As filed with the Securities and Exchange Commission on March 30, 1998
1933 Act File No. 2-14677
1940 Act File No. 811-859
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM N-1A
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 65
AND
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 26
MASSACHUSETTS INVESTORS GROWTH STOCK FUND
(Exact Name of Registrant as Specified in Charter)
500 Boylston, Street, Boston, Massachusetts 02116
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code: 617-954-5000
Stephen E. Cavan, Massachusetts Financial Services Co.,
500 Boylston Street, Boston, Massachusetts 02116
(Name and Address of Agent for Service)
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
It is proposed that this filing will become effective (check appropriate box):
|X| immediately upon filing pursuant to paragraph (b)
|_| on [date] pursuant to paragraph (b)
|_| 60 days after filing pursuant to paragraph (a)(i)
|_| on [date] pursuant to paragraph (a)(i)
|_| 75 days after filing pursuant to paragraph (a)(ii)
|_| on [date] pursuant to paragraph (a)(ii) of rule 485.
If appropriate, check the following box:
|_| this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
==============================================================================
<PAGE>
MASSACHUSETTS INVESTORS GROWTH STOCK FUND
Cross Reference Sheet
(Pursuant to Rule 404 showing location in Prospectus and/or Statement of
Additional Information of the responses to the Items in Parts A and B of Form
N-1A)
STATEMENT OF
ITEM NUMBER ADDITIONAL
FORM N-1A, PART A PROSPECTUS CAPTION INFORMATION CAPTION
1 (a), (b) Front Cover Page *
2 (a) Expense Summary *
(b), (c) * *
3 (a) Condensed Financial *
Information
(b) * *
(c) Information Concerning *
Shares of the Fund -
Performance Information
(d) Condensed Financial *
Information
4 (a) Front Cover Page; The *
Fund; Investment Objective
and Policies; Certain Securities
and Investment Techniques
(b) Investment Objective and *
Policies; Certain Securities
and Investment Techniques;
Additional Risk Factors
<PAGE>
STATEMENT OF
ITEM NUMBER ADDITIONAL
FORM N-1A, PART A PROSPECTUS CAPTION INFORMATION CAPTION
(c) Investment Objective and *
Policies; Certain Securities
and Investment Techniques;
Additional Risk Factors
5 (a) The Fund; Management of *
the Fund - Investment
Adviser
(b) Front Cover Page; *
Management of the Fund -
Investment Adviser; Back
Cover Page
(c) Management of the Fund - *
Investment Adviser
(d) Management of the Fund - *
Administrator
(e) Management of the Fund - *
Shareholder Servicing Agent;
Back Cover Page
(f) Condensed Financial Information; *
Expense Summary
(g) Additional Risk Factors - *
Portfolio Trading
5A (a) ** **
(b) ** **
(c) ** **
<PAGE>
STATEMENT OF
ITEM NUMBER ADDITIONAL
FORM N-1A, PART A PROSPECTUS CAPTION INFORMATION CAPTION
6 (a) Information Concerning Shares *
of the Fund - Description of
Shares, Voting Rights and
Liabilities; Information
Concerning Shares of the Fund
- Redemptions and Repurchases;
Information Concerning Shares
of the Fund - Purchases;
Information Concerning Shares
of the Fund - Exchanges
(b),(c),(d) * *
(e) Shareholder Services *
(f) Information Concerning *
Shares of the Fund -
Distributions; Shareholder
Services - Distribution Options
(g) Information Concerning *
Shares of the Fund - Tax
Status; Information
Concerning Shares of the
Fund - Distributions
(h) The Fund *
7 (a) Front Cover Page; Management *
of the Fund - Distributor; Back
Cover Page
(b) Information Concerning *
Shares of the Fund - Purchases;
Information Concerning
Shares of the Fund - Net
Asset Value
<PAGE>
STATEMENT OF
ITEM NUMBER ADDITIONAL
FORM N-1A, PART A PROSPECTUS CAPTION INFORMATION CAPTION
(c) Information Concerning *
Shares of the Fund - Purchases;
Shareholder Services;
Information Concerning
Shares of the Fund - Exchanges
(d) Front Cover Page; Information *
Concerning Shares of the Fund -
Purchases; Shareholder Services
(e) Information Concerning *
Shares of the Fund -
Distribution Plan; Expense
Summary
(f) Information Concerning *
Shares of the Fund -
Distribution Plan
(g) Expense Summary; *
Information Concerning
Shares of the Fund -
Purchases; Information
Concerning Shares of the
Fund - Exchanges;
Information Concerning
Shares of the Fund -
Redemptions and Repurchases;
Information Concerning
Shares of the Fund -
Distribution Plan; Information
Concerning Shares of the Fund -
Distributions; Information
Concerning Shares of the
Fund - Performance
Information; Shareholder
Services
<PAGE>
STATEMENT OF
ITEM NUMBER ADDITIONAL
FORM N-1A, PART A PROSPECTUS CAPTION INFORMATION CAPTION
8 (a) Information Concerning *
Shares of the Fund - Redemptions
and Repurchases; Information
Concerning Shares of the Fund -
Purchases; Shareholder Services
(b) Information Concerning *
Shares of the Fund - Redemptions
and Repurchases
(c) Information Concerning *
Shares of the Fund - Redemptions
and Repurchases
(d) Information Concerning *
Shares of the Fund - Redemptions
and Repurchases
9 * *
<PAGE>
STATEMENT OF
ITEM NUMBER ADDITIONAL
FORM N-1A, PART B PROSPECTUS CAPTION INFORMATION CAPTION
10 (a),(b) * Front Cover Page
11 * Front Cover Page
12 The Fund Definitions
13 (a),(b),(c) * Investment Objective,
Policies and Restrictions;
Certain Securities and
Investment Techniques;
Investment Restrictions
(d) * *
14 (a),(b),(c) * Management of the Fund -
Trustees and Officers;
Trustee Compensation
Table
15 (a) * *
(b),(c) * Management of the Fund -
Trustees and Officers
16 (a) Management of the Fund - Management of the Fund -
Investment Adviser Investment Adviser;
Management of the Fund -
Trustees and Officers
(b) Management of the Fund - Management of the Fund -
Investment Adviser Investment Adviser
(c) * *
(d) * Management of the Fund -
Administrator
(e) * Portfolio Transactions and
Brokerage Commissions
<PAGE>
STATEMENT OF
ITEM NUMBER ADDITIONAL
FORM N-1A, PART B PROSPECTUS CAPTION INFORMATION CAPTION
(f) Information Concerning Distribution Plan
Shares of the Fund -
Distribution Plan
(g) * *
(h) * Management of the Fund -
Custodian; Independent
Auditors and Financial
Statements; Back Cover
Page
(i) * Management of the Fund -
Shareholder Servicing
Agent
17 (a),(c), * Portfolio Transactions and
(d),(e) Brokerage Commissions
(b) * *
18 (a) Information Concerning Description of Shares
Shares of the Fund - Voting Rights and
Description of Liabilities
Shares, Voting Rights and
Liabilities
(b) * *
19 (a) Information Concerning Shareholder Services
Shares of the Fund -
Purchases; Shareholder
Services
(b) Information Concerning Management of the Fund -
Shares of the Fund - Net Distributor; Determination
Asset Value; Information of Net Asset Value and
Concerning Shares of the Performance - Net Asset
Fund - Purchases Value
<PAGE>
STATEMENT OF
ITEM NUMBER ADDITIONAL
FORM N-1A, PART B PROSPECTUS CAPTION INFORMATION CAPTION
(c) Information Concerning *
Shares of the Fund -
Redemptions; Repurchases
20 * Tax Status
21 (a) * Management of the Fund -
Distributor; Distribution
Plan
(b) * Management of the Fund -
Distributor; Distribution
Plan
(c) * *
22 (a) * *
(b) * Determination of Net
Asset Value and
Performance; Appendix A
23 * Independent Auditors
and Financial Statements
=======================
* Not Applicable
** Contained in Annual Report
<PAGE>
MASSACHUSETTS INVESTORS GROWTH STOCK FUND
Supplement to the April 1, 1998 Prospectus and
Statement of Additional Information
The following information should be read in conjunction with the Fund's
Prospectus and Statement of Additional Information ("SAI"), dated April 1, 1998,
and contains a description of Class I shares.
Class I shares are available for purchase only by certain investors as
described under the caption "Eligible Purchasers" below.
EXPENSE SUMMARY
<TABLE>
<CAPTION>
Shareholder Transaction Expenses: Class I
-------
<S> <C>
Maximum Initial Sales Charge Imposed on Purchases of Fund
Shares (as a percentage of offering price) .................................. None
Maximum Contingent Deferred Sales Charge (as a percentage
of original purchase price or redemption proceeds, as applicable) ........... None
<CAPTION>
<S> <C>
Annual Operating Expenses of the Fund (as a percentage of average net assets):
Management Fees............................................................... 0.28%
Rule 12b-1 Fees............................................................... None
Other Expenses(1)............................................................. 0.21%
----
Total Operating Expenses...................................................... 0.49%
</TABLE>
- ----------
(1) The Fund has an expense offset arrangement which reduces the Fund's
custodian fee based upon the amount of cash maintained by the Fund with
its custodian and dividend disbursing agent, and may enter into other such
arrangements and directed brokerage arrangements (which would also have
the effect of reducing the Fund's expenses). Any such fee reductions are
not reflected under "Other Expenses."
Example of Expenses
An investor would pay the following dollar amounts of expenses on a $1,000
investment in Class I shares of the Fund, assuming (a) a 5% annual return and
(b) redemption at the end of each of the time periods indicated:
Period Class I
------ -------
1 year.......................... $ 5
3 years......................... 16
5 years......................... 27
10 years........................ 62
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. A more complete description of the Fund's
management fee is set forth under the caption "Management of the Fund" in the
Prospectus.
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.
-1-
<PAGE>
CONDENSED FINANCIAL INFORMATION
The following information should be read in conjunction with the financial
statements included in the Fund's Annual Report to shareholders, which are
incorporated by reference into the SAI in reliance upon the report of the Fund's
independent auditors, given upon their authority as experts in accounting and
auditing. The Fund's independent auditors are Deloitte & Touche LLP.
Financial Highlights
Period Ended
November 30, 1997*
Class I
Per share data (for a share outstanding throughout the period):
Net asset value - beginning of period $9.86
Income from investment operations# -
Net investment income $0.03
Net realized and unrealized gain on investments and
foreign currency transactions 4.82
Total from investment operations $4.85
Net asset value - end of period $14.71
Total return 49.19%***
Ratios (to average net assets)/Supplemental data:
Expenses## 0.49%**
Net investment income 0.22%**
Portfolio turnover 93%
Net assets at end of period (000 omitted) $12,482
Average commission rate $0.0609
- ----------
* For the period from the inception of Class I shares, January 2, 1997,
through November 30, 1997.
** Annualized
*** Not Annualized
# Per share data are based on average shares outstanding.
## The Fund's expenses are calculated without reduction for fees paid
indirectly.
ELIGIBLE PURCHASERS
Class I shares are available for purchase only by the following purchasers
("Eligible Purchasers"):
(i) certain retirement plans established for the benefit of employees of
Massachusetts Financial Services Company ("MFS"), the Fund's investment
adviser, and employees of MFS' affiliates; and
(ii) any fund distributed by MFS Fund Distributors, Inc. ("MFD"), the Fund's
distributor, if the fund seeks to achieve its investment objective by
investing primarily in shares of the Fund and other funds distributed by
MFD.
In no event will the Fund, MFS, MFD or any of their affiliates pay any sales
commissions or compensation to any third party in connection with the sale of
Class I shares; the payment of any such sales commission or compensation would,
under the Fund's policies, disqualify the purchaser as an eligible investor of
Class I shares.
SHARE CLASSES OFFERED BY THE FUND
Four classes of shares of the Fund currently are offered for sale, Class A
shares, Class B shares, Class C shares and Class I shares. Class I shares are
available for purchase only by Eligible Purchasers, as defined
-2-
<PAGE>
above, and are described in this Supplement. Class A shares, Class B shares and
Class C shares are described in the Fund's Prospectus and are available for
purchase by the general public.
Class A shares are offered at net asset value plus an initial sales charge
up to a maximum of 5.75% of the offering price (or a contingent deferred sales
charge (a "CDSC") of 1.00% upon redemption during the first year in the case of
purchases of $1 million or more and certain purchases by retirement plans), and
are subject to an annual distribution fee and service fee up to a maximum of
0.35% per annum. Class B shares are offered at net asset value without an
initial sales charge but are subject to a CDSC upon redemption (declining from
4.00% during the first year to 0% after six years) and an annual distribution
fee and service fee up to a maximum of 1.00% per annum; Class B shares convert
to Class A shares approximately eight years after purchase. Class C shares are
offered at net asset value without an initial sales charge but are subject to a
CDSC of 1.00% upon redemption during the first year and an annual distribution
fee and service fee up to a maximum of 1.00% per annum. Class I shares are
offered at net asset value without an initial sales charge or CDSC and are not
subject to a distribution or service fee. Class C and Class I shares do not
convert to any other class of shares of the Fund.
OTHER INFORMATION
Eligible Purchasers, as defined above, may exchange Class I shares of the
Fund for Class I shares of any other Fund available for purchase by such
Eligible Purchasers at their net asset value (if available for sale), and may
exchange Class I shares of the Fund for shares of the MFS Money Market Fund (if
available for sale), and may redeem Class I shares of the Fund at net asset
value. Distributions paid by the Fund with respect to Class I shares generally
will be greater than those paid with respect to Class A shares, Class B shares
and Class C shares because expenses attributable to Class A shares, Class B
shares and Class C shares generally will be higher.
The date of this Supplement is April 1, 1998
-3-
<PAGE>
Prospectus
Massachusetts Investors Growth Stock Fund
APRIL 1, 1998
Class A Shares of Beneficial Interest
Class B Shares of Beneficial Interest
Class C Shares of Beneficial Interest
- --------------------------------------------------------------------------------
The investment objective of Massachusetts Investors Growth Stock Fund (the
"Fund") is to provide long-term growth of capital and future income rather than
current income (see "Investment Objective and Policies"). The minimum initial
investment is generally $1,000 per account (see "Information Concerning Shares
of the Fund -- Purchases"). The Fund's investment adviser and distributor are
Massachusetts Financial Services Company ("MFS" or the "Adviser") and MFS Fund
Distributors, Inc. ("MFD"), respectively, both of which are located at 500
Boylston Street, Boston, Massachusetts 02116.
Investment products are not insured by the FDIC or any other government agency,
and are not deposits or other obligations of, or guaranteed by, any financial
institution. Shares of mutual funds are subject to investment risk, including
possible loss of the principal amount invested, and will fluctuate in value. You
may receive more or less than you paid when you redeem your shares.
This Prospectus sets forth concisely the information concerning the Fund that a
prospective investor ought to know before investing. The Fund has filed with the
Securities and Exchange Commission (the "SEC") a Statement of Additional
Information, dated April 1, 1998, as amended or supplemented from time to time
(the "SAI"), which contains more detailed information about the Fund and is
incorporated into this Prospectus by reference. See page 37 for a further
description of the information set forth in the SAI. A copy of the SAI may be
obtained without charge by contacting the Shareholder Servicing Agent (see back
cover for address and phone number). The SEC maintains an Internet World Wide
Web site (http://www.sec.gov) that contains the SAI, materials that are
incorporated by reference into this Prospectus and the SAI, and other
information regarding the Fund. This Prospectus is available on the Adviser's
Internet World Wide Web site at http://www.mfs.com.
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.
Investors should read this Prospectus and retain it for
future reference.
<PAGE>
Table of Contents
Page
1. Expense Summary .................................................... 3
2. Condensed Financial Information .................................... 4
3. The Fund ........................................................... 9
4. Investment Objective and Policies .................................. 9
5. Certain Securities and Investment Techniques ....................... 10
6. Additional Risk Factors ............................................ 15
7. Management of the Fund ............................................. 17
8. Information Concerning Shares of the Fund .......................... 18
Purchases ..................................................... 18
Exchanges ..................................................... 25
Redemptions and Repurchases ................................... 26
Distribution Plan ............................................. 29
Distributions ................................................. 32
Tax Status .................................................... 32
Net Asset Value ............................................... 33
Description of Shares, Voting Rights and Liabilities .......... 33
Performance Information ....................................... 34
9. Shareholder Services ............................................... 34
Appendix A ........................................................ A-1
2
<PAGE>
1. EXPENSE SUMMARY
<TABLE>
<CAPTION>
Shareholder Transaction Expenses:
Class A Class B Class C
------------------ --------------- ---------------
<S> <C> <C> <C>
Maximum Initial Sales Charge Imposed on
Purchases of Fund Shares (as a
percentage of offering price) ....................................... 5.75% 0.00% 0.00%
Maximum Contingent Deferred Sales
Charge (as a percentage of original
purchase price or redemption proceeds,
as applicable) ...................................................... See Below(1) 4.00% 1.00%
Annual Operating Expenses (as a percentage of average net assets):
Management Fees ....................................................... 0.28% 0.28% 0.28%
Rule 12b-1 Fees ....................................................... 0.32%(2) 1.00%(3) 1.00%(3)
Other Expenses(4) ..................................................... 0.21% 0.21% 0.21%
-------- ------- -------
Total Operating Expenses .............................................. 0.81% 1.49% 1.49%
</TABLE>
- --------------
(1) Purchases of $1 million or more and certain purchases by retirement plans
are not subject to an initial sales charge; however, a contingent deferred
sales charge (a "CDSC") of 1% will be imposed on such purchases in the event
of certain redemption transactions within 12 months following such purchases
(see "Information Concerning Shares of the Fund -- Purchases" below).
(2) The Fund has adopted a distribution plan for its shares in accordance with
Rule 12b-1 under the Investment Company Act of 1940, as amended (the "1940
Act") (the "Distribution Plan"), which provides that it will pay
distribution/service fees aggregating up to (but not necessarily all of)
0.35% per annum of the average daily net assets attributable to Class A
shares. Assets attributable to Class A shares sold prior to March 1, 1991
are subject to a service fee of 0.15% per annum. Distribution expenses paid
under this plan, together with the initial sales charge, may cause long-term
shareholders to pay more than the maximum sales charge that would have been
permissible if imposed entirely as an initial sales charge. See "Information
Concerning Shares of the Fund -- Distribution Plan" below.
(3) The Fund's Distribution Plan provides that it will pay distribution/service
fees aggregating up to 1.00% per annum of the average daily net assets
attributable to Class B shares and Class C shares, respectively.
Distribution expenses paid under the Distribution Plan with respect to Class
B or Class C shares, together with any CDSC, may cause long-term
shareholders to pay more than the maximum sales charge that would have been
permissible if imposed entirely as an initial sales charge. See "Information
Concerning Shares of the Fund--Distribution Plan" below.
(4) The Fund has an expense offset arrangement which reduces the Fund's
custodian fee based upon the amount of cash maintained by the Fund with its
custodian and dividend disbursing agent, and may enter into other such
arrangements and directed brokerage arrangements (which would also have the
effect of reducing the Fund's expenses). Any such fee reductions are not
reflected under "Other Expenses."
3
<PAGE>
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 Class C
- ----------------------- --------- --------------------------- ------------------
<S> <C> <C> <C> <C> <C>
(1) (1)
1 year ........... $ 65 $ 55 $ 15 $25 $15
3 years .......... 82 77 47 47 47
5 years .......... 100 101 81
10 Years ......... 152 159(2) 159(2)
</TABLE>
- --------------
(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 Plan."
The "Example" set forth above should not be considered a representation of past
or future expenses of the Fund; actual expenses may be greater or less than
those shown.
2. CONDENSED FINANCIAL INFORMATION
The following information has been audited for at least the latest five fiscal
years of the Fund and should be read in conjunction with the financial
statements included in the Fund's Annual Report to shareholders which are
incorporated by reference into the SAI in reliance upon the report of the Fund's
independent auditors given upon their authority, as experts in accounting and
auditing. The Fund's current independent auditors are Deloitte & Touche LLP.
4
<PAGE>
Financial Highlights
Class A, Class B and Class C Shares
<TABLE>
<CAPTION>
Class A Shares
--------------
Year Ended November 30,
-----------------------
1997 1996 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value -- beginning of period .... $ 13.44 $ 12.51 $ 10.48 $ 12.97
----------- ----------- ----------- -----------
Income from investment operations# --
Net investment income (loss) ............ $ 0.01 $ (0.01) $ (0.01) $ (0.01)
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions ........................... 4.33 2.55 3.12 (0.49)
----------- ----------- ----------- -----------
Total from investment operations ...... $ 4.34 $ 2.54 $ 3.11 $ (0.50)
----------- ----------- ----------- -----------
Less distributions declared to shareholders
from net realized gain on investments
and foreign currency transactions ....... $ (3.10) $ (1.61) $ (1.08) $ (1.99)
----------- ----------- ----------- -----------
Net asset value -- end of period .......... $ 14.68 $ 13.44 $ 12.51 $ 10.48
=========== =========== =========== ===========
Total return++ ............................ 42.91% 23.87% 32.91% (5.00)%
Ratios (to average net assets)/
Supplemental data:
Expenses## .............................. 0.71% 0.72% 0.73% 0.72%
Net investment income (loss) ............ 0.05% (0.05)% (0.08)% (0.06)%
Portfolio turnover ........................ 93% 107% 46% 56%
Average commission rate### ................ $ 0.0609 $ 0.0611 $ -- $ --
Net assets at end of period (000,000
omitted) ................................ $ 1,773 $ 1,341 $ 1,180 $ 977
</TABLE>
- --------------
# Per share data are based on average shares outstanding.
## For fiscal years ending after September 1, 1995, the Fund's expenses are
calculated without reduction for fees paid indirectly.
### Average commission rate is calculated for funds with fiscal years beginning
on or after September 1, 1995.
++ Total returns for Class A shares do not include the applicable sales
charge. If the charge had been included, the results would have been lower.
5
<PAGE>
<TABLE>
<CAPTION>
Class A -- continued
--------------------
Year Ended November 30,
-----------------------
1993 1992 1991 1990 1989 1988
---- ---- ---- ---- ---- -----
<S> <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
--------- --------- --------- --------- --------- ---------
Income from investment
operations# --
Net investment income (loss) .................. $ (0.01) $ (0.03) $ 0.01 $ 0.05 $ 0.09 $ 0.12
Net realized and unrealized gain
(loss) on investments and
foreign currency transactions .............. 1.55 2.07 2.93 (1.02) 3.14 0.64
--------- --------- --------- --------- --------- ---------
Total from investment
operations ............................... $ 1.54 $ 2.04 $ 2.94 $ (0.97) $ 3.23 $ 0.76
--------- --------- --------- --------- --------- ---------
Less distributions declared to
shareholders --
From net investment income .................... $ -- $ -- $ (0.03) $ (0.05) $ (0.08) $ (0.15)
From net realized gain on
investments and foreign
currency transactions ....................... (0.72) (0.76) (0.52) (1.20) (0.84) (1.27)
--------- --------- --------- --------- --------- ---------
Total distributions declared to
shareholders ............................. $ (0.72) $ (0.76) $ (0.55) $ (1.25) $ (0.92) $ (1.42)
--------- --------- --------- --------- --------- ---------
Net asset value -- end of period ............... $ 12.97 $ 12.15 $ 10.87 $ 8.48 $ 10.70 $ 8.39
========= ========= ========= ========= ========= =========
Total return++ ................................. 13.43% 19.35% 36.56% (10.27)% 42.14% 8.21%
Ratios (to average net assets)/
Supplemental data:
Expenses ...................................... 0.71% 0.67% 0.63% 0.53% 0.54% 0.58%
Net investment income (loss) .................. (0.19)% (0.24)% 0.14% 0.55% 0.91% 1.27%
Portfolio turnover ............................. 52% 16% 39% 44% 32% 75%
Net assets at end of period
(000,000 omitted) ............................ $ 1,132 $ 1,070 $ 950 $ 749 $ 907 $ 735
</TABLE>
- --------------
# Per share data for the periods subsequent to November 30, 1992, are
based on average shares outstanding.
++ Total returns for Class A shares do not include the applicable sales
charge (except for reinvested dividends prior to March 1, 1991). If the
charge had been included, the results would have been lower.
6
<PAGE>
<TABLE>
<CAPTION>
Class B
-------
Year Ended November 30,
-----------------------
1997 1996 1995 1994 1993*
---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C>
Per share data (for a share
outstanding throughout each
period):
Net asset value -- beginning of period $ 13.12 $ 12.26 $ 10.35 $ 12.93 $ 12.91
--------- --------- --------- --------- ---------
Income from investment operations# --
Net investment loss ................... $ (0.09) $ (0.11) $ (0.11) $ (0.09) $ (0.01)
Net realized and unrealized gain
(loss) on investments and foreign
currency transactions .............. 4.21 2.51 3.10 (0.50) 0.03
--------- --------- --------- --------- ---------
Total from investment operations ..... $ 4.12 $ 2.40 $ 2.99 $ (0.59) $ 0.02
--------- --------- --------- --------- ---------
Less distributions declared to
shareholders from net realized gain
on investments and foreign currency
transactions ......................... $ (3.01) $ (1.54) $ (1.08) $ (1.99) $ --
--------- --------- --------- --------- ---------
Net asset value -- end of period ....... $ 14.23 $ 13.12 $ 12.26 $ 10.35 $ 12.93
========= ========= ========= ========= =========
Total return ........................... 41.77% 22.87% 32.09% (5.82)% 0.70%+
Ratios (to average net assets)/
Supplemental data:
Expenses## ........................... 1.50% 1.61% 1.63% 1.60% 1.49%+
Net investment loss .................. (0.74)% (0.94)% (0.98)% (0.87)% (0.99)%+
Portfolio turnover ..................... 93% 107% 46% 56% 52%
Average commission rate### ............. $ 0.0609 $ 0.0611 $ -- $ -- $ --
Net assets at end of period
(000,000 omitted) .................... $ 93 $ 25 $ 14 $ 9 $ 2
</TABLE>
- ----------
+ Annualized.
* For the period from the inception of Class B shares, September 7, 1993,
through November 30, 1993.
# Per share data are based on average shares outstanding.
## For fiscal years ending after September 1, 1995, the Fund's expenses are
calculated without reduction for fees paid indirectly.
### Average commission rate is calculated for funds with fiscal years
beginning on or after September 1, 1995.
7
<PAGE>
Class C
-------
Period Ended November 30,
-------------------------
1997**
------
Per share data (for a share outstanding throughout
the period):
Net asset value -- beginning of period .............. $ 13.98
-------
Income from investment operations# --
Net investment loss ............................... $ (0.01)
Net realized and unrealized gain on investments and
foreign currency transactions ................... 0.26
-------
Total from investment operations .................. $ 0.25
-------
Net asset value -- end of period .................... $ 14.23
=======
Total return ........................................ 1.79%++
Ratios (to average net assets)/Supplemental data:
Expenses## ......................................... 1.54%+
Net investment loss ................................ (0.91)%+
Portfolio turnover .................................. 93%
Net assets at end of period (000 omitted) ........... $ 383
Average commission rate ............................. $0.0609
- ----------
+ Annualized.
++ Not annualized.
** For the period from the inception of Class C shares, November 3, 1997,
through November 30, 1997.
# Per share data are based on average shares outstanding.
## The Fund's expenses are calculated without reduction for fees paid
indirectly.
8
<PAGE>
3. THE FUND
The Fund is an open-end, diversified management investment company which was
organized as a business trust under the laws of The Commonwealth of
Massachusetts in 1985. The Fund is the successor to the business of
Massachusetts Investors Growth Stock Fund, Inc. (the "Trust"), incorporated in
Massachusetts in 1958 to continue the business of a Delaware corporation
organized in 1932. All references in this Prospectus to the Fund's past
activities are intended to include those of the Trust, unless the context
indicates otherwise. Shares of the Fund are sold continuously to the public and
the Fund uses the proceeds to buy securities (common stocks and other
instruments) for its portfolio. Three classes of shares of the Fund currently
are offered for sale to the general public. Class A shares are offered at net
asset value plus an initial sales charge up to a maximum of 5.75% of the
offering price (or a CDSC of 1.00% upon redemption during the first year in the
case of purchases of $1 million or more and certain purchases by retirement
plans) and are subject to an annual distribution and service fee up to a
maximum of 0.35% per annum. Class B shares are offered at net asset value
without an initial sales charge but are subject to a CDSC upon redemption
(declining from 4.00% during the first year to 0% after six years) and an
annual distribution fee and service fee up to a maximum of 1.00% per annum;
Class B shares convert to Class A shares approximately eight years after
purchase. Class C shares are offered at net asset value without an initial
sales charge or a CDSC, but are subject to a CDSC of 1.00% upon redemption
during the first year and an annual distribution fee and service fee up to a
maximum of 1.00% per annum. Class C shares do not convert to any other class of
shares of the Fund. In addition, the Fund offers an additional class of shares,
Class I shares, exclusively to certain institutional investors. Class I shares
are made available by means of a separate Prospectus Supplement provided to
institutional investors eligible to purchase Class I shares and are offered at
net asset value without an initial sales charge or CDSC upon redemption and
without an annual distribution and service fee.
The Fund's Board of Trustees provides broad supervision over its affairs.
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 depends on
the conditions and trends in the economy and the financial marketplace. The
Fund also offers to buy back (redeem) its shares from its shareholders at any
time at net asset value less any applicable CDSC.
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
9
<PAGE>
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.
5. CERTAIN SECURITIES AND INVESTMENT TECHNIQUES
Consistent with the Fund's investment objective and policies, the Fund may
engage in the following securities transactions and investment techniques, many
of which are described more fully in the SAI. See "Investment Objective,
Policies and Restrictions" in the SAI.
Foreign Securities: The Fund may invest up to 50% (and generally expects to
invest between 0% and 30%) of its total assets in foreign securities (not
including American Depositary Receipts ("ADRs")). 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.
Emerging Market Securities: Consistent with the Fund's objective and policies,
the Fund may invest in securities of issuers whose principal activities are
located in emerging market countries. Emerging market countries include any
country determined by the Adviser to have an emerging market economy, taking
into account a number of factors, including whether the country has a low- to
middle-income economy according to the International Bank for Reconstruction
and Development, the country's foreign currency debt rating, its political and
economic stability and the development of its financial and capital markets.
The Adviser determines whether an issuer's principal activities are located in
an emerging market country by considering such factors as its country of
organization, the principal trading market for its securities and the source of
its revenues and location of its
10
<PAGE>
assets. The issuer's principal activities generally are deemed to be located in
a particular country if: (a) the security is issued or guaranteed by the
government of that country or any of its agencies, authorities or
instrumentalities; (b) the issuer is organized under the laws of, and maintains
a principal office in, that country; (c) the issuer has its principal
securities trading market in that country; (d) the issuer derives 50% or more
of its total revenues from goods sold or services performed in that country; or
(e) the issuer has 50% or more of its assets in that country.
American Depositary Receipts: The Fund may invest in ADRs, which are
certificates issued by a U.S. depository (usually a bank) and represent a
specified quantity of shares of an underlying non-U.S. stock on deposit with a
custodian bank as collateral. Because ADRs trade on United States securities
exchanges, the Adviser does not treat them as foreign securities. However, they
are subject to many of the risks of foreign securities, such as changes in
exchange rates and more limited information about foreign issuers.
Repurchase Agreements: The Fund may enter into repurchase agreements in order
to earn 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 SAI, the Fund has adopted certain procedures intended to
minimize 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 (the "Exchange") and to
member banks of the Federal Reserve System, and would be required to be secured
continuously by collateral in cash, U.S. Government Securities or an
irrevocable letter of credit 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 or a letter of credit).
"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.
While awaiting delivery of securities purchased on such bases, the Fund will
segregate liquid assets sufficient to cover its commitments. Although the Fund
does not intend to make such purchases for speculative purposes, purchases of
securities on such bases may involve more risk than other types of purchases.
Restricted Securities: The Fund may also purchase securities that are not
registered under the Securities Act of 1933 ("1933 Act") ("restricted
securities"), including those that
11
<PAGE>
can be offered and sold to "qualified institutional buyers" under Rule 144A
under the 1933 Act ("Rule 144A securities"). A determination is made based upon
a continuing review of the trading markets for a specific Rule 144A security,
whether such security is liquid and thus not subject to the Fund's limitations
on investing not more than 15% of its net assets in illiquid investments. The
Board of Trustees has adopted guidelines and delegated to MFS the daily
function of determining and monitoring the liquidity of Rule 144A securities.
The Board, however, retains oversight of the liquidity determinations, focusing
on factors, such as valuation, liquidity and availability of information.
Investing in Rule 144A securities could have the effect of decreasing the level
of liquidity in the Fund to the extent that qualified institutional buyers
become for a time uninterested in purchasing Rule 144A securities held in the
Fund's portfolio. Subject to the Fund's 15% limitation on investments in
illiquid investments, the Fund may also invest in restricted securities that
may not be sold under Rule 144A, which represents certain risks. As a result,
the Fund might not be able to sell these securities when the Adviser wishes to
do so, or might have to sell them at less than fair value. In addition, market
quotations are less readily available. Therefore, the judgment of the Adviser
may at times play a greater role in valuing these securities than in the case
of unrestricted securities.
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. However, the writing of options constitutes only a
partial hedge, up to the amount of the premium, less any transaction costs. In
contrast, if the price of the security underlying the option moves adversely to
the Fund's position, the option may be exercised and the Fund will be required
to purchase or sell the security at a disadvantageous price, resulting in
losses which may only be partially offset by the amount of the premium. The
Fund may also write combinations of put and call options on the same security,
known as "straddles." Such transactions can generate additional premium income
but also present increased risk.
The Fund may purchase put or call options in anticipation of declines in the
value of portfolio securities or increases in the value of securities to be
acquired. In the event that such declines or increases occur, the Fund may be
able to offset the resulting adverse effect on its portfolio, in whole or in
part, through the options purchased. The risk assumed by the Fund in connection
with such transactions is limited to the amount of the premium and related
transaction costs associated with the option, although the Fund may be required
to forfeit such amounts in the event that the prices of securities underlying
the options do not move in the direction or to the extent anticipated.
The Fund may also enter into options on the yield "spread," or yield
differential, between two securities, a transaction referred to as a "yield
curve" option, for hedging and non-
12
<PAGE>
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 SAI. The trading of yield curve
options is subject to all the risks associated with trading other types of
options, as discussed below under "Additional Risk Factors" and in the SAI. In
addition, such options present risks of loss even if the yield on one of the
underlying securities remains constant if the spread moves in a direction or to
an extent which was not anticipated.
Options on Stock Indices: The Fund may write (sell) covered call and put
options and purchase call and put options on stock indices. The Fund may write
options on stock indices for the purpose of increasing its gross income and to
protect its portfolio against declines in the value of securities it owns or
increases in the value of securities to be acquired. When the Fund writes an
option on a stock index, and the value of the index moves adversely to the
holder's position, the option will not be exercised, and the Fund will either
close out the option at a profit or allow it to expire unexercised. The Fund
will thereby retain the amount of the premium, which will increase its gross
income and offset part of the reduced value of portfolio securities or the
increased cost of securities to be acquired. Such transactions, however, will
constitute only partial hedges against adverse price fluctuations, since any
such fluctuations will be offset only to the extent of the premium received by
the Fund for the writing of the option. In addition, if the value of an
underlying index moves adversely to the Fund's option position, the option may
be exercised, and the Fund will experience a loss which may only be partially
offset by the amount of the premium received.
The Fund may also purchase put or call options on stock indices in order to
hedge its investments against a decline in value or to attempt to reduce the
risk of missing a market or industry segment advance. The Fund's possible loss
in either case will be limited to the premium paid for the option, plus related
transaction costs.
Options on Foreign Currencies: The Fund may purchase and write options on
foreign currencies ("Options on Foreign Currencies") for the purpose of
protecting against declines in the dollar value of portfolio securities and
against increases in the dollar cost of securities to be acquired. As in the
case of other types of options, however, the writing of an Option on Foreign
Currency will constitute only a partial hedge, up to the amount of the premium
received, and the Fund may be required to purchase or sell foreign currencies
at disadvantageous exchange rates, thereby incurring losses. The purchase of an
Option on Foreign Currency may constitute an effective hedge against
fluctuations in exchange rates although, in the event of rate movements adverse
to the Fund's position, it may forfeit the entire amount of the premium paid
for the option plus related transaction costs. The Fund may also be required or
elect to receive delivery of the foreign currencies underlying Options on
Foreign Currencies into which it has entered. Under certain circumstances, such
13
<PAGE>
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.
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.
Options on Futures Contracts: The Fund may purchase and write options on Futures
Contracts ("Options on Futures Contracts") in order to protect against declines
in the values of portfolio securities or against increases in the cost of
securities to be acquired. Purchases of Options on Futures Contracts may present
less risk in hedging the Fund's portfolio than the purchase or sale of the
underlying Futures Contracts since the potential loss is limited to the amount
of the premium plus related transaction costs, although it may be necessary to
exercise the option to realize any profit, which results in the establishment of
a futures position. The writing of Options on Futures Contracts, however, does
not present less risk than the trading of Futures Contracts and will constitute
only a partial hedge, up to the amount of the premium received. In addition, if
an option is exercised, the Fund may suffer a loss on the transaction. The Fund
may also purchase and write Options on Futures Contracts for non-hedging
purposes, to the extent permitted by applicable law.
Forward Contracts: The Fund may enter into forward foreign currency exchange
contracts for the purchase or sale of a fixed quantity of a foreign currency at
a future date ("Forward Contracts"). The Fund may enter into Forward Contracts
for hedging purposes as well as for non-hedging purposes (i.e., speculative
purposes). By entering into transactions in Forward Contracts for hedging
purposes, the Fund may be required to forego the benefits of advantageous
changes in exchange rates and, in the case of Forward Contracts entered into for
non-hedging purposes, the Fund may sustain losses which will reduce its gross
income. Such transactions, therefore, are considered speculative. Forward
Contracts are traded over-the-counter and not on organized commodities or
securities exchanges. As a result, Forward Contracts operate in a manner
distinct from exchange-traded instruments, and their use involves certain risks
beyond those associated with transactions in Futures Contracts or options traded
on exchanges. The Fund may be required or elect to receive delivery of the
foreign currencies underlying Forward Contracts into which it has entered. Under
certain circumstances, such as where the Adviser believes that the appli-
14
<PAGE>
cable 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 which require use of
segregated assets or "cover" in connection with the purchase and sale of such
contracts.
6. ADDITIONAL RISK FACTORS
The following discussion of additional risk factors supplements the risk factors
described above. Additional information concerning risk factors can be found
under the caption "Investment Objective, Policies and Restrictions" in the SAI.
Futures Contracts, Options, Options on Futures Contracts, Forward Contracts, and
Options on Foreign Currencies: 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. There can be no assurance that a liquid secondary market will
exist for any contract purchased or sold, and the Fund may be required to
maintain a position until exercise or expiration, which could result in losses.
The Fund may also be required or may elect to receive delivery of the foreign
currencies underlying Forward Contracts, which may involve certain risks.
Further, Forward Contracts and Options on Foreign Currencies entail particular
risks related to conditions affecting the underlying currency. Over-the-counter
transactions in options on securities, Options on Foreign Currencies and Forward
Contracts also involve risks arising from the lack of an organized exchange
trading environment. Transactions in Futures Contracts, Options on Futures
Contracts, Forward Contracts Options on Foreign Currencies and other options are
subject to other risks as well.
Emerging Market Securities: In addition to the general risks of investing in
foreign securities, investments in emerging markets involve special risks.
Securities of many issuers in emerging markets may be less liquid and more
volatile than securities of comparable domestic issuers. Emerging markets may
have different clearance and settlement procedures, and in certain markets there
have been times when settlements have been unable to keep pace with the volume
of securities transactions, making it difficult to conduct such transactions.
Delays in settlement could result in temporary periods when a portion of the
assets of the Fund is uninvested and no return is earned thereon. The inability
of the Fund to make intended security purchases due to settlement problems could
cause the Fund to miss attractive investment opportunities. Inability to dispose
of
15
<PAGE>
portfolio securities due to settlement problems could result in losses to the
Fund due to subsequent declines in values of the portfolio securities, decrease
in the level of liquidity in the Fund's portfolio, or, if the Fund has entered
into a contract to sell the security, possible liability to the purchaser.
Certain markets may require payment for securities before delivery, and in such
markets the Fund bears the risk that the securities will not be delivered and
that the Fund's payments will not be returned. Securities prices in emerging
markets can be significantly more volatile than in the more developed nations of
the world, reflecting the greater uncertainties of investing in less established
markets and economics. In particular, countries with emerging markets may have
relatively unstable governments, present the risk of nationalization of
businesses, restrictions on foreign ownership, or prohibitions of repatriation
of assets, and may have less protection of property rights than more developed
countries. The economics of countries with emerging markets may be predominantly
based on only a few industries, may be highly vulnerable to changes in local or
global trade conditions, and may suffer from extreme and volatile debt burdens
or inflation rates. Local securities markets may trade a small number of
securities and may be unable to respond effectively to increases in trading
volume, potentially making prompt liquidation of substantial holdings difficult
or impossible at times. Securities of issuers located in countries with emerging
markets may have limited marketability and may be subject to more abrupt or
erratic price movements.
Certain emerging markets may require governmental approval for the repatriation
of investment income, capital or the proceeds of sales of securities by foreign
investors. In addition, if a deterioration occurs in an emerging market's
balance of payments or for other reasons, a country could impose temporary
restrictions on foreign capital remittances. The Fund could be adversely
affected by delays in, or a refusal to grant, any required governmental approval
for repatriation of capital, as well as by the application to the Fund of any
restrictions on investments.
Investment in certain foreign emerging market debt obligations may be restricted
or controlled to varying degrees. These restrictions or controls may at times
preclude investment in certain foreign emerging market debt obligations and
increase the expenses of the Fund.
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 the 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 Conduct Rules
of the National Association of Securities Dealers, Inc. (the "NASD") and such
other policies as the Trustees may determine, the Adviser may
16
<PAGE>
consider sales of shares of the Fund and of the other investment clients of MFD
as a factor in the selection of broker-dealers to execute the Fund's portfolio
transactions. From time to time, the Adviser may direct certain portfolio
transactions to broker-dealer firms which, in turn, have agreed to pay a portion
of the Fund's operating expenses (e.g., fees charged by the custodian of the
Fund's assets). For a further discussion of portfolio transactions, see
"Portfolio Transactions and Brokerage Commissions" in the SAI.
----------------------
The policies described above are not fundamental except for the one policy
specifically noted as fundamental, and may be changed without shareholder
approval. The SAI 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 SAI may be changed
without shareholder approval unless indicated otherwise.
Except with respect to the Fund's policy on borrowing and on investing in
illiquid securities, 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.
7. MANAGEMENT OF THE FUND
Investment Adviser -- The Adviser manages the Fund pursuant to an Investment
Advisory Agreement dated July 19, 1985 (the "Advisory Agreement"). Under the
Advisory Agreement, the Adviser provides the Fund with overall investment
advisory services. Christian Felipe, a Senior Vice President of the Adviser, has
been a portfolio manager of the Fund since May of 1995. Mr. Felipe has been
employed as a portfolio manager by the Adviser since 1986. 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, 1997, MFS
received management fees under the Advisory Agreement of $4,290,313, equivalent
on an annualized basis to 0.28% 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[RegTM] Municipal Income Trust, MFS
Multimarket Income Trust, MFS Government Markets Income Trust, MFS Intermediate
Income Trust, MFS Charter Income Trust, MFS Special Value Trust, MFS
Institutional Trust, MFS Variable Insurance Trust, 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.), a subsidiary of Sun
Life Assurance Company of Canada ("Sun Life"), in connection with the sale of
various fixed/variable annuity contracts. MFS and its wholly owned subsidiary,
MFS Institutional Advisors, Inc., provide investment advice to substantial
private clients.
17
<PAGE>
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 $77.6 billion
on behalf of over 2.9 million investor accounts as of February 28, 1998. MFS is
a subsidiary of Sun Life of Canada (U.S.) Financial Services Holdings, Inc.,
which in turn is an indirect wholly owned subsidiary of Sun Life. The Directors
of MFS are John W. Ballen, Jeffrey L. Shames, Arnold D. Scott, Donald A. Stewart
and John D. McNeil. Mr. Shames is the Chairman, Chief Executive Officer, and
President of MFS, Mr. Ballen is an Executive Vice President of MFS, and Mr.
Scott is the Secretary and a Senior Executive Vice President of MFS; Messrs.
McNeil and Stewart 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.
Mr. Shames, the Chairman, Chief Executive Officer, President and a Director of
MFS, is a Trustee of the Fund. W. Thomas London, Stephen E. Cavan, James R.
Bordewick, Jr., James O. Yost, Ellen Moynihan and Mark E. Bradley, all of whom
are officers of MFS, are officers of the Fund.
In certain instances there may be securities which are suitable for the Fund's
portfolio as well as for portfolios of other clients of MFS. Some simultaneous
transactions are inevitable when several clients receive investment advice from
MFS, particularly when the same security is suitable for more than one client.
While in some cases this arrangement could have a detrimental effect on the
price or availability of the security as far as the Fund is concerned, in other
cases, however, it may produce increased investment opportunities for the Fund.
Administrator -- MFS provides the Fund with certain financial, legal,
compliance, shareholder communications and other administrative services
pursuant to a Master Administrative Services Agreement dated March 1, 1997, as
amended. Under this Agreement, the Fund pays MFS an administrative fee up to
0.015% per annum of the Fund's average daily net assets. This fee reimburses MFS
for a portion of the costs it incurs to provide such services.
Distributor -- MFD, a wholly owned subsidiary of MFS, is the distributor of
shares of the Fund and also serves as distributor for each of the other MFS
Funds.
Shareholder Servicing Agent -- MFS Service Center, Inc. (the "Shareholder
Servicing Agent"), a wholly owned subsidiary of MFS, performs transfer agency,
certain dividend disbursing agency and other services for the Fund.
18
<PAGE>
8. INFORMATION CONCERNING SHARES OF THE FUND
Purchases
Class A, Class B and Class C shares of the Fund may be purchased at the public
offering price through any dealer. As used in the Prospectus and any appendices
thereto, the term "dealer" includes any broker, dealer, bank (including bank
trust departments), registered investment adviser, financial planner and any
other financial institutions having a selling agreement or other similar
agreement with MFD. Dealers may also charge their customers fees relating to
investments in the Fund.
This prospectus offers Class A, Class B and Class C shares to the general public
which bear sales charges and distribution fees in different forms and amounts,
as described below.
CLASS A SHARES: Class A shares are generally offered at net asset value plus an
initial sales charge, but in certain cases are offered at net asset value
without an initial sales charge but subject to a CDSC.
Purchases Subject to Initial Sales Charge. Class A shares are offered at net
asset value plus an initial sales charge as follows:
<TABLE>
<CAPTION>
Sales Charge* as Percentage of
------------------------------ Dealer Allowance
Offering Net Amount as a Percentage
Amount of Purchases Price Invested of Offering Price
------------------- ----- -------- -----------------
<S> <C> <C> <C>
Less than $50,000 ......................... 5.75% 6.10% 5.00%
$50,000 but less than $100,000 ............ 4.75 4.99 4.00
$100,000 but less than $250,000 ........... 4.00 4.17 3.20
$250,000 but less than $500,000............ 2.95 3.04 2.25
$500,000 but less than $1,000,000 ......... 2.20 2.25 1.70
$1,000,000 or more ........................ None** None** See Below**
</TABLE>
- ----------
* Because of rounding in the calculation of offering price, actual sales
charges may be more or less than those calculated using the percentages
above.
** A CDSC will apply to such purchases, as discussed below.
MFD allows discounts to dealers (which are alike for all dealers) from the
applicable public offering price, as shown in the above table. In the case of
the maximum sales charge, the dealer retains 5% and MFD retains approximately
3/4 of 1% of the public offering price. The sales charge may vary depending on
the number of shares of the Fund as well as certain other MFS 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 Purchase privileges by which the sales
charge may be reduced is set forth in the SAI.
19
<PAGE>
Purchases Subject to a CDSC (but not an initial sales charge). In the
following five circumstances, Class A shares of the Fund are offered at net
asset value without an initial sales charge but subject to a CDSC equal to 1% of
the lesser of the value of the shares redeemed (exclusive of reinvested dividend
and capital gain distributions) or the total cost of such shares, in the event
of a share redemption within 12 months following the purchase:
(i) on investments of $1 million or more in Class A shares;
(ii) on investments in Class A shares by certain retirement plans subject
to the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), if prior to July 1, 1996: (a) the plan had established an
account with the Shareholder Servicing Agent and (b) the sponsoring
organization had demonstrated to the satisfaction of MFD that either
(i) the employer had at least 25 employees or (ii) the aggregate
purchases by the retirement plan of Class A shares of the MFS Funds
would be in an aggregate amount of at least $250,000 within a
reasonable period of time, as determined by MFD in its sole
discretion;
(iii) on investments in Class A shares by certain retirement plans subject
to ERISA, if: (a) the retirement plan and/or sponsoring organization
subscribes to the MFS FUNDamental 401(k) Program or any similar
recordkeeping system made available by the Shareholder Servicing
Agent (the "MFS Participant Recordkeeping System"); (b) the plan
establishes an account with the Shareholder Servicing Agent on or
after July 1, 1996; and (c) the aggregate purchases by the
retirement plan of Class A shares of the MFS Funds will be in an
aggregate amount of at least $500,000 within a reasonable period of
time, as determined by MFD in its sole discretion;
(iv) on investments in Class A shares by certain retirement plans subject
to ERISA, if: (a) the plan establishes an account with the
Shareholder Servicing Agent on or after July 1, 1996 and (b) the
plan has, at the time of purchase, a market value of $500,000 or
more invested in shares of any class or classes of the MFS Funds;
the retirement plan will qualify under this category only if the
plan or its sponsoring organization informs the Shareholder
Servicing Agent prior to the purchase that the plan has a market
value of $500,000 or more invested in shares of any class or classes
of the MFS Funds. The Shareholder Servicing Agent has no obligation
independently to determine whether such a plan qualifies under this
category; and
(v) on investments in Class A shares by certain retirement plans subject
to ERISA, if: (a) the plan establishes an account with the
Shareholder Servicing Agent on or after July 1, 1997; (b) such
plan's records are maintained on a pooled basis by the Shareholder
Servicing Agent; and (c) the sponsoring organization demonstrates to
the satisfaction of MFD that, at the time of purchase, the employer
has at least 200 eligible employees and the plan has aggregate
assets of at least $2,000,000.
20
<PAGE>
In the case of such purchases, MFD will pay commissions to dealers on new
investments in Class A shares made through such dealers, as follows:
Commission Paid
by MFD Cumulative Purchase
to Dealers Amount
---------- ------
1.00% .................. On the first $2,000,000, plus
0.80% .................. Over $2,000,000 to $3,000,000, plus
0.50% .................. Over $3,000,000 to $50,000,000, plus
0.25% .................. Over $50,000,000
For purposes of determining the level of commissions to be paid to dealers with
respect to a shareholder's new investment in Class A shares, purchases for each
shareholder account (and certain other accounts for which the shareholder is a
record or beneficial holder) will be aggregated over a 12-month period
(commencing from the date of the first such purchase).
See "Redemptions and Repurchases -- Contingent Deferred Sales Charge" for
further discussion of the CDSC.
Waivers of Initial Sales Charge and CDSC. In certain circumstances, the
initial sales charge imposed upon purchases of Class A shares and the CDSC
imposed upon redemptions of Class A shares is waived. These circumstances are
described in Appendix A to this Prospectus. In addition to these circumstances,
the CDSC imposed upon the redemption of Class A shares is waived with respect to
shares held by certain retirement plans qualified under Section 401(a) or 403(b)
of the Internal Revenue Code of 1986, as amended (the "Code"), and subject to
ERISA, where:
(i) the retirement plan and/or sponsoring organization does not
subscribe to the MFS Participant Recordkeeping System; and
(ii) the retirement plan and/or sponsoring organization demonstrates to
the satisfaction of, and certifies to, the Shareholder Servicing
Agent that the retirement plan has, at the time of certification or
will have pursuant to a purchase order placed with the
certification, a market value of $500,000 or more invested in shares
of any class or classes of the MFS Funds and aggregate assets of at
least $10 million;
provided, however, that the CDSC will not be waived (i.e., it will be imposed)
(a) with respect to plans which establish an account with the Shareholder
Servicing Agent on or after November 1, 1997, in the event that the plan makes
a complete redemption of all of its shares in the MFS Funds or (b) with respect
to plans which established an account with the Shareholder Servicing Agent
prior to November 1, 1997, in the event that there is a change in law or
regulation which results in a material adverse change to the tax advantaged
nature of the plan, or in the event that the plan and/or sponsoring
organization: (i) becomes insolvent or bankrupt; (ii) is terminated under ERISA
or is liquidated or dissolved; or (iii) is acquired by, merged into, or
consolidated with any other entity.
21
<PAGE>
CLASS B SHARES: Class B shares are offered at net asset value without an
initial sales charge but subject to a CDSC upon redemption as follows:
Year of Contingent
Redemption Deferred Sales
After Purchase Charge
-------------- ------
First ......................... 4%
Second ........................ 4%
Third ......................... 3%
Fourth ........................ 3%
Fifth ......................... 2%
Sixth ......................... 1%
Seventh and following ......... 0%
The CDSC imposed is assessed against the lesser of the value of the shares
redeemed (exclusive of reinvested dividends and capital gain distributions) or
the total cost of such shares. No CDSC is assessed against shares acquired
through the automatic reinvestment of dividends or capital gain distributions.
See "Redemptions and Repurchases -- Contingent Deferred Sales Charge" for
further discussion of the CDSC.
Except as described below, MFD will pay commissions to dealers of 3.75% of the
purchase price of Class B shares purchased through dealers. MFD will also
advance to dealers the first year service fee payable under the Fund's
Distribution Plan (see "Distribution Plan" below) at a rate equal to 0.25% of
the purchase price of such shares. Therefore, the total amount paid to a dealer
upon the sale of Class B shares is 4% of the purchase price of the shares
(commission rate of 3.75% plus a service fee equal to 0.25% of the purchase
price).
Class B shares purchased by a retirement plan whose sponsoring organization
subscribes to the MFS Participant Recordkeeping System and which has
established its account with the Shareholder Servicing Agent on or after July
1, 1996, will be subject to the CDSC described above, only under limited
circumstances, as explained below under "Waivers of CDSC." With respect to such
purchases, MFD pays an amount to dealers equal to 3.00% of the amount purchased
through such dealers (rather than the 4.00% payment described above), which is
comprised of a commission of 2.75% plus the advancement of the first year
service fee equal to 0.25% of the purchase price payable under the Fund's
Distribution Plan. As discussed above, such retirement plans are eligible to
purchase Class A shares of the Fund at net asset value without an initial sales
charge but subject to a 1% CDSC if the plan has, at the time of purchase, a
market value of $500,000 or more invested in shares of any class or classes of
the MFS Funds. In this event, the plan or its sponsoring organization should
inform the Shareholder Servicing Agent that the plan is eligible to purchase
Class A shares under this category; the Shareholder Servicing Agent has no
obligation independently to determine whether such a plan qualifies under this
category for the purchase of Class A shares.
22
<PAGE>
Waivers of CDSC. In certain circumstances, the CDSC imposed upon
redemption of Class B shares is waived. These circumstances are described in
Appendix A to this Prospectus. In addition to these circumstances, the CDSC
imposed upon the redemption of Class B shares is waived with respect to shares
held by a retirement plan whose sponsoring organization subscribes to the MFS
Participant Recordkeeping System and which has established an account with the
Shareholder Servicing Agent on or after July 1, 1996; provided, however, that
the CDSC will not be waived (i.e., it will be imposed) in the event that there
is a change in law or regulations which results in a material adverse change to
the tax advantaged nature of the plan, or in the event that the plan and/or
sponsoring organization: (i) becomes insolvent or bankrupt; (ii) is terminated
under ERISA or is liquidated or dissolved; or (iii) is acquired by, merged into,
or consolidated with any other entity.
Conversion of Class B Shares. Class B shares of the Fund that remain
outstanding for approximately eight years will convert to Class A shares of the
same Fund. Shares purchased through the reinvestment of distributions paid in
respect of Class B shares will be treated as Class B shares for purposes of the
payment of the distribution and service fees under the Fund's Distribution
Plan. See "Distribution Plan" below. However, for purposes of conversion to
Class A shares, all shares in a shareholder's account that were purchased
through the reinvestment of dividends and distributions paid in respect of
Class B shares (and which have not converted to Class A shares as provided in
the following sentence) will be held in a separate sub-account. Each time any
Class B shares in the shareholder's account (other than those in the
sub-account) convert to Class A shares, a portion of the Class B shares then in
the sub-account will also convert to Class A shares. The portion will be
determined by the ratio that the shareholder's Class B shares not acquired
through reinvestment of dividends and distributions that are converting to
Class A shares bear to the shareholder's total Class B shares not acquired
through reinvestment. The conversion of Class B shares to Class A shares is
subject to the continuing availability of a ruling from the Internal Revenue
Service or an opinion of counsel that such conversion will not constitute a
taxable event for federal tax purposes. There can be no assurance that such
ruling or opinion will be available, and the conversion of Class B shares to
Class A shares will not occur if such ruling or opinion is not available. In
such event, Class B shares would continue to be subject to higher expenses than
Class A shares for an indefinite period.
CLASS C SHARES: Class C shares are offered at net asset value without an
initial sales charge but are subject to a CDSC of 1.00% upon redemption during
the first year. Class C shares do not convert to any other class of shares of
the Fund. The maximum investment in Class C shares that may be made is up to
$1,000,000 per transaction.
The CDSC imposed is assessed against the lesser of the value of the shares
redeemed (exclusive of reinvested dividend and capital gain distributions) or
the total cost of such shares. No CDSC is assessed against shares acquired
through the automatic reinvestment of dividend or capital gain distributions.
See "Redemptions and Repurchases -- Contingent Deferred Sales Charge" below for
further discussion of the CDSC.
23
<PAGE>
MFD will pay dealers 1.00% of the purchase price of Class C shares purchased
through dealers and, as compensation therefor, MFD will retain the 1.00% per
annum distribution and service fee paid under the Fund's Distribution Plan to
MFD for the first year after purchase (see "Distribution Plan" below).
Class C shares are not currently available for purchase by any retirement plan
qualified under Sections 401(a) or 403(b) of the Code if the retirement plan
and/or the sponsoring organization subscribe to the MFS FUNDamental 401(k) Plan
or another similar recordkeeping program made available by the Shareholder
Servicing Agent.
Waivers of CDSC. In certain circumstances, the CDSC imposed upon
redemption of Class C shares is waived. These circumstances are described in
Appendix A to this Prospectus.
GENERAL: The following information applies to purchases of all classes of the
Fund's shares.
Minimum Investment. Except as described below, the minimum initial
investment is $1,000 per account and the minimum additional investment is $50
per account. Accounts being established for monthly automatic investments and
under payroll savings programs and tax-deferred retirement programs (other than
IRAs) involving the submission of investments by means of group remittal
statements are subject to a $50 minimum on initial and additional investments
per account. The minimum initial investment for IRAs is $250 per account and the
minimum additional investment is $50 per account. Accounts being established for
participation in the Automatic Exchange Plan are subject to a $50 minimum on
initial and additional investments per account. There are also other limited
exceptions to these minimums for certain tax-deferred retirement programs. Any
minimums may be changed at any time at the discretion of MFD. The Fund reserves
the right to cease offering its shares for sale at any time.
Subsequent Investment by Telephone: Each shareholder may purchase additional
shares of any MFS Fund by telephoning the Shareholder Servicing Agent toll-free
at (800) 225-2606. The minimum purchase amount is $50 and the maximum purchase
amount is $100,000. Shareholders wishing to avail themselves of this telephone
purchase privilege must so elect on their Account Application and designate
thereon a bank and account number from which purchases will be made. If a
telephone purchase request is received by the Shareholder Servicing Agent on
any business day prior to the close of regular trading on the Exchange
(generally, 4:00 p.m., Eastern time), the purchase will occur at the closing
net asset value of the shares purchased on that day. The Shareholder Servicing
Agent may be liable for any losses resulting from unauthorized telephone
transactions if it does not follow 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.
Right to Reject Purchase Orders/Market Timing. Purchases and exchanges
should be made for investment purposes only. The Fund and MFD each reserves the
right
24
<PAGE>
to reject or restrict any specific purchase or exchange request. In the event
that the Fund or MFD rejects an exchange request, neither the redemption nor
the purchase side of the exchange will be processed.
The Fund is not designed for professional market timing organizations or other
entities using programmed or frequent exchanges. The Fund defines a "market
timer" as an individual, or organization acting on behalf of one or more
individuals, if (i) the individual or organization makes three or more exchange
requests out of the Fund per calendar year and (ii) any one of such exchange
requests represents shares equal in value to 1/2 of 1% or more of the Fund's
net assets at the time of the request. Accounts under common ownership or
control, including accounts administered by market timers, will be aggregated
for purposes of this definition.
As noted above, the Fund and MFD each reserves the right to reject or restrict
any specific purchase and exchange request, and, in addition, may impose
specific limitations with respect to market timers, including delaying for up
to seven days the purchase side of an exchange request by market timers or
specifically rejecting or otherwise restricting purchase or exchange requests
by market timers. Other funds in the MFS Funds may have different and/or more
restrictive policies with respect to market timers than the Fund. These
policies are disclosed in the prospectuses of these other MFS Funds.
Dealer Concessions. Dealers may receive different compensation with
respect to sales of Class A, Class B and Class C shares. In addition, from time
to time, MFD may pay dealers 100% of the applicable sales charge on sales of
Class A shares of certain specified MFS Funds sold by such dealer during a
specified sales period. In addition, MFD or its affiliates may, from time to
time, pay dealers an additional commission equal to 0.50% of the net asset value
of all of the Class B and/or Class C shares of certain specified MFS Funds sold
by such dealer during a specified sales period. In addition, from time to time,
MFD, at its expense, may provide additional commissions, compensation or
promotional incentives ("concessions") to dealers which sell or arrange for the
sale of shares of the Fund. Such concessions provided by MFD may include
financial assistance to dealers in connection with preapproved conferences or
seminars, sales or training programs for invited registered representatives and
other employees, payment for travel expenses, including lodging, incurred by
registered representatives and other employees 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. From time to time, MFD
may make expense reimbursements for special training of a dealer's registered
representatives and other employees in group meetings or to help pay the
expenses of sales contests. Other concessions may be offered to the extent not
prohibited by state laws or any self-regulatory agency, such as the NASD.
Special Investment Programs. For shareholders who elect to participate in
certain investment programs (e.g., the Automatic Investment Plan) or other
shareholder services, MFD or its affiliates may either (i) give a gift of
nominal value, such as a hand-held calculator, or (ii) make a nominal charitable
contribution on their behalf.
25
<PAGE>
Restrictions on Activities of National Banks. The Glass-Steagall Act
prohibits national banks from engaging in the business of underwriting, selling
or distributing securities. Although the scope of the prohibition has not been
clearly defined, MFD believes that such Act should not preclude banks from
entering into agency agreements with MFD. 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 in
respect of shareholders who invested in the Fund through a national bank. 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.
----------------------
A shareholder whose shares are held in the name of, or controlled by, a dealer
might not receive many of the privileges and services from the Fund (such as
Right of Accumulation, Letter of Intent and certain recordkeeping services)
that the Fund ordinarily provides.
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 at net asset value (if available for sale).
Exchanges Among MFS Funds (excluding exchanges from MFS money market funds): No
initial sales charges or CDSC will be imposed in connection with an exchange
from shares of an MFS Fund to shares of any other MFS Fund, except with respect
to exchanges from an MFS money market fund to another MFS Fund which is not an
MFS money market fund (discussed below). With respect to an exchange involving
shares subject to a CDSC, the CDSC will be unaffected by the exchange and the
holding period for purposes of calculating the CDSC will carry over to the
acquired shares.
Exchanges From an MFS Money Market Fund: Special rules apply with respect to
the imposition of an initial sales charge or a CDSC for exchanges from an MFS
money market fund to another MFS Fund which is not an MFS money market fund.
These rules are described under the caption "Exchanges" in the Prospectuses of
those MFS money market funds.
Exchanges Involving the MFS Fixed Fund: Class A shares of any MFS Fund held by
certain qualified retirement plans may be exchanged for units of participation
of the MFS Fixed Fund (a bank collective investment fund) (the "Units"), and
Units may be exchanged for Class A shares of any MFS Fund. With respect to
exchanges between Class A shares subject to a CDSC and Units, the CDSC will
carry over to the acquired shares or Units and will be deducted from the
redemption proceeds when such shares or Units are subsequently redeemed,
assuming the CDSC is then payable (the period during which the Class A shares
and the Units were held will be aggregated for purposes of calculating the
applicable CDSC). In the event that a shareholder initially purchases Units and
then exchanges
26
<PAGE>
into Class A shares subject to an initial sales charge of an MFS Fund, the
initial sales charge shall be due upon such exchange, but will not be imposed
with respect to any subsequent exchanges between such Class A shares and Units
with respect to shares on which the initial sales charge has already been paid.
In the event that a shareholder initially purchases Units and then exchanges
into Class A shares subject to a CDSC of an MFS Fund, the CDSC period will
commence upon such exchange, and the applicability of the CDSC with respect to
subsequent exchanges shall be governed by the rules set forth above in this
paragraph.
General: A shareholder should read the prospectus of the other MFS Fund and
consider the differences in objectives, policies and restrictions before making
any exchange. Exchanges will be made only after instructions in writing or by
telephone (an "Exchange Request") are received for an established account by
the Shareholder Servicing Agent in proper form (i.e., if in writing -- signed
by the record owner(s) exactly as the shares are registered; if by telephone --
proper account identification is given by the dealer or shareholder of record)
and each exchange must involve either shares having an aggregate value of at
least $1,000 ($50 in the case of retirement plan participants whose sponsoring
organizations subscribe to the MFS FUNDamental 401(k) Plan or another similar
401(k) recordkeeping system made available by the Shareholder Servicing Agent)
or all the shares in the account. If an Exchange Request is received by the
Shareholder Servicing Agent on any business day prior to the close of regular
trading on the Exchange (generally, 4:00 p.m., Eastern time), the exchange will
occur on that day if all the requirements set forth above have been complied
with at that time and subject to the Fund's right to reject purchase orders. 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 dealers or the Shareholder
Servicing Agent. For federal and (generally) state income tax purposes, an
exchange is treated as a sale of the shares exchanged and, therefore, an
exchange could result in a gain or loss to the shareholder making the exchange.
Exchanges by telephone are automatically available to most non-retirement plan
accounts and certain retirement plan accounts. For further information
regarding exchanges by telephone, see "Redemptions by Telephone." The exchange
privilege (or any aspect of it) may be changed or discontinued and is subject
to certain limitations, including certain restrictions on purchases by market
timers.
Redemptions and Repurchases
A shareholder may withdraw all or any portion of the value of his account on
any date on which the Fund is open for business by redeeming shares at their
net asset value (a redemption) or by selling such shares to the Fund through a
dealer (a repurchase). Certain redemptions and repurchases are, however,
subject to a CDSC. See "Contingent Deferred Sales Charge" below. Because the
net asset value of shares of the account fluctuates, redemptions or
repurchases, which are taxable transactions, are likely to result in gains or
losses to the shareholder. When a shareholder withdraws an amount from his
account, the shareholder is deemed to have tendered for redemption a sufficient
number of full and fractional shares in his account to cover the amount
withdrawn. The proceeds of a redemption or repurchase will normally be
available within seven days, except for shares
27
<PAGE>
purchased or received in exchange for shares purchased by check (including
certified checks or cashier's checks). Payment of redemption proceeds may be
delayed for up to 15 days from the purchase date in an effort to assure that
such check has cleared.
Redemption by Mail: Each shareholder may redeem all or any portion of the
shares in his account by mailing or delivering to the Shareholder Servicing
Agent (see back cover for address) a stock power with a written request for
redemption or a letter of instruction, together with his share certificates (if
any were issued), all in "good order" for transfer. "Good order" generally
means that the stock power, written request for redemption, letter of
instruction or 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" will require the furnishing of additional documents. The
Shareholder Servicing Agent may make certain de minimis exceptions to the above
requirements for redemption. Within seven days after receipt of a redemption
request in "good order" by the Shareholder Servicing Agent, the Fund will make
payment in cash of the net asset value of the shares next determined after such
redemption request was received, reduced by the amount of any applicable CDSC
described above and the amount of any income tax required to be withheld,
except during any period in which the right of redemption is suspended or date
of payment is postponed because the Exchange is closed or trading on such
Exchange is restricted or to the extent otherwise permitted by the 1940 Act if
an emergency exists. See "Tax Status" below.
Redemption by Telephone: Each shareholder may redeem an amount from his account
by telephoning the Shareholder Servicing Agent toll-free at (800) 225-2606.
Shareholders wishing to avail themselves of this telephone redemption privilege
must so elect on their Account Application, designate thereon a 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 and the amount of any income tax
required to be withheld, are mailed by check to the designated account, without
charge, if the redemption proceeds do not exceed $1,000, and are wired in
federal funds to the designated account if the redemption proceeds exceed
$1,000. 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
may be liable for any losses resulting from unauthorized telephone transactions
if it does not follow reasonable procedures designated 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.
28
<PAGE>
Repurchase Through a Dealer: If a shareholder desires to sell his shares
through his dealer (a repurchase), the shareholder can place a repurchase order
with his dealer, who may charge the shareholder a fee. If the dealer receives
the shareholder's order prior to the close of regular trading on the Exchange
and communicates it to MFD before the close of business on the same day, the
shareholder will receive the net asset value calculated on that day, reduced by
the amount of any applicable CDSC and the amount of any income tax required to
be withheld.
Contingent Deferred Sales Charge: Investments in Class A, Class B and Class C
shares ("Direct Purchases") will be subject to a CDSC for a period of (i) with
respect to Class A and Class C shares, 12 months (however, the CDSC on Class A
shares is only imposed with respect to purchases of $1 million or more of Class
A shares or purchases by certain retirement plans of Class A shares) or (ii)
with respect to Class B shares, six years. 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 C shares and 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 of shares represented by Direct Purchases
exceeds the sum of the six calendar year aggregations (12 months in the case of
purchases of Class C shares and of purchases of $1 million or more of Class A
shares or purchases by certain retirement plans 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 a particular class, (i) any Free Amount is not
subject to the CDSC and (ii) the amount of redemption equal to the then-current
value of Reinvested Shares is not subject to the CDSC, but (iii) any amount of
the redemption in excess of the aggregate of the then-current value of
Reinvested Shares and the Free Amount is subject to a CDSC. The CDSC will first
be applied against the amount of Direct Purchases which will result in any such
charge being imposed at the lowest possible rate. The CDSC to be imposed upon
redemptions will be calculated as set forth in "Purchases" above.
The applicability of a CDSC will be unaffected by exchanges or transfers of
registration, except as described in Appendix A hereto.
General: The following information applies to redemptions and repurchases of
all classes of the Fund's shares.
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Signature Guarantee. In order to protect shareholders against fraud, the
Fund requires, in certain instances as indicated above, that the shareholder's
signature be guaranteed. In these cases the shareholder's signature must be
guaranteed by an eligible bank, broker, dealer, credit union, national
securities exchange, registered securities association, clearing agency or
savings association. Signature guarantees shall be accepted in accordance with
policies established by the Shareholder Servicing Agent.
Reinstatement Privilege. 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 Class
C shares and 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 SAI regarding this privilege.
In-Kind Distributions. The Fund agrees to redeem shares of the Fund solely
in cash up to the lesser of $250,000 or 1% of the net asset value of the Fund
during any 90-day period for any one shareholder. The Fund has reserved the
right to pay other redemptions either totally or partially, by a distribution
in-kind of securities (instead of cash) from the Fund's portfolio. The
securities distributed in such a distribution would be valued at the same amount
as that assigned to them in calculating the net asset value for the shares being
sold. If a shareholder received a distribution in-kind, the shareholder could
incur brokerage or transaction charges when converting the securities to cash.
Involuntary Redemptions/Small Accounts. 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 if at any time the total investment in such
account drops below $500 because of redemptions or exchanges, except in the case
of accounts being 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 -- General -- Minimum Investment." 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.
Distribution Plan
The Trustees have adopted a Distribution Plan for Class A, Class B and Class C
shares pursuant to Section 12(b) of the 1940 Act and Rule 12b-1 thereunder (the
"Distribution Plan"), after having concluded that there is a reasonable
likelihood that the Plan would benefit the Fund and its shareholders.
In certain circumstances, the fees described below may not be imposed or are
being waived. These circumstances, if any, are described below under the
heading "Current Level of Distribution and Service Fees."
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Features Common to Class of Shares: There are features of the Distribution Plan
that are common to each class of shares, as described below.
Service Fees. The Distribution Plan provides that the Fund may pay MFD a
service fee of up to 0.25% of the average daily net assets attributable to the
class of shares to which the Distribution Plan relates (i.e., Class A, Class B
or Class C shares, as appropriate) (the "Designated Class") annually in order
that MFD may pay expenses on behalf of the Fund relating to the servicing of
shares of the Designated Class. The service fee is used by MFD to compensate
dealers which enter into a sales agreement with MFD in consideration for all
personal services and/or account maintenance services rendered by the dealer
with respect to shares of the Designated Class owned by investors for whom such
dealer is the dealer or holder of record. MFD may from time to time reduce the
amount of the service fees paid for shares sold prior to a certain date. Service
fees may be reduced for a dealer that is the holder or dealer of record for an
investor who owns shares of the Fund having an aggregate net asset value at or
above a certain dollar level. Dealers may from time to time be required to meet
certain criteria in order to receive service fees. MFD or its affiliates are
entitled to retain all service fees payable under the Distribution Plan for
which there is no dealer of record or for which qualification standards have not
been met as partial consideration for personal services and/or account
maintenance services performed by MFD or its affiliates to shareholder accounts.
Distribution Fees. The Distribution Plan provides that the Fund may pay
MFD a distribution fee based on the average daily net assets attributable to the
Designated Class as partial consideration for distribution services performed
and expenses incurred in the performance of MFD's obligations under its
distribution agreement with the Fund. See "Management of the Fund --
Distributor" in the SAI. The amount of the distribution fee paid by the Fund
with respect to each class differs under the Distribution Plan, as does the use
by MFD of such distribution fees. Such amounts and uses are described below in
the discussion of the provisions of the Distribution Plan relating to each class
of shares. While the amount of compensation received by MFD in the form of
distribution fees during any year may be more or less than the expense incurred
by MFD under its distribution agreement with the Fund, the Fund is not liable to
MFD for any losses MFD may incur in performing services under its distribution
agreement with the Fund.
Other Common Features. Fees payable under the Distribution Plan are
charged to, and therefore reduce, income allocated to shares of the Designated
Class. The provisions of the Distribution Plan relating to operating policies as
well as initial approval, renewal, amendment and termination are substantially
identical as they relate to each class of shares covered by the Distribution
Plan.
Features Unique to Each Class of Shares: There are certain features of the
Distribution Plan that are unique to each class of shares, as described below.
Class A Shares. Class A shares are generally offered pursuant to an
initial sales charge, a substantial portion of which is paid to or retained by
the dealer making the sale (the remainder of which is paid to MFD). See
"Purchases -- Class A Shares" above. In
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addition to the initial sales charge, the dealer also generally receives the
ongoing 0.25% per annum service fee, as discussed above.
The distribution fee paid to MFD under the Distribution Plan is equal, on an
annual basis, to 0.10% of the Fund's average daily net assets attributable to
Class A shares. As noted above, MFD may use the distribution fee to cover
distribution-related expenses incurred by it under its distribution agreement
with the Fund, including commissions to dealers and payments to wholesalers
employed by MFD (e.g., MFD pays commission to dealers with respect to purchases
of $1 million or more and purchases by certain retirement plans, of Class A
shares which are sold at net asset value but which are subject to a 1% CDSC for
one year after purchase). See "Purchases -- Class A Shares" above. In addition,
to the extent that the aggregate service and distribution fees paid under the
Distribution Plan do 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 such
distribution-related expenses or other distribution-related expenses.
Class B Shares. Class B shares are offered at net asset value without an
initial sales charge but subject to a CDSC. See "Purchases -- Class B Shares"
above. MFD will advance to dealers the first year service fee described above at
a rate equal to 0.25% of the purchase price of such shares and, as compensation
therefor, MFD may retain the service fee paid by the Fund with respect to such
shares for the first year after purchase. Dealers will become eligible to
receive the ongoing 0.25% per annum service fee with respect to such shares
commencing in the thirteenth month following purchase.
Under the Distribution Plan, the Fund pays MFD a distribution fee equal, on an
annual basis, to 0.75% of the Fund's average daily net assets attributable to
Class B shares. As noted above, this distribution fee may be used by MFD to
cover its distribution-related expenses under its distribution agreement with
the Fund (including the 3.75% commission it pays to dealers upon purchase of
Class B shares, as described under "Purchases -- Class B Shares" above).
Class C Shares. Class C shares are offered at net asset value without an
initial sales charge but subject to a CDSC. See "Purchases -- Class C shares"
above. MFD will pay a commission to dealers of 1.00% of the purchase price of
Class C shares purchased through dealers at the time of purchase. In
compensation for this 1.00% commission paid by MFD to dealers, MFD will retain
the 1.00% per annum Class C distribution and service fees paid by the Fund with
respect to such shares for the first year after purchase, and dealers will
become eligible to receive from MFD the ongoing 1.00% per annum distribution and
service fees paid by the Fund to MFD with respect to such shares commencing in
the thirteenth month following purchase.
This ongoing 1.00% fee is comprised of the 0.25% per annum service fee paid to
MFD under the Distribution Plan (which MFD in turn pays to dealers), as
discussed above, and a distribution fee paid to MFD (which MFD also in turn
pays to dealers) under the Distribution Plan equal, on an annual basis, to
0.75% of the Fund's average daily net assets attributable to Class C shares.
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Current Level of Distribution and Service Fees. The Fund's Class A, Class B and
Class C distribution and service fees for its current fiscal year are 0.32%,
1.00% and 1.00% per annum, respectively. Assets attributable to Class A shares
sold prior to March 1, 1991 are subject to a service fee of 0.15% per annum.
Distributions
The Fund intends to pay substantially all of its net investment income to its
shareholders as dividends on an annual basis. In determining the net investment
income available for distributions, the Fund may rely on projections of its
anticipated net investment income over a longer term, rather than its actual
net investment income for the period. The Fund may make one or more
distributions during the calendar year to its shareholders from any long-term
capital gains, and may also make one or more distributions during the calendar
year to its shareholders from short-term capital gains. Shareholders may elect
to receive dividends and capital gain distributions in either cash or
additional shares of the same class with respect to which a distribution is
made. See "Tax Status" and "Shareholder Services -- Distribution Options"
below. Distributions paid by the Fund with respect to Class A shares will
generally be greater than those paid with respect to Class B and Class C shares
because expenses attributable to Class B and Class C 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 Internal Revenue Code of 1986, as amended (the "Code").
Because the Fund intends to distribute all of its net investment income and net
realized capital gains to its shareholders in accordance with the timing
requirements imposed by the Code, it is not expected that the Fund will be
required to pay any entity level federal income or excise taxes, although the
Fund's foreign-source income may be subject to foreign withholding taxes.
Shareholders of the Fund normally will have to pay federal income taxes (and
any state or local taxes) on the dividends and capital gain distributions they
receive from the Fund, whether paid in cash or reinvested in additional shares.
A portion of the dividends received from the Fund (but none of the Fund's
capital gain distributions) may qualify for the dividends received deduction
for corporations. Shortly after the end of each calendar year, each shareholder
will be sent a statement setting forth the federal income tax status of all
dividends and distributions for that year, including the portion taxable as
ordinary income, the portion taxable as long-term capital gain (as well as the
rate category or categories under which such gain is taxable), the portion, if
any, representing a return of capital (which is generally free of current taxes
but which results in a basis reduction), and the amount, if any, of federal
income tax withheld.
Fund distributions will reduce the Fund's net asset value per share.
Shareholders who buy shares shortly before the Fund makes a distribution may
thus pay the full price for the shares and then effectively receive a portion of
the purchase price back as a taxable distribution.
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The Fund intends to withhold U.S. federal income tax at the rate of 30% (or any
lower rate permitted under an applicable treaty) on taxable dividends and other
payments that are subject to such withholding and that are made to persons who
are neither citizens nor residents of the U.S. The Fund is also required in
certain circumstances to apply backup withholding at the rate of 31% on taxable
dividends and redemption proceeds paid to any shareholder (including a
shareholder who is neither a citizen nor a resident of the U.S.) who does not
furnish to the Fund certain information and certifications or who is otherwise
subject to backup withholding. Backup withholding will not, however, be applied
to payments that have been subject to 30% withholding. Prospective investors
should read the Fund's Account Application for additional information regarding
backup withholding of federal income tax and should consult their own tax
advisers as to the tax consequences to them of an investment in the Fund.
Net Asset Value
The net asset value per share of each class of the Fund is determined each day
during which the Exchange is open for trading. This determination is made once
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 SAI. The net asset value per share of each class of
shares is effective for orders received by the dealer prior to its calculation
and received by MFD prior to the close of that business day.
Description of Shares, Voting Rights and Liabilities
The Fund has three classes of shares which it offers to the general public,
entitled Class A, Class B and Class C Shares of Beneficial Interest (without
par value). The Fund also has a class of shares which it offers exclusively to
certain institutional investors, entitled Class I shares. 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 the 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 SAI).
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
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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 Corporation
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 applicable, will give effect to the imposition of the CDSC
assessed upon redemptions of the Fund's Class B and Class C 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. The Fund offers multiple
classes of shares which were initially offered for sale to, and purchased by,
the public on different dates (the class "inception date"). The calculation of
total rate of return for a class of shares which has a later class inception
date than another class of shares of the Fund is based both on (i) the
performance of the Fund's newer class from its inception date and (ii) the
performance of the Fund's oldest class from its inception date up to the class
inception date of the newer class. See the SAI for further information on the
calculation of total rate of return for share classes with different class
inception dates.
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 SAI. For
further information about the Fund's performance for the fiscal year ended
November 30, 1997, please see the Fund's Annual Report. A copy of the Annual
Report may be obtained without charge by contacting the Shareholder Servicing
Agent (see back cover for address and phone number). In addition to information
provided in shareholder reports, the Fund may, in its discretion, from time to
time, make a list of all or a portion of its holdings available to investors
upon request.
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9. 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").
Distribution Options -- The following options are available to all accounts
(except Systematic Withdrawal Plan accounts) and may be changed as often as
desired by notifying the Shareholder Servicing Agent:
- --Dividends and capital gain distributions reinvested in additional shares; this
option will be assigned if no other option is specified;
- --Dividends in cash; capital gain distributions reinvested in additional shares;
- --Dividends and capital gain distributions in cash.
Reinvestments (net of any tax withholding) will be made in additional full and
fractional shares of the same class of shares at the net asset value in effect
at the close of business on the record date. Dividends and capital gain
distributions in amounts less than $10 will automatically be reinvested in
additional shares of the Fund. If a shareholder has elected to receive
dividends and/or capital gain distributions in cash, and the postal or other
delivery service is unable to deliver checks to the shareholder's address of
record, or the shareholder does not respond to mailings from the Shareholder
Servicing Agent with regard to uncashed distribution checks, such shareholder's
distribution option will automatically be converted to having all dividends and
other distributions reinvested in additional shares. Any request to change a
distribution option must be received by the Shareholder Servicing Agent by the
record date for a dividend or distribution in order to be effective for that
dividend or distribution. No interest will accrue on amounts represented by
uncashed distribution or redemption checks.
Investment and Withdrawal Programs -- For the convenience of shareholders, the
Fund makes available the following programs designed to enable shareholders to
add to their investment in an account with the Fund or withdraw from it with a
minimum of paper work. The programs involve no extra charge to shareholders
(other than a sales charge in the case of certain Class A share purchases) and
may be changed or discontinued at any time by a shareholder or the Fund.
Letter of Intent: If a shareholder (other than a group purchaser as
described in the SAI) anticipates purchasing $50,000 or more of Class A shares
of the Fund alone or in combination with shares of any class of other MFS Funds
or MFS Fixed Fund within a 13-month period (or 36-month period for purchases of
$1 million or more), the shareholder may obtain such shares at the same reduced
sales charge as though the total quantity
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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 Class A, Class B, and Class
C shares of all Funds of that shareholder in the MFS Funds or MFS Fixed Fund (a
bank collective investment fund), reaches a discount level.
Distribution Investment Program: Shares of a particular class of the Fund
may be sold at net asset value (and without any applicable CDSC) through the
automatic reinvestment of dividend and capital gain distributions from the same
class of another MFS Fund. Furthermore, distributions made by the Fund may be
automatically invested at net asset value (and without any applicable CDSC) in
shares of the same class of another MFS Fund, if shares of such Fund are
available for sale.
Systematic Withdrawal Plan: A shareholder may direct the Shareholder
Servicing Agent to send him (or anyone he designates) regular periodic payments
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 and Class C 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 on any day of the month. If the
shareholder does not specify a date, the investment will automatically occur on
the first day of the business month. Required forms are available from the
Shareholder Servicing Agent or investment dealers.
Automatic Exchange Plan: Shareholders having account balances of at least
$5,000 in any MFS Fund may exchange their shares for the same class of shares of
other MFS Funds (and in the case of Class C shares, for shares of the MFS Money
Market Fund), under the Automatic Exchange Plan, a dollar cost averaging
program. The Automatic Exchange Plan provides for automatic monthly or quarterly
exchanges of funds from the shareholder's account in a MFS Fund for investment
in the same class of shares of other MFS Funds selected by the shareholder.
Under the Automatic Exchange Plan, exchanges of at least $50 each may be made to
up to six different funds. A shareholder should consider the objectives and
policies of a fund and review its prospectus before electing to exchange money
into such fund through the Automatic Exchange Plan. No transaction fee is
imposed in connection with exchange transactions under the Automatic Exchange
Plan. However, exchanges of shares of MFS Money Market Fund, MFS Government
Money Market Fund or Class A shares of MFS Cash Reserve Fund will be subject to
any applicable
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sales charge. For federal and (generally) state income tax purposes, an
exchange is treated as a sale of the shares exchanged and, therefore, could
result in a capital gain or loss to the shareholder making the exchange. See
the SAI for further information concerning the Automatic Exchange Plan.
Investors should consult their tax advisers for information regarding the
potential capital gain and loss consequences of transactions under the
Automatic Exchange Plan.
Because a dollar cost averaging program involves periodic purchases of shares
regardless of fluctuating share offering prices, a shareholder should consider
his financial ability to continue his purchases through periods of low price
levels. Maintaining a dollar cost averaging program concurrently with a
withdrawal program could be disadvantageous because of the sales charges
included in share purchases in the case of Class A shares, and because of the
assessment of the CDSC for certain share redemptions in the case of Class A
shares.
Tax-Deferred Retirement Plans -- Except as noted under "Purchases--Class C
Shares" above, 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 SAI, dated April 1, 1998, contains more detailed information about
the Fund, including, but not limited to, information related to (i) investment
objective, policies and restrictions, (ii) its Trustees, officers and
investment adviser, (iii) portfolio transactions and brokerage commissions,
(iv) the Distribution Plan, (v) the method used to calculate total rate of
return quotations of the Fund and (vi) various services and privileges provided
by the Fund for the benefit of its shareholders, including additional
information with respect to the exchange privilege.
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APPENDIX A
WAIVERS OF SALES CHARGES
This Appendix sets forth the various circumstances in which all applicable
sales charges are waived (Section I), the initial sales charge and the
contingent deferred sales charge ("CDSC") for Class A shares are waived
(Section II), and the CDSC for Class B and Class C shares is waived (Section
III). As used in this Appendix, the term "dealer" includes any broker, dealer,
bank (including bank trust departments), registered investment adviser,
financial planner and any other financial institutions having a selling
agreement with MFS Fund Distributors Inc. ("MFD").
I. WAIVERS OF ALL APPLICABLE SALES CHARGES
In the following circumstances, the initial sales charge imposed on purchases
of Class A shares and the CDSC imposed on certain redemptions of Class A shares
and on redemptions of Class B and Class C shares, as applicable, are waived:
1. Dividend Reinvestment
--Shares acquired through dividend or capital gain reinvestment; and
--Shares acquired by automatic reinvestment of distributions of dividends
and capital gains of any fund in the MFS Family of Funds ("MFS Funds")
pursuant to the Distribution Investment Program.
2. Certain Acquisitions/Liquidations
--Shares acquired on account of the acquisition or liquidation of assets of
other investment companies or personal holding companies.
3. Affiliates of an MFS Fund/Certain Dealers. Shares acquired by:
--Officers, eligible directors, employees (including retired employees) and
agents of Massachusetts Financial Services Company ("MFS"), Sun Life
Assurance Company of Canada ("Sun Life") or any of their subsidiary
companies;
--Trustees and retired trustees of any investment company for which MFD
serves as distributor;
--Employees, directors, partners, officers and trustees of any sub-adviser
to any MFS Fund;
--Employees or registered representatives of dealers;
--Certain family members of any such individual and their spouses identified
above and certain trusts, pension, profit-sharing or other retirement
plans for the sole benefit of such persons, provided the shares are
not resold except to the Fund which issued the shares; and
--Institutional Clients of MFS or MFS Institutional Advisors, Inc. ("MFSI").
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4. Involuntary Redemptions (CDSC waiver only)
--Shares redeemed at an MFS Fund's direction due to the small size of a
shareholder's account. See "Redemptions and Repurchases -- General --
Involuntary Redemptions/Small Accounts" in the Prospectus.
5. Retirement Plans (CDSC waiver only). Shares redeemed on account of
distributions made under the following circumstances:
Individual Retirement Accounts ("IRAs")
--Death or disability of the IRA Owner.
Section 401(a) Plans ("401(a) Plans") and Section 403(b) Employer Sponsored
Plans ("ESP Plans")
--Death, disability or retirement of 401(a) or ESP Plan participant;
--Loan from 401(a) or ESP Plan;
--Financial hardship (as defined in Treasury Regulation Section
1.401(k)-1(d)(2), as amended from time to time);
--Termination of employment of 401(a) or ESP Plan participant (excluding,
however, a partial or other termination of the Plan);
--Tax-free return of excess 401(a) or ESP Plan contributions;
--To the extent that redemption proceeds are used to pay expenses (or
certain participant expenses) of the 401(a) or ESP Plan (e.g.,
participant account fees), provided that the Plan sponsor subscribes to
the MFS FUNDamental 401(k) Plan or another similar recordkeeping system
made available by MFS Service Center, Inc. (the "Shareholder Servicing
Agent"); and
--Distributions from a 401(a) or ESP Plan that has invested its assets in
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 401(a) or ESP Plan
first invests its assets in one or more of the MFS Funds. The sales
charges will be waived in the case of a redemption of all of the 401(a)
or ESP Plan's shares in all MFS Funds (i.e., all the assets of the
401(a) or ESP Plan invested in the MFS Funds are withdrawn), unless
immediately prior to the redemption, the aggregate amount invested by
the 401(a) or ESP Plan in shares of the MFS Funds (excluding the
reinvestment of distributions) during the prior four years equals 50%
or more of the total value of the 401(a) or ESP Plan's assets in the
MFS Funds, in which case the sales charges will not be waived.
Section 403(b) Salary Reduction Only Plans ("SRO Plans")
--Death or disability of SRO Plan participant.
6. Certain Transfers of Registration (CDSC waiver only). Shares transferred:
--To an IRA rollover account where any sales charges with respect to the
shares being reregistered would have been waived had they been
redeemed; and
--From a single account maintained for a 401(a) Plan to multiple accounts
maintained by the Shareholder Servicing Agent on behalf of individual
participants of
2
<PAGE>
such Plan, provided that the Plan sponsor subscribes to the MFS
FUNDamental 401(k) Plan or another similar recordkeeping system made
available by the Shareholder Servicing Agent.
7. Loan Repayments
--Shares acquired pursuant to repayments by retirement plan participants of
loans from 401(a) or ESP Plans with respect to which such Plan or its
sponsoring organization subscribes to the MFS FUNDamental 401(k)
Program or the MFS Recordkeeper Plus Program (but not the MFS
Recordkeeper Program).
II. WAIVERS OF CLASS A SALES CHARGES
In addition to the waivers set forth in Section I above, in the following
circumstances the initial sales charge imposed on purchases of Class A shares
and the CDSC imposed on certain redemptions of Class A shares are waived:
1. Wrap Account Investments and Fund "Supermarket" Investments
--Shares acquired by investments through certain dealers (including
registered investment advisers and financial planners) which have
established certain operational arrangements with MFD which include a
requirement that such shares be sold for the sole benefit of clients
participating in a "wrap" account, mutual fund "supermarket" account or
a similar program under which such clients pay a fee to such dealer.
2. Investment by Insurance Company Separate Accounts
--Shares acquired by insurance company separate accounts.
3. Retirement Plans
Administrative Services Arrangements
--Shares acquired by retirement plans or trust accounts whose third party
administrators or dealers have entered into an administrative services
agreement with MFD or one of its affiliates to perform certain
administrative services, subject to certain operational and minimum
size requirements specified from time to time by MFD or one or more of
its affiliates.
Reinvestment of Distributions from Qualified Retirement Plans
--Shares acquired through the automatic reinvestment in Class A shares of
Class A or Class B distributions which constitute required withdrawals
from qualified retirement plans.
3
<PAGE>
Shares redeemed on account of distributions made under the following
circumstances:
IRAs
--Distributions made on or after the IRA owner has attained the age of
59 1/2 years old; and
--Tax-free returns of excess IRA contributions.
401(a) Plans
--Distributions made on or after the 401(a) Plan participant has attained
the age of 59 1/2 years old; and
--Certain involuntary redemptions and redemptions in connection with
certain automatic withdrawals from a 401(a) Plan.
ESP Plans and SRO Plans
--Distributions made on or after the ESP or SRO Plan participant has
attained the age of 59 1/2 years old.
4. Purchases of at Least $5 Million (CDSC waiver only)
--Shares acquired of Eligible Funds (as defined below) if the shareholder's
investment equals or exceeds $5 million in one or more Eligible Funds
(the "Initial Purchase") (this waiver applies to the shares acquired
from the Initial Purchase and all shares of Eligible Funds subsequently
acquired by the shareholder); provided that the dealer through which
the Initial Purchase is made enters into an agreement with MFD to
accept delayed payment of commissions with respect to the Initial
Purchase and all subsequent investments by the shareholder in the
Eligible Funds subject to such requirements as may be established from
time to time by MFD (for a schedule of the amount of commissions paid
by MFD to the dealer on such investments, see "Purchases -- Class A
Shares -- Purchases subject to a CDSC" in the Prospectus). The Eligible
Funds are all funds included in the MFS Family of Funds, except for
Massachusetts Investors Trust, Massachusetts Investors Growth Stock
Fund, MFS Municipal Bond Fund, MFS Municipal Limited Maturity Fund, MFS
Money Market Fund, MFS Government Money Market Fund and MFS Cash
Reserve Fund.
5. Bank Trust Departments and Law Firms
--Shares acquired by certain bank trust departments or law firms acting as
trustee or manager for trust accounts which have entered into an
administrative services agreement with MFD and are acquiring such
shares for the benefit of their trust account clients.
4
<PAGE>
III. WAIVERS OF CLASS B AND CLASS C SALES CHARGES
In addition to the waivers set forth in Section I above, in the following
circumstances the CDSC imposed on redemptions of Class B and Class C shares is
waived:
1. Systematic Withdrawal Plan
--Systematic Withdrawal Plan redemptions with respect to up to 10% per year
(or 15% per year, in the case of accounts registered as IRAs where the
redemption is made pursuant to Section 72(t) of the Internal Revenue
Code of 1986, as amended) of the account value at the time of
establishment.
2. Death of Owner
--Shares redeemed on account of the death of the account owner if the
shares are held solely in the deceased individual's name or in a living
trust for the benefit of the deceased individual.
3. Disability of Owner
--Shares redeemed on account of the disability of the account owner if
shares are held either
solely or jointly in the disabled individual's
name or in a living trust for the benefit of the disabled individual
(in which case a disability certification form is required to be
submitted to the Shareholder Servicing Agent).
4. Retirement Plans. Shares redeemed on account of distributions made under
the following circumstances:
IRAs, 401(a) Plans, ESP Plans and SRO Plans
--Distributions made on or after the IRA owner or the 401(a), ESP or SRO
Plan participant, as applicable, has attained the age of 70 1/2 years
old, but only with respect to the minimum distribution under applicable
Internal Revenue Code ("Code") rules.
Salary Reduction Simplified Employee Pension Plans ("SAR-SEP Plans")
--Distributions made on or after the SAR-SEP Plan participant has attained
the age of 70 1/2 years old, but only with respect to the minimum
distribution under applicable Code rules; and
--Death or disability of a SAR-SEP Plan participant.
5
<PAGE>
Investment Adviser
Massachusetts Financial
Services Company
500 Boylston Street
Boston, MA 02116
(617) 954-5000
Distributor
MFS Fund Distributors, 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 Auditors
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
MIG-1-4/98/698M 13/213/313
<PAGE>
<TABLE>
<CAPTION>
MASSACHUSETTS STATEMENT OF
INVESTORS ADDITIONAL INFORMATION
GROWTH STOCK FUND
(A member of the MFS Family of Funds[RegTM]) APRIL 1, 1998
--------------------------------------------------------------------------------
Page
-----
<S> <C>
1. Definitions ................................................... 2
2. The Fund ...................................................... 2
3. Investment Objective, Policies and Restrictions ............... 2
4. Management of the Fund ........................................ 10
Trustees ...................................................... 10
Officers ...................................................... 10
Trustee Compensation Table .................................... 11
Investment Adviser ............................................ 12
Administrator ................................................. 12
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 .............. 19
9. Description of Shares, Voting Rights and Liabilities .......... 21
10. Distribution Plan ............................................. 22
11. Independent Auditors and Financial Statements ................. 23
Appendix A .................................................... A-1
</TABLE>
MASSACHUSETTS INVESTORS GROWTH STOCK FUND
500 Boylston Street, Boston, Massachusetts 02116
(617) 954-5000
This Statement of Additional Information, as amended or supplemented from time
to time (the "SAI"), sets forth information which may be of interest to
investors but which is not necessarily included in the Fund's Prospectus, dated
April 1, 1998. This SAI 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 SAI is NOT a prospectus and is authorized for distribution to prospective
investors only if preceded or accompanied by a current prospectus.
<PAGE>
1. DEFINITIONS
"Fund" -- Massachusetts Investors Growth Stock Fund, a Massachusetts business
trust.
"MFS" or the "Adviser" -- Massachusetts Financial Services Company, a Delaware
corporation.
"MFD" -- MFS Fund Distributors, Inc., a Delaware corporation.
"Prospectus" -- The Prospectus of the Fund, dated April 1, 1998, as amended or
supplemented from time to time.
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 SAI 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 investment policies of the Fund are described in the
Prospectus. In addition, certain of the Fund's investment policies are
described in greater detail below.
Foreign Securities: 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, this 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. Under the terms of most sponsored
arrangements, depositories agree to distribute notices of shareholder meetings
and voting instructions, and to provide shareholder communications and other
information to the ADR holders at the request of the issuer of the deposited
securities. The depository of an unsponsored ADR, on the other hand, is under
no obligation to distribute shareholder communications received from the issuer
of the deposited securities or to pass through voting rights to ADR holders in
respect of the deposited securities. 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 (the "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 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
amount 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
2
<PAGE>
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 collateral.
"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 policies promulgated by the
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 liquid assets
sufficient 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 Exchange and would be required to be secured continuously by
collateral in cash, U.S. Government securities or an irrevocable letter of
credit 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. The Fund would also receive a fee from the
borrower or compensation based on investment of cash collateral, less a fee
paid to the borrower, if the collateral is in the form of cash. 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.
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 segregated by the Fund) 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 liquid assets representing the difference is
segregated by the Fund. A put option written by the Fund is covered if the Fund
segregates liquid assets with a value equal to the exercise price, 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 liquid assets representing the difference is
segregated by the Fund. 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 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
3
<PAGE>
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 also
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 Indexes: The Fund may write (sell) covered call and put
options on stock indexes 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 indexes 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 segregated by the Fund) upon conversion or exchange of other
securities in its portfolio. 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 indexes 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 liquid assets representing the difference is
segregated by the Fund. The Fund may cover put options on stock indexes by
segregating liquid assets with a value equal to the exercise price, 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 liquid assets representing the difference is
segregated by the Fund. Put and call options on stock indexes 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
4
<PAGE>
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 indexes 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 indexes 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 indexes 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 indexes 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 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 con-
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tracts 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
liquid assets representing the difference is segregated by the Fund. The Fund
may cover the writing of put Options on Futures Contracts (a) through sales of
the underlying Futures Contract, (b) through segregation of liquid assets 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 liquid assets
representing the difference is segregated by the Fund. 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
6
<PAGE>
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, will be considered speculative.
The Fund has established procedures 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 segregate liquid assets, 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 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 indexes 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. While
the Fund will enter into options or futures positions only if there appears to
be a liquid secondary market, 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
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<PAGE>
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 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 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, 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, 24-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.
Policies 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
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<PAGE>
CFTC require that the Fund enter into transactions in Futures Contracts,
options on Futures Contracts and Options on Foreign Currencies traded on a
CFTC-regulated exchange only (i) for bona fide hedging purposes (as defined in
CFTC regulations), or (ii) for non-bona fide hedging purposes, provided that
the aggregate initial margin and premiums required to establish such non-bona
fide hedging positions does not exceed 5% of the liquidation value of the
Fund's assets, after taking into account unrealized profits and unrealized
losses on any such contracts the Fund has entered into, and excluding, in
computing such 5%, the in-the-money amount with respect to an option that is
in-the-money at the time of purchase.
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 SAI, 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;
(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;
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<PAGE>
(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.
As non-fundamental policies, the Fund will not (i) knowingly invest in
securities which are subject to legal or contractual restrictions on resale
(other than repurchase agreements), unless the Board of Trustees of the Fund
has determined that such securities are liquid based upon trading markets for
the specific security, if, as a result thereof, more than 15% of the Fund's
total assets (taken at market value) would be so invested or (ii) invest 25% or
more of the market value of its total assets in securities of issuers in any
one industry.
Except for Investment Restriction (1) and the non-fundamental policy on
investing in illiquid securities, these investment restrictions and policies
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
RICHARD B. BAILEY* (born 9/14/26)
Private investor; Massachusetts Financial Services Company
PETER G. HARWOOD (born 4/3/26)
Private Investor
Address: 211 Lindsay Pond Road, Concord, Massachusetts
J. ATWOOD IVES (born 5/1/36)
Eastern Enterprises (diversified services company), Chairman
and Chief Executive Officer
Address: 9 Riverside Road, Weston, Massachusetts
LAWRENCE T. PERERA (born 6/23/35)
Hemenway & Barnes (attorneys), Partner
Address: 60 State Street, Boston, Massachusetts
WILLIAM J. POORVU (born 4/10/35)
Harvard University Graduate School of Business Administration, Adjunct
Professor; CBL & Associates Properties, Inc. (a real estate investment
trust), Director; The Baupost Fund (a registered investment company), Vice
Chairman (since November 1993), Chairman and Trustee (prior to November
1993)
Address: Harvard Business School, Soldiers Field Road, Cambridge,
Massachusetts
CHARLES W. SCHMIDT (born 3/18/28)
Private investor; OHM Corporation, Director; Mohawk Paper
Company, Director
Address: 30 Colpitts Road, Weston, Massachusetts
ARNOLD D. SCOTT* (born 12/16/42)
Massachusetts Financial Services Company, Senior Executive
Vice President and Secretary
JEFFREY L. SHAMES* (born 6/2/55)
Massachusetts Financial Services Company, Chairman, Chief
Executive Officer and President
ELAINE R. SMITH (born 4/25/46)
Independent Consultant; Brigham and Women's Hospital, Executive
Vice President and Chief Operating Officer (prior to
September 1992)
Address: 75 Scotch Pine Road, Weston, Massachusetts
DAVID B. STONE (born 9/2/27)
North American Management Corp. (investment adviser), Chairman
and Director; Eastern Enterprises, Trustee
Address: Ten Post Office Square, Suite 300, Boston, Massachusetts
Officers
W. THOMAS LONDON,* Treasurer (born 3/1/44)
Massachusetts Financial Services Company, Senior Vice President
STEPHEN E. CAVAN,* Secretary and Clerk (born 11/6/53)
Massachusetts Financial Services Company, Senior Vice President, Assistant
Secretary and General Counsel
JAMES R. BORDEWICK, JR.,* Assistant Secretary (born 3/6/59) Massachusetts
Financial Services Company, Senior Vice President and Associate General Counsel
JAMES O. YOST,* Assistant Treasurer (born 6/12/60)
Massachusetts Financial Services Company, Vice President
ELLEN MOYNIHAN,* Assistant Treasurer (born 11/13/57)
Massachusetts Financial Services Company, Vice President (since September
1996), Deloitte & Touche LLP, Senior Manager (until September 1996)
MARK E. BRADLEY,* Assistant Treasurer (born 11/23/59)
Massachusetts Financial Services Company, Vice President (since March 1997);
Putnam Investments, Vice President (from September 1994 until March 1997);
Ernst & Young, Senior Tax Manager (until September 1994)
----------------------
* "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.
10
<PAGE>
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. Messrs. Shames and Scott, Directors of MFD,
and Mr. Cavan, the Secretary of MFD, hold similar positions with certain other
MFS affiliates. Mr. Bailey is a Director of Sun Life Assurance Company of
Canada (U.S.), a subsidiary of Sun Life Assurance Company of Canada ("Sun
Life").
The Fund pays the compensation of non-interested Trustees and Mr. Bailey (who
currently receive a fee of $4,000 per year plus $150 per committee meeting and
$180 for attendance at each meeting, plus certain out-of-pocket expenses, as
incurred) and has adopted a retirement plan for non-interested Trustees and Mr.
Bailey. 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
Messrs. Scott and Shames. The Fund will accrue compensation expenses each year
to cover current year's service and amortize past service cost.
Set forth below is certain information concerning cash compensation paid to the
Trustees and benefits accrued, and estimated benefits payable, under the
retirement plan.
Trustee Compensation Table
Retirement Total
Benefit Trustee
Accrued Estimated Fees from
Trustee as part Credited Fund and
Fees from of Fund Years of Fund
Fund(1) Expense(1) Service(2) Complex(3)
----------- ------------ ------------ ------------
Richard B. Bailey .......... $5,219 $1,540 8 $ 283,647
Peter G. Harwood ........... 5,479 1,134 5 121,105
J. Atwood Ives ............. 5,219 1,609 17 108,720
Lawrence T. Perera ......... 5,739 2,626 26 127,055
William Poorvu ............. 5,479 2,807 25 121,105
Charles W. Schmidt ......... 5,479 2,736 20 121,105
Arnold D. Scott ............ 0 0 N/A 0
Jeffrey L. Shames .......... 0 0 N/A 0
Elaine R. Smith ............ 5,799 1,642 27 132,035
David B. Stone ............. 5,739 2,878 14 127,055
- ----------------------
(1) For fiscal year ended November 30, 1997.
(2) Based on normal retirement age of 73. See the table below for the
estimated annual benefits payable upon retirement by the Fund to a Trustee
based on his or her estimated credited years of service.
(3) For calendar year 1997. All Trustees receiving compensation served as
Trustees of 27 funds within the MFS fund complex (having aggregate net
assets at December 31, 1997, of approximately $29.0 billion) except Mr.
Bailey, who served as Trustee of 69 funds within the MFS fund complex
(having aggregate net assets at December 31, 1997, of approximately $47.8
billion).
Estimated Annual Benefits Payable By Fund Upon Retirement(4)
Years of Service
Average ----------------------------------------
Trustee 10 or
Fees 3 5 7 more
---- - - - ----
$4,697.......... $705 $1,174 $1,644 $2,349
5,033 ......... 755 1,258 1,762 $2,517
5,370 ......... 805 1,342 1,879 $2,685
5,706 ......... 856 1,427 1,997 $2,853
6,043 ......... 906 1,511 2,115 $3,021
6,379 ......... 957 1,595 2,233 $3,189
- ----------------------
(4) Other funds in the MFS fund complex provide similar retirement benefits to
the Trustees.
As of February 28, 1998, all Trustees and officers as a group owned less than
1% of the outstanding shares of the Fund.
As of February 28, 1998, Merrill Lynch, Pierce, Fenner & Smith Inc., for the
sole benefit of its customers, 4800 Deer Lake Drive East, Jacksonville, FL, was
the record of 12.05%, 9.27% and 27.60% of the Fund's Class A, Class B and Class
C shares, respectively.
As of February 28, 1998, the Trustees of the MFS 401(k) Plan and the MFS
Defined Contribution Plan, c/o Mark Leary, 500 Boylston Street, Boston, MA, and
the Trustees of MFS 401(k) Plan, c/o Mark Leary, 500 Boylston Street, 19th
Floor, Boston, MA, owned 38.95% and 61.05%, respectively, of the outstanding
Class I 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.) Financial Services
Holdings, Inc., which in turn is an indirect wholly owned subsidiary of Sun
Life.
11
<PAGE>
The Adviser manages the Fund pursuant to an Investment Advisory Agreement dated
July 19, 1985 (the "Advisory Agreement"). Under the Advisory Agreement the
Adviser provides the Fund with overall investment advisory services. 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 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 $4,290,313,
$3,656,428 and $3,339,532 for the fiscal years ended November 30, 1997, 1996
and 1995, respectively.
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, 1997, has been determined pursuant to a formula devised by
an independent appraiser to be $22,164, 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 all of its expenses (other than those assumed by MFS or MFD),
including: advisory and administrative services fees; Trustee fees discussed
above; 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 MFD requires MFD 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, 1997, 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, 1998, 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.
Administrator
MFS provides the Fund with certain financial, legal, compliance, shareholder
communications and other administrative services pursuant to a Master
Administrative Services Agreement dated March 1, 1997, as amended. Under this
Agreement, MFS receives an administrative fee up to 0.015% per annum of the
Fund's average daily net assets. This fee reimburses MFS for a portion of the
costs it incurs to provide such services. For the period March 1, 1997 through
November 30, 1997, MFS received fees under the Administrative Services
Agreement of $170,904.
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 Custodian also acts as the
dividend disbursing agent of the Fund.
12
<PAGE>
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 calculated as a percentage of the average
daily net assets of the Fund at an effective annual rate of 0.1125%. 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. 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 disbursing agent functions for the Fund.
Distributor
MFD, a wholly owned subsidiary of MFS, serves as distributor for the continuous
offering of shares of the Fund pursuant to a Distribution Agreement, dated
January 1, 1995 (the "Distribution Agreement"), with the Fund. Prior to January
1, 1995, MFS Financial Services, Inc. ("FSI"), another wholly owned subsidiary
of MFS, was the Fund's distributor. Where this SAI refers to MFD in relation to
the receipt or payment of money with respect to a period or periods prior to
January 1, 1995, such reference shall be deemed to include FSI as the
predecessor in interest to MFD.
Class A shares: MFD 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 SAI).
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, MFD and/or the Fund have business relationships, and because the
sales effort, if any, involved in making such sales is negligible.
MFD 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 commission
paid to the underwriter is the difference between the total amount invested and
the sum of (a) the net proceeds to the Fund and (b) the dealer commission.
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 MFD, on behalf of the Fund, retains approximately 3/4 of
1% of the public offering price. MFD pays commissions to dealers who initiate
and are responsible for purchases of $1 million or more as described in the
Prospectus.
Class B, Class C and Class I Shares: MFD acts as agent in selling Class B,
Class C and Class I shares of the Fund. The public offering price of Class B,
Class C and Class I shares is their net asset value next computed after the
sale (see "Purchases" in the Prospectus and the Prospectus Supplement pursuant
to which Class I shares are offered).
General: Neither MFD nor dealers are permitted to delay placing orders to
benefit themselves by a price change. On occasion, MFD 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. MFD 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, 1997, MFD received sales
charges of $158,426 and dealers received sales charges of $1,026,350 (as their
concession on gross sales charges of $1,184,776) for selling Class A shares of
the Fund; the Fund received $75,932,355 representing the aggregate net asset
value of such shares. During the Fund's fiscal year ended November 30, 1996,
MFD received sales charges of $46,476 and dealers received sales charges of
$325,281 (as their concession on gross sales charges of $371,757) for selling
Class A shares of the Fund; the Fund received $37,801,871 representing the
aggregate net asset value of such shares. During the Fund's fiscal year ended
November 30, 1995, MFD received sales charges of $36,131 and dealers received
sales charges of $225,697 (as their concession on gross sales charges of
$261,828) for selling Class A shares of Fund; the Fund received $22,438,010
representing the aggregate net asset value of such shares.
During the Fund's fiscal year ended November 30, 1997, the CDSC imposed on
redemption of Class A, Class B and Class C shares was $15,331 and $41,203 and
$0, respectively. During the Fund's fiscal year ended November 30, 1996, the
CDSC imposed on redemption of Class A and Class B shares was $457 and $31,599,
respectively. During the Fund's fiscal year ended November 30, 1995, the CDSC
imposed upon redemption of Class A and Class B shares was $1,335 and $19,739,
respectively.
13
<PAGE>
The Distribution Agreement will remain in effect until August 1, 1998 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 Conduct Rules of the
National Association of Securities Dealers, Inc. (the "NASD") and such other
policies as the Trustees may determine, the Adviser may consider sales of
shares of the Fund and of the other investment company clients of MFD 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 underwriting commissions. Securities may
be bought or sold from time to time through such broker-dealers on behalf of
the Fund. The Trustees of the Fund (together with the Trustees of the other MFS
Funds) have directed the Adviser to allocate a total of $54,160 of commission
business from the MFS Funds to the Pershing Division of Donaldson, Lufkin and
Jenrette as consideration for the annual renewal of certain publications
provided by Lipper Analytical Securities Corporation (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.
14
<PAGE>
For the fiscal year ended November 30, 1997, the Fund paid total brokerage
commissions of $2,427,760 on total transactions (other than short-term
obligations and U.S. Government securities) of $1,843,384,780. For the fiscal
year ended November 30, 1996, the Fund paid total brokerage commissions of
$2,285,418 on total transactions (other than short-term obligations and U.S.
Government Securities) of $1,549,738,988. For the fiscal year ended November
30, 1995, the Fund paid total brokerage commissions of $1,180,285 on total
transactions (other than short-term obligations and U.S. Government Securities)
of $724,416,054.
For the fical year ended November 30, 1997, the Fund acquired and owned
securities issued by Merrill Lynch, Pierce, Fenner & Smith Inc., Morgan Stanley
& Co., Inc., General Electric and General Electric Capital Corp., regular
broker-dealers (or affiliates thereof) of the Fund, in the amounts of
$10,879,062, $6,789,063, $9,956,250 and $3,215,000, respectively.
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 by the Adviser 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 Class B or Class C of the Fund or any of
the 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 MFD 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 MFD that the
Letter of Intent is in effect each time shares are purchased. The shareholder
makes no commitment to purchase additional shares, but if his purchases within
13-months (or 36-months, in the case of purchases of $1 million or more), plus
the value of shares credited toward completion of the Letter of Intent do not
total the sum specified, he will pay the increased amount of the sales charge
as described below. Instructions for issuance of shares in the name of a person
other than the person signing the Letter of Intent application must be
accompanied by a written statement from the dealer stating that the shares were
paid for by the person signing such Letter. Neither income dividends nor
capital gain distributions taken in additional shares will apply toward the
completion of the Letter of Intent. Dividends and distributions of other MFS
Funds automatically reinvested in shares of the Fund pursuant to the
Distribution Investment Program will also not apply toward completion of the
Letter of Intent.
Out of the shareholder's initial purchase (or subsequent purchases if
necessary), 5% of the dollar amount specified in the Letter of Intent
application shall be held in escrow by the Shareholder Servicing Agent in the
form of shares registered in the shareholder's name. All income dividends and
capital gain distributions on escrowed shares will be paid to the shareholder
or to his order. When the minimum investment so specified is completed (either
prior to or by the end of the 13-month period or 36-month period, as
applicable), the shareholder will be notified and the escrowed shares will be
released.
If the intended investment is not completed, the Shareholder Servicing Agent
will redeem an appropriate number of the escrowed shares in order to realize
such difference. Shares remaining after any such redemption will be released by
the Shareholder Servicing Agent. By completing and signing the Account
Application or separate Letter of Intent application, the shareholder
irrevocably appoints the Shareholder Servicing Agent his attorney to surrender
for redemption any or all escrowed shares with full power of substitution in
the premises.
Right of Accumulation: A shareholder qualifies for cumulative quantity
discounts on the purchase of Class A shares when his new investment, together
with the current offering price value of all holdings of Class A, Class B and
Class C 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
15
<PAGE>
Agent (or his investment dealer must provide MFD) with information to verify
that the quantity sales charge discount is applicable at the time the
investment is made.
Subsequent Investment by Telephone: Each shareholder may purchase additional
shares of any MFS Fund by telephoning the Shareholder Servicing Agent toll-free
at (800) 225-2606. The minimum purchase amount is $50 and the maximum purchase
amount is $100,000. Shareholders wishing to avail themselves of this telephone
purchase privilege must so elect on their Account Application and designate
thereon a bank and account number from which purchases will be made. If a
telephone purchase request is received by the Shareholder Servicing Agent on
any business day prior to the close of regular trading on the Exchange
(generally, 4:00 p.m., Eastern time), the purchase will occur at the closing
net asset value of the shares purchased on that day. The Shareholder Servicing
Agent may be liable for any losses resulting from unauthorized telephone
transactions if it does not follow 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.
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 may direct the Shareholder Servicing
Agent to send him (or anyone he designates) regular periodic payments 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 and Class C 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 and Class C shares will be made in
the following order: (i) any "Free Amount"; (ii) to the extent necessary, any
"Reinvested Shares"; 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 and Class C 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 $5,000 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
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.
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 MFD.
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 exchanges 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, exchanges of at least
$50 each may be made to up to six different funds effective on the seventh day
of each month or of every third month, depending whether monthly or quarterly
exchanges are elected by the shareholder. If the seventh day of the month is
not a business day, the transaction will
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be processed on the next business day. Generally, the initial exchange will
occur after receipt and processing by the Shareholder Servicing Agent of an
application in good order. Exchanges 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 exchanges. Additional payments made to a
shareholder's account will extend the period that exchanges 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 an
exchange is scheduled, such funds may not be available for exchanges 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 exchanges will be charged in connection with the
Automatic Exchange Plan. However, exchanges 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
exchanged to each fund, the funds to which exchanges are to be made and the
timing of exchanges (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 exchange.
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 Class C shares and 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 and if the purchaser is eligible to purchase the class of shares) 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 exchange must involve either shares
having an aggregate value of at least $1,000 ($50 in the case of retirement
plan participants whose sponsoring organizations subscribe to the MFS
FUNDamental 401(k) Plan or another similar 401(k) recordkeeping system made
available by the Shareholder Servicing Agent) or all the shares in the account.
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 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
of its shareholders. Investment dealers which have satisfied criteria
established by MFD may also communicate a shareholder's exchange instruction to
MFD 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.
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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 share-holder 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 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. MFD makes available, through investment
dealers, plans and/or custody agreements, the following:
Traditional Individual Retirement Accounts (IRAs) (for individuals 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);
Roth Individual Retirement Accounts (Roth IRAs) (for individuals who desire to
make limited contributions to a tax-favored retirement program);
Simplified Employee Pension (SEP-IRA) Plans;
Retirement Plans Qualified under Section 401(k) of the Internal Revenue Code of
1986, as amended (the "Code");
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 MFD 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 MFD, tax consequences and redemption
information, see the specific documents for that plan. Plan documents other
than those provided by MFD 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 Subchapter M of the Code, by meeting all
applicable requirements of Subchapter M, including requirements as to the
nature of the Fund's gross income, the amount of Fund distributions, and the
composition of the Fund's portfolio assets. Because the Fund intends to
distribute all of its net investment income and net realized capital gains to
shareholders in accordance with the timing requirements imposed by the Code, it
is not expected that the Fund will be required to pay any federal income or
excise taxes, although the Fund's foreign-source income may be subject to
foreign withholding taxes. If the Fund should fail to qualify as a "regulated
investment company" in any year, the Fund would incur a regular corporate
federal income tax upon its taxable income and Fund distributions would
generally be taxable as ordinary dividend income to the shareholders.
Shareholders of the Fund normally will have to pay federal income taxes, and
any state and local taxes, on the dividends and capital gain distributions they
receive from the Fund. Dividends from ordinary income and any distributions
from net short-term capital gains are taxable to shareholders as ordinary
income for federal income tax purposes, whether the distributions are paid in
cash or reinvested in additional shares. A portion of the Fund's ordinary
income dividends 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 corporate shareholders is subject to certain limitations, and
deducted amounts may be subject to the alternative minimum tax or result in
certain basis adjustments. Distributions of net capital gains (i.e., the excess
of net long-term capital gains over net short-term capital losses), whether
paid in cash or reinvested in additional shares, are taxable to shareholders as
long-term capital gains for federal income tax purposes without regard to the
length of time the shareholders have held their shares. Such capital gains will
generally be taxable to shareholders as if the shareholders had directly
realized gains from the same sources from which they were realized by the Fund.
Any Fund dividend that is declared in October, November or December of any
calendar year, that is payable to shareholders of record in such a month and
that is paid the following January will be treated as if received by the
shareholders on December 31 of the year in which the dividend is declared. The
Fund will notify shareholders regarding the federal tax status of its
distributions after the end of each calendar year.
Any Fund distribution will have the effect of reducing the per share net asset
value of shares in the Fund by the amount of the distribution. Shareholders
purchasing shares shortly before the record date of any distribution may thus
pay the full price for the shares and then effectively receive a portion of the
purchase price back as a taxable distribution.
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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 a long-term capital gain or loss if the shares have been held for
more than twelve months and otherwise as a short-term capital gain or loss; a
long-term capital gain realized by an individual, estate or trust may be
eligible for reduced tax rates if the shares were held for more than 18 months.
However, any loss realized upon a disposition of shares in the Fund held for
six months or less will be treated as a long-term capital loss to the extent of
any distributions of net capital gain made with respect to those shares. Any
loss realized upon a disposition of shares may also be disallowed under rules
relating to wash sales. Gain may be increased (or loss reduced) upon a
redemption of shares of Class A shares of the Fund within 90 days after their
purchase followed by any purchase (including purchases by exchange or by
reinvestment) without payment of an additional sales charge of Class A shares
of the Fund or of another MFS Fund (or any other shares of an MFS Fund
generally sold subject to a sales charge).
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 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.
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.
Special tax considerations apply with respect to foreign investments of the
Fund. 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. The
Fund may elect to mark to market any investments in "passive foreign investment
companies" on the last day of each year. This election may cause the Fund to
recognize income prior to the receipt of cash payments with respect to those
investments; 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.
Investment income received by the Fund from foreign securities may be subject
to foreign income taxes withheld at the source; the Fund does not expect to be
able to pass through to shareholders foreign tax credits with respect to such
foreign taxes. The United States has entered into tax treaties with many
foreign countries that may entitle the Fund to a reduced rate of tax or an
exemption from tax on such income; the Fund intends to qualify for treaty
reduced rates where available. It is not possible, however, to determine the
Fund's effective rate of foreign tax in advance since the amount of the Fund's
assets to be invested within various countries is not known.
Dividends and certain other payments to persons who are not citizens or
residents of the 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 U.S. federal income tax payments at the rate of 30% (or any lower
rate permitted under an applicable treaty) on taxable dividends and other
payments to Non-U.S. Persons that are subject to such withholding. 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 appropriate to such
claims. Distributions received from the Fund by Non-U.S. Persons may also be
subject to tax under the laws of their own jurisdictions. The Fund is also
required in certain circumstances to apply backup withholding at the rate of
31% on taxable dividends and redemption proceeds paid to any shareholder
(including a Non-U.S. Person) who does not furnish to the Fund certain
information and certifications or who is otherwise subject to backup
withholding. Backup withholding will not, however, be applied to payments that
have been subject to 30% withholding.
As long as it qualifies as a regulated investment company under the Code, the
Fund will not be required to pay Massachusetts income or excise taxes.
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 SAI, 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, Martin Luther King,
Jr., 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
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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 stock market, 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 Class
B shares and 1% maximum for Class C shares) and therefore may result in a
higher rate of return, (ii) a total rate of return assuming an initial account
value of $1,000, which will result in a higher rate of return 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% for Class A shares) and/or (iii)
total rates of return which represent aggregate performance over a period or
year-by-year performance, and which may or may not reflect the effect of the
maximum or other sales charge or CDSC.
The Fund offers multiple classes of shares which were initially offered for
sale to, and purchased by, the public on different dates (the class "inception
date"). The calculation of total rate of return for a class of shares which
initially has a later class inception date than another class of shares of the
Fund is based both on (i) the performance of the Fund's newer class from its
inception date and (ii) the performance of the Fund's oldest class from its
inception date up to the class inception date of the newer class.
As discussed in the Prospectus, the sales charges, expenses and expense ratios,
and therefore the performance, of the Fund's classes of shares differ. In
calculating total rate of return for a newer class of shares in accordance with
certain formulas required by the SEC, the performance will be adjusted to take
into account the fact that the newer class is subject to a different sales
charge that the oldest class (e.g., if the newer class is Class A shares, the
total rate of return quoted will reflect the deduction of the initial sales
charge applicable to Class A shares; if the newer class is Class B shares, the
total rate of return quoted will reflect the deduction of the CDSC applicable
to Class B share). However, the performance will not be adjusted to take into
account the fact that the newer class of shares bears different class specific
expenses than the oldest class of shares (e.g., Rule 12b-1 fees). Therefore,
the total rate of return quoted for a newer class of shares will differ from
the return that would be quoted had the newer class of shares been outstanding
for the entire period over which the calculation is based (i.e., the total rate
of return quoted for the newer class will be higher than the return that would
have been quoted had the newer class of shares been outstanding for the entire
period over which the calculation is based if the class specific expenses for
the newer class are higher than the class specific expenses of the oldest
class, and the total rate of return quoted for the newer class will be lower
than the return that would be quoted had the newer class of shares been
outstanding for this entire period if the class specific expenses for the newer
class are lower than the class specific expenses of the oldest class).
Total rate of return quotations for each class are presented in Appendix A
attached hereto under the heading "Performance Quotations."
Performance Results: The performance results for Class A shares presented in
Appendix A attached hereto under the heading "Performance Results" assume an
initial investment of $10,000 in Class A shares, and cover the period from
January 1, 1988 through December 31, 1997. 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).
General: 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.
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From time to time, the Fund may discuss or quote its current portfolio manager
as well as other investment personnel, including such persons' views on: the
economy; securities markets; portfolio securities and their issuers; investment
philosophies, strategies, techniques and criteria used in the selection of
securities to be purchased or sold for the Fund; the Fund's portfolio holdings;
the investment research and analysis process; the formulation and evaluation of
investment recommendations; and the assessment and evaluation of credit,
interest rate, market and economic risks, and similar or related matters.
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 indexes such as those mentioned above and illustrations
using hypothetical rates of return to illustrate the effects of compounding and
tax-deferral.
From time to time the Fund may also discuss or quote the views of its
distributor, its investment adviser and other financial planning, legal, tax,
accounting, insurance, estate planning and other professionals, or from
surveys, regarding individual and family financial planning. Such views may
include information regarding: retirement planning; tax management strategies;
estate planning; general investment techniques (e.g., asset allocation and
disciplined saving and investing); business succession; ideas and information
provided through the MFS Heritage Planning(SM) program, an intergenerational
financial planning assistance program; issues with respect to insurance (e.g.,
disability and life insurance and Medicare supplemental insurance); and issues
regarding financial and health care management for elderly family members; and
other or similar related matters.
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 open-end
mutual fund in America.
- -- 1924 -- Massachusetts Investors Trust is the first mutual fund to make full
public disclosure of its operations in shareholder reports.
- -- 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. ("Truth in Securities Act" or "Full
Disclosure Act")
- -- 1936 -- Massachusetts Investors Trust is the first mutual fund to allow
shareholders to take capital gain distributions either in additional shares
or cash.
- -- 1976 -- MFS[RegTM] Municipal Bond Fund is among the first municipal bond
funds established.
- -- 1979 -- Spectrum becomes the first combination fixed/ variable annuity with
no initial sales charge.
- -- 1981 -- MFS[RegTM] World Governments Fund is established as America's first
globally diversified fixed-income mutual fund.
- -- 1984 -- MFS[RegTM] Municipal High Income Fund is the first open-end mutual
fund to seek high tax-free income from lower-rated municipal securities.
- -- 1986 -- MFS[RegTM] Managed Sectors Fund becomes the first mutual fund to
target and shift investments among industry sectors for shareholders.
- -- 1986 -- MFS[RegTM] Municipal Income Trust is the first closed-end, high-yield
municipal bond fund traded on the New York Stock Exchange.
- -- 1987 -- MFS[RegTM] Multimarket Income Trust is the first closed-end,
multimarket high income fund listed on the New York Stock Exchange.
- -- 1989 -- MFS[RegTM] Regatta becomes America's first non-qualified
market-value-adjusted fixed/variable annuity.
- -- 1990 -- MFS[RegTM] World Total Return Fund is the first global balanced fund.
- -- 1993 -- MFS[RegTM] World Growth Fund is the first global emerging markets
fund to offer the expertise of two sub-advisers.
- -- 1993 -- MFS becomes money manager of MFS[RegTM] Union Standard[RegTM] Equity
Fund, the first fund to invest in companies deemed to be union-friendly by an
advisory board of senior labor officials, senior managers of companies with
significant labor contracts, academics and other national labor leaders or
experts.
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 four classes of shares of the Fund, Class A shares, Class B shares,
Class C shares and Class I 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
21
<PAGE>
allocable to such class 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 PLAN
The Trustees have adopted a Distribution Plan for its Class A, Class B and
Class C shares (the "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 Distribution Plan would benefit the Fund and
each respective class of shareholders. The provisions of the Distribution Plan
are severable with respect to each class of shares offered by the Fund. The
Distribution Plan is designed to promote sales, thereby increasing the net
assets of the Fund. Such an increase may reduce the Fund's expense ratio to the
extent that the Fund's fixed costs are spread over a larger net asset base.
Also, an increase in net assets may lessen the adverse effect 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 Distribution Plan is described in the Prospectus under the caption
"Distribution Plan," which is incorporated herein by reference. The following
information supplements this Prospectus discussion.
Service Fees: With respect to Class A Shares, no service fees will be paid: (i)
to any 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 MFD (MFD, however, may waive
this minimum amount requirement from time to time); or (ii) to any insurance
company which has entered into an agreement with the Fund and MFD that permits
such insurance company to purchase Class A shares from the Fund at their net
asset value in connection with annuity agreements issued in connection with the
insurance company's separate accounts. Dealers may from time to time be
required to meet certain other criteria in order to receive service fees.
With respect to Class B Shares, except in the case of the first year service
fee, no service fees 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 by
MFD from time to time. Dealers may from time to time be required to meet
certain other criteria in order to receive service fees.
MFD or its affiliates shall be entitled to receive any service fee payable
under the Distribution Plan for which there is no dealer of record or for which
qualification standards have not been met as partial consideration for personal
services and/or account maintenance services performed by MFD or its affiliates
for shareholder accounts.
Distribution Fees: The purpose of distribution payments to MFD under the
Distribution Plan is to compensate MFD for its distribution services to the
Fund. MFD 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 expense and
equipment.
22
<PAGE>
Distribution and Service Fees Paid During the Fund's Last Fiscal Year: During
the fiscal year ended November 30, 1997, the Fund paid the following
Distribution Plan expenses:
Amount of Amount of Amount of
Distribution Distribution Distribution
and Service and Service and Service
Fees Paid Fees Retained Fees Received
Classes of Shares By Fund By MFD By Dealers
----------------- ------- ------ ----------
Class A Shares ......... $3,287,760 $897,359 $2,390,401
Class B Shares ......... $ 490,354 $375,874 $ 114,480
Class C Shares ......... $ 149 $ 0 $ 149
General: The Distribution Plan will remain in effect until August 1, 1998, 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 of
such Plan ("Distribution Plan Qualified Trustees"). The Distribution Plan also
requires that the Fund and MFD each shall provide the Trustees, and the
Trustees shall review, at least quarterly, a written report of the amounts
expended (and purposes therefor) under such Plan. The Distribution Plan may be
terminated at any time by vote of a majority of the Distribution Plan Qualified
Trustees or by vote of the holders of a majority of the respective class of the
Fund's shares (as defined in "Investment Restrictions"). All agreements
relating to the Distribution Plan entered into between the Fund or MFD and
other organizations must be approved by the Board of Trustees, including a
majority of the Distribution Plan Qualified Trustees. Agreements under the
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 Distribution Plan Qualified Trustees or by vote of
the holders of a majority of the respective class of the Fund's shares. The
Distribution Plan may not be amended to increase materially the amount of
permitted distribution expenses without the approval of a majority of the
respective class of the Fund's shares (as defined in "Investment Restrictions")
or may not be materially amended in any case without a vote of the Trustees and
a majority of the Distribution Plan Qualified Trustees. The selection and
nomination of Distribution Plan Qualified Trustees shall be committed to the
discretion of the non-interested Trustees then in office. No Trustee who is not
an "interested person" has any financial interest in any of the Distribution
Plan or in any related agreement.
11. INDEPENDENT AUDITORS AND FINANCIAL STATEMENTS
Deloitte & Touche LLP are the Fund's independent auditors, 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, 1997, the Statement of Assets and
Liabilities at November 30, 1997, the Statement of Operations for the year
ended November 30, 1997, the Statement of Changes in Net Assets for each of the
years in the two year period ended November 30, 1997, 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 SAI and have been so incorporated in reliance upon the report of
Deloitte & Touche LLP, independent auditors, as experts in accounting and
auditing. A copy of the Annual Report accompanies this SAI.
23
<PAGE>
APPENDIX A
PERFORMANCE RESULTS AND QUOTATIONS
The performance results and quotations below 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. See
"Determination of Net Asset Value and Performance" in the SAI.
Performance Results
<TABLE>
<CAPTION>
Class A Shares
Value of Value of Value of
Initial $10,000 Capital Gain Reinvested Total
Year Ended Investment Distributions Dividends Value
---------- ---------- ------------- --------- -----
<S> <C> <C> <C> <C>
December 31, 1988 ......... $ 8,754 $ 939 $ 120 $ 9,813
December 31, 1989 ......... 10,441 2,620 257 13,318
December 31, 1990 ......... 9,316 3,074 297 12,687
December 31, 1991 ......... 12,888 5,442 412 18,742
December 31, 1992 ......... 12,910 6,627 412 19,949
December 31, 1993 ......... 12,568 9,866 401 22,835
December 31, 1994 ......... 10,529 10,434 335 21,298
December 31, 1995 ......... 11,719 14,134 1,482 27,335
December 31, 1996 ......... 11,003 19,606 2,969 33,578
December 31, 1997 ......... 13,693 29,761 6,293 49,747
</TABLE>
Explanatory Notes:
The results in the table assume that income dividends and capital gain
distributions were invested in additional shares. The results also assume that
the initial investment in Class A shares was reduced by the current maximum
applicable sales charge. No adjustment has been made for income taxes, if any,
payable by shareholders.
Performance Quotations
All performance quotations are as of November 30, 1997.
Average Annual Total Returns
<TABLE>
<CAPTION>
1 Year 5 Year 10 Year
------ ------ -------
<S> <C> <C> <C>
Class A shares with sales charge ............. 34.70% 19.04% 18.34%
Class A shares without sales charge .......... 42.91% 20.45% 19.05%
Class B shares with CDSC ..................... 37.77% 19.44%(1) 18.64%(1)
Class B shares without CDSC .................. 41.77% 19.63%(1) 18.64%(1)
Class C shares with CDSC ..................... 37.53%(2) 19.51%(2) 18.68%(2)
Class C shares without CDSC .................. 38.53%(2) 19.70%(2) 18.68%(2)
Class I shares ............................... 43.21%(3) 20.50%(3) 19.07%(3)
</TABLE>
- --------------------
(1) Class B share performance includes the performance of the Fund's Class A
shares for periods prior to the inception date of Class B shares on
September 7, 1993. Sales charges, expenses and expense ratios, and
therefore performance, for Class A and Class B shares differ. Class B
share performance has been adjusted to reflect that Class B shares
generally are subject to a lower CDSC (unless the performance quotation
does not give effect to the CDSC) whereas Class A shares generally are
subject to an initial sales charge. Class B share performance has not,
however, been adjusted to reflect differences in operating expenses (e.g.
Rule 12b-1 fees), which generally are lower for Class A shares.
(2) Class C share performance includes the performance of the Fund's Class A
shares for periods prior to the inception of offering of Class C shares on
November 3, 1997. Sales charges, expenses and expense ratios, and
therefore performance, for Class A and Class B shares differ. Class C
shares performance has been adjusted to reflect that Class C shares
generally are subject to a CDSC (unless the performance quotation does not
give effect to the CDSC) whereas Class A shares generally are subject to
an initial sales charge. Class C share performance has not, however, been
adjusted to reflect differences in operating expenses (e.g., Rule 12b-1
fees), which generally are lower for Class A shares.
(3) Class I share performance includes the performance of the Fund's Class A
shares for the periods prior to the inception of Class I shares on January
2, 1997. Sales charges, expenses and expense ratios, and therefore
performance for Class I and A shares differ. Class I share performance has
been adjusted to reflect that Class I shares are not subject to an initial
sales charge, whereas Class A shares generally are subject to an initial
sales charge. Class I share performance has not, however, been adjusted to
reflect differences in operating expenses (e.g., Rule 12b-1 fees), which
generally are lower for Class I shares.
A-1
<PAGE>
Investment Adviser
Massachusetts Financial Services Company
500 Boylston Street, Boston, MA 02116
(617) 954-5000
Distributor
MFS Fund Distributors, 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 Auditors
Deloitte & Touche LLP
125 Summer Street, Boston, MA 02110
Massachusetts
Investors Growth
Stock Fund(SM)
500 Boylston Street
Boston, MA 02116
[MFS LOGO](SM)
INVESTMENT MANAGEMENT
We invented the mutual fund(SM)
MIG-13-4/98.5M 13/213/313
<PAGE>
PART C
Item 24. Financial Statements and Exhibits
(a) Financial Statements Included in Part A:
For the ten years ended November 30, 1997:
Financial Highlights
Financial Statements Included in Part B:
At November 30, 1997:
Portfolio of Investments*
Statement of Assets and Liabilities*
For the two years ended November 30, 1997:
Statement of Changes in Net Assets*
For the year ended November 30, 1997:
Statement of Operations*
- ---------------------
* Incorporated herein by reference to the Fund's Annual Report to Shareholders
dated November 30, 1997, filed with the SEC via EDGAR on January 22, 1998.
(b) Exhibits
1 (a) Amended & Restated Declaration of Trust, dated
January 19, 1995. (1)
(b) Amendment to Declaration of Trust, dated June 20,
1996. (7)
(c) Amendment to Declaration of Trust, dated December 19,
1996. (10).
(d) Amendment to Declaration of Trust, dated October
29, 1997. (13)
2 Amended & Restated By-Laws, dated December 21,
1994. (1)
3 Not Applicable.
4 Form of Share Certificate for Classes of Shares. (6)
<PAGE>
5 Investment Advisory Agreement, dated July 19,
1985. (5)
6 (a) Distribution Agreement dated January 1, 1995. (1)
(b) Dealer Agreement between MFS Fund Distributors,
Inc. ("MFD") and a dealer and the Mutual Fund
Agreement between MFD and a bank or NASD affiliate,
as amended April 11, 1997. (11)
7 Retirement Plan for Non-Interested Person Trustees,
dated January 1, 1991. (1)
8 (a) Custodian Agreement between the Trust and State
Street Bank and Trust Company, dated May 24, 1988. (5)
(b) Amendment No. 1 to Custodian Agreement, dated May
24, 1988. (5)
(c) Amendment No. 2 to Custodian Agreement, dated
September 20, 1989. (5)
(d) Amendment No. 3 to Custodian Agreement, dated
October 1, 1989. (5)
(e) Amendment No. 4 to Custodian Agreement, dated
December 28, 1990. (5)
(f) Amendment No. 5 to Custodian Agreement, dated
September 17, 1991. (5)
9 (a) Shareholder Servicing Agent Agreement, dated August
1, 1985. (5)
(b) Amendment to Shareholder Servicing Agreement, dated
January 1, 1998 to amend fee schedule; filed herewith.
(c) Exchange Privilege Agreement, dated July 30, 1997.
(13)
(d) Loan Agreement by and among the Banks named herein,
the MFS Funds named therein, and The First National
Bank of Boston, dated as of February 21, 1995. (3)
(e) Third Amendment dated February 14, 1997 to Loan
Agreement dated February 21, 1995 By and Among the
<PAGE>
Banks named therein and The First National Bank of
Boston. (12)
(f) Dividend Disbursing Agency Agreement, dated
February 1, 1986. (2)
(g) Master Administrative Services Agreement dated March
1, 1997, as amended; filed herewith.
10 Consent and Opinion of Counsel, dated October 29,
1997. (13)
11 Consent of Deloitte & Touche LLP; filed herewith.
12 Not Applicable.
13 Not Applicable.
14 (a) Forms for Individual Retirement Account Disclosure
Statement as currently in effect. (4)
(b) Forms for MFS 403(b) Custodial Account Agreement as
currently in effect. (4)
(c) Forms for MFS Prototype Paired Defined Contribution
Plans and Trust Agreement as currently in effect. (4)
(d) Forms for Roth Individual Account Retirement
Disclosure Statement and Trust Agreement. (14)
15 (a) Master Distribution Plan pursuant to 12b-1 under
the Investment Company Act of 1940, effective
January 1, 1997. (9)
(b) Exhibits as revised February 18, 1998 to Master
Distribution Plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940 to replace those
exhibits to the Master Distribution Plan contained in
Exhibit 15(a) above; filed herewith.
16 Schedule for Computation of Performance Quotations -
Average Annual Total Rate. (1)
17 Financial Data Schedules on behalf of Massachusetts
Investors Growth Stock Fund; filed herewith.
<PAGE>
18 Plan pursuant to Rule 18f-3(d) under the Investment
Company Act of 1940. (6)
Power of Attorney, dated September 21, 1994. (1)
Power of Attorney, dated February 19, 1998; filed
herewith.
- -----------------------------
(1) Incorporated by reference to the Registrant's Post--Effective Amendment No.
59 filed with the SEC via EDGAR on March 30, 1995.
(2) Incorporated by reference to MFS Municipal Series Trust (File Nos.
2-92915 and 81-4096) Post-Effective Amendment No. 28 filed with the SEC
via EDGAR on July 28, 1995.
(3) Incorporated by ref erence to Amendment No. 8 on Form N-2 for MFS
Municipal Income Trust (File No. 811-4841) filed with the SEC via EDGAR on
February 28, 1995.
(4) Incorporated by reference to MFS Series Trust IX (File Nos. 2-50409 and
811-2464) Post-Effective Amendment No. 32 filed with the SEC via EDGAR on
August 28, 1995.
(5) Incorporated by reference to Post-Effective Amendment No. 60 filed with the
SEC via EDGAR on October 26, 1995.
(6) Incorporated by reference to MFS Series Trust I (File Nos. 33-7638 and
811-4777) Post-Effective Amendment No. 25 filed with the SEC via EDGAR on
August 27, 1996.
(7) Incorporated by reference to the Registrant's Post-Effective Amendment No.
62 filed with the SEC via EDGAR on August 29, 1996.
(8) Incorporated by reference to MFS/Sun Life Series Trust (File Nos.
2-83616 and 811-3732) Post-Effective Amendment No. 19, filed with the SEC
via EDGAR on March 18, 1997.
(9) Incorporated by reference to MFS Series Trust IV (File Nos. 2-54607 and
811-2594) Post-Effective Amendment No. 30, filed with the SEC via EDGAR on
December 27, 1996.
(10) Incorporated by reference to the Registrant's Post-Effective Amendment No.
63 filed with the SEC via EDGAR on March 27, 1997.
(11) Incorporated by reference to MFS Series Trust III (File Nos. 2-60491 and
811-2794) Post-Effective Amendment No. 24 filed with the SEC via EDGAR on
May 29, 1997.
(12) Incorporated by reference to MFS Series Trust I (File Nos. 33-7638 and
811-4777) Post-Effective Amendment No. 28 filed with the SEC via EDGAR on
June 26, 1997.
(13) Incorporated by reference to the Registrant Post-Effective Amendment No. 64
filed with the SEC via EDGAR on October 29, 1997.
(14) Incorporated by reference to MFS Series Trust VIII (File Nos. 33-37972 and
811-5262) Post-Effective Amendment No. 14 filed with the SEC via EDGAR on
February 26, 1998.
Item 25. Persons Controlled by or under Common Control with Registrant
Not applicable.
Item 26. Number of Holders of Securities
(1) (2)
Title of Class Number of Record Holders
Class A Shares of Beneficial Interest 43,580
(without par value) (as of February 28, 1998)
Class B Shares of Beneficial Interest 15,175
(without par value) (as of February 28, 1998)
Class C Shares of Beneficial Interest 687
(without par value) (as of February 28, 1998)
<PAGE>
Class I Shares of Beneficial Interest 3
(without par value) (as of February 28, 1998)
Item 27. Indemnification
Reference is hereby made to (a) Section VI of the Trust's
Declaration of Trust, incorporated by reference to the Registrant's
Post-Effective Amendment No. 68, filed with the SEC on April 28, 1995 and (b)
Section 9 of the Shareholder Servicing Agent Agreement, incorporated by
reference to Registrant's Post-Effective Amendment No. 69, filed with the SEC
via EDGAR on October 13, 1995.
The Trustees and officers of the Registrant and the personnel of the
Registrant's investment adviser and distributor are insured under an errors and
omissions liability insurance policy. The Registrant and its officers are also
insured under the fidelity bond required by Rule 17g-1 under the Investment
Company Act of 1940.
Item 28. Business and Other Connections of Investment Adviser
MFS serves as investment adviser to the following open-end Funds
comprising the MFS Family of Funds (except the Vertex Funds mentioned below):
Massachusetts Investors Trust, Massachusetts Investors Growth Stock Fund, MFS
Growth Opportunities Fund, MFS Government Securities Fund, MFS Government
Limited Maturity Fund, MFS Series Trust I (which has thirteen series: MFS
Managed Sectors Fund, MFS Cash Reserve Fund, MFS World Asset Allocation Fund,
MFS Strategic Growth Fund, MFS Research Growth and Income Fund, MFS Core Growth
Fund, MFS Equity Income Fund, MFS Special Opportunities Fund, MFS Convertible
Securities Fund, MFS Blue Chip Fund, MFS New Discovery Fund, MFS Science and
Technology Fund and MFS Research International Fund), MFS Series Trust II (which
has three series: MFS Emerging Growth Fund, MFS Large Cap Growth Fund and MFS
Intermediate Income Fund), MFS Series Trust III (which has two series: MFS High
Income Fund and MFS Municipal High Income Fund), MFS Series Trust IV (which has
four series: MFS Money Market Fund, MFS Government Money Market Fund, MFS
Municipal Bond Fund and MFS Mid Cap Growth Fund), MFS Series Trust V (which has
six series: MFS Total Return Fund, MFS Research Fund, MFS International
Opportunities Fund, MFS International Strategic Growth Fund, MFS International
Value Fund and MFS Asia Pacific Fund), MFS Series Trust VI (which has three
series: MFS World Total Return Fund, MFS Utilities Fund and MFS World Equity
Fund), MFS Series Trust VII (which has two series: MFS World Governments Fund
and MFS Value Fund), MFS Series Trust VIII (which has two series: MFS Strategic
Income Fund and MFS World Growth Fund), MFS Series Trust IX (which has three
series: MFS Bond Fund, MFS Limited Maturity Fund and MFS Municipal Limited
Maturity Fund), MFS Series Trust X (which has eight series: MFS Government
Mortgage Fund, MFS/Foreign & Colonial Emerging Markets Equity Fund, MFS
International Growth Fund, MFS International Growth and Income Fund, MFS Real
Estate Investment Fund, MFS Strategic Value Fund, MFS Small Cap Value Fund and
MFS Emerging Markets Debt Fund), MFS Series Trust XI (which has
<PAGE>
six series: MFS Union Standard Equity Fund, Vertex All Cap Fund, Vertex Research
All Cap Fund, Vertex Growth Fund, Vertex Discovery Fund and Vertex Contrarian
Fund (the Vertex Funds are expected to be declared effective April 28, 1998)),
and MFS Municipal Series Trust (which has 16 series: MFS Alabama Municipal Bond
Fund, MFS Arkansas Municipal Bond Fund, MFS California Municipal Bond Fund, MFS
Florida Municipal Bond Fund, MFS Georgia Municipal Bond Fund, MFS Maryland
Municipal Bond Fund, MFS Massachusetts Municipal Bond Fund, MFS Mississippi
Municipal Bond Fund, MFS New York Municipal Bond Fund, MFS North Carolina
Municipal Bond Fund, MFS Pennsylvania Municipal Bond Fund, MFS South Carolina
Municipal Bond Fund, MFS Tennessee Municipal Bond Fund, MFS Virginia Municipal
Bond Fund, MFS West Virginia Municipal Bond Fund and MFS Municipal Income Fund)
(the "MFS Funds"). The principal business address of each of the MFS Funds is
500 Boylston Street, Boston, Massachusetts 02116.
MFS also serves as investment adviser of the following open-end
Funds: MFS Institutional Trust ("MFSIT") (which has seven series) and MFS
Variable Insurance Trust ("MVI") (which has twelve series). The principal
business address of each of the aforementioned funds is 500 Boylston Street,
Boston, Massachusetts 02116.
In addition, MFS serves as investment adviser to the following
closed-end funds: MFS Municipal Income Trust, MFS Multimarket Income Trust, MFS
Government Markets Income Trust, MFS Intermediate Income Trust, MFS Charter
Income Trust and MFS Special Value Trust (the "MFS Closed-End Funds"). The
principal business address of each of the MFS Closed-End Funds is 500 Boylston
Street, Boston, Massachusetts 02116.
Lastly, MFS serves as investment adviser to MFS/Sun Life Series
Trust ("MFS/SL") (which has 26 series), Money Market Variable Account, High
Yield Variable Account, Capital Appreciation Variable Account, Government
Securities Variable Account, World Governments Variable Account, Total Return
Variable Account and Managed Sectors Variable Account (collectively, the
"Accounts"). The principal business address of MFS/SL is 500 Boylston Street,
Boston, Massachusetts 02116. The principal business address of each of the
aforementioned Accounts is One Sun Life Executive Park, Wellesley Hills,
Massachusetts 02181.
Vertex Investment Management, Inc., a Delaware corporation and a
wholly owned subsidiary of MFS, whose principal business address is 500 Boylston
Street, Boston, Massachusetts 02116 ("Vertex"), serves as investment adviser to
Vertex All Cap Fund, Vertex Research All Cap Fund, Vertex Growth Fund, Vertex
Discovery Fund and Vertex Contrarian Fund, each a series of MFS Series Trust XI.
The principal business address of the aforementioned Funds is 500 Boylston
Street, Boston, Massachusetts 02116.
MFS International Ltd. ("MIL"), a limited liability company
organized under the laws of Bermuda and a subsidiary of MFS, whose principal
business address is Cedar House, 41 Cedar Avenue, Hamilton HM12 Bermuda, serves
as investment adviser to and distributor for MFS American Funds (which has six
portfolios: MFS American Funds-U.S. Equity Fund, MFS American Funds-U.S.
Emerging Growth Fund, MFS American Funds-U.S.
<PAGE>
High Yield Bond Fund, MFS American Funds - U.S. Dollar Reserve Fund, MFS
American Funds-Charter Income Fund and MFS American Funds-U.S. Research Fund)
(the "MIL Funds"). The MIL Funds are organized in Luxembourg and qualify as an
undertaking for collective investments in transferable securities (UCITS). The
principal business address of the MIL Funds is 47, Boulevard Royal, L-2449
Luxembourg.
MIL also serves as investment adviser to and distributor for MFS
Meridian U.S. Government Bond Fund, MFS Meridian Charter Income Fund, MFS
Meridian Global Governments Fund, MFS Meridian U.S. Emerging Growth Fund, MFS
Meridian Global Equity Fund, MFS Meridian Limited Maturity Fund, MFS Meridian
World Growth Fund, MFS Meridian Money Market Fund, MFS Meridian World Total
Return Fund, MFS Meridian U.S. Equity Fund, MFS Meridian Research Fund, MFS
Meridian U.S. High Yield Fund and MFS Meridian Emerging Markets Debt Fund
(collectively the "MFS Meridian Funds"). Each of the MFS Meridian Funds is
organized as an exempt company under the laws of the Cayman Islands. The
principal business address of each of the MFS Meridian Funds is P.O. Box 309,
Grand Cayman, Cayman Islands, British West Indies.
MFS International (U.K.) Ltd. ("MIL-UK"), a private limited company
registered with the Registrar of Companies for England and Wales whose current
address is 4 John Carpenter Street, London, England ED4Y 0NH, is involved
primarily in marketing and investment research activities with respect to
private clients and the MIL Funds and the MFS Meridian Funds.
MFS Institutional Advisors (Australia) Ltd. ("MFSI-Australia"), a
private limited company organized under the Corporations Law of New South Wales,
Australia whose current address is Level 37, Governor Phillip Tower, One Farrer
Place, Sydney, N5W2000, Australia, is involved primarily in investment
management and distribution of Australian superannuation unit trusts and acts as
an investment adviser to institutional accounts.
MFS Holdings Australia Pty Ltd. ("MFS Holdings Australia"), a
private limited company organized pursuant to the Corporations Law of New South
Wales, Australia whose current address is Level 37, Governor Phillip Tower, One
Farrer Place, Sydney, NSW2000 Australia, and whose function is to serve
primarily as a holding company.
MFS Fund Distributors, Inc. ("MFD"), a wholly owned subsidiary of
MFS, serves as distributor for the MFS Funds, MVI and MFSIT.
MFS Service Center, Inc. ("MFSC"), a wholly owned subsidiary of MFS,
serves as shareholder servicing agent to the MFS Funds, the MFS Closed-End
Funds, MFSIT and MVI.
MFS Institutional Advisors, Inc. ("MFSI"), a wholly owned subsidiary
of MFS, provides investment advice to substantial private clients.
<PAGE>
MFS Retirement Services, Inc. ("RSI"), a wholly owned subsidiary of
MFS, markets MFS products to retirement plans and provides administrative and
record keeping services for retirement plans.
MFS
The Directors of MFS are Jeffrey L. Shames, Arnold D. Scott, John W.
Ballen, Donald A. Stewart and John D. McNeil. Mr. Shames is the Chairman, Chief
Executive Officer and President, Mr. Scott is a Senior Executive Vice President
and Secretary, William W. Scott, Jr., Patricia A. Zlotin, John W. Ballen, Thomas
J. Cashman, Jr., Joseph W. Dello Russo and Kevin R. Parke are Executive Vice
Presidents, Stephen E. Cavan is a Senior Vice President, General Counsel and an
Assistant Secretary, Robert T. Burns is a Senior Vice President, Associate
General Counsel and an Assistant Secretary of MFS, and Thomas B. Hastings is a
Vice President and Treasurer of MFS.
Massachusetts Investors Trust
Massachusetts Investors Growth Stock Fund
MFS Growth Opportunities Fund
MFS Government Securities Fund
MFS Series Trust I
MFS Series Trust V
MFS Series Trust VI
MFS Series Trust X
MFS Government Limited Maturity Fund
Stephen E. Cavan is the Secretary, W. Thomas London is the
Treasurer, James O. Yost, Ellen M. Moynihan and Mark E. Bradley, Vice Presidents
of MFS, are the Assistant Treasurers, James R. Bordewick, Jr., Senior Vice
President and Associate General Counsel of MFS, is the Assistant Secretary.
MFS Series Trust II
Leslie J. Nanberg, Senior Vice President of MFS, is a Vice
President, Stephen E. Cavan is the Secretary, W. Thomas London is the Treasurer,
James O. Yost, Ellen M. Moynihan and Mark E. Bradley are the Assistant
Treasurers, and James R. Bordewick, Jr. is the Assistant Secretary.
MFS Government Markets Income Trust
MFS Intermediate Income Trust
Leslie J. Nanberg, Senior Vice President of MFS, is a Vice
President, Stephen E. Cavan is the Secretary, W. Thomas London is the Treasurer,
James O. Yost, Ellen M. Moynihan and Mark E. Bradley are the Assistant
Treasurers, and James R. Bordewick, Jr. is the Assistant Secretary.
<PAGE>
MFS Series Trust III
James T. Swanson, Robert J. Manning and Joan S. Batchelder, Senior
Vice Presidents of MFS, and Bernard Scozzafava, Vice President of MFS, are Vice
Presidents, Sheila Burns-Magnan, Assistant Vice President of MFS, and Daniel E.
McManus, Vice President of MFS, are Assistant Vice Presidents, Stephen E. Cavan
is the Secretary, W. Thomas London is the Treasurer, James O. Yost, Ellen M.
Moynihan and Mark E. Bradley are the Assistant Treasurers, and James R.
Bordewick, Jr. is the Assistant Secretary.
MFS Series Trust IV
MFS Series Trust IX
Robert A. Dennis and Geoffrey L. Kurinsky, Senior Vice Presidents of
MFS, are Vice Presidents, Stephen E. Cavan is the Secretary, W. Thomas London is
the Treasurer, James O. Yost, Ellen M. Moynihan and Mark E. Bradley are the
Assistant Treasurers and James R. Bordewick, Jr. is the Assistant Secretary.
MFS Series Trust VII
Leslie J. Nanberg and Stephen C. Bryant, Senior Vice Presidents of
MFS, are Vice Presidents, Stephen E. Cavan is the Secretary, W. Thomas London is
the Treasurer, James O. Yost, Ellen M. Moynihan and Mark E. Bradley are the
Assistant Treasurers and James R. Bordewick, Jr. is the Assistant Secretary.
MFS Series Trust VIII
Jeffrey L. Shames, Leslie J. Nanberg and James T. Swanson and John
D. Laupheimer, Jr., a Senior Vice President of MFS, are Vice Presidents, Stephen
E. Cavan is the Secretary, W. Thomas London is the Treasurer, James O. Yost,
Ellen M. Moynihan and Mark E. Bradley are the Assistant Treasurers and James R.
Bordewick, Jr. is the Assistant Secretary.
MFS Municipal Series Trust
Robert A. Dennis is Vice President, David B. Smith and Geoffrey L.
Schechter, Vice Presidents of MFS, are Vice Presidents, Daniel E. McManus, Vice
President of MFS, is an Assistant Vice President, Stephen E. Cavan is the
Secretary, W. Thomas London is the Treasurer, James O. Yost, Ellen M. Moynihan
and Mark E. Bradley are the Assistant Treasurers and James R. Bordewick, Jr. is
the Assistant Secretary.
MFS Variable Insurance Trust
MFS Series Trust XI
MFS Institutional Trust
<PAGE>
Stephen E. Cavan is the Secretary, W. Thomas London is the
Treasurer, James O. Yost, Ellen M. Moynihan and Mark E. Bradley are the
Assistant Treasurers and James R. Bordewick, Jr. is the Assistant Secretary.
MFS Municipal Income Trust
Robert J. Manning is Vice President, Stephen E. Cavan is the
Secretary, W. Thomas London is the Treasurer, James O. Yost, Ellen M. Moynihan
and Mark E. Bradley are the Assistant Treasurers and James R. Bordewick, Jr. is
the Assistant Secretary.
MFS Multimarket Income Trust
MFS Charter Income Trust
Leslie J. Nanberg and James T. Swanson are Vice Presidents, Stephen
E. Cavan is the Secretary, W. Thomas London is the Treasurer, James O. Yost,
Ellen M. Moynihan and Mark E. Bradley are the Assistant Treasurers and James R.
Bordewick, Jr. is the Assistant Secretary.
MFS Special Value Trust
Robert J. Manning is Vice President, Stephen E. Cavan is the
Secretary, W. Thomas London is the Treasurer, James O. Yost, Ellen M. Moynihan
and Mark E. Bradley are the Assistant Treasurers and James R. Bordewick, Jr. is
the Assistant Secretary.
MFS/Sun Life Series Trust
John D. McNeil, Chairman and Director of Sun Life Assurance Company
of Canada, is the Chairman, Stephen E. Cavan is the Secretary, W. Thomas London
is the Treasurer, James O. Yost, Ellen M. Moynihan and Mark E. Bradley are the
Assistant Treasurers and James R. Bordewick, Jr. is the Assistant Secretary.
Money Market Variable Account
High Yield Variable Account
Capital Appreciation Variable Account
Government Securities Variable Account
Total Return Variable Account
World Governments Variable Account
Managed Sectors Variable Account
John D. McNeil is the Chairman, Stephen E. Cavan is the Secretary,
and James R. Bordewick, Jr. is the Assistant Secretary.
Vertex
<PAGE>
Jeffrey L. Shames and Arnold D. Scott are the Directors, Jeffrey L.
Shames is the President, Kevin R. Parke and John W. Ballen are Executive Vice
Presidents, John F. Brennan, Jr., and John D. Laupheimer are Senior Vice
Presidents, Brian E. Stack is a Vice President, Joseph W. Dello Russo is the
Treasurer, Thomas B. Hastings is the Assistant Treasurer, Stephen E. Cavan is
the Secretary and Robert T. Burns is the Assistant Secretary.
MIL
Arnold D. Scott, Jeffrey L. Shames and Thomas J. Cashman, Jr. are
Directors, Stephen E. Cavan is a Director, Senior Vice President and the Clerk,
Robert T. Burns is an Assistant Clerk, Joseph W. Dello Russo, Executive Vice
President and Chief Financial Officer of MFS, is the Treasurer and Thomas B.
Hastings is the Assistant Treasurer.
MIL-UK
Thomas J. Cashman, Jr. is President and a Director, Arnold D. Scott
and Jeffrey L. Shames are Directors, Stephen E. Cavan is a Director and the
Secretary, Joseph W. Dello Russo is the Treasurer, Thomas B. Hastings is the
Assistant Treasurer and Robert T. Burns is the Assistant Secretary.
MFSI - Australia
Thomas J. Cashman, Jr. is President and a Director, Graham E.
Lenzer, John A. Gee and David Adiseshan are Directors, Stephen E. Cavan is the
Secretary, Joseph W. Dello Russo is the Treasurer, Thomas B. Hastings is the
Assistant Treasurer, and Robert T. Burns is the Assistant Secretary.
MFS Holdings - Australia
Jeffrey L. Shames is the President and a Director, Arnold D. Scott,
Thomas J. Cashman, Jr., and Graham E. Lenzer are Directors, Stephen E. Cavan is
the Secretary, Joseph W. Dello Russo is the Treasurer, Thomas B. Hastings is the
Assistant Treasurer, and Robert T. Burns is the Assistant Secretary.
MIL Funds
Richard B. Bailey, John A. Brindle, Richard W. S. Baker, Arnold D.
Scott, Jeffrey L. Shames and William F. Waters are Directors, Stephen E. Cavan
is the Secretary, W. Thomas London is the Treasurer, James O. Yost, Ellen M.
Moynihan and Mark E. Bradley are the Assistant Treasurers and James R.
Bordewick, Jr. is the Assistant Secretary.
MFS Meridian Funds
Richard B. Bailey, John A. Brindle, Richard W. S. Baker, Arnold D.
Scott, Jeffrey L. Shames and William F. Waters are Directors, Stephen E. Cavan
is the Secretary,
<PAGE>
W. Thomas London is the Treasurer, James R. Bordewick, Jr. is the Assistant
Secretary and James O. Yost, Ellen M. Moynihan and Mark E. Bradley are the
Assistant Treasurers.
MFD
Arnold D. Scott and Jeffrey L. Shames are Directors, William W.
Scott, Jr., an Executive Vice President of MFS, is the President, Stephen E.
Cavan is the Secretary, Robert T. Burns is the Assistant Secretary, Joseph W.
Dello Russo is the Treasurer, and Thomas B. Hastings is the Assistant Treasurer.
MFSC
Arnold D. Scott and Jeffrey L. Shames are Directors, Joseph A.
Recomendes, a Senior Vice President and Chief Information Officer of MFS, is
Vice Chairman and a Director, Janet A. Clifford is the President, Joseph W.
Dello Russo is the Treasurer, Thomas B. Hastings is the Assistant Treasurer,
Stephen E. Cavan is the Secretary, and Robert T. Burns is the Assistant
Secretary.
MFSI
Jeffrey L. Shames, and Arnold D. Scott are Directors, Thomas J.
Cashman, Jr., is the President and a Director, Leslie J. Nanberg is a Senior
Vice President, a Managing Director and a Director, Kevin R. Parke is the
Executive Vice President and a Managing Director, George F. Bennett, Jr., John
A. Gee, Brianne Grady, Joseph A. Kosciuszek and Joseph J. Trainor are Senior
Vice Presidents and Managing Directors, Joseph W. Dello Russo is the Treasurer,
Thomas B. Hastings is the Assistant Treasurer and Robert T. Burns is the
Secretary.
RSI
Arnold D. Scott is the Chairman and a Director, Martin E. Beaulieu
is the President, William W. Scott, Jr. is a Director, Joseph W. Dello Russo is
the Treasurer, Thomas B. Hastings is the Assistant Treasurer, Stephen E. Cavan
is the Secretary and Robert T. Burns is the Assistant Secretary.
In addition, the following persons, Directors or officers of MFS,
have the affiliations indicated:
Donald A. Stewart President and a Director, Sun Life
Assurance Company of Canada, Sun Life
Centre, 150 King Street West,
Toronto, Ontario, Canada (Mr. Stewart
is also an officer and/or Director of
various subsidiaries and affiliates
of Sun Life)
<PAGE>
John D. McNeil Chairman, Sun Life Assurance Company
of Canada, Sun Life Centre, 150 King
Street West, Toronto, Ontario, Canada
(Mr. McNeil is also an officer and/or
Director of various subsidiaries and
affiliates of Sun Life)
Joseph W. Dello Russo Director of Mutual Fund Operations,
The Boston Company, Exchange Place,
Boston, Massachusetts (until August,
1994)
Item 29. Distributors
(a) Reference is hereby made to Item 28 above.
(b) Reference is hereby made to Item 28 above; the principal
business address of each of these persons is 500 Boylston Street, Boston,
Massachusetts 02116.
(c) Not applicable.
Item 30. Location of Accounts and Records
The accounts and records of the Registrant are located, in whole or
in part, at the office of the Registrant at the following locations:
NAME ADDRESS
---- -------
Massachusetts Financial Services 500 Boylston Street
Company (investment adviser) Boston, MA 02116
MFS Funds Distributors, Inc. 500 Boylston Street
(principal underwriter) Boston, MA 02116
State Street Bank and Trust Company State Street South
(custodian) 5 - West
North Quincy, MA 02171
MFS Service Center, Inc. 500 Boylston Street
(transfer agent) Boston, MA 02116
Item 31. Management Services
Not Applicable.
<PAGE>
Item 32. Undertakings
(a) Not applicable.
(b) Not applicable.
(c) Registrant undertakes to furnish each person to whom a
prospectus is delivered with a copy of its latest annual report to shareholders
upon request and without charge.
(d) Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to trustees, officers and controlling
persons of the Registrant pursuant to the provisions set forth in Item 27 of
this Part C, or otherwise, the Registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a trustee, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the Securities being Registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Post-Effective Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereto duly authorized, in the City of Boston and
The Commonwealth of Massachusetts on the 24th day of March, 1998.
MASSACHUSETTS INVESTORS
GROWTH STOCK FUND
By: JAMES R. BORDEWICK, JR.
Name: James R. Bordewick, Jr.
Title: Assistant Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to its Registration Statement has been signed below by
the following persons in the capacities indicated on March 24, 1998.
SIGNATURE TITLE
--------- -----
STEPHEN E. CAVAN* Principal Executive Officer
- ------------------------------
Stephen E. Cavan
W. THOMAS LONDON* Treasurer (Principal Financial Officer
- ------------------------------ and Principal Accounting Officer)
W. Thomas London
RICHARD B. BAILEY* Trustee
- ------------------------------
Richard B. Bailey
PETER G. HARWOOD* Trustee
- ------------------------------
Peter G. Harwood
J. ATWOOD IVES* Trustee
- ------------------------------
J. Atwood Ives
LAWRENCE T. PERERA* Trustee
- ------------------------------
Lawrence T. Perera
<PAGE>
WILLIAM J. POORVU* Trustee
- ------------------------------
William J. Poorvu
CHARLES W. SCHMIDT* Trustee
- ------------------------------
Charles W. Schmidt
ARNOLD D. SCOTT* Trustee
- ------------------------------
Arnold D. Scott
JEFFREY L. SHAMES* Trustee
- ------------------------------
Jeffrey L. Shames
ELAINE R. SMITH* Trustee
- ------------------------------
Elaine R. Smith
DAVID B. STONE* Trustee
- ------------------------------
David B. Stone
*By: JAMES R. BORDEWICK, JR.
Name: James R. Bordewick, Jr.
as Attorney-in-fact
Executed by James R. Bordewick, Jr. on
behalf of those indicated pursuant to
(1) a Power of Attorney dated
September 21, 1994, incorporated by
reference to the Registrant's
Post-Effective Amendment No. 59 filed
via EDGAR with the Securities and
Exchange Commission on March 30, 1995,
and (ii) a Power of Attorney, dated
February 19, 1998, filed herewith.
<PAGE>
POWER OF ATTORNEY
-----------------
Massachusetts Investors Growth Stock Fund
The undersigned officer of Massachusetts Investors Growth Stock Fund (the
"Registrant") hereby severally constitutes and appoints Jeffrey L. Shames,
Arnold D. Scott, W. Thomas London, and James R. Bordewick, Jr., and each of them
singly, as true and lawful attorneys, with full power to them and each of them
to sign for the undersigned, in the name of, and in the capacity indicated
below, any Registration Statement and any and all amendments thereto and to file
the same with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission for the purpose of registering the
Registrant as a management investment company under the Investment Company Act
of 1940 and/or the shares issued by the Registrant under the Securities Act of
1933 granting unto my said attorneys, and each of them, acting alone, full power
and authority to do and perform each and every act and thing requisite or
necessary or desirable to be done in the premises, as fully to all intents and
purposes as he or she might or could do in person, hereby ratifying and
confirming all that said attorneys or any of them may lawfully do or cause to be
done by virtue thereof.
In WITNESS WHEREOF, the undersigned has hereunto set his hand on this 19th
day of February, 1998.
Signature Title
--------- -----
STEPHEN E. CAVAN Principal Executive Officer
-----------------------
Stephen E. Cavan
<PAGE>
INDEX TO EXHIBITS
-----------------
EXHIBIT NO. DESCRIPTION OF EXHIBIT PAGE NO.
- ----------- ---------------------- --------
9 (b) Amendment to Shareholder Servicing Agreement,
dated January 1, 1998 to amend fee schedule.
(g) Master Administrative Services Agreement dated
March 1, 1997, as amended.
11 Consent of Deloitte & Touche LLP.
15 (b) Exhibits as revised February 18, 1998 to Master
Distribution Plan pursuant to Rule 12b-1 under
the Investment Company Act of 1940 to replace
those exhibits to the Master Distribution Plan
contained in Exhibit 15(a).
17 Financial Data Schedules on behalf of
Massachusetts Investors Growth Stock Fund;
filed herewith.
Power of Attorney, dated February 19, 1998.
EXHIBIT NO. 99.9(b)
MASSACHUSETTS INVESTORS GROWTH STOCK FUND
500 Boylston Street o Boston o Massachusetts o 02116
(617) o 954-5000
January 1, 1998
MFS Service Center, Inc.
500 Boylston Street
Boston, MA 02116
Dear Sir/Madam:
This will confirm our understanding that Exhibit B to the Shareholder
Servicing Agent Agreement between us, dated August 1, 1985, as amended, is
hereby amended, effective immediately, to read in its entirety as set forth on
Attachment 1 hereto.
Please indicate your acceptance of the foregoing by signing below.
Sincerely,
MASSACHUSETTS INVESTORS
GROWTH STOCK FUND
By: W. THOMAS LONDON
----------------
W. Thomas London
Treasurer
Accepted and Agreed:
MFS SERVICE CENTER, INC.
By: JOSEPH W. DELLO RUSSO
---------------------
Joseph W. Dello Russo
Treasurer
(1)
<PAGE>
ATTACHMENT 1
January 1, 1998
EXHIBIT B TO THE SHAREHOLDER
SERVICING AGENT AGREEMENT BETWEEN
MFS SERVICE CENTER, INC. ("MFSC")
AND MASSACHUSETTS INVESTORS GROWTH STOCK FUND (the "Fund")
The fees to be paid by the Fund on behalf of its series with respect to all
shares of each series of the Fund to MFSC, for MFSC's services as shareholder
servicing agent, shall be 0.1125% of the average daily net assets of the Fund.
(2)
EXHIBIT NO. 99.9(g)
MASTER ADMINISTRATIVE SERVICES AGREEMENT
MASTER ADMINISTRATIVE SERVICES AGREEMENT dated this 1st day of March, 1997, as
amended, by and among Massachusetts Financial Services Company, a Delaware
corporation (the "Administrator"), and each of the funds (or trusts acting on
behalf of their series) identified from time to time on Exhibit A hereto (each a
"Fund" and collectively the "Funds").
W I T N E S S E T H:
WHEREAS, the Funds have entered into Investment Advisory Agreements with the
Administrator (the "Advisory Agreements") pursuant to which the Administrator
provides investment advisory services to the Funds;
WHEREAS, the Advisory Agreements recite that the Administrator will bear certain
expenses associated with the provision of investment advisory services and that
the Funds will bear their own expenses, including expenses of legal counsel to
the Funds, expenses connected with the execution, recording and settlement of
the Funds' portfolio security transactions and expenses of calculating the
Funds' net asset values;
WHEREAS, the Administrator, at its expense, has provided a variety of
administrative services to the Funds for the benefit of the Funds and their
shareholders; and
WHEREAS, the Funds desire to retain the Administrator to render certain legal,
financial administration and other administrative services to the Funds in the
manner and on the terms and conditions hereinafter set forth;
WHEREAS, the parties desire to amend Exhibit E to the Agreement to reflect
the 1998 fee and related matters;
NOW THEREFORE, in consideration of the mutual covenants and agreements of the
parties hereto and hereinafter set forth, the parties covenant and agree as
follows:
1. Administrative Services. Subject to the limitations set forth in the second
paragraph of Section 3 of this Agreement, the Administrator shall render to each
Fund the financial administration services set forth on Exhibit B hereto (the
"Financial Administration Services"), the legal services set forth on Exhibit C
hereto (the "Legal Services") and the other administrative services set forth on
Exhibit D hereto ("Other Administrative Services") (the Financial Administration
Services, Legal Services and Other Administrative Services are collectively
referred to as the "Administrative Services").
<PAGE>
The Administrative Services provided by the Administrator to each Fund may
not include all Administrative Services required by the Fund, due to a number of
considerations, including, without limitation, the Administrator's level of work
flow, staffing and resources, the specialized or unique nature of the
Administrative Services and the relative priorities of such Administrative
Services. The Administrator may, on behalf of each Fund, arrange for or engage
outside legal counsel, accounting or auditing firm or any other outside service
provider or vendor (collectively, "third party vendors") to perform
Administrative Services for the Fund, and the Fund will bear the expense of any
such third party vendors; provided however, that the Administrator shall
promptly inform the Fund's governing board in the event any third party vendor
is engaged to perform Administrative Services for a Fund on a basis that is
expected to generate significant expenses for a Fund.
2. Maintenance of Books and Records. With respect to the provision of
Administrative Services, the Administrator will preserve for each Fund that is
registered as a registered investment company with the Securities and Exchange
Commission (the "SEC") all records required to be maintained as prescribed by
the rules and regulations of the SEC in the manner and for the time periods
prescribed by such rules. The Administrator agrees that all such records shall
be the property and under the control of each Fund for which they are maintained
and shall be made available, within five business days of any request therefor,
to the Fund's Board of Trustees or auditors during regular business hours at the
Administrator's offices. In the event of termination of this Agreement for any
reason, all such records shall be returned, without charge, promptly to the
appropriate Fund, free from any claim or retention of rights by the
Administrator, except that the Administrator may retain copies of such records.
3. Administrative Fee. Each Fund shall pay the Administrator a fee as agreed
to from time to time and as set forth in Exhibit E hereto (the "Administrative
Fee"). The Administrative Fee shall be accrued for each calendar day and the sum
of the daily fee accruals shall be paid monthly to the Administrator on the
second to last business day of each calendar month. If this Agreement becomes
effective or terminates before the end of any calendar month, the Administrative
Fee for the period from the effective date to the end of such calendar month or
from the beginning of such calendar month to the date of termination, as the
case may be, shall be prorated according to the proportion which such period
bears to the full month in which such effectiveness or termination occurs.
The governing board of each Fund will, on an annual basis, review the
services provided, the Administrator's costs in providing such services, amounts
paid to third party vendors pursuant to the arrangement described in Section 1
and the amount paid by the Fund to the Administrator pursuant to this Agreement
(including the extent to which such amount is greater or lesser than the
Administrator's costs in providing such services) and such other information as
such board may reasonably request.
4. Scope of Administrative Services; Regulatory and Business and Industry
Practice Developments. The Administrative Services to be furnished by the
Administrator include only those services required by a Fund or which are being
furnished by the Administrator at March 1, 1997. In the event that, subsequent
to March 1, 1997, because of regulatory developments, or
- 2 -
<PAGE>
new or modified business or industry practices, the Fund requires services in
addition to the Administrative Services, at the request of the Fund, the
Administrator will consider furnishing such additional services, with
compensation for such additional services to be agreed upon with respect to each
such occasion as it arises.
5. Non-Exclusivity. The services of the Administrator to the Funds hereunder
are not to be deemed exclusive and the Administrator shall be free to render
similar services to others.
6. Standard of Care. Neither the Administrator, nor any of its directors,
officers, stockholders, agents or employees, shall be liable or responsible to
any Fund or its shareholders for any error of judgment, mistake of law or any
loss arising out of any act or omission in the performance by the Administrator
of its duties under this Agreement, except for liability resulting from (a)
willful misfeasance, (b) bad faith, (c) in the case of Financial Administration
Services, negligence, and, in the case of Legal Services and Other
Administrative Services, gross negligence, in each case on the Administrator's
part or (d) from reckless disregard by the Administrator of its obligations and
duties under this Agreement.
7. Term, Termination, Amendment and Assignment. This Agreement shall begin
on the date first written above and shall continue indefinitely. The Agreement
may be terminated at any time, without payment of any penalty, by the Board of
Directors/Trustees which oversees the Fund upon sixty (60) days' written notice
to the Administrator. This Agreement may be terminated by the Administrator with
respect to any Fund at any time upon sixty (60) days' written notice to the
Fund. This Agreement may be amended at any time by a written agreement executed
by each party hereto and may be assigned with respect to any Fund only with the
written consent of the Fund and the Administrator.
8. Miscellaneous.
a. Captions. The captions in this Agreement are included for
convenience of reference only and in no way define or delineate any
of the provisions hereof or otherwise affect their construction or
effect.
b. Governing Law. The provisions of this Agreement shall be construed
and interpreted in accordance with the domestic substantive laws of
The Commonwealth of Massachusetts, without giving effect to any
conflicts or choice of laws rule or provision that would result in
the application of the domestic substantive laws of any other
jurisdiction.
c. Counterparts. This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument.
d. Joinder of Funds. In the event that additional funds are created
from time to time which desire to retain the Administrator to
provide them with Administration Services pursuant to this
Agreement, the Administrator and the additional fund
- 3 -
<PAGE>
may jointly amend Schedule A hereto to add the additional fund, and
the additional fund shall thereafter be deemed a "Fund" for all
purposes of this Agreement. The consent of the other parties to this
Agreement shall not be required to amend Schedule A hereto.
e. Scope of Fund's Obligations. A copy of the Declaration of Trust of
each Fund (or trust of which the Fund is a series) organized as a
Massachusetts business trust (each a "Trust"), is on file with the
Secretary of State of The Commonwealth of Massachusetts. The
Administrator acknowledges that the obligations of or arising out of
this Agreement are not binding upon any of a Trust's trustees,
officers, employees, agents or shareholders individually, but are
binding solely upon the assets and property of the Trust in
accordance with its proportionate interest thereunder and hereunder.
If this Agreement is executed by the Trust on behalf of one or more
series of the Trust, the Administrator further acknowledges that the
assets and liabilities of each series of the Trust are separate and
distinct and that the obligations of or arising out of this
Agreement are binding solely upon the assets or property of the
series on whose behalf the Trust has executed this Agreement. The
Administrator also agrees that the obligations of each Fund
hereunder shall be several and not joint, in accordance with its
proportionate interest hereunder, and agrees not to proceed (by way
of claim, set-off or otherwise) against any Fund for the obligations
of another Fund.
- 4 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed
by their respective officers thereunto duly authorized and their respective
corporate seals to be hereunto affiliated, as of the date first written above.
On behalf of the MFS Family of Funds, MFS
Closed-End Funds and MFS Institutional Funds
listed on Exhibit A hereto
By: JEFFREY L. SHAMES
--------------------------------------
Jeffrey L. Shames
Trustee
On behalf of the MFS/Sun Life Series
Trust and Compass Products listed on
Exhibit A hereto
By: JOHN D. MCNEIL
--------------------------------------
John D. McNeil
Chairman
MASSACHUSETTS FINANCIAL SERVICES COMPANY
By: JEFFREY L. SHAMES
--------------------------------------
Jeffrey L. Shames
President
- 5 -
<PAGE>
Exhibit A
---------
Funds
-----
I. MFS Family of Funds
MFS Series Trust I:
MFS Managed Sectors Fund
MFS Cash Reserve Fund
MFS World Asset Allocation Fund
MFS Special Opportunities Fund
MFS Strategic Growth Fund
MFS Research Growth and Income Fund
MFS Equity Income Fund
MFS Core Growth Fund
MFS Convertible Securities Fund
MFS Blue Chip Fund
MFS New Discovery Fund
MFS Science & Technology Fund
MFS Research International Fund
MFS Real Estate Investment Fund
MFS Series Trust II:
MFS Emerging Growth Fund
MFS Large Cap Growth Fund
MFS Intermediate Income Fund
MFS Series Trust III:
MFS High Income Fund
MFS Municipal High Income Fund
MFS Series Trust IV:
MFS Money Market Fund
MFS Government Money Market Fund
MFS Municipal Bond Fund
MFS Mid Cap Growth Fund
MFS Series Trust V:
MFS Total Return Fund
MFS Research Fund
MFS International Opportunities Fund
MFS International Strategic Growth Fund
MFS International Value Fund
MFS Asia Pacific Fund
MFS Series Trust VI:
MFS World Total Return Fund
MFS Utilities Fund
MFS World Equity Fund
MFS Series Trust VII:
MFS World Governments Fund
MFS Capital Opportunities Fund
- 6 -
<PAGE>
MFS Series Trust VIII:
MFS Strategic Income Fund
MFS World Growth Fund
MFS Series Trust IX:
MFS Bond Fund
MFS Limited Maturity Fund
MFS Municipal Limited Maturity Fund
MFS Series Trust X:
MFS Government Mortgage Fund
MFS/Foreign & Colonial Emerging Markets Equity Fund
MFS International Growth Fund
MFS International Growth and Income Fund
MFS Emerging Markets Debt Fund
MFS Small Cap Value Fund
MFS Strategic Value Fund
MFS Municipal Series Trust:
MFS Alabama Municipal Bond Fund
MFS Arkansas Municipal Bond Fund
MFS California Municipal Bond Fund
MFS Florida Municipal Bond Fund
MFS Georgia Municipal Bond Fund
MFS Maryland Municipal Bond Fund
MFS Massachusetts Municipal Bond Fund
MFS Mississippi Municipal Bond Fund
MFS New York Municipal Bond Fund
MFS North Carolina Municipal Bond Fund
MFS Pennsylvania Municipal Bond Fund
MFS South Carolina Municipal Bond Fund
MFS Tennessee Municipal Bond Fund
MFS Virginia Municipal Bond Fund
MFS West Virginia Municipal Bond Fund
MFS Municipal Income Fund
MFS Growth Opportunities Fund
MFS Government Securities Fund
Massachusetts Investors Growth Stock Fund
MFS Government Limited Maturity Fund
Massachusetts Investors Trust
- 7 -
<PAGE>
II. MFS Closed-End Funds
MFS Municipal Income Trust
MFS Multimarket Income Trust
MFS Government Markets Income Trust
MFS Intermediate Income Trust
MFS Charter Income Trust
MFS Special Value Trust
III. MFS Institutional Funds
MFS Institutional Trust:
MFS Institutional Emerging Equities Fund
MFS Institutional Global Fixed Income Fund
MFS Institutional Emerging Markets Debt Fund
MFS Institutional International Equity Fund
MFS Institutional Mid Cap Growth Fund
MFS Institutional Research Fund
MFS Institutional Core Fixed Income Fund
MFS Series Trust XI:
MFS Union Standard Equity Fund
Vertex All Cap Fund
Vertex Research All Cap Fund
Vertex Discovery Fund
Vertex Growth Fund
Vertex Contrarian Fund
MFS Variable Insurance Trust:
MFS Emerging Growth Series
MFS Value Series
MFS Research Series
MFS Growth With Income Series
MFS Total Return Series
MFS Utilities Series
MFS High Income Series
MFS World Governments Series
MFS/Foreign & Colonial Emerging Markets Equity Series
MFS Bond Series
MFS Limited Maturity Series
MFS Money Market Series
MFS New Discovery Series
IV. MFS/Sun Life Series Trust
MFS Capital Appreciation Series
MFS Conservative Growth Series
MFS Government Securities Series
MFS World Governments Series
MFS High Yield Series
MFS Managed Sectors Series
MFS Money Market Series
MFS Total Return Series
MFS Utilities Series
- 8 -
<PAGE>
MFS World Growth Series
MFS Zero Coupon Series 2000
MFS Research Series
MFS World Asset Allocation Series
MFS World Total Return Series
MFS Emerging Growth Series
MFS International Growth and Income Series
MFS International Growth Series
MFS/Foreign & Colonial Emerging Markets Equity Series
MFS Capital Opportunities Series
MFS Bond Series
MFS Equity Income Series Massachusetts Investors Growth Stock Series
MFS New Discovery Series
MFS Research International Series
MFS Strategic Income Series
V. Compass Products
MFS Capital Appreciation Variable Account
MFS Government Securities Variable Account
MFS World Governments Variable Account
MFS High Yield Variable Account
MFS Managed Sectors Variable Account
MFS Money Market Variable Account
MFS Total Return Variable Account
- 9 -
<PAGE>
Exhibit B
---------
Financial Administration Services
The Administrator shall perform the following Financial Administration
Services for each Fund:
A. General Services.
1. Prepare such financial information of the Fund as is reasonably
necessary for reports to shareholders of the Fund, reports to the
Fund's governing board and officers, and reports to appropriate
regulatory authorities including, without limitation, prospectuses,
shareholder reports, shareholder notices, proxy statements and other
periodic reports and render statements or copies of records as from
time to time are reasonably requested by the Fund.
2. Facilitate audits of accounts by the Fund's independent public
accountants or by any of the auditors employed or engaged by the
Fund or by any regulatory body with jurisdiction over the Fund.
Coordinate with, and monitor the performance of, the custodian banks
retained by the Fund to perform the necessary custodial services for
the Fund including, without limitation, the safekeeping of the funds
and securities.
3. Negotiate contracts for computing the Fund's net asset value per
share, and, if applicable, its public offering price and/or its
daily dividend rates and money market yields and other investment
performance quotations, in accordance with sub-paragraph C below,
and notify the Fund and such other persons as the Fund may
reasonably request of the net asset value per share, the public
offering price and/or its daily dividend rates and money market
yields and other investment performance quotations.
B. Valuation of Securities. The Administrator shall ensure that the value of the
Fund's securities is computed in accordance with governing law, rules and
regulations, the Fund's governing instruments and subject to the oversight and
direction of the Fund's governing body. The Administrator may use one or more
external pricing services in computing the value of a Fund's securities,
including broker/dealers, provided that the Fund's governing body or an
individual designated by the Fund's governing body has approved the use of such
pricing services.
C. Computation of Net Asset Value, Public Offering Price, Daily Dividend Rates
and Performance Quotations. The Administrator shall assure that the Fund's net
asset value, net income, public offering price, dividend rates and money market
yields, if applicable, and other investment performance quotations are
calculated in a manner and at such time or times as the
- 10 -
<PAGE>
Fund shall direct and in accordance with governing law, rules and regulations
and the Fund's governing instruments and subject to the oversight and direction
of the Fund's governing board.
D. Other Financial Administration Services. In addition, the Administrator shall
provide the following Financial Administration Services:
(1) Provide Treasurers or Assistant Treasurers to serve as officers of
the Fund;
(2) Coordinate the meetings of the Audit Committees, assure that meetings
are scheduled and that agendas are prepared; participate in meetings
of the Audit Committee;
(3) Review contracts and negotiate fees for the Fund for services such as
independent audit fees, custodian fees, transfer agent fees and the
fees of other service providers to the Fund;
(4) Oversee the preparation of accounting records required to be
maintained by the Fund. Assure that any audit of Fund records is
coordinated and completed timely;
(5) Direct the preparation of Fund Financial Statements and Footnotes.
Assure that all statements and disclosures are in accordance with
generally accepted accounting principles and that disclosures meet
current regulatory or accounting requirements;
(6) Assure that all distributions of the Fund meet the distribution and
excise tax requirements to assure qualification and to minimize taxes
paid by the Fund;
(7) Establish the tax policies and procedures for the Fund; maintain
procedures and policies with respect to tax matters; maintain tax
accounting records of the Fund; complete or review tax returns and
excise tax forms for the Fund; assist in preparing the 1099-DIV
information delivered to shareholders;
(8) Complete materials for the governing board of the Fund, including
materials for board meetings and in connection with the renewal of
investment advisory and distribution contracts;
(9) Direct the accrual of Fund expenses; review and approve all invoices
submitted to the Fund; and
(10)Perform or arrange for the performance of all other Financial
Administration Services required of the Fund.
- 11 -
<PAGE>
Exhibit C
---------
Legal Services
--------------
The Administrator shall provide the following Legal Services to each Fund:
A. Organizational Matters and Initial Registration. The Administrator shall
perform the following functions relating to the organization and initial
registration of the Fund:
o Draft and file with appropriate regulatory authorities the Fund's
charter documents;
o Draft, negotiate and file with appropriate regulatory authorities
the Fund's service contracts;
o Prepare and file the Fund's registration statement or other similar
registration documentation with appropriate regulatory authorities
(the "Registration Statement") and negotiate with such regulatory
authorities; and
o Otherwise arrange for and oversee registration and qualification of
the Fund's shares.
B. Ongoing Regulatory Filings, Reports and Meetings. The Administrator shall
perform the following functions relating to ongoing regulatory filings, reports
and meetings of the Fund:
o Prepare and file with appropriate regulatory authorities amendments
to the Fund's Registration Statement;
o Prepare and file with appropriate regulatory authorities supplements
to the Fund's prospectus and statement of additional information;
o Design and write documents or materials required to be prepared by
or on behalf of the Fund for distribution to shareholders of the
Fund, the Fund's governing board and officers and any governmental
officers or commissions as required of the Fund and not otherwise
provided for under this Agreement including, without limitation,
prospectuses, shareholder reports, shareholder notices and proxy
statements;
o Prepare and file or oversee preparation and review and provide legal
guidance on the Fund's annual, semi-annual and other periodic
reports;
o Prepare and file or oversee preparation and provide legal guidance
on the Fund's tax filings and reports;
o Prepare and file with appropriate regulatory authorities the Fund's
proxy statement and negotiate with such regulatory authorities;
- 12 -
<PAGE>
o Prepare and file with appropriate regulatory authorities various
reports in order to maintain the Fund's status in good standing;
o Arrange for shareholders' meetings;
o Prepare the Fund's representatives who will attend shareholder
meetings and all necessary materials in connection with such
meetings including, without limitation, a written script for such
meetings, shareholder minutes and any follow-up documents; and
o Attend shareholder meetings.
C. Securities Trading and Investment Practices. The Administrator shall
perform the following functions relating to the Fund's securities trading and
investment practices:
o Review and negotiate private placement and municipal securities
offering documentation and provide legal guidance on transfer
restrictions;
o Provide guidance on legal considerations relating to the purchase of
foreign securities;
o Draft and negotiate documentation necessary to permit the Fund to
engage in a variety of derivative and securities trading practices
and provide legal guidance with respect to these practices;
o Negotiate the Fund's line of credit documentation; and
o Provide legal guidance on applicable laws regulating the types and
levels of ownership of securities by the Fund.
D. Regulated Activities. Applicable securities laws regulate numerous aspects of
the Fund's business, including such matters as the Fund's: prospectus
disclosure; investment activities; affiliated transactions; investment in senior
securities; sales, redemptions and exchanges; distribution of income and capital
gains; distribution of Fund shares; board composition; code of ethics; fidelity
bond; custodial services; and investment advisory and distribution contracts.
The Administrator will provide the Fund with legal guidance with respect to
these matters and to the general application of securities laws to the Fund's
business.
- 13 -
<PAGE>
E. Tax Considerations. The Administrator shall perform the following functions
relating to the application of tax rules to the Fund:
o Provide legal guidance with respect to the application of tax rules
to the Fund and analyze from a tax perspective new types of
securities purchased by the Fund, new investment practices engaged
in by the Fund and new investment products or practices adopted by
the Fund; and
o Draft and/or review sections of the Fund's prospectus describing the
tax consequences of an investment in the Fund.
F. Board Considerations. The Administrator shall perform the following functions
with respect to the Fund's governing board:
o Provide advice concerning applicable rules governing the composition
of the Fund's governing board;
o Coordinate, prepare materials for and attend board and committee
meetings and coordinate any follow up issues; and
o Provide guidance and prepare materials on legal issues relevant to
the Fund's business.
G. Miscellaneous/Extraordinary Events. The Administrator shall perform the
following miscellaneous functions for the Fund:
o Provide legal guidance with respect to litigation brought by the
Fund and against the Fund and negotiate litigation settlements and
pre-litigation settlements and work-out arrangements;
o Obtain the required documentation to be filed in connection with any
lawsuits against the Fund and provide information or expertise on
administrative matters affecting such litigation;
o Provide legal guidance on alternative distribution structures for
the Fund's shares (such as the adoption of a multiple class
structure);
o Review all contracts concerning the acquisition of other investment
companies or the liquidation of the Fund, draft, negotiate and file
various documentation required in connection therewith, provide
guidance on the manner such transactions should be structured to
comply with applicable law and obtain legal opinions and regulatory
authority rulings necessary for such transactions to comply with
applicable law;
o Seek formal guidance from regulatory authorities concerning the
application of various regulations to the Fund and seek exemptive
relief where appropriate; and
- 14 -
<PAGE>
o Provide or arrange for all other Legal Services required of the Fund
and not otherwise provided for under this Agreement other than the
services of any counsel retained to represent the members of the
governing boards of the funds who are not "interested persons" of
the Administrator or its affiliates, as such term is defined in the
Investment Company Act of 1940.
- 15 -
<PAGE>
Exhibit D
---------
OTHER ADMINISTRATIVE SERVICES
-----------------------------
The Administrator shall provide the following Other Administrative
Services to each Fund:
(1) Arrange for persons or other entities to serve as transfer agent,
registrar or dividend disbursing agent as required by the Fund;
(2) Arrange for a line of credit in the event of an unanticipated
redemption of shares;
(3) Arrange for consideration by the Board of appropriate or necessary
insurance coverage for the Fund;
(4) Subject to Section 4 hereof, perform or arrange for all compliance
functions required of the Fund;
(5) Prepare, and arrange for the printing and mailing of, any necessary
investment communications;
(6) Arrange for the printing and mailing of any documents or written
materials required to be prepared by or on behalf of the Fund
including, without limitation, stock certificates, prospectuses,
shareholder reports, shareholder notices, proxy statements and
reports to governmental officers and commissions;
(7) Arrange for any other printing, production and delivery services
required of the Fund and not otherwise provided for under this
Agreement;
(8) Provide a system of internal controls adequate to carry-out the
business of the Fund and arrange for the annual report on internal
controls of the Fund and its agents;
(9) Review the Fund's disclosure documents to ensure that disclosures
and policies conform to the Fund's actual operation; and
(10) Provide for the calculation and timely disbursement of appropriate
regulatory authority registration fees.
- 16 -
<PAGE>
Exhibit E
---------
ADMINISTRATIVE FEE
------------------
The Administrative Fee shall be an amount, computed as set forth below,
designed to reimburse the Administrator for its actual costs (excluding costs of
staffing so-called residual matters as set forth in Exhibit #2 to Exhibit H to
the Memorandum to the Trustees of the Funds from Stephen E. Cavan and Joseph W.
Dello Russo dated September 23, 1996 (Offshore Board) or October 1, 1996
(Compass, Crimson, Institutional Products and Red Boards)) for providing the
Financial Administration Services and Legal Services (the "Actual Costs") for
providing such services for a calendar year computed pursuant to the principles
set forth in such Exhibit H, subject to such changes in those principles as may
be agreed to from time to time by the Funds and the Administrator (the "Approved
Budgeted Costs"). In computing its Actual Costs, the Administrator will follow
the cost allocation principles set forth in the Deloitte & Touche LLP Report of
Independent Consultant dated November 29, 1996 under the caption "Review of MFS
Cost Reimbursement Methodologies", subject to such changes as may be agreed to
from time to time by the Funds and the Administrator.
For calendar year 1998, the Approved Budgeted Costs are agreed to be
$6,791,992. For each subsequent calendar year, the Approved Budgeted Costs shall
be an amount agreed to by the Funds and the Administrator prior to the beginning
of the year, provided that, until Approved Budgeted Costs for a year are agreed
to, the Approved Budgeted Costs and Administrative Fee for the prior year shall
remain in effect.
Subject to the adjustments required by the next paragraph, the
Administrative Fee for a calendar year shall be computed by allocating the
Approved Budgeted Costs for that year among the Funds based on each Fund's
average daily net assets for its then-current fiscal year at rates reflecting a
basic rate on the first $1 billion of net assets of a Fund, a 16 2/3% discount
from the basic rate on the next $1 billion, a 33 1/3% discount from the basic
rate on the next $1 billion, and the elimination of any charge on assets in
excess of $3 billion. For 1998 the rates shall be:
o 0.0150% on first $1 billion;
o 0.0125% on next $1 billion;
o 0.0100% on next $1 billion;
o 0.0% on amounts in excess of $ 3 billion
in each case on an annualized basis for a Fund's then-current fiscal
year.
In the event that the aggregate amount of all Administrative Fees received
by the Administrator during a calendar year at any time equals 105% of the
amount of the Approved Budgeted Costs for that year, no further payments of
Administrative Fees shall be made by the Funds to the Administrator for that
calendar year. In the event that the aggregate amount of the Administrative Fees
received by the Administrator for a calendar year is less than the amount of the
Approved Budgeted Costs for that year, the Administrator shall not be entitled
to recovery of
- 17 -
<PAGE>
this shortfall during the current calendar year; however, the amount of such
shortfall will be taken into account when establishing the Administrative Fee
for following calendars years. In the event that the aggregate amount of the
Administrative Fees received by the Administrator for a calendar year is greater
than the Administrator's Actual Costs for that year, such excess fees shall be
applied as a credit against the Administrative Fees payable by the Funds
hereunder for the subsequent calendar year.
The Administrator will provide the Funds with such information as may
reasonably be required to review the Administrator's Actual Costs as of June 30
and December 31 in each year.
- 18 -
EXHIBIT NO. 99.11
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Post-Effective Amendment
No. 65 to Registration Statement No. 2-14677 of Massachusetts Investors Growth
Stock Fund, of our report dated January 9, 1998 appearing in the annual report
to shareholders for the year ended November 30, 1997, and to the references to
us under the headings "Condensed Financial Information" in the Prospectus and
"Independent Auditors and Financial Statements" in the Statement of Additional
Information, both of which are part of such Registration Statement.
DELOITTE & TOUCHE LLP
- ---------------------
Deloitte & Touche LLP
Boston, Massachusetts
March 26, 1998
EXHIBIT NO. 99.15(b)
EXHIBIT A
---------
Funds and Share Classes Covered by Rule 12B-1 Plan
As of: March 17, 1998
- ---------------------------------------------------------------------------
CLASSES OF
SHARES COVERED
BY RULE 12b-1 DATE RULE 12b-1
FUND PLAN PLAN ADOPTED
- ---------------------------------------------------------------------------
MFS High Income Fund A,B,C January 1, 1997
- ---------------------------------------------------------------------------
MFS Municipal High Income Fund B January 1, 1997
- ---------------------------------------------------------------------------
MFS Municipal Bond Fund B January 1, 1997
- ---------------------------------------------------------------------------
MFS Mid Cap Growth Fund A,B,C January 1, 1997
- ---------------------------------------------------------------------------
MFS Total Return Fund A,B,C January 1, 1997
- ---------------------------------------------------------------------------
MFS Research Fund A,B,C January 1, 1997
- ---------------------------------------------------------------------------
MFS World Governments Fund A,B,C January 1, 1997
- ---------------------------------------------------------------------------
MFS Value Fund A,B,C January 1, 1997
- ---------------------------------------------------------------------------
MFS Bond Fund A,B,C January 1, 1997
- ---------------------------------------------------------------------------
MFS Limited Maturity Fund A,B,C January 1, 1997
- ---------------------------------------------------------------------------
MFS Municipal Limited Maturity Fund A,B,C January 1, 1997
- ---------------------------------------------------------------------------
MFS Government Mortgage Fund A,B January 1, 1997
- ---------------------------------------------------------------------------
MFS/Foreign & Colonial Emerging
Markets Equity Fund A,B,C January 1, 1997
- ---------------------------------------------------------------------------
MFS International Growth Fund A,B,C January 1, 1997
- ---------------------------------------------------------------------------
MFS International Growth and Income
Fund A,B,C January 1, 1997
- ---------------------------------------------------------------------------
Massachusetts Investors Trust A,B,C January 1, 1997
- ---------------------------------------------------------------------------
Massachusetts Investors Growth
Stock Fund A,B,C January 1, 1997
- ---------------------------------------------------------------------------
MFS Growth Opportunities Fund A,B January 1, 1997
- ---------------------------------------------------------------------------
MFS Government Securities Fund A,B,C January 1, 1997
- ---------------------------------------------------------------------------
MFS International Opportunities Fund A,B,C October 8, 1997
- ---------------------------------------------------------------------------
MFS International Value Fund A,B,C October 8, 1997
- ---------------------------------------------------------------------------
MFS International Strategic Growth
Fund A,B,C October 8, 1997
- ---------------------------------------------------------------------------
MFS Asia Pacific Fund A,B,C October 8, 1997
- ---------------------------------------------------------------------------
MFS Strategic Value Fund A,B,C March 17, 1998
- ---------------------------------------------------------------------------
MFS Small Cap Value Fund A,B,C March 17, 1998
- ---------------------------------------------------------------------------
MFS Emerging Markets Debt Fund A,B,C March 17, 1998
- ---------------------------------------------------------------------------
1
<PAGE>
EXHIBIT B
---------
As of: March 17, 1998
Massachusetts Investors Trust
MFS High Income Fund
MFS Mid-Cap Growth Fund
MFS Total Return Fund
MFS Research Fund
MFS World Governments Fund
MFS Value Fund
MFS Bond Fund
MFS Limited Maturity Fund
MFS Municipal Limited Maturity Fund
MFS Government Mortgage Fund
Massachusetts Investors Growth Stock Fund
MFS Growth Opportunities Fund
MFS Government Securities Fund
MFS Strategic Value Fund
MFS Small Cap Value Fund
MFS Emerging Markets Debt Fund
3
<PAGE>
EXHIBIT C
---------
As of: October 8, 1997
MFS/Foreign & Colonial Emerging Markets Equity Fund
MFS International Growth Fund
MFS International Growth & Income Fund
MFS International Opportunities Fund
MFS International Value Fund
MFS International Strategic Growth Fund
MFS Asia Pacific Fund
4
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000063090
<NAME> MASSACHUSETTS INVESTORS GROWTH STOCK FUND
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<NAME> MASSACHUSETTS INVESTORS GROWTH STOCK FUND CLASS I
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<PERIOD-START> JAN-02-1997
<PERIOD-END> NOV-30-1997
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<ACCUM-APPREC-OR-DEPREC> 577701481
<NET-ASSETS> 1879064517
<DIVIDEND-INCOME> 7613323
<INTEREST-INCOME> 3750914
<OTHER-INCOME> (98290)
<EXPENSES-NET> (10927529)
<NET-INVESTMENT-INCOME> 338418
<REALIZED-GAINS-CURRENT> 293422338
<APPREC-INCREASE-CURRENT> 258770599
<NET-CHANGE-FROM-OPS> 552531355
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 916330
<NUMBER-OF-SHARES-REDEEMED> (67858)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 512827639
<ACCUMULATED-NII-PRIOR> 0
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<OVERDISTRIB-NII-PRIOR> (78017)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4290313
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 11320374
<AVERAGE-NET-ASSETS> 1539203256
<PER-SHARE-NAV-BEGIN> 9.86
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 4.82
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<PER-SHARE-NAV-END> 14.71
<EXPENSE-RATIO> 0.49
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
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<NAME> MASSACHUSETTS INVESTORS GROWTH STOCK FUND
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<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 1278661553
<INVESTMENTS-AT-VALUE> 1856372605
<RECEIVABLES> 36351333
<ASSETS-OTHER> 11137
<OTHER-ITEMS-ASSETS> 7613
<TOTAL-ASSETS> 1892742688
<PAYABLE-FOR-SECURITIES> 11096918
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2581253
<TOTAL-LIABILITIES> 13678171
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1011580817
<SHARES-COMMON-STOCK> 6532166
<SHARES-COMMON-PRIOR> 1912204
<ACCUMULATED-NII-CURRENT> 257483
<OVERDISTRIBUTION-NII> 0
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