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MASSACHUSETTS INVESTORS PROSPECTUS
GROWTH STOCK FUND April 1, 1995
(A member of the MFS Family of Funds(R)) Class A Shares of Beneficial Interest
Organized November 22, 1932 Class B Shares of Beneficial Interest
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<TABLE>
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PAGE
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1. Expense Summary..................................................................... 2
2. The Fund............................................................................ 3
3. Condensed Financial Information..................................................... 4
4. Investment Objective and Policies................................................... 4
5. Management of the Fund.............................................................. 9
6. Information Concerning Shares of the Fund........................................... 10
Purchases........................................................................ 10
Exchanges........................................................................ 16
Redemptions and Repurchases...................................................... 16
Distribution Plans............................................................... 18
Distributions.................................................................... 20
Tax Status....................................................................... 20
Net Asset Value.................................................................. 20
Description of Shares, Voting Rights and Liabilities............................. 21
Performance Information.......................................................... 21
7. Shareholder Services................................................................ 21
</TABLE>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
MASSACHUSETTS INVESTORS GROWTH STOCK FUND
500 Boylston Street, Boston, Massachusetts 02116 (617) 954-5000
The investment objective of Massachusetts Investors Growth Stock Fund (the
"Fund") is to provide long-term growth of capital and future income rather than
current income (see "Investment Objective and Policies"). The minimum initial
investment is generally $1,000 per account (see "Purchases").
The Fund's investment adviser and distributor are Massachusetts Financial
Services Company ("MFS" or the "Adviser") and MFS Fund Distributors, Inc.
("MFD"), respectively, both of which are located at 500 Boylston Street, Boston,
Massachusetts 02116.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK AND THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
This Prospectus sets forth concisely the information concerning the Fund that a
prospective investor ought to know before investing. The Fund has filed with the
Securities and Exchange Commission (the "SEC") a Statement of Additional
Information, dated April 1, 1995, which contains more detailed information about
the Fund and is incorporated into this Prospectus by reference. See page 23 for
a further description of the information set forth in the Statement of
Additional Information. A copy of the Statement of Additional Information may be
obtained without charge by contacting the Shareholder Servicing Agent (see back
cover for address and phone number).
INVESTORS SHOULD READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE REFERENCE.
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1. EXPENSE SUMMARY
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CLASS
SHAREHOLDER TRANSACTION EXPENSES: CLASS A B
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Maximum Initial Sales Charge Imposed on Purchases of Fund
Shares (as a percentage of offering price)................ 5.75% 0.00%
Maximum Contingent Deferred Sales Charge (as a percentage of
original purchase price or redemption proceeds, as
applicable)............................................... See Below1 4.00%
ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET
ASSETS)2:
Management Fees............................................. 0.31% 0.31%
Rule 12b-1 Fees (after applicable fee reduction)............ 0.23%3 1.00%4
Other Expenses.............................................. 0.22% 0.31%
Total Operating Expenses.................................... 0.76% 1.62%
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1 Purchases of $1 million or more are not subject to an initial sales charge;
however, a contingent deferred sales charge ("CDSC") of 1% will be imposed on
such purchases in the event of certain redemption transactions within 12
months following such purchases (see "Purchases").
2 For Class A and Class B shares, percentages are based on fees incurred during
the fiscal year ended November 30, 1994.
3 The Fund has adopted a Distribution Plan for its Class A shares in accordance
with Rule 12b-1 under the Investment Company Act of 1940, as amended (the
"1940 Act"), which provides that it will pay distribution/service fees
aggregating up to (but not necessarily all of) 0.35% per annum of the average
daily net assets attributable to Class A shares (see "Distribution Plans.")
Currently, 0.10% of the distribution fee is being waived. After a substantial
period of time, distribution expenses paid under this plan, together with the
initial sales charge, may total more than the maximum sales charge that would
have been permissible if imposed entirely as an initial sales charge.
4 The Fund has adopted a Distribution Plan for its Class B shares in accordance
with Rule 12b-1 under the 1940 Act, which provides that it will pay
distribution/service fees aggregating up to 1.00% per annum of the average
daily net assets attributable to Class B shares (see "Distribution Plans").
After a substantial period of time, distribution expenses paid under this
plan, together with any CDSC, may total more than the maximum sales charge
that would have been permissible if imposed entirely as an initial sales
charge.
EXAMPLE OF EXPENSES
An investor would pay the following dollar amounts of expenses on a $1,000
investment in the Fund, assuming (a) 5% annual return and (b) redemption at the
end of each of the time periods indicated (unless otherwise noted):
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PERIOD CLASS A CLASS B
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(1)
1 year.............................................. $ 65 $ 56 $ 16
3 years............................................. 80 81 51
5 years............................................. 97 108 88
10 Years............................................. 146 169(2) 169(2)
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(1) Assumes no redemption.
(2) Class B shares convert to Class A shares approximately eight years after
purchase; therefore, years nine and ten reflect Class A expenses.
2
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The purpose of the expense table above is to assist investors in understanding
the various costs and expenses that a shareholder of the Fund will bear directly
or indirectly. More complete descriptions of the following expenses of the Fund
are set forth in the following sections of this Prospectus: (i) varying sales
charges on share purchases -- "Purchases"; (ii) varying CDSCs -- "Purchases";
(iii) management fees -- "Investment Adviser"; and (iv) Rule 12b-1 (i.e.,
distribution plan) fees -- "Distribution Plans."
THE "EXAMPLE" SET FORTH ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST
OR FUTURE EXPENSES OF THE FUND; ACTUAL EXPENSES MAY BE GREATER OR LESS THAN
THOSE SHOWN.
2. THE FUND
The Fund is an open-end, diversified management investment company which was
organized as a business trust under the laws of The Commonwealth of
Massachusetts in 1985. The Fund is the successor to the business of
Massachusetts Investors Growth Stock Fund, Inc. (the "Trust"), incorporated in
Massachusetts in 1958 to continue the business of a Delaware corporation
organized in 1932. All references in this Prospectus to the Fund's past
activities are intended to include those of the Trust, unless the context
indicates otherwise. Shares of the Fund are sold continuously to the public and
the Fund uses the proceeds to buy securities (common stocks and other
instruments) for its portfolio. Two classes of shares of the Fund currently are
offered to the general public. Class A shares are offered at net asset value
plus an initial sales charge (a CDSC in the case of certain purchases of $1
million or more) and subject to a Distribution Plan providing for an annual
distribution and service fee. Class B shares are offered at net asset value
without an initial sales charge but subject to a CDSC and a Distribution Plan
providing for an annual distribution and service fee which are greater than the
Class A distribution fee and service fee; Class B shares will convert to Class A
shares approximately eight years after purchase.
The Fund's Board of Trustees provides broad supervision over its affairs. MFS is
responsible for the management of the Fund's assets and the officers of the Fund
are responsible for its operations. The Adviser manages the portfolio from day
to day in accordance with the Fund's investment objective. The selection of
investments and the way they are managed depend on the conditions and trends in
the economy and the financial marketplace. The Fund also offers to buy back
(redeem) its shares from its shareholders at any time at net asset value less
any applicable CDSC.
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3. CONDENSED FINANCIAL INFORMATION
The following information should be read in conjunction with the financial
statements included in the Fund's Annual Report to shareholders which are
incorporated by reference into the Statement of Additional Information in
reliance upon the report of Deloitte & Touche LLP, independent certified public
accountants, as experts in accounting and auditing.
FINANCIAL HIGHLIGHTS
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YEAR ENDED NOVEMBER 30,
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CLASS A CLASS B
----------------- ------------------
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 1994 1993+
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PER SHARE
DATA (FOR A
SHARE
OUTSTANDING
THROUGHOUT
EACH
PERIOD):
Net asset
value -- beginning
of period... $12.97 $ 12.15 $10.87 $ 8.48 $ 10.70 $ 8.39 $ 9.05 $ 9.69 $10.68 $10.04 $ 12.93 $ 12.91
------ ------- ------ ------ -------- ------ ------ ------- ------ ------ ------- -------
Income from
investment
operations --
Net
investment
income
(loss).... $(0.01) $ (0.01)++ $(0.03) $ 0.01 $ 0.05 $ 0.09 $ 0.12 $ 0.18 $ 0.20 $ 0.28 $ (0.09) $ (0.01)
Net realized
and
unrealized
gain
(loss) on
investments... (0.49) 1.55 2.07 2.93 (1.02) 3.14 0.64 (0.68) 1.99 2.10 (0.50) 0.03
------ ------- ------ ------ -------- ------ ------ ------- ------ ------ ------- -------
Total from
investment
operations... $(0.50) $ 1.54 $ 2.04 $ 2.94 $ (0.97) $ 3.23 $ 0.76 $ (0.50) $ 2.19 $ 2.38 $ (0.59) $ 0.02
------ ------- ------ ------ -------- ------ ------ ------- ------ ------ ------- -------
Less
distributions
declared to
shareholders --
From net
investment
income.... $ -- $ -- $ -- $(0.03) $ (0.05) $(0.08) $(0.15) $ (0.14) $(0.20) $(0.28) $ -- $ --
From
realized
gains..... (1.99) (0.72) (0.76) (0.52) (1.20) (0.84) (1.27) -- (2.98) (1.46) (1.99) --
------ ------- ------ ------ -------- ------ ------ ------- ------ ------ ------- -------
Total
distributions
declared
to
shareholders... $(1.99) $ (0.72) $(0.76) $(0.55) $ (1.25) $(0.92) $(1.42) $ (0.14) $(3.18) $(1.74) $ (1.99) $ (0.00)
------ ------- ------ ------ -------- ------ ------ ------- ------ ------ ------- -------
Net asset
value -- end
of period... $10.48 $ 12.97 $12.15 $10.87 $ 8.48 $10.70 $ 8.39 $ 9.05 $ 9.69 $10.68 $ 10.35 $ 12.93
======= ======== ======= ======= ========== ======= ======= ======== ======= ======= ======== ========
Total
return#..... (5.00)% 13.43% 19.35% 36.56% (10.27)% 42.14% 8.21% (5.57)% 20.30% 23.52% (5.82)% 0.70 %*
RATIOS (TO
AVERAGE NET
ASSETS)/SUPPLEMENTAL
DATA:
Expenses.... 0.72%++ 0.71% 0.67 % 0.63% 0.53% 0.54% 0.58% 0.50 % 0.50% 0.56% 1.60% 1.49 %*
Net
investment
income
(loss).... (0.06)% (0.19)% (0.24)% 0.14% 0.55 % 0.91% 1.27% 1.60% 1.62% 2.47% (0.87)% (0.99)%*
PORTFOLIO
TURNOVER.... 56% 52% 16 % 39% 44% 32% 75% 66% 77% 66% 56% 52 %
NET ASSETS AT
END OF
PERIOD
($000,000'S)... 977 1,132 1,070 950 749 907 735 774 899 878 9 2
</TABLE>
* Annualized.
+ For the period from date of issue of Class B shares, September 7, 1993 to
November 30, 1993.
++ The distributor did not impose a portion of its fee for the period indicated.
If this fee had been incurred by the Fund the ratios of expenses and net
investment loss to average net assets would have been 0.82% and (0.16)%,
respectively. The net investment loss per share would have been $(0.03).
# Total returns for Class A shares do not include the applicable sales charge
(except for reinvested dividends prior to March 1, 1991). If the sales charge
had been included, the results would have been lower.
4. INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE -- The Fund's investment objective is to provide long-term
growth of capital and future income rather than current income. Any investment
involves risk and there can be no assurance that the Fund will achieve its
investment objective; the Fund's name does not imply any assurance that an
investor's capital will increase.
INVESTMENT POLICIES -- The Fund's policy is to keep its assets invested, except
for working cash balances, in the common stocks, or securities convertible into
common stocks, of companies believed to possess better than average prospects
for long-
4
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term growth. This policy is fundamental and may not be changed without a
shareholder vote. Emphasis is placed on the selection of progressive,
well-managed companies.
Since shares of the Fund represent an investment in securities with fluctuating
market prices, shareholders should understand that the value of shares of the
Fund will vary as the aggregate value of the Fund's portfolio securities
increases or decreases. Moreover, any dividends paid by the Fund will increase
or decrease in relation to the income received by the Fund from its investments.
FOREIGN SECURITIES: The Fund may invest up to 50% (and generally expects to
invest between 10% and 30%) of its total assets in foreign securities (not
including American Depositary Receipts). Investing in securities of foreign
issuers generally involves risks not ordinarily associated with investing in
securities of domestic issuers. These include changes in currency rates,
exchange control regulations, governmental administration or economic or
monetary policy (in the United States or abroad) or circumstances in dealings
between nations. Costs may be incurred in connection with conversions between
various currencies. Special considerations may also include more limited
information about foreign issuers, higher brokerage costs, different accounting
standards and thinner trading markets. Foreign securities markets may also be
less liquid, more volatile and less subject to government supervision than in
the United States. Investments in foreign countries could be affected by other
factors including expropriation, confiscatory taxation and potential
difficulties in enforcing contractual obligations and could be subject to
extended settlement periods. The Fund may hold foreign currency received in
connection with investments in foreign securities when, in the judgment of the
Adviser, it would be beneficial to convert such currency into U.S. dollars at a
later date, based on anticipated changes in the relevant exchange rate. The Fund
may also hold foreign currency in anticipation of purchasing foreign securities.
See the Statement of Additional Information for further discussion of foreign
securities and the holding of foreign currency, as well as the associated risks.
EMERGING MARKET SECURITIES: The Fund may invest in countries or regions with
relatively low gross national product per capita compared to the world's major
economies, and in countries or regions with the potential for rapid economic
growth (emerging markets). Emerging markets will include any country not listed
by the Organization for Economic Cooperation and Development ("OECD") or
determined by the Adviser to be an emerging market as defined above. The Fund
may invest in securities of: (i) companies the principal securities trading
market for which is an emerging market country; (ii) companies organized under
the laws of, and with a principal office in, an emerging market country; (iii)
companies whose principal activities are located in emerging market countries;
(iv) companies traded in any market that derive 50% or more of their total
revenue from either goods or services produced in an emerging market or sold in
an emerging market or; (v) emerging market governments or any of their political
subdivisions, agencies, authorities or instrumentalities.
In addition to the general risks of investing in foreign securities, investments
in emerging markets involve special risks. Securities of many issuers in
emerging markets may be less liquid and more volatile than securities of
comparable domestic issuers. These securities may be considered speculative and,
while generally offering higher income and the potential for capital
appreciation, may present significantly greater risk. Emerging markets may have
different clearance and settlement procedures, and in certain markets there have
been times when settlements have been unable to keep pace with the volume of
securities transactions, making it difficult to conduct such transactions.
Delays in settlement could result in temporary periods when a portion of the
assets of the Fund is uninvested and no return is earned thereon. The inability
of the Fund to make intended security purchases due to settlement problems could
cause the Fund to miss attractive investment opportunities. Inability to dispose
of portfolio securities due to settlement problems could result in losses to the
Fund due to subsequent declines in values of the portfolio securities or, if the
Fund has entered into a contract to sell the security, possible liability to the
purchaser. Certain markets may require payment for securities before delivery.
Certain emerging markets may require governmental approval for the repatriation
of investment income, capital or the proceeds of sales of securities by foreign
investors. In addition, if a deterioration occurs in an emerging market's
balance of payments or for other reasons, a country could impose temporary
restrictions on foreign capital remittances. The Fund could be adversely
affected
5
<PAGE> 6
by delays in, or a refusal to grant, any required governmental approval for
repatriation of capital, as well as by the application to the Fund of any
restrictions on investments.
Investment in certain foreign emerging market debt obligations may be restricted
or controlled to varying degrees. These restrictions or controls may at times
preclude investment in certain foreign emerging market debt obligations and
increase the expenses of the Fund.
AMERICAN DEPOSITARY RECEIPTS: The Fund may invest in American Depositary
Receipts ("ADRs"), which are certificates issued by a U.S. depository (usually a
bank) and represent a specified quantity of shares of an underlying non-U.S.
stock on deposit with a custodian bank as collateral. Because ADRs trade on
United States securities exchanges, the Adviser does not treat them as foreign
securities. However, they are subject to many of the risks of foreign
securities, such as changes in exchange rates and more limited information about
foreign issuers.
REPURCHASE AGREEMENTS: The Fund may enter into repurchase agreements in order
to earn additional income on available cash or as a temporary defensive measure.
Under a repurchase agreement, the Fund acquires securities subject to the
seller's agreement to repurchase at a specified time and price. If the seller
becomes subject to a proceeding under the bankruptcy laws or its assets are
otherwise subject to a stay order, the Fund's right to liquidate the securities
may be restricted (during which time the value of the securities could decline).
As discussed in the Statement of Additional Information, the Fund has adopted
certain procedures intended to minimize any risk.
LENDING OF SECURITIES: The Fund may seek to increase its income by lending
portfolio securities. Such loans will usually be made only to member firms (and
subsidiaries thereof) of the New York Stock Exchange and to member banks of the
Federal Reserve System, and would be required to be secured continuously by
collateral in cash, cash equivalents or U.S. Government Securities maintained on
a current basis at an amount at least equal to the market value of the
securities loaned. The Fund will continue to collect the equivalent of interest
on the securities loaned and will also receive either interest (through
investment of cash collateral) or a fee (if the collateral is U.S. Government
securities).
"WHEN-ISSUED" SECURITIES: In order to help ensure the availability of suitable
securities for its portfolio, the Fund may purchase securities on a "when
issued" or on a "forward delivery" basis, which means that the securities will
be delivered to the Fund at a future date usually beyond customary settlement
time. The Fund does not pay for such securities until received and does not
start earning interest on the securities until the contractual settlement date.
In order to invest its assets immediately, while awaiting delivery of securities
purchased on such bases, the Fund will normally invest in cash, short-term money
market instruments or high quality debt securities. See the Statement of
Additional Information for a further discussion of the nature of such
transactions and risks associated therewith.
RESTRICTED SECURITIES: The Fund may also purchase securities that are not
registered under the Securities Act of 1933 ("1933 Act") ("restricted
securities"), including those that can be offered and sold to "qualified
institutional buyers" under Rule 144A under the 1933 Act ("Rule 144A
securities"). The Fund's Board of Trustees determines, based upon a continuing
review of the trading markets for a specific Rule 144A security, whether such
security is illiquid and thus subject to the Fund's limitations on investing not
more than 15% of its net assets in illiquid investments, or liquid and thus not
subject to such limitation. The Board of Trustees has adopted guidelines and
delegated to MFS the daily function of determining and monitoring the liquidity
of Rule 144A securities. The Board, however, will retain sufficient oversight
and be ultimately responsible for the determinations. The Board will carefully
monitor the Fund's investments in Rule 144A securities, focusing on such
important factors, among others, as valuation, liquidity and availability of
information. This investment practice could have the effect of increasing the
level of illiquidity in the Fund to the extent that qualified institutional
buyers become for a time uninterested in purchasing Rule 144A securities held in
the Fund's portfolio. Subject to the Fund's 15% limitation on investments in
illiquid investments, the Fund may also invest in restricted securities that may
not be sold under Rule 144A, which represents certain risks. As a result, the
Fund might not be able to sell these securities when the Adviser wishes to do
so, or might have to sell them at less than fair value. In addition, market
quotations are less readily available. Therefore, the judgment of the Adviser
may at times play a greater role in valuing these securities than in the case of
unrestricted securities.
6
<PAGE> 7
OPTIONS ON SECURITIES: The Fund may write (sell) covered put and call options
on securities and purchase put and call options on securities. The Fund will
write such options for the purpose of increasing its return and/or to protect
the value of its portfolio. In particular, where the Fund writes an option which
expires unexercised or is closed out by the Fund at a profit, it will retain the
premium paid for the option, which will increase its gross income and will
offset in part the reduced value of a portfolio security in connection with
which the option may have been written or the increased cost of portfolio
securities to be acquired. In contrast, however, if the price of the security
underlying the option moves adversely to the Fund's position, the option may be
exercised and the Fund will be required to purchase or sell the security at a
disadvantageous price, resulting in losses which may only be partially offset by
the amount of the premium. The Fund may also write combinations of put and call
options on the same security, known as "straddles." Such transactions can
generate additional premium income but also present increased risk.
The Fund may purchase put or call options in anticipation of declines in the
value of portfolio securities or increases in the value of securities to be
acquired. In the event that such declines or increases occur, the Fund may be
able to offset the resulting adverse effect on its portfolio, in whole or in
part, through the options purchased. The risk assumed by the Fund in connection
with such transactions is limited to the amount of the premium and related
transaction costs associated with the option, although the Fund may be required
to forfeit such amounts in the event that the prices of securities underlying
the options do not move in the direction or to the extent anticipated.
The Fund may also enter into options on the yield "spread," or yield
differential, between two securities, a transaction referred to as a "yield
curve" option, for hedging and non-hedging (an effort to increase current
income) purposes. In contrast to other types of options, a yield curve option is
based on the difference between the yields of designated securities rather than
the actual prices of the individual securities, and is settled through cash
payments. Accordingly, a yield curve option is profitable to the holder if this
differential widens (in the case of a call) or narrows (in the case of a put),
regardless of whether the yields of the underlying securities increase or
decrease. Yield curve options written by the Fund will be covered as described
in the Statement of Additional Information. The trading of yield curve options
is subject to all the risks associated with trading other types of options, as
discussed below under "Risk Factors" and in the Statement of Additional
Information. In addition, such options present risks of loss even if the yield
on one of the underlying securities remains constant if the spread moves in a
direction or to an extent which was not anticipated.
OPTIONS ON STOCK INDICES: The Fund may write (sell) covered call and put
options and purchase call and put options on stock indices. The Fund may write
options on stock indices for the purpose of increasing its gross income and to
protect its portfolio against declines in the value of securities it owns or
increases in the value of securities to be acquired. When the Fund writes an
option on a stock index, and the value of the index moves adversely to the
holder's position, the option will not be exercised, and the Fund will either
close out the option at a profit or allow it to expire unexercised. The Fund
will thereby retain the amount of the premium, which will increase its gross
income and offset part of the reduced value of portfolio securities or the
increased cost of securities to be acquired. Such transactions, however, will
constitute only partial hedges against adverse price fluctuations, since any
such fluctuations will be offset only to the extent of the premium received by
the Fund for the writing of the option. In addition, if the value of an
underlying index moves adversely to the Fund's option position, the option may
be exercised, and the Fund will experience a loss which may only be partially
offset by the amount of the premium received.
The Fund may also purchase put or call options on stock indices in order to
hedge its investments against a decline in value or to attempt to reduce the
risk of missing a market or industry segment advance. The Fund's possible loss
in either case will be limited to the premium paid for the option, plus related
transaction costs.
OPTIONS ON FOREIGN CURRENCIES: The Fund may purchase and write options on
foreign currencies ("Options on Foreign Currencies") for the purpose of
protecting against declines in the dollar value of portfolio securities and
against increases in the dollar cost of securities to be acquired. As in the
case of other types of options, however, the writing of an Option on Foreign
Currency will constitute only a partial hedge, up to the amount of the premium
received, and the Fund may be required to purchase or sell foreign currencies at
disadvantageous exchange rates, thereby incurring losses. The purchase of an
Option on Foreign Currency may constitute an effective hedge against
fluctuations in exchange rates although, in the event of rate
7
<PAGE> 8
movements adverse to the Fund's position, it may forfeit the entire amount of
the premium paid for the option plus related transaction costs. The Fund may
also be required or elect to receive delivery of the foreign currencies
underlying Options on Foreign Currencies into which it has entered. Under
certain circumstances, such as where the Adviser believes that the applicable
exchange rate is unfavorable at the time the currencies are received or the
Adviser anticipates, for any other reason, that the exchange rate will improve,
the Fund may hold such currencies for an indefinite period of time. See the
Statement of Additional Information for information on the risks associated with
holding foreign currency.
FUTURES CONTRACTS: The Fund may enter into stock index and foreign currency
futures contracts (collectively "Futures Contracts"). Such transactions will be
entered into for hedging purposes, in order to protect the Fund's current or
intended investments from the effects of changes in exchange rates or declines
in the stock market, as well as for non-hedging purposes, to the extent
permitted by applicable law. The Fund will incur brokerage fees when it
purchases and sells Futures Contracts, and will be required to maintain margin
deposits. In addition, Futures Contracts entail risks. Although the Adviser
believes that use of such contracts will benefit the Fund, if its investment
judgment about the general direction of exchange rates or the stock market is
incorrect, the Fund's overall performance may be poorer than if it had not
entered into any such contract and the Fund may realize a loss. The Fund will
not enter into any Futures Contract if immediately thereafter the value of
securities and other underlying obligations, all such Futures Contracts would
exceed 50% of the value of its total assets.
OPTIONS ON FUTURES CONTRACTS: The Fund may purchase and write options on
Futures Contracts ("Options on Futures Contracts") in order to protect against
declines in the values of portfolio securities or against increases in the cost
of securities to be acquired. Purchases of Options on Futures Contracts may
present less risk in hedging the Fund's portfolio than the purchase or sale of
the underlying Futures Contracts since the potential loss is limited to the
amount of the premium plus related transaction costs, although it may be
necessary to exercise the option to realize any profit, which results in the
establishment of a futures position. The writing of Options on Futures
Contracts, however, does not present less risk than the trading of Futures
Contracts and will constitute only a partial hedge, up to the amount of the
premium received. In addition, if an option is exercised, the Fund may suffer a
loss on the transaction. The Fund may also purchase and write Options on Futures
Contracts for non-hedging purposes, to the extent permitted by applicable law.
FORWARD CONTRACTS: The Fund may enter into forward foreign currency exchange
contracts for the purchase or sale of a fixed quantity of a foreign currency at
a future date ("Forward Contracts"). The Fund may enter into Forward Contracts
for hedging purposes as well as for non-hedging purposes (i.e., speculative
purposes). By entering into transactions in Forward Contracts for hedging
purposes, the Fund may be required to forego the benefits of advantageous
changes in exchange rates and, in the case of Forward Contracts entered into for
non-hedging purposes, the Fund may sustain losses which will reduce its gross
income. Such transactions, therefore, are considered speculative. Forward
Contracts are traded over-the-counter and not on organized commodities or
securities exchanges. As a result, Forward Contracts operate in a manner
distinct from exchange-traded instruments, and their use involves certain risks
beyond those associated with transactions in Futures Contracts or options traded
on exchanges. The Fund may be required or elect to receive delivery of the
foreign currencies underlying Forward Contracts into which it has entered. Under
certain circumstances, such as where the Adviser believes that the applicable
exchange rate is unfavorable at the time the currencies are received or the
Adviser anticipates, for any other reason, that the exchange rate will improve,
the Fund may hold such currencies for an indefinite period of time. The Fund may
also enter into a Forward Contract on one currency to hedge against risk of loss
arising from fluctuations in the value of a second currency (referred to as a
"cross hedge") if, in the judgment of the Adviser, a reasonable degree of
correlation can be expected between movements in the values of the two
currencies. The Fund has established procedures consistent with statements of
the Securities and Exchange Commission (the "SEC") and its staff regarding the
use of Forward Contracts by registered investment companies, which require use
of segregated assets or "cover" in connection with the purchase and sale of such
contracts. See the Statement of Additional Information for information on the
risks associated with holding foreign currency.
RISKS OF OPTIONS AND FUTURES: Although the Fund will enter into Futures
Contracts, Options on Futures Contracts, Forward Contracts, Options on Foreign
Currencies and other option transactions in part for hedging purposes, such
transactions
8
<PAGE> 9
nevertheless involve risks. For example, a lack of correlation between the index
or instrument underlying an option or Futures Contract and the assets being
hedged, or unexpected adverse price movements, could render the Fund's hedging
strategy unsuccessful and could result in losses. The Fund also may enter into
transactions in such investments for other than hedging purposes, to the extent
permitted by applicable law, which involves greater risk and may result in
losses. In addition, there can be no assurance that a liquid secondary market
will exist for any contract purchased or sold, and the Fund may be required to
maintain a position until exercise or expiration, which could result in losses.
The Fund may also be required or may elect to receive delivery of the foreign
currencies underlying Forward Contracts, which may involve certain risks.
Further, Forward Contracts and Options on Foreign Currencies entail particular
risks related to conditions affecting the underlying currency. Over-the-counter
transactions in options on securities, Options on Foreign Currencies and Forward
Contracts also involve risks arising from the lack of an organized exchange
trading environment. Transactions in Futures Contracts, Options on Futures
Contracts, Forward Contracts Options on Foreign Currencies and other options are
subject to other risks as well.
See the Statement of Additional Information which includes a discussion of the
risks related to transactions in options, Futures Contracts, Options on Futures
Contracts, Options on Foreign Currencies and Forward Contracts.
PORTFOLIO TRADING: While it is not generally the Fund's policy to invest or
trade for short-term profits, the Fund may dispose of a portfolio security
whenever the Adviser is of the opinion that that security no longer has an
appropriate appreciation potential or when another security appears to offer
relatively greater appreciation potential. Portfolio changes are made without
regard to the length of time a security has been held, or whether a sale would
result in a profit or loss, subject to tax restrictions for qualification as a
regulated investment company. Therefore, the rate of portfolio turnover is not a
limiting factor when a change in the portfolio is otherwise appropriate.
The primary consideration in placing portfolio security transactions with
broker-dealers for execution is to obtain, and maintain the availability of,
execution at the most favorable prices and in the most effective manner
possible. Consistent with the foregoing primary consideration, the Rules of Fair
Practice of the National Association of Securities Dealers, Inc. (the "NASD")
and such other policies as the Trustees may determine, the Adviser may consider
sales of shares of the Fund and of the other investment clients of MFD, as a
factor in the selection of broker-dealers to execute the Fund's portfolio
transactions. From time to time, the Adviser may direct certain portfolio
transactions to broker-dealer firms which, in turn, have agreed to pay a portion
of the Fund's operating expenses (e.g., fees charged by the custodian of the
Fund's assets). For a further discussion of portfolio transactions, see
"Portfolio Transactions and Brokerage Commissions" in the Statement of
Additional Information.
------------------------
The policies described above are not fundamental except for the one policy
specifically noted as fundamental, and may be changed without shareholder
approval. The Statement of Additional Information includes a discussion of other
investment policies and a listing of specific investment restrictions which
govern the Fund's investment policies. The specific investment restrictions
listed in the Statement of Additional Information may not be changed without
shareholder approval.
The Fund's investment limitations, policies and rating standards are adhered to
at the time of purchase or utilization of assets; a subsequent change in
circumstances will not be considered to result in a violation of policy.
5. MANAGEMENT OF THE FUND
INVESTMENT ADVISER -- The Adviser manages the Fund pursuant to an Investment
Advisory Agreement dated July 19, 1985 (the "Advisory Agreement"). The Adviser
provides the Fund with overall investment advisory and administrative services,
as well as general office facilities. George F. Bennett, Jr., a Senior Vice
President of the Adviser, has been the Fund's portfolio manager since July of
1993. Mr. Bennett has been employed by the Adviser since 1969. Subject to such
policies as the Trustees may determine, the Adviser makes investment decisions
for the Fund. For these services and facilities, the Adviser receives a
management fee, computed and paid monthly, in an amount equal to 0.5% of the
first $200 million of the Fund's average daily net assets, 0.4% of the next $300
million of the Fund's average daily net assets and 0.2% of its average daily
assets in excess of $500 million, in each case on an annualized basis for the
Fund's current fiscal year. For the fiscal year ended November 30, 1994,
9
<PAGE> 10
MFS received management fees under the Advisory Agreement of $3,277,285,
equivalent on an annualized basis to 0.31% of the Fund's average daily net
assets.
MFS also serves as investment adviser to each of the other funds in the MFS
Family of Funds (the "MFS Funds"), and to MFS(R) Municipal Income Trust, MFS
Multimarket Income Trust, MFS Government Markets Income Trust, MFS Intermediate
Income Trust, MFS Charter Income Trust, MFS Special Value Trust, MFS Union
Standard Trust, MFS Institutional Trust, MFS Variable Insurance Trust, Sun
Growth Variable Annuity Fund, Inc., MFS/Sun Life Series Trust and seven variable
accounts, each of which is a registered investment company established by Sun
Life Assurance Company of Canada (U.S.) ("Sun Life of Canada (U.S.)") in
connection with the sale of Compass-2 and Compass-3 combination fixed/variable
annuity contracts. MFS and its wholly owned subsidiary, MFS Asset Management,
Inc., provide investment advice to substantial private clients.
MFS is America's oldest mutual fund organization. MFS and its predecessor
organizations have a history of money management dating from 1924 and the
founding of the first mutual fund in the United States, Massachusetts Investors
Trust. Net assets under the management of MFS were approximately $34.5 billion
on behalf of over 1.6 million investor accounts as of February 28, 1995. MFS is
a wholly owned subsidiary of Sun Life of Canada (U.S.), which in turn is a
wholly owned subsidiary of Sun Life Assurance Company of Canada ("Sun Life").
The Directors of MFS are A. Keith Brodkin, Jeffrey L. Shames, Arnold D. Scott,
John R. Gardner and John D. McNeil. Mr. Brodkin is the Chairman of MFS, Mr.
Shames is the President of MFS and Mr. Scott is the Secretary and a Senior
Executive Vice President of MFS; Messrs. McNeil and Gardner are the Chairman and
President, respectively, of Sun Life. Sun Life, a mutual life insurance company,
is one of the largest international life insurance companies and has been
operating in the United States since 1895, establishing a headquarters office
here in 1973. The executive officers of MFS report to the Chairman of Sun Life.
A. Keith Brodkin, the Chairman and a Director of MFS, is the Chairman, President
and a Trustee of the Fund. W. Thomas London, Stephen E. Cavan, James R.
Bordewick, Jr. and James O. Yost, all of whom are officers of MFS, are officers
of the Fund.
DISTRIBUTOR -- MFD, a wholly owned subsidiary of MFS, is the distributor of
shares of the Fund and also serves as distributor for each of the other MFS
Funds.
SHAREHOLDER SERVICING AGENT -- MFS Service Center, Inc. (the "Shareholder
Servicing Agent"), a wholly owned subsidiary of MFS, performs transfer agency,
certain dividend disbursing agency and other services for the Fund.
6. INFORMATION CONCERNING SHARES OF THE FUND
PURCHASES
Shares of the Fund may be purchased at the public offering price through any
securities dealer, certain banks and other financial institutions having selling
agreements with MFD. Non-securities dealer financial institutions will receive
transaction fees that are the same as commission fees to dealers. Securities
dealers and other financial institutions may also charge their customers fees
relating to investments in the Fund.
10
<PAGE> 11
The Fund offers two classes of shares which bear sales charges and distribution
fees in different forms and amounts:
CLASS A SHARES: Class A shares are offered at net asset value plus an initial
sales charge (or CDSC in the case of certain purchases of $1 million or more) as
follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SALES CHARGE* AS
PERCENTAGE OF
--------------------------------- DEALER ALLOWANCE
NET AMOUNT AS A PERCENTAGE
AMOUNT OF PURCHASE OFFERING PRICE INVESTED OF OFFERING PRICE
<S> <C> <C> <C>
Less than $50,000................................................ 5.75% 6.10% 5.00%
$50,000 but less than $100,000................................... 4.75 4.99 4.00
$100,000 but less than $250,000.................................. 4.00 4.17 3.20
$250,000 but less than $500,000.................................. 2.95 3.04 2.25
$500,000 but less than $1,000,000................................ 2.20 2.25 1.70
$1,000,000 or more............................................... None** None** See Below**
</TABLE>
- --------------------------------------------------------------------------------
* Because of rounding in the calculation of offering price, actual sales
charges may be more or less than those calculated using the percentages
above.
** A CDSC may apply in certain instances. MFD will pay a commission on purchases
of $1 million or more.
No sales charge is payable at the time of purchase of Class A shares on
investments of $1 million or more. However, a CDSC may be imposed on such
investments in the event of a share redemption within 12 months following the
share purchase, at the rate of 1% on the lesser of the value of the shares
redeemed (exclusive of reinvested dividends and capital gain distributions) or
the total cost of such shares.
In determining whether a CDSC on such Class A shares is payable, and, if so, the
amount of the charge, it is assumed that shares not subject to the CDSC are the
first redeemed followed by other shares held for the longest period of time. All
investments made during a calendar month, regardless of when during the month
the investment occurred, will age one month on the last day of the month and
each subsequent month. Except as noted below, the CDSC on Class A shares will be
waived in the case of: (i) exchanges (except that if the shares acquired by
exchange were then redeemed within 12 months of the initial purchase (other than
in connection with subsequent exchanges to other MFS Funds), the charge would
not be waived); (ii) distributions to participants from a retirement plan
qualified under section 401(a) of the Internal Revenue Code of 1986, as amended
(the "Code") (a "Retirement Plan"), due to: (a) a loan from the plan (repayments
of loans, however, will constitute new sales for purposes of assessing the
CDSC); (b) "financial hardship" of the participant in the plan, as that term is
defined in Treasury Regulation Section 1.401(k)-1(d)(2), as amended from time to
time; or (c) the death of a participant in such a plan; (iii) distributions from
a 403(b) plan or an Individual Retirement Account ("IRA"), due to death,
disability or attainment of age 59 1/2; (iv) tax-free returns of excess
contributions to an IRA; (v) distributions by other employee benefit plans to
pay benefits; and (vi) certain involuntary redemptions and redemptions in
connection with certain automatic withdrawals from a qualified Retirement Plan.
The CDSC on Class A shares will not be waived, however, if the Retirement Plan
withdraws from the Fund except if the Retirement Plan has invested its assets in
Class A shares of one or more of the MFS Funds for more than 10 years from the
later to occur of (i) January 1, 1993 or (ii) the date such Retirement Plan
first invests its assets in Class A shares of one or more of the MFS Funds, the
CDSC on Class A shares will be waived in the case of a redemption of all of the
Retirement Plan's shares (including shares of any other class) in all MFS Funds
(i.e., all the assets of the Retirement Plan invested in the MFS Funds are
withdrawn), unless, immediately prior to the redemption, the aggregate amount
invested by the Retirement Plan in Class A shares of the MFS Funds (excluding
the reinvestment of distributions) during the prior four-year period equals 50%
or more of the total value of the Retirement Plan's assets in the MFS Funds, in
which case the CDSC will not be waived. The CDSC on Class A shares will be
waived upon redemption by a Retirement Plan where the redemption proceeds are
used to pay expenses of the Retirement Plan or certain expenses of participants
under the Retirement Plan (e.g., participant account fees), provided that the
Retirement Plan's sponsor subscribes to the MFS Fundamental 401(k) Plan SM or
another similar recordkeeping system made available by the Shareholder Servicing
Agent. The CDSC on Class A shares will be waived upon the transfer of
registration
11
<PAGE> 12
from shares held by a Retirement Plan through a single account maintained by the
Shareholder Servicing Agent to multiple Class A share accounts maintained by the
Shareholder Servicing Agent on behalf of individual participants in the
Retirement Plan, provided that the Retirement Plan's sponsor subscribes to the
MFS Fundamental 401(k) Plan SM or another similar recordkeeping system made
available by the Shareholder Servicing Agent. Any applicable CDSC will be
deferred upon an exchange of Class A shares of the Fund for units of
participation of the MFS Fixed Fund (a bank collective investment fund) (the
"Units"), and the CDSC will be deducted from the redemption proceeds when such
Units are subsequently redeemed (assuming the CDSC is then payable). No CDSC
will be assessed upon an exchange of Units for Class A shares of the Fund. For
purposes of calculating the CDSC payable upon redemption of Class A shares of
the Fund or Units acquired pursuant to one or more exchanges, the period during
which the Units are held will be aggregated with the period during which the
Class A shares are held. MFD shall receive all CDSCs which it intends to apply
for the benefit of the Fund.
MFD allows discounts to dealers (which are alike for all dealers) from the
applicable public offering price, as shown in the above table. In the case of
the maximum sales charge, the dealer retains 5% and MFD retains approximately
3/4 of 1% of the public offering price. The sales charge may vary depending on
the number of shares of the Fund as well as certain MFS Funds and other funds
owned or being purchased, the existence of an agreement to purchase additional
shares during a 13-month period (or 36-month period for purchases of $1 million
or more) or other special purchase programs. A description of the Right of
Accumulation, Letter of Intent and Group Purchases privileges by which the sales
charge may also be reduced is set forth in the Statement of Additional
Information. In addition, MFD pays commissions to dealers who initiate and are
responsible for purchases of $1 million or more as follows: 1.00% on sales up to
$5 million; plus 0.25% on the amount in excess of $5 million. Purchases of $1
million or more for each shareholder account will be aggregated over a 12-month
period (commencing from the date of the first such purchase) for purposes of
determining the level of commissions to be paid during that period with respect
to such account.
Class A shares of the Fund may also be sold at their net asset value to the
officers of the Fund, to any of the subsidiary companies of Sun Life, to
eligible Directors, officers, employees (including retired employees) and agents
of MFS, Sun Life or any of their subsidiary companies, to any fund, pension,
profit-sharing or any other benefit plan for such persons, to any trustees and
retired trustees of any investment company for which MFD serves as distributor
or principal underwriter, and to certain family members of such individuals and
their spouses, provided such shares will not be resold except to the Fund. Class
A shares of the Fund may be sold at net asset value to any employee, partner,
officer or trustee of any sub-adviser to any MFS Fund and to certain family
members of such individuals and their spouses, or to any trust, pension,
profit-sharing or other retirement plan for the sole benefit of such employee or
representative, provided such shares will not be resold except to the Fund.
Class A shares of the Fund may also be sold at their net asset value to any
employee or registered representative of any dealer or other financial
institution which has a sales agreement with MFD or its affiliates, to certain
family members of such employees or representatives or other financial
institution, and their spouses, or to any trust, pension, profit-sharing or
other retirement plan for the sole benefit of such employee or representative,
as well as to clients of the MFS Asset Management, Inc.
Class A shares may be sold at net asset value, subject to appropriate
documentation, through a dealer where the amount invested represents redemption
proceeds from a registered open-end management investment company not
distributed or managed by MFD or its affiliates if: (i) the redeemed shares were
subject to an initial sales charge or a deferred sales charge (whether or not
actually imposed); (ii) such redemption has occurred no more than 90 days prior
to the purchase of Class A shares of the Fund; and (iii) the Fund, MFD or its
affiliates have not agreed with such company or its affiliates, formally or
informally, to sell Class A shares at net asset value or provide any other
incentive with respect to such redmeption and sale. Class A shares of the Fund
may also be sold at net asset value where the amount invested represents
redemption proceeds from the MFS Fixed Fund. In addition, Class A shares of the
Fund may be sold at net asset value in connection with the acquisition or
liquidation of the assets of other investment companies or personal holding
companies. Insurance company separate accounts may purchase Class A shares of
the Fund at their net asset value. Class A shares of the Fund may be purchased
at net asset value by retirement plans whose third party administrators have
entered into an administrative services agreement with MFD or one or more of its
affiliates to perform certain administrative services, subject to certain
operational requirements specified from time to time by MFD or one or more of
12
<PAGE> 13
its affiliates. Class A shares of the Fund may be purchased at net asset value
through certain broker-dealers and other financial institutions which have
entered into an agreement with MFD which includes a requirement that such shares
be sold for the benefit of clients participating in a "wrap account" or a
similar program under which such clients pay a fee to such broker-dealer or
other financial institution.
Class A shares of the Fund may be purchased at net asset value by certain
retirement plans subject to the Employee Retirement Income Security Act of 1974,
as amended, subject to the following:
(i) The sponsoring organization must demonstrate to the satisfaction of MFD
that either (a) the employer has at least 25 employees or (b) the aggregate
purchases by the retirement plan of Class A shares of the MFS Funds will be
in an amount of at least $250,000 within a reasonable period of time, as
determined by MFD in its sole discretion; and
(ii) a CDSC of 1% will be imposed on such purchases in the event of certain
redemption transactions within 12 months following such purchases.
Dealers who initiate and are responsible for purchases of Class A shares of the
Fund in this manner will be paid a commission by MFD, as follows: 1.00% on sales
up to $5 million, plus 0.25% on the amount in excess of $5 million; provided,
however, that MFD may pay a commission, on sales in excess of $5 million to
certain retirement plans, of 1.00% to certain dealers which, at MFD's
invitation, enter into an agreement with MFD in which the dealer agrees to
return any commission paid to it on the sale (or on a pro rata portion thereof)
if the shareholder redeems its shares within a period of time after purchase as
specified by MFD. Purchases of $1 million or more for each shareholder account
will be aggregated over a 12-month period (commencing from the date of the first
such purchase) for purposes of determining the level of commissions to be paid
during that period with respect to such account.
Class A shares of the Fund may be purchased at net asset value by retirement
plans qualified under section 401(k) of the Code through certain broker-dealers
and other financial institutions which have entered into an agreement with MFD
which includes certain minimum size qualifications for such retirement plans and
provides that the broker-dealer or other financial institution will perform
certain administrative services with respect to the plan's account. Class A
shares of the Fund may be sold at net asset value through the automatic
reinvestment of Class A and Class B periodic distributions which constitute
required withdrawals from qualified retirement plans. Furthermore, Class A
shares of the Fund may be sold at net asset value through the automatic
reinvestment of distributions of dividends and capital gains of Class A shares
of other MFS Funds pursuant to the Distribution Investment Program (see
"Shareholder Services" in the Statement of Additional Information).
CLASS B SHARES: Class B shares are offered at net asset value without an
initial sales charge but subject to a CDSC as follows:
<TABLE>
<CAPTION>
YEAR OF REDEMPTION CONTINGENT DEFERRED
AFTER PURCHASE SALES CHARGE
--------------------------------------------------- -------------------
<S> <C>
First.............................................. 4 %
Second............................................. 4 %
Third.............................................. 3 %
Fourth............................................. 3 %
Fifth.............................................. 2 %
Sixth.............................................. 1 %
Seventh and following.............................. 0 %
</TABLE>
For Class B shares purchased prior to January 1, 1993, the Fund imposes a CDSC
as a percentage of redemption proceeds as follows:
<TABLE>
<CAPTION>
YEAR OF REDEMPTION CONTINGENT DEFERRED
AFTER PURCHASE SALES CHARGE
--------------------------------------------------- -------------------
<S> <C>
First.............................................. 6 %
Second............................................. 5 %
Third.............................................. 4 %
Fourth............................................. 3 %
Fifth.............................................. 2 %
Sixth.............................................. 1 %
Seventh and following.............................. 0 %
</TABLE>
13
<PAGE> 14
No CDSC is paid upon an exchange of shares. For purposes of calculating the CDSC
upon redemption of shares acquired in an exchange, the purchase of shares
acquired in one or more exchanges is deemed to have occurred at the time of the
original purchase of the exchanged shares. See "Redemptions and
Repurchases -- Contingent Deferred Sales Charge" for further discussion of the
CDSC.
The CDSC on Class B shares will be waived upon the death or disability (as
defined in section 72(m)(7) of the Code) of any investor, provided the account
is registered (i) in the case of a deceased individual, solely in the deceased
individual's name, (ii) in the case of a disabled individual, solely or jointly
in the disabled individual's name or (iii) in the name of a living trust for the
benefit of the deceased or disabled individual. The CDSC on Class B shares will
also be waived in the case of redemptions of shares of the Fund pursuant to a
systematic withdrawal plan. In addition, the CDSC on Class B shares will be
waived in the case of distributions from an IRA, SAR-SEP or any other retirement
plan qualified under sections 401(a) or 403(b) of the Code, due to death or
disability, or in the case of required minimum distributions from any such
Retirement Plan due to attainment of age 70 1/2. The CDSC on Class B shares will
be waived in the case of distributions from a Retirement Plan due to (i) returns
of excess contribution to the plan, (ii) retirement of a participant in the
plan, (iii) a loan from the plan (repayments of loans, however, will constitute
new sales for purposes of assessing the CDSC), (iv) "financial hardship" of the
participant in the plan, as that term is defined in Treasury Regulation Section
1.401(k)-1(d)(2), as amended from time to time, and (v) termination of
employment of the participant in the plan (excluding, however, a partial or
other termination of the plan). The CDSC on Class B shares will also be waived
upon redemption by (i) officers of the Fund, (ii) any of the subsidiary
companies of Sun Life, (iii) eligible Directors, officers, employees (including
retired employees) and agents of MFS, Sun Life or any of their subsidiary
companies, (iv) any trust, pension, profit-sharing or any other benefit plan for
such persons, (v) any trustees and retired trustees of any investment company
for which MFD serves as distributor or principal underwriter, and (vi) certain
family members of such individuals and their spouses, provided in each case that
the shares will not be resold except to the Fund. The CDSC on Class B shares
will also be waived in the case of redemptions by any employee or registered
representative of any dealer or other financial institution which has a sales
agreement with MFD, by certain family members of such employee or representative
and their spouses, by any trust, pension, profit-sharing or other retirement
plan for the sole benefit of such employee or representative and by clients of
the MFS Asset Management, Inc. A Retirement Plan that has invested its assets in
Class B shares of one or more of the MFS Funds for more than 10 years from the
later to occur of (i) January 1, 1993 or (ii) the date the Retirement Plan first
invests its assets in Class B shares of one or more of the funds in the MFS
Funds will have the CDSC on Class B shares waived in the case of a redemption of
all the Retirement Plan's shares (including shares of any other class) in all
MFS Funds (i.e., all the assets of the Retirement Plan invested in the MFS Funds
are withdrawn), except that if, immediately prior to the redemption, the
aggregate amount invested by the Retirement Plan in Class B shares of the MFS
Funds (excluding the reinvestment of distributions) during the prior four year
period equals 50% or more of the total value of the Retirement Plan's assets in
the MFS Funds, then the CDSC will not be waived. The CDSC on Class B shares will
be waived upon redemption by a Retirement Plan where the redemption proceeds are
used to pay expenses of the Retirement Plan or certain expenses of participants
under the Retirement Plan (e.g., participant accounts fees), provided that the
Retirement Plan's sponsor subscribes to the MFS Fundamental 401(k) Plansm or
another similar recordkeeping system made available by the Shareholder Servicing
Agent. The CDSC on Class B shares will be waived upon the transfer of
registration from shares held by a Retirement Plan through a single account
maintained by the Shareholder Servicing Agent to multiple Class B share accounts
provided that the Retirement Plan's sponsor subscribes to the MFS Fundamental
401(k) Plansm or another similar recordkeeping system made available by the
Shareholder Servicing Agent. The CDSC on Class B shares may also be waived in
connection with the acquisition or liquidation of the assets of other investment
companies or personal holding companies.
CONVERSION OF CLASS B SHARES: Class B shares of the Fund will convert to Class
A shares of the Fund approximately eight years after the purchase date. Shares
purchased through the reinvestment of distributions paid in respect of Class B
shares will be treated as Class B shares for purposes of the payment of the
distribution and service fees under the Distribution Plan applicable to Class B
shares. However, for purposes of conversion to Class A shares, all shares in a
shareholder's account that were purchased through the reinvestment of dividends
and distributions paid in respect of Class B shares (and which have not
14
<PAGE> 15
converted to Class A shares as provided in the following sentence) will be held
in a separate sub-account. Each time any Class B shares in the shareholder's
account (other than those in the sub-account) convert to Class A shares, a
portion of the Class B shares then in the sub-account will also convert to Class
A shares. The portion will be determined by the ratio that the shareholder's
Class B shares not acquired through reinvestment of dividends and distributions
that are converting to Class A shares bear to the shareholder's total Class B
shares not acquired through reinvestment. The conversion of Class B shares to
Class A shares is subject to the continuing availability of a ruling from the
Internal Revenue Service or an opinion of counsel that such conversions will not
constitute a taxable event for federal tax purposes. There can be no assurance
that such a ruling or opinion will be available, and the conversion of Class B
shares to Class A shares will not occur if such ruling or opinion is not
available. In such event, Class B shares would continue to be subject to higher
expenses than Class A shares for an indefinite period.
GENERAL: Except as described below, the minimum initial investment is $1,000
per account and the minimum additional investment is $50 per account. Accounts
being established for monthly automatic investments and under payroll savings
programs and tax-deferred retirement programs (other than IRAs) involving the
submission of investments by means of group remittal statements are subject to a
$50 minimum on initial and additional investments per account. The minimum
initial investment for IRAs is $250 per account and the minimum additional
investment is $50 per account. Accounts being established for participation in
the Automatic Exchange Plan are subject to a $50 minimum on initial and
additional investments per account. There are also other limited exceptions to
these minimums for certain tax-deferred retirement programs. Any minimums may be
changed at any time at the discretion of MFD. The Fund reserves the right to
cease offering its shares at any time.
For shareholders who elect to participate in certain investment programs (e.g.,
the Automatic Investment Plan) or other shareholder services, MFD or its
affiliates may either (i) give a gift of nominal value, such as a hand-held
calculator, or (ii) make a nominal charitable contribution on their behalf.
A shareholder whose shares are held in the name of, or controlled by, an
investment dealer might not receive many of the privileges and services from the
Fund (such as Right of Accumulation, Letter of Intent and certain record-keeping
services) that the Fund ordinarily provides.
Purchases and exchanges should be made for investment purposes only. The Fund
and MFD each reserve the right to reject any specific purchase order or to
restrict purchases by a particular purchaser (or group of related purchasers).
The Fund or MFD may reject or restrict any purchases by a particular purchaser
or group, for example, when such purchase is contrary to the best interests of
the Fund's other shareholders or otherwise would disrupt the management of the
Fund.
MFD may enter into an agreement with shareholders who intend to make exchanges
among certain classes of certain MFS Funds (as determined by MFD) which follow a
timing pattern, and with individuals or entities acting on such shareholders'
behalf (collectively, "market timers"), setting forth the terms, procedures and
restrictions with respect to such exchanges. In the absence of such an
agreement, it is the policy of the Fund and MFD to reject or restrict purchases
by market timers if (i) more than two exchange purchases are effected in a timed
account in the same calendar quarter or (ii) a purchase would result in shares
being held in timed accounts by market timers representing more than (x) one
percent of the Fund's net assets or (y) specified dollar amounts in the case of
certain MFS Funds which may include the Fund and which may change from time to
time. The Fund and MFD each reserve the right to request market timers to redeem
their shares at net asset value, less any applicable CDSC, if either of these
restrictions is violated.
Securities dealers and other financial institutions may receive different
compensation with respect to sales of Class A and Class B shares. In some
instances, promotional incentives to dealers may be offered only to certain
dealers who have sold or may sell significant amounts of Fund shares. For time
to time, MFD may pay dealers 100% of the applicable sales charge on sales of
Class A shares of certain specified MFS Funds sold by such dealer during a
specified sales period. In addition, MFD or its affiliates may, from time to
time, pay dealers an additional commission equal to 0.50% of the net asset value
of all of the Class B shares of certain specified MFS Funds sold by such dealer
during a specified sales period. In addition, from time to time MFD, at its
expense, may provide additional commissions, compensation or promotional
incentives ("concessions") to dealers which sell
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shares of the Fund. The staff of the SEC has indicated that dealers who receive
more than 90% of the sales charge may be considered underwriters. Such
concessions provided by MFD may include financial assistance to dealers in
connection with preapproved conferences or seminars, sales or training programs
for invited registered representatives, payment for travel expenses, including
lodging, incurred by registered representatives and members of their families or
other invited guests to various locations for such seminars or training
programs, seminars for the public, advertising and sales campaigns regarding one
or more MFS Funds, and/or other dealer-sponsored events. In some instances,
these concessions may be offered to dealers or only to certain dealers who have
sold or may sell, during specified periods, certain minimum amounts of shares of
the Fund. Other concessions may be offered to the extent not prohibited by the
laws of any state or any self-regulatory agency, such as the NASD.
The Glass-Steagall Act prohibits national banks from engaging in the business of
underwriting, selling or distributing securities. Although the scope of the
prohibition has not been clearly defined, MFD believes that such Act should not
preclude banks from entering into agency agreements with MFD (as described
above). If, however, a bank were prohibited from so acting, the Trustees would
consider what actions if any, would be necessary to continue to provide
efficient and effective shareholder services. It is not expected that
shareholders would suffer any adverse financial consequence as a result of these
occurrences. In addition, state securities laws on this issue may differ from
the interpretation of federal law expressed herein and banks and financial
institutions may be required to register as broker-dealers pursuant to state
law.
EXCHANGES
Subject to the requirements set forth below, some or all of the shares in an
account with the Fund for which payment has been received by the Fund (i.e., an
established account) may be exchanged at net asset value for shares of the same
class of any of the other MFS Funds (if available for sale). Shares of one class
may not be exchanged for shares of any other class. Exchanges will be made only
after instructions in writing or by telephone (an "Exchange Request") are
received for an established account by the Shareholder Servicing Agent in proper
form (i.e., if in writing -- signed by the record owner(s) exactly as the shares
are registered; if by telephone -- proper account identification is given by the
dealer or shareholder of record) and each exchange must involve either shares
having an aggregate value of at least $1,000 ($50 in the case of retirement plan
participants whose sponsoring organizations subscribe to the MFS FUNDamental
401(k) Plan or another similar 401(k) recordkeeping system made available by the
Shareholder Servicing Agent) or all the shares in the account. If an Exchange
Request is received by the Shareholder Servicing Agent on any business day prior
to the close of regular trading on the Exchange, the exchange usually will occur
on that day if all the requirements set forth above have been complied with at
that time. No more than five exchanges may be made in any one Exchange Request
by telephone. Additional information concerning this exchange privilege and
prospectuses for any of the other MFS Funds may be obtained from investment
dealers or the Shareholder Servicing Agent. A shareholder should read the
prospectus of the other MFS Fund and consider the differences in objectives and
policies before making any exchange. For federal and (generally) state income
tax purposes, an exchange is treated as a sale of the shares exchanged and,
therefore, an exchange could result in a gain or loss to the shareholder making
the exchange. Exchanges by telephone are automatically available to most
non-retirement plan accounts and certain retirement plan accounts. For further
information regarding exchanges by telephone see "Redemptions By Telephone." The
exchange privilege (or any aspect of it) may be changed or discontinued and is
subject to certain limitations, including certain restrictions on purchases by
market timers. Special procedures, privileges and restrictions with respect to
exchanges may apply to market timers who enter into an agreement with MFD, as
set forth in such agreement (see "Purchases").
REDEMPTIONS AND REPURCHASES
A shareholder may withdraw all or any portion of the amount in his account on
any date on which the Fund is open for business by redeeming shares at their net
asset value or by selling such shares to the Fund through a dealer (a
repurchase). Since the net asset value of shares of the account fluctuates,
redemptions or repurchases, which are taxable transactions, are likely to result
in gains or losses to the shareholder. When a shareholder withdraws an amount
from his account, the shareholder is deemed to have tendered for redemption a
sufficient number of full and fractional shares in his account to cover the
amount withdrawn. The
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<PAGE> 17
proceeds of a redemption or repurchase will normally be available within seven
days, except for shares purchased or received in exchange for shares purchased
by check (including certified checks or cashier's checks); payment of redemption
proceeds may be delayed for up to 15 days from the purchase date in an effort to
assure that such check has cleared. Payment of redemption proceeds may be
delayed for up to seven days from the redemption date if the Fund determines
that such a delay would be in the best interest of all its shareholders.
A. REDEMPTION BY MAIL -- Each shareholder has the right to redeem all or any
portion of the shares in his account by mailing or delivering to the Shareholder
Servicing Agent (see back cover for address) a stock power with a written
request for redemption, or letter of instruction, together with his share
certificates (if any were issued) all in "good order" for transfer. "Good order"
generally means that the stock power, written request for redemption, letter of
instruction or certificate must be endorsed by the record owner(s) exactly as
the shares are registered and the signature(s) must be guaranteed in the manner
set forth below under the caption "Signature Guarantee." In addition, in some
cases, "good order" may require the furnishing of additional documents. The
Shareholder Servicing Agent may make certain de minimis exceptions to the above
requirements for redemption. Within seven days after receipt of a redemption
request in "good order" by the Shareholder Servicing Agent, the Fund will make
payment in cash of the net asset value of the shares next determined after such
redemption request was received, reduced by the amount of any applicable CDSC
described above and the amount of any income tax required to be withheld, except
during any period in which the right of redemption is suspended or date of
payment is postponed because the Exchange is closed or trading on such Exchange
is restricted, or, to the extent otherwise permitted by the 1940 Act, if an
emergency exists (see "Tax Status").
B. REDEMPTION BY TELEPHONE -- Each shareholder may redeem an amount from his
account by telephoning the Shareholder Servicing Agent toll-free at (800)
225-2606. Shareholders wishing to avail themselves of this telephone redemption
privilege must so elect on their Account Application, designate thereon a
commercial bank and account number to receive the proceeds of such redemption,
and sign the Account Application Form with the signature(s) guaranteed in the
manner set forth below under the caption "Signature Guarantee." The proceeds of
such a redemption, reduced by the amount of any applicable CDSC described above
and the amount of any income tax required to be withheld, are mailed by check to
the designated account, without charge. As a special service, investors may
arrange to have proceeds in excess of $1,000 wired in federal funds to the
designated account. If a telephone redemption request is received by the
Shareholder Servicing Agent by the close of regular trading on the Exchange on
any business day, shares will be redeemed at the closing net asset value of the
Fund on that day. Subject to the conditions described in this section, proceeds
of a redemption are normally mailed or wired on the next business day following
the date of receipt of the order for redemption. The Shareholder Servicing Agent
will not be responsible for any losses resulting from unauthorized telephone
transactions if it follows reasonable procedures designed to verify the identity
of the caller. The Shareholder Servicing Agent will request personal or other
information from the caller, and will normally also record calls. Shareholders
should verify the accuracy of confirmation statements immediately after their
receipt.
C. REPURCHASE THROUGH A DEALER -- If a shareholder desires to sell his shares
at their net asset value through his securities dealer (a repurchase), the
shareholder can place a repurchase order with his dealer, who may charge the
shareholder a fee. IF THE DEALER RECEIVES THE SHAREHOLDER'S ORDER PRIOR TO THE
CLOSE OF REGULAR TRADING ON THE EXCHANGE AND COMMUNICATES IT TO MFD BEFORE THE
CLOSE OF BUSINESS ON THE SAME DAY THE SHAREHOLDER WILL RECEIVE THE NET ASSET
VALUE CALCULATED ON THAT DAY.
GENERAL: Shareholders of the Fund who have redeemed their shares have a
one-time right to reinvest the redemption proceeds at net asset value (with a
credit for any CDSC paid) in the same class of shares of any of the MFS Funds
(if shares of such Fund are available for sale) within 90 days of the redemption
pursuant to the Reinstatement Privilege. If the shares credited for any CDSC
paid are then redeemed within six years of the initial purchase in the case of
Class B shares, or within 12 months of the initial purchase for certain Class A
share purchases, a CDSC will be imposed upon redemption. Such purchases under
the Reinstatement Privilege are subject to all limitations in the Statement of
Additional Information regarding this privilege.
Subject to the Fund's compliance with applicable regulations, the Fund has
reserved the right to pay the redemption or repurchase price of shares of the
Fund, either totally or partially, by a distribution in kind of portfolio
securities (instead of cash). The
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<PAGE> 18
securities so distributed would be valued at the same amount as that assigned to
them in calculating the net asset value for the shares being sold. If a
shareholder received a distribution in kind, the shareholder could incur
brokerage or transaction charges in converting the securities to cash.
Due to the relatively high cost of maintaining small accounts, the Fund reserves
the right to redeem shares in any account for their then-current value (which
will be promptly paid to the shareholder) if at any time the total investment in
such account drops below $500 because of redemptions, except in the case of
accounts established for monthly automatic investments, certain payroll savings
programs, Automatic Exchange Plan accounts and tax-deferred retirement plans,
for which there is a lower minimum investment requirement (see "Purchases").
Shareholders will be notified that the value of their account is less than the
minimum investment requirement and allowed 60 days to make an additional
investment before the redemption is processed. No CDSC will be imposed with
respect to such involuntary redemptions.
SIGNATURE GUARANTEE: In order to protect shareholders to the greatest extent
possible against fraud, the Fund requires in certain instances as indicated
above that the shareholder's signature be guaranteed. In these cases the
shareholder's signature must be guaranteed by an eligible bank, broker, dealer,
credit union, national securities exchange, registered securities association,
clearing agency or savings association. Signature guarantees shall be accepted
in accordance with policies established by the Shareholder Servicing Agent.
CONTINGENT DEFERRED SALES CHARGE -- Investments ("Direct Purchases") will be
subject to a CDSC for a period of 12 months (in the case of purchases of $1
million or more of Class A shares) or six years (in the case of purchases of
Class B shares). Purchases of Class A shares made during a calendar month,
regardless of when during the month the investment occurred, will age one month
on the last day of the month and each subsequent month. Class B shares purchased
on or after January 1, 1993 will be aggregated on a calendar month basis -- all
transactions made during a calendar month, regardless of when during the month
they have occurred, will age one year at the close of business on the last day
of such month in the following calendar year and each subsequent year. For Class
B shares of the Fund purchased prior to January 1, 1993, transactions will be
aggregated on a calendar year basis -- all transactions made during a calendar
year, regardless of when during the year they have occurred, will age one year
at the close of business on December 31 of that year and each subsequent year.
At the time of a redemption, the amount by which the value of a shareholder's
account for a particular class represented by Direct Purchases exceeds the sum
of the six calendar year aggregations (12 months in the case of purchases of $1
million or more of Class A shares) of Direct Purchases may be redeemed without
charge ("Free Amount"). Moreover, no CDSC is ever assessed on additional shares
acquired through the automatic reinvestment of dividends or capital gain
distributions ("Reinvested Shares").
Therefore, at the time of redemption of shares of a particular class, (i) any
Free Amount is not subject to the CDSC, and (ii) the amount of the redemption
equal to the then-current value of Reinvested Shares is not subject to the CDSC,
but (iii) any amount of the redemption in excess of the aggregate of the
then-current value of Reinvested Shares and the Free Amount is subject to a
CDSC. The CDSC will first be applied against the amount of Direct Purchases
which will result in any such charge being imposed at the lowest possible rate.
The CDSC to be imposed upon redemptions will be calculated as set forth in
"Purchases" above.
The applicability of a CDSC will be unaffected by exchanges or transfers of
registration, except that, with respect to transfers of registration to an IRA
rollover account, the CDSC will be waived if the shares being reregistered would
have been eligible for a CDSC waiver had they been redeemed.
DISTRIBUTION PLANS
The Trustees have adopted separate distribution plans for Class A and Class B
shares pursuant to Section 12(b) of the 1940 Act and Rule 12b-1 thereunder (the
"Rule"), after having concluded that there is a reasonable likelihood that the
plans would benefit the Fund and its shareholders.
CLASS A DISTRIBUTION PLAN. The Class A Distribution Plan provides that the
Fund will pay MFD a distribution/service fee aggregating up to (but not
necessarily all of) 0.35% of the average daily net assets attributable to Class
A shares annually in order that MFD may pay expenses on behalf of the Fund
related to the distribution and servicing of Class A shares. The expenses
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<PAGE> 19
to be paid by MFD on behalf of the Fund include a service fee to securities
dealers which enter into a sales agreement with MFD of up to 0.25% per annum of
the Fund's average daily net assets attributable to Class A shares that are
owned by investors for whom the securities dealer is the holder or dealer of
record. This fee is intended to be partial consideration for all personal
services and/or account maintenance services rendered by the dealer with respect
to Class A shares. MFD may from time to time reduce the amount of the service
fee paid for shares sold prior to a certain date. Currently, the service fee is
reduced to 0.15% for shares sold prior to March 1, 1991. MFD may also retain a
distribution fee of 0.10% per annum of the Fund's average daily net assets
attributable to Class A shares as partial consideration for services performed
and expenses incurred in the performance of MFD's obligations under its
distribution agreement with the Fund. MFD, however, is currently waiving this
0.10% distribution fee and will not accept payment of this fee in the future
unless it first obtains the approval of the Fund's Board of Trustees. In
addition, to the extent that the aggregate of the foregoing fees does not exceed
0.35% per annum of the average daily net assets of the Fund attributable to
Class A shares, the Fund is permitted to pay other distribution-related
expenses, including commissions to dealers and payments to wholesalers employed
by MFD for sales at or above a certain dollar level. Fees payable under the
Class A Distribution Plan are charged to, and therefore reduce, income allocated
to Class A shares. Service fees may be reduced for a securities dealer that is
the holder or dealer of record for an investor who owns shares of the Fund
having an aggregate net asset value at or above a certain dollar level. Dealers
may from time to time be required to meet certain criteria in order to receive
service fees. MFD or its affiliates are entitled to retain all service fees
payable under the Class A Distribution Plan for which there is no dealer of
record or for which qualification standards have not been met as partial
consideration for personal services and/or account maintenance services
performed by MFD or its affiliates for shareholder accounts. Certain banks and
other financial institutions that have agency agreements with MFD will receive
service fees that are the same as service fees to dealers.
CLASS B DISTRIBUTION PLAN. The Class B Distribution Plan provides that the
Fund will pay MFD a daily distribution fee equal on an annual basis to 0.75% of
the Fund's average daily net assets attributable to Class B shares and will pay
MFD a service fee of up to 0.25% per annum of the Fund's average daily net
assets attributable to Class B shares (which MFD will in turn pay to securities
dealers which enter into a sales agreement with MFD at a rate of up to 0.25% per
annum of the Fund's average daily net assets attributable to Class B shares
owned by investors for whom that securities dealer is the holder or dealer of
record). This service fee is intended to be additional consideration for all
personal services and/or account maintenance services rendered by the dealer
with respect to Class B shares. Fees payable under the Class B Distribution Plan
are charged to, and therefore reduce, income allocated to Class B shares. The
Class B Distribution Plan also provides that MFD will receive all CDSCs
attributable to Class B shares (see "Redemptions and Repurchases of Shares"
above), which do not reduce the distribution fee. MFD will pay commissions to
dealers of 3.75% of the purchase price of Class B shares purchased through
dealers. MFD will also advance to dealers the first year service fee at a rate
equal to 0.25% of the purchase price of such shares and as compensation
therefor, MFD may retain the service fee paid by the Fund with respect to such
shares for the first year after purchase. Therefore, the total amount paid to a
dealer upon the sale of shares is 4.00% of the purchase price of the shares
(commission rate of 3.75% plus service fee equal to 0.25% of the purchase
price). Dealers will become eligible for additional service fees with respect to
such shares commencing in the thirteenth month following purchase. Dealers may
from time to time be required to meet certain criteria in order to receive
service fees. MFD or its affiliates shall be entitled to retain all service fees
payable under the Class B Distribution Plan with respect to accounts for which
there is no dealer of record or for which qualification standards have not been
met as partial consideration for personal services and/or account maintenance
services performed by MFD or its affiliates for shareholder accounts. The
purpose of the distribution payments of MFD under the Class B Distribution Plan
is to compensate MFD for its distribution services to the Fund. Since MFD's
compensation is not directly tied to its expenses, the amount of compensation
received by MFD during any year may be more or less than its actual expenses.
For this reason, this type of distribution fee arrangement is characterized by
the staff of the SEC as being of the "compensation" variety. However, the Fund
is not liable for any expenses incurred by MFD in excess of the amount of
compensation it receives. The expenses incurred by MFD, including commissions to
dealers, are likely to be greater than the distribution fees for the next
several years, but thereafter such expenses may be less than the amount of the
distribution fees. Certain banks and other financial institutions that have
agency
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<PAGE> 20
agreements with MFD will receive agency transaction and service fees that are
the same as commissions and service fees to dealers.
DISTRIBUTIONS
The Fund intends to pay substantially all of its net investment income to its
shareholders as dividends on an annual basis. In determining the net investment
income available for distributions, the Fund may rely on projections of its
anticipated net investment income over a longer term, rather than its actual net
investment income for the period. The Fund may make one or more distributions
during the calendar year to its shareholders from any long-term capital gains,
and may also make one or more distributions during the calendar year to its
shareholders from short-term capital gains. Shareholders may elect to receive
dividends and capital gain distributions in either cash or additional shares of
the same class with respect to which a distribution is made. See "Tax Status"
and "Shareholder Services -- Distribution Options" below. Distributions paid by
the Fund with respect to Class A shares will generally be greater than those
paid with respect to Class B shares because expenses attributable to Class B
shares will generally be higher.
TAX STATUS
In order to minimize the taxes the Fund would otherwise be required to pay, the
Fund intends to qualify each year as a "regulated investment company" under
Subchapter M of the Code, and to make distributions to its shareholders in
accordance with the timing requirements imposed by the Code. It is expected that
the Fund will not be required to pay entity level federal income or excise
taxes, although foreign-source income received by the Fund may be subject to
foreign withholding taxes. Shareholders of the Fund normally will have to pay
federal income taxes (and any state or local taxes) on the dividends and capital
gain distributions they receive from the Fund, whether paid in cash or
additional shares. A portion of the dividends received from the Fund (but none
of the Fund's capital gain distributions) may qualify for the dividends-received
deduction for corporations.
A statement setting forth the federal income tax status of all dividends and
distributions for each calendar year, including the portion taxable as ordinary
income, the portion taxable as long-term capital gain, the portion, if any,
representing a return of capital (which is free of current taxes but results in
a basis reduction), and the amount, if any, of federal income tax withheld will
be sent to each shareholder promptly after the end of such year.
Fund distributions will reduce the Fund's net asset value per share.
Shareholders who buy shares shortly before the Fund makes a distribution may
thus pay the full price for the shares and then effectively receive a portion of
the purchase price back as a taxable distribution.
The Fund intends to withhold U.S. federal income tax at a rate of 30% on
dividends and certain other payments that are subject to such withholding and
that are made to persons who are neither citizens nor residents of the U.S.,
regardless of whether a lower rate may be permitted under an applicable law or
treaty. The Fund is also required in certain circumstances to apply backup
withholding of 31% on taxable dividends and redemption proceeds paid to any
shareholder (including a shareholder who is neither a citizen nor a resident of
the U.S.) who does not furnish to the Fund certain information and
certifications or who is otherwise subject to backup withholding. However,
backup withholding will not be applied to payments which have had 30%
withholding taken. Prospective shareholders should read the Account Application
for information regarding backup withholding of federal income tax and should
consult their own tax advisers as to the tax consequences of an investment in
the Fund.
NET ASSET VALUE
The net asset value per share of each class of the Fund is determined each day
during which the Exchange is open for trading. This determination is made once
each day as of the close of regular trading on the Exchange by deducting the
amount of the liabilities attributable to the class from the value of the assets
attributable to that class and dividing the difference by the number of shares
of the class outstanding. Values of equity securities in the Fund's portfolio
are determined on the basis of their market values while values of other assets
in the Fund's portfolio are determined on the basis of their fair values, as
described in the Statement of Additional Information. The net asset value per
share of each class of shares is effective for orders received by the dealer
prior to its calculation and received by MFD prior to the close of that business
day.
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DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Fund has two classes of shares, entitled Class A and Class B Shares of
Beneficial Interest (without par value). The Fund has reserved the right to
create and issue additional classes and series of shares, in which case each
class of shares of a series would participate equally in the earnings, dividends
and assets attributable to that class of that particular series. Shareholders
are entitled to one vote for each share held and shares of each series would be
entitled to vote separately to approve investment advisory agreements or changes
in investment restrictions, but shares of all series would vote together in the
election of Trustees and selection of accountants. Additionally, each class of
shares of a series will vote separately on any material increases in the fees
under its Distribution Plan or on any other matter that affects solely that
class of shares, but will otherwise vote together with all other classes of
shares of the series on all other matters. The Fund does not intend to hold
annual shareholder meetings. The Fund's Declaration of Trust provides that a
Trustee may be removed from office in certain instances (see "Description of
Shares, Voting Rights and Liabilities" in the Statement of Additional
Information).
Each share of a class of the Fund represents an equal proportionate interest in
the Fund with each other class share, subject to the liabilities of the
particular class. Shares have no pre-emptive or conversion rights (except as set
forth in "Purchases -- Conversion of Class B Shares"). Shares are fully paid and
non-assessable. Should the Fund be liquidated, shareholders of each class are
entitled to share pro rata in the net assets attributable to that class
available for distribution to shareholders. Shares will remain on deposit with
the Shareholder Servicing Agent and certificates will not be issued except in
connection with pledges and assignments and in certain other limited
circumstances.
The Fund is an entity of the type commonly known as a "Massachusetts business
trust." Under Massachusetts law, shareholders of such a trust may, under certain
circumstances, be held personally liable as partners for its obligations.
However, the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which both inadequate
insurance existed (e.g., fidelity bonding and omission insurance) and the Fund
itself was unable to meet its obligations.
PERFORMANCE INFORMATION
From time to time, the Fund will provide total rate of return quotations for
each class of shares and may also quote fund rankings in the relevant fund
category from various sources, such as Lipper Analytical Services, Inc. and
Wiesenberger Investment Companies Service. Total rate of return quotations will
reflect the average annual percentage change over stated periods in the value of
an investment in a class of the Fund made at the maximum public offering price
of the shares of that class with all distributions reinvested and which, if
quoted for periods of six years or less, will give effect to the imposition of
the CDSC assessed upon redemptions of the Fund's Class B shares. Such total rate
of return quotations may be accompanied by quotations which do not reflect the
reduction in value of the initial investment due to the sales charge or the
deduction of a CDSC, and which will thus be higher. Total rate of return
reflects all components of investment return over a stated period of time. The
Fund's total rate of return quotations are based on historical performance and
are not intended to indicate future performance. The Fund's quotations may from
time to time be used in advertisements, shareholder reports or other
communications to shareholders. For a discussion of the manner in which the Fund
will calculate its total rate of return, see the Statement of Additional
Information. For further information about the Fund's performance for the fiscal
year ended November 30, 1994, please see the Fund's Annual Report. A copy of the
Annual Report may be obtained without charge by contacting the Shareholder
Servicing Agent (see back cover for address and phone number). In addition to
information provided in shareholder reports, the Fund may, in its discretion,
from time to time, make a list of all or a portion of its holdings available to
investors upon request.
7. SHAREHOLDER SERVICES
Shareholders with questions concerning the shareholder services described below
or concerning other aspects of the Fund should contact the Shareholder Servicing
Agent (see back cover for address and phone number).
ACCOUNT AND CONFIRMATION STATEMENTS -- Each shareholder will receive
confirmation statements showing the transaction activity in his account. At the
end of each calendar year, each shareholder will receive information regarding
the tax status of all reportable dividends and distributions for that year (see
"Tax Status").
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DISTRIBUTION OPTIONS -- The following options are available to all accounts
(except Systematic Withdrawal Plan accounts) and may be changed as often as
desired by notifying the Shareholder Servicing Agent:
-- Dividends and capital gain distributions reinvested in additional shares.
This option will be assigned if no other option is specified;
-- Dividends in cash; capital gain distributions reinvested in additional
shares;
-- Dividends and capital gain distributions in cash.
Reinvestments (net of any tax withholding) will be made in additional full and
fractional shares of the same class of shares at the net asset value in effect
at the close of business on the record date. Dividends and capital gain
distributions in amounts less than $10 will automatically be reinvested in
additional shares of the Fund. If a shareholder has elected to receive dividends
and/or capital gain distributions in cash and the postal or other delivery
service is unable to deliver checks to the shareholder's address of record, such
shareholder's distribution option will automatically be converted to having all
dividends and other distributions reinvested in additional shares. Any request
to change a distribution option must be received by the Shareholder Servicing
Agent by the record date for a dividend or distribution in order to be effective
for that dividend or distribution. No interest will accrue on amounts
represented by uncashed distribution or redemption checks.
INVESTMENT AND WITHDRAWAL PROGRAMS -- For the convenience of shareholders, the
Fund makes available the following programs designed to enable shareholders to
add to their investment in an account with the Fund or withdraw from it with a
minimum of paper work. The programs involve no extra charge to shareholders
(other than a sales charge in the case of certain Class A share purchases) and
may be changed or discontinued at any time by a shareholder or the Fund.
LETTER OF INTENT: If a shareholder (other than a group purchaser as
described in the Statement of Additional Information) anticipates purchasing
$50,000 or more of Class A shares of the Fund alone or in combination with
shares of any class of other MFS Funds or MFS Fixed Fund within a 13-month
period (or 36-month period for purchases of $1 million or more), the shareholder
may obtain such shares at the same reduced sales charge as though the total
quantity were invested in one lump sum, subject to escrow agreements and the
appointment of an attorney for redemptions from the escrow amount if the
intended purchases are not completed, by completing the Letter of Intent section
of the Account Application.
RIGHT OF ACCUMULATION: A shareholder qualifies for cumulative quantity
discounts on purchases of Class A shares when his new investment, together with
the current offering price value of all holdings of all classes of all Funds of
that shareholder in the MFS Funds or MFS Fixed Fund (a bank collective
investment fund), reaches a discount level.
DISTRIBUTION INVESTMENT PROGRAM: Shares of a particular class of the Fund
may be sold at net asset value (and without any applicable CDSC) through the
automatic reinvestment of dividend and capital gain distributions from the same
class of another MFS Fund. Furthermore, distributions made by the Fund may be
automatically invested at net asset value (and without any applicable CDSC) in
shares of the same class of another MFS Fund, if shares of such Fund are
available for sale.
SYSTEMATIC WITHDRAWAL PLAN: A shareholder may direct the Shareholder
Servicing Agent to send him (or anyone he designates) regular periodic payments,
as designated on the Account Application and based upon the value of his
account. Each payment under a Systematic Withdrawal Plan (a "SWP") must be at
least $100, except in certain limited circumstances. The aggregate withdrawals
of Class B shares in any year pursuant to a SWP will not be subject to a CDSC
and are generally limited to 10% of the value of the account at the time of the
establishment of the SWP. The CDSC will not be waived in the case of a SWP
redemption of Class A shares which are subject to a CDSC.
DOLLAR COST AVERAGING PROGRAMS --
AUTOMATIC INVESTMENT PLAN: Cash investments of $50 or more may be made
through a shareholder's checking account twice monthly, monthly or quarterly.
Required forms are available from the Shareholder Servicing Agent or investment
dealers.
AUTOMATIC EXCHANGE PLAN: Shareholders having account balances of at least
$5,000 in any MFS Fund may participate in the Automatic Exchange Plan, a dollar
cost averaging program. The Automatic Exchange Plan provides for automatic
monthly or
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quarterly exchanges of funds from the shareholder's account in a MFS Fund for
investment in the same class of shares of other MFS Funds selected by the
shareholder. Under the Automatic Exchange Plan, exchanges of at least $50 each
may be made to up to four different funds. A shareholder should consider the
objectives and policies of a fund and review its prospectus before electing to
exchange money into such fund through the Automatic Exchange Plan. No
transaction fee is imposed in connection with exchange transactions under the
Automatic Exchange Plan. However, exchanges of shares of MFS Money Market Fund,
MFS Government Money Market Fund or Class A shares of MFS Cash Reserve Fund will
be subject to any applicable sales charge. For federal and (generally) state
income tax purposes, an exchange is treated as a sale of the shares exchanged
and, therefore, could result in a capital gain or loss to the shareholder making
the exchange. See the Statement of Additional Information for further
information concerning the Automatic Exchange Plan. Investors should consult
their tax advisers for information regarding the potential capital gain and loss
consequences of transactions under the Automatic Exchange Plan.
Because a dollar cost averaging program involves periodic purchases of shares
regardless of fluctuating share offering prices, a shareholder should consider
his financial ability to continue his purchases through periods of low price
levels. Maintaining a dollar cost averaging program concurrently with a
withdrawal program could be disadvantageous because of the sales charges
included in share purchases in the case of Class A shares, and because of the
assessment of the CDSC for certain share redemptions in the case of Class A
shares.
TAX-DEFERRED RETIREMENT PLANS -- Shares of the Fund may be purchased by all
types of tax-deferred retirement plans, including IRAs, SEP-IRA plans, 401(k)
plans, 403(b) plans and certain other qualified pension and profit-sharing
plans. Investors should consult with their tax advisers before establishing any
of the tax-deferred retirement plans described above.
------------------------
The Fund's Statement of Additional Information, dated April 1, 1995, contains
more detailed information about the Fund, including, but not limited to,
information related to (i) investment objective policies and restrictions, (ii)
its Trustees, officers and investment adviser, (iii) portfolio transactions and
brokerage commissions, (iv) the Class A and Class B Distribution Plans, (v) the
method used to calculate total rate of return quotations of the Fund and (vi)
various services and privileges provided by the Fund for the benefit of its
shareholders, including additional information with respect to the exchange
privilege.
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[MFS LOGO]
THE FIRST NAME IN MUTUAL FUNDS
Investment Adviser
Massachusetts Financial Services Company
500 Boylston Street
Boston, MA 02116
(617) 954-5000 MASSACHUSETTS INVESTORS
GROWTH STOCK FUND
Distributor
MFS Fund Distributors, Inc. Prospectus
500 Boylston Street April 1, 1995
Boston, MA 02116
(617) 954-5000
Custodian and Dividend Disbursing Agent
State Street Bank & Trust Company
225 Franklin Street
Boston, MA 02110
Shareholder Servicing Agent
MFS Service Center, Inc.
500 Boylston Street
Boston, MA 02116
Toll-free: (800) 225-2606
Mailing Address:
P.O. Box 2281
Boston, MA 02107-9906
Independent Accountants
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
[MFS LOGO]
THE FIRST NAME IN MUTUAL FUNDS
MASSACHUSETTS INVESTORS
GROWTH STOCK FUND
500 Boylston Street
Boston, MA 02116 MIG-4/95 137.5M 13/213
