<PAGE> 1
<TABLE>
<S> <C>
MASSACHUSETTS INVESTORS TRUST MFS[R] WORLD TOTAL RETURN FUND
MASSACHUSETTS INVESTORS GROWTH STOCK FUND MFS[R] MUNICIPAL BOND FUND
MFS[R] CAPITAL GROWTH FUND MFS[R] MUNICIPAL HIGH INCOME FUND
MFS[R] EMERGING GROWTH FUND MFS[R] MUNICIPAL INCOME FUND
MFS[R] GOLD & NATURAL RESOURCES FUND MFS[R] ALABAMA MUNICIPAL BOND FUND
MFS[R] GROWTH OPPORTUNITIES FUND MFS[R] ARKANSAS MUNICIPAL BOND FUND
MFS[R] MANAGED SECTORS FUND MFS[R] CALIFORNIA MUNICIPAL BOND FUND
MFS[R] OTC FUND MFS[R] FLORIDA MUNICIPAL BOND FUND
MFS[R] RESEARCH FUND MFS[R] GEORGIA MUNICIPAL BOND FUND
MFS[R] VALUE FUND MFS[R] LOUISIANA MUNICIPAL BOND FUND
MFS[R] TOTAL RETURN FUND MFS[R] MARYLAND MUNICIPAL BOND FUND
MFS[R] UTILITIES FUND MFS[R] MASSACHUSETTS MUNICIPAL BOND FUND
MFS[R] BOND FUND MFS[R] MISSISSIPPI MUNICIPAL BOND FUND
MFS[R] GOVERNMENT MORTGAGE FUND MFS[R] NEW YORK MUNICIPAL BOND FUND
MFS[R] GOVERNMENT SECURITIES FUND MFS[R] NORTH CAROLINA MUNICIPAL BOND FUND
MFS[R] HIGH INCOME FUND MFS[R] PENNSYLVANIA MUNICIPAL BOND FUND
MFS[R] INTERMEDIATE INCOME FUND MFS[R] SOUTH CAROLINA MUNICIPAL BOND FUND
MFS[R] STRATEGIC INCOME FUND MFS[R] TENNESSEE MUNICIPAL BOND FUND
MFS[R] GOVERNMENT LIMITED MATURITY FUND MFS[R] TEXAS MUNICIPAL BOND FUND
MFS[R] LIMITED MATURITY FUND MFS[R] VIRGINIA MUNICIPAL BOND FUND
MFS[R] MUNICIPAL LIMITED MATURITY FUND MFS[R] WASHINGTON MUNICIPAL BOND FUND
MFS[R] WORLD EQUITY FUND MFS[R] WEST VIRGINIA MUNICIPAL BOND FUND
MFS[R] WORLD GOVERNMENTS FUND MFS[R] WORLD ASSET ALLOCATION FUND
MFS[R] WORLD GROWTH FUND
</TABLE>
SUPPLEMENT TO THE CURRENT PROSPECTUS
During the period from February 1, 1995 through April 14, 1995 (the "Sales
Period") (unless extended by MFS Fund Distributors, Inc. ("MFD"), the Funds'
distributor), MFD will pay Corelink Financial Inc. ("Corelink") an additional
commission equal to 0.10% of the gross commissonable sales for Class A shares
and Class B shares and the net asset value for Class C shares (if applicable) of
the Funds sold by Corelink during the Sales Period.
THE DATE OF THIS SUPPLEMENT IS FEBRUARY 1, 1995.
<PAGE> 2
<TABLE>
<S> <C>
MFS[R] MANAGED SECTORS FUND MFS[R] MUNICIPAL LIMITED MATURITY FUND
MFS[R] CASH RESERVE FUND MFS[R] ALABAMA MUNICIPAL BOND FUND
MFS[R] WORLD ASSET ALLOCATION FUND MFS[R] ARKANSAS MUNICIPAL BOND FUND
MFS[R] EMERGING GROWTH FUND MFS[R] CALIFORNIA MUNICIPAL BOND FUND
MFS[R] CAPITAL GROWTH FUND MFS[R] FLORIDA MUNICIPAL BOND FUND
MFS[R] GOLD & NATURAL RESOURCES FUND MFS[R] GEORGIA MUNICIPAL BOND FUND
MFS[R] INTERMEDIATE INCOME FUND MFS[R] LOUISIANA MUNICIPAL BOND FUND
MFS[R] HIGH INCOME FUND MFS[R] MARYLAND MUNICIPAL BOND FUND
MFS[R] MUNICIPAL HIGH INCOME FUND MFS[R] MASSACHUSETTS MUNICIPAL BOND FUND
MFS[R] MONEY MARKET FUND MFS[R] MISSISSIPPI MUNICIPAL BOND FUND
MFS[R] GOVERNMENT MONEY MARKET FUND MFS[R] NEW YORK MUNICIPAL BOND FUND
MFS[R] MUNICIPAL BOND FUND MFS[R] NORTH CAROLINA MUNICIPAL BOND FUND
MFS[R] OTC FUND MFS[R] PENNSYLVANIA MUNICIPAL BOND FUND
MFS[R] TOTAL RETURN FUND MFS[R] SOUTH CAROLINA MUNICIPAL BOND FUND
MFS[R] RESEARCH FUND MFS[R] TENNESSEE MUNICIPAL BOND FUND
MFS[R] WORLD TOTAL RETURN FUND MFS[R] TEXAS MUNICIPAL BOND FUND
MFS[R] UTILITIES FUND MFS[R] VIRGINIA MUNICIPAL BOND FUND
MFS[R] WORLD EQUITY FUND MFS[R] WASHINGTON MUNICIPAL BOND FUND
MFS[R] WORLD GOVERNMENTS FUND MFS[R] WEST VIRGINIA MUNICIPAL BOND FUND
MFS[R] VALUE FUND MFS[R] GROWTH OPPORTUNITIES FUND
MFS[R] STRATEGIC INCOME FUND MFS[R] GOVERNMENT MORTGAGE FUND
MFS[R] WORLD GROWTH FUND MFS[R] GOVERNMENT SECURITIES FUND
MFS[R] BOND FUND MASSACHUSETTS INVESTORS GROWTH STOCK FUND
MFS[R] LIMITED MATURITY FUND MFS[R] GOVERNMENT LIMITED MATURITY FUND
MASSACHUSETTS INVESTORS TRUST
</TABLE>
SUPPLEMENT TO THE CURRENT PROSPECTUS
Effective as of January 1, 1995, MFS Fund Distributors, Inc. ("MFD") has
replaced MFS Financial Services, Inc. ("FSI") as the Fund's distributor. Both
MFD and FSI are wholly-owned subsidiaries of Massachusetts Financial Services
Company ("MFS"), the Fund's investment adviser.
---------------------------------------
Class A shares of the Fund may be purchased at net asset value by
certain retirement plans subject to the Employee Retirement Income Security Act
of 1974, as amended, subject to the following:
(i) The sponsoring organization must demonstrate to the satisfaction
of MFD that either (a) the employer has at least 25 employees or
(b) the aggregate purchases by the retirement plan of Class A
shares of the Funds will be in an amount of at least $250,000
within a reasonable period of time, as determined by MFD in its
sole discretion; and
(ii) A contingent deferred sales charge of 1% will be imposed on such
purchases in the event of certain redemption transactions within
12 months following such purchases.
---------------------------------------
Class A shares may be sold at net asset value, subject to appropriate
documentation, through a dealer where the amount invested represents redemption
proceeds from a registered open-end management investment company not
distributed or managed by MFD or its affiliates if: (i) the redeemed shares
were subject to an initial sales charge or a deferred sales charge (whether or
not actually imposed); (ii) such redemption has occurred no more than 90 days
prior to the purchase of Class A shares of the Fund; and (iii) the Fund, MFD or
its affiliates have not agreed with such company or its affiliates, formally or
informally, to sell Class A shares at net asset value or provide any other
incentive with respect to such redemption and sale.
---------------------------------------
Class A shares of the Fund may be purchased at net asset value by
retirement plans whose third party administrators have entered into an
administrative services agreement with MFD or one or more of its affiliates to
perform certain administrative services, subject to certain operational
requirements specified from time to time by MFD or one or more of its
affiliates.
---------------------------------------
(Over)
<PAGE> 3
Class A shares of the Fund (except of the MFS municipal bond funds
identified above) may be purchased at net asset value by retirement plans
qualified under Section 401(k) of the Code through certain broker-dealers and
other financial institutions which have entered into an agreement with MFD
which includes certain minimum size qualifications for such retirement plans
and provides that the broker-dealer or other financial institution will perform
certain administrative services with respect to the plan's account.
------------------------------
The CDSC on Class A and Class B shares will be waived upon redemption
by a retirement plan where the redemption proceeds are used to pay expenses of
the retirement plan or certain expenses of participants under the retirement
plan (e.g., participant account fees), provided that the retirement plan's
sponsor subscribes to the MFS Fundamental 401(k) Plan[SM] or another similar
recordkeeping system made available by MFS Service Center, Inc. (the
"Shareholder Servicing Agent").
------------------------------
The CDSC on Class A and B shares will be waived upon the transfer of
registration from shares held by a retirement plan through a single account
maintained by the Shareholder Servicing Agent to multiple Class A and B share
accounts, respectively, maintained by the Shareholder Servicing Agent on behalf
of individual participants in the retirement plan, provided that the retirement
plan's sponsor subscribes to the MFS Fundamental 401(k) Plan[SM] or another
similar recordkeeping system made available by the Shareholder Servicing Agent.
------------------------------
The applicability of a CDSC will be unaffected by exchanges or
transfers of registration, except that, with respect to transfers of
registration to an IRA rollover account, the CDSC will be waived if the shares
being reregistered would have been eligible for a CDSC waiver had they been
redeemed.
------------------------------
The current Prospectus discloses that "Class A shares of the Fund may
also be purchased at net asset value where the purchase is in an amount of $3
million or more and where the dealer and FSI enter into an agreement in which
the dealer agrees to return any commission paid to it on the sale (or a pro
rata portion thereof) as described above if the shareholder redeems his or her
shares within one year of purchase. (Stockholders who purchase shares at NAV
pursuant to these conditions are called ($3 Million Shareholders")." This
policy is terminated effective as of the date of this Supplement and the
above-referenced language, and all references to "$3 Million Shareholders," are
deleted from the Prospectus.
------------------------------
From time to time, MFD may pay dealers 100% of the applicable sales
charge on sales of Class A shares of certain specified Funds sold by such
dealer during a specified sales period. In addition, MFD or its affiliates
may, from time to time, pay dealers an additional commission equal to 0.50% of
the net asset value of all of the Class B shares of certain specified Funds
sold by such dealer during a specified sales period.
------------------------------
If a shareholder has elected to receive dividends and/or capital gain
distributions in cash and the postal or other delivery service is unable to
deliver checks to the shareholder's address of record, such shareholder's
distribution option will automatically be converted to reinvest all dividends
and other distributions reinvested in additional shares.
------------------------------
From time to time, MFS may direct certain portfolio transactions to
broker-dealer firms which, in turn, have agreed to pay a portion of the Fund's
operating expenses (e.g., fees charged by the custodian of the Fund's assets).
------------------------------
THE DATE OF THIS SUPPLEMENT IS JANUARY 13, 1995.
<PAGE> 4
<TABLE>
<S> <C>
MFS[R] TOTAL RETURN FUND MFS[R] ALABAMA MUNICIPAL BOND FUND
MASSACHUSETTS INVESTORS GROWTH STOCK FUND MFS[R] ARKANSAS MUNICIPAL BOND FUND
MFS[R] GROWTH OPPORTUNITIES FUND MFS[R] CALIFORNIA MUNICIPAL BOND FUND
MFS[R] EMERGING GROWTH FUND MFS[R] FLORIDA MUNICIPAL BOND FUND
MFS[R] CAPITAL GROWTH FUND MFS[R] GEORGIA MUNICIPAL BOND FUND
MFS[R] INTERMEDIATE INCOME FUND MFS[R] LOUISIANA MUNICIPAL BOND FUND
MFS[R] GOLD & NATURAL RESOURCES FUND MFS[R] MARYLAND MUNICIPAL BOND FUND
MFS[R] MANAGED SECTORS FUND MFS[R] MASSACHUSETTS MUNICIPAL BOND FUND
MFS[R] VALUE FUND MFS[R] MISSISSIPPI MUNICIPAL BOND FUND
MFS[R] UTILITIES FUND MFS[R] NEW YORK MUNICIPAL BOND FUND
MFS[R] WORLD EQUITY FUND MFS[R] NORTH CAROLINA MUNICIPAL BOND FUND
MFS[R] WORLD TOTAL RETURN FUND MFS[R] PENNSYLVANIA MUNICIPAL BOND FUND
MFS[R] BOND FUND MFS[R] SOUTH CAROLINA MUNICIPAL BOND FUND
MFS[R] LIMITED MATURITY FUND MFS[R] TENNESSEE MUNICIPAL BOND FUND
MFS[R] GOVERNMENT MORTGAGE FUND MFS[R] TEXAS MUNICIPAL BOND FUND
MFS[R] GOVERNMENT LIMITED MATURITY FUND MFS[R] VIRGINIA MUNICIPAL BOND FUND
MFS[R] GOVERNMENT SECURITIES FUND MFS[R] WASHINGTON MUNICIPAL BOND FUND
MFS[R] HIGH INCOME FUND MFS[R] WEST VIRGINIA MUNICIPAL BOND FUND
MFS[R] STRATEGIC INCOME FUND MFS[R] MUNICIPAL LIMITED MATURITY FUND
MFS[R] WORLD GOVERNMENTS FUND MFS[R] MUNICIPAL BOND FUND
MFS[R] WORLD GROWTH FUND MFS[R] MUNICIPAL INCOME FUND
MFS[R] OTC FUND MFS[R] RESEARCH FUND
MFS[R] MUNICIPAL HIGH INCOME FUND MFS[R] WORLD ASSET ALLOCATION FUND
MFS[R] MASSACHUSETTS INVESTORS TRUST
</TABLE>
SUPPLEMENT TO THE CURRENT PROSPECTUS
During the period from January 3, 1995 through April 28, 1995 (the "Sales
Period") (unless extended by MFS Fund Distributors, Inc. ("MFD"), the fund's
principal underwriter), MFD will pay A. G. Edwards and Sons, Inc., ("A. G.
Edwards") 100% of the applicable sales charge on sales of Class A shares of each
of the funds listed above (the "Funds") sold for investment in Individual
Retirment Accounts ("IRAs") (excluding SEP-IRAs). In addition, MFD will pay A.
G. Edwards an additional commission equal to 0.50% of the net asset value of all
of the Class B shares of the Funds sold by A. G. Edwards during the Sales
Period.
THE DATE OF THIS SUPPLEMENT IS JANUARY 3, 1995.
<PAGE> 5
<TABLE>
<S> <C>
MASSACHUSETTS INVESTORS TRUST MFS[R] TOTAL RETURN FUND
MASSACHUSETTS INVESTORS GROWTH STOCK FUND MFS[R] GOVERNMENT MONEY MARKET FUND
MFS[R] GROWTH OPPORTUNITIES FUND MFS[R] CASH RESERVE FUND
MFS[R] EMERGING GROWTH FUND MFS[R] ALABAMA MUNICIPAL BOND FUND
MFS[R] CAPITAL GROWTH FUND MFS[R] ARKANSAS MUNICIPAL BOND FUND
MSF[R] INTERMEDIATE INCOME FUND MFS[R] CALIFORNIA MUNICIPAL BOND FUND
MFS[R] GOLD & NATURAL RESOURCES FUND MFS[R] FLORIDA MUNICIPAL BOND FUND
MFS[R] MANAGED SECTORS FUND MFS[R] GEORGIA MUNICIPAL BOND FUND
MFS[R] VALUE FUND MFS[R] LOUISIANA MUNICIPAL BOND FUND
MFS[R] WORLD EQUITY FUND MFS[R] MARYLAND MUNICIPAL BOND FUND
MFS[R] WORLD TOTAL RETURN FUND MFS[R] MASSACHUSETTS MUNICIPAL BOND FUND
MFS[R] BOND FUND MFS[R] MISSISSIPPI MUNICIPAL BOND FUND
MFS[R] LIMITED MATURITY FUND MFS[R] NEW YORK MUNICIPAL BOND FUND
MFS[R] GOVERNMENT MORTGAGE FUND MFS[R] NORTH CAROLINA MUNICIPAL BOND FUND
MFS[R] GOVERNMENT LIMITED MATURITY FUND MFS[R] SOUTH CAROLINA MUNICIPAL BOND FUND
MFS[R] GOVERNMENT SECURITIES FUND MFS[R] TENNESSEE MUNICIPAL BOND FUND
MFS[R] HIGH INCOME FUND MFS[R] TEXAS MUNICIPAL BOND FUND
MFS[R] INCOME & OPPORTUNITY FUND MFS[R] VIRGINIA MUNICIPAL BOND FUND
MFS[R] WORLD GOVERNMENTS FUND MFS[R] WASHINGTON MUNICIPAL BOND FUND
MFS[R] WORLD GROWTH FUND MFS[R] WEST VIRGINIA MUNICIPAL BOND FUND
MFS[R] MONEY MARKET FUND MFS[R] MUNICIPAL LIMITED MATURITY FUND
MFS[R] RESEARCH FUND MFS[R] MUNICIPAL BOND FUND
MFS[R] MUNICIPAL HIGH INCOME FUND MFS[R] MUNICIPAL INCOME FUND
</TABLE>
SUPPLEMENT TO THE CURRENT PROSPECTUS
Effective immediately, the Funds have expanded their policies with respect to
exchanges effected by market timers to be as follows:
FSI may enter into an agreement with shareholders who intend to make
exchanges among certain classes of certain MFS Funds (as determined by FSI)
which follow a timing pattern, and with individuals or entities acting on
such shareholders' behalf (collectively, "market timers"), setting forth the
terms, procedures and restrictions with respect to such exchanges. In the
absence of such an agreement, it is the policy of the Fund and FSI to reject
or restrict purchases by market timers if (i) more than two exchange
purchases are effected in a timed account in the same calendar quarter or
(ii) a purchase would result in shares being held in timed accounts by
market timers representing more than (x) one percent of the Fund's net
assets or (y) specified dollar amounts in the case of certain MFS Funds
which may include the Fund and which may change from time to time. The Fund
and FSI each reserve the right to request market timers to redeem their
shares at net asset value, less any applicable CDSC, if either of these
restrictions is violated.
THE DATE OF THIS SUPPLEMENT IS APRIL 1, 1994.
<PAGE> 6
MASSACHUSETTS INVESTORS PROSPECTUS
GROWTH STOCK FUND April 1, 1994
(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
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1. The Fund............................................................................ 2
2. Expense Summary..................................................................... 2
3. Condensed Financial Information..................................................... 4
4. Investment Objective and Policies................................................... 4
5. Management of the Fund.............................................................. 8
6. Information Concerning Shares of the Fund........................................... 9
Purchases........................................................................ 9
Exchanges........................................................................ 14
Redemptions and Repurchases...................................................... 15
Distribution Plans............................................................... 17
Distributions.................................................................... 18
Tax Status....................................................................... 18
Net Asset Value.................................................................. 18
Description of Shares, Voting Rights and Liabilities............................. 19
Performance Information.......................................................... 19
7. Shareholder Services................................................................ 19
</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 Fund's investment objective 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 and MFS Financial Services, Inc., respectively, both of which
are located at 500 Boylston Street, Boston, Massachusetts 02116.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK AND THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
This Prospectus sets forth concisely the information concerning the Fund that a
prospective investor ought to know before investing. The Fund has filed with the
Securities and Exchange Commission a Statement of Additional Information, dated
April 1, 1994, which contains more detailed information about the Fund and is
incorporated into this Prospectus by reference. See page 21 for a further
description of the information set forth in the Statement of Additional
Information. A copy of the Statement of Additional Information may be obtained
without charge by contacting the Shareholder Servicing Agent (see back cover for
address and phone number).
INVESTORS SHOULD READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE REFERENCE.
<PAGE> 7
1. THE FUND
Massachusetts Investors Growth Stock 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 (or a contingent deferred sales charge (a "CDSC")
in the case of certain purchases of $1 million or more) and subject to a
Distribution Plan providing for an annual distribution fee and service fee.
Class B shares are offered at net asset value without an initial sales charge
but subject to a CDSC and a Distribution Plan providing for an annual
distribution fee and a service fee which are greater than the Class A
distribution fee and service fee; Class B shares will convert to Class A shares
approximately eight years after purchase.
The Fund's Board of Trustees provides broad supervision over the affairs of the
Fund. Massachusetts Financial Services Company, a Delaware corporation ("MFS" or
the "Adviser"), is the Fund's investment adviser. The Adviser is responsible for
the management of the Fund's assets and the officers of the 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 marketplaces. The Fund also offers to buy back (redeem) its
shares from its shareholders at any time at net asset value less any applicable
CDSC.
2. EXPENSE SUMMARY
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES: CLASS A CLASS B
- --------------------------------- ------- -------
<S> <C> <C>
Maximum Initial Sales Charge Imposed on Purchases of Fund Shares (as
a percentage of offering price)........................... 5.75% 0.00%
Maximum Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable)..... See Below[1] 4.00%[5]
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)............ 0.19%[3] 1.00%[4]
Other Expenses.............................................. 0.21%[6] 0.30%[7]
----- ----
Total Operating Expenses.................................... 0.71% 1.61%
- ---------------
<FN>
1 Purchases of $1 million or more are not subject to an initial sales charge; however, a CDSC of 1% will be imposed on such
purchases in the event of certain redemption transactions within 12 months following such purchases (see "Purchases" below).
2 For Class A shares, percentages are based on fees incurred during the fiscal year ended November 30, 1993. For Class B shares,
which were initially offered on September 7, 1993, percentages are based on Class A expenses adjusted for Class specific
expenses.
3 The Fund has adopted a Distribution Plan for its Class A shares in accordance with Rule 12b-1 under the Investment Company Act
of 1940, as amended (the "1940 Act"), which provides that it will pay distribution/service fees aggregating up to (but not
necessarily all of) 0.35% per annum of the average daily net assets attributable to the Class A shares (see "Distribution Plan.")
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.
</TABLE>
2
<PAGE> 8
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 the Class B shares (see "Distribution Plan").
After a substantial period of time, distribution expenses paid under this
plan, together with any CDSC, may total more than the maximum sales charge
that would have been permissible if imposed entirely as an initial sales
charge.
5 Shares purchased prior to September 1, 1993 will be subject to a CDSC of 5% in
the event of a redemption within the first year after purchase.
6 "Other Expenses" have been calculated based on current shareholder servicing
agent fees.
7 Based on Class A expenses incurred during the Fund's last fiscal year except
for the shareholder servicing agent fees component of "Other Expenses" which
has been estimated for Class B shares.
EXAMPLE OF EXPENSES
An investor would pay the following dollar amounts of expenses on a $1,000
investment in the Fund, assuming (a) 5% annual return and (b) redemption at the
end of each of the time periods indicated (unless otherwise noted):
<TABLE>
<CAPTION>
PERIOD CLASS A CLASS B
----------------------------------------------------- ------- -------------
<S> <C> <C> <C>
(1)
1 year.............................................. $ 64 $ 56 $ 16
3 years............................................. 79 81 51
5 years............................................. 95 108 88
10 Years............................................. 141 167(2) 167(2)
- ---------------
<FN>
(1) Assumes no redemption.
(2) Class B shares convert to Class A shares approximately eight years after
purchase; therefore, years nine and ten reflect Class A expenses.
The purpose of the expense table above is to assist investors in understanding
the various costs and expenses that a shareholder of the Fund will bear directly
or indirectly. More complete descriptions of the following expenses 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.
</TABLE>
3
<PAGE> 9
3. CONDENSED FINANCIAL INFORMATION
<TABLE>
The following information should be read in conjunction with the financial
statements included in the Fund's Annual Report to shareholders which is
incorporated by reference into the Statement of Additional Information in
reliance upon the report of Deloitte & Touche, independent certified public
accountants, as experts in accounting and auditing.
FINANCIAL HIGHLIGHTS
<CAPTION>
YEAR ENDED NOVEMBER 30,
---------------------------------------------------------------------------------------------------------
CLASS A CLASS B
1993 1992 1991 1990 1989 1988 1987 1986 1985 1984 1993+
------- ------- ------ -------- ------ ------ ------- ------ ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA (FOR A
SHARE OUTSTANDING
THROUGHOUT EACH
PERIOD):
Net asset
value -- beginning of
period................ $ 12.15 $ 10.87 $ 8.48 $ 10.70 $ 8.39 $ 9.05 $ 9.69 $10.68 $10.04 $ 12.14 $ 12.90
------- ------- ------ -------- ------ ------ ------- ------ ------ ------- -------
Income from investment
operations --
Net investment income
(loss).............. $ (0.01)++ $ (0.03) $ 0.01 $ 0.05 $ 0.09 $ 0.12 $ 0.18 $ 0.20 $ 0.28 $ 0.32 $ (0.01)
Net realized and
unrealized gain
(loss) on
investments......... 1.55 2.07 2.93 (1.02) 3.14 0.64 (0.68) 1.99 2.10 (1.25) 0.04
------- ------- ------ -------- ------ ------ ------- ------ ------ ------- -------
Total from
investment
operations........ $ 1.54 $ 2.04 $ 2.94 $ (0.97) $ 3.23 $ 0.76 $ (0.50) $ 2.19 $ 2.38 $ (0.93) $ 0.03
------- ------- ------ -------- ------ ------ ------- ------ ------ ------- -------
Less distributions
declared to
shareholders --
From net investment
income.............. $ -- $ -- $(0.03) $ (0.05) $(0.08) $(0.15) $ (0.14) $(0.20) $(0.28) $ (0.32) $ --
From realized gains... (0.72) (0.76) (0.52) (1.20) (0.84) (1.27) -- (2.98) (1.46) (0.85) --
------- ------- ------ -------- ------ ------ ------- ------ ------ ------- -------
Total distributions
declared to
shareholders...... $ (0.72) $ (0.76) $(0.55) $ (1.25) $(0.92) $(1.42) $ (0.14) $(3.18) $(1.74) $ (1.17) $ --
------- ------- ------ -------- ------ ------ ------- ------ ------ ------- -------
Net asset value -- end
of period............. $ 12.97 $ 12.15 $10.87 $ 8.48 $10.70 $ 8.39 $ 9.05 $ 9.69 $10.68 $ 10.04 $ 12.93
======= ======= ====== ======== ====== ====== ======= ====== ====== ======= =======
Total return#.......... 13.43% 19.35% 36.56% (10.27)% 42.14% 8.21% (5.57)% 20.30% 23.52% (7.80)% 1.03 %*
RATIOS (TO AVERAGE NET
ASSETS)/SUPPLEMENTAL
DATA:
Expenses.............. 0.71 %++ 0.67 % 0.63% 0.53 % 0.54% 0.58% 0.50 % 0.50% 0.56% 0.56 % 1.49 %*
Net investment income
(loss).............. (0.19)%++ (0.24)% 0.14% 0.55 % 0.91% 1.27% 1.60 % 1.62% 2.47% 2.83 % (0.99)%*
PORTFOLIO TURNOVER..... 52 % 16 % 39% 44 % 32% 75% 66 % 77% 66% 38 % 52 %
NET ASSETS AT END OF
PERIOD ($000,000'S)... 1,132 1,070 950 749 907 735 774 899 878 805 2
<FN>
* 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 0.74% and (0.21)%, respectively. The net
investment loss per share would have been $(0.02).
# 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.
</TABLE>
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-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.
4
<PAGE> 10
FOREIGN SECURITIES: The Fund may invest up to 50%, and generally expects to
invest between 10%-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.
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. Although ADRs are issued
by a U.S. depository, 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.
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
5
<PAGE> 11
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,
respectively, to hedge its investments against a decline in value or to attempt
to reduce the risk of missing a market or industry segment advance. The Fund's
possible loss in either case will be limited to the premium paid for the option,
plus related transaction costs.
OPTIONS ON FOREIGN CURRENCIES: The Fund may also purchase and write options on
foreign currencies ("Options on Foreign Currencies") for the purpose of
protecting against declines in the dollar value of portfolio securities and
against increases in the dollar cost of securities to be acquired. As in the
case of other types of options, however, the writing of an Option on Foreign
Currency will constitute only a partial hedge, up to the amount of the premium
received, and the Fund may be required to purchase or sell foreign currencies at
disadvantageous exchange rates, thereby incurring losses. The purchase of an
Option on Foreign Currency may constitute an effective hedge against
fluctuations in exchange rates although, in the event of rate movements adverse
to the Fund's position, it may forfeit the entire amount of the premium paid for
the option plus related transaction costs. The Fund may also choose to, or be
required to, receive delivery of the foreign currencies underlying Options on
Foreign Currencies it has entered into. Under certain circumstances, such as
where the Adviser believes that the applicable exchange rate is unfavorable at
the time the currencies are received or the Adviser anticipates, for any other
reason, that the 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.
6
<PAGE> 12
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 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, could be considered speculative. Forward
Contracts are traded over-the-counter and not on organized commodities or
securities exchanges. As a result, Forward Contracts operate in a manner
distinct from exchange-traded instruments, and their use involves certain risks
beyond those associated with transactions in Futures Contracts or options traded
on exchanges. The Fund may choose to, or be required to, receive delivery of the
foreign currencies underlying Forward Contracts it has entered into. Under
certain circumstances, such as where the Adviser believes that the applicable
exchange rate is unfavorable at the time the currencies are received or the
Adviser anticipates, for any other reason, that the exchange rate will improve,
the Fund may hold such currencies for an indefinite period of time. The Fund may
also enter into a Forward Contract on one currency to hedge against risk of loss
arising from fluctuations in the value of a second currency (referred to as a
"cross hedge") if, in the judgment of the Adviser, a reasonable degree of
correlation can be expected between movements in the values of the two
currencies. The Fund has established procedures consistent with statements of
the 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 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
7
<PAGE> 13
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 MFS Financial
Services, Inc. ("FSI"), the Fund's distributor, as a factor in the selection of
broker-dealers to execute the Fund's portfolio transactions. 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,
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, 1993, MFS
received management fees under the Advisory Agreement of $3,338,147, 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, 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
8
<PAGE> 14
sale of Compass-2 and Compass-3 combination fixed/variable annuity contracts.
The MFS Asset Management Group, a division of the Adviser, provides investment
advice to substantial private clients.
MFS is America's oldest mutual fund organization. MFS and its predecessor
organizations have a history of money management dating from 1924 and the
founding of the first mutual fund in the United States, Massachusetts Investors
Trust. Net assets under the management of MFS were approximately $34.9 billion
on behalf of over 1.4 million investor accounts as of February 28, 1994. MFS is
a subsidiary of Sun Life of Canada (U.S.), which in turn is a subsidiary of Sun
Life Assurance Company of Canada ("Sun Life"). The Directors of MFS are A. Keith
Brodkin, Jeffrey L. Shames, Arnold D. Scott, John R. Gardner and John D. McNeil.
Mr. Brodkin is the Chairman 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., Linda J. Hoard and James O. Yost, all of whom are officers of
MFS, are officers of the Fund.
DISTRIBUTOR -- FSI, a wholly owned subsidiary of MFS, is the distributor of
shares of the Fund and also serves as distributor for each of the other MFS
Funds.
SHAREHOLDER SERVICING AGENT -- MFS Service Center, Inc. (the "Shareholder
Servicing Agent"), a wholly owned subsidiary of MFS, performs transfer agency,
certain dividend disbursing agency and other services for the Fund.
6. INFORMATION CONCERNING SHARES OF THE FUND
PURCHASES
Shares of the Fund may be purchased at the public offering price through any
securities dealer, certain banks and other financial institutions having selling
agreements with FSI. Non-securities dealer financial institutions will receive
transaction fees that are the same as commission fees to dealers. Securities
dealers and other financial institutions may also charge their customers fees
relating to investments in the Fund.
The Fund offers 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**
- ----------------------------------------------------------------------------------------------------------------------------
<FN>
* 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. FSI (on behalf of the Fund) will pay a
commission on purchases of $1 million or more.
</TABLE>
No sales charge is payable at the time of purchase of Class A shares on
investments of $1 million or more. However, a CDSC shall be imposed on such
investments in the event of a share redemption within 12 months following the
share purchase, at the
9
<PAGE> 15
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. Any applicable CDSC will be deferred
upon an exchange of Class A shares of the Fund for units of participation of the
MFS Fixed Fund (a bank collective investment fund) (the "Units"), and the CDSC
will be deducted from the redemption proceeds when such Units are subsequently
redeemed (assuming the CDSC is then payable). No CDSC will be assessed upon an
exchange of Units for Class A shares of the Fund. For purposes of calculating
the CDSC payable upon redemption of Class A shares of the Fund or Units acquired
pursuant to one or more exchanges, the period during which the Units are held
will be aggregated with the period during which the Class A shares are held. The
applicability of the CDSC will be unaffected by transfers of registration. FSI
will receive all CDSCs which FSI intends to apply for the benefit of the Fund.
FSI allows discounts (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 FSI 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, FSI, on behalf of the Fund and pursuant to the Fund's Class A
Distribution Plan described below, 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 be sold at net asset value through the automatic
reinvestment of Class A and Class B periodic distributions which constitute
required withdrawals from qualified retirement plans. Class A shares of the Fund
may also be purchased at net asset value where the purchase is in an amount of
$3 million or more and where the dealer and FSI enter into an agreement in which
the dealer agrees to return any commission paid to it on the sale (or on a pro
rata portion thereof) as
10
<PAGE> 16
described above if the shareholder redeems his or her shares within a year of
purchase (shareholders who purchase shares at net asset value pursuant to these
conditions are called "$3 Million Shareholders"). 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 FSI serves as distributor or principal underwriter, and to
certain family members of such individuals and their spouses, provided such
shares will not be resold except to the Fund. Class A shares of the Fund may be
sold at net asset value to any employee, partner, officer or trustee of any
sub-adviser to any MFS Fund and to certain family members of such individuals
and their spouses, or to any trust, pension, profit-sharing or other retirement
plan for the sole benefit of such employee or representative, provided such
shares will not be resold except to the Fund. Class A shares of the Fund may
also be sold at their net asset value to any employee or registered
representative of any dealer or other financial institution which has a sales
agreement with FSI or its affiliates, to certain family members of such
employees or representatives 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 Group. Class A shares of the Fund also may be sold at net asset
value, subject to appropriate documentation, through a dealer where the amount
invested represents redemption proceeds from a registered open-end management
investment company not distributed or managed by FSI or its affiliates, if such
redemption has occurred no more than 60 days prior to the purchase of Class A
shares of the Fund and the shareholder either (i) paid an initial sales charge
or (ii) was at some time subject to, but did not actually pay, a deferred sales
charge with respect to the redemption proceeds. Class A shares of the Fund may
also be sold at net asset value where the amount invested represents redemption
proceeds from the MFS Fixed Fund. In addition, Class A shares 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 also be purchased at their net asset
value by retirement plans where third party administrators of such plans have
entered into certain arrangements with FSI or its affiliates provided that no
commission is paid to dealers.
Class A shares of the Fund may be purchased at net asset value by retirement
plans qualified under section 401(a) or 403(b) of the Code which are subject to
the Employee Retirement Income Security Act of 1974, as amended, as follows:
(i) the retirement plan and/or the sponsoring organization must subscribe
to the MFS FUNDamental 401(k) Plan(sm) or another similar Section 401(a) or
403(b) recordkeeping program made available by MFS Service Center, Inc.;
(ii) either (a) the sponsoring organization must have at least 25 employees
or (b) the aggregate purchases by the retirement plan of Class A shares of
the MFS Funds must be in an amount of at least $250,000 within a reasonable
period of time, as determined by FSI in its sole discretion; and
(iii) a CDSC of 1% will be imposed on such purchases in the event of
certain redemption transactions within 12 months following such purchases.
Dealers who initiate and are responsible for purchases of Class A shares of the
Fund in this manner will be paid a commission by FSI, as follows: 1.00% on sales
up to $5 million, plus 0.25% on the amount in excess of $5 million; provided,
however, that FSI may pay a commission, on sales in excess of $5 million to
certain retirement plans, of 1.00% to certain dealers which, at FSI's
invitation, enter into an agreement with FSI in which the dealer agrees to
return any commission paid to it on the sale (or on a pro rata portion thereof)
if the shareholder redeems its shares within a period of time after purchase as
specified by FSI. Purchases of $1 million or more for each shareholder account
will be aggregated over a 12-month period (commencing from the date of the first
such purchase) for purposes of determining the level of commissions to be paid
during that period with respect to such account.
Class A shares of the Fund may be purchased at net asset value through certain
broker-dealers and other financial institutions which have entered into an
agreement with FSI, which includes a requirement that such shares be sold for
the benefit of clients participating in a "wrap account" or a similar program
under which such clients pay a fee to such broker-dealer or other financial
11
<PAGE> 17
institution. 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>
- ---------------
* Class B shares purchased during the period January 1, 1993 through September
1, 1993 will be subject to a CDSC of 5% in the event of a redemption within
the first year after purchase.
For Class B shares purchased prior to January 1, 1993, the Fund imposes a CDSC
as a percentage of redemption proceeds as follows:
<TABLE>
<CAPTION>
YEAR OF REDEMPTION CONTINGENT DEFERRED
AFTER PURCHASE SALES CHARGE
-------------- -------------------
<S> <C>
First.............................................. 6%
Second............................................. 5%
Third.............................................. 4%
Fourth............................................. 3%
Fifth.............................................. 2%
Sixth.............................................. 1%
Seventh and following.............................. 0%
</TABLE>
No CDSC is paid upon an exchange of shares. For purposes of calculating the CDSC
upon redemption of shares acquired in an exchange, the purchase of shares
acquired in one or more exchanges is deemed to have occurred at the time of the
original purchase of the exchanged shares. See "Redemptions and
Repurchases -- Contingent Deferred Sales Charge" for further discussion of the
CDSC.
The CDSC on Class B shares will be waived upon the death or disability (as
defined in section 72(m)(7) of the Code) of any investor, provided the account
is registered (i) in the case of a deceased individual, solely in the deceased
individual's name, (ii) in the case of a disabled individual, solely or jointly
in the disabled individual's name or (iii) in the name of a living trust for the
benefit of the deceased or disabled individual. The CDSC on Class B shares will
also be waived in the case of redemptions of shares of the Fund pursuant to a
systematic withdrawal plan. In addition, the CDSC on Class B shares will be
waived in the case of distributions from an IRA, SAR-SEP or any other retirement
plan qualified under section 401(a), 401(k) or 403(b) of the Code, due to death
or disability, or in the case of required minimum distributions from any such
retirement plan due to attainment of age 70 1/2. The CDSC on Class B shares will
be waived in the case of distributions from a retirement plan qualified under
Section 401(a) of the Code due to (i) returns of excess contribution to the
plan, (ii) retirement of a participant in the plan, (iii) a loan from the plan
(repayments of loans, however, will constitute new sales for purposes of
assessing the CDSC), (iv) "financial hardship" of the participant in the plan,
as that term is defined in Treasury Regulation Section 1.401(k)-1(d)(2), as
amended from time to time, and (v) termination of employment of the participant
in the plan (excluding, however, a partial or other termination of the plan).
The CDSC on Class B shares will be waived in the case of distributions from a
SAR-SEP due to (i) returns of excess contribution to the plan, (ii) retirement
of a participant in the plan and (iii) termination of employment of the
participant in the plan (excluding, however, a partial or other termination of
the plan). The CDSC on Class B shares will also be waived upon redemption by (i)
officers of the Fund, (ii) any of the subsidiary companies of Sun Life, (iii)
eligible Directors, officers, employees (including retired employees) and agents
of MFS, Sun Life or any of their subsidiary companies, (iv) any
12
<PAGE> 18
trust, pension, profit-sharing or any other benefit plan for such persons, (v)
any trustees and retired trustees of any investment company for which FSI serves
as distributor or principal underwriter, and (vi) certain family members of such
individuals and their spouses, provided in each case that the shares will not be
resold except to the Fund. The CDSC on Class B shares will also be waived in the
case of redemptions by any employee or registered representative of any dealer
or other financial institution which has a sales agreement with FSI, by certain
family members of such employee or representative and their spouses, by any
trust, pension, profit-sharing or other retirement plan for the sole benefit of
such employee or representative and by clients of the MFS Asset Management
Group. A retirement plan qualified under section 401(a) of the Code (a
"Retirement Plan") that has invested its assets in Class B shares of one or more
of the MFS Funds for more than 10 years from the later to occur of (i) January
1, 1993 or (ii) the date the Retirement Plan first invests its assets in Class B
shares of one or more of the 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 any Class A shares) in all MFS Funds (i.e., all the assets of the
Retirement Plan invested in the MFS Funds are withdrawn), except that if,
immediately prior to the redemption, the aggregate amount invested by the
Retirement Plan in Class B shares of the MFS Funds (excluding the reinvestment
of distributions) during the prior four year period equals 50% or more of the
total value of the Retirement Plan's assets in the MFS Funds, then the CDSC will
not be waived. The CDSC on Class B shares 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
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 FSI. 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 to avail themselves of certain other
shareholder services FSI or its affiliates may either (i) give a small gift of
nominal value, such as a hand-held calculator, or (ii) make a nominal charitable
contribution on their behalf.
13
<PAGE> 19
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.
The Fund and FSI each reserve the right to reject any specific purchase order or
to restrict purchases by a particular purchaser (or group of related
purchasers). The Fund or FSI may reject or restrict any purchases of the Fund's
shares by a particular purchaser or group, for example, when a pattern of
frequent purchases and sales of shares of the Fund is evident, or if the
purchase and sale orders are, or a subsequent abrupt redemption might be, of a
size that would disrupt management of the Fund. The Fund and FSI intend
specifically to exercise this right in order to reject or restrict purchases by
market timers (including asset allocators) and the shareholder(s) whose accounts
are exchanged periodically based on an arrangement with or advice from such
persons or whose transactions seem to follow a timing pattern. In particular,
action may be taken 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 an individual or firm representing more
than (x) one percent of the Fund's net assets or (y) specified dollar amounts in
the case of certain funds in the MFS Funds, which may include the Fund and which
may change from time to time. The Fund and FSI each reserve the right to request
holders of timed accounts to redeem their shares at net asset value, less any
CDSC otherwise applicable, 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.
The Glass-Steagall Act prohibits national banks from engaging in the business of
underwriting, selling or distributing securities. Although the scope of the
prohibition has not been clearly defined, FSI believes that such Act should not
preclude banks from entering into agency agreements with FSI (as described
above). If, however, a bank were prohibited from so acting, the Trustees would
consider what actions if any, would be necessary to continue to provide
efficient and effective shareholder services. It is not expected that
shareholders would suffer any adverse financial consequence as a result of these
occurrences. In addition, state securities laws on this issue may differ from
the interpretation of federal law expressed herein and banks and financial
institutions may be required to register as broker-dealers pursuant to state
law.
EXCHANGES
Subject to the requirements set forth below, some or all of the shares in an
account with the Fund for which payment has been received by the Fund (i.e., an
established account) may be exchanged for shares of the same class of any of the
other MFS Funds (if available for sale) at net asset value. Shares of one class
may not be exchanged for shares of any other class. Exchanges will be made only
after instructions in writing or by telephone (an "Exchange Request") are
received for an established account by the Shareholder Servicing Agent in proper
form (i.e., if in writing -- signed by the record owner(s) exactly as the shares
are registered; if by telephone -- proper account identification is given by the
dealer or shareholder of record) and each exchange must involve either shares
having an aggregate value of at least $1,000 ($50 in the case of retirement plan
participants whose sponsoring organizations subscribe to the MFS FUNDamental
401(k) Plan or another similar 401(k) recordkeeping system made available by MFS
Service Center, Inc.) or all the shares in the account. If an Exchange Request
is received by the Shareholder Servicing Agent on any business day prior to the
close of regular trading on the New York Stock Exchange (the "Exchange"), the
exchange usually will occur on that day if all the requirements set forth above
have been complied with at that time. No more than five exchanges may be made in
any one Exchange Request by telephone. Additional information concerning this
exchange privilege and prospectuses for any of the other MFS Funds may be
obtained from investment dealers or the Shareholder Servicing Agent. A
shareholder should read the prospectus of the other MFS Fund and consider the
differences in objectives and policies before making any 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
14
<PAGE> 20
Telephone." The exchange privilege (or any aspect of it) may be changed or
discontinued and is subject to certain limitations, including certain
restrictions on purchases by market timer accounts (see "Purchases").
REDEMPTIONS AND REPURCHASES
A shareholder may withdraw all or any portion of the amount in his account on
any date on which the Fund is open for business by redeeming shares at their net
asset value or by selling such shares to the Fund through a dealer (a
repurchase). Since the net asset value of shares of the account fluctuate,
redemptions or repurchases, which are taxable transactions, are likely to result
in gains or losses to the shareholder. When a shareholder withdraws an amount
from his account, the shareholder is deemed to have tendered for redemption a
sufficient number of full and fractional shares in his account to cover the
amount withdrawn. The proceeds of a redemption or repurchase will normally be
available within seven days, except for shares purchased, or received in
exchange for shares purchased, by check (including certified checks or cashier's
checks); payment of redemption proceeds may be delayed for 15 days from the
purchase date in an effort to assure that such check has cleared. Payment of
redemption proceeds may be delayed for up to seven days if the Fund determines
that such a delay would be in the best interest of all its shareholders.
A. REDEMPTION BY MAIL -- Each shareholder has the right to redeem all or any
portion of the shares in his account by mailing or delivering to the Shareholder
Servicing Agent (see back cover for address) a stock power with a written
request for redemption, or 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 by the Shareholder Servicing Agent in "good order," the Fund will make
payment in cash of the net asset value of the shares next determined after such
redemption request was received, reduced by the amount of any applicable CDSC
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 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 FSI ON THE SAME
DAY BEFORE FSI CLOSES FOR BUSINESS, THE SHAREHOLDER WILL RECEIVE THE NET ASSET
VALUE CALCULATED ON THAT DAY.
15
<PAGE> 21
SIGNATURE GUARANTEE: In order to protect shareholders against fraud to the
greatest extent possible, the Fund requires in certain instances as indicated
above that the shareholder's signature be guaranteed. In these cases the
shareholder's signature must be guaranteed by an eligible bank, broker, dealer,
credit union, national securities exchange, registered securities association,
clearing agency or savings association. Signature guarantees shall be accepted
in accordance with policies established by the Shareholder Servicing Agent.
Shareholders of the Fund who have redeemed their shares have a one-time right to
reinvest the redemption proceeds in the same class of shares of any of the MFS
Funds (if shares of such Fund are available for sale) at net asset value (with a
credit for any CDSC paid) within 90 days of the redemption pursuant to the
Reinstatement Privilege. If the shares credited for any CDSC paid are then
redeemed within six years of the initial purchase in the case of Class B shares,
or within 12 months of the initial purchase for certain Class A share purchases,
a CDSC will be imposed upon redemption. Such purchases under the Reinstatement
Privilege are subject to all limitations in the Statement of Additional
Information regarding this privilege.
Subject to the Fund's compliance with applicable regulations, the Fund has
reserved the right to pay the redemption or repurchase price of shares of the
Fund, either totally or partially, by a distribution in kind of portfolio
securities (instead of cash). The securities so distributed would be valued at
the same amount as that assigned to them in calculating the net asset value for
the shares being sold. If a shareholder received a distribution in kind, the
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 and certain payroll
savings programs, Automatic Exchange Plan accounts and tax-deferred retirement
plans, for which there is a lower minimum investment requirement (see
"Purchases"). Shareholders will be notified that the value of their account is
less than the minimum investment requirement and allowed 60 days to make an
additional investment before the redemption is processed. No CDSC will be
imposed with respect to such involuntary redemptions.
CONTINGENT DEFERRED SALES CHARGE -- Investments ("Direct Purchases") 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 the CDSC will be unaffected by exchanges or transfers of
registration.
16
<PAGE> 22
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 FSI a distribution/service fee aggregating up to (but not
necessarily all of) 0.35% of the average daily net assets attributable to Class
A shares annually in order that FSI may pay expenses on behalf of the Fund
related to the distribution and servicing of Class A shares. The expenses to be
paid by FSI on behalf of the Fund include a service fee to securities dealers
which enter into a sales agreement with FSI of up to 0.25% per annum of the
Fund's average daily net assets attributable to Class A shares that are owned by
investors for whom such securities dealers is the holder or dealer of record.
This fee is intended to be partial consideration for all personal services
and/or account maintenance services rendered by the dealer with respect to Class
A shares. FSI may from time to time reduce the amount of the service fee paid
for shares sold prior to a certain date. Currently, the service fee is reduced
to 0.15% for shares purchased prior to March 1, 1991. FSI may also retain a
distribution fee of 0.10% of the Fund's average daily net assets attributable to
Class A shares as partial consideration for services performed and expenses
incurred in the performance of FSI's obligations under its distribution
agreement with the Fund. FSI, 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 FSI for sales at
or above a certain dollar level. Fees payable under the Class A Distribution
Plan are charged to, and therefore reduce, income allocated to Class A shares.
Service fees may be reduced for a securities dealer that is the holder or dealer
of record for an investor who owns shares of the Fund having 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. FSI or its
affiliates are entitled to retain all service fees payable under the Class A
Distribution Plan for which there is no dealer of record or for which
qualification standards have not been met as partial consideration for personal
services and/or account maintenance services performed by FSI or its affiliates
for shareholder accounts. Certain banks and other financial institutions that
have agency agreements with FSI will receive service fees that are the same as
service fees to dealers.
CLASS B DISTRIBUTION PLAN. The Class B Distribution Plan provides that the
Fund will pay FSI a daily distribution fee equal on an annual basis to 0.75% of
the Fund's average daily net assets attributable to Class B shares and will pay
FSI a service fee of up to 0.25% per annum of the Fund's average daily net
assets attributable to Class B shares (which FSI will in turn pay to securities
dealers which enter into a sales agreement with FSI at a rate of up to 0.25% 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 FSI will receive all CDSCs attributable to
Class B shares (see "Redemptions and Repurchases of Shares" above), which do not
reduce the distribution fee. FSI will pay commissions to dealers of 3.75% of the
purchase price of Class B shares purchased through dealers. FSI will also
advance to dealers the first year service fee at a rate equal to 0.25% of the
purchase price of such shares and as compensation therefor, FSI may retain the
service fee paid by the Fund with respect to such shares for the first year
after purchase. Therefore, the total amount paid to a dealer upon the sale of
shares is 4.00% of the purchase price of the shares (commission rate of 3.75%
plus 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. FSI 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 FSI or its affiliates for shareholder accounts. The purpose of the
distribution payments of FSI under the Class B Distribution Plan is to
compensate FSI for its
17
<PAGE> 23
distribution services to the Fund. Since FSI's compensation is not directly tied
to its expenses, the amount of compensation received by FSI during any year may
be more or less than its actual expenses. For this reason, this type of
distribution fee arrangement is characterized by the staff of the SEC as being
of the "compensation" variety. However, the Fund is not liable for any expenses
incurred by FSI in excess of the amount of compensation it receives. The
expenses incurred by FSI, including commissions to dealers, are likely to be
greater than the distribution fees for the next several years, but thereafter
such expenses may be less than the amount of the distribution fees. Certain
banks and other financial institutions that have agency agreements with FSI will
receive agency transaction and service fees that are the same as commissions and
service fees to dealers.
DISTRIBUTIONS
The Fund intends to pay substantially all of its net investment income for any
calendar year to its shareholders as dividends on an annual basis. In addition,
the Fund may make one or more distributions during the calendar year to its
shareholders from any long-term capital gains, and may also make one or more
distributions during the calendar year to its shareholders from short-term
capital gains. Shareholders may elect to receive dividends and capital gain
distributions in either cash or additional shares of the same class with respect
to which a distribution is made. See "Tax Status" and "Shareholder
Services -- Distribution Options" below. Distributions paid by the Fund with
respect to Class A shares will generally be greater than those paid with respect
to Class B shares because expenses attributable to Class B shares will generally
be higher.
TAX STATUS
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 any entity level federal income or excise
taxes, although foreign-source income received by the Fund may be subject to
foreign withholding taxes. Shareholders of the Fund normally will have to pay
federal income taxes, and any state or local taxes, on the dividends and capital
gain distributions they receive from the Fund. A portion of the dividends
received from the Fund (but none of the Fund's capital gains distributions) may
qualify for the dividends-received deduction for corporations.
Shortly after the end of each calendar year, each shareholder will receive
information for tax purposes on all dividends and distributions for that year,
including the portion taxable as ordinary income, the portion taxable as
long-term capital gains, the portion, if any, representing a return of capital
(which is generally free of current taxes but results in a basis reduction), and
the amount, if any, of federal income tax withheld.
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 treaty.
The Fund is also required in certain circumstances to apply backup withholding
of 31% of taxable dividends and redemption proceeds paid to any shareholder
(including a shareholder who is neither a citizen nor a resident of the U.S.)
who does not furnish to the Fund certain information and certifications or is
otherwise subject to backup withholding. Backup withholding will not, however,
be applied to payments that have been subject to 30% withholding. Prospective
shareholders should read the Account Application for additional information
regarding backup withholding of federal income tax and should consult their own
tax advisers as to the tax consequences to them of an investment in the Fund.
NET ASSET VALUE
The net asset value per share of each class of the Fund is determined each day
during which the Exchange is open for trading. This determination is made once
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 FSI prior to the close of that business
day.
18
<PAGE> 24
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. 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").
19
<PAGE> 25
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 (including short-term capital gains) in cash; long term capital
gain distributions reinvested in additional shares;
-- Dividends and capital gain distributions in cash.
Reinvestments (net of any tax withholding) will be made in additional full and
fractional shares of the same class of shares at the net asset value in effect
at the close of business on the record date. Dividends and capital gain
distributions in amounts less than $10 will automatically be reinvested in
additional shares of the Fund. Any request to change a distribution option must
be received by the Shareholder Servicing Agent by the record date for a dividend
or distribution in order to be effective for that dividend or distribution. No
interest will accrue on amounts represented by uncashed distribution or
redemption checks.
INVESTMENT AND WITHDRAWAL PROGRAMS -- For the convenience of shareholders, the
Fund makes available the following programs designed to enable shareholders to
add to their investment in an account with the Fund or withdraw from it with a
minimum of paper work. The programs involve no extra charge to shareholders
(other than a sales charge in the case of certain Class A share purchases) and
may be changed or discontinued at any time by a shareholder or the Fund.
LETTER OF INTENT: If a shareholder (other than a group purchaser as
described in the Statement of Additional Information) anticipates purchasing
$50,000 or more of Class A shares of the Fund alone or in combination with
shares of any class of other MFS Funds or MFS Fixed Fund (a bank collective
investment fund) within a 13-month period (or 36-month period for purchases of
$1 million or more), the shareholder may obtain such shares at the same reduced
sales charge as though the total quantity were invested in one lump sum, subject
to escrow agreements and the appointment of an attorney for redemptions from the
escrow amount if the intended purchases are not completed, by completing the
Letter of Intent section of the Account Application.
RIGHT OF ACCUMULATION: A shareholder qualifies for cumulative quantity
discounts on purchases of Class A shares when his new investment, together with
the current offering price value of all holdings of 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 in shares of the same class of another
MFS Fund, if shares of such Fund are available for sale (and without any
applicable CDSC).
SYSTEMATIC WITHDRAWAL PLAN: A shareholder (except a $3 million shareholder)
may direct the Shareholder Servicing Agent to send him (or anyone he designates)
regular periodic payments, as designated on the Account Application and based
upon the value of his account. Each payment under a Systematic Withdrawal Plan
(a "SWP") must be at least $100, except in certain limited circumstances. The
aggregate withdrawals of Class B shares in any year pursuant to a SWP will not
be subject to a CDSC and are generally limited to 10% of the value of the
account at the time of the establishment of the SWP. The CDSC will not be waived
in the case of 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 quarterly transfers of funds from the shareholder's account in a MFS
Fund for investment in the same class of shares of other
20
<PAGE> 26
MFS Funds selected by the shareholder. Under the Automatic Exchange Plan,
transfers of at least $50 each may be made to up to four different funds. A
shareholder should consider the objectives and policies of a fund and review its
prospectus before electing to transfer money into such fund through the
Automatic Exchange Plan. No transaction fee is imposed in connection with
transfer transactions under the Automatic Exchange Plan. However, transfers of
shares of MFS Money Market Fund, MFS Government Money Market Fund or Class A
shares of MFS Cash Reserve Fund will be subject to any applicable sales charge.
For federal and (generally) state income tax purposes, a transfer is treated as
a sale of the shares transferred and, therefore, could result in a capital gain
or loss to the shareholder making the transfer. See the Statement of Additional
Information for further information concerning the Automatic Exchange Plan.
Investors should consult their tax advisers for information regarding the
potential capital gain and loss consequences of transactions under the Automatic
Exchange Plan.
Because a dollar cost averaging program involves periodic purchases of shares
regardless of fluctuating share offering prices, a shareholder should consider
his financial ability to continue his purchases through periods of low price
levels. Maintaining a dollar cost averaging program concurrently with a
withdrawal program could be disadvantageous because of the sales charges
included in share purchases in the case of Class A shares, and because of the
assessment of the CDSC for certain share redemptions in the case of Class A
shares.
TAX-DEFERRED RETIREMENT PLANS -- 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, 1994, contains
more detailed information about the Fund, including information related to (i)
investment policies and restrictions, (ii) Trustees, officers and investment
adviser, (iii) portfolio transactions and brokerage commissions, (iv) the
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.
21
<PAGE> 27
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 28
- --------------------------------------------------------------------------------
THE MFS FAMILY OF FUNDS[R] -- America's Oldest Mutual Fund Group
- --------------------------------------------------------------------------------
The members of the MFS Family of Funds are grouped below according to the types
of securities in their portfolios. Form free prospectuses containing more
complete information, including the exchange privilege and all charges and
expenses, please contact your financial adviser or call the MFS Service Center
at 1-800=225-2606 any business day from 8 a.m. to 8.p.m. Eastern time. This
material should be read carefully before investing or sending money.
<TABLE>
<CAPTION>
- ----------------------------------------- -----------------------------------------
STOCK FUNDS BOND FUNDS
- ----------------------------------------- -----------------------------------------
<S> <C>
Massachusetts Investors Trust MFS[R] Bond Fund
- ----------------------------------------- -----------------------------------------
Massachusetts Investors Growth Stock Fund MFS[R] Government Limited Maturity Fund
- ----------------------------------------- -----------------------------------------
MFS[R] Capital Growth Fund MFS[R] Government Mortgage Fund
- ----------------------------------------- -----------------------------------------
MFS[R] Emerging Growth Fund MFS[R] Government Securities Fund
- ----------------------------------------- -----------------------------------------
MFS[R] Gold & Natural Resources Fund MFS[R] High Income Fund
- ----------------------------------------- -----------------------------------------
MFS[R] Growth Opportunities Fund MFS[R] Income & Opportunity Fund
- ----------------------------------------- -----------------------------------------
MFS[R] Managed Sectors Fund MFS[R] Intermediate Income Fund
- ----------------------------------------- -----------------------------------------
MFS[R] OTC Fund MFS[R] Limited Maturity Fund
- ----------------------------------------- -----------------------------------------
MFS[R] Research Fund MFS[R] World Governments Fund
- ----------------------------------------- -----------------------------------------
MFS[R] Value Fund
- ----------------------------------------- -----------------------------------------
MFS[R] World Equity Fund TAX-FREE BOND FUNDS
- ----------------------------------------- -----------------------------------------
MFS[R] World Growth Fund MFS[R] Municipal Bond Fund
- ----------------------------------------- -----------------------------------------
MFS[R] Municipal High Income Fund**
- ----------------------------------------- -----------------------------------------
STOCK AND BOND FUNDS MFS[R] Municipal Income Fund
- ----------------------------------------- -----------------------------------------
MFS[R] Total Return Fund MFS[R] Municipal Limited Maturity Fund
- ----------------------------------------- -----------------------------------------
MFS[R] Utilities Fund MFS[R] Municipal Series Trust (AL, AR, CA,
- ----------------------------------------- FL, GA, LA, MD, MA, MS, NY, NC, PA, SC,
MFS[R] World Total Return Fund TN, TX, VA, WA, WV)
- -----------------------------------------
-----------------------------------------
MONEY MARKET FUNDS
-----------------------------------------
MFS[R] Cash Reserve Fund
-----------------------------------------
MFS[R] Government Money Market Fund
-----------------------------------------
MFS[R] Money Market Fund
-----------------------------------------
<FN>
* Closed to new investors, commencing January 14, 1994.
** Closed to new investors.
</TABLE>
<PAGE> 29
--------------------------------
INVESTMENT ADVISER
Massachusetts Financial Services Company
500 Boylston Street, Boston, MA 02116
(617) 954-5000
MASSACHUSETTS
DISTRIBUTOR INVESTORS
MFS Financial Services, Inc. GROWTH STOCK
500 Boylston Street, Boston, MA 02116 FUND
(617) 954-5000
CUSTODIAN AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company
225 Franklin Street, Boston, MA 02110
SHAREHOLDER SERVICING AGENT
MFS Service Center, Inc.
500 Boylston Street, Boston, MA 02116
Toll free: 800-225-2606
Mailing Address:
P.O. Box 2281, Boston, MA 02107-9906
INDEPENDENT ACCOUNTANTS
Deloitte & Touche
125 Summer Street, Boston, MA 02110
[LOGO]
PROSPECTUS
APRIL 1, 1994
[LOGO]
MASSACHUSETTS INVESTORS
GROWTH STOCK FUND
500 Boylston Street, Boston, MA
02116
--------------------------------
MIG-1 4/94 155M 13/213
<PAGE> 30
[LOGO]
MASSACHUSETTS INVESTORS STATEMENT OF
GROWTH STOCK FUND ADDITIONAL INFORMATION
(A member of the MFS Family of Funds(R)) April 1, 1994
- --------------------------------------------------------------------
Page
----
1. Definitions............................................. 2
2. The Fund................................................ 2
3. Investment Objective, Policies and Restrictions......... 2
4. Management of the Fund.................................. 10
Trustees................................................ 10
Officers................................................ 11
Investment Adviser...................................... 11
Custodian............................................... 12
Shareholder Servicing Agent............................. 13
Distributor............................................. 13
5. Portfolio Transactions and Brokerage Commissions........ 14
6. Shareholder Services.................................... 15
Investment and Withdrawal Programs...................... 15
Exchange Privilege...................................... 17
Tax-Deferred Retirement Plans........................... 18
7. Tax Status.............................................. 18
8. Determination of Net Asset Value and Performance........ 20
9. Description of Shares, Voting Rights and Liabilities.... 21
10. Distribution Plans...................................... 22
11. Independent Accountants and Financial Statements........ 24
MASSACHUSETTS INVESTORS GROWTH STOCK FUND
500 Boylston Street, Boston, Massachusetts 02116
(617) 954-5000
This Statement of Additional Information sets forth information which may be of
interest to investors but which is not necessarily included in the Fund's
Prospectus, dated April 1, 1994. This Statement of Additional Information should
be read in conjunction with the Prospectus, a copy of which may be obtained
without charge by contacting the Shareholder Servicing Agent (see back cover for
address and phone number).
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS AUTHORIZED
FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY A
CURRENT PROSPECTUS.
<PAGE> 31
1. DEFINITIONS
"Fund" -- Massachusetts Investors Growth
Stock Fund, a Massachusetts
business trust.
"MFS" or the "Adviser" -- Massachusetts Financial
Services Company, a Delaware
corporation.
"FSI" -- MFS Financial Services, Inc., a
Delaware corporation.
"Prospectus" -- The Prospectus, dated April 1,
1994, of the Fund.
2. THE FUND
The predecessor of the Fund-- Massachusetts Investors Growth Stock Fund, Inc.
(the "Trust")-- was incorporated under the laws of Massachusetts in 1958 to
continue the business of a Delaware corporation organized in 1932. The Fund was
reorganized as a trust on July 29, 1985. All references in this Statement of
Additional Information to the Fund's past activities are intended to include
those of the Trust, unless the context indicates otherwise.
3. INVESTMENT OBJECTIVE, POLICIES AND
RESTRICTIONS
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-term growth. This is a fundamental policy 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%-30% of its total assets in foreign securities (not including
American Depositary Receipts discussed below). As discussed in the Prospectus,
investing in foreign securities generally represents a greater degree of risk
than investing in domestic securities, due to possible exchange rate
fluctuations, less publicly available information, more volatile markets, less
securities regulation, less favorable tax provisions, war or expropriation. As a
result of its investments in foreign securities, the Fund may receive interest
or dividend payments, or the proceeds of the sale or redemption of such
securities, in the foreign currencies in which such securities are denominated.
Under certain circumstances, such as where the Adviser believes that the
applicable exchange rate is unfavorable at the time the currencies are received
or the Adviser anticipates, for any other reason, that the exchange rate will
improve, the Fund may hold such currencies for an indefinite period of time.
While the holding of currencies will permit the Fund to take advantage of
favorable movements in the applicable exchange rate, such strategy also exposes
the Fund to risk of loss if exchange rates move in a direction adverse to the
Fund's position. Such losses could reduce any profits or increase any losses
sustained by the Fund from the sale or redemption of securities and could reduce
the dollar value of interest or dividend payments received.
AMERICAN DEPOSITARY RECEIPTS: The Fund may invest in American Depositary
Receipts ("ADRs") which are certificates issued by a U.S. depository (usually a
bank) and represent a specified quantity of shares of an underlying non-U.S.
stock on deposit with a custodian bank as collateral. ADRs may be sponsored or
unsponsored. A sponsored ADR is issued by a depository which has an exclusive
relationship with the issuer of the underlying security. An unsponsored ADR may
be issued by any number of U.S. depositories. The Fund may invest in either type
of ADR. Although the U.S. investor holds a substitute receipt of ownership
rather than direct stock certificates, the use of the depository receipts in the
United States can reduce costs and delays as well as potential currency exchange
and other difficulties. The Fund may purchase securities in local markets and
direct delivery of these ordinary shares to the local depository of an ADR agent
bank in the foreign country. Simultaneously, the ADR agents create a certificate
which settles at the Fund's custodian in five days. The Fund may also execute
trades on the U.S. markets using existing ADRs. A foreign issuer of the security
underlying an ADR is generally not subject to the same reporting requirements in
the United States as a domestic issuer. Accordingly the information available to
a U.S. investor will be limited to the information the foreign issuer is
required to disclose in its own country and the market value of an ADR may not
reflect undisclosed material information concerning the issuer of the underlying
security. ADRs may also be subject to exchange rate risks if the underlying
foreign securities are denominated in foreign currency.
REPURCHASE AGREEMENTS: The Fund may enter into repurchase agreements with
sellers who are member firms (or a subsidiary thereof) of the New York Stock
Exchange, members of the Federal Reserve System, recognized primary U.S.
Government securities dealers or institutions which the Adviser has determined
to be of comparable creditworthiness. The securities that the Fund purchases and
holds through its agent are U.S. Government securities, the values of which are
equal to or greater than the repurchase price agreed to be paid by the seller.
The repurchase price may be higher than the purchase price, the difference being
income to the Fund, or the purchase and repurchase prices may be the same, with
interest at a standard
2
<PAGE> 32
rate due to the Fund together with the repurchase price on repurchase. In either
case, the income to the Fund is unrelated to the interest rate on the U.S.
Government securities.
The repurchase agreement provides that in the event the seller fails to pay the
price agreed upon on the agreed upon delivery date or upon demand, as the case
may be, the Fund will have the right to liquidate the securities. If at the time
the Fund is contractually entitled to exercise its right to liquidate the
securities, the seller is subject to a proceeding under the bankruptcy laws or
its assets are otherwise subject to a stay order, the Fund's exercise of its
right to liquidate the securities may be delayed and result in certain losses
and costs to the Fund. The Fund has adopted and follows procedures which are
intended to minimize the risks of repurchase agreements. For example, the Fund
only enters into repurchase agreements after the Adviser has determined that the
seller is creditworthy, and the Adviser monitors that seller's creditworthiness
on an ongoing basis. Moreover, under such agreements, the value of the
securities (which are marked to market every business day) is required to be
greater than the repurchase price, and the Fund has the right to make margin
calls at any time if the value of the securities falls below the agreed upon
margin.
"WHEN-ISSUED" SECURITIES: The Fund may purchase securities on a "when-issued" or
on a "forward delivery" basis. It is expected that, under normal circumstances,
the Fund will take delivery of such securities. When the Fund commits to
purchase a security on a "when-issued" or on a "forward delivery" basis, it will
set up procedures consistent with Securities and Exchange Commission (the "SEC")
policies concerning such purchases. Since those policies currently recommend
that an amount of the Fund's assets equal to the amount of the purchase be held
aside or segregated to be used to pay for the commitment, the Fund will always
have cash, short-term money market instruments or high quality debt securities
to cover any commitments or to limit any potential risk. However, although the
Fund does not intend to make such purchases for speculative purposes and the
Fund does intend to adhere to the provisions of SEC policies, purchases of
securities on such bases may involve more risk than other types of purchases.
For example, the Fund may have to sell assets which have been set aside in order
to meet redemptions. Also, if the Fund determines it necessary to sell the
"when-issued" or "forward delivery" securities before delivery, the Fund may
incur a loss because of market fluctuations since the time the commitment to
purchase such securities was made.
SECURITIES LENDING: The Fund may seek to increase its income by lending fixed
income portfolio securities. Such loans will usually be made only to member
banks of the Federal Reserve System and to member firms (or subsidiaries
thereof) of the New York Stock Exchange and would be required to be secured
continuously by collateral in cash, cash equivalents, or U.S. Government
securities maintained on a current basis at an amount at least equal to the
market value of the securities loaned. The Fund would have the right to call a
loan and obtain the securities loaned at any time on customary industry
settlement notice (which will usually not exceed five days). During the
existence of a loan, the Fund would continue to receive the equivalent of the
interest paid by the issuer on the securities loaned and would also receive
compensation based on investment of the collateral. The Fund would not, however,
have the right to vote any securities having voting rights during the existence
of the loan, but would call the loan in anticipation of an important vote to be
taken among holders of the securities or of the giving or withholding of their
consent on a material matter affecting the investment. As with other extensions
of credit, there are risks of delay in recovery or even loss of rights in the
collateral should the borrower of the securities fail financially. However, the
loans would be made only to firms deemed by the Adviser to be of good standing,
and when, in the judgment of the Adviser, the consideration which could be
earned currently from securities loans of this type justifies the attendant
risk. If the Adviser determines to lend securities, it is not intended that the
value of the securities loaned would exceed 30% of the value of the Fund's total
assets. The Fund did not lend any of its portfolio securities during its fiscal
year ended November 30, 1993.
OPTIONS ON SECURITIES: The Fund may write (sell) covered call and put options on
securities and purchase call and put options on securities. The Fund may write
options on securities for the purpose of increasing its return on such
securities and for hedging purposes.
A call option written by the Fund is covered if the Fund owns the security
underlying the call or has an absolute and immediate right to acquire such
security without additional cash consideration (or for additional cash
consideration held in a segregated account by its custodian) upon conversion or
exchange of other securities held in its portfolio. A call option is also
covered if a Fund holds a call on the same security and in the same principal
amount as the call written where the exercise price of the call held (a) is
equal to or less than the exercise price of the call written or (b) is greater
than the exercise price of the call written if the difference is maintained by
the Fund in cash or high grade government securities in a segregated account
with its custodian. A put option written by the Fund is covered if the Fund
maintains cash or high grade government securities with a value equal to the
exercise price in a segregated account with its custodian, or else holds a put
on the same security and in the same principal amount as the put written where
the exercise price of the put held (i) is equal to or greater than the exercise
price of the put written or (ii) is less than the exercise price of the put
written if the difference is maintained by the Fund in cash or high grade
government securities in a segregated account with its custodian. Put and call
options written by the Fund may also be covered in such other manner as may be
in accordance with the requirements of the exchange on which, or the
counterparty with which, the option is traded, and applicable laws and
regulations.
Effecting a closing transaction in the case of a written call option will permit
the Fund to write another call option on the underlying security with either a
different exercise price or expiration date or both, or in the case of a written
put option will permit the Fund to write another put option to the extent that
the exercise
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<PAGE> 33
price thereof is secured by deposited cash or short-term securities. Such
transactions permit the Fund to generate additional premium income, which will
partially offset declines in the value of portfolio securities or increases in
the cost of securities to be acquired. Also, effecting a closing transaction
will permit the proceeds from the concurrent sale of any securities subject to
the option to be used for other investments of the Fund, provided that another
option on such security is not written. If the Fund desires to sell a particular
security from its portfolio on which it has written a call option, it will
effect a closing transaction in connection with the option prior to or
concurrent with the sale of the security.
The Fund will realize a profit from a closing transaction if the premium paid in
connection with the closing of an option written by the Fund is less than the
premium received from writing the option, or if the premium received in
connection with the closing of an option purchased by the Fund is more than the
premium paid for the original purchase. Conversely, the Fund will suffer a loss
if the premium paid or received in connection with a closing transaction is more
or less, respectively, than the premium received or paid in establishing the
option position. Because increases in the market price of a call option will
generally reflect increases in the market price of the underlying security, any
loss resulting from the closing out of a call option previously written by the
Fund is likely to be offset in whole or in part by appreciation of the
underlying security owned by the Fund.
The Fund may write options in connection with buy-and-write transactions; that
is, the Fund may purchase a security and then write a call option against that
security. The exercise price of the call option the Fund determines to write
will depend upon the expected price movement of the underlying security. The
exercise price of a call option may be below ("in-the-money"), equal to
("at-the-money") or above ("out-of-the-money") the current value of the
underlying security at the time the option is written. If the call options are
exercised in such transactions, the Fund's maximum gain will be the premium
received by it for writing the option, adjusted upwards or downwards by the
difference between the Fund's purchase price of the security and the exercise
price, less related transaction costs. If the options are not exercised and the
price of the underlying security declines, the amount of such decline will be
offset in part, or entirely, by the premium received.
The writing of covered put options is similar in terms of risk/return
characteristics to buy-and-write transactions. Put options could be used by the
Fund in the same market environments that call options would be used in
equivalent buy-and-write transactions.
The Fund may write combinations of put and call options on the same security, a
practice known as a "straddle." By writing a straddle, the Fund undertakes a
simultaneous obligation to sell and purchase the same security in the event that
one of the options is exercised. If the price of the security subsequently rises
sufficiently above the exercise price to cover the amount of the premium and
transaction costs, the call will likely be exercised and the Fund will be
required to sell the underlying security at a below market price. This loss may
be offset, however, in whole or in part, by the premiums received on the writing
of the two options. Conversely, if the price of the security declines by a
sufficient amount, the put will likely be exercised. The writing of straddles
will likely be effective, therefore, only where the price of a security remains
stable and neither the call nor the put is exercised. In an instance where one
of the options is exercised, the loss on the purchase or sale of the underlying
security may exceed the amount of the premiums received.
By writing a call option, the Fund limits its opportunity to profit from any
increase in the market value of the underlying security above the exercise price
of the option. By writing a put option, the Fund assumes the risk that it may be
required to purchase the underlying security for an exercise price above its
then current market value, resulting in a capital loss unless the security
subsequently appreciates in value. The writing of options on securities will be
undertaken by the Fund for purposes in addition to hedging, and could involve
certain risks which are not present in the case of hedging transactions.
Moreover, even where options are written for hedging purposes, such transactions
will constitute only a partial hedge against declines in the value of portfolio
securities or against increases in the value of securities to be acquired, up to
the amount of the premium.
The Fund also may purchase put and call options on securities. Put options would
be purchased to hedge against a decline in the value of securities held in the
Fund's portfolio. If such a decline occurs, the put options will permit the Fund
to sell the underlying securities at the exercise price, or to close out the
options at a profit. By using put options in this way, the Fund will reduce any
profit it might otherwise have realized in the underlying security by the amount
of the premium paid for the put option and related transaction costs. The Fund
may purchase call options to hedge against an increase in the price of
securities that the Fund anticipates purchasing in the future. If such an
increase occurs, the call option will permit the Fund to purchase the securities
at the exercise price or to close out the option at a profit. The premium paid
for a call or put option plus any transaction costs will reduce the benefit, if
any, realized by the Fund upon exercise of the option, and, unless the price of
the underlying security rose or declined sufficiently, the option may expire
worthless to the Fund.
OPTIONS ON STOCK INDICES: The Fund may write (sell) covered call and put options
on stock indices and purchase call and put options on stock indexes for the
purpose of increasing its gross income and to protect its portfolio against
declines in the value of securities it owns or increases in the value of
securities to be acquired.
The Fund may cover call options on stock indices by owning securities whose
price changes, in the opinion of the Adviser, are expected to be similar to
those of the index, or by having an absolute and immediate right to acquire such
securities without additional cash consideration (or for additional cash
consideration held in a segregated account by its custodian) upon conversion or
exchange of other securities in its portfolio.
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<PAGE> 34
Nevertheless, where the Fund covers a call option on a stock index through
ownership of securities, such securities may not match the composition of the
index and, in that event, the Fund will not be fully covered and could be
subject to risk of loss in the event of adverse changes in the value of the
index. A Fund may also cover call options on stock indices by holding a call on
the same index and in the same principal amount as the call written where the
exercise price of the call held (a) is equal to or less than the exercise price
of the call written or (b) is greater than the exercise price of the call
written if the difference is maintained by the Fund in cash or high grade
government securities in a segregated account with its custodian. The Fund may
cover put options on stock indices by maintaining cash or high grade government
securities with a value equal to the exercise price in a segregated account with
its custodian, or else by holding a put on the same stock index and in the same
principal amount as the put written where the exercise price of the put held (a)
is equal to or greater than the exercise price of the put written or (b) is less
than the exercise price of the put written if the difference is maintained by
the Fund in cash or high grade government securities in a segregated account
with its custodian. Put and call options on stock indices written by the Fund
may also be covered in such other manner as may be in accordance with the rules
of the exchange on which, or the counterparty with which, the option is traded,
and applicable laws and regulations.
The Fund will receive a premium from writing a put or call option, which
increases the Fund's gross income in the event the option expires unexercised or
is closed out at a profit. If the value of an index on which the Fund has
written a call option falls or remains the same, the Fund will realize a profit
in the form of the premium received (less transaction costs) that could offset
all or a portion of any decline in the value of the securities it owns. If the
value of the index rises, however, the Fund will realize a loss in its call
option position, which will reduce the benefit of any unrealized appreciation in
the Fund's stock investments. By writing a put option, the Fund assumes the risk
of a decline in the index. To the extent that the price changes of securities
owned by a Fund correlate with changes in the value of the index, writing
covered put options on indices will increase the Fund's losses in the event of a
market decline, although such losses will be offset in part by the premium
received for writing the option.
The purchase of call options on stock indices may be used by the Fund to attempt
to reduce the risk of missing a broad market advance, or an advance in an
industry or market segment, at a time when the Fund holds uninvested cash or
short-term debt securities awaiting investment. When purchasing call options for
this purpose, the Fund will also bear the risk of losing all or a portion of the
premium paid, and related transaction costs, if the value of the index does not
rise. The purchase of call options on stock indices when the Fund is
substantially fully invested is a form of leverage, up to the amount of the
premium and related transaction costs, and involves risks of loss and of
increased volatility similar to those involved in purchasing calls on securities
the Fund owns.
The Fund also may purchase put options on stock indices to hedge its investments
against a decline in value. By purchasing a put option on a stock index, the
Fund will seek to offset a decline in the value of securities it owns through
appreciation of the put option. If the value of the Fund's investments does not
decline as anticipated, or if the value of the option does not increase, the
Fund's loss will be limited to the premium paid for the option, plus related
transaction costs. The success of this strategy will largely depend on the
accuracy of the correlation between the changes in value of the index and the
changes in value of the Fund's security holdings.
OPTIONS ON FOREIGN CURRENCIES: The Fund may purchase and write put and call
options on foreign currencies ("Options on Foreign Currencies") for the purpose
of protecting against declines in the dollar value of foreign portfolio
securities and against increases in the dollar cost of foreign securities to be
acquired. For example, a decline in the dollar value of a foreign currency in
which portfolio securities are denominated will reduce the dollar value of such
securities, even if their value in the foreign currency remains constant. In
order to protect against such diminutions in the value of portfolio securities,
the Fund may purchase put Options on the Foreign Currency. If the value of the
currency did decline, the Fund would have the right to sell such currency for a
fixed amount in dollars and would thereby offset, in whole or in part, the
adverse effect on its portfolio which otherwise would have resulted.
Conversely, where a rise in the dollar value of a currency in which securities
to be acquired are denominated is projected, thereby increasing the cost of such
securities, the Fund may purchase call options thereon. The purchase of such
options could offset, at least partially, the effects of the adverse movements
in exchange rates. As in the case of other types of options, however, the
benefit to the Fund deriving from purchases of Options on Foreign Currencies
would be reduced by the amount of the premium and related transaction costs. In
addition, where currency exchange rates do not move in the direction or to the
extent anticipated, the Fund could sustain losses on transactions in Options on
Foreign Currencies which would require it to forego a portion or all of the
benefits of advantageous changes in such rates.
The Fund may write Options on Foreign Currencies for the same types of hedging
purposes. For example, where the Fund anticipates a decline in the dollar value
of foreign-denominated securities due to adverse fluctuations in exchange rates
it may, instead of purchasing a put option, write a call option on the relevant
currency. If the expected decline occurred, the option would most likely not be
exercised, and the diminution in value of portfolio securities would be offset
by the amount of the premium received less related transaction costs. As in the
case of other types of options, therefore, the writing of Options on Foreign
Currencies will constitute only a partial hedge.
FUTURES CONTRACTS: The Fund may enter into stock index and foreign currency
futures contracts ("Futures Contracts"). A Futures Contract is a bilateral
agreement providing for the purchase and sale of a specified type and amount of
a financial
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<PAGE> 35
instrument, or foreign currency, or for the making and acceptance of a cash
settlement, at a stated time in the future for a fixed price. By its terms, a
Futures Contract provides for a specified settlement date on which, in the case
of the majority of foreign currency futures contracts, the currency or the
contract are delivered by the seller and paid for by the purchaser, or on which,
in the case of stock index futures contracts and certain foreign currency
futures contracts, the difference between the price at which the contract was
entered into and the contract's closing value is settled between the purchaser
and seller in cash. Futures contracts differ from options in that they are
bilateral agreements, with both the purchaser and the seller equally obligated
to complete the transaction. Futures Contracts call for settlement only on the
expiration date and cannot be "exercised" at any other time during their term.
The purchase or sale of a Futures Contract differs from the purchase or sale of
a security or the purchase of an option in that no purchase price is paid or
received. Instead, an amount of cash or cash equivalents, which varies but may
be as low as 5% or less of the value of the contract, must be deposited with the
broker as "initial margin." Subsequent payments to and from the broker, referred
to as "variation margin," are made on a daily basis as the value of the index or
instrument underlying the Futures Contract fluctuates, making positions in the
Futures Contract more or less valuable -- a process known as "marking to the
market."
Purchases or sales of stock index futures contracts may be used to attempt to
protect a Fund's current or intended stock investments from broad fluctuations
in stock prices. For example, a Fund may sell stock index futures contracts in
anticipation of or during a market decline to attempt to offset the decrease in
market value of the Fund's securities portfolio that might otherwise result. If
such decline occurs, the loss in value of portfolio securities may be offset, in
whole or part, by gains on the futures position. When a Fund is not fully
invested in the securities market and anticipates a significant market advance,
it may purchase stock index futures contracts in order to gain rapid market
exposure that may, in part or entirely, offset increases in the cost of
securities that the Fund intends to purchase. As such purchases are made, the
corresponding positions in stock index futures contracts will be closed out. In
a substantial majority of these transactions, the Fund will purchase such
securities upon termination of the futures position, but under unusual market
conditions, a long futures position may be terminated without a related purchase
of securities.
As noted in the Prospectus, a Fund may purchase and sell foreign currency
futures contracts for hedging purposes, to attempt to protect its current or
intended investments from fluctuations in currency exchange rates. Such
fluctuations could reduce the dollar value of portfolio securities denominated
in foreign currencies, or increase the cost of foreign-denominated securities to
be acquired, even if the value of such securities in the currencies in which
they are denominated remains constant. A Fund may sell futures contracts on a
foreign currency, for example, where it holds securities denominated in such
currency and it anticipates a decline in the value of such currency relative to
the dollar. In the event such decline occurs, the resulting adverse effect on
the value of foreign-denominated securities may be offset, in whole or in part,
by gains on the futures contracts.
Conversely, a Fund could protect against a rise in the dollar cost of foreign
denominated securities to be acquired by purchasing futures contracts on the
relevant currency, which could offset, in whole or in part, the increased cost
of such securities resulting from a rise in the dollar value of the underlying
currencies. Where a Fund purchases futures contracts under such circumstances,
however, and the prices of securities to be acquired instead decline, the Fund
will sustain losses on its futures position which could reduce or eliminate the
benefits of the reduced cost of portfolio securities to be acquired. The Fund
may also enter into Futures Contracts for non-hedging purposes, to the extent
permitted by applicable law.
OPTIONS ON FUTURES CONTRACTS: The Fund may write or purchase options to buy or
sell Futures Contracts ("Options on Futures Contracts"). The writing of a call
Option on a Futures Contract may constitute a partial hedge against declining
prices of the securities or other instruments required to be delivered under the
terms of the Futures Contract. If the futures price at expiration of the option
is below the exercise price, the Fund will retain the full amount of the option
premium, less related transaction costs, which provides a partial hedge against
any decline that may have occurred in the Fund's portfolio holdings. The writing
of a put Option on a Futures Contract may constitute a partial hedge against
increasing prices of the securities or other instruments required to be
delivered under the terms of the Futures Contract. If the futures price at
expiration of the option is higher than the exercise price, the Fund will retain
the full amount of the option premium, less related transaction costs, which
provides a partial hedge against any increase in the price of securities which
the Fund intends to purchase. If a put or call option the Fund has written is
exercised, the Fund will incur a loss which will be reduced by the amount of the
premium it receives. Depending on the degree of correlation between changes in
the value of its portfolio securities and changes in the value of its futures
positions, the Fund's losses from existing Options on Futures Contracts may to
some extent be reduced or increased by changes in the value of portfolio
securities.
The Fund may cover the writing of call Options on Futures Contracts (a) through
purchases of the underlying Futures Contract, (b) through ownership of the
instrument, or instruments included in the index, underlying the Futures
Contract, or (c) through the holding of a call on the same Futures Contract and
in the same principal amount as the call written where the exercise price of the
call held (i) is equal to or less than the exercise price of the call written or
(ii) is greater than the exercise price of the call written if the difference is
maintained by the Fund in cash and high grade government securities in a
segregated account with its custodian. The Fund may cover the writing of put
Options on Futures Contracts (a) through sales of the underlying Futures
Contract, (b) through segregation of
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<PAGE> 36
cash or cash equivalents in an amount equal to the value of the security or
index underlying the Futures Contract, or (c) through the holding of a put on
the same Futures Contract and in the same principal amount as the put written
where the exercise price of the put held (i) is equal to or greater than the
exercise price of the put written or (ii) is less than the exercise price of the
put written if the difference is maintained by the Fund in cash or high grade
government securities in a segregated account with its custodian. Put and Call
Options on Futures Contracts written by the Fund may also be covered in such
other manner as may be in accordance with the rules of the exchange on which, or
the counterparty with which, the option is traded, and applicable laws and
regulations. Upon the exercise of a call Option on a Futures Contract written by
the Fund, the Fund will be required to sell the underlying Futures Contract
which, if the Fund has covered its obligation through the purchase of such
Contract, will serve to liquidate its futures position. Similarly, where a put
Option on a Futures Contract written by the Fund is exercised, the Fund will be
required to purchase the underlying Futures Contract which, if the Fund has
covered its obligation through the sale of such Contract, will close out its
futures position.
The Fund may purchase Options on Futures Contracts for hedging purposes as an
alternative to purchasing or selling the underlying Futures Contracts. For
example, where a decrease in the value of portfolio securities is anticipated as
a result of a projected market-wide decline or changes in interest or exchange
rates, the Fund could, in lieu of selling Futures Contracts, purchase put
options thereon. In the event that such decrease occurs, it may be offset, in
whole or part, by a profit on the option. Conversely, where it is projected that
the value of securities to be acquired by the Fund will increase prior to
acquisition, due to a market advance or changes in interest or exchange rates,
the Fund could purchase call Options on Futures Contracts, rather than
purchasing the underlying Futures Contracts. The Fund may also enter into
Options on Futures Contracts for non-hedging purposes, to the extent permitted
by applicable law.
In order to assure that the Fund will not be deemed to be a "commodity pool" for
purposes of the Commodity Exchange Act, regulations of the Commodities Futures
Trading Commission (the "CFTC") require that the Fund enter into transactions in
Futures Contracts and Options on Futures Contracts only (i) for bona fide
hedging purposes (as defined in CFTC regulations), or (ii) for non-hedging
purposes, provided that the aggregate initial margin and premiums on such
non-hedging positions does not exceed 5% of the liquidation value of the Trust's
assets. In addition, the Fund must comply with the requirements of various state
securities laws in connection with such transactions.
FORWARD CONTRACTS: The Fund may enter into forward foreign currency exchange
contracts for the purchase or sale of a specific currency at a future date at a
price set at the time of the contract (a "Forward Contract"). The Fund may enter
into Forward Contracts for hedging purposes as well as for non-hedging purposes.
The Fund may also enter into Forward Contracts for "cross-hedging" as noted in
the Prospectus. Transactions in Forward Contracts entered into for hedging
purposes will include forward purchases or sales of foreign currencies for the
purpose of protecting the dollar value of securities denominated in a foreign
currency or protecting the dollar equivalent of interest or dividends to be paid
on such securities. By entering into such transactions, however, the Fund may be
required to forego the benefits of advantageous changes in exchange rates. The
Fund may also enter into transactions in Forward Contracts for other than
hedging purposes which presents greater profit potential but also involves
increased risk. For example, if the Adviser believes that the value of a
particular foreign currency will increase or decrease relative to the value of
the U.S. dollar, the Fund may purchase or sell such currency, respectively,
through a Forward Contract. If the expected changes in the value of the currency
occur, the Fund will realize profits which will increase its gross income. Where
exchange rates do not move in the direction or to the extent anticipated,
however, the Fund may sustain losses which will reduce its gross income. Such
transactions, therefore, could be considered speculative.
The Fund has established procedures consistent with statements by the SEC and
its staff regarding the use of Forward Contracts by registered investment
companies, which require the use of segregated assets or "cover" in connection
with the purchase and sale of such contracts. In those instances in which the
Fund satisfies this requirement through segregation of assets, it will maintain,
in a segregated account, cash, cash equivalents or high grade debt securities,
which will be marked to market on a daily basis, in an amount equal to the value
of its commitments under Forward Contracts.
RISK FACTORS:
IMPERFECT CORRELATION OF HEDGING INSTRUMENTS WITH THE FUND'S PORTFOLIO -- The
Fund's ability effectively to hedge all or a portion of its portfolio through
transactions in options, Futures Contracts, and Forward Contracts will depend on
the degree to which price movements in the underlying index or instrument
correlate with price movements in the relevant portion of the Fund's portfolio.
Because the securities in the Fund's portfolio will most likely not be the same
as those securities underlying a stock index, the correlation between movements
in the portfolio and in the securities underlying the index will not be perfect.
The trading of Futures Contracts and options entails the additional risk of
imperfect correlation between movements in the futures or option price and the
price of the underlying index or obligation. The anticipated spread between the
prices may be distorted due to the differences in the nature of the markets,
such as differences in margin requirements, the liquidity of such markets and
the participation of speculators in such markets. In this regard, trading by
speculators in options and Futures Contracts has in the past occasionally
resulted in market distortions, which may be difficult or impossible to predict,
particularly near the expiration of such contracts. It should be noted that
Futures Contracts or options based upon a narrower index of securities, such as
those of a particular industry group, may present greater
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<PAGE> 37
risk than options or Futures Contracts based on a broad market index, because a
narrower index is more susceptible to rapid and extreme fluctuations as a result
of changes in the value of a small number of securities. The trading of Options
on Futures Contracts also entails the risk that changes in the value of the
underlying Futures Contracts will not be fully reflected in the value of the
option. Further, with respect to options on securities, options on stock indices
and Options on Futures Contracts, the Fund is subject to the risk of market
movements between the time that the option is exercised and the time of
performance thereunder. In writing a covered call option on a security, index or
Futures Contract, the Fund also incurs the risk that changes in the value of the
instruments used to cover the position will not correlate closely with changes
in the value of the option or underlying index or instrument.
The Fund will invest in a hedging instrument only if, in the judgment of its
Adviser, there would be expected to be a sufficient degree of correlation
between movements in the value of the instrument and movements in the value of
the relevant portion of the Fund's portfolio for such hedge to be effective.
There can be no assurance that the Adviser's judgment will be accurate.
It should also be noted that the Fund may purchase and sell options, Futures
Contracts, Options on Futures Contracts and Forward Contracts not only for
hedging purposes, but also for non-hedging purposes, to the extent permitted by
applicable law, including for the purpose of increasing its return on portfolio
securities. As a result, in the event of adverse market movements, the Fund
might be subject to losses, which would not be offset by increases in the value
of portfolio securities or declines in the cost of securities to be acquired. In
addition, the method of covering an option employed by the Fund may not fully
protect it against risk of loss and, in any event, the Fund could suffer losses
on the option position which might not be offset by corresponding portfolio
gains.
With respect to the writing of straddles on securities, the Fund incurs the risk
that the price of the underlying security will not remain stable, that one of
the options written will be exercised and that the resulting loss will not be
offset by the amount of the premiums received.
POTENTIAL LACK OF A LIQUID SECONDARY MARKET -- Prior to exercise or expiration,
a futures or option position can only be terminated by entering into a closing
purchase or sale transaction. This requires a secondary market for such
instruments on the exchange on which the initial transaction was entered into.
While the Fund will enter into options or futures positions only if there
appears to be a liquid secondary market therefor, there can be no assurance that
such a market will exist for any particular contracts at any specific time. In
that event, it may not be possible to close out a position held by the Fund, and
the Fund could be required to purchase or sell the instrument underlying an
option, make or receive a cash settlement or meet ongoing variation margin
requirements. Under such circumstances, if the Fund had insufficient cash
available to meet margin requirements, it might be necessary to liquidate
portfolio securities at a time when it would be disadvantageous to do so. The
inability to close out options and futures positions, therefore, could have an
adverse impact on the Fund's ability effectively to hedge its portfolios, and
could result in trading losses. The liquidity of a secondary market in a Futures
Contract or options thereon may also be adversely affected by "daily price
fluctuation limits," established by exchanges, which limit the amount of
fluctuation in the price of a contract during a single trading day. The trading
of Futures Contracts and options is also subject to the risk of trading halts,
suspensions, exchange or clearing house equipment failures, government
intervention, insolvency of a brokerage firm or clearing house or other
disruptions of normal trading activity, which could at times make it difficult
or impossible to liquidate existing positions or to recover excess variation
margin payments.
MARGIN -- Because of low initial margin deposits made upon the opening of a
futures position and the writing of an option, such transactions involve
substantial leverage. As a result, relatively small movements in the price of
the contract can result in substantial unrealized gains or losses. Where the
Fund engages in the purchase or sale of Options, Futures Contracts, Options on
Futures Contracts and Forward Contracts for hedging purposes, however, any
losses incurred in connection therewith should, if the hedging strategy is
successful, be offset, in whole or in part, by increases in the value of
securities held by the Fund or decreases in the prices of securities the Fund
intends to acquire. Where the Fund enters into transactions on such instruments
for non-hedging purposes, the margin requirements associated with such
transactions could expose the Fund to greater risk.
TRADING AND POSITION LIMITS -- The exchanges on which Futures Contracts and
options are traded may impose limitations governing the maximum number of
positions on the same side of the market and involving the same underlying
instrument which may be held by a single investor, whether acting alone or in
concert with others (regardless of whether such contracts are held on the same
or different exchanges or held or written in one or more accounts or through one
or more brokers). In addition, the Commodity Futures Trading Commission ("CFTC")
and the various contract markets have established limits referred to as
"speculative position limits" on the maximum net long or net short position
which any person may hold or control in a particular futures or option contract.
An exchange may order the liquidation of positions found to be in violation of
these limits and it may impose other sanctions or restrictions. The Adviser does
not believe that these trading and position limits will have any adverse impact
on the strategies for hedging the portfolio of the Fund.
RISK OF OPTIONS ON FUTURES CONTRACTS -- The amount of risk the Fund assumes when
it purchases an Option on a Futures Contract is the premium paid for the option,
plus related transaction costs. In order to profit from an option purchased,
however, it may be necessary to exercise the option and to liquidate the
underlying Futures Contract, subject to the risks of the availability of a
liquid offset market described herein. The writer of an Option on a Futures
Contract is subject to the risks
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<PAGE> 38
of commodity futures trading, including the requirement of initial and variation
margin payments, as well as the additional risk that movements in the price of
the option may not correlate with movements in the price of the underlying index
or Futures Contract.
ADDITIONAL RISKS OF TRANSACTIONS NOT CONDUCTED ON EXCHANGES -- Transactions in
Forward Contracts are subject to all of the correlation, liquidity and other
risks outlined above. In addition, however, such transactions are subject to the
risk of governmental actions affecting trading in or the prices of currencies
underlying such contracts, which could restrict or eliminate trading and could
have a substantial adverse effect on the value of positions held by the Fund. In
addition, the value of such positions could be adversely affected by a number of
other complex political and economic factors applicable to the countries issuing
the underlying currencies. Further, unlike trading in most other types of
instruments, there is no systematic reporting of last sale information with
respect to the foreign currencies underlying contracts thereon. As a result, the
available information on which trading systems will be based may not be as
complete as the comparable data on which the Fund makes investment and trading
decisions in connection with other transactions. Moreover, because the foreign
currency market is a global, twenty-four hour market, events could occur on that
market which would not be reflected in the forward markets until the following
day, thereby preventing the Fund from responding to such events in a timely
manner. Settlements of exercises of Forward Contracts generally must occur
within the country issuing the underlying currency, which in turn requires
traders to accept or make delivery of such currencies in conformity with any
United States or foreign restrictions and regulations regarding the maintenance
of foreign banking relationships, fees, taxes or other charges.
Forward Contracts, and over-the-counter options on securities, are not traded on
exchanges regulated by the CFTC or the SEC, but through financial institutions
acting as market-makers. In an over-the-counter trading environment, many of the
protections afforded to exchange participants will not be available. In
addition, over-the-counter transactions can only be entered into with a
financial institution willing to take the opposite side, as principal, of the
Fund's position unless the institution acts as broker and is able to find
another counterparty willing to enter into the transaction with the Fund. Where
no such counterparty is available, it will not be possible to enter into a
desired transaction. There also may be no liquid secondary market in the trading
of over-the-counter contracts, and the Fund could be required to retain options
purchased or written, or Forward Contracts entered into, until exercise,
expiration or maturity. This in turn could limit the Fund's ability to profit
from open positions or to reduce losses experienced, and could result in greater
losses. Further, over-the-counter transactions are not subject to the
performance guarantee of an exchange clearing house, and the Fund will therefore
be subject to the risk of default by, or the bankruptcy of, the financial
institution serving as its counterparty.
While Forward Contracts are not presently subject to regulation by the CFTC, the
CFTC may in the future assert or be granted authority to regulate such
instruments. In such event, the Fund's ability to utilize Forward Contracts in
the manner set forth above could be restricted.
RESTRICTIONS ON THE USE OF OPTIONS AND FUTURES: In order to assure that the Fund
will not be deemed to be a "commodity pool" for purposes of the Commodity
Exchange Act, regulations of the CFTC require that the Fund enter into
transactions in Futures Contracts and options on Futures Contracts only (i) for
bona fide hedging purposes (as defined in CFTC regulations), or (ii) for
non-hedging purposes, provided that the aggregate initial margin and premiums on
such non-hedging positions does not exceed 5% of the liquidation value of the
Fund's assets. In addition, the Fund must comply with the requirements various
state securities laws in connection with such transactions.
The Fund has adopted the additional restriction that it will not enter into a
Futures Contract if, immediately thereafter, the value of securities and other
obligations underlying all such Futures Contracts would exceed 50% of the value
of the Fund's total assets. Moreover, the Fund will not purchase put and call
options if, as a result, more than 5% of its total assets would be invested in
such options.
When the Fund purchases a Futures Contract, an amount of cash and cash
equivalents will be deposited in a segregated account with the Fund's custodian
so that the amount so segregated will at all times equal the value of the
Futures Contract, thereby insuring that the use of such Futures Contract is
unleveraged.
INVESTMENT RESTRICTIONS: The Fund has adopted the following restrictions which
cannot be changed without the approval of the holders of a majority of its
shares (which, as used in this Statement of Additional Information, means the
lesser of (i) more than 50% of the outstanding shares of the Fund (or a class,
as applicable) or (ii) 67% or more of its outstanding shares of the Fund (or a
class, as applicable) present at a meeting if holders of more than 50% of the
outstanding shares of the Fund (or a class, as applicable) are represented at
such meeting in person or by proxy):
The Fund may not:
(1) borrow amounts in excess of 10% of its gross assets, and then only as a
temporary measure for extraordinary or emergency purposes, and subject to a
300% asset coverage requirement, or pledge, mortgage or hypothecate an amount
of its assets taken at market value which would exceed 15% of its gross
assets, in each case taken at cost. For the purpose of this restriction,
collateral arrangements with respect to options, Futures Contracts, Options on
Futures Contracts, Forward Contracts, and payments of initial and variation
margin in connection therewith are not considered a pledge of assets;
9
<PAGE> 39
(2) underwrite securities issued by other persons except insofar as the Fund
may technically be deemed an underwriter under the Securities Act of 1933 in
selling a portfolio security;
(3) concentrate investments in any particular industry, but if it is deemed
appropriate for the attainment of the Fund's investment objective, up to 25%
of the Fund's assets, at market value at the time of each investment, may be
invested in any one industry;
(4) purchase or sell real estate (including limited partnership interests
but excluding securities of companies, such as real estate investment trusts,
which deal in real estate or interests therein), mineral leases, commodities
or commodity contracts (except for options, Futures Contracts, Options on
Futures Contracts and Forward Contracts) in the ordinary course of its
business. The Fund reserves the freedom of action to hold and to sell real
estate, mineral leases, commodities or commodity contracts acquired as a
result of the ownership of securities. The Fund will not purchase securities
for the purpose of acquiring real estate, mineral leases, commodities or
commodity contracts; (except for options, Futures Contracts, Options on
Futures Contracts and Forward Contracts);
(5) make loans to other persons. For these purposes, the purchase of
short-term commercial paper, the purchase of a portion or all of an issue of
debt securities in accordance with its investment objectives and policies, the
lending of portfolio securities, or the investment of the Fund's assets in
repurchase agreements, shall not be considered the making of a loan;
(6) purchase the securities of any issuer if such purchase, at the time
thereof, would cause more than 5% of the Fund's total assets, taken at market
value, to be invested in the securities of such issuer, other than U.S.
Government securities;
(7) purchase securities of any issuer if such purchase, at the time thereof,
would cause more than 10% of any class of securities of such issuer to be held
by the Fund. For this purpose all indebtedness of an issuer shall be deemed a
single class and all preferred stock of an issuer shall be deemed a single
class;
(8) invest for the purpose of exercising control or management;
(9) purchase securities issued by any other registered investment company
except by purchase in the open market where no commission or profit to a
sponsor or dealer results from such purchase other than the customary broker's
commission, or except when such purchase, though not made in the open market,
is part of a plan of merger or consolidation; provided, however, that the Fund
shall not purchase the securities of any registered investment company if such
purchase at the time thereof would cause more than 10% of the Fund's total
assets, taken at market value, to be invested in the securities of such
issuer; and provided, further, that the Fund shall not purchase securities
issued by any open-end investment company;
(10) purchase or retain any securities of an issuer any of whose officers,
directors, trustees or security holders is an officer or Trustee of the Fund,
or is a member, officer or Director of the Adviser, if after the purchase of
the securities of such issuer by the Fund one or more of such persons owns
beneficially more than 1/2 of 1% of the shares or securities, or both, all
taken at market value, of such issuer, and such persons owning more than 1/2
of 1% of such shares or securities together own beneficially more than 5% of
such shares or securities, or both, all taken at market value;
(11) purchase any securities or evidences of interest therein on margin,
except that the Fund may obtain such short-term credit as may be necessary for
the clearance of purchases and sales of securities and except that the Fund
may make margin deposits in connection with options, Futures Contracts,
Options on Futures Contracts and Forward Contracts;
(12) sell any security which the Fund does not own unless by virtue of its
ownership of other securities the Fund has at the time of sale a right to
obtain securities without payment of further consideration equivalent in kind
and amount to the securities sold and provided that if such right is
conditional the sale is made upon the same conditions;
(13) purchase or sell any put or call option or any combination thereof;
provided, that this shall not prevent the purchase, ownership, holding or sale
of warrants where the grantor of the warrants is the issuer of the underlying
securities or the writing, purchasing and selling of puts, calls or
combinations thereof with respect to securities, indexes of securities,
foreign currencies and Futures Contracts; or
(14) invest more than 5% of its assets in companies which, including
predecessors, have a record of less than three years' continuous operation.
These investment restrictions are adhered to at the time of purchase or
utilization of assets; a subsequent change in circumstances will not be
considered to result in a violation of policy.
4. MANAGEMENT OF THE FUND
The Board of Trustees provides broad supervision over the affairs of the Fund.
The Adviser is responsible for the investment management, and the officers of
the Fund are responsible for its operations. The Trustees and officers are
listed below, together with their principal occupations during the past five
years. (Their titles may have varied during that period.)
TRUSTEES
A. KEITH BRODKIN,* Chairman and President
Massachusetts Financial Services Company, Chairman
RICHARD B. BAILEY*
Private investor; Massachusetts Financial Services Company, former Chairman and
Director (until September 30, 1991)
PETER G. HARWOOD
Loomis, Sayles & Co., Inc., (investment counsel firm) Financial Vice President
Treasurer and Director (retired October, 1988)
Address: 211 Lindsay Pond Road, Concord, Massachusetts
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<PAGE> 40
J. ATWOOD IVES
Eastern Enterprises (diversified holding company), Chairman and Chief Executive
Officer (since December, 1991); General Cinema Corporation, Vice Chairman and
Chief Financial Officer (until December, 1991); The Neiman Marcus Group, Inc.,
Vice Chairman and Chief Financial Officer (from August, 1987 to December,
1991); Property Capital Trust, Trustee
Address: 9 Riverside Road, Weston, Massachusetts
LAWRENCE T. PERERA
Hemenway & Barnes (attorneys), Partner
Address: 60 State Street, Boston, Massachusetts
WILLIAM J. POORVU
Harvard University Graduate School of Business Administration, Adjunct
Professor; The Baupost Fund (a registered investment company), Chairman and
Trustee (since June, 1990)
Address: Harvard Business School, Soldiers Field Road, Cambridge, Massachusetts
CHARLES W. SCHMIDT
Private investor; Raytheon Company (diversified electronics manufacturer),
Senior Vice President and Group Executive (until December, 1990); OHM
Corporation, Director; The Boston Company, Director; Boston Safe Deposit and
Trust Company, Director
Address: 30 Colpitts Road, Weston, Massachusetts
ARNOLD D. SCOTT*
Massachusetts Financial Services Company, Senior Executive Vice President
and Secretary
JEFFREY L. SHAMES*
Massachusetts Financial Services Company, President
ELAINE R. SMITH
Independent Consultant; Brigham and Women's Hospital, Executive Vice President
and Chief Operating Officer (from August, 1990 to September, 1992); Ernst &
Young (accountants), Consultant (from February to July, 1990); Women's College
Hospital, President and Chief Executive Officer (from July, 1988 to January,
1990)
Address: Newton, Massachusetts
DAVID B. STONE
North American Management Corp. (investment advisers), Chairman
Address: 10 Post Office Square, Suite 300, Boston, Massachusetts
OFFICERS
W. THOMAS LONDON,* Treasurer
Massachusetts Financial Services Company, Senior Vice President and Assistant
Treasurer
STEPHEN E. CAVAN,* Secretary and Clerk
Massachusetts Financial Services Company, Senior Vice President, Assistant
Secretary and General Counsel (since December, 1989); The Boston Company
Advisors, Inc., General Counsel and President (prior to December, 1989)
JAMES R. BORDEWICK, JR.,* Assistant Secretary
Massachusetts Financial Services Company, Vice President and Associate General
Counsel (since September, 1990); Associate, Ropes & Gray (attorneys) (prior to
August, 1990).
LINDA J. HOARD,* Assistant Secretary
Massachusetts Financial Services Company, Vice President and Assistant General
Counsel
JAMES O. YOST,* Assistant Treasurer
Massachusetts Financial Services Company, Vice President (since June, 1989);
Deloitte & Touche, Manager (prior to June, 1989)
- ---------------
* "Interested persons" (as defined in the Investment Company Act of 1940, as
amended (the "1940 Act")) of the Adviser, whose address is 500 Boylston
Street, Boston, Massachusetts 02116.
Each Trustee and officer holds comparable positions with certain MFS affiliates
or with certain other funds of which MFS or a subsidiary of MFS is the
investment adviser or distributor. Mr. Brodkin, the Chairman of FSI, Messrs.
Shames and Scott, Directors of FSI, and Mr. Cavan, the Secretary of FSI hold
similar positions with certain other MFS affiliates. Mr. Bailey is a Director of
Sun Life Assurance Company of Canada (U.S.) ("Sun Life of Canada (U.S.)"), the
corporate parent of MFS.
The Fund has adopted a retirement plan for non-interested Trustees. Under this
plan, a Trustee will retire upon reaching age 73 and if the Trustee has
completed at least five years of service, he would be entitled to annual
payments during his lifetime of up to 50% of such Trustee's average annual
compensation (based on the three years prior to his retirement) depending on his
length of service. A Trustee may also retire prior to age 73 and receive reduced
payments if he has completed at least five years of service. Under the plan, a
Trustee (or his beneficiaries) will also receive benefits for a period of time
in the event the Trustee is disabled or dies. These benefits will also be based
on the Trustee's average annual compensation and length of service. There is no
retirement plan provided by the Fund for the interested Trustees. The Fund will
accrue compensation expenses each year to cover current year's service and
amortize past service cost.
As of February 28, 1994, all Trustees and officers as a group owned less than 1%
of the outstanding shares of the Fund.
The Fund's Declaration of Trust provides that it will indemnify its Trustees and
officers against liabilities and expenses incurred in connection with litigation
in which they may be involved because of their offices with the Fund, unless, as
to liabilities to the Fund or its shareholders, it is finally adjudicated that
they engaged in willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in their offices, or with respect to any
matter, unless it is adjudicated that they did not act in good faith in the
reasonable belief that their actions were in the best interest of the Fund. In
the case of settlement, such indemnification will not be provided unless it has
been determined by a court or other body approving the settlement or other
disposition or by a reasonable determination based upon a review of readily
available facts by vote of a majority of disinterested Trustees or in a written
opinion of independent counsel, that such officers or Trustees have not engaged
in willful misfeasance, bad faith, gross negligence or reckless disregard of
their duties.
INVESTMENT ADVISER
MFS and its predecessor organizations have a history of money management dating
from 1924. MFS is a subsidiary of Sun Life of Canada (U.S.) which in turn is a
subsidiary of Sun Life Assurance Company of Canada ("Sun Life").
The Adviser manages the Fund pursuant to an Investment Advisory Agreement dated
July 19, 1985 (the "Advisory Agreement"). The Adviser provides the Fund with
overall investment advisory and administrative services, as well as general
office facilities. Subject to such policies as the Trustees may deter-
11
<PAGE> 41
mine, the Adviser makes investment decisions for the Fund. For these services
and facilities, the Adviser receives a management fee computed and paid monthly
at an annual rate equivalent to 0.5% of the first $200 million of the Fund's
average daily net assets for the Fund's current fiscal year, 0.4% of the next
$300 million of the Fund's average daily net assets for the Fund's current
fiscal year and 0.2% of its average daily net assets for the Fund's current
fiscal year in excess of $500 million, in each case on an annualized basis.
Under the Advisory Agreement, MFS received management fees of $3,338,147,
$3,191,804 and $2,992,294 for the fiscal years ended November 30, 1993, 1992,
and 1991, respectively. In order to comply with the expense limitations of
certain state securities commissions, the Adviser will reduce its management fee
or otherwise reimburse the Fund for any expenses, exclusive of interest, taxes
and brokerage commissions, incurred by the Fund in any fiscal year to the extent
such expenses exceed the most restrictive of such state expense limitations. The
Adviser will make appropriate adjustments to such reimbursements in response to
any amendment or rescission of the various state requirements.
The Advisory Agreement provides that the compensation of the Adviser will be
reduced by an annual sum representing the Fund's share of the fair value of the
use of office furniture, furnishings and equipment purchased over the years with
funds furnished by the Fund and Massachusetts Investors Trust as part of shared
expenses. The total annual use value of this property for the period ending
November 30, 1993, has been determined pursuant to a formula devised by an
independent appraiser to be $33,866.51, and the calculation for this
determination has been approved by the Trustees who are not officers of the
Adviser. This amount and amounts so determined and approved in subsequent years
will be credited 24% to the Fund and 76% to Massachusetts Investors Trust, being
the average of their proportionate contributions to shared expenses over the ten
years ended December 31, 1968.
The Fund pays the compensation of the Trustees who are not officers of MFS (who
will each receive $3,250 to $5,065 annually, depending on attendance at
meetings, plus fees for meetings of special committees, such as the Audit
Committee) and all the Fund's expenses (other than those assumed by MFS or FSI),
including: governmental fees; interest charges; taxes; membership dues in the
Investment Company Institute allocable to the Fund; fees and expenses of
independent auditors, of legal counsel, and of any transfer agent, registrar or
dividend disbursing agent of the Fund; expenses of repurchasing and redeeming
shares; expenses of preparing, printing and mailing share certificates,
shareholder reports, notices, proxy statements and reports to governmental
officers and commissions; brokerage and other expenses connected with the
execution, recording and settlement of portfolio security transactions;
insurance premiums; fees and expenses of State Street Bank and Trust Company,
the Fund's custodian, for all services to the Fund, including safekeeping of
funds and securities and maintaining required books and accounts; expenses of
calculating the net asset value of the Fund's shares; and expenses of
shareholder meetings. Expenses relating to the issuance, registration and
qualification of shares of the Fund and the preparation, printing and mailing of
prospectuses for such purposes are borne by the Fund except that its
Distribution Agreement with FSI requires FSI to pay for prospectuses that are to
be used for sales purposes and for the qualification of the Fund's shares for
sale in the various states. For a list of the Fund's expenses, including the
compensation paid to the Trustees who are not officers of MFS, during its fiscal
year ended November 30, 1993, see "Financial Statements -- Statement of
Operations" in the Annual Report. Payment by the Fund of brokerage commissions
for brokerage and research services of value to the Adviser in serving its
clients is discussed under the caption "Portfolio Transactions and Brokerage
Commissions."
MFS pays the compensation of the Fund's officers and of any Trustee who is an
officer of MFS. The Adviser also furnishes at its own expense all necessary
administrative services, including office space, equipment, clerical personnel,
investment advisory facilities, and all executive and supervisory personnel
necessary for managing the Fund's investments, effecting the Fund's portfolio
transactions and, in general, administering the Fund's affairs.
The Advisory Agreement will remain in effect until August 1, 1994, and will
continue in effect thereafter only if such continuance is specifically approved
at least annually by the Board of Trustees or by vote of a majority of the
Fund's outstanding voting securities and, in either case, by a majority of the
Trustees who are not parties to the Advisory Agreement or interested persons of
any such party. The Advisory Agreement terminates automatically if it is
assigned and may be terminated without penalty by vote of a majority of the
Fund's outstanding voting securities or by either party on not more than 60
days' nor less than 30 days' written notice. The Advisory Agreement further
provides that MFS may render services to others and that neither MFS nor its
personnel shall be liable for any error of judgment or mistake of law or for any
loss arising out of any investment or for any act or omission in the execution
and management of the Fund, except for willful misfeasance, bad faith or gross
negligence in the performance of its or their duties or by reason of reckless
disregard of its or their obligations and duties under the Advisory Agreement.
CUSTODIAN
State Street Bank and Trust Company (the "Custodian") is the custodian of the
Fund's assets. The Custodian's responsibilities include safe-keeping and
controlling the Fund's cash and securities, handling the receipt and delivery of
securities, determining income and collecting interest and dividends on the
Fund's investments, maintaining books of original entry for portfolio and fund
accounting and other required books and accounts, and calculating the daily net
asset value of each class of shares of the Fund. The Custodian does not
determine the investment policies of the Fund or decide which securities the
Fund will buy or sell. The Fund may, however, invest in securities, including
repurchase agreements, issued by the Custodian and may deal with the Custodian
as principal in securities transactions. The
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<PAGE> 42
Custodian also acts as the dividend disbursing agent of the Fund.
SHAREHOLDER SERVICING AGENT
MFS Service Center, Inc. (the "Shareholder Servicing Agent"), a wholly owned
subsidiary of MFS, is the Fund's shareholder servicing agent, pursuant to a
Shareholder Servicing Agreement, dated August 1, 1985 (the "Agency Agreement"),
with the Fund. The Shareholder Servicing Agent's responsibilities under the
Agency Agreement include administering and performing transfer agent functions
and keeping records in connection with the issuance, transfer and redemption of
each class of the shares of the Fund. For these services, the Shareholder
Servicing Agent will receive a fee based on the net assets of each class of
shares of the Fund, computed and paid monthly. In addition, the Shareholder
Servicing Agent will be reimbursed by the Fund for certain expenses incurred by
the Shareholder Servicing Agent on behalf of the Fund. For the fiscal year ended
November 30, 1993, the Fund paid the Shareholder Servicing Agent $1,363,193 in
fees under the Agency Agreement. State Street Bank and Trust Company, the
dividend disbursing agent of the Fund, has contracted with the Shareholder
Servicing Agent to administer and perform certain dividend and distribution
disbursing functions for the Fund.
DISTRIBUTOR
FSI, a wholly owned subsidiary of MFS, serves as distributor for the continuous
offering of shares of the Fund pursuant to a Distribution Agreement, dated as of
December 19, 1986, as amended and restated April 21, 1993 (the "Distribution
Agreement"), with the Fund.
CLASS A SHARES: FSI acts as agent in selling shares of the Fund to dealers. The
public offering price of Class A shares of the Fund is their net asset value
next computed after the sale plus a sales charge which varies based upon the
quantity purchased. The public offering price of Class A shares of the Fund is
calculated by dividing the net asset value of a Class A share by the difference
(expressed as a decimal) between 100% and the sales charge percentage of
offering price applicable to the purchase (see "Purchases" in the Prospectus).
The sales charge scale set forth in the Prospectus applies to purchases of Class
A shares of the Fund alone or in combination with shares of all classes of
certain other funds in the MFS Family of Funds (the "MFS Funds") and other funds
(as noted under Right of Accumulation) by any person, including members of a
family unit (e.g., husband, wife and minor children) and bona fide trustees, and
also applies to purchases made under the Right of Accumulation or a Letter of
Intent (see "Investment and Withdrawal Programs" below). A group might qualify
to obtain quantity sales charge discounts (see "Investment and Withdrawal
Programs" in this Statement of Additional Information).
Class A shares of the Fund may be sold at their net asset value to certain
persons and in certain instances, as described in the Prospectus. Such sales are
made without a sales charge to promote good will with employees and others with
whom MFS, FSI and/or the Fund have business relationships, and because the sales
effort, if any, involved in making such sales is negligible.
FSI allows discounts to dealers (which are alike for all dealers) from the
applicable public offering price of the Class A shares. Dealer allowances
expressed as a percentage of offering price for all offering prices are set
forth in the Prospectus (see "Purchases" in the Prospectus). The difference
between the total amount invested and the sum of (a) the net proceeds to the
Fund and (b) the dealer commission, is the commission paid to the distributor.
Because of rounding in the computation of offering price, the portion of the
sales charge paid to the distributor may vary and the total sales charge may be
more or less than the sales charge calculated using the sales charge expressed
as a percentage of offering price or as a percentage of the net amount invested
as listed in the Prospectus. In the case of the maximum sales charge, the dealer
retains 5% and FSI, on behalf of the Fund, retains approximately 3/4 of 1% of
the public offering price. FSI pays commissions to dealers who initiate and are
responsible for purchases of $1 million or more as described in the Prospectus.
CLASS B SHARES: FSI acts as agent in selling Class B shares of the Fund to
dealers. The public offering price of Class B shares is their net asset value
next computed after the sale (see "Purchases" in the Prospectus).
GENERAL: From time to time FSI, at its expense, may provide additional
commissions, compensation or promotional incentives ("concessions") to dealers
which sell shares of the Fund. The staff of the SEC has indicated that dealers
who receive more than 90% of the sales charge may be considered underwriters.
Such concessions provided by FSI may include financial assistance to dealers in
connection with preapproved conferences or seminars, sales or training programs
for invited registered representatives, payment for travel expenses, including
lodging, incurred by registered representatives and members of their families or
other invited guests to various locations for such seminars or training
programs, seminars for the public, advertising and sales campaigns regarding one
or more MFS Funds, and/or other dealer-sponsored events.
In some instances, these concessions may be offered to dealers or only to
certain dealers who have sold or may sell, during specified periods, certain
minimum amounts of shares of the Fund. From time to time, FSI may make expense
reimbursements for special training of a dealer's registered representatives in
group meetings or to help pay the expenses of sales contests. In addition, FSI
may, from time to time, pay additional compensation to MFS Investor Services,
Inc., an affiliated broker-dealer, in connection with assistance provided by
such broker-dealer in selling Fund shares. In some instances, promotional
incentives to dealers may be offered only to certain dealers who have sold or
may sell significant amounts of Fund shares. From time to time, FSI or its
affiliate may offer a small gift of nominal value to shareholders who elect to
participate in certain investment programs (e.g. the Automatic Investment Plan)
or other shareholder services. Other concessions may be offered to the extent
not prohibited by the laws of any state or
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<PAGE> 43
any self-regulatory agency, such as the National Association of Securities
Dealers, Inc. (the "NASD"). Neither FSI nor dealers are permitted to delay
placing orders to benefit themselves by a price change. On occasion, FSI may
obtain brokers loans from various banks, including the custodian bank for the
MFS Funds, to facilitate the settlement of sales of shares of the Fund to
dealers. FSI may benefit from its temporary holding of funds paid to it by
investment dealers for the purchase of Fund shares.
During the Fund's fiscal year ended November 30, 1993, FSI received sales
charges of $65,741 and dealers received sales charges of $377,623 (as their
concession on gross sales charges of $443,364) for selling Class A shares of the
Fund; the Fund received $39,927,804 representing the aggregate net asset value
of such shares. During the Fund's fiscal year ended November 30, 1992, FSI
received sales charges of $95,632 and dealers received sales charges of $534,981
(as their concession on gross sales charges of $630,613) for selling Class A
shares of the Fund; the Fund received $49,638,096 representing the aggregate net
asset value of such shares. During the Fund's fiscal year ended November 30,
1991 FSI received sales charges of $121,823 and dealers received sales charges
of $329,128 (as their concession on gross sales charges of $450,951) for selling
Class A shares of the Fund; the Fund received $38,833,971 representing the
aggregate net asset value of such shares.
During the period September 7, 1993 through November 30, 1993, the CDSC imposed
on redemption of Class B shares was $417.
The Distribution Agreement will remain in effect until August 1, 1994 and will
continue in effect thereafter only if such continuance is specifically approved
at least annually by the Board of Trustees or by vote of a majority of the
Fund's shares (as defined in "Investment Restrictions") and, in either case, by
a majority of the Trustees who are not parties to the Distribution Agreement or
interested persons of any such party. The Distribution Agreement terminates
automatically if it is assigned and may be terminated without penalty by either
party on not more than 60 days' nor less than 30 days' notice.
5. PORTFOLIO TRANSACTIONS AND
BROKERAGE COMMISSIONS
Specific decisions to purchase or sell securities for the Fund are made by the
Fund's portfolio manager who is an employee of the Adviser and who is appointed
and supervised by its senior officers. Changes in the Fund's investments are
reviewed by the Board of Trustees. The portfolio manager may serve other clients
of the Adviser or any subsidiary of the Adviser in a similar capacity.
The primary consideration in placing portfolio security transactions with
broker-dealers for execution is to obtain, and maintain the availability of,
execution at the most favorable prices and in the most effective manner
possible. The Adviser attempts to achieve this result by selecting
broker-dealers to execute portfolio transactions on behalf of the Fund and other
clients of the Adviser on the basis of their professional capability, the value
and quality of their brokerage services and the general level of their brokerage
commissions. In the case of securities traded in the over-the-counter market
(where no stated commissions are paid but the prices include a dealer's markup
or markdown), the Adviser normally seeks to deal directly with the primary
market makers, unless in its opinion, best execution is available elsewhere. In
the case of securities purchased from underwriters, the cost of such securities
generally includes a fixed underwriting commission or concession. From time to
time soliciting dealer fees are available to the Adviser on the tender of the
Fund's portfolio securities in so-called tender or exchange offers. Such
soliciting dealer fees are in effect recaptured for the Fund by the Adviser. At
present no other recapture arrangements are in effect.
Consistent with the foregoing primary consideration, the Rules of Fair Practice
of the NASD and such other policies as the Trustees may determine, the Adviser
may consider sales of shares of the Fund and of the other investment company
clients of FSI as a factor in the selection of broker-dealers to execute the
Fund's portfolio transactions.
Under the Advisory Agreement and as permitted by Section 28(e) of the Securities
Exchange Act of 1934, the Adviser may cause the Fund to pay a broker-dealer
which provides brokerage and research services to the Adviser an amount of
commission for effecting a securities transaction for the Fund in excess of the
amount other broker-dealers would have charged for the transaction if the
Adviser determines in good faith that the greater commission is reasonable in
relation to the value of the brokerage and research services provided by the
executing broker-dealer viewed in terms of either a particular transaction or
the Adviser's overall responsibilities to the Fund or to its other clients. Not
all of such services are useful or of value in advising the Fund.
The term "brokerage and research services" includes advice as to the value of
securities, the advisability of investing in, purchasing, or selling securities,
and the availability of securities or of purchasers or sellers of securities;
furnishing analyses and reports concerning issues, industries, securities,
economic factors and trends, portfolio strategy and the performance of accounts;
and effecting securities transactions and performing functions incidental
thereto such as clearance and settlement.
Although commissions paid on every transaction will, in the judgment of the
Adviser, be reasonable in relation to the value of the brokerage services
provided, commissions exceeding those which another broker might charge may be
paid to broker-dealers who were selected to execute transactions on behalf of
the Fund and the Adviser's other clients in part for providing advice as to the
availability of securities or of purchasers or sellers of securities and
services in effecting securities transactions and performing functions
incidental thereto such as clearance and settlement.
Broker-dealers may be willing to furnish statistical, research and other factual
information or services ("Research") to the Adviser for no consideration other
than brokerage or underwrit-
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<PAGE> 44
ing commissions and securities may be bought or sold through such
broker-dealers. The Trustees of the Fund (together with the Trustees of the
other MFS Funds) have directed the Adviser to allocate a total of $20,000 of
commission business from the MFS Funds to the Pershing Division of Donaldson,
Lufkin and Jenrette as consideration for the annual renewal of the Lipper
Directors' Analytical Data Service (which provides information useful to the
Trustees in reviewing the relationship between the Fund and the Adviser).
The Adviser's investment management personnel attempt to evaluate the quality of
Research provided by brokers. Results of this effort are sometimes used by the
Adviser as a consideration in the selection of brokers to execute portfolio
transactions. However, the Adviser is unable to quantify the amount of
commissions set forth below which were paid as a result of such Research because
a substantial number of transactions were effected through brokers which provide
Research but which were selected principally because of their execution
capabilities.
The management fee that the Fund pays to the Adviser will not be reduced as a
consequence of the Adviser's receipt of brokerage and research services. To the
extent the Fund's portfolio transactions are used to obtain brokerage and
research services, the brokerage commissions paid by the Fund will exceed those
that might otherwise be paid for such portfolio transactions or for such
portfolio transactions and research by an amount which cannot be presently
determined. Such services would be useful and of value to the Adviser in serving
both the Fund and other clients and, conversely, such services obtained by the
placement of brokerage business of other clients would be useful to the Adviser
in carrying out its obligations to the Fund. While such services are not
expected to reduce the expenses of the Adviser, the Adviser would, through use
of the services, avoid the additional expenses which would be incurred if it
should attempt to develop comparable information through its own staff.
For the fiscal year ended November 30, 1993, the Fund paid total brokerage
commissions of $2,000,511, on total transactions (other than short-term
obligations and U.S. Government securities) of $1,267,484,516. For the fiscal
year ended November 30, 1992, the Fund paid total brokerage commissions of
$609,047 on total transactions (other than short-term obligations and U.S.
Government securities) of $321,472,071. For the fiscal year ended November 30,
1991, the Fund paid total brokerage commissions of $1,044,210 on total
transactions (other than short-term obligations and U.S. Government securities)
of $740,749,600. During the Fund's fiscal year ended November 30, 1993, the Fund
acquired and sold securities issued by Kidder Peabody & Co., Inc. and by
affiliates of Kidder Peabody & Co., Inc., a regular broker-dealer of the Fund.
During the Fund's fiscal year ended November 30, 1993, the Fund purchased and
retained securities of Merrill Lynch and Co., Inc., a regular broker-dealer of
the Fund, which securities had a value of $10,890,000 at the end of such fiscal
year. The Fund also purchased and retained securities of Morgan Stanley Group
Inc., a regular broker-dealer of the Fund, which securities had a value of
$10,045,000.
In certain instances there may be securities which are suitable for the Fund's
portfolio as well as for that of one or more of the other clients of the Adviser
or any subsidiary of the Adviser. Investment decisions for the Fund and for such
other clients are made with a view to achieving their respective investment
objectives. It may develop that a particular security is bought or sold for only
one client even though it might be held by, or bought or sold for, other
clients. Likewise, a particular security may be bought for one or more clients
when one or more other clients are selling that same security. Some simultaneous
transactions are inevitable when several clients receive investment advice from
the same investment adviser, particularly when the same security is suitable for
the investment objectives of more than one client. When two or more clients are
simultaneously engaged in the purchase or sale of the same security, the
securities are allocated among clients in a manner believed to be equitable to
each. It is recognized that in some cases this system could have a detrimental
effect on the price or volume of the security as far as the Fund is concerned.
In other cases, however, the Fund believes that its ability to participate in
volume transactions will produce better executions for the Fund.
6. SHAREHOLDER SERVICES
INVESTMENT AND WITHDRAWAL PROGRAMS -- The Fund makes available the following
programs designed to enable shareholders to add to their investment or withdraw
from it with a minimum of paper work. These are described below and, in certain
cases, in the Prospectus. The programs involve no extra charge to shareholders
(other than a sales charge in the case of certain Class A share purchases) and
may be changed or discontinued at any time by a shareholder or the Fund.
LETTER OF INTENT: If a shareholder (other than a group purchaser described
below) anticipates purchasing $50,000 or more of Class A shares of the Fund
alone or in combination with shares of all classes of other MFS Funds or MFS
Fixed Income Fund (a bank collective investment fund) within a 13-month period
(or 36-month period, in the case of purchases of $1 million or more), the
shareholder may obtain Class A shares of the Fund at the same reduced sales
charge as though the total quantity were invested in one lump sum by completing
the Letter of Intent section of the Fund's Account Application, or filing a
separate Letter of Intent application (available from the Shareholder Servicing
Agent) within 90 days of the commencement of purchases. Subject to acceptance by
FSI and the conditions mentioned below, each purchase will be made at a public
offering price applicable to a single transaction of the dollar amount specified
in the Letter of Intent application. The shareholder or his dealer must inform
FSI that the Letter of Intent is in effect each time shares are purchased. The
shareholder makes no commitment to purchase additional shares, but if his
purchases within 13-months (or 36-months, in the case of purchases of $1 million
or more), plus the value of shares credited toward completion of the Letter of
Intent do not total the sum specified, he will pay the increased amount of the
sales charge as described below. Instructions for issuance of shares in the name
of a person other than the person signing the Letter
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<PAGE> 45
of Intent application must be accompanied by a written statement from the dealer
stating that the shares were paid for by the person signing such Letter. Neither
income dividends nor capital gain distributions taken in additional shares will
apply toward the completion of the Letter of Intent. Dividends and distributions
of other MFS Funds automatically reinvested in shares of the Fund pursuant to
the Distribution Investment Program will also not apply toward completion of the
Letter of Intent.
Out of the shareholder's initial purchase (or subsequent purchases if
necessary), 5% of the dollar amount specified in the Letter of Intent
application shall be held in escrow by the Shareholder Servicing Agent in the
form of shares registered in the shareholder's name. All income dividends and
capital gain distributions on escrowed shares will be paid to the shareholder or
to his order. When the minimum investment so specified is completed (either
prior to or by the end of the 13-month period or 36-month period, as
applicable), the shareholder will be notified and the escrowed shares will be
released.
If the intended investment is not completed, the Shareholder Servicing Agent
will redeem an appropriate number of the escrowed shares in order to realize
such difference. Shares remaining after any such redemption will be released by
the Shareholder Servicing Agent. By completing and signing the Account
Application or separate Letter of Intent application, the shareholder
irrevocably appoints the Shareholder Servicing Agent his attorney to surrender
for redemption any or all escrowed shares with full power of substitution in the
premises.
RIGHT OF ACCUMULATION: A shareholder qualifies for cumulative quantity discounts
on the purchase of Class A shares when his new investment, together with the
current offering price value of all holdings of all classes of shares of that
shareholder in the MFS Funds or MFS Fixed Income Fund (a bank collective
investment fund)reaches a discount level. See "Purchases" in the Prospectus for
the sales charges on quantity discounts. For example, if a shareholder owns
shares valued at $37,500 and purchases an additional $12,500 of Class A shares
of the Fund, the sales charge for the $12,500 purchase would be at the rate of
4.75% (the rate applicable to single transactions of $50,000). A shareholder
must provide the Shareholder Servicing Agent (or his investment dealer must
provide FSI) with information to verify that the quantity sales charge discount
is applicable at the time the investment is made.
DISTRIBUTION INVESTMENT PROGRAM: Distributions of dividends and capital gains
made by the Fund with respect to a particular class of shares may be
automatically invested in shares of the same class of one of the other MFS
Funds, if shares of the fund are available for sale. Such investments will be
subject to additional purchase minimums. Distributions will be invested at net
asset value (exclusive of any sales charge) and not subject to any CDSC.
Distributions will be invested at the close of business on the payable date for
the distribution. A shareholder considering the Distribution Investment Program
should obtain and read the prospectus of the other fund and consider the
differences in objectives and policies before making any investment.
SYSTEMATIC WITHDRAWAL PLAN: A shareholder (except a $3 million shareholder) 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
("SWP") must be at least $100, except in certain limited circumstances. The
aggregate withdrawals of Class B shares in any year pursuant to a SWP generally
are limited to 10% of the value of the account at the time of the establishment
of the SWP. SWP payments are drawn from the proceeds of share redemptions (which
would be a return of principal and, if reflecting a gain, would be taxable).
Redemptions of Class B shares will be made in the following order: (i) any
"Reinvested Shares"; (ii) to the extent necessary, any "Free Amount"; and (iii)
to the extent necessary, the "Direct Purchase" subject to the lowest CDSC (as
such terms are defined in "Contingent Deferred Sales Charge" in the Prospectus).
The CDSC will be waived in the case of redemptions of Class B shares pursuant to
a SWP, but will not be waived in the case of SWP redemptions of Class A shares
which are subject to a CDSC. To the extent that redemptions for such periodic
withdrawals exceed dividend income reinvested in the account, such redemptions
will reduce and may eventually exhaust the number of shares in the shareholder's
account. All dividend and capital gain distributions for an account with a SWP
will be reinvested in additional full and fractional shares of the Fund at the
net asset value in effect at the close of business on the record date for such
distributions. To initiate this service, shares having an aggregate value of at
least $10,000 either must be held on deposit by, or certificates for such shares
must be deposited with, the Shareholder Servicing Agent. With respect to Class A
shares, maintaining a withdrawal plan concurrently with an investment program
would be disadvantageous because of the sales charges included in share
purchases and the imposition of a CDSC on certain redemptions. The shareholder
by written instruction to the Shareholder Servicing Agent may deposit into the
account additional shares of the Fund, change the payee or change the dollar
amount of each payment. The Shareholder Servicing Agent may charge the account
for services rendered and expenses incurred beyond those normally assumed by the
Fund with respect to the liquidation of shares. No charge is currently assessed
against the account, but one could be instituted by the Shareholder Servicing
Agent on 60 days' notice in writing to the shareholder in the event that the
Fund ceases to assume the cost of these services. The Fund may terminate any SWP
for an account if the value of the account falls below $5,000 as a result of
share redemptions (other than as a result of a SWP) or an exchange of shares of
the Fund for shares of another MFS Fund. Any SWP may be terminated at any time
by either the shareholder or the Fund.
INVEST BY MAIL: Additional investments of $50 or more may be made at any time by
mailing a check payable to the Fund directly to the Shareholder Servicing Agent.
The shareholder's account number and the name of his investment dealer must be
included with each investment.
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<PAGE> 46
GROUP PURCHASES: A bona fide group and all its members may be treated as a
single purchaser and, under the Right of Accumulation (but not a Letter of
Intent) obtain quantity sales charge discounts on the purchase of Class A shares
if the group (1) gives its endorsement or authorization to the investment
program so it may be used by the investment dealer to facilitate solicitation of
the membership, thus effecting economies of sales effort; (2) has been in
existence for at least six months and has a legitimate purpose other than to
purchase mutual fund shares at a discount; (3) is not a group of individuals
whose sole organizational nexus is as credit cardholders of a company,
policyholders of an insurance company, customers of a bank or broker-dealer,
clients of an investment adviser or other similar groups; and (4) agrees to
provide certification of membership of those members investing money in the MFS
Funds upon the request of FSI.
AUTOMATIC EXCHANGE PLAN: Shareholders having account balances of at least
$5,000 in any MFS Fund may participate in the Automatic Exchange Plan. The
Automatic Exchange Plan provides for automatic transfers of funds from the
shareholder's account in an MFS Fund for investment in the same class of shares
of other MFS Funds selected by the shareholder provided such shares are
available for sale. Under the Automatic Exchange Plan, transfers of at least $50
each may be made to up to four different funds effective on the seventh day of
each month or of every third month, depending whether monthly or quarterly
transfers are elected by the shareholder. If the seventh day of the month is not
a business day, the transaction will be processed on the next business day.
Generally, the initial transfer will occur after receipt and processing by the
Shareholder Servicing Agent of an application in good order. Transfers will
continue to be made from a shareholder's account in any MFS Fund, as long as the
balance of the account is sufficient to complete the transfers. Additional
payments made to a shareholder's account will extend the period that transfers
will continue to be made under the Automatic Exchange Plan. However, if
additional payments are added to an account subject to the Automatic Exchange
Plan shortly before a transfer is scheduled, such funds may not be available for
transfers until the following month; therefore, care should be used to avoid
inadvertently terminating the Automatic Exchange Plan through exhaustion of the
account balance.
No transaction fee for transfers will be charged in connection with the
Automatic Exchange Plan. However, transfers of shares of MFS Money Market Fund,
MFS Government Money Market Fund and Class A shares of MFS Cash Reserve Fund
will be subject to any applicable sales charge. Changes in amounts to be
transferred to each fund, the funds to which transfers are to be made and the
timing of transfers (monthly or quarterly), or termination of a shareholder's
participation in the Automatic Exchange Plan will be made after instructions in
writing or by telephone (an "Exchange Change Request") are received by the
Shareholder Servicing Agent in proper form (i.e., if in writing -- signed by the
record owner(s) exactly as shares are registered; if by telephone -- proper
account identification is given by the dealer or shareholder of record). Each
Exchange Change Request (other than termination of participation in the program)
must involve at least $50. Generally, if an Exchange Change Request is received
by telephone or in writing before the close of business on the last business day
of a month, the Exchange Change Request will be effective for the following
month's transfer.
A shareholder's right to make additional investments in any of the MFS Funds, to
make exchanges of shares from one MFS Fund to another and to withdraw from an
MFS Fund, as well as a shareholder's other rights and privileges are not
affected by a shareholder's participation in the Automatic Exchange Plan.
The Automatic Exchange Plan is part of the Exchange Privilege. For additional
information regarding the Automatic Exchange Plan, including the treatment of
any CDSC, see "Exchange Privilege" below.
REINSTATEMENT PRIVILEGE: Shareholders of the Fund and shareholders of the other
MFS Funds (except MFS Money Market Fund, MFS Government Money Market Fund and
holders of Class A shares of MFS Cash Reserve Fund in the case where the shares
are acquired through direct purchase or reinvested dividends) who have redeemed
their shares have a one-time right to reinvest the redemption proceeds in the
same class of shares of any of the MFS Funds (if shares of the fund are
available for sale) at net asset value (without a sales charge) and, if
applicable, with credit for any CDSC paid. In the case of proceeds reinvested in
shares of MFS Money Market Fund, MFS Government Money Market Fund and Class A
shares of MFS Cash Reserve Fund, the shareholder has the right to exchange the
acquired shares for shares of another MFS Fund at net asset value pursuant to
the exchange privilege described below. Such a reinvestment must be made within
90 days of the redemption and is limited to the amount of the redemption
proceeds. If the shares credited for any CDSC paid are then redeemed within six
years of the initial purchase in the case of Class B shares or 12 months of the
initial purchase in the case of certain Class A shares, a CDSC will be imposed
upon redemption. Although redemptions and repurchases of shares are taxable
events, a reinvestment within such 90-day period of time in the same fund may be
considered a "wash sale" and may result in the inability to recognize currently
all or a portion of any loss realized on the original redemption for federal
income tax purposes. Please see your tax adviser for further information.
EXCHANGE PRIVILEGE: Subject to the requirements set forth below, some or all of
the shares of the same class in an account with the Fund for which payment has
been received by the Fund (i.e., an established account) may be exchanged for
shares of the same class of any of the other MFS Funds (if available for sale)
at net asset value. Exchanges will be made only after instructions in writing or
by telephone (an "Exchange Request") are received for an established account by
the Shareholder Servicing Agent.
Each Exchange Request must be in proper form (i.e., if in writing -- signed by
the record owner(s) exactly as the shares are registered; if by telephone --
proper account identification is given by the dealer or shareholder of record),
and each ex-
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<PAGE> 47
change must involve either shares having an aggregate value of at least $1,000
($50 in the case of retirement plan participants whose sponsoring organizations
subscribe to the MFS FUNDamental 401(k) Plan or another similar 401(k)
recordkeeping system made available by MFS Service Center, Inc.) or all the
shares in the account. Each exchange involves the redemption of the shares of
the Fund to be exchanged and the purchase at net asset value (i.e., without a
sales charge) of shares of the same class of the other MFS Fund. Any gain or
loss on the redemption of the shares exchanged is reportable on the
shareholder's federal income tax return, unless both the shares received and the
shares surrendered in the exchange are held in a tax-deferred retirement plan or
other tax-exempt account. No more than five exchanges may be made in any one
Exchange Request by telephone. If an Exchange Request is received by the
Shareholder Servicing Agent prior to the close of regular trading on the New
York Stock Exchange (the "Exchange"), the exchange usually will occur on that
day if all of the requirements set forth above have been complied with at that
time. However, payment of the redemption proceeds by the Fund, and thus purchase
of shares of the other MFS Fund, may be delayed for up to seven days if the Fund
determines that such a delay would be in the best interest of all its
shareholders. Investment dealers which have satisfied criteria established by
FSI may also communicate a shareholder's exchange instruction to FSI by
facsimile subject to the requirements set forth above.
No CDSC is imposed on exchanges among the MFS Funds, although liability for the
CDSC is carried forward to the exchanged shares. For purposes of calculating the
CDSC upon redemption of shares acquired in an exchange, the purchase of shares
acquired in one or more exchanges is deemed to have occurred at the time of the
original purchase of the exchanged shares.
Additional information with respect to any of the MFS Funds, including a copy of
its current prospectus, may be obtained from investment dealers or the
Shareholder Servicing Agent. A shareholder considering an exchange should obtain
and read the prospectus of the other fund and consider the differences in
objectives and policies before making any exchange. Shareholders in the other
MFS Funds (except shares of MFS Money Market Fund, MFS Government Money Market
Fund and Class A shares of MFS Cash Reserve Fund, acquired through direct
purchase and dividends reinvested prior to June 1, 1992) have the right to
exchange their shares for shares of the MFS Funds, subject to the conditions, if
any, set forth in their respective prospectuses. In addition, unitholders of the
MFS Fixed Fund (a bank collective investment fund) have the right to exchange
their units (except units acquired through direct purchases) for shares of the
Fund, subject to the conditions, if any, imposed upon such unitholders by the
MFS Fixed Fund.
Any state income tax advantages for investment in shares of each state-specific
series of MFS Municipal Series Trust may only benefit residents of such states.
Investors should consult with their own tax advisers to be sure this is an
appropriate investment, based on their residency and each state's income tax
laws.
The exchange privilege (or any aspect of it) may be changed or discontinued and
is subject to certain limitations (see "Purchases" in the Prospectus).
TAX-DEFERRED RETIREMENT PLANS: Shares of the Fund may be purchased by all types
of tax-deferred retirement plans. FSI makes available through investment dealers
plans and/or custody agreements for the following:
Individual Retirement Accounts (IRAs) (for individuals and their non-employed
spouses who desire to make limited contributions to a tax-deferred retirement
program and, if eligible, to receive a federal income tax deduction for
amounts contributed);
Simplified Employee Pension (SEP-IRA) Plans;
Retirement Plans Qualified under Section 401(k) of the Internal Revenue Code
of 1986, as amended;
403(b) Plans (deferred compensation arrangements for employees of public
school systems and certain non-profit organizations); and
Certain other qualified pension and profit-sharing plans.
The plan documents provided by FSI designate a trustee or custodian (unless
another trustee or custodian is designated by the individual or group
establishing the plan) and contain specific information about the plans. Each
plan provides that dividends and distributions will be reinvested automatically.
For further details with respect to any plan, including fees charged by the
trustee, custodian or FSI, tax consequences and redemption information, see the
specific documents for that plan. Plan documents other than those provided by
FSI may be used to establish any of the plans described above. Third party
administrative services, available for some corporate plans, may limit or delay
the processing of transactions.
Investors should consult with their tax advisers before establishing any of the
tax-deferred retirement plans described above.
7. TAX STATUS
The Fund has elected to be treated and intends to qualify each year as a
"regulated investment company" under the Internal Revenue Code of 1986, as
amended (the "Code"), by meeting all applicable Code requirements, including
requirements as to the nature of the Fund's gross income, the amount of Fund
distributions, and the composition and holding period of the Fund's portfolio
assets. Because the Fund intends to distribute to its shareholders all net
investment income and net realized capital gains in accordance with the timing
requirements imposed by the Code, it is not expected that the Fund will be
required to pay any federal income or excise taxes, although the Fund's foreign-
source income may be subject to foreign withholding taxes. If the Fund should
fail to qualify as a "regulated investment company" in any year, the Fund would
incur a regular corporate federal income tax upon its taxable income and Fund
distributions would generally be taxable as ordinary dividend income to the
shareholders.
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<PAGE> 48
Shareholders of the Fund will have to pay federal income taxes, and any state
and local taxes, on the dividends and capital gain distributions which the Fund
pays to them. Dividends from ordinary income and distributions from net
short-term capital gains, whether paid in cash or invested in additional shares,
are taxable to the Fund's shareholders as ordinary income for federal income tax
purposes. A portion of these ordinary income dividends (but none of the capital
gains) is normally eligible for the dividends-received deduction for
corporations if the recipient otherwise qualifies for that deduction with
respect to its holding of Fund shares. Availability of the deduction for
particular shareholders is subject to certain limitations, and deducted amounts
may be subject to the alternative minimum tax or result in certain basis
adjustments. Dividends from net capital gains, whether paid in cash or invested
in additional shares, are taxable to shareholders as long-term capital gains for
federal income tax purposes without regard to the length of time shareholders
have owned their shares. Fund dividends declared in October, November or
December to shareholders of record in such a month and paid the following
January will be taxable to the shareholders as if received on December 31 of the
year in which they are declared. The Fund will notify shareholders regarding the
federal tax status of its distributions after the end of each calendar year.
Any dividend or distribution will have the effect of reducing the per share net
asset value of shares in the Fund by the amount of the dividend or distribution.
Shareholders purchasing shares shortly before the record date of any taxable
dividend or other distribution may thus pay full price for the shares and then
effectively receive a portion of the purchase price back as a taxable
distribution.
In general, any gain or loss realized upon a taxable disposition of shares of
the Fund by a shareholder that holds such shares as a capital asset will be
treated as long-term capital gain or loss if the shares have been held for more
than 12 months and otherwise as a short-term capital gain or loss. However, any
loss realized upon a redemption of shares in the Fund held for six months or
less will be treated as a long-term capital loss to the extent of any
distributions of net capital gain made with respect to those shares. Any loss
realized upon a redemption of shares may also be disallowed under rules relating
to wash sales.
Gain may be increased (or loss reduced) upon redemption of Class A shares of the
Fund within 90 days after their purchase followed by any purchase (including
purchases by exchange or by reinvestment) of Class A shares of the Fund or of
any other MFS Fund (or other shares of an MFS Fund generally sold subject to a
sales charge) without payment of an additional sales charge.
The Fund's current dividend and accounting policies will affect the amount,
timing, and character of distributions to shareholders, and may, under certain
circumstances, make an economic return of capital taxable to shareholders. Any
investment in zero coupon bonds or similar securities or in certain securities
purchased at a market discount will cause the Fund to recognize income prior to
the receipt of cash payments with respect to those securities. In order to
distribute this income and avoid a tax on the Fund, the Fund may be required to
liquidate portfolio securities that it might otherwise have continued to hold,
potentially resulting in additional taxable gain or loss to the Fund.
Special tax considerations apply with respect to foreign investments of the
Fund. For example, foreign exchange gains and losses realized by the Fund will
generally be treated as ordinary income and losses. Use of foreign currencies
for non-hedging purposes and investment by the Fund in certain "passive foreign
investment companies" may be limited in order to avoid a tax on the Fund.
Furthermore, the Fund may be subject to foreign taxes withheld at the source on
its income from foreign securities and will generally be unable to pass through
to shareholders foreign tax credits and deductions with respect to such foreign
taxes. The United States has entered into tax treaties with many foreign
countries that may entitle the Fund to a reduced rate of tax or an exemption
from tax on such income. It is impossible to determine the effective rate of
foreign tax in advance since the amount of the Fund's assets to be invested
within various countries is not known. The Fund intends to qualify for treaty
reduced rates of tax where available.
The Fund's transactions in options, Futures Contracts, and Forward Contracts
will be subject to special tax rules that may affect the amount, timing, and
character of Fund income and distributions to shareholders. For example, certain
positions held by the Fund on the last business day of each taxable year will be
marked to market (i.e., treated as if closed out) on that day, and any gain or
loss associated with the positions will be treated as 60% long-term and 40%
short-term capital gain or loss. Certain positions held by the Fund that
substantially diminish its risk of loss with respect to other positions in its
portfolio may constitute "straddles," and may be subject to special tax rules
that would cause deferral of Fund losses, adjustments in the holding periods of
Fund securities, and conversion of short-term into long-term capital losses.
Certain tax elections exist for straddles that may alter the effects of these
rules. The Fund will limit its activities in options, Futures Contracts, and
Forward Contracts to the extent necessary to meet the requirements of Subchapter
M of the Code.
Dividends and certain other payments to persons who are not citizens or
residents of the United States or U.S. entities ("Non-U.S. Persons") are
generally subject to U.S. tax withholding at the rate of 30%. The Fund intends
to withhold tax at the rate of 30% on any payments made to Non-U.S. persons that
are subject to such withholding, regardless of whether a lower treaty rate may
be permitted. Any amounts overwithheld may be recovered by such persons by
filing a claim for refund with the U.S. Internal Revenue Service within the time
period applicable to such claims.
Backup withholding at the rate of 31% may also apply to taxable dividends and
the proceeds of redemptions and exchanges paid to any shareholder (including a
Non-U.S. Person) who does not furnish to the Fund certain information and
certifications or who
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<PAGE> 49
is otherwise subject to backup withholding. Backup withholding will not,
however, be applied to payments that have been subject to 30% withholding.
Distributions received from the Fund by Non-U.S. Persons may also be subject to
tax under the laws of their own jurisdiction.
As long as it qualifies as a regulated investment company under the Code, the
Fund will not be required to pay Massachusetts income or excise taxes.
8. DETERMINATION OF NET ASSET VALUE
AND PERFORMANCE
NET ASSET VALUE
The net asset value per share of each class of the Fund is determined each day
during which the Exchange is open for trading. (As of the date of this Statement
of Additional Information), the Exchange is open for trading every weekday
except for the following holidays (or the days on which they are observed): New
Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day.) This determination is made once during
each such day as of the close of regular trading on the Exchange by deducting
the amount of the liabilities attributable to the class from the value of the
assets attributable to the class and dividing the difference by the number of
shares of the class outstanding. Forward Contracts will be valued using a
pricing model taking into consideration market data from an external pricing
source. Use of the pricing services has been approved by the Fund's Board of
Trustees. All other securities, futures contracts and options in the Fund's
portfolio (other than short-term obligations) for which the principal market is
one or more securities or commodities exchanges (whether domestic or foreign)
will be valued at the last reported sale price or at the settlement price prior
to the determination (or if there has been no current sale, at the closing bid
price) on the primary exchange on which such securities, futures contracts or
options are traded; but if a securities exchange is not the principal market for
securities, such securities will, if market quotations are readily available, be
valued at current bid prices, unless such securities are reported on the NASDAQ
system, in which case they are valued at the last sale price or, if no sales
occurred during the day, at the last quoted bid price. Short-term obligations
with a remaining maturity in excess of 60 days will be valued upon dealer
supplied valuations. Other short-term obligations are valued at amortized cost,
which constitutes fair value as determined by the Board of Trustees. Portfolio
securities for which there are no such quotations or valuations are valued at
fair value as determined in good faith by or at the direction of the Board of
Trustees.
PERFORMANCE INFORMATION
TOTAL RATE OF RETURN: The Fund will calculate its total rate of return for each
class of shares for certain periods by determining the average annual compounded
rates of return over those periods that would cause an investment of $1,000
(made with all distributions reinvested and reflecting the CDSC or the maximum
public offering price) to reach the value of that investment at the end of the
periods. The Fund may also calculate (i) a total rate of return, which is not
reduced with respect to Class B shares by the CDSC (4% maximum for shares
purchased on and after September 1, 1993) and therefore may result in a higher
rate of return, (ii) a total rate of return assuming an initial account value of
$1,000, which will result in a higher rate of return with respect to Class A
shares since the value of the initial account will not be reduced by the maximum
sales charge (currently 5.75%) and/or (iii) total rates of return which
represent aggregate performance over a period or year-by-year performance, and
which may or may not reflect the effect of the maximum or other sales charge or
CDSC. On March 1, 1991, the maximum sales charge was lowered from 7.25% to
5.75%, the sales charge was eliminated on reinvested dividends and a
Distribution Plan pursuant to Rule 12b-1 under the 1940 Act was implemented as
described below. The Fund's average annual total rate of return for Class A
shares, reflecting the initial investment at the current maximum public offering
price for the one-year, five-year and ten-year periods ended November 30, 1993
was, respectively, 6.92%, 17.35% and 12.12%. The Fund's average annual total
rate of return for Class A shares not giving effect to the sales charge on the
initial investment for the one-year, five-year and ten-year periods ended
November 30, 1993 was, respectively, 13.43%, 18.74% and 12.78%. The Fund's
aggregate total rate of return for Class B shares, reflecting the CDSC, for the
period September 7, 1993 through the Fund's fiscal year ended November 30, 1993
was -3.85%. The Fund's aggregate total rate of return for Class B shares, not
giving effect to the CDSC, for the period September 7, 1993 through the Fund's
fiscal year ended November 30, 1993 was +0.15%.
PERFORMANCE RESULTS: The performance results for Class A shares below, based on
an assumed initial investment of $10,000 in Class A shares, cover the period
from January 1, 1984 through December 31, 1993. It has been assumed that
dividends and capital gain distributions were reinvested in additional shares.
These performance results, as well as any total rate of return quotations
provided by the Fund, should not be considered as representative of the
performance of the Fund in the future since the net asset value and public
offering price of shares of the Fund will vary based not only on the type,
quality and maturities of the securities held in the Fund's portfolio, but also
on changes in the current value of such securities and on changes in the
expenses of the Fund. These factors and possible differences in the methods used
to calculate total rates of return should be considered when comparing the total
rate of return of the Fund to total rates of return published for other
investment companies or other investment vehicles. Total rate of return reflects
the performance of both principal and income. Current net asset value of shares
and account balance information may be obtained by calling 1-800-MFS-TALK
(637-8255).
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<PAGE> 50
<TABLE>
<CAPTION>
MASSACHUSETTS INVESTORS GROWTH STOCK FUND
VALUE OF
YEAR ENDED VALUE OF REINVESTED VALUE OF
DECEMBER INITIAL $10,000 CAPITAL GAIN REINVESTED TOTAL
31 INVESTMENT DISTRIBUTIONS DIVIDENDS VALUE
- ---------- --------------- ------------- ---------- -------
<S> <C> <C> <C> <C>
1984 8,087 699 248 9,034
1985 8,730 2,110 510 11,350
1986 7,398 4,776 594 12,768
1987 6,700 6,082 732 13,514
1988 6,222 6,995 851 14,068
1989 7,421 10,494 1,179 19,094
1990 6,622 10,418 1,149 18,189
1991 9,161 16,119 1,588 26,868
1992 9,177 17,832 1,591 28,600
1993 8,934 22,253 1,549 32,736
</TABLE>
EXPLANATORY NOTES: The results in the table assume that the initial investment
on January 1, 1984 has been reduced by the current maximum applicable sales
charge of 5.75%. No adjustment has been made for any income taxes payable by
shareholders.
From time to time the Fund may, as appropriate, quote Fund rankings or reprint
all or a portion of evaluations of fund performance and operations appearing in
various independent publications, including but not limited to the following:
Money, Fortune, U.S. News and World Report, Kiplinger's Personal Finance, The
Wall Street Journal, Barron's, Investors Business Daily, Newsweek, Financial
World, Financial Planning, Investment Advisor, USA Today, Pensions and
Investments, SmartMoney, Forbes, Global Finance, Registered Representative,
Institutional Investor, the Investment Company Institute, Johnson's Charts,
Morningstar, Lipper Analytical Services, Inc., CDA Wiesenberger, Shearson Lehman
and Salomon Bros. Indices, Ibbotson, Business Week, Lowry Associates, Media
General, Investment Company Data, The New York Times, Your Money, Strangers
Investment Advisor, Financial Planning on Wall Street, Standard and Poor's,
Individual Investor, The 100 Best Mutual Funds You Can Buy, by Gordon K.
Williamson, Consumer Price Index, and Sanford C. Bernstein & Co. Fund
performance may also be compared to the performance of other mutual funds
tracked by financial or business publications or periodicals.
The Fund may also quote evaluations mentioned in independent radio or television
broadcasts.
From time to time the Fund may use charts and graphs to illustrate the past
performance of various indices such as those mentioned above and illustrations
using hypothetical rates of return to illustrate the effects of compounding and
tax-deferral.
The Fund may advertise examples of the effects of periodic investment plans,
including the principle of dollar cost averaging. In such a program, an investor
invests a fixed dollar amount in a fund at periodic intervals, thereby
purchasing fewer shares when prices are high and more shares when prices are
low. While such a strategy does not assure a profit or guard against a loss in a
declining market, the investor's average cost per share can be lower than if
fixed numbers of shares are purchased at the same intervals.
MFS FIRSTS: MFS has a long history of innovations.
-- 1924 -- Massachusetts Investors Trust is established as the first mutual
fund in America.
-- 1932 -- One of the first internal research departments is established to
provide in-house analytical capability for an investment management firm.
-- 1933 -- Massachusetts Investors Trust is the first mutual fund to register
under the Securities Act of 1933.
-- 1936 -- Massachusetts Investors Trust is the first mutual fund to let
shareholders take capital gain distributions either in additional shares
or in cash.
-- 1976 -- MFS Municipal Bond Fund is among the first municipal bond funds
established.
-- 1981 -- MFS World Governments Fund is established as America's first
globally diversified fixed-income mutual fund.
-- 1984 -- MFS Municipal High Income Fund is the first mutual fund to seek
high tax-free income from lower-rated municipal securities.
-- 1986 -- MFS Managed Sectors Fund becomes the first mutual fund to target
and shift investments among industry sectors for shareholders.
-- 1986 -- MFS Municipal Income Trust is the first closed-end, high-yield
municipal bond fund traded on the New York Stock Exchange.
-- 1986 -- MFS Lifetime Investment ProgramSM is established as the first
complete family of 12b-1 mutual funds with no initial sales charge.
-- 1987 -- MFS Multimarket Income Trust is the first closed-end, multimarket
high income fund listed on the New York Stock Exchange.
-- 1990 -- MFS World Total Return Fund is the first global balanced fund.
9. DESCRIPTION OF SHARES, VOTING RIGHTS
AND LIABILITIES
The Fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional Shares of Beneficial Interest (without par value)
of one or more separate series and to divide or combine the shares of any series
into a greater or lesser number of shares without thereby changing the
proportionate beneficial interests in that series. The Declaration of Trust
further authorizes the Trustees to classify or reclassify any series of shares
into one or more classes. Pursuant thereto, the Trustees have authorized the
issuance of two classes of shares of the Fund, Class A shares and Class B
shares. Each share of a class of the Fund represents an equal proportionate
interest in the assets of the Fund allocable to that class. Upon liquidation of
the Fund, shareholders of each class of the Fund are entitled to share pro rata
in the Fund's net assets allocable to such class
21
<PAGE> 51
available for distribution to shareholders. The Fund reserves the right to
create and issue a number of series and additional classes of shares, in which
case the shares of each class of a series would participate equally in the
earnings, dividends and assets allocable to that class of the particular series.
Shareholders are entitled to one vote for each share held and may vote in the
election of Trustees and on other matters submitted to meetings of shareholders.
Although Trustees are not elected annually by the shareholders, the Declaration
of Trust provides that a Trustee may be removed from office at a meeting of
shareholders by a vote of two-thirds of the outstanding shares of the Fund. A
meeting of shareholders will be called upon the request of shareholders of
record holding in the aggregate not less than 10% of the outstanding voting
securities of the Fund. No material amendment may be made to the Fund's
Declaration of Trust without the affirmative vote of a majority of the Fund's
outstanding shares (as defined in "Investment Restrictions"). The Fund may be
terminated (i) upon the merger or consolidation of the Fund with another
organization or upon the sale of all or substantially all of its assets, if
approved by the vote of the holders of two-thirds of the Fund's outstanding
shares, except that if the Trustees recommend such merger, consolidation or
sale, the approval by vote of the holders of a majority of the Fund's
outstanding shares will be sufficient, or (ii) upon liquidation and distribution
of the assets of the Fund, if approved by the vote of the holders of two-thirds
of the outstanding shares of the Fund, or (iii) by the Trustees by written
notice to its shareholders. If not so terminated the Fund will continue
indefinitely.
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 Declaration of Trust contains an express disclaimer of shareholder
liability for acts or obligations of the Fund and provides for indemnification
and reimbursement of expenses out of the Fund property for any shareholder held
personally liable for the obligations of the Fund. The Declaration of Trust also
provides that the Fund shall maintain appropriate insurance (for example,
fidelity bonding and errors and omissions insurance) for the protection of the
Fund, its shareholders, Trustees, officers, employees and agents covering
possible tort and other liabilities. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is limited to circumstances
in which both inadequate insurance existed and the Fund itself was unable to
meet its obligations.
The Declaration of Trust further provides that obligations of the Fund are not
binding upon the Trustees individually but only upon the property of the Fund
and that the Trustees will not be liable for any action or failure to act, but
nothing in the Declaration of Trust protects a Trustee against any liability to
which he would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involved in the conduct of
his office.
10. DISTRIBUTION PLANS
CLASS A DISTRIBUTION PLAN: The Trustees have adopted a Distribution Plan
relating to Class A shares (the "Class A Distribution Plan") pursuant to Section
12(b) of the 1940 Act and Rule 12b-1 thereunder (the "Rule") after having
concluded that there is a reasonable likelihood that the Class A Distribution
Plan would benefit the Fund and its Class A shareholders. The Class A
Distribution Plan is designed to promote sales, thereby increasing the net
assets of the Fund. Such an increase may reduce the expense ratio to the extent
the Fund's fixed costs are spread over a larger net asset base. Also, an
increase in net assets may lessen the adverse effects that could result were the
Fund required to liquidate portfolio securities to meet redemptions. There is,
however, no assurance that the net assets of the Fund will increase or that the
other benefits referred to above will be realized.
The Class A Distribution Plan provides that the Fund will pay FSI up to (but not
necessarily all of) an aggregate of 0.35% per annum of the average daily net
assets attributable to the Class A shares annually in order that FSI may pay
expenses on behalf of the Fund related to the distribution and servicing of its
Class A shares. The expenses to be paid by FSI on behalf of the Fund include a
service fee to securities dealers which enter into a sales agreement with FSI of
up to 0.25% per annum of the portion of the Fund's average daily net assets
attributable to the Class A shares owned by investors for whom that securities
dealer is the holder or dealer of record. These payments are partial
consideration for personal services and/or account maintenance performed by such
dealers with respect to Class A shares. FSI may from time to time reduce the
amount of the service fee paid for shares sold prior to a certain date.
Currently the service fee is reduced to 0.15% for shares sold prior to March 1,
1991. FSI may also retain a distribution fee of 0.10% of the Fund's average
daily net assets attributable to Class A shares as partial consideration for
services performed and expenses incurred in the performance of FSI's obligations
as to Class A shares under the Distribution Agreement with the Fund. FSI,
however, is currently 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. Any remaining funds may be used to pay for other
distribution related expenses as described in the Prospectus. Service fees may
be reduced for a securities dealer that is the holder or dealer of record for an
investor who owns shares of the Fund having an aggregate net asset value at or
above a certain dollar level. No service fee will be paid (i) to any securities
dealer who is the holder or dealer of record for investors who own Class A
shares having an aggregate net asset value less than $750,000, or such other
amount as may be determined from time to time by FSI (FSI, however, may waive
this minimum amount requirement from time to time if the dealer satisfies
certain criteria), or (ii) to any insurance company which has entered into an
agreement with the Fund and FSI that permits such insurance company to purchase
shares from the Fund at their net asset value in connection with annuity
agreements issued in connection with the insurance company's separate accounts.
Dealers
22
<PAGE> 52
may from time to time be required to meet certain other criteria in order to
receive service fees. FSI or its affiliates are entitled to retain all service
fees payable under the Class A Distribution Plan for which there is no dealer of
record or for which qualification standards have not been met as partial
consideration for personal services and/or account maintenance services
performed by FSI or its affiliates for shareholder accounts. Certain banks and
other financial institutions that have agency agreements with FSI will receive
agency transaction and service fees that are the same as commissions and service
fees to dealers. During the fiscal year ended November 30, 1993, the Fund
incurred expenses of $2,021,023 (equal to 0.19% of its average daily net assets)
relating to the distribution of its Class A shares, of which FSI waived $266,060
(0.03% of its average daily net assets attributable to Class A shares) and
securities dealers of the Fund and certain banks and other financial
institutions received $1,317,328 (0.12% of its average daily net assets
attributable to Class A shares), and FSI retained $437,635 (0.04% of its average
daily net assets attributable to Class A shares).
The Class A Distribution Plan will remain in effect until August 1, 1994, and
will continue in effect thereafter only if such continuance is specifically
approved at least annually by vote of both the Trustees and a majority of the
Trustees who are not "interested persons" or financially interested parties to
the Plan ("Class A Distribution Plan Qualified Trustees"). The Class A
Distribution Plan requires that the Fund and FSI each shall provide to the
Trustees, and the Trustees shall review, at least quarterly, a written report of
the amounts expended (and purposes therefor) under such Plan. The Class A
Distribution Plan may be terminated at any time by vote of a majority of the
Class A Distribution Plan Qualified Trustees or by vote of the holders of a
majority of the Fund's Class A shares (as defined in "Investment Restrictions").
Agreements under the Class A Distribution Plan must be in writing, will be
terminated automatically if assigned, and may be terminated at any time without
payment of any penalty, by vote of a majority of the Class A Distribution Plan
Qualified Trustees or by vote of the holders of a majority of the Fund's Class A
shares (as defined in "Investment Restrictions"). The Class A Distribution Plan
may not be amended to increase materially the amount of permitted distribution
expenses without the approval of a majority of the Fund's Class A shareholders
(as defined in "Investment Restrictions") and may not be materially amended in
any case without a vote of the Trustees and a majority of the Class A
Distribution Plan Qualified Trustees. No Trustee who is not an "interested
person" has any financial interest in the Class A Distribution Plan or in any
related agreement.
CLASS B DISTRIBUTION PLAN: The Trustees of the Fund have adopted a Distribution
Plan relating to Class B shares (the "Class B Distribution Plan") pursuant to
Section 12(b) of the 1940 Act and the Rule, after having concluded that there
was a reasonable likelihood that the Class B Distribution Plan would benefit the
Fund and its Class B shareholders. The Class B Distribution Plan is designed to
promote sales, thereby increasing the net assets of the Fund. Such an increase
may reduce the expense ratio to the extent the Fund's fixed costs are spread
over a larger net asset base. Also, an increase in net assets may lessen the
adverse effects that could result were the Fund required to liquidate portfolio
securities to meet redemptions. There is, however, no assurance that the net
assets of the Fund will increase or that the other benefits referred to above
will be realized.
The Class B Distribution Plan provides that the Fund shall pay FSI, as the
Fund's distributor for its Class B shares, a daily distribution fee equal on an
annual basis to 0.75% of the Fund's average daily net assets attributable to
Class B shares and will pay FSI a service fee of up to 0.25% per annum of the
Fund's average daily net assets attributable to Class B shares (which FSI will
in turn pay to securities dealers which enter into a sales agreement with FSI at
a rate of up to 0.25% per annum of the Fund's average daily net assets
attributable to Class B shares owned by investors for whom that securities
dealer is the holder or dealer of record). This service fee is intended to be
additional consideration for all personal services and/or account maintenance
services rendered by the dealer with respect to Class B shares. FSI will advance
to dealers the first-year service fee at a rate equal to 0.25% of the amount
invested. As compensation therefor, FSI may retain the service fee paid by the
Fund with respect to such shares for the first year after purchase. Dealers will
become eligible for additional service fees with respect to such shares
commencing in the thirteenth month following purchase. Except in the case of the
first year service fee, no service fee will be paid to any securities dealer who
is the holder or dealer of record for investors who own Class B shares having an
aggregate net asset value of less than $750,000 or such other amount as may be
determined from time to time by FSI. FSI, however, may waive this minimum amount
requirement from time to time if the dealer satisfies certain criteria. Dealers
may from time to time be required to meet certain other criteria in order to
receive service fees. FSI or its affiliates are entitled to retain all service
fees payable under the Class B Distribution Plan for which there is no dealer of
record or for which qualification standards have not been met as partial
consideration for personal services and/or account maintenance services
performed by FSI or its affiliates for shareholder accounts.
The purpose of distribution payments to FSI under the Class B Distribution Plan
is to compensate FSI for its distribution services to the Fund. FSI pays
commissions to dealers as well as expenses of printing prospectuses and reports
used for sales purposes, expenses with respect to the preparation and printing
of sales literature and other distribution related expenses, including, without
limitation, the cost necessary to provide distribution-related services, or
personnel, travel office expenses and equipment. The Class B Distribution Plan
also provides that FSI will receive all CDSCs attributable to Class B Shares
(see "Distribution Plans" and "Purchases" in the Prospectus).
In accordance with the Rule, all agreements relating to the Class B Distribution
Plan entered into between the Fund or FSI and other organizations must be
approved by the Board of Trustees, including a majority of the Trustees who are
not "interested persons" (as defined in the 1940 Act) and who have no direct
23
<PAGE> 53
or indirect financial interest in the operation of the Class B Distribution Plan
or in any agreement related to such Plan ("Class B Distribution Plan Qualified
Trustees"). The Class B Distribution Plan further provides that the selection
and nomination of Class B Distribution Plan Qualified Trustees shall be
committed to the discretion of the non-interested Trustees then in office.
During the fiscal year ended November 30, 1993, the Fund incurred expenses of
$2,428 (equal to 1.00% of its average daily net assets) relating to the
distribution and servicing of its Class B shares, of which FSI received $1,821
(0.75% of its average daily net assets attributable to Class B shares) and
securities dealers of the Fund and certain banks and other financial
institutions received $607 (0.25% of its average daily net assets attributable
to Class B shares).
The Class B Distribution Plan will remain in effect until August 1, 1994, and
will continue in effect thereafter only if such continuance is specifically
approved at least annually by vote of the Trustees and a majority of the Class B
Distribution Plan Qualified Trustees. The Class B Distribution Plan requires
that the Fund and FSI shall provide to the Trustees, and the Trustees shall
review, at least quarterly, a written report of the amounts expended (and
purposes therefor) under such Plan. The Class B Distribution Plan may be
terminated at any time by vote of a majority of the Class B Distribution Plan
Qualified Trustees or by vote of the holders of a majority of the Class B shares
of the Fund (as defined in "Investment Restrictions" above). The Class B
Distribution Plan may not be amended to increase materially the amount of
permitted distribution expenses without the approval of Class B shareholders and
may not be materially amended in any case without a vote of the majority of both
the Trustees and the Class B Distribution Plan Qualified Trustees. No Trustee
who is not an interested person of the Fund has any financial interest in the
Class B Distribution Plan or in any related agreement.
11. INDEPENDENT ACCOUNTANTS AND
FINANCIAL STATEMENTS
Deloitte & Touche are the Fund's independent certified public accountants,
providing audit services, tax return preparation, and assistance and
consultation with respect to the preparation of filings with the SEC.
The Portfolio of Investments at November 30, 1993, the Statement of Assets and
Liabilities at November 30, 1993, the Statement of Operations for the year ended
November 30, 1993, the Statement of Changes in Net Assets for each of the two
years in the period ended November 30, 1993, the Financial Highlights for each
of the ten years in the period ended November 30, 1993, the Notes to Financial
Statements and the Independent Auditors' Report, each of which is included in
the Annual Report to shareholders of the Fund, are incorporated by reference
into this Statement of Additional Information and have been so incorporated in
reliance upon the report of Deloitte & Touche, independent certified public
accountants, as experts in accounting and auditing. A copy of the Annual Report
accompanies this Statement of Additional Information.
24
<PAGE> 54
INVESTMENT ADVISER
Massachusetts Financial Services Company
500 Boylston Street, Boston, MA 02116
(617) 954-5000
DISTRIBUTOR
MFS Financial Services, Inc.
500 Boylston Street, Boston, MA 02116
(617) 954-5000
CUSTODIAN AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company
225 Franklin Street, Boston, MA 02110
SHAREHOLDER SERVICING AGENT
MFS Service Center, Inc.
500 Boylston Street, Boston, MA 02116
Toll free: (800) 225-2606
Mailing Address:
P.O. Box 2281, Boston, MA 02107-9906
INDEPENDENT ACCOUNTANTS
Deloitte & Touche
125 Summer Street, Boston, MA 02110
MASSACHUSETTS
INVESTORS GROWTH
STOCK FUND
500 BOYLSTON STREET
BOSTON, MA 02116
[LOGO] MIG-13 4/94 860 12/213
