<PAGE>
MASSACHUSETTS INVESTORS TRUST
MFS(R) TOTAL RETURN FUND
MFS(R) BOND FUND
SUPPLEMENT TO THE CURRENT PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION
MFS Financial Services, Inc. ("FSI"), the distributor of shares of the Fund,
will pay a commission to dealers which 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; provided, however, that FSI
may pay a commission, on sales in excess of $5 million to certain retirement
plans, of 1.00% to certain dealers which, at FSI's invitation, enter into an
agreement with FSI 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 FSI.
In addition to the particular classes of investors and transactions described
under the caption "Purchases" in the Prospectus, shares of the Fund may be
purchased at net asset value where the purchase is in an amount of $3 million or
more and where the dealer and FSI enter into an agreement as described above.
THE DATE OF THIS SUPPLEMENT IS JULY 23, 1993.
MFS-16I-4/94/30M
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
MFS(R) TOTAL RETURN FUND MFS(R) ALABAMA MUNICIPAL BOND FUND
MASSACHUSETTS INVESTORS GROWTH STOCK FUND MFS(R) ARKANSAS MUNICIPAL BOND FUND
MFS(R) GROWTH OPPORTUNITIES FUND MFS(R) CALIFORNIA MUNICIPAL BOND FUND
MFS(R) EMERGING GROWTH FUND MFS(R) FLORIDA MUNICIPAL BOND FUND
MFS(R) CAPITAL GROWTH FUND MFS(R) GEORGIA MUNICIPAL BOND FUND
MFS(R) INTERMEDIATE INCOME FUND MFS(R) LOUISIANA MUNICIPAL BOND FUND
MFS(R) GOLD & NATURAL RESOURCES FUND MFS(R) MARYLAND MUNICIPAL BOND FUND
MFS(R) MANAGED SECTORS FUND MFS(R) MASSACHUSETTS MUNICIPAL BOND FUND
MFS(R) VALUE FUND MFS(R) MISSISSIPPI MUNICIPAL BOND FUND
MFS(R) UTILITIES FUND MFS(R) NEW YORK MUNICIPAL BOND FUND
MFS(R) WORLD EQUITY FUND MFS(R) NORTH CAROLINA MUNICIPAL BOND FUND
MFS(R) WORLD TOTAL RETURN FUND MFS(R) PENNSYLVANIA MUNICIPAL BOND FUND
MFS(R) BOND FUND MFS(R) SOUTH CAROLINA MUNICIPAL BOND FUND
MFS(R) LIMITED MATURITY FUND MFS(R) TENNESSEE MUNICIPAL BOND FUND
MFS(R) GOVERNMENT MORTGAGE FUND MFS(R) TEXAS MUNICIPAL BOND FUND
MFS(R) GOVERNMENT LIMITED MATURITY FUND MFS(R) VIRGINIA MUNICIPAL BOND FUND
MFS(R) GOVERNMENT SECURITIES FUND MFS(R) WASHINGTON MUNICIPAL BOND FUND
MFS(R) HIGH INCOME FUND MFS(R) WEST VIRGINIA MUNICIPAL BOND FUND
MFS(R) STRATEGIC INCOME FUND MFS(R) MUNICIPAL LIMITED MATURITY FUND
MFS(R) WORLD GOVERNMENTS FUND MFS(R) MUNICIPAL BOND FUND
MFS(R) WORLD GROWTH FUND MFS(R) MUNICIPAL INCOME FUND
MFS(R) OTC FUND MFS(R) RESEARCH FUND
MFS(R) MUNICIPAL HIGH INCOME FUND MFS(R) WORLD ASSET ALLOCATION FUND
MASSACHUSETTS INVESTORS TRUST
SUPPLEMENT TO THE CURRENT PROSPECTUS
During the period from January 3, 1995 through April 28, 1995 (the "Sales Period") (unless extended
by MFS Fund Distributors, Inc. ("MFD"), the funds' principal underwriter), MFD will pay A. G.
Edwards and Sons, Inc., ("A. G. Edwards") 100% of the applicable sales charge on sales of Class A
shares of each of the funds listed above (the "Funds") sold for investment in Individual Retirement
Accounts ("IRAs") (excluding SEP-IRAs). In addition, MFD will pay A. G. Edwards an additional
commission equal to 0.50% of the net asset value of all of the Class B shares of the Funds sold by
A. G. Edwards during the Sales Period.
THE DATE OF THIS SUPPLEMENT IS JANUARY 3, 1995.
MFS-16AG-I/95/3.5M
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
MFS(R) MANAGED SECTORS FUND MFS(R) MUNICIPAL LIMITED MATURITY FUND
MFS(R) CASH RESERVE FUND MFS(R) ALABAMA MUNICIPAL BOND FUND
MFS(R) WORLD ASSET ALLOCATION FUND MFS(R) ARKANSAS MUNICIPAL BOND FUND
MFS(R) EMERGING GROWTH FUND MFS(R) CALIFORNIA MUNICIPAL BOND FUND
MFS(R) CAPITAL GROWTH FUND MFS(R) FLORIDA MUNICIPAL BOND FUND
MFS(R) GOLD & NATURAL RESOURCES FUND MFS(R) GEORGIA MUNICIPAL BOND FUND
MFS(R) INTERMEDIATE INCOME FUND MFS(R) LOUISIANA MUNICIPAL BOND FUND
MFS(R) HIGH INCOME FUND MFS(R) MARYLAND MUNICIPAL BOND FUND
MFS(R) MUNICIPAL HIGH INCOME FUND MFS(R) MASSACHUSETTS MUNICIPAL BOND FUND
MFS(R) MONEY MARKET FUND MFS(R) MISSISSIPPI MUNICIPAL BOND FUND
MFS(R) GOVERNMENT MONEY MARKET FUND MFS(R) NEW YORK MUNICIPAL BOND FUND
MFS(R) MUNICIPAL BOND FUND MFS(R) NORTH CAROLINA MUNICIPAL BOND FUND
MFS(R) OTC FUND MFS(R) PENNSYLVANIA MUNICIPAL BOND FUND
MFS(R) TOTAL RETURN FUND MFS(R) SOUTH CAROLINA MUNICIPAL BOND FUND
MFS(R) RESEARCH FUND MFS(R) TENNESSEE MUNICIPAL BOND FUND
MFS(R) WORLD TOTAL RETURN FUND MFS(R) TEXAS MUNICIPAL BOND FUND
MFS(R) UTILITIES FUND MFS(R) VIRGINIA MUNICIPAL BOND FUND
MFS(R) WORLD EQUITY FUND MFS(R) WASHINGTON MUNICIPAL BOND FUND
MFS(R) WORLD GOVERNMENTS FUND MFS(R) WEST VIRGINIA MUNICIPAL BOND FUND
MFS(R) VALUE FUND MFS(R) GROWTH OPPORTUNITIES FUND
MFS(R) STRATEGIC INCOME FUND MFS(R) GOVERNMENT MORTGAGE FUND
MFS(R) WORLD GROWTH FUND MFS(R) GOVERNMENT SECURITIES FUND
MFS(R) BOND FUND MASSACHUSETTS INVESTORS GROWTH STOCK FUND
MFS(R) LIMITED MATURITY FUND MFS(R) GOVERNMENT LIMITED MATURITY FUND
MASSACHUSETTS INVESTORS TRUST
</TABLE>
SUPPLEMENT TO THE CURRENT PROSPECTUS
Effective as of January 1, 1995, MFS Fund Distributors, Inc. ("MFD") has
replaced MFS Financial Services, Inc. ("FSI") as the Fund's distributor. Both
MFD and FSI are wholly-owned subsidiaries of Massachusetts Financial Services
Company ("MFS"), the Fund's investment adviser.
-----------------------------------------------
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
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 contingent deferred sales charge of 1% will be imposed on such
purchases in the event of certain redemption transactions within 12
months following such purchases.
-----------------------------------------------
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.
-----------------------------------------------
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.
-----------------------------------------------
(Over)
<PAGE>
Class A shares of the Fund (except of the MFS municipal bond funds
identified above) 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.
-----------------------------------------------
The CDSC on Class A and 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 MFS Service Center, Inc. (the
"Shareholder Servicing Agent").
-----------------------------------------------
The CDSC on Class A and 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 A and B share
accounts, respectively, 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) Plan(sm) of another
similar recordkeeping system made available by the Shareholder Servicing Agent.
-----------------------------------------------
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.
-----------------------------------------------
The current Prospectus discloses that "Class A shares of the Fund may also
be purchased at net asset value where the purchase is in an amount of $3 million
or more and where the dealer and FSI enter into an agreement in which the dealer
agrees to return any commission paid to it on the sale (or a pro rata portion
thereof) as described above if the shareholder redeems his or her shares within
one year of purchase. (Shareholders who purchase shares at NAV pursuant to these
conditions are called ("$3 Million Shareholders")." This policy is terminated
effective as of the date of this Supplement and the above-referenced language,
and all references to "$3 Million Shareholders," are deleted from the
Prospectus.
-----------------------------------------------
From time to time, MFD may pay dealers 100% of the applicable sales charge
on sales of Class A shares of certain specified 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 Funds sold by such dealer
during a specified sales period.
-----------------------------------------------
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 reinvest all dividends
and other distributions reinvested in additional shares.
-----------------------------------------------
From time to time, MFS 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).
THE DATE OF THIS SUPPLEMENT IS JANUARY 13, 1995.
MFS-16-I/95/605M
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
MASSACHUSETTS INVESTORS TRUST MFS(R) WORLD TOTAL RETURN FUND
MASSACHUSETTS INVESTORS GROWTH STOCK FUND MFS(R) MUNICIPAL BOND FUND
MFS(R) CAPITAL GROWTH FUND MFS(R) MUNICIPAL HIGH INCOME FUND
MFS(R) EMERGING GROWTH FUND MFS(R) MUNICIPAL INCOME FUND
MFS(R) GOLD & NATURAL RESOURCES FUND MFS(R) ALABAMA MUNICIPAL BOND FUND
MFS(R) GROWTH OPPORTUNITIES FUND MFS(R) ARKANSAS MUNICIPAL BOND FUND
MFS(R) MANAGED SECTORS FUND MFS(R) CALIFORNIA MUNICIPAL BOND FUND
MFS(R) OTC FUND MFS(R) FLORIDA MUNICIPAL BOND FUND
MFS(R) RESEARCH FUND MFS(R) GEORGIA MUNICIPAL BOND FUND
MFS(R) VALUE FUND MFS(R) LOUISIANA MUNICIPAL BOND FUND
MFS(R) TOTAL RETURN FUND MFS(R) MARYLAND MUNICIPAL BOND FUND
MFS(R) UTILITIES FUND MFS(R) MASSACHUSETTS MUNICIPAL BOND FUND
MFS(R) BOND FUND MFS(R) MISSISSIPPI MUNICIPAL BOND FUND
MFS(R) GOVERNMENT MORTGAGE FUND MFS(R) NEW YORK MUNICIPAL BOND FUND
MFS(R) GOVERNMENT SECURITIES FUND MFS(R) NORTH CAROLINA MUNICIPAL BOND FUND
MFS(R) HIGH INCOME FUND MFS(R) PENNSYLVANIA MUNICIPAL BOND FUND
MFS(R) INTERMEDIATE INCOME FUND MFS(R) SOUTH CAROLINA MUNICIPAL BOND FUND
MFS(R) STRATEGIC INCOME FUND MFS(R) TENNESSEE MUNICIPAL BOND FUND
MFS(R) GOVERNMENT LIMITED MATURITY FUND MFS(R) TEXAS MUNICIPAL BOND FUND
MFS(R) LIMITED MATURITY FUND MFS(R) VIRGINIA MUNICIPAL BOND FUND
MFS(R) MUNICIPAL LIMITED MATURITY FUND MFS(R) WASHINGTON MUNICIPAL BOND FUND
MFS(R) WORLD EQUITY FUND MFS(R) WEST VIRGINIA MUNICIPAL BOND FUND
MFS(R) WORLD GOVERNMENTS FUND MFS(R) WORLD ASSET ALLOCATION FUND
MFS(R) WORLD GROWTH FUND
</TABLE>
SUPPLEMENT TO THE CURRENT PROSPECTUS
During the period from February 1, 1995 through April 14, 1995 (the "Sales
Period") (unless extended by MFS Fund Distributors, Inc. ("MFD"), the Funds'
distributor), MFD will pay Corelink Financial Inc. ("Corelink") an additional
commission equal to 0.10% of the gross commissonable sales for Class A shares
and Class B shares and the net asset value for Class C shares (if applicable) of
the Funds sold by Corelink during the Sales Period.
THE DATE OF THIS SUPPLEMENT IS FEBRUARY 1, 1995.
MFS-16CL-2/95/5M
<PAGE>
MFS(R) Managed Sectors Fund MFS(R) Growth Opportunities Fund
MFS(R) Emerging Growth Fund MFS(R) High Income Fund
MFS(R) Capital Growth Fund MFS(R) Municipal Bond Fund
MFS(R) Gold & Natural Resources Fund MFS(R) Research Fund
MFS(R) World Total Return Fund MFS(R) Value Fund
MFS(R) World Equity Fund MFS(R) Bond Fund
MFS(R) Utilities Fund MFS(R) Limited Maturity Fund
MFS(R) Strategic Income Fund MFS(R) Municipal Limited Maturity Fund
MFS(R) Municipal Income Fund MFS(R) Municipal Series Trust
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 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 FEBRUARY 1, 1995.
MFS-16OH-2/95/19.5M
<PAGE>
PROSPECTUS
July 1, 1994
Class A Shares of Beneficial Interest
MFS(R) BOND FUND Class B Shares of Beneficial Interest
(A member of the MFS Family of Funds(R)) Class C Shares of Beneficial Interest
- ------------------------------------------------------------------------------
Page
----
1. The Fund ...................................................... 2
2. Expense Summary ............................................... 2
3. Condensed Financial Information ............................... 4
4. Investment Objectives and Policies ............................ 5
5. Management of the Fund ........................................ 13
6. Information Concerning Shares of the Fund ..................... 14
Purchases ................................................. 14
Exchanges ................................................. 19
Redemptions and Repurchases ............................... 20
Distribution Plans ........................................ 22
Distributions ............................................. 24
Tax Status ................................................ 24
Net Asset Value ........................................... 25
Description of Shares, Voting Rights and Liabilities ...... 25
Performance Information ................................... 26
7. Shareholder Services .......................................... 26
Appendix A .................................................... 29
Appendix B .................................................... 31
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 BOND FUND
500 Boylston Street, Boston, Massachusetts 02116 (617) 954-5000
This Prospectus pertains to the MFS Bond Fund (the "Fund"), a diversified series
of MFS(R) Fixed Income Trust (the "Trust"), an open-end investment company
presently consisting of three series. The primary investment objective of the
MFS Bond Fund is to provide as high a level of current income as is believed to
be consistent with prudent investment risk. The secondary objective of the Fund
is to protect shareholders' capital. See "Investment Objectives and Policies."
The minimum initial investment is generally $1,000 per account (see
"Purchases").
The investment adviser and distributor of the Fund are Massachusetts Financial
Services Company and MFS Financial Services, Inc., 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
("SEC") a Statement of Additional Information, dated July 1, 1994, which
contains more detailed information about the Fund and the Trust and is
incorporated into this Prospectus by reference. See page 28 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>
1. THE FUND
MFS Bond Fund (the "Fund") is a diversified series of MFS Fixed Income Trust
(the "Trust"), an open-end management investment company which was organized as
a trust under the laws of The Commonwealth of Massachusetts in 1985. The Trust
presently consists of three series, each of which represents a portfolio with
separate policies. Shares of the Fund are continuously sold to the public and
the Fund uses the proceeds to buy securities for its portfolio. Three 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 contingent
deferred sales charge (a "CDSC") in the case of certain purchases of $1 million
or more) and subject to a Distribution Plan providing for an annual distribution
fee and service fee. 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
an annual distribution fee and 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 a sales charge or a CDSC but subject to a Distribution Plan
providing for an annual distribution 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. Massachusetts Financial Services Company, a Delaware corporation ("MFS" or
the "Adviser"), is the Fund's investment adviser. A majority of the Trustees are
not affiliated with the Adviser. The Adviser is responsible for the management
of the Fund's assets and the officers of the Trust are responsible for the
Fund's operations. The Adviser manages the portfolio from day to day in
accordance with the investment objectives and policies of the Fund. The
selection of investments and the way they are managed depend on the conditions
and trends in the economy and the financial marketplaces. The Trust also offers
to buy back (redeem) the Fund's shares from Fund shareholders at any time at net
asset value, less any applicable CDSC.
2. EXPENSE SUMMARY
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHAREHOLDER TRANSACTION EXPENSES:
<S> <C> <C> <C>
Maximum Initial Sales Charge Imposed on
Purchases of Fund Shares (as a percentage of
offering price) ............................. 4.75% 0.00% 0.00%
Maximum Contingent Deferred Sales Charge (as a
percentage of original purchase price or
redemption proceeds, as applicable) ......... See below<F1> 4.00% 0.00%
ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS):
Management Fees ............................... 0.41% 0.41% 0.41%
Rule 12b-1 Fees (after applicable fee waiver) . 0.23%<F2> 1.00%<F3> 1.00%<F3>
Other Expenses<F4> ............................ 0.31% 0.38% 0.31%
----- ----- -----
Total Operating Expenses (after applicable fee
waiver) ..................................... 0.95%<F5> 1.79% 1.72%
<FN>
- ---------
<F1> Purchases of $1 million or more are not subject to an initial sales charge;
however, 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).
<F2> 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"). Currently, 0.10% of the distribution/service fee is
being waived. 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.
<F3> 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.
<F4> Except for the shareholder servicing agent fee component, "Other Expenses"
is based on Class A expenses incurred during the fiscal year ended April
30, 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.
<F5> Absent the Distribution Plan fee waiver, the Fund's "Total Operating
Expenses" for Class A shares would have been 1.05% of average net assets
attributable to that class.
</TABLE>
EXAMPLE OF EXPENSES
-------------------
An investor would pay the following dollar amounts of expenses on a $1,000
investment in the Fund, assuming (a) 5% annual return and (b) redemption at the
end of each of the time periods indicated (unless otherwise noted):
PERIOD CLASS A CLASS B CLASS C
------ ------- ------- -------
(1)
1 year ............. $ 57 $ 58 $ 18 $ 17
3 years ............ 76 86 56 54
5 years ............ 98 117 97 93
10 years ............ 159 188(2) 188(2) 203
---------
(1) Assumes no redemption.
(2) Class B shares convert to Class A shares approximately eight years after
purchase; therefore, years nine and ten reflect Class A expenses.
The purpose of the expense table above is to assist investors in understanding
the various costs and expenses that a shareholder of the Fund will bear directly
or indirectly. More complete descriptions of the following expenses are set
forth in the following sections of the Prospectus: (i) varying sales charges on
share purchases -- "Purchases"; (ii) varying CDSCs -- "Purchases"; (iii)
management fees -- "Investment Adviser"; and (iv) Rule 12b- 1 (i.e.,
distribution plan) fees -- "Distribution Plans."
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES OF THE FUND; ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
<PAGE>
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, independent certified public
accountants, as experts in accounting and auditing.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A
YEAR ENDED APRIL 30,
---------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD):
Net asset value -- beginning of
period ...................... $14.39 $13.70 $13.25 $12.69 $12.80 $13.20
------ ------ ------ ------ ------ ------
Income from investment operations<F2> --
Net investment income ....... $ 1.02 $ 1.04 $ 1.13 $ 1.14 $ 1.20 $ 1.15
Net realized and unrealized
gain (loss) on investments. (0.63) 0.74 0.45 0.59 (0.14) (0.38)
------ ------ ------ ------ ------ ------
Total from investment
operations ............... $ 0.39 $ 1.78 $ 1.58 $ 1.73 $ 1.06 $ 0.77
------ ------ ------ ------ ------ ------
Less distributions declared to
shareholders --
From net investment income .. $(1.06) $(1.04) $(1.13) $(1.17) $(1.17) $(1.17)
From paid-in capital ........ (0.14) -- -- -- -- --
In excess of net investment
income .................... (0.02) -- -- -- -- --
From realized gain on
investments ............... (0.80) (0.05) -- -- -- --
In excess of realized gain on
investments ............... (0.01) -- -- -- -- --
------ ------ ------ ------ ------ ------
Total distributions
declared to shareholders. $(2.03) $(1.09) $(1.13) $(1.17) $(1.17) $(1.17)
------ ------ ------ ------ ------ ------
Net asset value -- End of
period ...................... $12.75 $14.39 $13.70 $13.25 $12.69 $12.80
====== ====== ====== ====== ====== ======
TOTAL RETURN<F1> .............. 2.12% 13.42% 12.39% 13.65% 7.69% 5.49%
RATIOS (TO AVERAGE NET ASSETS)
/SUPPLEMENTAL DATA:
Expenses .................... 0.96%<F3> 0.88% 0.91% 0.79% 0.75% 0.83%
Net investment income ....... 7.17%<F3> 7.82% 8.39% 8.82% 9.10% 8.93%
PORTFOLIO TURNOVER ............ 410% 330% 243% 189% 186% 160%
NET ASSETS -- END OF PERIOD
($000 OMITTED) .............. 459,311 490,417 448,261 315,722 293,242 299,485
<FN>
- ---------
<F1> Total returns do not include the applicable sales charge (except for
reinvestment dividends prior to March 1, 1991). If the sales charge had
been included, the results would have been lower.
<F2> Per share data for the year ended April 30, 1994 is based on average shares
outstanding.
<F3> The distributor did not impose a portion of its distribution and service
fee attributable to Class A shares amounting to $0.01 per share for the
year ended April 30, 1994. If these expenses had been incurred by the Fund,
the ratios of expenses and net investment income to average net assets for
Class A would have been 1.02% and 7.10%, respectively.
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
---------------------------------------------------------------------------------
CLASS A CLASS B<F1> CLASS C<F2>
------------------------------------------------- -------- -------
1988 1987 1986 1985 1994 1994
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD):
Net asset value -- beginning of
period ...................... $14.04 $14.62 $12.69 $11.95 $14.99 $13.57
------ ------ ------ ------ ------ ------
Income from investment operations<F6> --
Net investment income ....... $ 1.16 $ 1.24 $ 1.43 $ 1.43 $ 0.56 $ 0.29
Net realized and unrealized
gain (loss) on investments. (0.42) (0.27) 1.94 0.73 (1.30) (0.90)
------ ------ ------ ------ ------ ------
Total from investment
operations .............. $ 0.74 $ 0.97 $ 3.37 $ 2.16 $(0.74) $(0.61)
------ ------ ------ ------ ------ ------
Less distributions declared to
shareholders --
From net investment income .. $(1.15) $(1.15) $(1.44) $(1.42) $(0.59) $(0.21)
In excess of net investment
income ..................... -- -- -- -- (0.02) --
From paid-in capital ........ -- -- -- -- 0.10 0.02
From realized gain on
investments ............... (0.43) (0.40) -- -- (0.80) --
In excess of realized gain on
investments ............... -- -- -- -- (0.01) --
------ ------ ------ ------ ------ ------
Total distributions
declared to shareholders $(1.58) $(1.55) $(1.44) $(1.42) $(1.52) $(0.24)
------ ------ ------ ------ ------ ------
Net asset value -- End of
period ...................... $13.20 $14.04 $14.62 $12.69 $12.73 $12.72
====== ====== ====== ====== ====== ======
TOTAL RETURN<F5> .............. 5.18% 6.15% 26.73% 17.89% (5.42%)<F4> (4.57%)<F4>
RATIOS (TO AVERAGE NET ASSETS)
/SUPPLEMENTAL DATA:
Expenses .................... 0.76% 0.68% 0.79% 0.84% 1.83%<F3> 1.80%<F3>
Net investment income ....... 8.85% 8.44% 10.29% 11.53% 6.39%<F3> 6.57%<F3>
PORTFOLIO TURNOVER ............ 287% 334% 218% 262% 410% 410%
NET ASSETS -- END OF PERIOD
($000 OMITTED) .............. 310,403 318,329 319,316 248,091 33,4132 7,627
<FN>
- ---------
<F1> For the period from the commencement of initial public offering of Class B
shares, September 7, 1993 to April 30, 1994.
<F2> For the period from the commencement of initial public offering of Class C
shares, January 3, 1994 to April 30, 1994.
<F3> Annualized.
<F4> Not Annualized.
<F5> Total returns do not include the applicable sales charge (except for
reinvestment dividends prior to March 1, 1991). If the sales charge had
been included, the results would have been lower.
<F6> Per share data for the year ended April 30, 1994 is based on average shares
outstanding.
</TABLE>
Further information about the performance of the Fund is contained in the Fund's
Annual Report to shareholders, which can be obtained from the Shareholder
Servicing Agent (see back cover for address and phone number) without charge.
4. INVESTMENT OBJECTIVES AND POLICIES
INVESTMENT OBJECTIVES -- The Fund's primary investment objective is to provide
as high a level of current income as is believed to be consistent with prudent
investment risk. The Fund's secondary objective is to protect shareholders'
capital. Any investment involves risk and there can be no assurance that the
Fund will achieve its investment objectives.
INVESTMENT POLICIES -- Under normal market conditions, all investments are made
in accordance with the following policies:
1. Approximately 80% of the Fund's net assets will be invested in:
(a) non-convertible debt securities which have a rating within the four
highest grades as determined by Standard & Poor's Ratings Group ("S&P")
(AAA, AA, A or BBB) or Moody's Investors Service, Inc. ("Moody's") (Aaa,
Aa, A or Baa) and comparable unrated securities; for a description of
these rating categories, see Appendix A to this Prospectus;
(b) debt securities issued or guaranteed by the United States ("U.S.")
Government or its agencies, authorities or instrumentalities ("U.S.
Government Securities");
(c) non-convertible debt securities issued or guaranteed by national or
state banks or bank holding companies (as defined in the Federal Bank
Holding Company Act) which, although not rated as a matter of policy by
S&P or Moody's, are considered by the Adviser to have an investment
quality equivalent to securities which may be purchased under item (a)
above; or
(d) commercial paper, repurchase agreements and cash or cash equivalents
(such as certificates of deposit and bankers' acceptances).
2. Up to 20% of the Fund's total assets may be invested in non-convertible
debt securities which are not rated within the four highest grades of S&P
or Moody's as described above and comparable unrated securities (commonly
known as "junk bonds") and in convertible debt securities and preferred
stocks. These convertible debt securities and preferred stocks may be
unrated or rated below the four highest grades of S&P and Moody's
described above. For a description of these ratings see Appendix A to
this Prospectus and for a chart indicating the composition of the Fund's
portfolio for the fiscal year ended April 30, 1994 with the debt
securities rated by S&P separated into rating categories, see Appendix B
to this Prospectus. For a discussion of the risks of investing in these
securities see "Risks of Investing in Lower Rated Bonds" below.
Although the Fund may purchase Canadian and other foreign securities, under
normal market conditions, it may not invest more than 10% of its assets in
non-dollar denominated non-Canadian foreign securities.
The Fund may not directly purchase common stocks. However, the Fund may retain
up to 10% of its total assets in common stocks which were acquired either by
conversion of fixed income securities or by the exercise of warrants attached
thereto.
U.S. Government Securities also include interest in trusts or other entities
representing interests in obligations that are issued or guaranteed by the U.S.
Government, its agencies, authorities or instrumentalities.
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. The underlying
assets (e.g., loans) are also subject to prepayments which shorten the
securities' weighted average life and may lower their return.
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 on underlying assets to make payments, 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.
MORTGAGE PASS-THROUGH SECURITIES: The Fund may invest in mortgage pass-through
securities. Mortgage pass-through securities are securities representing
interests in "pools" of mortgage loans. Monthly payments of interest and
principal by the individual borrowers on mortgages are passed through to the
holders of the securities (net of fees paid to the issuer or guarantor of the
securities) as the mortgages in the underlying mortgage pools are paid off. The
average lives of mortgage pass-throughs are variable when issued because their
average lives depend on prepayment rates. The average life of these securities
is likely to be substantially shorter than their stated final maturity as a
result of unscheduled principal prepayment. Prepayments on underlying mortgages
result in a loss of anticipated interest, and all or part of a premium if any
has been paid, and the actual yield (or total return) to the Fund may be
different than the quoted yield on the securities. Mortgage prepayments
generally increase with falling interest rates and decrease with rising interest
rates. Like other fixed income securities, when interest rates rise the value of
a mortgage pass-through security generally will decline; however, when interest
rates are declining, the value of mortgage pass-through securities with
prepayment features may not increase as much as that of other fixed-income
securities.
Payment of principal and interest on some mortgage pass-through securities (but
not the market value of the securities themselves) may be guaranteed by the full
faith and credit of the U.S. Government (in the case of securities guaranteed by
the Government National Mortgage Association ("GNMA")); or guaranteed by
agencies or instrumentalities of the U.S. Government (such as the Federal
National Mortgage Association ("FNMA") or the Federal Home Loan Mortgage
Corporation ("FHLMC"), which are supported only by the discretionary authority
of the U.S. Government to purchase the agency's obligations). Mortgage
pass-through securities may also be issued by non-governmental issuers (such as
commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers). Some of these
mortgage pass-through securities may be supported by various forms of insurance
or guarantees.
SWAPS AND RELATED TRANSACTIONS: The Fund may enter into interest rate swaps,
currency swaps and other types of available swap agreements. Swaps involve the
exchange by the Fund with another party of cash payments based upon different
interest rate indexes, currencies, and other prices or rates, such as the value
of mortgage prepayment rates. For example, in the typical interest rate swap,
the Fund might exchange a sequence of cash payments based on a floating rate
index for cash payments based on a fixed rate.
The Fund may also purchase and sell caps, floors and collars. In a typical cap
or floor agreement, one party agrees to make payments only under specified
circumstances, usually in return for payment of a fee by the counterparty. For
example, the purchase of an interest rate cap entitles the buyer, to the extent
that a specified index exceeds a predetermined interest rate, to receive
payments of interest on a contractually-based principal amount from the
counterparty selling such interest rate cap. The sale of an interest rate floor
obligates the seller to make payments to the extent that a specified interest
rate falls below an agreed-upon level. A collar arrangement combines elements of
buying a cap and selling a floor.
Swaps, caps, floors and collars are highly specialized activities which involve
certain risks different from those associated with ordinary portfolio
transactions. See the Statement of Additional Information for further
information on, and the risks involved in, these activities.
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 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. Treasury securities maintained on a
current basis at an amount at least equal to the market value of the securities
loaned. The Fund will continue to collect the equivalent of interest on the
securities loaned and will also receive either interest (through investment of
cash collateral) or a fee (if the collateral is government securities). If the
Adviser determines to make securities loans, it is intended that the value of
the securities loaned would not exceed 30% of the value of the total assets of
the Fund.
ZERO COUPON BONDS, DEFERRED INTEREST BONDS AND PIK BONDS: 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 ("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,
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.
COLLATERALIZED MORTGAGE OBLIGATIONS AND MULTICLASS PASS-THROUGH SECURITIES: The
Fund may invest a portion of its assets in collateralized mortgage obligations
or "CMOs", which are debt obligations collateralized by mortgage loans or
mortgage pass-through securities. Typically, CMOs are collateralized by
certificates issued by GNMA, FNMA or FHLMC, but also may be collateralized by
whole loans or private mortgage pass-through securities (such collateral
collectively referred to as "Mortgage Assets"). The Fund may also invest a
portion of its assets in multiclass pass-through securities which are interests
in a trust composed of Mortgage Assets. CMOs (which include multiclass
pass-through securities) may be issued by agencies or instrumentalities of the
U.S. Government or by private originators of, or investors in, mortgage loans,
including savings and loan associations, mortgage banks, commercial banks,
investment banks and special purpose subsidiaries of the foregoing. Payments of
principal of and interest on the Mortgage Assets, and any reinvestment income
thereon, provide the funds to pay debt service on the CMOs or make scheduled
distributions on the multiclass pass-through securities. In a CMO, a series of
bonds or certificates are usually issued in multiple classes with different
maturities. Each class of CMOs, often referred to as a "tranche", is issued at a
specific fixed or floating coupon rate and has a stated maturity or final
distribution date. Principal prepayments on the Mortgage Assets may cause the
CMOs to be retired substantially earlier than their stated maturities or final
distribution dates, resulting in a loss of all or part of the premium if any has
been paid. Certain classes of CMOs have priority over others with respect to the
receipt of prepayments on the mortgages. Therefore, depending on the type of
CMOs in which the Fund invests, the investment may be subject to a greater or
lesser risk of prepayments than other types of mortgage-related securities.
The Fund may also invest in parallel pay CMOs and Planned Amortization Class
CMOs ("PAC Bonds"). Parallel pay CMOs are structured to provide payments of
principal on each payment date to more than one class. PAC Bonds generally
require payments of a specified amount of principal on each payment date. PAC
Bonds are always parallel pay CMOs with the required principal payment on such
securities having the highest priority after interest has been paid to all
classes. For a further description of CMOs, parallel pay CMOs and PAC Bonds and
the risks related to transactions therein, see the Statement of Additional
Information.
STRIPPED MORTGAGE-BACKED SECURITIES: The Fund may also invest a portion of its
assets in stripped mortgage-backed securities ("SMBS"), which are derivative
multiclass mortgage securities usually structured with two classes that receive
different proportions of interest and principal distributions from an underlying
pool of mortgage assets. For a further description of SMBS and the risks related
to transactions therein, see the Statement of Additional Information.
"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. In general, the Fund does not pay for
such securities until received, and does not start earning interest on the
securities until the contractual settlement date. While awaiting delivery of
securities purchased on such bases, the Fund will normally invest in cash, cash
equivalents and high grade 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.
OPTIONS: The Fund intends to write (sell) "covered" put and call options and
purchase put and call options on domestic and foreign fixed income securities.
Call options written by the Fund give the holder the right to buy the underlying
security 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 give the holder
the right to sell the underlying security 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 security, 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 security. The Fund may also write straddles (combinations of puts and
calls on the same underlying security). The writing of straddles provides the
Fund with additional premium income, but could involve greater risk. See the
Statement of Additional Information.
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 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.
The Fund intends to write and purchase options on securities not only for
hedging purposes, but also for the purpose of increasing its return. Options on
securities that are written or purchased by the Fund will be traded on U.S. and
foreign exchanges and over-the-counter. Over-the-counter transactions also
involve certain risks which may not be present in an exchange environment.
The Fund may also enter into options on the yield "spread" or yield differential
between two fixed income securities, a transaction referred to as a "yield
curve" option, for hedging and non-hedging purposes. In contrast to other types
of options, a yield curve option is based on the difference between the yields
of designated fixed income securities rather than the actual prices of the
individual securities. Yield curve options written by the Fund will be "covered"
but could involve additional risks, as discussed in the Statement of Additional
Information.
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
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.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS: The Fund may purchase and
sell futures contracts on foreign or domestic fixed income securities or indices
of such securities, including municipal bond indices and any other indices of
foreign or domestic 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 only 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 prices of securities which the Fund intends
to purchase at a later date. Should interest rates move in an unexpected manner,
the Fund may not achieve the anticipated benefits of the hedging transactions
and may realize a loss. Such transactions may also be entered into for
non-hedging purposes, 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.
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, on Futures Contracts or on foreign currencies, 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. and foreign exchanges.
FORWARD CONTRACTS: The Fund may enter into forward foreign currency exchange
contracts ("Forward Contracts") for hedging purposes only. A Forward Contract is
an obligation to purchase or sell a specific currency for an agreed price at a
future date which is individually negotiated and privately traded by currency
traders and their customers. The Fund will enter into Forward Contracts for
hedging purposes to attempt to minimize the risk to the Fund from adverse
changes in the relationship between the U.S. dollar and foreign currency. The
Fund may enter into a Forward Contract, for example, when it enters into a
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of the security.
Additionally, for example, when the Fund believes that a foreign currency may
suffer a substantial decline against the U.S. dollar, it may enter into a
Forward Contract to sell an amount of that foreign currency approximating the
value of some or all of the Fund's portfolio securities denominated in such
foreign currency. The Fund may also enter into a Forward Contract on one
currency in order to hedge against risk of loss arising from fluctuations in the
value of a second currency (referred to as a "cross hedge") if, in the judgment
of the Adviser, a reasonable degree of correlation can be expected between
movements in the values of the two currencies. The Fund may 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 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 "Risks
of Investing in Foreign Securities" for information on the risks associated with
holding foreign currency.
OPTIONS ON FOREIGN CURRENCIES: The Fund may purchase and write put and call
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. As in the case of other kinds
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 could 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 plus
related transaction costs. Options on foreign currencies written or purchased by
the Fund will be traded on U.S. and foreign exchanges and over-the-counter. 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 exchange rate will improve,
the Fund may hold such currencies for an indefinite period of time. See "Risks
of Investing in Foreign Securities," below for information on the risks
associated with holding foreign currency.
SPECIAL CONSIDERATIONS: Although the Fund will enter into certain transactions
in options, Futures Contracts, Options on Futures Contracts, Forward Contracts
and options on foreign currencies for hedging purposes, and will enter into
certain other options 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 such instruments 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 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 further description of
options, Futures Contracts, Options on Futures Contracts, Forward Contracts and
options on foreign currencies, and a discussion of the risks related to
transactions therein.
Transactions in options may be entered into by the Fund on U.S. exchanges
regulated by the SEC, in the over-the-counter market and on foreign exchanges,
while 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 CFTC and on foreign exchanges. In addition, the
securities underlying options and Futures Contracts traded by the Fund will
include foreign as well as domestic securities.
The net asset value of the shares of an open-end investment company, such as the
Fund, which invests primarily in fixed income securities, changes with the
general level of interest rates. When interest rates decline, the market value
of a portfolio invested at higher yields can be expected to rise. Conversely,
when interest rates rise, the market value of a portfolio invested at lower
yields can be expected to decline.
RISKS OF INVESTING IN LOWER RATED BONDS: As indicated above, the Fund may also
invest up to 20% of its total assets in securities rated Ba or lower by Moody's
or BB or lower by S&P and comparable unrated securities (commonly known as "junk
bonds"). 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. However, since 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 short-term corporate and industry
developments to a greater extent than higher rated securities which react
primarily to fluctuations in the general level of interest rates. These lower
rated fixed income securities are also affected by changes in interest rates,
the market's perception of their credit quality, and the outlook for economic
growth. 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. During certain periods, the higher yields on the
Fund's lower rated high yielding fixed income securities are paid primarily
because of the increased risk of loss of principal and income, arising from such
factors as the heightened possibility of default or bankruptcy of the issuers of
such securities. Due to the fixed income payments of these securities, the Fund
may continue to earn the same level of interest income while its net asset value
declines due to portfolio losses, which could result in an increase in the
Fund's yield despite the actual loss of principal. The market for these lower
rated fixed income securities may be less liquid than the market for investment
grade fixed income securities. Therefore, judgment may at times play a greater
role in valuing these securities than in the case of investment grade fixed
income securities.
The Fund may also invest in fixed income securities rated Baa by Moody's or BBB
by S&P 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.
These lower rated and comparable unrated securities may also include zero coupon
bonds, deferred interest bonds and PIK bonds, described above. See the Statement
of Additional Information for more information on lower rated securities.
RISKS OF INVESTING IN FOREIGN SECURITIES: The Fund may invest in foreign
securities to the extent described above. Investing in securities of foreign
issuers generally involves risks not ordinarily associated with investing in
securities of domestic issuers. These risks include changes in currency rates,
exchange control regulations, governmental administration or economic or
monetary policy (in the U.S. 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
U.S.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.
RESTRICTED SECURITIES: The Fund may also purchase securities that are not
registered under the Securities Act of 1933, as amended ("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 limitation on investing not
more than 10% 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 these Rule 144A securities
held in the Fund's portfolio. Subject to the Fund's 10% limitation on
investments in illiquid investments, the Fund may also invest in restricted
securities that may not be sold under Rule 144A, which presents certain risks.
As a result, the Fund might not be able to sell these securities when the
Adviser wishes to do so, or might have to sell them at less than fair value. In
addition, market quotations are less readily available. Therefore, judgment may
at times play a greater role in valuing these securities than in the case of
unrestricted securities.
PORTFOLIO TRADING: The Fund intends to engage in portfolio trading rather than
holding portfolio securities to maturity. In trading 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 trading portfolio securities, see
"Portfolio Trading" in the Statement of Additional Information.
The primary consideration in placing portfolio security transactions is
execution at the most favorable prices. 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 MFS Financial Services, Inc. ("FSI"), the
Fund's distributor, as a factor in the selection of broker-dealers to execute
the Fund's portfolio transactions.
--------------------
The investment objectives and policies described above are not fundamental and
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 limitations, policies and rating
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.
5. MANAGEMENT OF THE FUND
INVESTMENT ADVISER -- The Adviser manages the assets of the Fund pursuant to an
Investment Advisory Agreement, dated December 2, 1985 (the "Advisory
Agreement"). The Adviser provides the 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 the Fund's portfolio
manager since 1989 and has been employed by the Adviser since 1987. 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 fixed by a formula based upon a
percentage of the Fund's average daily net assets for its then-current fiscal
year plus a percentage of the Fund's gross income (i.e., income other than gains
from the sale of securities, gains from options and futures transactions and
premium income from options written) for that fiscal year. The applicable
percentages are reduced as assets and income attain the following levels:
ANNUAL RATE OF MANAGEMENT FEE ANNUAL RATE OF MANAGEMENT FEE
BASED ON AVERAGE DAILY NET ASSETS BASED ON GROSS INCOME
- --------------------------------- -----------------------------
.225% of the first $200 million 2.75% of the first $20 million
.191% of average daily net assets 2.34% of gross income in
in excess of $200 million excess of $20 million
For the Fund's fiscal year ended April 30, 1994, MFS received management fees
under the Advisory Agreement of $2,114,447 (of which $1,049,828 was based on
average daily net assets and $1,064,619 on gross income), 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") and to MFS(R) Municipal Income Trust, MFS
Multimarket Income Trust, MFS Government Markets Income Trust, MFS Intermediate
Income Trust, MFS Charter Income Trust, MFS Special Value Trust, MFS
Institutional Trust, MFS Union Standard Trust, MFS Variable Insurance Trust, Sun
Growth Variable Annuity Fund, Inc., MFS/Sun Life Series Trust and seven variable
accounts, each of which is a registered investment company established by Sun
Life Assurance Company of Canada (U.S.) ("Sun Life of Canada (U.S.)") in
connection with the sale of Compass-2 and Compass-3 combination fixed/variable
annuity contracts. The MFS Asset Management Group, a division of MFS, provides
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 $33.8 billion on behalf of approximately 1.5 million investor
accounts as of May 31, 1994. As of such date, the MFS organization managed
approximately $19.4 billion of net assets in fixed income funds and fixed income
portfolios of the MFS Asset Management Group. 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, Arnold D. Scott, John R. Gardner and John D. McNeil, 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 directly 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, Linda J. Hoard,
James R. Bordewick, Jr., James O. Yost, Robert A. Dennis and Geoffrey L.
Kurinsky, all of whom are officers of MFS, are officers of the Trust.
DISTRIBUTOR -- FSI, a wholly owned subsidiary of MFS, is the distributor of
shares of the Fund and also serves as distributor for each of the other MFS
Funds.
SHAREHOLDER SERVICING AGENT -- MFS Service Center, Inc. (the "Shareholder
Servicing Agent"), a wholly owned subsidiary of MFS, performs transfer agency,
certain dividend disbursing agency and other services for the Fund.
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 FSI. 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 investments in the Fund.
The Fund offers three classes of shares which have 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<F1>
PERCENTAGE OF:
-------------------------------- DEALER ALLOWANCE
NET AMOUNT AS A PERCENTAGE
AMOUNT OF PURCHASE OFFERING PRICE INVESTED OF OFFERING 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<F2> None<F2> See Below<F2>
<FN>
<F1> Because of rounding in the calculation of offering price, actual sales
charges may be more or less than those calculated using the percentages
above.
<F2> A CDSC may apply in certain circumstances. FSI (on behalf of the Fund) will
pay a commission on purchases of $1 million or more.
</TABLE>
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 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 Internal Revenue Code of 1986, as amended
(the "Code") (a "Retirement Plan"), due to: (a) a loan from the plan (repayment
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 that 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. 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. The
applicability of the CDSC will be unaffected by transfers of registration. FSI
will receive all CDSCs which FSI intends to apply for the benefit of the Fund.
FSI 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 FSI retains approximately
3/4 of 1% of the public offering price. In addition, FSI pays commissions 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. 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. 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 FSI serves as distributor
or principal underwriter, and to certain family members of such individuals and
their spouses, provided such 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 FSI 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 the MFS Asset
Management Group. Insurance company separate accounts may also purchase Class A
shares of the Fund at their net asset value. Class A shares of the Fund also 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
FSI or its affiliates, if such redemption has occurred no more than 60 days
prior to the purchase of Class A shares of the Fund and the shareholder either
(i) paid an initial sales charge or (ii) was at some time subject to, but did
not actually pay, a deferred sales charge with respect to the redemption
proceeds. Class A shares of the Fund may also be sold at net asset value where
the amount invested represents redemption proceeds of the MFS Fixed Fund. In
addition, Class A shares of the Fund may be sold at net asset value in
connection with the acquisition or the liquidation of the assets of other
investment companies or personal holding companies. Class A shares of the Fund
may be purchased at their net asset value by retirement plans where third party
administrators of such plans have entered into certain arrangements with FSI or
its affiliates provided that no commission is paid to dealers. 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 FSI,
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 retirement
plans qualified under section 401(a) or 403(b) of the Code which are subject to
the Employee Retirement Income Security Act of 1974, as amended, as follows:
(i) the retirement plan and/or the sponsoring organization must subscribe to
the MFS FUNDamental 401(k) Plan(sm) or another similar Section 401(a) or
403(b) recordkeeping program made available by MFS Service Center, Inc.;
(ii) either (a) the sponsoring organization must have at least 25 employees
or (b) the aggregate purchases by the retirement plan of Class A shares of
the MFS Funds must be in an amount of at least $250,000 within a reasonable
period of time, as determined by FSI in its sole discretion; and
(iii) 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 FSI, as follows: 1.00% on sales
up to $5 million, plus 0.25% on the amount in excess of $5 million; provided,
however, that FSI may pay a commission, on sales in excess of $5 million to
certain retirement plans, of 1.00% to certain dealers which, at FSI's
invitation, enter into an agreement with FSI 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 FSI. 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 also be sold at net asset value through the automatic
reinvestment of Class A and Class B distributions which constitute required
withdrawals from qualified retirement plans. Class A shares of the Fund may also
be purchased at net asset value where the purchase is in an amount of $3 million
or more and where the dealer and FSI enter into an agreement in which the dealer
agrees to return any commission paid to it on the sale (or on a pro rata portion
thereof) as described above if the shareholder redeems his or her shares within
one year of purchase. (Shareholders who purchase shares at net asset value
pursuant to these conditions are called "$3 Million Shareholders"). 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 Class A shares
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:
YEAR OF CONTINGENT
REDEMPTION DEFERRED SALES
AFTER PURCHASE CHARGE
-------------- --------------
First ........................................................ 4%*
Second ....................................................... 4%
Third ........................................................ 3%
Fourth ....................................................... 3%
Fifth ........................................................ 2%
Sixth ........................................................ 1%
Seventh and following ........................................ 0%
- ---------
*Class B shares purchased from January 1, 1993 through August 31, 1993, are
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:
YEAR OF CONTINGENT
REDEMPTION DEFERRED SALES
AFTER PURCHASE CHARGE
-------------- --------------
First ........................................................ 6%
Second ....................................................... 5%
Third ........................................................ 4%
Fourth ....................................................... 3%
Fifth ........................................................ 2%
Sixth ........................................................ 1%
Seventh and following ........................................ 0%
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" below 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), 401(k) 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 redemptions 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 FSI 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 FSI, by certain
family members of any such employee or representative and their spouse, by any
trust, pension, profit-sharing or other retirement plan for the sole benefit of
such employee or representative and by clients of the MFS Asset Management
Group. 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 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 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 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 Sections 401(a) or 403(b) of the Code 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 the $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 FSI. The Fund reserves the right to cease offering
shares for sale at any time.
For shareholders who elect to participate in certain investment programs (e.g.,
the automatic investment plan) or other shareholder services, FSI 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 FSI 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 FSI may reject or restrict any purchases of the Fund's shares 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
management of the Fund.
FSI may enter into an agreement with shareholders who intend to make exchanges
among certain classes of certain MFS Funds (as determined by FSI) 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 FSI 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 FSI 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, Class B and Class C shares.
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, FSI believes that such Act should not
preclude banks from entering into agency agreements with FSI (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 the same class of shares 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
($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. 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 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 exchanges. 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 FSI, 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). Certain purchases may, however, be subject to a CDSC in the event
of certain redemption transactions (see "Contingent Deferred Sales Charge"
below). For the convenience of shareholders, the Fund has arranged for different
procedures for redemption and 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. 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 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. Net asset value is calculated on the day the dealer places the order with
FSI, as the Fund's agent. IF THE DEALER RECEIVES THE SHAREHOLDER'S ORDER PRIOR
TO THE CLOSE OF REGULAR TRADING ON THE NEW YORK STOCK EXCHANGE AND COMMUNICATES
IT TO FSI ON THE SAME DAY BEFORE FSI CLOSES FOR BUSINESS, THE SHAREHOLDER WILL
RECEIVE THE NET ASSET VALUE CALCULATED ON THAT DAY REDUCED BY THE AMOUNT OF ANY
APPLICABLE CDSC AND THE AMOUNT OF ANY INCOME TAX REQUIRED TO BE WITHHELD.
D. REDEMPTION BY CHECK -- Only Class A and Class C shares may be redeemed by
check. A shareholder (except a $3 Million Shareholder) owning Class A or Class C
shares of the Fund may elect to have a special account with State Street Bank
and Trust Company (the "Bank") for the purpose of redeeming Class A or Class C
shares from his or her account by check. The Bank will provide each Class A or
Class C shareholder, upon request, with forms of checks drawn on the Bank. Only
shareholders having accounts in which no share certificates have been issued
will be permitted to redeem shares by check. Checks may be made payable in any
amount not less than $500. Shareholders wishing to avail themselves of this
redemption by check privilege should so request on their Account Application,
must execute signature cards (for additional information, see the Account
Application) with signature guaranteed in the manner set forth under the caption
"Signature Guarantee", and must return any Class A or Class C share certificates
issued to them. Additional documentation will be required from corporations,
partnerships, fiduciaries or other such institutional investors. All checks must
be signed by the shareholder(s) of record exactly as the account is registered
before the Bank will honor them. The shareholders of joint accounts may
authorize each shareholder to redeem by check. The check may not draw on monthly
dividends which have been declared but not distributed. SHAREHOLDERS WHO
PURCHASE CLASS A 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 OR CLASS C SHARES HELD IN THE SHAREHOLDER'S ACCOUNT, THE
CHECK WILL BE RETURNED UNPAID, AND THE SHAREHOLDER MAY BE SUBJECT TO EXTRA
CHARGES. TO AVOID DISHONOR OF CHECKS DUE TO FLUCTUATION IN ACCOUNT VALUE,
SHAREHOLDERS ARE ADVISED AGAINST REDEEMING ALL OR MOST OF THEIR ACCOUNT BY
CHECK. CHECKS SHOULD NOT BE USED TO CLOSE A FUND ACCOUNT BECAUSE WHEN THE CHECK
IS WRITTEN, THE SHAREHOLDER WILL NOT KNOW THE EXACT TOTAL VALUE OF THE ACCOUNT
ON THE DAY THE CHECK CLEARS. There is presently no charge to the shareholder for
the maintenance of this special account or for the clearance of any checks, but
the Fund and the Bank reserve the right to impose such charges or to modify or
terminate the redemption by check privilege at any time.
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 Trust has
reserved the right to pay the redemption or repurchase price of shares of the
Fund, either totally or partially, by a distribution in kind of securities
(instead of cash) from the Fund's portfolio. The securities distributed in such
a distribution would be valued at the same amount as that assigned to them in
calculating the net asset value for the shares being sold. If a shareholder
received a distribution in kind, the shareholder could incur transaction 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 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 in Class A or Class B shares
("Direct Purchases") will be subject to a CDSC for a period of 12 months (in the
case of purchases of $1 million or more of Class A shares) or 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.
The applicability of a CDSC will be unaffected by exchanges or transfers of
registration.
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 FSI 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 FSI may pay expenses on behalf of the Fund
related to the distribution and servicing of Class A shares. The expenses to be
paid by FSI on behalf of the Fund include a service fee to securities dealers
which enter into a sales agreement with FSI 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. FSI may from time to time reduce the amount of the service fee paid
for shares sold prior to a certain date. Currently, the service fee is 0.15% for
shares sold prior to March 1, 1991. FSI 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 FSI's obligations under its distribution agreement with the
Fund. FSI, however, currently is waiving this 0.10% distribution fee and will
not in the future accept payment of this fee unless it first obtains the
approval of the Board of Trustees. 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 FSI for sales at or above a certain dollar
level. Fees payable under the Class A Distribution Plan are charged to, and
therefore reduce, income applicable 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. FSI 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 FSI or its affiliates for shareholder accounts. Certain
banks and other financial institutions that have agency agreements with FSI 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 FSI 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
FSI a service fee of up to 0.25% per annum of the Fund's average daily net
assets attributable to Class B shares (which FSI will in turn pay to securities
dealers which enter into a sales agreement with FSI at a rate of up to 0.25% per
annum of the Fund's 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 FSI will receive all CDSCs attributable to
Class B shares (see "Redemptions and Repurchases"), which do not reduce the
distribution fee. FSI will pay commissions to dealers of 3.75% of the purchase
price of Class B shares purchased through dealers. FSI 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, FSI 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 a
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. FSI or its
affiliates are entitled to retain all service fees payable under the Class B
Distribution Plan with respect to accounts 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 FSI or its affiliates for shareholder accounts. The purpose of the
distribution payments to FSI under the Class B Distribution Plan is to
compensate FSI for its distribution services to the Fund. Since FSI's
compensation is not directly tied to its expenses, the amount of compensation
received by FSI 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 FSI in excess of the amount of
compensation it receives. The expenses incurred by FSI, 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 FSI 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 FSI 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 FSI a
service fee of up to 0.25% per annum of the Fund's average daily net assets
attributable to Class C shares (which FSI in turn pays to securities dealers
which enter into a sales agreement with FSI 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 FSI 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. FSI 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 FSI or its affiliates for shareholder accounts. The
purpose of the distribution payments to FSI under the Class C Distribution Plan
is to compensate FSI for its distribution services to the Fund. Distribution
payments under the Plan will be used by FSI 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.) FSI 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 FSl's compensation is not directly tied to its
expenses, the amount of compensation received by FSI 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 FSI in excess of the amount of compensation it receives. Certain
banks and other financial institutions that have agency agreements with FSI will
receive agency transaction and service fees that are the same as distribution
fees 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 pay substantially all of the Fund's net investment income to
its shareholders as dividends on a monthly basis. In determining the net
investment income available for distributions, the Fund may rely on projections
of its anticipated net investment income, including short-term capital gains
from the sales of securities or other assets and premiums from options written,
over a longer term, rather than its actual net investment income for the period.
The Fund may make one or more distributions during the calendar year to its
shareholders from any long-term capital gains, and may also make one or more
distributions 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
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 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 any entity level
federal income or excise taxes, although foreign-source income received by the
Fund may be subject to foreign withholding taxes.
Shareholders of the Fund normally will have to pay federal income taxes, and any
state or local taxes, on the dividends and capital gain distributions they
receive from the Fund, whether paid in cash or in additional shares. The Fund
expects that none of its dividends or distributions will be eligible for the
dividends-received deduction for corporations. Shareholders of the Fund may not
have to pay state and local taxes on dividends derived from interest on U.S.
Government obligations. Investors should consult with their tax advisers in this
regard.
A statement setting forth the federal income tax status of all dividends and
distributions for each calendar year, including any portion taxable as ordinary
income, any portion taxable as long-term capital gains, the portion representing
interest on U.S. Government obligations, any portion 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.
The Fund intends to withhold U.S. federal income tax at the rate of 30% on
dividends and other payments that are subject to withholding and that are made
to persons who are neither citizens nor residents of the U.S., regardless of
whether a lower rate may be permitted under an applicable treaty. The Fund is
also required in certain circumstances to apply backup withholding of 31% of
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 been subject to 30% withholding.
Prospective investors should read the Fund's Account Application for additional
information regarding backup withholding of federal income tax and should
consult their own tax advisers as to the tax consequences to them of an
investment in the Fund.
NET ASSET VALUE
The net asset value per share of each class of the Fund is determined each day
during which the Exchange is open for trading. This determination is made once
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. Values of assets in the Fund's
portfolio are determined on the basis of their market or other fair value, 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 FSI prior to the close of that business day.
DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Fund, one of three 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 series
and classes of shares, in which case each class of a series would participate
equally in the earnings, dividends and assets attributable to that class of the
particular series. Shareholders are entitled to one vote for each share held and
shares of each series are entitled to vote separately to approve investment
advisory agreements or changes in investment restrictions, but shares of all
series vote together in the election of Trustees and ratification of 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 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, subject to the liabilities of the particular
class. Shares have no pre-emptive or conversion rights (except as set forth
above in "Purchases -- Conversion of Class B Shares"). Shares of the Fund are
fully paid and nonassessable. Should the Fund be liquidated, shareholders of
each class would be entitled to share pro rata in the net assets attributable to
that class available for distribution to shareholders. Shares will remain on
deposit with the Shareholder Servicing Agent and certificates will not be issued
except in connection with pledges, assignments and in certain other limited
circumstances.
The 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 and
total rate of return quotations for each class of shares and may also quote fund
rankings in the relevant fund category from various sources, such as the Lipper
Analytical Services, Inc. and Wiesenberger Investment Companies Service. Yield
quotations are based on the annualized net investment income per share allocated
to each class of the Fund over a 30-day period stated as a percent of the
maximum public offering price of that class 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 12 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 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 the CDSC, and
which will thus be higher. All performance quotations are based on historical
performance and are not intended to indicate future performance. Yield reflects
only net portfolio income as of a stated period of time and current distribution
rate reflects only the rate of distributions paid by the Fund over a stated
period of time, while total rate of return reflects all components of investment
return over a stated period of time. The Fund's quotations may from time to time
be used in advertisements, shareholder reports or other communications to
shareholders. For a discussion of the manner in which the Fund will calculate
its yield, current distribution rate and total rate of return, see the 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.
7. SHAREHOLDER SERVICES
Shareholders with questions concerning the shareholder services described below
or concerning other aspects of the Fund, should contact the Shareholder
Servicing Agent (see back cover for address and phone number).
ACCOUNT AND CONFIRMATION STATEMENTS -- Each shareholder will receive
confirmation statements showing the transaction activity in his account.
Cancelled checks, if any, will be sent to shareholders monthly. At the end of
each calendar year, each shareholder will receive income tax information
regarding reportable dividends and capital gain distributions for that year (see
"Tax Status").
DISTRIBUTION OPTIONS -- The following options are available to all accounts
(except Systematic Withdrawal Plan accounts) and may be changed as often as
desired by notifying the Shareholder Servicing Agent:
-- Dividends and capital gain distributions reinvested in additional
shares. This option will be assigned if no other option is specified;
-- Dividends in cash; capital gain distributions reinvested in additional
shares;
-- Dividends and capital gain distributions in cash.
Reinvestments (net of any tax withholding) will be made in additional full and
fractional shares of the same class of shares at the net asset value in effect
at the close of business on the record date. Dividends and capital gain
distributions in amounts less than $10 will automatically be reinvested in
additional shares of the Fund. 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
Class B or Class C shares of the Fund or any of the classes 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 of the Fund at the same reduced sales charge as though the
total quantity were invested in one lump sum, subject to escrow agreements and
the appointment of an attorney for redemptions from the escrow amount if the
intended purchases are not completed, by completing the Letter of Intent section
of the Account Application.
RIGHT OF ACCUMULATION: A shareholder qualifies for cumulative quantity
discounts on the purchases of Class A shares when his new investment, together
with the current offering price value of all holdings of all classes of shares
of that shareholder in the MFS Funds or MFS Fixed Fund (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 dividend and capital gain distributions from the same
class of any other MFS Fund. Furthermore, distributions made by the Fund may be
automatically invested at net asset value (and without any applicable CDSC) in
shares of the same class of another MFS Fund, if shares of such Fund are
available for sale.
SYSTEMATIC WITHDRAWAL PLAN: A shareholder (except a $3 Million 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
other MFS Funds (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 monthly or quarterly transfers 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, transfers 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 transfer money into such fund
through the Automatic Exchange Plan. No transaction fee is imposed in connection
with transfer transactions under the Automatic Exchange Plan. However, transfers
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.
For federal and (generally) state income tax purposes, an exchange is treated as
a sale of shares transferred and, therefore, could result in a capital gain or
loss to the shareholder making the transfer. 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.
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 adviser before establishing any of these tax-deferred
retirement plans.
--------------
The Fund's Statement of Additional Information, dated July 1, 1994, contains
more detailed information about the Fund, including information related to (i)
investment policies and restrictions, (ii) the Trustees, officers and investment
adviser, (iii) portfolio transactions and brokerage commissions, (iv) the method
used to calculate performance quotations, (v) the Distribution Plans and (vi)
various services and privileges provided by the Fund, including additional
information with respect to the exchange privilege.
<PAGE>
APPENDIX A
DESCRIPTION OF BOND RATINGS
The ratings of Moody's and S&P represent their opinions as to the quality of
various debt instruments. It should be emphasized, however, that ratings are not
absolute standards of quality. Consequently, debt instruments with the same
maturity, coupon and rating may have different yields while debt instruments of
the same maturity and coupon with different ratings may have the same yield.
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.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during other good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
ABSENCE OF RATING: Where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies that
are not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not published
in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer available
reasonable up-to-date data to permit a judgment to be formed; if a bond is
called for redemption; or for other reasons.
S&P
AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC and C: Debt rated BB, B, CCC, CC and C is regarded, on balance,
as predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While such
debt will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.
CI: The rating CI is reserved for income bonds on which no interest is being
paid.
D: Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
PLUS (+ ) OR MINUS (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
categories.
NR: indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
<PAGE>
APPENDIX B
PORTFOLIO COMPOSITION CHART
FOR FISCAL YEAR ENDED APRIL 30, 1994
SECURITY PERCENT OF NET ASSETS
-------- ---------------------
U.S. Government Securities+ ....................... 24%
Short-term Obligations and Other Assets ........... 5
Debt -- Unrated by S&P ............................ 12
DEBT -- S&P RATING
AAA ......................................... 2
AA .......................................... 4
A ........................................... 3
BBB ......................................... 27
BB .......................................... 14
B ........................................... 9
---
100%
===
+Obligations issued or guaranteed by the U.S. Government or its agencies,
authorities or instrumentalities.
The chart above indicates the composition of the Fund's portfolio for the fiscal
year ended April 30, 1994, with the debt securities rated by S&P separated into
the indicated categories. The percentages were calculated by averaging the
monthly dollar weighted average of the Fund's net assets invested in each
category. The chart does not necessarily indicate what the composition of the
Fund's portfolio will be in subsequent fiscal years. Rather, the Fund's
investment objective, policies and restrictions indicate the extent to which the
Fund may purchase securities in the various categories.
<PAGE>
INVESTMENT ADVISER
Massachusetts Financial Services Company
500 Boylston Street, Boston, MA 02116
(617) 954-5000
DISTRIBUTOR
MFS Financial Services, 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
125 Summer Street, Boston, MA 02110
MFS(R) BOND FUND
500 Boylston Street, Boston,
MA 02116
MFB-1 7/94/253M 11/211/311
MFS(R)
BOND
FUND
PROSPECTUS
JULY 1, 1994
