<PAGE>
MFS(R) LIMITED MATURITY FUND
(A SERIES OF MFS(R) FIXED INCOME TRUST)
SUPPLEMENT TO BE AFFIXED TO THE
PROSPECTUS FOR DISTRIBUTION IN MISSOURI
The Series intends to engage in portfolio trading rather than holding portfolio
securities to maturity. In trading portfolio securities, the Series seeks to
take advantage of market developments, yield disparities and variations in the
creditworthiness of issuers. A high portfolio turnover rate may involve greater
expenses, including higher brokerage and transaction costs, to the Series.
Dividends from income and from net short-term capital gains, whether received in
cash or reinvested in additional shares, are taxable to the Series' shareholders
as ordinary income.
Missouri residents should also be aware that certain obligations issued or
guaranteed by agencies or instrumentalities of the U.S. Government (e.g.,
obligations of the Federal National Mortgage Association) are not backed by the
full faith and credit of the U.S. Government.
THE DATE OF THIS SUPPLEMENT IS JULY 1, 1994.
MLM-16MO-7/94/6.4M
<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
</TABLE>
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-1/95/3.5M
<PAGE>
<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-16-1/95/605M
<PAGE>
MFS(R) LIMITED MATURITY FUND
SUPPLEMENT TO THE CURRENT PROSPECTUS AND
STATEMENT OF ADDITIONAL INFORMATION
The following information supplements the disclosure found under the sections
"Investment Objectives and Policies - Investment Policies" in the Prospectus:
As one way of managing the Fund's exposure to interest rate fluctuations,
the Adviser will engage in a portfolio management strategy known as
"laddering". Under this strategy, the Fund will invest 10% of its assets in
securities with remaining maturities of less than 1 year, 10% of its assets
in securities with remaining maturities of 1 to 2 years, 10% of its assets
in securities with ramaining maturities of 2 to 3 years, 10% of its asset in
securities with remaining maturities of 3 to 4 years and 10% of its assets
in securities with remaining maturities of 4 to 5 years. Under normal market
conditions, at least 50% of the assets of the Fund will be devoted to this
strategy. The Adviser will actively manage securities within each rung of
the "ladder". "Laddering" does not require that individual bonds are held to
maturity.
The Adviser believes that "laddering" provides additional stability to the
Fund's portfolio by allocating 50% of the Fund's assets across a range of
securities with shorter-term maturities. For example, in periods of rising
interest rates and falling bond prices, the bonds with one- and two-year
remaining maturities generally lose less of their value than bonds with four-
and five-year remaining maturities; conversely, in periods of falling interest
rates and corresponding rising bond prices, the principal value of the bonds
with four- and five-year remaining maturities generally increase more than the
bonds with one- and two-year remaining maturities. Furthermore, with the passage
of time, individual bonds held in the Fund's portfolio tend to become less
volatile as the time of their remaining maturity decreases. In addition, bonds
with four- and five-year remaining maturities generally provide higher income
than bonds with one- and two-year remaining maturities.
"Laddering" does not assure profit and does not protect against loss in a
declining market.
The following information supplements the disclosure found under the caption
"Determination of Net Asset Value and Performance" on page 15 of the Statement
of Additional Information:
From time to time, the Fund may discuss or quote its current portfolio
manager as well as other investment personnel, including such person's views
on the economy, securities markets, portfolio securities and their issuers,
investment philosophy and criteria used in the selection of portfolio
holdings, and such portfolio holdings.
THE DATE OF THIS SUPPLEMENT IS JANUARY 30, 1995
MLM-16-2/95/36M
<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
<TABLE>
<CAPTION>
<S> <C>
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
</TABLE>
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>
MASSACHUSETTS INVESTORS TRUST
MASSACHUSETTS INVESTORS GROWTH STOCK FUND
MFS CAPITAL GROWTH FUND
MFS EMERGING GROWTH FUND
MFS GOLD & NATURAL RESOURCES FUND
MFS GROWTH OPPORTUNITIES FUND
MFS MANAGED SECTORS FUND
MFS OTC FUND
MFS RESEARCH FUND
MFS VALUE FUND
MFS TOTAL RETURN FUND
MFS UTILITIES FUND
MFS BOND FUND
MFS GOVERNMENT MORTGAGE FUND
MFS GOVERNMENT SECURITIES FUND
MFS HIGH INCOME FUND
MFS INTERMEDIATE INCOME FUND
MFS STRATEGIC INCOME FUND
MFS GOVERNMENT LIMITED MATURITY FUND
MFS LIMITED MATURITY FUND
MFS WORLD EQUITY FUND
MFS WORLD GOVERNMENTS FUND
MFS WORLD GROWTH FUND
MFS WORLD TOTAL RETURN FUND
MFS WORLD ASSET ALLOCATION FUND
MFS CASH RESERVE FUND
MFS GOVERNMENT MONEY MARKET FUND
MFS MONEY MARKET FUND
SUPPLEMENT TO THE CURRENT PROSPECTUS
Class A shares of the Fund may be purchased at net asset value by
retirement plans whose third party administrators have entered into an agreement
with MFS Fund Distributors, Inc. ("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 its affiliates.
In lieu of the sales commission and service fees normally paid by MFD
to broker-dealers of record as described in the Prospectus, MFD has agreed to
pay Bear, Stearns & Co. Inc. the following amounts with respect to Class A
shares of the Fund purchased through a special retirement plan program offered
by a third party administrator: (i) an amount equal to 0.05% per annum of the
average daily net assets invested in shares of the Fund pursuant to such
program, and (ii) an amount equal to 0.20% of the net asset value of all new
purchases of shares of the Fund made through such program, subject to a refund
in the event that such shares are redeemed within 36 months.
THE DATE OF THIS SUPPLEMENT IS FEBRUARY 1, 1995.
<PAGE>
PROSPECTUS
July 1, 1994
MFS(R) LIMITED Class A Shares of Beneficial Interest
MATURITY 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 4
5. Management of the Fund 9
6. Information Concerning Shares of the Fund 10
Purchases 10
Exchanges 15
Redemptions and Repurchases 16
Distribution Plans 18
Distributions 20
Tax Status 20
Net Asset Value 21
Description of Shares, Voting Rights and Liabilities 21
Performance Information 21
7. Shareholder Services 22
Appendix 25
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 LIMITED MATURITY FUND
500 Boylston St., Boston, MA 02116 (617) 954-5000
The primary investment objective of the MFS Limited Maturity Fund (the "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 Fund is a
diversified series of MFS(R) Fixed Income Trust (the "Trust"), an open-end
management investment company. The minimum initial investment is generally
$1,000 per account (see "Purchases").
The Fund's investment adviser and distributor 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 (the
"SEC") a Statement of Additional Information, dated July 1, 1994, which contains
more detailed information about the Trust and the Fund and is incorporated into
this Prospectus by reference. See page 24 for a further description of the
information set forth in the Statement of Additional Information. A copy of the
Statement of Additional Information may be obtained without charge by contacting
the Shareholder Servicing Agent (see back cover for address and phone number).
INVESTORS SHOULD READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE REFERENCE.
<PAGE>
1. THE FUND
MFS Limited Maturity 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 investment 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. 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. The Adviser is responsible for
the management of the Fund's assets and the officers of the Trust are
responsible for the Fund's operations. The Adviser manages the portfolio from
day to day in accordance with the Fund's investment objectives and policies. A
majority of the Trustees are not affiliated with the Adviser. 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) shares of the Fund from Fund shareholders at any time at net asset
value, less any applicable CDSC.
2. EXPENSE SUMMARY
CLASS A CLASS B CLASS C
------- ------- -------
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Initial Sales Charge
Imposed on Purchases of Fund
Shares(as a percentage of
offering price) .................... 2.50% 0.00% 0.00%
Maximum Contingent Deferred
Sales Charge (as a percentage
of original purchase price or
redemption proceeds, as
applicable) ........................ See below(1) 4.00% 0.00%
ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS):
Management Fees(2) ................. 0.40% 0.40% 0.40%
Rule 12b-1 Fees .................... 0.15%(3) 1.00%(4) 1.00%(4)
Other Expenses (after fee
reduction)(5) ..................... 0.40% 0.40% 0.40%
---- ---- ----
Total Operating Expenses
(after fee reduction)(6) ......... 0.95% 1.80% 1.80%
- -------------------
(1) 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).
(2) Effective February 1, 1994, the Fund's investment adviser reduced the
management fee to 0.40% of average net assets on an annualized basis. See
"Management of the Fund" below.
(3) 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"). Effective May 1, 1993, the Fund commenced service fee
payments under this Plan of 0.15% of the average daily net assets of the
Fund attributable to Class A shares. A distribution fee of 0.10% per annum
of the Fund's average daily net assets attributable to Class A shares is not
being imposed. 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.
(4) 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.
(5) 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. The Adviser bears certain expenses of the Fund, subject to
reimbursement (see "Management of the Fund"). Otherwise, the Fund's "Other
Expenses" for Class A, Class B and Class C shares would have been 0.47%,
0.54% and 0.47%, respectively, in each case as a percentage of average net
assets attributable to the respective class.
(6) Absent all fee reductions the Fund's "Total Operating Expenses" would have
been 1.02% of average net assets for Class A shares, 1.94% of average net
assets for Class B shares and 1.87% of average net assets for Class C
shares.
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 ............ $ 34 $ 58 $ 18 $ 18
3 years ........... 55 87 57 57
5 years ........... 76 117 97 97
10 years ........... 139 189(2) 189(2) 212
- ------------
(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 -- "Management of the Fund"; 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>
YEAR ENDED APRIL 30,
----------------------------------------------------------
1994 1993 1992<F1> 1994<F2>
---- ---- ---- ----
CLASS A CLASS B
------------------------------------------ -------
<S> <C> <C> <C> <C>
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD):
Net asset value -- beginning of period ..................... $ 7.46 $ 7.29 $ 7.31 $ 7.50
------ ------ ------ ------
Income from investment operations --<F8>
Net investment income .................................... $ 0.44 $ 0.48 $ 0.08 $ 0.21
Net realized and unrealized gain (loss) on investments ... (0.32) 0.17<F5> (0.02)<F5> (0.33)
------ ------ ------ ------
Total from investment operations ....................... $ 0.12 $ 0.65 $ 0.06 $(0.12)
------ ------ ------ ------
Less distributions declared to shareholders --<F6>
From net investment income ............................... $(0.42) $(0.48) $(0.08) $(0.23)
In excess of net investment income ....................... (0.02) -- -- (0.01)
------ ------ ------ ------
Total distributions declared to shareholders ........... $(0.44) $(0.48) $(0.08) $(0.24)
------ ------ ------ ------
Net asset value -- end of period ........................... $ 7.14 $ 7.46 $ 7.29 $ 7.14
====== ====== ====== ======
Total return<F7> ........................................... 1.61% 9.17% 4.98%<F3> (1.69)%<F4>
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA:
Expenses ................................................. 0.85% 0.60% 0.55%<F3> 1.74%<F3>
Net investment income .................................... 5.99% 6.40% 6.22%<F3> 4.90%<F3>
PORTFOLIO TURNOVER ......................................... 861% 472% 72% 861%
Net assets at end of period (000 omitted) .................. $100,297 $ 67,470 $ 4,924 $12,072
<FN>
<F1> For the period from the commencement of initial public offering of Class A
shares, February 26, 1992 to April 30, 1992.
<F2> For the period from the commencement of initial public offering of Class B
shares, September 7, 1993 to April 30, 1994.
<F3> Annualized.
<F4> Not annualized.
<F5> The per share amount is not in accordance with the net realized and
unrealized gain (loss) for the period because of the timing of sales of
Fund shares and the amount of per share realized and unrealized gains and
losses at such time.
<F6> For the year ended April 30, 1993, the per share distribution from net
realized gain on investments was $0.0021.
<F7> Total returns do not include the applicable sales charge. If the sales
charge had been included, the results would have been lower.
<F8> Per share data for the year ended April 30, 1994 is based on average shares
outstanding.
The investment adviser did not impose a portion of its management fee and
assumed some of the operating expenses of the Fund for the periods indicated. If
these fees and expenses had been incurred by the Fund, the net investment income
per share and ratios would have been:
Net investment income .................................... $ 0.42 $ 0.43 $ 0.07 $ 0.20
RATIOS (TO AVERAGE NET ASSETS):
Expenses ............................................... 1.07% 1.29% 1.44%<F3> 1.96%<F3>
Net investment income .................................. 5.77% 5.70% 5.33%<F3> 4.68%<F3>
</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 -- In seeking to achieve its investment objectives, the Fund
invests, under normal market conditions, substantially all of its assets in the
following securities:
1. Debt securities (including corporate asset-backed securities and mortgage
pass-through securities discussed below) 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;
2. Debt securities issued or guaranteed by the United States ("U.S.") Government
or its agencies, authorities or instrumentalities ("U.S. Government
Securities"); or
3. Commercial paper, repurchase agreements and cash or cash equivalents (such as
certificates of deposit and bankers' acceptances).
The Fund will only invest in securities rated within the four highest grades, as
determined by S&P or Moody's, and comparable unrated securities. In addition,
the dollar weighted average quality of the Fund will be within the three highest
grades, as determined by S&P or Moody's (or the Adviser in the case of unrated
securities).
Under normal market conditions, substantially all the securities in the Fund's
portfolio will have remaining maturities of five years or less or estimated
remaining average lives of five years or less. In the case of mortgage-backed
and corporate asset-backed securities as well as collateralized mortgage
obligations, the average life is likely to be substantially shorter than stated
final maturity as a result of unscheduled principal prepayments.
For purposes of the foregoing investment policy, securities having a certain
maturity will be deemed to include securities with an equivalent "duration" of
such securities. "Duration" is a commonly used measure of the longevity of a
debt instrument that takes into account the full stream of payments received on
the instrument, including both interest and principal payments, based on their
present values. A debt instrument's duration is derived by discounting principal
and interest payments to their present value using the instrument's current
yield to maturity and taking the dollar-weighted average time until those
payments will be received. Contractual rights to dispose of a security will be
considered in calculating duration because such rights limit the period during
which the Trust bears a market risk with respect to the security.
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.
U.S. GOVERNMENT SECURITIES: The U.S. Government Securities in which the Fund may
invest include (i) U.S. Treasury obligations, all of which are backed by the
full faith and credit of the U.S. Government and (ii) U.S. Government
Securities, some of which are backed by the full faith and credit of the U.S.
Treasury, e.g., direct pass-through certificates of the Government National
Mortgage Association ("GNMA"); some of which are backed only by the credit of
the issuer itself, e.g., obligations of the Student Loan Marketing Association;
and some of which are supported by the discretionary authority of the U.S.
Government to purchase the agency's obligations, e.g., obligations of the
Federal National Mortgage Association ("FNMA").
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.
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
GNMA); or guaranteed by agencies or instrumentalities of the U.S. Government
(such as the 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.
DOLLAR-DENOMINATED FOREIGN DEBT SECURITIES: The Fund may invest in
dollar-denominated foreign debt securities. Investing in securities of foreign
issuers generally involves risks not ordinarily associated with investing in
securities of domestic issuers. These risks include changes in governmental
administration or economic or monetary policy (in the U.S. or abroad) or
circumstances in dealings between nations. Special considerations may also
include more limited information about foreign issuers and different accounting
standards. Foreign securities markets may also be 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. See the Statement of
Additional Information for further discussion of dollar-denominated foreign debt
securities, as well as the associated risks.
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). As with
other extensions of credit there are risks of delay in recovery or even loss of
rights in the collateral should the borrower of the securities fail financially.
However, the loans would be made only to entities deemed by the Adviser to be of
good standing, and when, in the judgment of the Adviser, the consideration which
can be earned currently from securities loans of this type justifies the
attendant risk.
ZERO COUPON BONDS: Fixed income securities in which the Fund may invest also
include zero coupon bonds. Zero coupon 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, at a rate of interest reflecting the market rate
of the security at the time of issuance. Zero coupon bonds do not require the
periodic payment of interest. Such investments may experience greater volatility
in market value due to changes in interest rates than debt obligations which
make regular payments of interest.
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.
SECURITIES RATED BBB/Baa: As described above, the Fund may 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.
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 prepayment 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.
"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.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS: The Fund may purchase and
sell futures contracts on fixed income securities or indices of such securities,
including municipal bond indices and any other indices of fixed income
securities which may become available for trading ("Futures Contracts"). The
Fund may also purchase and write options on such Futures Contracts ("Options on
Futures Contracts"). These instruments will be used to hedge against anticipated
future changes in interest rates which otherwise might either adversely affect
the value of the Fund's portfolio securities or adversely affect the prices of
securities which the Fund intends to purchase at a later date. Such transactions
may also be used for non-hedging purposes to the extent permitted by applicable
law. 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.
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 Options on
Futures Contracts, if as a result, more than 5% of its total assets would be so
invested. Futures Contracts and Options on Futures Contracts that are entered
into by the Fund may be traded on U.S. and foreign exchanges.
Although the Fund will enter into certain transactions in Futures Contracts, for
hedging purposes, such transactions nevertheless involve risks. For example, a
lack of correlation between the instrument underlying a 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 Statement
of Additional Information contains a further description of Futures Contracts
including a discussion of the risks related to transactions therein.
Transactions entered into for non-hedging purposes involve greater risks and
could result in losses which are not offset by gains on other portfolio assets.
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 144A security, whether such
security is illiquid and thus subject to the Fund's limitation on investing not
more than 15% of its net assets in illiquid investments, or liquid and thus not
subject to such limitation. The Board of Trustees has adopted guidelines and
delegated to 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. Investing in restricted securities could have the effect of
increasing the level of illiquidity in the Fund to the extent that qualified
institutional buyers become for a time uninterested in purchasing Rule 144A
securities held in the Fund's portfolio. Subject to the Fund's 15% limitation on
investments in illiquid investments, the Fund may also invest in restricted
securities that may not be sold under Rule 144A, which presents certain risks.
As a result, the Fund might not be able to sell these securities when the
Adviser wishes to do so, or might have to sell them at less than fair value. In
addition, market quotations are less readily available. Therefore, judgment may
at times play a greater role in valuing these securities than in the case of
unrestricted securities.
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. The Fund cannot predict its
annual portfolio turnover rate, but it is anticipated that such turnover rate
will not exceed 300%. A high turnover rate involves greater expenses, including
higher brokerage and transaction costs, to the Fund. For a description of the
strategies which may be used by the Fund in trading portfolio securities, see
"Investment Objectives, Policies and Restrictions -- 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 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 the portfolio can be expected to rise. Conversely, when interest rates rise,
the market value of the portfolio can be expected to decline.
The investment objectives and policies described above are not fundamental and
may be changed without shareholder approval. A change in the Fund's investment
objective may result in the Fund having an investment objective different from
the objective which the shareholder considered appropriate at the time of
investment in the Fund.
The Statement of Additional Information includes a discussion of other
investment policies and a listing of specific investment restrictions which
govern the Fund's investment policies. The specific investment restrictions
listed in the Statement of Additional Information may not be changed without
shareholder approval. See "Investment Restrictions" in the Statement of
Additional Information. The Fund's 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 -- MFS manages the Fund pursuant to an Investment Advisory
Agreement, dated January 8, 1992 (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 the Fund's
inception in 1992 and has been employed by the Adviser since 1987. Subject to
such policies as the Trustees may determine, the Adviser makes investment
decisions for the Fund. Effective February 1, 1994, for its services and
facilities, the Adviser receives a management fee, computed and paid monthly, at
the rate of 0.40% per annum of the Fund's average daily net assets. Prior to
February 1, 1994, for its services and facilities, the Adviser was entitled to
receive a management fee, computed and paid monthly, at the rate of 0.55% per
annum of the Fund's average daily net assets. From September 1, 1993, to
February 1, 1994, the Adviser had voluntarily reduced the management fee for the
Fund to 0.30% per annum of average net assets. Prior to September 1, 1993, the
Adviser had voluntarily reduced the management fee for the Fund to 0.20% per
annum of average net assets. For the Fund's fiscal year ended April 30, 1994,
the Fund incurred fees under the Advisory Agreement of $478,523, of which
$192,571 was not imposed by the Adviser.
The Adviser has agreed to pay certain expenses of the Fund (except for the fees
paid under the Advisory Agreement and any Distribution Plan) until February 28,
2002 and to pay the expenses relating to the organization of the Fund, all
subject to reimbursement by the Fund. To accomplish such reimbursement, the
Adviser receives an expense reimbursement fee from the Fund in addition to the
investment advisory and distribution fees, computed and paid monthly at a rate
of 0.40% per annum of the average daily net assets of the Fund. The expense
reimbursement agreement terminates for the Fund on the earlier of either (i) the
date on which the payments made thereunder by the Fund equal the prior payment
of such reimbursable expenses by the Adviser or (ii) February 28, 2002. The
Adviser may also terminate the expense reimbursement agreement at any time by
written notice to the Trust. See "Investment Adviser" in the Statement of
Additional Information for further information.
MFS also serves as investment adviser to each of the other funds in the MFS
Family of Funds (the "MFS Funds") and to MFS(R) Municipal Income Trust, MFS
Multimarket Income Trust, MFS Government Markets Income Trust, MFS Intermediate
Income Trust, MFS Charter Income Trust, MFS Special Value Trust, MFS
Institutional Trust, MFS Union Standard Trust, MFS Variable Insurance Trust,
MFS/Sun Life Series Trust, Sun Growth Variable Annuity Fund, Inc. and seven
variable accounts, each of which is a registered investment company established
by Sun Life Assurance Company of Canada (U.S.) ("Sun Life of Canada (U.S.)") in
connection with the sale of Compass-2 and Compass-3 combination fixed/variable
annuity contracts. The MFS Asset Management Group, a division of the Adviser,
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 accounts as
of May 31, 1994. As of such date, the MFS organization managed approximately
$9.8 billion of assets invested in equity securities and approximately $19.4
billion of assets invested in fixed income securities. Approximately $3.9
billion of the assets managed by MFS are invested in securities of foreign
issuers and non-U.S. dollar denominated securities of U.S. issuers. MFS is a
subsidiary of Sun Life of Canada (U.S.), which in turn is a subsidiary of Sun
Life Assurance Company of Canada ("Sun Life"). The Directors of MFS are A. Keith
Brodkin, Jeffrey L. Shames, Arnold D. Scott, John D. McNeil and John R. Gardner.
Mr. Brodkin is the Chairman, Mr. Shames is the President and Mr. Scott is the
Secretary and a Senior Executive Vice President of MFS. Messrs. McNeil and
Gardner are the Chairman and the President, respectively, of Sun Life. Sun Life,
a mutual life insurance company, is one of the largest international life
insurance companies and has been operating in the United States since 1895,
establishing a headquarters office here in 1973. The executive officers of MFS
report directly to the Chairman of Sun Life.
A. Keith Brodkin, the Chairman and a Director of MFS, is the Chairman,
President and Trustee of the Trust. W. Thomas London, Stephen E. Cavan, Linda
J. Hoard, James R. Bordewick, Jr., Robert A. Dennis, Geoffrey L. Kurinsky and
James O. Yost, 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 bear sales charges and
distribution fees in different forms and amounts:
CLASS A SHARES: Class A shares are offered at net asset value per share plus an
initial sales charge (or CDSC in the case of certain purchases of $1 million or
more) as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
SALES CHARGE AS<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 $50,000 2.50% 2.56% 2.25%
$50,000 but less than $100,000 2.25 2.30 2.00
$100,000 but less than $250,000 2.00 2.04 1.75
$250,000 but less than $500,000 1.75 1.78 1.50
$500,000 but less than $1,000,000 1.50 1.52 1.25
$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 instances. FSI 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
(repayments of loans, however, will constitute new sales for purposes of
assessing the CDSC); (b) "financial hardship" of the participant in the plan, as
that term is defined in Treasury Regulation Section 1.401(k)-1(d)(2), as amended
from time to time; or (c) the death of a participant in such a plan; (iii)
distributions from a 403(b) plan or an Individual Retirement Account ("IRA") due
to death, disability or attainment of age 59 1/2; (iv) tax-free returns of
excess contributions to an IRA; (v) distributions by other employee benefit
plans to pay benefits and (vi) certain involuntary redemptions and redemptions
in connection with certain automatic withdrawals from a qualified retirement
plan. The CDSC on Class A shares will not be waived, however, if the retirement
plan withdraws from the Fund except if 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
shall 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 2 1/4% and FSI retains approximately
1/4 of 1% of the public offering price. In addition, FSI pays a commission to
dealers who initiate and are responsible for purchases of $1 million or more as
follows: 1.00% on sales up to $5 million, plus 0.25% on the amount in excess of
$5 million. Purchases of $1 million or more for each shareholder account will be
aggregated over a 12-month period (commencing from the date of the first such
purchase) for purposes of determining the level of commissions to be paid during
that period with respect to such account. 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 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 the shares will not be resold except to the Fund. Class
A shares of the Fund may be sold at net asset value to any employee, partner,
officer or trustee of any sub-adviser to any MFS Fund and to certain family
members of such individuals and their spouses, or to any trust, pension,
profit-sharing or other retirement plan for the sole benefit of such employee or
representative, provided such shares will not be resold except to the Fund.
Class A shares of the Fund may also be sold at their net asset value to any
employee or registered representative of any dealer or other financial
institution which has a sales agreement with 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 per share. 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 from the MFS Fixed Fund. In
addition, Class A shares may be sold at their net asset value in connection with
the acquisition or liquidation of the assets of other investment companies or
personal holding companies. Class A shares of the Fund may also 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 periodic 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 a year of purchase. (Shareholders who purchase shares at net
assest 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 and 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 7012. The CDSC on Class B shares will
be waived in the case of distributions from a retirement plan qualified under
Section 401(a) of the Code due to (i) returns of excess contribution to the
plan, (ii) retirement of a participant in the plan, (iii) a loan from the plan
(repayments of loans, however, will constitute new sales for purposes of
assessing the CDSC), (iv) "financial hardship" of the participant in the plan,
as that term is defined in Treasury Regulation Section 1.401(k)-1(d)(2), as
amended from time to time, and (v) termination of employment of the participant
in the plan (excluding, however, a partial or other termination of the plan).
The CDSC on Class B shares will 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 and former employees) and
agents of MFS, Sun Life or any of their subsidiary companies, (iv) any trust,
pension, profit-sharing or any other benefit plan for such persons, (v) any
trustees and retired trustees of any investment company for which 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 spouses, 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 any 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 its
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 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 entitites 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 an Exchange Request is received by the Shareholder
Servicing Agent on any business day prior to the close of regular trading on the
New York Stock Exchange (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 normallly 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) the stock power with a written
request for redemption or a letter of instructions, 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 instructions or certificate must be endorsed by the record owner(s)
exactly as the shares are registered and the signature(s) must be guaranteed in
the manner set forth below under the caption "Signature Guarantee". In addition,
in some cases, "good order" may require the furnishing of additional documents.
The Shareholder Servicing Agent may make certain de minimis exceptions to the
above requirements for redemption. Within seven days after receipt of a
redemption request by the Shareholder Servicing Agent in "good order", the Fund
will make payment in cash of the net asset value of the shares next determined
after such redemption request was received, reduced by the amount of any
applicable CDSC and the amount of any income tax required to be withheld, except
during any period in which the right of redemption is suspended or date of
payment is postponed because the Exchange is closed or trading on the Exchange
is restricted, or, to the extent otherwise permitted by the 1940 Act, if an
emergency exists (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 et 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 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 AND CLASS C 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 reserves 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 Fund has
reserved the right to pay the redemption or repurchase price of shares of the
Fund, either totally or partially, by a distribution in kind of securities
(instead of cash) from the Fund's portfolio. The securities distributed in such
a distribution would be valued at the same amount as that assigned to them in
calculating the net asset value for the shares being sold. If a shareholder
received a distribution in kind, the shareholder could incur brokerage or
transaction charges when converting the securities to cash.
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 being 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 redemption.
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 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.
Currently, this service fee has been set at 0.15% per annum. The service fee may
be increased at any time without notice to shareholders. 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. FSI may also retain a distribution fee of 0.10% 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. The distribution fee
is currently not being imposed. 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 allocated to Class A shares. Service fees may be
reduced for a securities dealer that is the holder or dealer of record for an
investor who owns shares of the Fund having a net asset value at or above a
certain dollar level. Dealers may from time to time be required to meet certain
criteria in order to receive service fees. 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 or 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. Except in the case
of the first year service fee, the service fee is reduced to 0.15% of the Fund's
average daily net assets attributable to Class B shares that are owned by
investors for whom that securities dealer is the holder or dealer of record.
This reduction may be amended or terminated without notice to shareholders. The
first year service fee will be paid as noted below. 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 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 declare dividends daily and pay to its shareholders
substantially all of its net investment income as dividends on a monthly basis.
The Fund may make one or more distributions during the calendar year to its
shareholders from any long-term capital gains and also may make one or more
distributions during the calendar year to its shareholders from short-term
capital gains. Shareholders may elect to receive dividends and capital gain
distributions in either cash or additional shares of the same class with respect
to which the 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 under the Code as an entity separate from the other series
of the Trust. 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 not expected
that the Fund will be required to pay any federal income or excise taxes,
although the Fund's foreign-source income may be subject to foreign withholding
taxes.
Shareholders of the Fund normally will have to pay federal income taxes, and any
state or local taxes, on the dividends and capital gain distributions they
receive from the Fund. Both dividends and capital gain distributions are taxable
whether distributed to shareholders 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. Since shareholders of the Fund
may not have to pay state and local taxes on dividends derived from interest on
U.S. Government securities, investors should consult with their tax advisers in
this regard. Shortly after the end of each calendar year, each shareholder
receives information for tax purposes on the dividends and distributions for
that year, including any portion taxable as ordinary income, any portion taxable
as long-term capital gains, any portion representing a return of capital (which
is free of current taxes but results in a basis reduction), any portion
representing interest on obligations of the U.S. government and certain of its
agencies and instrumentalities, and the amount, if any, of federal income tax
withheld.
The Fund intends to withhold U.S. federal income tax at the rate of 30% on
dividends and certain 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 a 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 on payments which have been subject to 30% withholding. Prospective
investors should read the Fund's Account Application for information regarding
backup withholding for federal income tax and should consult their own tax
adviser 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. Assets in the Fund's portfolio
are valued on the basis of their market or other fair value, as described in the
Statement of Additional Information. The net asset value per share of each class
of shares is effective for orders received by the dealer prior to its
calculation and received by 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 classes
and series of shares, in which case each class of shares of a series would
participate equally in the earnings, dividends and assets attributable to that
class of shares of that particular series. Shareholders are entitled to one vote
for each share held and shares of each series would be entitled to vote
separately to approve investment advisory agreements or changes in investment
restrictions, but shares of all series vote together in the election of Trustees
and selection of accountants. Additionally, each class of shares of a series
will vote separately on any material increases in the fees under its
Distribution Plan or on any other matter that affects solely that class of
shares, but will otherwise vote together with all other classes of shares of the
series on all other matters. The Trust does not intend to hold annual
shareholder meetings. The Declaration of Trust provides that a Trustee may be
removed from office in certain instances (see "Description of Shares, Voting
Rights and Liabilities" in the Statement of Additional Information).
Each share of a class of the Fund represents an equal proportionate interest in
the Fund with each other class share, subject to the liabilities of the
particular class. Shares have no pre-emptive or conversion rights (except as set
forth above in "Purchases -- Conversion of Class B Shares"). Shares are fully
paid and non-assessable. Should the Fund be liquidated, shareholders of each
class are entitled to share pro rata in the net assets attributable to that
class available for distribution to shareholders. Shares will remain on deposit
with the Shareholder Servicing Agent and certificates will not be issued except
in connection with pledges and assignments and in certain other limited
circumstances.
The Trust is an entity of the type commonly known as a "Massachusetts business
trust". Under Massachusetts law, shareholders of such a trust may, under certain
circumstances, be held personally liable as partners for its obligations.
However, the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which both inadequate
insurance (e.g., fidelity bonding and errors and omissions insurance) existed
and the Trust itself was unable to meet its obligations.
PERFORMANCE INFORMATION
From time to time, the Fund will provide 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 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 perdiod. 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 shares of that class with all distributions
reinvested and which, if quoted for periods of six years or less, will give
effect to the imposition of the CDSC assessed upon redemptions of the Fund's
Class B shares. Such total rate of return quotations may be accompanied by
quotations which do not reflect the reduction in value of the initial investment
due to the sales charge or the deduction of a CDSC, and which will thus be
higher. All performance quotations are based on historical performance and are
not intended to indicate future performance. Yield 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 last business day of the month. 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 a
reasonable time prior to the next business day of the month for a dividend or
distribution in order to be effective for that dividend or distribution. No
interest will accrue on amounts represented by uncashed distribution or
redemption checks.
INVESTMENT AND WITHDRAWAL PROGRAMS -- For the convenience of shareholders, the
Fund makes available the following programs designed to enable shareholders to
add to their investment in an account with the Fund or withdraw from it with a
minimum of paper work. The programs involve no extra charge to shareholders
(other than a sales charge in the case of certain Class A share purchases) and
may be changed or discontinued at any time by a shareholder or the Fund.
LETTER OF INTENT: If a shareholder (other than a group purchaser as
described in the Statement of Additional Information) anticipates purchasing
$50,000 or more of Class A shares of the Fund alone or in combination with
shares of Class B or Class C 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 at the same reduced sales charge as though the total
quantity were invested in one lump sum, subject to escrow agreements and the
appointment of an attorney for redemptions from the escrow amount if the
intended purchases are not completed, by completing the Letter of Intent section
of the Account Application.
RIGHT OF ACCUMULATION: A shareholder qualifies for cumulative quantity
discounts on the purchase of Class A shares when his new investment, together
with the current offering price value of all holdings of all classes of shares
of that shareholder in the MFS Funds or MFS Fixed Fund (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 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 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 or Class A
shares of MFS Cash Reserve Fund will be subject to any applicable sales charge.
For federal and (generally) state income tax purposes, a transfer 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 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 offered by the Fund for the benefit of its
shareholders, including additional information with respect to the exchange
privilege.
<PAGE>
APPENDIX
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.
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.
<PAGE>
THE MFS FAMILY OF FUNDS(R) -- AMERICA'S OLDEST MUTUAL FUND GROUP
The members of the MFS Family of Funds are grouped below according to the types
of securities in their portfolios. For free prospectuses containing more
complete information, including the exchange privilege and all charges and
expenses, please contact your financial adviser or call the MFS Service Center
at 1-800-225-2606 any business day from 8 a.m. to 8 p.m. Eastern time. This
material should be read carefully before investing or sending money.
<TABLE>
<S> <C>
STOCK LIMITED MATURITY
Massachusetts Investors Trust MFS(R) Government Limited Maturity Fund
Massachusetts Investors Growth Stock Fund MFS(R) Limited Maturity Fund
MFS(R) Capital Growth Fund MFS(R) Municipal Limited Maturity Fund
MFS(R) Emerging Growth Fund
(closed to new investors) WORLD
MFS(R) Gold & Natural Resources Fund MFS(R) World Equity Fund
MFS(R) Growth Opportunities Fund MFS(R) World Governments Fund
MFS(R) Managed Sectors Fund MFS(R) World Growth Fund
MFS(R) OTC Fund MFS(R) World Total Return Fund
MFS(R) Research Fund
MFS(R) Value Fund NATIONAL TAX-FREE BOND
MFS(R) Municipal Bond Fund
STOCK AND BOND MFS(R) Municipal High Income Fund
MFS(R) Total Return Fund (closed to new investors)
MFS(R) Utilities Fund MFS(R) Municipal Income Fund
BOND STATE TAX-FREE BOND
MFS(R) Bond Fund Alabama, Arkansas, California, Florida,
MFS(R) Government Mortgage Fund Georgia, Louisiana, Maryland, Massachusetts,
MFS(R) Government Securities Fund Mississippi, New York, North Carolina,
MFS(R) High Income Fund Pennsylvania, South Carolina, Tennessee, Texas,
MFS(R) Intermediate Income Fund Virginia, Washington, West Virginia
MFS(R) Strategic Income Fund
(formerly MFS(R) Income & Opportunity Fund) MONEY MARKET
MFS(R) Cash Reserve Fund
MFS(R) Government Money Market Fund
MFS(R) Money Market Fund
</TABLE>
<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
[LOGO]
MFS(R) LIMITED
MATURITY FUND
500 Boylston Street, Boston, MA 02116
MLM-1 7/94/87M 36/236
MFS(R)
LIMITED
MATURITY
FUND
PROSPECTUS
JULY 1, 1994
<PAGE>
MFS(R) LIMITED STATEMENT OF
MATURITY FUND ADDITIONAL INFORMATION
(A Member of the MFS Family of Funds(R)) July 1, 1994
- ------------------------------------------------------------------------------
Page
----
1. Definitions .......................................................... 2
2. Investment Objectives, Policies and Restrictions ..................... 2
3. Management of the Fund ............................................... 7
Trustees .......................................................... 7
Officers .......................................................... 8
Investment Adviser ................................................ 8
Custodian ......................................................... 9
Shareholder Servicing Agent ....................................... 9
Distributor ....................................................... 10
4. Portfolio Transactions and Brokerage Commissions ..................... 11
5. Shareholder Services ................................................. 11
Investment and Withdrawal Programs ................................ 11
Exchange Privilege ................................................ 13
Tax-Deferred Retirement Plans ..................................... 14
6. Tax Status ........................................................... 14
7. Determination of Net Asset Value and Performance ..................... 15
8. Distribution Plans ................................................... 17
9. Description of Shares, Voting Rights and Liabilities ................. 18
10. Independent Accountants and Financial Statements ..................... 19
MFS LIMITED MATURITY FUND
A Series of MFS Fixed Income Trust
500 Boylston Street, Boston, Massachusetts 02116
(617) 954-5000
This Statement of Additional Information sets forth information which may be of
interest to investors but which is not necessarily included in the Fund's
Prospectus, dated July 1, 1994. This Statement of Additional Information should
be read in conjunction with the Prospectus, a copy of which may be obtained
without charge by contacting the Shareholder Servicing Agent (see last page for
address and phone number).
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS AUTHORIZED
FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY A
CURRENT PROSPECTUS.
<PAGE>
1. DEFINITIONS
"Fund" --MFS Limited Maturity Fund, a diversified series
of the MFS Fixed Income Trust (the "Trust"), a
Massachusetts business trust. The Fund was known
as MFS Quality Limited Maturity Fund prior to
August 3, 1992. The Trust was known as
Massachusetts Financial Bond Fund prior to January
7, 1992.
"MFS" or the "Adviser" --Massachusetts Financial Services Company, a
Delaware corporation.
"FSI" --MFS Financial Services, Inc., a Delaware
corporation.
"Prospectus" -- The Prospectus, dated July 1, 1994 of the Fund.
2. INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
INVESTMENT OBJECTIVES. The primary investment objective of the 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. Any investment involves risk and there can be no
assurance that the Fund will achieve its investment objectives.
INVESTMENT POLICIES. The investment policies of the Fund are described in the
Prospectus. In addition, certain of the Fund's investment policies are
described in greater detail below.
REPURCHASE AGREEMENTS: As described in the Prospectus, the Fund may enter into
repurchase agreements with sellers who are member firms (or a subsidiary
thereof) of the New York Stock Exchange or members of the Federal Reserve
System, recognized primary U.S. Government securities dealers or institutions
which the Adviser has determined to be of comparable creditworthiness. The
securities that the Fund purchases and holds through its agent are U.S.
Government securities, the values of which are equal to or greater than the
repurchase price agreed to be paid by the seller. The repurchase price may be
higher than the purchase price, the difference being income to the Fund, or the
purchase and repurchase prices may be the same, with interest at a standard rate
due to the Fund together with the repurchase price on repurchase. In either
case, the income to the Fund is unrelated to the interest rate on the Government
securities.
The repurchase agreement provides that in the event the seller fails to pay the
price agreed upon on the agreed upon delivery date or upon demand, as the case
may be, the Fund will have the right to liquidate the securities. If at the time
the Fund is contractually entitled to exercise its right to liquidate the
securities, the seller is subject to a proceeding under the bankruptcy laws or
its assets are otherwise subject to a stay order, the Fund's exercise of its
right to liquidate the securities may be delayed and result in certain losses
and costs to the Fund. The Fund has adopted and follows procedures which are
intended to minimize the risks of repurchase agreements. For example, the Fund
only enters into repurchase agreements after the Adviser has determined that the
seller is creditworthy, and the Adviser monitors that seller's creditworthiness
on an ongoing basis. Moreover, under such agreements, the value of the
securities (which are marked to market every business day) is required to be
greater than the repurchase price, and the Fund has the right to make margin
calls at any time if the value of the securities falls below the agreed upon
margin.
MORTGAGE PASS-THROUGH SECURITIES. The Fund may invest in mortgage pass-through
securities as described in the Prospectus. Interests in pools of
mortgage-related securities differ from other forms of debt securities, which
normally provide for periodic payment of interest in fixed amounts with
principal payments at maturity or specified call dates. Instead, these
securities provide a monthly payment which consists of both interest and
principal payments. In effect, these payments are a "pass-through" of the
monthly payments made by the individual borrowers on their mortgage loans, net
of any fees paid to the issuer or guarantor of such securities. Additional
payments are caused by prepayments of principal resulting from the sale,
refinancing or foreclosure of the underlying property, net of fees or costs
which may be incurred. Some mortgage pass-through securities (such as securities
issued by the Government National Mortgage Association ("GNMA")) are described
as "modified pass-through." These securities entitle the holder to receive all
interest and principal payments owed on the mortgages in the mortgage pool, net
of certain fees, at the scheduled payment dates regardless of whether the
mortgagor actually makes the payment.
The principal governmental guarantor of mortgage pass-through securities is the
GNMA. GNMA is a wholly-owned U.S. Government corporation within the Department
of Housing and Urban Development. GNMA is authorized to guarantee, with the full
faith and credit of the U.S. Government, the timely payment of principal and
interest on securities issued by institutions approved by GNMA (such as savings
and loan institutions, commercial banks and mortgage bankers) and backed by
pools of FHA-insured or VA-guaranteed mortgages. These guarantees, however, do
not apply to the market value or yield of mortgage pass-though securities. GNMA
securities are often purchased at a premium over the maturity value of the
underlying mortgages. This premium is not guaranteed and will be lost if
prepayment occurs.
Government-related guarantors (i.e., those whose guarantees are not backed by
the full faith and credit of the U.S. Government) include the Federal National
Mortgage Association ("FNMA") and the Federal Home Loan Mortgage Corporation
("FHLMC"). FNMA is a government-sponsored corporation owned entirely by private
stockholders. It is subject to general regulation by the Secretary of Housing
and Urban Development. FNMA purchases conventional residential mortgages (i.e.,
mortgages not insured or guaranteed by any governmental agency) from a list of
approved seller/servicers which include state and federally-chartered savings
and loan associations, mutual savings banks, commercial banks, credit unions and
mortgage bankers. Pass-through securities issued by FNMA are guaranteed as to
timely payment by FNMA of principal and interest.
FHLMC was created by Congress in 1970 as a corporate instrumentality of the U.S.
Government for the purpose of increasing the availability of mortgage credit for
residential housing. FHLMC issues Participation Certificates ("PCs") which
represent interests in conventional mortgages (i.e., not federally insured or
guaranteed) from FHLMC's national portfolio. FHLMC guarantees timely payment of
interest and ultimate collection of principal regardless of the status of the
underlying mortgage loans.
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers also create
pass-through pools of mortgage loans. Such issuers may also be the originators
and/or servicers of the underlying mortgage-related securities. Pools created by
such non-governmental issuers generally offer a higher rate of interest than
government and government-related pools because there are no direct or indirect
government or agency guarantees of payments in the former pools. However, timely
payment of interest and principal of mortgage loans in these pools may be
supported by various forms of insurance or guarantees, including individual
loan, title, pool and hazard insurance and letters of credit. The insurance and
guarantees are issued by governmental entities, private insurers and the
mortgage poolers. There can be no assurance that the private insurers or
guarantors can meet their obligations under the insurance policies or guarantee
arrangements. The Fund may also buy mortgage-related securities without
insurance or guarantees.
COLLATERALIZED MORTGAGE OBLIGATIONS AND MULTICLASS PASS-THROUGH SECURITIES: As
described in the Prospectus, 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 (such
collateral referred to collectively as "Mortgage Assets"). Unless the context
indicates otherwise, all references herein to CMOs include multiclass
pass-through securities.
Interest is paid or accrues on all classes of the CMOs on a monthly, quarterly
or semiannual basis. The principal of and interest on the Mortgage Assets may be
allocated among the several classes of a series of a CMO in innumerable ways. In
a common structure, payments of principal, including any principal prepayments,
on the Mortgage Assets are applied to the classes of the series of a CMO in the
order of their respective stated maturities or final distribution dates, so that
no payment of principal will be made on any class of CMOs until all other
classes having an earlier stated maturity or final distribution date have been
paid in full.
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. These simultaneous
payments are taken into account in calculating the stated maturity date or final
distribution date of each class, which, as with other CMO structures, must be
retired by its stated maturity date or final distribution date but may be
retired earlier.
DOLLAR-DENOMINATED FOREIGN DEBT SECURITIES: The Fund may invest in
dollar-denominated foreign debt securities as discussed in the Prospectus.
Investing in dollar-denominated foreign debt securities generally represents a
greater degree of risk than investing in domestic securities, due to less
publicly available information, less securities regulation, war or
expropriation. Special considerations may include higher brokerage costs and
thinner trading markets. Investments in foreign countries could be affected by
other factors including extended settlement periods.
MORTGAGE "DOLLAR ROLL" TRANSACTIONS: As described in the Prospectus, the Fund
may enter into mortgage "dollar roll" transactions pursuant to which it sells
mortgage-backed securities for delivery in the future and simultaneously
contracts to repurchase substantially similar securities on a specified future
date. During the roll period, the Fund foregoes principal and interest paid on
the mortgage-backed securities. The Fund is compensated for the lost interest by
the difference between the current sales price and the lower price for the
future purchase (often referred to as the "drop") as well as by the interest
earned on the cash proceeds of the initial sale. The Fund may also be
compensated by receipt of a commitment fee.
ZERO COUPON BONDS: As described in the Prospectus, fixed income securities in
which the Fund may invest also include zero coupon bonds. 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. The Fund will accrue income on such investments for
tax and accounting purposes, which is distributable to shareholders and which,
because no cash is received at the time of accrual, may require the liquidation
of other portfolio securities to satisfy the Fund's distribution obligations.
LENDING OF PORTFOLIO SECURITIES: As described in the Prospectus, the Fund may
seek to increase its income by lending portfolio securities. The Fund would have
the right to call a loan and obtain the securities loaned at any time on
customary industry settlement notice (which will usually not exceed five days).
The Fund would not, however, have the right to vote any securities having voting
rights during the existence of the loan, but would call the loan in anticipation
of an important vote to be taken among holders of the securities or of the
giving or withholding of their consent on a material matter affecting the
investment.
"WHEN-ISSUED" SECURITIES: As described in the Prospectus, the Fund may purchase
debt securities on a "when-issued" or on a "forward delivery" basis. When the
Fund commits to purchase these securities on such basis, it will set up
procedures consistent with the General Statement of Policy of the Securities and
Exchange Commission (the "SEC") concerning such purchases. Since that policy
currently recommends that an amount of the Fund's assets equal to the amount of
the purchase be held aside or segregated to be used to pay for the commitment,
the Fund will always have cash, short-term money market instruments or high
quality debt securities sufficient to cover any commitments or to limit any
potential risk. Although the Fund does not intend to make such purchases for
speculative purposes and intends to adhere to the provisions of the SEC policy,
purchases of securities on such bases may involve more risk than other types of
purchases. For example, the Fund may have to sell assets which have been set
aside in order to meet redemptions. Also, if the Fund determines it is necessary
to sell the "when-issued" or "forward delivery" securities before delivery, the
Fund may incur a loss because of market fluctuations since the time the
commitment to purchase such securities was made.
The policies described above and the policies with respect to Futures Contracts,
Options on Futures Contracts, portfolio trading and the lending of portfolio
securities described below are not fundamental and may be changed without
shareholder approval, as may be the Fund's investment objectives.
FUTURES CONTRACTS: The Fund may enter into contracts for hedging purposes for
the future delivery of domestic or foreign fixed income securities or contracts
based on municipal bond or other financial indices including any index of
domestic or foreign fixed income securities, as such contracts become available
for trading ("Futures Contracts"). Such transactions may also be used for
non-hedging purposes, to the extent permitted by applicable law. A "sale" of a
Futures Contract means a contractual obligation to deliver the securities called
for by the contract at a specified price in a fixed delivery month or, in the
case of a Futures Contract, on an index of securities, to make or receive a cash
settlement. A "purchase" of a Futures Contract means a contractual obligation to
acquire the securities called for by the contract at a specified price in a
fixed delivery month or, in the case of a Futures Contract on an index of
securities, to make or receive a cash settlement. U.S. Futures Contracts have
been designed by exchanges which have been designated as "contract markets" by
the Commodity Futures Trading Commission (the "CFTC"), and must be executed
through a futures commission merchant, or brokerage firm, which is a member of
the relevant contract market. Existing contract markets include the Chicago
Board of Trade and the International Monetary Market of the Chicago Mercantile
Exchange. Futures Contracts are traded on these markets, and, through their
clearing corporations, the exchanges guarantee performance of the contracts as
between the clearing members of the exchange. Futures Contracts purchased or
sold by the Fund are also traded on foreign exchanges which are not regulated by
the CFTC.
At the same time a Futures Contract is purchased or sold, the Fund must allocate
cash or securities as a deposit payment ("initial deposit"). The initial deposit
varies but may be as low as 5% or less of the value of the contract. Daily
thereafter, the Futures Contract is valued and the payment of "variation margin"
may be required since each day the Fund would provide or receive cash that
reflects any decline or increase in the contract's value.
At the time of delivery of securities pursuant to a Futures Contract based on
fixed income securities, adjustments are made to recognize differences in value
arising from the delivery of securities with a different interest rate from that
specified in the contract. In some (but not many) cases, securities called for
by a Futures Contract may not have been issued when the contract was written.
A Futures Contract based on an index of securities, such as a municipal bond
index Futures Contract, provides for a cash payment, equal to the amount, if
any, by which the value of the index at maturity is above or below the value of
the index at the time the contract was entered into, times a fixed index
"multiplier". The index underlying such a Futures Contract is generally a broad
based index of securities designed to reflect movements in the relevant market
as a whole. The index assigns weighted values to the securities included in the
index, and its composition is changed periodically.
Although Futures Contracts call for the actual delivery or acquisition of
securities or, in the case of Futures Contracts based on an index, the making or
acceptance of a cash settlement at a specified future time, the contractual
obligation is usually fulfilled before such date by buying or selling, as the
case may be, on a commodities exchange, an identical Futures Contract calling
for settlement in the same month, subject to the availability of a liquid
secondary market. The Fund incurs brokerage fees when it purchases and sells
Futures Contracts.
The purpose of the acquisition or sale of a Futures Contract, in the case of a
portfolio such as that of the Fund, which holds or intends to acquire fixed
income securities, is to attempt to protect the Fund from fluctuations in
interest rates without actually buying or selling fixed income securities. For
example, if the Fund owns bonds, and interest rates were expected to increase,
the Fund might enter into Futures Contracts for the sale of debt securities.
Such a sale would have much the same effect as selling an equivalent value of
the long-term bonds owned by the Fund. If interest rates did increase, the value
of the debt securities in the portfolio would decline, but the value of the
Futures Contracts would increase at approximately the same rate, thereby keeping
the net asset value of the Fund from declining as much as it otherwise would
have. The Fund could accomplish similar results by selling bonds with long
maturities and investing in bonds with short maturities when interest rates are
expected to increase. However, since the futures market is more liquid than the
cash market, the use of Futures Contracts as an investment technique allows the
Fund to maintain a hedging position without having to sell its portfolio
securities.
Similarly, when it is expected that interest rates may decline, Futures
Contracts may be purchased to attempt to hedge against anticipated purchases of
bonds at higher prices. Since the fluctuations in the value of Futures Contracts
should be similar to that of bonds, the Fund could take advantage of the
anticipated rise in the value of bonds without actually buying them until the
market had stabilized. At that time, the Futures Contracts could be liquidated
and the Fund could then buy long-term bonds on the cash market. To the extent
the Fund enters into Futures Contracts for this purpose, the assets in the
segregated asset account maintained to cover the Fund's obligations with respect
to such Futures Contracts will consist of cash, cash equivalents, or short-term
money market instruments from its portfolio in an amount equal to the difference
between the fluctuating market value of such Futures Contracts and the aggregate
value of the initial and variation margin payments made by the Fund with respect
to such Futures Contracts.
The ordinary spreads between prices in the cash and futures markets, due to
differences in the nature of those markets, are subject to distortions. First,
all participants in the futures market are subject to initial deposit and
variation margin requirements. Rather than meeting additional variation margin
requirements, investors may close out Futures Contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the futures market depends on
participants entering into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced, thus producing distortion. Third, from
the point of view of speculators, the margin deposit requirements in the futures
market are less onerous than margin requirements in the securities market.
Therefore, increased participation by speculators in the futures market may
cause temporary price distortions. Due to the possibility of distortion, a
correct forecast of general interest rate trends by the Adviser may still not
result in a successful transaction.
In addition, Futures Contracts entail risks. Although the Fund believes that use
of such contracts will benefit the Fund, if the Adviser's investment judgment
about the general direction of interest rates is incorrect, the Fund's overall
performance would be poorer than if it had not entered into any such contract.
For example, if the Fund has hedged against the possibility of an increase in
interest rates which would adversely affect the price of bonds held in its
portfolio and interest rates decrease instead, the Fund will lose part or all of
the benefit of the increased value of its bonds which it has hedged because it
will have offsetting losses in its futures positions. In addition, in such
situations, if the Fund has insufficient cash, it may have to sell bonds from
its portfolio to meet daily variation margin requirements. Such sales of bonds
may be, but will not necessarily be, at increased prices which reflect the
rising market. The Fund may have to sell securities at a time when it may be
disadvantageous to do so. Transactions in Futures Contracts for non-hedging
purposes involves greater risks, and could result in losses which are not offset
by gains on other portfolio assets.
OPTIONS ON FUTURES CONTRACTS: The Fund intends to purchase and write options on
Futures Contracts ("Options on Futures Contracts") for hedging purposes and for
non-hedging purposes, to the extent permitted by applicable law. An Option on a
Futures Contract provides the holder with the right to enter into a "long"
position in the underlying Futures Contract (in the case of a call option) or a
"short" position in the underlying Futures Contract, in the case of a put
option, at a fixed exercise price up to a stated expiration date or (in the case
of certain options) on such date. Such Options on Futures Contracts will be
traded on U.S. contract markets regulated by the CFTC as well as on foreign
exchanges. Depending on the pricing of the option compared to either the price
of the Futures Contract upon which it is based or the price of the underlying
debt securities, it may or may not be less risky than ownership of the Futures
Contract or underlying debt securities. As with the purchase of Futures
Contracts, when the Fund is not fully invested it may purchase a call Option on
a Futures Contract to hedge against a market advance due to declining interest
rates.
The writing of a call Option on a Futures Contract constitutes a partial hedge
against declining prices of the securities which are deliverable upon exercise
of the Futures Contract. If the futures price at expiration of the option is
below the exercise price, the Fund will retain the full amount of the option
premium which provides a partial hedge against any decline that may have
occurred in the Fund's portfolio holdings. The writing of a put Option on a
Futures Contract constitutes a partial hedge against increasing prices of the
securities which are deliverable upon exercise of the Futures Contract. If the
futures price at expiration of the option is higher than the exercise price, the
Fund will retain the full amount of the option premium, less related transaction
costs, which provides a partial hedge against any increase in the price of
securities which the Fund intends to purchase. If a put or call option the Fund
has written is exercised, the Fund will incur a loss which will be reduced by
the amount of the premium it receives, less related transaction costs. Depending
on the degree of correlation between changes in the value of its portfolio
securities and changes in the value of its futures positions, the Fund's losses
from existing Options on Futures Contracts may to some extent be reduced or
increased by changes in the value of portfolio securities. The writer of an
Option on a Futures Contract is subject to the requirement of initial and
variation margin payments. The Fund will cover the writing of call Options on
Futures Contracts through purchases of the underlying Futures Contract or
through ownership of the security, or securities included in the index,
underlying the Futures Contract. The Fund may also cover the writing of call
Options on Futures Contracts through the purchase of such Options, provided that
the exercise price of the call purchased (a) is equal to or less than the
exercise price of the call written; or (b) is greater than the exercise price of
the call written if the difference is maintained by the Fund in cash, short-term
money market instruments or high quality debt securities in a segregated account
with the Fund's custodian. The Fund may cover the writing of put Options on
Futures Contracts through sales of the underlying Futures Contract or through
segregation of cash, short-term money market instruments or high quality debt
securities in an amount equal to the value of the security or index underlying
the Futures Contract. The Fund may also cover the writing of put Options on
Futures Contracts through the purchase of such Options, provided that the
exercise price of the put purchased is equal to or greater than the exercise
price of the put written, or is less than the exercise price of the put written
if the difference is maintained by the Fund in cash, short-term money market
instruments or high quality debt securities in a segregated account with its
custodian. In addition, the Fund may cover put and call Options on Futures
Contracts in accordance with the requirements of the exchange on which the
option is traded and applicable laws and regulations.
The Fund may also purchase straddles on Options on Futures Contracts in order to
protect against risk of loss arising as a result of anticipated changes in
volatility in the interest rate or fixed income markets. Under such
circumstances, if the anticipated changes in volatility in the market do not
occur, the Fund could be required to forfeit one or both of the premiums paid
for the Options.
The purchase of a put Option on a Futures Contract is similar in some respects
to the purchase of protective put options on portfolio securities. The Fund will
purchase a put Option on a Futures Contract to hedge the Fund's portfolio
against the risk of rising interest rates.
The amount of risk the Fund assumes when it purchases an Option on a Futures
Contract is the premium paid for the Option plus related transaction costs,
although in order to realize a profit it may be necessary to exercise the Option
and close out the underlying Futures Contract. In addition to the correlation
risks discussed above, the purchase of an Option also entails the risk that
changes in the value of the underlying Futures Contract will not be fully
reflected in the value of the option purchased.
ADDITIONAL RISKS OF INVESTING IN FUTURES CONTRACTS AND OPTIONS ON FUTURES
CONTRACTS: Various additional risks exist with respect to the trading of Futures
Contracts and Options on Futures Contracts. For example, the Fund's ability
effectively to hedge all or a portion of its portfolio through transactions in
such instruments will depend on the degree to which price movements in the
underlying index or instrument correlate with price movements in the relevant
portion of the Fund's portfolio. The trading of futures entails the additional
risk of imperfect correlation between movements in the futures and the price of
the underlying index or obligation. The anticipated spread between the prices
may be distorted because of various factors, which are set forth under "Futures
Contracts" above. When the Fund purchases or sells Futures Contracts based on an
index of securities, the securities comprising such index will not be the same
as the portfolio securities being hedged, thereby creating a risk that changes
in the value of the index will not correlate with changes in the value of such
portfolio securities.
The Fund's ability to engage in futures strategies will also depend on the
availability of liquid markets in such instruments. The liquidity of a secondary
market in a Futures Contract or option thereon may be adversely affected by
"daily price fluctuation limits", established by exchanges, which limit the
amount of fluctuation in the price of a contract during a single trading day and
prohibit trading beyond such limit. In addition, the exchanges on which futures
are traded may impose limitations governing the maximum number of positions on
the same side of the market and involving the same underlying instrument which
may be held by a single investor, whether acting alone or in concert with others
(regardless of whether such contracts are held on the same or different
exchanges or held or written in one or more accounts or through one or more
brokers).
In addition, Futures Contracts and Options on Futures Contracts may be traded on
foreign exchanges. Such transactions are subject to the risk of governmental
actions affecting trading in or the prices of foreign currencies or securities.
The value of such positions also could be adversely affected by (i) other
complex foreign, political and economic factors, (ii) lesser availability than
in the U.S. of data on which to make trading decisions, (iii) delays in the
Fund's ability to act upon economic events occuring in foreign markets during
non-business hours in the U.S., (iv) the imposition of different exercise and
settlement terms and procedures and margin requirements than in the United
States, and (v) lesser trading volume.
RESTRICTIONS ON THE USE OF OPTIONS AND FUTURES: In order to assure that the Fund
will not be deemed to be a "commodity pool" for purposes of the Commodity
Exchange Act, regulations of the CFTC require that the Fund enter into
transactions in Futures Contracts and Options on Futures Contracts only (i) for
bona fide hedging purposes (as defined in CFTC regulations), or (ii) for
non-hedging purposes, provided that the aggregate initial margin and premiums on
such non-hedging positions does not exceed 5% of the liquidation value of the
Fund's assets. In addition, the Fund must comply with the requirements of
various state securities laws in connection with such transactions.
PORTFOLIO TRADING: As described in the Prospectus, the Fund intends to engage in
portfolio trading rather than holding portfolio securities to maturity. Such
trading may involve the selling of securities held for a short time, ranging
from several months to less than a day and may be limited by tax restrictions.
In trading portfolio securities, the Fund may use the following strategies:
(1) shortening the average maturity of its portfolio in anticipation of a
rise in interest rates so as to minimize depreciation of principal;
(2) lengthening the average maturity of its portfolio in anticipation of a
decline in interest rates so as to maximize appreciation of principal;
(3) changing the average coupon of its portfolio when yield disparities
reflect a change in investment value among securities trading at differing
levels of premiums or discounts;
(4) selling one type of debt security (e.g., industrial bonds) and buying
another (e.g., utility bonds) when disparities arise in the relative values of
each; and
(5) changing from one debt security to an essentially similar debt security
when their respective yields are distorted due to market factors.
These strategies may result in minor temporary increases or decreases in the
Fund's current income available for distribution to its shareholders, and in its
holding debt securities which sell at moderate to substantial premiums or
discounts from face value. If the Fund's expectations of changes in interest
rates or the Fund's evaluation of the normal yield relationship between two
securities proves to be incorrect, the Fund's income, net asset value and
potential capital gain may be reduced or its potential capital loss may be
increased.
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.
INVESTMENT RESTRICTIONS. The Fund has adopted the following restrictions which
cannot be changed without the approval of the holders of a majority of the
Fund's shares (which, as used in this Statement of Additional Information, means
the lesser of (i) more than 50% of the outstanding shares of the Trust or a
series or class, as applicable, or (ii) 67% or more of the outstanding shares of
the Trust or a series or class, as applicable, present at a meeting if the
holders of more than 50% of the outstanding shares of the Trust or a series or
class, as applicable, are represented in person or by proxy).
The Fund may not:
(1) borrow money in an amount in excess of 33 1/3% of its gross assets, and
then only as a temporary measure for extraordinary or emergency purposes, or
pledge, mortgage or hypothecate an amount of its assets (taken at market
value) in excess of 33 1/3% of its gross assets, in each case taken at the
lower of cost or market value and subject to a 300% asset coverage requirement
(for the purpose of this restriction, collateral arrangements with respect to
options, Futures Contracts, Options on Futures Contracts, foreign currency,
forward foreign currency contracts and options on foreign currencies and
payments of initial and variation margin in connection therewith are not
considered a pledge of assets);
(2) underwrite securities issued by other persons except insofar as the Fund
may technically be deemed an underwriter under the Securities Act of 1933 in
selling a portfolio security;
(3) concentrate its investments in any particular industry, but if it is
deemed appropriate for the achievement of its investment objectives, the Fund
may invest up to 25% of its assets (taken at market value at the time of each
investment) in securities of issuers in any one industry;
(4) purchase or sell real estate (including limited partnership interests
but excluding securities of companies, such as real estate investment trusts,
which deal in real estate or interests therein), or mineral leases,
commodities or commodity contracts (except options, Futures Contracts, Options
on Futures Contracts, foreign currency, forward foreign currency contracts and
options on foreign currencies) in the ordinary course of its business. The
Fund reserves the freedom of action to hold and to sell real estate or mineral
leases, commodities or commodity contracts (including options, Futures
Contracts, Options on Futures Contracts, foreign currency, forward foreign
currency contracts and options on foreign currencies) acquired as a result of
the ownership of securities. The Fund will not purchase securities for the
purpose of acquiring real estate or mineral leases, commodities or commodity
contracts (except options, Futures Contracts, Options on Futures Contracts,
foreign currency, forward foreign currency contracts and options on foreign
currencies);
(5) make loans to other persons. For these purposes, the purchase of
short-term commercial paper, the purchase of a portion or all of an issue of
debt securities in accordance with its investment objectives and policies, the
lending of portfolio securities, or the investment of the Fund's assets in
repurchase agreements, shall not be considered the making of a loan;
(6) invest for the purpose of exercising control or management;
(7) purchase any securities or evidences of interest therein on margin,
except to make deposits on margin in connection with options, Futures
Contracts, Options on Futures Contracts, foreign currency, forward foreign
currency contracts and options on foreign currencies, and except that the Fund
may obtain such short-term credit as may be necessary for the clearance of
purchases and sales of securities;
(8) sell any security which the Fund does not own unless by virtue of its
ownership of other securities the Fund has at the time of sale a right to
obtain securities without payment of further consideration equivalent in kind
and amount to the securities sold and provided that if such right is
conditional the sale is made upon the same conditions; or
(9) purchase or sell any put or call option or any combination thereof,
provided, that this shall not prevent the purchase, ownership, holding or sale
of warrants where the grantor of the warrants is the issuer of the underlying
securities or the writing, purchasing and selling of puts, calls or
combinations thereof with respect to securities, Futures Contracts and foreign
currencies.
As a non-fundamental policy, the Fund will not invest in illiquid investments,
including securities subject to legal or contractual restrictions on resale or
for which there is no readily available market (e.g., trading in the security is
suspended or, in the case of unaudited securities where no market exists),
unless the Board of Trustees has determined that such securities are liquid
based on trading markets for the specific security, if more than 15% of the
Fund's assets (taken at market value) would be invested in such securities.
STATE AND FEDERAL RESTRICTIONS: In order to comply with certain federal and
state statutes and regulatory policies, as a matter of operating policy of the
Fund, the Fund will not: (a) invest more than 5% of the Fund's total assets at
the time of investment in unsecured obligations of issuers which, including
predecessors, controlling persons, sponsoring entities, general partners and
guarantors, have a record of less than three years' continuous business
operation or relevant business experience; (b) purchase voting securities of any
issuer if such purchase, at the time thereof, would cause more than 10% of the
outstanding voting securities of such issuer to be held by the Fund; (c)
purchase securities issued by any other registered investment company except by
purchase in the open market where no commission or profit to a sponsor or dealer
results from such purchase other than the customary broker's commission, or
except when such purchase, though not made in the open market, is part of a plan
of merger or consolidation; provided, however, that the Fund shall not purchase
such securities if such purchase at the time thereof would cause (i) more than
5% of the Fund's total assets (taken at market value) to be invested in the
securities of any one issuer or (ii) more than 10% of the Fund's total assets
(taken at market value) to be invested in the securities of such issuers or
(iii) more than 3% of the outstanding voting securities of any such issuer to be
held by the Fund; and, provided further, that the Fund shall not purchase
securities issued by any open-end investment company; (iv) purchase or retain in
its portfolio any securities issued by an issuer any of whose officers,
directors, trustees or security holders is an officer or Trustee of the Trust,
or is an officer or Director of the Adviser if, after the purchase of the
securities of such issuer by the Fund, one or more of such persons owns
beneficially more than 1/2 of 1% of the shares or securities, or both, of such
issuer, and such persons owning more than 1/2 of 1% of such shares or securities
together own beneficially more than 5% of such shares or securities, or both.
In addition, as a non-fundamental policy, repurchase agreements maturing in more
than seven days will be deemed to be illiquid for purposes of the Fund's
limitation on investment in illiquid securities. Furthermore, purchases of
warrants will not exceed 5% of the Fund's net assets. Included within that
amount, but not exceeding 2% of the Fund's net assets, may be warrants not
listed on the New York or American Stock Exchange.
As a "diversified" investment portfolio under the Investment Company Act of 1940
(the "1940 Act"), the Fund will maintain at least 75% of its assets in (i) cash,
(ii) cash items, (iii) U.S. Government Securities and (iv) other securities,
limited per issuer to blocks of less than 5% of the Fund's total assets.
The investment policies described under "State and Federal Restrictions" are not
fundamental and may not be changed without shareholder approval.
3. MANAGEMENT OF THE FUND
The Trust's Board of Trustees provides broad supervision over the affairs of the
Fund. The Adviser is responsible for the investment management of the Fund's
assets and the officers of the Trust are responsible for its operations. The
Trustees and officers of the Trust are listed below, together with their
principal occupations during the past five years. (Their titles may have varied
during that period.)
TRUSTEES
A. KEITH BRODKIN,* Chairman and President
Massachusetts Financial Services Company, Chairman
RICHARD B. BAILEY*
Private Investor; Massachusetts Financial Services Company, former Chairman
(until September 30, 1991)
PETER G. HARWOOD
Loomis, Sayles & Co. (investment counsel firm), Financial Vice President,
Treasurer and Director (retired October, 1988)
Address: 211 Lindsay Pond Road, Concord, Massachusetts
J. ATWOOD IVES
Eastern Enterprises (diversified holding company), Chairman and Chief Executive
Officer (since December, 1991); General Cinema Corporation, Vice Chairman and
Chief Financial Officer (until December, 1991); The Neiman Marcus Group, Inc.,
Vice Chairman and Chief Financial Officer (from August, 1987 to December, 1991);
Property Capital Trust, Trustee Address: 9 Riverside Road, Weston, Massachusetts
LAWRENCE T. PERERA
Hemenway & Barnes (attorneys), Partner
Address: 60 State Street, Boston, Massachusetts
WILLIAM J. POORVU
Harvard University Graduate School of Business Administration, Adjunct
Professor; The Baupost Fund (a registered investment company), Chairman and
Trustee (since June, 1990)
Address: Harvard Business School, Soldiers Field Road, Cambridge,
Massachusetts
CHARLES W. SCHMIDT
Private Investor; Raytheon Company (diversified electronics manufacturer),
Senior Vice President and Group Executive (until December, 1990); OHM
Corporation Director; The Boston Company, Director; Boston Safe Deposit and
Trust Company, Director
Address: 30 Colpitts Road, Weston, Massachusetts
ARNOLD D. SCOTT*
Massachusetts Financial Services Company, Senior Executive Vice President and
Secretary
JEFFREY L. SHAMES*
Massachusetts Financial Services Company, President
ELAINE R. SMITH
Independent Consultant; Brigham and Women's Hospital, Executive Vice President
and Chief Operating Officer (from August, 1990 to September, 1992); Ernst &
Young (accountants), Consultant (from February to July, 1990); Women's College
Hospital, President and Chief Executive Officer (from July, 1988 to January,
1990)
Address: Weston, Massachusetts
DAVID B. STONE
North American Management Corp. (investment advisers), Chairman
Address: 10 Post Office Square, Suite 300, Boston, Massachusetts
OFFICERS
W. THOMAS LONDON,* Treasurer
Massachusetts Financial Services Company, Senior Vice President and Assistant
Treasurer
STEPHEN E. CAVAN,* Secretary and Clerk
Massachusetts Financial Services Company, Senior Vice President, General
Counsel and Assistant Secretary (since December, 1989); The Boston Company
Advisors, Inc., President and General Counsel (prior to December, 1989)
JAMES R. BORDEWICK, JR.,* Assistant Secretary
Massachusetts Financial Services Company, Vice President and Associate General
Counsel (since September, 1990); Associate, Ropes & Gray (attorneys) (prior
to August, 1990)
LINDA J. HOARD,* Assistant Secretary
Massachusetts Financial Services Company, Vice President and Assistant General
Counsel
JAMES O. YOST,* Assistant Treasurer
Massachusetts Financial Services Company, Vice President (since June, 1989);
Deloitte & Touche, Manager (prior to June, 1989)
ROBERT A. DENNIS,* Vice President
Massachusetts Financial Services Company, Senior Vice President
GEOFFREY L. KURINSKY,* Vice President
Massachusetts Financial Services Company, Senior Vice President
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*"Interested persons" (as defined in the 1940 Act) of the Adviser, whose address
is 500 Boylston Street, Boston, Massachusetts.
Each Trustee and officer holds comparable positions with certain affiliates of
MFS or with certain other funds of which MFS or a subsidiary is the investment
adviser or distributor. Mr. Brodkin, the Chairman of FSI, Messrs. Shames and
Scott, Directors of FSI, and Mr. Cavan, the Secretary of FSI, and hold similar
positions with certain other MFS affiliates. Mr. Bailey is a Director of Sun
Life Assurance Company of Canada (U.S.) ("Sun Life of Canada (U.S.)"), the
corporate parent of MFS.
The Trust has adopted a retirement plan for non-interested Trustees. Under this
plan, a Trustee will retire upon reaching age 73 and if the Trustee has
completed at least five years of service, he would be entitled to annual
payments during his lifetime of up to 50% of such Trustee's average annual
compensation (based on the three years prior to his retirement) depending on his
length of service. A Trustee may also retire prior to age 73 and receive reduced
payments if he has completed at least five years of service. Under the plan, a
Trustee (or his beneficiaries) will also receive benefits for a period of time
in the event the Trustee is disabled or dies. These benefits will also be based
on the Trustee's average annual compensation and length of service. There is no
retirement plan provided by the Trust for the interested Trustees. The Fund will
accrue its allocable share of compensation expenses each year to cover current
year's service and amortize past service cost.
As of May 31, 1994, all Trustees and officers as a group owned 1% of the
outstanding Class A shares of the Fund, not including 206,172.679 Class A shares
(which represent 1.4% of the outstanding shares of Class A shares of the Fund)
owned by employee benefit plans of MFS for which Mr. Brodkin is a Trustee. As of
May 31, 1994, Margaret C. Lawder, Pennsylvania, was the owner of approximately
6.23% of the outstanding Class B shares of the Fund. As of May 31, 1994, Chicago
Board of Education, 1918 W. Pershing Road, Chicago, Illinois was the owner of
approximately 7.72% of the outstanding Class B shares of the Fund.
The Declaration of Trust provides that the Trust will indemnify its Trustees and
officers against liabilities and expenses incurred in connection with litigation
in which they may be involved because of their offices with the Trust, unless,
as to liabilities to the Trust or its shareholders, it is finally adjudicated
that they engaged in willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in their offices, or with respect to
any matter unless it is adjudicated that they did not act in good faith in the
reasonable belief that their actions were in the best interest of the Trust. In
the case of settlement, such indemnification will not be provided unless it has
been determined pursuant to the Declaration of Trust, that such officers or
Trustees have not engaged in willful misfeasance, bad faith, gross negligence or
reckless disregard of their duties.
INVESTMENT ADVISER
MFS and its predecessor organizations have a history of money management dating
from 1924. MFS is a subsidiary of Sun Life of Canada (U.S.) which in turn is a
subsidiary of Sun Life Assurance Company of Canada ("Sun Life").
The Adviser manages the assets of the Fund pursuant to an Investment Advisory
Agreement, dated January 8, 1992 (the "Advisory Agreement"). The Adviser
provides the Fund with overall investment advisory and administrative services,
as well as general office facilities. Subject to such policies as the Trustees
may determine, the Adviser makes investment decisions for the Fund. Effective
February 1, 1994, for its services and facilities, the Adviser receives a
management fee, computed and paid monthly, at the rate of 0.40% per annum of the
Fund's average daily net assets. Prior to February 1, 1994, the Adviser was
entitled to receive a management fee, computed and paid monthly, at the rate of
0.55% per annum of the Fund's average daily net assets. From September 1, 1993
to February 1, 1994, the Adviser had voluntarily reduced the management fee for
the Fund to 0.30% per annum of the Fund's average daily net assets. Prior to
September 1, 1993, the Adviser had voluntarily reduced the management fee to
0.20% per annum of the Fund's average daily net assets.
The Adviser has agreed to pay certain expenses of the Fund (except for the fees
paid under the Advisory Agreement and the Distribution Plans) until February 28,
2002 and to pay the expenses relating to the organization of the Fund, all
subject to reimbursement by the Fund. To accomplish such reimbursement, the
Adviser receives an expense reimbursement fee from the Fund in addition to the
investment advisory and distribution fees, computed and paid monthly at a rate
of 0.40% per annum of the average daily net assets of the Fund. The expense
reimbursement agreement terminates for the Fund on the earlier of either (i) the
date on which the payments made thereunder by the Fund equal the prior payment
of such reimbursable expenses by the Adviser or (ii) February 28, 2002. The
Adviser may also terminate the expense reimbursement agreement at any time by
written notice to the Trust.
For the Fund's fiscal year ended April 30, 1994, the Fund incurred fees under
the Advisory Agreement of $478,523 (equivalent on an annualized basis to 0.51%
of average net assets) of which $192,571 (equivalent on an annualized basis to
0.20% of average net assets) was not imposed. For the same period, MFS paid
expenses of the Fund amounting to $391,561 (equivalent to 0.42% of the Fund's
average daily net assets) for which the Fund reimbursed MFS $373,831 (equivalent
to 0.40% of the Fund's average daily net assets).
For the Fund's fiscal year ended April 30, 1993 the Fund incurred fees under the
Advisory Agreement of $176,818 (equivalent on an annualized basis to 0.55% of
average net assets) of which $114,165 (equivalent on an annualized basis to
0.35% of average net assets) was not imposed. For the same period, MFS paid
expenses of the Fund amounting to $238,135 (equivalent to 0.74% of the Fund's
average daily net assets) for which the Fund reimbursed MFS $130,478 (equivalent
to 0.40% of the Fund's average daily net assets).
For the period from the commencement of operations on February 26, 1992 to the
fiscal year end on April 30, 1992 MFS received fees under the Advisory Agreement
of $697 (equivalent to 0.15% of the Fund's average net assets). For the same
period, MFS paid expenses of the Fund amounting to $4,152 (equivalent to 0.89%
of the Fund's average daily net assets) for which the Fund reimbursed MFS $1,858
(equivalent on an annualized basis to 0.40% of average daily net assets).
In order to comply with the expense limitations of certain state securities
commissions, the Adviser will reduce its management fee or otherwise reimburse
the Fund for any expenses, exclusive of interest, taxes and brokerage
commissions, incurred by the Fund in any fiscal year to the extent such expenses
exceed the most restrictive of such state expense limitations. The Adviser will
make appropriate adjustments to such reductions and reimbursements in response
to any amendment or rescission of the various state requirements.
The Fund pays the compensation of the Trustees who are not officers of MFS (who
each receive from $500 to $895 annually, depending on attendance at meetings,
including fees for meetings of special committees, such as the Audit Committee)
and all expenses of the Fund (other than those assumed by MFS or FSI) including:
governmental fees; interest charges; taxes; membership dues in the Investment
Company Institute allocable to the Fund; fees and expenses of independent
auditors, of legal counsel, and of any transfer agent, registrar or dividend
disbursing agent of the Fund; expenses of repurchasing and redeeming shares;
expenses of preparing, printing and mailing share certificates, periodic
reports, notices and proxy statements to shareholders and to governmental
officers and commissions; brokerage and other expenses connected with the
execution, recording and settlement of portfolio security transactions;
insurance premiums; fees and expenses of Investors Bank & Trust Company, the
Fund's Custodian for all services to the Fund, including safekeeping of funds
and securities and maintaining required books and accounts; expenses of
calculating the net asset value of shares of the Fund; and expenses of
shareholder meetings. Expenses relating to the issuance, registration and
qualification of shares of the Fund and the preparation, printing and mailing of
prospectuses are borne by the Fund except that the Fund's Distribution Agreement
with FSI requires FSI to pay for prospectuses that are to be used for sales
purposes. Expenses of the Trust which are not attributable to a specific series
are allocated among the series in a manner believed by management of the Trust
to be fair and equitable. MFS has agreed to pay the foregoing expenses of the
Fund (except for the fees paid under the Advisory Agreement and the Distribution
Plans) subject to reimbursement by the Fund as described in the Prospectus. For
a list of expenses, including the compensation paid to the Trustees who are not
officers of Adviser, for the fiscal year ended April 30, 1994, see "Statement of
Operations" in the Annual Report to the Fund's shareholders.
MFS pays the compensation of the Trust's officers and of any Trustee who is an
officer of MFS. The Adviser also furnishes at its own expense all necessary
administrative services, including office space, equipment, clerical personnel,
investment advisory facilities, and all executive and supervisory personnel
necessary for managing the Fund's investments, effecting the Fund's portfolio
transactions and, in general, administering the Fund's affairs.
The Advisory Agreement will remain in effect until August 1, 1995, and will
continue in effect thereafter only if such continuance is specifically approved
at least annually by the Board of Trustees or by vote of a majority of the
Fund's shares (as defined in "Investment Restrictions") and, in either case, by
a majority of the Trustees who are not parties to the Advisory Agreement or
interested persons of any such party. The Advisory Agreement terminates
automatically if it is assigned and may be terminated without penalty by vote of
a majority of the Fund's shares (as defined in "Investment Restrictions") or by
either party on not more than 60 days' nor less than 30 days' written notice.
The Advisory Agreement provides that if MFS ceases to serve as the Adviser to
the Fund, the Fund will change its name so as to delete the initials "MFS." The
Advisory Agreement further provides that MFS may render services to others. The
Advisory Agreement also provides that neither the Adviser nor its personnel
shall be liable for any error of judgment or mistake of law or for any loss
arising out of any investment or for any act or omission in the execution and
management of the Fund, except for willful misfeasance, bad faith or gross
negligence in the performance of its or their duties or by reason of reckless
disregard of its or their obligations and duties under the Advisory Agreement.
CUSTODIAN
Investors Bank & Trust Company (the "Custodian") is the custodian of the Trust's
assets. The Custodian's responsibilities include safekeeping and controlling the
Fund's cash and securities, handling the receipt and delivery of securities,
determining income and collecting interest and dividends on the Fund's
investments, maintaining books of original entry for portfolio and fund
accounting and other required books and accounts, and calculating the daily net
asset value of each class of shares of the Fund. The Custodian does not
determine the investment policies of the Fund or decide which securities the
Fund will buy or sell. The Fund may, however, invest in securities of the
Custodian and may deal with the Custodian as principal in securities
transactions. The Trustees have reviewed and approved as in the best interest of
the Fund and its shareholders custodial arrangements with Chase Manhattan Bank,
N.A. for securities of the Fund held outside the United States. The Custodian
has contracted with the Adviser for the Adviser to perform certain accounting
functions related to options transactions for which the Adviser receives
remuneration on a cost basis.
SHAREHOLDER SERVICING AGENT
MFS Service Center, Inc. (the "Shareholder Servicing Agent"), a wholly owned
subsidiary of MFS, is the Fund's shareholder servicing agent, pursuant to a
Shareholder Servicing Agreement, dated December 2, 1985 (the "Agency
Agreement"). The Shareholder Servicing Agent's responsibilities under the Agency
Agreement include administering and performing transfer agent functions and
keeping records in connection with the issuance, transfer and redemption of each
class of shares of the Fund. For these services, the Shareholder Servicing Agent
will receive a fee based on the net assets of each class of shares of the Fund,
computed and paid monthly. In addition, the Shareholder Servicing Agent will be
reimbursed by the Fund for certain expenses incurred by the Shareholder
Servicing Agent on behalf of the Fund. For the fiscal year ended April 30, 1994,
the Fund paid the Shareholder Servicing Agent $143,933 for its services
($134,446 for Class A shares and $9,487 for Class B shares). State Street Bank
and Trust Company, the dividend and distribution disbursing agent for the Fund,
has contracted with the Shareholder Servicing Agent to perform certain dividend
and distribution disbursing functions for the Fund.
DISTRIBUTOR
FSI, a wholly owned subsidiary of MFS, serves as distributor for the continuous
offering of shares of the Fund pursuant to a Distribution Agreement, dated as
amended and restated April 21, 1993 (the "Distribution Agreement").
CLASS A SHARES: FSI acts as agent in selling Class A Shares of the Fund to
dealers. The public offering price of the Class A shares of the Fund is their
net asset value next computed after the sale plus a sales charge which varies
based upon the quantity purchased. The public offering price of a Class A share
of the Fund is calculated by dividing the net asset value of a Class A share by
the difference (expressed as a decimal) between 100% and the sales charge
percentage of offering price applicable to the purchase (see "Purchases" in the
Prospectus). The sales charge scale set forth in the Prospectus applies to
purchases of Class A shares of the Fund alone or in combination with shares of
all classes of certain other funds in the MFS Family of Funds (the "MFS Funds")
and other funds (as noted under Right of Accumulation) by any person, including
members of a family unit (e.g., husband, wife and minor children) and bona fide
trustees for the benefit of such persons, and also applies to purchases made
under the Right of Accumulation or a Letter of Intent (see "Investment and
Withdrawal Programs" in this Statement of Additional Information). A group might
qualify to obtain quantity sales charge discounts (see "Investment and
Withdrawal Programs" in this Statement of Additional Information).
Class A shares of the Fund may be sold at their net asset value to certain
persons and in certain transactions as described in the Prospectus. Such sales
are made without a sales charge to promote good will with employees and others
with whom MFS, FSI and/or the Fund have business relationships, and because the
sales effort, if any, involved in making such sales is negligible.
FSI allows discounts to dealers (which are alike for all dealers) from the
applicable public offering price of Class A shares. Dealer allowances expressed
as a percentage of offering price for all offering prices are set forth in the
Prospectus (see "Purchases" in the Prospectus). The difference between the total
amount invested and the sum of (a) the net proceeds to the Fund and (b) the
dealer commission is the commission paid to the distributor. Because of rounding
in the computation of offering price, the portion of the sales charge paid to
the distributor may vary and the total sales charge may be more or less than the
sales charge calculated using the sales charge expressed as a percentage of
offering price or as a percentage of the net amount invested as listed in the
Prospectus. In the case of the maximum sales charge, the dealer retains 2 1/4%
and FSI retains approximately 1/4 of 1% of the public offering price. In
addition, FSI pays a commission to dealers who initiate and are responsible for
purchases of $1 million or more as described in the Prospectus.
CLASS B AND CLASS C SHARES: FSI acts as agent in selling Class B and Class C
shares of the Fund to dealers. The public offering price of Class B and Class C
shares is their net asset value next computed after the sale (see "Purchases" in
the Prospectus).
GENERAL: From time to time FSI, at its expense, may provide additional
commissions, compensation or promotional incentives ("concessions") to dealers
which sell shares of the Fund. The staff of the SEC has indicated that dealers
who receive more than 90% of the sales charge may be considered underwriters.
Such concessions provided by FSI may include financial assistance to dealers in
connection with preapproved conferences or seminars, sales or training programs
for invited registered representatives, payment for travel expenses, including
lodging, incurred by registered representatives and members of their families or
other invited guests to various locations for such seminars or training
programs, seminars to the public, advertising and sales campaigns regarding one
or more MFS Funds, and/or other dealer-sponsored events. In some instances,
these concessions may be offered to dealers or only to certain dealers who have
sold or may sell, during specified periods, certain minimum amounts of shares of
the Fund. From time to time, FSI may make expense reimbursements for special
training of a dealer's registered representatives in group meetings or to help
pay the expenses of sales contests. In addition, FSI may, from time to time, pay
additional compensation to MFS Investor Services, Inc., an affiliated
broker-dealer, in connection with assistance provided by such broker-dealer in
selling Fund shares. In some instances, promotional incentives to dealers may be
offered only to certain dealers who have sold or may sell significant amounts of
Fund shares. From time to time, FSI or its affiliate may offer a small gift of
nominal value to shareholders who elect to participate in certain investment
programs (e.g., the Automatic Exchange Plan) or other shareholder services.
Other concessions may be offered to the extent not prohibited by the laws of any
state or any self-regulatory agency, such as the National Association of
Securities Dealers, Inc. (the "NASD"). Neither FSI nor dealers are permitted to
delay placing orders to benefit themselves by a price change. On occasion, FSI
may obtain brokers loans from various banks, including the custodian banks for
the MFS Funds, to facilitate the settlement of sales of shares of the Fund to
dealers. FSI may benefit from its temporary holding of funds paid to it by
investment dealers for the purchase of Fund shares.
During the Fund's fiscal year ended April 30, 1994, FSI received sales charges
of $72,561 and dealers received sales charges of $1,044,318 (as their concession
on gross sales charges of $1,116,879) for selling Class A shares of the Fund;
the Fund received $85,507,092 representing the aggregate net asset value of such
shares. During the Fund's fiscal year ended April 30, 1993, FSI received sales
charges of $81,177 and dealers received sales charges of $795,661 (as their
concession on gross sales charges of $876,838) for selling Class A shares of the
Fund; the Fund received $71,060,292 representing the aggregate net asset value
of such shares. During the Fund's fiscal year ended April 30, 1992, FSI received
sales charges of $463 and dealers received sales charges of $50,868 (as their
concession on gross sales charges of $51,331) for selling Class A shares of the
Fund; the Fund received $4,146,447 representing the aggregate net asset value of
such shares.
During the period September 7, 1993 through April 30, 1994, the CDSC imposed on
redemptions of Class B shares was $5,136.
The Distribution Agreement will remain in effect until August 1, 1995, and will
continue in effect thereafter only if such continuance is specifically approved
at least annually by the Board of Trustees or by vote of a majority of the
Trust's shares (as defined in "Investment Restrictions") and, in either case, by
a majority of the Trustees who are not parties to such Distribution Agreement or
interested persons of any such party. The Distribution Agreement terminates
automatically if it is assigned and may be terminated without penalty by either
party on not more than 60 days' nor less than 30 days' notice.
4. PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
Specific decisions to purchase or sell securities for the Fund are made by a
portfolio manager who is an employee of the Adviser and who is appointed and
supervised by its senior officers. Changes in the Fund's investments are
reviewed by its Board of Trustees. The Fund's portfolio manager may serve other
clients of the Adviser or any subsidiary of the Adviser in a similar capacity.
The primary consideration in placing portfolio security transactions is
execution at the most favorable prices. The Adviser has complete freedom as to
the markets in and the broker-dealers through which it seeks this result. Debt
securities are traded principally in the over-the-counter market on a net basis
through dealers acting for their own account and not as brokers. The cost of
securities purchased from underwriters includes an underwriter's commission or
concession, and the prices at which securities are purchased and sold from and
to dealers include a dealer's mark-up or mark-down. The Adviser normally seeks
to deal directly with the primary market-makers unless, in its opinion, better
prices are available elsewhere. Securities firms or futures commission merchants
may receive brokerage commissions on transactions involving Futures Contracts
and Options on Futures Contracts. Subject to the requirement of seeking
execution at the best available price, securities may, as authorized by the
Advisory Agreement, be bought from or sold to dealers who have furnished
statistical, research and other information or services to the Adviser. At
present no recapture arrangements are in effect.
Consistent with the foregoing primary consideration, the Rules of Fair Practice
of the NASD and such other policies as the Trustees may determine, the Adviser
may consider sales of shares of the Fund and of the other investment company
clients of FSI as a factor in the selection of broker-dealers to execute the
Fund's portfolio transactions.
In certain instances there may be securities which are suitable for the Fund's
portfolio as well as for that of one or more of the other clients of the Adviser
or any subsidiary of the Adviser. Investment decisions for the Fund and for such
other clients are made with a view to achieving their respective investment
objectives. It may develop that a particular security is bought or sold for only
one client even though it might be held by, or bought or sold for, other
clients. Likewise, a particular security may be bought for one or more clients
when one or more other clients are selling that same security. Some simultaneous
transactions are inevitable when several clients receive investment advice from
the same investment adviser, particularly when the same security is suitable for
the investment objectives of more than one client. When two or more clients are
simultaneously engaged in the purchase or sale of the same security, the
securities are allocated among clients in a manner believed to be equitable to
each. It is recognized that in some cases this system could have a detrimental
effect on the price or volume of the security as far as the Fund is concerned.
In other cases, however, the Fund believes that the Fund's ability to
participate in volume transactions will produce better executions for the Fund.
For the fiscal year ended April 30, 1994, the Fund acquired and sold securities
issued by Goldman Sachs & Co., a regular broker-dealer of the Fund.
5. SHAREHOLDER SERVICES
INVESTMENT AND WITHDRAWAL PROGRAMS -- The Fund makes available the following
programs designed to enable shareholders to add to their investment or withdraw
from it with a minimum of paper work. These are described below and, in certain
cases, in the Prospectus. The programs involve no extra charge to shareholders
(other than a sales charge in the case of certain Class A share purchases) and
may be changed or discontinued at any time by a shareholder or the Fund.
LETTER OF INTENT: If a shareholder (other than a group purchaser described
below) anticipates purchasing $50,000 or more of Class A shares of the Fund
alone or in combination with Class B or Class C shares of the Fund or any of the
classes of shares of other MFS Funds or MFS Fixed Fund (a bank collective
investment fund) within a 13-month period (or 36-month period, in the case of
purchases of $1 million or more), the shareholder may obtain Class A shares of
the Fund at the same reduced sales charge as though the total quantity were
invested in one lump sum by completing the Letter of Intent section of the
Account Application or filing a separate Letter of Intent application (available
from the Shareholder Servicing Agent) within 90 days of the commencement of
purchases. Subject to acceptance by FSI and the conditions mentioned below, each
purchase will be made at a public offering price applicable to a single
transaction of the dollar amount specified in the Letter of Intent application.
The shareholder or his dealer must inform FSI that the Letter of Intent is in
effect each time shares are purchased. The shareholder makes no commitment to
purchase additional shares, but if his purchases within 13 months (or 36 months
in the case of purchases of $1 million or more) plus the value of shares
credited toward completion of the Letter of Intent do not total the sum
specified, he will pay the increased amount of the sales charge as described
below. Instructions for issuance of shares in the name of a person other than
the person signing the Letter of Intent application must be accompanied by a
written statement from the dealer stating that the shares were paid for by the
person signing such Letter. Neither income dividends nor capital gain
distributions taken in additional shares will apply toward the completion of the
Letter of Intent. Dividends and distributions of other MFS Funds automatically
reinvested in shares of the Fund pursuant to the Distribution Investment Program
will also not apply toward completion of the Letter of Intent.
Out of the shareholder's initial purchase (or subsequent purchases if
necessary), 5% of the dollar amount specified in the Letter of Intent
application shall be held in escrow by the Shareholder Servicing Agent in the
form of shares registered in the shareholder's name. All income dividends and
capital gain distributions on escrowed shares will be paid to the shareholder or
to his order. When the minimum investment so specified is completed (either
prior to or by the end of the 13-month period or 36-month period, as
applicable), the shareholder will be notified and the escrowed shares will be
released.
If the intended investment is not completed the Shareholder Servicing Agent will
redeem an appropriate number of the escrowed shares in order to realize such
difference. Shares remaining after any such redemption will be released by the
Shareholder Servicing Agent. By completing and signing the Account Application
or separate Letter of Intent application, the shareholder irrevocably appoints
the Shareholder Servicing Agent his attorney to surrender for redemption any or
all escrowed shares with full power of substitution in the premises.
RIGHT OF ACCUMULATION: A shareholder qualifies for cumulative quantity
discounts on the purchase of Class A shares when that shareholder's new
investment, together with the current offering price value of all holdings of
all classes of shares of that shareholder in the MFS Funds or MFS Fixed Fund (a
bank collective investment fund) reaches a discount level. See "Purchases" in
the Prospectus for the sales charges on quantity purchases. For example, if a
shareholder owns shares with a current offering price value of $37,500 and
purchases an additional $12,500 of Class A shares of the Fund, the sales charge
for the $12,500 purchase would be at the rate of 2.25% (the rate applicable to
single transactions of $50,000). A shareholder must provide the Shareholder
Servicing Agent (or his investment dealer must provide FSI) with information to
verify that the quantity sales charge discount is applicable at the time the
investment is made.
DISTRIBUTION INVESTMENT PROGRAM: Distributions of dividends and capital gains
made by the Fund with respect to a particular class of shares may be
automatically invested in shares of the same class of one of the other MFS
Funds, if shares of such fund are available for sale. Such investments will be
subject to additional purchase minimums. Distributions will be invested at net
asset value (exclusive of any sales charge) and not subject to any CDSC.
Distributions will be invested at the close of business on the payable date for
the distribution. A shareholder considering the Distribution Investment Program
should obtain and read the prospectus of the other fund and consider the
differences in objectives and policies before making any investment.
SYSTEMATIC WITHDRAWAL PLAN: A shareholder (except a $3 Million Shareholder as
defined in the Prospectus) 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. Such payments under
a Systematic Withdrawal Plan ("SWP") must be at least $100, except in certain
limited circumstances. The aggregate withdrawals of Class B shares in any year
pursuant to a SWP generally are limited to 10% of the value of the account at
the time of the establishment of the SWP. SWP payments are drawn from the
proceeds of share redemptions (which would be a return of principal and, if
reflecting a gain, would be taxable). Redemptions of Class B shares will be made
in the following order: (i) any "Reinvested Shares"; (ii) to the extent
necessary, any "Free Amount"; (iii) to the extent necessary, the earliest
"Direct Purchase" subject to the lowest CDSC (as such terms are defined in
"Contingent Deferred Sales Charge" in the Prospectus). The CDSC will be waived
in the case of redemptions of Class B shares pursuant to a SWP but will not be
waived in the case of SWP redemptions of Class A shares. To the extent that
redemptions for such periodic withdrawals exceed dividend income reinvested in
the account, such redemptions will reduce and may eventually exhaust the number
of shares in the shareholder's account. All dividend and capital gain
distributions for an account with a SWP will be reinvested in additional full
and fractional shares of the Fund at the net asset value in effect at the close
of business on the record date for such distributions. To initiate this service,
shares having an aggregate value of at least $10,000 either must be held on
deposit by, or certificates for such shares must be deposited with, the
Shareholder Servicing Agent. With respect to Class A shares, maintaining a
withdrawal plan concurrently with an investment program would be disadvantageous
because of the sales charges included in share purchases and the imposition of a
CDSC on certain redemptions. The shareholder by written instruction to the
Shareholder Servicing Agent may deposit into the account additional shares of
the Fund, change the payee or change the amount of each payment. The Shareholder
Servicing Agent may charge the account for services rendered and expenses
incurred beyond those normally assumed by the Fund with respect to the
liquidation of shares. No charge is currently assessed against the account, but
one could be instituted by the Shareholder Servicing Agent on 60 days' notice in
writing to the shareholder in the event that the Fund ceases to assume the cost
of these services. The Fund may terminate any SWP for an account if the value of
the account falls below $5,000 as a result of share redemptions (other than as a
result of a SWP) or an exchange of shares of the Fund for shares of another MFS
Fund. Any SWP may be terminated at any time by either the shareholder or the
Fund.
INVEST BY MAIL: Additional investments of $50 or more may be made at any time
by mailing a check payable to the Fund directly to the Shareholder Servicing
Agent. The shareholder's account number and the name of his investment dealer
must be included with each investment.
GROUP PURCHASES: A bona fide group and all its members may be treated as a
single purchaser and, under the Right of Accumulation (but not a Letter of
Intent), obtain quantity sales charge discounts on the purchase of Class A
shares if the group: (1) gives its endorsement or authorization to the
investment program so it may be used by the investment dealer to facilitate
solicitation of the membership, thus effecting economies of sales effort; (2)
has been in existence for at least six months and has a legitimate purpose other
than to purchase mutual fund shares at a discount; (3) is not a group of
individuals whose sole organizational nexus is as credit cardholders of a
company, policyholders of an insurance company, customers of a bank or
broker-dealer, clients of an investment adviser or other similar group; and (4)
agrees to provide certification of membership of those members investing money
in the MFS Funds upon the request of FSI.
AUTOMATIC EXCHANGE PLAN: Shareholders having account balances of at least
$5,000 in any MFS Fund may exchange their shares for the same class of shares of
other MFS Funds under the Automatic Exchange Plan, a dollar cost averaging
program. The Automatic Exchange Plan provides for automatic 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 effective on the seventh day of each month or of every third
month, depending whether monthly or quarterly transfers are elected by the
shareholder. If the seventh day of the month is not a business day, the
transaction will be processed on the next business day. Generally, the initial
transfer will occur after receipt and processing by the Shareholder Servicing
Agent of an application in good order. Transfers will continue to be made from a
shareholder's account in any MFS Fund, as long as the balance of the account is
sufficient to complete the transfers. Additional payments made to a
shareholder's account will extend the period that transfers will continue to be
made under the Automatic Exchange Plan. However, if additional payments are
added to an account subject to the Automatic Exchange Plan shortly before a
transfer is scheduled, such funds may not be available for transfers until the
following month; therefore, care should be used to avoid inadvertently
terminating the Automatic Exchange Plan through exhaustion of the account
balance.
No transaction fee for transfers will be charged in connection with 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. Changes in amounts to be
transferred to each fund, the funds to which transfers are to be made and the
timing of transfers (monthly or quarterly), or termination of a shareholder's
participation in Automatic Exchange Plan will be made after instructions in
writing or by telephone (an "Exchange Change Request") are received by the
Shareholder Servicing Agent in proper form (i.e., if in writing --signed by the
record owner(s) exactly as shares of the Fund are registered; if by telephone --
proper account identification is given by the dealer or shareholder of record).
Each Transfer Change Request (other than termination of participation in the
program) must involve at least $50. Generally, if an Exchange Change Request is
received by telephone or in writing before the close of business on the last
business day of a month, the Exchange Change Request will be effective for the
following month's transfer.
A shareholder's right to make additional investments in any of the MFS Funds, to
make exhanges of shares from one MFS Fund to another and to withdraw from an MFS
Fund, as well as a shareholder's other rights and privileges are not affected by
a shareholder's participation in the Automatic Exchange Plan.
The Automatic Exchange Plan is part of the Exchange Privilege. For additional
information regarding the Automatic Exchange Plan, including the treatment of
any CDSC, see "Exchange Privilege" below.
REINSTATEMENT PRIVILEGE: Shareholders of the Fund and shareholders of the
other MFS Funds (except shares of MFS Money Market Fund, MFS Government Money
Market Fund and holders of Class A shares of MFS Cash Reserve Fund in the case
where such shares are acquired through direct purchase or reinvested dividends)
who have redeemed their shares have a one-time right to reinvest the redemption
proceeds in the same class of shares of any of the MFS Funds (if shares of the
fund are available for sale) at net asset value (without a sales charge) and, if
applicable, with credit for any CDSC paid. In the case of proceeds invested in
shares of MFS Money Market Fund, MFS Government Money Market Fund and Class A
shares of MFS Cash Reserve Fund the shareholder has the right to exchange the
acquired shares for shares of another MFS Fund at net asset value pursuant to
the exchange privilege described below. Such a reinvestment must be made within
90 days of the redemption and is limited to the amount of the redemption
proceeds. If the shares credited for any CDSC paid are then redeemed within six
years of the initial purchase in the case of Class B shares or 12 months of the
initial purchase in the case of Class A shares, such CDSC will be imposed upon
redemption. Although redemptions and repurchases of shares are taxable events, a
reinvestment within a certain period of time in the same fund may be considered
a "wash sale" and may result in the inability to recognize currently all or a
portion of any loss realized on the original redemption for federal income tax
purposes. Please see your tax adviser for further information.
EXCHANGE PRIVILEGE -- Subject to the requirements set forth below, some or all
of the shares in an account for which payment has been received by the Fund
(i.e., an established account) may be exchanged for shares of the same class of
any of the other MFS Funds (if available for sale) at net asset value. In
addition, Class C shares may be exchanged for shares of MFS Money Market Fund at
net asset value. Exchanges will be made only after instructions in writing or by
telephone (an "Exchange Request") are received for an established account by the
Shareholder Servicing Agent.
Each Exchange Request must be in proper form (i.e., 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 (except that the minimum is $50 for accounts of retirement plan
participants whose sponsoring organizations subscribe to the MFS FUNDamental
401(k) Plan or another similar 401(k) recordkeeping system made available by MFS
Service Center, Inc.) or all the shares in the account. Each exchange involves
the redemption of shares of the Fund to be exchanged and the purchase at net
asset value (i.e., without a sales charge) of shares of the same class of the
other MFS Fund. Any gain or loss on the redemption of the shares exchanged is
reportable on the shareholder's federal income tax return, unless both the
shares received and the shares surrendered in the exchange are held in a
tax-deferred retirement plan or other tax-exempt account. No more than five
exchanges may be made in any one Exchange Request by telephone. If an Exchange
Request is received by the Shareholder Servicing Agent prior to the close of
regular trading on the New York Stock Exchange (the "Exchange"), the exchange
usually will occur on that day if all the requirements set forth above have been
complied with at that time. However, payment of the redemption proceeds by the
Fund, and thus the purchase of shares of the other MFS Fund, may be delayed for
up to seven days if the Fund determines that such a delay would be in the best
interest of all its shareholders. Investment dealers which have satisfied
criteria established by FSI may also communicate a shareholder's Exchange
Request to the Shareholder Servicing Agent by facsimile subject to the
requirements set forth above.
No CDSC is imposed on exchanges among the MFS Funds, although liability for the
CDSC is carried forward to the exchanged shares. For purposes of calculating the
CDSC upon redemption of shares acquired in an exchange, the purchase of shares
acquired in one or more exchanges is deemed to have occurred at the time of the
original purchase of the exchanged shares. Any gain or loss on the redemption of
the shares exchanged is reportable in the shareholders federal income tax
return, unless such shares were held in a tax-deferred retirement plan.
Additional information with respect to any of the MFS Funds, including a copy of
its current prospectus, may be obtained from investment dealers or the
Shareholder Servicing Agent. A shareholder considering an exchange should obtain
and read the prospectus of the other MFS Fund and consider the differences in
objectives and policies before making any exchange. Shareholders of the other
MFS Funds (except holders of shares of MFS Money Market Fund, MFS Government
Money Market Fund and Class A shares of Cash Reserve Fund acquired through
direct purchase and dividends reinvested prior to June 1, 1992) have the right
to exchange their shares for shares of the Fund, subject to the conditions, if
any, set forth in their respective prospectuses. In addition, unitholders of the
MFS Fixed Fund (a bank collective investment fund) have the right to except
their units (exchange units acquired through direct purchases) for shares of the
Fund, subject to the conditions, if any, imposed upon such unitholders by the
MFS Fixed Fund.
Any state income tax advantages for investment in each state-specific series of
MFS Municipal Series Trust may only benefit residents of such states. Investors
should consult with their own tax advisors to be sure that this is an
appropriate investment, based on their residency and each state's income tax
laws.
The exchange privilege (or any aspect of it) may be changed or discontinued and
is subject to certain limitations (see "Purchases" in the Prospectus).
TAX-DEFERRED RETIREMENT PLANS -- Except as noted below, shares of the Fund may
be purchased by all types of tax-deferred retirement plans. FSI makes available
through investment dealers plans and/or custody agreements for the following:
Individual Retirement Accounts ("IRAs") (for individuals and their non-
employed spouses who desire to make limited contributions to a tax-deferred
retirement program and, if eligible, to receive a federal income tax deduction
for amounts contributed);
Simplified Employee Pension (SEP-IRA) Plans;
Retirement Plans Qualified under Section 401(k) of the Internal Revenue Code
of 1986, as amended;
403(b) Plans (deferred compensation arrangements for employees of public
school systems and certain non-profit organizations); and
Certain other qualified pension and profit-sharing plans.
The plan documents provided by FSI designate a trustee or custodian (unless
another trustee or custodian is designated by the individual or group
establishing the plan) and contain specific information about the plans. Each
plan provides that dividends and distributions will be reinvested automatically.
For further details with respect to any plan, including fees charged by the
trustee, custodian or FSI, tax consequences and redemption information, see the
specific documents for that plan. Plan documents and forms other than those
provided by FSI may be used to establish any of the plans described above. Third
party administrative services, available for some corporate plans, may limit or
delay the processing of transactions.
Investors should consult with their tax advisers before establishing any of the
tax-deferred retirement plans described above.
Class C shares are not currently available for purchase by any retirement plan
qualified under Internal Revenue Code section 401(a) or 403(b) if the retirement
plan and/or the sponsoring organization subscribe to the MFS FUNDamental 401(k)
Plan or another similar 401(a) or 403(b) recordkeeping program made available by
the Shareholder Servicing Agent.
6. TAX STATUS
The Fund has elected to be treated and intends to qualify each year as a
"regulated investment company" under the Internal Revenue Code of 1986, as
amended (the "Code"), by meeting all applicable requirements of Subchapter M of
the Code, including requirements as to the nature of the Fund's gross income,
the amount of Fund distributions, and the composition and holding period of the
Fund's portfolio assets. Because the Fund intends to distribute all of its net
investment income and net realized capital gains to shareholders in accordance
with the timing requirements imposed by the Code, it is not expected that the
Fund will be required to pay any federal income or excise taxes, although the
Fund's foreign-source income may be subject to foreign withholding taxes. If the
Fund should fail to qualify as a "regulated investment company" in any year, the
Fund would incur a regular corporate federal income tax upon its taxable income
and Fund distributions would generally be taxable as ordinary dividend income to
the shareholders.
Shareholders of the Fund normally will have to pay federal income taxes, and any
state or local taxes, on the dividends and capital gain distributions they
receive from the Fund. Dividends from ordinary income and from net short-term
capital gains, whether paid in cash or reinvested in additional shares, are
taxable to the Fund's shareholders as ordinary income for federal income tax
purposes. Distributions of net capital gains (i.e., the excess of net long-term
capital gains over short-term capital losses), whether paid in cash or
reinvested additional shares, are taxable to the Fund's shareholders as
long-term capital gains without regard to the length of time shareholders have
owned their shares. Because the Fund expects to earn primarily interest income,
it is expected that no Fund dividends will qualify for the dividends received
deduction for corporations. Fund dividends declared in October, November or
December payable to shareholders of record in such a month that are paid the
following January will be taxable to shareholders as if received on December 31
of the year in which the dividends are declared.
Any distribution of net capital gains or net short-term capital gains will have
the effect of reducing the per share net asset value of shares in the Fund by
the amount of the distribution. Shareholders purchasing shares shortly before
the record date of any such distribution may thus pay the full price for the
shares and then effectively receive a portion of the purchase price back as a
taxable distribution.
In general, any gain or loss realized upon a taxable disposition of shares of
the Fund by a shareholder that holds such shares as a capital asset will be
treated as long-term capital gain or loss if the shares have been held for more
than twelve months and otherwise as a short-term capital gain or loss. However,
any loss realized upon a disposition of shares in the Fund held for six months
or less will be treated as a long-term capital loss to the extent of any
distributions of net capital gain made with respect to those shares. Any loss
realized upon a redemption of shares may also be disallowed under rules relating
to wash sales. Gain may be increased (or loss reduced) upon a redemption of
Class A shares of the Fund within ninety days after their purchase followed by
any purchase (including purchases by exchange or by reinvestment) without
payment of an additional sales charge of Class A shares of the Fund or of
another MFS Fund (or any other shares of an MFS Fund generally sold subject to a
sales charge).
Investment in residual interests of a CMO that has elected to be treated as a
real estate mortgage investment conduit, or "REMIC," can create complex tax
problems, especially if the Fund has state or local governments or other
tax-exempt organizations as shareholders.
The Fund's current dividend and accounting policies will affect the amount,
timing and character of distributions to shareholders. The Fund's investment in
zero coupon securities, certain stripped securities and certain securities
purchased at a market discount will cause the Fund to recognize income prior to
the receipt of cash payments with respect to these securities. In order to
distribute this income and avoid a tax on the Fund, the Fund may be required to
liquidate portfolio securities that it might otherwise have continued to hold,
potentially resulting in additional taxable gain or loss to the Fund.
The Fund's transactions in Futures Contracts and Options on Futures Contracts
will be subject to special tax rules that may affect the amount, timing and
character of distributions to shareholders. For example, certain positions held
by the Fund on the last business day of each taxable year will be marked to
market (i.e., treated as if closed out) on such day, and any gain or loss
associated with such positions will be treated as 60% long-term and 40%
short-term capital gain or loss. Certain positions held by the Fund that
substantially diminish its risk of loss with respect to other positions in its
portfolio will constitute "straddles", which are subject to special tax rules
that may cause deferral of the Fund's losses, adjustments in the holding periods
of the Fund's securities and conversion of short-term into long-term capital
losses. Certain tax elections exist for straddles which could alter the effects
of these rules. The Fund will limit its holding in Futures Contracts and Options
on Futures Contracts to the extent necessary to meet the requirements of
Subchapter M of the Code.
Investment income received by the Fund from foreign securities may be subject to
foreign income taxes withheld at the source; the Fund does not expect to be able
to pass through to shareholders foreign tax credits with respect to such foreign
taxes. The United States has entered into tax treaties with many foreign
countries that may entitle the Fund to a reduced rate of tax or an exemption
from tax on such income; the Fund intends to qualify for treaty reduced rates
where available. It is impossible to determine the effective rate of foreign tax
in advance since the amount of the Fund's assets to be invested within various
countries is not known.
Dividends and certain other payments to persons who are not citizens or
residents of the U.S. or U.S. entities ("Non-U.S. Persons") are generally
subject to U.S. tax withholding at the rate of 30%. The Fund intends to withhold
U.S. federal income tax at the rate of 30% on any payments made to Non-U.S.
Persons that are subject to such withholding regardless of whether a lower
treaty rate may be permitted. Any amounts over withheld may be recovered by such
persons by filing a claim for refund with the U.S. Internal Revenue Service
within the time period applicable to such claims. Distributions received from
the Fund by Non-U.S. Persons may also be subject to tax under the laws of their
own jurisdiction. 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 Non-U.S. Person) who does not furnish to the Fund
certain information and certifications or who is otherwise subject to backup
withholding. However, backup withholding will not be applied to payments which
have been subject to 30% withholding.
As long as it qualifies as a regulated investment company under the Code, the
Fund will not be required to pay Massachusetts income or excise taxes.
Distributions of the Fund which are derived from interest on obligations of the
U.S. Government and certain of its agencies and instrumentalities (but not from
capital gains realized upon the disposition of such obligations) may be exempt
from state and local taxes in certain states. In other states, arguments can be
made on the basis of a U.S. Supreme Court decision to the effect that such
distributions should be exempt from state and local taxes. The Fund intends to
advise shareholders of the proportion of its dividends which consist of such
interest. Shareholders are urged to consult their tax advisers regarding this
and other state and local income tax matters.
7. DETERMINATION OF NET ASSET VALUE AND PERFORMANCE
NET ASSET VALUE -- The net asset value per share of each class of the Fund is
determined each day during which the Exchange is open for trading. (As of the
date of this Statement of Additional Information, the Exchange is open for
trading every weekday except for the following holidays or the days on which
they are observed: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.) This
determination is made once during each such day as of the close of regular
trading on such Exchange by deducting the amount of the liabilities attributable
to the class from the value of the assets attributable to the class and dividing
the difference by the number of shares of that class outstanding. If acquired,
preferred stocks, common stocks and warrants will be valued at the last sale
price on an exchange on which they are primarily traded or at the last quoted
bid price for unlisted securities. Debt securities (other than short-term
obligations) in the Fund's portfolio are valued on the basis of valuations
furnished by pricing services which utilize both dealer-supplied valuations and
electronic data processing techniques which take into account factors such as
institutional-size trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, trading characteristics and other market
data, without exclusive reliance upon quoted prices or exchange or
over-the-counter prices, because such valuations are believed to reflect more
accurately the fair value of such securities. Use of the pricing service has
been approved by the Board of Trustees. Short-term obligations with a remaining
maturity in excess of 60 days will be valued based upon dealer supplied
valuations. Other short-term obligations are valued at amortized cost, which
constitutes fair value as determined by the Board of Trustees. Positions in
listed options, Futures Contracts and Options on Futures Contracts will normally
be valued at the settlement price on the exchange on which they are primarily
traded. Forward Contracts will be valued using a pricing model taking into
consideration market data from an external pricing source. Portfolio securities
for which there are no such quotations or valuations are valued at fair value as
determined in good faith by or at the direction of the Board of Trustees.
PERFORMANCE INFORMATION
TOTAL RATE OF RETURN: The Fund will calculate its total rate of return for each
class of shares for certain periods by determining the average annual compounded
rates of return over those periods that would cause an investment of $1,000
(made with all distributions reinvested and reflecting the CDSC or the maximum
public offering price), to reach the value of that investment at the end of the
periods. The Fund may also calculate (i) a total return, which is not reduced by
the CDSC (4% maximum for Class B shares) and therefore may result in a higher
rate of return, (ii) a total rate of return assuming an initial account value of
$1,000, which will result in a higher rate of return since the value of the
initial account will not be reduced by the current maximum sales charge
(currently 2.50%) and/or (iii) total rates of return which represent aggregate
performance over a period or year-by-year performance and which may or may not
reflect the effect of the maximum or other sales charge or CDSC. The Fund's
average annual total rate of return for Class A shares, reflecting the initial
investment at the current maximum public offering price for the one-year period
ended April 30, 1994 and for the period from the commencement of investment
operations, February 26, 1992 to April 30, 1994 were -0.91% and 4.05%,
respectively. The Fund's average annual total rate of return for Class A shares,
not giving effect to the sales charge on the initial investment, for the same
periods was 1.61% and 5.30%, respectively. Total rate of return figures for
Class A shares would have been lower had certain fee waivers not been in place.
The Fund's aggregate total rate of return for Class B shares reflecting the CDSC
for the period September 7, 1993 through the Fund's fiscal year ended April 30,
1994 was -5.42%. The Fund's average aggregate total rate of return for Class B
shares, not giving effect to the CDSC, for the period September 7, 1993 through
the Fund's fiscal year ended April 30, 1994 was -1.69%. The figures presented
for Class B are not calculated on an annualized basis. The aggregate total rate
of return represents a limited time frame and like the total rates of return
presented above for Class A shares, may not be indicative of future performance.
There were no Class C shares outstanding during these periods.
PERFORMANCE RESULTS: Performance results, including any yield or total rate of
return quotations provided by the Fund should not be considered as
representative of the performance of the Fund in the future since the net asset
value of shares of the Fund will vary based not only on the type, quality and
maturities of the securities held in the Fund's portfolio, but also on changes
in the current value of such securities and on changes in the expenses of the
Fund. These factors and possible differences in the methods used to calculate
yields and total rates of return should be considered when comparing the yield
and total rate of return published for other investment companies or other
investment vehicles. Total rate of return reflects the performance of both
principal and income. Current net asset value as well as account balance
information may be obtained by calling 1-800-MFS-TALK (637- 8255).
YIELD: Any yield quotation for a class of shares of the Fund is based on the
annualized net investment income per share of that class over a 30-day period.
The yield for a class is calculated by dividing the net investment income per
share of that class earned during the period by the maximum offering price per
share on the last day of that period. The resulting figure is then annualized.
Net investment income per share of a class is determined by dividing (i) the
dividends and interest earned by that class during the period, minus accrued
expenses for the period by (ii) the average number of shares of that class
entitled to receive dividends during the period multiplied by the maximum
offering price per share on the last day of the period. The Fund's yield
calculations for Class A shares assume a maximum sales charge of 2.50%. The
yield calculation for Class B shares assumes no CDSC is paid. The yield for
Class A shares of the Fund for the 30-day period ended April 30, 1994 was 4.90%.
Had the expense reimbursement not been in place, the yield for Class A shares of
the Fund for the 30-day period ended April 30, 1994 would have been 4.75%. The
yield for Class B shares of the Fund for the 30-day period ended April 30, 1994
was 4.27%. Had the expense reimbursement not been in place, the yield for Class
B shares of the Fund for the 30-day period ended April 30, 1994 would have been
4.11%. There were no Class C shares outstanding during the period.
CURRENT DISTRIBUTION RATE: Yield, which is calculated according to a formula
prescribed by the SEC, is not indicative of the amounts which were or will be
paid to the Fund's shareholders. Amounts paid to shareholders of each class are
reflected in the quoted "current distribution rate" for that class. The current
distribution rate for a class is computed by dividing the total amount of
dividends per share paid by the Fund to shareholders of that class during the
past 12 months by the maximum public offering price of that class at the end of
such period. Under certain circumstances, such as when there has been a change
in the amount of dividend payout, or a fundamental change in investment
policies, it might be appropriate to annualize the dividends paid over the
period such policies were in effect, rather than using the dividends during the
past 12 months. The current distribution rate differs from the yield computation
because it may include distributions to shareholders from sources other than
dividends and interest, such as premium income from option writing, short-term
capital gains and return of invested capital, and is calculated over a different
period of time. The Fund's current distribution rate calculation for Class A
shares assumes a maximum sales charge of 2.50%. The Fund's current distribution
rate calculation for Class B shares assumes no CDSC is paid. The current
distribution rate for Class A shares of the Fund for the 12-month period ended
on April 30, 1994 was 6.04%. The current distribution rate for Class B shares of
the Fund based on the annualization of the last dividend paid during the last
fiscal year was 5.03%. There were no Class C shares outstanding during these
periods.
From time to time the Fund may, as appropriate, quote Fund rankings or reprint
all or a portion of evaluations of fund performance and operations appearing in
various independent publications, including but not limited to the following:
Money, Fortune, U.S. News and World Report, Kiplinger's Personal Finance, The
Wall Street Journal, Barron's, Investors Business Daily, Newsweek, Financial
World, Financial Planning, Investment Advisor, USA Today, Pensions and
Investments, SmartMoney, Forbes, Global Finance, Registered Representative,
Institutional Investor, the Investment Company Institute, Johnson's Charts,
Morningstar, Lipper Analytical Services, Inc., CDA Wiesenberger, Shearson Lehman
and Salomon Bros. Indices, Ibbotson, Business Week, Lowry Associates, Media
General, Investment Company Data, The New York Times, Your Money, Strangers
Investment Advisor, Financial Planning on Wall Street, Standard and Poor's,
Individual Investor, The 100 Best Mutual Funds You Can Buy, by Gordon K.
Williamson, Consumer Price Index, and Sanford C. Bernstein & Co. Fund
performance may also be compared to the performance of other mutual funds
tracked by financial or business publications or periodicals. The Fund may also
quote evaluations mentioned in independent radio or television broadcasts and
may use charts and graphs to illustrate the past performance of various indices
such as those mentioned above and illustrations using hypothetical rates of
return to illustrate the effects of compounding and tax-deferral. The Fund may
advertise examples of the effects of periodic investment plans, including the
principle of dollar cost averaging. In such a program, an investor invests a
fixed dollar amount in a fund at periodic intervals, thereby purchasing fewer
shares when prices are high and more shares when prices are low. While such a
strategy does not assure a profit or guard against a loss in a declining market,
the investor's average cost per share can be lower than if fixed numbers of
shares are purchased at the same intervals.
MFS FIRSTS: MFS has a long history of innovations.
-- 1924 -- Massachusetts Investors Trust is established as the first
mutual fund in America.
-- 1932 -- One of the first internal research departments is
established to provide in-house analytical capability for an
investment management firm.
-- 1933 -- Massachusetts Investors Trust is the first mutual fund to
register under the Securities Act of 1933.
-- 1936 -- Massachusetts Investors Trust is the first mutual fund to
let shareholders take capital gain distributions either in
additional shares or in cash.
-- 1976 -- MFS Municipal Bond Fund is among the first municipal bond
funds established.
-- 1981 -- MFS World Governments Fund is established as America's first
globally diversified fixed-income mutual fund.
-- 1984 -- MFS High Yield Municipal Bond Fund is the first mutual fund
to seek high tax-free income from lower- rated municipal securities.
-- 1986 -- MFS Managed Sectors Fund becomes the first mutual fund to
target and shift investments among industry sectors for
shareholders.
-- 1986 -- MFS Municipal Income Trust is the first closed-end,
high-yield municipal bond fund traded on the New York Stock
Exchange.
-- 1986 -- MFS Lifetime Investment ProgramSM is established as the
first complete family of 12b-1 mutual funds with no initial sales
charge.
-- 1987 -- MFS Multimarket Income Trust is the first closed-end,
multimarket high income fund listed on the New York Stock Exchange.
-- 1990 -- MFS World Total Return Fund is the first global balanced
fund.
8. DISTRIBUTION PLANS
The Trustees have adopted a Distribution Plan for each of Class A, Class B and
Class C shares (the "Distribution Plans") pursuant to Section 12(b) of the 1940
Act and Rule 12b-1 thereunder (the "Rule") after having concluded that there is
a reasonable likelihood that each Distribution Plan would benefit the Fund and
the respective class of shareholders. The Distribution Plans are designed to
promote sales, thereby increasing the net assets of the Fund. Such an increase
may reduce the expense ratio to the extent the Fund's fixed costs are spread
over a larger net asset base. Also, an increase in net assets may lessen the
adverse effects that could result were the Fund required to liquidate portfolio
securities to meet redemptions. There is, however, no assurance that the net
assets of the Fund will increase or that the other benefits referred to above
will be realized.
CLASS A DISTRIBUTION PLAN: The Class A Distribution Plan provides that the Fund
will pay FSI up to (but not necessarily all of) an aggregate of 0.35% of the
average daily net assets attributable to the Class A shares annually in order
that FSI may pay expenses on behalf of the Fund related to the distribution and
servicing of its Class A shares. The expenses to be paid by FSI on behalf of the
Fund may include a service fee to securities dealers which enter into a sales
agreement with FSI of up to 0.25% of the portion of the Fund's average daily net
assets attributable to the Class A shares owned by investors for whom that
securities dealer is the holder or dealer of record. Currently, the service fee
has been set at 0.15% per annum. The service fee may be increased without notice
to shareholders. These payments are partial consideration for personal services
and/or account maintenance performed by such dealers 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. FSI may also retain a distribution fee of
0.10% 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 as to Class A shares under the Distribution
Agreement with the Fund. FSI, however, is currently not imposing this 0.10%
distribution fee and will not accept future payments of this fee unless it first
obtains approval of the Board of Trustees. Any remaining funds may be used to
pay for other distribution related expenses as described in the Prospectus.
Service fees may be reduced for a securities dealer that is the holder or dealer
of record for an investor who owns shares of the Fund having a net asset value
at or above a certain dollar level. No service fee will be paid (i) to any
securities dealer who is the holder or dealer of record for investors who own
Class A shares having an aggregate net asset value less than $750,000, or such
other amounts as may be determined from time to time by FSI (FSI, however, may
waive this minimum amount requirement from time to time if the dealer satisfies
certain criteria), or (ii) to any insurance company which has entered into an
agreement with the Fund and FSI that permits such insurance company to purchase
shares from the Fund at their net asset value in connection with annuity
agreements issued in connection with the insurance company's separate accounts.
Dealers may from time to time be required to meet certain other criteria in
order to receive service fees. 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 will FSI will receive
agency transaction and service fees that are the same as commissions and service
fees to dealers.
During the fiscal year ended April 30, 1994 the Fund incurred expenses of
$134,624 (equal to 0.15% of its average daily net assets attributable to Class A
shares) relating to the distribution and servicing of its Class A shares, of
which securities dealers of the Fund and certain banks and other financial
institutions received $110,039 (0.12% of its average daily net assets
attributable to Class A shares) and FSI retained $24,585 (0.03% of its average
daily net assets attributable to Class A shares).
CLASS B DISTRIBUTION PLAN: The Class B Distribution Plan provides that the Fund
will pay FSI, as the Fund's distributor for its Class B shares, a daily
distribution fee equal on an annual basis to 0.75% of the Fund's average daily
net assets attributable to Class B shares and will pay 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
average daily net assets attributable to Class B shares owned by investors for
whom that securities dealer is the holder or dealer of record). Except in the
case of the first year service fee, the service fee is reduced to 0.15% of the
Fund's average daily net assets attributable to Class B shares that are owned by
investors for whom that securities dealer is the holder or dealer of record.
This reduction may be amended or terminated without notice to shareholders. The
first year service fee will be paid as noted below. 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. FSI
will advance to dealers the first-year service fee at a rate equal to 0.25% of
the amount invested. As compensation therefor, FSI may retain the service fee
paid by the Fund with respect to such shares for the first year after purchase.
Dealers will become eligible for additional service fees with respect to such
shares commencing in the thirteenth month following purchase. Except in the case
of the first year service fee, no service fee will be paid to any securities
dealer who is the holder or dealer of record for investors who own Class B
shares having an aggregate net asset value of less than $750,000 or such other
amount as may be determined from time to time by FSI. FSI, however, may waive
this minimum amount requirement from time to time if the dealer satisfies
certain criteria. Dealers may from time to time be required to meet certain
other criteria in order to receive service fees. FSI or its affiliates are
entitled to retain all service fees payable under the Class B Distribution Plan
for which there is no dealer of record or for which qualification standards have
not been met as partial consideration for personal services and/or account
maintenance services performed by FSI or its affiliates for shareholder
accounts.
The purpose of distribution payments to FSI under the Class B Distribution Plan
is to compensate FSI for its distribution services to the Fund. FSI pays
commissions to dealers as well as expenses of printing prospectuses and reports
used for sales purposes, expenses with respect to the preparation and printing
of sales literature and other distribution related expenses, including, without
limitation, the cost necessary to provide distribution- related services, of
personnel, travel, office expenses and equipment. The Class B Distribution Plan
also provides that FSI will receive all CDSCs relating to Class B shares (see
"Distribution Plans" and "Purchases" in the Prospectus).
During the fiscal year ended April 30, 1994, the Fund incurred expenses of
$43,777 (equal to 1.00% of its average daily net assets attributable to Class B
shares) relating to the distribution and servicing of its Class B shares, of
which FSI received $32,833 (0.75% of its average daily net assets attributable
to Class B shares) and securities dealers of the Fund and certain banks and
other financial institutions received $10,944 (0.25% of its average daily net
assets attributable to Class B shares).
CLASS C DISTRIBUTION PLAN: The Distribution Plan relating to Class C shares (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 annually pay FSI a service fee of up to 0.25% per
annum of the Fund's average daily net assets attibutable to Class C 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 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 by the dealer 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 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 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. 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
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.
GENERAL: Each of the Distribution Plans will remain in effect until August 1,
1995, and will continue in effect thereafter only if such continuance is
specifically approved at least annually by vote of both the Trustees and a
majority of the Trustees who are not "interested persons" or financially
interested parties to such Plan ("Distribution Plan Qualified Trustees"). Each
of the Distribution Plans also requires that the Fund and FSI each shall provide
to the Trustees, and the Trustees shall review, at least quarterly, a written
report of the amounts expended (and purposes therefor) under such Plan. Each of
the Distribution Plans may be terminated at any time by vote of a majority of
the Distribution Plan Qualified Trustees or by vote of the holders of a majority
of the respective class of the Fund's shares (as defined in "Investment
Restrictions"). All agreements relating to any of the Distribution Plans entered
into between the Fund or FSI and other organizations must be approved by the
Board of Trustees, including a majority of the Distribution Plan Qualified
Trustees. Agreements under any of the Distribution Plans must be in writing,
will be terminated automatically if assigned, and may be terminated at any time
without payment of any penalty, by vote of a majority of the Distribution Plan
Qualified Trustees or by vote of the holders of a majority of the respective
class of the Fund's shares. None of the Distribution Plans may be amended to
increase materially the amount of permitted distribution expenses without the
approval of a majority of the respective class of the Fund's shares (as defined
in "Investment Restrictions") or may be materially amended in any case without a
vote of the Trustees and a majority of the Distribution Plan Qualified Trustees.
The selection and nomination of Distribution Plan Qualified Trustees shall be
committed to the discretion of the non-interested Trustees then in office. No
Trustee who is not an "interested person" has any financial interest in any of
the Distribution Plans or in any related agreement.
9. DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Trust's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional Shares of Beneficial Interest (without par value)
of one or more separate series and to divide or combine the shares into a
greater or lesser number of shares without thereby changing the proportionate
beneficial interests in that series. The Trustees have currently authorized
shares of the Fund and two other series. The Declaration of Trust further
authorizes the Trustees to classify or reclassify the shares of the Fund into
one or more classes. Pursuant thereto, the Trustees have authorized the issuance
of three classes of shares of the Trust's three series, Class A shares, Class B
shares and Class C shares. Each share of a class of the Fund represents an equal
proportionate interest in the assets of the Fund allocable to that class. Upon
liquidation of the Fund, the shareholders of each class of the Fund are entitled
to share pro rata in the net assets of the Fund allocable to such class
available for distribution to shareholders. The Trust reserves the right to
create and issue additional series or classes of shares, in which case the
shares of each class would participate equally in the earnings, dividends and
assets allocable to that class of the particular series.
Shareholders are entitled to one vote for each share held and may vote in the
election of Trustees and on other matters submitted to meetings of shareholders.
Although Trustees are not elected annually by the shareholders, shareholders
have under certain circumstances the right to remove one or more Trustees in
accordance with the provisions of Section 16(c) of the 1940 Act. No material
amendment may be made to the Declaration of Trust without the affirmative vote
of the holders of a majority of the Trust's shares. Shares have no pre-emptive
or conversion rights (except as described in "Purchases -- Conversion of Class B
Shares" in the Prospectus). Shares are fully paid and non-assessable. The Trust
may enter into a merger or consolidation, or sell or substantially all of its
assets (or all or substantially all of the assets belonging to any series of the
Trust), if approved by the vote of the holders of two-thirds of the Trust's
outstanding shares voting as a single class, or of the affected series of the
Trust, as the case may be, except that if the Trustees of the Trust recommend
such merger, consolidation or sale, the approval by vote of the holders of a
majority of the Trust's or the affected series' outstanding shares (as defined
in "Investment Restrictions") will be sufficient. The Trust or any series of the
Trust may also be terminated (i) upon liquidation and distribution of its
assets, if approved by the vote of the holders of two-thirds of its outstanding
shares, or (ii) by the Trustees by written notice to the shareholders of the
Trust or the affected series. If not so terminated, the Trust will continue
indefinitely.
The Trust is an entity of the type commonly known as a "Massachusetts business
trust". Under Massachusetts law, shareholders of such a trust may, under certain
circumstances, be held personally liable as partners for its obligations.
However, the Declaration of Trust contains an express disclaimer of shareholder
liability for acts or obligations of the Trust and provides for indemnification
and reimbursement of expenses out of the Trust property for any shareholder held
personally liable for the obligations of the Trust. The Declaration of Trust
also provides that it shall maintain appropriate insurance (for example,
fidelity bonding and errors and omissions insurance) for the protection of the
Trust, its shareholders, Trustees, officers, employees and agents covering
possible tort and other liabilities. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is limited to circumstances
in which both inadequate insurance existed and the Trust itself was unable to
meet its obligations.
The Declaration of Trust further provides that obligations of the Trust are not
binding upon the Trustees individually but only upon the property of the Trust
and that the Trustees will not be liable for any action or failure to act, but
nothing in the Declaration of Trust protects a Trustee against any liability to
which he would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involved in the conduct of
his office.
10. INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS
Deloitte & Touche are the Trust's independent certified public accountants,
providing audit services and tax return preparation.
The Portfolio of Investments at April 30, 1994, the Statement of Assets and
Liabilities at April 30, 1994, the Statement of Operations for the year then
ended, the Statement of Changes in Net Assets for the two years ended April 30,
1994, and the Financial Highlights for the two years ended April 30, 1994 and
the period from the start of business February 26, 1992 to April 30, 1992, the
Notes to Financial Statements and the Independent Auditors' Report, each of
which is included in the Annual Report to shareholders of the Fund, are
incorporated by reference into this Statement of Additional Information and have
been so incorporated in reliance upon the report of Deloitte & Touche,
independent certified public accountants, as experts in accounting and auditing.
A copy of the Annual Report accompanies this Statement of Additional
Information.
<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)
LIMITED
MATURITY FUND
500 BOYLSTON STREET
BOSTON, MA 02116
MLM-13-7/94/.5M 36/236
