<PAGE>
MFS(R) INTERMEDIATE INCOME FUND
PROXY INFORMATION
The enclosed proxy statement discusses important issues affecting your
investment in the MFS Intermediate Income Fund. To make voting faster and more
convenient for you, we're offering the options of voting on the internet, by
fax, or by telephone instead of completing and mailing the enclosed proxy card.
All three methods are generally available 24 hours a day. If you vote via the
internet or by telephone, your vote will be confirmed and posted immediately. If
you choose to vote via the internet, by fax, or by phone, do not mail the proxy
card.
However you choose to vote, it is important that you vote to save the expense of
additional solicitations.
WAYS TO VOTE:
TO VOTE ON THE INTERNET
1. Read the proxy statement.
2. Go to www.proxyvote.com [graphic omitted]
or the "Proxy voting" link
on www.mfs.com.
3. Enter the 12-digit control
number on your proxy card.
4. Follow the instructions on the site.
TO VOTE BY FAX
[graphic omitted] 1. Read the proxy statement.
2. Complete and sign the proxy card.
3. Fax the completed proxy card
toll-free to 1-800-733-1885.
TO VOTE BY TELEPHONE
1. Read the proxy statement.
2. Call toll-free 1-800-690-6903. [graphic omitted]
3. Enter the 12-digit control number
on your proxy card.
4. Follow the recorded instructions.
YOUR VOTE IS IMPORTANT TO US, PLEASE VOTE NOW.
Questions:
Shareholder Communications Corporation (SCC), a professional proxy solicitation
firm, has been selected to assist shareholders in the voting process. If we have
not received your proxy card as the date of the meeting approaches, SCC may call
you to remind you to exercise your right to vote. If you have any questions,
please call SCC toll-free at 1-800-645-4519 any business day between 9 a.m.
and 11 p.m. Eastern time.
<PAGE>
[logo] M F S (R)
INVESTMENT MANAGEMENT
We invented the mutual fund(R)
500 Boylston Street
Boston, MA 02116-3741
(C)2000 MFS Investment Management(R).
MFS(R) investment products are offered through MFS Fund Distributors, Inc.,
500 Boylston Street, Boston, MA 02116. MII-14R-3/00 9.5M
<PAGE>
MFS(R) INTERMEDIATE INCOME FUND PROXY INFORMATION
The enclosed proxy statement discusses important issues affecting your
investment in the MFS Intermediate Income Fund. To make voting faster and more
convenient for you, we're offering the options of voting on the internet or by
telephone instead of completing and mailing the enclosed proxy card. Either
method is generally available 24 hours a day, and your vote will be confirmed
and posted immediately. If you choose to vote via the internet or by phone, do
not mail the proxy card.
However you choose to vote, it is important that you vote to save the expense of
additional solicitations.
WAYS TO VOTE:
TO VOTE ON THE INTERNET
1. Read the proxy statement.
2. Go to www.proxyvote.com [graphic omitted]
or the "Proxy voting" link
on www.mfs.com.
3. Enter the 12-digit control
number on your proxy card.
4. Follow the instructions on the site.
TO VOTE BY TELEPHONE
1. Read the proxy statement.
[graphic omitted] 2. Call toll-free 1-800-690-6903.
3. Enter the 12-digit control number
on your proxy card.
4. Follow the recorded instructions.
YOUR VOTE IS IMPORTANT TO US, PLEASE VOTE NOW.
QUESTIONS:
Shareholder Communications Corporation (SCC), a professional proxy solicitation
firm, has been selected to assist shareholders in the voting process. If we have
not received your proxy card as the date of the meeting approaches, SCC may call
you to remind you to exercise your right to vote. If you have any questions,
please call SCC toll-free at 1-800-645-4519 any business day between 9 a.m.
and 11 p.m. Eastern time.
<PAGE>
[logo] M F S (R)
INVESTMENT MANAGEMENT
We invented the mutual fund(R)
500 Boylston Street
Boston, MA 02116-3741
(C)2000 MFS Investment Management(R).
MFS(R) investment products are offered through MFS Fund Distributors, Inc.,
500 Boylston Street, Boston, MA 02116. MII-14S-3/00 4.5M
<PAGE>
[Logo] M F S
INVESTMENT MANAGEMENT
MFS INVESTMENT MANAGEMENT
500 Boylston Street, Boston, Massachusetts 02116-3741
617 954 5000
March 31, 2000
Dear Shareholder:
I am writing to ask for your vote on an important matter that will affect
your investment in MFS(R) Intermediate Income Fund (the "Intermediate Income
Fund"). While you are, of course, welcome to join us at the Intermediate
Income Fund's meeting, most shareholders cast their vote by filling out and
signing the enclosed proxy card or by voting by telephone or over the
internet.
You may be aware that MFS offers a wide array of funds designed to meet
the investment needs of investors. MFS offers a fund which is very similar to
the Intermediate Income Fund called MFS(R) Limited Maturity Fund (the "Limited
Maturity Fund"). The Limited Maturity Fund seeks as high a level of current
income as is believed to be consistent with prudent investment risk. Its
secondary objective is to protect shareholders' capital. In addition to having
a similar investment objective the Limited Maturity Fund has lower operating
expenses and is approximately twice as large as the Intermediate Income Fund.
After careful consideration, the Intermediate Income Fund's Trustees have
unanimously agreed that a tax free reorganization of the Intermediate Income
Fund into the Limited Maturity Fund will offer you a similar investment
objective and strategy with lower operating expenses. For this reason, your
Trustees recommend that you vote FOR the proposed transaction, by signing and
returning the enclosed proxy card or by following the instructions on the
proxy card to vote via telephone or over the internet. This proposed
reorganization is detailed in the enclosed Prospectus/Proxy Statement. For
your convenience, a summary of the transaction in question and answer format
is included in the beginning of the Prospectus/Proxy Statement. I suggest you
read both thoroughly before voting.
YOUR VOTE MAKES A DIFFERENCE
No matter what size your investment may be, your vote is critical. I urge
you to review the enclosed materials and to complete, sign and return the
enclosed proxy ballot to us immediately. Your prompt response will help avoid
the need for additional mailings at the Intermediate Income Fund's expense.
For your convenience, we have provided a postage-paid envelope.
If you have any questions or need additional information, please contact
your investment professional or call your Customer Service Representative at
1-800-225-2606, Monday through Friday between 8:00 A.M. and 8:00 P.M. Eastern
Time. I thank you for your prompt vote on this matter.
Sincerely,
/s/ Jeffrey L. Shames
Jeffrey L. Shames
Chairman and President
We invented the mutual fund(R)
<PAGE>
MFS INTERMEDIATE INCOME FUND
A SERIES OF MFS SERIES TRUST II
500 BOYLSTON STREET, BOSTON, MASSACHUSETTS 02116
NOTICE OF A SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 18, 2000
A Special Meeting of Shareholders of MFS Intermediate Income Fund, a series of
MFS Series Trust II, a Massachusetts business trust, will be held at the
offices of the Fund, 500 Boylston Street, 24th Floor, Boston, Massachusetts,
on Thursday, May 18, 2000, at 10 a.m. for the following purposes:
ITEM 1. To consider and act upon a proposal to approve an Agreement and
Plan of Reorganization (the "Agreement") between MFS Series Trust
II, a Massachusetts business trust, on behalf of MFS Intermediate
Income Fund, a series of MFS Series Trust II (the "Intermediate
Income Fund"), and MFS Series Trust IX, on behalf of MFS Limited
Maturity Fund (the "Limited Maturity Fund"), providing for the
transfer of all of the assets of the Intermediate Income Fund to
the Limited Maturity Fund in exchange solely for shares of
beneficial interest of the Limited Maturity Fund and the
assumption by the Limited Maturity Fund of the stated liabilities
of the Intermediate Income Fund, the distribution of the Limited
Maturity Fund shares to the shareholders of the Intermediate
Income Fund in liquidation of the Intermediate Income Fund and the
termination of the Intermediate Income Fund.
ITEM 2. To transact such other business as may properly come before the
meeting and any adjournments thereof.
YOUR TRUSTEES UNANIMOUSLY RECOMMEND THAT YOU
VOTE IN FAVOR OF ITEM 1.
Only shareholders of record on March 24, 2000 will be entitled to vote at the
Meeting.
By order of the Board of Trustees,
Stephen E. Cavan, Secretary
March 31, 2000
YOUR VOTE IS IMPORTANT. WE WOULD APPRECIATE YOUR PROMPTLY VOTING,
SIGNING AND RETURNING THE ENCLOSED PROXY, WHICH WILL HELP IN AVOIDING THE
ADDITIONAL EXPENSE OF A SECOND SOLICITATION. THE ENCLOSED ADDRESSED ENVELOPE
REQUIRES NO POSTAGE AND IS INTENDED FOR YOUR CONVENIENCE.
<PAGE>
PROSPECTUS/PROXY STATEMENT
MARCH 31, 2000
ACQUISITION OF THE ASSETS OF
MFS INTERMEDIATE INCOME FUND
A SERIES OF MFS TRUST II
500 BOYLSTON STREET
BOSTON, MASSACHUSETTS 02116
(617) 954-5000
BY AND IN EXCHANGE FOR SHARES OF
MFS LIMITED MATURITY FUND
A SERIES OF MFS TRUST IX
500 BOYLSTON STREET
BOSTON, MASSACHUSETTS 02116
(617) 954-5000
* * * * *
This document will give you the information you need to vote on the proposed
reorganization. Much of the information is required under rules of the
Securities and Exchange Commission (the "SEC"); some is technical. If there is
anything you don't understand, please contact us at our toll-free number,
1-800-225-2606, or call your financial advisor.
This Prospectus/Proxy Statement relates to the proposed reorganization of
MFS Intermediate Income Fund (the "Intermediate Income Fund") into MFS Limited
Maturity Fund (the "Limited Maturity Fund"). As a result of the proposed
transaction, each Class A, Class B and Class I shareholder of the Intermediate
Income Fund will receive a number of full and fractional Class A, Class B and
Class I shares, respectively, of the Limited Maturity Fund equal in value at
the date of the exchange to the total value of the shareholder's Intermediate
Income Fund shares. Like the Intermediate Income Fund, the Limited Maturity
Fund is in the family of funds managed by Massachusetts Financial Services
Company ("MFS") and is a registered open-end management investment company
(mutual fund). The Limited Maturity Fund and the Intermediate Income Fund are
collectively referred to herein as the "Funds," and each is referred to
individually as a "Fund."
This Prospectus/Proxy Statement explains concisely what you should know
before voting on the proposed reorganization or investing in the Limited
Maturity Fund. Please read it and keep it for future reference. This
Prospectus/Proxy Statement is accompanied by (i) the Prospectus, dated
September 1, 1999, of the Limited Maturity Fund (the "Limited Maturity Fund
Prospectus") and (ii) the Report of Independent Accountants and financial
statements included in the Limited Maturity Fund's Annual Report to
Shareholders for the fiscal year ended April 30, 1999. The Limited Maturity
Fund Prospectus and the Limited Maturity Fund's Annual Report are incorporated
into this Prospectus/Proxy Statement by reference.
The following documents have been filed with the Securities and Exchange
Commission and are also incorporated into this Prospectus/Proxy Statement by
reference:
(i) the Prospectus, dated April 1, 1999, of the Intermediate Income
Fund;
(ii) the Statement of Additional Information of the Intermediate
Income Fund, dated April 1, 1999;
(iii) the Statement of Additional Information of the Limited Maturity
Fund, dated September 1, 1999 as amended September 22, 1999;
(iv) the Report of Independent Accountants and financial statements
included in the Intermediate Income Fund's Annual Report to Shareholders
for the fiscal year ended November 30, 1999;
(v) the Limited Maturity Fund's Semiannual Report to Shareholders for
the six month period ended October 31, 1999.
(vi) a Statement of Additional Information, dated March 31, 2000,
relating to the proposed reorganization.
For a Free Copy of Any of the Above, Please Contact Us at our Toll-Free
Number (1-800-225-2606).
Proxy materials, registration statements and other information filed by
the Funds can be inspected and copied at the Public Reference Room maintained
by the Securities and Exchange Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Copies of such material can also be obtained from the
Public Reference Branch, Office of Consumer Affairs and Information Services,
Securities and Exchange Commission, Washington, D.C. 20549 at prescribed
rates. You may also access reports and other information about the Funds on
the Commission's Internet site at http://www.sec.gov.
The securities offered by the accompanying Prospectus/Proxy Statement 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
such Prospectus/Proxy Statement. Any representation to the contrary is a
criminal offense.
* * * * *
TABLE OF CONTENTS
PAGE
Synopsis ................................................................ 3
Risk Factors ............................................................ 11
General ................................................................. 13
Proposal Regarding Approval or Disapproval of Reorganization and
Related Agreement and Plan of Reorganization .......................... 14
Background and Reasons for the Proposed Reorganization .................. 15
Information about the Reorganization .................................... 16
Voting Information ...................................................... 20
Agreement and Plan of Reorganization .................................... A-1
Enclosures
Prospectus of the MFS Limited Maturity Fund, dated September 1, 1999
Annual Report of the MFS Limited Maturity Fund, dated April 30, 1999
<PAGE>
SYNOPSIS
The responses to the questions that follow provide an overview of key
points typically of concern to shareholders considering a proposed
reorganization between funds. These responses are qualified in their entirety
by the remainder of the Prospectus/Proxy Statement, which contains additional
information and further details regarding the proposed reorganization.
1. WHAT IS BEING PROPOSED?
The Trustees of the Funds are recommending that shareholders of the
Intermediate Income Fund approve the reorganization of the Intermediate Income
Fund into the Limited Maturity Fund. If approved by shareholders, all of the
assets of the Intermediate Income Fund will be transferred to the Limited
Maturity Fund in exchange for shares of the Limited Maturity Fund with a value
equal to those assets net of liabilities and for the assumption by the Limited
Maturity Fund of all of the stated liabilities of the Intermediate Income
Fund. Immediately following the transfer, the Limited Maturity Fund shares
received by the Intermediate Income Fund will be distributed to its
shareholders, pro rata.
2. WHAT WILL HAPPEN TO MY SHARES OF THE INTERMEDIATE INCOME FUND AS A RESULT
OF THE REORGANIZATION?
Your shares of the Intermediate Income Fund will, in effect, be exchanged
on a tax-free basis for shares of the Limited Maturity Fund with an equal
total net asset value.
3. WHY ARE THE TRUSTEES PROPOSING THIS REORGANIZATION?
As discussed in more detail below, the two Funds are similar in investment
strategy and policy. The Trustees believe that combining the two similar Funds
should result in lower expenses for fund shareholders without changing in any
significant way the essential investment profile of the Funds. The Trustees
also believe that the Limited Maturity Fund provides shareholders with the
opportunity to invest in a fund with an investment objective substantially
similar to that of the Intermediate Income Fund but with less expense,
volatility and risk. In addition, the Limited Maturity Fund has grown in size
in recent years while the Intermediate Income Fund has diminished in size.
Therefore, the reorganization gives you the opportunity to become shareholders
in a larger and growing fund.
4. WHAT ARE THE BENEFITS OF MERGING INTERMEDIATE INCOME FUND INTO THE LIMITED
MATURITY FUND?
The Limited Maturity Fund is more widely recognized in the mutual fund
marketplace than your Fund, which has made it harder for your Fund to raise
assets and reduce expenses. Your trustees believe this reorganization will
allow you to continue investing for a high level of current income at a lower
expense and with less volatility.
The Limited Maturity Fund's asset base after the reorganization is
projected to be $316 million. This is significantly larger than Intermediate
Income Fund's pre-reorganization asset base of $111 million and should result
in economies of scale leading to lower operating expenses than are incurred by
your fund. Following the reorganization, annual expense ratios are projected
to be 0.80% for Class A shareholders, down from 0.92% (after waivers), 1.62%
down from 1.92% (after waivers) for Class B shareholders and 0.65% down from
0.92% (after waivers) for Class I shareholders. Expected lower expenses should
help keep more of your money invested, which often helps bolster an
investment's total return over time.
5. HOW DO THE INVESTMENT GOALS, POLICIES AND RESTRICTIONS OF THE TWO FUNDS
COMPARE?
The investment goals and policies of the two funds are similar. Each is an
income oriented fund investing primarily in foreign and domestic corporate
bonds, mortgage-backed and asset-backed securities and U.S. government and
agency securities. The Intermediate Income Fund seeks to preserve capital and
provide high current income. The Limited Maturity Fund seeks to provide as
high a level of current income as is believed to be consistent with prudent
investment risk. Protection of shareholders' capital is its secondary
objective.
Both Funds seek their objectives by investing, under normal market
conditions, at least 65% of their assets in corporate bonds of U.S. and
foreign issuers, mortgage-backed and asset-backed securities and U.S.
government securities, which are debt securities issued or guaranteed by the
U.S. government, by certain of its agencies, or by various instrumentalities
established or sponsored by the U.S. government. In addition to these
categories of investments the Intermediate Income Fund also invests in foreign
government securities to meet this 65% requirement.
The Intermediate Income Fund has broader flexibility than the Limited
Maturity Fund. It can invest up to 10% of its total assets in securities rated
below investment grade (i.e., "junk bonds") and may invest in non-dollar
denominated foreign securities. The Intermediate Income Fund can also invest
in a wider variety of derivatives. In addition, the Limited Maturity Fund is a
diversified fund, whereas the Intermediate Income Fund is a non-diversified
fund. This means that the Intermediate Income Fund can concentrate its assets
in a small number of issuers. Because of these differences, approximately 8%
of the Intermediate Income Fund's portfolio investments are not permitted
under the Limited Maturity Fund's investment restrictions. These securities
will be liquidated prior to the completion of the reorganization and may cause
the Intermediate Income Fund to incur additional brokerage or tax costs.
The Limited Maturity Fund invests in securities with remaining maturities of
5 years or less, while the Intermediate Income Fund invests in securities with
remaining maturities of 10 years or less. The Intermediate Income Fund's current
average portfolio maturity is approximately 3.0 years as compared to
approximately 1.8 years for the Limited Maturity Fund. Fixed income securities
with shorter maturities are generally less volatile and provide lower returns
than fixed income securities with longer maturities. While the Limited Maturity
Fund's investment strategy is more conservative, management believes that the
shorter average maturity allows it more flexibility to react to market changes
while still achieving a high level of current income.
In addition to the Funds' principal investment strategies referred to
above, the Funds may engage in a number of other investment techniques and
practices. The table below summarizes both the principal and non-principal
investment techniques and practices which the Funds can employ. The risks
associated with the principal investment techniques and practices of the
Limited Maturity Fund are described below. Both principal and non-principal
investment techniques and practices are described, together with their risks,
in each Fund's Statement of Additional Information.
<TABLE>
INVESTMENT TECHNIQUES/PRACTICES
<CAPTION>
SYMBOLS x PERMITTED -- NOT PERMITTED
- ------------------------------------------------------------------------------------------------------------------------
LIMITED INTERMEDIATE
MATURITY FUND INCOME FUND
------------- -----------
<S> <C> <C>
Debt Securities
Asset-Backed Securities
Collateralized Mortgage Obligations and Multiclass
Pass-Through Securities ................................................... x x
Corporate Asset-Backed Securities ........................................... x x
Mortgage Pass-Through Securities ............................................ x x
Stripped Mortgage-Backed Securities ......................................... x x
Corporate Securities .......................................................... x x
Loans and Other Direct Indebtedness ........................................... -- x
Lower Rated Bonds ............................................................. -- x
Municipal Bonds ............................................................... -- --
Speculative Bonds ............................................................. x x
U.S. Government Securities .................................................... x x
Variable and Floating Rate Obligations ........................................ x x
Zero Coupon Bonds, Deferred Interest Bonds and PIK Bonds ...................... x x
Equity Securities ............................................................... -- --
Foreign Securities Exposure
Brady Bonds ................................................................... x x
Depositary Receipts ........................................................... -- --
Dollar-Denominated Foreign Debt Securities .................................... x x
Emerging Markets .............................................................. x x
Foreign Securities ............................................................ -- x
Forward Contracts ............................................................... -- x
Futures Contracts ............................................................... x x
Indexed Securities/Structured Products .......................................... x x
Inverse Floating Rate Obligations ............................................... -- x
Investment in Other Investment Companies
Open-End Funds ................................................................ x x
Closed-End Funds .............................................................. x x
Lending of Portfolio Securities ................................................. x x
Leveraging Transactions
Bank Borrowings ............................................................... --* --*
Mortgage "Dollar-Roll" Transactions ........................................... --* --*
Reverse Repurchase Agreements ................................................. --* --*
Options
Options on Foreign Currencies ................................................. -- x
Options on Futures Contracts .................................................. x x
Options on Securities ......................................................... x x
Options on Stock Indices ...................................................... -- x
Reset Options ................................................................. -- x
"Yield Curve" Options ......................................................... -- x
Repurchase Agreements ........................................................... x x
Restricted Securities ........................................................... x x
Short Sales ..................................................................... --* --*
Short Sales Against the Box ..................................................... -- --
Short Term Instruments .......................................................... x x
Swaps and Related Derivative Instruments ........................................ x x
Temporary Borrowings ............................................................ x x
Temporary Defensive Positions ................................................... x x
Warrants ........................................................................ -- --
"When-Issued" Securities ........................................................ x x
- ------------
*May only be changed with shareholder approval.
</TABLE>
<PAGE>
6. HOW DO THE MANAGEMENT FEES AND OTHER EXPENSES OF THE TWO FUNDS COMPARE, AND
WHAT ARE THEY ESTIMATED TO BE FOLLOWING THE REORGANIZATION?
As shown in the Annual Fund Operating Expense table below, in each Fund's
most recent fiscal year the Limited Maturity Fund paid a management fee that
is and, after giving effect to the reorganization will remain, 27% lower on a
per share basis than that of the Intermediate Income Fund. Also as shown in
the table, the Limited Maturity Fund's "other expenses" were 32% lower on a
per share basis than those of the Intermediate Income Fund in each Fund's last
fiscal year. The pro forma post-reorganization total operating expenses of the
Limited Maturity Fund are also lower than those of the Intermediate Income
Fund on a per share basis.
The sales charges are the same for both Funds, except that the Limited
Maturity Fund charges a lower initial sales charge for purchases of Class A
shares. However, no initial sales charge will be charged to shareholders in
connection with the reorganization of the Funds. In addition, the maximum
amounts payable under the distribution plans, adopted pursuant to Rule 12b-1
under the Investment Company Act of 1940, are the same for both Funds.
However, as indicated in the tables below, MFS is currently waiving or
reducing some of these expenses for the Funds.
The following tables summarize the maximum fees and expenses you may pay
when investing in the Funds, expenses that each of the Funds incurred in the
12 months ending October 31, 1999 and estimated expenses that MFS expects the
combined Fund to incur in the first year following the reorganization.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS I
SHARES SHARES SHARES SHARES
------- ------- ------- -------
<S> <C> <C> <C> <C>
Fees (fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on
Purchases (as a percentage of offering price)
Intermediate Income Fund ............................ 4.75% None* N/A None
Limited Maturity Fund ............................... 2.50%+ None* None* None
Maximum Deferred Sales Charge (Load) (as a
percentage of the original purchase price or
redemption proceeds, whichever is lower)
Intermediate Income Fund ............................ None** 4.00%*** N/A None
Limited Maturity Fund ............................... None** 4.00%*** 1.00% None
- ----------
* Higher 12b-1 fees borne by Class B and Class C shares may cause long-term Class B and Class C
shareholders to pay more than the total sales charges paid by class A shareholders.
** A deferred sales charge of up to 1.00% is assessed on certain redemptions of Class A shares that
were purchased without an initial sales charge as part of an investment of $1 million or more.
*** 4.0% in the first year, declining to 1.0% in the sixth year, and eliminated thereafter.
+ No sales charge would be paid on shares of the Limited Maturity Fund issued in connection with this
proposed reorganization.
</TABLE>
<PAGE>
<TABLE>
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
<CAPTION>
FEE WAIVER
AND/OR
MANAGEMENT DISTRIBUTION OTHER TOTAL ANNUAL FUND EXPENSE NET
FEES (12B-1) FEES EXPENSES OPERATING EXPENSES REIMBURSEMENT EXPENSES
---------- ------------ -------- ------------------ ------------- --------
<S> <C> <C> <C> <C> <C> <C>
INTERMEDIATE INCOME FUND
Class A ...... 0.70% 0.25% 0.37% 1.32% -0.40% 0.92%
Class B ...... 0.70% 1.00% 0.37% 2.07% -0.15% 1.92%
Class I ...... 0.70% 0.00% 0.37% 1.07% -0.15% 0.92%
LIMITED MATURITY FUND
Class A ...... 0.40% 0.15% 0.32% 0.87% 0.00% 0.87%
Class B ...... 0.40% 0.93% 0.32% 1.65% 0.00% 1.65%
Class C ...... 0.40% 1.00% 0.32% 1.72% 0.00% 1.72%
Class I ...... 0.40% 0.00% 0.32% 0.72% 0.00% 0.72%
LIMITED MATURITY FUND
(PRO FORMA COMBINED)
Class A ...... 0.40% 0.15% 0.25% 0.80% 0.00% 0.80%
Class B ...... 0.40% 0.97% 0.25% 1.62% 0.00% 1.62%
Class C ...... 0.40% 1.00% 0.25% 1.65% 0.00% 1.65%
Class I ...... 0.40% 0.00% 0.25% 0.65% 0.00% 0.65%
</TABLE>
The tables are provided to help you understand the expenses of investing in the
Funds and your share of the operating expenses that each Fund incurs and that
MFS expects the Limited Maturity Fund to incur in the first year following the
reorganization. The expenses shown in the table do not reflect the application
of credits related to expense offset arrangements that reduce certain Fund
expenses.
<PAGE>
EXAMPLES
These examples translate the expense percentages shown in the preceding
table into dollar amounts. By doing this, you can more easily compare the cost
of investing in the Funds. The examples make certain assumptions. They assume
that you invest $10,000 in a Fund for the time periods shown and then, except as
shown for Class B and Class C shares, redeem all your shares at the end of these
periods. They also assume a 5% return on your investment each year and that a
Fund's operating expenses remain the same, except that a Fund's total operating
expenses are assumed to be the Fund's "Net Expenses" for the first year and the
Fund's "Total Annual Fund Operating Expenses" for subsequent years (see the
table above). The examples are hypothetical; your actual costs and returns may
be higher or lower.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
INTERMEDIATE INCOME FUND
Class A ................................................ $564 $836 $1,128 $1,956
Class B+ ............................................... $595 $934 $1,300 $2,196*
Class B+ (no redemption) ............................... $195 $634 $1,100 $2,196*
Class I ................................................ $ 94 $325 $ 576 $1,292
LIMITED MATURITY FUND
Class A ................................................ $337 $521 $ 720 $1,296
Class B ................................................ $568 $820 $1,097 $1,746*
Class B (no redemption) ................................ $168 $520 $ 897 $1,746*
Class C ................................................ $275 $542 $ 933 $2,030
Class C (no redemption) ................................ $175 $542 $ 933 $2,030
Class I ................................................ $ 74 $230 $ 401 $ 894
LIMITED MATURITY FUND
(PRO FORMA COMBINED)
Class A ................................................ $330 $499 $ 683 $1,215
Class B ................................................ $565 $811 $1,081 $1,702*
Class B (no redemption) ................................ $165 $511 $ 881 $1,702*
Class C ................................................ $268 $520 $ 897 $1,955
Class C (no redemption) ................................ $168 $520 $ 897 $1,955
Class I ................................................ $ 66 $208 $ 362 $ 810
* Reflects conversion of Class B shares to Class A shares (which pay lower ongoing expenses)
approximately eight years after purchase.
+ For purposes of determining the contingent deferred sales charge ("CDSC") applicable to Class B
Reorganization Shares, such shares will be treated as having been acquired as of the dates the
corresponding Class B shares of the Intermediate Income Fund were originally acquired. See
"Information about the Reorganization - Description of the Reorganization Shares."
</TABLE>
<PAGE>
7. HOW HAS THE LIMITED MATURITY FUND PERFORMED?
Although past performance does not necessarily guarantee future results,
the Limited Maturity Fund has been a steady performer over the years. As of
October 31, 1999, the Fund's Class A shares have posted average annual total
returns (at net asset value) of 3.13% over the past year, 4.59% over the past
three years, 5.80% over the past five years and 5.51% for the life of the
Fund.** As of October 31, 1999, the Fund's Class B shares have posted average
annual total returns of 2.49% over the past year, 3.73% over the past three
years, 4.95% over the past five years and 4.81% for the life of the Fund. As
of October 31, 1999, the Fund's Class I shares have posted an average annual
total return of 3.29% over the past year, 4.64% over the past three years,
5.84% over the past five years and 5.54% for the life of the Fund. The yield
for Limited Maturity Fund shares for the 30-day period ended October 31, 1999
was 5.05% for Class A shares, 4.38% for Class B shares, 4.35% for Class C
shares and 5.33% for Class I shares. Set forth below is total return
information for the Class A shares of the two Funds for the one year periods
ending on the dates stated:
- ------------
**"Life of the Fund" refers to the period from commencement of the Fund's
investment operations on February 26, 1992 with the offering of Class A
shares through October 31, 1999. Class B shares were first offered on
September 7, 1993, and Class I shares on January 2, 1997. Class B and Class
I share performance includes the performance of the Fund's Class A shares
for periods prior to the offering of Class B and Class I shares. This
blended performance has not been adjusted to take into account differences
in Class specific operating expenses. Because operating expenses of Class B
shares are higher than those of Class A shares, this blended Class B share
performance is higher than Class B share performance would have been had
Class B shares been offered for the entire period. Conversely, because
operating expenses of Class I shares are lower than Class A shares, this
blended Class I share performance is lower than Class I share performance
would have been had Class I shares been offered the entire period.
<TABLE>
AVERAGE ANNUAL TOTAL RETURN (TOTAL INVESTMENT RETURN AT NAV)
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Limited Maturity Fund ........................... 2.94% 5.12% 5.37% 4.89% 11.64%
Intermediate Income Fund ........................ (0.91)% 5.63% 5.95% 4.89% 16.41%
</TABLE>
Of course the Funds' past performance is not an indication of future
performance.
To review the Limited Maturity Fund in more detail, please refer to the
Limited Maturity Fund's prospectus and most recent annual report, both of
which are enclosed.
8. WHAT ARE THE DIFFERENCES IN PORTFOLIO TURNOVER RATES OF THE TWO FUNDS?
Portfolio turnover is a measure of how frequently a fund trades portfolio
securities. Frequent trading of portfolio securities increases transaction
costs, which could detract from a Fund's performance. During its last fiscal
year the Intermediate Income Fund had a portfolio turnover rate of 154% and
the Limited Maturity Fund's portfolio turnover rate was 278%. The high
turnover rate for each of the Funds is due to the short average duration of
each fund's portfolio (3.0 years for the Intermediate Income Fund and 1.8
years for the Limited Maturity Fund). In addition, the Limited Maturity Fund's
portfolio turnover rate during its last fiscal year was also adversely
impacted by Fund investors engaged in market timing activity.
While each Fund's short duration increases its portfolio turnover rate, it
allows the Fund to react more quickly to market changes and has not resulted
in capital gain distributions for either Fund.
9. WHO MANAGES THE LIMITED MATURITY FUND?
James J. Calmas, a Vice President of MFS, manages the Limited Maturity
Fund and is a co-manager of the Intermediate Income Fund with Stephen C.
Bryant, a Senior Vice President of MFS. Mr. Calmas has been employed as a
portfolio manager by MFS since 1988 and has managed the Limited Maturity Fund
since January 1, 1998 and the Intermediate Income Fund since January 15, 1999.
10. HOW DO I VOTE?
Shareholders can vote in any of the following ways:
o by proxy: by completing, signing and returning the enclosed proxy card using
the postage-paid envelope provided; or
o by telephone: by calling the toll-free number listed on your proxy card,
entering the twelve digit control number on your proxy card and following the
recorded instructions; or
o by internet: by going to www.proxyvote.com or clicking on the "Proxy voting"
link on www.mfs.com, entering the 12 digit control number on your proxy card
and following the instructions on the site.
If you prefer to vote in person, you are cordially invited to attend a
meeting of shareholders of your fund, which will be held at 10 a.m. on
Thursday, May 18, 2000 at our 500 Boylston Street headquarters in Boston,
Massachusetts. If you vote now, you will help avoid further solicitations at
your Fund's expense.
11. HOW WILL THE REORGANIZATION HAPPEN?
If the reorganization is approved, your Intermediate Income Fund shares
will be converted to Limited Maturity Fund shares, using the Funds' net asset
value share prices, excluding sales charges, as of the close of trading on May
19, 2000. This conversion will not affect the total dollar value of your
investment.
12. WILL THE REORGANIZATION HAVE TAX CONSEQUENCES?
Although any taxable dividends and capital gains will be paid prior to the
reorganization, the reorganization itself is a non-taxable event and does not
need to be reported on your 2000 tax return.
13. WILL MY DIVIDEND BE AFFECTED BY THE REORGANIZATION?
After the reorganization you will continue to receive distributions of any
net investment income once a month and any net realized capital gains at least
once a year. Except as described below, your distributions will continue to be
either reinvested or paid in cash, according to the option you selected with
the Intermediate Income Fund. Of course, the amount of these distributions
will reflect the investment performance of the Limited Maturity Fund.
The Limited Maturity Fund will not permit any Intermediate Income Fund
shareholder holding certificates for Intermediate Income Fund shares at the
time of the reorganization to receive cash dividends or other distributions,
receive certificates for shares issued in the reorganization (referred to as
"Reorganization Shares"), exchange Reorganization Shares for shares of other
investment companies managed by MFS, or pledge or redeem Reorganization Shares
until such certificates for Intermediate Income Fund shares have been
surrendered, or, in the case of lost certificates, until an adequate surety
bond has been posted.
If a shareholder is not for that reason permitted to receive cash
dividends or other distributions on Reorganization Shares, the Limited
Maturity Fund will pay all such dividends and distributions in additional
shares, notwithstanding any election the shareholder may have made previously
to receive dividends and distributions on Intermediate Income Fund shares in
cash.
14. DO THE PROCEDURES FOR PURCHASING, REDEEMING AND EXCHANGING SHARES OF THE
TWO FUNDS DIFFER?
No. The procedures for purchasing and redeeming shares of each Fund, and
for exchanging shares of each Fund for shares of other MFS funds, are
identical.
Both Funds currently offer Class A, B and I shares. In addition, the
Limited Maturity Fund also offers Class C shares. Shares of both Funds may be
purchased through investment dealers that have sales agreements with MFS Fund
Distributors, Inc. ("MFD") at prices based on net asset value, plus varying
sales charges, depending on the class and number of shares purchased. Class I
shares are only available to certain institutional investors. Reinvestment of
distributions by the Funds are made at net asset value for all classes of
shares.
Shares of each Fund may be redeemed any day the New York Stock Exchange is
open at their net asset value next determined after receipt by the Fund of a
properly completed redemption request either directly by a Fund or through an
investment dealer.
Shares of both Funds may be exchanged for shares of the same class of
certain other MFS funds.
15. HOW WILL I BE NOTIFIED OF THE OUTCOME OF THE REORGANIZATION?
If the proposed reorganization is approved by shareholders, you will
receive confirmation after the reorganization is completed, indicating your
new account number, the number of shares you are receiving and the procedures
for surrendering your certificates if you have any. If the reorganization is
not approved, shareholders will be notified, and the results of the meeting
will be provided in the next annual report of the Intermediate Income Fund.
16. WILL THE NUMBER OF SHARES I OWN CHANGE?
Yes, but the total value of the shares of the Limited Maturity Fund you
receive will equal the total value of the shares of the Intermediate Income
Fund that you hold at the time of the reorganization. Even though the net
asset value per share of each Fund is different, the total value of a
shareholder's holdings will not change as a result of the reorganization.
RISK FACTORS
WHAT ARE THE PRINCIPAL RISK FACTORS ASSOCIATED WITH AN INVESTMENT IN THE
LIMITED MATURITY FUND, AND HOW DO THEY COMPARE WITH THOSE FOR THE INTERMEDIATE
INCOME FUND?
Because the Funds share similar goals and policies, the risks of an
investment in the Limited Maturity Fund are similar to the risks of an
investment in the Intermediate Income Fund. A more detailed description of
certain risks associated with an investment in the Limited Maturity Fund is
contained in the Limited Maturity Fund Prospectus.
Although the two Funds' investment policies and risks are similar they are
not identical. The Limited Maturity Fund's investment policies are more
restrictive than those of the Intermediate Income Fund. Although both can
invest in foreign issuers, the Limited Maturity Fund is limited to investing
in U.S. dollar denominated securities of foreign issuers while the
Intermediate Income Fund may invest in securities denominated in other
currencies. The Intermediate Income Fund can also invest in a wider variety of
derivatives. In addition, the Intermediate Income Fund is a non-diversified
mutual fund, meaning that it can concentrate its assets in a small number of
issuers, and may also invest up to 10% of its assets in non-investment grade
securities (commonly referred to as "junk bonds"). Because the Intermediate
Income Fund is concentrated and invests in junk bonds, foreign denominated
securities and additional types of derivatives that have additional risks, the
Trustees and MFS believe that as a general matter, the Intermediate Income
Fund may involve more risk than a diversified fund that is not permitted to
invest in these instruments such as the Limited Maturity Fund. However, junk
bonds will generally have higher yields, and the diversification that they and
the currency exposure provide may reduce overall risk at times when the dollar
weakens or the investment grade securities markets are declining. Thus,
although the Limited Maturity Fund's overall portfolio risk may generally be
lower and its return less volatile, its yield and total return may also be
lower.
The following is a list of the principal risks of investing in the Limited
Maturity Fund and, where applicable, how certain of these risks compare with
those of the Intermediate Income Fund:
o Interest Rate Risk: When interest rates rise, the prices of fixed income
securities in the Funds' portfolios will generally fall. Conversely, when
interest rates fall, the prices of fixed income securities in the Funds'
portfolios will generally rise.
o Maturity Risk: As mentioned above, the Limited Maturity Fund invests in and
generally focuses on securities with remaining maturities of 5 years or less
whereas the Intermediate Income Fund generally focuses on securities with
remaining maturities of 10 years or less. Fixed income securities with
shorter maturities will be less volatile but generally provide lower returns
than fixed income securities with longer maturities. The average maturity of
the Funds' fixed income investments will affect the volatility of the Funds'
share price.
o Allocation Risk: Like the Intermediate Income Fund, the Limited Maturity Fund
will allocate its investments among various segments of the fixed income
markets based upon judgments made by MFS as the Fund's investment adviser.
The Fund could miss attractive investment opportunities by underweighting
markets where there are significant returns, and could lose value by
overweighting markets where there are significant declines.
o Credit Risk: Credit risk is the risk that the issuer of a fixed income
security will not be able to pay principal and interest when due. Rating
agencies assign credit ratings to certain fixed income securities to indicate
their credit risk. The price of a fixed income security will generally fall
if the issuer defaults on its obligation to pay principal or interest, the
rating agencies downgrade the issuer's credit rating or other news affects
the market's perception of the issuer's credit risk.
o Liquidity Risk: The fixed income securities purchased by the Funds may be
traded in the over-the-counter market rather than on an organized exchange
and are subject to liquidity risk. This means that they may be harder to
purchase or sell at a fair price. The inability to purchase or sell these
fixed income securities at a fair price could have a negative impact on the
Funds' performance.
o Mortgage and Asset-Backed Securities:
|> Maturity Risk:
Mortgage-Backed Securities: A mortgage-backed security will mature
when all the mortgages in the pool mature or are prepaid. Therefore,
mortgage- backed securities do not have a fixed maturity, and their
expected maturities may vary when interest rates rise or fall.
When interest rates fall, homeowners are more likely to prepay their
mortgage loans. An increased rate of prepayments on the Funds'
mortgage-backed securities will result in an unforeseen loss of interest
income to the Funds as the Funds may be required to reinvest assets at a
lower interest rate. Because prepayments increase when interest rates
fall, the price of mortgage- backed securities does not increase as much
as other fixed income securities when interest rates fall.
When interest rates rise, homeowners are less likely to prepay their
mortgage loans. A decreased rate of prepayments lengthens the expected
maturity of a mortgage-backed security. Therefore, the prices of
mortgage- backed securities may decrease more than prices of other fixed
income securities when interest rates rise.
Collateralized Mortgage Obligations: The Funds may invest in
mortgage- backed securities called collateralized mortgage obligations
(CMOs). CMOs are issued in separate classes with different stated
maturities. As the mortgage pool experiences prepayments, the pool pays
off investors in classes with shorter maturities first. By investing in
CMOs, the Fund may manage the prepayment risk of mortgage-backed
securities. However, prepayments may cause the actual maturity of a CMO
to be substantially shorter than its stated maturity.
Asset-Backed Securities: Asset-backed securities have prepayment
risks similar to mortgage-backed securities.
|> Credit Risk: As with any fixed income security, mortgage-backed and
asset-backed securities are subject to the risk that the issuer will
default on principal and interest payments. It may be difficult to
enforce rights against the assets underlying mortgage-backed and
asset-backed securities in the case of default. The U.S. government or
its agencies may guarantee the payment of principal and interest on some
mortgage-backed securities. Mortgage- backed securities and asset-backed
securities issued by private lending institutions or other financial
intermediaries may be supported by insurance or other forms of
guarantees.
o Foreign Markets Risk: While the Limited Maturity Fund does not invest in
foreign denominated securities and therefore does not have the currency risk
that the Intermediate Income Fund has, it may invest in U.S. dollar
denominated foreign debt securities. Investments in securities of foreign
issuers involve risks relating to political, social and economic developments
abroad, as well as risks resulting from the differences between the
regulations to which U.S. and foreign issuers and markets are subject:
These risks may include the seizure by the government of company assets,
excessive taxation, withholding taxes on dividends and interest, limitations
on the use or transfer of portfolio assets, and political or social
instability.
Enforcing legal rights may be difficult, costly and slow in foreign
countries, and there may be special problems enforcing claims against foreign
governments.
Foreign companies may not be subject to accounting standards or
governmental supervision comparable to U.S. companies, and there may be less
public information about their operations.
Foreign markets may be less liquid and more volatile than U.S. markets.
o Active or Frequent Trading Risk: Like the Intermediate Income Fund, the
Limited Maturity Fund has engaged and may engage in active and frequent
trading to achieve its principal investment strategies. This may result in
the realization and distribution to shareholders of higher capital gains as
compared to a fund with less active trading policies, which would increase
your tax liability. Frequent trading also increases transaction costs, which
could detract from the Fund's performance.
o Diversification Risk: Unlike the Intermediate Income Fund, the Limited
Maturity Fund is a diversified Fund meaning that it cannot concentrate as
high a percentage of its assets in a small number of issuers as the
Intermediate Income Fund has the ability to do. This decreases the Fund's
volatility but may also reduce its potential for higher yields and total
return.
As with any mutual fund, you could lose money on your investment in the
Limited Maturity Fund.
An investment in the Limited Maturity Fund is not a bank deposit and is
not insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency.
Other investments. In addition to the Limited Maturity Fund's main
investment strategies of investing in corporate bonds of foreign and domestic
corporations, mortgage-backed and asset-backed securities and U.S. government
securities, each with limited maturities (i.e., remaining maturities of five
years or less), the Fund may also buy and sell other types of investments, as
indicated by the chart comparing the investment techniques of the Limited
Maturity Fund with those of the Intermediate Income Fund (see "Synopsis,
question 5" above). The risks associated with the principal investment
techniques and practices used by the Limited Maturity Fund are summarized
above. The non-principal investment techniques which the Limited Maturity Fund
is permitted to engage in are described, together with their risks, in the
Limited Maturity Fund's Statement of Additional Information.
GENERAL
This Prospectus/Proxy Statement is furnished in connection with the
proposed reorganization of the Intermediate Income Fund into the Limited
Maturity Fund and the solicitation of proxies by and on behalf of the Trustees
of the Intermediate Income Fund for use at the Meeting of Shareholders. The
Meeting is to be held on Thursday, May 18, 2000 at 10 a.m. at 500 Boylston
Street, 24th floor, Boston, Massachusetts. The Notice of the Meeting, the
combined Prospectus/Proxy Statement and the enclosed form of proxy are being
mailed to shareholders on or about April 1, 2000.
Any shareholder giving a proxy has the power to revoke it by mail
(addressed to the Intermediate Income Fund's Secretary at the principal office
of the Intermediate Income Fund, 500 Boylston Street, Boston, Massachusetts
02116) or in person at the Meeting, by executing a superseding proxy, or by
submitting a notice of revocation to the Intermediate Income Fund. All
properly executed proxies received in time for the Meeting will be voted as
specified in the proxy, or, if no specification is made, FOR the proposal (set
forth in Proposal 1 of the Notice of Meeting) to implement the reorganization
of the Intermediate Income Fund by the transfer of all of its assets to the
Limited Maturity Fund in exchange for the Reorganization Shares and the
assumption by the Limited Maturity Fund of all of the stated liabilities of the
Intermediate Income Fund.
As of December 31, 1999, there were 13,357,449 shares of beneficial
interest of the Intermediate Income Fund outstanding. Only shareholders of
record on March 24, 2000 will be entitled to notice of and to vote at the
Meeting. Each share is entitled to one vote, with fractional shares voting
proportionally.
The Trustees of the Intermediate Income Fund know of no matters other than
those set forth herein to be brought before the Meeting. If, however, any
other matters properly come before the Meeting, it is the Trusts' intention
that proxies will be voted on such matters in accordance with the judgment of
the persons named in the enclosed form of proxy.
PROPOSAL REGARDING APPROVAL OR DISAPPROVAL OF REORGANIZATION
TRANSACTION AND RELATED AGREEMENT AND PLAN OF REORGANIZATION
The shareholders of the Intermediate Income Fund are being asked to
approve or disapprove a reorganization between the Intermediate Income Fund
and the Limited Maturity Fund pursuant to an Agreement and Plan of
Reorganization between the Funds, dated as of February 17, 2000 (the
"Agreement"), a copy of which is attached to this Prospectus/Proxy Statement
as Exhibit A.
The reorganization is structured as a transfer of all of the assets of the
Intermediate Income Fund to the Limited Maturity Fund in exchange for the
assumption by the Limited Maturity Fund of all of the stated liabilities of
the Intermediate Income Fund and for that number of the Class A, Class B and
Class I Reorganization Shares, equal in total net asset value to the net value
of assets transferred to the Limited Maturity Fund, all as more fully
described below under "Information about the Reorganization."
After receipt of the Reorganization Shares, the Intermediate Income Fund
will distribute the Class A Reorganization Shares to its Class A shareholders,
the Class B Reorganization Shares to its Class B shareholders and the Class I
Reorganization Shares to its Class I shareholders, in proportion to their
existing shareholdings in complete liquidation of the Intermediate Income
Fund, and the legal existence of the Intermediate Income Fund as a separate
series of MFS Series Trust II, a Massachusetts business trust, under
Massachusetts law will be terminated. Each shareholder of the Intermediate
Income Fund will receive a number of full and fractional Class A, Class B, or
Class I Reorganization Shares equal in value at the date of the exchange to
the aggregate value of the shareholder's Intermediate Income Fund shares of
the same class.
Prior to the date of the transfer (the "Exchange Date"), the Intermediate
Income Fund will declare and pay a distribution to shareholders which,
together with all previous distributions, will have the effect of distributing
to shareholders all of its investment company taxable income (computed without
regard to the deduction for dividends paid) and net realized gains, if any,
through the Exchange Date.
The Trustees of the Intermediate Income Fund have voted unanimously to
approve the proposed transaction and to recommend that shareholders also
approve the transaction. The transactions contemplated by the Agreement will
be consummated only if approved by the affirmative vote of the holders of the
lesser of (a) 67% or more of the voting securities present at the Meeting or
represented by proxy if the holders of more than 50% of the outstanding voting
securities are present or represented by proxy or (b) more than 50% of the
outstanding voting securities of the Intermediate Income Fund. The
reorganization does not require the approval of the shareholders of the
Limited Maturity Fund.
In the event that this proposal is not approved by the shareholders of the
Intermediate Income Fund, you will continue to own your Intermediate Income
Fund shares and the Intermediate Income Fund will continue to be managed as a
separate fund in accordance with its current investment objectives and
policies, and the Trustees may consider such alternatives as may be in the
best interests of its shareholders.
BACKGROUND AND REASONS FOR THE PROPOSED REORGANIZATION
The Board of Trustees of each Fund, including all Trustees who are not
"interested persons" of the Funds, have determined that the reorganization
would be in the best interests of each Fund's shareholders, and that the
interests of existing shareholders of each of the Funds would not be diluted
as a result of effecting the reorganization. The Trustees have unanimously
approved the proposed reorganization and have recommended its approval by
shareholders. The Limited Maturity Fund and the Intermediate Income Fund have
separate Boards of Trustees.
The proposal is the result of a review by the Funds' investment manager,
Massachusetts Financial Services Company ("MFS"), of the investment strategies
and position of MFS' fixed income funds. As discussed above, while not
identical, the Limited Maturity Fund and the Intermediate Income Fund have
similar investment policies, each investing a significant portion of their
assets in foreign and domestic corporate bonds, mortgage-backed and asset-
backed securities and U.S. government and agency securities.
In light of the similarity of the Funds, MFS advised the Board of Trustees
of each Fund that combining the Funds would be in the best interests of
shareholders of both Funds. The Board of Trustees of the Intermediate Income
Fund believes that the proposed reorganization will be advantageous to the
Fund's shareholders for several reasons and considered the following matters,
among others, in unanimously approving the proposal:
1. The combined Fund offers economies of scale that are expected to lead
to lower expenses than either of the existing Funds (see "Synopsis,
question 6" for a discussion of expenses);
2. Because the Limited Maturity Fund does not invest in junk bonds or
foreign denominated securities it has a lower risk profile and is less
volatile than the Intermediate Income Fund. The Trustees noted that
because of this higher risk profile the Intermediate Income Fund has
the potential for higher yields and total return than the Limited
Maturity Fund. However, despite this potential, the Trustees noted that
the two Funds' performance has been fairly comparable over recent years
and that the Limited Maturity Fund's performance exceeded that of the
Intermediate Income Fund for the most recent calendar year (see
"Synopsis, question 7" for a discussion of performance). However, in
1997 and 1998 the Intermediate Income Fund's performance was modestly
better than that of the Limited Maturity Fund. While past performance
cannot predict future results, the Trustees believe that the Limited
Maturity Fund can achieve its objective of high current income with
less volatility than the Intermediate Income Fund;
3. The increase in assets will allow the combined Fund greater
diversification and therefore may contribute to further reducing the
Limited Maturity Fund's volatility;
4. The Reorganization is intended to qualify as a tax-free reorganization
for federal income tax purposes, pursuant to which no gain or loss will
be recognized by the Intermediate Income Fund or its shareholders for
federal income tax purposes as a result of transactions included in the
reorganization; and
5. The Board also took into consideration that absent the reorganization,
the Limited Maturity Fund will continue to compete for investor funds
with the Intermediate Income Fund and that it appeared unlikely that
the Intermediate Income Fund would experience a material growth in
assets in the future. The reorganization should allow for more
concentrated selling efforts to the benefit of both the Intermediate
Income Fund and the Limited Maturity Fund shareholders and avoid the
inefficiencies associated with the operation and distribution of two
similar funds through the same sales channels.
The Board of Trustees of the Limited Maturity Fund considered that the
reorganization presents an excellent opportunity for the Limited Maturity Fund
to acquire investment assets without the need to pay brokerage commissions or
other transaction costs that are normally associated with the purchase of
securities. The Trustees also considered the expenses that the Limited
Maturity Fund would incur as a result of the reorganization were reasonable in
relation to the benefits the Limited Maturity Fund would realize as a result
of the transaction. The Trustees believe that the Limited Maturity Fund
shareholders will also benefit from improved diversification and lower
expenses (see "Synopsis, question 6" for a discussion of expenses) as a result
of the reorganization.
The Boards of Trustees of both Funds also considered that MFS and the
Funds' distributor, MFD, will benefit from the reorganization. For example,
MFS might realize timesavings from a consolidated portfolio management effort
and from the need to prepare fewer reports and regulatory filings as well as
prospectus disclosure for one fund instead of two. The Trustees believe,
however, that these savings will not amount to a significant economic benefit
to MFS and in any event, will not offset the management fee revenue loss
resulting to MFS from the reorganization.
Based on their review and MFS' advice, the Board of Trustees of each Fund
have unanimously approved the proposal.
Exchange without recognition of gain or loss for federal income tax
purposes. If an Intermediate Income Fund shareholder were to redeem his or her
shares to invest in another fund, like the Limited Maturity Fund, gain or loss
would be recognized by that shareholder for federal income tax purposes. Also,
if the Intermediate Income Fund were liquidated or were reorganized in a taxable
reorganization, the transaction would likely result in a taxable event for its
shareholders. By contrast, the proposed reorganization will permit the
Intermediate Income Fund's shareholders to exchange their investment for an
investment in the Limited Maturity Fund without recognition of gain or loss for
federal income tax purposes. After the reorganization, shareholders will be free
to redeem any or all of the Limited Maturity Fund shares at net asset value at
any time, at which point a taxable gain or loss would be recognized.
INFORMATION ABOUT THE REORGANIZATION
Agreement and Plan of Reorganization. The proposed reorganization will be
governed by an Agreement and Plan of Reorganization. The Agreement provides that
the Limited Maturity Fund will acquire all of the assets of the Intermediate
Income Fund in exchange for the assumption by the Limited Maturity Fund of all
of the stated liabilities of the Intermediate Income Fund and for the issuance
of Class A, Class B and Class I Reorganization Shares equal in value to the
value of the transferred assets net of assumed liabilities. The shares will be
issued on the next full business day (the "Exchange Date") following the time as
of which the Funds' shares are valued for determining net asset value for the
reorganization (4:00 p.m. Boston time on May 19, 2000 or such other date as may
be agreed upon by the parties). The following discussion of the Agreement is
qualified in its entirety by the full text of the Agreement, which is attached
as Exhibit A to this Prospectus/Proxy Statement.
The Intermediate Income Fund will sell all of its assets to the Limited
Maturity Fund, and in exchange, the Limited Maturity Fund will assume all of
the stated liabilities of the Intermediate Income Fund and deliver to the
Intermediate Income Fund (i) a number of full and fractional Class A
Reorganization Shares having an aggregate net asset value equal to the value
of assets of the Intermediate Income Fund attributable to its Class A shares,
less the value of the liabilities of the Intermediate Income Fund assumed by
the Limited Maturity Fund attributable to such Class A shares; (ii) a number
of full and fractional Class B Reorganization Shares having a net asset value
equal to the value of assets of the Intermediate Income Fund attributable to
its Class B shares, less the value of the liabilities of the Intermediate
Income Fund assumed by the Limited Maturity Fund attributable to such Class B
shares, and (iii) a number of full and fractional Class I Reorganization
Shares having a net asset value equal to the value of assets of the
Intermediate Income Fund attributable to its Class I shares, less the value of
the liabilities of the Intermediate Income Fund assumed by the Limited
Maturity Fund attributable to such Class I Shares.
Immediately following the Exchange Date, the Intermediate Income Fund will
distribute pro rata to its shareholders of record as of the close of business
on the Exchange Date the full and fractional Reorganization Shares received by
the Intermediate Income Fund, with Class A Reorganization Shares being
distributed to holders of Class A shares of the Intermediate Income Fund,
Class B Reorganization Shares being distributed to holders of Class B shares
of the Intermediate Income Fund and Class I Reorganization Shares being
distributed to holders of Class I shares of the Intermediate Income Fund. As a
result of the proposed transaction, each holder of Class A, Class B and Class
I shares of the Intermediate Income Fund will receive a number of Class A,
Class B and Class I Reorganization Shares equal in aggregate value at the
Exchange Date to the value of the Class A, Class B and Class I shares,
respectively, of the Intermediate Income Fund held by the shareholder. This
distribution will be accomplished by the establishment of accounts on the
share records of the Limited Maturity Fund in the name of such Intermediate
Income Fund shareholders, each account representing the respective number of
full and fractional Class A, Class B and Class I Reorganization Shares due
such shareholder. New certificates for Reorganization Shares will be issued
only upon written request.
The Trustees of each Fund have determined that the interests of each
Fund's shareholders will not be diluted as a result of the transactions
contemplated by the reorganization and that the proposed reorganization is in
the best interests of each Fund.
The consummation of the reorganization is subject to the conditions set
forth in the Agreement. The Agreement may be terminated and the reorganization
abandoned at any time, before or after approval by the shareholders, prior to
the Exchange Date by mutual consent of the Limited Maturity Fund and the
Intermediate Income Fund or, if any condition set forth in the Agreement has
not been fulfilled and has not been waived by the party entitled to its
benefits, by such party.
The fees and expenses for the transaction are estimated to be $80,000.
Each Fund shall bear its own fees and expenses, including legal and accounting
expenses, portfolio transfer taxes (if any) or other similar expenses incurred
in connection with the consummation of the transactions contemplated by the
Agreement.
Description of the Reorganization Shares. Reorganization Shares will be
issued to the Intermediate Income Fund's shareholders in accordance with the
procedure under the Agreement as described above. The Reorganization Shares
are Class A, Class B and Class I shares of the Limited Maturity Fund.
Investors purchasing Class A shares pay a sales charge at the time of
purchase, but Intermediate Income Fund shareholders receiving Class A
Reorganization Shares in the reorganization will not pay a sales charge on
such shares. Class A shares of the Limited Maturity Fund generally are not
subject to redemption fees, but such shares are subject to a Rule 12b-1 fee at
the annual rate of up to 0.35% of the Fund's average daily net assets
attributable to Class A shares although payment of 0.10% of the Class A
service fee and the 0.10% per annum Class A distribution fee is currently not
being imposed. Class B shares of the Limited Maturity Fund are sold without a
sales charge, but are subject to a CDSC of up to 4% if redeemed within six
years of purchase. For purposes of determining the CDSC payable on redemption
of Class B Reorganization Shares received by holders of Class B shares of the
Intermediate Income Fund, such shares will be treated as having been acquired
as of the dates such shareholders originally acquired their Class B shares of
the Intermediate Income Fund. Class B shares are also subject to a Rule 12b-1
fee at the annual rate of up to 1.00% of the Fund's average daily net assets
attributable to Class B shares. Class B shares will automatically convert to
Class A shares, based on relative net asset value, approximately eight years
after purchase. Class I shares, which are only available to certain
institutional investors, have no sales charges or Rule 12b-1 fees.
Each of the Reorganization Shares will be fully paid and nonassessable
when issued, will be transferable without restriction, and will have no
preemptive or conversion rights, except that Class B Reorganization Shares
will have the conversion rights specified above. The Amended and Restated
Declaration of Trust (the "Declaration of Trust") of MFS Series Trust IX, of
which the Limited Maturity Fund is a series, permits the Fund to divide its
shares, without shareholder approval, into two or more classes of shares
having such preferences and special or relative rights and privileges as the
Trustees may determine. The Limited Maturity Fund's shares are currently
divided into four classes -- Class A, Class B, Class C and Class I shares.
Because the Intermediate Income Fund does not have Class C shares, no Class C
shares of the Limited Maturity Fund will be issued as a result of this
transaction.
Under Massachusetts law, shareholders could, under certain circumstances,
be held personally liable for the obligations of the Limited Maturity Fund.
However, the Declaration of Trust disclaims shareholder liability for acts or
obligations of the Limited Maturity Fund and requires that notice of such
disclaimer be given in each agreement, obligation, or instrument entered into
or executed by the Limited Maturity Fund or its Trustees. The Declaration of
Trust provides for indemnification out of Fund property for all loss and
expense of any shareholder held personally liable for the obligations of the
Limited Maturity Fund. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is limited to circumstances in which
the Limited Maturity Fund would be unable to meet its obligations. The
likelihood of such circumstances is remote. The shareholders of the
Intermediate Income Fund are currently subject to this same risk of
shareholder liability.
Federal Income Tax Consequences. As a condition to each Fund's obligation
to consummate the reorganization, the Intermediate Income Fund and the Limited
Maturity Fund will receive an opinion from Bingham Dana LLP, counsel to the
Funds (which opinion would be based on certain factual representations and
subject to certain qualifications), substantially to the effect that, on the
basis of the existing provisions of the Internal Revenue Code as now in effect
(the "Code"), and the regulations, rulings, and interpretations thereof in
force as of the date of the opinion, for federal income tax purposes:
(a) The acquisition by the Limited Maturity Fund of all of the assets
of the Intermediate Income Fund, solely in exchange for Reorganization
Shares and the assumption by the Limited Maturity Fund of the stated
liabilities of the Intermediate Income Fund as set forth in the Statement
of Assets and Liabilities, followed by the distribution by the
Intermediate Income Fund of the Reorganization Shares in complete
liquidation to the shareholders of the Intermediate Income Fund in
exchange for their Intermediate Income Fund shares of beneficial interest
and the termination of the Intermediate Income Fund pursuant to this
Agreement, will constitute a reorganization within the meaning of Section
368(a) of the Code, and the Intermediate Income Fund and the Limited
Maturity Fund will each be a "party to a reorganization" within the
meaning of Section 368(b) of the Code;
(b) No gain or loss will be recognized by the Intermediate Income Fund
upon the transfer of all of its assets to the Limited Maturity Fund solely
in exchange for Reorganization Shares and the assumption by the Limited
Maturity Fund of the stated liabilities of the Intermediate Income Fund as
set forth in the Statement of Assets and Liabilities or upon the
distribution to the Intermediate Income Fund shareholders of such
Reorganization Shares pursuant to the Agreement;
(c) No gain or loss will be recognized by the Limited Maturity Fund
upon the receipt of the assets of the Intermediate Income Fund solely in
exchange for Reorganization Shares and the assumption by the Limited
Maturity Fund of the stated liabilities of the Intermediate Income Fund as
set forth in the Statement of Assets and Liabilities;
(d) The basis of the assets of the Intermediate Income Fund acquired
by the Limited Maturity Fund will be, in each instance, the same as the
basis of those assets in the hands of the Intermediate Income Fund
immediately prior to the transfer;
(e) The holding period of the assets of the Intermediate Income Fund
in the hands of the Limited Maturity Fund will include, in each instance,
the holding period of such assets in the hands of the Intermediate Income
Fund;
(f) The shareholders of the Intermediate Income Fund will not
recognize gain or loss upon the exchange of all of their Intermediate
Income Fund shares of beneficial interest solely for Reorganization Shares
as part of the transaction;
(g) The basis of the Reorganization Shares to be received by each
Intermediate Income Fund shareholder will be, in the aggregate, the same
as the basis, in the aggregate, of the Intermediate Income Fund shares of
beneficial interest surrendered by such shareholder in exchange therefor;
and
(h) The holding period of the Reorganization Shares to be received by
each Intermediate Income Fund shareholder will include, in each instance,
the holding period of the Intermediate Income Fund shares of beneficial
interest surrendered by such shareholder in exchange therefor, provided
the Intermediate Income Fund shares were held by such shareholder as
capital assets on the date of the exchange.
Additional Tax Considerations. As of November 30, 1999, the Intermediate
Income Fund had capital loss carryovers of approximately $9,259,081 which
expire as follows: November 30, 2002 -- $4,226,362; November 30, 2005 --
$1,473,779; November 30, 2006 -- $1,217,310; and November 30, 2007 --
$2,341,630. Capital loss carryovers are used to reduce the amount of realized
capital gains that a Fund is required to distribute to its shareholders in
order to avoid paying taxes on undistributed capital gain.
If the reorganization occurs, the Limited Maturity Fund will be able to
use the Intermediate Income Fund's capital loss carryovers to offset future
realized capital gains, subject to limitations that may, in certain
circumstances, result in the expiration of a portion of these carryovers
before they can be used.
Capitalization. The following table shows the capitalization of the Funds
as of October 31, 1999, and on a pro forma combined basis, giving effect to
the proposed acquisition of assets at net asset value as of that date:
<TABLE>
<CAPTION>
LIMITED INTERMEDIATE PRO FORMA
(UNAUDITED) MATURITY FUND INCOME FUND COMBINED
- ----------- ------------- ------------ --------
<S> <C> <C> <C>
Net assets (000's omitted)
Class A .................................................... $125,188,899 $46,874,639 $172,063,538
Class B .................................................... 53,601,625 64,067,502 117,669,127
Class C .................................................... 24,621,846 N/A 24,621,846
Class I .................................................... 1,650,047 13,185 1,663,232
Shares outstanding (000's omitted)
Class A .................................................... 18,521,966 5,961,104 25,456,084*
Class B .................................................... 7,958,531 8,120,995 17,464,095*
Class C .................................................... 3,645,129 N/A 3,645,129
Class I .................................................... 244,719 1,673 246,675*
Net asset value per share
Class A .................................................... $6.76 $7.86 $6.76
Class B .................................................... 6.74 7.89 6.74
Class C .................................................... 6.75 N/A 6.75
Class I .................................................... 6.74 7.88 6.74
- ----------
* If the Reorganization had taken place on October 31, 1999, the Intermediate Income Fund would have received 6,934,118,
9,505,564 and 1,956 Class A, B and I shares, respectively, of the Limited Maturity Fund, which would be available for
distribution to its shareholders. No assurances can be given as to the number of Reorganization Shares the MFS
Intermediate Income Fund will receive on the Closing Date. The foregoing is merely an example of what the Intermediate
Income Fund would have received and distributed had the reorganization been consummated on October 31, 1999, and should
not be relied upon to reflect the amount that will actually be received on or after the Closing Date.
</TABLE>
Unaudited pro forma combined financial statements of the Funds as of
October 31, 1999 and for the twelve month period then ended are included in
the Statement of Additional Information relating to the proposed
reorganization. Because the Agreement provides that the Limited Maturity Fund
will be the surviving Fund following the reorganization and because the
Limited Maturity Fund's investment objectives and policies will remain
unchanged, the pro forma combined financial statements reflect the transfer of
the assets and liabilities of the Intermediate Income Fund to the Limited
Maturity Fund as contemplated by
the Agreement.
THE TRUSTEES OF THE INTERMEDIATE INCOME FUND, INCLUDING THE INDEPENDENT
TRUSTEES, UNANIMOUSLY RECOMMEND APPROVAL OF THE AGREEMENT.
VOTING INFORMATION
The Limited Maturity Fund will not permit any Intermediate Income Fund
Shareholder holding certificates for Intermediate Income Fund shares at the
time of the reorganization to receive cash dividends or other distributions,
receive certificates for shares issued in the merger ("Reorganization
Shares"), exchange Reorganization Shares for shares of other investment
companies managed by MFS, or pledge or redeem Reorganization Shares until such
certificates for Intermediate Income Fund shares have been surrendered, or, in
the case of lost certificates, an adequate surety bond has been posted.
Required Vote. Proxies are being solicited from the Intermediate Income
Fund's shareholders by its Trustees for the Special Meeting of Shareholders to
be held on Thursday, May 18, 2000 at 10:00 a.m. (the "Meeting"), at 500 Boylston
St., 24th floor, Boston, Massachusetts, or at such later time made necessary by
adjournment. Unless revoked, all valid proxies will be voted in accordance with
the specification thereon or, in the absence of specifications, FOR approval of
the Agreement and Plan of Reorganization. The transactions contemplated by the
Agreement and Plan of Reorganization will be consummated only if approved by the
affirmative vote of a "majority of the outstanding voting securities" of the
Intermediate Income Fund entitled to vote. Under the Investment Company Act of
1940, as amended, the vote of a "majority of the outstanding voting securities"
means the affirmative vote of the lesser of (a) 67% or more of the voting
securities present at the Meeting or represented by proxy if the holders of more
than 50% of the outstanding voting securities are present or represented by
proxy or (b) more than 50% of the outstanding voting securities.
Record Date, Quorum and Method of Tabulation. Shareholders of record of the
Intermediate Income Fund at the close of business on March 24, 2000 (the "record
date") will be entitled to vote at the Meeting or any adjournment thereof. The
holders of a majority of the shares of the Intermediate Income Fund outstanding
at the close of business on the record date present in person or represented by
proxy will constitute a quorum for the Meeting. Shareholders are entitled to one
vote for each share held, with fractional shares voting proportionally.
Votes cast by proxy or in person at the meeting will be counted by persons
appointed by the Intermediate Income Fund as the vote tabulator for the Meeting.
The vote tabulator will count the total number of votes cast "for" approval of
the proposal for purposes of determining whether sufficient affirmative votes
have been cast. The vote tabulator will count shares represented by proxies that
are marked with an abstention or that reflect "broker non-votes" (i.e., shares
held by brokers or nominees as to which (i) instructions have not been received
from the beneficial owners or the persons entitled to vote and (ii) the broker
or nominee does not have the discretionary voting power on a particular matter)
as shares that are present and entitled to vote on the matter for purposes of
determining the presence of a quorum. Thus, abstentions and broker non-votes
have the effect of a negative vote on the proposal.
As of January 31, 2000, the officers and Trustees of the Intermediate
Income Fund as a group beneficially owned less than 1% of the outstanding
shares of the Intermediate Income Fund. To the best of the knowledge of the
Intermediate Income Fund, the following shareholders owned of record or
beneficially 5% or more of the following classes of the Intermediate Income
Fund's outstanding shares:
<TABLE>
<CAPTION>
CLASS SHAREHOLDER NAME AND ADDRESS PERCENTAGE OWNED
- ----- ---------------------------- ----------------
<S> <C> <C>
B MLPF&S for the sole benefit of 5.39%
its customers
Attn: Fund Administration 974N1
4800 Deer Lake Dr. E FL 3
Jacksonville, FL 32246-6484
</TABLE>
The votes of the shareholders of the Limited Maturity Fund are not being
solicited, because their approval or consent is not necessary for this
transaction. As of January 31, 2000, the officers and Trustees of the Limited
Maturity Fund as a group beneficially owned less than 1% of the outstanding
shares of the Limited Maturity Fund. To the best of the knowledge of the
Limited Maturity Fund, the following shareholders owned of record or
beneficially 5% or more of the outstanding shares of the Limited Maturity
Fund:
<TABLE>
<CAPTION>
CLASS SHAREHOLDER NAME AND ADDRESS PERCENTAGE OWNED
- ----- ---------------------------- ----------------
<S> <C> <C>
B MLPF&S for the sole benefit of 11.48%
its customers
Attn: Fund Administration 97CE8
4800 Deer Lake Dr. East 3rd FL
Jacksonville, FL 32246-6484
C MLPF&S for the sole benefit of 7.68%
its customers
Attn: Fund Administration 97JT7
4800 Deer Lake Dr. 3rd FL
Jacksonville, FL 32246-6484
I TRS MFS DEF Contribution Plan 99.99%
c/o Mark Leary
Mass Financial Services
500 Boylston Street
Boston, MA 02116-3740
</TABLE>
Solicitation of Proxies. In addition to soliciting proxies by mail, the
Trustees and employees of MFS, MFS Fund Distributors Inc. and MFS Service
Center, Inc. may solicit proxies in person or by telephone. In addition, the
Intermediate Income Fund has retained at its own expense Shareholder
Communications Corporation to aid in the solicitation of instructions for
nominee and registered accounts for a fee of $5,000, plus reasonable out-of-
pocket expenses for mailing and phone costs. The Intermediate Income Fund may
also arrange to have votes recorded by telephone. The telephonic voting
procedure is designed to authenticate shareholders' identities, to allow
shareholders to authorize the voting of their shares in accordance with their
instructions and to confirm that their instructions have been properly
recorded. Shareholders may be called at the phone number MFS has in its
records for their accounts, and would be asked for their Social Security
numbers or other identifying information. The shareholders would then be given
an opportunity to authorize their proxies to vote their shares in accordance
with their instructions. To ensure that the shareholders' instructions have
been recorded correctly, they will also receive a confirmation of their
instructions in the mail. A toll-free number will be available in the event
the information in the confirmation is incorrect.
Depending on how you own your shares you may also be able to vote by
signing and faxing the completed proxy card toll-free to the fax number
included on your proxy card.
Shareholders have the opportunity to vote via the Internet by utilizing a
program provided through ADP Investor Communication Services ("ADP"). The
giving of such a proxy will not affect your right to vote in person should you
decide to attend the Meeting. To vote via the Internet, you will need the 12-
digit "control" number that appears with your proxy materials. To vote via the
Internet, please access ADP on the World Wide Web at www.proxyvote.com, or
click on the "proxy voting" link on the MFS website at www.mfs.com. The
Internet voting procedures are designed to authenticate shareholder
identities, to allow shareholders to give their voting instructions, and to
confirm that shareholders' instructions have been recorded properly.
Shareholders voting via the Internet should understand that there may be costs
associated with electronic access, such as usage charges from Internet access
providers and telephone companies, that must be borne by the shareholders.
Persons holding shares as nominees will upon request be reimbursed for
their reasonable expenses in soliciting instructions from their principals.
Revocation of Proxies. Proxies, including proxies given by telephone,
facsimile or via the internet may be revoked at any time before they are
voted, by a written revocation received by the Secretary of the Intermediate
Income Fund, by properly executing a later-dated proxy or by attending the
Meeting and voting in person.
Shareholder Proposals. The Intermediate Income Fund does not hold annual
shareholder meetings. If the reorganization is not approved, any shareholder
who wishes to submit a proposal to be considered by the Fund's shareholders at
the next meeting of shareholders should send the proposal to Intermediate
Income Fund, c/o Stephen E. Cavan, Secretary, at 500 Boylston Street, 24th
Floor, Boston, Massachusetts 02116, so as to be received within a reasonable
time before the Board of Trustees of Intermediate Income Fund makes the
solicitation relating to such meeting. Shareholder proposals that are
submitted in a timely manner will not necessarily be included in the
Intermediate Income Fund's proxy materials. Including shareholder proposals in
proxy materials is subject to limitations under federal securities laws.
Adjournment. If sufficent votes in favor of the proposal are not received
by the time scheduled for the Meeting, the persons named as proxies may
propose adjournments of the Meeting for a period or periods of not more than
60 days in the aggregate to permit further solicitation of proxies. Any
adjournment will require the affirmative vote of a majority of the votes cast
on the question in person or by proxy at the session of the Meeting to be
adjourned. The persons named as proxies will vote in favor of such adjournment
those proxies which they are entitled to vote in favor of the proposal. They
will vote against any such adjournment those proxies required to be voted
against the proposal. The Intermediate Income Fund pays the costs of any
additional solicitation and of any adjourned session.
MISCELLANEOUS
INDEPENDENT ACCOUNTANTS
The audited financial statements of Intermediate Income Fund and Limited
Maturity Fund for the fiscal periods ended November 30, 1999 and April 30,
1999, respectively, included in the Statements of Additional Information, have
been audited by Deloitte & Touche LLP, independent accountants, whose reports
thereon are included in the respective Statements of Additional Information
and in the Annual Reports to Shareholders for the fiscal years ended November
30, 1999 and April 30, 1999, respectively. The financial statements audited by
Deloitte & Touche LLP have been incorporated by reference in reliance on their
reports given on their authority as experts in auditing and accounting. The
unaudited financial statements of Limited Maturity Fund for the six months
ended October 31, 1999 are included in the Statement of Additional
Information.
AVAILABLE INFORMATION
The Intermediate Income Fund and the Limited Maturity Fund are each subject
to the informational requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, and in accordance with these laws, they each
file reports, proxy material and other information with the Commission. Such
reports, proxy material and other information can be inspected and copied at the
Public Reference Room maintained by the Commission at 450 Fifth Street, N.W.,
Washington D.C. 20549 and 7 World Trade Center, New York, NY 10048. Copies of
such material can also be obtained from the Public Reference Branch, Office of
Consumer Affairs and Information Services, Securities and Exchange Commission,
Washington D.C. 20549, at prescribed rates, or at the Commission's website
(http://www.sec.gov).
OTHER BUSINESS
Management of Intermediate Income Fund knows of no business other than the
matters specified above which will be presented at the Meeting. Because
matters not known at the time of the solicitation may come before the Meeting,
the proxy as solicited confers discretionary authority with respect to such
matters as properly come before the Meeting, including any adjournment or
adjournments thereof, and it is the intention of the persons named as
attorneys-in-fact in the proxy to vote this proxy in accordance with their
judgment on such matters.
NOTICE TO BANKS, BROKER-DEALERS AND VOTING TRUSTEES AND THEIR NOMINEES
Please advise the Intermediate Income Fund, in care of MFS Service Center,
Inc., 2 Avenue de Lafayette, Boston, MA 02111-1738, whether other persons are
beneficial owners of shares for which proxies are being solicited and, if so,
the number of copies of the Proxy Statement you wish to receive in order to
supply copies to the beneficial owners of the shares.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY.
March 31, 2000
MFS INTERMEDIATE INCOME FUND, a series of
MFS SERIES TRUST II
500 Boylston Street
Boston, MA 02116
<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made this
17th day of February, 2000, by and between the MFS Series Trust II, a
Massachusetts business trust ("Trust II"), on behalf of MFS Intermediate
Income Fund, a series thereof (the "Intermediate Income Fund"), and MFS Series
Trust IX, a Massachusetts business trust ("Trust IX"), on behalf of MFS
Limited Maturity Fund, a series thereof (the "Limited Maturity Fund"), each
with its principal place of business at 500 Boylston Street, Boston,
Massachusetts 02116.
This Agreement is intended to be and is adopted as a plan of
reorganization and liquidation within the meaning of Section 368(a) of the
United States Internal Revenue Code of 1986, as amended (the "Code"). The
reorganization will consist of (i) the transfer of all of the assets of the
Intermediate Income Fund to the Limited Maturity Fund in exchange solely for
the assumption by the Limited Maturity Fund of the stated liabilities of the
Intermediate Income Fund and the issuance to the Intermediate Income Fund of
shares of beneficial interest of the Limited Maturity Fund (the
"Reorganization Shares"), (ii) the distribution, promptly after the Closing
Date hereinafter referred to, of the Reorganization Shares to the shareholders
of the Intermediate Income Fund in liquidation of the Intermediate Income Fund
as provided herein, and (iii) the termination of the Intermediate Income Fund,
all upon the terms and conditions hereinafter set forth in this Agreement.
All representations, warranties, covenants and obligations of the Limited
Maturity Fund and the Intermediate Income Fund contained herein shall be
deemed to be representations, warranties, covenants and obligations of Trust
IX and Trust II, respectively, acting on behalf of the Limited Maturity Fund
and the Intermediate Income Fund, respectively, and all rights and benefits
created hereunder in favor of the Limited Maturity Fund and the Intermediate
Income Fund shall inure to Trust IX and Trust II, respectively, and shall be
enforceable by Trust IX and Trust II, respectively, acting on behalf of the
Limited Maturity Fund and the Intermediate Income Fund, respectively.
In consideration of the premises of the covenants and agreements
hereinafter set forth, the parties hereto covenant and agree as follows:
1. TRANSFER OF ASSETS OF THE INTERMEDIATE INCOME FUND IN EXCHANGE FOR THE
REORGANIZATION SHARES AND LIQUIDATION OF THE INTERMEDIATE INCOME FUND
1.1 The Intermediate Income Fund will transfer its assets (consisting,
without limitation, of portfolio securities and instruments, dividend and
interest receivables, cash and other assets) as set forth in the statement of
assets and liabilities as of the Valuation Date (as defined in paragraph 1.4
hereof) delivered by Trust II to Trust IX pursuant to paragraph 7.2 hereof
(the "Statement of Assets and Liabilities") to the Limited Maturity Fund, free
and clear of all liens and encumbrances, except as otherwise provided herein,
in exchange for (a) the assumption by the Limited Maturity Fund of all of the
stated liabilities of the Intermediate Income Fund as set forth in the
Statement of Assets and Liabilities and (b) the issuance and delivery by the
Limited Maturity Fund to the Intermediate Income Fund, for distribution in
accordance with paragraph 1.4 hereof pro rata to the Intermediate Income Fund
shareholders as of the close of business on the Valuation Date, of a number of
the Reorganization Shares having an aggregate net asset value equal to the
value of the assets, less such liabilities (herein referred to as the "net
value of the assets"), of the Intermediate Income Fund so transferred,
assigned and delivered, all determined as provided in paragraph 2 and as of a
date and time as specified therein. Such transactions shall take place at the
closing provided for in paragraph 3.1 hereof (the "Closing"). All computations
for the Intermediate Income Fund shall be provided by State Street Bank and
Trust Company (the "Custodian"), as custodian and pricing agent for the
Intermediate Income Fund, and all computations for the Limited Maturity Fund
shall be provided by the Custodian, as custodian and pricing agent for the
Limited Maturity Fund. The determinations of the Custodian shall be conclusive
and binding on all parties in interest.
1.2 The Intermediate Income Fund has provided the Limited Maturity Fund
with a list of the current securities holdings of the Intermediate Income Fund
as of the date of execution of this Agreement. The Intermediate Income Fund
reserves the right to sell any of these securities (except to the extent sales
may be limited by representations made in connection with issuance of the tax
opinion described in paragraph 8.6 hereof) but will not, without the prior
approval of the Limited Maturity Fund, acquire any additional securities other
than securities of the type in which the Limited Maturity Fund is permitted to
invest.
1.3 Except to the extent that another party has agreed to bear certain
expenses in connection with the transactions contemplated by this Agreement,
Trust IX and Trust II shall each bear its own expenses in connection with the
transactions contemplated by this Agreement.
1.4 On or as soon after the closing date established in paragraph 3.1
hereof (the "Closing Date") as is conveniently practicable (the "Liquidation
Date"), the Intermediate Income Fund will liquidate and distribute pro rata to
shareholders of record ("Intermediate Income Fund shareholders"), determined
as of the close of business on the last business day preceding the Closing
Date (the "Valuation Date"), the Reorganization Shares received by the
Intermediate Income Fund pursuant to paragraph 1.1 in actual or constructive
exchange for the shares of the Intermediate Income Fund held by the
Intermediate Income Fund shareholders. Such liquidation and distribution will
be accomplished by the transfer of the Reorganization Shares then credited to
the account of the Intermediate Income Fund on the books of the Limited
Maturity Fund, to open accounts on the share records of the Limited Maturity
Fund in the names of the Intermediate Income Fund shareholders and
representing the respective pro rata number of the Reorganization Shares due
such shareholders. The Limited Maturity Fund will not issue share certificates
representing the Reorganization Shares in connection with such exchange,
except in connection with pledges and assignments and in certain other limited
circumstances.
1.5 Intermediate Income Fund shareholders holding certificates
representing their ownership of shares of beneficial interest of the
Intermediate Income Fund shall surrender such certificates or deliver an
affidavit with respect to lost certificates, in such form and accompanied by
such surety bonds as the Intermediate Income Fund may require (collectively,
an "Affidavit"), to the Intermediate Income Fund prior to the Closing Date.
Any Intermediate Income Fund certificate which remains outstanding on the
Closing Date shall be deemed to be cancelled, shall no longer evidence
ownership of shares of beneficial interest of the Intermediate Income Fund and
shall not evidence ownership of the Reorganization Shares. Unless and until
any such certificate shall be so surrendered or an Affidavit relating thereto
shall be delivered, dividends and other distributions payable by the Limited
Maturity Fund subsequent to the Closing Date with respect to the
Reorganization Shares allocable to the holders of such certificate(s) shall be
paid to the holder of such certificate(s), but such shareholder may not redeem
or transfer the Reorganization Shares received in the Reorganization.
1.6 Any transfer taxes payable upon issuance of the Reorganization Shares
in a name other than the registered holder of the Reorganization Shares on the
books of the Intermediate Income Fund as of that time shall, as a condition of
such issuance and transfer, be paid by the person to whom such Reorganization
Shares are to be issued and transferred.
1.7 The Intermediate Income Fund Series shall be terminated promptly
following the Liquidation Date.
2. VALUATION
2.1 The net asset value of the Reorganization Shares and the net value of
the assets of the Intermediate Income Fund to be transferred shall in each
case be determined as of the close of business on the Valuation Date. The net
asset value of the Reorganization Shares shall be computed by the Custodian in
the manner set forth in Trust IX's Amended and Restated Declaration of Trust
("Trust IX's Declaration of Trust") or By-laws and the Limited Maturity Fund's
then current prospectus and statement of additional information and shall be
computed to not less than two decimal places. The net value of the assets of
the Intermediate Income Fund to be transferred shall be computed by the
Custodian by calculating the value of the assets transferred by the
Intermediate Income Fund and by subtracting therefrom the amount of the
liabilities assigned and transferred to the Limited Maturity Fund, said assets
and liabilities to be valued in the manner set forth in Trust II's Amended and
Restated Declaration of Trust ("Trust II's Declaration of Trust") or By-laws
and the Intermediate Income Fund's then current prospectus and statement of
additional information.
2.2 The number of Reorganization Shares to be issued (including fractional
shares, if any) in exchange for the Intermediate Income Fund's assets shall be
determined by dividing the net value of the Intermediate Income Fund assets by
the net asset value per Reorganization Share, both as determined in accordance
with paragraph 2.1.
2.3 All computations of value shall be made by the Custodian in accordance
with its regular practice as pricing agent for the Limited Maturity Fund and
the Intermediate Income Fund, as applicable.
3. CLOSING AND CLOSING DATE
3.1 The Closing Date shall be as soon as practicable after the
reorganization described above is approved by shareholders of the Intermediate
Income Fund, but in no event later than July 31, 2000. The Closing shall be
held at 10:00 a.m., Boston time, at the offices of the Limited Maturity Fund,
500 Boylston Street, Boston, Massachusetts 02116, or at such other time and/or
place as the parties may agree.
3.2 Portfolio securities shall be delivered by the Intermediate Income
Fund to the Custodian for the account of the Limited Maturity Fund on the
Closing Date, duly endorsed in proper form for transfer, in such condition as
to constitute good delivery thereof in accordance with the custom of brokers,
and shall be accompanied by all necessary federal and state stock transfer
stamps or a check for the appropriate purchase price thereof. The cash
delivered shall be in the form of currency, certified or official bank check
in Boston funds or federal fund wire, payable to the order of "State Street
Bank and Trust Company, Custodian for the MFS Limited Maturity Fund" or in the
name of any successor organization.
3.3 In the event that on the proposed Valuation Date (a) the New York
Stock Exchange shall be closed to trading or trading thereon shall be
restricted, or (b) trading or the reporting of trading on said Exchange or
elsewhere shall be disrupted so that accurate appraisal of the net value of
the assets of the Limited Maturity Fund or the Intermediate Income Fund is
impracticable, the Closing Date shall be postponed until the first business
day after the day when trading shall have been fully resumed and reporting
shall have been restored; provided that if trading shall not be fully resumed
and reporting restored on or before July 31, 2000, this Agreement may be
terminated by the Limited Maturity Fund or the Intermediate Income Fund upon
the giving of written notice to the other party.
3.4 The Intermediate Income Fund shall deliver at the Closing a list of
the names, addresses, federal taxpayer identification numbers and backup
withholding and nonresident alien withholding status of the Intermediate
Income Fund shareholders and the number of outstanding shares of beneficial
interest of the Intermediate Income Fund owned by each such shareholder, all
as of the close of business on the Valuation Date (the "Shareholder List").
The Limited Maturity Fund shall issue and deliver to the Intermediate Income
Fund a confirmation evidencing the Reorganization Shares to be credited on the
Liquidation Date, or provide evidence satisfactory to the Intermediate Income
Fund that such Reorganization Shares have been credited to the Intermediate
Income Fund's account on the books of the Limited Maturity Fund. At the
Closing each party shall deliver to the other such bills of sale, checks,
assignments, stock certificates, receipts or other documents as such other
party or its counsel may reasonably request.
4. REPRESENTATIONS AND WARRANTIES
4.1 Trust II and the Intermediate Income Fund represent and warrant to
Trust IX and the Limited Maturity Fund as follows:
(a) Trust II is a business trust duly organized, validly existing and
in good standing under the laws of The Commonwealth of Massachusetts and
has the power to own all of its properties and assets and, subject to
approval by the shareholders of the Intermediate Income Fund, to carry out
the Agreement. Neither Trust II nor the Intermediate Income Fund is
required to qualify to do business in any other jurisdiction. The
Agreement has been duly authorized by Trust II, subject to the approval of
the shareholders of the Intermediate Income Fund. Trust II has all
necessary federal, state and local authorizations to own all of the
properties and assets of Trust II and to carry on its business as now
being conducted;
(b) Trust II is a duly registered investment company classified as a
management company of the open-end type and its registration with the
Securities and Exchange Commission (the "Commission") as an investment
company under the Investment Company Act of 1940, as amended (the "1940
Act"), is in full force and effect;
(c) Trust II is not, and the execution, delivery and performance of
this Agreement by Trust II will not result, in violation of any provision
of the Declaration of Trust or By-Laws of Trust II or of any agreement,
indenture, instrument, contract, lease or other undertaking to which Trust
II is a party or by which Trust II or the Intermediate Income Fund is
bound;
(d) Trust II has no material contracts or other commitments (other
than this Agreement) which will not be terminated without liability to the
Intermediate Income Fund at or prior to the Closing Date;
(e) Except as otherwise disclosed in writing to and accepted by the
Limited Maturity Fund, no litigation or administrative proceeding or
investigation of or before any court or governmental body is currently
pending or threatened as to the Intermediate Income Fund or any of its
properties or assets. Trust II knows of no facts which might form the
basis for the institution of such proceedings, and Trust II is not a party
to or subject to the provisions of any order, decree or judgment of any
court or governmental body which materially and adversely affects its
business or its ability to consummate the transactions herein
contemplated;
(f) The statement of assets and liabilities, including the schedule of
portfolio investments, of the Intermediate Income Fund as of November 30,
1999 and the related statement of operations for the year ended November
30, 1999, and the statement of changes in net assets for the years ended
November 30, 1999 and November 30, 1998 (copies of which have been
furnished to the Limited Maturity Fund) have been audited by Deloitte &
Touche LLP, independent accountants, and present fairly in all material
respects the financial position of the Intermediate Income Fund as of
November 30, 1999 and the results of its operations and changes in net
assets for the respective stated periods in accordance with generally
accepted accounting principles consistently applied, and there are no
known actual or contingent liabilities of the Intermediate Income Fund as
of the respective dates thereof not disclosed therein;
(g) Since November 30, 1999, there has not been any material adverse
change in the Intermediate Income Fund's financial condition, assets,
liabilities or business other than changes occurring in the ordinary
course of business, or any incurrence by the Intermediate Income Fund of
indebtedness maturing more than one year from the date such indebtedness
was incurred, except as otherwise disclosed to and accepted by the Limited
Maturity Fund. For the purposes of this subparagraph (g), a decline in net
asset value per share of beneficial interest of the Intermediate Income
Fund as a result of losses upon the disposition of investments or from
changes in the value of investments held by the Intermediate Income Fund,
or a distribution or a payment of dividends shall not constitute a
material adverse change;
(h) At the date hereof and at the Closing Date, all federal, state and
other tax returns and reports, including information returns and payee
statements, of the Intermediate Income Fund required by law to have been
filed or furnished by such dates shall have been filed or furnished, and
all federal, state and other taxes, interest and penalties shall have been
paid so far as due, and to the best of the Intermediate Income Fund's
knowledge no such return is currently under audit and no assessment has
been asserted with respect to such returns or reports;
(i) The Intermediate Income Fund has elected to be treated as a
regulated investment company for federal tax purposes, has qualified as
such for each taxable year of its operation and will qualify as such as of
the Closing Date;
(j) The authorized capital of Trust II consists of an unlimited number
of shares of beneficial interest, no par value, divided into four series
and, with respect to the Intermediate Income Fund, into three classes at
the date hereof. All issued and outstanding shares of beneficial interest
attributable to the Intermediate Income Fund are, and at the Closing Date
will be, duly and validly issued and outstanding, fully paid and
nonassessable. All of the issued and outstanding shares of beneficial
interest attributable to the Intermediate Income Fund will, at the time of
Closing, be held by the persons and in the amounts set forth in the
Shareholder List. Trust II does not have outstanding any options, warrants
or other rights to subscribe for or purchase any shares of beneficial
interest attributable to the Intermediate Income Fund, nor is there
outstanding any security convertible into any shares of beneficial
interest attributable to the Intermediate Income Fund;
(k) Except as previously disclosed to the Limited Maturity Fund, at
the Closing Date Trust II will have good and marketable title to the
assets attributable to the Intermediate Income Fund to be transferred to
the Limited Maturity Fund pursuant to paragraph 1.1, and full right, power
and authority to sell, assign, transfer and deliver such assets hereunder,
and upon delivery and payment for such assets, the Limited Maturity Fund
will acquire good and marketable title thereto subject to no restrictions
on the full transfer thereof, including such restrictions as might arise
under the Securities Act of 1933, as amended (the "1933 Act");
(l) The execution, delivery and performance of this Agreement have
been duly authorized by all necessary action on the part of Trust II (with
the exception of the approval of this Agreement by Intermediate Income
Fund shareholders holding at least a majority of the outstanding voting
securities (as defined by the 1940 Act) of the Intermediate Income Fund),
and this Agreement constitutes a valid and binding obligation of Trust II
enforceable in accordance with its terms, subject to the approval of the
Intermediate Income Fund shareholders;
(m) The information to be furnished by the Intermediate Income Fund
for use in applications for orders, registration statements, proxy
materials and other documents which may be necessary in connection with
the transactions contemplated hereby shall be accurate and complete and
shall comply fully with federal securities and other laws and regulations
thereunder applicable thereto;
(n) The proxy statement of the Intermediate Income Fund (the "Proxy
Statement") to be included in the Registration Statement referred to in
paragraph 5.7 (other than written information furnished by the Limited
Maturity Fund for inclusion therein, as covered by the Limited Maturity
Fund's warranty in paragraph 4.2(n)), on the effective date of the
Registration Statement, on the date of the meeting of the Intermediate
Income Fund shareholders and on the Closing Date, will not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which such statements were made, not
misleading;
(o) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by the Trust II
and the Intermediate Income Fund of the transactions contemplated by this
Agreement, except such as have been obtained under the 1933 Act, the
Securities Exchange Act of 1934, as amended (the "1934 Act") and the 1940
Act, and such as may be required under state securities laws;
(p) All of the issued and outstanding shares of beneficial interest of
Trust II attributable to the Intermediate Income Fund have been offered
for sale and sold in conformity with all applicable federal and state
securities laws, except as may have been previously disclosed in writing
to the Limited Maturity Fund; and
(q) The current prospectus and statement of additional information of
the Intermediate Income Fund, each dated April 1, 1999 as supplemented and
updated from time to time (the "Intermediate Income Fund Prospectus"),
will conform in all material respects to the applicable requirements of
the 1933 Act and the 1940 Act and the rules and regulations of the
Commission thereunder on the date of the Proxy Statement, on the date of
the meeting of Intermediate Income Fund shareholders and on the Closing
Date and will not on such dates include any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading.
4.2 Trust IX and the Limited Maturity Fund represent and warrant to Trust
II and the Intermediate Income Fund as follows:
(a) Trust IX is a business trust duly organized, validly existing and
in good standing under the laws of The Commonwealth of Massachusetts and
has the power to own all of its properties and assets and to carry out the
Agreement. Neither Trust IX nor the Limited Maturity Fund is required to
qualify to do business in any other jurisdiction. The Agreement has been
duly authorized by Trust IX. Trust IX has all necessary federal, state and
local authorization to own all of its properties and assets and to carry
on its business as now being conducted;
(b) Trust IX is a duly registered investment company classified as a
management company of the open-end type and its registration with the
Commission as an investment company under the 1940 Act is in full force
and effect;
(c) The current prospectus and statement of additional information of
the Limited Maturity Fund, dated September 1, 1999 and September 1, 1999
as amended September 22, 1999, respectively, as supplemented and updated
from time to time (the "Limited Maturity Fund Prospectus"), and the
Registration Statement referred to in paragraph 5.7 (other than written
information furnished by the Intermediate Income Fund for inclusion
therein as covered by the Intermediate Income Fund's warranty in paragraph
4.1(m)) will conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the rules and
regulations of the Commission thereunder on the date of the Proxy
Statement, on the date of the meeting of the Intermediate Income Fund
shareholders and on the Closing Date and will not on such dates include
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading;
(d) At the Closing Date, Trust IX, will have good and marketable title
to the assets of the Limited Maturity Fund;
(e) Trust IX is not, and the execution, delivery and performance of
this Agreement will not result, in violation of any provisions of its
Declaration of Trust or By-Laws or of any agreement, indenture,
instrument, contract, lease or other undertaking to which Trust IX is a
party or by which Trust IX or the Limited Maturity Fund is bound;
(f) No material litigation or administrative proceeding or
investigation of or before any court or governmental body is currently
pending or threatened against Trust IX or any of its properties or assets,
except as previously disclosed in writing to the Intermediate Income Fund.
Trust IX knows of no facts which might form the basis for the institution
of such proceedings, and Trust IX is not a party to or subject to the
provisions of any order, decree or judgment of any court or governmental
body which materially and adversely affects its business or its ability to
consummate the transaction herein contemplated;
(g) The statements of assets and liabilities, including the schedule
of portfolio investments, of the Limited Maturity Fund as of April 30,
1999, and the related statement of operations for the year then ended, and
the statement of changes in net assets for the years ended April 30, 1999
and April 30, 1998 (copies of which have been furnished to the
Intermediate Income Fund) have been audited by Deloitte & Touche LLP,
independent auditors, and present fairly in all material respects the
financial position of the Limited Maturity Fund as of April 30, 1999 and
the results of its operations and changes in net assets for the respective
stated periods in accordance with generally accepted accounting principles
consistently applied and there are no known actual or contingent
liabilities of the Limited Maturity Fund as of the respective dates
thereof not disclosed therein;
(h) Since April 30, 1999, there has not been any material adverse
change in the Limited Maturity Fund's financial condition, assets,
liabilities or business other than changes occurring in the ordinary
course of business or any incurrence by the Limited Maturity Fund of
indebtedness maturing more than one year from the date such indebtedness
was incurred except as otherwise disclosed to the Intermediate Income
Fund. For the purposes of this subparagraph (h), a decline in net asset
value per share of beneficial interest of the Limited Maturity Fund
resulting from losses upon the disposition of investments or from changes
in the value of investments held by the Limited Maturity Fund, or a
distribution or a payment of dividends, shall not constitute a material
adverse change;
(i) The Limited Maturity Fund has elected to be treated as a regulated
investment company for federal tax purposes, has qualified as such for
each taxable year of its operation, and will qualify as such as of the
Closing Date;
(j) At the date hereof and at the Closing Date, all federal, state and
other tax returns and reports, including information returns and payee
statements, of the Limited Maturity Fund required by law to have been
filed or furnished by such dates shall have been filed or furnished, and
all federal, state and other taxes, interest and penalties shall have been
paid so far as due, or provision shall have been made for the payment
thereof, and to the best of the Limited Maturity Fund's knowledge no such
return is currently under audit and no assessment has been asserted with
respect to such returns or reports;
(k) The authorized capital of Trust IX consists of an unlimited number
of shares of beneficial interest, no par value, divided into eight series
and, with respect to the Limited Maturity Fund, into four classes, at the
date hereof. All issued and outstanding shares of beneficial interest
attributable to the Limited Maturity Fund are, and at the Closing Date
will be, duly and validly issued and outstanding, fully paid and
nonassessable by Trust IX. Trust IX does not have outstanding any options,
warrants or other rights to subscribe for or purchase any shares of
beneficial interest attributable to the Limited Maturity Fund, nor is
there outstanding any security convertible into any shares of beneficial
interest attributable to the Limited Maturity Fund;
(l) The execution, delivery and performance of this Agreement have
been duly authorized by all necessary action on the part of Trust IX, and
this Agreement constitutes a valid and binding obligation of Trust IX
enforceable in accordance with its terms;
(m) The Reorganization Shares to be issued and delivered to Trust II
pursuant to the terms of this Agreement will have been duly authorized at
the Closing Date, and when so issued and delivered, will be duly and
validly issued Limited Maturity Fund shares and will be fully paid and
nonassessable by Trust IX;
(n) The information to be furnished by the Limited Maturity Fund for
use in applications for orders, registration statements, proxy materials
and other documents which may be necessary in connection with the
transactions contemplated hereby shall be accurate and complete and shall
comply fully with federal securities and other laws and regulations
applicable thereto;
(o) Trust IX agrees to use all reasonable efforts to obtain the
approvals and authorizations required by the 1933 Act, the 1940 Act and
such of the state Blue Sky or securities laws as it may deem appropriate
in order to continue its operations and the operations of the Limited
Maturity Fund after the Closing Date;
(p) All of Trust IX's issued and outstanding shares of beneficial
interest attributable to the Limited Maturity Fund have been offered for
sale and sold in conformity with all applicable federal and state
securities laws, except as may have been previously disclosed in writing
to the Intermediate Income Fund; and
(q) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by Trust IX of the
transactions contemplated by the Agreement, except such as have been
obtained under the 1933 Act, the 1934 Act and the 1940 Act, and such as
may be required under state securities laws.
5. COVENANTS
5.1 The Intermediate Income Fund and the Limited Maturity Fund each will
operate its business in the ordinary course between the date hereof and the
Closing Date, it being understood that such ordinary course of business will
include the declaration and payment of customary dividends and distributions.
5.2 Trust II will call a meeting of shareholders of the Intermediate
Income Fund (the "Meeting") to consider and act upon this Agreement and to
take all other action necessary to obtain approval of the transactions
contemplated herein.
5.3 Trust II covenants that the Reorganization Shares to be issued
hereunder are not being acquired for the purpose of making any distribution
thereof other than in accordance with the terms of this Agreement.
5.4 Trust II will provide such information as Trust IX reasonably requests
concerning the ownership of the Intermediate Income Fund's shares of
beneficial interest, including the information specified in paragraph 3.4.
5.5 Subject to the provisions of this Agreement, Trust II and Trust IX
each will take, or cause to be taken, all action, and do or cause to be done
all things, reasonably necessary, proper or advisable to consummate and make
effective the transactions contemplated by this Agreement.
5.6 Trust II shall furnish to Trust IX on the Closing Date the Statement
of Assets and Liabilities of the Intermediate Income Fund as of the Valuation
Date, which statement shall be prepared in accordance with generally accepted
accounting principles consistently applied and shall be certified by Trust
II's Treasurer or Assistant Treasurer. As promptly as practicable, but in any
case within 60 days after the Closing Date, Trust II or its designee shall
furnish to Trust IX, in such form as is reasonably satisfactory to Trust IX, a
statement of the earnings and profits of the Intermediate Income Fund for
federal income tax purposes, and of any capital loss carryovers and other
items that the Limited Maturity Fund will succeed to and take into account as
a result of Section 381 of the Code.
5.7 Trust IX will prepare and file with the Securities and Exchange
Commission a Registration Statement on Form N-14 (the "Registration
Statement"), in compliance with the 1933 Act and the 1940 Act, in connection
with the issuance of the Reorganization Shares as contemplated herein.
5.8 Trust IX will prepare a Proxy Statement, to be included in the
Registration Statement in compliance with the 1933 Act, the 1934 Act and the
1940 Act and the rules and regulations thereunder (collectively, the "Acts")
in connection with the Meeting of the Intermediate Income Fund shareholders to
consider approval of this Agreement.
Trust II agrees to provide Trust IX with information applicable to Trust
II and Intermediate Income Fund required under the Acts for inclusion in the
Proxy Statement.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF TRUST II
The obligations of Trust II to consummate the transactions provided for
herein shall be, at its election, subject to the performance by Trust IX of
all the obligations to be performed by it hereunder on or before the Closing
Date, and, in addition thereto, the following further conditions:
6.1 All representations and warranties of Trust IX and the Limited
Maturity Fund contained in this Agreement shall be true and correct in all
material respects as of the date hereof and, except as they may be affected by
the transactions contemplated by this Agreement, as of the Closing Date with
the same force and effect as if made on and as of the Closing Date;
6.2 Trust IX shall have delivered to Trust II a certificate executed in
its name by its President, Vice President, Secretary or its Assistant
Secretary and its Treasurer or Assistant Treasurer, in form satisfactory to
Trust II and dated as of the Closing Date, to the effect that the
representations and warranties of Trust IX and the Limited Maturity Fund made
in this Agreement are true and correct at and as of the Closing Date, except
as they may be affected by the transactions contemplated by this Agreement,
and as to such other matters as Trust II shall reasonably request; and
6.3 Trust II shall have received on the Closing Date a favorable opinion
from James R. Bordewick, Jr., Associate General Counsel and Senior Vice
President of Massachusetts Financial Services Company ("MFS"), Trust IX's
investment adviser, dated as of the Closing Date, in a form satisfactory to
Trust II, to the effect that:
(a) Trust IX is a business trust duly organized and validly existing
under the laws of The Commonwealth of Massachusetts and has power to own
all of its properties and assets and to carry on its business as currently
conducted, as described in the Registration Statement; (b) the Agreement
has been duly authorized, executed and delivered by Trust IX and, assuming
that the Limited Maturity Fund Prospectus contained in the Registration
Statement, the Registration Statement, and Proxy Statement comply with the
1933 Act, the 1934 Act and the 1940 Act and the rules and regulations
thereunder, and assuming the due authorization, execution and delivery of
the Agreement by Trust II, is a valid and binding obligation of Trust IX
enforceable against Trust IX in accordance with its terms, except as the
same may be limited by bankruptcy, insolvency, reorganization or other
similar laws affecting the enforcement of creditors' rights generally and
other equitable principles; (c) the Reorganization Shares to be issued to
the Intermediate Income Fund shareholders as provided by this Agreement
are duly authorized and upon such delivery will be validly issued and
outstanding and fully paid and nonassessable by Trust IX, and no
shareholder of the Limited Maturity Fund has any preemptive right to
subscription or purchase in respect thereof pursuant to any federal or
Massachusetts law or the Declaration of Trust or By-laws of Trust IX; (d)
the execution and delivery of the Agreement did not, and the consummation
of the transactions contemplated hereby will not, violate Trust IX's
Declaration of Trust or By-Laws, or any material provision of any
agreement (known to such counsel) to which Trust IX is a party or by which
it or the Limited Maturity Fund is bound; (e) to the knowledge of such
counsel, no consent, approval, authorization or order of any court or
governmental authority is required for the consummation by Trust IX of the
transactions contemplated herein, except such as have been obtained under
the 1933 Act, the 1934 Act and the 1940 Act, and such as may be required
under state securities laws; (f) the descriptions in the Registration
Statement of statutes, legal and governmental proceedings and contracts
and other documents, if any, only insofar as they relate to Trust IX and
the Limited Maturity Fund, are accurate in all material respects; (g) such
counsel does not know of any legal or governmental proceedings existing on
or before the date of mailing of the Proxy Statement or the Closing Date,
only insofar as they relate to Trust IX or the Limited Maturity Fund,
required to be described in the Registration Statement which are not
described as required; (h) to the knowledge of such counsel, Trust IX is a
duly registered investment company and its registration with the
Securities and Exchange Commission as an investment company under the 1940
Act is in full force and effect; and (i) to the best knowledge of such
counsel, no litigation or administrative proceeding or investigation of or
before any court or governmental body currently is pending or threatened
as to Trust IX or the Limited Maturity Fund or any of Trust IX's
properties or assets, and Trust IX is not a party to or subject to the
provisions of any order, decree or judgment of any court or governmental
body, which materially and adversely affects its business or its ability
to consummate the transactions contemplated hereby. Such opinion shall
also state that while such counsel has not verified, and is not passing
upon and does not assume any responsibility for the accuracy, completeness
or fairness of the statements contained in the Registration Statement, he
generally reviewed and discussed certain of such statements with certain
officers of Trust IX and that in the course of such review and discussion
no facts came to the attention of such counsel which led him to believe
that, on the effective date of the Registration Statement or on the date
of the Intermediate Income Fund shareholders' meeting and only insofar as
such statements relate to Trust IX and the Limited Maturity Fund, the
Registration Statement contained any statement which, in the light of the
circumstances under which it was made, was false or misleading with
respect to any material fact or which omitted to state any material fact
required to be stated therein or necessary to make the statements therein
not false or misleading. Such opinion may state that such counsel does not
express any opinion or belief as to the financial statements or other
financial or statistical data, or as to the information relating to Trust
II or the Intermediate Income Fund, contained in the Proxy Statement or
Registration Statement. Such opinion may also state that such opinion is
solely for the benefit of Trust II, its Board of Trustees and its officers
and of the Intermediate Income Fund. Such opinion shall also include such
other matters incidental to the transaction contemplated hereby as Trust
II may reasonably request.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE TRUST IX
The obligations of Trust IX to complete the transactions provided for
herein shall be, at its election, subject to the performance by Trust II of
all the obligations to be performed by it hereunder on or before the Closing
Date and, in addition thereto, the following conditions:
7.1 All representations and warranties of Trust II and the Intermediate
Income Fund contained in this Agreement shall be true and correct in all
material respects as of the date hereof and, except as they may be affected by
the transactions contemplated by this Agreement, as of the Closing Date with
the same force and effect as if made on and as of the Closing Date;
7.2 Trust II shall have delivered to Trust IX the Statement of Assets and
Liabilities, together with a list of the Intermediate Income Fund's portfolio
securities showing the federal income tax bases and holding periods of such
securities, as of the Closing Date, certified by the Treasurer or Assistant
Treasurer of Trust II;
7.3 Trust II shall have delivered to Trust IX on the Closing Date a
certificate executed in its name by its President, Vice President, Secretary
or its Assistant Secretary and its Treasurer or Assistant Treasurer, in form
and substance satisfactory to Trust IX and dated as of the Closing Date, to
the effect that the representations and warranties of Trust II in this
Agreement are true and correct at and as of the Closing Date, except as they
may be affected by the transactions contemplated by this Agreement, and as to
such other matters as Trust IX shall reasonably request;
7.4 Trust IX shall have received on the Closing Date a favorable opinion
from James R. Bordewick, Jr., Associate General Counsel and Senior Vice
President of MFS, Trust II's investment adviser, dated as of the Closing Date,
in a form satisfactory to Trust IX to the effect that:
(a) Trust II is a business trust duly organized and validly existing under
the laws of The Commonwealth of Massachusetts and has power to own all of
its properties and assets and to carry on its business as currently
conducted; (b) the Agreement has been duly authorized, executed and
delivered by Trust II and, assuming that the Limited Maturity Fund
Prospectus, the Registration Statement and the Proxy Statement comply with
the 1933 Act, the 1934 Act and the 1940 Act and the rules and regulations
thereunder, and assuming due authorization, execution and delivery of the
Agreement by Trust IX, is a valid and binding obligation of Trust II
enforceable against Trust II and the Intermediate Income Fund in
accordance with its terms, except as the same may be limited by
bankruptcy, insolvency, reorganization or other similar laws affecting the
enforcement of creditors' rights generally and other equitable principles;
(c) the execution and delivery of the Agreement did not, and the
consummation of the transactions contemplated hereby will not, violate
Trust II's Declaration of Trust or By-Laws, or any material provision of
any agreement (known to such counsel) to which Trust II is a party or by
which it or the Intermediate Income Fund is bound; (d) to the knowledge of
such counsel, no consent, approval, authorization or order of any court or
governmental authority is required for the consummation by Trust II of the
transactions contemplated herein, except such as have been obtained under
the 1933 Act, the 1934 Act and the 1940 Act, and such as may be required
under state securities laws; (e) the descriptions in the Proxy Statement
of statutes, legal and governmental proceedings and contracts and other
documents, if any, only insofar as they relate to Trust II and the
Intermediate Income Fund, are accurate in all material respects; (f) such
counsel does not know of any legal or governmental proceedings existing on
or before the date of mailing the Proxy Statement or the Closing Date,
only insofar as they relate to Trust II or the Intermediate Income Fund,
required to be described in the Proxy Statement which are not described as
required; (g) to the knowledge of such counsel, Trust II is a duly
registered investment company and its registration with the Securities and
Exchange Commission as an investment company under the 1940 Act is in full
force and effect and (h) to the best knowledge of such counsel, no
litigation or administrative proceeding or investigation of or before any
court or governmental body is currently pending or threatened as to Trust
II or any of its properties or assets and Trust II is not a party to or
subject to the provisions of any order, decree or judgment of any court or
governmental body, which materially and adversely affects its business or
its ability to consummate the transactions contemplated hereby. Such
opinion shall also state that while such counsel has not verified, and is
not passing upon and does not assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the Proxy
Statement, he generally reviewed and discussed certain of such statements
with certain officers of Trust II and that in the course of such review
and discussion no facts came to the attention of such counsel which led
him to believe that, on the effective date of the Registration Statement
or on the date of the Intermediate Income Fund shareholders' meeting and
only insofar as such statements relate to Trust II or the Intermediate
Income Fund, the Proxy Statement contained any statement which, in the
light of the circumstances under which it was made, was false or
misleading with respect to any material fact or which omitted to state any
material fact required to be stated therein or necessary to make the
statements therein not false or misleading. Such opinion may state that
such counsel does not express any opinion or belief as to the financial
statements or other financial or statistical data, or as to the
information relating to Trust IX and the Limited Maturity Fund, contained
in the Proxy Statement or Registration Statement. Such opinion may also
state that such opinion is solely for the benefit of Trust IX, its Board
of Trustees and its officers and of the Limited Maturity Fund. Such
opinion shall also include such other matters incident to the transaction
contemplated hereby as Trust IX may reasonably request.
7.5 Any shares of the Intermediate Income Fund issued in order to provide
the initial capital of the Intermediate Income Fund as required by Section
14(a) of the 1940 Act and outstanding as of the date of this Agreement shall
have been redeemed and the proceeds of such redemption reduced by the amount
of any unamortized organizational expenses allocated to the Intermediate
Income Fund prior to the Valuation Date.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE MFS SERIES TRUST IX AND
THE MFS SERIES TRUST II
The obligations of Trust II hereunder are, at the option of Trust IX, and
the obligations of Trust IX hereunder are, at the option of Trust II, each
subject to the further conditions that on or before the Closing Date:
8.1 The Agreement and the transactions contemplated herein shall have been
approved by the requisite vote of the holders of the outstanding shares of
beneficial interest of the Intermediate Income Fund in accordance with the
provisions of Trust II's Declaration of Trust and By-Laws, and certified
copies of the resolutions evidencing such approval shall have been delivered
to Trust IX;
8.2 On the Closing Date no action, suit or other proceeding shall be
pending before any court or governmental agency in which it is sought to
restrain or prohibit, or obtain damages or other relief in connection with,
this Agreement or the transactions contemplated herein;
8.3 All consents of other parties and all other consents, orders and
permits of federal, state and local regulatory authorities (including those of
the Commission and of state Blue Sky and securities authorities, including
"no- action" positions of such federal or state authorities) deemed necessary
by Trust IX or Trust II to permit consummation, in all material respects, of
the transactions contemplated hereby shall have been obtained, except where
failure to obtain any such consent, order or permit would not involve a risk
of a material adverse effect on the assets or properties of the Limited
Maturity Fund or the Intermediate Income Fund, provided that either Trust IX
or Trust II may waive any such conditions for itself or for the Limited
Maturity Fund or the Intermediate Income Fund, respectively;
8.4 The Registration Statement shall have become effective under the 1933
Act and no stop orders suspending the effectiveness thereof shall have been
issued and, to the best knowledge of the parties hereto, no investigation or
proceeding for that purpose shall have been instituted or be pending,
threatened or contemplated under the 1933 Act;
8.5 The Intermediate Income Fund shall have distributed to its
shareholders all of the excess of (i) its investment income excludable from
gross income under Section 103(a) of the Code over (ii) its deductions
disallowed under Sections 265 and 171(a)(2) of the Code, for its taxable year
ending on the Closing Date and all of its net capital gain as such term is
used in Section 852(b)(3)(C) of the Code, after reduction by any capital loss
carryforward, for its taxable year ending on the Closing Date;
8.6 The parties shall have received an opinion of Bingham Dana LLP,
satisfactory to Trust II and Trust IX, substantially to the effect that for
federal income tax purposes:
(a) The acquisition by the Limited Maturity Fund of all of the assets
of the Intermediate Income Fund, solely in exchange for Reorganization
Shares and the assumption by the Limited Maturity Fund of the stated
liabilities of the Intermediate Income Fund as set forth in the Statement
of Assets and Liabilities, followed by the distribution by the
Intermediate Income Fund of the Reorganization Shares in complete
liquidation to the shareholders of the Intermediate Income Fund in
exchange for their Intermediate Income Fund shares of beneficial interest
and the termination of the Intermediate Income Fund pursuant to this
Agreement, will constitute a reorganization within the meaning of Section
368(a) of the Code, and the Intermediate Income Fund and the Limited
Maturity Fund will each be "a party to a reorganization" within the
meaning of Section 368(b) of the Code;
(b) No gain or loss will be recognized by the Intermediate Income Fund
upon the transfer of all of its assets to the Limited Maturity Fund solely
in exchange for Reorganization Shares and the assumption by the Limited
Maturity Fund of the stated liabilities of the Intermediate Income Fund as
set forth in the Statement of Assets and Liabilities or upon the
distribution to the Intermediate Income Fund shareholders of such
Reorganization Shares pursuant to the Agreement;
(c) No gain or loss will be recognized by the Limited Maturity Fund
upon the receipt of the assets of the Intermediate Income Fund solely in
exchange for Reorganization Shares and the assumption by the Limited
Maturity Fund of the stated liabilities of the Intermediate Income Fund as
set forth in the Statement of Assets and Liabilities;
(d) The basis of the assets of the Intermediate Income Fund acquired
by the Limited Maturity Fund will be, in each instance, the same as the
basis of those assets in the hands of the Intermediate Income Fund
immediately prior to the transfer;
(e) The holding period of the assets of the Intermediate Income Fund
in the hands of the Limited Maturity Fund will include, in each instance,
the holding period of such assets in the hands of the Intermediate Income
Fund;
(f) The shareholders of the Intermediate Income Fund will not
recognize gain or loss upon the exchange of all of their Intermediate
Income Fund shares of beneficial interest solely for Reorganization Shares
as part of the transaction;
(g) The basis of the Reorganization Shares to be received by each
Intermediate Income Fund shareholder will be, in the aggregate, the same
as the basis, in the aggregate, of the Intermediate Income Fund shares of
beneficial interest surrendered by such shareholder in exchange therefor;
and
(h) The holding period of the Reorganization Shares to be received by
each Intermediate Income Fund shareholder will include, in each instance,
the holding period of the Intermediate Income Fund shares of beneficial
interest surrendered by such shareholder in exchange therefor, provided
the Intermediate Income Fund shares were held by such shareholder as
capital assets on the date of the exchange.
Trust IX and Trust II each agree to make and provide representations with
respect to the Limited Maturity Fund and the Intermediate Income Fund,
respectively, which are reasonably necessary to enable legal counsel to
deliver an opinion substantially as set forth in this paragraph 8.6.
Notwithstanding anything herein to the contrary, Trust IX and Trust II may not
waive in any material respect the conditions set forth in this paragraph 8.6.
9. BROKERAGE FEES AND EXPENSES; CONTINGENT DEFERRED SALES CHARGES;
CERTAIN TAX MATTERS; CERTAIN RECORDS
9.1 Trust IX and the Trust II each represents and warrants to the other
that there are no brokers or finders entitled to receive any payments from
either party to this Agreement in connection with the transactions provided
for herein.
9.2 The Limited Maturity Fund and the Intermediate Income Fund will each
be liable for its own expenses incurred in connection with entering into and
carrying out the provisions of this Agreement whether or not the
Reorganization is consummated.
9.3 Reorganization Shares issued in connection with the transactions
contemplated herein will not be subject to any initial sales charge; however,
if any Intermediate Income Fund shares are at the Closing Date subject to a
contingent deferred sales charge ("CDSC"), the Limited Maturity Fund CDSC
schedule and the methodology of aging such shares as set forth in the Limited
Maturity Fund Prospectus will apply to the Reorganization Shares issued in
respect of such Intermediate Income Fund shares and the Reorganization Shares
received by Intermediate Income Fund shareholders pursuant to paragraph 1.4
hereof will, for purposes of calculating the CDSC, if applicable, and
determining when the Limited Maturity Fund Class B Shares will convert to
Class A shares of the Limited Maturity Fund, be treated as if purchased on the
original date of purchase of the Intermediate Income Fund shares.
9.4 Trust II agrees that it or its designee shall, on behalf of the
Intermediate Income Fund, file or furnish all federal, state and other tax
returns, forms and reports, including information returns and payee
statements, if applicable, of the Intermediate Income Fund required by law to
be filed or furnished by such dates as required by law to be filed or
furnished, and shall provide such other federal and state tax information to
shareholders of the Intermediate Income Fund as has been customarily provided
by the Intermediate Income Fund, all with respect to the fiscal period
commencing December 1, 1999 and ending on the Closing Date.
9.5 Trust II agrees that it or its designee shall, on behalf of the
Intermediate Income Fund, deliver to Trust IX on the Closing Date or as soon
thereafter as possible: (i) Intermediate Income Fund shareholder statements
and tax forms (i.e. Forms 1099) for the year ended December 31, 1998, the year
ended December 31, 1999 and the period commencing January 1, 2000 through the
Closing Date (all on microfilm or microfiche, if available); (ii) detailed
records indicating the status of all certificates representing ownership of
the Intermediate Income Fund shares issued since inception of the Intermediate
Income Fund (e.g., indicating whether the certificates are outstanding or
cancelled); and (iii) for each Intermediate Income Fund shareholder as of the
Valuation Date, a record indicating the dollar amount of such shareholder's
Intermediate Income Fund share holdings as of such Date representing that
portion of such holdings subject to a CDSC as of such Date and that portion of
such holdings not subject to a CDSC as of such Date, together with such other
information with respect thereto as Trust IX may reasonably request.
10. ENTIRE AGREEMENT
Trust IX and Trust II agree that neither party has made any
representation, warranty or covenant not set forth herein or referred to in
paragraph 4 hereof or required in connection with paragraph 8.6 hereof and
that this Agreement constitutes the entire agreement between the parties.
11. TERMINATION
11.1 This Agreement may be terminated by the mutual agreement of Trust IX
and Trust II. In addition, either party may at its option terminate this
Agreement at or prior to the Closing Date because of:
(a) a material breach by the other of any representation, warranty or
agreement contained herein to be performed at or prior to the Closing
Date; or
(b) a condition herein expressed to be precedent to the obligations of
the terminating party which has not been met and which reasonably appears
will not or cannot be met.
11.2 In the event of any such termination, there shall be no liability for
damages on the part of either Trust IX or Trust II, or their respective
trustees or officers, to the other party or its trustees or officers, but each
shall bear the expenses incurred by it incidental to the preparation and
carrying out of this Agreement.
12. AMENDMENTS
This Agreement may be amended, modified or supplemented in such manner as
may be mutually agreed upon in writing by the authorized officers of Trust II
and Trust IX; provided, however, that following the meeting called by Trust II
pursuant to paragraph 5.2 of this Agreement, no such amendment may have the
effect of changing the provisions for determining the number of Reorganization
Shares to be issued to the Intermediate Income Fund shareholders under this
Agreement to the detriment of such shareholders without their further
approval; and provided further that nothing contained in this Article 12 shall
be construed to prohibit the parties from amending this Agreement to change
the Closing Date or the Valuation Date.
13. NOTICES
Any notice, report, statement or demand required or permitted by any
provisions of this Agreement shall be in writing and shall be given by prepaid
telegraph, telecopy or certified mail addressed to Trust IX or Trust II (as
applicable), 500 Boylston Street, Boston, Massachusetts 02116, Attention:
Stephen E. Cavan, General Counsel and Senior Vice President.
14. MISCELLANEOUS
14.1 The article and paragraph headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
14.2 This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
14.3 This Agreement shall be governed by and construed in accordance with
the laws of The Commonwealth of Massachusetts.
14.4 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by any
party without the written consent of the other party. Nothing herein expressed
or implied is intended or shall be construed to confer upon or give any
person, firm or corporation, other than the parties hereto and their
respective successors and assigns, any rights or remedies under or by reason
of this Agreement.
14.5 A copy of the Trust IX Declaration of Trust is on file with the
Secretary of State of The Commonwealth of Massachusetts. Trust II acknowledges
that the obligations of or arising out of this instrument are not binding upon
any of Trust IX's trustees, officers, employees, agents or shareholders
individually, but are binding solely upon the assets and property of Trust IX
in accordance with its proportionate interest hereunder. Trust II further
acknowledges that the assets and liabilities of each series of Trust IX are
separate and distinct and that the obligations of or arising out of this
instrument are binding solely upon the assets or property of the series on
whose behalf Trust IX has executed this instrument.
14.6 A copy of the Trust II Declaration of Trust is on file with the
Secretary of State of The Commonwealth of Massachusetts. Trust IX acknowledges
that the obligations of or arising out of this instrument are not binding upon
any of Trust II's trustees, officers, employees, agents or shareholders
individually, but are binding solely upon the assets and property of Trust II
in accordance with its proportionate interest hereunder. Trust IX further
acknowledges that the assets and liabilities of each series of Trust II are
separate and distinct and that the obligations of or arising out of this
instrument are binding solely upon the assets or property of the series on
whose behalf Trust II has executed this instrument.
14.7 Notwithstanding Article 12 of the Agreement, but subject to the first
proviso contained therein, either party to this Agreement, with the consent of
its President, Vice President, Secretary or its Assistant Secretary, may waive
any condition or covenant to which the other party is subject or may modify
such condition or covenant in a manner deemed appropriate by any such officer.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
executed by its Chairman, President or a Trustee and attested by its Secretary
or Assistant Secretary.
Attest: MFS SERIES TRUST II, on its behalf and on
behalf of MFS INTERMEDIATE INCOME FUND,
one of its series
/s/ James R. Bordewick, Jr. BY: /s/ Jeffrey L. Shames
- -------------------------------- --------------------------------
James R. Bordewick, Jr. Jeffrey L. Shames
Assistant Secretary President
Attest: MFS SERIES TRUST IX, on its behalf and on
behalf of MFS LIMITED MATURITY FUND, one
of its series
/s/ James R. Bordewick, Jr. BY: /s/ Arnold D. Scott
- -------------------------------- --------------------------------
James R. Bordewick, Jr. Arnold D. Scott
Assistant Secretary Trustee
<PAGE>
<TABLE>
<S> <C>
MFS INTERMEDIATE INCOME FUND, A SERIES OF MFS SERIES TRUST II
MASSACHUSETTS FINANCIAL SERVICES
2 AVENUE DE LAFAYETTE PROXY FOR A MEETING OF SHAREHOLDERS,
BOSTON, MA 02111-1738 MAY 18, 2000
THIS PROXY IS SOLICITED ON BEHALF OF THE
TRUSTEES OF THE FUND.
The undersigned hereby appoints James R. Bordewick, Jr., Stephen
E. Cavan, W. Thomas London, Arnold D. Scott and Jeffrey L.
Shames, and each of them separately, proxies, with power of
substitution, and hereby authorizes them to represent and to
vote, as designated below, at the Meeting of Shareholders of MFS
Intermediate Income Fund, a series of the MFS Series Trust II on
Thursday, May 18, 2000 at 10:00 a.m., Boston time, and at any
adjournments thereof, all of the shares of the Fund which the
undersigned would be entitled to vote if personally present.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION
IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSAL 1. IN THEIR
DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
MATTERS AS MAY PROPERLY COME BEFORE THE MEETING. THE TRUSTEES
RECOMMEND A VOTE FOR THE PROPOSAL BELOW.
CHANGE OF ADDRESS NOTIFICATION. Please also use the proxy card
to inform us of any change in address or telephone number or to
provide us with your commments.
YOUR VOTE IS IMPORTANT. Please help us to eliminate the expense
of follow-up mailings by executing and returning this Proxy as
soon as possible. A postage-paid business reply envelope is
enclosed for your convenience.
OPTIONS FOR SUBMITTING PROXY
1. Return the attached proxy card using the enclosed envelope.
2. Vote via the internet at www.mfs.com or www.proxyvote.com
3. Vote via telephone at 1-800-690-6903.
4. Fax this executed proxy card to 1-800-733-1885.
To vote via the internet or telephone, you must have the
Control Number to the right.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: MFSIF KEEP THIS PORTION FOR YOUR RECORDS
- -----------------------------------------------------------------------------------------------------------------------------------
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. DETACH AND RETURN THIS PORTION ONLY
MFS INTERMEDIATE INCOME FUND, A SERIES OF MFS SERIES TRUST II
For address changes and/or comments, please check
this box and write them on the back. [ ]
THE TRUSTEES UNANIMOUSLY RECOMMEND A VOTE FOR THE PROPOSAL LISTED BELOW.
VOTE ON PROPOSAL
1. Approval of the Agreement and Plan of Reorganization providing for the transfer of all of the For Against Abstain
assets of MFS Intermediate Income Fund, a series of MFS Series Trust II to MFS Limited
Maturity Fund, a series of the MFS Series Trust IX in exchange for shares of beneficial [ ] [ ] [ ]
interest of the MFS Limited Maturity Fund and the assumption by the MFS Limited Maturity Fund
of the stated liabilities of the MFS Intermediate Income Fund, and the distribution of such
shares to the shareholders of the MFS Intermediate Income Fund in liquidation of the MFS
Intermediate Income Fund and the termination of the MFS Intermediate Income Fund.
NOTE: Please sign exactly as name appears on this card. All joint owners should sign. When
signing as executor, administrator, attorney, trustee or guardian or as custodian for a minor,
please give full title as such. If a corporation, please sign in full corporate name and
indicate the signer's office. If a partner, sign in the partnership name.
- ------------------------------------------------ -------------------------------------------
Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date
</TABLE>
<PAGE>
FORM N-14
PART B
MFS SERIES TRUST IX
ON BEHALF OF
MFS LIMITED MATURITY FUND
STATEMENT OF ADDITIONAL INFORMATION
MARCH 31, 2000
This Statement of Additional Information contains material that may be of
interest to investors but that is not included in the Prospectus/Proxy
Statement (the "Prospectus") of MFS Limited Maturity Fund (the "Limited
Maturity Fund") dated March 31, 2000 relating to the sale of all or
substantially all of the assets of MFS Intermediate Income Fund (the
"Intermediate Income Fund") to the Limited Maturity Fund. The Limited Maturity
Fund's Statement of Additional Information dated September 1, 1999 as amended
September 22, 1999, and the Intermediate Income Fund's Statement of Additional
Information dated April 1, 1999, have been filed with the Securities and
Exchange Commission and are incorporated herein by reference. This Statement
is not a Prospectus and is authorized for distribution only when it
accompanies or follows delivery of the Prospectus.
This Statement should be read in conjunction with the Prospectus. Investors
may obtain a free copy of the Prospectus or either or both of the Statements of
Additional Information by writing MFS Service Center, Inc., 2 Avenue de
Lafayette, Boston, MA 02111 or by calling 1-800-225-2606.
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS
Deloitte & Touche LLP are the independent accountants for the Limited
Maturity Fund and the Intermediate Income Fund, providing audit services, tax
return review and other tax consulting services and assistance and
consultation in connection with the review of various Securities and Exchange
Commission filings for the Limited Maturity Fund and the Intermediate Income
Fund. The following documents are incorporated by reference into this
Statement of Additional Information: (1) the Report of Independent Accountants
and financial statements included in the Limited Maturity Fund's Annual Report
for the fiscal year ended April 30, 1999, filed electronically on June 18,
1999 (File No. 811-02464); (ii) the Report of Independent Accountants and
financial statements included in the Intermediate Income Fund's Annual Report
for the fiscal year ended November 30, 1999, filed electronically on January
27, 2000 (File No. 811-04775); and (iii) the unaudited financial statements
included in the Limited Maturity Fund's Semiannual Report for the six month
period ended October 31, 1999, filed electronically on December 28, 1999 (File
No. 811-02464). The audited financial statements for the Limited Maturity Fund
and the Intermediate Income Fund incorporated by reference into the
Prospectus/Proxy Statement and this Statement of Additional Information have
been so included and incorporated in reliance upon the reports of Deloitte &
Touche LLP, given on their authority as experts in auditing and accounting.
<PAGE>
TABLE OF CONTENTS
Unaudited Pro Forma Combined Financial Statements of the
Limited Maturity Fund and the Intermediate Income Fund ................. B-4
<PAGE>
MFS LIMITED MATURITY FUND
AND
MFS INTERMEDIATE INCOME FUND
PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
The accompanying unaudited pro forma combined statements of investment
portfolios and assets and liabilities assumes that the exchange described in
the next paragraph occurred as of October 31, 1999, and the unaudited pro
forma combined statement of operations for the twelve months ended October 31,
1999 presents the results of operations of MFS Limited Maturity Fund (the
"Limited Maturity Fund") as if the combination with MFS Intermediate Income
Fund (the "Intermediate Income Fund") had been consummated at November 1,
1998. The pro forma results of operations are not necessarily indicative of
future operations or the actual results that would have occurred had the
combination been consummated at November 1, 1998. The historical statements
have been derived from the Limited Maturity Fund's books and records utilized
in calculating daily net asset value at October 31, 1999, and for the twelve
month period then ended.
The pro forma statements give effect to the proposed transfer of all of
the assets of the Intermediate Income Fund to the Limited Maturity Fund in
exchange for the assumption by the Limited Maturity Fund of the stated
liabilities of the Intermediate Income Fund and for a number of the Limited
Maturity Fund's shares equal in value to the value of the net assets of the
Intermediate Income Fund transferred to the Limited Maturity Fund. Under
generally accepted accounting principles, the historical cost of investment
securities will be carried forward to the surviving entity and the results of
operations of the Limited Maturity Fund for pre-combination periods will not
be restated. The pro forma statement of operations does not reflect the
expenses of either Fund in carrying out its obligations under the Agreement
and Plan of Reorganization.
The unaudited pro forma combined statements should be read in conjunction
with the separate financial statements of the Limited Maturity Fund and the
Intermediate Income Fund incorporated by reference in this statement of
additional information.
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS AND PRO FORMA COMBINED
PORTFOLIO OF INVESTMENTS (UNAUDITED)
OCTOBER 31, 1999
<CAPTION>
BONDS
LIMITED MATURITY FUND INTERMEDIATE INCOME FUND PRO FORMA COMBINED
----------------------------- -------------------------------- -------------------------------
PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT AMOUNT AMOUNT
ISSUER (000 OMITTED) VALUE (000 OMITTED) VALUE (000 OMITTED) VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
U.S. BONDS
AIRLINES
Delta Airlines, Inc., 6.65s, 2004 . $ 1,151 $ 1,115,181 $ 661 $ 640,430 $ 1,812 $ 1,755,611
------------ ------------ ------------
APPAREL AND TEXTILES
Jones Apparel Group, Inc.,
6.25s, 2001 ..................... $ 1,280 $ 1,255,654 $ 0 $ 0 $ 1,280 $ 1,255,654
------------ ------------ ------------
AUTOMOTIVE
DaimlerChrysler NA Holding
Corp., 6.63s, 2001 .............. $ 2,653 $ 2,656,979 $ 1,447 $ 1,449,170 $ 4,100 $ 4,106,149
Ford Capital BV, 9.875s, 2002 ..... 1,800 1,927,152 0 0 1,800 1,927,152
Ford Motor Credit Co.,
6.446s, 2002 .................... 3,000 3,016,110 750 754,028 3,750 3,770,138
Ford Motor Credit Co.,
5.75s, 2004 ..................... 0 0 1,750 1,676,150 1,750 1,676,150
------------ ------------ ------------
$ 7,600,241 $ 3,879,348 $ 11,479,589
------------ ------------ ------------
BANKS AND CREDIT COMPANIES
Fleet Boston Corp., 9.9s, 2001 .... $ 2,017 $ 2,116,458 $ 1,127 $ 1,182,573 $ 3,144 $ 3,299,031
Great Western Financial Corp.,
6.375s, 2000 .................... 2,366 2,364,817 1,664 1,663,168 4,030 4,027,985
GS Escrow Corp., 6.75s, 2001 ...... 1,903 1,853,855 0 0 1,903 1,853,855
Providian National Bank,
6.75s, 2002 ..................... 2,563 2,509,895 1,587 1,554,117 4,150 4,064,012
------------ ------------ ------------
$ 8,845,025 $ 4,399,858 $ 13,244,883
------------ ------------ ------------
CONGLOMERATES
General Electric Capital Corp.,
6.52s, 2002 ..................... $ 2,127 $ 2,119,343 $ 1,167 $ 1,162,799 $ 3,294 $ 3,282,142
------------ ------------ ------------
CONSUMER GOODS AND SERVICES
Hilfiger (Tommy) USA,
Inc., 6.5s, 2003 ................ $ 2,283 $ 2,187,160 $ 0 $ 0 $ 2,283 $ 2,187,160
------------ ------------ ------------
CONTAINERS
Owens-Illinois, Inc., 11s, 2003 ... $ 4,058 $ 4,200,030 $ 0 $ 0 $ 4,058 $ 4,200,030
------------ ------------ ------------
CORPORATE ASSET BACKED
Aames Mortgage Trust,
6.75s, 2021 ..................... $ 3,889 $ 3,857,402 $ 0 $ 0 $ 3,889 $ 3,857,402
American Express Credit
Account Trust, 5.6s, 2006 ....... 1,000 957,180 620 593,452 1,620 1,550,632
Americredit Automobile
Receivables Trust,
5.78s, 2003 ..................... 2,050 2,019,891 0 0 2,050 2,019,891
Amresco Residential
Securities Mortgage
Loan, 5.94s, 2015 ............... 4,039 3,996,717 2,750 2,721,211 6,789 6,717,928
Banamex Credit Card
Merchant Voucher, 6.25s, 2003# .. 6,663 6,589,934 0 0 6,663 6,589,934
BankBoston Home Equity
Loan Trust, 5.89s, 2013 ......... 1,894 1,862,113 1,331 1,308,591 3,225 3,170,704
Carco Auto Loan Master Trust,
5.65s, 2003 ..................... 0 0 2,000 1,985,313 2,000 1,985,313
Case Equipment Receivables
Trust, 5.285s, 2002 ............. 0 0 1,317 1,310,000 1,317 1,310,000
Chase Credit Card Master
Trust, 5.666s, 2004 ............. 2,815 2,817,618 0 0 2,815 2,817,618
Citibank Credit Card
Master Trust I, 5.5s, 2006 ...... 1,993 1,898,950 0 0 1,993 1,898,950
Commonwealth Edison
Transition Funding
Trust, 5.29s, 2003 .............. $ 1,894 $ 1,865,552 $ 1,331 $ 1,311,008 $ 3,225 $ 3,176,560
Discover Card Master Trust
I, 5.85s, 2006 .................. 0 0 2,100 2,031,078 2,100 2,031,078
First Chicago Master Trust
II,
5.686s, 2003 .................... 3,106 3,111,808 0 0 3,106 3,111,808
Fleet Credit Card Master
Trust,
5.63s, 2007 ..................... 2,505 2,505,000 1,375 1,375,000 3,880 3,880,000
Ford Credit Auto Owner
Trust,
5.31s, 2001 ..................... 806 803,962 543 541,800 1,349 1,345,762
Ford Credit Auto Owner
Trust, 6.2s, 2002 ............... 2,402 2,398,997 600 599,250 3,002 2,998,247
GE Capital Mortgage
Services, Inc., 6.035s, 2020 .... 2,035 1,963,139 2,400 2,315,250 4,435 4,278,389
Green Tree Financial
Corp., 6.91s, 2028 .............. 0 0 2,305 2,301,381 2,305 2,301,381
Green Tree Financial
Corp., 6.04s, 2029 .............. 3,407 3,389,774 0 0 3,407 3,389,774
Green Tree Financial
Corp., 6.39s, 2029 .............. 1,387 1,386,827 912 911,743 2,299 2,298,570
MBNA Master Credit Card
Trust II, 5.25s, 2006 ........... 2,374 2,256,772 0 0 2,374 2,256,772
Merrill Lynch Mortgage
Investors, Inc., 5.65s, 2030 .... 1,802 1,713,038 1,248 1,186,227 3,050 2,899,265
Partners First Credit Card
Master Trust, 5.506s, 2027 ...... 3,400 3,395,750 1,650 1,647,938 5,050 5,043,688
Peco Energy Transition
Trust, 5.48s, 2003 .............. 0 0 1,067 1,059,717 1,067 1,059,717
Pemex Finance Ltd.,
5.72s, 2003# .................... 1,010 965,924 2,700 2,582,172 3,710 3,548,096
Premier Auto Trust, 5.88s, 2001 ... 0 0 1,470 1,464,943 1,470 1,464,943
Providian Home Equity Loan
Trust, 5.7s, 2025 ............... 887 885,158 528 527,328 1,415 1,412,486
SLM Student Loan Trust,
5.389s, 2004 .................... 0 0 930 925,965 930 925,965
SLM Student Loan Trust,
5.574s, 2009 .................... 1,470 1,445,194 0 0 1,470 1,445,194
------------ ------------ ------------
$ 52,086,700 $ 28,699,367 $ 80,786,067
------------ ------------ ------------
FINANCIAL INSTITUTIONS
Aristar, Inc., 7.375s, 2004 ........ $ 1,860 1,871,049 $ 1,264 $ 1,271,508## $ 3,124 $ 3,142,557
Countrywide Home Loan, Inc.,
6.85s, 2004 ..................... 2,506 2,481,466 1,457 1,442,736 3,963 3,924,202
General Motors Acceptance
Corp., 7s, 2002 ................. 0 0 1,898 1,908,306 1,898 1,908,306
Lehman Brothers Holdings,
Inc., 6.375s, 2001 .............. 2,185 2,176,959 1,373 1,367,947 3,558 3,544,906
Merrill Lynch & Co.,
6.06s, 2001 ..................... 2,520 2,498,227 1,665 1,650,615 4,185 4,148,842
------------ ------------ ------------
$ 9,027,701 $ 7,641,112 $ 16,668,813
------------ ------------ ------------
FOOD AND BEVERAGE PRODUCTS
Seagram (Joseph E) & Sons,
Inc., 5.79s, 2001 ............... $ 2,470 $ 2,430,628 $ 1,513 $ 1,488,883 $ 3,983 $ 3,919,511
Whitman Corp., 6s, 2004 ........... 2,385 2,278,391 1,477 1,410,978 3,862 3,689,369
------------ ------------ ------------
$ 4,709,019 $ 2,899,861 $ 7,608,880
------------ ------------ ------------
FOREST AND PAPER PRODUCTS
Georgia-Pacific Corp.,
9.95s, 2002 ..................... $ 2,293 $ 2,448,374 $ 0 $ 0 $ 2,293 $ 2,448,374
------------ ------------ ------------
INSURANCE
Conseco, Inc., 6.4s, 2001 ......... $ 1,963 $ 1,897,033 $ 1,253 $ 1,210,893 $ 3,216 $ 3,107,926
------------ ------------ ------------
MEDIA
Time Warner Pass-Through Asset
Trust, 6.1s, 2001# .............. $ 2,103 $ 2,072,359 $ 1,000 $ 985,430 $ 3,103 $ 3,057,789
------------ ------------ ------------
OILS
Occidental Petroleum
Corp., 10.125s, 2001 ............ $ 2,607 $ 2,756,277 $ 1,360 $ 1,437,873 $ 3,967 $ 4,194,150
------------ ------------ ------------
RAILROADS
Union Pacific Corp.,
6.34s, 2003 ..................... $ 2,100 $ 2,040,969 $ 1,250 $ 1,214,862 $ 3,350 $ 3,255,831
------------ ------------ ------------
SUPERMARKETS
Safeway, Inc., 5.875s, 2001 ...... $ 2,430 $ 2,382,007 $ 0 $ 0 $ 2,430 $ 2,382,007
------------ ------------ ------------
TELECOMMUNICATIONS AND CABLE
Comcast Corp., 9.125s, 2006 ...... $ 2,666 $ 2,820,308 $ 1,591 $ 1,683,087 $ 4,257 $ 4,503,395
Cox Communications, Inc.,
7s, 2001 ........................ 2,025 2,028,625 1,107 1,108,982 3,132 3,137,607
Sprint Capital Corp.,
5.875s, 2004 .................... 881 842,034 0 0 881 842,034
Sprint Spectrum LP, 11s, 2006 ..... 2,046 2,297,044 2,000 2,245,400 4,046 4,542,444
Telecomunicaiones De Puerto Rico,
6.15s, 2002# .................... 2,598 2,553,626 1,596 1,568,740 4,194 4,122,366
United States West
Communications, Inc.,
7.2s, 2004# ..................... 500 503,850 0 0 500 503,850
------------ ------------ ------------
$ 11,045,487 $ 6,606,209 $ 17,651,696
------------ ------------ ------------
TOBACCO
RJ Reynolds Tobacco
Holdings,
7.375s, 2003# ................... $ 2,145 $ 2,105,961 $ 0 $ 0 $ 2,145 $ 2,105,961
------------ ------------ ------------
TRANSPORTATION
Hertz Corp., 6.5s, 2000 ........... $ 2,736 $ 2,739,666 $ 0 $ 0 $ 2,736 $ 2,739,666
------------ ------------ ------------
U.S. FEDERAL AGENCIES
Agency for International
Development (Israel),
6.625s, 2003 .................... $ 0 $ $ 3,000 $ 3,005,430 $ 3,000 $ 3,005,430
Federal Home Loan Mortgage
Corp., 5.83s, 2013 .............. 2,015 2,002,365 1,390 1,380,942 3,405 3,383,307
Federal National Mortgage
Assn., 6.75s, 2003 .............. 2,087 2,077,583 1,428 1,421,958 3,515 3,499,541
Federal National Mortgage
Assn., 7s, 2009 ................. 5,170 5,161,883 0 0 5,170 5,161,883
Federal National Mortgage
Assn., 6.13s, 2011 .............. 0 0 979 950,453 979 950,453
Federal National Mortgage
Assn., 6s, 2013 ................. 0 0 807 776,632 807 776,632
Federal National Mortgage
Assn., 6s, 2014 ................. 5,783 5,562,139 0 0 5,783 5,562,139
Government National Mortgage
Assn., 7s, 2008 - 2012 .......... 0 0 5,004 5,021,047 5,004 5,021,047
Government National Mortgage
Assn., 7.5s, 2007 - 2027 ........ 4,711 4,788,807 3,118 3,129,281 7,829 7,918,088
Government National Mortgage
Assn., 8.5s, 2001 - 2009 ........ 0 0 3,159 3,279,698 3,159 3,279,698
Government National Mortgage Assn.,
9.25s, 2001 ..................... 0 0 561 579,202 561 579,202
Government National Mortgage Assn.,
12.5s, 2011 ..................... 244 278,590 0 0 244 278,590
------------ ------------ ------------
$ 19,871,367 $ 19,544,643 $ 39,416,010
------------ ------------ ------------
U.S. TREASURY OBLIGATIONS
U.S. Treasury Notes, 5s, 2001 ..... $ 900 $ 891,981 $ 0 $ 0 $ 900 $ 891,981
U.S. Treasury Notes, 5.375s, 2001 . 165 164,253 0 0 165 164,253
U.S. Treasury Notes, 5.75s, 2001 .. 1,325 1,323,754 0 0 1,325 1,323,754
U.S. Treasury Notes, 6.25s, 2001 .. 765 771,097 0 0 765 771,097
U.S. Treasury Notes, 6.5s, 2001## . 900 910,404 0 0 900 910,404
U.S. Treasury Notes, 6s, 2004 ..... 1,176 1,178,752 0 0 1,176 1,178,752
U.S. Treasury Notes, 7.875s, 2004 . 1,350 1,454,625 0 0 1,350 1,454,625
------------ ------------ ------------
$ 6,694,866 $ 0 $ 6,694,866
------------ ------------ ------------
UTILITIES - ELECTRIC
Boston Edison Co., 6.8s, 2000 ..... $ 3,175 $ 3,178,270 $ 2,215 $ 2,217,282 $ 5,390 $ 5,395,552
California Infrastructure,
6.17s, 2003 ............ 2,855 2,848,748 1,000 997,810## 3,855 3,846,558
Edison Mission Energy
Funding Corp., 6.77s, 2003# .... 1,817 1,769,324 0 0 1,817 1,769,324
Entergy Mississippi, Inc.,
6.2s, 2004 ...................... 0 0 1,500 1,435,710 1,500 1,435,710
Gulf States Utilities Co.,
8.21s, 2002 ..................... 1,528 1,567,208 0 0 1,528 1,567,208
Midamerican Funding LLC,
5.85s, 2001# .................... 3,039 3,007,011 1,964 1,943,327 5,003 4,950,338
Narragansett Electric Co.,
7.83s, 2002 ..................... 500 513,705 279 286,647 779 800,352
Salton Sea Funding Corp.,
6.69s, 2000 ..................... 370 370,488 0 0 370 370,488
Salton Sea Funding Corp.,
7.02s, 2000 ..................... 390 390,652 0 0 390 390,652
------------ ------------ ------------
$ 13,645,406 $ 6,880,776 $ 20,526,182
------------ ------------ ------------
UTILITIES - GAS
CMS Panhandle Holding Co.,
6.125s, 2004 .................... $ 1,820 $ 1,738,664 $ 1,161 $ 1,109,115 $ 2,981 $ 2,847,779
Columbia Gas Systems,
Inc., 6.39s, 2000 ............... 2,127 2,116,174 1,417 1,409,788 3,544 3,525,962
Duke Capital Corp.,
7.25s, 2004 ..................... 848 853,436 501 504,211 1,349 1,357,647
------------ ------------ ------------
$ 4,708,274 $ 3,023,114 $ 7,731,388
------------ ------------ ------------
TOTAL U.S. BONDS ....... $167,554,100 $ 90,226,575 $257,780,675
------------ ------------ ------------
FOREIGN BONDS
ARGENTINA
Republic of Argentina, 0s, 2001 ... $ 941 $ 832,785 $ 516 $ 456,660 $ 1,457 $ 1,289,445
Republic of Argentina,
11.786s, 2005 ................... 0 0 400 360,500 400 360,500
------------ ------------ ------------
$ 832,785 $ 817,160 $ 1,649,945
------------ ------------ ------------
AUSTRALIA
Commonwealth of Australia,
7.5s, 2005* ..................... $ 0 $ 0 AUD 3,558 $ 2,381,649 AUD 3,558 $ 2,381,649
Westpac Banking, 9.125s, 2001
(Banks and Credit Cos.) ......... 1,175 1,222,470 0 0 1,175 1,222,470
------------ ------------ ------------
$ 1,222,470 $ 2,381,649 $ 3,604,119
------------ ------------ ------------
CHILE
Empresa Electric Guacolda
S.A., 7.6s, 2001
(Utilities - Electric)# ......... $ 1,520 $ 1,488,962 $ 0 $ 0 $ 1,520 $ 1,488,962
------------- ------------- -------------
CHINA
Hero Asian BVI Co. Ltd.,
9.11s, 2001 (Utilities)# ........ $ 1,033 $ 1,005,938 $ 0 $ 0 $ 1,033 $ 1,005,938
------------ ------------ ------------
DENMARK
Kingdom of Denmark, 7s, 2007* ..... $ 0 $ 0 DKK 2,447 $ 379,742 DKK 2,447 $ 379,742
------------- ------------- -------------
FRANCE
Republic of France, 4s, 2009* ..... $ $ 0 EUR 435 $ 413,263 EUR 435 $ 413,263
------------ ------------ ------------
GERMANY
Bayerische Landesbank
Girozent, 5.625s, 2001
(Banks and Credit
Cos.)## ......................... $ 0 $ 0 $ 465 $ 460,518 $ 465 $ 460,518
Federal Republic of
Germany, 4.5s, 2009* ............ 0 0 EUR 2,318 2,324,040 EUR 2,318 2,324,040
KFW International Finance, Inc.,
9.4s, 2004 (Agency) ............. 1,068 1,177,961 592 652,952 1,660 1,830,913
Landesbank Baden Wurttemberg,
7.875s, 2004 (Banks and
Credit Cos.) .................... 3,445 3,585,212 1,500 1,561,050 4,945 5,146,262
------------ ------------ ------------
$ 4,763,173 $ 4,998,560 $ 9,761,733
------------ ------------ ------------
GREECE
Hellenic Republic, 8.01s, 2003* ... $ 0 $ 0 GRD 300,000 $ 992,222 GRD 300,000 $ 992,222
Hellenic Republic, 8.7s, 2005 ..... 0 0 72,000 243,527 72,000 243,527
Hellenic Republic, 6s, 2006 ....... 0 0 250,000 749,147 250,000 749,147
Hellenic Republic, 5.75s, 2008* ... 0 0 EUR 151 158,538 EUR 151 158,538
------------ ------------ ------------
$ 0 $ 2,143,434 $ 2,143,434
------------ ------------ ------------
ICELAND
Republic of Iceland,
6.125s, 2004 .................... $ 0 $ 0 $ 635 $ 614,445 $ 635 $ 614,445
------------ ------------ ------------
ISRAEL
Israel Electric Corp.,
8.25s, 2009 (Utilities -
Electric)# ...................... $ 0 $ 0 $ 1,000 $ 1,003,950 $ 1,000 $ 1,003,950
------------ ------------ ------------
MEXICO
Petroleos Mexicanos,
9.5s, 2027 (Oils) ............... $ 0 $ 0 $ 110 $ 95,700 $ 110 $ 95,700
------------ ------------ ------------
NEW ZEALAND
Government of New Zealand,
8s, 2006* ....................... $ 0 $ 0 NZD 1,100 $ 586,563 NZD 1,100 $ 586,563
------------ ------------ ------------
NORWAY
Union Bank Norway,
7.35s, 2049 (Banks and
Credit Cos.)# ................... $ 3,339 $ 3,265,208 $ 1,500 $ 1,466,850 $ 4,839 $ 4,732,058
------------ ------------ ------------
PANAMA
Republic of Panama,
4.25s, 2014 ..................... $ 0 $ 0 $ 230 $ 171,350 $ 230 $ 171,350
------------ ------------ ------------
PERU
Republic of Peru, 4.5s, 2017 ...... $ 0 $ 0 $ 420 $ 260,400 $ 420 $ 260,400
------------ ------------ ------------
PHILIPPINES
Republic of Philippines,
9.875s, 2019 .................... $ 0 $ 0 $ 290 $ 280,575 $ 290 $ 280,575
------------ ------------ ------------
SOUTH KOREA
Export-Import Bank Korea,
7.1s, 2007 (Banks and
Credit Cos.) .................... $ 900 $ 887,760 $ 530 $ 522,792 $ 1,430 $ 1,410,552
------------ ------------ ------------
SPAIN
Kingdom of Spain,
9.125s, 2000 .................... $ 2,000 $ 2,043,160 $ 2,400 $ 2,451,792 $ 4,400 $ 4,494,952
------------ ------------ ------------
SUPRA-NATIONAL
Corporacion Andina de
Fomento, 7.1s, 2003
(Banks and Credit Cos.) ......... $ 3,800 $ 3,723,240 $ 0 $ 0 $ 3,800 $ 3,723,240
------------ ------------ ------------
SWEDEN
AB Spintab, 6.8s, 2049
(Banks & Credit Cos.)# .......... $ 1,620 $ 1,574,526 $ 950 $ 923,333 $ 2,570 $ 2,497,859
------------ ------------ ------------
UNITED KINGDOM
United Kingdom Treasury,
6.5s, 2003* ..................... $ 0 $ 0 GBP 662 $ 1,101,604 GBP 662 $ 1,101,604
United Kingdom Treasury,
6.75s, 2004 ..................... 0 0 566 956,732 566 956,732
------------ ------------ ------------
$ 0 $ 2,058,336 $ 2,058,336
------------ ------------ ------------
TOTAL FOREIGN BONDS ............. $ 20,807,222 $ 21,569,894 $ 42,377,116
------------ ------------ ------------
TOTAL BONDS (IDENTIFIED COST,
$191,747,074, $114,124,477 AND
$305,871,551, RESPECTIVELY) ... $188,361,322 $111,796,469 $300,157,791
------------ ------------ ------------
<PAGE>
PORTFOLIO OF INVESTMENTS AND PRO FORMA COMBINED
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED)
OCTOBER 31, 1999
REPURCHASE AGREEMENT
LIMITED MATURITY FUND INTERMEDIATE INCOME FUND PRO FORMA COMBINED
----------------------------- -------------------------------- -------------------------------
PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT AMOUNT AMOUNT
ISSUER (000 OMITTED) VALUE (000 OMITTED) VALUE (000 OMITTED) VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
Goldman Sachs, dated
10/29/99, due 11/01/99,
total to be received
$22,179,570, $584,252
and $22,763,822,
respectively (secured by
various U.S. Treasury
and Federal Agency
obligations in a jointly
traded account),
AT COST ......................... $22,170 $ 22,170,000 $ 584 $ 584,000 $ 22,754 $ 22,754,000
------------ ------------ ------------
TOTAL INVESTMENTS
(IDENTIFIED COST,
$213,917,074,
$114,708,477 AND
$328,625,551,
RESPECTIVELY) ................. $210,531,322 $112,380,469 $322,911,791
------------ ------------ ------------
CALL OPTION WRITTEN
PRINCIPAL AMOUNT PRINCIPAL AMOUNT PRINCIPAL AMOUNT
ISSUER/EXPIRATION MONTH/ OF CONTRACTS OF CONTRACTS OF CONTRACTS
STRIKE PRICE (000 OMITTED) (000 OMITTED) (000 OMITTED)
- -----------------------------------------------------------------------------------------------------------------------------------
Austalian Dollars/
November/0.64 (PREMIUMS
RECEIVED, $0, $24,176
AND $24,176,
RESPECTIVELY)* .................. $ 0 $ 0 $ 2,691 $ (32,668) $ 2,691 $ (32,668)
------------ ------------ ------------
PUT OPTION WRITTEN
Euro/January/1.1
(PREMIUMS RECEIVED, $0,
$54,294 AND $54,294,
RESPECTIVELY)* .................. $ 0 $ 0 $ 3,523 $ (21,666) $ 3,523 $ (21,666)
------------ ------------ ------------
OTHER ASSETS, LESS LIABILITIES $ (5,468,905) $ (1,370,809) $ (6,839,714)
------------ ------------ ------------
NET ASSETS ................. $205,062,417 $110,955,326 $316,017,743
============ ============ ============
* Foreign denominated security to be disposed of prior to reorganization.
# SEC Rule 144A restriction.
## Security segregated as collateral for an open futures contract.
Abbreviations have been used throughout this report to indicate amounts shown
in currencies other than the U.S. Dollar. A list of abbreviations is shown
below.
AUD = Australian Dollars GBP = British Pounds
DKK = Danish Krone GRD = Greek Drachma
EUR = Euro NZD = New Zealand Dollars
NOTES:
The Pro Forma Combined Portfolio of Investments reflects the proposed acquisition of the net assets of the MFS Intermediate Income
Fund by the MFS Limited Maturity Fund as though such acquisition had become effective October 31, 1999, and includes the portfolio
securities of both entities as at that date.
INVESTMENT VALUATIONS -- Debt securities (other than short-term obligations which mature in 60 days or less), including listed
issues, and forward contracts are valued on the basis of valuations furnished by dealers or by a pricing service with consideration
to factors such as institutional-size trading in similar groups of securities, yield, quality, coupon rate, maturity, type of issue,
trading characteristics and other market data, without exclusive reliance upon exchange or over-the-counter prices. Short- term
obligations, which mature in 60 days or less, are valued at amortized cost, which approximates value. Futures contracts, options and
options on futures contracts listed on commodities exchanges are reported at market value using closing settlement prices.
Over-the-counter options are valued by brokers. Over-the-counter currency options are valued through the use of a pricing model
which takes into account foreign currency exchange spot and forward rates, implied volatility, and short-term repurchase rates.
Securities for which there are no such quotations or valuations are valued at fair value as determined in good faith by the
Trustees.
</TABLE>
<PAGE>
<TABLE>
PRO FORMA COMBINED STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
OCTOBER 31, 1999
LIMITED INTERMEDIATE PRO FORMA
MATURITY FUND INCOME FUND COMBINED
------------- ----------- --------
<S> <C> <C> <C>
ASSETS:
Investments:
Identified cost ........................ $191,747,074 $114,124,477 $305,871,551
Unrealized depreciation ................ (3,385,752) (2,328,008) (5,713,760)
Repurchase agreement, at value ......... 22,170,000 584,000 22,754,000
------------ ------------ ------------
Total investments, at value .......... $210,531,322 $112,380,469 $322,911,791
Cash ..................................... 41,303 42,470 83,773
Receivable for daily variation margin
on open futures
contracts .............................. -- 101,563 101,563
Net receivable for forward foreign
currency exchange contracts to
purchase ............................... -- 46,217 46,217
Net receivable for forward foreign
currency exchange contracts to sell .... -- 72,318 72,318
Receivable for Fund shares sold .......... 1,103,825 19,343 1,123,168
Receivable for investments sold .......... 3,306,556 -- 3,306,556
Interest receivable ...................... 2,609,939 1,480,509 4,090,448
Other assets ............................. 2,282 1,850 4,132
------------ ------------ ------------
Total assets ......................... $217,595,227 $114,144,739 $331,739,966
------------ ------------ ------------
LIABILITIES:
Distributions payable .................... $ 228,193 $ -- $ 228,193
Payable for Fund shares reacquired ....... 829,292 122,501 951,793
Payable for investments purchased ........ 11,284,094 2,822,000 14,106,094
Net payable for forward foreign
currency exchange contracts closed or
subject to master netting agreements ... -- 4,688 4,688
Payable for daily variation margin on
open futures contracts ................. 28,000 -- 28,000
Written options outstanding, at value
(premiums received, $0, $78,470, and
$78,470), respectively ................. -- 54,334 54,334
Payable to affiliates --
Management fee ......................... 6,737 5,006 11,743
Shareholder servicing agent fee ........ 1,684 912 2,596
Distribution and service fee ........... 11,850 5,260 17,110
Administrative fee ..................... 253 137 390
Accrued expenses and other liabilities ... 142,707 174,575 317,282
------------ ------------ ------------
Total liabilities .................... $ 12,532,810 $ 3,189,413 $ 15,722,223
------------ ------------ ------------
NET ASSETS ................................. $205,062,417 $110,955,326 $316,017,743
============ ============ ============
NET ASSETS CONSIST OF:
Paid-in capital .......................... $220,292,497 $122,831,881 $343,124,378
Unrealized depreciation on investments
and translation of assets and
liabilities in foreign currencies ...... (3,374,224) (2,192,539) (5,566,763)
Accumulated net realized loss on
investments and
foreign currency transactions .......... (11,648,829) (9,673,240) (21,322,069)
Accumulated distributions in excess of
net investment income .................. (207,027) (10,776) (217,803)
------------ ------------ ------------
Total ................................ $205,062,417 $110,955,326 $316,017,743
------------ ------------ ------------
SHARES OF BENEFICIAL INTEREST OUTSTANDING:
Class A .................................. 18,521,966 5,961,104 25,456,084
Class B .................................. 7,958,531 8,120,995 17,464,095
Class C .................................. 3,645,129 -- 3,645,129
Class I .................................. 244,719 1,673 246,675
------------ ------------ ------------
Total shares of beneficial interest
outstanding ........................ 30,370,345 14,083,772 46,811,983
============ ============ ============
NET ASSETS:
Class A .................................. $125,188,899 $ 46,874,639 $172,063,538
Class B .................................. 53,601,625 64,067,502 117,669,127
Class C .................................. 24,621,846 -- 24,621,846
Class I .................................. 1,650,047 13,185 1,663,232
------------ ------------ ------------
Total net assets ..................... $205,062,417 $110,955,326 $316,017,743
============ ============ ============
</TABLE>
<PAGE>
<TABLE>
PRO FORMA COMBINED STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) (CONTINUED)
OCTOBER 31, 1999
<CAPTION>
LIMITED INTERMEDIATE PRO FORMA
MATURITY FUND INCOME FUND COMBINED
----------------- -------------------- ----------------
<S> <C> <C> <C>
CLASS A SHARES:
Net asset value per share
(net assets / shares of beneficial
interest outstanding) ................. $6.76 $7.86 $6.76
===== ===== =====
Offering price per share
(100 / 97.5 of net asset value per
share) ................................ $6.93 $-- $6.93
===== ===== =====
Offering price per share
(100 / 95.25 of net asset value per
share) ................................ $-- $8.25 $--
===== ===== =====
CLASS B SHARES:
Net asset value and offering price per
share
(net assets / shares of beneficial
interest outstanding) ................. $6.74 $7.89 $6.74
===== ===== =====
CLASS C SHARES:
Net asset value and offering price per
share
(net assets / shares of beneficial
interest outstanding) ................. $6.75 $-- $6.75
===== ===== =====
CLASS I SHARES:
Net asset value, offering price and
redemption price per share
(net assets / shares of beneficial
interest outstanding) ................. $6.74 $7.88 $6.74
===== ===== =====
</TABLE>
On sales of $50,000 or more, the offering price of Class A shares is reduced.
A contingent deferred sales charge may be imposed on certain redemptions of
Class A, Class B and Class C shares.
NOTES:
The Pro Forma Combined Portfolio of Investments reflects the proposed
acquisition of the net assets of the Intermediate Income Fund by the Limited
Maturity Fund as though such acquisition had become effective October 31,
1999, and reflects the accounts of both entities as at the date.
The above statement reflects neither any adjustment with respect to additional
distributions that may be made prior to the Reorganization nor any anticipated
expense to be incurred in connection with the Reorganization.
The Pro Forma combined shares of each class' shares of beneficial interest
outstanding represent those shares that would have been outstanding on October
31, 1999, had the acquisition taken place on such date. In exchange for the
net assets of the Intermediate Income Fund each class of shares of the Limited
Maturity Fund would have been issued based upon the per-share net asset value
as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS I
------- ------- -------
<S> <C> <C> <C>
Net assets - MFS Intermediate Income Fund . $46,874,639 $64,067,502 $13,185
Shares - MFS Limited Maturity Fund ........ 6,934,118 9,505,564 1,956
Net asset value - MFS Limited Maturity Fund $ 6.76 $ 6.74 $ 6.74
</TABLE>
<PAGE>
<TABLE>
PRO FORMA COMBINED STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE TWELVE MONTHS ENDED OCTOBER 31, 1999
<CAPTION>
LIMITED INTERMEDIATE PRO FORMA PRO FORMA
MATURITY FUND INCOME FUND ADJUSTMENTS COMBINED
------------- ----------- ----------- --------
<S> <C> <C> <C>
NET INVESTMENT INCOME:
Interest income .................. $13,554,602 $ 8,380,510 -- $ 21,935,112
----------- --------- ------------
Expenses --
Management fee ..................... $ 802,850 $ 868,096 $(374,849)(A) $ 1,296,097
Trustees' compensation ............. 19,069 34,889 (31,758)(B) 22,200
Shareholder servicing agent
fee .............................. 210,906 130,027 -- 340,933
Distribution and service fee
(Class A) ........................ 185,883 113,675 (45,470)(C) 254,088
Distribution and service fee
(Class B) ........................ 477,894 778,128 -- 1,256,022
Distribution and service fee
(Class C) ........................ 236,632 0 -- 236,632
Administrative fee ................. 25,528 15,189 -- 40,717
Custodian fee ...................... 90,653 58,541 (41,124)(B) 108,070
Printing ........................... 33,338 37,519 (30,857)(B) 40,000
Postage ............................ 29,172 27,920 (27,092)(B) 30,000
Auditing fees ...................... 30,540 42,526 (43,066)(B) 30,000
Legal fees ......................... 5,890 4,695 (6,085)(B) 4,500
Miscellaneous ...................... 191,033 106,321 (8,454)(D) 288,900
----------- ----------- --------- ------------
Total expenses ................... $ 2,339,388 $ 2,217,526 $(608,755) $ 3,948,159
Fees paid indirectly ............... (35,575) (17,900) -- (53,475)
Reduction of expenses by
investment adviser and
distributor ...................... -- (303,557) 303,557 (E) --
----------- ----------- --------- ------------
Net expenses ..................... $ 2,303,813 $ 1,896,069 $(305,198) $ 3,894,684
----------- ----------- --------- ------------
Net investment income .......... $11,250,789 $ 6,484,441 $ 305,198 $ 18,040,428
----------- ----------- --------- ------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
Realized gain (loss) (identified
cost basis) --
Investment transactions ............ $(3,912,845) $(1,551,659) -- $ (5,464,504)
Written option transactions ........ -- 202,791 -- 202,791
Foreign currency transactions ...... -- (702,861) -- (702,861)
Futures contracts .................. 43,029 (404,367) -- (361,338)
----------- ----------- --------- ------------
Net realized loss on
investments .................... $(3,869,816) $(2,456,096) $ -- $ (6,325,912)
----------- ----------- --------- ------------
Change in unrealized appreciation
(depreciation) --
Investments ........................ $(1,751,017) $(4,620,915) -- $ (6,371,932)
Written options .................... -- 24,136 -- 24,136
Futures contracts .................. 11,528 1,229 -- 12,757
Translation of assets and
liabilities in foreign
currencies ....................... -- (20,345) -- (20,345)
----------- ----------- --------- ------------
Net unrealized loss on
investments .................... $(1,739,489) $(4,615,895) $ -- $ (6,355,384)
----------- ----------- --------- ------------
Net realized and unrealized
loss on investments .......... $(5,609,305) $(7,071,991) $ -- $(12,681,296)
----------- ----------- --------- ------------
Increase in net assets
from operations ............ $ 5,641,484 $ (587,550) $ 305,198 $ 5,359,132
=========== =========== ========= ============
</TABLE>
<PAGE>
PRO FORMA COMBINED STATEMENT OF OPERATIONS (UNAUDITED) (CONTINUED)
FOR THE TWELVE MONTHS ENDED OCTOBER 31, 1999
PRO FORMA ADJUSTMENTS:
(A) The investment advisory fee is 0.40% of the Fund's average daily net assets
for the Limited Maturity Fund. The investment advisory fee is 0.32% of the
Fund's average daily net assets and 5.65% of investment income for the
Intermediate Income Fund. MFS has agreed to reduce its management fee to the
lesser of 0.55% of the Fund's average daily net assets of the Intermediate
Income Fund or the amount calculated in accordance with the prior sentence.
The Intermediate Income Fund assets would have been charged at the rate
applicable to the Limited Maturity Fund.
(B) Expenditure reduced as the result of the elimination of duplicative
functions.
(C) The Class A service fees are 0.15% and 0.25% of average net assets for the
Limited Maturity Fund and the Intermediate Income Fund, respectively. MFS
has voluntarily agreed to waive its right to receive the 0.25% per annum
Class A service fee on the Intermediate Income Fund. The Intermediate Income
Fund assets would have been charged at the rate applicable to the Limited
Maturity Fund.
(D) Expenditure reduced as the result of the elimination of duplicative
functions. Reflects legal and accounting reorganization related costs.
(E) Reduction of expense was the result of a waiver of management fee and Class
A service fee on the Intermediate Income Fund. Waiver no longer in effect
after merger.
NOTES:
The Pro Forma Combined Statement of Operations reflects the proposed
acquisition of the assets of the Intermediate Income Fund by the Limited
Maturity Fund as though such acquisition had become effective October 31,
1999, and reflects the accounts of both entities for the twelve months ended
October 31, 1999.
