........................................................ 10.86 %* 9.71 %* 10.38 %*
Ratios (to average net assets)/Supplemental data:
Expenses**....................................................... 1.50 % 2.57 % 2.50 %
Net investment loss**............................................ (0.87)% (2.02)% (2.22)%
Portfolio turnover................................................... 82 % 82 % 82 %
Net assets at end of period (000 omitted)............................ $17,776 $36,849 $ 87
</TABLE>
- ---------------
+ For the period from the commencement of investment operations, December 1,
1993 to August 31, 1994.
++ For the period from the commencement of offering of Class C shares, August
1, 1994 to August 31, 1994.
+++ Per share data based upon average shares outstanding during the period.
# Total return for Class A shares does not include the sales charge. If the
sales charge had been included, the results would have been lower.
* Not annualized.
** The adviser assumed a portion of operating expenses for the periods
indicated. If these expenses had been incurred by the Fund, the net
investment loss per share and ratios would have been:
<TABLE>
<S> <C> <C> <C>
Net investment loss................................................ $(0.08) $(0.15) $(0.05)
Ratios (to average net assets):
Expenses....................................................... 2.03 % 3.10 % 3.03 %
Net investment loss............................................ (1.40)% (2.56)% (2.71)%
</TABLE>
4. INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE -- The Fund's investment objective is to seek to obtain
long-term growth of capital.
INVESTMENT POLICIES -- The Fund seeks to achieve its objective by investing at
least 65% of its assets, under normal circumstances, in securities principally
traded on the over-the-counter (OTC) securities market. OTC securities tend to
be securities of companies which are smaller or newer than those listed on the
New York or American Stock Exchanges. Issuers of the securities which are traded
on the OTC market include, among others, industrial corporations, financial
service institutions, public utilities, and transportation companies. OTC
securities include both equity and debt securities (including obligations of the
U.S. government). The Fund may also invest in securities of companies that are
not traded on the OTC securities market that represent opportunities for capital
appreciation. The Fund will seek to invest in companies that are undervalued
relative to present
4
<PAGE> 101
or future earnings, cash flow or book value. While the Fund intends to invest
primarily in equity securities, the Fund may also invest in fixed income
securities as described below. Equity securities include: common and preferred
stocks; securities such as bonds, warrants or rights that are convertible into
stock; and depositary receipts for those securities.
The Fund will not purchase a security, under normal circumstances, if it would
result in less than 65% of its assets being invested in OTC securities (the "65%
limitation"). Securities that were principally traded on the OTC securities
market when purchased but which have since been listed on the New York or
American Stock Exchange or a foreign exchange will be considered to fall within
the Fund's 65% limitation for 12 months after the date the security was listed
on an exchange.
FIXED INCOME SECURITIES: Debt securities in which the Fund may invest include
all types of long- or short-term debt obligations, such as bonds, debentures,
notes and commercial paper. Fixed income securities in which the Fund may invest
include securities in the lower rating categories of recognized rating agencies
(and comparable unrated securities) (see "Risk Factors" below). Fixed income
securities in which the Fund may invest also include zero coupon bonds, deferred
interest bonds and bonds on which the interest is payable in kind. Such
investments involve certain risks. See the Statement of Additional Information.
OTHER INVESTMENTS: When the Adviser believes that investing for defensive
purposes is appropriate, such as during periods of unusual market conditions,
part or all of the Fund's assets may be temporarily invested in cash (including
foreign currency) or cash equivalent short-term obligations including, but not
limited to, certificates of deposit, commercial paper, short-term notes,
obligations issued or guaranteed by the U.S. government or any of its agencies
or instrumentalities and repurchase agreements.
FOREIGN SECURITIES: The Fund may invest up to 35% (and generally expects to
invest between 10% and 20%) of its total assets in foreign securities which are
not traded on a U.S. exchange (not including American Depositary Receipts).
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 Statement of
Additional Information for further discussion of foreign securities and the
holding of foreign currency, as well as the associated risks.
EMERGING MARKET SECURITIES: The securities in which the Fund may invest include
fixed income securities of issuers (including foreign governments and their
subdivisions, agencies or instrumentalities) located in emerging markets. For
the purposes of the Fund, emerging markets include any country: (i) having an
"emerging stock market" as defined by the International Finance Corporation;
(ii) with low-to middle-income economies according to the International Bank for
Reconstruction and Development (the World Bank); (iii) listed in World Bank
publications as developing; or (iv) determined by MFS to be an emerging market
as defined above. The Fund may invest in fixed income securities of: (i) foreign
governments or any of their political subdivisions, agencies or
instrumentalities; (ii) companies the principal securities trading market for
which is an emerging market country; (iii) companies organized under the laws
of, and with a principal office in, an emerging market country; (iv) companies
whose principal activities are located in emerging market countries; or (v)
companies whose securities are traded in any market that derive 50% or more of
their total revenue from either goods or services produced in an emerging market
or sold in an emerging market.
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
5
<PAGE> 102
debt restructurings have been implemented to date in Argentina, Brazil, Costa
Rica, Mexico, Nigeria, the Philippines, 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.
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 either in losses to the Fund due to subsequent
declines in value of the portfolio security 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. 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.
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.
REPURCHASE AGREEMENTS: The Fund may enter into repurchase agreements in order
to earn additional 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 Statement of Additional Information, the Fund has adopted
certain procedures intended to minimize any risk.
LENDING OF SECURITIES: The Fund may seek to increase its income by lending
portfolio securities. Such loans will usually be made only to member firms (and
subsidiaries thereof) of the New York Stock Exchange and to member banks of the
Federal Reserve System, and would be required to be secured continuously by
collateral in cash, cash equivalents or U.S. government securities maintained on
a current basis at an amount at least equal to the market value of the
securities loaned. The Fund will
6
<PAGE> 103
continue to collect the equivalent of interest on the securities loaned and will
also receive either interest (through investment in cash collateral) or a fee
(if the collateral is U.S. Government securities).
"WHEN-ISSUED" SECURITIES: The Fund may purchase 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 or interest rates rise or fall
according to the change in one or more specified underlying instruments. Indexed
securities may be positively or negatively indexed (i.e., their value 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.
MORTGAGE "DOLLAR ROLL" TRANSACTIONS: The Fund may enter into mortgage "dollar
roll" transactions with selected banks and broker-dealers pursuant to which the
Fund sells mortgage-backed securities for delivery in the future (generally
within 30 days) and simultaneously contracts to repurchase substantially similar
(same type, coupon and maturity) securities on a specified future date. The Fund
will only enter into covered rolls. A "covered roll" is a specific type of
dollar roll for which there is an offsetting cash position or a cash equivalent
security position which matures on or before the forward settlement date of the
dollar roll transaction.
RESTRICTED SECURITIES: The Fund may also purchase securities that are not
registered under the Securities Act of 1933 ("1933 Act") ("restricted
securities"), including those that can be offered and sold to "qualified
institutional buyers" under Rule 144A under the 1933 Act ("Rule 144A
securities"). The Trust's Board of Trustees determines, based upon a continuing
review of the trading markets for a specific Rule 144A security, whether such
security is illiquid and thus subject to the Fund's limitations on investing not
more than 15% of its net assets in illiquid investments, or liquid and thus not
subject to such limitation. The Board of Trustees has adopted guidelines and
delegated to MFS the daily function of determining and monitoring the liquidity
of Rule 144A securities. The Board, however, will retain sufficient oversight
and be ultimately responsible for the determinations. The Board will carefully
monitor the Fund's investments in Rule 144A securities, focusing on such
important factors, among others, as valuation, liquidity and availability of
information. This investment practice could have the effect of increasing the
level of illiquidity 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 15% 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.
CORPORATE ASSET-BACKED SECURITIES: The Fund may invest in corporate
asset-backed securities. These securities, issued by trusts and special purpose
corporations, are backed by a pool of assets, such as credit card or automobile
loan receivables, representing the obligations of a number of different parties.
Corporate asset-backed securities present certain risks. For instance, in the
case of credit card receivables, these securities may not have the benefit of
any security interest in the related collateral. See the Statement of Additional
Information for further information on these securities.
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 investment income and will
offset in part the reduced value of a portfolio
7
<PAGE> 104
security in connection with which the option may have been written or the
increased cost of portfolio securities to be acquired. In contrast, however, if
the price of the security underlying the option moves adversely to the Fund's
position, the option may be exercised and the Fund will be required to purchase
or sell the security at a disadvantageous price, resulting in losses which may
only be partially offset by the amount of the premium. The Fund may also write
combinations of put and call options on the same security, known as "straddles."
Such transactions can generate additional premium income but also present
increased risk.
The Fund may purchase put or call options in anticipation of declines in the
value of portfolio securities or increases in the value of securities to be
acquired. In the event that such declines or increases occur, the Fund may be
able to offset the resulting adverse effect on its portfolio, in whole or in
part, through the options purchased. The risk assumed by the Fund in connection
with such transactions is limited to the amount of the premium and related
transaction costs associated with the option, although the Fund may be required
to forfeit such amounts in the event that the prices of securities underlying
the options do not move in the direction or to the extent anticipated.
The Fund may also enter into options on the yield "spread," or yield
differential, between two securities, a transaction referred to as a "yield
curve" option, for hedging purposes and non-hedging purposes (which may be
speculative). In contrast to other types of options, a yield curve option is
based on the difference between the yields of designated securities rather than
the actual prices of the individual securities, and is settled through cash
payments. Accordingly, a yield curve option is profitable to the holder if this
differential widens (in the case of a call) or narrows (in the case of a put),
regardless of whether the yields of the underlying securities increase or
decrease. Yield curve options written by the Fund will be covered as described
in the Statement of Additional Information. The trading of yield curve options
is subject to all the risks associated with trading other types of options, as
discussed below under "Risk Factors" and in the Statement of Additional
Information. In addition, such options present risks of loss even if the yield
on one of the underlying securities remains constant, if the spread moves in a
direction or to an extent which was not anticipated.
OPTIONS ON STOCK INDICES: The Fund may write (sell) covered call and put
options and purchase call and put options on stock indices. The Fund may 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.
OPTIONS ON FOREIGN CURRENCIES: The Fund may also purchase and write options on
foreign currencies ("Options on Foreign Currencies") for the purpose of
protecting against declines in the dollar value of portfolio securities and
against increases in the dollar cost of securities to be acquired. As in the
case of other types of options, however, the writing of an Option on Foreign
Currency will constitute only a partial hedge, up to the amount of the premium
received, and the Fund may be required to purchase or sell foreign currencies at
disadvantageous exchange rates, thereby incurring losses. The purchase of an
Option on Foreign Currency may constitute an effective hedge against
fluctuations in exchange rates although, in the event of rate movements adverse
to the Fund's position, it may forfeit the entire amount of the premium paid for
the option plus related transaction costs. The Fund may also choose to, or be
required to, receive delivery of the foreign currencies underlying Options on
Foreign Currencies 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
8
<PAGE> 105
exchange rate will improve, the Fund may hold such currencies for an indefinite
period of time. See "Investment Objectives and Policies -- Foreign Securities"
in the Statement of Additional Information for information on the risks
associated with holding foreign currency.
FUTURES CONTRACTS: The Fund may enter into stock index and foreign currency
futures contracts (collectively "Futures Contracts"). Such transactions will be
entered into for hedging purposes, in order to protect the Fund's current or
intended investments from the effects of changes in exchange rates or declines
in the stock market. The Fund will incur brokerage fees when it purchases and
sells Futures Contracts, and will be required to maintain margin deposits. In
addition, Futures Contracts entail risks. Although the Adviser believes that use
of such contracts will benefit the Fund, if its investment judgment about the
general direction of exchange rates or the stock market is incorrect, the Fund's
overall performance may be poorer than if it had not entered into any such
contract and the Fund may realize a loss. Futures Contracts may also be entered
into for non-hedging purposes, to the extent permitted by applicable law, which
involves greater risks and could result in losses which are not offset by gains
on other portfolio assets. The Fund will not enter into any Futures Contract if
immediately thereafter the value of all such Futures Contracts would exceed 50%
of the value of its total assets.
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. 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 the option to realize any profit, which results in the
establishment of a futures position. 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. Options on Futures Contracts may also be entered into
for non-hedging purposes (which may be speculative) to the extent permitted
under applicable law, which involves greater risks and could result in losses
which are not offset by gains on other portfolio assets.
FORWARD CONTRACTS: The Fund may enter into forward foreign currency exchange
contracts for the purchase or sale of a fixed quantity of a foreign currency at
a future date ("Forward Contracts"). The Fund may enter into Forward Contracts
for hedging purposes as well as for non-hedging purposes (which may be
speculative). By entering into transactions in Forward Contracts, for hedging
purposes, the Fund may be required to forego the benefits of advantageous
changes in exchange rates and, in the case of Forward Contracts entered into for
non-hedging purposes, the Fund may sustain losses which will reduce its gross
income. Such transactions, therefore, could be considered speculative. Forward
Contracts are traded over-the-counter and not on organized commodities or
securities exchanges. As a result, Forward Contracts operate in a manner
distinct from exchange-traded instruments, and their use involves certain risks
beyond those associated with transactions in Futures Contracts or options traded
on exchanges. The Fund may 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. The Fund may
also enter into a Forward Contract on one currency 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 has established procedures consistent with statements of
the SEC and its staff regarding the use of Forward Contracts by registered
investment companies, which requires use of segregated assets or "cover" in
connection with the purchase and sale of such contracts. See "Investment
Objective and Policies -- Foreign Securities" in the Statement of Additional
Information for information on the risks associated with holding foreign
currency.
5. RISK FACTORS
OTC SECURITIES: Investing in securities traded on the OTC securities market can
involve greater risk than is customarily associated with investing in securities
traded on the New York or American Stock Exchanges since OTC securities are
generally
9
<PAGE> 106
securities of companies which are smaller or newer than those listed on the New
York or American Stock Exchange. For example, these companies often have limited
product lines, markets, or financial resources, may be dependent for management
on one or a few key persons, and can be more susceptible to losses. Also, their
securities may be thinly traded (and therefore have to be sold at a discount
from current prices or sold in small lots over an extended period of time), may
be followed by fewer investment research analysts and may be subject to wider
price swings and thus may create a greater chance of loss than securities of
larger capitalization or established companies. Shares of the Fund, therefore,
are subject to greater fluctuation in value than shares of a conservative equity
fund or of a growth fund which invests entirely in proven growth stocks.
Therefore, the Fund is intended for long-term investors who understand and can
accept the risks entailed in seeking long-term growth of capital. The Fund is
not meant to provide a vehicle for those who wish to play short-term swings in
the stock market. Accordingly, an investment in shares of the Fund should not be
considered a complete investment program. Each prospective purchaser should take
into account his investment objectives as well as his other investments when
considering the purchase of shares of the Fund.
RISKS OF INVESTING IN FIXED INCOME SECURITIES: To the extent the Fund invests
in fixed income securities, the net asset value of the Fund may change as the
general levels of interest rates fluctuate. When interest rates decline, the
value of fixed income securities can be expected to rise. Conversely, when
interest rates rise, the value of fixed income securities can be expected to
decline.
RISKS OF INVESTING IN LOWER RATED FIXED INCOME SECURITIES: The Fund may invest
up to 20% of its total assets in fixed income securities that are in the lower
rating categories (rated Ba or lower by Moody's Investors Service, Inc.
("Moody's") or BB or lower by Standard & Poor's Ratings Group ("S&P") or Fitch
Investors Service, Inc. ("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.
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, 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. See the
Statement of Additional Information for more information on lower rated
securities.
OPTIONS, FUTURES CONTRACTS AND FORWARD CONTRACTS: Although the Fund will enter
into certain transactions in options, Futures Contracts, Options on Futures
Contracts and Options on Foreign Currencies for hedging purposes, such
transactions nevertheless involve certain risks. For example, a lack of
correlation between the instrument underlying an option on 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 options, Futures Contracts, Options or Futures
Contracts and Forward Contracts for other than hedging purposes, which involves
greater risk. In particular, such transactions may result in losses for the Fund
which are not offset by gains on other portfolio positions, thereby reducing
gross income. In addition, foreign currency markets may be extremely volatile
from time to time. There also 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.
The Statement of Additional Information contains a description of the nature and
trading mechanics of options, Futures Contracts, Options on Futures Contracts,
Forward Contracts and Options on Foreign Currencies, and includes a discussion
of the risks related to transactions therein.
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<PAGE> 107
Transactions in Forward Contracts may be entered into only in the
over-the-counter market. Futures Contracts and Options on Futures Contracts may
be entered into on U.S. exchanges regulated by the Commodity Futures Trading
Commission and on foreign exchanges. In addition, the securities underlying
options, Futures Contracts and Options on Futures Contracts traded by the Fund
will include both domestic and foreign securities.
NON-DIVERSIFIED STATUS: The Fund has registered as a "non-diversified"
investment company. As a result, the Fund is limited as to the percentage of its
assets which may be invested in the securities of any one issuer only by its own
investment restrictions and the diversification requirements imposed by the
Internal Revenue Code of 1986, as amended (the "Code"). U.S. Government
securities which are generally considered free of credit risk and are assured as
to payment of principal and interest if held to maturity are not subject to any
investment limitation. Since the Fund may invest a relatively high percentage of
its assets in a limited number of issuers, the Fund may be more susceptible to
any single economic, political or regulatory occurrence and to the financial
conditions of the issuers in which it invests. For these reasons, an investment
in shares of the Fund should not be considered to constitute a complete
investment program.
------------------------
PORTFOLIO TRADING: The primary consideration in placing portfolio security
transactions with broker-dealers for execution is to obtain and maintain the
availability of execution at the most favorable prices and in the most effective
manner possible. Consistent with the foregoing primary consideration, the Rules
of Fair Practice of the National Association of Securities Dealers, Inc. ("the
NASD"), and such other policies as the Trustees may determine, the Adviser may
consider sales of shares of the Fund and of the other investment company clients
of MFD, the Fund's distributor, 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 trading, see "Portfolio Transactions and Brokerage Commissions" in the
Statement of Additional Information.
While it is not generally the Fund's policy to invest or trade for short-term
profits, the Fund may dispose of a portfolio security whenever the Adviser is of
the opinion that such security no longer has an appropriate appreciation
potential or when another security appears to offer relatively greater
appreciation potential. 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 a
change in the portfolio is otherwise appropriate.
------------------------
The investment objective and policies described above, including Options,
Options on Foreign Currency, Futures Contracts, Options on Futures Contracts and
Forward Contracts, are not fundamental and may be changed without shareholder
approval. 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 Statement of Additional Information 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 Statement of Additional Information may not be changed without
shareholder approval (see "Investment Restrictions" in the Statement of
Additional Information). The Fund's investment limitations, policies and rating
standards 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.
6. MANAGEMENT OF THE FUND
INVESTMENT ADVISER -- The Adviser manages the Fund pursuant to an Investment
Advisory Agreement, dated August 20, 1993 (the "Advisory Agreement"). The
Adviser provides the Fund with overall investment advisory and administrative
services, as well as general office facilities. Mark Regan has been the Fund's
portfolio manager since the Fund's inception. Mr. Regan is a Vice President of
the Adviser and has been an investment analyst with the Adviser since 1989.
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
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<PAGE> 108
management fee, computed and paid monthly, equal to 0.75% of the average daily
net assets of the Fund on an annualized basis. The Adviser has voluntarily
agreed to pay expenses of each class of the Fund from commencement of operations
of the Fund that exceed 1.50%, 2.57% and 2.50% of the Fund's average daily net
assets attributable to Class A, Class B and Class C shares, respectively, on an
annualized basis. This temporary expense reduction may be rescinded at any time
by the Adviser without notice to shareholders as to expenses accruing after the
date of such rescission. For the period from commencement of investment
operations, December 1, 1993 to August 31, 1994, the Fund incurred fees under
the Advisory Agreement of $141,370, equivalent, on an annualized basis, to 0.75%
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)/Sun Life Series Trust, MFS
Institutional Trust, MFS Union Standard Trust, MFS Variable Insurance Trust, MFS
Municipal Income Trust, MFS Government Markets Income Trust, MFS Multimarket
Income Trust, MFS Intermediate Income Trust, MFS Charter Income Trust, MFS
Special Value Trust, Sun Growth Variable Annuity Fund, Inc. 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 Compass-2 and Compass-3 combination fixed/variable
annuity contracts. MFS and its wholly-owned subsidiary, MFS Asset Management,
Inc., provide investment advice to substantial private clients.
MFS is America's oldest mutual fund organization. MFS and its predecessor
organizations have a history of money management dating from 1924 and the
founding of the first mutual fund in the United States, Massachusetts Investors
Trust. Net assets under the management of the MFS organization were
approximately $33.4 billion on behalf of approximately 1.6 million investor
accounts as of January 31, 1995. As of such date, the MFS organization managed
approximately $10.8 billion in assets in equity securities and $18.7 billion of
assets in fixed income securities. Approximately $3.1 billion of assets managed
by MFS are invested in securities of foreign issuers and non-U.S. dollar
denominated securities of U.S. issuers. MFS is a subsidiary of Sun Life of
Canada (U.S.) which in turn is a subsidiary of Sun Life Assurance Company of
Canada ("Sun Life"). The Directors of MFS are A. Keith Brodkin, Jeffrey L.
Shames, John R. Gardner, John D. McNeil and Arnold D. Scott. Mr. Brodkin is the
Chairman, Mr. Shames is the President and Mr. Scott is the Secretary and a
Senior Executive Vice President of MFS. Messrs. McNeil and Gardner are the
Chairman and the 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 U.S. 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 the Chairman, President
and a Trustee of the Trust. 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 Trust.
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
and certain other services for the Fund.
7. INFORMATION CONCERNING SHARES OF THE FUND
PURCHASES
Shares of the Fund may be purchased at the public offering price through any
securities dealer, certain banks and other financial institutions having selling
agreements with MFD. Non-securities dealer financial institutions will receive
transaction fees that are the same as commission fees to dealers. Securities
dealers and other financial institutions also may charge their customers fees
relating to investments in the Fund.
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<PAGE> 109
The Fund offers three classes of shares which bear sales charges and
distribution fees in different forms and amounts:
CLASS A SHARES: Class A shares are offered at net asset value per share plus an
initial sales charge (or CDSC in the case of certain purchases of $1 million or
more) as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SALES CHARGE* AS
PERCENTAGE OF
--------------------------------- DEALER ALLOWANCE
NET AMOUNT AS A PERCENTAGE
OFFERING PRICE INVESTED OF OFFERING PRICE
<S> <C> <C> <C>
AMOUNT OF PURCHASE
Less than $50,000................................................ 5.75% 6.10% 5.00%
$50,000 but less than $100,000................................... 4.75 4.99 4.00
$100,000 but less than $250,000.................................. 4.00 4.17 3.20
$250,000 but less than $500,000.................................. 2.95 3.04 2.25
$500,000 but less than $1,000,000................................ 2.20 2.25 1.70
$1,000,000 or more............................................... None** None** See Below**
</TABLE>
- --------------------------------------------------------------------------------
* Because of rounding in the calculation of offering price, actual sales
charges may be more or less than those calculated using the percentages
above.
** A CDSC may apply in certain instances. MFD will pay a commission on purchases
of $1 million or more. See below.
No sales charge is payable at the time of purchase of Class A shares on
investments of $1 million or more. However, a CDSC shall be imposed on such
investments in the event of a share redemption within 12 months following the
share purchase, at the rate of 1% on the lesser of the value of the shares
redeemed (exclusive of reinvested dividends and capital gain distributions) or
the total cost of such shares.
In determining whether a CDSC on such Class A shares is payable, and, if so, the
amount of the charge, it is assumed that shares not subject to the CDSC are the
first redeemed followed by other shares held for the longest period of time. All
investments made during a calendar month, regardless of when during the month
the investment occurred, will age one month on the last day of that month and
each subsequent month. Except as noted below, the CDSC on Class A shares will be
waived in the case of: (i) exchanges (except that if the shares acquired by
exchange were then redeemed within 12 months of the initial purchase (other than
in connection with subsequent exchanges to other MFS Funds), the charge would
not be waived); (ii) distributions to participants from a retirement plan
qualified under Section 401(a) of the Code (a "Retirement Plan"), due to: (a) a
loan from the plan (repayments of loans, however, will constitute new sales for
purposes of assessing the CDSC); (b) "financial hardship" of the participant in
the plan, as that term is defined in Treasury Regulation Section
1.401(k)-1(d)(2), as amended from time to time; or (c) the death of a
participant in such a plan; (iii) distributions from a 403(b) plan or an
Individual Retirement Account ("IRA") due to death, disability, or attainment of
age 59 1/2; (iv) tax-free returns of excess contributions to an IRA; (v)
distributions by other employee benefit plans to pay benefits; and (vi) certain
involuntary redemptions and redemptions in connection with certain automatic
withdrawals from a qualified retirement plan. The CDSC on Class A shares will
not be waived, however, if the Retirement Plan withdraws from the Fund except if
the Retirement Plan has invested its assets in Class A shares of 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 Retirement Plan first invests its assets in Class A
shares of one or more of the MFS Funds, the CDSC on Class A shares will be
waived in the case of a redemption of all of the Retirement Plan's shares
(including shares of any other class) in all MFS Funds (i.e., all the assets of
the Retirement Plan invested in the MFS Funds are withdrawn), unless,
immediately prior to the redemption, the aggregate amount invested by the
Retirement Plan in Class A shares of the MFS Funds (excluding the reinvestment
of distributions) during the prior four year period equals 50% or more of the
total value of the Retirement Plan's assets in the MFS Funds, in which case the
CDSC will not be waived. The CDSC on Class A shares will be waived upon
redemption by a Retirement Plan where the redemption proceeds are used to pay
expenses of the Retirement Plan or certain expenses of participants under the
Retirement Plan (e.g., participant account fees), provided that the Retirement
Plan's sponsor subscribes to the MFS Fundamental 401(k) Plan(sm) or another
similar recordkeeping system made available by the Shareholder Servicing Agent.
The CDSC on Class A shares will be waived upon the transfer of registration from
shares held by a Retirement Plan through a single account maintained by the
Shareholder Servicing Agent to multiple Class A share accounts maintained by the
Shareholder Servicing Agent on behalf of individual participants in the
Retirement Plan, provided that the Retirement Plan's
13
<PAGE> 110
sponsor subscribes to the MFS Fundamental 401(k) Plan(sm) or another similar
recordkeeping system made available by the Shareholder Servicing Agent. Any
applicable CDSC will be deferred upon an exchange of Class A shares of the Fund
for units of participation of the MFS Fixed Fund (a bank collective investment
fund) (the "Units"), and the CDSC will be deducted from the redemption proceeds
when such Units are subsequently redeemed (assuming the CDSC is then payable).
No CDSC will be assessed upon an exchange of Units for Class A shares of the
Fund. For purposes of calculating the CDSC payable upon redemption of Class A
shares of the Fund or Units acquired pursuant to one or more exchanges, the
period during which the Units are held will be aggregated with the period during
which the Class A shares are held. MFD shall receive all CDSCs which it intends
to apply for the benefit of the Fund.
MFD allows discounts to dealers (which are alike for all dealers) from the
applicable public offering price as shown in the above table. In the case of the
maximum sales charge, the dealer retains 4% and MFD retains approximately 3/4 of
1% of the public offering price. The sales charge may vary depending on the
number of shares of the Fund as well as certain MFS Funds and other funds owned
or being purchased, the existence of an agreement to purchase additional shares
during a 13-month period (or a 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 Purchases privileges by which the sales
charge may be reduced is set forth in the Statement of Additional Information.
In addition, MFD will pay commissions to dealers who initiate and are
responsible for purchases of Class A shares of $1 million or more as follows:
1.00% on sales up to $5 million, plus 0.25% on the amount in excess of $5
million. Purchases of $1 million or more for each shareholder account will be
aggregated over a 12-month period (commencing from the date of the first such
purchase) for purposes of determining the level of commissions to be paid during
that period with respect to such account.
Class A shares of the Fund may be sold at their net asset value to the officers
of the Trust, to any of the subsidiary companies of Sun Life, to eligible
Directors, officers, employees (including retired employees) and agents of MFS,
Sun Life or any of their subsidiary companies, to any trust, pension,
profit-sharing or any other benefit plan for such persons, to any trustees and
retired trustees of any investment company for which MFD serves as distributor
or principal underwriter, and to certain family members of such individuals and
their spouses, provided the shares will not be resold except to the Fund. Class
A shares of the Fund may be sold at net asset value to any employee, partner,
officer or trustee of any sub-adviser to any MFS Fund and to certain family
members of such individuals and their spouses, or to any trust, pension,
profit-sharing or other retirement plan for the sole benefit of such employee or
representative, provided such shares will not be resold except to the Fund.
Class A shares of the Fund may also be sold at their net asset value to any
employee or registered representative of any dealer or other financial
institution which has a sales agreement with MFD or its affiliates, to certain
family members of such employees or representatives and their spouses, or to any
trust, pension, profit-sharing or other retirement plan for the sole benefit of
such employee or representative, as well as to clients of MFS Asset Management,
Inc. Class A shares may be sold at net asset value, subject to appropriate
documentation, through a dealer where the amount invested represents redemption
proceeds from a registered open-end management investment company not
distributed or managed by MFD or its affiliates if: (i) the redeemed shares were
subject to an initial sales charge or a deferred sales charge (whether or not
actually imposed); (ii) such redemption has occurred no more than 90 days prior
to the purchase of Class A shares of the Fund; and (iii) the Fund, MFD or its
affiliates have not agreed with such company or its affiliates, formally or
informally, to sell Class A shares at net asset value or provide any other
incentive with respect to such redemption and sale. In addition, Class A shares
of the Fund may be sold at net asset value in connection with the acquisition or
liquidation of the assets of other investment companies or personal holding
companies. Insurance company separate accounts may also purchase Class A shares
of the Fund at their net asset value. Class A shares of the Fund may be
purchased at net asset value by retirement plans whose third party
administrators have entered into an administrative services agreement with MFD
or one or more of its affiliates to perform certain administrative services,
subject to certain operational requirements specified from time to time by MFD
or one or more of its affiliates. Class A shares of the Fund may also be sold at
net asset value through the automatic reinvestment of Class A and Class B
periodic distributions which constitute required withdrawals from qualified
retirement plans. Class A shares of the Fund may be purchased at net asset value
through certain broker-dealers and other financial institutions which have
entered into an agreement with MFD, which includes a requirement that
14
<PAGE> 111
such shares be sold for the benefit of clients participating in a "wrap account"
or a similar program under which such clients pay a fee to such broker-dealer or
other financial institution.
Class A shares of the Fund may be purchased at net asset value by retirement
plans qualified under Section 401(k) of the Code through certain broker-dealers
and other financial institutions which have entered into an agreement with MFD
which includes certain minimum size qualifications for such retirement plans and
provides that the broker-dealer or other financial institution will perform
certain administrative services with respect to the plan's account. Furthermore,
Class A shares of the Fund may be sold at the net asset value through the
automatic reinvestment of distributions of dividends and capital gains of Class
A shares of other MFS Funds pursuant to the Distribution Investment Program (see
"Shareholder Services" in the Statement of Additional Information).
Class A shares of the Fund may be purchased at net asset value by certain
retirement plans subject to the Employee Retirement Income Security Act of 1974,
as amended, subject to the following:
(i) The sponsoring organization must demonstrate to the satisfaction of MFD
that either (a) the employer has at least 25 employees or (b) the aggregate
purchases by the retirement plan of Class A shares of the MFS Funds will be
in an amount of at least $250,000 within a reasonable period of time, as
determined by MFD in its sole discretion; and
(ii) a CDSC of 1% will be imposed on such purchases in the event of certain
redemption transactions within 12 months following such purchases.
Dealers who initiate and are responsible for purchases of Class A shares of the
Fund in this manner will be paid a commission by MFD, as follows: 1.00% on sales
up to $5 million, plus 0.25% on the amount in excess of $5 million; provided,
however, that MFD may pay a commission, on sales in excess of $5 million to
certain retirement plans, of 1.00% to certain dealers which, at MFD's
invitation, enter into an agreement with MFD in which the dealer agrees to
return any commission paid to it on the sale (or on a pro rata portion thereof)
if the shareholder redeems his or her shares within a period of time after
purchase as specified by MFD. Purchases of $1 million or more for each
shareholder account will be aggregated over a 12-month period (commencing from
the date of the first such purchase) for purposes of determining the level of
commissions to be paid during that period with respect to such account.
CLASS B SHARES: Class B shares are offered at net asset value without an
initial sales charge but subject to a CDSC as follows:
<TABLE>
<CAPTION>
YEAR OF REDEMPTION CONTINGENT DEFERRED
AFTER PURCHASE SALES CHARGE
------------------ -------------------
<S> <C>
First.............................................. 4%*
Second............................................. 4%
Third.............................................. 3%
Fourth............................................. 3%
Fifth.............................................. 2%
Sixth.............................................. 1%
Seventh and following.............................. 0%
</TABLE>
- ---------------
* Class B shares purchased between January 1, 1993 through September 1, 1993
were subject to a CDSC of 5% in the event of a redemption within the first
year after purchase.
For Class B shares purchased prior to January 1, 1993, the Fund imposes a CDSC
as a percentage of redemption proceeds as follows:
<TABLE>
<CAPTION>
YEAR OF REDEMPTION CONTINGENT DEFERRED
AFTER PURCHASE SALES CHARGE
------------------ -------------------
<S> <C>
First.............................................. 6%
Second............................................. 5%
Third.............................................. 4%
Fourth............................................. 3%
Fifth.............................................. 2%
Sixth.............................................. 1%
Seventh and following.............................. 0%
</TABLE>
15
<PAGE> 112
No CDSC is paid upon an exchange of 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. See "Redemptions and Repurchases --
Contingent Deferred Sales Charge" for further discussion of the CDSC.
The CDSC on Class B shares will be waived upon the death or disability (as
defined in Section 72(m)(7) of the Code) of any investor, provided the account
is registered (i) in the case of a deceased individual, solely in the deceased
individual's name, (ii) in the case of a disabled individual, solely or jointly
in the disabled individual's name or (iii) in the name of a living trust for the
benefit of the deceased or disabled individual. The CDSC on Class B shares will
also be waived in the case of redemptions of shares of the Fund pursuant to a
systematic withdrawal plan. In addition, the CDSC on Class B shares will be
waived in the case of distributions from an IRA, SAR-SEP or any other retirement
plan qualified under Section 401(a) or 403(b) of the Code, due to death or
disability, or in the case of required minimum distributions from any such
retirement plan due to attainment of age 70 1/2. The CDSC on Class B shares will
be waived in the case of distributions from a retirement plan qualified under
Section 401(a) of the Code due to (i) returns of excess contribution to the
plan, (ii) retirement of a participant in the plan, (iii) a loan from the plan
(repayments of loans, however, will constitute new sales for purposes of
assessing the CDSC), (iv) "financial hardship" of the participant in the plan,
as that term is defined in Treasury Regulation Section 1.401(k)-1(d)(2), as
amended from time to time, and (v) termination of employment of the participant
in the plan (excluding, however, a partial or other termination of the plan).
The CDSC on Class B shares of the Fund will also be waived upon redemption by
(i) officers of the Trust, (ii) any of the subsidiary companies of Sun Life,
(iii) eligible Directors, officers, employees (including retired employees) and
agents of MFS, Sun Life or any of their subsidiary companies, (iv) any trust,
pension, profit-sharing or any other benefit plan for such persons, (v) any
trustees and retired trustees of any investment company for which MFD serves as
distributor or principal underwriter, and (vi) certain family members of such
individuals and their spouses, provided in each case that the shares will not be
resold except to the Fund. The CDSC on Class B shares will also be waived in the
case of redemptions by any employee or registered representative of any dealer
or other financial institution which has a sales agreement with MFD, by certain
family members of any such employee or representative and their spouses, by any
trust, pension, profit-sharing or other retirement plan for the sole benefit of
such employee or representatives and by clients of MFS Asset Management, Inc. A
retirement plan qualified under Section 401(a) of the Code (a "Retirement Plan")
that has invested its assets in Class B shares of 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 the Retirement Plan first invests its assets in Class B shares of one
or more of the MFS Funds, will have the CDSC on Class B shares waived in the
case of a redemption of all the Retirement Plan's shares (including any Class A
shares) in all MFS Funds (i.e., all the assets of the Retirement Plan invested
in the MFS Funds are withdrawn), except that if, immediately prior to the
redemption, the aggregate amount invested by the Retirement Plan in Class B
shares of the MFS Funds (excluding the reinvestment of distributions) during the
prior four year period equals 50% or more of the total value of the Retirement
Plan's assets in the MFS Funds, then the CDSC will not be waived. The CDSC on
Class B shares will be waived upon redemption by a Retirement Plan where the
redemption proceeds are used to pay expenses of the Retirement Plan or certain
expenses of participants under the Retirement Plan (e.g., participant account
fees), provided that the Retirement Plan's sponsor subscribes to the MFS
Fundamental 401(k) Plan(sm) or another similar recordkeeping system made
available by the Shareholder Servicing Agent. The CDSC on Class B shares will be
waived upon the transfer of registration from shares held by a Retirement Plan
through a single account maintained by the Shareholder Servicing Agent to
multiple Class B share accounts provided that the Retirement Plan's sponsor
subscribes to the MFS Fundamental 401(k) Plan(sm) or another similar
recordkeeping system made available by the Shareholder Servicing Agent. The CDSC
on Class B shares may also be waived in connection with the acquisition or
liquidation of the assets of other investment companies or personal holding
companies.
CONVERSION OF CLASS B SHARES: Class B shares of the Fund that remain
outstanding for approximately eight years will convert to Class A shares of the
Fund. Shares purchased through the reinvestment of distributions paid in respect
of Class B shares will be treated as Class B shares for purposes of the payment
of the distribution and service fees under the Distribution Plan applicable to
Class B shares. However, for purposes of conversion to Class A shares, all
shares in a shareholder's account that were
16
<PAGE> 113
purchased through the reinvestment of dividends and distributions paid in
respect of Class B shares (and which have not converted to Class A shares as
provided in the following sentence) will be held in a separate sub-account. Each
time any Class B shares in the shareholder's account (other than those in the
sub-account) convert to Class A shares, a portion of the Class B shares then in
the sub-account will also convert to Class A shares. The portion will be
determined by the ratio that the shareholder's Class B shares not acquired
through reinvestment of dividends and distributions that are converting to Class
A shares bear to the shareholder's total Class B shares not acquired through
reinvestment. The conversion of Class B shares to Class A shares is subject to
the continuing availability of a ruling from the Internal Revenue Service or an
opinion of counsel that such conversion will not constitute a taxable event for
federal tax purposes. There can be no assurance that such ruling or opinion will
be available, and the conversion of Class B shares to Class A shares will not
occur if such ruling or opinion is not available. In such event, Class B shares
would continue to be subject to higher expenses than Class A shares for an
indefinite period.
CLASS C SHARES: Class C Shares are offered at net asset value without an
initial sales charge or a CDSC. Class C shares do not convert to any other class
of shares of the Fund. The maximum investment in Class C shares that may be made
is $5,000,000 per transaction.
Class C shares are not currently available for purchase by any retirement plan
qualified under Internal Revenue Code Section 403(a) or 401(b) if the retirement
plan and/or the sponsoring organization subscribe to the MFS Fundamental 401(k)
Plan or another similar 401(a) or 403(b) recordkeeping program made available by
MFS Service Center, Inc.
GENERAL: 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.
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.
A shareholder whose shares are held in the name of, or controlled by, an
investment 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.
Purchases and exchanges should be made for investment purposes only. The Fund
and MFD each reserve the right to reject any specific purchase order or to
restrict purchases by a particular purchaser (or group of related purchasers).
The Fund or MFD may reject or restrict any purchases by a particular purchaser
or group, for example, when such purchase is contrary to the best interests of
the Fund's other shareholders or otherwise would disrupt the management of the
Fund.
MFD may enter into an agreement with shareholders who intend to make exchanges
among certain classes of certain MFS Funds (as determined by MFD) which follow a
timing pattern, and with individuals or entities acting on such shareholders'
behalf (collectively, "market timers"), setting forth the terms, procedures and
restrictions with respect to such exchanges. In the absence of such an
agreement, it is the policy of the Fund and MFD to reject or restrict purchases
by market timers if (i) more than two exchange purchases are effected in a timed
account in the same calendar quarter or (ii) a purchase would result in shares
being held in timed accounts by market timers representing more than (x) one
percent of the Fund's net assets or (y) specified dollar amounts in the case of
certain MFS Funds which may include the Fund and which may change from time to
time. The Fund and MFD each reserve the right to request market timers to redeem
their shares at net asset value, less any applicable CDSC, if either of these
restrictions is violated.
17
<PAGE> 114
Securities dealers and other financial institutions may receive different
compensation with respect to sales of Class A, Class B and Class C shares. In
some instances, promotional incentives to dealers may be offered only to certain
dealers who have sold or may sell significant amounts of Fund shares. 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. The staff
of the SEC has indicated that dealers who receive more than 90% of the sales
charge may be considered underwriters. 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 and members of their families or other invited guests
to various locations 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. In some instances, these concessions may be
offered to dealers or only to certain dealers who have sold or may sell, during
specified periods, certain minimum amounts of shares of the Fund. 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
the laws of the state or any self-regulatory agency, such as the National
Association of Securities Dealers, Inc. (the "NASD").
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 (as described
above). 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. 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.
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 (if available for sale) at net asset value. In addition, Class C
shares may be exchanged for shares of the MFS Money Market Fund at net asset
value. Shares of one class may not be exchanged for shares of any other class.
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
or all the shares in an account (except that the minimum is $50 for accounts 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). If the 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 (the "Exchange"), the
exchange usually will occur on that day if all the requirements set forth above
have been complied with at that time. No more than five exchanges may be made in
any one Exchange Request by telephone. Additional details concerning this
exchange privilege and prospectuses for any of the other MFS Funds may be
obtained from investment dealers or the Shareholder Servicing Agent. A
shareholder should read the prospectus of the other MFS Fund and consider the
differences in objectives and policies before making any exchange. 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
18
<PAGE> 115
restrictions on purchases by market timers. Special procedures, privileges and
restrictions with respect to exchanges may apply to market timers who enter into
an agreement with MFD, as set forth in such agreement (see "Purchases").
REDEMPTIONS AND REPURCHASES
A shareholder may withdraw all or any portion of the amount in his account on
any date on which the Fund is open for business by redeeming shares at their net
asset value or by selling such shares to the Fund through a dealer (a
repurchase). Since the net asset value of shares of the account fluctuate,
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 that 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 15 days from the
purchase date in an effort to assure that such check has cleared. Payment of
redemption proceeds may be delayed for up to seven days from the redemption date
if the Fund determines that such a delay would be in the best interest of all
its shareholders.
A. REDEMPTION BY MAIL -- Each shareholder has the right to 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 a 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 share 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" may 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 by the Shareholder Servicing Agent in
"good order," 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 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 the Exchange is restricted or to the extent otherwise permitted by
the 1940 Act if an emergency exists (see "Tax Status").
B. REDEMPTION BY TELEPHONE -- Each shareholder may redeem an amount from his
account by telephoning 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 commercial 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 described above and the amount of any income tax required
to be withheld, are mailed by check to the designated account, without charge.
As a special service, investors may arrange to have proceeds in excess of $1,000
wired in federal funds to the designated account. 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.
C. REPURCHASE THROUGH A DEALER -- If a shareholder desires to sell his shares
at net asset value through his securities 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 ON THE SAME DAY
BEFORE MFD CLOSES FOR BUSINESS, THE SHAREHOLDER WILL RECEIVE THE NET ASSET VALUE
CALCULATED ON THAT DAY.
19
<PAGE> 116
SIGNATURE GUARANTEE: In order to protect shareholders against fraud to the
greatest extent possible, 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.
GENERAL: 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 Statement of
Additional Information regarding this privilege.
Subject to the Fund's compliance with applicable regulations, the Fund has
reserved the right to pay the redemption or repurchase price of shares of the
Fund, either totally or partially, by a distribution in kind of portfolio
securities (instead of cash). The securities so distributed 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
shareholders could incur transaction, tax or other charges when converting the
securities to cash.
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 (which
will be promptly paid to the shareholder) if at any time the total investment in
such account drops below $500 because of redemptions, except in the case of
accounts 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"). 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. No CDSC will be
imposed with respect to such involuntary redemptions.
CONTINGENT DEFERRED SALES CHARGE -- Investments ("Direct Purchases") in Class A
and B shares will be subject to a CDSC for a period of 12 months (in the case of
purchases of $1 million or more of Class A shares) or six years (in the case of
purchases of Class B shares). Purchases of Class A shares made during a calendar
month, regardless of when during the month the investment occurred, will age one
month on the last day of the month and each subsequent month. Class B shares
purchased on or after January 1, 1993 will be aggregated on a calendar month
basis -- all transactions made during a calendar month, regardless of when
during the month they have occurred, will age one year at the close of business
on the last day of such month in the following calendar year and each subsequent
year. For Class B shares of the Fund purchased prior to January 1, 1993,
transactions will be aggregated on a calendar year basis -- all transactions
made during a calendar year, regardless of when during the year they have
occurred, will age one year at the close of business on December 31 of that year
and each subsequent year. At the time of a redemption, the amount by which the
value of a shareholder's account for a particular class 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) 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 shares of a particular class, (i) any
Free Amount is not subject to the CDSC, and (ii) the amount of 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 will be calculated as set forth in
"Purchases" above.
20
<PAGE> 117
The applicability of a CDSC will be unaffected by exchanges or transfers of
registration, except that, with respect to transfers of registration to an IRA
rollover account, the CDSC will be waived if the shares being reregistered would
have been eligible for a CDSC waiver had they been redeemed.
DISTRIBUTION PLANS
The Trustees have adopted separate distribution plans for Class A, Class B and
Class C shares 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 plans would benefit the Fund and its shareholders.
CLASS A DISTRIBUTION PLAN. The Class A Distribution Plan provides that the
Fund will pay MFD a distribution/service fee aggregating up to (but not
necessarily all of) 0.35% of the average daily net assets attributable to Class
A shares annually in order that MFD may pay expenses on behalf of the Fund
related to the distribution and servicing of Class A shares. The expenses to be
paid by MFD on behalf of the Fund include a service fee to securities dealers
which enter into a sales agreement with MFD of up to 0.25% per annum of the
Fund's average daily net assets attributable to Class A shares that are owned by
investors for whom such securities dealer is the holder or dealer of record.
This fee is intended to be partial consideration for all personal services
and/or account maintenance services rendered by the dealer with respect to Class
A shares. MFD may from time to time reduce the amount of the service fee paid
for shares sold prior to a certain date. MFD may also retain a distribution fee
of 0.10% per annum of the Fund's average daily net assets attributable to Class
A shares as partial consideration for services performed and expenses incurred
in the performance of MFD's obligations under its distribution agreement with
the Trust. In addition, to the extent that the aggregate of the foregoing fees
does 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 other
distribution-related expenses, including commissions to dealers and payments to
wholesalers employed by MFD for sales at or above a certain dollar level.
Payments under the Class A Distribution Plan will commence on the date net
assets of the Fund attributable to Class A shares equal or exceed $40 million.
Upon commencement of payments under the Class A Distribution Plan, MFD intends
to waive 0.10% distribution fee. Fees payable under the Class A Distribution
Plan are charged to, and therefore reduce, income allocated to Class A shares.
Service fees may be reduced for a securities dealer that is the holder or dealer
of record for an investor who owns shares of the Fund having a 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 Class A 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. Certain banks and other financial institutions that have agency
agreements with MFD will receive service fees that are the same as service fees
to dealers.
CLASS B DISTRIBUTION PLAN. The Class B Distribution Plan provides that the
Fund will pay MFD a daily distribution fee equal on an annual basis to 0.75% of
the Fund's average daily net assets attributable to Class B shares and will pay
MFD a service fee of up to 0.25% per annum of the Fund's average daily net
assets attributable to Class B shares (which MFD will in turn pay to securities
dealers which enter into a sales agreement with MFD at a rate of up to 0.25% per
annum of the Fund's average daily net assets attributable to Class B shares
owned by investors for whom that securities dealer is the holder or dealer of
record). This service fee is intended to be additional consideration for all
personal services and/or account maintenance services rendered by the dealer
with respect to Class B shares. Fees payable under the Class B Distribution Plan
are charged to, and therefore reduce, income allocated to Class B shares. The
Class B Distribution Plan also provides that MFD will receive all CDSCs
attributable to Class B shares (see "Redemptions and Repurchases" above) which
do not reduce the distribution fee. 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 at a rate equal to 0.25% of the
purchase price of such shares and, as compensation therefor, MFD may retain the
service fee paid by the Fund with respect to such shares for the first year
after purchase. Therefore, the total amount paid to a dealer upon the sale of
shares is 4.00% of the purchase price of the shares (commission rate of 3.75%
plus service fee equal to 0.25% of the purchase price). Dealers will become
eligible for additional service fees with respect to such
21
<PAGE> 118
shares commencing in the thirteenth month following the purchase. Except in the
case of the 0.25% per annum first year service fee, service fee payments under
the Fund's Class B Distribution Plan are currently suspended. This suspension
may be rescinded at any time without notice to shareholders. 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 Class B 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. The purpose of the distribution payments to
MFD under the Class B Distribution Plan is to compensate MFD for its
distribution services to the Fund. Since MFD's compensation is not directly tied
to its expenses, the amount of compensation received by MFD during any year may
be more or less than its actual expenses. For this reason, this type of
distribution fee arrangement is characterized by the staff of the SEC as being
of the "compensation" variety. However, the Fund is not liable for any expenses
incurred by MFD in excess of the amount of compensation it receives. The
expenses incurred by MFD, including commissions to dealers, are likely to be
greater than the distribution fees for the next several years, but thereafter
such expenses may be less than the amount of the distribution fees. Certain
banks and other financial institutions that have agency agreements with MFD will
receive agency transaction and service fees that are the same as commissions and
service fees to dealers.
CLASS C DISTRIBUTION PLAN. The Class C Distribution Plan provides that the Fund
will pay MFD a distribution fee of up to 0.75% per annum of the Fund's average
daily net assets attributable to Class C shares and will annually pay MFD a
service fee of up to 0.25% per annum of the Fund's average daily net assets
attributable to Class C shares (which MFD in turn pays to securities dealers
which enter into a sales agreement with MFD at a rate of up to 0.25% per annum
of the Fund's daily net assets attributable to Class C shares owned by investors
for whom that securities dealer is the holder or dealer of record). The
distribution/service fees attributable to Class C shares are designed to permit
an investor to purchase such shares through a broker-dealer without the
assessment of an initial sales charge or a CDSC while allowing MFD to compensate
broker-dealers in connection with the sale of such shares. The service fee is
intended to be additional consideration for all personal services and/or account
maintenance services rendered with respect to Class C shares. MFD or its
affiliates are entitled to retain all service fees payable under the Class C
Distribution Plan with respect to accounts for which there is no dealer of
record as partial consideration for personal services and/or account maintenance
services performed by MFD or its affiliates for shareholder accounts. The
purpose of the distribution payments to MFD under the Class C Distribution Plan
is to compensate MFD for its distribution services to the Fund. Distribution
payments under the Plan will be used by MFD to pay securities dealers a
distribution fee in an amount equal on an annual basis to 0.75% of the Fund's
average daily net assets attributable to Class C shares owned by investors for
whom that securities dealer is the holder or dealer of record. (Therefore, the
total amount of distribution/service fees paid to a dealer on an annual basis is
1.00% of the Fund's average daily net assets attributable to Class C shares
owned by investors for whom the securities dealer is the holder or dealer of
record.) MFD also pays 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 compensation of personnel and all costs of travel, office
expense and equipment. Since MFD's compensation is not directly tied to its
expenses, the amount of compensation received by MFD during any year may be more
or less than its actual expenses. For this reason, this type of distribution fee
arrangement is characterized by the staff of the SEC as being of the
"compensation" variety. However, the Fund is not liable for any expenses
incurred by MFD in excess of the amount of compensation it receives. Certain
banks and other financial institutions that have agency agreements with MFD will
receive agency transaction and service fees that are the same as distribution
and service fees to dealers. Fees payable under the Class C Distribution Plan
are charged to, and therefore reduce, income allocated to Class C shares.
DISTRIBUTIONS
The Fund intends to declare daily and pay to its shareholders substantially all
of its net investment income to its shareholders as dividends on a monthly
basis. Dividends will only accrue on shares for which payment has been received.
Dividends are generally distributed on the first business day of the following
month. The Fund may make one or more distributions during the calendar year to
its shareholders from any long-term capital gains, and may also make one or more
distributions during the calendar year to its shareholders from short-term
capital gains. Shareholders may elect to receive dividends and capital gain
distributions in
22
<PAGE> 119
either cash or additional shares of the same class with respect to which a
distribution is made (see "Tax Status" and "Shareholder Services -- Distribution
Options" below). Distributions paid by the Fund with respect to Class A shares
will generally be greater than those paid with respect to Class B and Class C
shares because expenses attributable to Class B and Class C shares will
generally be higher.
TAX STATUS
The Fund is treated as an entity separate from the other series of the Trust for
federal income tax purposes. 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 Code, and to make
distributions to its shareholders in accordance with the timing requirements
imposed by the Code. It is expected that the Fund will not be required to pay
entity level federal income or excise taxes, although foreign-source income
received by the Fund may be subject to foreign withholding taxes.
Shareholders of the Fund normally will have to pay federal income taxes (and any
state or local taxes,) on the dividends and capital gain distributions they
receive from the Fund, whether paid in cash or 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. A statement setting forth the federal income tax status of all
dividends and capital gain distributions for each calendar 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 will be sent to each shareholder promptly after the
end of such year.
Fund distributions will reduce the Fund's net asset value per share.
Shareholders who buy shares shortly before the Fund makes a distribution of net
capital gains or net short-term capital gains 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 a rate of 30% on
dividends and certain 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 law or
treaty. The Fund is also required in certain circumstances to apply back-up
withholding of 31% on taxable dividends and redemption proceeds paid to any
shareholder (including a shareholder who is neither a citizen nor a resident of
the U.S.) who does not furnish to the Fund certain information and
certifications or who is otherwise subject to backup withholding. However,
backup withholding will not be applied to payments which have had 30%
withholding taken. Prospective shareholders should read the Account Application
for information regarding backup withholding of federal income tax and should
consult their own tax advisers as to the tax consequences of an investment in
the Fund.
NET ASSET VALUE
The net asset value per share of each class of shares 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 liabilities attributable to the class from the value of
the Fund's assets attributable to the class and dividing the difference by the
number of shares of the class outstanding. Assets in the Fund's portfolio are
valued on the basis of their market values as described in the Statement of
Additional Information. The net asset value 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, one of four series of the Trust, has three classes of shares, entitled
Class A, Class B and Class C Shares of Beneficial Interest (without par value).
The Trust has reserved the right to create and issue additional classes and
series of shares, in which case each class of shares of a series would
participate equally in the earnings, dividends and assets attributable to that
class of that particular series. Shareholders are entitled to one vote for each
share held and shares of each series would be entitled to vote separately to
approve investment advisory agreements or changes in investment restrictions,
but shares of all series would vote together in the election of Trustees and
selection of accountants. Additionally, each class of shares of a series will
vote separately on any material increases in the fees under its Distribution
Plan or on any other matter that affects solely that class of shares, but
23
<PAGE> 120
will otherwise vote together with all other classes of shares of the series on
all other matters. The Trust does not intend to hold annual shareholder
meetings. The 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 Statement of Additional Information).
Each share of a class of the Fund represents an equal proportionate interest in
the Fund with each other class share, subject to the liabilities of that class.
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 Trust 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 Trust itself was unable to meet its obligations.
PERFORMANCE INFORMATION
From time to time, the Fund will provide total rate of return quotations for
each class of shares and may also quote fund rankings in the relevant fund
category from various sources, such as the Lipper Analytical Services, Inc. and
Wiesenberger 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 each class of shares of the Fund made at the maximum public
offering price of the shares of that class with all distributions reinvested and
which, if quoted for periods of six years or less, will give effect to the
imposition of the CDSC assessed upon redemptions of the Fund's Class B shares.
Such total rate of return quotations may be accompanied by quotations which do
not reflect the reduction in value of the initial investment due to the sales
charge or the deduction of a CDSC, and which will thus be higher. The Fund's
total rate of return quotations are based on historical performance and are not
intended to indicate future performance. Total rate of return reflects all
components of investment return over a stated period of time. The Fund's
quotations may from time to time be used in advertisements, shareholder reports
or other communications to shareholders. For a discussion of the manner in which
the Fund will calculate its total rate of return, see the Statement of
Additional Information. For further information about the Fund's performance for
the fiscal year ended, August 31, 1994, 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.
8. SHAREHOLDER SERVICES
Shareholders with questions concerning the shareholder services described below
or concerning other aspects of the Fund, should contact their investment dealer
or 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.
24
<PAGE> 121
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
on the record date. Dividends and capital gain distributions in amounts less
than $10 will automatically be reinvested in additional shares of the Fund. If a
shareholder has elected to receive dividends and/or capital gain distributions
in cash and the postal or other delivery service is unable to deliver checks to
the shareholder's address of record, such shareholder's distribution option will
automatically be converted to having all dividends and other distributions
reinvested in additional shares. Any request to change a distribution option
must be received by the Shareholder Servicing Agent by the record date for a
dividend or distribution in order to be effective for that dividend or
distribution. No interest will accrue on amounts represented by uncashed
distribution or redemption checks.
INVESTMENT AND WITHDRAWAL PROGRAMS -- For the convenience of shareholders, the
Fund makes available the following programs designed to enable shareholders to
add to their investment in an account with the Fund or withdraw from it with a
minimum of paper work. The programs involve no extra charge to shareholders
(other than a sales charge in the case of certain Class A share purchases) and
may be changed or discontinued at any time by a shareholder or the Fund.
LETTER OF INTENT -- If a shareholder (other than a group purchaser as
described in the Statement of Additional Information) anticipates purchasing
$50,000 or more of Class A shares of the Fund alone or in combination with
shares of any class of other MFS Funds or MFS Fixed Fund (a bank collective
trust) within a 13-month period (or 36-month period for purchases of $1 million
or more), the shareholder may obtain such shares at the same reduced sales
charge as though the total quantity were invested in one lump sum, subject to
escrow agreements and the appointment of an attorney for redemptions from the
escrow amount if the intended purchases are not completed, by completing the
Letter of Intent section of the Account Application.
RIGHT OF ACCUMULATION -- A shareholder qualifies for cumulative quantity
discounts on purchases of Class A shares when his new investment, together with
the current offering price value of all holdings of any class of shares of that
shareholder in the MFS Funds and MFS Fixed Fund (a bank collective trust),
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 in shares of the same class of another
MFS Fund, if shares of such fund are available for sale (without a sales charge
and not subject to any applicable CDSC).
SYSTEMATIC WITHDRAWAL PLAN -- A shareholder may direct the Shareholder
Servicing Agent to send him (or anyone he designates) regular periodic payments,
as designated on the Account Application and based upon the value of his
account. Each payment under a Systematic Withdrawal Plan (a "SWP") must be at
least $100, except in certain limited circumstances. The aggregate withdrawals
of Class B shares in any year pursuant to a SWP will not be subject to a CDSC
and are generally limited to 10% of the value of the account at the time of the
establishment of the SWP. The CDSC will not be waived in the case of SWP
redemptions of Class A shares which are subject to a CDSC.
DOLLAR COST AVERAGING PROGRAMS --
AUTOMATIC INVESTMENT PLAN: Cash investments of $50 or more may be made
through a shareholder's checking account twice monthly, monthly or quarterly.
Required forms are available from the Shareholder Servicing Agent or investment
dealers.
AUTOMATIC EXCHANGE PLAN: Shareholders having account balances of at least
$5,000 in any MFS Fund may exchange their shares for the same class of shares of
the other MFS Funds (and, in the case of Class C shares, for shares of the MFS
Money Market Fund) 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.
Under the Automatic Exchange Plan, exchanges of at least $50 each may be made to
up to four different funds. A shareholder should consider the objectives and
policies of a fund and review its prospectus before electing to exchange money
into such fund through the Automatic Exchange Plan. No transaction fee is
imposed in connection with exchange transactions under the Automatic Exchange
Plan. However, exchanges of shares of MFS
25
<PAGE> 122
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 Statement of Additional Information
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 charge 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 -- Except as noted under "Purchases -- Class C
shares," shares of the Fund may be purchased by all types of tax-deferred
retirement plans, including IRAs, SEP-IRA plans, 401(k) plans, 403(b) plans and
other corporate pension and profit-sharing plans. Investors should consult with
their tax advisers before establishing any of the tax-deferred retirement plans
described above.
------------------------
The Fund's Statement of Additional Information, dated March 1, 1995, contains
more detailed information about the Trust and the Fund, including information
related to (i) investment policies and restrictions, (ii) Trustees, officers and
investment adviser, (iii) portfolio transactions and brokerage commissions, (iv)
Distribution Plans, (v) the method used to calculate total rate of return
quotations of the Fund, and (vi) various services and privileges provided by the
Fund for the benefit of its shareholders, including additional information with
respect to the exchange privilege.
26
<PAGE> 123
[MFS LOGO]
Investment Adviser
Massachusetts Financial Services Company
500 Boylston Street
Boston, MA 02116 MFS(R) OTC FUND
(617) 954-5000
Distributor Prospectus
MFS Fund Distributors, Inc. March 1, 1995
500 Boylston Street
Boston, MA 02116
(617) 954-5000
Custodian
Investors Bank & Trust Company
89 South Street
Boston, MA 02111
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 Accountants
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
[MFS LOGO]
MFS(R) OTC FUND
500 Boylston Street
Boston, MA 02116
OTC-1 3/95/92M 83/283/383
<PAGE> 124
MFS OTC FUND
(a series of MFS SERIES TRUST IV)
Supplement to be affixed to the current
Prospectus for distribution in Ohio
Prospective Ohio investors should note the following:
a) This Prospectus must be delivered to the investor prior to consummation
of the sale;
b) The Fund may pruchase the securities of any issuer such that, as to 50% of
the value of the Fund's assets, 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;
c) The Fund may invest up to 50% of its assets in restricted securities,
including Rule 144A securities which have been deemed to be liquid by the Board
of Trustees.
The date of this Supplement is March 1, 1995.
<PAGE> 125
[MFS LOGO]
MFS(R) OTC FUND STATEMENT OF
ADDITIONAL INFORMATION
(A Member of the MFS Family of Funds(R)) March 1, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Definitions........................................................................... 2
2. Investment Objectives, Policies and Restrictions...................................... 2
3. Management of the Fund................................................................ 13
Trustees.............................................................................. 13
Officers.............................................................................. 13
Investment Adviser.................................................................... 14
Custodian............................................................................. 15
Shareholder Servicing Agent........................................................... 15
Distributor........................................................................... 15
4. Portfolio Transactions and Brokerage Commissions...................................... 16
5. Shareholder Services.................................................................. 17
Investment and Withdrawal Programs.................................................... 17
Exchange Privilege.................................................................... 19
Tax-Deferred Retirement Plans......................................................... 20
6. Tax Status............................................................................ 20
7. Determination of Net Asset Value and Performance...................................... 21
8. Distribution Plans.................................................................... 23
9. Description of Shares, Voting Rights and Liabilities.................................. 25
10. Independent Accountants and Financial Statements...................................... 26
</TABLE>
MFS OTC FUND
A Series of MFS Series Trust IV
500 Boylston Street, Boston, Massachusetts 02116
(617) 954-5000
This Statement of Additional Information sets forth information which may be of
interest to investors but which is not necessarily included in the Fund's
Prospectus, dated March 1, 1995. This Statement of Additional Information 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 STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS AUTHORIZED
FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY A
CURRENT PROSPECTUS.
<PAGE> 126
1. DEFINITIONS
<TABLE>
<S> <C>
"Fund" -- MFS OTC Fund, a series of
MFS Series Trust IV (the
"Trust"), a Massachusetts
business trust. The Trust
was known as Massachusetts
Cash Management Trust until
its name was changed on
September 3, 1993.
"MFS" or the "Adviser" -- Massachusetts Financial
Services Company, a
Delaware corporation.
"MFD" -- MFS Fund Distributors,
Inc., a Delaware
corporation.
"Prospectus" -- The Prospectus, dated March
1, 1995, of the Fund.
</TABLE>
2. INVESTMENT OBJECTIVE, POLICIES AND RESTRICTION
INVESTMENT OBJECTIVE AND POLICIES. The investment objective and policies of the
Fund are described in the Prospectus and below. The following discussion of the
Fund's investment policies and restrictions supplements and should be read in
conjunction with the information set forth in the "Investment Objective and
Policies" section of the Prospectus.
NON-DIVERSIFIED STATUS: The Fund has registered as a "non-diversified"
investment company. As a result, under the Investment Company Act of 1940 (the
"1940 Act") the Fund is limited only by its own investment restrictions as to
the percentage of its assets which may be invested in the securities of any one
issuer. However, in spite of the flexibility under the 1940 Act, the Fund would
still have to meet quarterly diversification requirements under the Internal
Revenue Code of 1986, as amended (the "Code") in order for the Fund to qualify
as a regulated investment company. (See "Tax Status" below for more
information.) As a result of the Code's diversification requirements, the Fund
may not have the latitude to take full advantage of the relative absence of 1940
Act diversification requirements.
ZERO COUPON BONDS, DEFERRED INTEREST BONDS AND PIK BONDS: Fixed income
securities that the Fund may invest in 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 or
purchased 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 thereof
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 due to changes in
interest rates than debt obligations which make regular payments of interest.
The Fund will accrue income on such investments for tax and accounting purposes,
as required, which is distributable to shareholders and which, because no cash
is received at the time of accrual, may require the liquidation of other
portfolio securities to satisfy the Fund's distribution obligations.
SECURITIES LENDING: 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 (or subsidiaries thereof) of the
New York Stock Exchange (the "Exchange") and would be required to be secured
continuously by collateral in cash, cash equivalents, or U.S. Government
securities 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 paid by the issuer on the securities loaned and would also receive
compensation based on investment of the collateral. The Fund would not, however,
have the right to vote any securities having voting rights during the existence
of the loan, but would call the loan in anticipation of an important vote to be
taken among holders of the securities or of the giving or withholding of their
consent on a material matter affecting the investment. As with other extensions
of credit, there are risks of delay in recovery or even loss of rights in the
collateral should the borrower of the securities fail financially. However, the
loans would be made only to firms deemed by the Adviser to be of good standing,
and when, in the judgment of the Adviser, the consideration which could be
earned currently from securities loans of this type justifies the attendant
risk. If the Adviser determines to lend securities, 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 subsidiaries 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
2
<PAGE> 127
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 the General Statement of Policy of the Securities and Exchange Commission
(the "SEC") concerning such purchases. Since that policy currently recommends
that an amount of the Fund's assets equal to the amount of the purchase be held
aside or segregated to be used to pay for the commitment, the Fund will always
have cash, short-term money market instruments or high quality debt securities
sufficient to cover any commitments or to limit any potential risk. However,
although the Fund does not intend to make such purchases for speculative
purposes and intends to adhere to the provisions of the SEC policy, 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.
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 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.
MORTGAGE "DOLLAR ROLL" TRANSACTIONS: As described in the Prospectus, the Fund
may enter into mortgage "dollar roll" transactions pursuant to which it sells
mortgage-backed securities for delivery in the future and simultaneously
contracts to repurchase substantially similar securities on a specified future
date. During the roll period, the Fund foregoes principal and interest paid on
the mortgage-backed securities. The Fund is compensated for the lost interest by
the difference between the current sales price and the lower price for the
future purchase (often referred to as the "drop") as well as by the interest
earned on the cash proceeds of the initial sale. The Fund may also be
compensated by receipt of a commitment fee.
FOREIGN SECURITIES: The Fund may invest up to 35% (and generally expects to
invest between 10% and 20%) of its total assets in foreign securities which are
not traded on a U.S. exchange (not including American Depositary Receipts). As
discussed in the Prospectus, investing in foreign securities generally
represents 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.
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. ADRs may be sponsored or
unsponsored. A sponsored ADR is issued by a depository which
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has an exclusive relationship with the issuer of the underlying security. An
unsponsored ADR may be issued by any number of U.S. depositories. 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.
CORPORATE ASSET-BACKED SECURITIES: The Fund may invest in corporate asset-backed
securities. These securities, issued by trusts and special purpose corporations,
are backed by a pool of assets, such as credit card and automobile loan
receivables, representing the obligations of a number of different parties.
Corporate asset-backed securities present certain risks. For instance, in the
case of credit card receivables, these securities may not have the benefit of
any security interest in the related collateral. Credit card receivables are
generally unsecured and the debtors are entitled to the protection of a number
of state and federal consumer credit laws, many of which give such debtors the
right to set off certain amounts owed on the credit cards, thereby reducing the
balance due. Most issuers of automobile receivables permit the servicers to
retain possession of the underlying obligations. If the servicer were to sell
these obligations to another party, there is a risk that the purchaser would
acquire an interest superior to that of the holders of the related automobile
receivables. In addition, because of the large number of vehicles involved in a
typical issuance and technical requirements under state laws, the trustee for
the holders of the automobile receivables may not have a proper security
interest in all of the obligations backing such receivables. Therefore, there is
the possibility that recoveries on repossessed collateral may not, in some
cases, be available to support payments on these securities.
Corporate asset-backed securities are often backed by a pool of assets
representing the obligations of a number of different parties. To lessen the
effect of failures by obligors to make payments on underlying assets, the
securities may contain elements of credit support which fall into two
categories: (i) liquidity protection and (ii) protection against losses
resulting from ultimate default by an obligor on the underlying assets.
Liquidity protection refers to the provision of advances, generally by the
entity administering the pool of assets, to ensure that the receipt of payments
on the underlying pool occurs in a timely fashion. Protection against losses
resulting from ultimate default ensures payment through insurance policies or
letters of credit obtained by the issuer or sponsor from third parties. The Fund
will not pay any additional or separate fees for credit support. The degree of
credit support provided for each issue is generally based on historical
information respecting the level of credit risk associated with the underlying
assets. Delinquency or loss in excess of that anticipated or failure of the
credit support could adversely affect the return on an investment in such a
security.
RISKS OF INVESTING IN LOWER RATED BONDS: 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 Group ("S&P") or Fitch Investors Service, Inc.
("Fitch") and comparable unrated securities. These securities, while normally
exhibiting adequate protection parameters, 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 fixed income 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") to the extent described in the Prospectus. No minimum rating
standard is required by the Fund. 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 (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, the Adviser's
judgment may at times play a greater role in valuing these securities than
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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
objectives 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. These
lower rated securities may also include zero coupon bonds, deferred interest
bonds and bonds on which interest is payable in kind ("PIK Bonds") which are
described above.
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 is covered if the Fund owns the security
underlying the call or has an absolute and immediate right to acquire such
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 is also
covered if a Fund holds a call on the same security and in the same principal
amount as the call written where the exercise price of the call held (a) is
equal to or less than the exercise price of the call written or (b) is greater
than the exercise price of the call written if the difference is maintained by
the Fund in cash or high grade debt securities. A put option written by the Fund
is covered if the Fund maintains cash or high grade debt securities with a value
equal to the exercise price in a segregated account with its custodian, or else
holds a put on the same security and in the same principal amount as the put
written where the exercise price of the put held (i) is equal to or greater than
the exercise price of the put written or (ii) is less than the exercise price of
the put written if the difference is maintained by the Fund in cash or high
grade debt securities. Put and call options 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, the option is traded, and
applicable laws and regulations.
Effecting a closing transaction in the case of a written call option will permit
the Fund to write another call option on the underlying security with either a
different exercise price or expiration date or both, or in the case of a written
put option will permit the Fund to write another put option to the extent that
the exercise price thereof is secured by deposited cash or short-term
securities. Such transactions permit the Fund to generate additional premium
income, which will partially offset declines in the value of portfolio
securities or increases in the cost of securities to be acquired. Also,
effecting a closing transaction will permit the 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, less related transaction costs. 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
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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 capital loss unless the security
subsequently appreciates 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. Nevertheless, where the Fund
covers a call option on a stock index through ownership of securities, such
securities may not match the composition of the index and, in that event, the
Fund will not be fully covered and could be subject to risk of loss in the event
of adverse changes in the value of the index. The Fund may also cover call
options on stock indices by holding a call on the same index and in the same
principal amount as the call written where the exercise price of the call held
(a) is equal to or less than the exercise price of the call written or (b) is
greater than the exercise price of the call written if the difference is
maintained by the Fund in cash or high grade debt securities in a segregated
account with its custodian. The Fund may cover put options on stock indices by
maintaining cash or high grade debt securities with a value equal to the
exercise price in a segregated account with its custodian, or else by holding a
put on the same security and in the same principal amount as the put written
where the exercise price of the put held (a) is equal to or greater than the
exercise price of the put written or (b) is less than the exercise price of the
put written if the difference is maintained by the Fund in cash or high grade
debt securities. 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 rules of
the exchange on which, or the counterparty with which, the option is 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 a 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 indices 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
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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.
YIELD CURVE OPTIONS: The Fund may also enter into options on the "spread," or
yield differential, between two fixed income securities, in transactions
referred to as "yield curve" options. In contrast to other types of options, a
yield curve option is based on the difference between the yields of designated
securities, rather than the prices of the individual securities, and is settled
through cash payments. Accordingly, a yield curve option is profitable to the
holder if this differential widens (in the case of a call) or narrows (in the
case of a put), regardless of whether the yields of the underlying securities
increase or decrease.
Yield curve options may be used for the same purposes as other options on
securities. Specifically, the Fund may purchase or write such options for
hedging purposes. For example, the Fund may purchase a call option on the yield
spread between two securities, if it owns one of the securities and anticipates
purchasing the other security and wants to hedge against an adverse change in
the yield spread between the two securities. The Fund may also purchase or write
yield curve options for other than hedging purposes (i.e., in an effort to
increase its current income) if, in the judgment of the Adviser, the Fund will
be able to profit from movements in the spread between the yields of the
underlying securities. The trading of yield curve options is subject to all of
the risks associated with the trading of other types of options. In addition,
however, such options present risk of loss even if the yield of one of the
underlying securities remains constant, if the spread moves in a direction or to
an extent which was not anticipated. Yield curve options written by the Fund
will be "covered". A call (or put) option is covered if the Fund holds another
call (or put) option on the spread between the same two securities and maintains
in a segregated account with its custodian cash or cash equivalents sufficient
to cover the Fund's net liability under the two options. Therefore, the Fund's
liability for such a covered option is generally limited to the difference
between the amount of the Fund's liability under the option written by the Fund
less the value of the option held by the Fund. Yield curve options may also be
covered in such other manner as may be in accordance with the requirements of
the counterparty with which the option is traded and applicable laws and
regulations. Yield curve options are traded over-the-counter and because they
have been only recently introduced, established trading markets for these
securities have not yet developed.
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 of the Fund's assets (the "SEC illiquidity ceiling"). 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 which 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-money. The Fund will treat all or a part
of the formula price 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 FOREIGN CURRENCIES: The Fund may purchase and write put and call
options on foreign currencies ("Options on Foreign Currencies") for the purpose
of protecting against declines in the dollar value of foreign portfolio
securities and against increases in the dollar cost of foreign securities to be
acquired. For example, a decline in the dollar value of a foreign currency in
which portfolio securities are denominated will reduce the dollar value of such
securities, even if their value in the foreign currency remains constant. In
order to protect against such diminutions in the value of portfolio securities,
the Fund may purchase put Options on the Foreign Currency. If the value of the
currency did decline, the Fund would have the right to sell such currency for a
fixed amount in dollars and would thereby offset, in whole or in part, the
adverse effect on its portfolio which otherwise would have resulted.
Conversely, where a rise in the dollar value of a currency in which securities
to be acquired are denominated is projected, thereby increasing the cost of such
securities, the Fund may purchase call options thereon. The purchase of such
options could offset, at least partially, the effects of the adverse movements
in exchange rates. As in the case of other types of options, however, the
benefit to the Fund deriving from purchases of Options on Foreign Currencies
would be reduced by the amount of the premium and related transaction costs. In
addition, where currency exchange rates do not move in the direction or to the
extent anticipated, the Fund could sustain losses on transactions in Options on
Foreign Currencies which would require it to forego a portion or all of the
benefits of advantageous changes in such rates.
The Fund may write Options on Foreign Currencies for the same types of hedging
purposes. For example, where the Fund anticipates a decline in the dollar value
of foreign-denominated securities due to adverse fluctuations in exchange rates
it may, instead of purchasing a put option, write a call option on the relevant
currency. If the expected decline occurred, the option
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would most likely not be exercised, and the diminution in value of portfolio
securities would be offset by the amount of the premium received less related
transaction costs. As in the case of other types of options, therefore, the
writing of Options on Foreign Currencies will constitute only a partial hedge.
FUTURES CONTRACTS: The Fund may enter into stock index and foreign currency
futures contracts ("Futures Contracts") for hedging purposes or for non-hedging
purposes (which may be speculative) to the extent permitted by applicable law. A
Futures Contract is a bilateral agreement providing for the purchase and sale of
a specified type and amount of a financial instrument, or foreign currency, or
for the making and acceptance of a cash settlement, at a stated time in the
future for a fixed price. By its terms, a Futures Contract provides for a
specified settlement date on which, in the case of the majority of foreign
currency futures contracts, the currency or the contract are delivered by the
seller and paid for by the purchaser, or on which, in the case of stock index
futures contracts and certain foreign currency futures contracts, the difference
between the price at which the contract was entered into and the contract's
closing value is settled between the purchaser and seller in cash. Futures
contracts differ from options in that they are bilateral agreements, with both
the purchaser and the seller equally obligated to complete the transaction.
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 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
instrument underlying the Futures Contract fluctuates, making positions in the
Futures Contract more or less valuable -- a process known as "marking to the
market".
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. For example, the Fund may sell stock index futures contracts in
anticipation of or during a market decline to attempt to offset the decrease in
market value of the Fund's securities portfolio that might otherwise result. If
such decline occurs, the loss in value of portfolio securities may be offset, in
whole or part, by gains on the futures position. When the Fund is not fully
invested in the securities market and anticipates a significant market advance,
it may purchase stock index futures contracts in order to gain rapid market
exposure that may, in part or entirely, offset increases in the cost of
securities that the Fund intends to purchase. As such purchases are made, the
corresponding positions in stock index futures contracts will be closed out. In
a substantial majority of these transactions, the Fund will purchase such
securities upon termination of the futures position, but under unusual market
conditions, a long futures position may be terminated without a related purchase
of securities.
As noted in the Prospectus, the Fund may purchase and sell foreign currency
futures contracts for hedging purposes, to attempt to protect its current or
intended investments from fluctuations in currency exchange rates. Such
fluctuations could reduce the dollar value of portfolio securities denominated
in foreign currencies, or increase the cost of foreign-denominated securities to
be acquired, even if the value of such securities in the currencies in which
they are denominated remains constant. The Fund may sell futures contracts on a
foreign currency, for example, where it holds securities denominated in such
currency and it anticipates a decline in the value of such currency relative to
the dollar. In the event such decline occurs, the resulting adverse effect on
the value of foreign-denominated securities may be offset, in whole or in part,
by gains on the futures contracts.
Conversely, a Fund could protect against a rise in the dollar cost of
foreign-denominated securities to be acquired by purchasing futures contracts on
the relevant currency, which could offset, in whole or in part, the increased
cost of such securities resulting from a rise in the dollar value of the
underlying currencies. Where the Fund purchases futures contracts under such
circumstances, however, and the prices of securities to be acquired instead
decline, the Fund will sustain losses on its futures position which could reduce
or eliminate the benefits of the reduced cost of portfolio securities to be
acquired.
OPTIONS ON FUTURES CONTRACTS: The Fund may write or purchase options to buy or
sell Futures Contracts ("Options on Futures Contracts"), for hedging purposes or
for non-hedging purposes (which may be speculative) to the extent permitted by
applicable law. The writing of a call Option on a Futures Contract constitutes a
partial hedge against declining prices of the securities or other instruments
required to be delivered under the terms of 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
constitutes a partial hedge against increasing prices of the securities or other
instruments required to be delivered under the terms of 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
instrument, or instru-
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ments included in the index, underlying the Futures Contract, or (c) through the
holding of a call on the same Futures Contract and in the same principal amount
as the call written where the exercise price of the call held (i) is equal to or
less than the exercise price of the call written or (ii) is greater than the
exercise price of the call written if the difference is maintained by the Fund
in cash and high grade debt securities in a segregated account with its
custodian. The Fund may cover the writing of put Options on Futures Contracts
(a) through sales of the underlying Futures Contract, (b) through segregation of
cash or cash equivalents 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 (i) is equal to or greater than the
exercise price of the put written or (ii) is less than the exercise price of the
put written if the difference is maintained by the Fund in cash or high grade
debt securities in a segregated account with its custodian. 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 rules of the exchange on which, or the
counterparty with which, the option is 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 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 changes in interest or exchange
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 changes in interest or exchange rates,
the Fund could purchase call Options on Futures Contracts, rather than
purchasing the underlying Futures Contracts.
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 Commodity Futures
Trading Commission (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.
FORWARD CONTRACTS: The Fund may enter into forward foreign currency exchange
contracts for the purchase or sale of a specific currency at a future date at a
price set at the time of the contract (a "Forward Contract"). The Fund may enter
into Forward Contracts for hedging purposes as well as for non-hedging (which
may be speculative). The Fund may also enter into Forward Contracts for
"cross-hedging" as noted in the Prospectus. Transactions in Forward Contracts
entered into for hedging purposes 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. The Fund may also enter into
transactions in Forward Contracts for other than hedging purposes which presents
greater profit potential but also involves increased risk. For example, if the
Adviser believes that the value of a particular foreign currency will increase
or decrease relative to the value of the U.S. dollar, the Fund may purchase or
sell such currency, respectively, through a Forward Contract. If the expected
changes in the value of the currency occur, the Fund will realize profits which
will increase its gross income. Where exchange rates do not move in the
direction or to the extent anticipated, however, the Fund may sustain losses
which will reduce its gross income. Such transactions, therefore, could be
considered speculative.
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
cash, cash equivalents or high grade debt securities, which will be marked to
market on a daily basis, in an amount equal to the value of its commitments
under Forward Contracts.
RISK FACTORS: IMPERFECT CORRELATION OF HEDGING INSTRUMENTS WITH THE FUND'S
PORTFOLIO -- The Fund's ability effectively to hedge all or a portion of its
portfolio through transactions in options, Futures Contracts, and Forward
Contracts will depend on the degree to which price movements in the underlying
index or instrument correlate with price movements in the relevant portion of
the Fund's portfolio. Because the securities in the Fund's portfolio will most
likely not be the same as those securities underlying a stock index, the
correlation between movements in the portfolio and in the securities underlying
the index 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 occasion-
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ally 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 indexes
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 enter into transactions in options,
futures contracts, options on futures contracts and forward contracts not only
for hedging purposes, but also for non-hedging purposes, which may include for
speculative purposes, including 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 incurs 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 effectively to hedge its portfolios, 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. Because the
Fund would engage in the purchase or sale of Futures Contracts, the writing of
Options on Futures Contracts, and the purchase and writing of options on
securities and stock indexes in part for hedging purposes, 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 writes options on securities or options on stock indexes 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 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
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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, twenty-four 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.
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.
The Fund has adopted the additional restriction that it will not enter into a
Futures Contract if, immediately thereafter, the value of securities and other
obligations underlying all such Futures Contracts would exceed 50% of the value
of the Fund's total assets. Moreover, the Fund will not purchase put and call
options if, as a result, more than 5% of its total assets would be invested in
such options.
When the Fund purchases a Futures Contract, an amount of cash and cash
equivalents will be deposited in a segregated account with the Fund's custodian
so that the amount so segregated will at all times equal the value of the
Futures Contract, thereby insuring that the use of such Futures Contract is
unleveraged.
The policies stated above are not fundamental and may be changed without
shareholder approval, as may the Fund's investment objective.
INVESTMENT RESTRICTIONS. The Fund has adopted the following restrictions which
cannot be changed without the approval of the holders of a majority of the
Fund's shares (which, as used in this Statement of Additional Information, means
the lesser of (i) more than 50% of the outstanding shares of the Trust (or a
class or series, as applicable), or (ii) 67% or more of the outstanding shares
of the Trust (or a class or series, as applicable) present at a meeting if
holders of more than 50% of the outstanding shares of the Trust (or a class or
series, as applicable) are represented at such meeting in person or by proxy):
The Fund may not:
(1) borrow amounts in excess of 33 1/3% of its assets including amounts
borrowed, and then only as a temporary measure for extraordinary or emergency
purposes;
(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) purchase or sell real estate (including limited partnership interests
but excluding securities secured by real estate or interests therein and
securities of companies, such as real estate investment trusts, which deal in
real estate or interests therein), interests in oil, gas or mineral leases,
commodities or commodity contracts (excluding options on securities, stock
indexes and foreign currency ("Options"), Options on Futures Contracts and any
other type of option, Futures Contracts and any other type of futures contract
and Forward Contracts) in the ordinary course of its business. The Fund
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reserves the freedom of action to hold and to sell real estate, mineral
leases, commodities or commodity contracts (including Options, Options on
Futures Contracts, and any other type of option, Futures Contracts, any other
type of futures contract and Forward Contracts) acquired as a result of the
ownership of securities;
(4) issue any senior securities except as permitted by the 1940 Act. For
purposes of this restriction, collateral arrangements with respect to any type
of option (including Options on Futures Contracts and Options), Forward
Contracts and any type of futures contract (including Futures Contracts) and
collateral arrangements with respect to initial and variation margin are not
deemed to be the issuance of a senior security;
(5) make loans to other persons. For these purposes the purchase of
short-term commercial paper, the purchase of a portion or all of an issue of
debt securities, 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; or
(6) purchase any securities of an issuer of a particular industry, if as a
result, more than 25% of its gross assets would be invested in securities of
issuers whose principal business activities are in the same industry (except
obligations issued or guaranteed by the U.S. Government or its agencies and
instrumentalities and repurchase agreements collateralized by such
obligations).
Except with respect to Investment Restriction (1), 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.
In addition, the Fund has the following nonfundamental policies which may be
changed without shareholder approval. The Fund will not:
(1) invest in illiquid investments, including securities 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, where no market exists), unless the Board of Trustees has
determined that such securities are liquid based on trading markets for the
specific security, if more than 15% of the Fund's net assets (taken at market
value) would be invested in such securities. Repurchase agreements maturing in
more than seven days will be deemed to be illiquid for purposes of the Fund's
limitation on investment in illiquid securities;
(2) invest more than 5% of the value of the Fund's net assets, valued at the
lower of cost or market, in warrants. Included within such amount, but not to
exceed 2% of the value of the Fund's net assets, may be warrants which are not
listed on the New York or American Stock Exchange. Warrants acquired by the
Fund in units or attached to securities may be deemed to be without value:
(3) invest for the purpose of exercising control or management;
(4) purchase securities issued by any other investment company in excess of
the amount permitted by the 1940 Act.
(5) purchase or retain securities of an issuer any of whose officers,
directors, trustees or security holders is an officer or Trustee of the Fund,
or is an officer or a director of the investment adviser of the Fund, if one
or more of such persons also owns beneficially more than 0.5% of the
securities of such issuer, and such persons owning more than 0.5% of such
securities together own beneficially more than 5% of such securities;
(6) 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 any transaction and except that the Fund may make margin
deposits in connection with any type of option (including Options on Futures
Contracts and Options), any type of futures contract (including Futures
Contracts), and Forward Contracts;
(7) 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;
(8) invest more than 5% of its gross assets in companies which, including
predecessors, controlling persons, sponsoring entities, general partners and
guarantors, have a record of less than three years' continuous operation or
relevant business experience;
(9) pledge, mortgage or hypothecate in excess of 33 1/2% of its gross
assets. For purposes of this restriction, collateral arrangements with respect
to any type of option, (including Options on Futures Contracts and Options),
any type of futures contracts (including Futures Contracts), Forward Contracts
and payments of initial and variation margin in connection therewith, are not
considered a pledge of assets; or
(10) purchase or sell any put or call option or any combination thereof,
provided that this shall not prevent (a) the purchase, ownership, holding or
sale of (i) warrants where the grantor of the warrants is the issuer of the
underlying securities or (ii) put or call options or combinations thereof with
respect to securities, indexes of securities, foreign currency or futures
contracts (including Futures Contracts) or (b) the purchase, ownership,
holding or sale of contracts for the future delivery of securities or
currencies.
These investment restrictions are adhered to at the time of purchase or
utilization of assets; a subsequent change in
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circumstances will not be considered to result in a violation of policy.
3. MANAGEMENT OF THE FUND
The Board of Trustees provides broad supervision over the affairs of the Fund.
The Adviser is responsible for the management of the Fund's assets, and the
officers of the Trust are responsible for the Fund's operations. The Trust's
officers and Trustees are listed below, together with their principal
occupations during the past five years. (Their titles may have varied during
that period.)
TRUSTEES
A. KEITH BRODKIN,* Chairman and President
Massachusetts Financial Services Company, Chairman
RICHARD B. BAILEY*
Private investor; Massachusetts Financial Services Company, Former Chairman and
Director (until September 30, 1991)
PETER G. HARWOOD
Loomis, Sayles & Co., Inc. (investment counsel firm), Financial Vice President,
Treasurer and Director (retired October 1988)
Address: 211 Lindsay Pond Road, Concord, Massachusetts
J. ATWOOD IVES
Eastern Enterprises (diversified holding company), Chairman and Chief Executive
Officer (since December 1991); General Cinema Corporation, Vice Chairman and
Chief Financial Officer (until December 1991); The Neiman Marcus Group, Inc.,
Vice Chairman and Chief Financial Officer (from August 1987 to December 1991);
United States Filter Corporation, Director
Address: 9 Riverside Road, Weston, Massachusetts
LAWRENCE T. PERERA
Hemenway & Barnes (attorneys), Partner
Address: 60 State Street, Boston, Massachusetts
WILLIAM J. POORVU
Harvard University Graduate School of Business Administration, Adjunct
Professor; CBL Associates Properties, Inc. (a real estate investment trust),
Director; The Baupost Fund (a registered investment company), Vice Chairman
(since November 1993), Chairman and Trustee (from June 1990 until November
1993)
Address: Harvard Business School, Soldier's Field Road, Cambridge, Massachusetts
CHARLES W. SCHMIDT
Private investor; Raytheon Company (diversified electronics manufacturer),
Senior Vice President (from June, 1986 until retirement in December 1990); OHM
Corporation, Director; The Boston Company, Director; Boston Safe Deposit and
Trust Company, Director
Address: 30 Colpitts Road, Weston, Massachusetts
ARNOLD D. SCOTT*
Massachusetts Financial Services Company, Senior Executive Vice President and
Secretary
JEFFREY L. SHAMES*
Massachusetts Financial Services Company, President
ELAINE R. SMITH
Independent Consultant; Brigham and Women's Hospital, Executive Vice President
and Chief Operating Officer (from August 1990 to September 1992); Ernst &
Young (accountants), Consultant (from February to July 1990)
Address: Weston, Massachusetts
DAVID B. STONE
North American Management Corp. (investment advisers), Chairman
Address: Ten Post Office Square, Suite 300, Boston Massachusetts
OFFICERS
ROBERT A. DENNIS,* Vice President
Massachusetts Financial Services Company, Senior Vice President
GEOFFREY L. KURINSKY,* Vice President
Massachusetts Financial Services Company, Senior Vice President
W. THOMAS LONDON,* Treasurer
Massachusetts Financial Services Company, Senior Vice President and Assistant
Treasurer
STEPHEN E. CAVAN,* Secretary and Clerk
Massachusetts Financial Services Company, Senior Vice President, General Counsel
and Assistant Secretary
JAMES R. BORDEWICK, JR.,* Assistant Secretary
Massachusetts Financial Services Company, Vice President, and Associate General
Counsel (since September 1990); associated with major law firm (prior to
August 1990)
JAMES O. YOST,* Assistant Treasurer
Massachusetts Financial Services Company, Vice President
- ---------------
*"Interested persons" (as defined in the Investment Company Act of 1940, as
amended (the "1940 Act")) of the Adviser whose address is 500 Boylston Street,
Boston, Massachusetts 02116.
Each Trustee and officer holds comparable positions with certain affiliates of
MFS or with certain other funds of which MFS or a subsidiary 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 $250 per year plus $25 per meeting and $20 per
committee meeting attended, respectively, together with such Trustee's
out-of-pocket expenses) and has adopted a retirement plan for non-interested
Trustees and Mr. Bailey. Under the 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 Trust for the interested
Trustees, except Mr. Bailey. The Fund will accrue its allocable share of
compensation expenses each year to cover current year's service and amortize
past service cost.
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Set forth in Exhibit A hereto is certain information concerning the cash
compensation paid to non-interested Trustees and Mr. Bailey and benefits
accrued, and estimated benefits payable under the retirement plan.
As of January 31, 1995, the Trustees and officers, as a group owned less than 1%
of the Fund's shares outstanding.
The Declaration of Trust provides that the Trust will indemnify the Trustees and
officers against liabilities and expenses incurred in connection with litigation
in which they may be involved because of their offices with the Trust, unless,
as to liabilities to the Trust 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 Trust. In
the case of a 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 the duties involved in their offices.
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
subsidiary of Sun Life Assurance Company of Canada ("Sun Life").
The Adviser manages the Fund pursuant to an Investment Advisory Agreement, dated
August 20, 1993 (the "Advisory Agreement"). The Adviser provides the Fund with
overall investment advisory and administrative services, as well as general
office facilities. Subject to such policies as the Trustees may determine, the
Adviser makes investment decisions for the Fund. For these services and
facilities, the Adviser receives a management fee, computed and paid monthly,
equal to 0.75% of the average daily net assets of the Fund on an annualized
basis. The Adviser has voluntarily agreed to pay expenses of each class of the
Fund from commencement of operations of the Fund that exceed 1.50%, 2.57% and
2.50% of the Fund's average daily net assets attributable to Class A, Class B
and Class C shares, respectively, on an annualized basis. This temporary expense
reduction may be rescinded at any time by the Adviser without notice to
shareholders as to expenses accruing after the date of such rescission. For the
Fund's fiscal year ended August 31, 1994, the Fund incurred fees under the
Advisory Agreement of $141,370. 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 expenses, 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 rescission of the various state
requirements.
The Fund pays all of its expenses (other than those assumed by MFS or MFD),
including: Trustees 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, shareholder reports, notices, proxy statements and reports
to governmental officers and commissions; brokerage and other expenses connected
with the execution, recording and settlement of portfolio security transactions;
insurance premiums; fees and expenses of Investors Bank & 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 its
Distribution Agreement with MFD, the Fund's distributor, requires MFD to pay for
prospectuses that are to be used for sales purposes. Expenses of the Trust which
are not attributable to a specific series are allocated among the series in a
manner believed by management of the Trust to be fair and equitable.
MFS has agreed to bear certain of these Fund expenses for a certain period of
time, as described in the Prospectus under "Management of the Fund." MFS pays
the compensation of the Trust's officers and of any Trustee who is an officer of
MFS. The Adviser also furnishes at its own expense all necessary administrative
services, including office space, equipment, clerical personnel, investment
advisory facilities, and all executive and supervisory personnel necessary for
managing the Fund's investments, effecting its portfolio transactions, and, in
general, administering its affairs.
The Advisory Agreement will remain in effect until August 1, 1995, 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 outstanding voting securities (as defined under "Investment
Restrictions") and, in either case, by a majority of the Trustees who are not
parties to the Advisory Agreement or interested persons of any such party. The
Advisory Agreement terminates automatically if it is assigned and may be
terminated without penalty by vote of a majority of the Fund's shares (as
defined in "Investment Restrictions") or by either party on not more than 60
days' nor less than 30 days' written notice. 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.
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CUSTODIAN
Investors Bank & Trust Company (the "Custodian") is the custodian of the Fund's
assets. The Custodian's responsibilities include safekeeping and controlling the
Fund's cash and securities, handling the receipt and delivery of securities,
determining income and collecting interest and dividends on the Fund's
investments, maintaining books of original entry for portfolio and fund
accounting and other required books and accounts, and calculating the daily net
asset value of shares of each class 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 of the
Custodian and may deal with the Custodian as principal in securities
transactions. The Trustees have reviewed and approved as in the best interests
of the Fund and its shareholders subcustodial arrangements with the Chase
Manhattan Bank, N.A. for securities of the Fund held outside the United States.
SHAREHOLDER SERVICING AGENT
MFS Service Center, Inc. (the "Shareholder Servicing Agent"), a wholly owned
subsidiary of MFS, is the Fund's shareholder servicing agent, pursuant to a
Shareholder Servicing Agreement, effective August 1, 1985 (the "Agency
Agreement") with the Trust. 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 shares of the Fund. For these services, the
Shareholder Servicing Agent will receive a fee based on the net assets of each
class of shares of the Fund, computed and paid monthly. 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. For the
fiscal year ended August 31, 1994 the Fund paid to the Shareholder Servicing
Agent fees of $36,360 under its Agency Agreement ($10,939 for Class A shares,
$25,419 for Class B shares and $2 for Class C shares). 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 with the
Trust, 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 a Class A share 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" in this Statement
of Additional Information). A group might qualify to obtain quantity sales
charge discounts (see "Investment and Withdrawal Programs").
Class A shares of the Fund may be sold at their net asset value to certain
persons or in certain circumstances as described in the Prospectus. Such sales
are made without a sales charge to promote good will with employees and others
with whom MFS, MFD and/or the Fund have business relationships, and because the
sales effort, if any, involved in making such sales is negligible.
MFD allows discounts to dealers (which are alike for all dealers) from the
applicable public offering price of the Class A shares. Dealer allowances
expressed as a percentage of offering price for all offering prices are set
forth in the Prospectus (see "Purchases" in the Prospectus). The difference
between the total amount invested and the sum of (a) the net proceeds to the
Fund and (b) the dealer commission is the commission paid to the distributor.
Because of rounding in the computation of offering price, the portion of the
sales charge paid to the distributor may vary and the total sales charge may be
more or less than the sales charge calculated using the sales charge expressed
as a percentage of the 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, will pay a commission
to dealers who initiate and are responsible for purchases of $1 million or more
as described in the Prospectus.
CLASS B SHARES AND CLASS C SHARES: MFD acts as agent in selling Class B and
Class C shares of the Fund to dealers. The public offering price of Class B and
Class C shares is their net asset value next computed after the sale (see
"Purchases" in the Prospectus).
GENERAL: Neither MFD nor dealers are permitted to delay the placement of orders
to benefit themselves by a price change. On occasion, MFD may obtain brokers
loans from various banks, including the Custodian 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 August 31, 1994, MFD received sales charges
of $49,661 and dealers received sales
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charges of $294,951 (as their concession on gross sales charges of $344,612) for
selling Class A shares of the Fund; the Fund received $11,106,278 representing
the aggregate net asset value of such shares. During the Fund's fiscal year
ended August 31, 1994, the CDSC imposed on redemption of Class B shares was
$14,776.
The Distribution Agreement will remain in effect until August 1, 1996, and will
continue in effect thereafter only if such continuance is specifically approved
at least annually by the Board of Trustees or by vote of a majority of the
Trust'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.
4. PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
Specific decisions to purchase or sell securities for the Fund are made by
person's affiliated with the Adviser. Any such person may serve other clients of
the Adviser or any subsidiary of the Adviser in similar capacities. Changes in
the Fund's investments are reviewed by the Board of Trustees.
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 general 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. From time to time, soliciting dealer fees are available to the
Adviser on the tender of the Fund's portfolio securities in so-called tender or
exchange offers. Such soliciting dealer fees are in effect recaptured for the
Fund by the Adviser. At present no other recapture arrangements are in effect.
Consistent with the foregoing primary consideration, the Rules of Fair Practice
of the NASD and such other policies as the Trustees may determine, the Adviser
may consider sales of shares of the Fund and of 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 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
through such broker-dealers, but at present, unless otherwise directed by the
Fund, a commission higher than one charged elsewhere will not be paid to such a
firm solely because it provided Research to the Adviser. The Fund's Trustees
(together with the Trustees of the other MFS Funds) have directed the Adviser to
allocate a total of $20,000 of commission business from the MFS Funds to the
Pershing Division of Donaldson, Lufkin & Jenrette as consideration for the
annual renewal of the Lipper Directors' Analytical Data Service (which provides
information useful to the Trustees in reviewing the relationship between the
Fund and the Adviser).
The Adviser's investment management personnel attempt to evaluate the quality of
Research provided by brokers. The Adviser sometimes uses evaluations resulting
from this effort 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 that the Fund pays to the Adviser will not be reduced as a
consequence of the Adviser's receipt of
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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 Fund's fiscal year ended August 31, 1994, the Fund paid brokerage
commissions of $125,633 on total transactions of $97,913,747.
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 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.
5. 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 all classes of shares of other MFS Funds or MFS
Fixed Fund (a bank collective investment fund) within a 13-month period (or
36-month period in the case of purchases of $1 million or more), the shareholder
may obtain Class A shares of the Fund at the same reduced sales charge as though
the total quantity were invested in one lump sum by completing the Letter of
Intent section of the Fund's Account Application or filing a separate Letter of
Intent application (available from the Shareholder Servicing Agent) within 90
days of the commencement of purchases. Subject to acceptance by MFD and the
conditions mentioned below, each purchase will be made at a public offering
price applicable to a single transaction of the dollar amount specified in the
Letter of Intent application. The shareholder or his dealer must inform MFD that
the Letter of Intent is in effect each time shares are purchased. The
shareholder makes no commitment to purchase additional shares, but if his
purchases within 13 months (or 36-months in the case of purchases of $1 million
or more) plus the value of shares credited toward completion of the Letter of
Intent do not total the sum specified, he will pay the increased amount of the
sales charge as described below. Instructions for issuance of shares in the name
of a person other than the person signing the Letter of Intent application must
be accompanied by a written statement from the dealer stating that the shares
were paid for by the person signing such Letter. Neither income dividends nor
capital gain distributions taken in additional shares will apply toward the
completion of the Letter of Intent. Dividends and distributions of other MFS
Funds automatically reinvested in shares of the Fund 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 period or 36-month period, as
applicable), the shareholder will be notified and the escrowed shares will be
released.
If the intended investment is not completed, the Shareholder Servicing Agent
will redeem an appropriate number of the escrowed shares in order to realize
such difference. Shares remaining after any such redemption will be released by
the Shareholder Servicing Agent. By completing and signing the Account
Application or separate Letter of Intent application, the shareholder
irrevocably appoints the Shareholder Servicing Agent his attorney to surrender
for redemption any or all escrowed shares with full power of substitution in the
premises.
RIGHT OF ACCUMULATION: A shareholder qualifies for cumulative quantity discounts
on the purchase of Class A shares when that shareholder's new investment,
together with the current offering price value of all the holdings of all
classes of shares of that shareholder in the MFS Funds and MFS Fixed Fund (a
bank collective investment fund) reaches a discount level (see "Purchases" in
the Prospectus for the sales charges on quantity purchases). For example, if a
shareholder owns shares valued at $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
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Agent (or his investment dealer must provide MFD) with information to verify
that the quantity sales charge discount is applicable at the time the investment
is made.
DISTRIBUTION INVESTMENT PROGRAM: Distributions of dividends and capital gains
made by the Fund with respect to a particular class of shares may be
automatically invested in shares of the same class of one of the other MFS
Funds, if shares of the fund are available for sale. Such investments will be
subject to additional purchase minimums. Distributions will be invested at net
asset value (exclusive of any sales charge) and will not be subject to any CDSC.
Distributions will be invested at the close of business on the payable date for
the distribution. A shareholder considering the Distribution Investment Program
should obtain and read the prospectus of the other fund and consider the
differences in objectives and policies before making any investment.
SYSTEMATIC WITHDRAWAL PLAN: A shareholder may direct the Shareholder Servicing
Agent to send him (or anyone he designates) regular periodic payments, as
designated on the Account Application and 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 (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) any "Free Amount"; (ii) to the
extent necessary, any "Reinvested Shares"; and (iii) to the extent necessary,
the "Direct Purchase" subject to the lowest CDSC (as such terms are defined in
"Contingent Deferred Sales Charge" in the Prospectus). The CDSC will be waived
in the case of redemptions of Class B 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 full and fractional shares of the Fund at the net asset value in
effect at the close of business on the record date for such distributions. To
initiate this service, shares having an aggregate value of at least $10,000
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 by written
instruction to the Shareholder Servicing Agent 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 also 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 of 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) (and, in the case of Class C shares, for
shares of the MFS Money Market Fund) under the Automatic Exchange Plan. The
Automatic Exchange Plan provides for automatic exchanges of funds from the
shareholder's account in a MFS Fund for investment in other MFS Funds selected
by the shareholder. Under the Automatic Exchange Plan, exchanges of at least $50
each may be made to up to four different funds effective on the seventh day of
each month or of every third month, depending whether monthly or quarterly
exchanges are elected by the shareholder. If the seventh day of the month is not
a business day, the transaction will be processed on the next business day.
Generally, the initial exchange will occur after receipt and processing by the
Shareholder Servicing Agent of an application in good order. Exchanges will
continue to be made from a shareholder's account in any MFS Fund, as long as the
balance of the account is sufficient to complete the exchanges. Additional
payments made to a shareholder's account in such MFS Fund will extend the period
that exchanges will continue to be made under the Automatic Exchange Plan.
However, if additional payments are added to an account subject to the Automatic
Exchange Plan shortly before an exchange is scheduled, such funds may not be
available for exchanges until the
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following month; therefore, care should be used to avoid inadvertently
terminating the Automatic Exchange Plan through exhaustion of the account
balance.
No transaction fee for exchanges will be charged in connection with the
Automatic Exchange Plan. However, exchanges of shares of MFS Money Market Fund,
MFS Government Money Market Fund and Class A shares of MFS Cash Reserve Fund
will be subject to any applicable sales charge. Changes in amounts to be
exchanged to each fund, the funds to which exchanges are to be made and the
timing of exchanges (monthly or quarterly), or termination of a shareholder's
participation in the Automatic Exchange Plan will be made after instructions in
writing or by telephone (an "Exchange Change Request") are received by the
Shareholder Servicing Agent in proper form (i.e., if in writing -- signed by the
record owner(s) exactly as shares of the MFS Fund are registered; if by
telephone -- proper account identification is given by the dealer or shareholder
of record). Each Exchange Change Request (other than termination of
participation in the program) must involve at least $50. Generally, if an
Exchange Change Request is received before the close of business on the last
business day of a month, the Exchange Change Request will be effective for the
following month's exchange.
A shareholder's right to make additional investments in any of the MFS Funds, to
make exchanges of shares from one MFS Fund to another and to withdraw from an
MFS Fund, as well as a shareholder's other rights and privileges, are not
affected by a shareholder's participation in the Automatic Exchange Plan.
The Automatic Exchange Plan is part of the Exchange Privilege. For additional
information regarding the Automatic Exchange Plan including the treatment of any
CDSC, see "Exchange Privilege" below.
REINSTATEMENT PRIVILEGE: Shareholders of the Fund and shareholders of the other
MFS Funds (except MFS Money Market Fund, MFS Government Money Market Fund and
holders of Class A shares of MFS Cash Reserve Fund in the case where the shares
of such funds 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
shares of 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 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
any loss realized on the original redemption for federal income tax purposes.
Please see your tax adviser for further information.
EXCHANGE PRIVILEGE -- Subject to the requirements set forth below, some or all
of the shares for which payment has been received by the Fund (i.e., an
established account) may be exchanged for shares of the same class of any of the
other MFS Funds (if available for sale) at net asset value. In addition, Class C
shares may be exchanged for shares of MFS Money Market Fund 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 MFS Service Center, Inc.)
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 of the requirements
set forth above have been complied with at that time. However, payment of the
redemption proceeds by the Fund, and thus purchase of shares of the other MFS
Fund, may be delayed for up to seven days if the Fund determines that such a
delay would be in the best interest of all its shareholders. Investment dealers
which have satisfied criteria established by MFD may also communicate a
shareholder's Exchange Request to 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. Sharehold-
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ers in the other MFS Funds (except holders of shares of MFS Money Market Fund,
MFS Government Money Market Fund and Class A shares of MFS Cash Reserve Fund
acquired through direct purchase and dividends reinvested prior to June 1, 1992)
have the right to exchange their shares for shares of the MFS Funds, subject to
the conditions, if any, set forth in their respective prospectuses. In addition,
unitholders of the MFS Fixed Fund (a bank collective investment 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 their own tax advisers to be sure this is an
appropriate investment, based on their residency and each state's income tax
laws.
The exchange privilege (or any aspect of it) may be changed or discontinued and
is subject to certain limitations (see "Purchases" in the Prospectus).
TAX-DEFERRED RETIREMENT PLANS -- Shares of the Fund may be purchased by all
types of tax-deferred retirement plans. MFD makes available through investment
dealers plans and/or custody agreements for the following:
Individual Retirement Accounts (IRAs) (for individuals and their non-employed
spouses who desire to make limited contributions to a tax-deferred retirement
program and, if eligible, to receive a federal income tax deduction for
amounts contributed);
Simplified Employee Pension (SEP-IRA) Plans;
Retirement Plans Qualified under Section 401(k) of the Internal Revenue Code
of 1986, as amended;
403(b) Plans (deferred compensation arrangements for employees of public
school systems and certain non-profit organizations); and
Certain other qualified pension and profit-sharing plans.
The plan documents provided by MFD designate a trustee or custodian (unless
another trustee or custodian is designated by the individual or group
establishing the plan) and contain specific information about the plans. Each
plan provides that dividends and distributions will be reinvested automatically.
For further details with respect to any plan, including fees charged by the
trustee, custodian or MFD, tax consequences and redemption information, see the
specific documents for that plan. Plan documents other than those provided by
MFD may be used to establish any of the plans described above. Third party
administrative services, available for some corporate plans, may limit or delay
the processing of transactions.
Investors should consult with their tax adviser before establishing any of the
tax-deferred retirement plans described above.
6. TAX STATUS
The Fund has elected to be treated and intends to qualify each year as a
"regulated investment company" under Subchapter M of the Internal Revenue Code
of 1986, as amended ("the Code"), by meeting all applicable requirements of
Subchapter M, including requirements as to the nature of the Fund's gross
income, the amount of Fund distributions, and the composition and holding period
of the Fund's portfolio assets. Because the Fund intends to distribute all of
its net investment income and net realized capital gains to 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 income including certain foreign currency
gains and any distributions from net short-term capital gains, whether received
in cash or reinvested in additional shares, are taxable to shareholders as
ordinary income for federal income tax purposes. A portion of the Fund's
ordinary income dividends (but none of its capital gains) is 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 the net long-term capital gains over the short-term
capital losses) whether received in cash or invested in additional shares, are
taxable to the Fund's shareholders as long-term capital gains for federal income
tax purposes regardless of how long they have owned shares in the Fund. Fund
dividends declared in October, November or December and paid the following
January, will be taxable to shareholders as if received on December 31 of the
year in which they are declared.
Any dividend or distribution of net capital gains or net short-term capital
gains will have the effect of reducing the per share net asset value of shares
in the Fund by the amount of the dividend or distribution. Shareholders
purchasing shares shortly before the record date of any such 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'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. In
general, any gain or loss realized upon a taxable disposition of shares of the
Fund by a shareholder that holds such shares as a capital asset will be treated
as long-term capital gain or loss if the shares have been
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held for more than twelve months and otherwise as a short-term capital gain or
loss. However, any loss realized upon a redemption 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 redemption of shares may also be disallowed under rules
relating to wash sales. Gain may be increased (or loss reduced) upon a
redemption of Class A shares of the Fund within ninety days after their purchase
followed by any purchase (including purchases by exchange or by reinvestment) of
the Fund or of another MFS Fund (or any other shares of an MFS Fund generally
sold subject to a sales charge) without payment of an additional sales charge of
Class A shares.
The Fund's investment in zero coupon bonds, deferred interest bonds, PIK bonds
and certain securities purchased at a market discount will cause it to realize
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. The holding of foreign currencies for
non-hedging purposes and investment by the Fund in certain "passive foreign
investment companies" may be limited in order to avoid a tax on the Fund. The
Fund may elect to mark to market any investments in "passive foreign investment
companies" on the last day of each year. This election may cause the Fund to
recognize income prior to the receipt of cash payments with respect to those
investments; 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. Investment income received by the Fund from sources
within foreign countries 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 impossible to determine the 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 taxable dividends and
other payments to Non-U.S. Persons that are subject to such withholding,
regardless of whether a lower treaty rate may be permitted. Any amounts
overwithheld may be recovered by such persons by filing a claim for refund with
the U.S. Internal Revenue Service within the time period appropriate to such
claims. The Fund is also required in certain circumstances to apply backup
withholding of 31% on taxable dividends and redemption proceeds paid to any
shareholder 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. Distributions received from the Fund by Non-U.S. Persons may
also be subject to tax under the laws of their own jurisdiction.
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.
7. 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 Statement
of Additional Information, the Exchange is open for trading every weekday except
for the following holidays or the day 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 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.
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
institution-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
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exchange or over-the-counter prices, since such valuations are believed to
reflect more accurately the fair value of such securities. Forward Contracts
will be valued using a pricing model taking into consideration market data from
an external pricing source. Use of the pricing service has been approved by the
Trust's Board of Trustees. All other securities, futures contracts and options
in the Fund's portfolio (other than short-term obligations) for which the
principal market is one or more securities or commodities exchanges (whether
domestic or foreign) will be valued at the last reported sale price or at the
settlement price prior to the determination (or if there has been no current
sale, at the closing bid price) on the primary exchange on which such
securities, futures contracts or options are traded; but if a securities
exchange is not the principal market for securities, such securities will, if
market quotations are readily available, be valued at current bid prices, unless
such securities are reported on the NASDAQ system, in which case they are valued
at the last sale price or, if no sales occurred during the day, at the last
quoted bid price. Short-term obligations with a remaining maturity in excess of
60 days will be valued based upon dealer supplied valuations. Short-term
obligations with a remaining maturity in excess of 60 days will be valued upon
dealer supplied valuations. Other short-term obligations are valued at amortized
cost, which constitutes fair value as determined by the Board of Trustees.
Portfolio 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
Board of Trustees.
Generally, trading in foreign securities is substantially completed each day at
various times prior to the close of regular trading on the Exchange.
Occasionally, events affecting the values of such securities may occur between
the times at which they are determined and the close of regular trading on the
Exchange which will not be reflected in the computation of the Fund's net asset
value unless the Trustees deem that such event would materially affect the net
asset value in which case an adjustment would be made.
All investments and assets are expressed in U.S. dollars based upon current
currency exchange rates. A share's net asset value is effective for orders
received by the dealer prior to its calculation and received by MFD, prior to
the close of that business day.
The Trustees annually review the appropriateness of the time of day as of which
the net asset value is computed.
PERFORMANCE INFORMATION
TOTAL RATE OF RETURN: The Fund will calculate its total rate of return for each
class of shares for certain periods by determining the average annual compounded
rates of return over those periods that would cause an investment of $1,000
(made with all distributions reinvested and reflecting the CDSC or the maximum
public offering price) to reach the value of that investment at the end of the
periods. The Fund may also calculate (i) a total rate of return, which is not
reduced by the CDSC (4% maximum for Class B shares) and 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 with respect to
Class A shares since the value of the initial account will not be reduced by the
maximum sales charge (currently 5.75%) and/or (iii) total rates of return which
represent aggregate performance over a period or year-by-year performance, and
which may or may not reflect the effect of the maximum or other sales charge or
CDSC. The Fund's average annual total rate of return for Class A shares for the
period ended August 31, 1994 was 4.45% (including the effect of the sales
charge) and 10.86% (without the effect of the sales charge). The average annual
total rate of return for Class B shares for the same time period was 7.70%
(including the effect of the CDSC) and 9.71% (without the effect of the CDSC).
The Fund's aggregate total rate of return for Class C shares from the
commencement of operations August 1, 1994 through August 31, 1994 was 10.38%
(including the effect of the sales charge) and 10.38% (without the effect of the
sales charge. The figures presented for Class C shares are not calculated on an
annualized basis. The aggregate total rate of return represents a limited time
frame and, like the total rates of return presented above for Class A and Class
B shares, may not be indicative of future performance.
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.
From time to time the Fund may use charts and graphs to illustrate the past
performance of various indices such as those mentioned above and illustrations
using hypothetical rates of return to illustrate the effects of compounding and
tax-deferral.
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.
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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 Municipal Bond Fund is among the first municipal bond funds
established.
-- 1977 -- Spectrum becomes the first combination fixed/ variable annuity
with no initial sales charge.
-- 1981 -- MFS World Governments Fund is established as America's first
globally diversified fixed-income mutual fund.
-- 1984 -- MFS Municipal High Income Fund is the first open-end mutual fund
to seek high tax-free income from lower-rated municipal securities.
-- 1986 -- MFS Managed Sectors Fund becomes the first mutual fund to target
and shift investments among industry sectors for shareholders.
-- 1986 -- MFS Municipal Income Trust is the first closed-end, high-yield
municipal bond fund traded on the New York Stock Exchange.
-- 1986 -- MFS Lifetime Investment ProgramSM is established as the first
complete family of 12b-1 mutual funds with no initial sales charge.
-- 1989 -- MFS Regatta becomes America's first non-qualified
market-value-adjusted fixed/variable annuity.
-- 1990 -- MFS World Total Return Fund is the first global balanced fund.
-- 1993 -- MFS 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 Union Standard Fund, 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.
8. DISTRIBUTION PLANS
CLASS A DISTRIBUTION PLAN: The Trustees have adopted a Distribution Plan
relating to Class A shares (the "Class A 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 Class A Distribution
Plan would benefit the Fund and its Class A shareholders. The Class A
Distribution Plan is designed to promote sales, thereby increasing the net
assets of the Fund. Such an increase may reduce the 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.
The Class A Distribution Plan provides that the Fund will pay MFD up to (but not
necessarily all of) an aggregate of 0.35% of the average daily net assets
attributable to the Class A shares annually in order that MFD may pay expenses
on behalf of the Fund related to the distribution and servicing of its Class A
shares. The expenses to be paid by MFD on behalf of the Fund include a service
fee to securities dealers which enter into a sales agreement with MFD of up to
0.25% per annum of the portion of the Fund's average daily net assets
attributable to the Class A shares owned by investors for whom that securities
dealer is the holder or dealer of record. These payments are partial
consideration for personal services and/or account maintenance performed by such
dealers with respect to Class A shares. MFD may from time to time reduce the
amount of the service fee paid for shares sold prior to a certain date. MFD may
also retain a distribution fee of 0.10% per annum of the Fund's average daily
net assets attributable to Class A shares as partial consideration for services
performed and expenses incurred in the performance of MFD's obligations as to
Class A shares under the Distribution Agreement with the Fund. Any remaining
funds may be used to pay for other distribution related expenses as described in
the Prospectus. Payments under the Class A Distribution Plan will commence on
the date net assets of the Fund attributable to Class A shares equal or exceed
$40 million. Upon commencement of payments under the Class A Distribution Plan,
MFD intends to waive the 0.10% distribution fee and will not accept payment of
this portion of the fee unless it first obtains the approval of the Board of
Trustees. Service fees may be reduced for a securities dealer that is the holder
or dealer of record for an investor who owns shares of the Fund having a net
asset value at or above a certain dollar level. No service fee will be paid (i)
to any securities 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 if the dealer
satisfies certain criteria), or (ii) to any insurance company which has entered
into an agreement with the Fund and MFD that permits such insurance company to
purchase 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. MFD or its affiliates are entitled to
retain all service fees payable under the Class A 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. Certain
banks and
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other financial institutions that have agency agreements with MFD will receive
agency transaction and service fees that are the same as commissions and service
fees to dealers.
The Class A Distribution Plan will remain in effect until August 1, 1995, 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 to
the Plan ("Class A Distribution Plan Qualified Trustees"). The Class A
Distribution Plan requires that the Fund and MFD each shall provide to the
Trustees, and the Trustees shall review, at least quarterly, a written report of
the amounts expended (and purposes therefor) under such Plan. The Class A
Distribution Plan may be terminated at any time by vote of a majority of the
Class A Distribution Plan Qualified Trustees or by vote of the holders of a
majority of the Fund's Class A shares (as defined in "Investment Restrictions").
Agreements under the Class A 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 Class A Distribution Plan
Qualified Trustees or by vote of the holders of a majority of the Fund's Class A
shares. The Class A Distribution Plan may not be amended to increase materially
the amount of permitted distribution expenses without the approval of a majority
of the Fund's Class A shares (as defined in "Investment Restrictions") and may
not be materially amended in any case without a vote of the Trustees and a
majority of the Class A Distribution Plan Qualified Trustees. No Trustee who is
not an "interested person" has any financial interest in the Class A
Distribution Plan or in any related agreement.
CLASS B DISTRIBUTION PLAN: The Trustees have adopted a Distribution Plan
relating to Class B shares (the "Class B Distribution Plan") pursuant to Section
12(b) of the 1940 Act and the Rule, after having concluded that there was a
reasonable likelihood that the Class B Distribution Plan would benefit the Fund
and its Class B shareholders. The Class B Distribution Plan is designed to
promote sales, thereby increasing the net assets of the Fund. Such an increase
may reduce the 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 Class B Distribution Plan provides that the Fund will pay MFD, as the Fund's
distributor for its Class B shares, a daily distribution fee equal on an annual
basis to 0.75% of the Fund's average daily net assets attributable to Class B
shares and will pay MFD a service fee of up to 0.25% per annum of the Fund's
average daily net assets attributable to Class B shares (which MFD will in turn
pay to securities dealers which enter into a sales agreement with MFD at a rate
of up to 0.25% of the Fund's average daily net assets attributable to Class B
shares owned by investors for whom that securities dealer is the holder or
dealer of record). This service fee is intended to be additional consideration
for all personal services and/or account maintenance services rendered by the
dealer with respect to Class B shares. MFD will advance to dealers the
first-year service fee at a rate equal to 0.25% per annum of the amount
invested. As compensation therefor, MFD may retain the service fee paid by the
Fund with respect to such shares for the first year after purchase. Dealers will
become eligible for additional service fees with respect to such shares
commencing in the thirteenth month following purchase. Except in the case of the
first year service fee, no service fee 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 from time to time by MFD. MFD, however, may waive this minimum amount
requirement from time to time if the dealer satisfies certain criteria. Dealers
may from time to time be required to meet certain other criteria in order to
receive service fees. MFD or its affiliates are entitled to retain all service
fees payable under the Class B 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.
The purpose of distribution payments to MFD under the Class B 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. The Class B Distribution Plan
also provides the MFD will receive all CDSCs attributable to Class B shares (see
"Distributions Plans" and "Purchases" in the Prospectus).
In accordance with the Rule, all agreements relating to the Class B 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 Trustees who are
not "interested persons" (as defined in the 1940 Act) and who have no direct or
indirect financial interest in the operation of the Class B Distribution Plan or
in any agreement related to such Plan ("Class B Distribution Plan Qualified
Trustees"). The Class B Distribution Plan further provides that the selection
and nomination of Class B Distribution Plan Qualified Trustees shall be
committed to the discretion of the non-interested Trustees then in office.
During the period from December 1, 1993 (commencement of investment operations)
to August 31, 1994, the Fund incurred expenses of $115,541 (equal to 1.00% of
its average daily net assets) relating to the distribution and servicing of its
Class B shares, of which MFD retained $317 and securities dealers of
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the Fund and certain banks and other financial institutions received $ .
The Class B Distribution Plan will remain in effect until August 1, 1995, 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 Class
B Distribution Plan Qualified Trustees. The Class B Distribution Plan requires
that the Fund and MFD shall provide to the Trustees, and the Trustees shall
review, at least quarterly, a written report of the amounts expended (and
purposes therefor) under such Plan. The Class B Distribution Plan may be
terminated at any time by vote of a majority of the Class B Distribution Plan
Qualified Trustees or by vote of the holders of a majority of the Class B shares
of the Fund (as defined in "Investment Restrictions" above). The Class B
Distribution Plan may not be amended to increase materially the amount of
permitted distribution expenses without the approval of Class B shareholders and
may not be materially amended in any case without a vote of the majority of both
the Trustees and the Class B Distribution Plan Qualified Trustees. No Trustee
who is not an interested person of the Fund has any financial interest in the
Class B Distribution Plan or in any related agreement.
CLASS C DISTRIBUTION PLAN: The Distribution Plan relating to Class C shares
(the "Class C Distribution Plan") provides that the Fund will pay MFD a
distribution fee of up to 0.75% per annum of the Fund's average daily net assets
attributable to Class C shares and will pay MFD a service fee of up to 0.25% per
annum of the Fund's average daily net assets attributable to Class C shares
(which MFD will in turn pay to securities dealers which enter into a sales
agreement with MFD at a rate of up to 0.25% per annum of the Fund's daily net
assets attributable to Class C shares owned by investors for whom that
securities dealer is the holder or dealer of record).
The distribution/service fees attributable to Class C shares are designed to
permit an investor to purchase such shares through a broker-dealer without the
assessment of an initial sales charge or a CDSC while allowing MFD to compensate
broker-dealers in connection with the sale of such shares.
The service fee is intended to be additional consideration for all personal
services and/or account maintenance services rendered by the dealer with respect
to Class C shares. MFD or its affiliates are entitled to retain all service fees
payable under the Class C Distribution Plan with respect to accounts for which
there is no dealer or record as partial consideration for personal services
and/or account maintenance services performed by MFD or its affiliates for
shareholder accounts.
The purpose of the distribution payments to MFD under the Class C Distribution
Plan is to compensate MFD for its distribution services to the Fund.
Distribution payments under the Plan will be used by MFD to pay securities
dealers a distribution fee in an amount equal on an annual basis to 0.75% of the
Fund's average daily net assets attributable to Class C shares owned by
investors for whom securities dealer is the holder or dealer or record.
(Therefore, the total amount of distribution/service fees paid to a dealer on an
annual basis is 1.00% of the Fund's average daily net assets attributable to
Class C shares owned by investors for whom the securities dealer is the holder
or dealer of record.) MFD also pays 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 compensation of personnel and all costs of travel,
office expense and equipment. Since MFD's compensation is not directly tied to
its expenses, the amount of compensation received by MFD during any year may be
more or less than its actual expenses. For this reason, this type of
distribution fee arrangement is characterized by the staff of the SEC as being
of the "compensation" variety. However, the Fund is not liable for any expenses
incurred by MFD in excess of the amount of compensation it receives. Certain
banks and other financial institutions that have agency agreements with MFD will
receive agency transaction and service fees that are the same as distribution
and service fees to dealers. Fees payable under the Class C Distribution Plan
are charged to, and therefore reduce, income allocated to Class C shares.
For the period August 1, 1994 to August 31, 1994, the Fund incurred expenses of
$ (equal to % of its average daily net assets attributable to Class
C shares) relating to the distribution and servicing of Class C shares, all of
which was paid by MFD to securities dealers of the Fund and certain banks and
other financial institutions.
9. DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional Shares of Beneficial Interest (without par value) of one or
more separate series and to divide or combine the shares of any series into a
greater or lesser number of shares without thereby changing the proportionate
beneficial interests in that series. The Trustees have currently authorized
shares of the Fund and three other series. The Declaration of Trust further
authorizes the Trustees to classify or reclassify any series of shares into one
or more classes. Pursuant thereto, the Trustees have authorized the issuance of
three classes of shares of each of the Trust's four series, Class A shares,
Class B shares and Class C shares. Each share of a class of the Fund represents
an equal proportionate interest in the assets of the Fund allocable to that
class. Upon liquidation of the Fund, shareholders of each class of the Fund are
entitled to share pro rata in the Fund's net assets allocable to such class
available for distribution to shareholders. The Trust reserves the right to
create and issue additional series or classes of shares, in which case the
shares of each class of a series would participate equally in the earnings,
dividends and assets allocable to that class of the particular series.
Shareholders are entitled to one vote for each share held and may vote in the
election of Trustees and on other matters submitted to meetings of shareholders.
Although Trustees are not elected annually by the shareholders, shareholders
have, under certain circumstances, the right to remove one or more Trustees in
accordance with the provisions of section 16(c) of the 1940 Act. No material
amendment may be made to the
25
<PAGE> 150
Declaration of Trust without the affirmative vote of a majority of the Trust
shares (as defined in "Investment Restrictions") or by an instrument in writing
without a meeting, signed by a majority of Trustees and consented to by the
holders of not less than a majority of the shares outstanding and entitled to
vote. Shares have no pre-emptive or conversion rights (except as described in
the Prospectus under "Purchases -- Conversion of Class B Shares"). Shares are
fully paid and non-assessable. The Trust may enter into a merger or
consolidation, or sell all or substantially all of its assets (or all or
substantially all of the assets belonging to any series of the Trust), if
approved by the vote of the holders of two-thirds of the Trust's outstanding
shares voting as a single class, or of the affected series of the Trust, as the
case may be, except that if the Trustees of the Trust recommend such merger,
consolidation or sale, the approval by vote of the holders of a majority of the
Trust's or the affected series' outstanding shares (as defined in "Investment
Restrictions") will be sufficient. The Trust or any series of the Trust may also
be terminated (i) upon liquidation and distribution of its assets, if approved
by the vote of the holders of two-thirds of its outstanding shares, or (ii) by
the Trustees by written notice to the shareholders of the Trust or the affected
series. If not so terminated the Trust will continue indefinitely.
The Trust 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 Trust and provides for
indemnification and reimbursement of expenses out of the Trust property for any
shareholder held personally liable for the obligations of the Trust. The
Declaration of Trust also provides that the Trust shall maintain appropriate
insurance (for example, fidelity bonding and errors and omissions insurance) for
the protection of the Trust, 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
Trust itself was unable to meet its obligations.
The Declaration of Trust further provides that obligations of the Trust are not
binding upon the Trustees individually but only upon the property of the Trust
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.
10. INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS
Deloitte & Touche LLP are the Trust's independent certified public accountants.
The Statement of Assets and Liabilities including the Portfolio of Investments
as of August 31, 1994, the related Statements of Operations and Changes in Net
Assets and the Financial Highlights for the period ended August 31, 1994 and 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 Statement of Additional Information and have
been so incorporated in reliance upon the report of Deloitte & Touche LLP,
independent certified public accountants, as experts in accounting and auditing.
A copy of the Annual Report accompanies this Statement of Additional
Information.
26
<PAGE> 151
EXHIBIT A
<TABLE>
<CAPTION>
RETIREMENT BENEFIT TOTAL TRUSTEE
TRUSTEE FEES ACCRUED AS ESTIMATED FEES FROM
FROM PART OF FUND CREDITED YEARS FUND AND
TRUSTEE FUND(1) EXPENSE(1) OF SERVICE(2) FUND COMPLEX(3)
------- ------------ ------------------ -------------- ---------------
<S> <C> <C> <C> <C>
Lawrence T. Perera................................... 1,013.30 41 14 96,592
Richard B. Bailey.................................... 1,013.30 41 6 226,221
Elaine R. Smith...................................... 1,013.30 144 25 98,397
William Poorvu....................................... 1,013.30 43 14 106,482
David B. Stone....................................... 1,103.30 45 7 104,007
Charles W. Schmidt................................... 1,013.30 41 7 98,397
J. Atwood Ives....................................... 1,103.30 43 15 106,482
Peter G. Harwood..................................... 1,103.30 41 5 105,812
</TABLE>
- ---------------
(1) For fiscal year ended August 31, 1994.
(2) Based on normal retirement age of 73.
(3) Information provided is provided for calendar year 1994. All Trustees served
as Trustees of 20 funds within the MFS fund complex (having aggregate net
assets at December 31, 1994, of approximately 14,727,659,069) except Mr.
Bailey, who served as Trustee of 56 funds within the MFS fund complex
(having aggregate net assets at December 31, 1994, of approximately
24,474,119,825.
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>
$ 900 ..................................................... $135 $225 $315 $450
960 ..................................................... 144 240 336 $480
1,020 ..................................................... 153 255 357 $510
1,080 ..................................................... 162 270 378 $540
1,140 ..................................................... 171 285 399 $570
1,200 ..................................................... 180 300 420 $600
</TABLE>
- ---------------
(4) Other funds in the MFS fund complex provide similar retirement benefits to
the Trustees.
27
<PAGE> 152
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
Investors Bank & Trust Company
89 South Street, Boston, MA 02111
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 ACCOUNTANTS
Deloitte & Touche LLP
125 Summer Street, Boston, MA 02110
MFS(R) OTC FUND
500 BOYLSTON STREET
BOSTON, MA 02116
[MFS LOGO] OTC-13-3/95/500 83/283/383
<PAGE> 153
PORTFOLIO OF INVESTMENTS - continuedCommon Stocks and Warrants -
continued
Issuer
Shares
Value
PORTFOLIO OF INVESTMENTS - August 31, 1994Common Stocks and Warrants -
97.7%
Issuer
Shares
Value
Automotive -- 1.1%
Monro Muffler Brake, Inc.*
31,750
$ 575,469
Biotech -- 1.0%
Immunex Corp.*
36,000
$ 549,000
Cellular Phones -- 0.5%
Airtouch Communications*
10,000
$ 282,500
Chemicals -- 1.2%
Methanex Corp.
40,000
$ 680,000
Computer Software - Networking -- 8.4%
Cisco Systems, Inc.*
50,000
$ 1,240,625
CrossComm Corp.*
148,700
1,487,000
Syn Optics Communications, Inc.*
87,700
1,414,162
Wellfleet Communications*
20,000
452,500
$ 4,594,287
Computer Software - Personal Computers -- 8.6%
Broderbund Software*
15,000
$ 832,500
Electronic Arts, Inc.*
27,500
488,125
Learning Co.*
80,000
1,400,000
Microsoft Corp.*
7,000
406,875
Sierra On-Line, Inc.*
72,100
1,568,175
$ 4,695,675
Computer Software - Systems -- 11.4%
Cadence Design Systems
60,000
$ 982,500
Informix Corp.*
102,700
2,426,287
Sybase, Inc.*
45,000
1,957,500
Veritas Software Corp.
70,000
840,000
$ 6,206,287
Consumer Goods and Services -- 1.7%
O'Sullivan Industries Holdings*
74,000
$ 943,500
Electronics -- 1.9%
Intel Corp.
8,300
$ 545,725
S3, Inc.*
51,500
469,937
$ 1,015,662
Entertainment -- 22.2%
Argosy Gaming Corp.*
68,900
$ 1,188,525
Bally Gaming International, Inc.*
108,000
1,377,000
Cablevision System Corp., Class "A"*
16,000
920,000
Carmike Cinemas, Inc., Class 'A'*
10,600
212,000
Casino America, Inc.*
61,700
794,388
Hollywood Park, Inc.*
82,900
1,782,350
International Family Entertainment, Class 'B'*
30,000
476,250
Promus Cos.
40,000
1,470,000
Radica Games*
30,000
198,750
Showboat, Inc.
60,000
870,000
StarSight Telecast, Inc.*
179,600
2,379,700
TeleCommunications, Class 'A'
20,000
451,250
$12,120,213
Insurance -- 2.1%
PennCorp Financial Group
45,000
$ 708,750
Transnational Re Corp.*
19,800
450,450
$ 1,159,200
Medical and Health Products -- 3.7%
Sofamor/Danek Group*
37,800
$ 760,725
Ventritex, Inc.*
50,000
1,250,000
$ 2,010,725
Medical and Health Technology and Services -- 6.9%
Integrated Health Service*
17,500
$ 636,563
Mariner Health Group, Inc.*
50,000
1,137,500
Mid-Atlantic Medical Services, Inc.
40,000
1,060,000
Renal Treatment Centers*
51,700
917,675
$ 3,751,738
Metals and Minerals -- 1.4%
Santa Fe Pacific Corp.
35,000
$ 752,500
Southern Africa Minerals
25,000
26,375
$ 778,875
Oils -- 2.9%
Apache Corp.
10,000
$ 252,500
Lomak Petroleum, Inc.*
101,000
845,875
Snyder Oil Corp.
19,800
373,725
Total Petroleum North America
10,700
137,763
$ 1,609,863
Printing and Publishing -- 4.3%
Enquirer/ Star Group, Warrants
980,500
$ 796,656
Enquirer/ Star Group, Class 'A' +
93,300
1,551,113
$ 2,347,769
Restaurants and Lodging -- 0.5%
Applebees International, Inc.
20,000
$ 300,000
Stores -- 2.0%
General Nutrition Co.*
48,800
$ 1,101,050
Telecommunications -- 12.8%
Lambert Communications, Inc.
33,000
$ 1,031
Newbridge Networks*
15,000
480,000
Rogers Cantel Mobile Communications, Inc.'B'*
30,000
885,000
Rogers Communications, Inc.*
335,300
5,635,287
$ 7,001,318
Utilities - Telephone -- 3.1%
MCI Communications Corp.
70,700
$ 1,718,894
Total Common Stocks and Warrants (Identified Cost,$50,319,670) $53,442,025
Principal Amount
(000's Omitted)
Corporate Bond - 1.2%
American Telecasting, 12.5s, due 6/15/2004
(Identified Cost, $755,970) $1,350
$ 634,500
Short-Term Obligations - 1.1%
Federal Home Loan Bank Corp., due 9/12/94,
at Amortized Cost $ 610
$ 608,978
Total Investments (Identified Cost,$51,684,618) $54,685,503
Other Assets, Less Liabilities - 0.0%
26,015
Net Assets -- 100.0%
$54,711,518
*Non-income producing security.
+ Affiliated issuer.
See notes to financial statements
FINANCIAL STATEMENTSStatement of Assets and Liabilities
August 31, 1994
Assets:
Investments, at value --
Unaffiliated Issuers (identified cost, $50,107,003)
$53,134,390
Affiliated Issuers (identified cost, $1,577,615)
1,551,113
Total investments, at value (identified cost, $51,684,618)
$54,685,503
Cash
84,492
Receivable for investments sold
187,006
Receivable for Fund shares sold
1,178,000
Interest and dividends receivable
1,163
Receivable from investment adviser
100,487
Other assets
38,677
Total assets
$56,275,328
Liabilities:
Payable for investments purchased
$ 1,281,056
Payable for Fund shares reacquired
179,430
Payable to affiliates -
Management fee
1,105
Distribution fee
13,784
Accrued expenses and other liabilities
88,435
Total liabilities
$ 1,563,810
Net assets
$54,711,518
Net assets consist of:
Paid-in capital
$51,833,854
Unrealized appreciation on investments and translation of assets
andliabilitiesin foreign currencies
3,000,891
Accumulated net realized loss on investments and foreign
currencytransactions
(121,324
)
Accumulated net investment loss
(1,903
)
Total
$54,711,518
Shares of beneficial interest outstanding
6,346,501
Class A shares: Net asset value and redemption price pershare (net assets
of
$17,775,740
2,048,100
shares of
beneficialin
terest
outstanding)
$8.68
Offering price per share (100/94.25)
$9.21
Class B shares: Net asset value, redemption price and offeringprice per
share (net assets of $36,848,630 4,288,279 shares ofbeneficial interest
outstanding)
$8.59
Class C shares: Net asset value, redemption price and offeringprice per
share (net assets of $87,148 10,122 shares of beneficialinterest
outstanding)
$8.61
On sales of $50,000 or more, the offering price of Class Ashares is reduced. A
contingent deferred salescharge may be imposed onredemptions of Class A and
Class B shares.
See notes to financial statements
FINANCIAL STATEMENTS - continuedStatement of Operations
1994*
Net investment income:
Income -
Interest
$ 58,843
Dividends (including $2,500 received from affiliated issuer)
53,075
Foreign taxes withheld
(2,634)
Total investment income
$ 109,284
Expenses -
Management fee
<PAGE> 154
$ 141,370
Trustees' compensation
9,705
Shareholder servicing agent fee (Class A)
10,939
Shareholder servicing agent fee (Class B)
25,419
Shareholder servicing agent fee (Class C)
2
Distribution and service fee (Class B)
115,541
Distribution and service fee (Class C)
16
Printing
41,401
Auditing fees
36,482
Custodian fee
11,878
Legal fees
11,498
Postage
3,265
Miscellaneous
99,352
Total expenses
$ 506,868
Reduction of expenses by investment adviser
(100,487)
Net expenses
$ 406,381
Net investment loss
$
(297,097)
Realized and unrealized gain (loss) on investments:
Realized gain (loss) -
Investment transactions
$
144,807
Foreign currency transactions
(234)
Net realized gain (loss) on investments
$ 144,573
Change in unrealized appreciation (depreciation) -
Investments
$3,000,885
Translation of assets and liabilities in foreign currencies
6
Net unrealized gain (loss) on investments
$3,000,891
Net realized and unrealized gain (loss) on investments andforeign
currency
$3,145,464
Increase (decrease) in net assets from operations
$2,848,367
*For the period from the commencement of investmentoperations, December 1,
1993 to August 31, 1994.
See notes to financial statements
FINANCIAL STATEMENTS - continuedStatement of Changes in Net Assets
1994*
Increase (decrease) in net assets:
From operations -
Net investment loss
$
(297,097)
Net realized gain (loss) on investments and foreign currencytransactions
144,573
Net unrealized gain (loss) on investments and foreign currency
3,000,891
Increase (decrease) in net assets from operations
$ 2,848,367
Fund share (principal) transactions -
Net proceeds from sale of shares
$74,941,646
Cost of shares reacquired
(23,080,495)
Increase (decrease) in net assets from Fund share transactions
$51,861,151
Total increase (decrease) in net assets
$54,709,518
Net assets:
At beginning of period
2,000
At end of period (including accumulated net investment loss of$1,903)
$54,711,518
*For the period from the commencement of investmentoperations, December 1,
1993 to August 31, 1994.
See notes to financial statements
FINANCIAL STATEMENTS - continuedFinancial Highlights
1994
+ 1994
+ 1994
+ +
Class A
Class B
Class C
Per share data (for a share outstanding throughout
eachperiod):+ + +
Net asset value - beginning of period
$ 7.83
$ 7.83
$ 7.80
Income from investment operations -
Net investment loss**
$
(0.05
)$
(0.12
)$
(0.04
) Net realized and unrealized gain (loss) on investments
0.90
0.88
0.85
Total from investment operations
$ 0.85
$ 0.76
$ 0.81
Net asset value - end of period
$ 8.68
$ 8.59
$ 8.61
Total return
10.86 %
*
9.71 %
*
10.38 %
*
Ratios (to average net assets)/Supplemental data:
Expenses**
1.50 %
2.57 %
2.50 %
Net investment loss**
(0.87)%
(2.02)%
(2.22)%
Portfolio turnover
82 %
82 %
82 %
Net assets at end of period (000 omitted)
$17,776
$36,849
$87
+
For the period from the commencement of investment operations, December 1,1993
to August 31, 1994.
+ +
For the period from the commencement of offering of Class C shares, August1,
1994 to August 31, 1994.
+ + +
Per share data based upon average shares outstanding during the period.
Total return for Class A shares does not include the sales charge. If thesales
charge had been included, the results would have been lower.
*
Not annualized.
**
The investment adviser assumed a portion of operating expenses for theperiods
indicated. If these expenses had been incurred by the Fund, the netinvestment
loss per share and ratios would have been:
Net investment loss
$
(0.08
)
$
(0.15
)
$
(0.05
)
Ratios (to average net assets):
Expenses
2.03 %
3.10 %
3.03 %
Net investment loss
(1.40)%
(2.56)%
(2.71)%
See notes to financial statements
NOTES TO FINANCIAL STATEMENTS- continued
NOTES TO FINANCIAL STATEMENTS(1) Business and OrganizationMFS OTC Fund
(the Fund) is a non-diversified series of MFS Series TrustIV (the Trust). The
Trust is organized as a Massachusetts business trust andis registered under
the Investment Company Act of 1940, as amended, as anopen-end, management
investment company. The Fund offers Class A, Class B, andClass C shares.
(2) Significant Accounting PoliciesInvestment Valuations - Equity securities
listed on securitiesexchanges or reported through the NASDAQ system are valued
at last saleprices. Unlisted equity securities or listed equity securities for
which lastsale prices are not available are valued at last quoted bid prices.
Debtsecurities (other than short-term obligations which mature in 60 days
orless), including listed issues and forward contracts, are valued on the
basisof valuations furnished by dealers or by a pricing service with
considerationto factors such as institutional-size trading in similar groups
of securities,yield, quality, coupon rate, maturity, type of issue, trading
characteristicsand other market data, without exclusive reliance upon exchange
orover-the-counter prices. Short-term obligations, which mature in 60 days
orless, are valued at amortized cost, which approximates value. Non-U.S.
dollardenominated short-term obligations are valued at amortized cost as
calculatedin the base currency and translated into U.S. dollars at the closing
dailyexchange rate. Futures contracts, options and options on futures
contractslisted on commodities exchanges are valued at closing settlement
prices.Over-the-counter options are valued by brokers through the use of a
pricingmodel which takes into account closing bond valuations, implied
volatility andshort-term repurchase rates. Securities for which there are no
such quotationsor valuations are valued at fair value as determined in good
faith by or atthe direction of the Trustees.
Repurchase Agreements - The Fund may enter into repurchaseagreements with
institutions that the Fund's investment adviser has determinedare
creditworthy. Each repurchase agreement is recorded at cost. The Fundrequires
that the securities purchased in a repurchase transaction betransferred to the
custodian in a manner sufficient to enable the Fund toobtain those securities
in the event of a default under the repurchaseagreement. The Fund monitors, on
a daily basis, the value of the securitiestransferred to ensure that the
value, including accrued interest, of thesecurities under each repurchase
agreement is greater than amounts owed to theFund under each such repurchase
agreement.
Foreign Currency Translation - Investment valuations, other assetsand
liabilities initially expressed in foreign currencies, are converted
eachbusiness day into U.S. dollars based upon current exchange rates.
Purchasesand sales of foreign investments and income and expenses are
converted intoU.S. dollars based upon currency exchange rates prevailing on
the respectivedates of such transactions. Gains and losses attributable to
foreign currencyexchange rates on sales of securities are recorded for
financial statementpurposes as net realized gains and losses on investments.
Gains and lossesattributable to foreign exchange rate movements on income and
expenses arerecorded for financial statement purposes as foreign currency
transactiongains and losses. That portion of both realized and unrealized
gains andlosses on investments that results from fluctuations in foreign
currencyexchange rates is not separately disclosed.
Written Options - The Fund may write covered call or put optionsfor which
premiums are received and are recorded as liabilities, and aresubsequently
adjusted to the current value of the options written. Premiumsreceived from
writing options which expire are treated as realized gains.Premiums received
from writing options which are exercised or are closed areoffset against the
proceeds or amount paid on the transaction to determine therealized gain or
loss. If a put option is exercised, the premium reduces thecost basis of the
security purchased by the Fund. The Fund, as writer of anoption, may have no
control over whether the underlying securities may be sold(call) or purchased
(put) and, as a result, bears the market risk of anunfavorable change in the
price of the securities underlying the writtenoption.
Futures Contracts - The Fund may enter into financial futurescontracts for the
delayed delivery of securities, currency or contracts basedon financial
indices at a fixed price on a future date. The Fund is requiredto deposit
either in cash or securities an amount equal to a certainpercentage of the
contract amount. Subsequent payments are made or received bythe Fund each day,
dependent on the daily fluctuations in the value of theunderlying security,
and are recorded for financial statement purposes asunrealized gains or losses
by the Fund. The Fund's investment in financialfutures contracts is designed
to hedge against anticipated future changes ininterest or exchange rates or
securities prices and for non-hedging purposes.Should interest or exchange
rates or securities prices move unexpectedly, theFund may not achieve the
anticipated benefits of the financial futurescontracts and may realize a loss.
Security Loans - The Fund may lend its securities to member banksof the
Federal Reserve System and to member firms of the New York StockExchange or
subsidiaries thereof. The loans are collateralized at all times bycash or
securities with a market value at least equal to the market value ofsecurities
loaned. As with other extensions of credit, the Fund may bear therisk of delay
in recovery or even loss of rights in the collateral should theborrower of the
securities fail financially. The Fund receives compensationfor lending its
securities in the form of fees or from all or a portion of theincome from
investment of the collateral. The Fund would also continue to earnincome on
the securities loaned. At August 31, 1994, the Fund had nosecurities on loan.
Forward Foreign Currency Exchange Contracts - The Fund may enterinto forward
foreign currency exchange contracts for the purchase or sale of aspecific
foreign currency at a fixed price on a future date. Risks may ariseupon
entering these contracts from the potential inability of counterpartiesto meet
the terms of their contracts and from unanticipated movements in thevalue of a
foreign currency relative to the U.S. dollar. The Fund will enterinto forward
contracts for hedging purposes as well as for non-hedgingpurposes. The forward
foreign currency exchange contracts are adjusted by thedaily exchange rate of
the underlying currency and any gains or losses arerecorded for financial
statement purposes as unrealized until the contractsettlement date.
Investment Transactions and Income - Investment transactions arerecorded on
the trade date. Interest income is recorded on the accrual basis.All premium
and original issue discount are amortized or accreted for bothfinancial
statement and tax reporting purposes as required by federal incometax
regulations. Dividend income is recorded on the ex-dividend date fordividends
received in cash. Dividend and interest payments received inadditional
securities are recorded on the ex-dividend or ex-interest date inan amount
equal to the value of the security on such date.
Tax Matters and Distributions - The Fund's policy is to comply withthe
provisions of the Internal Revenue Code (the Code) applicable to
regulatedinvestment companies and to distribute to shareholders all of its
taxableincome, including any net realized gain on investments. Accordingly,
noprovision for federal income or excise tax is provided. The Fund files a
taxreturn annually using tax accounting methods required under provisions of
theCode which may differ from generally accepted accounting principles, the
basison which these financial statements are prepared. Accordingly, the amount
ofnet investment income and net realized gain reported on these
financialstatements may differ from that reported on the Fund's tax return,
andconsequently, the character of distributions to shareholders reported in
thefinancial highlights may differ from that reported to shareholders on
Form1099-DIV. Foreign taxes have been provided for on interest and dividend
incomeearned on foreign investments in accordance with the applicable
country's taxrates and to the extent unrecoverable are recorded as a reduction
ofinvestment income. Distributions to shareholders are recorded on theex-
dividend date.
The Fund distinguishes between distributions on a tax basis and a
financialreporting basis and requires that only distributions in excess of tax
basisearnings and profits are reported in the financial statements as a return
ofcapital. Differences in the recognition or classification of income
betweenthe financial statements and tax earnings and profits which result
intemporary over-distributions for financial statement purposes, are
classifiedas distributions in excess of net investment income or accumulated
netrealized gains. During the period ended August 31, 1994, $265,897 and
$29,297was reclassified from accumulated realized gain on investments and
foreigncurrency transactions and paid-in capital, respectively, to accumulated
netinvestment loss due to differences between book and tax accounting
forinvestment losses. This change had no effect on the net assets or net
assetvalue per share. Realized gains on investments and foreign currency
weregreater than those recognized for book purposes by approximately
$121,000.This difference, which pertains to losses disallowed under tax rules,
reversesin future years.
Multiple Classes of Shares of Beneficial Interest - The Fund offersClass A,
Class B and Class C shares. Class A shares and Class B shares werefirst
offered to the public on December 1, 1993. Class C shares were firstoffered to
the public on August 1, 1994. The three classes of shares differ intheir
shareholder servicing agent, distribution and service fees. Shareholdersof
each class also bear certain expenses that pertain only to that
particularclass. All shareholders bear the common expenses of the Fund pro
rata, basedon the average daily net assets of each class, without distinction
betweenshare classes. Dividends are declared separately for each class. No
<PAGE> 155
class haspreferential dividend rights; differences in per share dividend rates
aregenerally due to differences in separate class expenses, including
shareholderservicing and distribution fees.
(3) Transactions with AffiliatesInvestment Adviser - The Fund has an
investment advisory agreementwith Massachusetts Financial Services Company
(MFS) to provide overallinvestment advisory and administrative services, and
general officefacilities. The management fee, computed daily and paid monthly
at aneffective annual rate of 0.75% of average daily net assets, amounted
to$141,370 for the period ended August 31, 1994. The adviser has
voluntarilyassumed $100,487 of the Fund's expenses for the period ended August
31, 1994.The Fund pays no compensation directly to its Trustees who are
officers of theinvestment adviser, or to officers of the Fund, all of whom
receiveremuneration for their services to the Fund from MFS. Certain of the
officersand Trustees of the Fund are officers or directors of MFS, MFS
FinancialServices, Inc. (FSI) and MFS Service Center, Inc. (MFSC). The Fund
has anunfunded defined benefit plan for all of its independent Trustees.
Included inTrustees' compensation is a net periodic pension expense of $1,093.
Distributor - FSI, a wholly owned subsidiary of MFS, asdistributor, received
$48,822 as its portion of the sales charge on sales ofClass A shares of the
Fund. The Trustees have adopted separate distributionplans for Class A, Class
B and Class C shares pursuant to Rule 12b-1 of theInvestment Company Act of
1940 as follows:
The Class A Distribution Plan provides that the Fund will pay FSI up to0.35%
of its average daily net assets attributable to Class A shares annuallyin
order that FSI may pay expenses on behalf of the Fund related to
thedistribution and servicing of its shares. These expenses include a service
feeto each securities dealer that enters into a sales agreement with FSI of up
to0.25% of the Fund's average daily net assets attributable to Class A
shareswhich are attributable to that securities dealer, a distribution fee to
FSI ofup to 0.10% per annum of the Fund's average daily net assets
attributable toClass A shares, commissions to dealers and payments to FSI
wholesalers forsales at or above a certain dollar level, and other such
distribution-relatedexpenses that are approved by the Fund. Payments will
commence under thedistribution plan when the value of net assets of the Fund
attributable toClass A shares first equals or exceeds $40 million.
The Class B and Class C Distribution Plans provide that the Fund will pay FSIa
monthly distribution fee, equal to 0.75% annually, and a quarterly servicefee
of up to 0.25% per annum, of the Fund's average daily net assetsattributable
to Class B and Class C shares which FSI will pay to securitiesdealers that
enter into a sales agreement with FSI at a rate of up to 0.25%per annum of the
Fund's average daily net assets attributable to Class B andClass C shares. The
service fee is intended to be additional consideration forservices rendered by
the dealer with respect to Class B and Class C shares.Fees incurred under the
Distribution Plan during the period ended August 31,1994 were 1.00% of average
daily net assets attributable to Class B and ClassC shares on an annualized
basis and amounted to $115,541 and $16,respectively.
A contingent deferred sales charge is imposed on shareholder redemptions
ofClass A shares, on purchases of $1 million or more, in the event of a
shareredemption within twelve months following the share purchase. A
contingentdeferred sales charge is imposed on shareholder redemptions of Class
B sharesin the event of a share redemption within six years of purchase. FSI
receivesall contingent deferred sales charges. Contingent deferred sales
chargesimposed during the period ended August 31, 1994 were approximately $200
forClass A shares and $15,000 for Class B shares.
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary ofMFS, earned
$10,939, $25,419 and $2 for Class A, Class B and Class C shares,respectively,
for its services as shareholder servicing agent. The fee iscalculated as a
percentage of the average daily net assets of each class ofshares at an
effective annual rate of up to 0.15%, up to 0.22% and up to 0.15%attributable
to Class A, Class B and Class C shares, respectively.
(4) Portfolio SecuritiesPurchases and sales of investments, other than
purchased optiontransactions and short-term obligations, aggregated
$74,413,443 and$23,500,304, respectively.
The cost and unrealized appreciation or depreciation in value of
theinvestments owned by the Fund, as computed on a federal income tax basis,
areas follows:
Aggregate cost $51,805,708
Gross unrealized appreciation $ 5,210,174
Gross unrealized depreciation 2,330,379
Net unrealized appreciation $ 2,879,795
(5) Shares of Beneficial InterestThe Fund's Declaration of Trust permits
the Trustees to issue anunlimited number of full and fractional shares of
beneficial interest (withoutpar value). Transactions in Fund shares were as
follows:
Class A Shares
December 1, 1993*
to August 31, 1994
Shares
Amount
Shares sold
3,491,940
$ 28,339,992
Shares reacquired
(1,443,968)
(11,474,151)
Net increase
2,047,972
$ 16,865,841
*Commencement of investment operations.
Class B Shares
December 1, 1993*
to August 31, 1994
Shares
Amount
Shares sold
5,765,354
$ 46,517,609
Shares reacquired
(1,477,203)
(11,606,344)
Net increase
4,288,151
$ 34,911,265
Class C Shares
August 1, 1994**
to August 31, 1994
Shares
Amount
Shares sold
10,122
$ 84,045
*Commencement of investment operations.
**Commencement of offering of Class C shares.
(6) Line of CreditThe Fund entered into an agreement which enables it to
participate withother funds managed by MFS, or an affiliate of MFS, in an
unsecured line ofcredit with a bank which permits borrowings up to $300
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 tothe bank's base rate. In addition, a commitment
fee, based on the averagedaily unused portion of the line of credit, is
allocated among theparticipating funds at the end of each quarter. The
commitment fee allocatedto the Fund for the period ended August 31, 1994 was
$342.
(7) Transactions in Securities of Affiliated IssuersUnder the Investment
Company Act of 1940, issuers affiliated with theFund are those in which the
Fund's holdings represent 5% or more of theoutstanding voting securities of
the issuer. A summary of the Fund'stransactions in the securities of these
issuers during the period ended August31, 1994 is set forth below:
Affiliate
Beginning
Share
Acquisitions
Shares
Cost
Dispositions
Shares
Cost
Ending
Shares
Realized
Gain
(Loss)
Dividend
Income
Ending
Value
Enquirer/Star Group,
Common Stock,
Class A
- --
93,300
$1,577,615
- --
- --
93,300
- --
$2,500
$1,551,113
INDEPENDENT AUDITORS' REPORTTo the Trustees of MFS Series Trust IV and
Shareholders of MFS OTC Fund:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of MFS OTC Fund (one of the series
constituting MFS Series Trust IV) as of August 31, 1994, and the related
statements of operations and changes in net assets and the financial
highlights for the nine months then ended. 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 audit.
We conducted our audit 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 atAugust 31, 1994 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
audit provides a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of MFS OTC Fund at
August 31, 1994, the results of its operations, the changes in its net assets,
and its financial highlights for the nine months then ended in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
October 7, 1994
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.
<PAGE> 156
PART C
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
FOR MFS MUNICIPAL BOND FUND
(A) FINANCIAL STATEMENTS INCLUDED IN PART A:
For the ten years ended October 31, 1993 and for
the period ended November 1, 1993 to August 31,
1994:
Financial Highlights
FINANCIAL STATEMENTS INCLUDED IN PART B:
At August 31, 1994:
Statement of Assets and Liabilities*
Portfolio of Investments*
For the two years ended August 31, 1994:
Statement of Changes in Net Assets*
For the year ended August 31, 1994:
Statement of Operations*
- --------------------------
* Incorporated herein by reference to the Fund's Annual Report to
Shareholders dated August 31, 1994, filed with the SEC on October 31,
1994.
FOR MFS MONEY MARKET FUND AND MFS GOVERNMENT MONEY MARKET FUND
(A) FINANCIAL STATEMENTS INCLUDED IN PART A:
For the ten years ended October 31, 1993 and for
the ten months ended August 31, 1994:
Financial Highlights
FINANCIAL STATEMENTS INCLUDED IN PART B:
At August 31, 1994:
Statement of Assets and Liabilities*
Portfolio of Investments*
For the two years ended August 31, 1994:
Statement of Changes in Net Assets*
For the year ended August 31, 1994:
Statement of Operations*
- --------------------------
* Incorporated herein by reference to the Fund's Annual Report to
Shareholders dated August 31, 1994, filed with the SEC on October 31,
1994.
<PAGE> 157
FOR MFS OTC FUND
(A) FINANCIAL STATEMENTS INCLUDED IN PART A:
For the period from commencement of investment
operations on December 1, 1993 to August 31,
1994:
Financial Highlights
FINANCIAL STATEMENTS INCLUDED IN PART B:
At August 31, 1994:
Statement of Assets and Liabilities*
Portfolio of Investments*
For the period from commencement of investment
operations, December 1, 1993 to August 31, 1994:
Statement of Changes in Net Assets*
For the period from commencement of investment
operations, December 1, 1993 to August 31, 1994:
Statement of Operations*
- --------------------------
* Incorporated herein by reference to the Fund's Annual Report to
Shareholders dated August 31, 1994, filed with the SEC on October 31,
1994.
(B) EXHIBITS
1 Amended and Restated Declaration of Trust,
dated January 19, 1995; filed herewith.
2 Amended and Restated By-Laws, dated December
21, 1994; filed herewith.
3 Not Applicable.
4 (a) Form of Share Certificate for Class A Shares. (5)
(b) Form of Share Certificate for Class B Shares. (5)
(c) Form of Share Certificate for Class C Shares. (7)
5 (a) Investment Advisory Agreement by and between
Massachusetts Cash Management Trust on behalf
of MFS Money Market Fund and MFS Government
Money Market Fund, dated May 20, 1982 and
amended and restated August 1, 1993; filed
herewith.
(b) Investment Advisory Agreement of MFS
Municipal Bond Fund, dated September 1, 1993;
filed herewith.
(c) Investment Advisory Agreement of MFS OTC
Fund, dated October 20, 1993; filed herewith.
<PAGE> 158
6 (a) Distribution Agreement between the Trust and
MFS Fund Distributors, Inc., dated January 1,
1995; filed herewith.
(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. (8)
7 Retirement Plan for Non-Interested Person
Trustees, dated January 1, 1991; filed
herewith.
8 (a) Custodian Contract between Registrant and
State Street Bank and Trust Company, dated
April 25, 1988. (2)
(b) Amendment to Custodian Contract, dated
April 25, 1988. (3)
(c) Amendment to Custodian Contract, dated
October 1, 1989. (3)
(d) Amendment to Custodian Contract, dated
September 17, 1991. (4)
(e) Custodian Agreement between MFS Series Trust
IV on behalf of MFS OTC Fund and Investors
Bank & Trust Company dated October 20, 1993;
filed herewith.
9 (a) Shareholder Servicing Agent Agreement, dated
August 1, 1985; filed herewith.
(b) Amendment to Shareholder Servicing Agent
Agreement dated December 31, 1992; filed
herewith.
(c) Amendment to Shareholder Servicing Agent
Agreement dated September 7, 1993; filed
herewith.
(d) Amendment to Shareholder Servicing Agent
Agreement dated July 20, 1994; filed
herewith.
(e) Exchange Privilege Agreement, dated February
8, 1989 as amended through September 1, 1993.
(5)
(f) Loan Agreement among MFS Borrowers and The
First National Bank of Boston dated September
29, 1989, as amended through and including
the Second Amendment dated April 21, 1994.
(6)
(g) Dividend Disbursing Agency Agreement, dated
February 1, 1986. (3)
<PAGE> 159
<TABLE>
<S> <C>
10 Consent and Opinion of Counsel filed with
Registrant's Rule 24f-2 Notice for the fiscal
year ended August 31, 1994 on October 31,
1994.
11 Consent of Deloitte & Touche; filed herewith.
12 Not Applicable.
13 Investment Representation Letter.
14 (a) Forms for Individual Retirement Account
Disclosure Statement as currently in effect.
(1)
(b) Forms 403(b) Custodial Account Agreement as
currently in effect. (1)
(c) Forms for MFS Prototype Paired Defined
Contribution Plans and Trust Agreement as
currently in effect. (1)
15 (a) Distribution Plan for Class B Shares of MFS
Municipal Bond Fund, dated September 1, 1993;
filed herewith.
(b) Distribution Plan for Class A Shares of MFS
OTC Fund, dated December 21, 1994; filed
herewith.
(c) Distribution Plan for Class B Shares of MFS
OTC Fund, dated December 21, 1994; filed
herewith.
(d) Distribution Plan for Class C Shares of MFS
OTC Fund, dated December 21, 1994; filed
herewith.
16 (a) Schedule for Computation of Performance
Quotations for MFS Money Market Fund and MFS
Government Money Market Fund - Seven-Day
Yield Calculation; filed herewith.
(b) Schedule for Computation of Performance
Quotations for MFS Municipal Bond Fund -
Yield, Tax-Equivalent Yield, Distribution
Rate and Total Return; filed herewith.
(c) Schedule for Computation of Performance
Quotations for MFS OTC Fund - Total Return;
filed herewith.
17 Financial Data Schedules for each class of
each series; filed herewith.
Power of Attorney, dated September 21, 1994;
filed herewith.
</TABLE>
- -----------------------------
(1) Incorporated by reference to MFS Worldwide Governments Trust (File No.
2-68918) Post-Effective Amendment No. 12 filed with the SEC on April 29,
1991.
(2) Incorporated by reference to Post-Effective Amendment No. 16 filed with the
SEC on December 28, 1988.
(3) Incorporated by reference to Post-Effective Amendment No. 18 filed with the
SEC on December 28, 1990.
(4) Incorporated by reference to Post-Effective Amendment No. 20 filed with the
SEC on February 26, 1993.
(5) Incorporated by reference to Post-Effective Amendment No. 23 filed with the
SEC on February 28, 1994.
<PAGE> 160
(6) Incorporated by reference to Post-Effective Amendment No. 24 filed with the
SEC on May 20, 1994.
(7) Incorporated by reference to Post-Effective Amendment No. 25 filed with the
SEC on June 1, 1994.
(8) Incorporated by reference to MFS Municipal Series Trust (File Nos. 2-92915
and 811-4096) Post-Effective Amendment No. 26 filed with the SEC on
February 22, 1995.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
Not Applicable.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
FOR MFS MONEY MARKET FUND
<TABLE>
<CAPTION>
(1) (2)
TITLE OF CLASS NUMBER OF RECORD HOLDERS
<S> <C>
Shares of Beneficial Interest 31,688
(without par value) (as of January 31, 1995)
</TABLE>
FOR MFS GOVERNMENT MONEY MARKET FUND
<TABLE>
<CAPTION>
(1) (2)
TITLE OF CLASS NUMBER OF RECORD HOLDERS
<S> <C>
Shares of Beneficial Interest 1,930
(without par value) (as of January 31, 1995)
</TABLE>
FOR MFS MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
(1) (2)
TITLE OF CLASS NUMBER OF RECORD HOLDERS
<S> <C>
Class A Shares of Beneficial Interest 50,587
(without par value) (as of January 31, 1995)
Class B Shares of Beneficial Interest 1,918
(without par value) (as of January 31, 1995)
</TABLE>
<PAGE> 161
FOR MFS OTC FUND
<TABLE>
<CAPTION>
(1) (2)
TITLE OF CLASS NUMBER OF RECORD HOLDERS
<S> <C>
Class A Shares of Beneficial Interest 2,720
(without par value) (as of January 31, 1995)
Class B Shares of Beneficial Interest 6,164
(without par value) (as of January 31, 1995)
Class C Shares of Beneficial Interest 159
(without par value) (as of January 31, 1995)
</TABLE>
ITEM 27. INDEMNIFICATION
The Trustees and officers of the Trust and the personnel of
the Trust's investment adviser and principal underwriter are insured under an
errors and omissions liability insurance policy. The Trust and its officers
are also insured under the fidelity bond required by Rule 17g-1 under the
Investment Company Act of 1940, as amended.
Reference is hereby made to (a) Article V of the Trust's
Declaration of Trust, filed herewith; and (b) Section 4 of the Distribution
Agreement between the Trust and MFS Fund Distributors, Inc., filed herewith.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Massachusetts Financial Services Company ("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 Mortgage Fund, MFS Government Limited Maturity Fund, MFS Series
Trust I (which has three series: MFS Managed Sectors Fund, MFS Cash Reserve
Fund and MFS World Asset Allocation 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 Municipal Series Trust (which has 19 series: MFS Alabama Municipal Bond
Fund, MFS Arkansas Municipal Bond Fund, MFS California Municipal Bond Fund, MFS
Florida Municipal Bond Fund, MFS Georgia Municipal Bond Fund, MFS Louisiana
Municipal Bond Fund, MFS Maryland Municipal Bond Fund, MFS Massachusetts
Municipal Bond Fund, MFS Mississippi Municipal Bond Fund, MFS New York
Municipal Bond Fund, MFS North Carolina Municipal
<PAGE> 162
Bond Fund, MFS Pennsylvania Municipal Bond Fund, MFS South Carolina Municipal
Bond Fund, MFS Tennessee Municipal Bond Fund, MFS Texas Municipal Bond Fund,
MFS Virginia Municipal Bond Fund, MFS Washington Municipal Bond Fund, MFS West
Virginia Municipal Bond Fund and MFS Municipal Income Fund) and MFS Fixed
Income Trust (which has three series: MFS Bond Fund, MFS Limited Maturity Fund
and MFS Municipal Limited Maturity Fund) (the "MFS Funds"). The principal
business address of each of the aforementioned funds is 500 Boylston Street,
Boston, Massachusetts 02116.
MFS also serves as investment adviser of the following
no-load, open-end funds: MFS Institutional Trust ("MFSIT") (which has two
series), MFS Variable Insurance Trust ("MVI") (which has twelve series) and MFS
Union Standard Trust ("UST") (which has two series). The principal business
address of each of the aforementioned funds is 500 Boylston Street, Boston,
Massachusetts 02116.
In addition, MFS serves as investment adviser to the following
closed-end funds: MFS Municipal Income Trust, MFS Multimarket Income Trust,
MFS Government Markets Income Trust, MFS Intermediate Income Trust, MFS Charter
Income Trust and MFS Special Value Trust (the "MFS Closed-End Funds"). The
principal business address of each of the aforementioned funds is 500 Boylston
Street, Boston, Massachusetts 02116.
Lastly, MFS serves as investment adviser to MFS/Sun Life
Series Trust ("MFS/SL"), Sun Growth Variable Annuity Fund, Inc. ("SGVAF"),
Money Market Variable Account, High Yield Variable Account, Capital
Appreciation Variable Account, Government Securities Variable Account, World
Governments Variable Account, Total Return Variable Account and Managed Sectors
Variable Account. The principal business address of each is One Sun Life
Executive Park, Wellesley Hills, Massachusetts 02181.
MFS International Ltd. ("MIL"), a limited liability company
organized under the laws of the Republic of Ireland and a subsidiary of MFS,
whose principal business address is 41-45 St. Stephen's Green, Dublin 2,
Ireland, serves as investment adviser to and distributor for MFS International
Funds (which has four portfolios: MFS International Funds-U.S. Equity Fund, MFS
International Funds-U.S. Emerging Growth Fund, MFS International
Funds-International Governments Fund and MFS International Fund-Charter Income
Fund) (the "MIL Funds"). The MIL Funds are organized in Luxembourg and qualify
as an undertaking for collective investments in transferable securities
(UCITS). The principal business address of the MIL Funds is 47, Boulevard
Royal, L-2449 Luxembourg.
MIL also serves as investment adviser to and distributor for
MFS Meridian U.S. Government Bond Fund, MFS Meridian Charter Income Fund, MFS
Meridian Global Government Fund, MFS Meridian U.S. Emerging Growth Fund, MFS
Meridian Global Equity Fund, MFS Meridian Limited Maturity Fund, MFS Meridian
World Growth Fund, MFS Meridian Money Market Fund and MFS Meridian U.S. Equity
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.
<PAGE> 163
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, MFS Institutional Trust, MFS Variable Insurance Trust and MFS
Union Standard Trust.
MFS Asset Management, Inc. ("AMI"), a wholly owned subsidiary
of MFS, provides investment advice to substantial private clients.
MFS Retirement Services, Inc. ("RSI"), a wholly owned
subsidiary of MFS, markets MFS products to retirement plans and provides
administrative and record keeping services for retirement plans.
MFS
The Directors of MFS are A. Keith Brodkin, Jeffrey L. Shames,
Arnold D. Scott, John R. Gardner and John D. McNeil. Mr. Brodkin is the
Chairman, Mr. Shames is the President, Mr. Scott is a Senior Executive Vice
President and Secretary, James E. Russell is a Senior Vice President and the
Treasurer, Stephen E. Cavan is a Senior Vice President, General Counsel and an
Assistant Secretary, and Robert T. Burns is a Vice President and an Assistant
Secretary of MFS.
MASSACHUSETTS INVESTORS TRUST
MASSACHUSETTS INVESTORS GROWTH STOCK FUND
MFS GROWTH OPPORTUNITIES FUND
MFS GOVERNMENT SECURITIES FUND
MFS GOVERNMENT MORTGAGE FUND
MFS SERIES TRUST I
MFS SERIES TRUST V
MFS GOVERNMENT LIMITED MATURITY FUND
MFS SERIES TRUST VI
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 Assistant Treasurer, James R. Bordewick, Jr., Vice
President and Associate General Counsel of MFS, is 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 Assistant
Treasurer, and James R. Bordewick, Jr., is Assistant Secretary.
<PAGE> 164
MFS GOVERNMENT MARKETS INCOME TRUST
MFS INTERMEDIATE INCOME TRUST
A. Keith Brodkin is the Chairman and President, Patricia A.
Zlotin, Executive Vice President of MFS and Leslie J. Nanberg, Senior Vice
President of MFS, are Vice Presidents, Stephen E. Cavan is the Secretary, W.
Thomas London is the Treasurer, James O. Yost is Assistant Treasurer, and James
R. Bordewick, Jr., is the Assistant Secretary.
MFS SERIES TRUST III
A. Keith Brodkin is the Chairman and President, James T.
Swanson, Robert J. Manning, Cynthia M. Brown and Joan S. Batchelder, Senior
Vice Presidents of MFS, Bernard Scozzafava, Vice President of MFS, and Matthew
Fontaine, Assistant Vice President of MFS, are Vice Presidents, Sheila
Burns-Magnan and Daniel E. McManus, Assistant Vice Presidents of MFS, are
Assistant Vice Presidents, Stephen E. Cavan is the Secretary, W. Thomas London
is the Treasurer, James O. Yost is Assistant Treasurer, and James R. Bordewick,
Jr., is Assistant Secretary.
MFS SERIES TRUST IV
MFS FIXED INCOME TRUST
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 Assistant Treasurer and James R. Bordewick, Jr.,
is 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 Assistant Treasurer and James R. Bordewick, Jr.,
is 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 Assistant
Treasurer and James R. Bordewick, Jr., is 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,
Stephen E. Cavan is the Secretary, W. Thomas London is the Treasurer, James O.
Yost is Assistant Treasurer and James R. Bordewick, Jr., is Assistant
Secretary.
<PAGE> 165
MFS VARIABLE INSURANCE 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 UNION STANDARD TRUST
A. Keith Brodkin is the Chairman and President, Stephen E.
Cavan is the Secretary, W. Thomas London is the Treasurer, James O. Yost and
Karen C. Jordan are Assistant Treasurers 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 Assistant
Treasurer and James R. Bordewick, Jr., is Assistant Secretary.
MFS MULTIMARKET INCOME TRUST
MFS CHARTER INCOME TRUST
A. Keith Brodkin is the Chairman and President, Patricia A.
Zlotin, Leslie J. Nanberg and James T. Swanson are Vice Presidents, Stephen E.
Cavan is the Secretary, W. Thomas London is the Treasurer, James O. Yost, Vice
President of MFS, is Assistant Treasurer and James R. Bordewick, Jr., is
Assistant Secretary.
MFS SPECIAL VALUE TRUST
A. Keith Brodkin is the Chairman and President, Jeffrey L.
Shames, Patricia A. Zlotin and Robert J. Manning are Vice Presidents, Stephen
E. Cavan is the Secretary, W. Thomas London is the Treasurer, and James O.
Yost, is Assistant Treasurer and James R. Bordewick, Jr., is Assistant
Secretary.
SGVAF
W. Thomas London is the Treasurer.
MIL
A. Keith Brodkin is a Director and the President, Arnold D.
Scott, Jeffrey L. Shames are Directors, Ziad Malek, Senior Vice President of
MFS, is a Senior Vice President and Managing Director, Thomas J. Cashman, Jr.,
a Vice President of MFS, is a Senior Vice President, Stanley T. Kwok is a Vice
President, Anthony F. Clarizio is an Assistant Vice President, Stephen E. Cavan
is a Director, Senior Vice President and the Clerk, James R. Bordewick, Jr. is
a Director, Senior Vice President and an Assistant Clerk, Robert T. Burns is an
Assistant Clerk and James E. Russell is the Treasurer.
<PAGE> 166
MIL FUNDS
A. Keith Brodkin is the Chairman, President and a Director,
Arnold D. Scott and Jeffrey L. Shames 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,
Arnold D. Scott and Jeffrey L. Shames are Directors, Stephen E. Cavan is the
Secretary, W. Thomas London is the Treasurer, James R. Bordewick, Jr., is the
Assistant Secretary and Ziad Malek is a Senior Vice President.
MFD
A. Keith Brodkin is the Chairman, 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, and James E. Russell is the Treasurer.
CIAI
A. Keith Brodkin is the Chairman, Arnold D. Scott and Jeffrey
L. Shames are Directors, Cynthia Orcott is President, Bruce C. Avery,
Executive Vice President of MFS, is the Vice President, James E. Russell is the
Treasurer, Stephen E. Cavan is the Secretary, and Robert T. Burns is the
Assistant Secretary.
MFSC
A. Keith Brodkin is the Chairman, Arnold D. Scott and Jeffrey
L. Shames are Directors, Joseph A. Recomendes, Senior Vice President of MFS, is
the President, James E. Russell is the Treasurer, Stephen E. Cavan is the
Secretary, and Robert T. Burns is the Assistant Secretary.
AMI
A. Keith Brodkin is the Chairman and a Director, Jeffrey L.
Shames, Leslie J. Nanberg and Arnold D. Scott are Directors, Thomas J. Cashman
is the President and a Director, James E. Russell is the Treasurer and Robert
T. Burns is the Secretary.
RSI
William W. Scott, Jr., Joseph A. Recomendes and Bruce C. Avery
are Directors, Arnold D. Scott is the Chairman, Douglas C. Grip, a Senior Vice
President of MFS, is the President, James E. Russell is the Treasurer, Stephen
E. Cavan is the Secretary, Robert T. Burns is the Assistant Secretary and Henry
A. Shea is an Executive Vice President.
<PAGE> 167
In addition, the following persons, Directors or officers of
MFS, have the affiliations indicated:
<TABLE>
<S> <C>
A. Keith Brodkin Director, Sun Life Assurance Company of Canada (U.S.), One Sun Life Executive Park,
Wellesley Hills, Massachusetts
Director, Sun Life Insurance and Annuity Company of New York, 67 Broad Street, New York,
New York
John R. Gardner President and a Director, Sun Life Assurance Company of Canada, Sun Life Centre, 150 King
Street West, Toronto, Ontario, Canada (Mr. Gardner is also an officer and/or Director
of various subsidiaries and affiliates of Sun Life)
John D. McNeil Chairman, Sun Life Assurance Company of Canada, Sun Life Centre, 150 King Street West,
Toronto, Ontario, Canada (Mr. McNeil is also an officer and/or Director of various
subsidiaries and affiliates of Sun Life)
</TABLE>
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Reference is hereby made to Item 28 above.
(b) Reference is hereby made to Item 28 above.
(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:
<TABLE>
<CAPTION>
NAME ADDRESS
---- -------
<S> <C>
Massachusetts Financial Services 500 Boylston Street
(investment adviser) Boston, Mass. 02116
MFS Fund Distributors, Inc. 500 Boylston Street
(principal underwriter) Boston, MA 02116
State Street Bank and Trust State Street South
Company (custodian) 5 - West
North Quincy, Mass. 02171
</TABLE>
<PAGE> 168
<TABLE>
<S> <C>
MFS Service Center, Inc. 500 Boylston Street
(transfer agent) Boston, Mass. 02116
</TABLE>
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.
<PAGE> 169
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Post-Effective Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereto duly authorized, in the City of Boston and
The Commonwealth of Massachusetts on the 24th day of February, 1995.
MFS SERIES TRUST IV
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 February 24, 1995.
SIGNATURE TITLE
--------- -----
A. KEITH BRODKIN* Chairman of the Board; Trustee; and
- ------------------------- Principal Executive Officer
A. Keith Brodkin
RICHARD B. BAILEY*
- ------------------------- Trustee
Richard B. Bailey
PETER G. HARWOOD
- ------------------------- Trustee
Peter G. Harwood
J. ATWOOD IVES*
- ------------------------- Trustee
J. Atwood Ives
LAWRENCE T. PERERA, ESQ*
- ------------------------- Trustee
Lawrence T. Perera, Esq.
<PAGE> 170
WILLIAM J. POORVU*
- -------------------------- Trustee
William J. Poorvu
CHARLES W. SCHMIDT*
- -------------------------- Trustee
Charles W. Schmidt
ARNOLD D. SCOTT*
- -------------------------- Trustee
Arnold D. Scott
JEFFREY L. SHAMES*
- -------------------------- Trustee
Jeffrey L. Shames
ELAINE R. SMITH*
- -------------------------- Trustee
Elaine R. Smith
DAVID B. STONE*
- -------------------------- Trustee
David B. Stone
W. THOMAS LONDON* Principal Financial and Accounting
- -------------------------- Officer
W. Thomas London
*By: JAMES R. BORDEWICK, JR.
-------------------------------------
Name: James R. Bordewick, Jr.
as Attorney-in-fact
Executed by James R. Bordewick, Jr.
on behalf of those indicated pursuant
to a Power of Attorney dated
September 21, 1994; filed herewith.
<PAGE> 171
POWER OF ATTORNEY
MFS SERIES TRUST IV
The undersigned, Trustees and officers of MFS Series Trust IV (the
"Registrant"), hereby severally constitute and appoint A. Keith Brodkin, W.
Thomas London, Stephen E. Cavan and James R. Bordewick, Jr., and each of them
singly, as true and lawful attorneys, with full power to them and each of them
to sign for each of the undersigned, in the names of, and in the capacities
indicated below, any Registration Statement and any and all amendments thereto
and to file the same with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission for the
purpose of registering the Registrant as a management investment company under
the Investment Company Act of 1940 and/or the shares issued by the Registrant
under the Securities Act of 1933 granting unto our said attorneys, and each of
them, acting alone, full power and authority to do and perform each and every
act and thing requisite or necessary or desirable to be done in the premises,
as fully to all intents and purposes as he or she might or could do in person,
hereby ratifying and confirming all that said attorneys or any of them may
lawfully do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned have hereunto set their hand on
this 21st day of September, 1994.
SIGNATURES TITLE(S)
---------- --------
A. KEITH BRODKIN Chairman of the Board; Trustee;
- -------------------------------- and Principal Executive Officer
A. Keith Brodkin
RICHARD B. BAILEY Trustee
- --------------------------------
Richard B. Bailey
PETER G. HARWOOD Trustee
- --------------------------------
Peter G. Harwood
J. ATWOOD IVES Trustee
- --------------------------------
J. Atwood Ives
-1-
<PAGE> 172
LAWRENCE T. PERERA Trustee
- ---------------------------------
Lawrence T. Perera
WILLIAM J. POORVU Trustee
- ---------------------------------
William J. Poorvu
CHARLES W. SCHMIDT Trustee
- ---------------------------------
Charles W. Schmidt
ARNOLD D. SCOTT Trustee
- ---------------------------------
Arnold D. Scott
JEFFREY L. SHAMES Trustee
- ---------------------------------
Jeffrey L. Shames
ELAINE R. SMITH Trustee
- ---------------------------------
Elaine R. Smith
DAVID B. STONE Trustee
- ---------------------------------
David B. Stone
W. THOMAS LONDON Principal Financial and Accounting
- --------------------------------- Officer
W. Thomas London
-2-
<PAGE> 173
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT PAGE NO.
- ----------- ---------------------- --------
<S> <C> <C> <C>
1 Amended and Restated Declaration of Trust, dated January 19, 1995.
2 Amended and Restated By-Laws, dated December 21, 1994.
5 (a) Investment Advisory Agreement by and between Massachusetts Cash Management
Trust on behalf of MFS Money Market Fund and MFS Government
Money Market Fund, dated May 20, 1982 and amended and restated
August 1, 1993.
(b) Investment Advisory Agreement of MFS Municipal Bond Fund, dated
September 1, 1993.
(c) Investment Advisory Agreement of MFS OTC Fund, dated October 20, 1993.
6 (a) Distribution Agreement between the Trust and MFS Fund Distributors, Inc.,
dated January 1, 1995.
7 Retirement Plan for Non-Interested Person Trustees, dated January 1, 1991.
8 (e) Custodian Agreement between MFS Series Trust IV on behalf of MFS OTC Fund
and Investors Bank & Trust Company dated October 20, 1993.
9 (a) Shareholder Servicing Agent Agreement, dated August 1, 1985.
(b) Amendment to Shareholder Servicing Agent Agreement dated December 31, 1992.
(c) Amendment to Shareholder Servicing Agent Agreement dated September 7, 1993.
</TABLE>
<PAGE> 174
INDEX TO EXHIBITS (CONTINUED)
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT PAGE NO.
- ----------- ---------------------- --------
<S> <C> <C> <C>
(d) Amendment to Shareholder Servicing Agent Agreement dated July 20, 1994.
11 Consent of Deloitte & Touche.
15 (a) Distribution Plan for Class B Shares of MFS Municipal Bond Fund,
dated September 1, 1993.
(b) Distribution Plan for Class A Shares of MFS OTC Fund,
dated December 21, 1994.
(c) Distribution Plan for Class B Shares of MFS OTC Fund,
dated December 21, 1994.
(d) Distribution Plan for Class C Shares of MFS OTC Fund,
dated December 21, 1994.
16 (a) Schedule for Computation of Performance Quotations for MFS Money Market
Fund and MFS Government Money Market Fund - Yield Calculation.
(b) Schedule for Computation of Performance Quotations for MFS Municipal Bond
Fund - Yield, Tax-Equivalent Yield, Distribution Rate and
Total Return.
(c) Schedule for Computation of Performance Quotations for MFS OTC Fund -
Total Return.
27 Financial Data Schedules
</TABLE>
<PAGE> 1
EXHIBIT 1
MFS SERIES TRUST IV
AMENDED AND RESTATED
DECLARATION OF TRUST
DECEMBER 21, 1994
<PAGE> 2
TABLE OF CONTENTS
PAGE
----
<TABLE>
<S> <C> <C> <C>
ARTICLE I -- NAME AND DEFINITIONS
--------------------
Section 1.1 Name 1
Section 1.2 Definitions 2
ARTICLE II -- TRUSTEES
--------
Section 2.1 Number of Trustees 3
Section 2.2 Term of Office of Trustees 3
Section 2.3 Resignation and Appointment of Trustees 4
Section 2.4 Vacancies 5
Section 2.5 Delegation of Power to Other Trustees 5
ARTICLE III -- POWERS OF TRUSTEES
------------------
Section 3.1 General 5
Section 3.2 Investments 6
Section 3.3 Legal Title 6
Section 3.4 Issuance and Repurchase of Securities 7
Section 3.5 Borrowing Money; Lending Trust Assets 7
Section 3.6 Delegation; Committees 7
Section 3.7 Collection and Payment 7
Section 3.8 Expenses 7
Section 3.9 Manner of Acting; By-Laws 8
Section 3.10 Miscellaneous Powers 8
Section 3.11 Principal Transactions 8
Section 3.12 Trustees and Officers as Shareholders 9
ARTICLE IV -- INVESTMENT ADVISER, DISTRIBUTOR AND TRANSFER AGENT
--------------------------------------------------
Section 4.1 Investment Adviser 10
Section 4.2 Distributor 10
Section 4.3 Transfer Agent 10
Section 4.4 Parties to Contract 11
</TABLE>
I
<PAGE> 3
TABLE OF CONTENTS (CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
ARTICLE V -- LIMITATIONS OF LIABILITY OF SHAREHOLDERS, TRUSTEES AND
------------------------------------------------------
OTHERS
------
Section 5.1 No Personal Liability of Shareholders, Trustees, etc. 11
Section 5.2 Non-Liability of Trustees, etc. 12
Section 5.3 Mandatory Indemnification 12
Section 5.4 No Bond Required of Trustees 14
Section 5.5 No Duty of Investigation; Notice in Trust
Instruments, etc. 14
Section 5.6 Reliance on Experts, etc. 14
ARTICLE VI -- SHARES OF BENEFICIAL INTEREST
-----------------------------
Section 6.1 Beneficial Interest 15
Section 6.2 Rights of Shareholders 15
Section 6.3 Trust only 15
Section 6.4 Issuance of Shares 15
Section 6.5 Register of Shares 16
Section 6.6 Transfer of Shares 16
Section 6.7 Notices 17
Section 6.8 Voting Powers 17
Section 6.9 Series Designation 18
Section 6.10 Class Designation 20
ARTICLE VII -- REDEMPTIONS
-----------
Section 7.1 Redemptions 20
Section 7.2 Suspension of Right of Redemption 21
Section 7.3 Redemption of Shares; Disclosure of Holding 21
Section 7.4 Redemptions of Accounts of Less Than $500 22
Section 7.5 Redemtions Pursuant to Constant Net Asset Value
Formula 22
ARTICLE VIII -- DETERMINATION OF NET ASSET VALUE, NET INCOME AND
------------------------------------------------
DISTRIBUTIONS
-------------
Section 8.1 Net Asset Value 22
Section 8.2 Distributions to Shareholders 23
Section 8.3 Determination of Net Income; Constant Net Asset Value;
Reduction of Outstanding Shares 23
Section 8.4 Power to Modify Foregoing Procedures 24
</TABLE>
II
<PAGE> 4
TABLE OF CONTENTS (CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
ARTICLE IX -- DURATION; TERMINATION OF TRUST; AMENDMENT MERGERS; ETC.
-------------------------------------------------------
Section 9.1 Duration 24
Section 9.2 Termination of Trust 24
Section 9.3 Amendment Procedure 25
Section 9.4 Merger, Consolidation and Sale of Assets 26
Section 9.5 Incorporation 27
ARTICLE X -- REPORTS TO SHAREHOLDERS 27
-----------------------
ARTICLE XI -- MISCELLANEOUS
-------------
Section 11.1 Filing 27
Section 11.2 Governing Law 28
Section 11.3 Counterparts 28
Section 11.4 Reliance by Third Parties 28
Section 11.5 Provisions in Conflict with Law or Regulations 28
ANNEX A 30
ANNEX B 37
SIGNATURE PAGE 39
</TABLE>
III
<PAGE> 5
AMENDED AND RESTATED
DECLARATION OF TRUST
OF
MFS SERIES TRUST IV
500 BOYLSTON STREET
BOSTON, MASSACHUSETTS 02116
AMENDED AND RESTATED DECLARATION OF TRUST, made as of this 21st day of
December, 1994 by the Trustees hereunder.
WHEREAS, the Trust was established pursuant to a Declaration of Trust
dated September 8, 1975, for the investment and reinvestment of funds
contributed thereto; and
WHEREAS, the Trustees desire that the beneficial interest in the trust
assets continue to be divided into transferable Shares of Beneficial Interest
(without par value) issued in one or more series, as hereinafter provided; and
WHEREAS, the Declaration of Trust has been, from time to time, amended
in accordance with the provisions of the Declaration; and
WHEREAS, the Trustees now desire further to amend and to restate the
Declaration of Trust and hereby certify as provided in Section 11.1 of the
Declaration that this Amended and Restated Declaration of Trust has been
further amended and restated in accordance with the provisions of the
Declaration;
NOW THEREFORE, the Trustees hereby confirm that all money and property
contributed to the trust established hereunder shall be held and managed in
trust for the benefit of holders, from time to time, of the shares of
Beneficial Interest (without par value) issued hereunder and subject to the
provisions hereof.
ARTICLE I
NAME AND DEFINITIONS
Section 1.1 - Name. The name of the trust created hereby is the MFS
Series Trust IV, the current address of which is 500 Boylston Street, Boston,
Massachusetts 02116.
1
<PAGE> 6
Section 1.2 - Definitions. Wherever they are used herein, the following
terms have the following respective meanings:
(a) "By-Laws" means the By-Laws referred to in Section 3.9 hereof, as
from time to time amended.
(b) the terms "Commission," "Interested Person" and "Majority
Shareholder Vote" (the 67% or 50% requirement of the third sentence of Section
2(a)(42) of the 1940 Act, whichever may be applicable) have the meanings given
them in the 1940 Act, except to the extent that the Trustees have otherwise
defined "Majority Shareholder Vote" in conjunction with the establishment of
any series of Shares.
(c) "Declaration" means this Declaration of Trust as amended from time
to time. Reference in this Declaration of Trust to "Declaration," "hereof,"
"herein" and "hereunder" shall be deemed to refer to this Declaration rather
than the article or section in which such words appear.
(d) "Distributor" means the party, other than the Trust, to the
contract described in Section 4.2 hereof.
(e) "Investment Adviser" means the party, other than the Trust, to the
contract described in Section 4.1 hereof.
(f) the "1940 Act" means the Investment Company Act of 1940, as amended
from time to time.
(g) "Person" means and includes individuals, corporations,
partnerships, trusts, associations, joint ventures and other entities, whether
or not legal entities, and governments and agencies and political subdivisions
thereof.
(h) "Shareholder" means a record owner of outstanding Shares.
(i) "Shares" means the equal proportionate units of interest into which
the beneficial interest in the Trust shall be divided from time to time,
including the Shares of any and all series
2
<PAGE> 7
which may be established by the Trustees, and includes fractions of Shares as
well as whole Shares.
(j) "Transfer Agent" means the party, other than the Trust, to the
contract described in Section 4.3 hereof.
(k) the "Trust" means the MFS Series Trust IV.
(1) the "Trust Property" means any and all property, real or personal,
tangible or intangible, which is owned or held by or for the account of the
Trust or the Trustees.
(m) the "Trustees" means the persons who have signed the Declaration,
so long as they shall continue in office in accordance with the terms hereof,
and all other persons who may from time to time be duly elected, qualified and
serving as Trustees in accordance with the provisions hereof, and reference
herein to a Trustee or the Trustees shall refer to such person or persons in
their capacity as trustees hereunder.
ARTICLE II
TRUSTEES
Section 2.1 - Number of Trustees. The number of Trustees shall be such
number as shall be fixed from time to time by a written instrument signed by a
majority of the Trustees, provided, however, that the number of Trustees shall
in no event be less than three (3) nor more than fifteen (15).
Section 2.2 - Term of Office of Trustees. Subject to the provisions of
Section 16(a) of the 1940 Act, the Trustees shall hold office during the
lifetime of this Trust and until its termination as hereinafter provided;
except:
(a) that any Trustee may resign his trust (without need for prior or
subsequent accounting) by an instrument in writing signed by him and delivered
to the other Trustees, which shall take effect upon such delivery or upon such
later date as is specified therein;
(b) that any Trustee may be removed (provided the aggregate number of
Trustees after such removal shall not be less than the number required by
Section 2.1 hereof) with cause, at any
3
<PAGE> 8
time by written instrument, signed by at least two-thirds of the remaining
Trustees, specifying the date when such removal shall become effective;
(c) that any Trustee who requests in writing to be retired or who has
become incapacitated by illness or injury may be retired by written instrument
signed by a majority of the other Trustees, specifying the date of his
retirement; and
(d) a Trustee may be removed at any meeting of Shareholders by a vote of
two-thirds of the outstanding Shares. Upon the resignation or removal of a
Trustee, or his otherwise ceasing to be a Trustee, he shall execute and
deliver such documents as the remaining Trustees shall require for the purpose
of conveying to the Trust or the remaining Trustees any Trust property held in
the name of the resigning or removed Trustee. Upon the incapacity or death of
any Trustee, his legal representative shall execute and deliver on his behalf
such documents as the remaining Trustees shall require as provided in the
preceding sentence.
Section 2.3 - Resignation and Appointment of Trustees. In case of the
declination, death, resignation, retirement, removal or inability of any of
the Trustees, or in case a vacancy shall, by reason of an increase in number,
or for any other reason, exist, the remaining Trustees shall fill such vacancy
by appointing such other person as they in their discretion shall see fit.
Such appointment shall be evidenced by a written instrument signed by a
majority of the Trustees in office. Any such appointment shall not become
effective, however, until the person named in the written instrument of
appointment shall have accepted in writing such appointment and agreed in
writing to be bound by the terms of the Declaration. Within twelve months of
such appointment, the Trustees shall cause notice of such appointment to be
mailed to each Shareholder at his address as recorded on the books of the
Trustees. An appointment of a Trustee may be made by the Trustees then in
office and notice thereof mailed to Shareholders as aforesaid in anticipation
of a vacancy to occur by reason of retirement, resignation or increase in
number of Trustees effective at a later date, provided that said appointment
shall become effective only at or after the effective date of said retirement,
resignation or increase in number of Trustees. The power of appointment is
subject to the provisions of Section 16(a) of the 1940 Act.
Section 2.4 - Vacancies. The death, declination, resignation,
retirement, removal or incapacity of the Trustees, or any one of them, shall
not operate to annul the Trust or to revoke any existing agency created
pursuant to the terms of this Declaration. Whenever a vacancy in the number
of Trustees shall occur, until such vacancy if filled as provided in Section
2.3, the
4
<PAGE> 9
Trustees in office, regardless of their number, shall have all the powers
granted to the Trustees and shall discharge all the duties imposed upon the
Trustees by the Declaration. A written instrument certifying the existence of
such vacancy signed by a majority of the Trustees shall be conclusive evidence
of the existence of such vacancy.
Section 2.5 - Delegation of Power to Other Trustees. Any Trustee may,
by power of attorney, delegate his power for a period not exceeding six (6)
months at any one time to any other Trustee or Trustees; provided that in no
case shall less than two (2) Trustees personally exercise the powers granted
to the Trustees under the Declaration except as herein otherwise expressly
provided.
ARTICLE III
POWERS OF TRUSTEES
Section 3.1 - General. The Trustees shall have exclusive and absolute
control over the Trust Property and over the business of the Trust to the same
extent as if the Trustees were the sole owners of the Trust Property and
business in their own right, but with such powers of delegation as may be
permitted by the Declaration. The Trustees shall have power to conduct the
business of the Trust and carry on its operations in any and all of its
branches and maintain offices both within and without The Commonwealth of
Massachusetts, in any and all states of the United States of America, in the
District of Columbia, and in any and all commonwealths, territories,
dependencies, colonies, possessions, agencies or instrumentalities of the
United States of America and of foreign governments, and to do all such other
things and execute all such instruments as they deem necessary, proper or
desirable in order to promote the interests of the Trust although such things
are not herein specifically mentioned. Any determination as to what is in the
interests of the Trust made by the Trustees in good faith shall be conclusive.
In construing the provisions of the Declaration, the presumption shall be in
favor of a grant of power to the Trustees.
The enumeration of any specific power herein shall not be construed as
limiting the aforesaid power. Such powers of the Trustees may be exercised
without order of or resort to any court.
5
<PAGE> 10
Section 3.2 - Investments. The Trustees shall have the power to:
(a) conduct, operate and carry on the business of an investment
company;
(b) subscribe for, invest in, reinvest in, purchase or otherwise
acquire, hold, pledge, sell, assign, transfer, exchange, distribute, lend or
otherwise deal in or dispose of negotiable or non-negotiable instruments,
obligations, evidences of indebtedness, certificates of deposit or
indebtedness, commercial paper, repurchase agreements, and other securities of
any kind, including, without limitation, those issued, guaranteed or sponsored
by the United States Government or its agencies or instrumentalities, or
international instrumentalities, or by any bank or savings institution, or by
any corporation organized under the laws of the United States or of any state,
territory or possession thereof, and of corporations organized under foreign
laws, or in "when issued" contracts for any such securities, or retain Trust
assets in cash and from time to time change the investments of the assets of
the Trust; and to exercise any and all rights, powers and privileges of
ownership or interest in respect of any and all such investments of every kind
and description, including, without limitation, the right to consent and
otherwise act with respect thereto, with power to designate one or more
persons, firms, associations or corporations to exercise any of said rights,
powers and privileges in respect of any of said instruments.
The Trustees shall not be limited to investing in obligations maturing
before the possible termination of the Trust, nor shall the Trustees be
limited by any law limiting the investments which may be made by fiduciaries.
Section 3.3 - Legal Title. Legal title to all the Trust Property shall
be vested in the Trustees as joint tenants except that the Trustees shall have
power to cause legal title to any Trust Property to be held by or in the name
of one or more of the Trustees, or in the name of the Trust, or in the name of
any other Person as nominee, on such terms as the Trustees may determine,
provided that the interest of the Trust therein is appropriately protected.
The right, title and interest of the Trustees in the Trust Property shall vest
automatically in each Person who may hereafter become a Trustee. Upon the
resignation, removal or death of a Trustee he shall automatically cease to
have any right, title or interest in any of the Trust Property, and the right,
title and interest of such Trustee in the Trust Property shall vest
automatically in the remaining Trustees. Such vesting and cessation of title
shall be effective whether or not conveyancing documents have been executed
and delivered.
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Section 3.4 - Issuance and Repurchase of Securities. The Trustees shall
have the power to issue, sell, repurchase, redeem, retire, cancel, acquire,
hold, resell, reissue, dispose of, transfer, and otherwise deal in Shares and,
subject to the provisions set forth in Articles VII, VIII and IX and Section
6.9 hereof, to apply to any such repurchase, redemption, retirement,
cancellation or acquisition of Shares any funds or property of the Trust
whether capital or surplus or otherwise, to the full extent now or hereafter
permitted by the laws of The Commonwealth of Massachusetts governing business
corporations.
Section 3.5 - Borrowing Money; Lending Trust Assets. The Trustees shall
have power to borrow money or otherwise obtain credit and to secure the same
by mortgaging, pledging or otherwise subjecting as security the assets of the
Trust, to endorse, guarantee, or undertake the performance of any obligation,
contract or engagement of any other Person and to lend Trust assets.
Section 3.6 - Delegation; Committees. The Trustees shall have power to
delegate from time to time to such of their number or to officers, employees
or agents of the Trust the doing of such things and the execution of such
instruments either in the name of the Trust or the names of the Trustees or
otherwise as the Trustees may deem expedient, to the same extent as such
delegation is permitted by the 1940 Act.
Section 3.7 - Collection and Payment. The Trustees shall have power to
collect all property due to the Trust; to pay all claims, including taxes,
against the Trust Property; to prosecute, defend, compromise or abandon any
claims relating to the Trust Property; to foreclose any security interest
securing any obligations, by virtue of which any property is owed to the
Trust; and to enter into releases, agreements and other instruments.
Section 3.8 - Expenses. The Trustees shall have the power to incur and
pay any expenses which in the opinion of the Trustees are necessary or
incidental to carry out any of the purposes of the Declaration, and to pay
reasonable compensation from the funds of the Trust to themselves as Trustees.
The Trustees shall fix the compensation of all officers, employees and
Trustees.
Section 3.9 - Manner of Acting; By-Laws. Except as otherwise provided
herein or in the By-Laws, any action to be taken by the Trustees may be taken
by a majority of the Trustees present at a meeting of Trustees (a quorum being
present), including any meeting held by means of a conference telephone
circuit or similar communications equipment by means of which all
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persons participating in the meeting can hear each other, or by written
consents of all the Trustees. The Trustees may adopt By-Laws not consistent
with this Declaration to provide for the conduct of the business of the Trust
and may amend or repeal such By-Laws to the extent such power is not reserved
to the Shareholders.
Section 3.10 - Miscellaneous Powers. The Trustees shall have the power
to: (a) employ or contract with such Persons as the Trustees may deem
desirable for the transaction of the business of the Trust; (b) enter into
joint ventures, partnerships and any other combinations or associations; (c)
remove Trustees or fill vacancies in or add to their number, elect and remove
such officers and appoint and terminate such agents or employees as they
consider appropriate, and appoint from their own number, and terminate, any
one or more committees which may exercise some or all of the power and
authority of the Trustees as the Trustees may determine; (d) purchase, and pay
for out of Trust Property, insurance policies insuring the Shareholders,
Trustees, officers, employees, agents, investment advisers, distributors,
selected dealers or independent contractors of the Trust against all claims
arising by reason of holding any such position or by reason of any action
taken or omitted by any such Person in such capacity, whether or not
constituting negligence, or whether or not the Trust would have the power to
indemnify such Person against such liability; (e) establish pension, profit
sharing, Share purchase, and other retirement, incentive and benefit plans for
any Trustees, officers, employees and agents of the Trust; (f) to the extent
permitted by law, indemnify any person with whom the Trust has dealings,
including the Investment Adviser, Distributor, Transfer Agent and selected
dealers, to such extent as the Trustees shall determine; (g) guarantee
indebtedness or contractual obligations of others; (h) determine and change
the fiscal year of the Trust and the method by which its accounts shall be
kept; and (i) adopt a seal for the Trust but the absence of such seal shall
not impair the validity of any instrument executed on behalf of the Trust.
Section 3.11 - Principal Transactions. Except in transactions permitted
by the 1940 Act or any rule or regulation thereunder, or any order of
exemption issued by the Commission, the Trustees shall not, on behalf of the
Trust, buy any securities (other than Shares) from or sell any securities
(other than Shares) to, or lend any assets of the Trust to, any Trustee or
officer of the Trust or any firm of which any such Trustee or officer is a
member acting as principal, or have any such dealings with the Investment
Adviser, Distributor or Transfer Agent or with any Interested Person of such
Person; but the Trust may employ any such Person, or firm or company in which
such Person is an Interested Person, as broker, legal counsel, registrar,
transfer agent, dividend disbursing agent or custodian upon customary terms.
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Section 3.12 - Trustees and Officers as Shareholders. Except as
hereinafter provided, no officer, Trustee or Member of the Advisory Board of
the Trust, and no member, officer, director or trustee of the Investment
Adviser or of the Distributor, and no Investment Adviser or Distributor of the
Trust, shall take long or short positions in the securities issued by the
Trust.
(1) The foregoing provision shall not prevent the Distributor from
purchasing from the Trust Shares if such purchases are limited (except for
reasonable allowances for clerical errors, delays and errors of transmission
and cancellation of orders) to purchases for the purpose of filling orders for
shares received by the Distributor and provided that orders to purchase from
the Trust are entered with the Trust or the Custodian promptly upon receipt by
the Distributor of purchase orders for Shares, unless the Distributor is
otherwise instructed by its customer.
(2) The foregoing provision shall not prevent the Distributor from
purchasing Shares as agent for the account of the Trust.
(3) The foregoing provision shall not prevent the purchase from the
Trust or from the Distributor of Shares by any officer, Trustee or member of
the Advisory Board of the Trust or by any member, officer, director or trustee
of the Investment Adviser or of the Distributor at a price not lower than the
net asset value of the Shares at the moment of such purchase, provided that
any such sales are only to be made pursuant to a uniform offer described in
the Trust's current prospectus.
(4) The foregoing provision shall not prevent the Investment Adviser,
the Distributor, or any of their officers, directors or trustees from
purchasing Shares prior to the effective date of the Registration Statement
relating to the Shares under the Securities Act of 1933, as amended.
ARTICLE IV
INVESTMENT ADVISER, DISTRIBUTOR AND TRANSFER AGENT
Section 4.1 - Investment Adviser. Subject to a Majority Shareholder
Vote, the Trustees may in their discretion from time to time enter into an
investment advisory or management contract whereby the other party to such
contract shall undertake to furnish the Trust such management, investment
advisory, statistical and research facilities and services, promotional
activities, and such other facilities and services, if any, as the Trustees
shall from time to time
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consider desirable and all upon such terms and conditions as the Trustees may
in their discretion determine. Notwithstanding any provisions of the
Declaration, the Trustees may authorize the Investment Adviser (subject to
such general or specific instructions as the Trustees may from time to time
adopt) to effect purchases, sales, loans or exchanges of portfolio securities
of the Trust on behalf of the Trustees or may authorize any officer, employee
or Trustee to effect such purchases, sales, loans or exchanges pursuant to
recommendations of the Investment Adviser (and all without further action by
the Trustees). Any such purchases, sales, loans and exchanges shall be deemed
to have been authorized by all of the Trustees.
Section 4.2 - Distributor. The Trustees may in their discretion from
time to time enter into a contract, providing for the sale of Shares to net
the Trust not less than the net asset value per Share (as described in Article
VIII hereof) whereby the Trust may either agree to sell the Shares to the
other party to the contract or appoint such other party its sales agent for
such Shares. In either case, the contract shall be on such terms and
conditions as the Trustees may in their discretion determine not inconsistent
with the provisions of this Article IV or the By-Laws; and such contract may
also provide for the repurchase or sale of Shares of the Trust by such other
party as principal or as agent of the Trust and may provide that such other
party may enter into selected dealer agreements with registered securities
dealers to further the purpose of the distribution or repurchase of the
Shares.
Section 4.3 - Transfer Agent. The Trustees may in their discretion from
time to time enter into a transfer agency and shareholder service contract
whereby the other party to such contract shall undertake to furnish transfer
agency and shareholder services to the Trust. The contract shall have such
terms and conditions as the Trustees may in their discretion determine not
inconsistent with the Declaration or the By-Laws. Such services may be
provided by one or more Persons.
Section 4.4 - Parties to Contract. Any contract of the character
described in Sections 4.l, 4.2 or 4.3 of this Article IV or any Custodian
contract, as described in the By-Laws, may be entered into with any Person,
although one or more of the Trustees or officers of the Trust may be an
officer, director, trustee, shareholder, or member of such other party to the
contract, and no such contract shall be invalidated or rendered voidable by
reason of the existence of any such relationship; nor shall any Person holding
such relationship be liable merely by reason of such relationship for any loss
or expense to the Trust under or by reason of said contract or accountable for
any profit realized directly or indirectly therefrom, provided that the
contract
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when entered into was not inconsistent with the provisions of this Article IV
or the By-Laws. The same Person may be the other party to contracts entered
into pursuant to Sections 4.l, 4.2 and 4.3 above or Custodian contracts, and
any individual may be financially interested or otherwise affiliated with
Persons who are parties to any or all of the contracts mentioned in this
Section 4.4.
ARTICLE V
LIMITATIONS OF LIABILITY OF SHAREHOLDERS, TRUSTEES AND OTHERS
Section 5.1 - No Personal Liability of Shareholders, Trustees, etc. No
Shareholder shall be subject to any personal liability whatsoever to any
Person in connection with Trust Property or the acts, obligations or affairs
of the Trust. No Trustee, officer, employee or agent of the Trust shall be
subject to any personal liability whatsoever to any Person, other than the
Trust or its Shareholders, in connection with Trust Property or the affairs of
the Trust, save only that arising from bad faith, willful misfeasance, gross
negligence or reckless disregard for his duty to such Person; and all such
Persons shall look solely to the Trust Property for satisfaction of claims of
any nature arising in connection with the affairs of the Trust. If any
Shareholder, Trustee, officer, employee, or agent, as such, of the Trust, is
made a party to any suit or proceeding to enforce any such liability, he shall
not, on account thereof, be held to any personal liability. The Trust shall
indemnify and hold each Shareholder harmless from and against all claims and
liabilities, to which such Shareholder may become subject by reason of his
being or having been a Shareholder, and shall reimburse such Shareholder for
all legal and other expenses reasonably incurred by him in connection with any
such claim or liability. The rights accruing to a Shareholder under this
Section 5.1 shall not exclude any other right to which such Shareholder may be
lawfully entitled, nor shall anything herein contained restrict the right of
the Trust to indemnify or reimburse a Shareholder in any appropriate situation
even though not specifically provided herein.
Section 5.2 - Non-Liability of Trustees, etc. No Trustee, officer,
employee or agent of the Trust shall be liable to the Trust, its Shareholders,
or to any Shareholder, Trustee, officer, employee, or agent thereof for any
action or failure to act (including without limitation the failure to compel
in any way any former or acting Trustee to redress any breach of trust) except
for his own bad faith, willful misfeasance, gross negligence or reckless
disregard of his duties.
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Section 5.3 - Mandatory Indemnification.
(a) Subject to the exceptions and limitations contained in paragraph
(b) below:
(i) every person who is or has been a Trustee or officer of the
Trust shall be indemnified by the Trust against all liability and against all
expenses reasonably incurred or paid by him in connection with any claim,
action, suit or proceeding in which he becomes involved as a party or
otherwise by virtue of his being or having been a Trustee or officer and
against amounts paid or incurred by him in the settlement thereof;
(ii) the words "claim," "action," "suit," or "proceeding" shall
apply to all claims, actions, suits or proceedings (civil, criminal or other,
including appeals), actual or threatened; and the words "liability" and
"expenses" shall include, without limitation, attorneys' fees, costs,
judgments, amounts paid in settlement, fines, penalties and other liabilities.
(b) No indemnification shall be provided hereunder to a Trustee or
officer:
(i) against any liability to the Trust or the Shareholders by
reason of a final adjudication by the court or other body before which the
proceeding was brought that he engaged in willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct
of his office;
(ii) with respect to any matter as to which he shall have been
finally adjudicated not to have acted in good faith in the reasonable belief
that his action was in the best interests of the Trust;
(iii) in the event of a settlement or other disposition not
involving a final adjudication as provided in paragraph (b)(i) or (b)(ii)
resulting in a payment by a Trustee or officer, unless there has been either a
determination that such Trustee or officer did not engage in willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office by the court or other body approving the
settlement or other disposition or a reasonable determination, based upon a
review of readily available facts (as opposed to a full trial-type inquiry)
that he did not engage in such conduct:
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(A) by vote of a majority of the Disinterested Trustees acting
on the matter (provided that a majority of the
Disinterested Trustees then in office act on the matter);
or
(B) by written opinion of independent counsel.
(c) The rights of indemnification herein provided may be insured
against by policies maintained by the Trust, shall be severable, shall not
affect any other rights to which any Trustee or officer may now or hereafter
be entitled, shall continue as to a Person who has ceased to be such Trustee
or officer and shall inure to the benefit of the heirs, executors and
administrators of such Person. Nothing contained herein shall affect any
rights to indemnification to which personnel other than Trustees and officers
may be entitled by contract or otherwise under law.
(d) Expenses of preparation and presentation of a defense to any claim,
action, suit or proceeding of the character described in paragraph (a) of this
Section 5.3 shall be advanced by the Trust prior to final disposition thereof
upon receipt of an undertaking by or on behalf of the recipient to repay such
amount if it is ultimately determined that he is not entitled to
indemnification under this Section 5.3, provided that either:
(i) such undertaking is secured by a surety bond or some other
appropriate security or the Trust shall be insured against losses arising out
of any such advances; or
(ii) a majority of the Disinterested Trustees acting on the
matter (provided that a majority of the Disinterested Trustees then in office
act on the matter) or an independent legal counsel in a written opinion, shall
determine, based upon a review of readily available facts (as opposed to a
full trial-type inquiry), that there is reason to believe that the recipient
ultimately will be found entitled to indemnification.
As used in this Section 5.3, a "Disinterested Trustee" is one (i) who is
not an "Interested Person" of the Trust (including anyone who has been
exempted from being an "Interested Person" by any rule, regulation or order of
the Commission), and (ii) against whom none of such actions, suits or other
proceedings or another action, suit or other proceeding on the same or similar
grounds is then or had been pending.
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Section 5.4 - No Bond Required of Trustees. No Trustee shall be
obligated to give any bond or other security for the performance of any of his
duties hereunder.
Section 5.5 - No Duty of Investigation; Notice in Trust Instruments,
etc. No purchaser, lender, transfer agent or other Person dealing with the
Trustees or any officer, employee or agent of the Trust shall be bound to make
any inquiry concerning the validity of any transaction purporting to be made
by the Trustees or by said officer, employee or agent or be liable for the
application of money or property paid, loaned, or delivered to or on the order
of the Trustees or of said officer, employee or agent. Every obligation,
contract, instrument, certificate, Share, other security of the Trust or
undertaking, and every other act or thing whatsoever executed in connection
with the Trust shall be conclusively presumed to have been executed or done by
the executors thereof only in their capacity as Trustees under the Declaration
or in their capacity as officers, employees or agents of the Trust. Every
written obligation, contract, instrument, certificate, Share, other security
of the Trust or undertaking made or issued by the Trustees shall recite that
the same is executed or made by them not individually, but as Trustees under
the Declaration, and that the obligations of any such instrument are not
binding upon any of the Trustees or Shareholders, individually, but bind only
the trust estate, and may contain any further recital which they or he may
deem appropriate, but the omission of such recital shall not operate to bind
the Trustees individually. The Trustees shall at all times maintain insurance
for the protection of the Trust Property, its Shareholders, Trustees,
officers, employees and agents in such amount as the Trustees shall deem
adequate to cover possible tort liability, and such other insurance as the
Trustees in their sole judgment shall deem advisable.
Section 5.6 - Reliance on Experts, etc. Each Trustee and officer or
employee of the Trust shall, in the performance of his duties, be fully and
completely justified and protected with regard to any act or any failure to
act resulting from reliance in good faith upon the books of account or other
records of the Trust, upon an opinion of counsel, or upon reports made to the
Trust by any of its officers or employees or by the Investment Adviser, the
Distributor, Transfer Agent, selected dealers, accountants, appraisers or
other experts or consultants selected with reasonable care by the Trustees,
officers or employees of the Trust, regardless of whether such counsel or
expert may also be a Trustee.
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ARTICLE VI
SHARES OF BENEFICIAL INTEREST
Section 6.1 - Beneficial Interest. The interest of the beneficiaries
hereunder shall be divided into transferable Shares of Beneficial Interest
(without par value). The number of Shares of Beneficial Interest authorized
hereunder is unlimited. All Shares issued hereunder including, without
limitation, Shares issued in connection with a dividend in Shares or a split
of Shares, shall be fully paid and non-assessable.
Section 6.2 - Rights of Shareholders. The ownership of the Trust
Property of every description and the right to conduct any business
hereinbefore described are vested exclusively in the Trustees, and the
Shareholders shall have no interest therein other than the beneficial interest
conferred by their Shares, and they shall have no right to call for any
partition or division of any property, profits, rights or interests of the
Trust nor can they be called upon to assume any losses of the Trust or suffer
an assessment of any kind by virtue of their ownership of Shares. The Shares
shall be personal property giving only the rights in the Declaration
specifically set forth. The Shares shall not entitle the holder to
preference, preemptive, appraisal, conversion or exchange rights, except as
the Trustees may determine with respect to any series or class of Shares.
Section 6.3 - Trust Only. It is the intention of the Trustees to create
only the relationship of Trustee and beneficiary between the Trustees and each
Shareholder from time to time. It is not the intention of the Trustees to
create a general partnership, limited partnership, joint stock association,
corporation, bailment or any form of legal relationship other than a trust.
Nothing in the Declaration shall be construed to make the Shareholders, either
by themselves or with the Trustees, partners or members of a joint stock
association.
Section 6.4 - Issuance of Shares. The Trustees, in their discretion
may, from time to time without vote of the Shareholders, issue Shares, in
addition to the then issued and outstanding Shares and Shares held in the
treasury, to such party or parties and for such amount and type of
consideration, including cash or property, at such time or times (including,
without limitation, each business day in accordance with the maintenance of a
constant net asset value per Share as set forth in Section 8.3 hereof), and on
such terms as the Trustees may deem best, and may in such manner acquire other
assets (including the acquisition of assets subject to, and in connection with
the assumption of liabilities) and businesses. In connection with any
issuance of Shares, the
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Trustees may issue fractional Shares. The Trustees may from time to time
divide or combine the Shares into a greater or lesser number without thereby
changing the proportionate beneficial interests in the Trust. Reductions in
the number of outstanding Shares may be made pursuant to the constant net
asset value per Share formula set forth in Section 8.3. Contributions to the
Trust may be accepted for, and Shares shall be redeemed as, whole Shares
and/or 1/1,000ths of a Share or integral multiples thereof.
Section 6.5 - Register of Shares. A register shall be kept at the
principal office of the Trust or at an office of the Transfer Agent which
shall contain the names and addresses of the Shareholders and the number of
Shares held by them respectively and a record of all transfers thereof. Such
register shall be conclusive as to who are the holders of the Shares and who
shall be entitled to receive dividends or distributions or otherwise to
exercise or enjoy the rights of Shareholders. No Shareholder shall be entitled
to receive payment of any dividend or distribution, nor to have notice given
to him as herein or in the By-Laws provided, until he has given his address
the Transfer Agent or such other officer or agent of the Trustees as shall
keep the said register for entry thereon. It is not contemplated that
certificates will be issued for the Shares; however, the Trustees in their
discretion, may authorize the issuance of Share certificates and promulgate
appropriate rules and regulations as to their use.
Section 6.6 - Transfer of Shares. Shares shall be transferable on the
records of the Trust only by the record holder thereof or by his agent
thereunto duly authorized in writing, upon delivery to the Trustees or the
Transfer Agent of a duly executed instrument of transfer, together with such
evidence of the genuineness of each such execution and authorization and of
other matters as may reasonably be required. Upon such delivery the transfer
shall be recorded on the register of the Trust. Until such record is made,
the Shareholder of record shall be deemed to be the holder of such Shares for
all purposes hereunder and neither the Trustees nor any Transfer Agent or
registrar nor any officer, employee or agent of the Trust shall be affected by
any notice of the proposed transfer.
Any person becoming entitled to any Shares in consequence of the death,
bankruptcy, or incompetence of any Shareholder, or otherwise by operation of
law, shall be recorded on the register of Shares as the holder of such Shares
upon production of the proper evidence thereof to the Trustees or the Transfer
Agent, but until such record is made, the Shareholder of record shall be
deemed to be the holder of such Shares for all purposes hereunder and neither
the Trustees nor
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any Transfer Agent or registrar nor any officer or agent of the Trust shall be
affected by any notice of such death, bankruptcy or incompetence, or other
operation of law.
Section 6.7 - Notices. Any and all notices to which any Shareholder may
be entitled and any and all communications shall be deemed duly served or
given if mailed, postage prepaid, addressed to any Shareholder of record at
his last known address as recorded on the register of the Trust.
Section 6.8 - Voting Powers. The Shareholders shall have power to vote
only (i) for the election of Trustees as provided in Section 2.2 hereof, (ii)
with respect to any investment advisory or management contract as provided in
Section 4.1 hereof, (iii) with respect to termination of the Trust as provided
in Section 9.2 hereof, (iv) with respect to any amendment of the Declaration
to the extent and as provided in Section 9.3 hereof, (v) with respect to any
merger, consolidation or sale of assets as provided in Section 9.4 hereof,
(vi) with respect to incorporation of the Trust to the extent and as provided
in Section 9.5 hereof, (vii) to the same extent as the stockholders of a
Massachusetts business corporation as to whether or not a court action,
proceeding or claim should or should not be brought or maintained derivatively
or as a class action on behalf of the Trust or the Shareholders, and (viii)
with respect to such additional matters relating to the Trust as may be
required by the Declaration, the By-Laws or any registration of the Trust with
the Commission (or any successor agency) or any state, or as the Trustees may
consider necessary or desirable. Each whole Share shall be entitled to one
vote as to any matter on which it is entitled to vote and each fractional
Share shall be entitled to a proportionate fractional vote, except that Shares
held in the treasury of the Trust shall not be voted and that the Trustees
may, in conjunction with the establishment of any series of Shares, establish
conditions under which the several series shall have separate voting rights or
no voting rights. There shall be no cumulative voting in the election of
Trustees. Until Shares are issued, the Trustees may exercise all rights of
Shareholders and may take any action required by law, the Declaration or the
By-Laws to be taken by Shareholders. The By-Laws may include further
provisions for Shareholders' votes and meetings and related matters.
Section 6.9 - Series Designation. The Trustees, in their
discretion, may authorize the division of Shares into two or more series, and
the different series shall be established and designated, and the variations
in the relative rights and preferences as between the different series shall
be fixed and determined by the Trustees; provided, that all Shares shall be
identical except that there may be variations so fixed and determined between
different series as to investment
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objective, purchase price, right of redemption and the price, terms and manner
of redemption, special and relative rights as to dividends and on liquidation,
conversion rights, and conditions under which the several series shall have
separate voting rights. All references to Shares in this Declaration shall be
deemed to be shares of any or all series as the context may require.
If the Trustees shall divide the Shares of the Trust into two or more
series, the following provisions shall be applicable:
(a) The number of authorized Shares and the number of Shares of each
series that may be issued shall be unlimited. The Trustees may classify or
reclassify any unissued Shares or any Shares previously issued and reacquired
of any series into one or more series that may be established and designated
from time to time. The Trustees may hold as treasury shares (of the same or
some other series), reissue for such consideration and on such terms as they
may determine, or cancel any Shares of any series reacquired by the Trust at
their discretion from time to time.
(b) The power of the Trustees to invest and reinvest the trust property
shall be governed by Section 3.2 of this Declaration with respect to any one
or more series which represents the interests in the assets of the Trust
immediately prior to the establishment of two or more series and the power of
the Trustees to invest and reinvest assets applicable to any other series
shall be as set forth in the instrument of the Trustees establishing such
series which is hereinafter described.
(c) All consideration received by the Trust for the issue or sale of
Shares of a particular series, together with all assets in which such
consideration is invested or reinvested, all income, earnings, profits, and
proceeds thereof, including any proceeds derived from the sale, exchange or
liquidation of such assets, and any funds or payments derived from any
reinvestment of such proceeds in whatever form the same may be, shall
irrevocably belong to that series for all purposes, subject only to the rights
of creditors, and shall be so recorded upon the books of account of the Trust.
In the event that there are any assets, income, earnings, profits, and
proceeds thereof, funds, or payments which are not readily identifiable as
belonging to any particular series, the Trustees shall allocate them among any
one or more of the series established and designated from time to time in such
manner and on such basis as they, in their sole discretion, deem fair and
equitable. Each such allocation by the Trustees shall be conclusive and
binding upon the Shareholders of all series for all purposes.
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(d) The assets belonging to each particular series shall be charged
with the liabilities of the Trust in respect of that series and all expenses,
cost, charges and reserves attributable to that series, and any general
liabilities, expenses, costs, charges or reserves of the Trust which are not
readily identifiable as belonging to any particular series shall be allocated
and charged by the Trustees to and among any one or more of the series
established and designated from time to time in such manner and on such basis
as the Trustees in their sole discretion deem fair and equitable. Each
allocation of liabilities, expenses, costs, charges and reserves by the
Trustees shall be conclusive and binding upon the holders of all series for
all purposes. The Trustees shall have full discretion, to the extent not
inconsistent with the 1940 Act, to determine which items shall be treated as
income and which items as capital; and each such determination and allocation
shall be conclusive and binding upon the Shareholders.
(e) The power of the Trustees to pay dividends and make distributions
shall be governed by Section 8.2 of this Declaration with respect to any one
or more series which represents the interests in the assets of the Trust
immediately prior to the establishment of two or more series. With respect to
any other series, dividends and distributions on Shares of a particular series
may be paid with such frequency as the Trustees may determine, which may be
daily or otherwise, pursuant to a standing resolution or resolutions adopted
only once or with such frequency as the Trustees may determine, to the holders
of Shares of that series, from such of the income and capital gains, accrued
or realized, from the assets belonging to that series, as the Trustees may
determine, after providing for actual and accrued liabilities belonging to
that series. All dividends and distributions on Shares of a particular series
shall be distributed pro rata to the holders of that series in proportion to
the number of Shares of that series held by such holders at the date and time
of record established for the payment of such dividends or distributions.
The establishment and designation of any series of Shares shall be
effective upon the execution by a majority of the then Trustees of an
instrument setting forth such establishment and designation and the relative
rights and preferences of such series, or as otherwise provided in such
instrument. At any time that there are no Shares outstanding of any
particular series previously established and designated, the Trustees may by
an instrument executed by a majority of their number abolish that series and
the establishment and designation thereof. Each instrument referred to in
this paragraph shall have the status of an amendment to this Declaration.
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Any series of Shares may be terminated by the Trustees by written notice to
shareholders of the series.
The series of Shares established and designated pursuant to this Section
6.9 and existing as of the date hereof are set forth in Annex A hereto.
Section 6.10 - Class Designation. The Trustees may, in their
discretion, authorize the division of Shares of the Trust (or any series of
the Trust) into one or more classes. All Shares of a class shall be identical
with each other and with the Shares of each other class of the Trust or the
same series of the Trust (as applicable), except for such variations between
classes as may be approved by the Board of Trustees and permitted by the 1940
Act or pursuant to any exemptive order issued by the Securities and Exchange
Commission. The classes of Shares established pursuant to this Section 6.10
and existing as of the date hereof are set forth in Annex B hereto.
ARTICLE VII
REDEMPTIONS
Section 7.1 - Redemptions. In case any Shareholder at any time desires
to dispose of his Shares, he may deposit his certificate or certificates
therefor, duly endorsed in blank or accompanied by an instrument of transfer
executed in blank, or if the Shareholder has no certificates, a written
request or other such form of request as the Trustees may from time to time
authorize, at the office of the Transfer Agent or at the office of any bank or
trust company, either in or outside of Massachusetts, which is a member of the
Federal Reserve System and which the said Transfer Agent has designated in
writing for that purpose, together with an irrevocable offer in writing in a
form acceptable to the Trustees to sell the Shares represented thereby to the
Trust at the net asset value thereof per Share, determined as provided in
Section 8.1 hereof, next after such deposit. Payment for said Shares shall be
made to the Shareholder within seven (7) days after the date on which the
deposit is made, unless (i) the date of payment is postponed pursuant to
Section 7.2 hereof, or (ii) the receipt, or verification of receipt, of the
purchase price for the Shares to be redeemed is delayed, in either of which
event payment may be delayed beyond seven (7) days.
Section 7.2 - Suspension of Right of Redemption. The Trust may declare
a suspension of the right of redemption or postpone the date of payment or
redemption for the whole or any part of any period (i) during which the New
York Stock Exchange is closed other than customary
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week-end and holiday closings, (ii) during which trading on the New York Stock
Exchange is restricted, (iii) during which an emergency exists as a result of
which disposal by the Trust of securities owned by it is not reasonably
practicable or it is not reasonably practicable for the Trust fairly to
determine the value of its net assets, or (iv) during any other period when
the Commission may for the protection of security holders of the Trust by
order permit suspension of the right of redemption or postponement of the date
of payment or redemption; provided that applicable rules and regulations of
the Commission shall govern as to whether the conditions prescribed in (ii),
(iii) or (iv) exist. Such suspension shall take effect at such time as the
Trust shall specify but not later than the close of business on the business
day next following the declaration of suspension, and thereafter there shall
be no right of redemption or payment on redemption until the Trust shall
declare the suspension at an end, except that the suspension shall terminate
in any event on the first day on which said stock exchange shall have reopened
or the period specified in (ii) or (iii) shall have expired (as to which, in
the absence of an official ruling by the Commission, the determination of the
Trust shall be conclusive). In the case of a suspension of the right of
redemption, a Shareholder may either withdraw his request for redemption or
receive payment based on the net asset value existing after the termination of
the suspension.
Section 7.3 - Redemption of Shares; Disclosure of Holding. If the
Trustees shall, at any time and in good faith, be of the opinion that direct
or indirect ownership of Shares or other securities of the Trust has or may
become concentrated in any Person to an extent which would disqualify the
Trust as a regulated investment company under the Internal Revenue Code, then
the Trustees shall have the power by lot or other means deemed equitable by
them (i) to call for redemption by any such Person a number, or principal
amount, of Shares or other securities of the Trust sufficient to maintain or
bring the direct or indirect ownership of Shares or other securities of the
Trust into conformity with the requirements for such qualification and (ii) to
refuse to transfer or issue Shares or other securities of the Trust to any
Person whose acquisition of the Shares or other securities of the Trust in
question would result in such disqualification. The redemption shall be
effected at the redemption price and in the manner provided in Section 7.1.
The holders of Shares or other securities of the Trust shall upon demand
disclose to the Trustees in writing such information with respect to direct
and indirect ownership of Shares or other securities of the Trust as the
Trustees deem necessary to comply with the provisions of the Internal Revenue
Code, or to comply with the requirements of any other authority.
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Section 7.4 - Redemptions of Accounts of Less Than $500. The Trustees
shall have the power at any time to redeem Shares of any Shareholder at a
redemption price determined in accordance with Section 7.1 if at such time the
aggregate net asset value of the Shares in such Shareholder's account is less
than $500. A Shareholder will be notified that the value of his account is
less than $500 and allowed thirty (30) days to make an additional investment
before redemption is processed.
Section 7.5 - Redemptions Pursuant to Constant Net Asset Value Formula.
The Trust may also reduce the number of outstanding Shares pursuant to the
provisions of Section 8.3.
ARTICLE VIII
DETERMINATION OF NET ASSET VALUE, NET INCOME AND DISTRIBUTIONS
Section 8.1 - Net Asset Value. The value of the assets of the Trust
shall be determined by appraisal of the securities owned by the Trust in the
manner described in Section 8.3 hereof. From the total value of said assets,
there shall be deducted all indebtedness, interest, taxes, payable or accrued,
including estimated taxes on unrealized book profits, expenses and management
charges accrued to the appraisal date, net income determined and declared as a
dividend and all other items in the nature of liabilities which shall be
deemed appropriate. The resulting amount which shall represent the total net
assets of the Trust shall be divided by the number of Shares outstanding at
the time and quotient so obtained shall be deemed to be the net asset value of
each Share. The net asset value of the Shares shall be determined once on
each business day, as of the close of trading on the New York Stock Exchange.
The power and duty to make the daily calculations may be delegated by the
Trustees to the Investment Adviser, the Custodian, the Transfer Agent or such
other Person as the Trustees by resolution may determine. The Trustees may
suspend the daily determination of net asset value to the extent permitted by
the 1940 Act.
Section 8.2 - Distributions to Shareholders. The Trustees shall from
time to time distribute ratably among the Shareholders such proportion of the
net profits, surplus (including paid-in surplus), capital, or assets held by
the Trustees as they may deem proper. Such distribution may be made in cash or
property (including without limitation any type of obligations of the Trust or
any assets thereof), and the Trustees may distribute ratably among the
Shareholders additional Shares issuable hereunder in such manner, at such
times, and on such
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terms as the Trustees may deem proper. Such distributions may be among the
Shareholders of record at the time of declaring a distribution or among the
Shareholders of record at such later date as the Trustees shall determine.
The Trustees may always retain from the net profits such amount as they may
deem necessary to pay the debts or expenses of the Trust or to meet
obligations of the Trust, or as they may deem desirable to use in the conduct
of its affairs or to retain for future requirements or extensions of the
business. The Trustees may adopt and offer to Shareholders such dividend
reinvestment plans, cash dividend payout plans or related plans as the
Trustees shall deem appropriate.
Inasmuch as the computation of net income and gains for Federal income
tax purposes may vary from the computation thereof on the books, the above
provisions shall be interpreted to give the Trustees the power in their
discretion to distribute for any fiscal year as ordinary dividends and as
capital gains distributions, respectively, additional amounts sufficient to
enable the Trust to avoid or reduce liability for taxes.
Section 8.3 - Determination of Net Income; Constant Net Asset Value;
Reduction of Outstanding Shares. The net income of the Trust shall consist of
(i) all interest income accrued on portfolio assets of the Trust, (ii) less
all actual and accrued liabilities determined in accordance with generally
accepted accounting principles, and (iii) plus or minus net realized or net
unrealized gains and losses on the assets of the Trust. Interest income shall
include discount earned (including both original issue and market discount) on
discount paper accrued ratably to the date of maturity. Securities being
valued shall be appraised on the basis of their amortized cost, or by such
other method as shall be deemed to reflect their fair value. Expenses of the
Trust, including the advisory and service fee, shall be accrued each day.
Such net income shall be determined by or under the direction of the Trustees
as of the close of trading on the New York Stock Exchange on each day on which
such market is open and all the net income of the Trust so determined shall be
declared as a dividend in Shares to Shareholders at the time of such
determination. If, for any reason, the net income of the Trust determined at
any time is a negative amount, the Trustees shall have the power, after first
offsetting each Shareholder's pro rata share of such negative amount from the
accrued dividend account of such Shareholder, to reduce the number of
outstanding Shares of the Trust by reducing the number of Shares in the
account of such Shareholder by that number of full and fractional Shares which
represents that account's pro rata share of such excess negative net income.
As a result of this determination and declaration as a dividend of net income,
the net asset value per Share of the Trust shall remain at a constant dollar
amount per Share immediately after each such determination and declaration.
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The Trustees shall have full discretion to determine whether any cash or
property received shall be treated as income or as principal and whether any
item of expenses shall be charged to the income or the principal account, and
their determination made in good faith shall be conclusive upon the
Shareholders. In the case of stock dividends received, the Trustees shall
have full discretion to determine, in the light of the particular
circumstances, how much, if any, of the value thereof shall be treated as
income, the balance, if any, to be treated as principal.
The Trustees may discontinue or amend the practice of maintaining the
net asset value per share at a constant dollar amount at any time.
Section 8.4 - Power to Modify Foregoing Procedures. Notwithstanding any
of the foregoing provisions of this Article VIII, the Trustees may prescribe,
in their absolute discretion, such other bases and times for determining the
per Share net asset value of the Shares or net income, or the declaration and
payment of dividends and distributions as they may deem necessary or
desirable. Without limiting the generality of the foregoing, the Trustees may
establish several series of Shares in accordance with Section 6.9.
ARTICLE IX
DURATION; TERMINATION OF TRUST; AMENDMENT; MERGERS; ETC.
Section 9.1 - Duration. The Trust shall continue without limitation of
time but subject to the provisions of this Article IX.
Section 9.2 - Termination of Trust.
(a) The Trust may be terminated (i) by the affirmative vote of the
holders of not less than two-thirds of the Shares outstanding and entitled to
vote at any meeting of Shareholders or (ii) by an instrument in writing,
without a meeting, signed by a majority of the Trustees and consented to by
the holders of not less than two-thirds of such Shares, or by such other vote
as may be established by the Trustees with respect to any series of Shares, or
(iii) by the Trustees by written notice to the Shareholders. Upon the
termination of the Trust:
(i) the Trust shall carry on no business except for the purpose of
winding up its affairs.
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(ii) The Trustees shall proceed to wind up the affairs of the Trust
and all of the powers of the Trustees under this Declaration shall continue
until the affairs of the Trust shall have been wound up, including the power
to fulfill or discharge the contracts of the Trust, collect its assets, sell,
convey, assign, exchange, transfer or otherwise dispose of all or any part of
the remaining Trust Property to one or more persons at public or private sale
for consideration which may consist in whole or in part of cash, securities or
other property of any kind, discharge or pay its liabilities, and to do all
other acts appropriate to liquidate its business; provided that any sale,
conveyance, assignment, exchange, transfer or other disposition of all or
substantially all the Trust Property shall require Shareholder approval in
accordance with Section 9.4 hereof.
(iii) After paying or adequately providing for the payment of all
liabilities, and upon receipt of such releases, indemnities and refunding
agreements, as they deem necessary for their protection, the Trustees may
distribute the remaining Trust Property, in cash or in kind or partly each,
among the Shareholders according to their respective rights.
(b) After termination of the Trust and distribution to the Shareholders
as herein provided, a majority of the Trustees shall execute and lodge among
the records of the Trust an instrument in writing setting forth the fact of
such termination, and the Trustees shall thereupon be discharged from all
further liabilities and duties hereunder, and the rights and interests of all
Shareholders shall thereupon cease.
Section 9.3 - Amendment Procedure.
(a) This Declaration may be amended by a Majority Shareholder Vote or
by any instrument in writing, without a meeting, signed by a majority of the
Trustees and consented to by the holders of not less than a majority of the
Shares outstanding and entitled to vote. The Trustees may also amend this
Declaration without the vote or consent of Shareholders to change the name of
the Trust, to supply any omission, to cure, correct or supplement any
ambiguous, defective or inconsistent provision hereof, or if they deem it
necessary to conform this Declaration to the requirements of applicable
federal laws or regulations of the requirements of the regulated investment
company provisions of the Internal Revenue Code, but the Trustees shall not be
liable for failing so to do.
(b) No amendment may be made under this Section 9.3, which would change
any rights with respect to any Shares of the Trust by reducing the amount
payable thereon upon liquidation
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of the Trust or by diminishing or eliminating any voting rights pertaining
thereto, except with the vote or consent of the holders of two-thirds of the
Shares outstanding and entitled to vote, or by such other vote as may be
established by the Trustees with respect to any series of Shares. Nothing
contained in this Declaration shall permit the amendment of this Declaration
to impair the exemption from personal liability of the Shareholders, Trustees,
officers, employees and agents of the Trust or to permit assessments upon
Shareholders.
(c) A certificate signed by a majority of the Trustees setting forth an
amendment and reciting that it was duly adopted by the Shareholders or by the
Trustees as aforesaid or a copy of the Declaration, as amended, and executed
by a majority of the Trustees, shall be conclusive evidence of such amendment
when lodged among the records of the Trust.
Notwithstanding any other provision hereof, until such time as a
Registration Statement under the Securities Act of 1933, as amended, covering
the first public offering of securities of the Trust shall have become
effective, this Declaration may be terminated or amended in any respect by the
affirmative vote of a majority of the Trustees or by an instrument signed by a
majority of the Trustees.
Section 9.4 - Merger, Consolidation and Sale of Assets. The Trust may
merge or consolidate with any other corporation, association, trust or other
organization or may sell, lease or exchange all or substantially all of the
Trust Property, including its good will upon such terms and conditions and for
such consideration when and as authorized at any meeting of Shareholders
called for such purpose by the affirmative vote of the holders of not less
than two-thirds of the Shares outstanding and entitled to vote, or by an
instrument or instruments in writing without a meeting, consented to by the
holders of not less than two-thirds of such Shares, or by such other vote or
written consent as may be established by the Trustees with respect to any
series of Shares; provided, however, that, if such merger, consolidation,
sale, lease or exchange is recommended by the Trustees, the vote or written
consent of the holders of a majority of Shares outstanding and entitled to
vote, or such other vote or written consent as may be established by the
Trustees with respect to any series of Shares, shall be sufficient
authorization; and any such merger, consolidation, sale, lease or exchange
shall be deemed for all purposes to have been accomplished under and pursuant
to the statutes of The Commonwealth of Massachusetts.
Section 9.5 - Incorporation. With the approval of the holders of a
majority of the Shares outstanding and entitled to vote, or by such other vote
as may be established by the Trustees with
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respect to any series of Shares, the Trustees may cause to be organized or
assist in organizing a corporation or corporations under the laws of any
jurisdiction or any other trust, partnership, association or other
organization to take over all of the Trust Property or to carry on any
business in which the Trust shall directly or indirectly have any interest,
and to sell, convey and transfer the Trust Property to any such corporation,
trust, association or organization in exchange for the shares or securities
thereof or otherwise, and to lend money to, subscribe for the shares or
securities of, and enter into any contracts with any such corporation, trust,
partnership, association or organization, or any corporation, partnership,
trust, association or organization in which the Trust holds or is about to
acquire shares or any other interest. The Trustees may also cause a merger or
consolidation between the Trust or any successor thereto and any such
corporation, trust, partnership, association or other organization if and to
the extent permitted by law, as provided under the law then in effect.
Nothing contained herein shall be construed as requiring approval of
Shareholders for the Trustees to organize or assist in organizing one or more
corporations, trusts, partnerships, associations or other organizations and
selling, conveying or transferring a portion of the Trust Property to such
organization or entities.
ARTICLE X
REPORTS TO SHAREHOLDERS
The Trustees shall at least semi-annually submit to the Shareholders a
written financial report of the transactions of the Trust, including financial
statements which shall at least annually be certified by independent public
accountants.
ARTICLE XI
MISCELLANEOUS
Section 11.1 - Filing. This Declaration and any amendment hereto shall
be filed in the office of the Secretary of The Commonwealth of Massachusetts
and in such other places as may be required under the laws of Massachusetts
and may also be filed or recorded in such other places as the Trustees deem
appropriate. Each amendment so filed shall be accompanied by a certificate
signed and acknowledged by a Trustee stating that such action was duly taken
in a manner provided herein, and unless such amendment or such certificate
sets forth some later time for the effectiveness of such amendment, such
amendment shall be effective upon its filing. A restated Declaration,
integrating into a single instrument all of the provisions of the Declaration
which are then in effect and operative, may be executed from time to time by a
majority of the
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Trustees and shall, upon filing with the Secretary of The Commonwealth of
Massachusetts, be conclusive evidence of all amendments contained therein and
may thereafter be referred to in lieu of the original Declaration and the
various amendments thereto.
Section 11.2 - Governing Law. This Declaration is executed by the
Trustees and delivered in The Commonwealth of Massachusetts and with reference
to the laws thereof, and the rights of all parties and the validity and
construction of every provision hereof shall be subject to and construed
according to the laws of said Commonwealth.
Section 11.3 - Counterparts. The Declaration may be simultaneously
executed in several counterparts, each of which shall be deemed to be an
original, and such counterparts, together, shall constitute one and the same
instrument, which shall be sufficiently evidenced by any such original
counterpart.
Section 11.4 - Reliance by Third Parties. Any certificate executed by
an individual who, according to the records of the Trust appears to be a
Trustee hereunder, certifying to: (a) the number or identity of Trustees or
Shareholders, (b) the due authorization of the execution of any instrument or
writing, (c) the form of any vote passed at a meeting of Trustees or
Shareholders, (d) the fact that the number of Trustees or Shareholders present
at any meeting or executing any written instrument satisfies the requirements
of this Declaration, (e) the form of any By-Laws adopted by or the identity of
any officers elected by the Trustees, or (f) the existence of any fact or
facts which in any manner relate to the affairs of the Trust, shall be
conclusive evidence as to the matters so certified in favor of any Person
dealing with the Trustees and their successors.
Section 11.5 - Provisions in Conflict with Law or Regulations.
(a) The provisions of the Declaration are severable, and if the
Trustees shall determine, with the advice of counsel, that any of such
provisions is in conflict with the 1940 Act, the regulated investment company
provisions of the Internal Revenue Code or with other applicable laws and
regulations, the conflicting provision shall be deemed never to have
constituted a part of the Declaration; provided, however, that such
determination shall not affect any of the remaining provisions of the
Declaration or render invalid or improper any action taken or omitted prior to
such determination.
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(b) If any provision of the Declaration shall be held invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall
attach only to such provision in such jurisdiction and shall not in any manner
affect such provision in any other jurisdiction or any other provision of the
Declaration in any jurisdiction.
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ANNEX A
Pursuant to Section 6.9 of the Declaration, the Trustees of the Trust
have established and designated four series of Shares (as defined in the
Declaration), as follows:
1. The series shall be designated:
-MFS Money Market Fund
-MFS Government Money Market Fund
-MFS Municipal Bond Fund
-MFS OTC Fund
2. Each series shall be authorized to invest in cash, securities,
instruments and other property as from time to time described in
the Trust's then currently effective registration statement under
the Securities Act of 1933 to the extent pertaining to the
offering of Shares of such series. Each Share of each series
shall be redeemable, shall be entitled to one vote or fraction
thereof in respect of a fractional share on matters on which
Shares of the series shall be entitled to vote, shall represent a
pro rata beneficial interest in the assets allocated or belonging
to the series, and shall be entitled to receive its pro rata share
of the net assets of the series upon liquidation of the series,
all as provided in Section 6.9 of the Declaration of Trust.
3. Shareholders of each series shall vote separately as a class on
any matter to the extent required by, and any matter shall be
deemed to have been effectively acted upon with respect to the
series as provided in, Rule 18f-2, as from time to time in effect,
under the Investment Company Act of 1940, as amended, or any
successor rule, and by the Declaration of Trust.
4. The assets and liabilities of the Trust shall be allocated among
the previously established and existing series of the Trust as set
forth in Section 6.9 of the Declaration of Trust.
5. Subject to the provisions of Section 6.9 and Article IX of the
Declaration of Trust, the Trustees (including any successor
Trustees) shall have the right at any time and from time to time
to reallocate assets and expenses or to change the
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designation of any series now or hereafter created, or to otherwise
change the special and relative rights of any such series.
6. Pursuant to Section 6.8 of the Declaration of Trust, the
Shareholders of each series shall have the authority to amend,
adopt or repeal the By-Laws of the Trust with respect to any
matter affecting solely this series.
7. Shares of each series (including shares which may have been
repurchased by the Trust) may be sold from time to time for cash
or other property at a price based on the net asset value thereof,
determined by or on behalf of the Trustees next after the sales is
made or at some later time after such sale. When an underwriting
contract is in effect pursuant to Section 4.2 of Article IV of the
Declaration, the time of sale shall be the time when an
unconditional order is placed with the underwriter or with a
dealer or other financial institution (each a "dealer") with whom
the underwriter shall have a sales agreement, whichever first
occurs. Such contract may provide for the sale of Shares either
at a price based on the net asset value determined next after the
order is placed with said underwriter or dealer or at a price
based on a net asset value to be determined at some later time.
No Shares need be offered to existing Shareholders before being
offered to others. No Shares shall be sold by the Trust (although
Shares previously contracted to be sold may be issued upon payment
therefor) during any period when the determination of net asset
value is suspended by declaration of the Trustees. In connection
with the acquisition by merger or otherwise of all or
substantially all the assets of an investment company (whether a
regulated or private investment company or a personal holding
company), the Trustees may issue or cause to be issued Shares of
the series and accept in payment therefor such assets at not more
than market value in lieu of cash, notwithstanding that the
federal income tax basis to the series of any assets so acquired
may be less than the market value, provided that such assets are
of the character in which the Trustees are permitted to invest the
funds of the series.
8. The net asset value of each Share of each series outstanding shall
be determined by the Trustees on each business day (which term
shall be deemed to mean each day when the New York Stock Exchange
is open for trading) as of the close of trading on the New York
Stock Exchange. The power and duty to determine net
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asset value may be delegated by the Trustees from time to time
to one or more of the trustees or officers of the Trust, to the
other party to any contract entered into pursuant to Section 4.1 of
Article IV of the Declaration, or to the custodian or a transfer
agent. The Trustees may also determine or cause to be determined
the net asset value as of any particular time in addition to the
closing time of each business day. Such additional or interim
determination may be made either by appraisal or by calculation or
estimate. Any such calculation or estimate shall be based on
changes in the market value of representative or selected
securities or on changes in recognized market averages since the
last closing appraisal, and made in a manner which in the opinion
of the Trustees will fairly reflect the changes in the net asset
value. At any time when the New York Stock Exchange is closed
(other than customary weekend and holiday closings), the Trustees
may cause the net assets value of Shares of a series to be
determined by appraising all securities at last sale prices, or at
not more than the current asked nor less than the current bid
prices, in the over-the-counter or other markets, and all other
assets at fair value in the best judgment of the Trustees, and
otherwise proceeding as above stated.
9. Pursuant to the authority granted to the Trustees in Section 8.4
of the Declaration (and notwithstanding the method for calculating
net asset value set forth in Section 8.3 thereof), the net asset
value of the Shares of each series as of any particular time may
be calculated by computing the quotient (adjusted to the nearer
cent) obtained by dividing the value, as of such time, of the net
assets of this series (i.e., the value of the assets of the series
less its liabilities exclusive of capital and surplus) by the
total number of Shares of the series outstanding (exclusive of
treasury shares) at such time, all determined and computed as
follows:
A. The assets of the series shall be deemed to include (a) all
cash on hand, on deposit or on call, including any interest
accrued thereon, (b) all bonds, debentures, bills and notes
and accounts receivable and other evidence of indebtedness,
(c) all shares of stock, subscription rights, warrants, and
other securities, other than its own Shares, (d) all stock
and cash dividends or distributions receivable by the series
which have been declared and are ex-dividend to shareholders
of record at or before the time as of which the
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net asset value is being determined, (e) all interest accrued
on any interest-bearing securities owned by the series, and
(f) all other property of every kind and nature including
prepaid expenses, the value of such assets to be determined
as follows:
(i) The value of any cash on hand, on deposit or on call,
bills and notes and accounts receivable, prepaid
expenses, cash dividends and interest declared or
accrued as aforesaid and not yet received, shall be
deemed to be the face amount thereof unless the
Trustees shall have determined that any such item is
not worth the face amount thereof, in which event the
value thereof shall be determined in good faith by the
Trustees;
(ii) The value of any security which is listed or dealt in
upon the New York Stock Exchange or upon the American
Stock Exchange shall be determined by taking the
latest sale price (or, lacking any sales not less than
the closing bid price nor more than the closing asked
price therefor) at the time as of which the net asset
value is being determined, all as reported by any
report in common use or authorized by the New York
Stock Exchange or the American Stock Exchange, as the
case may be; provided, however, that prices on such
Exchanges need not be used to determine the value of
debt securities owned by the series if, in the opinion
of the Trustees, some other method would more
accurately reflect the fair market value of such debt
securities;
(iii) The value of any security which is not listed or dealt
in on either of such Exchanges shall be determined in
the manner described in the next preceding
subparagraph if listed or dealt in on any other
Exchange;
(iv) The value of any security not listed or dealt in on
any Exchange and for which market quotations are
readily available shall be determined by taking not
less than the closing bid price nor more
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than the closing asked price therefor on the date as of
which the net asset value is being determined; and
(v) In the case of any security or other property for
which no price quotations are available as above
provided, the value thereof shall be determined from
time to time in such manner as the Trustees shall from
time to time provide by resolution.
B. The liabilities of each series shall be deemed to include
(a) all bills, notes and accounts payable, (b) all
administrative expenses payable and/or accrued, (c) all
contractual obligations for the payment of money or
property, including the amount of any unpaid dividends upon
the Shares, declared to Shareholders of record at or before
the time as of which the net asset value is being
determined, (d) all reserves authorized or approved by the
Trustees for taxes or contingencies and (e) all other
liabilities of the series of whatsoever kind and nature
except liabilities represented by outstanding Shares and
capital surplus of the series.
C. In addition:
(i) Shares sold shall be deemed to become outstanding
immediately after the close of business on the day on
which the contract of sale is made, and the sale price
thereof (less commission, if any, and less any stamp
or other tax payable by the Trust in connection with
the issuance thereof) shall thereupon be deemed an
asset of the series.
(ii) Shares tendered for purchase by the Trust under
Section 7.1 of Article VII of the Declaration shall be
deemed to be outstanding at the close of business on
the day as of which the purchase price is determined,
and thereafter they shall be deemed treasury stock
and, until paid, the price thereof shall be deemed to
be a liability of the series.
34
<PAGE> 39
(iii) Credits and contractual obligations payable to the
series in foreign currency and liabilities and
contractual obligations payable by the series in
foreign currency shall be taken at the current cable
rate of exchange as nearly as practicable at the time
as of which the net asset value is computed.
(iv) Payment of the redemption price of Shares of a series
shall be made in cash or in property out of the assets
of the series to the Shareholder of record at such
time and in the manner, not inconsistent with the 1940
Act or other applicable laws, as may be specified from
time to time in the series' then effective prospectus
under the Securities Act of 1933, subject to the
provisions of Section 7.2 of the Declaration.
Portfolio securities owned by the series which the
Trustees or their delegate shall, pursuant to the
foregoing, have selected for distribution in
redemption or repurchase of Shares tendered to it
pursuant to Section 7.1 of Article VII of the
Declaration at any time shall be included in
determining the price of such Shares, and thereafter
neither such securities nor such Shares shall be
included in determinations of net asset value made
pursuant hereto.
10. The total of distributions to Shareholders of each series paid in
respect of any one fiscal year, subject to the exceptions noted
below, shall, when and as declared by the Trustees be
approximately equal to the sum of (A) the net income of the
series, exclusive of the profits or losses realized upon the sale
of securities or other property, for such fiscal year, determined
in accordance with generally accepted accounting principles
(which, if the Trustees so determine, may be adjusted for net
amounts included as such accrued net income in the price of Shares
of such series issued or repurchased), but if the net income
exceeds the amount distributed by less than one cent per share
outstanding at the record date for the final dividend, the excess
shall be treated as distributable income of the following fiscal
year; and (B) in the discretion of the Trustees, an additional
amount which shall not substantially exceed the excess of profits
over losses on sales of securities or other property for such
fiscal year. The decision of the Trustees as to what, in
accordance with generally accepted accounting principles,
35
<PAGE> 40
is income and what is principal shall be final, and except as
specifically provided herein the decision of the Trustees as to
what expenses and charges of the series shall be charged against
principal and what against income shall be final, all subject to
any applicable provisions of the 1940 Act and rules, regulations
and orders of the Commission promulgated thereunder. For the
purposes of the foregoing limitation, distributions payable in
Shares shall be valued at the amount of cash which the Shareholders
would have received if they had elected to receive cash in lieu of
such Shares.
11. Any payment made to Shareholders which represents the excess of
profit over loss on the sale of securities or other property shall
be accompanied by a written statement showing the source or
sources of such payment, and the basis of computation thereof.
12. The Trustees shall have power, to the fullest extent permitted by
the laws of Massachusetts but subject to the limitation as to cash
distributions set forth above, at any time or from time to time,
to declare and cause to be paid distributions payable at the
election of any of the Shareholders (whether exercised before or
after the declaration of the distribution) either in cash or in
Shares of this series, provided that the sum of (i) the cash
distribution actually paid to any Shareholder and (ii) the net
asset value of the Shares which that Shareholder elects to
receive, in effect at such time at or after the election as the
Trustees may specify, shall not exceed the full amount of cash to
which that Shareholder would be entitled if he elected to receive
only cash. In the case of a distribution payable in cash or
Shares at the election of a Shareholder, the Trustees may
prescribe whether a Shareholder, failing to express his election
before a given time shall be deemed to have elected to take Shares
rather than cash, or to take cash rather than Shares, or to take
Shares with cash adjustment of fractions. Anything in the Trust's
By-Laws to the contrary notwithstanding, the Trustees may at any
time declare and distribute pro rata among the Shareholders a
"stock dividend" out of either authorized but unissued Shares of
this series or treasury shares of the Trust or both.
36
<PAGE> 41
ANNEX B
Pursuant to Section 6.10 of the Declaration, the Trustees have divided
the Shares of the series of the Trust designated as the "MFS Municipal Bond
Fund" to create two classes of Shares, within the meaning of Section 6.10, as
follows:
1. The two classes of shares are designated "Class A Shares" and
"Class B Shares;"
2. Class A Shares and Class B Shares shall be entitled to all the
rights and preferences accorded to shares under the Declaration;
3. The purchase price of Class A Shares and Class B Shares, the
method of determination of the net asset value of Class A shares
and Class B Shares, the price, terms and manner of redemption of
Class A Shares and Class B Shares, any conversion feature of the
Class B Shares, and the relative dividend rights of holders of
Class A Shares and Class B Shares shall be established by the
Trustees of the Trust in accordance with the Declaration and shall
be set forth in the current prospectus and statement of additional
information of MFS Municipal Bond Fund, as amended from time to
time, contained in the Trust's registration statement under the
Securities Act of 1933, as amended;
4. Class A Shares and Class B Shares shall vote together as a single
class except that shares of a class may vote separately on matters
affecting only that class and shares of a class not affected by a
matter will not vote on that matter; and
5. A class of shares of MFS Municipal Bond Fund may be terminated by
the Trustees by written notice to the Shareholders of the class.
37
<PAGE> 42
Pursuant to Section 6.10 of the Declaration, the Trustees have divided
the Shares of MFS OTC Fund (the "Series"), a series of the Trust to create
three classes of shares, within the meaning of Section 6.10, as follows:
1. The three classes of shares are designated "Class A Shares",
"Class B Shares" and "Class C Shares;"
2. Class A Shares, Class B Shares and Class C Shares shall be
entitled to all the rights and preferences accorded to shares
under the Declaration;
3. The purchase price of Class A Shares, Class B Shares and Class C
Shares, the method of determination of the net asset value of
Class A Shares, Class B Shares and Class C Shares, the price,
terms and manner of redemption of Class A Shares, Class B Shares
and Class C Shares, any conversion feature of the Class B Shares,
and the relative dividend rights of holders of Class A Shares,
Class B Shares and Class C Shares shall be established by the
Trustees of the Trust in accordance with the Declaration and shall
be set forth in the current prospectus and statement of additional
information of the Trust and any Series thereof, as amended from
time to time, contained in the Trust's registration statement
under the Securities Act of 1933, as amended;
4. Class A Shares, Class B Shares and Class C Shares shall vote
together as a single class except that shares of a class may vote
separately on matters affecting only that class and shares of a
class not affected by a matter will not vote on that matter; and
5. A class of shares of the Series may be terminated by the Trustees
by written notice to the Shareholders of the class.
38
<PAGE> 43
IN WITNESS WHEREOF, the undersigned have executed this instrument this 21st
day of December, 1994.
<TABLE>
<S> <C>
A. KEITH BRODKIN CHARLES W. SCHMIDT
- ---------------------------- ---------------------------
A. Keith Brodkin Charles W. Schmidt
76 Farm Road 63 Claypit Hill Road
Sherborn, MA 01770 Wayland, MA 01778
RICHARD B. BAILEY ARNOLD D. SCOTT
- --------------------------- ---------------------------
Richard B. Bailey Arnold D. Scott
63 Atlantic Avenue 20 Rowes Wharf
Boston, MA 02110 Boston, MA 02110
PETER G. HARWOOD JEFFREY L. SHAMES
- --------------------------- ---------------------------
Peter G. Harwood Jeffrey L. Shames
211 Lindsay Pond Road 60 Brookside Road
Concord, MA 01742 Needham, MA 02192
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 50 Delano Road
Boston, MA 02116 Marion, MA 02736
WILLIAM J. POORVU
- ---------------------------
William J. Poorvu
975 Memorial Drive
Cambridge, MA 02138
</TABLE>
39
<PAGE> 1
EXHIBIT 2
AMENDED AND RESTATED
BY-LAWS
OF
MFS SERIES TRUST IV
DECEMBER 21, 1994
<PAGE> 2
AMENDED AND RESTATED
BY-LAWS
OF
MFS SERIES TRUST IV
ARTICLE I
DEFINITIONS
The terms "Commission", "Declaration", "Distributor", "Investment
Adviser", "Majority Shareholder Vote", "1940 Act", "Shareholder", "Shares",
"Transfer Agent", "Trust", "Trust Property" and "Trustees" have the respective
meanings given them in the amended and restated Declaration of Trust of MFS
Series Trust IV, dated December 21, 1994, as amended from time to time.
ARTICLE II
OFFICES
SECTION 1. PRINCIPAL OFFICE. Until changed by the Trustees, the
principal office of the Trust in The Commonwealth of Massachusetts shall be in
the City of Boston, County of Suffolk.
SECTION 2. OTHER OFFICES. The Trust may have offices in such other
places without as well as within the Commonwealth as the Trustees may from time
to time determine.
ARTICLE III
SHAREHOLDERS
SECTION 1. MEETINGS. Meetings of the Shareholders may be called at
any time by a majority of the Trustees and shall be called by any Trustee upon
written request of Shareholders holding in the aggregate not less than ten
percent (10%) of the outstanding Shares of the Trust having voting rights, if
shareholders of all series are required under the Declaration to vote in the
aggregate and not by individual series at such meeting, or of any series or
class if shareholders of such series or class are entitled under the
Declaration to vote by individual series or class, such request specifying the
purpose or purposes for which such meeting is to be called.
- 1 -
<PAGE> 3
Any such meeting shall be held within or without The Commonwealth of
Massachusetts on such day and at such time as the Trustees shall designate.
SECTION 2. NOTICE OF MEETINGS. Notice of all meetings of
Shareholders, stating the time, place and purposes of the meeting, shall be
given by the Trustees by mail to each Shareholder entitled to vote at such
meeting at his address as recorded on the register of the Trust, mailed at
least (ten) 10 days and not more than (sixty) 60 days before the meeting. Only
the business stated in the notice of the meeting shall be considered at such
meeting. Any adjourned meeting may be held as adjourned without further
notice. No notice need be given to any Shareholder who shall have failed to
inform the Trust of his current address or if a written waiver of notice,
executed before or after the meeting by the Shareholder or his attorney
thereunto authorized, is filed with the records of the meeting.
SECTION 3. RECORD DATE FOR MEETINGS. For the purpose of determining
the Shareholders who are entitled to notice of and to vote at any meeting, or
to participate in any distribution, or for the purpose of any other action, the
Trustees may from time to time close the transfer books for such period, not
exceeding thirty (30) days, as the Trustees may determine; or without closing
the transfer books the Trustees may fix a date not more than sixty (60) days
prior to the date of any meeting of Shareholders or distribution or other
action as a record date for the determination of the persons to be treated as
Shareholders of record for such purpose.
SECTION 4. PROXIES. At any meeting of Shareholders, any holder of
Shares entitled to vote thereat may vote by proxy, provided that no proxy shall
be voted at any meeting unless it shall have been placed on file with the
Clerk, or with such other officer or agent of the Trust as the Clerk may
direct, for verification prior to the time at which such vote shall be taken.
Pursuant to a vote of a majority of the Trustees, proxies may be solicited in
the name of one or more Trustees or one or more of the officers of the Trust.
When any Share is held jointly by several persons, any one of them may vote at
any meeting in person or by proxy in respect of such Share, but if more than
one of them shall be present at such meeting in person or by proxy, and such
joint owners or their proxies so present disagree as to any vote to be cast,
such vote shall not be received in respect of such Share. A proxy purporting
to be executed by or on behalf of a Shareholder shall be deemed valid unless
challenged at or prior to its exercise, and the burden of proving invalidity
shall rest on the challenger. The placing of a Shareholder's name on a proxy
pursuant to telephonic or electronically transmitted instructions obtained
pursuant to procedures reasonably designed to verify that such instructions
have been authorized by such Shareholder shall constitute execution of such
proxy by or on behalf of such Shareholder. If the holder of any such Share is
a minor or a person of unsound mind, and subject to guardianship or to the
legal control of any other person as regards the charge or management of such
Share, he may vote by his guardian or such other person appointed or having
such control, and such vote may be given in person or by proxy. Any copy,
facsimile telecommunication or other reliable reproduction of a proxy may be
substituted for or used in lieu of the original proxy for any and all purposes
for which the original proxy could be used, provided that such copy, facsimile
telecommunication or other reproduction shall be a complete reproduction of the
entire original proxy or the portion thereof to be returned by the Shareholder.
- 2 -
<PAGE> 4
SECTION 5. QUORUM, ADJOURNMENT AND REQUIRED VOTE. A majority of
outstanding Shares entitled to vote shall constitute a quorum at any meeting of
Shareholders, except that where any provision of law, the Declaration or these
By-laws permits or requires that holders of any series or class shall vote as a
series or class, then a majority of the aggregate number of Shares of that
series or class entitled to vote shall be necessary to constitute a quorum for
the transaction of business by that series or class. In the absence of a
quorum, a majority of outstanding Shares entitled to vote present in person or
by proxy, or, where any provision of law, the Declaration or these By-laws
permits or requires that holders of any series or class shall vote as a series
or class, a majority of outstanding Shares of that series or class entitled to
vote present in person or by proxy, may adjourn the meeting from time to time
until a quorum shall be present. Only Shareholders of record shall be entitled
to vote on any matter. Each full Share shall be entitled to one vote and
fractional Shares shall be entitled to a vote of such fraction. Except as
otherwise provided any provision of law, the Declaration or these By-laws,
Shares representing a majority of the votes cast shall decide any matter (i.e.,
abstentions and broker non-votes shall not be counted) and a plurality shall
elect a Trustee, provided that where any provision of law, the Declaration or
these By-Laws permits or requires that holders of any series or class shall
vote as a series or class, then a majority of the Shares of that series or
class cast on the matter shall decide the matter (i.e., abstentions and broker
non-votes shall not be counted) insofar as that series or class is concerned.
SECTION 6. INSPECTION OF RECORDS. The records of the Trust shall be
open to inspection by Shareholders to the same extent as is permitted
shareholders of a Massachusetts business corporation.
SECTION 7. ACTION WITHOUT MEETING. Any action which may be taken by
Shareholders may be taken without a meeting if a majority of Shareholders
entitled to vote on the matter (or such larger proportion thereof as shall be
required by law, the Declaration or these By-Laws for approval of such matter)
consent to the action in writing and the written consents are filed with the
records of the meetings of Shareholders. Such consent shall be treated for all
purposes as a vote taken at a meeting of Shareholders.
ARTICLE IV
TRUSTEES
SECTION 1. MEETINGS OF THE TRUSTEES. The Trustees may in their
discretion provide for regular or stated meetings of the Trustees. Notice of
regular or stated meetings need not be given. Meetings of the Trustees other
than regular or stated meetings shall be held whenever called by the Chairman
or by any one of the Trustees at the time being in office. Notice of the time
and place of each meeting other than regular or stated meetings shall be given
by the Secretary or an Assistant Secretary, or the Clerk or an Assistant Clerk
or by the officer or Trustee calling the meeting and shall be mailed to each
Trustee at least two days before the meeting, or shall be telegraphed, cabled,
or wirelessed or sent by facsimile or other electronic means to each Trustee at
his business address, or personally delivered to him at least one day
- 3 -
<PAGE> 5
before the meeting. Such notice may, however, be waived by any Trustee.
Notice of a meeting need not be given to any Trustee if a written waiver of
notice, executed by him before or after the meeting, is filed with the records
of the meeting, or to any Trustee who attends the meeting without protesting
prior thereto or at its commencement the lack of notice to him. A notice or
waiver of notice need not specify the purpose of any meeting. Except as
provided by law the Trustees may meet by means of a telephone conference
circuit or similar communications equipment by means of which all persons
participating in the meeting can hear each other, which telephone conference
meeting shall be deemed to have been held at a place designated by the Trustees
at the meeting. Participation in a telephone conference meeting shall
constitute presence in person at such meeting. Any action required or
permitted to be taken at any meeting of the Trustees may be taken by the
Trustees without a meeting if all the Trustees consent to the action in writing
and the written consents are filed with the records of the Trustees' meetings.
Such consents shall be treated as a vote for all purposes.
SECTION 2. QUORUM AND MANNER OF ACTING. A majority of the Trustees
shall be present at any regular or special meeting of the Trustees in order to
constitute a quorum for the transaction of business at such meeting and (except
as otherwise required by law, the Declaration or these By-Laws) the act of a
majority of the Trustees present at any such meeting, at which a quorum is
present, shall be the act of the Trustees. In the absence of a quorum, a
majority of the Trustees present may adjourn the meeting from time to time
until a quorum shall be present. Notice of an adjourned meeting need not be
given.
ARTICLE V
COMMITTEES AND ADVISORY BOARD
SECTION 1. EXECUTIVE AND OTHER COMMITTEES. The Trustees by vote of a
majority of all the Trustees may elect from their own number an Executive
Committee to consist of not less than three (3) Trustees to hold office at the
pleasure of the Trustees which shall have the power to conduct the current and
ordinary business of the Trust while the Trustees are not in session, including
the purchase and sale of securities and the designation of securities to be
delivered upon redemption of Shares of the Trust, and such other powers of the
Trustees as the Trustees may, from time to time, delegate to the Executive
Committee except those powers which by law, the Declaration or these By-Laws
they are prohibited from delegating. The Trustees may also elect from their
own number other Committees from time to time, the number composing such
Committees, the powers conferred upon the same (subject to the same limitations
as with respect to the Executive Committee) and the term of membership on such
Committees to be determined by the Trustees. The Trustees may designate a
chairman of any such Committee. In the absence of such designation a Committee
may elect its own Chairman.
SECTION 2. MEETING, QUORUM AND MANNER OF ACTING. The Trustees may:
(i) provide for stated meetings of any Committee,
- 4 -
<PAGE> 6
(ii) specify the manner of calling and notice required for
special meetings of any Committee,
(iii) specify the number of members of a Committee required
to constitute a quorum and the number of members of a
Committee required to exercise specified powers
delegated to such Committee,
(iv) authorize the making of decisions to exercise
specified powers by written assent of the requisite
number of members of a Committee without a meeting,
and
(v) authorize the members of a Committee to meet by means
of a telephone conference circuit.
Each Committee shall keep regular minutes of its meetings and records
of decisions taken without a meeting and cause them to be recorded in a book
designated for that purpose and kept in the office of the Trust.
SECTION 3. ADVISORY BOARD. The Trustees may appoint an Advisory
Board to consist in the first instance of not less than three (3) members.
Members of such Advisory Board shall not be Trustees or officers and need not
be Shareholders. A member of such Advisory Board shall hold office for such
period as the Trustees may by resolution provide. Any member of such board may
resign therefrom by a written instrument signed by him which shall take effect
upon delivery to the Trustees. The Advisory Board shall have no legal powers
and shall not perform the functions of Trustees in any manner, such Advisory
Board being intended merely to act in an advisory capacity. Such Advisory
Board shall meet at such times and upon such notice as the Trustees may by
resolution provide.
ARTICLE VI
OFFICERS
SECTION 1. GENERAL PROVISIONS. The officers of the Trust shall be a
Chairman, a President, a Treasurer and a Clerk, who shall be elected by the
Trustees. The Trustees may elect or appoint such other officers or agents as
the business of the Trust may require, including one or more Vice Presidents, a
Secretary and one or more Assistant Secretaries, one or more Assistant
Treasurers, and one or more Assistant Clerks. The Trustees may delegate to any
officer or Committee the power to appoint any subordinate officers or agents.
SECTION 2. TERM OF OFFICE AND QUALIFICATION. Except as otherwise
provided by law, the Declaration or these By-Laws, the Chairman, the President,
the Treasurer and the Clerk shall hold office until his resignation has been
accepted by the Trustees or until his
- 5 -
<PAGE> 7
respective successor shall have been duly elected and qualified, and all other
officers shall hold office at the pleasure of the Trustees. Any two or more
offices may be held by the same person. Any officer may be, but none need be,
a Trustee or Shareholder.
SECTION 3. REMOVAL. The Trustees, at any regular or special meeting
of the Trustees, may remove any officer with or without cause by a vote of a
majority of the Trustees. Any officer or agent appointed by any officer or
Committee may be removed with or without cause by such appointing officer or
Committee.
SECTION 4. POWERS AND DUTIES OF THE CHAIRMAN. The Chairman may call
meetings of the Trustees and of any Committee thereof when he deems it
necessary and shall preside at all meetings of the Shareholders. Subject to
the control of the Trustees and any Committees of the Trustees, the Chairman
shall at all times exercise a general supervision and direction over the
affairs of the Trust. The Chairman shall have the power to employ attorneys
and counsel for the Trust and to employ such subordinate officers, agents,
clerks and employees as he may find necessary to transact the business of the
Trust. The Chairman shall also have the power to grant, issue, execute or sign
such powers of attorney, proxies or other documents as may be deemed advisable
or necessary in furtherance of the interests of the Trust. The Chairman shall
have such other powers and duties as, from time to time, may be conferred upon
or assigned to him by the Trustees.
SECTION 5. POWERS AND DUTIES OF THE PRESIDENT. In the absence or
disability of the Chairman, the President shall perform all the duties and may
exercise any of the powers of the Chairman, subject to the control of the
Trustees. The President shall perform such other duties as may be assigned to
him from time to time by the Trustees or the Chairman.
SECTION 6. POWERS AND DUTIES OF VICE PRESIDENTS. In the absence or
disability of the President, the Vice President or, if there be more than one
Vice President, any Vice President designated by the Trustees shall perform all
the duties and may exercise any of the powers of the President, subject to the
control of the Trustees. Each Vice President shall perform such other duties
as may be assigned to him from time to time by the Trustees or the President.
SECTION 7. POWERS AND DUTIES OF THE TREASURER. The Treasurer shall
be the principal financial and accounting officer of the Trust. The Treasurer
shall deliver all funds of the Trust which may come into his hands to such
custodian as the Trustees may employ pursuant to Article X hereof. The
Treasurer shall render a statement of condition of the finances of the Trust to
the Trustees as often as they shall require the same and shall in general
perform all the duties incident to the office of Treasurer and such other
duties as from time to time may be assigned to him by the Trustees. The
Treasurer shall give a bond for the faithful discharge of his duties, if
required to do so by the Trustees, in such sum and with such surety or sureties
as the Trustees shall require.
SECTION 8. POWERS AND DUTIES OF THE CLERK. The Clerk shall keep the
minutes of all meetings of the Shareholders in proper books provided for that
purpose; he shall
- 6 -
<PAGE> 8
have custody of the seal of the Trust; he shall have charge of the Share
transfer books, lists and records unless the same are in the charge of the
Transfer Agent. He or the Secretary shall attend to the giving and serving of
all notices by the Trust in accordance with the provisions of these By-Laws and
as required by law; and subject to these By-Laws, he shall in general perform
all duties incident to the office of Clerk and such other duties as from time
to time may be assigned to him by the Trustees.
SECTION 9. POWERS AND DUTIES OF THE SECRETARY. The Secretary, if
any, shall keep the minutes of all meetings of the Trustees. He shall perform
such other duties and have such other powers in addition to those specified in
these By-Laws as the Trustees shall from time to time designate. If there be
no Secretary or Assistant Secretary, the Clerk shall perform the duties of
Secretary.
SECTION 10. POWERS AND DUTIES OF ASSISTANT TREASURERS. In the
absence or disability of the Treasurer, any Assistant Treasurer designated by
the Trustees shall perform all the duties, and may exercise any of the powers,
of the Treasurer. Each Assistant Treasurer shall perform such other duties as
from time to time may be assigned to him by the Trustees. Each Assistant
Treasurer shall give a bond for the faithful discharge of his duties, if
required to do so by the Trustees, in such sum and with such surety or sureties
as the Trustees shall require.
SECTION 11. POWERS AND DUTIES OF ASSISTANT CLERKS. In the absence or
disability of the Clerk, any Assistant Clerk designated by the Trustees shall
perform all the duties, and may exercise any of the powers, of the Clerk. The
Assistant Clerks shall perform such other duties as from time to time may be
assigned to them by the Trustees.
SECTION 12. POWERS AND DUTIES OF ASSISTANT SECRETARIES. In the
absence or disability of the Secretary, any Assistant Secretary designated by
the Trustees shall perform all of the duties, and may exercise any of the
powers, of the Secretary. The Assistant Secretaries shall perform such other
duties as from time to time may be assigned to them by the Trustees.
SECTION 13. COMPENSATION OF OFFICERS AND TRUSTEES AND MEMBERS OF THE
ADVISORY BOARD. Subject to any applicable law or provision of the Declaration,
the compensation of the officers and Trustees and members of the Advisory Board
shall be fixed from time to time by the Trustees or, in the case of officers,
by any Committee or officer upon whom such power may be conferred by the
Trustees. No officer shall be prevented from receiving such compensation as
such officer by reason of the fact that he is also a Trustee.
- 7 -
<PAGE> 9
ARTICLE VII
FISCAL YEAR
The fiscal year of the Trust shall begin on the first day of September
in each year and shall end on the last day of August in that year, provided,
however, that the Trustees may from time to time change the fiscal year.
ARTICLE VIII
SEAL
The Trustees shall adopt a seal which shall be in such form and shall
have such inscription thereon as the Trustees may from time to time prescribe.
ARTICLE IX
WAIVERS OF NOTICE
Whenever any notice is required to be given by law, the Declaration or
these By-Laws, a waiver thereof in writing, signed by the person or persons
entitled to such notice, whether before or after the time stated therein, shall
be deemed equivalent thereto. A notice shall be deemed to have been
telegraphed, cabled or wirelessed or sent by facsimile or other electronic
means for the purposes of these By-Laws when it has been delivered to a
representative of any telegraph, cable or wireless company with instruction
that it be telegraphed, cabled or wirelessed or when a confirmation of such
facsimile having been sent, or a confirmation that such electronic means has
sent the notice being transmitted, is generated. Any notice shall be deemed to
be given at the time when the same shall be mailed, telegraphed, cabled or
wirelessed or when sent by facsimile or other electronic means.
ARTICLE X
CUSTODIAN
SECTION 1. APPOINTMENT AND DUTIES. The Trustees shall at all times
employ a bank or trust company having a capital, surplus and undivided profits
of at least five million dollars ($5,000,000) as custodian with authority as
its agent, but subject to such restrictions, limitations and other
requirements, if any, as may be contained in the Declaration, these By-Laws and
the 1940 Act:
(1) to hold the securities owned by the Trust and deliver
the same upon written order;
- 8 -
<PAGE> 10
(2) to receive and receipt for any monies due to the
Trust and deposit the same in its own banking
department or elsewhere as the Trustees may direct;
(3) to disburse such funds upon orders or vouchers;
(4) if authorized by the Trustees, to keep the books and
accounts of the Trust and furnish clerical and
accounting services; and
(5) if authorized to do so by the Trustees, to compute
the net income of the Trust;
all upon such basis of compensation as may be agreed upon between the Trustees
and the custodian. If so directed by a Majority Shareholder Vote, the
custodian shall deliver and pay over all property of the Trust held by it as
specified in such vote.
The Trustees may also authorize the custodian to employ one or more
sub-custodians from time to time to perform such of the acts and services of
the custodian and upon such terms and conditions as may be agreed upon between
the custodian and such sub-custodian and approved by the Trustees, provided
that in every case such sub-custodian shall be a bank or trust company
organized under the laws of the United States or one of the states thereof and
having capital, surplus and undivided profits of at least five million dollars
($5,000,000).
SECTION 2. CENTRAL CERTIFICATE SYSTEM. Subject to such rules,
regulations and orders as the Commission may adopt, the Trustees may direct the
custodian to deposit all or any part of the securities owned by the Trust in a
system for the central handling of securities established by a national
securities exchange or a national securities association registered with the
Commission under the Securities Exchange Act of 1934, or such other person as
may be permitted by the Commission, or otherwise in accordance with the 1940
Act, pursuant to which system all securities of any particular class or series
of any issuer deposited within the system are treated as fungible and may be
transferred or pledged by bookkeeping entry without physical delivery of such
securities, provided that all such deposits shall be subject to withdrawal only
upon the order of the Trust or its custodian.
SECTION 3. ACCEPTANCE OF RECEIPTS IN LIEU OF CERTIFICATE. Subject to
such rules, regulations and orders as the Commission may adopt, the Trustees
may direct the custodian to accept written receipts or other written evidences
indicating purchases of securities held in book- entry form in the Federal
Reserve System in accordance with regulations promulgated by the Board of
Governors of the Federal Reserve System and the local Federal Reserve Banks in
lieu of receipt of certificates representing such securities.
SECTION 4. PROVISIONS OF CUSTODIAN CONTRACT. The following
provisions shall apply to the employment of a custodian pursuant to this
Article X and to any
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contract entered into with the custodian so employed:
(a) The Trustees shall cause to be delivered to the
custodian all securities owned by the Trust or to
which it may become entitled, and shall order the
same to be delivered by the custodian only upon
completion of a sale, exchange, transfer, pledge, or
other disposition thereof, and upon receipt by the
custodian of the consideration therefor or a
certificate of deposit or a receipt of an issuer or
of its Transfer Agent, all as the Trustees may
generally or from time to time require or approve, or
to a successor custodian; and the Trustees shall
cause all funds owned by the Trust or to which it may
become entitled to be paid to the custodian, and
shall order the same disbursed only for investment
against delivery of the securities acquired, or in
payment of expenses, including management
compensation, and liabilities of the Trust, including
distributions to Shareholders, or to a successor
custodian; provided, however, that nothing herein
shall prevent delivery of securities for examination
to the broker selling the same in accord with the
"street delivery" custom whereby such securities are
delivered to such broker in exchange for a delivery
receipt exchanged on the same day for an uncertified
check of such broker to be presented on the same day
for certification.
(b) In case of the resignation, removal or inability to
serve of any such custodian, the Trust shall promptly
appoint another bank or trust company meeting the
requirements of this Article X as successor
custodian. The agreement with the custodian shall
provide that the retiring custodian shall, upon
receipt of notice of such appointment, deliver the
funds and property of the Trust in its possession to
and only to such successor, and that pending
appointment of a successor custodian, or a vote of
the Shareholders to function without a custodian, the
custodian shall not deliver funds and property of the
Trust to the Trust, but may deliver them to a bank or
trust company doing business in Boston,
Massachusetts, of its own selection, having an
aggregate capital, surplus and undivided profits (as
shown in its last published report) of at least
$5,000,000 as the property of the Trust to be held
under terms similar to those on which they were held
by the retiring custodian.
ARTICLE XI
INVESTMENT RESTRICTIONS
(ARTICLE XI ONLY APPLIES TO THOSE SERIES OF THE TRUST THAT USE THE AMORTIZED
COST METHOD
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<PAGE> 12
UNDER RULE 2A-7 OF THE 1940 ACT)
The Trust is subject to the following restrictions and policies
relating to the investment of its assets and its activities, which are
fundamental policies and may not be changed unless assented to by a Majority
Shareholder Vote.
SECTION 1. The Trust shall not purchase the securities of any issuer
if such purchase, at the time thereof, would cause more than five percent (5%)
of the total assets of the Trust (taken at current value) to be invested in the
securities of such issuer. This limitation shall not apply to securities
issued or guaranteed as to principal and interest by the United States or any
agency or instrumentality thereof.
SECTION 2. The Trust shall not purchase the securities of any issuer
if such purchase at the time thereof would cause more than ten percent (10%) of
any class of the outstanding securities of such issuer to be held by the Trust,
nor will it acquire the voting securities of any issuer. This limitation shall
not apply to securities issued or guaranteed as to principal and interest by
the United States or any agency or instrumentality thereof. All debt
obligations of an issuer maturing in not more than one year shall be treated as
a single class of securities.
SECTION 3. The Trust shall not purchase securities of any issuer if
such purchase at the time thereof would cause more than five percent (5%) of
the total assets of the Trust (taken at current value) to be invested in
securities of companies which, including predecessors, have a record of less
than three (3) years' continuous operation.
SECTION 4. The Trust shall neither purchase for nor retain in its
portfolio securities issued by an issuer any of whose officers, directors, or
security holders is an officer or director or Trustee of the Trust or of the
Investment Adviser, if, after the purchase of the securities of such issuer by
the Trust, one or more of such Persons owns beneficially more than one-half of
one percent (1/2%) of the securities (taken at current value) of such issuer,
and such Persons owning more than one-half of one percent (1/2%) of such
securities together own beneficially more than five percent (5%) of such
securities (taken at current value).
SECTION 5. The Trust shall not sell or contract to sell any security
which it does not own unless at all times while a short position is open the
Trust maintains a long position in the same security in an amount at least
equal thereto.
SECTION 6. The Trust shall not write, purchase or sell puts, calls,
straddles, spreads or combinations thereof; provided, however, that nothing
herein shall prevent the purchase, ownership, holding or sale of warrants where
the grantor of the warrants is the issuer of the underlying securities.
SECTION 7. The Trust shall not borrow money; provided, however, that
as a temporary measure to facilitate redemptions, the Trust may borrow money in
amounts not in excess of thirty-three and one-third percent (33 1/3%) of the
total assets of the Trust (taken at current value) and further that the Trust
may enter into repurchase agreements.
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<PAGE> 13
SECTION 8. The Trust shall not act as underwriter of securities
issued by other Persons, except to the extent that, in connection with the
disposition of portfolio securities, it may be deemed an underwriter under
certain federal securities laws.
SECTION 9. The Trust shall not purchase any securities which would
cause more than twenty-five percent (25%) of its total assets (taken at current
value) to be invested in securities of one or more issuers having their
principal business activities in the same industry, provided that (i) there is
no limitation in respect to investments and obligations issued or guaranteed as
to principal and interest by the United States or any agency or instrumentality
thereof and (ii) the Trust may invest up to seventy-five percent (75%) of its
total assets (taken at current value) in all finance companies as a group, all
banks and bank holding companies as a group or all utility companies as a
group, or in a combination of these groups.
SECTION 10. The Trust shall not buy or retain real estate (other than
securities secured by real estate or interests in real estate or issued by
companies which invest in real estate or interests in real estate), or
interests in oil, gas or other mineral leases or exploration or development
programs; provided, however, that the Trust may hold and sell real estate or
mineral leases acquired as a result of the ownership of securities. The Trust
will not purchase securities for the purpose of acquiring real estate or
mineral leases.
SECTION 11. The Trust shall not buy or retain any commodities or
commodity contracts; provided, however, that the Trust may hold and sell
commodities or commodity contracts acquired as a result of the ownership of
securities. The Trust will not purchase securities for the purpose of
acquiring commodities or commodity contracts.
SECTION 12. The Trust shall not invest in companies for the purpose
of exercising control or management of such companies.
SECTION 13. The Trust shall not purchase securities issued by any
other investment company or 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 or acquisition of assets; provided, however, that the Trust shall
not purchase the securities of any investment companies or investment trusts if
such purchase would cause more than ten percent (10%) of the total assets of
the Trust (taken at current value), to be invested in the securities of such
issuers, and provided further, that the Trust shall not purchase securities
issued by any other open-end investment company.
SECTION 14. The Trust shall not purchase any securities on margin,
except for use of short-term credit necessary for clearance of purchases and
sales of portfolio securities.
SECTION 15. The Trust shall not lend any assets of the Trust to any
Trustee or officer of the Trust, or to the Investment Adviser or the
Distributor or to any officer or director of such Person.
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<PAGE> 14
SECTION 16. The Trust shall not make loans to other Persons except by
the purchase of obligations in which the Trust is authorized to invest and
except that the Trust may enter into repurchase agreements.
SECTION 17. The Trust shall not mortgage, pledge, hypothecate or in
any manner transfer as security for indebtedness any securities owned or held
by the Trust except as may be necessary in connection with borrowings described
in Section 7 hereof, and then such mortgaging, pledging or hypothecating may
not exceed thirty-three and one-third percent (33 1/3%) of the Trust's total
assets (taken at current value).
SECTION 18. The Trust shall not enter into repurchase agreements, if,
as a result thereof, more than ten percent (10%) of the Trust's total assets
(taken at current value) would be subject to repurchase agreements maturing in
more than seven (7) days.
SECTION 19. The Trust shall not invest in securities which are
restricted as to disposition under Federal securities law, or securities with
other legal or contractual restrictions on resale (except for repurchase
agreements).
ARTICLE XII
SALE OF SHARES OF THE TRUST
The Trustees may from time to time issue and sell or cause to be
issued and sold Shares for cash or other property, which shall in every case be
paid or delivered to the Custodian as agent of the Trust before the delivery of
any certificate for such shares. The Shares, including additional Shares which
may have been repurchased by the Trust (herein sometimes referred to as
"treasury shares"), may not be sold at a price less than the net asset value
thereof (as defined in Article XIII hereof) determined by or on behalf of the
Trustees next after the sale is made or at some later time after such sale.
No Shares need be offered to existing Shareholders before being
offered to others. No Shares shall be sold by the Trust (although Shares
previously contracted to be sold may be issued upon payment therefor) during
any period when the determination of net asset value is suspended by
declaration of the Trustees pursuant to the provisions of Article XIII hereof.
In connection with the acquisition by merger or otherwise of all or
substantially all the assets of an investment company (whether a regulated or
private investment company or a personal holding company), the Trustees may
issue or cause to be issued Shares and accept in payment therefor such assets
valued at not more than market value thereof in lieu of cash, notwithstanding
that the federal income tax basis to the Trust of any assets so acquired may be
less than the market value, provided that such assets are of the character in
which the Trustees are permitted to invest the funds of the Trust.
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<PAGE> 15
The Trustees, in their sole discretion, may cause the Trust to redeem
all of the Shares of the Trust held by any Shareholder if the value of such
Shares is less than a minimum amount established from time to time by the
Trustees.
ARTICLE XIII
NET ASSET VALUE OF SHARES
The term "net asset value" per Share of any class or series of Shares
shall mean: (i) the value of all assets of that series or class; (ii) less
total liabilities of such series or class; (iii) divided by the number of
Shares of such series or class outstanding, in each case at the time of such
determination, all as determine by or under the direction of the Trustees.
Such value shall be determined on such days and at such time as the Trustees
may determine. Such determination shall be made with respect to securities for
which market quotations are readily available, at the market value of such
securities; and with respect to other securities and assets, at the fair value
as determined in good faith by or pursuant to the direction of the Trustees,
provided, however, that the Trustees, without shareholder approval, may alter
the method of appraising portfolio securities insofar as permitted under the
1940 Act, and the rules, regulations and interpretations thereof promulgated or
issued by the Securities and Exchange Commission or insofar as permitted by any
order of the Securities and Exchange commission. The Trustees may delegate any
powers and duties under this Article XIII with respect to appraisal of assets
and liabilities. At any time the Trustees may cause the value per share last
determined to be determined again in a similar manner and may fix the time when
such predetermined value shall become effective.
ARTICLE XIV
DIVIDENDS AND DISTRIBUTIONS
SECTION 1. LIMITATIONS ON DISTRIBUTIONS. The total of distributions
to Shareholders of a particular series or class paid in respect of any one
fiscal year, subject to the exceptions noted below, shall, when and as declared
by the Trustees, be approximately equal to the sum of:
(i) the net income, exclusive of the profits or losses
realized upon the sale of securities or other
property, of such series or class for such fiscal
year, determined in accordance with generally
accepted accounting principles (which, if the
Trustees so determine, may be adjusted for net
amounts included as such accrued net income in the
price of Shares of such series or class issued or
repurchased), but if the net income of such series or
class exceeds the amount distributed by less than one
cent per share outstanding at the record date for the
final dividend, the excess shall be treated as
distributable income of such series or class for the
following fiscal year; and
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<PAGE> 16
(ii) in the discretion of the Trustees, an additional
amount which shall not substantially exceed the
excess of profits over losses on sales of securities
or other property allocated or belonging to such
series or class for such fiscal year.
The decision of the Trustees as to what, in accordance with generally accepted
accounting principles, is income and what is principal shall be final, and
except as specifically provided herein the decision of the Trustees as to what
expenses and charges of the Trust shall be charged against principal and what
against income shall be final, all subject to any applicable provisions of the
1940 Act and rules, regulations and orders of the Commission promulgated
thereunder. For the purposes of the limitation imposed by this Section 1,
Shares issued pursuant to Section 2 of this Article XIV shall be valued at the
amount of cash which the Shareholders would have received if they had elected
to receive cash in lieu of such Shares.
Inasmuch as the computation of net income and gains for federal income
tax purposes may vary from the computation thereof on the books, the above
provisions shall be interpreted to give to the Trustees the power in their
discretion to distribute for any fiscal year as ordinary dividends and as
capital gains distributions, respectively, additional amounts sufficient to
enable the Trust to avoid or reduce liability for taxes. Any payment made to
Shareholders pursuant to clause (ii) of this Section 1 shall be accompanied by
a written statement showing the source or sources of such payment, and the
basis of computation thereof.
SECTION 2. DISTRIBUTIONS PAYABLE IN CASH OR SHARES. The Trustees
shall have power, to the fullest extent permitted by the laws of The
Commonwealth of Massachusetts but subject to the limitation as to cash
distributions imposed by Section 1 of this Article XV, at any time or from time
to time to declare and cause to be paid distributions payable at the election
of any Shareholder of any series or class (whether exercised before or after
the declaration of the distribution) either in cash or in Shares of such
series, provided that the sum of:
(i) the cash distribution actually paid to any Shareholder, and
(ii) the net asset value of the Shares which that
Shareholder elects to receive, in effect at such time
at or after the election as the Trustees may specify,
shall not exceed the full amount of cash to which
that Shareholder would be entitled if he elected to
receive only cash.
In the case of a distribution payable in cash or Shares at the election of a
Shareholder, the Trustees may prescribe whether a Shareholder, failing to
express his election before a given time shall be deemed to have elected to
take Shares rather than cash, or to take cash rather then Shares, or to take
Shares with cash adjustment of fractions.
The Trustees, in their sole discretion, may cause the Trust to require
that all distributions payable to a shareholder in amounts less than such
amount or amounts determined from time to time by the Trustees be reinvested in
additional shares of the Trust rather than paid in cash,
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<PAGE> 17
unless a shareholder who, after notification that his distributions will be
reinvested in additional shares in accordance with the preceding phrase, elects
to receive such distributions in cash. Where a shareholder has elected to
receive distributions in cash and the postal or other delivery service is
unable to deliver checks to the shareholder's address of record, the Trustees,
in their sole discretion, may cause the Trust to require that such
Shareholder's distribution option will be converted to having all distributions
reinvested in additional shares.
SECTION 3. STOCK DIVIDENDS. Anything in these By-Laws to the contrary
notwithstanding, the Trustees may at any time declare and distribute pro rata
among the Shareholders of any series or class a "stock dividend" out of either
authorized but unissued Shares of such series or class or treasury Shares of
such series or class or both.
ARTICLE XV
DERIVATIVE CLAIMS
No Shareholder shall have the right to bring or maintain any court
action, proceeding or claim on behalf of the Trust or any series or class
thereof without first making demand on the Trustees requesting the Trustees to
bring or maintain such action, proceeding or claim. Such demand shall be
excused only when the plaintiff makes a specific showing that irreparable
injury to the Trust or any series or class thereof would otherwise result.
Such demand shall be mailed to the Clerk of the Trust at the Trust's principal
office and shall set forth in reasonable detail the nature of the proposed
court action, proceeding or claim and the essential facts relied upon by the
Shareholder to support the allegations made in the demand. The Trustees shall
consider such demand within 45 days of its receipt by the Trust. In their sole
discretion, the Trustees may submit the matter to a vote of Shareholders of the
Trust or any series or class thereof, as appropriate. Any decision by the
Trustees to bring, maintain or settle (or not to bring, maintain or settle)
such court action, proceeding or claim, or to submit the matter to a vote of
Shareholders, shall be made by the Trustees in their business judgment and
shall be binding upon the Shareholders. Any decision by the Trustees to bring
or maintain a court action, proceeding or suit on behalf of the Trust or any
series or class thereof shall be subject to the right of the Shareholders under
Article VI, Section 6.8 of the Declaration to vote on whether or not such
court action, proceeding or suit should or should not be brought or maintained.
ARTICLE XVI
AMENDMENTS
These By-Laws, or any of them, may be altered, amended or repealed, or
new By-Laws may be adopted
(a) by Majority Shareholder Vote, or
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<PAGE> 18
(b) by the Trustees,
provided, however, that no By-Law may be amended, adopted or repealed by the
Trustees if such amendment, adoption or repeal requires, pursuant to law, the
Declaration or these By-Laws, a vote of the Shareholders or if such investment,
adoption or repeal changes or affects the provisions of Sections 1 and 4 of
Article X, the provisions of Article XI, or the provisions of this Article XVI.
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<PAGE> 1
EXHIBIT 5(a)
INVESTMENT ADVISORY AGREEMENT
THIS AGREEMENT made this 20th day of May, 1982, and amended and
restated this 1st day of August, 1993, by and between MASSACHUSETTS CASH
MANAGEMENT TRUST, a voluntary association having transferable shares, organized
and existing under the laws of the Commonwealth of Massachusetts (the "Fund")
and MASSACHUSETTS FINANCIAL SERVICES COMPANY, a Delaware corporation (the
"Adviser").
WITNESSETH:
WHEREAS, the Fund is engaged in business as an open-end investment
company registered under the Investment Company Act of 1940; and
WHEREAS, the Adviser is willing to provide business management
services to the Fund on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements of the parties hereto as herein set forth, the parties covenant and
agree as follows:
Article 1. Duties of the Adviser. The Adviser shall provide the Fund
with such investment advice and supervision as the latter may from time to time
consider necessary for the proper supervision of its funds. The Adviser shall
act as Adviser to the Fund and as such shall furnish continuously an investment
program and shall determine from time to time what securities shall be
purchased, sold or exchanged and what portion of the assets of the Fund shall
be held uninvested, subject always to the restrictions of its Declaration of
Trust dated September 8, 1975 and its By-Laws, both as amended from time to
time, and to the provisions of the Investment Company Act of 1940. The Adviser
shall also make recommendations as to the manner in which voting rights, rights
to consent to corporate action and any other rights pertaining to the Fund's
portfolio securities shall be exercised. Should the Trustees at any time,
however, make any definite determination as to investment policy and notify the
Adviser thereof in writing, the Adviser shall be bound by such determination
for the period, if any, specified in such notice or until similarly notified
that such determination has been revoked. The Adviser shall take, on behalf of
the Fund, all actions which it deems necessary to implement the investment
policies determined as provided above, and in particular to place all orders
for the purchase or sale of portfolio securities for the Fund's account with
dealers or brokers selected by it, and to that end the Adviser is authorized as
the agent of the Fund to give instructions to the Custodian of the Fund as to
deliveries of securities and payments of cash for the account of the Fund. In
connection with the selection of such dealers or brokers and the placing of
such orders, the Adviser is directed at all times to obtain for the Fund the
most favorable prices.
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<PAGE> 2
Article 2. Allocation of Charges and Expenses. The Adviser shall
furnish at its own expense investment advisory and administrative services,
office space, equipment and clerical personnel necessary for servicing the
investments of the Fund and maintaining its organization, and investment
advisory facilities and executive and supervisory personnel for managing the
investments and effecting the portfolio transactions of the Fund. The Adviser
shall arrange, if desired by the Fund, for directors, officers and employees of
the Adviser to serve as Trustees, officers or agents of the Fund if duly
elected or appointed to such positions and subject to their individual consent
and to any limitations imposed by law. It is understood that the Fund will pay
all of its own expenses including, without limitation, compensation of Trustees
not affiliated with the Adviser, governmental fees, interest charges, taxes,
membership dues in the Investment Company Institute allocable to the Fund, fees
and expenses of issuing and redeeming shares, expenses of servicing shareholder
accounts, expenses of preparing, printing and mailing prospectuses, reports,
notices and proxy statements furnished to either shareholders or governmental
officers and commissions, expenses connected with the execution of portfolio
security transactions, insurance premiums, fees and expenses of the custodian
for all services to the Fund, including safekeeping of funds and securities and
keeping of books and accounts, expenses of maintaining required records, books
and accounts, and calculating the net asset value of shares of the Fund and
expenses of shareholders' meetings.
Article 3. Compensation of the Adviser. For the services to be
rendered and the facilities to be provided, the Fund shall pay to the Adviser
an investment advisory fee computed and paid monthly at the annual rate equal
to 0.5% of the first $300 million of the Fund's average daily net assets, 0.45%
of the next $400 million of such assets, 0.4% of the next $300 million of such
assets and 0.35% of such assets in excess of $1 billion. Such computation
shall commence on the effective date of this Agreement and shall be based on
the average daily net assets of the Fund on and after such date. If the
Adviser shall serve for less than the whole of any period specified in this
ARTICLE 3, the compensation to the Adviser shall be prorated.
Article 4. Covenants of the Adviser. The Adviser agrees that it will
not deal with itself, or with the Trustees of the Fund or the Fund's principal
underwriter, if any, as principals in making purchases or sales of securities
or other property for the account of the Fund, will not take a long or short
position in the shares of the Fund except as provided by the Declaration of
Trust, and will comply with all other provisions of the Declaration of Trust
relative to the Adviser and its directors and officers.
Article 5. Limitation of Liability of the Adviser. The Adviser shall
not 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 wilful misfeasance, bad faith or gross
negligence in the performance of its duties, or by reason of reckless disregard
of its obligations and duties hereunder. As used in this ARTICLE 5, the term
"Adviser" shall include directors, officers and employees of the Adviser as
well as the corporation itself.
Article 6. Activities of the Adviser. The services of the Adviser
of the Fund are not to be
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<PAGE> 3
deemed to be exclusive, the Adviser being free to render services to others.
It is understood that Trustees, officers and shareholders of the Fund are or
may be or become interested in the Adviser, as directors, officers, employees,
or otherwise and that directors, officers and employees of the Adviser are or
may be or become similarly interested in the Fund and that the Adviser may be
or become interested in the Fund as shareholder or otherwise.
Article 7. Duration, Termination and Amendments of this Agreement.
This Agreement shall become effective on the date of its execution and shall
govern the relations between the parties hereto thereafter, and shall remain in
force until August 1, 1995 on which date it will terminate unless its
continuance after August 1, 1995 is specifically approved at least annually (i)
by the vote of a majority of the Trustees of the Fund who are not interested in
persons of the Fund or of the Adviser at a meeting specifically called for the
purpose of voting on such approval, and (ii) by the Trustees of the Fund, or by
vote of a majority of the outstanding voting securities of the Fund. The
aforesaid requirement that continuance of this Agreement be "specifically
approved at least annually" shall be construed in a manner consistent with the
Investment Company Act of 1940 and the Rules and Regulations thereunder.
This Agreement may be terminated at any time without the payment of
any penalty by the Trustees or by vote of a majority of the outstanding voting
securities of the Fund, or by the Adviser, on not more than sixty days' nor
less than thirty days' written notice to the other party. This Agreement shall
automatically terminate in the event of its assignment.
This Agreement may be amended only if such amendment is approved by
vote of a majority of the outstanding voting securities of the Fund.
The terms "vote of a majority of the outstanding voting securities",
"assignment", "affiliated person", and "interested persons", when used in this
Agreement, shall have the respective meanings specified in the Investment
Company Act of 1940 and the Rules and Regulations thereunder, subject, however,
to such exemptions as may be granted by the Securities and Exchange Commission
under said Act.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed and delivered in their names and on their behalf by the
undersigned, thereunto duly authorized, all as of the day and year first above
written. The undersigned Trustee of the Fund has executed this Agreement not
individually, but as Trustee under the Fund's Declaration of Trust dated
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<PAGE> 4
September 8, 1975, as amended, and the obligations of this Agreement are not
binding upon any of the Trustees or shareholders of the Fund, individually, but
bind only the trust estate.
MASSACHUSETTS CASH
MANAGEMENT TRUST on behalf
of MFS GOVERNMENT MONEY
MARKET FUND and MFS
MONEY MARKET FUND
By: A. KEITH BRODKIN
---------------------------
A. Keith Brodkin, Chairman
MASSACHUSETTS FINANCIAL
SERVICES COMPANY
By: A. KEITH BRODKIN
--------------------------
A. Keith Brodkin, Chairman
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<PAGE> 1
EXHIBIT 5(b)
INVESTMENT ADVISORY AGREEMENT
THIS AGREEMENT made this 1st day of September 1993, by and between MFS
SERIES TRUST IV, a Massachusetts business trust (the "Trust"), on behalf MFS
MUNICIPAL BOND FUND, a series of the Trust (the "Fund"), and MASSACHUSETTS
FINANCIAL SERVICES COMPANY, a Delaware corporation (the "Adviser").
WITNESSETH:
WHEREAS, the Trust is engaged in business as an open-end investment
company registered under the Investment Company Act of 1940; and
WHEREAS, the Adviser is willing to provide business management
services to the Fund on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements of the parties hereto as herein set forth, the parties covenant and
agree as follows:
Article 1. Duties of the Adviser. The Adviser shall provide the Fund
with such investment advice and supervision as the latter may from time to time
consider necessary for the proper management of its funds. The Adviser shall
act as Adviser to the Fund and as such shall furnish continuously an investment
program and shall determine from time to time what securities shall be
purchased, sold or exchanged and what portion of the assets of the Fund shall
be held uninvested, subject always to the restrictions of the Trust's
Declaration of Trust dated September 8, 1975, and By-Laws (respectively, the
"Declaration" and "By-Laws"), each as amended from time to time, and to the
provisions of the Investment Company Act of 1940. The Adviser shall also make
recommendations as to the manner in which voting rights, rights to consent to
corporate action, and any other rights pertaining to the Fund's portfolio
securities shall be exercised. Should the Trustees at any time, however, make
any definite determination as to investment policy and notify the Adviser
thereof in writing, the Adviser shall be bound by such determination for the
period, if any, specified in such notices or until similarly notified that such
determination has been revoked. The Adviser shall take, on behalf of the Fund,
all actions which it deems necessary to implement the investment policies
determined as provided above, and in particular to place all orders for the
purchase or sale of portfolio securities for the Fund's account with brokers or
dealers selected by it, and to that end the Adviser is authorized as the agent
of the Fund to give instructions to the Custodian of the Fund as to deliveries
of securities and payments of cash for the account of the Fund. In connection
with the selection of such brokers and dealers and the placing of such orders,
the Adviser is directed to seek for the Fund the most favorable execution and
price. After fulfilling this primary requirement of obtaining for the Fund the
most
- 1 -
<PAGE> 2
favorable execution and price, the Adviser is hereby expressly authorized to
consider, subject to any applicable laws, rules and regulations, statistical,
research and other information or services furnished to the Adviser or the
Fund.
Article 2. Allocation of Charges and Expenses. The Adviser shall
furnish at its own expense all necessary administrative services, office space,
equipment and clerical personnel, and investment advisory facilities and
executive and supervisory personnel for managing the investments, effecting the
portfolio transactions and in general administering the affairs of the Fund.
The Adviser shall arrange, if desired by the Trust, for Directors, officers and
employees of the Adviser to serve as Trustees, officers or agent of the Trust
if duly elected or appointed to such positions and subject to their individual
consent and to any limitation imposed by law. It is understood that the Fund
will pay all of its own expenses including, without limitation, compensation of
Trustees not affiliated with the Adviser, 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 and dividend disbursing agent of the Fund, expenses
of repurchasing and redeeming shares, expenses of preparing, printing and
mailing stock certificates, prospectuses, shareholders' reports, notices, proxy
statements and reports to governmental officers and commissions, brokerage and
other expenses connected with the execution of portfolio security transactions,
insurance premiums, fees and expenses of the custodian for all services to the
Fund, including safekeeping of funds and securities, keeping of books and
accounts and calculations of the net asset value of shares of the Fund,
expenses of shareholders' meetings, and expenses relating to the issuance,
registration and qualification of shares of the Fund.
Article 3. Compensation of the Adviser. For the services to be
rendered and for the facilities to be furnished as provided in Articles 1 and 2
above, the Fund shall pay to the Adviser a fee computed and paid monthly at the
annual rate equal to 0.22% of the Fund's average daily net assets plus 4.12% of
the Fund's adjusted gross income (i.e., income other than proceeds from the
sale of securities) for the Fund's current fiscal year, provided that such
computation shall commence on the effective date of this Agreement and shall be
based on the average daily net assets and adjusted gross income of the Fund on
and after such date; and provided further that:
(a) The annual rate applicable to average daily net assets in
excess of $200 million shall be 0.187%;
(b) The annual rate applicable to adjusted gross income in excess
of $16 million shall be 3.51%; and
(c) Within thirty days of the close of any fiscal year of the
Fund, the Adviser will pay to the Fund a sum equal to the
amount by which the aggregate expenses of the Fund incurred
during such fiscal year, but excluding interest, taxes and
brokerage commissions, exceed the lesser of either 25% of
gross income of the Fund for the preceding year or the sum of
(a) 1-1/2% of the average daily net assets of the
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<PAGE> 3
preceding year up to and including $30,000,000 and (b) 1% of
any excess of average daily net assets of the preceding year
over $30,000,000.
The obligation of the Adviser to reimburse the Fund for expenses
incurred for any year may be terminated or revised at any time by the Adviser
without the consent of the Fund by notice in writing from the Adviser to the
Fund, provided, however, that termination or revision of the Adviser's
obligation to reimburse for expenses is not to be effective with respect to the
fiscal year within which such notice is given.
If the Adviser shall serve for less than the whole of any period
specified in this Article 3, the compensation to the Adviser shall be prorated.
Article 4. Covenants of the Adviser. The Adviser agrees that it will
not deal with itself, or with the Trustees of the Trust or the Trust's
principal underwriter as principals in making purchases or sales of securities
or other property for the account of the Fund except as permitted by the
Investment Company Act of 1940 and the Rules, Regulations or orders thereunder,
will not take a long or short position in the shares of the Fund except as
provided by the Declaration, and will comply with all other provisions of the
Declaration and By-Laws relative to the Adviser and its Directors and officers.
Article 5. Limitation of Liability of the Adviser. The Adviser shall
not 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 duties, or by reason of reckless disregard
of its obligations and duties hereunder. As used in this Article 5, the term
"Adviser" shall include Directors, officers and employees of the Adviser as
well as the corporation itself.
Article 6. Activities of the Adviser. The services of the Adviser to
the Fund are not to be deemed exclusive, the Adviser being free to render
services to others. The Adviser may permit other fund clients to use initials
"MFS" in their names. The Fund agrees that if the Adviser shall for any reason
no longer serve as Adviser to the Fund, the Fund will change its name so as to
delete the initials "MFS". It is understood that Trustees, officers, and
shareholders of the Trust are or may be or become interested in the Adviser, as
Directors, officers, employees, shareholders or otherwise and that Directors,
officers, employees and shareholders of the Adviser may be or may become
similarly interested in the Fund, and that the Adviser may be or become
interested in the Fund as shareholder or otherwise.
Article 7. Duration, Termination and Amendment of this Agreement.
This Agreement shall become effective on the date of its execution and shall
govern the relations between the parties hereto thereafter, and shall remain in
force until August 1, 1995 on which date it will terminate unless its
continuance after August 1, 1995 is specifically approved at least annually (i)
by the a vote of a majority of the Board of Trustees of the Trust who are not
"interested persons of the Trust" or of the Adviser at a meeting specifically
called for the purpose of voting on such
- 3 -
<PAGE> 4
approval, and (ii) by the Board of Trustees of the Trust or by "vote of a
majority of the outstanding voting securities" of the Fund. The aforesaid
requirement that continuance of this Agreement be "specifically approved at
least annually" shall be construed in a manner consistent with the Investment
Company Act of 1940 and the Rules and Regulations thereunder.
This Agreement may be terminated at any time without the payment of
any penalty by the Trustees or by vote of a majority of the outstanding voting
securities of the Fund, or by the Adviser, on not more than sixty days' nor
less than thirty days' written notice to the other party. This Agreement shall
automatically terminate in the event of its assignment.
This Agreement may be amended only if such amendment is approved by
vote of a majority of outstanding voting securities of the Fund.
The terms "vote of a majority of the outstanding voting securities",
assignment", "affiliated person", and "interested person", when used in this
Agreement, shall have the respective meanings specified in the Investment
Company Act of 1940 and the Rules and Regulations thereunder, subject, however,
to such exemptions as may be granted by the Securities and Exchange Commission
under said Act.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed and delivered in their names and on their behalf by the
undersigned, thereunto duly authorized, and their respective seals to be hereto
affixed, all as of the day and year first written above. The undersigned
Trustee of the Trust has executed this Agreement not individually, but as
Trustee under the Declaration and the obligations of this Agreement are not
binding upon any of the Trustees or shareholders of the Trust, individually,
but bind only the trust estate applicable to the Fund.
MFS SERIES TRUST IV on
behalf of MFS MUNICIPAL
BOND FUND
By: A. KEITH BRODKIN
--------------------------
A. Keith Brodkin
Chairman and Trustee
MASSACHUSETTS FINANCIAL
SERVICES COMPANY
By: A. KEITH BRODKIN
--------------------------
A. Keith Brodkin
Chairman
- 4 -
<PAGE> 1
EXHIBIT 5(c)
INVESTMENT ADVISORY AGREEMENT
INVESTMENT ADVISORY AGREEMENT, dated this 20th day of October, 1993,
by and between MFS SERIES TRUST IV, a Massachusetts business trust (the
"Trust"), on behalf of MFS OTC FUND, a series of the Trust (the "Fund"), and
MASSACHUSETTS FINANCIAL SERVICES COMPANY, a Delaware corporation (the
"Adviser").
WITNESSETH:
WHEREAS, the Trust is engaged in business as an open-end investment
company registered under the Investment Company Act of 1940; and
WHEREAS, the Adviser is willing to provide business services to the
Fund on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements of the parties hereto as herein set forth, the parties covenant and
agree as follows:
Article 1. Duties of the Adviser. The Adviser shall provide the Fund
with such investment advice and supervision as the latter may from time to time
consider necessary for the proper supervision of its funds. The Adviser shall
act as Adviser to the Fund and as such shall furnish continuously an investment
program and shall determine from time to time what securities shall be
purchased, sold or exchanged and what portion of the assets of the Fund shall
be held uninvested, subject always to the restrictions of the Trust's
Declaration of Trust, dated September 8, 1975, and By-Laws, each as amended
from time to time (respectively, the "Declaration" and the "By-Laws"), to the
provisions of the Investment Company Act of 1940 and the Rules, Regulations and
orders thereunder and to the Fund's then-current Prospectus and Statement of
Additional Information. The Adviser shall also make recommendations as to the
manner in which voting rights, rights to consent to corporate action and any
other rights pertaining to the Fund's portfolio securities shall be exercised.
Should the Trustees at any time, however, make any definite determination as to
the investment policy and notify the Adviser thereof in writing, the Adviser
shall be bound by such determination for the period, if any, specified in such
notice or until similarly notified that such determination shall be revoked.
The Adviser shall take, on behalf of the Fund, all actions which it deems
necessary to implement the investment policies determined as provided above,
and in particular to place all orders for the purchase or sale of portfolio
securities for the Fund's account with brokers or dealers selected by it, and
to that end, the Adviser is authorized as the agent of the Fund to give
instructions to the Custodian of the Fund as to the deliveries of securities
and payments of cash for the account of
- 1 -
<PAGE> 2
the Fund. In connection with the selection of such brokers or dealers and the
placing of such orders, the Adviser is directed to seek for the Fund execution
at the most reasonable price by responsible brokerage firms at reasonable
competitive commission rates. In fulfilling this requirement, the Adviser
shall not be deemed to have acted unlawfully or to have breached any duty,
created by this Agreement or otherwise, solely by reason of its having caused
the Fund to pay a broker or dealer an amount of commission for effecting a
securities transaction in excess of the amount of commission another broker or
dealer would have charged for effecting that transaction, if the Adviser
determined in good faith that such amount of commission was reasonable in
relation to the value of the brokerage and research services provided by such
broker or dealer, viewed in terms of either that particular transaction or the
Adviser's overall responsibilities with respect to the Fund and to other
clients of the Adviser as to which the Adviser exercises investment discretion.
Article 2. Allocation of Charges and Expenses. The Adviser shall
furnish at its own expense investment advisory and administrative services,
office space, equipment and clerical personnel necessary for servicing the
investments of the Fund and maintaining its organization, and investment
advisory facilities and executive and supervisory personnel for managing the
investments and effecting the portfolio transactions of the Fund. The Adviser
shall arrange, if desired by the Trust, for Directors, officers and employees
of the Adviser to serve as Trustees, officers or agents of the Trust if duly
elected or appointed to such positions and subject to their individual consent
and to any limitations imposed by law. It is understood that the Fund will pay
all of its own expenses including, without limitation, compensation of Trustees
"not affiliated" with the Adviser; 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 and servicing shareholder accounts; expenses
of preparing, printing and mailing stock certificates, shareholder reports,
notices, proxy statements and reports to governmental officers and commissions;
brokerage and other expenses connected with the execution, recording and
settlement of portfolio security transactions; insurance premiums; fees and
expenses of the 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; expenses of
shareholders' meetings; and expenses relating to the issuance, registration and
qualification of shares of the Fund and the preparation, printing and mailing
of prospectuses for such purposes (except to the extent that any Distribution
Agreement to which the Trust is a party provides that another party is to pay
some or all of such expenses).
Article 3. Compensation of the Adviser. For the services to be
rendered and the facilities provided, the Fund shall pay to the Adviser an
investment advisory fee computed and paid monthly at a rate equal to 0.75% of
the Fund's average daily net assets on an annualized basis. If the Adviser
shall serve for less than the whole of any period specified in this Article 3,
the compensation to the Adviser will be prorated.
- 2 -
<PAGE> 3
Article 4. Covenants of the Adviser. The Adviser agrees that it will
not deal with itself, or with the Trustees of the Trust or the Trust's
distributor, if any, as principals in making purchases or sales of securities
or other property for the account of the Fund, except as permitted by the
Investment Company Act of 1940 and the Rules, Regulations or orders thereunder,
will not take a long or short position in the shares of the Fund except as
permitted by the Declaration, and will comply with all other provisions of the
Declaration and the By-Laws and the then-current Prospectus and Statement of
Additional Information of the Fund relative to the Adviser and its Directors
and officers.
Article 5. Limitation of Liability of the Adviser. The Adviser shall
not 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 duties and obligations hereunder. As used
in this Article 5, the term "Adviser" shall include Directors, officers and
employees of the Adviser as well as that corporation itself.
Article 6. Activities of the Adviser. The services of the Adviser to
the Fund are not deemed to be exclusive, the Adviser being free to render
investment advisory and/or other services to others. The Adviser may permit
other fund clients to use the initials "MFS" in their names. The Fund agrees
that if the Adviser shall for any reason no longer serve as the Adviser to the
Fund, the Fund will change its name so as to delete the initials "MFS". It is
understood that the Trustees, officers and shareholders of the Trust are or may
be or become interested in the Adviser, as Directors, officers, employees, or
otherwise and that Directors, officers and employees of the Adviser are or may
become similarly interested in the Trust, and that the Adviser may be or become
interested in the Fund as a shareholder or otherwise.
Article 7. Duration, Termination and Amendment of this Agreement.
This Agreement shall become effective on the date first above written and shall
govern the relations between the parties hereto thereafter, and shall remain in
force until August 1, 1995 on which date it will terminate unless its
continuance after August 1, 1995 is "specifically approved at least annually"
(i) by the vote of a majority of the Trustees of the Trust who are not
"interested persons" of the Trust or of the Adviser at a meeting specifically
called for the purpose of voting on such approval, and (ii) by the Board of
Trustees of the Trust, or by "vote of a majority of the outstanding voting
securities" of the Fund.
This Agreement may be terminated at any time without the payment of
any penalty by the Trustees or by "vote of a majority of the outstanding voting
securities" of the Fund, or by the Adviser, in each case on not more than sixty
days' nor less than thirty days' written notice to the other party. This
Agreement shall automatically terminate in the event of its "assignment".
This Agreement may be amended only if such amendment is approved by
"vote of a majority of the outstanding voting securities" of the Fund.
- 3 -
<PAGE> 4
The terms "specifically approved at least annually", "vote of a
majority of the outstanding voting securities", "assignment", "affiliated
person", and "interested person", when used in this Agreement, shall have the
respective meanings specified, and shall be construed in a manner consistent
with, the Investment Company Act of 1940 and the Rules and Regulations
promulgated thereunder, subject, however, to such exemptions as may be granted
by the Securities and Exchange Commission under said Act.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered in their names and on their behalf by the undersigned,
thereunto duly authorized, and their respective seals to be hereto affixed, all
as of the day and year first written above. The undersigned Trustee of the
Trust has executed this Agreement not individually, but as Trustee under the
Declaration and the obligations of this Agreement are not binding upon any of
the Trustees or shareholders of the Trust, individually, but bind only the
trust estate applicable to the Fund.
MFS SERIES TRUST IV on behalf
of MFS OTC FUND
By: A. KEITH BRODKIN
-------------------------
A. Keith Brodkin
Chairman and Trustee
MASSACHUSETTS FINANCIAL
SERVICES COMPANY
By: A. KEITH BRODKIN
------------------------
A. Keith Brodkin
Chairman
- 4 -
<PAGE> 1
EXHIBIT 6(a)
DISTRIBUTION AGREEMENT
DISTRIBUTION AGREEMENT, made this first day of January, 1995, by and
between MFS SERIES TRUST IV, a Massachusetts business trust (the "Trust"), on
behalf of each series from time to time of the Trust (referred to individually
as a "Fund" and collectively as the "Funds") and MFS FUND DISTRIBUTORS, INC., a
Delaware corporation (the "Distributor");
NOW, THEREFORE, in consideration of the mutual promises and
undertakings herein contained, the parties hereto agree as follows:
1. The Trust grants to the Distributor the right, as agent of the
Trust, to sell Shares of Beneficial Interest, without par value, of the Funds
(the "Shares") upon the terms herein below set forth during the term of this
Agreement. While this Agreement is in force, the Distributor agrees to use its
best efforts to find purchasers for Shares.
The Distributor shall have the right, as agent of the Trust, to
order from the Trust the Shares needed, but not more than the Shares needed
(except for clerical errors and errors of transmission) to fill unconditional
orders for Shares placed with the Distributor by dealers, banks or other
financial institutions or investors as set forth in the current Prospectus and
Statement of Additional Information (collectively, the "Prospectus") relating
to the Shares. The price which shall be paid to the Trust for the Shares so
purchased shall be the net asset value used in determining the public offering
price on which such orders were based. The Distributor shall notify the
Custodian of the Trust, at the end of each business day, or as soon thereafter
as the orders placed with it have been compiled, of the number of Shares and
the prices thereof which have been ordered through the Distributor since the
end of the previous day.
The right granted to the Distributor to place orders for Shares
with the Trust shall be exclusive, except that said exclusive right shall not
apply to Shares issued in the event that an investment company (whether a
regulated or private investment company or a personal holding
-1-
<PAGE> 2
company) is merged or consolidated with the Trust (or a Fund) or in the event
that the Trust (or a Fund) acquires by purchase or otherwise, all (or
substantially all) the assets or the outstanding shares of any such company;
nor shall it apply to Shares issued by the Trust (or a Fund) as a stock
dividend or a stock split. The exclusive right to place orders for Shares
granted to the Distributor may be waived by the Distributor by notice to the
Trust in writing, either unconditionally or subject to such conditions and
limitations as may be set forth in the notice to the Trust. The Trust hereby
acknowledges that the Distributor may render distribution and other services to
other parties, including other investment companies. In connection with its
duties hereunder, the Distributor shall also arrange for computation of
performance statistics with respect to the Trust and arrange for publication of
current price information in newspapers and other publications.
2. The Shares may be sold through the Distributor to dealers, banks
and other financial institutions having sales agreements with the Distributor,
upon the following terms and conditions:
The public offering price, i.e., the price per Share at which the
Distributor or dealers, banks or other financial institutions purchasing Shares
through the Distributor may sell Shares to the public, shall be the public
offering price as set forth in the current Prospectus relating to the Shares,
including a sales charge (where applicable) not to exceed the amount permitted
by Article III, Section 26 of the National Association of Securities Dealers,
Inc.'s Rule of Fair Practice, as amended from time to time. The Distributor
shall retain the sales charge (where applicable) less any applicable dealer or
comparable discount. If the resulting public offering price does not come out
to an even cent, the public offering price shall be adjusted to the nearer
cent. In addition, the Trust agrees that the Distributor may impose certain
contingent deferred sales charges (where applicable) in connection with the
redemption of Shares, not to exceed 6% of the net asset value of Shares, and
the Distributor shall retain (or receive from the Trust, as the case may be)
all such contingent deferred sales charges.
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<PAGE> 3
The Distributor may place orders for Shares at the net asset
value for such Shares (as established pursuant to paragraph l above) on behalf
of such purchasers and under such circumstances as the Prospectus describes,
provided that such sales comply with Rule 22d-1 under the Investment Company
Act of 1940 or any exemptive order granted by the Securities and Exchange
Commission. The Distributor may also place orders for Shares at net asset
value on behalf of persons reinvesting the proceeds of the redemption or resale
of Shares or shares of other investment companies for which the Distributor
acts as Distributor or as otherwise provided in the current Prospectus.
The net asset value of Shares shall be determined by the Trust or
by an agent of the Trust, as of the close of regular trading of the New York
Stock Exchange on each business day on which said Exchange is open, in
accordance with the method set forth in the governing instruments (as
hereinafter defined) of the Trust. The Trust may also cause the net asset
value to be determined in substantially the same manner or estimated in such
manner and as of such other hour or hours as may from time to time be agreed
upon in writing by the Trust and Distributor. The Trust shall have the right
to suspend the sale of Shares if, because of some extraordinary condition, the
New York Stock Exchange shall be closed, or if conditions obtaining during the
hours when the Exchange is open render such action advisable, or for any other
reasons deemed adequate by the Trust.
3. The Trust agrees that it will, from time to time, take all
necessary action to register the offering and sale of Shares under the
Securities Act of l933, as amended (the "Act"), and applicable state securities
laws.
The Distributor shall be an independent contractor and neither
the Distributor nor any of its directors, officers or employees as such, is or
shall be an employee of the Trust. It is understood that Trustees, officers
and shareholders of the Trust are or may become interested in the Distributor,
as Directors, officers and employees, or otherwise and that Directors, officers
and employees of the Distributor are or may become similarly interested in the
Trust and that the Distributor may be or become interested in the Trust as a
shareholder or otherwise. The
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<PAGE> 4
Distributor is responsible for its own conduct and the employment, control and
conduct of its agents and employees and for injury to such agents or employees
or to others through its agents or employees. The Distributor assumes full
responsibility for its agents and employees under applicable statutes and
agrees to pay all employer taxes thereunder.
4. The Distributor covenants and agrees that, in selling Shares, it
will use its best efforts in all respects duly to conform with the requirements
of all state and federal laws and the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. (the "NASD") relating to the sale of
Shares, and will indemnify and hold harmless the Trust and each of its Trustees
and officers and each person, if any, who controls the Trust within the meaning
of Section 15 of the Act, against any loss, liability, damages, claim or
expense (including the reasonable cost of investigating or defending any
alleged loss, liability, damages, claim or expense and reasonable counsel fees
incurred in connection therewith), arising by reason of any person's acquiring
any Shares, which may be based upon the Act or any other statute or common law,
on account of any wrongful act of the Distributor or any of its employees
(including any failure to conform with any requirement of any state or federal
law or the Rules of Fair Practice of the NASD relating to the sale of Shares)
or on the ground that the registration statement or Prospectus as from time to
time amended and supplemented, includes an untrue statement of a material fact
or omits to state a material fact required to be stated therein or necessary in
order to make the statements therein not misleading, unless any such act,
statement or omission was made in reliance upon information furnished to the
Distributor by or on behalf of the Trust, provided, however, that in no case
(i) is the indemnity of the Distributor in favor of any person indemnified to
be deemed to protect the Trust or any such person against any liability to
which the Trust or any such person would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the performance of its or
his duties or by reason of its or his reckless disregard of its obligations and
duties under this Agreement, or (ii) is the Distributor to be liable under its
indemnity agreement contained in this paragraph with respect to any claim made
against the Trust or any person indemnified unless the Trust or such person, as
the case may be, shall have
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<PAGE> 5
notified the Distributor in writing within a reasonable time after the summons
or other first legal process giving information of the nature of the claim
shall have been served upon the Trust or upon such person (or after the Trust
or such person shall have received notice of such service on any designated
agent), but failure to notify the Distributor of any such claim shall not
relieve it from any liability which it may have to the Trust or any person
against whom such action is brought otherwise than on account of its indemnity
agreement contained in this paragraph. The Distributor shall be entitled to
participate, at its own expense, in the defense, or, if it so elects, to assume
the defense of any suit brought to enforce any such liability, but, if the
Distributor elects to assume the defense, such defense shall be conducted by
counsel chosen by it and satisfactory to the Trust, or to its officers or
Trustees, or to any controlling person or persons, defendant or defendants in
the suit. In the event that the Distributor elects to assume the defense of
any such suit and retain such counsel, the Trust or such officers or Trustees
or controlling person or persons, defendant or defendants in the suit, shall
bear the fees and expenses of any additional counsel retained by them, but, in
case the Distributor does not elect to assume the defense of any such suit, it
shall reimburse the Trust and such officers and Trustees or controlling person
or persons, defendant or defendants in such suit, for the reasonable fees and
expenses of any counsel retained by them. The Distributor agrees promptly to
notify the Trust of the commencement of any litigation or proceedings against
it in connection with the issue and sale of any Shares.
Neither the Distributor nor any other person is authorized to
give any information or to make any representation on behalf of the Trust,
other than those contained in the registration statement or Prospectus filed
with the Securities and Exchange Commission under the Act (as said registration
statement or Prospectus may be amended or supplemented from time to time),
covering the Shares or other than those contained in periodic reports to
shareholders of the Trust.
5. The Trust will pay, or cause to be paid -
(i) all costs and expenses of the Trust, including fees
and disbursements of its counsel, in connection with the preparation and filing
of any required registration statement or
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<PAGE> 6
Prospectus under the Act covering Shares and all amendments and supplements
thereto and any notices regarding the registration of shares, and preparing and
mailing to shareholders Prospectuses, statements and confirmations and periodic
reports (including the expense of setting up in type any such registration
statement, Prospectus or periodic report);
(ii) the expenses (including auditing expenses) of
qualification of the Shares for sale, and, if necessary or advisable in
connection therewith, of qualifying the Trust as a dealer or broker, in such
states as shall be selected by the Distributor and the fees payable to each
such state with respect to shares sold and for continuing the qualification
therein until the Distributor notifies the Trust that it does not wish such
qualification continued;
(iii) the cost of preparing temporary or permanent
certificates for Shares;
(iv) all fees and disbursements of the transfer agent of
the Trust;
(v) the cost and expenses of delivering to the
Distributor at its office in Boston, Massachusetts, all Shares sold through it
as Distributor hereunder; and
(vi) all the federal and state issue and/or transfer
taxes payable upon the issue by or (in the case of treasury Shares) transfer
from the Trust of any and all Shares purchased through the Distributor
hereunder.
The Distributor agrees that, after the Prospectus and periodic
reports have been set up in type, it will bear the expense (other than the cost
of mailing to shareholders of the Trust of printing and distributing any copies
thereof which are to be used in connection with the offering of Shares to
dealers, banks or other financial institutions or investors. The Distributor
further agrees that it will bear the expenses of preparing, printing and
distributing any other literature used by the Distributor or furnished by it
for use by dealers, banks or other financial institutions in connection with
the offering of the Shares for sale to the public and expenses of advertising
in connection with such offering. The Distributor will also bear the expense
of sending confirmations and statements to dealers, banks and other financial
institutions having sales agreements with the Distributor. Nothing in this
paragraph 5 shall be deemed to prohibit or conflict with any payment by the
Trust or any Fund to the Distributor pursuant to any
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<PAGE> 7
Distribution Plan adopted as in effect pursuant to Rule 12b-1 under the
Investment Company Act of 1940.
6. The Trust hereby authorizes the Distributor to repurchase, upon
the terms and conditions set forth in written instructions given by the Trust
to the Distributor from time to time, as agent of the Trust and for its
account, such Shares as may be offered for sale to the Trust from time to time;
provided the Distributor shall have the right, as stated above in paragraph 2
of this Agreement, to retain (or to receive from the Trust, as the case may be)
a deferred sales charge not to exceed 6% of the net asset value of the Shares
so repurchased.
(a) The Distributor shall notify in writing the
Custodian of the Trust, at the end of each business day, or as soon thereafter
as the repurchases have been compiled, of the number of Shares repurchased for
the account of the Trust since the last previous report, together with the
prices at which such repurchases were made, and upon the request of any Officer
or Trustee of the Trust shall furnish similar information with respect to all
repurchases made up to the time of the request on any day.
(b) The Trust reserves the right to suspend or revoke
the foregoing authorization at any time. Unless otherwise stated, any such
suspension or revocation shall be effective forthwith upon receipt of notice
thereof by an officer of the Distributor, by telegraph or by written notice
from the Trust. In the event that the authorization of the Distributor is, by
the terms of such notice, suspended for more than twenty-four hours or until
further notice, the authorization given by this paragraph 6 shall not be
revived except by action of a majority of the members of the Board of Trustees
of the Trust.
(c) The Distributor shall have the right to terminate
the operation of this paragraph 6 upon giving to the Trust thirty days' written
notice thereof.
(d) The Trust agrees to authorize and direct the
Custodian to pay, for the account of the Trust, the purchase price of any
Shares so repurchased against delivery of the certificates, if any, in proper
form for transfer to the Trust or for cancellation by the Trust.
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<PAGE> 8
(e) The Distributor shall receive no commission in
respect of any repurchase of Shares under the foregoing authorization and
appointment as agent, except in connection with contingent deferred sales
charge as provided in the current Prospectus relating to the Shares.
(f) The Trust agrees to reimburse the Distributor, from
time to time upon demand, for any reasonable expenses incurred in connection
with the repurchase of Shares pursuant to this paragraph 6.
7. If, at any time during the existence of this Agreement, the Trust
shall deem it necessary or advisable in the best interests of the Trust that
any amendment of this Agreement be made in order to comply with the
recommendations or requirements of the Securities and Exchange Commission or
other governmental authority or to obtain any advantage under Massachusetts,
any state or federal tax laws, it shall notify the Distributor of the form of
amendment which it deems necessary or advisable and the reasons therefore. If
the Distributor declines to assent to such amendment, the Trust may terminate
this Agreement forthwith by written notice to the Distributor without payment
of any penalty. If, at any time during the existence of this Agreement, upon
request by the Distributor, the Trust fails (after a reasonable time) to make
any changes in its governing instruments or in its methods of doing business
which are necessary in order to comply with any requirements of federal or
state laws or regulations, laws or regulations of the Securities and Exchange
Commission or of a national securities association of which the Distributor is
or may be a member, relating to the sale of Shares, the Distributor may
terminate this Agreement forthwith by written notice to the Trust without
payment of any penalty.
8. The Distributor agrees that it will not take any long or short
positions in the Shares except as permitted by paragraphs l and 6 hereof.
Whenever used in this Agreement, the term "governing instruments" shall mean
the Declaration of Trust and the By-Laws of the Trust, as from time to time
amended.
9. This Agreement shall become effective on January 1, 1995 and
shall continue in force until August 1, 1996 on which date it will terminate
unless its continuance after August 1,
-8-
<PAGE> 9
1996, is specifically approved at least annually (i) by the vote of a majority
of the Board of Trustees of the Trust who are not interested persons of the
Trust or of the Distributor at a meeting specifically called for the purpose of
voting on such approval, and (ii) by the Board of Trustees of the Trust or by
vote of a majority of the outstanding voting securities of that Fund. The
aforesaid requirement that continuance of this Agreement be "specifically
approved at least annually" shall be construed in a manner consistent with the
Investment Company Act of l940 and the Rules and Regulations thereunder.
This Agreement may be terminated as to any Fund at any time by either
party without payment of any penalty on not more than sixty days' or less than
thirty days' written notice to the other party.
10. This Agreement shall automatically terminate in the event of its
assignment.
11. The terms "vote of a majority of the outstanding voting
securities", "interested person" and "assignment" shall have the respective
meanings specified in the Investment Company Act of l940 and the Rules and
Regulations thereunder, subject, however, to such exemptions as may be granted
by the Securities and Exchange Commission under said Act.
12. This Agreement shall be governed by the laws of The Commonwealth
of Massachusetts.
13. A copy of the Declaration of Trust of the Trust is on file with
the Secretary of State of The Commonwealth of Massachusetts. The Distributor
acknowledges that the obligations of or arising out of this instrument are not
binding upon any of the Trust's trustees, officers, employees, agents or
shareholders individually, but are binding solely upon the assets and property
of the Trust. If this instrument is executed by the Trust on behalf of one or
more series of the Trust, the Distributor further acknowledges that the assets
and liabilities of each series of the Trust are separate and distinct and that
the obligations of or arising out of this instrument are binding solely upon
the assets or property of the series on whose behalf the Trust has executed
this instrument. If the Trust has executed this instrument on behalf of more
than one series of the Trust, the Distributor also agrees that the obligations
of each series hereunder shall be several
-9-
<PAGE> 10
and not joint, in accordance with its proportionate interest hereunder, and the
Distributor agrees not to proceed against any series for the obligations of
another series.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above.
MFS SERIES TRUST IV
On behalf of: MFS Money Market Fund
MFS Government Money Market Fund
MFS Municipal Bond Fund
MFS OTC Fund
By: W. THOMAS LONDON
-----------------------------------------------
W. Thomas London as officer and
not individually
MFS FUND DISTRIBUTORS, INC.
By: WILLIAM W. SCOTT, JR.
-----------------------------------------------
William W. Scott, Jr.
President
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<PAGE> 1
EXHIBIT 7
MASSACHUSETTS CASH MANAGEMENT TRUST
RETIREMENT PLAN FOR NON-INTERESTED PERSON TRUSTEES
Massachusetts Cash Management Trust (the "Fund") has adopted this
Retirement Plan for Non-Interested Person Trustees (the "Plan"). The Plan has
been established for the purpose of providing certain benefits to eligible
Independent Trustees of the Fund, or their beneficiaries, after termination of
the Independent Trustees' services as such.
1. DEFINITIONS
The following terms shall have the following meanings:
Accrued Benefit: A benefit which is equal to the Normal
Retirement Benefit calculated using an Independent Trustee's
Years of Service and Annual Compensation as of the
determination date.
Actuarial Equivalent: A benefit equal in value, based on (a)
an interest rate equal to the immediate annuity rate published
by the Pension Guaranty Corporation for the January of the
Plan Year of calculation and (b) the 1983 Individual Annuity
Mortality Tables for Males.
Annual Compensation: The average of the total compensation
(retainer and meeting fees) received by an Independent Trustee
during each of the last three Plan Years preceding his
termination of services as such for which he served either as
an Independent Trustee or a Nonaffiliated Trustee for the
entire year; provided, that if an Independent Trustee served
as an Independent Trustee and/or a Nonaffiliated Trustee for
fewer than three full Plan Years prior to his termination of
services, there shall be taken into account his annualized
compensation for the one or more most recent partial Plan
Years (if any) for
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<PAGE> 2
which he served as an Independent Trustee or a Nonaffiliated
Trustee that, when aggregated with his full Plan Years, does
not exceed three Plan Years.
Disability: Disability as defined in Section 22(e)(3) of the
Internal Revenue Code of 1986, as amended.
Independent Trustee: A Trustee of the Fund who is not an
"interested person" (as defined in Section 2(a)(19) of the
Investment Company Act of 1940, as amended) of the Fund,
Lifetime Advisers, Inc. ("Lifetime"), Massachusetts Financial
Services Company ("MFS") or MFS Financial Services, Inc.
("FSI").
Nonaffiliated Trustee: A Trustee of the Fund who has no
material business or professional relationship with the Fund,
Lifetime, MFS or FSI and who is subject to being declared an
"interested person" solely by reason of his relationship with
the Fund, Lifetime, MFS or FSI during the two most recently
completed fiscal years of the Fund.
Normal Retirement Benefit: An annual benefit at Normal
Retirement Date equal to 5% of an Independent Trustee's Annual
Compensation multiplied by the Independent Trustee's whole
Years of Service, up to a maximum of ten Years of Service,
payable in the Normal Form of Benefit, as defined in Section
3(g).
Normal Retirement Date: December 31 of the Plan Year in which
an Independent Trustee attains age 73.
Plan Year: January 1 through December 31.
Retirement: Termination of service of an Independent Trustee
after having completed at least Five Years of Service and
having attained age 62, other than: (1) any termination by
reason of death; (ii) any termination by reason of Disability,
provided that any Independent Trustee who suffers a Disability
and who has otherwise satisfied the requirements for
Retirement shall have the right to elect whether his
termination is by reason of Retirement or by reason of
Disability; or (iii) any termination resulting from the
Independent Trustee's willful
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<PAGE> 3
misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of the office of
Independent Trustee ("Misconduct").
Year of Service: A Plan Year during which an Independent
Trustee completed at least six months of service as either a
Nonaffiliated Trustee or an Independent Trustee.
2. ELIGIBILITY
No Trustee of the Fund shall be eligible to participate in the
Plan or be entitled to any rights or benefits hereunder until
the Trustee becomes an Independent Trustee. Each individual
who completes any service as an Independent Trustee on or
after the Effective Date of this Plan, and who so elects in
such manner as the Committee determines from time to time,
will be eligible to participate in the Plan.
3. RETIREMENT DATE; AMOUNT OF BENEFIT
(a) Retirement. Each Independent Trustee shall retire on
that Independent Trustee's Normal Retirement Date, if
he has not previously ceased to perform services as an
Independent Trustee. Each retired Independent Trustee
is referred to as a "Retired Trustee".
(b) Normal Retirement Benefit. Upon an Independent
Trustee's Retirement on his Normal Retirement Date, the
Independent Trustee shall receive, commencing on his
Normal Retirement Date, his Normal Retirement Benefit.
(c) Early Retirement Benefit. Upon an Independent Trustee's
Retirement prior to his Normal Retirement Date, the
Independent Trustee shall receive an Early Retirement
Benefit commencing on the Independent Trustee's date of
Retirement. The benefit payable on an Independent
Trustee's early Retirement shall be his Accrued Benefit
reduced by 5% for every year that payment of an Early
Retirement Benefit precedes that Trustee's Normal
Retirement Date.
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<PAGE> 4
(d) Deferred Termination Benefit. If an Independent
Trustee's service as such terminates, other than (i)
termination as a result of his Misconduct or (ii)
termination that constitutes termination by reason of
his Retirement, Disability or death, after he has
completed at least five Years of Service, he shall
receive, commencing on the date he attains age 62,
his Accrued Benefit reduced by 55%.
(e) Disability Benefit. If an Independent Trustee's service
as such terminates by reason of his Disability and, if
the Independent Trustee is eligible for Retirement, he
elects that his termination be treated as being by
reason of Disability, he shall receive his Accrued
Benefit paid for the one hundred twenty (120) months
immediately following the month in which his service so
terminates. In the event the Independent Trustee dies
before he has received one hundred twenty (120)
payments, monthly payments in the same amount shall be
paid to his beneficiary until the number of payments to
the Independent Trustee plus the number of payments to
the beneficiary equal one hundred twenty (120)
payments.
(f) Death Benefit. Each Independent Trustee who elects to
participate in this Plan shall designate a beneficiary
in such form as the Committee approves from time to time
to receive any benefits payable under this Plan in the
event of his death. In the event there is no validly
designated beneficiary in existence on the date of an
Independent Trustee's death, his beneficiary shall be
his surviving spouse, if any, or if none, his estate.
The beneficiary of an Independent Trustee who dies
during service, and with respect to whom benefit
payments have not commenced, shall be entitled to that
Independent Trustee's Accrued Benefit paid for the one
hundred twenty (120) months immediately following death.
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<PAGE> 5
(g) Form of Benefit. Except as otherwise provided in
this Section 3, benefits payable under this Section 3
shall be payable in the form of a monthly annuity for
the life of the Independent Trustee, and, if the
Independent Trustee dies before he has received one
hundred twenty (120) payments, monthly payments in the
same amount shall be payable to his beneficiary
until the number of payments to the Independent Trustee
plus the number of payments to the beneficiary equal one
hundred twenty (120) payments (the "Normal Form of
Benefit"). However, notwithstanding any other provision
of this Section 3 to the contrary, if an Independent
Trustee's beneficiary is entitled to payments under this
Plan upon the Independent Trustee's death, then (i) if
the Independent Trustee's beneficiary is his estate, the
lump sum Actuarial Equivalent present value of those
payments shall be paid to the estate in a single lump
sum as soon as administratively reasonable following the
Independent Trustee's death, and (ii) if the Independent
Trustee's beneficiary is other than his estate, the
Committee in its sole discretion may direct that the
Actuarial Equivalent value of those payments be paid in
such form other than the Normal Form of Benefit
(including without limitation a lump sum) as it
determines.
4. PAYMENT OF BENEFIT; ALLOCATION OF COSTS
The Fund is responsible for the payment of the benefits, as
well as all expenses of administration of the Plan, including
without limitation all accounting, legal and actuarial fees
and expenses. The obligations of the Fund to pay such
benefits and expenses will not be secured or funded in any
manner, and the obligations will not have any preference over
the lawful claims of the Fund's creditors and shareholders.
The Fund shall be under no obligation to segregate any assets
for the purpose of providing retirement benefits pursuant to
this Plan, and to the extent that any Independent Trustee or
beneficiary acquires a right to receive a
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<PAGE> 6
benefit under the Plan, such right shall be limited to that of
a recipient of an unfunded, unsecured promise to pay amounts
in the future and such person's position with respect to such
amounts shall be that of a general unsecured creditor of the
Fund. To the extent that the Fund consists of one or more
separate portfolios, costs and expenses will be allocated
among the portfolios by the Board of Trustees of the Fund (the
"Board") in a manner that is determined by the Board to be
fair and equitable under the circumstances.
5. ADMINISTRATION
(a) The Committee. Any question involving entitlement to
payments under or the interpretation or administration
of the Plan will be referred to a committee (the
"Committee") of Independent Trustees designated by the
Board. Except as otherwise provided herein, the
Committee will make all interpretations and
determinations necessary or desirable for the Plan's
administration, and such interpretations and
determinations will be final and conclusive.
(b) Powers of the Committee. The Committee will represent
and act on behalf of the Fund in respect of the Plan
and, subject to the other provisions of the Plan, the
Committee may adopt, amend or repeal by-laws or other
regulations, relating to the administration of the Plan,
the conduct of the Committee's affairs, its rights or
powers or the rights or powers of its members or of the
Board. The Committee will report to the Board from time
to time on its activities in respect of the Plan. The
Committee or persons designated by it will cause such
records to be kept as may be necessary for the
administration of the Plan.
6. MISCELLANEOUS PROVISIONS
(a) Rights Not Assignable. The right to receive any payment
under the Plan may not be transferred, assigned, pledged
or otherwise alienated.
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<PAGE> 7
(b) Amendment, etc. The Committee, with the concurrence of
the Board, may at any time amend or terminate the Plan
or waive any provision of the Plan, provided that no
amendment, termination or waiver will impair the rights
of an Independent Trustee to receive upon Retirement the
payments which would have been made to that Independent
Trustee had there been no such amendment, termination or
waiver (based upon that Independent Trustee's Years of
Service to the date of such amendment, termination or
waiver) or the rights of a former Independent Trustee or
Retired Trustee to receive any benefit due under the
Plan, without the consent of such present or former
Independent Trustee or Retired Trustee, as the case may
be. A present or former Independent Trustee or Retired
Trustee may elect to waive receipt of his benefit by so
advising the Committee.
Notwithstanding any provision of this Plan to the
contrary, however, in the event of the sale of all or
substantially all of the assets of the Fund, the
liquidation or dissolution of the Fund, or any merger or
other similar reorganization of the Fund that the Fund
does not survive:
(i) if although the Fund does not survive there is a
surviving entity, all rights and benefits
(including without limitation those of Retired
Trustees) under the Plan shall cease upon
consummation of such transaction, unless, and only
to the extent that, the board of trustees (or
other similar governing body) of the surviving
entity agrees to assume the Plan and/or to provide
any such rights or benefits; and
(ii) if there is no surviving entity, the Board shall
have the right to take specific action to
terminate the Plan and/or to cause any or all
rights and benefits (including without limitation
those of Retired Trustees) under the Plan to cease
as of the date of such event but, in the absence
of any such specific action, the lump sum
Actuarial Equivalent present value
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<PAGE> 8
of the Accrued Benefit of each present or former
Independent Trustee or Retired Trustee (or
beneficiary thereof) who on the date of
liquidation is receiving or entitled to receive a
benefit under the Plan or would be entitled to
receive a benefit under the Plan based on his
actual or deemed termination of service as of the
date of such liquidation shall be paid to such
person.
(c) No Right to Re-election. Nothing in the Plan will
create any obligation on the part of the Board to
nominate any Independent Trustee for re-election.
(d) Vacancies. Although the Board will retain the right to
increase or decrease its size, it shall be the general
policy of the Board to replace each person who ceases to
serve as an Independent Trustee by selecting a new
Independent Trustee from candidates duly proposed.
(e) Consulting. Each Retired Trustee may render such
services for the Fund, for such compensation, as may be
agreed upon from time to time by such Trustee and the
Board of the Fund.
(f) Construction. Whenever any masculine terminology is
used in this Plan, it shall be taken to include the
feminine, unless the context otherwise indicates. The
titles and headings included herein are for convenience
only and shall not be construed as in any way affecting
or modifying the text of this Plan, which text shall
control. This Plan shall be construed and regulated in
accordance with the laws of The Commonwealth of
Massachusetts, except to the extent such state law is
preempted by federal law.
(g) Effective Date. This Plan will become effective on
January 1, 1991 (the "Effective Date").
-8-
<PAGE> 1
Exhibit 8(e)
CUSTODIAN AGREEMENT
BETWEEN
MFS SERIES TRUST IV, ON BEHALF OF MFS OTC FUND
AND
INVESTORS BANK & TRUST COMPANY
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
1. Bank Appointed Custodian . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.1. Authorized Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.2. Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.3. Portfolio Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.4. Officers' Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.5. Book-Entry System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.6. Depository . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3. Proper Instructions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4. Separate Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
5. Certification as to Authorized Persons . . . . . . . . . . . . . . . . . . . . . . . . . . 3
6. Custody of Cash and Securities of the Fund . . . . . . . . . . . . . . . . . . . . . . . . 3
6.1. Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(a) Purchase of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(b) Redemptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(c) Distributions and Expenses of Fund . . . . . . . . . . . . . . . . . . . . . . . . . 4
(d) Payment in Respect of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(e) Repayment of Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(f) Repayment of Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(g) Foreign Exchange Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(h) Commodities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(i) Other Authorized Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(j) Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
6.2. Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(a) Book-Entry System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(b) Use of a Depository . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(c) Use of Book-Entry System for Commercial Paper . . . . . . . . . . . . . . . . . . . 10
(d) Use of Bond Immobilization Programs . . . . . . . . . . . . . . . . . . . . . . . . 11
(e) Eurodollar CDs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
I
<PAGE> 3
TABLE OF CONTENTS (CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
6.3. Options and Futures Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(a) Puts and Calls Traded on Securities Exchanges, NASDAQ . . . . . . . . . . . . . . . 11
or Over-the Counter
(b) Puts, Calls and Futures Traded on Commodities Exchanges . . . . . . . . . . . . . . 12
(c) Segregated Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.4. Segregated Account For "When Issued", "Forward Commitments" . . . . . . . . . . . . 13
and Reverse Repurchase Agreement Transactions
6.5. Interest Bearing Call or Time Deposits . . . . . . . . . . . . . . . . . . . . . . . 14
7. Transfer of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
8. Redemptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
9. Merger, Dissolution, etc. of Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
10. Actions of Bank Without Prior Authorization . . . . . . . . . . . . . . . . . . . . . . . 17
11. Maintenance of Records; Fund Evaluation, Accounting Services . . . . . . . . . . . . . . . 18
12. Concerning the Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
12.1. Performance of Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
12.2. Fees and Expenses of Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
12.3. Advances by Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
13. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
14. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
15. Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
16. Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
17. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
18. Interpretive and Additional Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . 24
</TABLE>
II
<PAGE> 4
TABLE OF CONTENTS (CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
19. Delegation of Certain Custodian Duties to Massachusetts Financial . . . . . . . . . . . . 24
Services Company ("MFS")
</TABLE>
III
<PAGE> 5
CUSTODIAN AGREEMENT
AGREEMENT made as of this 20th day of October, 1993 between MFS SERIES
TRUST IV, established as a Massachusetts Business Trust under the laws of the
Commonwealth of Massachusetts (the "Fund") on behalf of MFS OTC Fund (the
"Portfolio"), a series of the Fund, and INVESTORS BANK & TRUST COMPANY
("Bank").
The Fund, an open end management investment company, desires to place
and maintain all of the securities and cash of the Portfolio in the custody of
the Bank. The Bank has at least the minimum qualifications required by Section
17(f)(1) of the Investment Company Act of 1940 to act as custodian of the
securities and cash of the Portfolio, and has indicated its willingness to so
act, subject to the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements contained herein, the parties hereto agree as follows:
1. Bank Appointed Custodian. The Fund hereby appoints the Bank
as custodian of the securities and cash of the Portfolio delivered to the Bank
as hereinafter described, and the Bank agrees to act as such upon the terms and
conditions hereinafter set forth. Any reference in this Agreement to any
actions to be taken by the Fund shall be deemed to refer to the Fund acting on
behalf of the Portfolio, any reference in this Agreement to any assets of the
Fund, including, without limitation, any portfolio securities and cash and
earnings thereon, shall be deemed to refer only to assets of the Portfolio, and
any obligation or liability of the Fund hereunder shall be binding only with
respect to the Portfolio, and shall be discharged only out of the assets of
such Portfolio.
2. Definitions. Whenever used herein, the terms listed below
will have the following meaning:
2.1. Authorized Person. Authorized Person will mean any
of the persons duly authorized to give Proper
Instructions or otherwise act on behalf of the Fund
by appropriate resolution of the Board of Trustees
of the Fund (the "Board") or with respect to
actions regarding transfers of securities and other
investment activities, those persons duly
authorized by the investment adviser of the Fund.
2.2. Security. The term security as used herein will
have the same meaning as when such term is used in
the Securities Act of 1933 as amended, including,
without limitation, any note, stock, treasury
stock, bond, debenture, evidence of indebtedness,
certificate of interest or participation in any
profit sharing agreement, collateral-trust
certificate, preorganization certificate or
subscription, transferable share, investment
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<PAGE> 6
contract, voting-trust certificate, certificate of
deposit for a security, fractional undivided
interest in oil, gas, or other mineral rights, any
put, call, straddle, option, or privilege on any
security, certificate of deposit, or group or index
of securities (including any interest therein or
based on the value thereof), or any put, call,
straddle, option, or privilege entered into on a
national securities exchange relating to a foreign
currency, or, in general, any interest or
instrument commonly known as a "security", or any
certificate of interest or participation in,
temporary or interim certificate for, receipt for,
guarantee of, or warrant or right to subscribe to,
or option contract to purchase or sell any of the
foregoing and futures, forward contracts and
options thereon.
2.3. Portfolio Security. Portfolio security will mean
any security owned by the Fund.
2.4. Officers' Certificate. Officers' Certificate will
mean unless otherwise indicated, any request,
direction, instruction, or certification in writing
signed by any Authorized Person or Persons of the
Fund as the Fund shall designate to the Bank in
writing from time to time.
2.5. Book-Entry System. Book-Entry System shall mean
the Federal Reserve-Treasury Department Book Entry
System for United States government,
instrumentality and agency securities operated by
the Federal Reserve Banks, its successor or
successors and its nominee or nominees.
2.6. Depository. Depository shall mean The Depository
Trust Company ("DTC"), or Participants Trust
Company ("PTC"), both of which are clearing
agencies registered with the Securities and
Exchange Commission under Section 17A of the
Securities Exchange Act of 1934, and their
respective successor or successors and nominee or
nominees. The term "Depository shall further mean
and include any other person authorized to act as a
depository under the Investment Company Act of
1940, its successor or successors and its nominee
or nominees, specifically identified in a certified
copy of a resolution of the Fund's Board.
3. Proper Instructions. Proper Instructions shall mean (i)
instructions regarding the purchase or sale of securities for the portfolio of
the Fund, and payments and deliveries in connection therewith, given by an
Authorized Person or Persons as designated by the Fund in writing from time to
time, such instructions to be given in such form and manner as the Bank and the
Fund shall agree upon from time to time, and (ii) instructions (which may be
continuing instructions) regarding other matters signed or initialed by such
one or more Authorized Persons. Oral instructions will be considered Proper
Instructions if the Bank reasonably believes them to have been given by an
Authorized Person. The Fund shall cause all oral instructions to be
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<PAGE> 7
promptly confirmed in writing. The Bank shall act upon and comply with any
subsequent Proper Instruction which modifies a prior instruction and the Bank
shall make reasonable efforts to detect any discrepancy between the original
instruction and such confirmation and to report such discrepancy to the Fund.
Proper Instructions may include communication effected directly between
electro-mechanical or electronic devices provided that the Fund and the Bank
are satisfied that such procedures afford adequate safeguards for the Fund's
assets.
4. Separate Accounts. The Bank will segregate the assets of the
Portfolio into a separate account containing the assets of such Portfolio (and
all investment earnings thereon), all as directed from time to time by Proper
Instructions.
5. Certification as to Authorized Persons. The Secretary or
Assistant Secretary of the Fund will at all times maintain on file with the
Bank his certification to the Bank, in such form as may be acceptable to the
Bank, of (i) the names and signatures of the Authorized Persons and (ii) the
names of the members of the Board, it being understood that upon the occurrence
of any change in the information set forth in the most recent certification on
file (including without limitation any person named in the most recent
certification who is no longer an Authorized Person as designated therein), the
Secretary or Assistant Secretary of the Fund will sign a new or amended
certification setting forth the change and the new, additional or omitted names
or signatures. The Bank will be entitled to rely and act upon any Officers'
Certificate given to it by the Fund.
6. Custody of Cash and Securities. As custodian for the Fund,
the Bank will keep safely all of the portfolio securities delivered to the
Bank, and will deposit to the account of the Fund all of the cash of the Fund
delivered to the Bank, as set forth below.
6.1. Cash. The Bank will open and maintain a separate
account or accounts in the name of the Fund or, if
directed by the Fund, in the name of the Bank, as
custodian of the Fund, subject only to draft or
order by the Bank acting pursuant to the terms of
this Agreement. The Bank will hold in such account
or accounts as custodian, subject to the provisions
hereof, all cash received by it, including borrowed
funds, for the account of the Fund. Upon receipt
by the Bank of Proper Instructions (which may be
continuing instructions) or in the case of payments
for redemptions and repurchases of outstanding
shares of beneficial interest of the Fund,
notification from the Fund's transfer agent as
provided in Section 8, requesting such payment,
designating the payee or the account or accounts to
which the Bank will release funds for deposit, and
stating that it is for a purpose permitted under
the terms of this Section 6.1, specifying the
applicable subsection, or describing such purpose
with sufficient particularity to permit the Bank to
ascertain the applicable
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<PAGE> 8
subsection, the Bank will make payments of cash
held for the accounts of the Fund, insofar as funds
are available for that purpose, only as permitted
in (a)-(j) below.
(a) Purchase of Securities: upon the purchase of
securities for the Fund, against
contemporaneous receipt of such securities by
the Bank registered in the name of the Fund or
in the name of, or properly endorsed and in
form for transfer to, the Bank, or a nominee of
the Bank, or receipt for the account of the
Bank through use of (1) the Book-Entry System
pursuant to Section 6.2(a)(3) below, (2)
Depository pursuant to 6.2(b) below, or (3)
Book Entry Paper pursuant to Section 6.2(c)
below, each such payment to be made at the
purchase price shown in the Proper Instructions
received by the Bank before such payment is
made;
(b) Redemptions: in such amount as may be
necessary for the repurchase or redemption of
shares of beneficial interest of the Fund
offered for repurchase or redemption in
accordance with Section 8 of this Agreement;
(c) Distributions and Expenses of Fund: for the
payment on the account of the Fund of dividends
or other distributions to shareholders as may
from time to time be declared by the Board,
interest, taxes, management or supervisory
fees, distribution fees, fees of the Bank for
its services hereunder and reimbursement of the
expenses and liabilities of the Bank as
provided hereunder, fees of any transfer agent,
fees for legal, accounting, and auditing
services, or other operating expenses of the
Fund;
(d) Payment in Respect of Securities: for payments
in connection with the conversion, exchange or
surrender of Portfolio securities or securities
subscribed to by the Fund held by or to be
delivered to the Bank;
(e) Repayment of Loans: to repay loans of money
made to the Fund, but, in the case of final
payment, only upon redelivery to the Bank of
any Portfolio securities pledged or
hypothecated therefor and upon surrender of
documents evidencing the loan;
(f) Repayment of Cash: to repay the cash delivered
to the Fund for the purpose of collateralizing
the obligation to return to the Fund Portfolio
securities borrowed from the Fund but only upon
redelivery to the Bank of such borrowed
Portfolio securities;
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<PAGE> 9
(g) Foreign Exchange Transactions: for payments in
connection with foreign exchange contracts or
options to purchase and sell foreign currencies
for spot and future delivery which may be
entered into by the Bank on behalf of the Fund
upon the receipt of Proper Instructions, such
Proper Instructions to specify the currency
broker or banking institution (which may be the
Bank, or any other sub custodian or agent
hereunder, acting as principal) with which the
contract or option is made, and the Bank shall
have no duty with respect to the selection of
such currency brokers or banking institutions
with which the Fund deals or for their failure
to comply with the terms of any contract or
option;
(h) Commodities: upon the purchase of commodities
for the Fund, against contemporaneous receipt
of such commodities by the Bank registered in
the name of the Fund or in the name of, or
properly endorsed and in form for transfer to,
the Bank, or a nominee of the Bank;
(i) Other Authorized Payments: for other
authorized transactions of the Fund, or other
obligations of the Fund incurred for proper
Fund purposes including, without limitation,
payments in connection with any tender offer by
the Fund; provided that before making any such
payment the Bank will also receive an Officer's
Certificate naming the person or persons to
whom such payment is to be made, and either
describing the transaction for which payment is
to be made and declaring it to be an authorized
transaction of the Fund, or specifying the
amount of the obligation for which payment is
to be made, setting forth the purpose for which
such obligation was incurred and declaring such
purpose to be a proper corporate purpose; and
(j) Termination: upon the termination of this
Agreement as hereinafter set forth pursuant to
Section 9 and Section 13 of this Agreement.
The Bank is hereby authorized to endorse for collection and
collect on behalf of and in the name of the Fund all checks, drafts, or other
negotiable or transferable instruments or other orders for the payment of money
received by it for the account of the Fund.
6.2. Securities. Except as otherwise provided herein,
the Bank as custodian, will receive and hold
pursuant to the provisions hereof, in a separate
account or accounts and physically segregated at
all times from those of other persons, any and all
Portfolio securities which may now or hereafter be
delivered to it by or for the account of the Fund.
All such Portfolio securities will be held or
disposed of by the Bank for, and subject at all
times to, the instructions of the Fund pursuant
to the terms of this
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<PAGE> 10
Agreement. Subject to the specific provisions herein relating
to Portfolio securities that are not physically held by the
Bank, the Bank will register all Portfolio securities (unless
otherwise directed by Proper Instructions or an Officers'
Certificate), in the name of a registered nominee of the Bank
as defined in the Internal Revenue Code and any Regulations of
the Treasury Department issued thereunder, and will execute
and deliver all such certificates in connection therewith as
may be required by such laws or Regulations or under the laws
of any State. The Bank will ensure that the specific
securities physically held by it hereunder will be at all
times identifiable and will exercise prudent care and use its
best efforts to the end that the other securities held by it
hereunder will be at all times identifiable.
The Bank will use the same care with respect to the
safekeeping of portfolio securities and cash of the Fund held by it as it uses
in respect of its own similar property (which will at minimum be reasonable
care) but it need not maintain any special insurance for the benefit of the
Fund. The Bank shall provide to the Fund, at least annually and upon request,
information relating to its insurance coverage. The Bank will also immediately
notify the Fund in the event any of its insurance coverage is materially
changed, cancelled or not renewed.
The Fund will from time to time furnish to the Bank
appropriate instruments to enable it to hold or deliver in proper form for
transfer, or to register in the name of its registered nominee, any securities
which it may hold for the account of the Fund and which may from time to time
be registered in the name of the Fund.
Neither the Bank nor any nominee of the Bank will vote any of
the portfolio securities held hereunder by or for the account of the Fund,
except in accordance with Proper Instructions or an Officers' Certificate.
The Bank will promptly execute and deliver, or cause to be
executed and delivered, to the Fund all notices, proxies and proxy soliciting
materials with respect to such securities, such proxies to be executed by the
registered holder of such securities (if registered otherwise than in the name
of the Fund), but without indicating the manner in which such proxies are to be
voted.
(a) Book-Entry System. Provided (i) the Bank has
received a certified copy of a resolution of the
Board specifically approving deposits of Fund
assets in the Book-Entry System, and (ii) for each
year following such approval, the Board has
reviewed and approved the arrangement and has not
delivered an Officer's Certificate to the Bank
indicating that it has withdrawn its approval:
1. The Bank may keep Securities of the Fund in the
Book-Entry System provided that such securities
are represented in an account ("Account") of
the Bank (or its agent) in such System which
shall
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<PAGE> 11
not include any assets of the Bank (or such
agent) other than assets held as a fiduciary,
custodian, or otherwise for customers.
2. The records of the Bank (and any such agent)
with respect to the Fund's participation in the
Book-Entry System through the Bank (or any such
agent) will identify by book entry securities
belonging to the Fund which are included with
other securities deposited in the Account and
shall at all times during the regular business
hours of the Bank (or such agent) be open for
inspection by duly authorized officers,
employees or agents of the Fund. Where
securities are transferred to the Fund's
account, the Bank shall also, by book entry or
otherwise, identify as belonging to the Fund a
quantity of securities in fungible bulk of
securities (i) registered in the name of the
Bank or its nominee, or (ii) shown on the
Bank's account on the books of the Federal
Reserve Bank.
3. The Bank (or its agent) shall pay for
securities purchased for the account of the
Fund or shall pay cash collateral against the
return of securities loaned by the Fund upon
(i) receipt of advice from the Book-Entry
System that such Securities have been
transferred to the Account, and (ii) the making
of an entry on the records of the Bank (or its
agent) to reflect such payment and transfer for
the account of the Fund. The Bank (or its
agent) shall transfer securities sold or loaned
for the account of the Fund upon
(i) receipt of advice from the Book-Entry
System that payment for Securities sold
or payment of the initial cash collateral
against the delivery of securities loaned
by the Fund has been transferred to the
Account, and
(ii) the making of an entry on the records of
the Bank (or its agent) to reflect such
transfer and payment for the account of
the Fund. Copies of all advices from the
Book-Entry System of transfers of
Securities or the account of the Fund
shall identify the Fund, be maintained
for the Fund by the Bank and shall be
provided to the Fund at its request. The
Bank shall send the Fund a confirmation,
as defined by Rule 17f-4 under the
Investment Company Act of 1940, of any
transfers to or from the account of the
Fund.
4. The Bank will promptly provide the Fund with
any report obtained by the Bank or its agent on
the Book-Entry System's accounting system,
internal accounting control and procedures for
safeguarding Securities deposited in the
Book-Entry System. The Bank will provide the
Fund and cause any such agent to provide, at
such times
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<PAGE> 12
as the Fund may reasonably require, with
reports by independent public accountants on
the accounting system, internal accounting
control and procedures for safeguarding
securities, including Securities deposited in
the Book-Entry System, relating to the services
provided by the Bank or such agent under the
Agreement.
5. Anything to the contrary in the Agreement
notwithstanding, the Bank shall be liable to
the Fund for any loss or damage to the Fund
resulting from use of the Book-Entry System by
reason of any negligence, willful misfeasance
or bad faith of the Bank or any of its agents
or of any of its or their employees or from any
negligent disregard by the Bank or any such
agent of its duty to enforce effectively such
rights as it may have against the Book-Entry
System; at the election of the Fund, it shall
be entitled to be subrogated for the Bank in
any claim against the Book-Entry System or any
other person which the Bank or its agent may
have as a consequence of any such loss or
damage if and to the extent that the Fund has
not been made whole for any loss or damage.
(b) Use of a Depository. Provided (i) the Bank has
received a certified copy of a resolution of the
Fund's Board specifically approving deposits in DTC
and PTC or other such Depository; (ii) the Bank
appoints any such depository its agent; and (iii)
for each year following such Board approval, the
Board has reviewed and approved the arrangement and
has not delivered an Officer's Certificate to the
Bank indicating that it has withdrawn its approval:
1. The Bank may use a Depository to hold, receive,
exchange, release, lend, deliver and otherwise
deal with the securities owned by the Fund,
including stock dividends, rights and other
items of like nature, and to receive and remit
to the Bank on behalf of the Fund all income
and other payments thereon and to take all
steps necessary and proper in connection with
the collection thereof, provided that such
securities are held in an account of the Bank
(or its agent) in such Depository which shall
not include any assets of the Bank (or such
agent) other than assets held as a fiduciary,
custodian, or otherwise for customers. The
records of the Bank shall identify those
securities of the Trust held by the Depository.
2. Registration of the Fund's securities may be
made in the name of any nominee or nominees
used by such Depository.
3. Payment for securities purchased and sold may
be made through the clearing medium employed by
such Depository for transactions of
participants acting through it. Upon any
purchase of securities for
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<PAGE> 13
the account of the Fund, payment will be made
only upon delivery of the securities to or for
the account of the Fund and the Fund shall pay
cash collateral against the return of
securities loaned by the Fund only upon
delivery of the securities to or for the
account of the Fund; and upon any sale of
securities for the account of the Fund,
delivery of the securities will be made only
against payment thereof or, in the event
securities are loaned, delivery of securities
will be made only against receipt of the
initial cash collateral to or for the account
of the Fund.
4. Anything to the contrary in the Agreement
notwithstanding, the Bank shall be liable to
the Fund for any loss or damage to the Fund
resulting from use of a Depository by reason of
any negligence, willful misfeasance or bad
faith of the Bank or any of its agents or of
any of its or their employees or from any
negligent disregard by the Bank or any such
agent of its duty to enforce effectively such
rights as it may have against a Depository. At
the election of the Fund, it shall be entitled
to be subrogated for the Bank in any claim
against a Depository or any other person which
the Bank or its agent may have as a consequence
of any such loss or damage if and to the extent
that the Fund has not been made whole for any
loss or damage. In this connection, with
respect to the use of the Depository by the
Bank, the Bank, without cost to the Fund, shall
ensure that:
(i) The Depository obtains replacement of any
certificated security deposited with it
in the event such security is lost,
destroyed, wrongfully taken or otherwise
not available to be returned to the Bank
upon its request;
(ii) Any proxy materials received by
Depository with respect to securities of
the Fund deposited with such Depository
are forwarded immediately to the Bank for
prompt transmittal to the Fund;
(iii) Such Depository immediately forwards to
the Bank confirmation of any purchase or
sale of securities for the account of the
Fund and of the appropriate book entry
made by such Depository to the Fund's
account;
(iv) Such Depository prepares and delivers to
the Bank such records with respect to the
performance of the Bank's obligations and
duties hereunder as may be necessary for
the Fund to comply with the recordkeeping
requirements of Section 31(a) of the Act
and Rule 31a thereunder and such other
rules and regulations relating to
recordkeeping
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<PAGE> 14
requirements of the Fund as may be
enacted from time to time; and
(v) Such Depository delivers to the Bank and
the Fund all internal accounting control
reports, whether or not audited by an
independent public accountant, as well as
such other reports as the Fund may
reasonably request in order to verify the
Fund's securities held by such
Depository.
(c) Use of Book-Entry System for Commercial Paper.
Provided (i) the Bank has received a certified copy
of a resolution of the Board specifically approving
participation in a system maintained by the Bank
for the holding of commercial paper in book-entry
form ("Book Entry Paper") and (ii) for each year
following such approval the Board has reviewed and
approved the arrangements, upon receipt of Proper
Instructions and upon receipt of confirmation from
an Issuer (as defined below) that the Fund has
purchased such Issuer's Book Entry Paper, the Bank
shall issue and hold in book-entry form, on behalf
of the Fund, commercial paper issued by issuers
with whom the Bank has entered into a book-entry
agreement (the "Issuers"). In maintaining its Book
Entry Paper System, the Bank agrees that:
1. The Bank will maintain all Book Entry Paper
held by the Fund in an account of the Bank that
includes only assets held by it for customers;
2. The records of the Bank with respect to the
Fund's purchase of Book Entry Paper through the
Bank will identify, by book entry, Commercial
Paper belonging to the Fund which is included
in the Book Entry Paper System and shall at all
times during the regular business hours of the
Bank be open for inspection by duly authorized
officers, employees or agents of the Fund.
3. (a) The Bank shall pay for Book Entry Paper
purchased for the account of the Fund upon
contemporaneous (i) receipt of advice from the
Issuer that such sale of Book Entry Paper has
been effected, and (ii) the making of an entry
on the records of the Bank to reflect such
payment and transfer for the account of the
Fund.
(b) The Bank shall cancel such Book Entry
Paper obligation upon the maturity thereof upon
contemporaneous (i) receipt of advice that
payment for such Book Entry Paper has been
transferred to the Fund, and (ii) the making of
an entry on the records of the Bank to reflect
such payment for the account of the Fund.
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<PAGE> 15
4. The Bank shall transmit to the Fund a
transaction journal confirming each transaction
in Book Entry Paper for the account of the Fund
on the next business day following the
transaction;
5. The Bank will send to the Fund such reports on
its system of internal accounting control as
the Fund may reasonably request from time to
time;
(d) Use of Bond Immobilization Programs. Provided (i)
the Bank has received a certified copy of a
resolution of the Board specifically approving the
maintenance of portfolio securities in an
immobilization program operated by a bank which
meets the requirements of Section 26(a)(1) of the
Investment Company Act of 1940, and (ii) for each
year following such approval the Board has reviewed
and approved the arrangement and has not delivered
an officer's Certificate to the Bank indicating
that it has withdrawn its approval, the Bank shall
enter into such immobilization program with such
bank acting as a subcustodian hereunder.
(e) Eurodollar CDs. Any Eurodollar CDs belonging to
the Fund may be physically held by the European
branch of the U.S. banking institution that is the
issuer of such Eurodollar CD (a "European Branch"),
provided that such securities are identified on the
books of the Bank as belonging to the Fund and that
the books of the Bank identify the European branch
holding such securities. Notwithstanding any other
provision of this Agreement to the contrary, except
as stated in the first sentence of this
subparagraph (e), the Bank shall be under no other
duty with respect to such Eurodollar CDs belonging
to the Fund, and shall have no liability to the
Fund or its shareholders with respect to the
actions, inactions, whether negligent or otherwise
of such European Branch in connection with such
Eurodollar CDs, except for any loss or damage to
the Fund resulting from the Bank's own negligence,
willful misfeasance or bad faith in the performance
of its duties hereunder.
6.3. Options and Futures Transactions.
(a) Puts and Calls Traded on Securities Exchanges.
NASDAQ or Over-the-Counter.
1. The Bank shall take action as to put
options ("puts") and call options
("calls") purchased or sold (written) by
the Fund regarding escrow or other
arrangements in accordance with the
provisions of any requirement entered
into upon receipt of Proper Instructions
between the Bank, any broker and, if
necessary, the Fund. In the case of a
call option written by the
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<PAGE> 16
Fund, the Bank will arrange for an escrow
receipt to be issued when requested to
do so by the Fund.
2. Unless another agreement requires it to
do so, the Bank shall be under no duty or
obligation to see that the Fund has
deposited or is maintaining adequate
margin, if required, with any broker in
connection with any option, nor shall the
Bank be under duty or obligation to
present such option to the broker for
exercise unless it receives Proper
Instructions from the Fund. The Bank
shall, however, comply with all Proper
Instructions regarding margin and
exercise of options. The Bank shall have
no responsibility for the legality of any
put or call purchased or sold on behalf
of the Fund, the propriety of any such
purchase or sale, or the adequacy of any
collateral delivered to a broker in
connection with an option or deposited to
or withdrawn from a Segregated Account as
described in sub-paragraph c of this
Section 6.3. The Bank specifically, but
not by way of limitation, shall not be
under any duty or obligation to: (i)
periodically check or notify the Fund
that the amount of such collateral held
by a broker or held in a Segregated
Account as described in sub-paragraph (c)
of this Section 6.3 is sufficient to
protect such broker of the Fund against
any loss; (ii) effect the return of any
collateral delivered to a broker,
provided however, the Bank shall, upon
expiration of an option, return to the
Fund any collateral held by the Bank
relating to such option; or (iii) advise
the Fund that any option it holds, has or
is about to expire. Such duties or
obligations shall be the sole
responsibility of the Fund.
(b) Puts. Calls and Futures Traded on Commodities Exchanges.
1. The Bank shall take action as to puts,
calls and futures contracts ("Futures")
purchased or sold by the Fund in
accordance with the provisions of any
agreement among the Fund, the Bank and a
Futures merchant relating to compliance
with the rules of the Commodity Futures
Trading Commission and/or any contract
market, or any similar organization or
organizations, (including any foreign
organization) regarding account deposits
in connection with transactions by the
Fund.
2. The responsibilities and liabilities of
the Bank as to Futures, puts and calls
traded on commodities exchanges, any
Futures Commission Merchant account and
the Segregated Account shall be limited
as set forth in sub-paragraph (a)(2) of
this Section 6.3 as if such sub-paragraph
referred to Futures
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<PAGE> 17
Commission Merchants rather than brokers,
and Futures and puts and calls thereon
instead of options.
(c) Segregated Account.
The Bank shall upon receipt of Proper
Instructions establish and maintain a
Segregated Account or Accounts for and on
behalf of the Fund, into which Account or
Accounts may be transferred cash and/or
securities including securities maintained in
an Account by the Bank pursuant to Section 6.2
hereof, (i) in accordance with the provisions
of any agreement among the Fund, the Bank and a
broker or any Futures merchant, relating to
compliance with the rules of the Options
Clearing Corporation and of any registered
national securities exchange or the Commodity
Futures Trading Commission or any registered
contract market, or of any similar organization
or organizations (including any foreign
organization) regarding escrow or other
arrangements in connection with transactions by
the Fund, and (ii) for the purpose of
segregating cash or securities in connection
with options purchased, or written by the Fund
or commodity futures or options thereon
purchased or written by the Fund, and (iii) for
the purposes of compliance by the Fund with the
procedures required by Investment Company Act
Release No. 10666, or any subsequent release or
releases or rules or regulations of the
Securities and Exchange Commission relating to
the maintenance of Segregated Accounts by
registered investment companies, and (iv) for
the purpose of segregating cash or securities
for the ICI Mutual Insurance Company letter of
credit, and (v) for other proper corporate
purposes, but only, in the case of clause (v),
upon receipt of an Officers' Certificate,
setting forth the purpose or purposes of such
Segregated Account and declaring such purposes
to be proper corporate purposes.
6.4. Segregated Account for "When-Issued". "Forward
Commitment" and Reverse Repurchase Agreement
Transactions. Notwithstanding any other provisions
hereof, the Bank will maintain a segregated account
(the "Segregated Account") in the name of the Fund
(i) for the deposit of liquid assets, such as cash,
U.S. Government securities or other high grade
obligations, having a value (marked to the market
on a daily basis by the Bank) at all times equal to
not less than the aggregate purchase price due on
the settlement dates (or such other amount as the
Fund shall indicate) of all the Fund's then
outstanding forward commitment or "when-issued"
agreements relating to the purchase of portfolio
securities and all the Fund's then outstanding
commitments under reverse repurchase agreements
entered into with broker-dealer firms, and (ii) for
the deposit of any portfolio securities which the
Fund has agreed to sell
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<PAGE> 18
on a forward commitment basis, all in accordance
with Securities and Exchange Commission Release No.
IC-10666. No assets shall be deposited in the
Segregated Account except pursuant to Proper
Instructions. Assets may be withdrawn from the
segregated account pursuant to Proper Instructions
only (a) for sale or delivery to meet the Fund's
obligations under outstanding firm commitment or
when-issued agreements for the purchase of
portfolio securities and under reverse repurchase
agreements, (b) for exchange for other liquid
assets of equal or greater value deposited in the
Segregated Account, (c) to the extent that the
Fund's outstanding forward commitment or
when-issued agreements for the purchase of
portfolio securities or reverse repurchase
agreements are sold to other parties or the Fund's
obligations thereunder are met from assets of the
Fund other than those in the Segregated Account, or
(d) for delivery upon settlement of a forward
commitment agreement for the sale of portfolio
securities.
6.5. Interest Bearing Call or Time Deposits. The Bank
shall, upon receipt of Proper Instructions relating
to the purchase by the Fund of interest bearing
fixed term and call deposits, transfer cash, by
wire or otherwise, in such amounts and to such bank
or banks as shall be indicated in such Proper
Instructions. The Bank shall include in its
records with respect to the assets of the Fund
appropriate notation as to the amount of each such
deposit, the banking institution with which such
deposit is made (the "Deposit Bank"), and shall
retain such forms of advice or receipt evidencing
the deposit, if any, as may be forwarded to the
Bank by the Deposit Bank. Such deposits shall be
deemed portfolio securities of the Fund and the
responsibility of the Bank therefore shall be the
same as and no greater than the Bank's
responsibility in respect of other portfolio
securities of the Fund.
7. Transfer of Securities. The Bank will transfer, exchange,
deliver or release Portfolio securities held by it hereunder, insofar as such
securities are available for such purpose, provided that before making any
transfer, exchange, delivery or release under this Section the Bank will
receive Proper Instructions requesting such transfer, exchange or delivery
stating that it is for a purpose permitted under the terms of this Section 7,
specifying the applicable subsection, or describing the purpose of the
transaction with sufficient particularity to permit the Bank to ascertain the
applicable subsection, only
7.1. upon sales of Portfolio securities for the account
of the Fund, against contemporaneous receipt by the
Bank of payment therefor in full, each such payment
to be in the amount of the sale price shown in the
Proper Instructions received by the Bank before
such payment is made;
7.2. in exchange for or upon conversion into other
securities alone or other securities and cash
pursuant to any plan of merger, consolidation,
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<PAGE> 19
reorganization, share split-up, change in par
value, recapitalization or readjustment or
otherwise, upon exercise of subscription, purchase
or sale or other similar rights represented by such
Portfolio securities, or for the purpose of
tendering shares in the event of a tender offer
therefore, provided however that in the event of an
offer of exchange, tender offer, or other exercise
of rights requiring the physical tender or delivery
of Portfolio securities, the Bank shall have no
liability for failure to so tender in a timely
matter unless such Proper Instructions are received
by the Bank at least two business days prior to the
date required for tender, and unless the Bank (or
its agent or subcustodian hereunder) has actual
possession of such security at least two business
days prior to the date of tender:
7.3. upon conversion of Portfolio securities pursuant to
their terms into other securities;
7.4. for the purpose of redeeming in kind shares of
common stock of the Fund upon authorization from
the Fund;
7.5. in the case of option contracts owned by the Fund,
for presentation to the endorsing broker;
7.6. when such Portfolio securities are called, redeemed
or retired or otherwise become payable;
7.7. for the purpose of effectuating the pledge of
portfolio securities held by the Bank pursuant to
this Agreement in order to collaterals loans made
to the Fund by any bank, including the Bank;
provided, however, that such Portfolio securities
will be released only upon payment to the Bank for
the account of the Fund of the moneys borrowed,
except that in cases where additional collateral is
required to secure a borrowing already made, and
such fact is made to appear in the Proper
Instructions, further portfolio securities may be
released for that purpose without any such payment;
7.8. for the purpose of releasing certificates
representing Portfolio securities of the Fund,
against contemporaneous receipt by the Bank of the
fair value of such security, as set forth in Proper
Instructions received by the Bank before such
payment is made;
7.9. for the purpose of delivering securities lent by
the Fund to a bank or broker dealer, but only
against receipt in accordance with street delivery
custom except as otherwise provided in Subsections
6.2(a) and (b) hereof, of adequate collateral as
agreed upon from time to time by the Fund and the
Bank, and upon receipt of payment in connection
with any
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<PAGE> 20
repurchase agreement relating to such securities
entered into by the Fund;
7.10. for other authorized transactions of the Fund or
for other proper corporate purposes; provided that
before making such transfer, the Bank will also
receive an Officers' Certificate specifying the
portfolio securities to be delivered, setting forth
the transaction in or purpose for which such
delivery is to be made, declaring such transaction
to be an authorized transaction of the Fund or such
purpose to be a proper corporate purpose, and
naming the person or persons to whom delivery of
such securities shall be made; and
7.11. upon termination of this Agreement as hereinafter
set forth pursuant to Section 9 and Section 13 of
this Agreement.
7.12. for delivery in accordance with the provisions of
any agreement among the Fund, the Bank and a
broker-dealer relating to compliance with the rules
of the Options Clearing Corporation and of any
registered national securities exchange, or of any
similar organization or organizations (including
foreign organizations), regarding escrow or other
arrangements in connection with transactions by the
Fund;
7.13. For delivery in accordance with the provisions of
any agreement among the Fund, the Bank, and a
Futures commission merchant relating to compliance
with the rules of the Commodity Futures Trading
Commissions or any similar organization or
organizations (including foreign organizations),
regarding account deposits in connection with
transactions by the Fund.
As to any deliveries made by the Bank pursuant to subsections
7.1, 7.2, 7.3, 7.5, 7.6, 7.7, 7.8 and 7.9, securities or cash receivable in
exchange therefor shall be delivered to the Bank.
8. Redemptions. In the case of payment of assets of the Fund
held by the Bank in connection with redemptions and repurchases by the Fund of
its outstanding shares of beneficial interest, the Bank will rely on written
notification by the Fund's transfer agent of receipt of a request for
redemption and certificates, if issued, in proper form for redemption before
such payment is made. Payment shall be made in accordance with the Declaration
of Trust of the Fund, from assets available for said purpose.
9. Merger, Dissolution, etc. of Fund. In the case of the
following transactions, not in the ordinary course of business, namely, the
merger of the Fund into or the consolidation of the Fund with another
investment company, the sale by the Fund of all, or substantially all of its
assets to another investment company, or the liquidation or dissolution of the
Fund and distribution of its assets, the Bank will deliver the Portfolio
securities held by it under this
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<PAGE> 21
Agreement and disburse cash only upon the order of the Fund set forth in an
officers Certificate, accompanied by a certified copy of a resolution of the
Fund's Board authorizing any of the foregoing transactions. Upon completion of
such delivery and disbursement and the payment of the preapproved fees,
disbursements and expenses of the Bank, this Agreement will terminate.
10. Actions of Bank Without Prior Authorization. Notwithstanding
anything herein to the contrary, unless and until the Bank receives an
Officers' Certificate to the contrary, it will without prior authorization or
instruction of the Fund or the transfer agent:
10.1. Receive and hold for the account of the Fund
hereunder and deposit in the account or accounts
referred to in Section 6 hereof, all income,
dividends, interest and other payments or
distribution of cash with respect to the Portfolio
securities held thereunder;
10.2. Present for payment all coupons and other income
items held by it for the account of the Fund which
call for payment upon presentation and hold the
cash received by it upon such payment for the
account of the Fund account or accounts referred to
in Section 6 hereof;
10.3. Receive and hold for the account of the Fund
hereunder and deposit in the account or accounts
referred to in Section 6 hereof all securities
received as a distribution on Portfolio securities
as a result of a stock dividend, share split-up,
reorganization, recapitalization, merger,
consolidation, readjustment, distribution of rights
and similar securities issued with respect to any
Portfolio securities held by it hereunder.
10.4. Execute as agent on behalf of the Fund all
necessary ownership and other certificates and
affidavits required by the Internal Revenue Code or
the regulations of the Treasury Department issued
thereunder, or by the laws of any state, now or
hereafter in effect, inserting the Fund's name on
such certificates as the owner of the securities
covered thereby, to the extent it may lawfully do
so and as may be required to obtain payment in
respect thereof. The Bank will execute and deliver
such certificates in connection with Portfolio
securities delivered to it or by it under this
Agreement as may be required under the provisions
of the Internal Revenue Code and any Regulations of
the Treasury Department issued thereunder, or under
the laws of any State;
10.5. Present for payment all portfolio securities which
are called, redeemed, retired or otherwise become
payable, and hold cash received by it upon payment
for the account of the Fund in the account or
accounts referred to in Section 6 hereof: and
10.6. Exchange interim receipts or temporary securities
for definitive securities.
-17-
<PAGE> 22
The Bank shall collect any funds which are collectible arising
from Portfolio securities, including dividends, interest and other income, and
shall transmit promptly to the Fund all written information affecting such
securities including, without limitation, any call for redemption, offer of
exchange, pendency of maturity, notices regarding options and futures
contracts, right of subscription, reorganization or other proceedings.
If Portfolio securities upon which such income is payable are
in default or payment is refused after due demand or presentation, the Bank
will notify the Fund in writing of any default or refusal to pay within two
business days from the day on which it receives knowledge of such default or
refusal. In addition, the Bank will send the Fund a written report once each
month showing any income on any Portfolio security held by it which is more
than ten days overdue on the date of such report.
11. Maintenance of Records; Fund Evaluation; Accounting Services.
The Bank will maintain records with respect to transactions for which the Bank
is responsible pursuant to the terms and conditions of this Agreement, and in
compliance with the applicable rules and regulations of the Investment Company
Act of 1940 as amended, as well as applicable federal and state tax laws and
all other laws and regulations which may be applicable, and will furnish the
Fund daily with a statement of assets and liabilities and a portfolio of
investments of the Fund as well as such other calculations and reports as the
Bank and Fund may agree from time to time. The Bank will furnish to the Fund
at the end of every month, and at the close of each quarter of the Fund's
fiscal year as well as at such other times as the Fund may request, a list of
the Portfolio securities and the aggregate amount of cash held by it for the
Fund. The books and records of the Bank pertaining to its actions under this
Agreement and reports by the Bank or its independent accountants concerning its
accounting system, procedures for safeguarding the Fund's assets and internal
accounting controls, which shall be of sufficient scope and in sufficient
detail as may reasonably be required by the Fund to provide reasonable
assurance that any material inadequacies would be disclosed by such
examination, and, if there are no such inadequacies, shall so state, and will
be open to inspection and audit at reasonable times by officers of or auditors
employed by the Fund as well as any other person authorized by the Fund by
Proper Instructions. The books and records relating to the Fund will be
preserved by the Bank in the manner and in accordance with the applicable rules
and regulations under the Investment Company Act of 1940 and shall be the
property of the Fund. As custodian the Bank shall have and perform the
following powers and duties:
11.1. To keep the books of account and render statements
or copies from time to time as reasonably requested
by the Treasurer or any executive officer of the
Fund.
11.2. To compute and, unless otherwise directed by the
Board, determine as of the close of business on the
New York Stock Exchange on each day on which said
Exchange is open for trading or as of such other
hours, if any, as may be authorized by said Board
the net asset value and the public offering price
of a share of beneficial interest of the Fund, such
-18-
<PAGE> 23
determination to be made in accordance with the
provisions of the Declaration of Trust of the Fund
and Prospectus and Statement of Additional
Information relating to the Fund, as they may from
time to time be amended, and any applicable
resolutions of the Board at the time in force and
applicable; and promptly to notify the Fund and the
National Association of Securities Dealers ("NASD")
or such other persons as the Fund may request of
the results of such computation and determination.
In computing the net asset value hereunder, the
Bank may rely in good faith upon information
furnished in writing to it by any Authorized Person
in respect of (i) the manner of accrual of the
liabilities of the Fund and in respect of
liabilities of the Fund not appearing on its books
of account kept by the Bank, (ii) reserves, if any,
authorized by the Board or that no such reserves
have been authorized, (iii) the source of the
quotations to be used in computing the net asset
value, (iv) the value to be assigned to any
security for which no price quotations are
available, and (v) the method of computation of the
public offering price on the basis of the net asset
value of the shares, and the Bank shall not be
responsible for any loss occasioned by such
reliance or for any good faith reliance on any
quotations received from a source pursuant to (iii)
above.
11.3. To assist generally in the preparation of reports
to shareholders and others, audits of accounts, and
other ministerial matters of like nature.
12. Concerning the Bank.
12.1. Performance of Duties. In performing its duties
hereunder and any other duties listed on any
Schedule hereto, if any, the Bank will be entitled
to receive and act upon the advice of independent
counsel of its own selection, which may be counsel
for the Fund, and will be without liability for any
action taken or thing done or omitted to be done in
accordance with this Agreement in good faith in
conformity with such advice, if such counsel and
such advice are approved by the Fund, provided
however such approval shall not be unreasonably
withheld. In the performance of its duties
hereunder, so long as it exercises reasonable care,
the Bank will be protected and not be liable, and
will be indemnified and saved harmless for any
action taken or omitted to be taken by it in good
faith reliance upon the terms of this Agreement,
any Officers' Certificate, Proper Instructions,
resolution of the Board, telegram, notice, request,
certificate or other instrument reasonably believed
by the Bank to be genuine and to have been sent by
an Authorized Person and for any other loss to the
Fund except in the case of the Bank's negligence,
willful misfeasance or misconduct or bad faith in
the performance of its duties or negligent
disregard of its obligations and duties hereunder.
-19-
<PAGE> 24
The Bank may employ agents in the performance of
its duties hereunder and the Bank shall be
responsible for the acts and omissions of such
agents as if performed by the Bank hereunder. The
Bank may employ subcustodians upon receipt of
Proper Instructions indicating that the Board has
so approved the appointment, provided that any such
sub custodian meets at least the minimum
qualifications required by Section 17(f)(1) of the
Investment Company Act of 1940 to act as a
custodian of the Fund's assets. In order to comply
with Rule 17f-5, (and 17f-4, if applicable) of the
Investment Company Act of 1940, the contract
between the Bank and any foreign sub custodian
relating to securities of the Fund shall be subject
to approval of the Fund. The appointment of any
subcustodian by the Bank pursuant to this Agreement
shall not relieve the Bank of its responsibilities
and liabilities under this Agreement, and the Bank
shall be liable to the Fund, to the extent of the
Fund's damages, resulting from the failure of any
subcustodian to exercise reasonable care and to act
in good faith without negligence, provided however,
the Bank shall not be liable for any loss resulting
from, or caused by nationalization, expropriation,
currency restrictions, acts of war or terrorism,
insurrection, revolution, nuclear fusion, fission
or radiation, acts of God or other similar events
or acts not due to the failure of the Bank or any
sub custodians to exercise reasonable care in the
performance of their duties. Notwithstanding the
foregoing, in connection with the Bank's liability
for the performance of The Chase Manhattan Bank, N.
A. ("Chase") as a subcustodian of the Fund pursuant
to an agreement by and between Chase and the Bank,
which form of agreement is attached hereto (the
"Chase Agreement"), and any subcustodian of the
Fund appointed under the Chase Agreement with the
approval of the Board, the "Fund's damages" for the
purpose of the preceding sentence will be
determined based on the market value of the
property which is the subject of the loss at the
date of discovery of such loss and without
reference to any special conditions or
circumstances.
The Bank will be under no duty or obligation to
inquire into and will not be liable for:
(a) the validity of the issue of any Portfolio
securities purchased by or for the Fund, the
legality of the purchases thereof or the
propriety of the price incurred therefor;
(b) the legality of any sale of any portfolio
securities by or for the Fund or the propriety
of the amount for which the same are sold;
(c) the legality of an issue or sale of any shares
of beneficial interest of the Fund or the
sufficiency of the amount to be received
therefor;
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<PAGE> 25
(d) the legality of the repurchase of any shares of
beneficial interest of the Fund or the
propriety of the amount to be paid therefor;
(e) the legality of the declaration of any dividend
by the Fund or the legality of the distribution
of any Portfolio securities as payment in kind
of such dividend; or
(f) any property or moneys of the Fund already
delivered or paid by the Bank pursuant to the
terms hereof.
Moreover, the Bank will not be under any duty or
obligation to ascertain whether any Portfolio
securities at any time delivered to or held by it
for the account of the Fund are such as may
properly be held by the Fund under the provisions
of its Declaration of Trust or By-Laws, any federal
or state statutes or any rule or regulation of any
governmental agency.
12.2. Fees and Expenses of Bank. The Fund will pay or
reimburse the Bank from time to time for any
transfer taxes payable upon transfer of Portfolio
securities made hereunder, and for all necessary
proper disbursements, expenses and charges made or
incurred by the Bank in the performance of this
Agreement (including any duties listed on any
Schedule hereto, if any) including any indemnities
for any loss, liabilities or expense to the Bank as
specifically provided above. For the services
rendered by the Bank hereunder, the Fund will pay
to the Bank such compensation or fees at such rate
and at such times as shall be agreed upon in
writing by the parties from time to time. The Bank
will also be entitled to reimbursement by the Fund
for all preapproved expenses incurred in
conjunction with termination of this Agreement by
the Fund.
12.3. Advances by Bank. The Bank may, in its sole
discretion, advance funds on behalf of the Fund to
make any payment permitted by this Agreement upon
receipt of any proper authorization required by
this Agreement for such payments by the Fund.
Should such a payment or payments, with advanced
funds, result in an overdraft (due to
insufficiencies of the Fund's account with the
Bank, or for any other reason) this Agreement deems
any such or related indebtedness, a loan made by
the Bank to the Fund payable on demand and bearing
interest at the rate set forth in writing by the
Bank concurrently herewith (as amended from time to
time) unless the Fund shall provide the Bank with
agreed upon compensating balances. The Fund agrees
that the Bank shall have a continuing lien and
security interest on the assets of the Fund to the
extent of any overdraft, provided that in no event
shall the amount of such lien exceed the lesser of
(i) the amount of such overdraft or (ii)
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<PAGE> 26
10% of the Fund's gross assets on the date of such
overdraft, and provided further that to the extent
consistent with the foregoing, the Bank will comply
with any Proper Instructions indicating which
Portfolio securities and/or which account of the
Fund shall be subject to such lien. If such
overdraft is not repaid within a reasonable period
of time, the Bank shall have the right to exercise
any rights it may have as a lien holder or secured
party.
13. Termination.
13.1. This Agreement may be terminated at any time
without penalty upon sixty days written notice
delivered by either party to the other by means of
registered mail, and upon the expiration of such
sixty days this Agreement will terminate; provided,
however, that the effective date of such
termination may be postponed to a date not more
than ninety days from the date of delivery of such
notice (i) by the Bank in order to prepare for the
transfer by the Bank of all of the assets of the
Fund held hereunder, and (ii) by the Fund in order
to give the Fund an opportunity to make suitable
arrangements for a successor custodian. The Fund
may immediately terminate this Agreement; (i) in
the event of the appointment of a conservator or
receiver for the Bank or upon the happening of a
like event; (ii) if the Bank shall make a general
assignment for the benefit of creditors; admit in
writing its inability to pay its debts as they
become due; file a petition in bankruptcy or a
petition seeking any reorganization, arrangement,
composition, readjustment, liquidation, dissolution
or similar relief under any present or future
bankruptcy, reorganization, insolvency or similar
statute, law or regulation or seek the appointment
of any trustee, receiver, custodian or liquidator
of the Bank or of all or substantially all of its
properties; (iii) if a proceeding is commenced
against the Bank seeking relief or an appointment
of a type described in paragraph 13.1(ii) above and
such proceeding is not dismissed within 30 days
after the commencement thereof; (iv) if the Bank's
insurance is materially adversely changed. At any
time after the termination of this Agreement, the
Fund will, at its request, have access to the
records of the Bank relating to the performance of
its duties as custodian.
13.2. In the event of the termination of this Agreement,
the Bank will immediately upon receipt or
transmittal, as the case may be, of notice of
termination, commence and prosecute diligently to
completion the transfer of all cash and the
delivery of all Portfolio securities duly endorsed
and all records maintained under Section 11 to the
successor custodian when appointed by the Fund.
The obligation of the Bank to deliver and transfer
over the assets of the Fund held by it directly to
such successor custodian will commence as soon as
such successor is
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<PAGE> 27
appointed and will continue until completed as
aforesaid. If the Fund does not select a successor
custodian within ninety (90) days from the date of
delivery of notice of termination the Bank may,
subject to the provisions of subsection 13.3 of
this Section 13, deliver the Portfolio securities
and cash of the Fund held by the Bank to a bank or
trust company of its own selection which meets the
requirements of Section 17(f)(1) of the Investment
Company Act of 1940 and has a reported capital,
surplus and undivided profits aggregating not less
than $25,000,000, to be held as the property of the
Fund under terms similar to those on which they
were held by the Bank, whereupon such bank or trust
company so selected by the Bank will become the
successor custodian of such assets of the Fund with
the same effect as though selected by the Board.
13.3. Prior to the expiration of ninety (90) days after
notice of termination has been given, the Fund may
furnish the Bank with an order of the Fund advising
that a successor custodian cannot be found willing
and able to act upon reasonable and customary terms
and that there has been submitted to the Board of
the Fund the question of whether the Fund will be
liquidated or will function without a custodian for
the assets of the Fund held by the Bank. In that
event the Bank will deliver the Portfolio
securities and cash of the Fund held by it, subject
as aforesaid, in accordance with one of such
alternatives which may be approved by the requisite
vote of the Board, upon receipt by the Bank of a
copy such vote certified by the Fund's Secretary or
Assistant Secretary.
14. Notices. Any notice or other instrument in writing authorized
or required by this Agreement to be given to either party hereto will be
sufficiently given if addressed to such party and mailed or delivered to it at
its office at the address set forth below; namely:
(a) In the case of notices sent to the Fund to:
Treasurer, Series Trust IV - MFS OTC Fund
c/o Massachusetts Financial Services Company
500 Boylston Street Boston, MA 02116
(b) In the case of notices sent to the Bank to:
Investors Bank & Trust Company
One Lincoln Plaza P.O. Box 1537
Boston, Massachusetts 02205-1537
or at such other place as such party may from time to time
designate in writing.
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<PAGE> 28
15. Amendments. This Agreement may not be altered or amended,
except by an instrument in writing, executed by both parties, and in the case
of the Fund, any alteration or amendment which is material will be authorized
and approved by its Board.
16. Parties. This Agreement will be binding upon and shall inure
to the benefit of the parties hereto and their respective successors and
assigns; provided, however, that this Agreement will not be assignable by the
Fund without the prior written consent of the Bank or by the Bank without the
prior written consent of the Fund, authorized and approved by its Board; and
provided further that termination proceedings pursuant to Section 13 hereof
will not be deemed to be an assignment within the meaning of this provision.
17. Governing Law. This Agreement and all performance hereunder
will be governed by the laws of the Commonwealth of Massachusetts.
18. Interpretive and Additional Provisions. In connection with
the operation of this Agreement, the Bank and the Fund may from time to time
agree on such provisions interpretive of or in addition to the provisions of
this Agreement as may in their joint opinion be consistent with the general
tenor of this Agreement. Any such interpretive or additional provisions shall
be in writing signed by both parties and shall be annexed hereto and shall be
binding upon the parties hereto as if incorporated into this Agreement,
provided however, no such interpretive or additional provisions shall be deemed
to be an alteration or amendment of this Agreement.
19. Delegation of Certain Duties to Massachusetts Financial
Services Company ("MFS"). The Bank, with the prior written consent of MFS, may
delegate to MFS the performance of any or all of the duties it has agreed to
perform for the Fund in a separate written agreement relating to (i) accounting
for investments in currency and for financial instruments (including, without
limitation, options contracts, futures contracts, options on futures contracts,
options on foreign currency and forward foreign currency exchange contracts)
and (ii) federal and state regulatory compliance. The Bank shall compensate
MFS for the performance of such duties at such fee or fees as MFS shall
determine to be equal to MFS' cost for performing such duties (the "MFS Fees")
Following its payment of MFS Fees to MFS, the Bank shall recover the amount of
the MFS Fees from the Fund on such terms as the Bank and the Fund shall agree.
MFS assumes responsibility for all duties delegated to it by the Bank pursuant
to this Section 19, and the Bank may rely on MFS for the accuracy and
correctness of the accounting information provided by MFS to the Bank pursuant
to this Section 19.
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<PAGE> 29
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed in duplicate and their respective corporate seals to be affixed
hereto as of the date first above written by their respective officers there
unto duly authorized.
MFS SERIES TRUST IV, on behalf
of MFS OTC FUND
By: W. THOMAS LONDON
------------------------------------
W. Thomas London
Treasurer
ATTEST:
LINDA J. HOARD
- -----------------------------------
Linda J. Hoard
INVESTORS BANK &
TRUST COMPANY
By: HENRY N. JOYCE
-------------------------------------
Henry N. Joyce
Vice President
ATTEST:
KAREN PRATT
- ----------------------------------
Karen Pratt
The officer of the Fund signing this Agreement is executing this Agreement not
individually but in his capacity as an officer of the Fund. The obligations of
the Fund under this Agreement are not binding upon any of the trustees,
officers, employees, agents or shareholders of the Fund individually, but bind
only the trust estate of the Fund.
-25-
<PAGE> 1
EXHIBIT 9(a)
MASSACHUSETTS CASH MANAGEMENT TRUST
200 BERKELEY STREET
BOSTON, MASSACHUSETTS 02116
Date August 1, 1985
Massachusetts Financial Service Center, Inc.
200 Berkeley Street
Boston, Massachusetts 02116
SHAREHOLDER SERVICING AGENT AGREEMENT
Dear Sirs:
Massachusetts Cash Management Trust (the "Fund") is an open-end
registered investment company. The Fund has selected you to act as the
Shareholder Servicing Agent and you hereby agree to act as such Agent and
perform the duties and functions thereof in the manner and on the conditions
hereinafter set forth. Accordingly, the Fund hereby agrees with you as
follows:
1. The Facility. You represent that you have the necessary
computer equipment, software and other office equipment ("Facility") adequate
to perform the services contemplated hereby as well as for other investment
companies (such investment companies, together with the Fund, are herein
collectively referred to as the "MFS Funds") for which Massachusetts Financial
Services Company ("MFS") acts as investment adviser. The Facility is presently
located at 50 Milk Street, Boston, Massachusetts, and is to be dedicated solely
to the performance of services for the MFS Funds, provided that the Facility
may be utilized to perform services for others with the prior written
permission of the MFS Funds.
2. Name. Unless otherwise directed in writing by MFS, you shall
perform the services contemplated hereby under the name "Massachusetts
Financial Service Center, Inc.", which name, any similar names and any logos of
which shall remain the property and under the control of MFS. Upon termination
of this Agreement, you shall cease to use such name or any similar name within
a reasonable period of time.
3. Services to be Performed. As Shareholder Servicing Agent
("Agent"), you shall be responsible for administering and performing transfer
and dividend and distribution disbursing and plan agent functions in connection
with the issuance, transfer and redemption of the shares of beneficial interest
("Shares"). The details of the operating standards and procedures to be
followed by you shall be determined from time to time by agreement between you
and the Fund.
4. Standard of Service. As Agent for the Fund, you agree to
provide service equal to or better than that provided by you or others
furnishing shareholder services to other open-end investment companies
("Standard") at a fee comparable to the fee paid you for your services
hereunder. The Standard shall include at least the following:
(a) Prompt reconciliation of any differences as to the number
of outstanding shares between various Facility records or
between Facility records and
<PAGE> 2
records of an MFS Fund's Custodian;
(b) Prompt processing of shareholder correspondence and of
other matters requiring action by you;
(c) Prompt clearance of any daily volume backlog;
(d) Providing innovative services and technological
improvements;
(e) Meeting the requirements of any governmental authority
having jurisdiction over you or the Fund; and
(f) Prompt reconciliation of all bank accounts under your
control belonging to the Fund or MFS.
If any MFS Fund serviced by you is reasonably of the view that the
service provided by you does not meet the Standard, it shall give you written
notice specifying the particulars, and you then shall have 120 days in which to
restore the service so that it meets the Standard, except that such period
shall be 180 days with respect to meeting that portion of the Standard
described above in item (d) of this paragraph 4. If at the end of such period
the Fund remains reasonably of the view that the service provided by you, in
the particulars specified, does not meet the Standard, then the MFS Fund or
Funds having a majority of the accounts for which you are then Agent may, by
appropriate action (including the concurrence of a majority of the Trustees or
Directors, as the case may be, of such MFS Fund or Funds who are not interested
persons of MFS), elect to terminate this Agreement for cause as to all such
Funds upon 90 days notice to you. Upon termination hereof, the Fund shall pay
you such compensation as may be due to you as of the date of such termination,
and shall likewise reimburse you for any costs, expenses, and disbursements
reasonably incurred by you to such date in the performance of your duties
hereunder.
5. Purchase of Facility. In the event that notice of termination
of this Agreement has been given pursuant to the provisions of paragraph 14
hereof, for cause as defined in paragraph 4 hereof, the MFS Funds have the
right, but shall not be required (a) to purchase the Facility and assume the
unexpired portion of any leases of equipment or real estate relating to the
Facility from you at a price equal to your unrecovered acquisition value (as
supported by the schedules and records used in determining monthly billings) of
the machinery, equipment, software, furniture, fixtures and leasehold
improvements included in the Facility, and (b) to negotiate with persons then
employed by you in the operation of the Facility and to hire all of them in
connection with the purchase of the Facility from you by the MFS Funds. You
agree to release each such employee from any contractual obligations such
person may have to you that may interfere with such person's being hired at
such time by the MFS Funds and agree not to interfere with the negotiation and
hiring of any such persons at such time. In the event that the MFS Funds have
given notice of termination of this Agreement pursuant to the provisions of
paragraph 14 hereof for reasons other than cause as defined in paragraph 4
hereof, the MFS Funds shall purchase the Facility under the terms and
conditions set forth in subsections (a) and (b) of this paragraph 5.
You shall effect the transfer of the Facility pursuant to this
paragraph 5 upon the termination date specified in the notice, or at such other
time as shall be agreed upon by the parties hereto.
6. Rights in Data and Confidentiality. You agree that all records,
data, files, input materials, reports, forms and other data received, computed
or stored in the performance of this Agreement are the exclusive property of
the Fund and that all such records and other data shall
<PAGE> 3
be furnished without additional charge, except for actual processing costs, to
the Fund in machine readable as well as printed form immediately upon
termination of this Agreement or at the Fund's request. You shall safeguard
and maintain the confidentiality of the Fund's data and information supplied to
you by the Fund and you shall not transfer or disclose the Fund's data to any
third party without the Fund's prior written consent unless compelled to do so
by order of a court or regulatory authority.
7. Fees. The fee per Fund shareholder account for your shareholder
services hereunder shall not be in excess of such amount as shall be agreed in
writing between us. Such fee shall be payable in monthly installments of
one-twelfth of the annual fee. Such fee shall be subject to review at least
annually and fixed by the parties in good faith negotiation on the basis of a
statement of the expenses of the Facility prepared by you, which either you or
the Fund may require to be certified by a major accounting firm acceptable to
the parties. The party or parties requesting such certification shall bear all
expenses thereof. In addition to the foregoing fee, you will be reimbursed by
the Fund for out-of-pocket expenses reasonably incurred by you on behalf of the
Fund, including but not limited to expenses for stationery (including business
forms and checks), postage, telephone and telegraph line and toll charges, and
premiums for negotiable instrument insurance and similar items.
8. Record Keeping. You will maintain records in a form acceptable
to the Fund and in compliance with the rules and regulation of the Securities
and Exchange Commission, including, but not limited to, records required to be
maintained by Section 31(a) of the Investment Company Act of 1940 and the rules
thereunder, which at all times will be the property of the Fund and will be
available for inspection and use by the Fund.
9. Duty of Care and Indemnification. You will at all times act in good
faith in performing your duties hereunder. You will not be liable or
responsible for delays or errors by reason of circumstances beyond your
control, including acts of civil or military authority, national emergencies,
labor difficulties, fire, mechanical breakdown beyond your control, flood or
catastrophe, acts of God, insurrection, war, riots or failure beyond your
control of transportation, communication or power supply. The Fund will
indemnify you against and hold you harmless from any and all losses, claims,
damages, liabilities or expenses (including reasonable counsel fees and
expenses) resulting from any claim, demand, action or suit not resulting from
your bad faith or negligence, and arising out of, or in connection with, your
duties on behalf of the Fund hereunder. In addition, the Fund will indemnify
you against and hold you harmless from any and all losses, claims, damages,
liabilities or expenses (including reasonable counsel fees and expenses)
resulting from any claim, demand, action or suit as a result of your acting in
accordance with any instructions reasonably believed by you to have been
executed or orally communicated by any person duly authorized by the Fund or
its Principal Underwriter, or as a result of acting in accordance with written
or oral advice reasonably believed by you to have been given by counsel for the
Fund, or as a result of acting in accordance with any instrument or share
certificate reasonably believed by you to have been genuine and signed,
countersigned or executed by any person or persons authorized to sign,
countersign or execute the same (unless contributed to by your gross negligence
or bad faith). In any case in which the Fund may be asked to indemnify you or
hold you harmless, the Fund shall be advised of all pertinent facts concerning
the situation in question and you will use reasonable care to identify and
notify the Fund promptly concerning any situation which presents or appears
likely to present a claim for indemnification against the Fund. The Fund shall
have the option to defend you against any claim which may be the subject of
this indemnification, and in the event that the Fund so elects such defense
shall be conducted by counsel chosen by the Fund and satisfactory to you and it
will so notify you, and thereupon the Fund shall take over complete defense of
the claim and you shall sustain no further legal or other expenses in such
situation for which you seek indemnification under this paragraph, except the
expense of any additional counsel retained by you. You will in no case confess
any claim or make any compromise in any case in which the
<PAGE> 4
Fund will be asked to indemnify you except with the Fund's prior written
consent. The obligations of the parties hereto under this paragraph shall
survive the termination of this Agreement.
If any officer of the Fund shall no longer be vested with authority to
sign for the Fund, written notice thereof shall forthwith be given to you by
the Fund and until receipt of such notice by it, you shall be fully indemnified
and held harmless by the Fund in recognizing and acting upon certificates or
other instruments bearing the signatures or facsimile signatures of such
officer.
10. Insurance. You will notify the Fund should any of your
insurance coverage, as set forth on Exhibit A hereto, be changed for any
reason, such notification to include the date of change and reason or reasons
therefor.
11. Notices. All notices or other communications hereunder shall be
in writing and shall be deemed sufficient if mailed to either party at the
addresses set forth in this Agreement, or at such other addresses as the
parties hereto may designate by notice to each other.
12. Further Assurances. Each party agrees to perform such further
acts and execute such further documents as are necessary to effectuate the
purposes hereof.
13. Use of a Sub- or Co-Transfer Agent. Notwithstanding any other
provision of this Agreement, it is expressly understood and agreed that you are
authorized in the performance of your duties hereunder to employ, from time to
time, one or more Sub-Transfer Agents and/or Co-Transfer Agents.
14. Termination. Neither this Agreement nor any provision hereof
may be changed, waived, discharged or terminated orally, but only by an
instrument in writing, which, except in the case of termination, shall be
signed by the party against which enforcement of such change waiver or
discharge is sought. Except as otherwise provided in paragraph 4 hereof, this
Agreement shall continue indefinitely until terminated by 90 days' written
notice given by the Fund to you or by you to the Fund, provided that the Fund
may terminate this Agreement upon 15 days' written notice of termination and
election of the right to purchase the Facility pursuant to the provisions of
paragraph 5 hereof. Upon termination hereof, the Fund shall pay you such
compensation as may be due to you as of the date of such termination, and shall
likewise reimburse you for any costs, expenses, and disbursements reasonably
incurred by you to such date in the performance of your duties hereunder. You
agree to cooperate with the Fund and provide all necessary assistance in
effectuating an orderly transition upon termination of this Agreement.
15. Successor. In the event that in connection with termination a
successor to any of your duties or responsibilities hereunder is designated by
the Fund by written notice to you, you will, promptly upon such termination and
at the expense of the Fund, transfer to such successor a certified list of the
shareholders of the Fund (with name, address and tax identification or Social
Security number) an historical record of the account of each shareholder and
the status thereof, and all other relevant books, records, correspondence, and
other data established or maintained by you under this Agreement in form
reasonably acceptable to the Fund (if such form differs from the form in which
you have maintained the same, the Fund shall pay any expenses associated with
transferring the same to such form), and will cooperate in the transfer of such
duties and responsibilities, including provision for assistance from your
cognizant personnel in the establishment of books, records and other data by
such successor.
16. Miscellaneous. This Agreement shall be construed and enforced
in accordance with and governed by the laws of the Commonwealth of
Massachusetts. The captions in this
<PAGE> 5
Agreement are included for convenience of reference only and in no way define
or delimit any of the provisions hereof or otherwise affect their construction
or effect. This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original but all of which taken
together shall constitute one and the same instrument. This Agreement has been
executed on behalf of the Fund by the undersigned not individually, but in the
capacity indicated, and the obligations of this Agreement are not binding upon
any of the Trustees or shareholders of the Fund individually, but bind only the
trust estate.
Very truly yours,
MASSACHUSETTS CASH
MANAGEMENT TRUST
By: RICHARD B. BAILEY
-------------------------------------
Richard B. Bailey
Title: Chairman
----------------------------------
The foregoing is hereby accepted
as of the date thereof.
MASSACHUSETTS FINANCIAL
SERVICES COMPANY
By: H. ALDEN JOHNSON, JR.
-------------------------------------
H. Alden Johnson, Jr.
Title: President
----------------------------------
The foregoing is hereby accepted
as of the date thereof.
MASSACHUSETTS FINANCIAL
SERVICE CENTER, INC.
By: BRUCE AVERY
-------------------------------------
Bruce Avery
Title: President
----------------------------------
<PAGE> 1
EXHIBIT 9(b)
MASSACHUSETTS CASH MANAGEMENT TRUST
500 BOYLSTON STREET o BOSTON o MASSACHUSETTS 02116
617 o 954-5000
December 31, 1992
MFS Service Center, Inc.
500 Boylston Street
Boston, MA 02116
Dear Sir/Madam:
This will confirm our understanding that, effective January 1, 1993,
the fees payable by us to you pursuant to paragraph 7 of the Shareholder
Servicing Agent Agreement between us dated August 1, 1985 (the "Agreement")
will no longer be paid on a per Fund shareholder account basis but instead
shall be calculated daily and paid monthly based upon the average daily net
assets of the Fund or any series thereof, as set forth in Exhibit B attached
hereto, which Exhibit is hereby made an Exhibit to the Agreement; such Exhibit
may be amended from time to time with the written consent of both parties.
Please indicate your acceptance of the foregoing by signing below.
Sincerely,
MASSACHUSETTS CASH
MANAGEMENT TRUST
By: W. THOMAS LONDON
-------------------------------------
W. Thomas London
Treasurer
Accepted and Agreed:
MFS Service Center, Inc.
By: JAMES E. RUSSELL
-------------------------------
James E. Russell
Treasurer
<PAGE> 2
EXHIBIT B TO THE SHAREHOLDER SERVICING AGENT AGREEMENT BETWEEN
MFS SERVICE CENTER, INC. AND
MASSACHUSETTS CASH MANAGEMENT TRUST
The fees to be paid to MFS Service Center, Inc., as shareholder
servicing agent for Massachusetts Cash Management Trust or any series thereof,
shall be as set forth below:
0.15% of first $500 million
0.12% of second $500 million
0.09% over $1 billion
<PAGE> 1
EXHIBIT 9(c)
MFS SERIES TRUST IV
500 BOYLSTON STREET # BOSTON # MASSACHUSETTS # 02116
(617) # 954-5000
September 7, 1993
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 modified by a
letter agreement dated December 31, 1992, 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 SERIES TRUST IV
(f/k/a Massachusetts Cash
Management Trust)
By: W. THOMAS LONDON
-------------------------------------
W. Thomas London
Treasurer
Accepted and Agreed:
MFS SERVICE CENTER, INC.
By: JAMES E. RUSSELL
-------------------------------
James E. Russell
Treasurer
<PAGE> 2
ATTACHMENT 1
SEPTEMBER 7, 1993
EXHIBIT B TO THE SHAREHOLDER
SERVICING AGENT AGREEMENT BETWEEN
MFS SERVICE CENTER, INC. ("MFSC")
AND MFS SERIES TRUST IV (THE "FUND")
1. The fees to be paid by the Fund on behalf of its series with respect
to Class A shares of each series of the Fund to MFSC, for MFSC's
services as shareholder servicing agent, shall be:
0.15% of the first $500 million of the assets of the series
attributable to such class;
0.12% of the second $500 million of the assets of the series
attributable to such class;
0.09% over $1 billion of the assets of the series attributable to such
class.
2. The fees to be paid by the Fund on behalf of its series with respect
to Class B shares of each series of the Fund to MFSC, for MFSC's
services as shareholder servicing agent, shall be:
0.22% of the first $500 million of the assets of the series
attributable to such class;
0.18% of the second $500 million of the assets of the series
attributable to such class;
0.13% over $1 billion of the assets of the series attributable to such
class.
<PAGE> 1
EXHIBIT 9(d)
MFS SERIES TRUST IV
500 BOYLSTON STREET o BOSTON o MASSACHUSETTS 02116
(617) # 954-5000
July 20, 1994
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 September 7, 1993, 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 Series Trust IV
By: W. THOMAS LONDON
-------------------------------------
W. Thomas London
Treasurer
Accepted and Agreed:
MFS SERVICE CENTER, INC.
By: JAMES E. RUSSELL
-------------------------------
James E. Russell
Treasurer
<PAGE> 2
ATTACHMENT 1
JULY 20, 1994
EXHIBIT B TO THE SHAREHOLDER
SERVICING AGENT AGREEMENT BETWEEN
MFS SERVICE CENTER, INC. ("MFSC")
AND MFS SERIES TRUST IV (THE "FUND")
1. The fees to be paid by the Fund on behalf of its series with respect
to Class A shares of each series of the Fund to MFSC, for MFSC's
services as shareholder servicing agent, shall be:
0.15% of the first $500 million of the assets of the series
attributable to such class;
0.12% of the second $500 million of the assets of the series
attributable to such class;
0.09% over $1 billion of the assets of the series attributable to such
class.
2. The fees to be paid by the Fund on behalf of its series with respect
to Class B shares of each series of the Fund to MFSC, for MFSC's
services as shareholder servicing agent, shall be:
0.22% of the first $500 million of the assets of the series
attributable to such class;
0.18% of the second $500 million of the assets of the series
attributable to such class;
0.13% over $1 billion of the assets of the series attributable to such
class.
3. The fees to be paid by the Fund on behalf of its series with respect
to Class C shares of each series of the Fund to MFSC, for MFSC's
services as shareholder servicing agent, shall be:
0.15% of the first $500 million of the assets of the series
attributable to such class;
0.12% of the second $500 million of the assets of the series
attributable to such class;
0.09% over $1 billion of the assets of the series attributable to such
class.
<PAGE> 1
EXHIBIT 11
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Post-Effective Amendment
No. 26 to Registration Statement No. 2-54607 of MFS Series Trust IV on behalf
of MFS Municipal Bond Fund, MFS OTC Fund, MFS Money Market Fund and MFS
Government Money Market Fund of our reports each dated October 7, 1994
appearing in the annual reports to shareholders for the year ended August 31,
1994 of MFS Municipal Bond Fund, MFS OTC Fund, MFS Money Market Fund and MFS
Government Money Market Fund, and to the references to us under the headings
"Condensed Financial Information" in each Prospectus and "Independent
Accountants and Financial Statements" in each Statement of Additional
Information, which are part of such Registration Statement.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 23, 1995
<PAGE> 1
EXHIBIT 15(a)
MFS SERIES TRUST IV
MFS MUNICIPAL BOND FUND
PLAN OF DISTRIBUTION
PLAN OF DISTRIBUTION with respect to the shares of beneficial interest
to be designated "CLASS B" of MFS MUNICIPAL BOND FUND (the "Fund"), a series of
MFS Series Trust IV (the "Trust") a Massachusetts business trust, dated
September 1, 1993 and amended this day 21st day of December, 1994.
WITNESSETH:
WHEREAS, the Trust is engaged in business as an open-end management
investment company and is registered under the Investment Company Act of 1940,
as amended (collectively with the rules and regulations promulgated thereunder,
the "1940 Act"); and
WHEREAS, the Trust intends to distribute the shares of beneficial
interest (without par value) of the Fund designated Class B Shares (the
"Shares") in accordance with Rule 12b-1 under the 1940 Act ("Rule 12b-1"), and
desires to adopt this Distribution Plan (the "Plan") as a plan of distribution
pursuant to such Rule; and
WHEREAS, the Trust desires for MFS Fund Distributors, Inc., a Delaware
corporation, to provide certain distribution services for the Fund (the
"Distributor"); and
WHEREAS, the Trust has entered into a distribution agreement (the
"Distribution Agreement") (in a form approved by the Board of Trustees of the
Trust in a manner specified in such Rule 12b-1) with the Distributor, whereby
the Distributor will provide facilities and personnel and render services to
the Fund in connection with the offering and distribution of the Shares; and
WHEREAS, the Trust recognizes and agrees that (a) the Distributor may
retain the services of firms or individuals to act as dealers (the "Dealers")
of the Shares in connection with the offering of Shares, and (b) the
Distributor may make payments for such services to the Dealers out of the fee
paid to the Distributor hereunder, any deferred sales charges imposed by the
Distributor in connection with the repurchase of Shares, its profits or any
other source available to it; and
WHEREAS, the Trust recognizes and agrees that the Distributor may
impose certain deferred sales charges in connection with the repurchase of
Shares by the Fund, and the Distributor may retain (or receive from the Fund,
as the case may be) all such deferred sales charges; and
-1-
<PAGE> 2
WHEREAS, the Board of Trustees of the Trust, in considering whether
the Fund should adopt and implement this Plan, has evaluated such information
as it deemed necessary to an informed determination as to whether this Plan
should be adopted and implemented and has considered such pertinent factors as
it deemed necessary to form the basis for a decision to use assets of the Fund
for such purposes, and has determined that there is a reasonable likelihood
that the adoption and implementation of this Plan will benefit the Fund and its
Class B shareholders;
NOW, THEREFORE, the Board of Trustees of the Trust hereby adopts this
Plan for the Fund as a plan for distribution relating to the Shares in
accordance with Rule 12b-1, on the following terms and conditions:
1. As specified in the Distribution Agreement, the Distributor shall
provide facilities, personnel and a program with respect to the offering and
sale of Shares. Among other things, the Distributor shall be responsible for
commissions payable to Dealers, all expenses of printing (excluding
typesetting) and distributing prospectuses to prospective shareholders and
providing such other related services as are reasonably necessary in connection
therewith.
2. The Distributor shall bear all distribution-related expenses to
the extent specified in the Distribution Agreement in providing the services
described in paragraph 1, including without limitation, the compensation of
personnel necessary to provide such services and all costs of travel, office
expenses (including rent and overhead), equipment, printing, delivery and
mailing costs.
3. It is understood that the Distributor may impose certain deferred
sales charges in connection with the repurchase of Shares by the Fund and the
Distributor may retain (or receive from the Fund, as the case may be) all such
deferred sales charges. As additional consideration for all services performed
and expenses incurred in the performance of its obligations under the
Distribution Agreement, the Fund shall pay the Distributor a distribution fee
periodically at a rate of 0.75% per annum of the Fund's average daily net
assets attributable to the Shares.
4. As partial consideration for the personal services and/or account
maintenance services performed by each Dealer in the performance of its
obligations under its dealer agreement with the Distributor, the Fund shall pay
each Dealer a service fee periodically at a rate not to exceed 0.25% per annum
of the portion of the average daily net assets of the Fund that is represented
by Shares that are owned by investors for whom such Dealer is the holder or
dealer of record. That portion of the Fund's average daily net assets on which
the fees payable under this paragraph 4 hereof are calculated may be subject to
certain minimum amount requirements as may be determined, and additional or
different dealer qualification standards that may be established from time to
time, by the Distributor. The Distributor shall be entitled to be paid any
fees payable under this paragraph 4 hereof with respect to Shares for which no
Dealer of record exists or qualification standards have not been met as partial
consideration for personal services and/or account maintenance services
provided by the Distributor to the Shares. The service fee payable pursuant to
this paragraph 4 may from time to time be paid by the Fund to the Distributor
and the Distributor will then pay these fees on behalf of the Fund.
-2-
<PAGE> 3
5. The Fund understands that agreements between the Distributor and
the Dealers may provide for payment of commissions to Dealers in connection
with the sales of Shares and may provide for a portion (which may be all or
substantially all) of the fees payable by the Fund to the Distributor under the
Distribution Agreement to be paid by the Distributor to the Dealers in
consideration of the Dealer's services as a dealer of the Shares. Except as
described in paragraph 4, nothing in this Plan shall be construed as requiring
the Fund to make any payment to any Dealer or to have any obligations to any
Dealer in connection with services as a dealer of the Shares. The Distributor
shall agree and undertake that any agreement entered into between the
Distributor and any Dealer shall provide that, except as provided in paragraph
4, such Dealer shall look solely to the Distributor for compensation for its
services thereunder and that in no event shall such Dealer seek any payment
from the Fund.
6. The Fund shall pay all fees and expenses of any independent
auditor, legal counsel, investment adviser, administrator, transfer agent,
custodian, shareholder servicing agent, registrar or dividend disbursing agent
of the Fund; expenses of distributing and redeeming Shares and servicing
shareholder accounts; expenses of preparing, printing and mailing prospectuses,
shareholder reports, notices, proxy statements and reports to governmental
officers and commissions and to shareholders of the Fund, except that the
Distributor shall be responsible for the distribution-related expenses as
provided in paragraphs 1 and 2 hereof.
7. Nothing herein contained shall be deemed to require the Trust to
take any action contrary to its Declaration of Trust or By-Laws or any
applicable statutory or regulatory requirement to which it is subject or by
which it is bound, or to relieve or deprive the Board of Trustees of the
responsibility for and control of the conduct of the affairs of the Fund.
8. This Plan shall become effective upon (a) approval by a vote of
at least a "majority of the outstanding voting securities" of the Shares, and
(b) approval by a vote of the Board of Trustees and a vote of a majority of the
Trustees who are not "interested persons" of the Trust and who have no direct
or indirect financial interest in the operation of the Plan or in any agreement
related to the Plan (the "Qualified Trustees"), such votes to be cast in person
at a meeting called for the purpose of voting on this Plan.
9. This Plan shall continue in effect indefinitely; provided that
such continuance is "specifically approved at least annually" by a vote of both
a majority of the Trustees of the Trust and a majority of the Qualified
Trustees. If such annual approval is not obtained, this Plan shall expire 12
months after the effective date of the last approval.
10. This Plan may be amended at any time by the Board of Trustees;
provided that this Plan may not be amended to increase materially the amount of
permitted expenses hereunder without the approval of holders of a "majority of
the outstanding voting securities" of the Shares and may not be materially
amended in any case without a vote of a majority of both the Trustees and the
Qualified Trustees. This Plan may be terminated at any time by a vote of a
majority of the Qualified Trustees or by a vote of the holders of a "majority
of the outstanding voting securities" of the Shares.
-3-
<PAGE> 4
11. The Fund and the Distributor shall provide the Board of Trustees,
and the Board of Trustees shall review, at least quarterly, a written report of
the amounts expended under this Plan and the purposes for which such
expenditures were made.
12. While this Plan is in effect, the selection and nomination of
Qualified Trustees shall be committed to the discretion of the Trustees who are
not "interested persons" of the Trust.
13. For the purposes of this Plan, the terms "interested persons",
"majority of the outstanding voting securities" and "specifically approved at
least annually" are used as defined in the 1940 Act. In addition, for purposes
of determining the fees payable to the Distributor hereunder, the value of the
Fund's net assets shall be computed in the manner specified in the Fund's
then-current prospectus and statement of additional information for computation
of the net asset value of the Shares of the Fund.
14. The Trust shall preserve copies of this Plan, and each agreement
related hereto and each report referred to in paragraph 11 hereof
(collectively, the "Records") for a period of six years from the end of the
fiscal year in which such Record was made and each such record shall be kept in
an easily accessible place for the first two years of said record-keeping.
15. This Plan shall be construed in accordance with the laws of The
Commonwealth of Massachusetts and the applicable provisions of the 1940 Act.
16. If any provision of this Plan shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Plan shall not
be affected thereby.
-4-
<PAGE> 1
EXHIBIT 15(b)
MFS SERIES TRUST IV
MFS OTC FUND
DISTRIBUTION PLAN
DISTRIBUTION PLAN with respect to the shares of beneficial interest to
be designated "CLASS A" of the MFS OTC FUND (the "Fund"), a series of MFS
Series Trust IV (the "Trust"), a business trust organized and existing under
the laws of The Commonwealth of Massachusetts, dated the 20th day of October,
1993 and amended this 21st day of December, 1994.
WITNESSETH:
WHEREAS, the Trust is engaged in business as an open-end management
investment company and is registered under the Investment Company Act of 1940
(the "Act"); and
WHEREAS, the Trust intends to distribute the Shares of Beneficial
Interest (without par value) of the Fund designated Class A Shares (the
"Shares") in part in accordance with Rule 12b-1 under the Act, ("Rule 12b-1"),
and desires to adopt this Distribution Plan (the "Plan") as a plan of
distribution pursuant to such Rule; and
WHEREAS, the Trust has entered into a distribution agreement (the
"Distribution Agreement") in a form approved by the Board of Trustees of the
Trust (the "Board of Trustees") in the manner specified in Rule 12b-1, with MFS
Fund Distributors, Inc., a Delaware corporation, as distributor (the
"Distributor"), whereby the Distributor provides facilities and personnel and
renders services to the Fund in connection with the offering and distribution
of the Shares; and
WHEREAS, the Trust recognizes and agrees that the Distributor will
enter into agreements ("Dealer Agreements") with various securities dealers and
other financial intermediaries ("Dealers") pursuant to which the Dealers will
act as dealers of the Shares in connection with the offering of Shares; and
WHEREAS, the Distribution Agreement provides that a sales charge may
be paid by investors who purchase Shares and that the Distributor and Dealers
will receive such sales charge as partial compensation for their services in
connection with sale of Shares; and
WHEREAS, the Board of Trustees, in considering whether the Fund should
adopt and implement this Plan, has evaluated such information as it deemed
necessary to an informed determination as to whether this Plan should be
adopted and implemented and has considered such pertinent factors as it deemed
necessary to form the basis for a decision to use assets of the
-1-
<PAGE> 2
Fund for such purposes, and has determined that there is a reasonable
likelihood that the adoption and implementation of this Plan will benefit Class
A of the Fund and its Class A shareholders;
NOW, THEREFORE, the Board of Trustees hereby adopts this Plan for the
Fund as a plan of distribution relating to the Shares in accordance with Rule
12b-1 under the Act, on the following terms and conditions:
1. As specified in the Distribution Agreement, the Distributor shall
provide facilities, personnel and a program with respect to the offering and
sale of Shares. Among other things, the Distributor shall be responsible for
all expenses of printing (excluding typesetting) and distributing prospectuses
to prospective shareholders and providing such other related services as are
reasonably necessary in connection therewith.
2. The Distributor shall bear all distribution-related expenses
described in Section 1, including without limitation, the compensation of
personnel necessary to provide such services and all costs of travel, office
expenses (including rent and overhead), equipment, printing, delivery and
mailing costs.
3. As partial consideration for the services performed and expenses
to the extent specified in the Distribution Agreement in providing the services
incurred in the performance of its obligations under the Distribution
Agreement, the Fund shall pay the Distributor a distribution fee periodically
at a rate of 0.10% per annum of the average daily net assets of the Fund
attributable to the Shares. Such payments shall commence following shareholder
approval of the Plan but only upon notification by the Distributor to the Fund
of the commencement of the Plan (the "Commencement Date").
4. As partial consideration for the personal services and/or account
maintenance services performed by each Dealer in the performance of its
obligations under its Dealer Agreement, the Fund shall on or after the
Commencement Date pay each Dealer a service fee periodically at a rate not to
exceed 0.25% per annum of the portion of the average daily net assets of the
Fund that is represented by Shares that are owned by investors for whom such
Dealer is the holder or dealer of record. The Distributor may from time to
time reduce the amount of the service fee paid to a Dealer for Shares sold
prior to certain date.
5. In addition to fees payable pursuant to Sections 3 and 4 hereof,
the expenses permitted to be paid by the Fund pursuant to this Plan on or after
the Commencement Date shall include other distribution related expenses. These
other distribution related expenses may include, but are not limited to, a
dealer commission and a payment to wholesalers employed by the Distributor on
net asset value purchases at or above a certain dollar level.
The aggregate amount of fees and expenses paid pursuant to
Sections 3 and 4 hereof and this Section 5 shall not exceed 0.35% per annum of
the average daily net assets of the Fund attributable to the Shares. No fees
shall be paid pursuant to Section 4 hereof or this Section 5 to any insurance
company which has entered into an agreement with the Trust on behalf of the
Fund and the Distributor that permits such insurance company to purchase Shares
from the Fund at
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<PAGE> 3
their net asset value in connection with annuity agreements issued in
connection with the insurance company's separate accounts. That portion of the
Fund's average daily net assets on which fees payable under Section 4 hereof
and this Section 5 are calculated may be subject to certain minimum amount
requirements as may be determined, and additional or different dealer or
wholesaler qualification standards that may be established, from time to time
by the Distributor. The Distributor shall be entitled to be paid any fees
payable under Section 4 hereof or this Section 5 with respect to accounts for
which no Dealer of record exists or qualification standards have not been met
as partial consideration for personal services and/or account maintenance
services provided by the Distributor to the Shares. The fees and expenses
payable pursuant to Section 4 and this Section 5 may from time to time be paid
by the Fund to the Distributor and the Distributor will then pay these expenses
on behalf of the Fund.
6. Nothing herein contained shall be deemed to require the Trust to
take any action contrary to its Declaration of Trust or By-Laws or any
applicable statutory or regulatory requirement to which it is subject or by
which it is bound, or to relieve or deprive the Board of Trustees of the
responsibility for and control of the conduct of the affairs of the Fund.
7. This Plan shall become effective upon (a) approval by a vote of
at least a "majority of the outstanding voting securities" of the Shares, and
(b) approval by a vote of the Board of Trustees and vote of a majority of the
Trustees who are not "interested persons" of the Trust and who have no direct
or indirect financial interest in the operation of the Plan or in any of the
agreements related to the Plan (the "Qualified Trustees"), such votes to be
cast in person at a meeting called for the purpose of voting on this Plan.
8. This Plan shall continue in effect indefinitely; provided,
however, that such continuance is subject to annual approval by a vote of the
Board of Trustees and a majority of the Qualified Trustees, such votes to be
cast in person at a meeting called for the purpose of voting on continuance of
this Plan. If such annual approval is not obtained, this Plan shall expire 12
months after the effective date of the last approval.
9. This Plan may be amended at any time by the Board of Trustees;
provided that (a) any amendment to increase materially the amount to be spent
for the services described herein shall be effective only upon approval by a
vote of a "majority of the outstanding voting securities" of the Shares and (b)
any material amendment of this Plan shall be effective only upon approval by a
vote of the Board of Trustees and a majority of the Qualified Trustees, such
votes to be cast in person at a meeting called for the purpose of voting on
such amendment. This Plan may be terminated at any time by vote of a majority
of the Qualified Trustees or by a vote of a "majority of the outstanding voting
securities" of the Shares.
10. The Distributor shall provide the Board of Trustees, and the
Board of Trustees shall review, at least quarterly, a written report of the
amounts expended under the Plan and the purposes for which such expenditures
were made.
11. While this Plan is in effect, the selection and nomination of
Qualified Trustees shall be committed to the discretion of the Trustees who are
not "interested persons" of the Trust.
-3-
<PAGE> 4
12. For the purposes of this Plan, the terms "interested person" and
"majority of the outstanding voting securities" are used as defined in the Act.
In addition, for purposes of determining the fees payable to Dealers and
wholesalers, the value of the Share's net assets shall be computed in the
manner specified in the Fund's then current prospectus for computation of the
net asset value of the Shares.
13. The Trust shall preserve copies of this Plan, and each agreement
related hereto and each report referred to in Section 10 hereof (collectively
the "Records") for a period of six years from the end of the fiscal year in
which such Record was made and each such Record shall be kept in an easily
accessible place for the first two years of said record keeping.
14. This Plan shall be construed in accordance with the laws of The
Commonwealth of Massachusetts and the applicable provisions of the Act.
15. If any provision of this Plan shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Plan shall not
be affected thereby.
-4-
<PAGE> 1
EXHIBIT 15(c)
MFS SERIES TRUST IV
MFS OTC FUND
PLAN OF DISTRIBUTION
PLAN OF DISTRIBUTION with respect to the shares of beneficial interest
to be designated "CLASS B" of MFS OTC FUND (the "Fund"), a series of MFS Series
Trust IV (the "Trust") a Massachusetts business trust, dated October 20, 1993
and amended this 21st day of December, 1994.
WITNESSETH:
WHEREAS, the Trust is engaged in business as an open-end management
investment company and is registered under the Investment Company Act of 1940,
as amended (collectively with the rules and regulations promulgated thereunder,
the "1940 Act"); and
WHEREAS, the Trust intends to distribute the shares of beneficial
interest (without par value) of the Fund designated Class B Shares (the
"Shares") in accordance with Rule 12b-1 under the 1940 Act ("Rule 12b-1"), and
desires to adopt this Distribution Plan (the "Plan") as a plan of distribution
pursuant to such Rule; and
WHEREAS, the Trust desires for MFS Fund Distributors, Inc., a Delaware
corporation, to provide certain distribution services for the Fund (the
"Distributor"); and
WHEREAS, the Trust has entered into a distribution agreement (the
"Distribution Agreement") (in a form approved by the Board of Trustees of the
Trust in a manner specified in such Rule 12b-1) with the Distributor, whereby
the Distributor will provide facilities and personnel and render services to
the Fund in connection with the offering and distribution of the Shares; and
WHEREAS, the Trust recognizes and agrees that (a) the Distributor may
retain the services of firms or individuals to act as dealers (the "Dealers")
of the Shares in connection with the offering of Shares, and (b) the
Distributor may make payments for such services to the Dealers out of the fee
paid to the Distributor hereunder, any deferred sales charges imposed by the
Distributor in connection with the repurchase of Shares, its profits or any
other source available to it; and
WHEREAS, the Trust recognizes and agrees that the Distributor may
impose certain deferred sales charges in connection with the repurchase of
Shares by the Fund, and the Distributor may retain (or receive from the Fund,
as the case may be) all such deferred sales charges; and
-1-
<PAGE> 2
WHEREAS, the Board of Trustees of the Trust, in considering whether
the Fund should adopt and implement this Plan, has evaluated such information
as it deemed necessary to an informed determination as to whether this Plan
should be adopted and implemented and has considered such pertinent factors as
it deemed necessary to form the basis for a decision to use assets of the Fund
for such purposes, and has determined that there is a reasonable likelihood
that the adoption and implementation of this Plan will benefit the Fund and its
Class B shareholders;
NOW, THEREFORE, the Board of Trustees of the Trust hereby adopts this
Plan for the Fund as a plan for distribution relating to the Shares in
accordance with Rule 12b-1, on the following terms and conditions:
1. As specified in the Distribution Agreement, the Distributor
shall provide facilities, personnel and a program with respect to the offering
and sale of Shares. Among other things, the Distributor shall be responsible
for commissions payable to Dealers, all expenses of printing (excluding
typesetting) and distributing prospectuses to prospective shareholders and
providing such other related services as are reasonably necessary in connection
therewith.
2. The Distributor shall bear all distribution-related expenses to
the extent specified in the Distribution Agreement in providing the services
described in paragraph 1, including without limitation, the compensation of
personnel necessary to provide such services and all costs of travel, office
expenses (including rent and overhead), equipment, printing, delivery and
mailing costs.
3. It is understood that the Distributor may impose certain
deferred sales charges in connection with the repurchase of Shares by the Fund
and the Distributor may retain (or receive from the Fund, as the case may be)
all such deferred sales charges. As additional consideration for all services
performed and expenses incurred in the performance of its obligations under the
Distribution Agreement, the Fund shall pay the Distributor a distribution fee
periodically at a rate of 0.75% per annum of the Fund's average daily net
assets attributable to the Shares.
4. As partial consideration for the personal services and/or
account maintenance services performed by each Dealer in the performance of its
obligations under its dealer agreement with the Distributor, the Fund shall pay
each Dealer a service fee periodically at a rate not to exceed 0.25% per annum
of the portion of the average daily net assets of the Fund that is represented
by Shares that are owned by investors for whom such Dealer is the holder or
dealer of record. That portion of the Fund's average daily net assets on which
the fees payable under this paragraph 4 hereof are calculated may be subject to
certain minimum amount requirements as may be determined, and additional or
different dealer qualification standards that may be established from time to
time, by the Distributor. The Distributor shall be entitled to be paid any
fees payable under this paragraph 4 hereof with respect to Shares for which no
Dealer of record exists or qualification standards have not been met as partial
consideration for personal services and/or account maintenance services
provided by the Distributor to the Shares. The service fee payable pursuant to
this paragraph 4 may from time to time be paid by the Fund to the Distributor
and the Distributor will then pay these fees on behalf of the Fund.
-2-
<PAGE> 3
5. The Fund understands that agreements between the Distributor and
the Dealers may provide for payment of commissions to Dealers in connection
with the sales of Shares and may provide for a portion (which may be all or
substantially all) of the fees payable by the Fund to the Distributor under the
Distribution Agreement to be paid by the Distributor to the Dealers in
consideration of the Dealer's services as a dealer of the Shares. Except as
described in paragraph 4, nothing in this Plan shall be construed as requiring
the Fund to make any payment to any Dealer or to have any obligations to any
Dealer in connection with services as a dealer of the Shares. The Distributor
shall agree and undertake that any agreement entered into between the
Distributor and any Dealer shall provide that, except as provided in paragraph
4, such Dealer shall look solely to the Distributor for compensation for its
services thereunder and that in no event shall such Dealer seek any payment
from the Fund.
6. The Fund shall pay all fees and expenses of any independent
auditor, legal counsel, investment adviser, administrator, transfer agent,
custodian, shareholder servicing agent, registrar or dividend disbursing agent
of the Fund; expenses of distributing and redeeming Shares and servicing
shareholder accounts; expenses of preparing, printing and mailing prospectuses,
shareholder reports, notices, proxy statements and reports to governmental
officers and commissions and to shareholders of the Fund, except that the
Distributor shall be responsible for the distribution-related expenses as
provided in paragraphs 1 and 2 hereof.
7. Nothing herein contained shall be deemed to require the Trust to
take any action contrary to its Declaration of Trust or By-Laws or any
applicable statutory or regulatory requirement to which it is subject or by
which it is bound, or to relieve or deprive the Board of Trustees of the
responsibility for and control of the conduct of the affairs of the Fund.
8. This Plan shall become effective upon (a) approval by a vote of
at least a "majority of the outstanding voting securities" of the Shares, and
(b) approval by a vote of the Board of Trustees and a vote of a majority of the
Trustees who are not "interested persons" of the Trust and who have no direct
or indirect financial interest in the operation of the Plan or in any agreement
related to the Plan (the "Qualified Trustees"), such votes to be cast in person
at a meeting called for the purpose of voting on this Plan.
9. This Plan shall continue in effect indefinitely; provided that
such continuance is "specifically approved at least annually" by a vote of both
a majority of the Trustees of the Trust and a majority of the Qualified
Trustees. If such annual approval is not obtained, this Plan shall expire 12
months after the effective date of the last approval.
10. This Plan may be amended at any time by the Board of Trustees;
provided that this Plan may not be amended to increase materially the amount of
permitted expenses hereunder without the approval of holders of a "majority of
the outstanding voting securities" of the Shares and may not be materially
amended in any case without a vote of a majority of both the Trustees and the
Qualified Trustees. This Plan may be terminated at any time by a vote of a
majority of the Qualified Trustees or by a vote of the holders of a "majority
of the outstanding voting securities" of the Shares.
-3-
<PAGE> 4
11. The Fund and the Distributor shall provide the Board of
Trustees, and the Board of Trustees shall review, at least quarterly, a written
report of the amounts expended under this Plan and the purposes for which such
expenditures were made.
12. While this Plan is in effect, the selection and nomination of
Qualified Trustees shall be committed to the discretion of the Trustees who are
not "interested persons" of the Trust.
13. For the purposes of this Plan, the terms "interested persons",
"majority of the outstanding voting securities" and "specifically approved at
least annually" are used as defined in the 1940 Act. In addition, for purposes
of determining the fees payable to the Distributor hereunder, the value of the
Fund's net assets shall be computed in the manner specified in the Fund's
then-current prospectus and statement of additional information for computation
of the net asset value of the Shares of the Fund.
14. The Trust shall preserve copies of this Plan, and each agreement
related hereto and each report referred to in paragraph 11 hereof
(collectively, the "Records") for a period of six years from the end of the
fiscal year in which such Record was made and each such record shall be kept in
an easily accessible place for the first two years of said record-keeping.
15. This Plan shall be construed in accordance with the laws of The
Commonwealth of Massachusetts and the applicable provisions of the 1940 Act.
16. If any provision of this Plan shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Plan shall not
be affected thereby.
-4-
<PAGE> 1
EXHIBIT 15(d)
MFS SERIES TRUST IV
MFS OTC FUND
PLAN OF DISTRIBUTION
PLAN OF DISTRIBUTION with respect to the shares of beneficial interest
to be designated "CLASS C" of MFS OTC FUND (the "Fund"), a series of MFS Series
Trust IV(the "Trust") a Massachusetts business trust, dated July 20, 1994 and
amended this 21st day of December, 1994.
WITNESSETH:
WHEREAS, the Trust is engaged in business as an open-end management
investment company and is registered under the Investment Company Act of 1940,
as amended (collectively with the rules and regulations promulgated thereunder,
the "1940 Act"); and
WHEREAS, the Trust intends to distribute the shares of beneficial
interest (without par value) of the Fund designated Class C Shares (the
"Shares") in accordance with Rule 12b-1 under the 1940 Act ("Rule 12b-1"), and
desires to adopt this Distribution Plan (the "Plan") as a plan of distribution
pursuant to such Rule; and
WHEREAS, the Trust desires for MFS Fund Distributors, Inc., a Delaware
corporation, to provide certain distribution services for the Fund (the
"Distributor"); and
WHEREAS, the Trust has entered into a distribution agreement (the
"Distribution Agreement") (in a form approved by the Board of Trustees of the
Trust in a manner specified in Rule 12b-1) with the Distributor, whereby the
Distributor will provide facilities and personnel and render services to the
Fund in connection with the offering and distribution of the Shares; and
WHEREAS, the Trust recognizes and agrees that (a) the Distributor may
retain the services of firms or individuals to act as dealers (the "Dealers")
of the Shares in connection with the offering of Shares, and (b) the
Distributor may make payments for such services to the Dealers out of the fee
paid to the Distributor hereunder, any deferred sales charges imposed by the
Distributor in connection with the repurchase of Shares, its profits or any
other source available to it; and
WHEREAS, the Trust recognizes and agrees that the Distributor may (but
is not required to) impose certain deferred sales charges in connection with
the repurchase of Shares by the Fund, and the Distributor may retain (or
receive from the Fund, as the case may be) all such deferred sales charges; and
WHEREAS, the Board of Trustees of the Trust, in considering whether
the Fund should adopt and implement this Plan, has evaluated such information
as it deemed necessary to an informed determination as to whether this Plan
should be adopted and implemented and has considered such pertinent factors as
it deemed necessary to form the basis for a decision to use assets of the Fund
for such purposes, and has determined that there is a reasonable likelihood
that the adoption and implementation of this Plan will benefit the Fund and its
Class C shareholders;
-1-
<PAGE> 2
NOW, THEREFORE, the Board of Trustees of the Trust hereby adopts this
Plan for the Fund as a plan for distribution relating to the Shares in
accordance with Rule 12b-1, on the following terms and conditions:
1. As specified in the Distribution Agreement, the Distributor
shall provide facilities, personnel and a program with respect to the offering
and sale of Shares. Among other things, the Distributor shall be responsible
for any commissions payable to Dealers (including any ongoing maintenance
commissions), all expenses of printing (excluding typesetting) and distributing
prospectuses to prospective shareholders and providing such other related
services as are reasonably necessary in connection therewith
2. The Distributor shall bear all distribution-related expenses to
the extent specified in the Distribution Agreement in providing the services
described in paragraph 1, including without limitation, the compensation of
personnel necessary to provide such services and all costs of travel, office
expenses (including rent and overhead), equipment, printing, delivery and
mailing costs.
3. It is understood that the Distributor may (but is not required
to) impose certain deferred sales charges in connection with the repurchase of
Shares by the Fund and the Distributor may retain (or receive from the Fund, as
the case may be) all such deferred sales charges. As additional consideration
for all services performed and expenses incurred in the performance of its
obligations under the Distribution Agreement, the Fund shall pay the
Distributor a distribution fee periodically at a rate not to exceed 0.75% per
annum of the Fund's average daily net assets attributable to the Shares.
4. As partial consideration for the personal services and/or
account maintenance services performed by each Dealer in the performance of its
obligations under its dealer agreement with the Distributor, the Fund shall pay
each Dealer a service fee periodically at a rate not to exceed 0.25% per annum
of the portion of the average daily net assets of the Fund that is represented
by Shares that are owned by investors for whom such Dealer is the holder or
dealer of record. That portion of the Fund's average daily net assets on which
the fees payable under this paragraph 4 hereof are calculated may be subject to
certain minimum amount requirements as may be determined, and additional or
different dealer qualification standards that may be established, from time to
time by the Distributor. The Distributor shall be entitled to be paid any
fees payable under this paragraph 4 hereof with respect to Shares for which no
Dealer of record exists or qualification standards have not been met as partial
consideration for personal services and/or account maintenance services
provided by the Distributor to the Shares. The service fee payable pursuant to
this paragraph 4 may from time to time be paid by the Fund to the Distributor
and the Distributor will then pay these fees to Dealers on behalf of the Fund
or retain them in accordance with this paragraph.
5. The Fund understands that agreements between the Distributor and
the Dealers may provide for payment of commissions to Dealers in connection
with the sales of Shares and may provide for a portion (which may be all or
substantially all) of the fees payable by the Fund to the Distributor under the
Distribution Agreement to be paid by the Distributor to the Dealers in
consideration of the Dealer's services as a dealer of the Shares. Except as
described in paragraph 4, nothing in this Plan shall be construed as requiring
the Fund to make any payment to any Dealer or to have any obligations to any
Dealer in connection with services as a dealer of the Shares. The Distributor
shall agree and undertake that any agreement entered into between the
Distributor and any Dealer shall provide that, except as provided in paragraph
4, such Dealer shall look solely to the Distributor for compensation for its
services thereunder and that in no event shall such Dealer seek any payment
from the Fund.
-2-
<PAGE> 3
6. The Fund shall pay all fees and expenses of any independent
auditor, legal counsel, investment adviser, administrator, transfer agent,
custodian, shareholder servicing agent, registrar or dividend disbursing agent
of the Fund; expenses of distributing and redeeming Shares and servicing
shareholder accounts; expenses of preparing, printing and mailing prospectuses,
shareholder reports, notices, proxy statements and reports to governmental
officers and commissions and to shareholders of the Fund, except that the
Distributor shall be responsible for the distribution-related expenses as
provided in paragraphs 1 and 2 hereof.
7. Nothing herein contained shall be deemed to require the Trust to
take any action contrary to its Declaration of Trust or By-Laws or any
applicable statutory or regulatory requirement to which it is subject or by
which it is bound, or to relieve or deprive the Board of Trustees of the
responsibility for and control of the conduct of the affairs of the Fund.
8. This Plan shall become effective upon (a) approval by a vote of
at least a "majority of the outstanding voting securities" of Class C, and (b)
approval by a vote of the Board of Trustees and a vote of a majority of the
Trustees who are not "interested persons" of the Trust and who have no direct
or indirect financial interest in the operation of the Plan or in any agreement
related to the Plan (the "Qualified Trustees"), such votes to be cast in person
at a meeting called for the purpose of voting on this Plan.
9. This Plan shall continue in effect indefinitely; provided that
such continuance is "specifically approved at least annually" by a vote of both
a majority of the Trustees of the Trust and a majority of the Qualified
Trustees. If such annual approval is not obtained, this Plan shall expire 12
months after the effective date of the last approval.
10. This Plan may be amended at any time by the Board of Trustees;
provided that this Plan may not be amended to increase materially the amount of
permitted expenses hereunder without the approval of holders of a "majority of
the outstanding voting securities" of Class C and may not be materially amended
in any case without a vote of a majority of both the Trustees and the Qualified
Trustees. This Plan may be terminated at any time by a vote of a majority of
the Qualified Trustees or by a vote of the holders of a "majority of the
outstanding voting securities" of Class C.
11. The Fund and the Distributor shall provide the Board of
Trustees, and the Board of Trustees shall review, at least quarterly, a written
report of the amounts expended under this Plan and the purposes for which such
expenditures were made.
12. While this Plan is in effect, the selection and nomination of
Qualified Trustees shall be committed to the discretion of the Trustees who are
not "interested persons" of the Trust.
13. For the purposes of this Plan, the terms "interested persons",
"majority of the outstanding voting securities" and "specifically approved at
least annually" are used as defined in the 1940 Act. In addition, for purposes
of determining the fees payable to the Distributor hereunder, the value of the
Fund's net assets shall be computed in the manner specified in the Fund's
then-current prospectus and statement of additional information for computation
of the net asset value of the Shares of the Fund.
-3-
<PAGE> 4
14. The Trust shall preserve copies of this Plan, and each agreement
related hereto and each report referred to in paragraph 11 hereof
(collectively, the "Records") for a period of six years from the end of the
fiscal year in which such Record was made and each such record shall be kept in
an easily accessible place for the first two years of said record-keeping.
15. This Plan shall be construed in accordance with the laws of The
Commonwealth of Massachusetts and the applicable provisions of the 1940 Act.
16. If any provision of this Plan shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Plan shall not
be affected thereby.
-4-
<PAGE> 1
EXHIBIT 16(a)
EFFECTIVE YIELD CALCULATION
7 Day Average Yield = (Base Period Return) / 7 * 365
<PAGE> 1
EXHIBIT 16(b)
STANDARDIZED YIELD CALCULATION
[GRAPHIC FORMULA]
TAX EQUIVALENT YIELD
y / (1 - r)
<PAGE> 2
EXHIBIT 16(b)
DISTRIBUTION RATE
Distribution rate = a/d or bc/d
where
a = total last 12 months' dividends
b = current dividend per share
c = frequency of dividend payments
d = maximum offering price per share on last day of period
TOTAL RATE OF RETURN CALCULATIONS
Formula
P (1 + T) n = ERV
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value
<PAGE> 1
EXHIBIT 16(c)
TOTAL RATE OF RETURN CALCULATIONS
FORMULA
1000 (1 + T) = ERV
T = aggregate total return
ERV = ending redeemable value
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF MFS MONEY MARKET FUND AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 01
<NAME> MFS MONEY MARKET FUND
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 10-MOS
<FISCAL-YEAR-END> AUG-31-1994
<PERIOD-END> AUG-31-1994
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 448,869,732
<INVESTMENTS-AT-VALUE> 448,869,732
<RECEIVABLES> 18,565,857
<ASSETS-OTHER> 4,545
<OTHER-ITEMS-ASSETS> 177,662
<TOTAL-ASSETS> 467,617,796
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 31,838,265
<TOTAL-LIABILITIES> 31,838,265
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 435,779,531
<SHARES-COMMON-STOCK> 435,779,531
<SHARES-COMMON-PRIOR> 350,316,305
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 435,779,531
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 12,630,540
<OTHER-INCOME> 0
<EXPENSES-NET> 2,629,712
<NET-INVESTMENT-INCOME> 10,000,828
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 10,000,828
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 10,000,828
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,171,346,513
<NUMBER-OF-SHARES-REDEEMED> (1,094,880,512)
<SHARES-REINVESTED> 8,997,225
<NET-CHANGE-IN-ASSETS> 85,463,226
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,621,026
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,629,712
<AVERAGE-NET-ASSETS> 405,256,500
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.02
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.02)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.78
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF MFS GOVERNMENT MONEY MARKET FUND AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 02
<NAME> MFS GOVERNMENT MONEY MARKET FUND
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 10-MOS
<FISCAL-YEAR-END> AUG-31-1994
<PERIOD-END> AUG-31-1994
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 38,495,597
<INVESTMENTS-AT-VALUE> 38,495,597
<RECEIVABLES> 26,122
<ASSETS-OTHER> 603
<OTHER-ITEMS-ASSETS> 29,942
<TOTAL-ASSETS> 38,552,264
<PAYABLE-FOR-SECURITIES> 125,489
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 79,778
<TOTAL-LIABILITIES> 205,267
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 38,346,997
<SHARES-COMMON-STOCK> 38,346,997
<SHARES-COMMON-PRIOR> 35,575,796
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 38,346,997
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,249,456
<OTHER-INCOME> 0
<EXPENSES-NET> 355,079
<NET-INVESTMENT-INCOME> 894,377
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 894,377
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 815,492
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 63,018,558
<NUMBER-OF-SHARES-REDEEMED> (61,062,849)
<SHARES-REINVESTED> 815,492
<NET-CHANGE-IN-ASSETS> 2,771,201
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 160,327
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 355,079
<AVERAGE-NET-ASSETS> 33,401,458
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.02
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.02)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 1.05
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF MFS GOVERNMENT MONEY MARKET FUND AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 02
<NAME> MFS GOVERNMENT MONEY MARKET FUND
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 10-MOS
<FISCAL-YEAR-END> AUG-31-1994
<PERIOD-END> AUG-31-1994
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 38,495,597
<INVESTMENTS-AT-VALUE> 38,495,597
<RECEIVABLES> 26,122
<ASSETS-OTHER> 603
<OTHER-ITEMS-ASSETS> 29,942
<TOTAL-ASSETS> 38,552,264
<PAYABLE-FOR-SECURITIES> 125,489
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 79,778
<TOTAL-LIABILITIES> 205,267
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 38,346,997
<SHARES-COMMON-STOCK> 38,346,997
<SHARES-COMMON-PRIOR> 35,575,796
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 38,346,997
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,249,456
<OTHER-INCOME> 0
<EXPENSES-NET> 355,079
<NET-INVESTMENT-INCOME> 894,377
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 894,377
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 815,492
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 63,018,558
<NUMBER-OF-SHARES-REDEEMED> (61,062,849)
<SHARES-REINVESTED> 815,492
<NET-CHANGE-IN-ASSETS> 2,771,201
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 160,327
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 355,079
<AVERAGE-NET-ASSETS> 33,401,458
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.02
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.02)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 1.05
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF MFS OTC FUND AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 04
<NAME> MFS OTC FUND CLASS B
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1994
<PERIOD-END> AUG-31-1994
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 51,684,618
<INVESTMENTS-AT-VALUE> 54,685,503
<RECEIVABLES> 1,466,656
<ASSETS-OTHER> 38,677
<OTHER-ITEMS-ASSETS> 84,492
<TOTAL-ASSETS> 56,275,328
<PAYABLE-FOR-SECURITIES> 1,281,056
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 282,754
<TOTAL-LIABILITIES> 1,563,810
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 51,833,854
<SHARES-COMMON-STOCK> 4,288,279
<SHARES-COMMON-PRIOR> 128
<ACCUMULATED-NII-CURRENT> (1,903)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (121,324)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,000,891
<NET-ASSETS> 54,711,518
<DIVIDEND-INCOME> 53,075
<INTEREST-INCOME> 58,843
<OTHER-INCOME> (2,634)
<EXPENSES-NET> 406,381
<NET-INVESTMENT-INCOME> (297,097)
<REALIZED-GAINS-CURRENT> 144,573
<APPREC-INCREASE-CURRENT> 3,000,891
<NET-CHANGE-FROM-OPS> 2,848,367
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,765,354
<NUMBER-OF-SHARES-REDEEMED> (1,477,203)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 54,709,518
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 141,370
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 506,868
<AVERAGE-NET-ASSETS> 14,136,068
<PER-SHARE-NAV-BEGIN> 7.83
<PER-SHARE-NII> (0.12)
<PER-SHARE-GAIN-APPREC> 0.88
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 8.59
<EXPENSE-RATIO> 2.57
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF MFS OTC FUND AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 04
<NAME> MFS OTC FUND CLASS C
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1994
<PERIOD-END> AUG-31-1994
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 51,684,618
<INVESTMENTS-AT-VALUE> 54,685,503
<RECEIVABLES> 1,466,656
<ASSETS-OTHER> 38,677
<OTHER-ITEMS-ASSETS> 84,492
<TOTAL-ASSETS> 56,275,328
<PAYABLE-FOR-SECURITIES> 1,281,056
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 282,754
<TOTAL-LIABILITIES> 1,563,810
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 51,833,854
<SHARES-COMMON-STOCK> 10,122
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> (1,903)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (121,324)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,000,891
<NET-ASSETS> 54,711,518
<DIVIDEND-INCOME> 53,075
<INTEREST-INCOME> 58,843
<OTHER-INCOME> (2,634)
<EXPENSES-NET> 406,381
<NET-INVESTMENT-INCOME> (297,097)
<REALIZED-GAINS-CURRENT> 144,573
<APPREC-INCREASE-CURRENT> 3,000,891
<NET-CHANGE-FROM-OPS> 2,848,367
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 10,122
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 54,709,518
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 141,370
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 506,868
<AVERAGE-NET-ASSETS> 14,136,068
<PER-SHARE-NAV-BEGIN> 7.80
<PER-SHARE-NII> (0.04)
<PER-SHARE-GAIN-APPREC> 0.85
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 8.61
<EXPENSE-RATIO> 2.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF MFS MUNICIPAL BOND FUND AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 03
<NAME> MFS MUNICIPAL BOND FUND CLASS A
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 10-MOS
<FISCAL-YEAR-END> AUG-31-1994
<PERIOD-END> AUG-31-1994
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 1,935,107,873
<INVESTMENTS-AT-VALUE> 2,035,722,629
<RECEIVABLES> 67,797,956
<ASSETS-OTHER> 29,764
<OTHER-ITEMS-ASSETS> 79,942
<TOTAL-ASSETS> 2,103,630,291
<PAYABLE-FOR-SECURITIES> 20,710,471
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 7,281,523
<TOTAL-LIABILITIES> 27,991,994
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,988,851,766
<SHARES-COMMON-STOCK> 190,107,273
<SHARES-COMMON-PRIOR> 188,554,037
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (6,722,584)
<ACCUMULATED-NET-GAINS> (5,354,109)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 98,863,224
<NET-ASSETS> 2,075,638,297
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 108,130,577
<OTHER-INCOME> 0
<EXPENSES-NET> 10,816,089
<NET-INVESTMENT-INCOME> 97,314,488
<REALIZED-GAINS-CURRENT> (5,170,469)
<APPREC-INCREASE-CURRENT> (143,768,588)
<NET-CHANGE-FROM-OPS> 51,624,569
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (89,895,416)
<DISTRIBUTIONS-OF-GAINS> (29,910,644)
<DISTRIBUTIONS-OTHER> (11,984,412)
<NUMBER-OF-SHARES-SOLD> 34,484,881
<NUMBER-OF-SHARES-REDEEMED> (39,960,254)
<SHARES-REINVESTED> 7,028,609
<NET-CHANGE-IN-ASSETS> (129,409,920)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (6,261,186)
<OVERDIST-NET-GAINS-PRIOR> 35,254,892
<GROSS-ADVISORY-FEES> 7,253,533
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 10,816,089
<AVERAGE-NET-ASSETS> 1,116,603,460
<PER-SHARE-NAV-BEGIN> 11.64
<PER-SHARE-NII> 0.51
<PER-SHARE-GAIN-APPREC> (0.77)
<PER-SHARE-DIVIDEND> (0.51)
<PER-SHARE-DISTRIBUTIONS> (0.19)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.68
<EXPENSE-RATIO> 0.59
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF MFS MUNICIPAL BOND FUND AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 03
<NAME> MFS MUNICIPAL BOND FUND CLASS B
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 10-MOS
<FISCAL-YEAR-END> AUG-31-1994
<PERIOD-END> AUG-31-1994
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 1,935,107,873
<INVESTMENTS-AT-VALUE> 2,035,722,629
<RECEIVABLES> 67,797,956
<ASSETS-OTHER> 29,764
<OTHER-ITEMS-ASSETS> 79,942
<TOTAL-ASSETS> 2,103,630,291
<PAYABLE-FOR-SECURITIES> 20,710,471
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 7,281,523
<TOTAL-LIABILITIES> 27,991,994
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,988,851,766
<SHARES-COMMON-STOCK> 4,206,681
<SHARES-COMMON-PRIOR> 897,130
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (6,722,584)
<ACCUMULATED-NET-GAINS> (5,354,109)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 98,863,224
<NET-ASSETS> 2,075,638,297
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 108,130,577
<OTHER-INCOME> 0
<EXPENSES-NET> 10,816,089
<NET-INVESTMENT-INCOME> 97,314,488
<REALIZED-GAINS-CURRENT> (5,170,469)
<APPREC-INCREASE-CURRENT> (143,768,588)
<NET-CHANGE-FROM-OPS> 51,624,569
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,157,886)
<DISTRIBUTIONS-OF-GAINS> (173,779)
<DISTRIBUTIONS-OTHER> (92,281)
<NUMBER-OF-SHARES-SOLD> 3,988,525
<NUMBER-OF-SHARES-REDEEMED> (770,579)
<SHARES-REINVESTED> 91,605
<NET-CHANGE-IN-ASSETS> 3,309,551
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 35,263,892
<OVERDISTRIB-NII-PRIOR> (6,261,186)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 7,253,533
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 10,816,089
<AVERAGE-NET-ASSETS> 1,116,603,460
<PER-SHARE-NAV-BEGIN> 11.63
<PER-SHARE-NII> 0.40
<PER-SHARE-GAIN-APPREC> (0.77)
<PER-SHARE-DIVIDEND> (0.40)
<PER-SHARE-DISTRIBUTIONS> (0.19)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.67
<EXPENSE-RATIO> 1.72
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
