<PAGE>
As filed with the Securities and Exchange Commission on April 29, 1996
1933 Act File No. 2-11401
1940 Act File No. 811-203
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 70
AND
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 21
MASSACHUSETTS INVESTORS TRUST
(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):
|_| immediately upon filing pursuant to paragraph(b)
|X| on April 29, 1996 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>
<TABLE>
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------------------------
<CAPTION>
NUMBER PROPOSED PROPOSED
OF SHARES MAXIMUM MAXIMUM
TITLE OF SECURITIES BEING OFFERING AGGREGATE AMOUNT OF
BEING REGISTERED REGISTERED PRICE PER SHARE OFFERING PRICE REGISTRATION
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares of Beneficial Interest
(par value $0.33 1/3 per share) 19,155,578 $13.41 $290,000 $100
- --------------------------------------------------------------------------------------------------
</TABLE>
Registrant elects to calculate the maximum aggregate offering price pursuant to
Rule 24e-2. 19,133,953 shares were redeemed during the fiscal year ended
December 31, 1995, all of which are being used for reduction in this
Post-Effective Amendment. Pursuant to Rule 457(d) under the Securities Act of
1933, the maximum public offering price of $13.41 per share on April 16, 1996 is
the price used as the basis for calculating the registration fee. While no fee
is required for the 19,133,953 shares, Registrant has elected to register, for
$100, an additional $290,000 of shares (21,625 shares at $13.41 per share).
===============================================================================
<PAGE>
MASSACHUSETTS INVESTORS TRUST
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 Objectives and
Policies
(b),(c) Investment Objectives and Policies *
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
<PAGE>
STATEMENT OF
ITEM NUMBER ADDITIONAL
FORM N-1A, PART A PROSPECTUS CAPTION INFORMATION CAPTION
- ----------------- ------------------ -------------------
(d) * *
(e) Management of the Fund - Shareholder *
Servicing Agent; Back Cover Page
(f) Expense Summary *
(g) Investment Objectives and Policies - *
Portfolio Trading
5A(a),(b),(c) ** **
6(a) Information Concerning Shares of *
the Fund - Description of Shares,
Voting Rights and Liabilities,
Redemptions and Repurchases;
Purchases; 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; Distributions
(h) * *
7(a) Front Cover Page; Management *
of the Fund - Distributor; Back
Cover Page
(b) Information Concerning Shares of *
the Fund - Purchases, 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, Exchanges;
Shareholder Services
(d) Front Cover Page; Information *
Concerning Shares of the Fund -
Purchases; Shareholder Services
(e) Information Concerning Shares of *
the Fund - Distribution Plans;
Purchases; Expense Summary
(f) Information Concerning Shares of *
the Fund - Distribution Plans
8(a) Information Concerning Shares of *
the Fund - Redemptions and
Repurchases, Purchases
(b),(c),(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 * Definitions
13(a),(b),(c) * Investment Objectives,
Policies and Restrictions
(d) * *
14(a),(b) * Management of the Fund -
Trustees and Officers
(c) * Management of the Fund -
Trustees and Officers;
Appendix A
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,
Trustees and Officers
(b) Management of the Fund - Management of the Fund -
Investment Adviser Investment Adviser
(c) * *
(d) * Management of the Fund-
Investment Adviser
(e) * Portfolio Transactions and
Brokerage Commissions
(f) Information Concerning Distribution Plans
Shares of The Fund -
Distribution Plans
(g) * *
<PAGE>
STATEMENT OF
ITEM NUMBER ADDITIONAL
FORM N-1A, PART B PROSPECTUS CAPTION INFORMATION CAPTION
- ----------------- ------------------ -------------------
(h) * Management of the Fund-
Custodian; Independent
Auditors and Financial
Statements; Back Cover Page
(i) * Management of the Fund -
Shareholder Servicing Agent
17(a),(b), * Portfolio Transactions and
(c),(d),(e) Brokerage Commissions
18(a) Information Concerning Shares Description of Shares, Voting
of the Fund - Description of Rights and Liabilities
Shares, Voting Rights and
Liabilities
(b) * *
19(a) Information Concerning Shares Shareholder Services
of the Fund - Purchases;
Shareholder Services
(b) Information Concerning Shares Management of the Fund -
of the Fund - Net Asset Distributor; Determination of
Value; Purchases Net Asset Value and
Performance - Net Asset Value
(c) * *
20 * Tax Status
21(a),(b) * Management of the Fund -
Distributor; Distribution
Plans
(c) * *
22(a) * *
(b) * Determination of Net Asset
Value and Performance
23 * Independent Auditors and
Financial Statements
- --------------------------
* Not Applicable
** Contained in Annual Report
<PAGE>
PROSPECTUS
MASSACHUSETTS May 1, 1996
INVESTORS TRUST Class A Shares of Beneficial Interest
(A member of the MFS Family of Fund(R)) Class B Shares of Beneficial Interest
- -------------------------------------------------------------------------------
Page
----
1. Expense Summary ............................................. 2
2. The Fund .................................................... 3
3. Condensed Financial Information ............................. 4
4. Investment Objectives and Policies .......................... 5
5. Management of the Fund ...................................... 11
6. Information Concerning Shares of the Fund ................... 12
Purchases ............................................... 12
Exchanges ............................................... 16
Redemptions and Repurchases ............................. 17
Distribution Plans ...................................... 19
Distributions ........................................... 20
Tax Status .............................................. 20
Net Asset Value ......................................... 21
Description of Shares, Voting Rights and Liabilities .... 21
Performance Information ................................. 21
7. Shareholder Services ........................................ 22
Appendix A .................................................. A-1
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
MASSACHUSETTS INVESTORS TRUST
500 Boylston Street, Boston, Massachusetts 02116 (617) 954-5000
America's First Open-End Investment Company, Organized March 21, 1924 as a
Common Law Trust under the Laws of The Commonwealth of Massachusetts.
Massachusetts Investors Trust (the "Fund") is an open-end diversified investment
company. The Fund's investment objectives are to provide reasonable current
income and long-term growth of capital and income. See "Investment Objectives
and Policies." The minimum initial investment is generally $1,000 per account
(see "Purchases").
The Fund's investment adviser and distributor are Massachusetts Financial
Services Company ("MFS" or the "Adviser") and MFS Fund Distributors, Inc.
("MFD"), respectively, both of which are located at 500 Boylston Street, Boston,
Massachusetts 02116.
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 May 1, 1996, 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 24 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).
INVESTORS SHOULD READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE REFERENCE.
<PAGE>
1. EXPENSE SUMMARY CLASS A CLASS B
------- -------
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Initial Sales Charge Imposed on
Purchases of Fund Shares (as a percentage of
offering price) ............................... 5.75% 0.00%
Maximum Contingent Deferred Sales Charge (as a
percentage of original purchase price or
redemption proceeds, as applicable) ........... See Below(1) 4.00%
ANNUAL OPERATING EXPENSES (AS A PERCENTAGE
OF AVERAGE NET ASSETS):
Management Fees ................................. 0.26 % 0.26%
Rule 12b-1 Fees ................................. 0.315%(2) 1.00%(3)
Other Expenses(4) ............................... 0.20 % 0.30%
Total Operating Expenses ........................ 0.775% 1.56%
- ----------
(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 "Purchases" below).
(2) The Fund has adopted a Distribution Plan for its Class A shares in
accordance with Rule 12b-1 under the Investment Company Act of 1940, as
amended (the "1940 Act"), which provides that it will pay distribution/
service fees aggregating up to (but not necessarily all of) 0.35% per annum
of the average daily net assets attributable to the Class A shares. The Fund
is currently paying distribution fees in the amount of 0.075%. Payment of
the remaining portion of the 0.10% per annum distribution fee equal to
0.025% per annum will commence on such date as the Trustees of the Trust may
determine. The 0.25% per annum service fee is reduced to 0.15% per annum for
shares purchased prior to January 2, 1991. 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
"Distribution Plans" below.
(3) The Fund has adopted a Distribution Plan for its Class B shares in
accordance with Rule 12b-1 under the 1940 Act, which provides that it will
pay distribution /service fees aggregating up to 1.00% per annum of the
average daily net assets attributable to Class B shares (see "Distributio n
Plans"). Distribution expenses paid under this Plan, 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.
(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."
EXAMPLE OF EXPENSES
An investor would pay the following dollar amounts of expenses on a $1,000
investment in the Fund, assuming (a) a 5% annual return and (b) redemption at
the end of each of the time periods indicated (unless otherwise noted):
PERIOD CLASS A CLASS B
- ------ ------- -----------------
1 year .................................. $ 65 $ 56 $ 16
3 years .................................. 81 79 49
5 years .................................. 98 105 85
10 years .................................. 148 165(2) 165(2)
(1)Assumes no redemption.
(2)Class B shares convert to Class A shares approximatel y eight years after
purchase; therefore, years nine and ten reflect Class A expenses.
The purpose of the expense table above is to assist investors in understanding
the various costs and expenses that a shareholder of the Fund will bear directly
or indirectly. More complete descriptions of the following expenses are set
forth in the following sections of the Prospectus: (i) varying sales charges on
share purchases -- "Purchases"; (ii) varying CDSCs -- "Purchases"; (iii)
management fees -- "Investment Adviser"; and (iv) Rule 12b-1 (i.e., distribution
plan) fees -- "Distribution Plans."
THE "EXAMPLE" SET FORTH ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES OF THE FUND; ACTUAL EXPENSES MAY BE GREATER OR LESS
THAN THOSE SHOWN.
2. THE FUND
The Fund is an open-end, diversified management investment company which was
organized as a common law trust under the laws of The Commonwealth of
Massachusetts in 1924. Shares of the Fund are continuously sold to the public,
and the Fund uses the proceeds to buy securities (common stocks and other
instruments) for its portfolio. Two classes of shares of the Fund currently are
offered to the general public. Class A shares are offered at net asset value
plus an initial sales charge 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 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 subject to a CDSC upon redemption (declining from 4.0% 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 will convert to Class A shares
approximately eight years after purchase.
The Fund's Board of Trustees provides broad supervision over the affairs of the
Fund. A majority of the Trustees are not affiliated with the Adviser. The
Adviser is responsible for the management of the Fund's assets and the officers
of the Fund are responsible for its operations. The Adviser manages the
portfolio from day to day in accordance with the Fund's investment objectives
and policies. The selection of investments and the way they are managed depend
on the conditions and trends in the economy and the financial marketplaces. The
Fund also offers to buy back (redeem) its shares from its shareholders at any
time at net asset value less any applicable CDSC.
3. CONDENSED FINANCIAL INFORMATION
The following information has been audited for at least the latest five years
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 auditors
are Deloitte & Touche LLP.
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS -- CLASS A AND CLASS B SHARES
YEAR ENDED DECEMBER 31, 1995 1994 1993 1992 1991 1990 1989
---- ---- ---- ---- ---- ---- ----
CLASS A
------------------------------------------------------------------
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD):
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value -- beginning of period $10.07 $11.50 $12.31 $13.87 $12.28 $13.55 $11.22
------ ------ ------ ------ ------ ------ ------
Income from investment operations# --
Net investment income(S) ............... $ 0.25 $ 0.25 $ 0.39 $ 0.32 $ 0.38 $ 0.43 $ 0.45
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions ........................... 3.67 (0.36) 0.86 0.69 2.95 (0.45) 3.56
------ ------ ------ ------ ------ ------ ------
Total from investment operations ..... $ 3.92 $(0.11) $ 1.25 $ 1.01 $ 3.33 $(0.02) $ 4.01
------ ------ ------ ------ ------ ------ ------
Less distributions declared to shareholders --
From net investment income+++ ........... $(0.46) $(0.25) $(0.39) $(0.33) $(0.39) $(0.43) (0.45)
From net realized gain on investments
and foreign currency transactions ...... (0.82) (1.05) (1.67) (2.22) (1.32) (0.82) (1.22)
In excess of net realized gain on
investments and foreign currency
transactions++ ......................... -- (0.02) -- -- -- -- --
From paid-in capital .................... -- -- -- (0.02) (0.03) -- (0.01)
------ ------ ------ ------ ------ ------ ------
Total distributions declared
to sharehoholders ..................... $(1.28) $(1.32) $(2.06) $ (2.57) $ (1.74) $ (1.25) (1.68)
------ ------ ------ ------- ------- ------- ------
Net asset value -- end of period ......... $12.71 $10.07 $11.50 $ 12.31 $ 13.87 $ 12.28 $13.55
====== ====== ====== ======= ======= ======= ======
Total return(++) ....................... 39.34% (1.02)% 10.03% 7.68% 27.41% (0.33)% 35.80%
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA(S):
Expenses## .............................. 0.70% 0.71% 0.68% 0.62% 0.62% 0.47% 0.50%
Net investment income ................... 2.13% 2.20% 3.04% 2.30% 2.73% 3.28% 3.40%
PORTFOLIO TURNOVER ....................... 54% 87% 41% 46% 44% 26% 20%
NET ASSETS AT END OF PERIOD
(000,000 OMITTED) ....................... $ 2,074 $1,535 $1,626 $ 1,548 $ 1,530 $ 1,265 $1,382
- ----------
++For the year ended December 31, 1991, the per share distribution in excess of net realized gain on investments was $0.0041.
+++For the year ended December 31, 1994, the per share distribution in excess of net investment income was $0.0004 for
Class A shares.
#Per share data for the periods subsequent to December 31, 1992 is based on average shares outstanding.
##For fiscal years ending after September 1, 1995, the Trust's expenses are calculated without reduction for fees
paid indirectly.
(++)Total returns for Class A shares do not include the applicable sales charge (except for reinvested dividends prior to
January 2, 1991). If the charge had been included, the results would have been lower.
(S)The distributor did not impose a portion of its distribution fee for the periods indicated. For the year ended December 31,
1993, net investment income for Class A shares includes $0.012 per share applicable to nonrecurring dividend income. Had the
dividend for the period not been included and the management fee related to such income not been waived, and the
distribution fee not been waived, the net investment income per share and the ratios would have been:
Net investment income .................... $ 0.24 $ 0.24 $ 0.27 -- -- -- --
RATIOS (TO AVERAGE NET ASSETS):
Expenses## ........................... 0.81% 0.81% 0.74% -- -- -- --
Net investment income ................ 2.02% 2.10% 2.05% -- -- -- --
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS -- (continued)
YEAR ENDED DECEMBER 31, 1988 1987 1986 1995 1994 1993*
---- ---- ---- ---- ---- -----
CLASS A CLASS B
----------------------------------------------------------
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD):
<S> <C> <C> <C> <C> <C> <C>
Net asset value -- beginning of period ........... $11.26 $12.09 $12.12 $10.03 $11.48 $13.02
------ ------ ------ ------ ------ ------
Income from investment operations# --
Net investment income(S) ........................ $ 0.40 $ 0.38 $ 0.40 $ 0.15 $ 0.15 $ 0.04
Net realized and unrealized gain (loss) on
investments and foreign currency transactions .. 0.76 0.57 1.72 3.64 (0.36) 0.32
------ ------ ------ ------ ------ ------
Total from investment operations .............. $ 1.16 $ 0.95 $ 2.12 $ 3.79 $(0.21) $ 0.36
------ ------ ------ ------ ------ ------
Less distributions declared to shareholders --
From net investment income++++ .................. $(0.39) $(0.39) $(0.40) $(0.37) $(0.17) (0.23)
From net realized gain on investments
and foreign currency transactions ............... (0.81) (1.39) (1.73) (0.82) (1.05) (1.67)
In excess of net realized gain on investments
and foreign currency transactions ............... -- -- -- -- (0.02) --
From paid-in capital || .......................... -- -- (0.02) -- -- --
------ ------ ------ ------ ------ ------
Total distributions declared to shareholders ... $(1.20) $(1.78) $(2.15) $(1.19) $(1.24) (1.90)
------ ------ ------ ------ ------ ------
Net asset value -- end of period .................. $11.22 $11.26 $12.09 $12.63 $10.03 $11.48
====== ====== ====== ====== ====== ======
Total return(++) .................................. 10.12% 7.25% 16.97% 38.05% (1.88)% 2.62%
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA(S):
Expenses## ...................................... 0.55% 0.45% 0.49% 1.56% 1.61% 1.56%+
Net investment income ........................... 3.39% 2.63% 2.99% 1.25% 1.37% 1.05%+
PORTFOLIO TURNOVER ............................... 19% 23% 26% 54% 87% 41%
NET ASSETS AT END OF PERIOD (000,000 OMITTED) .... $1,139 $1,177 $1,186 $ 165 $ 69 $ 15
- ----------
*For the period from the commencement of offering of Class B shares, September 7, 1993, to December 31, 1993.
||For the year ended December 31, 1988, the per share distribution from paid-in capital was $0.001.
++++For the year ended December 31, 1994, the per share distribution in excess of net investment income was
$0.0003 for Class B shares.
+Annualized.
#Per share data for the periods subsequent to December 31, 1992 is based on average shares outstanding.
##For the fiscal years ending after September 1, 1995, the Trust's expenses are calculated without reduction
for fees paid indirectly.
(++)Total returns for Class A shares do not include the applicable sales charge (except for reinvested dividends
prior to January 2, 1991). If the charge had been included, the results would have been lower.
(S)The distributor did not impose a portion of its distribution fee for the periods indicated. For the year
ended December 31, 1993, net investment income for Class B shares includes $0.007 per share applicable to
nonrecurring dividend income. Had the dividend for the period not been included and the management fee
related to such income not been waived, and the distribution fee not been waived, the net investment income
per share and the ratios would have been:
Net investment income ...................... -- -- -- $ 0.15 -- $ 0.03
RATIOS (TO AVERAGE NET ASSETS):
Expenses## -- -- -- 1.58% -- 1.66%+
Net investment income ...................... -- -- -- 1.23% -- 0.29%+
</TABLE>
<PAGE>
4. INVESTMENT OBJECTIVES AND POLICIES
INVESTMENT OBJECTIVES -- The Fund's investment objectives are to provide
reasonable current income and long-term growth of capital and income. Any
investment involves risk and there can be no assurance that the Fund will
achieve its investment objectives.
INVESTMENT POLICIES -- The Fund is believed to constitute a conservative medium
for that portion of an investor's capital which he wishes to have invested in
securities considered to be of high or improving investment quality. The term
"conservative medium" indicates that the Fund attempts to exercise prudence,
discretion and intelligence in the selection of investments with due regard for
both probable income and probable safety of capital. The words "high investment
quality" reflect the intention of the Fund to avoid the acquisition of
speculative securities or those of doubtful character even if immediate
prospects are tempting.
The assets of the Fund are normally invested in common stocks or securities
convertible into common stocks. However, the Fund may hold its assets in cash or
invest in commercial paper, repurchase agreements or other forms of debt
securities either to provide reserves for future purchases of securities or as a
temporary defensive measure in certain economic environments. 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, the amount of dividends the Fund pays to its shareholders will vary in
relation to the amount of dividends and interest the Fund receives from its
portfolio securities.
FOREIGN SECURITIES: The Fund may invest up to 35% (and expects generally to
invest between 0% and 15%) of its total assets in foreign securities which are
not traded on a U.S. exchange (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.
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 U.S. 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. See the SAI for further
discussion of foreign securities and the holding of foreign currency, as well as
the associated risks.
EMERGING MARKET SECURITIES: Consistent with the Fund's objectives 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 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.
The risks of investing in foreign securities may be intensified in the case of
investments in emerging markets. Securities of many issuers in emerging markets
may be less liquid and more volatile than securities of comparable domestic
issuers. Emerging markets also have different clearance and settlement
procedures, and in certain markets there have been times when settlements have
been unable to keep pace with the volume of securities transactions, making it
difficult to conduct such transactions. Delays in settlement could result in
temporary periods when a portion of the assets of the Fund is uninvested and no
return is earned thereon. The inability of the Fund to make intended security
purchases due to settlement problems could cause the Fund to miss attractive
investment opportunities. Inability to dispose of portfolio securities due to
settlement problems could result either in losses to the Fund due to subsequent
declines in value of the portfolio security, a decrease in the level of
liquidity in the Fund's portfolio, or, if the Fund has entered into a contract
to sell the security, in 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 economies. In particular, countries with emerging markets may have
relatively unstable governments, presenting the risk of nationalization of
businesses, restrictions on foreign ownership, or prohibitions on repatriation
of assets, and may have less protection of property rights than more developed
countries. The economies 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.
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.
RESTRICTED SECURITIES: The Fund may purchase securities that are not registered
("restricted securities") under the Securities Act of 1933, as amended (the
"1933 Act"), but can be offered and sold to "qualified institutional buyers"
under Rule 144A under the 1933 Act ("Rule 144A"). The Trust's Board of Trustees
determines, based upon a continuing review of the trading markets for the
specific 144A security, whether such security is liquid and thus not subject to
the Fund's limitation on investing not more than 15% of its net assets in
illiquid investments. The Board of Trustees has adopted guidelines and has
delegated to the Adviser the daily function of determining and monitoring
liquidity of restricted securities available pursuant to Rule 144A. The Board,
however, retains sufficient oversight and is ultimately responsible for the
determinations. The Board will carefully monitor the Fund's investments in Rule
144A securities, focusing on such important factors, among others, as valuation,
liquidity and availability of information. This investment practice could have
the effect of decreasing the level of liquidity in the Fund to the extent that
qualified institutional buyers become for a time uninterested in purchasing
these 144A securities. Subject to the Fund's 15% limitation on investments in
illiquid investments, the Fund may also invest in restricted securities that may
not be sold under Rule 144A, which presents certain risks. As a result, the Fund
might not be able to sell these securities when the Adviser wishes to do so, or
might have to sell them at less than fair value. In addition, market quotations
are less readily available. Therefore, the judgment of the Adviser may at times
play a greater role in valuing these securities than in the case of unrestricted
securities.
"WHEN-ISSUED" SECURITIES: In order to help ensure the availability of suitable
securities for its portfolio, the Fund may purchase securities on a "when
issued" or on a "forward delivery" basis, which means that the securities will
be delivered to the Fund at a future date usually beyond customary settlement
time. In general, the Fund does not pay for such securities until received and
does not start earning interest or dividends on the securities until the
contractual settlement date. In order to invest its assets immediately, while
awaiting delivery of securities purchased on such bases, the Fund will normally
invest in cash, short-term money market instruments and high grade debt
securities. See the SAI for a further discussion of the nature of such
transactions and risks associated therewith.
ZERO COUPON BONDS: The Fund may also invest in securities which are convertible
into zero coupon bonds. Zero coupon bonds are debt obligations which are issued
or purchased at a significant discount from face value. The discount
approximates the total amount of interest the bonds will accrue and compound
over the period until maturity, at a rate of interest reflecting the market rate
of the security at the time of issuance. Zero coupon bonds do not require the
periodic payment of interest. Such investments benefit the issuer by mitigating
its need for cash to meet debt service, but also require a higher rate of return
to attract investors who are willing to defer receipt of such cash. Such
investments may experience greater volatility in market value due to changes in
interest rates than debt obligations which make regular payments of interest.
The Fund will accrue income on such investments for tax and accounting purposes,
which is distributable to shareholders and which, because no cash is received at
the time of accrual, may require the liquidation of other portfolio securities
to satisfy the Fund's distribution obligations.
OPTIONS ON SECURITIES: The Fund may write (sell) covered put and call options on
securities and purchase put and call options on securities. The Fund will write
such options for the purpose of increasing its return and/or to protect the
value of its portfolio. In particular, where the Fund writes an option which
expires unexercised or is closed out by the Fund at a profit, it will retain the
premium paid for the option, which will increase its gross income and will
offset in part the reduced value of a portfolio security in connection with
which the option may have been written or the increased cost of portfolio
securities to be acquired. In contrast, however, if the price of the security
underlying the option moves adversely to the Fund's position, the option may be
exercised and the Fund will be required to purchase or sell the security at a
disadvantageous price, resulting in losses which may only be partially offset by
the amount of the premium. The Fund may also write combinations of put and call
options on the same security, known as "straddles." Such transactions can
generate additional premium income but also present increased risk.
The Fund may purchase put or call options in anticipation of declines in the
value of portfolio securities or increases in the value of securities to be
acquired. In the event that such declines or increases occur, the Fund may be
able to offset the resulting adverse effect on its portfolio, in whole or in
part, through the options purchased. The risk assumed by the Fund in connection
with such transactions is limited to the amount of the premium and related
transaction costs associated with the option, although the Fund may be required
to forfeit such amounts in the event that the prices of securities underlying
the options do not move in the direction or to the extent anticipated.
OPTIONS ON STOCK INDICES: The Fund may write (sell) covered call and put options
and purchase call and put options on stock indices. The Fund may write options
on stock indices for the purpose of increasing its gross income and to protect
its portfolio against declines in the value of securities it owns or increases
in the value of securities to be acquired. When the Fund writes an option on a
stock index, and the value of the index moves adversely to the holder's
position, the option will not be exercised, and the Fund will either close out
the option at a profit or allow it to expire unexercised. The Fund will thereby
retain the amount of the premium, which will increase its gross income and
offset part of the reduced value of portfolio securities or the increased cost
of securities to be acquired. Such transactions, however, will constitute only
partial hedges against adverse price fluctuations, since any such fluctuations
will be offset only to the extent of the premium received by the Fund for the
writing of the option. In addition, if the value of an underlying index moves
adversely to the Fund's option position, the option may be exercised, and the
Fund will experience a loss which may only be partially offset by the amount of
the premium received.
The Fund may also purchase put or call options on stock indices in order,
respectively, to hedge its investments against a decline in value or to attempt
to reduce the risk of missing a market or industry segment advance. The Fund's
possible loss in either case will be limited to the premium paid for the option,
plus related transaction costs.
OPTIONS ON FOREIGN CURRENCIES: The Fund may also purchase and write options on
foreign currencies ("Options on Foreign Currencies") for the purpose of
protecting against declines in the dollar value of portfolio securities and
against increases in the dollar cost of securities to be acquired. As in the
case of other types of options, however, the writing of an Option on Foreign
Currency will constitute only a partial hedge, up to the amount of the premium
received, and the Fund may be required to purchase or sell foreign currencies at
disadvantageous exchange rates, thereby incurring losses. The purchase of an
Option on Foreign Currency may constitute an effective hedge against
fluctuations in exchange rates although, in the event of rate movements adverse
to the Fund's position, it may forfeit the entire amount of the premium paid for
the option plus related transaction costs. The Fund may also choose to, or be
required to, receive delivery of the foreign currencies underlying Options on
Foreign Currencies into which it has entered. Under certain circumstances, such
as where the Adviser believes that the applicable exchange rate is unfavorable
at the time the currencies are received or the Adviser anticipates, for any
other reason, that the exchange rate will improve, the Fund may hold such
currencies for an indefinite period of time. See "Investment Objectives and
Policies -- Foreign Securities" in the SAI for information on the risks
associated with holding foreign currency.
FUTURES CONTRACTS: The Fund may enter into stock index and foreign currency
futures contracts (collectively, "Futures Contracts"). Such transactions may 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, and for non-hedging purposes subject to applicable law. The
Fund will incur brokerage fees when it purchases and sells Futures Contracts,
and will be required to maintain margin deposits. In addition, Futures Contracts
entail risks. Although the Adviser believes that use of such contracts will
benefit the Fund, if its investment judgment about the general direction of
exchange rates or the stock market is incorrect, the Fund's overall performance
may be poorer than if it had not entered into any such contract and the Fund may
realize a loss. The Fund will not enter into any Futures Contract if immediately
thereafter the value of securities and other obligations underlying all such
Futures Contracts would exceed 50% of the value of its total assets.
OPTIONS ON FUTURES CONTRACTS: The Fund may purchase and write options on Futures
Contracts ("Options on Futures Contracts") in order to protect against declines
in the values of portfolio securities or against increases in the cost of
securities to be acquired and for non-hedging purposes, subject to applicable
law, which involves greater risk and may result in losses which are not offset
by gains on other portfolio assets. 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.
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 Commodity 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 Fund's
assets. In addition, the Fund must comply with the requirements of various state
securities laws in connection with such transactions.
FORWARD CONTRACTS ON FOREIGN CURRENCY: The Fund may enter into forward foreign
currency exchange contracts for the purchase or sale of a fixed quantity of a
foreign currency at a future date ("Forward Contracts"). The Fund may enter into
Forward Contracts for hedging purposes as well as for non-hedging purposes
(i.e., speculative purposes). By entering into transactions in Forward
Contracts, for hedging purposes, the Fund may be required to forego the benefits
of advantageous changes in exchange rates and, in the case of Forward Contracts
entered into for non-hedging purposes, the Fund may sustain losses which will
reduce its gross income. Such transactions, therefore, could be considered
speculative. Forward Contracts are traded over-the-counter and not on organized
commodities or securities exchanges. As a result, Forward Contracts operate in a
manner distinct from exchange-traded instruments, and their use involves certain
risks beyond those associated with transactions in Futures Contracts or options
traded on exchanges. The Fund may choose to, or be required to, receive delivery
of the foreign currencies underlying Forward Contracts into which it has
entered. Under certain circumstances, such as where the Adviser believes that
the applicable exchange rate is unfavorable at the time the currencies are
received or the Adviser anticipates, for any other reason, that the exchange
rate will improve, the Fund may hold such currencies for an indefinite period of
time. The Fund may also enter into a Forward Contract on one currency to hedge
against risk of loss arising from fluctuations in the value of a second currency
(referred to as a "cross hedge") if, in the judgment of the Adviser, a
reasonable degree of correlation can be expected between movements in the values
of the two currencies. The Fund has established procedures consistent with
statements of the SEC and its staff regarding the use of Forward Contracts by
registered investment companies, which requires the use of segregated assets or
"cover" in connection with the purchase and sale of such contracts. See
"Investment Objective and Policies -- Foreign Securities" in the SAI for
information on the risks associated with holding foreign currency.
RISKS OF OPTIONS, FUTURES CONTRACTS AND FORWARD CONTRACTS: Although the Fund
will enter into certain transactions in options, Futures Contracts, Options on
Futures Contracts, Forward Contracts and Options on Foreign Currencies for
hedging purposes, such transactions nevertheless involve certain risks. For
example, a lack of correlation between the 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 instruments
for other than hedging purposes, subject to applicable law, which involves
greater risk. In particular, such transactions may result in losses for the Fund
which are not offset by gains on other portfolio positions, thereby reducing
gross income. In addition, foreign currency markets may be extremely volatile
from time to time. There also 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 SAI contains a description of the nature and trading mechanics of options,
Futures Contracts, Options on Futures Contracts, Forward Contracts and Options
on Foreign Currencies, and includes a discussion of the risks related to
transactions therein.
Transactions in Forward Contracts may be entered into only in the
over-the-counter market. Futures Contracts and Options on Futures Contracts may
be entered into on U.S. exchanges regulated by the CFTC and on foreign
exchanges. In addition, the securities underlying options, Futures Contracts and
Options on Futures Contracts traded by the Fund will include both domestic and
foreign securities.
PORTFOLIO TRADING: The primary consideration in placing portfolio security
transactions with broker-dealers for execution is to obtain, and maintain the
availability of, execution at the most favorable prices and in the most
effective manner possible. Consistent with the foregoing primary
consideration, the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. (the "NASD") and such other policies as the Trustees
may determine, the Adviser may consider sales of shares of the Fund and of the
other investment company 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 trading, see "Portfolio Transactions and
Brokerage Commissions" in the SAI.
----------------
The investment objectives and policies described above are not 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 (see "Investment Restrictions"
in the SAI). The Fund's investment limitations 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.
5. MANAGEMENT OF THE FUND
INVESTMENT ADVISER -- The Adviser manages the Fund pursuant to an Investment
Advisory Agreement, dated May 20, 1982 (the "Advisory Agreement"). The Adviser
provides the Fund with overall investment advisory and administrative services,
as well as general office facilities. Kevin R. Parke, a Senior Vice President of
the Adviser, and John D. Laupheimer, Jr., a Senior Vice President of the
Adviser, have been the Fund's portfolio managers since 1992. Mitchell D. Dynan,
a Vice President of the Adviser, has also been a portfolio manager of the Fund
since March, 1995. Messrs. Parke Dynan and Laupheimer have been employed as a
portfolio manager by the Adviser since 1985, 1986 and 1981, respectively.
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 on the basis of a
formula based upon a percentage of the Fund's average daily net assets plus a
percentage of the Fund's gross income (i.e., income other than gains from the
sale of securities), in each case on an annualized basis for the Fund's
then-current fiscal year. The applicable percentages are reduced as assets and
income reach the following levels:
ANNUAL RATE OF MANAGEMENT FEE ANNUAL RATE OF MANAGEMENT FEE
BASED ON AVERAGE DAILY NET ASSETS BASED ON GROSS INCOME
--------------------------------- -----------------------------
0.30% of the first $200 million 6.67% of the first $6 million
0.24% of the next $300 million 5.33% of the next $9 million
0.12% of average daily net assets 2.67% of gross income in excess
in excess of $500 million of $15 million
For the Fund's fiscal year ended December 31, 1995, MFS received management fees
under the Advisory Agreement of $4,973,977, equivalent on an annualized basis to
0.26% of the Fund's average daily net assets (excluding the payment attributable
to certain property described below).
Management fees received by MFS for the Fund's fiscal year ended December 31,
1995 were comprised of $3,035,163 based on average daily net asset and
$1,938,814 based on gross income. However, 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 Growth Stock Fund as part of shared expenses. The total
annual use value of this property for the period ending December 31, 1995 has
been determined pursuant to a formula devised by an independent supplier to be
$100,887 for the Fund, which amount was transferred to the Fund by the Adviser.
MFS also serves as investment adviser to each of the other funds in the MFS
Family of Funds (the "MFS Funds"), to MFS(R) Municipal Income Trust, MFS
Multimarket Income Trust, MFS Government Markets Income Trust, MFS Intermediate
Income Trust, MFS Charter Income Trust, MFS Special Value Trust, MFS Union
Standard Trust, MFS Institutional Trust, MFS Variable Insurance Trust, MFS/Sun
Life Series Trust, Sun Growth Variable Annuity Fund, Inc. and seven variable
accounts, each of which is a registered investment company established by Sun
Life Assurance Company of Canada (U.S.) ("Sun Life of Canada (U.S.)") in
connection with the sale of various fixed/variable annuity contracts. MFS and
its wholly owned subsidiary, MFS Asset Management, Inc., provide investment
advice to substantial private clients.
MFS is America's oldest mutual fund organization. MFS and its predecessor
organizations have a history of money management dating from 1924, and the
founding of the Fund as the first mutual fund in the United States. Net assets
under the management of the MFS organization were approximately $44.3 billion
on behalf of approximately 1.9 million investor accounts as of March 29, 1996.
MFS is a subsidiary of Sun Life of Canada (U.S.) which in turn is a subsidiary
of Sun Life Assurance Company of Canada ("Sun Life"). The Directors of MFS are
A. Keith Brodkin, Jeffrey L. Shames, Arnold D. Scott, John R. Gardner and John
D. McNeil. Mr. Brodkin is the Chairman, Mr. Shames is the President and Mr.
Scott is the Secretary and a Senior Executive Vice President of MFS. Messrs.
McNeil and Gardner are the Chairman and President, respectively, of Sun Life.
Sun Life, a mutual life insurance company, is one of the largest international
life insurance companies and has been operating in the United States since
1895, establishing a headquarters office here in 1973. The executive officers
of MFS report to the Chairman of Sun Life.
A. Keith Brodkin, the Chairman and a Director of MFS, is also the Chairman,
President and a Trustee of the Fund. W. Thomas London, Stephen E. Cavan, James
O. Yost and James R. Bordewick, Jr., all of whom are officers of MFS, are
officers of the Fund.
MFS has established a strategic alliance with Foreign & Colonial Management Ltd.
("Foreign & Colonial"). Foreign & Colonial is a subsidiary of two of the world's
oldest financial services institutions, the London-based Foreign & Colonial
Investment Trust PLC, which pioneered the idea of investment management in 1868,
and HYPO-BANK (Bayerische Hypotheken-und Wechsel-Bank AG), the oldest publicly
listed bank in Germany, founded in 1835. As part of this alliance, the portfolio
managers and investment analysts of MFS and Foreign & Colonial will share their
views on a variety of investment related issues, such as the economy, securities
markets, portfolio securities and their issuers, investment recommendations,
strategies and techniques, risk analysis, trading strategies and other portfolio
management matters. MFS will have access to the extensive international equity
investment expertise of Foreign & Colonial, and Foreign & Colonial will have
access to the extensive U.S. equity investment expertise of MFS. One or more MFS
investment analysts are expected to work for an extended period with Foreign &
Colonial's portfolio managers and investment analysts at their offices in
London. In return, one or more Foreign & Colonial employees are expected to work
in a similar manner at MFS' Boston offices.
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 or clients of
Foreign & Colonial. Some simultaneous transactions are inevitable when several
clients receive investment advice from MFS and Foreign & Colonial, 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.
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. ("Shareholder Servicing
Agent"), a wholly owned subsidiary of MFS, performs transfer agency, certain
dividend disbursing agency and other services for the Fund.
6. INFORMATION CONCERNING SHARES OF THE FUND
PURCHASES
Shares of the Fund may be purchased at the public offering price through any
securities dealer, certain banks and other financial institutions having selling
agreements with MFD. Dealers may also charge their customers fees relating to an
investment in the Fund.
The Fund offers two classes of shares, Class A and Class B shares, 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
NET AMOUNT AS A PERCENTAGE
AMOUNT OF PURCHASE OFFERING PRICE INVESTED OF OFFERING PRICE
- ------------------ -------------- ---------- -----------------
<S> <C> <C> <C>
Less than $50,000 .................... 5.75% 6.10% 5.00%
$50,000 but less than $100,000 ....... 4.75 4.99 4.00
$100,000 but less than $250,000 ...... 4.00 4.17 3.20
$250,000 but less than $500,000 ...... 2.95 3.04 2.25
$500,000 but less than $1,000,000 .... 2.20 2.25 1.70
$1,000,000 or more ................... None** None** See Below**
- ----------
*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.
</TABLE>
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.
PURCHASES SUBJECT TO A CDSC (but not subject to an initial sales charge). In
the following two circumstances, Class A shares are also 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; and
(ii) on investments in Class A shares by certain retirement plans subject to
the Employee Retirement Income Security Act of 1974, as amended, if the
sponsoring organization demonstrates to the satisfaction of MFD that either
(a) the employer has at least 25 employees or (b) the aggregate purchases by
the retirement plan of Class A shares of the MFS Funds will be in an amount
of at least $250,000 within a reasonable period of time, as determined by
MFD in its sole discretion.
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
TO DEALERS CUMULATIVE PURCHASE 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 made on or after
April 1, 1996, 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.
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.
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 Class B Distribution Plan (see
"Distribution Plans" 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).
See "Redemptions and Repurchases -- Contingent Deferred Sales Charge" for
further discussion of the CDSC.
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.
CONVERSION OF CLASS B SHARES. Class B shares of the Fund that remain
outstanding for approximately eight years will convert to Class A shares of the
Fund. Shares purchased through the reinvestment of distributions paid in respect
of Class B shares will be treated as Class B shares for purposes of the payment
of the distribution and service fees under the Distribution Plan applicable to
Class B shares. See "Distribution Plans" 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 bears 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.
GENERAL: The following information applies to purchases of both 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 at any time.
RIGHT TO REJECT PURCHASE ORDERS/MARKET TIMING. Purchases and exchanges
should be made for investment purposes only. The Fund and MFD each reserve the
right to reject any specific purchase order or to restrict purchases by a
particular purchaser (or group of related purchasers). The Fund or MFD may
reject or restrict any purchases by a particular purchaser or group, for
example, when such purchase is contrary to the best interests of the Fund's
other shareholders or otherwise would disrupt the management of the Fund.
MFD may enter into an agreement with shareholders who intend to make exchanges
among certain classes of shares of certain MFS Funds (as determined by MFD)
which follow a timing pattern, and with individuals or entities acting on such
shareholders' behalf (collectively, "market timers"), setting forth the terms,
procedures and restrictions with respect to such exchanges. In the absence of
such an agreement, it is the policy of the Fund and MFD to reject or restrict
purchases by market timers if (i) more than two exchange purchases are effected
in a timed account in the same calendar quarter or (ii) a purchase would result
in shares being held in timed accounts by market timers representing more than
(x) one percent of the Fund's net assets or (y) specified dollar amounts in the
case of certain MFS Funds which may include the Fund and which may change from
time to time. The Fund and MFD each reserve the right to request market timers
to redeem their shares at net asset value, less any applicable CDSC, if either
of these restrictions is violated.
DEALER CONCESSIONS. Dealers may receive different compensation with respect
to sales of Class A and Class B 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 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 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, payment for travel expenses, including lodging, incurred by
registered representatives 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 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.
RETIREMENT PLAN ACCOUNTS. Following the termination of any agreement between
a plan sponsor and the Shareholder Servicing Agent or its affiliates with
respect to the MFS FUNDamental 401(k) Plan or another similar recordkeeping
system made available by the Shareholder Servicing Agent, the Shareholder
Servicing Agent shall combine all plan participant accounts into a single
omnibus or pooled account for each Fund in which the plan invests.
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 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 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
New York Stock Exchange (generally, 4:00 p.m., Eastern time) (the "Exchange"),
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. Special procedures, privileges and restrictions with respect
to exchanges may apply to market timers who enter into an agreement with MFD, as
set forth in such agreement. See "Purchases -- General -- Right to Reject
Purchase Orders/Market Timing."
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 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. See "Tax Status" below.
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
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.
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
will not be responsible for any losses resulting from unauthorized telephone
transactions if it follows reasonable procedures designed to verify the identity
of the caller. The Shareholder Servicing Agent will request personal or other
information from the caller, and will normally also record calls. Shareholders
should verify the accuracy of confirmation statements immediately after their
receipt.
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 or Class B shares
("Direct Purchases") will be subject to a CDSC for a period of 12 months (in the
case of purchases of $1 million or more of Class A shares or purchases by
certain retirement plans of Class A shares) or six years (in the case of
purchases of Class B shares). Purchases of Class A shares made during a calendar
month, regardless of when during the month the investment occurred, will age one
month on the last day of the month and each subsequent month. Class B shares
purchased on or after January 1, 1993 will be aggregated on a calendar month
basis -- all transactions made during a calendar month, regardless of when
during the month they have occurred, will age one year at the close of business
on the last day of such month in the following calendar year and each subsequent
year. For Class B shares of the Fund purchased prior to January 1, 1993,
transactions will be aggregated on a calendar year basis -- all transactions
made during a calendar year, regardless of when during the year they have
occurred, will age one year at the close of business on December 31 of that year
and each subsequent year.
At the time of a redemption, the amount by which the value of a shareholder's
account for a particular class of shares represented by Direct Purchases exceeds
the sum of the six calendar year aggregations (12 months in the case of
purchases of $1 million or more of Class A shares 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 the redemption equal to the then-current value of Reinvested Shares is
not subject to the CDSC, but (iii) any amount of the redemption in excess of the
aggregate of the then-current value of Reinvested Shares and the Free Amount is
subject to a CDSC. The CDSC will first be applied against the amount of Direct
Purchases which will result in any such charge being imposed at the lowest
possible rate. The CDSC to be imposed upon redemptions of shares 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.
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
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. Subject to compliance with applicable regulations,
the Fund has reserved the right to pay the redemption or repurchase price of
shares of the Fund, either totally or partially, by a distribution in-kind of
securities (instead of cash) from the Fund's portfolio. The securities
distributed in such a distribution would be valued at the same amount as that
assigned to them in calculating the net asset value for the shares being sold.
If a shareholder received a distribution in-kind, the shareholder could incur
brokerage or transaction charges when converting the securities to cash.
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, 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 PLANS
The Trustees have adopted separate Distribution Plans for Class A and Class B
shares pursuant to Section 12(b) of the 1940 Act and Rule 12b-1 thereunder (the
"Distribution Plans"), after having concluded that there is a reasonable
likelihood that the Distribution Plans would benefit the Fund and its
shareholders.
In certain circumstances, the fees described below have not yet been imposed or
are being waived. These circumstances are described below under the heading
"Current Level of Distribution and Service Fees."
FEATURES COMMON TO EACH DISTRIBUTION PLAN: The Distribution Plans have certain
common features, as described below.
SERVICE FEES. Each 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 or Class B
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 each 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. Each 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 Plans, as does the use
by MFD of such distribution fees. Such amounts and uses are described below in
the discussion of the separate Distribution Plans. 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 performing services under its distribution agreement with the Fund.
OTHER COMMON FEATURES. Fees payable under each Distribution Plan are charged
to, and therefore reduce, income allocated to shares of the Designated Class.
The Distribution Plans have substantially identical provisions with respect to
their operating policies and their initial approval, renewal, amendment and
termination.
FEATURES UNIQUE TO EACH DISTRIBUTION PLAN: The Distribution Plans have certain
features that are unique to each class of shares, as described below.
CLASS A DISTRIBUTION PLAN. 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 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 Class A 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 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 Class A 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 DISTRIBUTION PLAN. 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 Class B 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).
CURRENT LEVEL OF DISTRIBUTION AND SERVICE FEES: The Fund's Class A and Class B
distribution and service fees for its current fiscal year are 0.315% and 1.00%
per annum, respectively. Payment of a portion of the 0.10% per annum Class A
distribution fee equal to 0.025% per annum will commence on such date as the
Trustees of the Trust may determine. The 0.25% per annum Class A service fee is
reduced to 0.15% per annum for shares purchased prior to January 2, 1991.
DISTRIBUTIONS
The Fund intends to pay shareholders substantially all of its net investment
income as dividends on a quarterly 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. In addition, the Fund may make one or more
distributions during the calendar year to its shareholders from any long-term
capital gains and may make one or more distributions during the calendar year to
its shareholders from short-term capital gains. Shareholders may elect to
receive dividends and capital gain distributions in either cash or additional
shares of the same class with respect to which a distribution is made. See "Tax
Status" and "Shareholder Services -- Distribution Options" below. Distributions
paid by the Fund with respect to Class A shares will generally be greater than
those paid with respect to Class B shares because expenses attributable to Class
B shares will generally be higher.
TAX STATUS
In order to minimize the taxes the Fund would otherwise be required to pay, the
Fund intends to qualify each year as a "regulated investment company" under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"), and
to make distributions to its shareholders in accordance with the timing
requirements imposed by the Code. It is expected that the Fund will not be
required to pay entity-level federal income or excise taxes, although
foreign-source income received by the Fund may be subject to foreign withholding
taxes.
Shareholders of the Fund normally will have to pay federal income taxes, and any
state or local taxes, on the dividends and capital gain distributions they
receive from the Fund, whether paid in cash or in additional shares. A portion
of the dividends received from the Fund (but none of the Fund's capital gains
distributions) may qualify for the dividends-received deduction for
corporations. Shortly after the end of each calendar year, each shareholder will
be sent a statement setting forth the federal income status of all dividends and
distributions for that year, including the portion taxable as ordinary income,
any portion taxable as long-term capital gains, any portion representing a
return of capital (which is generally free of current taxes but results in 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.
The Fund intends to withhold U.S. federal income tax payments at the rate of 30%
on 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.,
regardless of whether a lower rate may be permitted under an applicable treaty.
The Fund is also required in certain circumstances to apply backup withholding
at a 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. However,
backup withholding will not be applied to payments which 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 Fund's
assets attributable to the class and dividing the difference by the number of
shares of the class outstanding. Equity securities in the Fund's portfolio are
valued at their market value. For a discussion of the manner in which values of
these and other assets in the Fund's portfolio are determined, see 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 two classes of shares, entitled Class A and Class B Shares of
Beneficial Interest. The Trustees have fixed the par value at $0.33 1/3 per
share. The Fund has reserved the right to create and issue additional classes of
shares, in which case each class of shares of the Fund would participate equally
in the earnings, dividends and assets attributable to that class of shares of
the Fund. 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. Each class of shares of the Fund will vote separately on any
material increase in the fees under its Distribution Plan or on any other matter
that solely affects that class of shares, but will otherwise vote together with
all other classes of shares of the Fund on all other matters. The Fund does not
intend to hold annual meetings. The Fund's Declaration of Trust provides that a
Trustee may be removed from office in certain instances.
Each share of a class represents an equal proportionate interest in the Fund
with each other class share, subject to the liabilities of the particular class.
Shares have no pre-emptive or conversion rights (except as set forth in
"Purchases -- Conversion of Class B Shares"). Shares are fully paid and
non-assessable. Should the Fund be liquidated, shareholders of each class are
entitled to share pro rata in the net assets attributable to that class
available for distribution to shareholders. Shares will remain on deposit with
the Shareholder Servicing Agent and certificates will not be issued except in
connection with pledges and assignments and in certain other limited
circumstances.
The Declaration of Trust has no provision for annual meetings. New Trustees are
appointed by the remaining Trustees (not the shareholders) subject to the
written assent of more than 50% of the shares voting on each appointment.
Shareholders therefore have limited non-cumulative voting rights and holders of
more than 50% of the shares voting may accept or reject each appointment while
holders of less than 50% are not able to reject any appointment. Amendments to
the Declaration of Trust require written consent of the holders of a majority of
the shares. The 1940 Act confers additional voting rights on the shareholders.
PERFORMANCE INFORMATION
From time to time, the Fund will provide yield, current distribution rate and
total rate of return quotations for each class of shares and may also quote fund
rankings in the relevant fund category from various sources, such as the Lipper
Analytical Services, Inc. and Wiesenberger Investment Companies Service. All
performance quotations are based on historical performance and are not intended
to indicate future performance. Yield calculations are based on the annualized
net investment income per share allocated to each class of the Fund over a
30-day period stated as a percent of the maximum public offering price of that
class on the last day of that period. Yield calculations for Class B shares
assume no CDSC is paid. The current distribution rate for each class is
generally based upon the total amount of dividends per share paid by the Fund to
shareholders of that class during the past twelve months and is computed by
dividing the amount of such dividends by the maximum public offering price of
that class at the end of such period. Current distribution rate calculations for
Class B shares assume no CDSC is paid. The current distribution rate differs
from the yield calculation because it may include distributions to shareholders
from sources other than dividends and interest, such as premium income from
option writing, short-term capital gains, and return of invested capital, and is
calculated over a different period of time. Total rate of return quotations will
reflect the average annual percentage change over stated periods in the value of
an investment in a class of shares of the Fund made at the maximum public
offering price of the shares of that class with all distributions reinvested and
which, if quoted for periods of six years or less, will give effect to the
imposition of the CDSC assessed upon redemptions of the Fund's Class B shares.
Such total rate of return quotations may be accompanied by quotations which do
not reflect the reduction in value of the initial investment due to the sales
charge or the deduction of a CDSC, and which will thus be higher. Total rate of
return reflects all components of investment over a stated period of time and
current distribution rate reflects only the rate of distributions paid by the
Fund over a stated period of time. All performance quotations may from time to
time be used in advertisements, shareholder reports or other communications to
shareholders. For a discussion of the manner in which the Fund will calculate
its yield, current distribution rate and total rate of return, see the SAI. For
further information about the Fund's performance for the fiscal year ended
December 31, 1995, please read 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 holdings available to investors upon
request.
7. SHAREHOLDER SERVICES
Shareholders with questions concerning the shareholder services described below
or concerning other aspects of the Fund, should contact the Shareholder
Servicing Agent (see back cover for address and phone number).
ACCOUNT AND CONFIRMATION STATEMENTS -- Each shareholder will receive
confirmation statements showing the transaction activity in his account. At the
end of each calendar year, each shareholder will receive income tax information
regarding reportable dividends and capital gain distributions for that year (see
"Tax Status").
DISTRIBUTION OPTIONS -- The following options are available to all accounts
(except Systematic Withdrawal Plan accounts) and may be changed as often as
desired by notifying the Shareholder Servicing Agent:
-- Dividends and capital gain distributions reinvested in additional shares;
this option will be assigned if no other option is specified;
-- Dividends in cash; capital gain distributions reinvested in additional
shares;
-- Dividends and capital gain distributions in cash.
Reinvestments (net of any tax withholding) will be made in additional full and
fractional shares of the same class of shares at the net asset value in effect
at the close of business on the record date. Dividends and capital gains
distributions in amounts less than $10 will automatically be reinvested in
additional shares of the Fund. If a shareholder has elected to receive dividends
and/or capital gain distributions in cash and the postal or other delivery
service is unable to deliver checks to the shareholder's address of record, such
shareholder's distribution option will automatically be converted to having all
dividends and other distributions reinvested in additional shares. Any request
to change a distribution option must be received by the Shareholder Servicing
Agent by the record date for a dividend or distribution in order to be effective
for that dividend or distribution. No interest will accrue on amounts
represented by uncashed distribution or redemption checks.
INVESTMENT AND WITHDRAWAL PROGRAMS -- For the convenience of shareholders, the
Fund makes available the following programs designed to enable shareholders to
add to their investment in an account with the Fund or withdraw from it with a
minimum of paper work. The programs involve no extra charge to shareholders
(other than a sales charge in the case of certain Class A share purchases) and
may be changed or discontinued at any time by a shareholder or the Fund.
LETTER OF INTENT: If a shareholder (other than a group purchaser as
described in the 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 (a bank collective investment fund) within a 13-month period
(or 36-month period for purchases of $1 million or more), the shareholder may
obtain such shares at the same reduced sales charge as though the total quantity
were invested in one lump sum, subject to escrow agreements and the appointment
of an attorney for redemptions from the escrow amount if the intended purchases
are not completed, by completing the Letter of Intent section of the Account
Application.
RIGHT OF ACCUMULATION: A shareholder qualifies for cumulative quantity
discounts on purchases of Class A shares when his new investment, together with
the current offering price value of all holdings of all classes of shares of
that shareholder in the MFS Funds or MFS Fixed Fund (a bank collective
investment fund) reaches a discount level.
DISTRIBUTION INVESTMENT PROGRAM: Shares of a particular class of the Fund
may be sold at net asset value (and without any applicable CDSC) through the
automatic reinvestment of dividend and capital gain distributions from the same
class of any other MFS Fund. Furthermore, distributions made by the Fund may be
automatically invested at net asset value (and without any applicable CDSC) in
shares of the same class of another MFS Fund, if shares of such Fund are
available for sale.
SYSTEMATIC WITHDRAWAL PLAN: A shareholder 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 shares in any year pursuant to a SWP will
not be subject to a CDSC and are generally limited to 10% of the value of the
account at the time of the establishment of the SWP. The CDSC will not be waived
in the case of SWP redemptions of Class A shares which are subject to a CDSC.
DOLLAR COST AVERAGING PROGRAMS --
AUTOMATIC INVESTMENT PLAN: Cash investments of $50 or more may be made
through a shareholder's checking account twice monthly, monthly or quarterly.
Required forms are available from the Shareholder Servicing Agent or investment
dealers.
AUTOMATIC EXCHANGE PLAN: Shareholders having account balances of at least
$5,000 in any MFS Fund may exchange their shares for the same class of shares of
the other MFS Funds under the Automatic Exchange Plan. The Automatic Exchange
Plan provides for automatic monthly or quarterly 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. Under the Automatic Exchange
Plan, exchanges of at least $50 each may be made to up to four different funds.
A shareholder should consider the objectives and policies of a fund and review
its prospectus before electing to exchange money into such fund through the
Automatic Exchange Plan. No transaction fee is imposed in connection with
transfer transactions under the Automatic Exchange Plan. However, exchanges of
shares of MFS Money Market Fund, MFS Government Money Market Fund or Class A
shares of MFS Cash Reserve Fund will be subject to any applicable sales charge.
For federal and (generally) state income tax purposes, an exchange is treated as
a sale of the shares exchanged and, therefore, could result in a capital gain or
loss to the shareholder making the exchange. See the 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 -- 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 May 1, 1996, contains more detailed information about the
Fund, including information related to: (i) investment policies and
restrictions; (ii) Trustees, officers and investment adviser; (iii) portfolio
transactions and brokerage commissions; (iv) the Distribution Plans; and (v)
various services and privileges provided by the Fund for the benefit of its
shareholders, including additional information with respect to the exchange
privilege.
<PAGE>
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 CDSC for Class
A shares is waived (Section II), and the CDSC for Class B shares is waived
(Section III).
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 shares, as applicable, is
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 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 MFS, 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 and other financial
institution ("dealers") which have a sales agreement with MFD;
* 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 MFS Fund which issued the shares;
and
* Institutional Clients of MFS or MFS Asset Management, Inc.
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 ("IRA'S")
* 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 Plan participant;
* Loan from Plan (repayment of loans, however, will constitute new sales
for purposes of assessing sales charges);
* Financial hardship (as defined in Treasury Regulation Section 1.401
(k)-1(d)(2), as amended from time to time);
* Termination of employment of Plan participant (excluding, however, a
partial or other termination of the Plan);
* Tax-free return of excess Plan contributions;
* To the extent that redemption proceeds are used to pay expenses (or
certain participant expenses) of the 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 the Shareholder Servicing Agent; and
* Distributions from a 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 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 Plan's shares in all
MFS Funds (i.e., all the assets of the Plan invested in the MFS Funds
are withdrawn), unless immediately prior to the redemption, the
aggregate amount invested by the 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 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 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 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.
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 is
waived:
1. INVESTMENT OF REDEMPTION PROCEEDS FROM UNAFFILIATED MUTUAL FUNDS
* Shares acquired through the investment of redemption proceeds from
another open-end management investment company not distributed or
managed by MFD or its affiliates if: (i) the investment is made
through a dealer and appropriate documentation is submitted to MFD;
(ii) the redeemed shares were subject to an initial sales charge or
deferred sales charge (whether or not actually imposed); (iii) the
redemption occurred no more than 90 days prior to the purchase of
Class A shares; and (iv) the MFS Fund, MFD or its affiliates have not
agreed with such company or its affiliates, formally or informally, to
waive sales charges on Class A shares or provide any other incentive
with respect to such redemption and sale.
2. WRAP ACCOUNT INVESTMENTS
* Shares acquired by investments through certain dealers which have
entered into an agreement with MFD which includes a requirement that
such shares be sold for the sole benefit of clients participating in a
"wrap" account or a similar program under which such clients pay a fee
to such dealer.
3. INVESTMENT BY INSURANCE COMPANY SEPARATE ACCOUNTS
* Shares acquired by insurance company separate accounts.
4. RETIREMENT PLANS
ADMINISTRATIVE SERVICES ARRANGEMENTS
* Shares acquired by retirement plans 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.
SHARES REDEEMED ON ACCOUNT OF DISTRIBUTIONS MADE UNDER THE FOLLOWING
CIRCUMSTANCES:
IRA'S
* 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 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 Plan.
ESP PLANS AND SRO PLANS
* Distributions made on or after the Plan participant has attained the
age of 59 1/2 years old.
III. WAIVERS OF CLASS B 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 shares is waived:
1. SYSTEMATIC WITHDRAWAL PLAN
* Systematic Withdrawal Plan redemptions with respect to up to 10% per
year 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:
IRA'S, 401(A) PLANS, ESP PLANS AND SRO PLANS
* Distributions made on or after the IRA owner or the 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;
* Death or disability of a SAR-SEP Plan participant.
<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 TRUST
Prospectus
May 1, 1996
MASSACHUSETTS
INVESTORS TRUST
500 Boylston Street
Boston, MA 02116
MIT-1 5/96/362M 12/212
<PAGE>
[LOGO] MFS(R)
THE FIRST NAME IN MUTUAL FUNDS
MASSACHUSETTS STATEMENT OF
INVESTORS TRUST ADDITIONAL INFORMATION
(A member of the MFS Family of Funds(R)) May 1, 1996
- -------------------------------------------------------------------------------
Page
----
1. Definitions ...................................................... 2
2. Investment Objectives, Policies and Restrictions ................. 2
3. Management of the Fund ........................................... 9
Trustees ...................................................... 9
Officers ...................................................... 9
Investment Adviser ............................................ 10
Custodian ..................................................... 11
Shareholder Servicing Agent ................................... 11
Distributor ................................................... 11
4. Portfolio Transactions and Brokerage Commissions ................. 12
5. Shareholder Services ............................................. 13
Investment and Withdrawal Programs ............................ 13
Exchange Privilege ............................................ 14
Tax-Deferred Retirement Plans ................................. 15
6. Tax Status ....................................................... 15
7. Determination of Net Asset Value and Performance ................. 16
8. Distribution Plans ............................................... 19
9. Independent Auditors and Financial Statements .................... 19
Appendix A ....................................................... 21
MASSACHUSETTS INVESTORS TRUST
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 Prospectus, dated May
1, 1996. 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 last page 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 Trust, a
common law trust organized under
the laws of The Commonwealth of
Massachusetts.
"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
May 1, 1996, as amended or
supplemented from time to time.
2. INVESTMENT OBJECTIVES, POLICIES AND
RESTRICTIONS
INVESTMENT OBJECTIVES. The Fund's investment objectives are to provide
reasonable current income and long-term growth of capital and income. Any
investment involves risk and there can be no assurance that the Fund will
achieve its investment objectives.
INVESTMENT POLICIES. The Fund is believed to constitute a conservative medium
for that portion of an investor's capital which he wishes to have invested in
securities considered to be of high or improving investment quality. The term
"conservative medium" indicates that the Fund attempts to exercise prudence,
discretion and intelligence in the selection of investments with due regard
for both probable income and probable safety of capital. The words "high
investment quality" reflect the intention of the Fund to avoid the acquisition
of speculative securities or those of doubtful character even if immediate
prospects are tempting.
The assets of the Fund are normally invested in common stocks or securities
convertible into common stocks. However, the Fund may hold its assets in cash
or invest in commercial paper, repurchase agreements or other forms of debt
securities either to provide reserves for future purchases of common stock or
as a defensive measure in certain economic environments. 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, the amount of dividends the Fund pays to its shareholders
will vary in relation to the amount of dividends and interest the Fund
receives from its portfolio securities.
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") or members of the Federal Reserve System, recognized
primary U.S. Government securities dealers or institutions which the Adviser
has determined to be of comparable creditworthiness. The securities that the
Fund purchases and holds through its agent are U.S. Government securities, the
values of which are equal to or greater than the repurchase price agreed to be
paid by the seller. The repurchase price may be higher than the purchase
price, the difference being income to the Fund, or the purchase and repurchase
prices may be the same, with interest at a standard rate due to the Fund
together with the repurchase price on repurchase. In either case, the income
to the Fund is unrelated to the interest rate on the U.S. Government
securities.
The repurchase agreement provides that in the event the seller fails to pay
the price agreed upon on the agreed upon delivery date or upon demand, as the
case may be, the Fund will have the right to liquidate the securities. If at
the time the Fund is contractually entitled to exercise its right to liquidate
the securities, the seller is subject to a proceeding under the bankruptcy
laws or its assets are otherwise subject to a stay order, the Fund's exercise
of its right to liquidate the securities may be delayed and result in certain
losses and costs to the Fund. The Fund has adopted and follows procedures
which are intended to minimize the risks of repurchase agreements. For
example, the Fund only enters into repurchase agreements after the Adviser has
determined that the seller is creditworthy, and the Adviser monitors that
seller's creditworthiness on an ongoing basis. Moreover, under such
agreements, the value of the securities (which are marked to market every
business day) is required to be greater than the repurchase price, and the
Fund has the right to make margin calls at any time if the value of the
securities falls below the agreed upon margin.
FOREIGN SECURITIES: The Fund may invest up to 35% (and expects generally to
invest between 0% and 15%) of its total assets in foreign securities (not
including American Depositary Receipts) considered to be of high or improving
investment quality. As discussed in the Prospectus, investing in foreign
securities generally represents a greater degree of risk than investing in
domestic securities, due to possible exchange rate fluctuations, less publicly
available information, more volatile markets, less securities regulation, less
favorable tax provisions, war or expropriation. As a result of its investments
in foreign securities, the Fund may receive interest or dividend payments, or
the proceeds of the sale or redemption of such securities, in the foreign
currencies in which such securities are denominated. Under certain
circumstances, such as where the Adviser believes that the applicable exchange
rate is unfavorable at the time the currencies are received or the Adviser
anticipates, for any other reason, that the exchange rate will improve, the
Fund may hold such currencies for an indefinite period of time. While the
holding of currencies will permit the Fund to take advantage of favorable
movements in the applicable exchange rate, such strategy also exposes the Fund
to risk of loss if exchange rates move in a direction adverse to the Fund's
position. Such losses could reduce any profits or increase any losses
sustained by the Fund from the sale or redemption of securities and could
reduce the dollar value of interest or dividend payments received. The Fund
may also hold foreign currency in anticipation of purchasing foreign
securities.
AMERICAN DEPOSITARY RECEIPTS: American Depositary Receipts ("ADRs") 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 depositary
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.
"WHEN-ISSUED" SECURITIES: The Fund may purchase securities on a "when-issued"
or on a "forward delivery" basis. It is expected that, under normal
circumstances, the Fund will take delivery of such securities. When the Fund
commits to purchase a security on a "when-issued" or on a "forward delivery"
basis, it will set up procedures consistent with Securities and Exchange
Commission ("SEC") policies concerning such purchases. Since those policies
currently recommend that an amount of the Fund's assets equal to the amount of
the purchase be held aside or segregated to be used to pay for the commitment,
the Fund will always have cash, short-term money market instruments or high
grade debt obligations 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 basis 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.
It is not the Fund's policy to invest for the purpose of exercising control or
management or with a view to making short-term trading profits. This operating
policy is not fundamental and may be changed without shareholder approval.
OPTIONS ON SECURITIES: The Fund may write (sell) covered call and put options
on securities and purchase call and put options on securities. The Fund may
write options on securities for the purpose of increasing its return on such
securities and for hedging purposes.
A call option written by the Fund is covered if the Fund owns the security
underlying the call or has an absolute and immediate right to acquire such
security without additional cash consideration (or for additional cash
consideration held in a segregated account by its custodian) upon conversion
or exchange of other securities held in its portfolio. A call option is also
covered if a Fund holds a call on the same security and in the same principal
amount as the call written where the exercise price of the call held (a) is
equal to or less than the exercise price of the call written or (b) is greater
than the exercise price of the call written if the difference is maintained by
the Fund in cash or high grade government securities in a segregated account
with its custodian. A put option written by the Fund is covered if the Fund
maintains cash or high grade government securities with a value equal to the
exercise price in a segregated account with its custodian, or else holds a put
on the same security and in the same principal amount as the put written where
the exercise price of the put held (i) is equal to or greater than the
exercise price of the put written or (ii) is less than the exercise price of
the put written if the difference is maintained by the Fund in cash or high
grade government securities in a segregated account with its custodian. Put
and call options written by the Fund may also be covered in such other manner
as may be in accordance with the requirements of the exchange on which, or the
counterparty with which, the option is traded, and applicable laws and
regulations.
Effecting a closing transaction in the case of a written call option will
permit the Fund to write another call option on the underlying security with
either a different exercise price or expiration date or both, or in the case
of a written put option will permit the Fund to write another put option to
the extent that the exercise price thereof is secured by deposited cash or
short-term securities. Such transactions permit the Fund to generate
additional premium income, which will partially offset declines in the value
of portfolio securities or increases in the cost of securities to be acquired.
Also, effecting a closing transaction will permit the proceeds from the
concurrent sale of any securities subject to the option to be used for other
investments of the Fund, provided that another option on such security is not
written. If the Fund desires to sell a particular security from its portfolio
on which it has written a call option, it will effect a closing transaction in
connection with the option prior to or concurrent with the sale of the
security.
The Fund will realize a profit from a closing transaction if the premium paid
in connection with the closing of an option written by the Fund is less than
the premium received from writing the option, or if the premium received in
connection with the closing of an option purchased by the Fund is more than
the premium paid for the original purchase. Conversely, the Fund will suffer a
loss if the premium paid or received in connection with a closing transaction
is more or less, respectively, than the premium received or paid in
establishing the option position. Because increases in the market price of a
call option will generally reflect increases in the market price of the
underlying security, any loss resulting from the closing out of a call option
previously written by the Fund is likely to be offset in whole or in part by
appreciation of the underlying security owned by the Fund.
The Fund may write options in connection with buy-and-write transactions; that
is, the Fund may purchase a security and then write a call option against that
security. The exercise price of the call option the Fund determines to write
will depend upon the expected price movement of the underlying security. The
exercise price of a call option may be below ("in-the-money"), equal to ("at-
the-money") or above ("out-of-the-money") the current value of the underlying
security at the time the option is written. If the call options are exercised
in such transactions, the Fund's maximum gain will be the premium received by
it for writing the option, adjusted upwards or downwards by the difference
between the Fund's purchase price of the security and the exercise price, less
related transaction costs. If the options are not exercised and the price of
the underlying security declines, the amount of such decline will be offset in
part, or entirely, by the premium received.
The writing of covered put options is similar in terms of risk/return
characteristics to buy-and-write transactions. Put options could be used by
the Fund in the same market environments that call options would be used in
equivalent buy-and-write transactions.
The Fund may write combinations of put and call options on the same security,
a practice known as a "straddle." By writing a straddle, the Fund undertakes a
simultaneous obligation to sell and purchase the same security in the event
that one of the options is exercised. If the price of the security
subsequently rises sufficiently above the exercise price to cover the amount
of the premium and transaction costs, the call will likely be exercised and
the Fund will be required to sell the underlying security at a below market
price. This loss may be offset, however, in whole or in part, by the premiums
received on the writing of the two options. Conversely, if the price of the
security declines by a sufficient amount, the put will likely be exercised.
The writing of straddles will likely be effective, therefore, only where the
price of a security remains stable and neither the call nor the put is
exercised. In an instance where one of the options is exercised, the loss on
the purchase or sale of the underlying security may exceed the amount of the
premiums received.
By writing a call option, the Fund limits its opportunity to profit from any
increase in the market value of the underlying security above the exercise
price of the option. By writing a put option, the Fund assumes the risk that
it may be required to purchase the underlying security for an exercise price
above its then current market value, resulting in a capital loss unless the
security subsequently appreciates in value. The writing of options on
securities will be undertaken by the Fund for purposes in addition to hedging,
and could involve certain risks which are not present in the case of hedging
transactions. Moreover, even where options are written for hedging purposes,
such transactions will constitute only a partial hedge against declines in the
value of portfolio securities or against increases in the value of securities
to be acquired, up to the amount of the premium.
The Fund also may purchase put and call options on securities. Put options
would be purchased to hedge against a decline in the value of securities held
in the Fund's portfolio. If such a decline occurs, the put options will permit
the Fund to sell the underlying securities at the exercise price, or to close
out the options at a profit. By using put options in this way, the Fund will
reduce any profit it might otherwise have realized in the underlying security
by the amount of the premium paid for the put option and related transaction
costs. The Fund may purchase call options to hedge against an increase in the
price of securities that the Fund anticipates purchasing in the future. If
such an increase occurs, the call option will permit the Fund to purchase the
securities at the exercise price or to close out the option at a profit. The
premium paid for a call or put option plus any transaction costs will reduce
the benefit, if any, realized by the Fund upon exercise of the option, and,
unless the price of the underlying security rose or declined sufficiently, the
option may expire worthless to the Fund.
The staff of the SEC has taken the position that purchased over-the-counter
options and assets used to cover written over-the-counter options are illiquid
and, therefore, together with other illiquid securities, cannot exceed a
certain percentage of the Fund's assets (the "SEC illiquidity ceiling").
Although the Adviser disagrees with this position, the Adviser intends to
limit the Fund's writing of over-the-counter options in accordance with the
following procedure. Except as provided below, the Fund intends to write over-
the-counter options only with primary U.S. Government securities dealers
recognized by the Federal Reserve Bank of New York. Also, the contracts which
the Fund has in place with such primary dealers will provide that the Fund has
the absolute right to repurchase an option it writes at any time at a price
which represents the fair market value, as determined in good faith through
negotiation between the parties, but which in no event will exceed a price
determined pursuant to a formula in the contract. Although the specific
formula may vary between contracts with different primary dealers, the formula
will generally be based on a multiple of the premium received by the Fund for
writing the option, plus the amount, if any, of the option's intrinsic value
(i.e., the amount that the option is in-the-money). The formula may also
include a factor to account for the difference between the price of the
security and the strike price of the option if the option is written out-of-
money. The Fund will treat all or a part of the formula price as illiquid for
purposes of the SEC illiquidity ceiling. The Fund may also write over-the-
counter options with non-primary dealers, including foreign dealers, and will
treat the assets used to cover these options as illiquid for purposes of such
SEC illiquidity ceiling.
OPTIONS ON STOCK INDICES: The Fund may write (sell) covered call and put
options on stock indices and purchase call and put options on stock 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.
The Fund may cover call options on stock indices by owning securities whose
price changes, in the opinion of the Adviser, are expected to be similar to
those of the index, or by having an absolute and immediate right to acquire
such securities without additional cash consideration (or for additional cash
consideration held in a segregated account by its custodian) upon conversion
or exchange of other securities in its portfolio. Nevertheless, where the Fund
covers a call option on a stock index through ownership of securities, such
securities may not match the composition of the index and, in that event, the
Fund will not be fully covered and could be subject to risk of loss in the
event of adverse changes in the value of the index. A Fund may also cover call
options on stock indices by holding a call on the same index and in the same
principal amount as the call written where the exercise price of the call held
(a) is equal to or less than the exercise price of the call written or (b) is
greater than the exercise price of the call written if the difference is
maintained by the Fund in cash or high grade government securities in a
segregated account with its custodian. The Fund may cover put options on stock
indices by maintaining cash or high grade government securities with a value
equal to the exercise price in a segregated account with its custodian, or
else by holding a put on the same stock index and in the same principal amount
as the put written where the exercise price of the put held (a) is equal to or
greater than the exercise price of the put written or (b) is less than the
exercise price of the put written if the difference is maintained by the Fund
in cash or high grade government securities in a segregated account with its
custodian. Put and call options on stock indices written by the Fund may also
be covered in such other manner as may be in accordance with the rules of the
exchange on which, or the counterparty with which, the option is traded, and
applicable laws and regulations.
The Fund will receive a premium from writing a put or call option, which
increases the Fund's gross income in the event the option expires unexercised
or is closed out at a profit. If the value of an index on which the Fund has
written a call option falls or remains the same, the Fund will realize a
profit in the form of the premium received (less transaction costs) that could
offset all or a portion of any decline in the value of the securities it owns.
If the value of the index rises, however, the Fund will realize a loss in its
call option position, which will reduce the benefit of any unrealized
appreciation in the Fund's stock investments. By writing a put option, the
Fund assumes the risk of a decline in the index. To the extent that the price
changes of securities owned by a Fund correlate with changes in the value of
the index, writing covered put options on indices will increase the Fund's
losses in the event of a market decline, although such losses will be offset
in part by the premium received for writing the option.
The purchase of call options on stock indices may be used by the Fund to
attempt to reduce the risk of missing a broad market advance, or an advance in
an industry or market segment, at a time when the Fund holds uninvested cash
or short-term debt securities awaiting investment. When purchasing call
options for this purpose, the Fund will also bear the risk of losing all or a
portion of the premium paid, and related transaction costs, if the value of
the index does not rise. The purchase of call options on stock indices when
the Fund is substantially fully invested is a form of leverage, up to the
amount of the premium and related transaction costs, and involves risks of
loss and of increased volatility similar to those involved in purchasing calls
on securities the Fund owns.
The Fund also may purchase put options on stock indices to hedge its
investments against a decline in value. By purchasing a put option on a stock
index, the Fund will seek to offset a decline in the value of securities it
owns through appreciation of the put option. If the value of the Fund's
investments does not decline as anticipated, or if the value of the option
does not increase, the Fund's loss will be limited to the premium paid for the
option, plus related transaction costs. The success of this strategy will
largely depend on the accuracy of the correlation between the changes in value
of the index and the changes in value of the Fund's security holdings.
OPTIONS ON FOREIGN CURRENCIES: The Fund may purchase and write put and call
options on foreign currencies ("Options on Foreign Currencies") for the
purpose of protecting against declines in the dollar value of foreign
portfolio securities and against increases in the dollar cost of foreign
securities to be acquired. For example, a decline in the dollar value of a
foreign currency in which portfolio securities are denominated will reduce the
dollar value of such securities, even if their value in the foreign currency
remains constant. In order to protect against such diminutions in the value of
portfolio securities, the Fund may purchase put Options on the Foreign
Currency. If the value of the currency did decline, the Fund would have the
right to sell such currency for a fixed amount in dollars and would thereby
offset, in whole or in part, the adverse effect on its portfolio which
otherwise would have resulted.
Conversely, where a rise in the dollar value of a currency in which securities
to be acquired are denominated is projected, thereby increasing the cost of
such securities, the Fund may purchase call options thereon. The purchase of
such options could offset, at least partially, the effects of the adverse
movements in exchange rates. As in the case of other types of options,
however, the benefit to the Fund deriving from purchases of Options on Foreign
Currencies would be reduced by the amount of the premium and related
transaction costs. In addition, where currency exchange rates do not move in
the direction or to the extent anticipated, the Fund could sustain losses on
transactions in Options on Foreign Currencies which would require it to forego
a portion or all of the benefits of advantageous changes in such rates.
The Fund may write Options on Foreign Currencies for the same types of hedging
purposes. For example, where the Fund anticipates a decline in the dollar
value of foreign-denominated securities due to adverse fluctuations in
exchange rates it may, instead of purchasing a put option, write a call option
on the relevant currency. If the expected decline occurred, the option would
most likely not be exercised, and the diminution in value of portfolio
securities would be offset by the amount of the premium received less related
transaction costs. As in the case of other types of options, therefore, the
writing of Options on Foreign Currencies will constitute only a partial hedge.
FUTURES CONTRACTS: The Fund may enter into stock index and foreign currency
futures contracts ("Futures Contracts"). A Futures Contract is a bilateral
agreement providing for the purchase and sale of a specified type and amount
of a financial instrument, or foreign currency, or for the making and
acceptance of a cash settlement, at a stated time in the future for a fixed
price. By its terms, a Futures Contract provides for a specified settlement
date on which, in the case of the majority of foreign currency futures
contracts, the currency or the contract are delivered by the seller and paid
for by the purchaser, or on which, in the case of stock index futures
contracts and certain foreign currency futures contracts, the difference
between the price at which the contract was entered into and the contract's
closing value is settled between the purchaser and seller in cash. Futures
contracts differ from options in that they are bilateral agreements, with both
the purchaser and the seller equally obligated to complete the transaction.
Futures Contracts call for settlement only on the expiration date and cannot
be "exercised" at any other time during their term.
The purchase or sale of a Futures Contract differs from the purchase or sale
of a security or the purchase of an option in that no purchase price is paid
or received. Instead, an amount of cash or cash equivalents, which varies but
may be as low as 5% or less of the value of the contract, must be deposited
with the broker as "initial margin." Subsequent payments to and from the
broker, referred to as "variation margin," are made on a daily basis as the
value of the index or instrument underlying the Futures Contract fluctuates,
making positions in the Futures Contract more or less valuable -- a process
known as "marking to the market".
Purchases or sales of stock index futures contracts may be used to attempt to
protect a Fund's current or intended stock investments from broad fluctuations
in stock prices. For example, a Fund may sell stock index futures contracts in
anticipation of or during a market decline to attempt to offset the decrease
in market value of the Fund's securities portfolio that might otherwise
result. If such decline occurs, the loss in value of portfolio securities may
be offset, in whole or part, by gains on the futures position. When a Fund is
not fully invested in the securities market and anticipates a significant
market advance, it may purchase stock index futures contracts in order to gain
rapid market exposure that may, in part or entirely, offset increases in the
cost of securities that the Fund intends to purchase. As such purchases are
made, the corresponding positions in stock index futures contracts will be
closed out. In a substantial majority of these transactions, the Fund will
purchase such securities upon termination of the futures position, but under
unusual market conditions, a long futures position may be terminated without a
related purchase of securities. Stock index futures may also be used for non-
hedging purposes, subject to applicable law.
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, and for
non-hedging purposes, subject to applicable law. 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.
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 constitutes 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 constitutes a
partial hedge against increasing prices of the securities or other instruments
required to be delivered under the terms of the Futures Contract. If the
futures price at expiration of the option is higher than the exercise price,
the Fund will retain the full amount of the option premium, less related
transaction costs, which provides a partial hedge against any increase in the
price of securities which the Fund intends to purchase. If a put or call
option the Fund has written is exercised, the Fund will incur a loss which
will be reduced by the amount of the premium it receives. Depending on the
degree of correlation between changes in the value of its portfolio securities
and changes in the value of its futures positions, the Fund's losses from
existing Options on Futures Contracts may to some extent be reduced or
increased by changes in the value of portfolio securities.
The Fund may cover the writing of call Options on Futures Contracts (a)
through purchases of the underlying Futures Contract, (b) through ownership of
the instrument, or instruments included in the index, underlying the Futures
Contract, or (c) through the holding of a call on the same Futures Contract
and in the same principal amount as the call written where the exercise price
of the call held (i) is equal to or less than the exercise price of the call
written or (ii) is greater than the exercise price of the call written if the
difference is maintained by the Fund in cash and high grade government
securities in a segregated account with its custodian. The Fund may cover the
writing of put Options on Futures Contracts (a) through sales of the
underlying Futures Contract, (b) through segregation of cash or cash
equivalents in an amount equal to the value of the security or index
underlying the Futures Contract, or (c) through the holding of a put on the
same Futures Contract and in the same principal amount as the put written
where the exercise price of the put held (i) is equal to or greater than the
exercise price of the put written or (ii) is less than the exercise price of
the put written if the difference is maintained by the Fund in cash or high
grade government securities in a segregated account with its custodian. Put
and Call Options on Futures Contracts written by the Fund may also be covered
in such other manner as may be in accordance with the rules of the exchange on
which, or the counterparty with which, the option is traded, and applicable
laws and regulations. Upon the exercise of a call Option on a Futures Contract
written by the Fund, the Fund will be required to sell the underlying Futures
Contract which, if the Fund has covered its obligation through the purchase of
such Contract, will serve to liquidate its futures position. Similarly, where
a put Option on a Futures Contract written by the Fund is exercised, the Fund
will be required to purchase the underlying Futures Contract which, if the
Fund has covered its obligation through the sale of such Contract, will close
out its futures position.
The Fund may purchase Options on Futures Contracts for hedging purposes as an
alternative to purchasing or selling the underlying Futures Contracts. For
example, where a decrease in the value of portfolio securities is anticipated
as a result of a projected market-wide decline or changes in interest or
exchange rates, the Fund could, in lieu of selling Futures Contracts, purchase
put options thereon. In the event that such decrease occurs, it may be offset,
in whole or part, by a profit on the option. Conversely, where it is projected
that the value of securities to be acquired by the Fund will increase prior to
acquisition, due to a market advance or changes in interest or exchange rates,
the Fund could purchase call Options on Futures Contracts, rather than
purchasing the underlying Futures Contracts. The Fund may also use Options on
Futures Contracts for non-hedging purposes subject to applicable law.
FORWARD CONTRACTS: The Fund may enter into forward foreign currency exchange
contracts for the purchase or sale of a specific currency at a future date at
a price set at the time of the contract (a "Forward Contract"). The Fund may
enter into Forward Contracts for hedging purposes as well as for non-hedging
purposes. The Fund may also enter into Forward Contracts for "cross-hedging"
as noted in the Prospectus. Transactions in Forward Contracts entered into for
hedging purposes will include forward purchases or sales of foreign currencies
for the purpose of protecting the dollar value of securities denominated in a
foreign currency or protecting the dollar equivalent of interest or dividends
to be paid on such securities. By entering into such transactions, however,
the Fund may be required to forego the benefits of advantageous changes in
exchange rates. The Fund may also enter into transactions in Forward Contracts
for other than hedging purposes which presents greater profit potential but
also involves increased risk. For example, if the Adviser believes that the
value of a particular foreign currency will increase or decrease relative to
the value of the U.S. dollar, the Fund may purchase or sell such currency,
respectively, through a Forward Contract. If the expected changes in the value
of the currency occur, the Fund will realize profits which will increase its
gross income. Where exchange rates do not move in the direction or to the
extent anticipated, however, the Fund may sustain losses which will reduce its
gross income. Such transactions, therefore, could be considered speculative.
The Fund has established procedures consistent with the statements by the SEC
and its Staff concerning the use of Forward Contracts by registered investment
companies. Since that policy currently recommends that an amount of the Fund's
assets equal to the amount of the commitment be held aside or segregated for
"Cover" to be used to pay for the commitment, the Fund will always have cash,
cash equivalents or high quality debt securities available sufficient to cover
any commitments under contracts to purchase or sell foreign currencies or to
limit any potential risk. The segregated account will be marked to market on a
daily basis. While these contracts are not presently requlated by the
Commodity Futures Trading Commission (the "CFTC"), the CFTC may in the future
assert authority to regulate Forward Contracts. In such event, the Fund's
ability to utilize Forward Contracts in the manner set forth above may be
restricted.
The Fund has established procedures consistent with statements by the SEC and
its staff regarding the use of Forward Contracts by registered investment
companies, which require the use of segregated assets or "cover" in connection
with the purchase and sale of such contracts. In those instances in which the
Fund satisfies this requirement through segregation of assets, it will
maintain, in a segregated account, cash, short-term money market instruments
or high grade debt securities, which will be marked to market on a daily
basis, in an amount equal to the value of its commitments under Forward
Contracts entered into by the Fund. Alternatively, the Fund may "cover" its
obligations under such contracts through the ownership of the amount of
foreign currency required to be delivered under a Forward Contract, in the
case of a Forward Contract entered into by the Fund to sell such currency, or
through the purchase of a call option, or a call option on a Futures Contract,
on the underlying currency, provided that, if the strike price of the option
is greater than the price established under the Forward Contract, the Fund
will segregate cash, short-term money market instruments or high grade debt
securities with a value equal to the difference between the strike price of
the option and the price of the Forward Contract. The Fund may cover its
obligations under a Forward Contract to purchase a foreign currency by
purchasing a put option, or a put option on a Futures Contract, on the
underlying currency, provided that, if the strike price of the option is less
than the price established under the Forward Contract, the Fund will segregate
cash, short-term money market instruments or high grade debt securities with a
value equal to the difference between the strike price of the option and the
price of the Forward Contract. The Fund may also cover Forward Contracts in
such other manner as may be in accordance with the requirements of the counter
party to the contract and applicable laws and regulations.
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 indices and
Options on Futures Contracts, the Fund is subject to the risk of market
movements between the time that the option is exercised and the time of
performance thereunder. In writing a covered call option on a security, index
or Futures Contract, the Fund also incurs the risk that changes in the value
of the instruments used to cover the position will not correlate closely with
changes in the value of the option or underlying index or instrument.
The Fund will invest in a hedging instrument only if, in the judgment of its
Adviser, there would be expected to be a sufficient degree of correlation
between movements in the value of the instrument and movements in the value of
the relevant portion of the Fund's portfolio for such hedge to be effective.
There can be no assurance that the Adviser's judgment will be accurate.
It should also be noted that the Fund may purchase and sell options, Futures
Contracts, Options on Future Contracts, Forward Contracts and Options on
Foreign Currencies not only for hedging purposes, but for the purpose of
increasing its return on portfolio securities subject to applicable law. As a
result, in the event of adverse market movements, the Fund might be subject to
losses, which would not be offset by increases in the value of portfolio
securities or declines in the cost of securities to be acquired. In addition,
the method of covering an option employed by the Fund may not fully protect it
against risk of loss and, in any event, the Fund could suffer losses on the
option position which might not be offset by corresponding portfolio gains.
With respect to the writing of straddles on securities, the Fund incurs the
risk that the price of the underlying security will not remain stable, that
one of the options written will be exercised and that the resulting loss will
not be offset by the amount of the premiums received.
POTENTIAL LACK OF A LIQUID SECONDARY MARKET -- Prior to exercise or
expiration, a futures or option position can only be terminated by entering
into a closing purchase or sale transaction. This requires a secondary market
for such instruments on the exchange on which the initial transaction was
entered into. While the Fund will enter into options or futures positions only
if there appears to be a liquid secondary market therefor, there can be no
assurance that such a market will exist for any particular contracts at any
specific time. In that event, it may not be possible to close out a position
held by the Fund, and the Fund could be required to purchase or sell the
instrument underlying an option, make or receive a cash settlement or meet
ongoing variation margin requirements. Under such circumstances, if the Fund
had insufficient cash available to meet margin requirements, it might be
necessary to liquidate portfolio securities at a time when it would be
disadvantageous to do so. The inability to close out options and futures
positions, therefore, could have an adverse impact on the Fund's ability
effectively to hedge its portfolios, and could result in trading losses. The
liquidity of a secondary market in a Futures Contract or options thereon may
also be adversely affected by "daily price fluctuation limits," established by
exchanges, which limit the amount of fluctuation in the price of a contract
during a single trading day. The trading of Futures Contracts and options is
also subject to the risk of trading halts, suspensions, exchange or clearing
house equipment failures, government intervention, insolvency of a brokerage
firm or clearing house or other disruptions of normal trading activity, which
could at times make it difficult or impossible to liquidate existing positions
or to recover excess variation margin payments.
MARGIN -- Because of low initial margin deposits made upon the opening of a
futures position and the writing of an option, such transactions involve
substantial leverage. As a result, relatively small movements in the price of
the contract can result in substantial unrealized gains or losses. Where the
Fund engages in the purchase or sale of such instruments for hedging purposes,
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 uses such instruments for other than
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, however, such transactions are subject to
the risk of governmental actions affecting trading in or the prices of
currencies underlying such contracts, which could restrict or eliminate
trading and could have a substantial adverse effect on the value of positions
held by the Fund. In addition, the value of such positions could be adversely
affected by a number of other complex political and economic factors
applicable to the countries issuing the underlying currencies. Further, unlike
trading in most other types of instruments, there is no systematic reporting
of last sale information with respect to the foreign currencies underlying
contracts thereon. As a result, the available information on which trading
systems will be based may not be as complete as the comparable data on which
the Fund makes investment and trading decisions in connection with other
transactions. Moreover, because the foreign currency market is a global,
twenty-four hour market, events could occur on that market which would not be
reflected in the forward markets until the following day, thereby preventing
the Fund from responding to such events in a timely manner. Settlements of
exercises of Forward Contracts generally must occur within the country issuing
the underlying currency, which in turn requires traders to accept or make
delivery of such currencies in conformity with any United States or foreign
restrictions and regulations regarding the maintenance of foreign banking
relationships, fees, taxes or other charges.
Forward Contracts, and over-the-counter options on securities, are not traded
on exchanges regulated by the CFTC or the SEC, but through financial
institutions acting as market-makers. In an over-the-counter trading
environment, many of the protections afforded to exchange participants will
not be available. In addition, over-the-counter transactions can only be
entered into with a financial institution willing to take the opposite side,
as principal, of the Fund's position unless the institution acts as broker and
is able to find another counterparty willing to enter into the transaction
with the Fund. Where no such counterparty is available, it will not be
possible to enter into a desired transaction. There also may be no liquid
secondary market in the trading of over-the-counter contracts, and the Fund
could be required to retain options purchased or written, or Forward Contracts
entered into, until exercise, expiration or maturity. This in turn could limit
the Fund's ability to profit from open positions or to reduce losses
experienced, and could result in greater losses. Further, over-the-counter
transactions are not subject to the performance guarantee of an exchange
clearing house, and the Fund will therefore be subject to the risk of default
by, or the bankruptcy of, the financial institution serving as its
counterparty.
While Forward Contracts are not presently subject to regulation by the CFTC,
the CFTC may in the future assert or be granted authority to regulate such
instruments. In such event, the Fund's ability to utilize Forward Contracts in
the manner set forth above could be restricted.
RESTRICTIONS ON THE USE OF OPTIONS AND FUTURES: In order to assure that the
Fund will not be deemed to be a "commodity pool" for purposes of the Commodity
Exchange Act, regulations of the CFTC require that the Fund enter into
transactions in Futures Contracts and Options on Futures Contracts only (i)
for bona fide hedging purposes (as defined in CFTC regulations), or (ii) for
non-hedging purposes, provided that the aggregate initial margin and premiums
on such non-hedging positions does not exceed 5% of the liquidation value of
the Fund's assets. In addition, the Fund must comply with the requirements of
various state securities laws in connection with such transactions.
The Fund has adopted the additional restriction that it will not enter into a
Futures Contract if, immediately thereafter, the value of securities and other
obligations underlying all such Futures Contracts would exceed 50% of the
value of the Fund's total assets. Moreover, the Fund will not purchase put and
call options if, as a result, more than 5% of its total assets would be
invested in such options.
When the Fund purchases a Futures Contract, an amount of cash and cash
equivalents will be deposited in a segregated account with the Fund's
custodian so that the amount so segregated will at all times equal the value
of the Futures Contract, thereby ensuring that the leveraging effect of such
Futures Contract is minimized.
INVESTMENT RESTRICTIONS: The Fund has adopted the following restrictions which
cannot be changed without the approval of the holders of a majority of the
Fund's shares (which, as used in this 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 the 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, except temporarily in case of a merger, purchase securities
of any issuer if such purchase would cause more than 5% of its total assets
(taken at market value) to be invested in the securities of such issuer
(exclusive of U.S. or Canadian Government obligations), or if such purchase
would cause more than 10% of any class of securities of an issuer to be held
by the Fund. The Fund may not invest more than 5% of its assets in the
securities of an issuer which, including predecessors, has not been in
continuous operation for at least three years. The Fund may not purchase
securities issued by investment companies except in the open market or in
connection with a plan of consolidation or merger, nor may the Fund purchase
or retain securities of a company if one or more of its Trustees and officers
own 1/2 of 1% each and such persons collectively own more than 5% of that
company's securities. The Fund may borrow money up to 10% of its gross assets
(taken at cost) or its net assets (taken at market value), whichever is less,
but only temporarily for extraordinary or emergency purposes and subject to a
300% asset coverage requirement and may pledge up to 15% of its gross assets
(taken at cost) (for the purpose of this restriction collateral arrangements
with respect to Options on Securities, Stock Indexes and Foreign Currencies,
Future Contracts, Options on Future Contracts and Forward Contracts, and
payments of initial and variation margin in connection therewith are not
considered a pledge of assets). The Fund has reserved freedom of action to
underwrite securities in limited cases, but has not done so since 1940, and
the amount of any one underwriting commitment may not exceed 5% of its net
assets. It is not the Fund's policy to concentrate more than 25% of its assets
in any one industry or to purchase or sell real estate, commodities or
commodity contracts except for Options on Securities, Stock Indexes and
Foreign Currencies, Future Contracts, Options on Future Contracts and Forward
Contracts. The Fund may not 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 the Fund's 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.
As a matter of non-fundamental policy, the Fund may not invest more than 5% of
the value of the Fund's net assets, valued at the lower of cost or market, in
warrants. Included in such amount, but not to exceed 2% of the Fund's net
assets, may be warrants which are not listed on the New York or American Stock
Exchange. Warrants acquired by the Fund in units or attached to securities may
be deemed to be without value. The Fund also may not purchase or sell
interests in oil, gas or mineral leases in the ordinary course of the business
of the Fund (the Fund reserves the freedom of action to hold and sell real
estate acquired as a result of the ownership of securities). The Fund also may
not sell any security which it 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.
These investment restrictions are adhered to at the time of purchase or
utilization of assets; a subsequent change in circumstances will not be
considered to result in a violation of policy.
3. MANAGEMENT OF THE FUND
The Fund's Board of Trustees provides broad supervision over the affairs of
the Fund. The Adviser is responsible for the management of the Fund's assets
and the officers of the Fund are responsible for its operations. The Trustees
and officers are listed below, together with their principal occupations
during the past five years. (Their titles may have varied during that period.)
TRUSTEES
A. KEITH BRODKIN,* Chairman and President
Massachusetts Financial Services Company, Chairman and Director
RICHARD B. BAILEY*
Private investor; Massachusetts Financial Services Company, former Chairman
(prior to September 30, 1991); Cambridge Bancorp, Director; Cambridge Trust
Company, Director
PETER G. HARWOOD
Private Investor
Address: 211 Lindsay Pond Road, Concord, Massachusetts
J. ATWOOD IVES
Eastern Enterprises (diversified holding company), Chairman and Chief
Executive Officer (since December 1991); General Cinema Corporation, Vice
Chairman and Chief Financial Officer (prior to December 1991); The Neiman
Marcus Group, Inc., Vice Chairman and Chief Financial Officer (prior to
February 1992)
Address: 9 Riverside Road, Weston, Massachusetts
LAWRENCE T. PERERA
Hemenway & Barnes (attorneys), Partner
Address: 60 State Street, Boston, Massachusetts
WILLIAM J. POORVU
Harvard University Graduate School of Business Administration, Adjunct
Professor; 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, Massa-
chusetts
CHARLES W. SCHMIDT
Private investor; OHM Corporation, Director; The Boston Company, Director;
Boston Safe Deposit and Trust Company, Director; Mohawk Paper Company,
Director
Address: 30 Colpitts Road, Weston, Massachusetts
ARNOLD D. SCOTT*
Massachusetts Financial Services Company, Senior Executive Vice President and
Secretary
JEFFREY L. SHAMES*
Massachusetts Financial Services Company, President
ELAINE R. SMITH
Independent Consultant; Brigham and Women's Hospital, Executive Vice President
and Chief Operating Officer (prior to September 1992)
Address: Weston, Massachusetts
DAVID B. STONE
North American Management Corp. (investment adviser), Chairman; Eastern
Enterprises, Director
Address: 10 Post Office Square, Suite 300, Boston, Massachusetts
OFFICERS
W. THOMAS LONDON,* Treasurer
Massachusetts Financial Services Company, Senior Vice President
STEPHEN E. CAVAN,* Secretary and Clerk
Massachusetts Financial Services Company, Senior Vice President, General
Counsel and Assistant Secretary
JAMES R. BORDEWICK, JR.,* Assistant Secretary
Massachusetts Financial Services Company, Vice President and Associate General
Counsel
JAMES O. YOST,* Assistant Treasurer
Massachusetts Financial Services Company, Vice President
- ----------
*"Interested persons" (as defined in the Investment Company Act of 1940, as
amended (the "1940 Act")) of the Adviser, whose address is 500 Boylston
Street, Boston, Massachusetts 02116.
Each Trustee and officer hold comparable positions with certain MFS affiliates
or with certain other funds of which MFS or a subsidiary of MFS is the
investment adviser or distributor. Mr. Brodkin, the Chairman of MFD, 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.) ("Sun Life of Canada (U.S.)"),
the corporate parent of MFS.
The Fund pays the compensation of non-interested Trustees and Mr. Bailey (who
currently receive a retainer of $4,500 per year, $175 per committee meeting
and $200 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 5 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. Brodkin, Scott and Shames. The Fund will accrue compensation expenses
each year to cover current year's service and amortize past service cost.
Set forth in Appendix A hereto is certain information concerning cash
compensation paid to the Trustees and benefits accrued, and estimated benefits
payable, under the retirement plan.
As of April 1, 1996, all Trustees and officers as a group owned less than 1%
of the outstanding shares of the Fund.
The Declaration of Trust provides that the Fund will indemnify its officers
and Trustees 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 liability 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 reasonable determination by
disinterested Trustees or in a written opinion of independent counsel based
upon a review of readily available facts, that such officers or Trustees have
not engaged in willful misfeasance, bad faith, gross negligence or reckless
disregard of their duties.
INVESTMENT ADVISER
MFS and its predecessor organizations have a history of money management
dating from 1924. MFS is a subsidiary of Sun Life of Canada (U.S.) which in
turn is a wholly owned subsidiary of Sun Life Assurance Company of Canada
("Sun Life").
The Adviser manages the Fund pursuant to an Investment Advisory Agreement,
dated May 20, 1982, as amended (the "Advisory Agreement"). The Adviser
provides the Fund with overall investment advisory and administrative
services, as well as general office facilities. Subject to such policies as
the Trustees may determine, the Adviser makes investment decisions for the
Fund. For these services and facilities, the Adviser receives a management fee
computed and paid monthly on the basis of a formula based upon a percentage of
the Fund's average daily net assets plus a percentage of its gross income
other than gains from the sale of securities, in each case on an annualized
basis for the Fund's then-current fiscal year. The applicable percentages are
reduced as assets and income reach the following levels:
ANNUAL RATE OF MANAGEMENT FEE ANNUAL RATE OF MANAGEMENT FEE
BASED ON AVERAGE DAILY NET ASSETS BASED ON GROSS INCOME
- ------------------------------------ --------------------------------
0.30% of the first $200 million 6.67% of the first $6 million
0.24% of the next $300 million 5.33% of the next $9 million
0.12% of average daily net assets in 2.67% of gross income in excess
excess of $500 million of $15 million
Under the Advisory Agreement, MFS received management fees of $4,973,977,
$4,385,702 and $4,680,789 for fiscal years ended December 31, 1995, 1994 and
1993, respectively. In order to comply with the expense limitations of certain
state securities commissions the Adviser will reduce its management fee or
otherwise reimburse the Fund for any expenses, exclusive of interest, taxes
and brokerage commissions, incurred by the Fund in any fiscal year to the
extent such expenses exceed the most restrictive of such state expense
limitations. The Adviser will make appropriate adjustments to such
reimbursements in response to any amendment or rescission of the various state
requirements.
The Advisory Agreement provides that the compensation of the Adviser will be
reduced by an annual sum representing the Fund's share of the fair value of
the use of office furniture, furnishings and equipment purchased over the
years with funds furnished by the Fund and Massachusetts Investors Growth
Stock Fund as part of shared expenses. The total annual use value of this
property for the period ended December 31, 1995 has been determined pursuant
to a formula devised by an independent supplier to be $100,887, which amount
was transferred to the Fund by the Adviser. This determination has been
approved by the Trustees who are not affiliated with the Adviser. This amount
and amounts so determined and approved in subsequent years will be credited
24% to Massachusetts Investors Growth Stock Fund and 76% to the Fund, being
the average of their proportionate contributions to shared expenses over the
ten-year period ended December 31, 1968.
The Fund pays all of its expenses (other than those assumed by MFS or MFD),
including: Trustees 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 shares of the Fund;
and expenses of shareholder meetings. Expenses relating to the issuance,
registration and qualification of shares of the Fund and the preparation,
printing and mailing of prospectuses 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. For a list of the Fund's
expenses, including the compensation paid to the Trustees who are not officers
of MFS, during the Fund's fiscal year ended December 31, 1995, see "Statement
of Operations" in the Fund's Annual Report to shareholders incorporated by
reference into this SAI. 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 its
portfolio transactions, and, in general, administering its affairs.
The Advisory Agreement will remain in effect until August 1, 1996, and will
continue in effect thereafter only if such continuance is specifically
approved at least annually by the Board of Trustees or by vote of a majority
of the Fund's shares (as defined in "Investment Restrictions") and, in either
case, by a majority of the Trustees who are not parties to the Advisory
Agreement or interested persons of any such party. The Advisory Agreement
terminates automatically if it is assigned and may be terminated without
penalty by vote of a majority of the Fund's shares (as defined in "Investment
Restrictions") or by either party on not more than 60 days' nor less than 30
days' written notice. The Advisory Agreement further provides that MFS may
render services to others and that neither the Adviser nor its personnel shall
be liable for any error of judgment or mistake of law or for any loss arising
out of any investment or for any act or omission in the execution and
management of the Fund, except for willful misfeasance, bad faith or gross
negligence in the performance of its or their duties or by reason of reckless
disregard of its or their obligations and duties under the Advisory Agreement.
CUSTODIAN
State Street Bank and Trust Company (the "Custodian") is the custodian of the
Fund's assets. The Custodian's responsibilities include safekeeping and
controlling the Fund's cash and securities, handling the receipt and delivery
of securities, determining income and collecting interest and dividends on the
Fund's investments, maintaining books of original entry for portfolio and fund
accounting and other required books and accounts, and calculating the daily
net asset value of each class of shares of the Fund. The Custodian does not
determine the investment policies of the Fund or decide which securities the
Fund will buy or sell. The Fund may, however, invest in securities of the
Custodian and may deal with the Custodian as principal in securities
transactions. The Custodian has contracted with the Adviser for the Adviser to
perform certain accounting functions related to options transactions for which
the Adviser receives remuneration on a cost basis.
SHAREHOLDER SERVICING AGENT
MFS Service Center, Inc. (the "Shareholder Servicing Agent"), a wholly owned
subsidiary of MFS, is the Fund's shareholder servicing agent, pursuant to a
Shareholder Servicing Agent 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 each class of shares at an effective annual
rate of up to 0.15% and up to 0.22% of assets attributable to Class A and
Class B shares, respectively. State Street Bank and Trust Company, the
dividend and distribution disbursing agent of the Fund, has contracted with
the Shareholder Servicing Agent to administer and perform certain dividend and
distribution disbursing functions for the Fund.
DISTRIBUTOR
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 Class A 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 Rights 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" in this SAI). 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 or 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 distributor 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 retains approximately 3/4 of 1% of the
public offering price. In addition, MFD, on behalf of the Fund, pays
commissions to dealers who initiate and are responsible for purchases of $1
million or more as described in the Prospectus.
CLASS B SHARES: MFD acts as agent in selling Class B shares of the Fund to
dealers. The public offering price of Class B shares is their net asset value
next computed after the sale (see "Purchases" in the Prospectus).
GENERAL: 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 banks 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 December 31, 1995, MFD received sales
charges of $388,820 and dealers received sales charges of $2,937,684 (as their
concession on gross sales charges of $3,326,504) for selling Class A shares of
the Fund; the Fund received $183,211,268 representing the aggregate net asset
value of such shares. During the Fund's fiscal year ended December 31, 1994,
MFD received sales charges of $257,995 and dealers received sales charges of
$2,389,049 (as their concession on gross sales charges of $2,647,044) for
selling Class A shares of the Fund; the Fund received $125,304,888,
representing the aggregate net asset value of such shares. During the Fund's
fiscal year ended December 31, 1993, MFD received sales charges of $457,402
and dealers received sales charges of $2,786,589 (as their concession on gross
sales charges of $3,243,991) for selling Class A shares of the Fund; the Fund
received $144,677,079, representing the aggregate net asset value of such
shares.
During the Fund's fiscal years ended December 31, 1995 and 1994 the CDSC
imposed on redemption of Class A shares was $18,908 and $2,552.
During the fiscal years ended December 31, 1995 and 1994 and the period from
September 7, 1993 through December 31, 1993, the CDSC on redemption of Class B
shares was $157,607, $59,341 and $546.
The Distribution Agreement will remain in effect until August 1, 1996, and
will continue in effect thereafter only if such continuance is specifically
approved at least annually by the Board of Trustess 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.
4. PORTFOLIO TRANSACTIONS AND BROKERAGE
COMMISSIONS
Specific decisions to purchase or sell securities for the Fund are made by a
portfolio manager who is an employee of the Adviser and who is appointed and
supervised by its senior officers. Changes in the Fund's investments are
reviewed by the Board of Trustees. The Fund's portfolio manager may serve
other clients of the Adviser and any subsidiary of the Adviser in a similar
capacity.
The primary consideration in placing portfolio security transactions with
broker-dealers for execution is to obtain, and maintain the availability of,
execution at the most favorable prices and in the most effective manner
possible. The Adviser attempts to achieve this result by selecting broker-
dealers to execute portfolio transactions on behalf of the Fund and other
clients of the Adviser on the basis of their professional capability, the
value and quality of their brokerage services, and the general level of their
brokerage commissions. In the case of securities traded in the over-the-
counter market (where no stated commissions are paid but the prices include a
dealer's markup or markdown), the Adviser normally seeks to deal directly with
the primary market makers, unless in its opinion, best execution is available
elsewhere. In the case of securities purchased from underwriters, the cost of
such securities generally includes a fixed underwriting commission or
concession. From time to time, soliciting dealer fees are available to the
Adviser on the tender of the Fund's portfolio securities in so-called tender
or exchange offers. Such soliciting dealer fees are in effect recaptured for
the Fund by the Adviser. At present no other recapture arrangements are in
effect.
Consistent with the foregoing primary consideration, the Rules of Fair
Practice of the National Association of Securities Dealers, Inc. ("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 $23,100 of
commission business from the MFS Funds to Neuberger & Berman as consideration
for the annual renewal of the Lipper Directors' Analytical Data Service (which
provides information useful to the Trustees in reviewing the relationship
between the Fund and the Adviser).
The Adviser's investment management personnel attempt to evaluate the quality
of Research provided by brokers. The Adviser sometimes uses evaluations
resulting from this effort 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.
During the Fund's fiscal years ended December 31, 1995, 1994 and 1993, the
Fund paid total brokerage commissions of $3,459,699, $4,542,396 and
$2,156,438, respectively, on total transactions of $2,184,943,228,
$2,372,631,245 and $1,360,286,093, 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.
5. SHAREHOLDER SERVICES
INVESTMENT AND WITHDRAWAL PROGRAMS -- The Fund makes available the following
programs designed to enable shareholders to add to their investment or
withdraw from it with a minimum of paper work. These are described below and,
in certain cases, in the Prospectus. The programs involve no extra charge to
shareholders (other than a sales charge in the case of certain Class A share
purchases) and may be changed or discontinued at any time by a shareholder or
the Fund.
LETTER OF INTENT: If a shareholder (other than a group purchaser described
below) anticipates purchasing $50,000 or more of Class A shares of the Fund
alone or in combination with shares of all classes of other MFS Funds or MFS
Fixed Fund (a bank collective investment fund) within a 13-month period (or
36-month period, in the case of purchases of $1 million or more), the
shareholder may obtain Class A shares of the Fund at the same reduced sales
charge as though the total quantity were invested in one lump sum by
completing the Letter of Intent section of the 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 all classes of shares
of that shareholder in the MFS Funds or, MFS Fixed Fund (a bank collective
investment fund) reaches a discount level. See "Purchases" in the Prospectus
for the sales charges on quantity discounts. For example, if a shareholder
owns shares valued at $37,500 and purchases an additional $12,500 of Class A
shares of the Fund, the sales charge for the $12,500 purchase would be at the
rate of 4.75% (the rate applicable to single transactions of $50,000). A
shareholder must provide the Shareholder Servicing Agent (or his investment
dealer must provide MFD) with information to verify that the quantity sales
charge discount is applicable at the time the investment is made.
DISTRIBUTION INVESTMENT PROGRAM: Distributions of dividends and capital
gains made by the Fund with respect to a particular class of shares may be
automatically invested in shares of the same class of one of the other MFS
Funds, if shares of the fund are available for sale. Such investments will be
subject to additional purchase minimums. Distributions will be invested at net
asset value (exclusive of any sales charge) and not subject to any CDSC.
Distributions will be invested at the close of business on the payable date
for the distribution. A shareholder considering the Distribution Investment
Program should obtain and read the prospectus of the other fund and consider
the differences in objectives and policies before making any investment.
SYSTEMATIC WITHDRAWAL PLAN: A shareholder 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 shares in any year
pursuant to a SWP generally are limited to 10% of the value of the account at
the time of establishment of the SWP. SWP payments are drawn from the proceeds
of share redemptions (which would be a return of principal and, if reflecting
a gain, would be taxable). Redemptions of Class B shares will be made in the
following order: (i) any "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 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 generally 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 exchange their shares for the same class of shares
of the other MFS Funds under 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. Under the Automatic Exchange Plan,
exchanges of at least $50 each may be made to up to four different funds
effective on the seventh day of each month or of every third month, depending
whether monthly or quarterly exchanges are elected by the shareholder. If the
seventh day of the month is not a business day, the transaction will be
processed on the next business day. Generally, the initial transfer will occur
after receipt and processing by the Shareholder Servicing Agent of an
application in good order. 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 exchanges.
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 a certain period of time of the redemption
and is limited to the amount of the redemption proceeds. If the shares
credited for any CDSC paid are then redeemed within six years of the initial
purchase in the case of Class B shares or 12 months of the initial purchase in
the case of certain Class A shares, a CDSC will be imposed upon redemption.
Although redemptions and repurchases of shares are taxable events, a
reinvestment within a certain period of time in the same fund may be
considered a "wash sale" and may result in the inability to recognize
currently all or a portion of any loss realized on the original redemption for
federal income tax purposes. Please see your tax adviser for further
information.
EXCHANGE PRIVILEGE: Subject to the requirements set forth below, some or all
of the shares of the same class in an account with the Fund for which payment
has been received by the Fund (i.e. an established account) may be exchanged
for shares of the same class of any of the other MFS Funds (if available for
sale) at net asset value. Exchanges will be made only after instructions in
writing or by telephone (an "Exchange Request") are received for an
established account by the Shareholder Servicing Agent.
Each Exchange Request must be in proper form (i.e., if in writing -- signed by
the record owner(s) exactly as the shares are registered; if by telephone --
proper account identification is given by the dealer or shareholder of
record), and each exchange must involve either shares having an aggregate
value of at least $1,000 or all the shares in the account ($50 in the case of
retirement plan participants whose sponsoring organizations subscribe to the
MFS FUNDamental 401(k) Plan or another similar 401(k) recordkeeping system
made available by MFS Service Center, Inc.). Each exchange involves the
redemption of the shares of the Fund to be exchanged and the purchase at net
asset value (i.e., without a sales charge) of shares of the same class of the
other MFS Fund. Any gain or loss on the redemption of the shares exchanged is
reportable on the shareholder's federal income tax return, unless both the
shares received and the shares surrendered in the exchange are held in a tax-
deferred retirement plan or other tax-exempt account. No more than five
exchanges may be made in any one Exchange Request by telephone. If an Exchange
Request is received by the Shareholder Servicing Agent prior to the close of
regular trading on the New York Stock Exchange (the "Exchange"), the exchange
usually will occur on that day if all the requirements set forth above have
been complied with at that time. However, payment of the redemption proceeds
by the Fund, and thus the purchase of shares of the other MFS Fund, may be
delayed for up to seven days if the Fund determines that such a delay would be
in the best interest of all its shareholders. Investment dealers which have
satisfied criteria established by MFD may also communicate a shareholder's
Exchange Request to MFD by facsimile subject to the requirements set forth
above.
No CDSC is imposed on exchanges, although liability for the CDSC is carried
forward to the exchanged shares. For purposes of calculating the CDSC upon
redemption of shares acquired in an exchange, the purchase of shares acquired
in one or more exchanges is deemed to have occurred at the time of the
original purchase of the exchanged shares.
Additional information with respect to any of the MFS Funds, including a copy
of its current prospectus, may be obtained from investment dealers or the
Shareholder Servicing Agent. A shareholder considering an exchange should
obtain and read the prospectus of the other fund and consider the differences
in objectives and policies before making any exchange. Shareholders of 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 Fund, subject to the conditions, if
any, set forth in their respective prospectuses. In addition, unitholders of
the MFS Fixed Fund (a bank collective investment Fund) have the right to
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 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, including certain restrictions on
purchases by market timer accounts (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 for the following:
Individual Retirement Accounts (IRAs) (for individuals and their non-
employed spouses who desire to make limited contributions to a tax-deferred
retirement program and, if eligible, to receive a federal income tax
deduction for amounts contributed);
Simplified Employee Pension (SEP-IRA) Plans;
Retirement Plans Qualified under Section 401(k) of the Internal Revenue Code
of 1986, as amended;
403(b) Plans (deferred compensation arrangements for employees of public
school systems and certain non-profit organizations); and
Certain other qualified corporate 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 adviser before establishing any of
the tax-deferred retirement plans described above.
6. 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 Internal Revenue Code
of 1986, as amended (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 and holding
period of the Fund's portfolio assets. Because the Fund intends to distribute
all of its net investment income and net realized capital gains to
shareholders in accordance with the timing requirements imposed by the Code,
it is not expected that the Fund will be required to pay any federal income or
excise taxes, although the Fund's foreign-source income may be subject to
foreign withholding taxes. If the Fund should fail to qualify as a "regulated
investment company" in any year, the Fund would incur a regular corporate
federal income tax upon its taxable income and Fund distributions would
generally be taxable as ordinary dividend income to shareholders. 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.
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. Distributions from ordinary income and net short-term
capital gains, whether paid in cash or reinvested in additional shares, are
taxable to the Fund's shareholders as ordinary income for federal income tax
purposes. A portion of the dividends from ordinary income (but none of the
Fund's capital gains) is normally eligible for the dividends-received
deduction for corporations if the recipient otherwise qualifies for that
deduction with respect to its holding of Fund shares. Availability of the
deduction for particular shareholders is subject to certain limitations, and
deducted amounts may be subject to the alternative minimum tax or result in
certain basis adjustments. For the Fund's last fiscal year, 59% of the
dividends the Fund paid to shareholders were eligible for the deduction.
Distributions from 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 the Fund's shareholders as
long-term capital gains for federal income tax purposes without regard to the
length of time the shareholders have owned their shares. Fund dividends
declared in October, November or December, payable to shareholders of record
in such a month, and paid the following January will be taxable to
shareholders as if received on December 31 of the year in which they are
declared. The Fund will notify its shareholders regarding the tax status of
its distributions after the end of each calendar year.
Any dividend or distribution will have the effect of reducing the per share
net asset value of shares in the Fund by the amount of the dividend or
distribution. Shareholders purchasing shares shortly before the record date of
any taxable dividend or other distribution may thus pay the full price for the
shares and then effectively receive a portion of the purchase price back as a
taxable distribution.
In general, any gain or loss realized upon a taxable disposition of shares of
the Fund by a shareholder that holds such shares as a capital asset will be
treated as long-term capital gain or loss if the shares have been held for
more than 12 months and otherwise as short-term capital gain or loss. However,
any loss realized upon a redemption of shares in the Fund held for six months
or less will be treated as a long-term capital loss to the extent of any
distributions of net capital gain made with respect to those shares. Any loss
realized upon a redemption of shares may also be disallowed under rules
relating to wash sales. Gain may be increased (or loss reduced) upon a
redemption of Class A shares of the Fund within ninety days after their
purchase followed by any purchase (including purchases by exchange or by
reinvestment) without payment of an additional sales charge of Class A shares
of the Fund or of another MFS Fund (or any other shares of an MFS Fund
generally sold subject to a sales charge).
The Fund's current dividend and accounting policies will affect the amount,
timing and character of distributions to shareholders, and may under certain
circumstances make an economic return of capital taxable to shareholders. Any
investment in zero coupon bonds or certain securities purchased at a market
discount will cause the Fund to recognize income prior to the receipt of cash
payments with respect to those securities. In order to distribute this income
and avoid a tax on the Fund, the Fund may be required to liquidate portfolio
securities that it might otherwise have continued to hold, potentially
resulting in additional taxable gain or loss to the Fund.
Special tax considerations apply with respect to foreign investments of the
Fund. For example, foreign exchange gains and losses realized by the Fund will
generally be treated as ordinary income and losses. Use of foreign currencies
for non-hedging purposes and investment by the Fund in certain "passive
foreign investment companies" may be limited in order to avoid a tax on the
Fund. Investment income received by the Fund from foreign securities may be
subject to foreign income taxes; the Fund will generally be unable to pass
through to shareholders foreign tax credits and deductions with respect to
such foreign taxes. The United States has entered into tax treaties with many
foreign countries that may entitle the Fund to a reduced rate of tax or an
exemption from tax on such income; the Fund intends to qualify for treaty
reduced rates where available. It is impossible to determine the effective
rate of foreign tax in advance since the amount of the Fund's assets to be
invested within various countries is not known.
The Fund's transactions in options, Futures Contracts, and Forward Contracts
will be subject to special tax rules that may affect the amount, timing, and
character of Fund income and distributions to shareholders. For example,
certain positions held by the Fund on the last business day of each taxable
year will be marked to market (i.e., treated as if closed out) on that day,
and any gain or loss associated with the positions will be treated as 60%
long-term and 40% short-term capital gain or loss. Certain positions held by
the Fund that substantially diminish its risk of loss with respect to other
positions in its portfolio may constitute "straddles," and may be subject to
special tax rules that would cause deferral of Fund losses, adjustments in the
holding periods of Fund securities, and conversion of short-term into long-
term capital losses. Certain tax elections exist for straddles that may alter
the effects of these rules. The Fund will limit its activities in options,
Futures Contracts, and Forward Contracts to the extent necessary to meet the
requirements of Subchapter M of the Code.
Dividends and certain other payments to persons who are not citizens or
residents of the United States or U.S. entities ("Non-U.S. Persons") are
generally subject to U.S. tax withholding at the rate of 30%. The Fund intends
to withhold 30% of any payments made to Non-U.S. Persons that are subject to
such withholding, regardless of whether a lower treaty rate may be permitted.
Any amounts overwithheld may be recovered by such persons by filing a claim
for refund with the U.S. Internal Revenue Service within the time period
applicable to such claims. 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 a rate of 31% on taxable dividends and the proceeds of redemptions and
exchanges paid to any shareholder (including a Non-U.S. Person) who does not
furnish to the Fund certain information and certifications or who is otherwise
subject to backup withholding. Backup withholding will not, however, be
applied to payments that have been subject to 30% withholding.
7. DETERMINATION OF NET ASSET VALUE AND PERFORMANCE
NET ASSET VALUE: The net asset value per share of each class of the Fund is
determined each day during which the Exchange is open for trading. (As of the
date of this SAI, the Exchange is open for trading every weekday except for
the following holidays (or days on which they are observed): New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.) This determination is made once 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 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 data from an external pricing source. Use of
the pricing services has been approved by the Fund's Board of Trustees. All
other securities, futures contracts and options in the Fund's portfolio (other
than short-term obligations) for which the principal market is one or more
securities or commodities exchanges (whether domestic or foreign) will be
valued at the last reported sale price or at the settlement price prior to the
determination (or if there has been no current sale, at the closing bid price)
on the primary exchange on which such securities, futures contracts or options
are traded; but if a securities exchange is not the principal market for
securities, such securities will, if market quotations are readily available,
be valued at current bid prices, unless such securities are reported on the
NASDAQ system, in which case they are valued at the last sale price or, if no
sales occurred during the day, at the last quoted bid price.
Bonds and other fixed income securities, including listed issues, in the
Fund's portfolio are valued on the basis of valuations furnished by a pricing
service which utilizes both dealer-supplied valuations and electronic data
processing techniques which take into account appropriate factors such as
institution-size trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, trading characteristics and other market
data, without exclusive reliance upon exchange or over-the-counter prices,
since such valuations are believed to reflect the fair value of such
securities. Use of the pricing service has been approved by the Fund's Board
of Trustees. Short-term obligations with a remaining maturity in excess of 60
days will be valued based upon dealer supplied valuations. Other short-term
obligations are valued at amortized cost, which constitutes fair value as
determined by the Board of Trustees. 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 by the CDSC (4% maximum for Class B shares) and
therefore may result in a higher rate of return, (ii) a total rate of return
assuming an initial account value of $1,000, which will result in a higher
rate of return since the value of the initial account will not be reduced by
the maximum sales charge (currently 5.75%) and/or (iii) total rates of return
which represent aggregate performance over a period or year-by-year
performance, and which may or may not reflect the effect of the maximum or
other sales charge or CDSC. The Fund's average annual total rate of return for
Class A shares reflecting the initial investment at the maximum public
offering price for the one-year, five-year and ten-year periods ended December
31, 1995 was, respectively, 31.38%, 14.42% and 14.00%. The Fund's average
annual total rate of return for Class A shares not giving effect to the sales
charge on the initial investment for the one-year, five-year and ten-year
periods ended December 31, 1995 was, respectively, 39.34%, 15.78% and 14.68%.
The Fund's average annual total rate of return for Class B shares, not giving
effect to the CDSC, for the one-year period ended December 31, 1995 and for
the period September 7, 1993 through December 31, 1995 was 38.05% and 15.29%,
respectively. The Fund's average annual total rate of return for Class B
shares, reflecting the CDSC for the one-year period ended December 31, 1995
and for the period September 7, 1993 through December 31, 1995 was 34.05% and
14.24%, respectively. The total rates of return presented above may not be
indicative of future performance.
PERFORMANCE RESULTS: The performance results for Class A shares below, based
on an assumed initial investment of $10,000 in Class A shares, cover the
period from January 1, 1986 through December 31, 1995. 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
and account balance information may be obtained by calling 1-800-MFS-TALK
(637-8255).
MASSACHUSETTS INVESTORS TRUST -- A
----------------------------------
VALUE OF
VALUE OF REINVESTED VALUE OF
YEAR ENDED INITIAL $10,000 CAPITAL GAIN REINVESTED TOTAL
DECEMBER 31 INVESTMENT DISTRIBUTIONS DIVIDENDS VALUE
----------- ---------- ------------- ----------- -----
1986 $ 9,401 $ 1,361 $ 284 $11,046
1987 $ 8,755 $ 2,560 $ 555 $11,870
1988 $ 8,724 $ 3,423 $ 956 $13,103
1989 $10,536 $ 5,601 $1,699 $17,836
1990 $ 9,548 $ 6,189 $2,081 $17,818
1991 $10,785 $ 9,039 $2,924 $22,748
1992 $ 9,572 $11,736 $3,120 $24,428
1993 $ 8,942 $14,294 $3,642 $26,878
1994 $ 7,830 $15,052 $3,722 $26,604
1995 $ 9,883 $21,213 $5,975 $37,071
EXPLANATORY NOTES: The results in the table assume that the initial investment
on January 1, 1986 has been reduced by the current maximum applicable sales
charge of 5.75%. No adjustment has been made for any income taxes payable by
shareholders.
YIELD: Any yield quotation for a class of shares of the Fund is based on the
annualized net investment income per share of that class for the 30-day
period. The yield for each class of the Fund is calculated by dividing the net
investment income allocated to that class earned during the period by the
maximum offering price per share of that class of the Fund on the last day of
the period. The resulting figure is then annualized. Net investment income per
share of a class is determined by dividing (i) the dividends and interest
allocated to that class during the period, minus accrued expenses of that
class for the period by (ii) the average number of shares of the class
entitled to receive dividends during the period multiplied by the maximum
offering price per share on the last day of the period. The Fund's yield
calculations for Class A shares assume a maximum sales charge of 5.75%. The
yield calculation for Class B shares assumes no CDSC is paid. The yield
calculation for Class A shares for the 30-day period ended December 31, 1995
was 1.47%. The yield calculation for Class B shares for the 30-day period
ended December 31, 1995 was 0.97%.
CURRENT DISTRIBUTION RATE: Yield, which is calculated according to a formula
prescribed by the Securities and Exchange Commission, is not indicative of the
amounts which were or will be paid to the Fund's shareholders. Amounts paid to
shareholders of each class are reflected in the quoted "current distribution
rate" for that class. The current distribution rate for a class is computed by
dividing the total amount of dividends per share paid by the Fund to
shareholders of that class during the past twelve months by the maximum public
offering price of that class at the end of such period. Under certain
circumstances, such as when there has been a change in the amount of dividend
payout, or a fundamental change in investment policies, it might be
appropriate to annualize the dividends paid over the period such policies were
in effect, rather than using the dividends during the past twelve months. The
current distribution rate differs from the yield computation because it may
include distributions to shareholders from sources other than dividends and
interest, such as premium income for option writing, short-term capital gains
and return of invested capital, and is calculated over a different period of
time. The Fund's current distribution rate calculation for Class A shares
assumes a maximum sales charge of 5.75%. The Fund's current distribution rate
calculation for Class B shares assumes no CDSC is paid. The current
distribution rate for Class A shares of the Fund for the 12-month period ended
on December 31, 1995 was 1.86%. The current distribution rate for Class B
shares of the Fund for the 12-month period ended on December 31, 1995 was
1.25%.
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.
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.
The Fund may also quote evaluations mentioned in independent radio or
television broadcasts.
From time to time the Fund may use charts and graphs to illustrate the past
performance of various indices such as those mentioned above and illustrations
using hypothetical rates of return to illustrate the effects of compounding
and tax-deferral.
The Fund may advertise examples of the effects of periodic investment plans,
including the principle of dollar cost averaging. In such a program, an
investor invests a fixed dollar amount in a fund at periodic intervals,
thereby purchasing fewer shares when prices are high and more shares when
prices are low. While such a strategy does not assure a profit or guard
against a loss in a declining market, the investor's average cost per share
can be lower than if fixed numbers of shares are purchased at the same
intervals.
The Fund was established by three securities executives -- L. Sherman Adams,
Charles H. Learoyd and Alston L. Carr. The Fund began operation in 1924 and
established its own in-house research department in 1932. From 1932 to 1953,
the Fund was managed by Merrill Griswold, its Chairman. Mr. Griswold helped to
change the U.S. tax law in order to permit income and capital gains to be
passed along to mutual fund shareholders without a separate tax at the fund
level. In 1936, the Fund began offering shareholders the ability to take
capital gain distributions in cash or additional shares. The Fund issued
shareholders full, periodic reports disclosing portfolio holdings, fees and
expenses a decade before it was required to do so under the Securities Act of
1933, as amended. The fund has been actively managed for the last 70 years
responding to major historical events which have affected the stock market
(such as the Great Depression, World War II, the post-war economic boom, the
1970s' oil crisis and inflationary periods, and the "boom market" of the
1980s).
In 1969, the Fund's Trustees created a management company, MFS, to externalize
the investment management function and to permit the firm to offer additional
funds. MFS introduced several mutual funds in 1970 and hired the current
chairman of MFS, A. Keith Brodkin, as a bond fund portfolio manager.
As of March 29, 1996, the Fund had total net assets of approximately $2.4
billion and had approximately 128,664 shareholders.
From time to time, MFD, may, as appropriate, quote Fund-related comments from
existing shareholders.
MFS FIRSTS: MFS has a long history of innovations.
-- 1924 -- Massachusetts Investors Fund 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 (the "Truth in Securities Act" or the "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 in cash.
-- 1976 -- MFS(R) 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(R) World Governments Fund is established as
America's first globally diversified fixed-income
mutual fund.
-- 1984 -- MFS(R) Municipal High Income Fund is the first
open-end mutual fund to seek high tax-free income from
lower-rated municipal securities.
-- 1986 -- MFS(R) Managed Sectors Fund becomes the first
mutual fund to target and shift investments among
industry sectors for shareholders.
-- 1986 -- MFS(R) Municipal Income Fund is the first
closed-end, high-yield municipal bond fund traded on
the New York Stock Exchange.
-- 1987 -- MFS(R) Multimarket Income Fund is the first
closed-end, multimarket high income fund listed on the
New York Stock Exchange.
-- 1989 -- MFS(R) Regatta becomes America's first non-
qualified market-value-adjusted fixed/variable annuity.
-- 1990 -- MFS(R) World Total Return Fund is the first
global balanced fund.
-- 1993 -- MFS(R) World Growth Fund is the first global
emerging markets fund to offer the expertise of two
sub-advisers.
-- 1993 -- MFS becomes money managers of MFS(R) Union
Standard Trust, the first trust to invest solely 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.
8. DISTRIBUTION PLANS
The Trustees have adopted a Distribution Plan for each of the Fund's Class A
and Class B shares (the "Distribution Plans") pursuant to Section 12(b) of the
1940 Act and Rule 12b-1 thereunder (the "Rule") after having concluded that
there is a reasonable likelihood that each Distribution Plan would benefit the
Fund and the respective class of shareholders. The Distribution Plans are
designed to promote sales, thereby increasing the net assets of the Fund. Such
an increase may reduce the expense ratio to the extent the Fund's fixed costs
are spread over a larger net asset base. Also, an increase in net assets may
lessen the adverse effects that could result were the Fund required to
liquidate portfolio securities to meet redemptions. There is, however, no
assurance that the net assets of the Fund will increase or that the other
benefits referred to above will be realized.
The Distribution Plans are described in the Prospectus under the caption
"Distribution Plans," which is incorporated herein by reference. The following
information supplements this Prospectus discussion.
SERVICE FEES: With respect to the Class A Distribution Plan, 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 the Class B Distribution Plan, 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. MFD, however, may waive this minimum
amount requirement 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 any 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 Plans 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 expenses and
equipment.
DISTRIBUTION AND SERVICE FEES PAID DURING THE FUND'S LAST FISCAL YEAR: During
the fiscal year ended Decemer 31, 1995, 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
DISTRIBUTION PLANS BY FUND BY MFD BY DEALERS
- ------------------ ------- ------------- ------------
Class A Distribution Plan $4,434,248 $1,145,755 $3,288,493
Class B Distribution Plan $1,104,662 $ 840,638 $ 264,024
GENERAL: Each of the Distribution Plans will remain in effect until August 1,
1996, 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"). Each
of the Distribution Plans 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. Each of the Distribution Plans may be terminated at any time by vote of
a majority of the Distribution Plan Qualified Trustees or by vote of the
holders of a majority of the respective class of the Fund's shares (as defined
in "Investment Restrictions"). All agreements relating to any of the
Distribution Plans entered into between the Fund or MFD and other
organizations must be approved by the Board of Trustees, including a majority
of the Distribution Plan Qualified Trustees. Agreements under any of the
Distribution Plans must be in writing, will be terminated automatically if
assigned, and may be terminated at any time without payment of any penalty, by
vote of a majority of the Distribution Plan Qualified Trustees or by vote of
the holders of a majority of the respective class of the Fund's shares. None
of the Distribution Plans may be amended to increase materially the amount of
permitted distribution expenses without the approval of a majority of the
respective class of the Fund's shares (as defined in "Investment
Restrictions") or may be materially amended in any case without a vote of the
Trustees and a majority of the Distribution Plan Qualified Trustees. The
selection and nomination of Distribution Plan Qualified Trustees shall be
committed to the discretion of the non-interested Trustees then in office. No
Trustee who is not an "interested person" has any financial interest in any of
the Distribution Plans or in any related agreement.
9. INDEPENDENT AUDITORS AND
FINANCIAL STATEMENTS
Deloitte & Touche LLP are the Fund's independent auditors, providing audit
services, assistance with tax return preparation, and assistance and
consultation with respect to the preparation of filings with the SEC.
The Portfolio of Investments at December 31, 1995, the Statement of Assets and
Liabilities at December 31, 1995, the Statement of Operations for the year
ended December 31, 1995, the Statement of Changes in Net Assets for each of the
two years in the period ended December 31, 1995, the Notes to Financial State-
ments 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.
<PAGE>
APPENDIX A
<TABLE>
<CAPTION>
TRUSTEE COMPENSATION TABLE
RETIREMENT BENEFIT ESTIMATED TOTAL TRUSTEE FEES
TRUSTEE FEES ACCRUED AS PART OF CREDIT YEARS FROM FUND AND
TRUSTEE FROM FUND (1) FUND EXPENSE(1) OF SERVICE (2) FUND COMPLEX (3)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Richard B. Bailey $6,640 $1,143 8 $263,815
A. Keith Brodkin 0 0 N/A 0
Peter G Harwood 7,480 653 5 111,366
J. Atwood Ives 6,820 1,167 17 101,356
Lawrence T. Perera 7,000 3,027 26 102,546
William Poorvu 7,480 3,027 25 111,366
Charles W. Schmidt 7,180 2,872 20 105,411
Arnold D. Scott 0 0 N/A 0
Jeffrey L. Shames 0 0 N/A 0
Elaine R. Smith 7,180 1,114 27 105,411
David B. Stone 7,780 2,638 14 115,521
(1) For fiscal year ended December 31, 1995.
(2) Based on normal retirement age of 73.
(3) Information provided is for calendar year 1995. All Trustees receiving compensation served as Trustees
of 23 funds within the MFS fund complex (having aggregate net assets at December 31, 1995, of approximately
$17.6 billion) except Mr. Bailey, who served as Trustee of 73 funds within the MFS fund complex (having
aggregate net assets at December 31, 1995, of approximately $31.7 billion).
ESTIMATED ANNUAL BENEFITS PAYABLE BY FUND UPON RETIREMENT (4)
YEARS OF SERVICE
----------------------------------------------------------------------
AVERAGE TRUSTEE FEES 3 5 7 10 OR MORE
- ---------------------------------------------------------------------------------------------------------
$5,976 $ 896 $1,494 $2,092 $2,988
6,492 974 1,623 2,272 3,246
7,009 1,051 1,752 2,453 3,504
7,525 1,129 1,881 2,634 3,763
8,042 1,206 2,010 2,815 4,021
8,558 1,284 2,139 2,995 4,279
(4) Other funds in the MFS fund complex provide similar retirement benefits to the Trustees.
</TABLE>
<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
Boston, MA 02110
MASSACHUSETTS
INVESTORS
TRUST
500 BOYLSTON STREET
BOSTON, MA 02116
[LOGO] MFS(R)
THE FIRST NAME IN MUTUAL FUNDS
MIT-13 5/96/500 12/212
[MFS LOGO] Annual Report for
Year Ended
THE FIRST NAME IN MUTUAL FUNDS December 31, 1995
MASSACHUSETTS INVESTORS TRUST
[GRAPHIC PHOTO OF A KEYBOARD]
<PAGE>
MASSACHUSETTS INVESTORS TRUST
Trustees
A. Keith Brodkin* - Chairman and President
Richard B. Bailey* - Private Investor; Former Chairman and Director (until
1991), Massachusetts Financial Services Company; Director, Cambridge Bancorp;
Director, Cambridge Trust Company
Peter G. Harwood - Private Investor
J. Atwood Ives - Chairman and Chief Executive Officer, Eastern Enterprises
Lawrence T. Perera - Partner, Hemenway & Barnes
William J. Poorvu - Adjunct Professor, Harvard University Graduate School of
Business Administration
Charles W. Schmidt - Private Investor
Arnold D. Scott* - Senior Executive Vice President, Director and Secretary,
Massachusetts Financial Services Company
Jeffrey L. Shames* - President and Director, Massachusetts Financial Services
Company
Elaine R. Smith - Independent Consultant
David B. Stone - Chairman, North American Management Corp. (investment adviser)
Investment Adviser
Massachusetts Financial Services Company
500 Boylston Street Boston, MA
02116-3741
Distributor
MFS Fund Distributors, Inc.
500 Boylston Street
Boston, MA 02116-3741
Portfolio Managers
Mitchell D. Dynan*
John D. Laupheimer, Jr.*
Kevin R. Parke*
Treasurer
W. Thomas London*
Assistant Treasurer
James O. Yost*
Secretary
Stephen E. Cavan*
Assistant Secretary
James R. Bordewick, Jr.*
*Affiliated with the Investment Adviser
Custodian
State Street Bank and Trust Company
Auditors
Deloitte & Touche llp
Investor Information
For MFS stock and bond market outlooks, call toll free: 1-800-637-4458 anytime
from a touch-tone telephone.
For information on MFS mutual funds, call your financial adviser or, for an
information kit, call toll free: 1-800-637-2929 any business day from 9 a.m. to
5 p.m. Eastern time (or leave a message anytime).
Investor Service
MFS Service Center, Inc.
P.O. Box 2281
Boston, MA 02107-9906
For general information, call toll free:
1-800-225-2606 any business day from
8 a.m. to 8 p.m. Eastern time.
For service to speech- or hearing-impaired, call toll free: 1-800-637-6576 any
business day from 9 a.m. to 5 p.m. Eastern time. (To use this service, your
phone must be equipped with a Telecommunications Device for the Deaf.)
For share prices, account balances and exchanges, call toll free:
1-800-MFS-TALK (1-800-637-8255) anytime from a touch-tone telephone.
[GRAPHIC]
Top-Rated Service
For the second year in a row, MFS earned a #1 ranking in DALBAR, Inc.'s Broker/
Dealer Survey, Main Office Operations Service Quality category. The firm
achieved a 3.49 overall score -- on a scale of 1 to 4 -- in the 1995 survey. A
total of 71 firms responded, offering input on the quality of service they
receive from 36 mutual fund companies nationwide. The survey contained
questions about service quality in 17 categories, including "knowledge of phone
service contacts," "accuracy of transaction processing," and "overall ease of
doing business with the firm."
<PAGE>
Letter to Shareholders
Dear Shareholders:
The past year was an extraordinarily good one for the stock market. The
market's performance was fueled by two main factors. First, the market
anticipated the slowdown in economic activity in 1995. This drove long-term
interest rates close to their lows of 1993, and stocks of financial services
and growth companies responded strongly. Second, corporate earnings were very
strong despite the weaker economy. This, combined with higher valuations
resulting from lower interest rates, helped drive up stock prices and
contributed to the Trust's good performance for the year.
For the 12 months ended December 31, 1995, the stock market, as measured
by the Standard & Poor's 500 Composite Index (the S&P 500), a popular,
unmanaged index of common stock performance, had a total return of +37.53%.
During that same period, Class A shares of the Trust had a total return of
+39.34%, while Class B shares had a total return of +38.05%. Both of these
returns include the reinvestment of distributions but exclude the effects of
any sales charges. A discussion of the factors which contributed to the Trust's
outperformance may be found in the Portfolio Performance and Strategy section
of this letter.
Economic Environment
Moderate but sustainable growth has been the hallmark of the economic
expansion's fifth year, although the economy did show signs of sluggishness
late in the year. For example, retail sales have been disappointing, in part
because of rising levels of consumer debt, while an extended period of lower
mortgage rates seems to have relieved much of the pent-up demand for housing.
Growth is not expected to get much help from the manufacturing sector,
either, as order flows from manufacturers have moderated. Export activity,
meanwhile, is also expected to remain modest as continued weakness abroad
limits demand for many U.S. goods. However, the Federal Reserve Board's
consistent and, so far, successful efforts to fight inflation seem to be
giving consumers and businesses enough longer-term confidence to help
maintain modest growth in real (adjusted for inflation) gross domestic
product into 1996.
Stock Market
After some volatility late in the third quarter, the stock market continued
to strengthen. Although many companies reported solid third-quarter results,
there was some weakness in the earnings of retail, financial services and
even some technology companies. However, a slowdown in earnings may be a
positive development if it is an indication that the economy is not
overheating and inflation is under control. While we see a deceleration of
corporate earnings as the inevitable consequence of traditional business
cycles, we
1
<PAGE>
Letter to Shareholders -- continued
remain encouraged by the high absolute level of profitability among U.S.
companies. Also, many companies' increasing emphasis on cost containment and
growing use of technology have helped keep them highly competitive and
reasonably profitable. Looking ahead, we believe that a stabilizing interest
rate environment, coupled with reasonable earnings reports, could justify
current market valuations.
Portfolio Performance and Strategy
The Trust follows a conservative growth investment strategy. We attempt to
structure the portfolio with stocks we believe possess modestly above-average
earnings growth prospects relative to the S&P 500. While doing this, we
attempt to maintain an overall conservative investment posture by focusing on
companies with moderately below-average price-to-earnings ratios relative to
the S&P 500. In addition, we concentrate on large-capitalization, well-
established and recognized corporations. This is a long-term investment
strategy unaffected by our short-term market outlook.
We entered the year overweighted in financial services and consumer growth
stocks. We felt that these areas represented stocks with attractive relative
earnings strength. Late last year we raised our technology weightings to a
near-market weighting, which is unusual for our conservative methodology.
Another area of overweighting was industrial goods and services, where we were
concentrated in machinery and in aerospace and defense companies. We also
entered the year effectively fully invested, consistent with our strategy of
not timing the market. We found this strategy to be appropriate for most of the
year, and our only major change in portfolio strategy was to reduce our
technology weighting in mid-summer. While this proved somewhat premature, it
turned out to be the right decision.
Looking ahead to 1996, we continue to feel that relative earnings strength
will be the key to superior performance. We have maintained our overweighting
in financial services but have moved away from banks and toward insurance
companies. We are also overweighted in consumer non-durables and in industrial
companies. One area where we retain an overweighting but have not been rewarded
is retail, an area that has underperformed the S&P 500 for several years. We
feel fine companies with solid long-term prospects in this sector can be bought
at modest valuations.
A key to 1996 performance will be judging the effectiveness of the Federal
Reserve's monetary easing. So far, the market has benefited from the overall
reduction in interest rates but, specifically, economically sensitive stocks
have lagged. We feel one of the major challenges of the Trust will be to
measure when and how significantly these stocks will respond. As of this
writing, we have not made significant moves in this direction.
2
<PAGE>
Letter to Shareholders -- continued
We appreciate your support and welcome any questions or comments you may
have.
Respectfully,
/s/ Mitchell D. Dynan
/s/ John D. Laupheimer, Jr.
/s/ Kevin R. Parke
/s/ A. Keith Brodkin /s/ Portfolio Managers
A. Keith Brodkin Mitchell D. Dynan
Chairman and President John D. Laupheimer, Jr.
Kevin R. Parke
Portfolio Managers
January 12, 1996
Portfolio Managers Profiles
Mitch Dynan joined the MFS Research Department in 1986. A graduate of Tufts
University, he was named Assistant Vice President - Investments in 1987 and
Vice President - Investments in 1988. Mr. Dynan became a Portfolio Manager of
Massachusetts Investors Trust in 1995.
John Laupheimer joined the MFS Research Department in 1981 as an industry
specialist. A graduate of Boston University and the Sloan School of
Management of Massachusetts Institute of Technology, he was named Investment
Officer in 1983, Assistant Vice President - Investments in 1984, Vice
President - Investments in 1986 and Senior Vice President in January 1995.
Mr. Laupheimer became a Portfolio Manager of Massachusetts Investors Trust in
1993.
Kevin Parke joined the MFS Research Department in 1985 as an industry
specialist. A graduate of Lehigh University and the Harvard University
Graduate School of Business Administration, he was named Assistant Vice
President - Investments in 1987, Vice President - Investments in 1988, Senior
Vice President - Investments in 1993 and Director of Research in 1995. Mr.
Parke became a Portfolio Manager of Massachusetts Investors Trust in 1992.
3
<PAGE>
Tax Form Summary
In January 1996, shareholders will be mailed a Tax Form Summary reporting the
federal tax status of all distributions paid during the calendar year 1995.
The Trust has designated $135,643,154 as a long-term capital gain
distribution for tax purposes. This distribution was made to shareholders of
record as of December 27, 1995, payable January 2, 1996.
For the year ended December 31, 1995, the amount of distributions from income
eligible for the 70% dividends-received deduction for corporations came to
59.09%.
Performance
The information below and on the following page illustrates the historical
performance of Massachusetts Investors Trust Class A shares in comparison to
various market indicators. Trust results in the graphs reflect the deduction
of the 5.75% maximum sales charge; benchmark comparisons are unmanaged and do
not reflect any fees or expenses. You cannot invest in an index. All results
reflect the reinvestment of all dividends and capital gains.
Please note that effective September 7, 1993, Class B shares were offered.
Information on Class B share performance appears on the next page.
See Appendix page for performance chart descriptions
Growth of a Hypothetical $10,000 Investment
(For the 5-Year Period Ended December 31, 1995)
Growth of a Hypothetical $10,000 Investment
(For the 10-Year Period Ended December 31, 1995)
The performance of other classes will be greater than or less than the line
shown, based on the differences in loads and fees paid by shareholders
investing in the different classes.
4
<PAGE>
Average Annual Total Returns
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
==================================================================================================
Massachusetts Investors Trust (Class A) including
5.75% sales charge +31.38% +12.67% +14.42% +14.00%
- --------------------------------------------------------------------------------------------------
Massachusetts Investors Trust (Class A) at net
asset value +39.34% +14.92% +15.78% +14.68%
- --------------------------------------------------------------------------------------------------
Massachusetts Investors Trust (Class B) with CDSC+ +34.05% -- -- +14.24%*
- --------------------------------------------------------------------------------------------------
Massachusetts Investors Trust (Class B) without
CDSC +38.05% -- -- +15.29%*
- --------------------------------------------------------------------------------------------------
Average growth and income fund** +30.82% +13.21% +15.31% +12.64%
- --------------------------------------------------------------------------------------------------
Standard & Poor's 500 Composite Index** +37.53% +15.32% +16.56% +14.86%
- --------------------------------------------------------------------------------------------------
Consumer Price IndexS.** +2.54% +2.65% +2.79% +3.46%
- --------------------------------------------------------------------------------------------------
</TABLE>
+ These returns reflect the current Class B contingent deferred sales charge
(CDSC) of 4% for the 1-year period and 3% for the period commencing
September 7, 1993.
* For the period from the commencement of offering of Class B shares,
September 7, 1993 to December 31, 1995.
** Source: Lipper Analytical Services, Inc.
SS The Consumer Price Index is a popular measure of change in prices.
5
<PAGE>
Average Annual Total Returns - continued
In the table on the preceding page, we have included the average annual total
returns of all growth and income funds (including the Trust) tracked by
Lipper Analytical Services, Inc. (an independent firm which rates mutual fund
performance) for the applicable time periods. Because these returns do not
reflect any applicable sales charges, we have also included the Trust's
results at net asset value (no sales charge) for comparison.
All results are historical and, therefore, are not an indication of future
results. The investment return and principal value of an investment in a
mutual fund will vary with changes in market conditions, and shares, when
redeemed, may be worth more or less than their original cost. All Class A
share results reflect the applicable expense subsidy which is explained in
the Notes to Financial Statements. Had the subsidy not been in effect, the
results would have been less favorable.
Objectives and Policies
The Trust's investment objectives are to provide reasonable current income
and long-term growth of capital and income. Any investment involves risk and
there can be no assurance that the Trust will achieve its investment
objectives.
The Trust is believed to constitute a conservative medium for that portion of
an investor's capital which he wishes to have invested in securities
considered to be of high or improving investment quality. The term
"conservative medium" indicates that the Trust attempts to exercise prudence,
discretion and intelligence in the selection of investments with due regard
for both probable income and probable safety of capital. The words "high
investment quality" reflect the intention of the Trust to avoid the
acquisition of speculative securities or those of doubtful character even if
immediate prospects are tempting.
6
<PAGE>
Portfolio of Investments - December 31, 1995
<TABLE>
<CAPTION>
Common Stocks - 96.3%
================================================================================
Issuer Shares Value
- --------------------------------------------------------------------------------
<S> <C> <C>
U.S. Stocks - 91.8%
Aerospace - 6.0%
AlliedSignal, Inc. 480,000 $ 22,800,000
Boeing Co. 50,000 3,918,750
General Dynamics Corp. 104,000 6,149,000
Lockheed Martin Corp. 380,000 30,020,000
McDonnell-Douglas Co. 409,000 37,628,000
Raytheon Co. 740,000 34,965,000
------------
$135,480,750
- --------------------------------------------------------------------------------
Apparel and Textiles - 2.1%
Intimate Brands, Inc., "A"* 104,300 $ 1,564,500
Nike, Inc., "B" 462,000 32,166,750
VF Corp. 240,000 12,660,000
------------
$ 46,391,250
- --------------------------------------------------------------------------------
Automotive - 0.5%
Eaton Corp. 120,000 $ 6,435,000
General Motors Corp. 100,000 5,287,500
------------
$ 11,722,500
- --------------------------------------------------------------------------------
Banks and Credit Companies - 9.0%
Chase Manhattan Corp. 75,000 $ 4,546,875
Comerica, Inc. 38,500 1,544,813
First Bank System, Inc. 910,000 45,158,750
First Chicago NBD Corp. 610,000 24,095,000
Firstar Corp. 310,000 12,283,750
Integra Financial Corp. 302,500 19,057,500
Meridian Bancorp, Inc. 30,000 1,395,000
National City Corp. 180,000 5,962,500
Northern Trust Corp. 300,000 16,800,000
Norwest Corp. 1,293,000 42,669,000
Suntrust Banks, Inc. 250,000 17,125,000
U.S. Bancorp 320,000 10,760,000
------------
$201,398,188
- --------------------------------------------------------------------------------
Business Machines - 1.2%
Compaq Computer Corp.* 150,000 $ 7,200,000
Hewlett-Packard Co. 100,000 8,375,000
International Business Machines Corp. 106,600 9,780,550
Xerox Corp. 10,000 1,370,000
------------
$ 26,725,550
- --------------------------------------------------------------------------------
Business Services - 0.2%
ALCO Standard Corp. 46,000 $ 2,098,750
DST Systems, Inc.* 38,300 1,091,550
First Data Corp. 20,500 1,370,938
------------
$ 4,561,238
- --------------------------------------------------------------------------------
Cellular Telephones - 0.1%
AirTouch Communications, Inc.* $
60,000 1,695,000
- --------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
Portfolio of Investments - continued
<TABLE>
<CAPTION>
Common Stocks - continued
================================================================================
Issuer Shares Value
- --------------------------------------------------------------------------------
<S> <C> <C>
U.S. Stocks - continued
Chemicals - 1.3%
du Pont (E. I.) de Nemours & Co. 179,000 $ 12,507,625
Grace (W.R.) & Co. 125,000 7,390,625
Monsanto Co. 75,000 9,187,500
------------
$ 29,085,750
- --------------------------------------------------------------------------------
Computer Software - Personal Computers - 0.5%
Microsoft Corp.* 149,000 $ 13,074,750
- --------------------------------------------------------------------------------
Computer Software - Systems - 2.5%
Computer Association International, Inc. 483,000 $ 27,470,625
General Motors Corp., "E" 393,100 20,441,200
Oracle Systems Corp.* 176,000 7,458,000
------------
$ 55,369,825
- --------------------------------------------------------------------------------
Consumer Goods and Services - 8.1%
American Standard Cos., Inc.* 150,000 $ 4,200,000
Colgate-Palmolive Co. 309,500 21,742,375
Gillette Co. 867,000 45,192,375
Philip Morris Cos., Inc. 649,100 58,743,550
Procter & Gamble Co. 374,000 31,042,000
Seagram Ltd. 87,200 3,019,300
Service Corp. International 155,700 6,850,800
Tyco International Ltd. 264,000 9,405,000
------------
$180,195,400
- --------------------------------------------------------------------------------
Containers - 0.3%
Corning, Inc. 200,000 $ 6,400,000
- --------------------------------------------------------------------------------
Defense Electronics - 1.7%
Loral Corp. 1,076,400 $ 38,077,650
- --------------------------------------------------------------------------------
Electrical Equipment - 3.5%
General Electric Co. 660,000 $ 47,520,000
Honeywell, Inc. 610,000 29,661,250
------------
$ 77,181,250
- --------------------------------------------------------------------------------
Electronics - 1.1%
Intel Corp. 370,000 $ 20,997,500
LSI Logic Corp.* 38,000 1,244,500
National Semiconductor Corp.* 100,000 2,225,000
------------
$ 24,467,000
- --------------------------------------------------------------------------------
Entertainment - 0.8%
Comcast Corp., Special, "A" 60,000 $ 1,091,250
Disney (Walt) Co. 265,000 15,635,000
Harrah's Entertainment, Inc.* 36,000 873,000
------------
$ 17,599,250
- --------------------------------------------------------------------------------
Financial Institutions - 2.5%
Beneficial Corp. 561,000 $ 26,156,625
Federal Home Loan Mortgage Corp. 147,000 12,274,500
</TABLE>
8
<PAGE>
Portfolio of Investments - continued
<TABLE>
<CAPTION>
Common Stocks - continued
================================================================================
Issuer Shares Value
- --------------------------------------------------------------------------------
<S> <C> <C>
U.S. Stocks - continued
Financial Institutions - continued
MBNA Corp. 46,700 $ 1,722,063
State Street Boston Corp. 370,000 16,650,000
------------
$ 56,803,188
- --------------------------------------------------------------------------------
Food and Beverage Products - 8.3%
Anheuser-Busch Cos., Inc. 160,000 $ 10,700,000
CPC International, Inc. 380,000 26,077,500
Campbell Soup Co. 471,600 28,296,000
General Mills, Inc. 273,500 15,794,625
Hershey Foods Corp. 86,000 5,590,000
Kellogg Co. 150,000 11,587,500
Nabisco Holdings Corp., "A" 808,000 26,361,000
PepsiCo, Inc. 576,000 32,184,000
Ralston Purina Co. 472,500 29,472,188
------------
$186,062,813
- --------------------------------------------------------------------------------
Forest and Paper Products - 2.0%
Kimberly Clark Corp. 552,860 $ 45,749,160
- --------------------------------------------------------------------------------
Insurance - 7.3%
AFLAC, Inc. 308,000 $ 13,359,500
American Re Corp. 257,000 10,504,875
CIGNA Corp. 213,500 22,043,875
MBIA, Inc. 353,000 26,475,000
Progressive Corp. - Ohio 391,200 19,119,900
Prudential Reinsurance Holdings, Inc.* 59,400 1,388,475
St. Paul Cos., Inc. 413,000 22,973,125
Torchmark, Inc. 530,000 23,982,500
Transamerica Corp. 324,600 23,655,225
------------
$163,502,475
- --------------------------------------------------------------------------------
Machinery - 2.9%
AGCO Corp. 100,000 $ 5,100,000
Case Corp. 150,000 6,862,500
Deere & Co., Inc. 484,000 17,061,000
Ingersoll Rand Co. 440,000 15,455,000
York International Corp. 420,000 19,740,000
------------
$ 64,218,500
- --------------------------------------------------------------------------------
Medical and Health Products - 4.9%
American Home Products Corp. 118,700 $ 11,513,900
Baxter International, Inc. 250,000 10,468,750
Johnson & Johnson 380,000 32,537,500
Lilly (Eli) & Co. 132,766 7,468,088
Pfizer, Inc. 340,000 21,420,000
Warner-Lambert Co. 280,000 27,195,000
------------
$110,603,238
- --------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
Portfolio of Investments - continued
<TABLE>
<CAPTION>
Common Stocks - continued
================================================================================
Issuer Shares Value
- --------------------------------------------------------------------------------
<S> <C> <C>
U.S. Stocks - continued
Medical and Health Technology and Services - 2.2%
Guidant Corp.* 167,323 $ 7,069,397
Manor Care, Inc. 40,000 1,400,000
Medtronic, Inc. 150,000 8,381,250
Pacificare Health Systems, Inc., "B"* 231,000 20,097,000
United Healthcare Corp. 187,000 12,248,500
------------
$ 49,196,147
- --------------------------------------------------------------------------------
Metals and Minerals - 0.7%
Phelps Dodge Corp. 240,000 $ 14,940,000
- --------------------------------------------------------------------------------
Oil Services - 0.3%
Schlumberger Ltd. 94,000 $ 6,509,500
- --------------------------------------------------------------------------------
Oils - 5.7%
Amoco Corp. 430,000 $ 30,906,250
Chevron Corp. 120,000 6,300,000
Exxon Corp. 328,000 26,281,000
Mobil Corp. 445,000 49,840,000
USX-Marathon Group 600,000 11,700,000
Union Pacific Resource Group, Inc.* 93,300 2,367,488
------------
$127,394,738
- --------------------------------------------------------------------------------
Photographic Products - 0.8%
Eastman Kodak Co. 270,000 $ 18,090,000
- --------------------------------------------------------------------------------
Pollution Control - 0.1%
WMX Technologies, Inc. 46,500 $ 1,389,188
- --------------------------------------------------------------------------------
Printing and Publishing - 0.6%
Tribune Co., Inc. 220,000 $ 13,447,500
- --------------------------------------------------------------------------------
Railroads - 4.4%
CSX Corp. 832,000 $ 37,960,000
Conrail, Inc. 380,000 26,600,000
Illinois Central Corp. 580,000 22,257,500
Norfolk Southern Corp. 150,000 11,906,250
------------
$ 98,723,750
- --------------------------------------------------------------------------------
Restaurants and Lodging
Promus Hotel Corp.* 18,000 $ 400,500
- --------------------------------------------------------------------------------
Special Products and Services - 0.3%
Stanley Works 150,000 $ 7,725,000
- --------------------------------------------------------------------------------
Stores - 4.1%
Circuit City Stores, Inc. 520,000 $ 14,365,000
Dayton-Hudson Corp. 190,000 14,250,000
Federated Department Stores, Inc.* 48,000 1,320,000
Home Depot, Inc. 120,000 5,745,000
Lowe's Cos., Inc. 150,000 5,025,000
May Department Stores Co. 495,000 20,913,750
Penney (J.C.), Inc. 320,000 15,240,000
Sears, Roebuck & Co. 150,000 5,850,000
</TABLE>
10
<PAGE>
Portfolio of Investments - continued
<TABLE>
<CAPTION>
Common Stocks - continued
=================================================================================
Issuer Shares Value
- ---------------------------------------------------------------------------------
<S> <C> <C>
U.S. Stocks - continued
Stores - continued
Wal-Mart Stores, Inc. 450,000 $ 10,068,750
--------------
$ 92,777,500
- ---------------------------------------------------------------------------------
Utilities - Electric - 1.4%
CMS Energy Corp. 42,000 $ 1,254,750
Cinergy Corp. 204,600 6,265,875
DPL, Inc. 395,700 9,793,575
Illinova Corp. 46,000 1,380,000
Peco Energy Co. 300,000 9,037,500
Pinnacle West Capital Corp. 50,000 1,437,500
Portland General Corp. 50,000 1,456,250
--------------
$ 30,625,450
- ---------------------------------------------------------------------------------
Utilities - Gas - 0.6%
Pacific Enterprises 480,000 $ 13,560,000
- ---------------------------------------------------------------------------------
Utilities - Telephone - 3.8%
AT&T Corp. 270,000 $ 17,482,500
Ameritech Corp. 204,000 12,036,000
BellSouth Corp. 240,000 10,440,000
GTE Corp. 497,000 21,868,000
Pacific Telesis Group 200,000 6,725,000
SBC Communications, Inc. 275,000 15,812,500
--------------
$ 84,364,000
- ---------------------------------------------------------------------------------
Total U.S. Stocks $2,055,507,998
- ---------------------------------------------------------------------------------
Foreign Stocks - 4.5%
Denmark - 0.4%
Tele Danmark, ADR, "B" (Utilities - Telephone) 320,000 $ 8,840,000
- ---------------------------------------------------------------------------------
Italy - 0.1%
Telecom Italia (Telecommunications) 1,250,000 $ 2,201,481
- ---------------------------------------------------------------------------------
Japan - 0.7%
Bank of Tokyo (Finance) 401,000 $ 7,017,403
Takeda Chemical Industries (Chemicals) 503,000 8,267,427
---------
$ 15,284,830
- ---------------------------------------------------------------------------------
Netherlands - 1.0%
IHC Caland, NV (Transportation) 143,100 $ 4,808,587
Royal Dutch Petroleum Co. (Oils) 132,000 18,628,500
--------------
$ 23,437,087
- ---------------------------------------------------------------------------------
New Zealand - 0.2%
Lion Nathan Ltd. (Food and Beverage Products) 2,000,000 $ 4,765,439
- ---------------------------------------------------------------------------------
Singapore - 0.1%
Mandarin Oriental International Ltd.
(Restaurants and Lodging) 112,900 $ 136,609
Singapore Press Holdings Ltd. (Publishing) 150,000 2,652,426
--------------
$ 2,789,035
- ---------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
Portfolio of Investments - continued
<TABLE>
<CAPTION>
Common Stocks - continued
=================================================================================
Issuer Shares Value
- ---------------------------------------------------------------------------------
<S> <C> <C>
Foreign Stocks - continued
Sweden - 1.3%
Astra AB, "B" (Pharmaceuticals) 593,600 $ 23,495,997
Hennes & Mauritz, "B" (Retail) 82,050 4,569,036
--------------
$ 28,065,033
- ---------------------------------------------------------------------------------
United Kingdom - 0.7%
British Petroleum PLC, ADR (Oils) 15,500 $ 1,582,938
PowerGen PLC, ADR (Utilities - Electric) 1,312,400 4,502,880
PowerGen PLC (Utilities - Electric) 1,005,800 8,307,209
SmithKline Beecham PLC, ADR (Medical and Health
Products) 25,000 1,387,500
--------------
$ 15,780,527
- ---------------------------------------------------------------------------------
Total Foreign Stocks $ 101,163,430
- ---------------------------------------------------------------------------------
Total Common Stocks (Identified Cost, $1,538,328,977) $2,156,671,435
- ---------------------------------------------------------------------------------
Convertible Preferred Stock - 0.1%
=================================================================================
Atlantic Richfield Co. (Oils) (Identified Cost,
$2,970,000) 120,000 $ 2,820,000
- ---------------------------------------------------------------------------------
Convertible Bonds - 1.0%
=================================================================================
Principal Amount
(000 Omitted)
- ---------------------------------------------------------------------------------
Costco Wholesale Corp., 5.75s, 2002 (Stores) $ 2,500 $ 2,375,000
Equitable (Cos.), Inc., 6.125s, 2024 (Insurance) 6,250 7,132,813
Roche Holdings, Inc., 0s, 2010
(Medical and Health Technology and Services)## 20,512 9,025,280
Sandoz, 2s, 2002 (Chemicals) ## 4,750 4,488,750
- ---------------------------------------------------------------------------------
Total Convertible Bonds (Identified Cost,
$20,077,891) $ 23,021,843
- ---------------------------------------------------------------------------------
Short-Term Obligations - 4.3%
=================================================================================
Abbott Labs, due 1/10/96 $ 12,780 $ 12,762,108
Federal Home Loan Bank, due 1/22/96 12,780 12,739,296
Federal Home Loan Mortgage Corp., due 1/22/96 7,035 7,012,635
Federal National Mortgage Assn., due 1/04/96 -
1/17/96 24,260 24,223,401
Ford Motor Credit Corp., due 1/02/96 - 1/05/96 31,905 31,890,482
Raytheon Co., due 1/08/96 2,650 2,646,960
Transamerica Co., due 1/02/96 10 9,998
Weyerhaeuser Co., due 1/09/96 4,560 4,554,123
- ---------------------------------------------------------------------------------
Total Short-Term Obligations, at Amortized Cost and Value $ 95,839,003
- ---------------------------------------------------------------------------------
Total Investments (Identified Cost, $1,657,215,871) $2,278,352,276
Other Assets, Less Liabilities - (1.7)% (38,968,459)
=================================================================================
Net Assets - 100.0% $2,239,383,817
- ---------------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
## SEC Rule 144A restriction.
See notes to financial statements
12
<PAGE>
Financial Statements
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
================================================================================================
December 31, 1995
- ------------------------------------------------------------------------------------------------
<S> <C>
Assets:
Investments, at value (identified cost, $1,657,215,871) $2,278,352,276
Cash 6,080
Receivable for investments sold 176,240
Receivable for Trust shares sold 5,763,435
Interest and dividends receivable 4,948,282
Other assets 22,128
--------------
Total assets $2,289,268,441
--------------
Liabilities:
Distributions payable $ 43,321,632
Payable for investments purchased 2,530,553
Payable for Trust shares reacquired 2,189,167
Net payable for forward foreign currency exchange contracts sold 176,905
Payable to affiliates -
Management fee 37,565
Shareholder servicing agent fee 21,888
Distribution fee 1,141,685
Accrued expenses and other liabilities 465,229
--------------
Total liabilities $ 49,884,624
--------------
Net assets $2,239,383,817
==============
Net assets consist of:
Paid-in capital $1,619,728,971
Unrealized appreciation on investments and translation of assets and
liabilities in foreign currencies 620,961,085
Accumulated distributions in excess of net realized gain on investments
and foreign currency transactions (1,230,776)
Accumulated undistributed net investment income (75,463)
--------------
Total $2,239,383,817
==============
Shares of beneficial interest outstanding 176,322,348
==============
Class A shares:
Net asset value and redemption price per share
(net assets of $2,074,498,655 / 163,272,441 shares of beneficial interest
outstanding) $12.71
======
Offering price per share (100/94.25) $13.49
======
Class B shares:
Net asset value and offering price per share
(net assets of $164,885,162 / 13,049,907 shares of beneficial interest
outstanding) $12.63
======
</TABLE>
On sales of $50,000 or more, the offering price of Class A shares is reduced.
A contingent deferred sales charge may be imposed on redemptions of Class A
and Class B shares.
See notes to financial statements
13
<PAGE>
Financial Statements -- continued
<TABLE>
<CAPTION>
Statement of Operations
=====================================================================================
Year Ended December 31, 1995
- -------------------------------------------------------------------------------------
<S> <C>
Net investment income:
Income -
Dividends $ 48,726,746
Interest 5,996,829
Foreign taxes withheld (356,689)
------------
Total investment income $ 54,366,886
------------
Expenses -
Management fee $ 4,973,977
Trustees' compensation 79,395
Shareholder servicing agent fee (Class A) 2,086,710
Shareholder servicing agent fee (Class B) 243,026
Distribution and service fee (Class A) 6,246,877
Distribution and service fee (Class B) 1,104,662
Custodian fee 605,693
Postage 292,600
Printing 135,466
Auditing fees 41,175
Legal fees 15,025
Miscellaneous 632,502
------------
Total expenses $ 16,457,107
Fees paid indirectly (242,362)
Reduction of expenses by distributor (1,812,629)
------------
Net expenses $ 14,402,116
------------
Net investment income $ 39,964,770
------------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $172,145,965
Foreign currency transactions (54,138)
------------
Net realized gain on investments and foreign currency
transactions $172,091,827
------------
Change in unrealized appreciation (depreciation) -
Investments $421,925,203
Translation of assets and liabilities in foreign currencies (175,320)
------------
Net unrealized gain on investments $421,749,883
------------
Net realized and unrealized gain on investments and foreign
currency $593,841,710
------------
Increase in net assets from operations $633,806,480
============
</TABLE>
See notes to financial statements
14
<PAGE>
Financial Statements -- continued
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
==================================================================================
Year Ended December 31, 1995 1994
- ----------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 39,964,770 $ 36,153,270
Net realized gain on investments and foreign
currency transactions 172,091,827 153,086,960
Net unrealized gain (loss) on investments and
foreign currency translation 421,749,883 (207,006,595)
-------------- --------------
Increase (decrease) in net assets from
operations $ 633,806,480 $ (17,766,365)
-------------- --------------
Distributions declared to shareholders -
From net investment income (Class A) $ (38,309,881) $ (34,653,221)
From net investment income (Class B) (1,554,192) (721,674)
From net realized gain on investments and
foreign currency transactions (Class A) (158,264,565) (154,197,201)
From net realized gain on investments and
foreign currency transactions (Class B) (12,389,102) --
In excess of net investment income (Class A) -- (58,099)
In excess of net investment income (Class B) -- (1,186)
In excess of net realized gain on investments
and foreign currency transactions (Class A) -- (2,785,811)
-------------- --------------
Total distributions declared to shareholders $ (210,517,740) $ (192,417,192)
-------------- --------------
Trust share (principal) transactions -
Net proceeds from sale of shares $ 286,048,738 $ 193,471,112
Net asset value of shares issued to shareholders
in reinvestment of distributions 154,187,632 136,047,466
Cost of shares reacquired (227,698,069) (156,603,306)
-------------- --------------
Increase in net assets from Trust share
transactions $ 212,538,301 $ 172,915,272
-------------- --------------
Total increase (decrease) in net assets $ 635,827,041 $ (37,268,285)
Net assets:
At beginning of period 1,603,556,776 1,640,825,061
-------------- --------------
At end of period (including accumulated
undistributed net investment income and
accumulated distributions in excess of net
investment income of $(75,463) and $59,285,
respectively) $2,239,383,817 $1,603,556,776
============== ==============
</TABLE>
See notes to financial statements
15
<PAGE>
Financial Statements-- continued
<TABLE>
<CAPTION>
Financial Highlights
- -------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1995 1994 1993 1992 1991 1990 1989
- -------------------------------------------------------------------------------------------------------------------
Class A
<S> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $10.07 $11.50 $12.31 $13.87 $12.28 $13.55 $11.22
------ ------ ------ ------ ------ ------ ------
Income from investment operations# -
Net investment incomeSS $ 0.25 $ 0.25 $ 0.39 $ 0.32 $ 0.38 $ 0.43 $ 0.45
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions 3.67 (0.36) 0.86 0.69 2.95 (0.45) 3.56
------ ------ ------ ------ ------ ------ ------
Total from investment operations $ 3.92 $(0.11) $ 1.25 $ 1.01 $ 3.33 $(0.02) $ 4.01
------ ------ ------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income+++ $(0.46) $(0.25) $(0.39) $(0.33) $(0.39) $(0.43) $(0.45)
From net realized gain on investments
and foreign currency transactions (0.82) (1.05) (1.67) (2.22) (1.32) (0.82) (1.22)
In excess of net realized gain on
investments and foreign currency
transactions++ -- (0.02) -- -- -- -- --
From paid-in capital -- -- -- (0.02) (0.03) -- (0.01)
------ ------ ------ ------ ------ ------ ------
Total distributions
declared to shareholders $(1.28) $(1.32) $(2.06) $(2.57) $(1.74) $(1.25) $(1.68)
------ ------ ------ ------ ------ ------ ------
Net asset value - end of period $12.71 $10.07 $11.50 $12.31 $13.87 $12.28 $13.55
====== ====== ====== ====== ====== ====== ======
Total return= 39.34% (1.02)% 10.03% 7.68% 27.41% (0.33)% 35.80%
Ratios (to average net assets)/Supplemental dataSS.:
Expenses## 0.70% 0.71% 0.68% 0.62% 0.62% 0.47% 0.50%
Net investment income 2.13% 2.20% 3.04% 2.30% 2.73% 3.28% 3.40%
Portfolio turnover 54% 87% 41% 46% 44% 26% 20%
Net assets at end of period (000,000
omitted) $2,074 $1,535 $1,626 $1,548 $1,530 $1,265 $1,382
++ For the year ended December 31, 1991, the per share distribution in excess of net realized gain on investments
was $0.0041.
+++ For the year ended December 31, 1994, the per share distribution in excess of net investment income was
$0.0004 for Class A shares.
# Per share data for the periods subsequent to December 31, 1992 is based on average shares outstanding.
## For fiscal years ending after September 1, 1995, the Trust's expenses are calculated without reduction for
fees paid indirectly.
= Total returns for Class A shares do not include the applicable sales charge (except for reinvested dividends
prior to January 2, 1991). If the charge had been included, the results would have been lower.
SS The distributor did not impose a portion of its distribution fee for the periods indicated. For the year ended
December 31, 1993, net investment income for Class A shares includes $0.012 per share applicable to
nonrecurring dividend income. Had the dividend for the period not been included and the management fee related
to such income not been waived, and the distribution fee not been waived, the net investment income per share
and the ratios would have been:
Net investment income $0.24 $0.24 $0.27 -- -- -- --
Ratios (to average net assets):
Expenses## 0.81% 0.81% 0.74% -- -- -- --
Net investment income 2.02% 2.10% 2.05% -- -- -- --
</TABLE>
See notes to financial statements
16
<PAGE>
Financial Statements -- continued
Financial Highlights -- continued
<TABLE>
<CAPTION>
=========================================================================================================
Year Ended December 31, 1988 1987 1986 1995 1994 1993*
- ---------------------------------------------------------------------------------------------------------
Class A Class B
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $11.26 $12.09 $12.12 $10.03 $11.48 $13.02
------ ------ ------ ------ ------ ------
Income from investment operations# -
Net investment incomeSS $ 0.40 $ 0.38 $ 0.40 $ 0.15 $ 0.15 $ 0.04
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions 0.76 0.57 1.72 3.64 (0.36) 0.32
------ ------ ------ ------ ------ ------
Total from investment operations $ 1.16 $ 0.95 $ 2.12 $ 3.79 $(0.21) $ 0.36
------ ------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income++++ $(0.39) $(0.39) $(0.40) $(0.37) $(0.17) $(0.23)
From net realized gain on investments
and foreign currency transactions (0.81) (1.39) (1.73) (0.82) (1.05) (1.67)
In excess of net realized gain on
investments and foreign currency
transactions -- -- -- -- (0.02) --
From paid-in capital // -- -- (0.02) -- -- --
------ ------ ------ ------ ------ ------
Total distributions declared to
shareholders $(1.20) $(1.78) $(2.15) $(1.19) $(1.24) $(1.90)
------ ------ ------ ------ ------ ------
Net asset value - end of period $11.22 $11.26 $12.09 $12.63 $10.03 $11.48
====== ====== ====== ====== ====== ======
Total return= 10.12% 7.25% 16.97% 38.05% (1.88)% 2.62%
Ratios (to average net assets)/Supplemental dataSS:
Expenses## 0.55% 0.45% 0.49% 1.56% 1.61% 1.56%+
Net investment income 3.39% 2.63% 2.99% 1.25% 1.37% 1.05%+
Portfolio turnover 19% 23% 26% 54% 87% 41%
Net assets at end of period (000,000
omitted) $1,139 $1,177 $1,186 $165 $69 $15
</TABLE>
* For the period from the commencement of offering of Class B shares,
September 7, 1993, to December 31, 1993.
// For the year ended December 31, 1988, the per share distribution from
paid-in capital was $0.001.
++++ For the year ended December 31, 1994, the per share distribution in
excess of net investment income was $0.0003 for Class B shares.
+ Annualized.
# Per share data for the periods subsequent to December 31, 1992 is based
on average shares outstanding.
## For fiscal years ending after September 1, 1995, the Trust's expenses
are calculated without reduction for fees paid indirectly.
= Total returns for Class A shares do not include the applicable sales
charge (except for reinvested dividends prior to January 2, 1991). If
the charge had been included, the results would have been lower.
SS The distributor did not impose a portion of its distribution fee for the
periods indicated. For the year ended December 31, 1993, net investment
income for Class B shares includes $0.007 per share applicable to
nonrecurring dividend income. Had the dividend for the period not been
included and the management fee related to such income not been waived,
and the distribution fee not been waived, the net investment income per
share and the ratios would have been:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Net investment income -- -- -- $0.15 -- $0.03
Ratios (to average net assets):
Expenses## -- -- -- 1.58% -- 1.66%+
Net investment income -- -- -- 1.23% -- 0.29%+
</TABLE>
See notes to financial statements
17
<PAGE>
Notes to Financial Statements
(1) Business and Organization
Massachusetts Investors Trust (the Trust) was organized as a common law
trust under the laws of the Commonwealth of Massachusetts in 1924 and is
registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company.
(2) Significant Accounting Policies
Investment Valuations - Equity securities listed on securities exchanges or
reported through the NASDAQ system are valued at last sale prices. Unlisted
equity securities or listed equity securities for which last sale prices are
not available are valued at last quoted bid prices. Debt securities (other
than short-term obligations which mature in 60 days or less), including
listed issues and forward contracts, are valued on the basis of valuations
furnished by dealers or by a pricing service with consideration to factors
such as institutional-size trading in similar groups of securities, yield,
quality, coupon rate, maturity, type of issue, trading characteristics and
other market data, without exclusive reliance upon exchange or
over-the-counter prices. Short-term obligations, which mature in 60 days or
less, are valued at amortized cost, which approximates market value.
Foreign Currency Translation - Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars based upon current exchange rates. Purchases
and sales of foreign investments, income and expenses are converted into U.S.
dollars based upon currency exchange rates prevailing on the respective dates
of such transactions. Gains and losses attributable to foreign currency
exchange rates on sales of securities are recorded for financial statement
purposes as net realized gains and losses on investments. Gains and losses
attributable to foreign exchange rate movements on income and expenses are
recorded for financial statement purposes as foreign currency transaction
gains and losses. That portion of both realized and unrealized gains and
losses on investments that results from fluctuations in foreign currency
exchange rates is not separately disclosed.
Forward Foreign Currency Exchange Contracts - The Trust may enter into
forward foreign currency exchange contracts for the purchase or sale of a
specific foreign currency at a fixed price on a future date. Risks may arise
upon entering into these contracts from the potential inability of
counterparties to meet the terms of their contracts and from unanticipated
movements in the value of a foreign currency relative to the U.S. dollar. The
Trust will enter into forward contracts for hedging purposes as well as for
non-hedging purposes. For hedging purposes, the Trust may enter into
contracts to deliver or receive foreign currency it will receive from or
require for its normal investment activities. It may also use contracts in a
manner intended to protect foreign currency-denominated securities from
declines in value due to unfavorable exchange rate movements. For non-hedging
purposes, the Trust may enter into contracts with the intent of changing the
relative exposure of the Trust's portfolio of securities to different
currencies to take
18
<PAGE>
Notes to Financial Statements - continued
advantage of anticipated changes. The forward foreign currency exchange
contracts are adjusted by the daily exchange rate of the underlying currency
and any gains or losses are recorded for financial statement purposes as
unrealized until the contract settlement date.
Investment Transactions and Income - Investment transactions are recorded on
the trade date. Interest income is recorded on the accrual basis. All premium
and original issue discount are amortized or accreted for financial statement
and tax reporting purposes as required by federal income tax regulations.
Dividend income is recorded on the ex-dividend date for dividends received in
cash. Dividend payments received in additional securities are recorded on the
ex-dividend date in an amount equal to the value of the security on such
date.
Fees Paid Indirectly - The Trust's custodian bank calculates its fee based on
the Trust's average daily net assets. The fee is reduced according to a fee
arrangement, which provides for custody fees to be reduced based on a formula
developed to measure the value of cash deposited with the custodian by the
Trust. This amount is shown as a reduction of expenses on the Statement of
Operations.
Tax Matters and Distributions - The Trust's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided. The Trust files a tax
return annually using tax accounting methods required under provisions of the
Code which may differ from generally accepted accounting principles, the
basis on which these financial statements are prepared. Accordingly, the
amount of net investment income and net realized gain reported on these
financial statements may differ from that reported on the Trust's tax return,
and consequently, the character of distributions to shareholders reported in
the financial highlights may differ from that reported to shareholders on
Form 1099-DIV. Foreign taxes have been provided for on interest and dividend
income earned on foreign investments in accordance with the applicable
country's tax rates and to the extent unrecoverable are recorded as a
reduction of investment income. Distributions to shareholders are recorded on
the ex-dividend date.
The Trust distinguishes between distributions on a tax basis and a financial
reporting basis and requires that only distributions in excess of tax basis
earnings and profits are reported in the financial statements as a return of
capital. Differences in the recognition or classification of income between
the financial statements and tax earnings and profits which result in
temporary over- distributions for financial statement purposes, are
classified as distributions in excess of net investment income or accumulated
net realized gains. During the year ended December 31, 1995, $116,875 was
reclassified from accumulated undistributed net investment income to
accumulated net realized gain on investments, due to differences between book
and tax accounting for currency transactions. This change had no effect on
the net assets or net asset value per share.
19
<PAGE>
Notes to Financial Statements - continued
At December 31, 1995, accumulated realized gain on investments and foreign
currency transactions under book accounting was different from tax accounting
due to temporary differences in accounting for foreign currency.
Multiple Classes of Shares of Beneficial Interest - The Trust offers both
Class A and Class B shares. The two classes of shares differ in their
respective shareholder servicing agent, distribution and service fees. All
shareholders bear the common expenses of the Trust pro rata, based on the
average daily net assets of each class, without distinction between share
classes. Dividends are declared separately for each class. No class has
preferential dividend rights; differences in per share dividend rates are
generally due to differences in separate class expenses.
(3) Transactions with Affiliates
Investment Adviser - The Trust has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an effective annual rate
of 0.16% of average daily net assets and 3.55% of investment income.
The Trust pays no compensation directly to its Trustees who are officers of
the investment adviser, or to officers of the Trust, all of whom receive
remuneration for their services to the Trust from MFS. Certain of the
officers and Trustees of the Trust are officers or directors of MFS, MFS Fund
Distributors, Inc. (MFD) and MFS Service Center, Inc. (MFSC). The Trust has
an unfunded defined benefit plan for all of its independent Trustees and Mr.
Bailey. Included in Trustees' compensation is a net periodic pension expense
of $21,835 for the year ended December 31, 1995.
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$388,820 for the year ended December 31, 1995, as its portion of the sales
charge on sales of Class A shares of the Trust.
The Trustees have adopted separate distribution plans for Class A and Class B
shares pursuant to Rule 12b-1 of the Investment Company Act of 1940 as
follows:
The Class A distribution plan provides that the Trust will pay MFD up to
0.35% per annum of its average daily net assets attributable to Class A
shares in order that MFD may pay expenses on behalf of the Trust related to
the distribution and servicing of its shares. These expenses include a
service fee to each securities dealer that enters into a sales agreement with
MFD of up to 0.25% per annum of the Trust's average daily net assets
attributable to Class A shares which are attributable to that securities
dealer, a distribution fee to MFD of up to 0.10% per annum of the Trust's
average daily net assets attributable to Class A shares, commissions to
dealers and payments to MFD wholesalers for sales at or above a certain
dollar level, and other such distribution-related expenses that are approved
by the Trust. MFD retains the service fee for accounts not attributable to a
securities dealer, which amounted to $1,145,755 for Class A shares for the
year ended December 31, 1995. MFD is waiving the 0.10% distribution fee for
an indefinite period. Fees incurred under the distribution plan
20
<PAGE>
Notes to Financial Statements - continued
during the year ended December 31, 1995 were 0.24% of average daily net
assets attributable to Class A shares on an annualized basis.
The Class B distribution plan provides that the Trust will pay MFD a
distribution fee of 0.75% per annum, and a service fee of up to 0.25% per
annum, of the Trust's average daily net assets attributable to Class B
shares. The service fee is currently suspended on Class B shares held over
one year. MFD will pay to securities dealers that enter into a sales
agreement with MFD all or a portion of the service fee attributable to Class
B shares. The service fee is intended to be additional consideration for
services rendered by the dealer with respect to Class B shares. MFD retains
the service fee for accounts not attributable to a securities dealer, which
amounted to $12,142 for Class B shares for the year ended December 31, 1995.
Fees incurred under the distribution plan during the year ended December 31,
1995 were 1.00% of average daily net assets attributable to Class B shares on
an annualized basis.
A contingent deferred sales charge is imposed on shareholder redemptions of
Class A shares, on purchases of $1 million or more, in the event of a
shareholder redemption within 12 months following the share purchase. A
contingent deferred sales charge is imposed on shareholder redemptions of
Class B shares in the event of a shareholder redemption within six years of
purchase. MFD receives all contingent deferred sales charges. Contingent
deferred sales charges imposed during the year ended December 31, 1995 were
$18,908 and $157,607 for Class A and Class B shares, respectively.
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earns a
fee for its services as shareholder servicing agent. The fee is calculated as
a percentage of the average daily net assets of each class of shares at an
effective annual rate of up to 0.15% and up to 0.22% attributable to Class A
and Class B shares, respectively.
(4) Portfolio Securities
Purchases and sales of investments, other than U.S. government securities and
short-term obligations, aggregated $1,051,337,424 and $995,290,305,
respectively.
The cost and unrealized appreciation or depreciation in value of the
investments owned by the Trust, as computed on a federal income tax basis,
are as follows:
<TABLE>
<CAPTION>
<S> <C>
Aggregate cost $1,657,215,871
==============
Gross unrealized appreciation $ 628,630,475
Gross unrealized depreciation (7,494,070)
--------------
Net unrealized appreciation $ 621,136,405
==============
</TABLE>
21
<PAGE>
Notes to Financial Statements - continued
(5) Shares of Beneficial Interest
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in Trust shares were as follows:
<TABLE>
<CAPTION>
1995 1994
-------------------------- --------------------------
Class A Shares
Year Ended December 31, Shares Amount Shares Amount
==========================================================================================
<S> <C> <C> <C> <C>
Shares sold 17,087,194 $204,278,899 11,401,171 $129,970,532
Shares issued to
shareholders in
reinvestment of
distributions 11,238,706 141,190,710 12,678,046 129,231,432
Shares reacquired (17,466,366) (207,986,831) (13,044,429) (148,666,502)
----------- ------------ ----------- ------------
Net increase 10,859,534 $137,482,778 11,034,788 $110,535,462
=========== ============ =========== ============
</TABLE>
<TABLE>
<CAPTION>
1995 1994
-------------------------- --------------------------
Class B Shares
Year Ended December 31, Shares Amount Shares Amount
==========================================================================================
<S> <C> <C> <C> <C>
Shares sold 6,848,511 $81,769,839 5,590,985 $63,500,580
Shares issued to
shareholders in
reinvestment of
distributions 1,037,328 12,996,922 674,366 6,816,034
Shares reacquired (1,667,587) (19,711,238) (703,746) (7,936,804)
----------- ------------ ----------- ------------
Net increase 6,218,252 $75,055,523 5,561,605 $62,379,810
=========== ============ =========== ============
</TABLE>
(6) Line of Credit
The Trust entered into an agreement which enables it to participate with
other funds managed by MFS in an unsecured line of credit with a bank which
permits borrowings up to $350 million, collectively. Borrowings may be made
to temporarily finance the repurchase of Trust shares. Interest is charged to
each fund, based on its borrowings, at a rate equal to the bank's base rate.
In addition, a commitment fee, based on the average daily unused portion of
the line of credit, is allocated among the participating funds at the end of
each quarter. The commitment fee allocated to the Trust for the year ended
December 31, 1995 was $25,635.
22
<PAGE>
Notes to Financial Statements - continued
(7) Financial Instruments
The Trust trades financial instruments with off-balance sheet risk in the
normal course of its investing activities in order to manage exposure to
market risks such as interest rates and foreign currency exchange rates.
These financial instruments include forward foreign currency exchange
contracts. The notional or contractual amounts of these instruments represent
the investment the Trust has in particular classes of financial instruments
and does not necessarily represent the amounts potentially subject to risk.
The measurement of the risks associated with these instruments is meaningful
only when all related and offsetting transactions are considered.
Forward Foreign Currency Exchange Contracts
<TABLE>
<CAPTION>
Contracts
Settlement to In Exchange Contracts Net Unrealized
Date Deliver for at Value Depreciation
===================================================================================
<S> <C> <C> <C> <C> <C>
Sales 3/15/96 SEK 88,704,000 $13,100,576 $13,277,481 $(176,905)
=========
</TABLE>
SEK = Swedish Kronor
At December 31, 1995, the Trust had sufficient cash and/or securities to
cover any commitments under these contracts.
(8) Restricted Securities
The Trust may invest not more than 15% of its net assets in securities which
are subject to legal or contractual restrictions on resale. At December 31,
1995, the Trust owned the following restricted securities (constituting 0.60%
of net assets) which may not be publicly sold without registration under the
Securities Act of 1933 (the 1933 Act). The Trust does not have the right to
demand that such securities be registered. The value of these securities is
determined by valuations supplied by a pricing service or brokers. Certain of
these securities may be offered and sold to "qualified institutional buyers"
under Rule 144A of the 1933 Act.
<TABLE>
<CAPTION>
Date of Principal
Description Acquisition Amount Cost Value
===========================================================================================
<S> <C> <C> <C> <C>
Roche Holdings, Inc., 0s, 2010 4/12/95 $20,512,000 $7,308,015 $ 9,025,280
Sandoz, 2s, 2002 9/28/95 4,750,000 3,923,495 4,488,750
-----------
$13,514,030
===========
</TABLE>
23
<PAGE>
Independent Auditors' Report
To the Trustees and Shareholders of Massachusetts Investors Trust:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Massachusetts Investors Trust as
of December 31, 1995, the related statement of operations for the year then
ended, the statement of changes in net assets for the years ended December
31, 1995 and 1994, and the financial highlights for each of the years in the
ten-year period ended December 31, 1995. These financial statements and
financial highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of the
securities owned at December 31, 1995 by correspondence with the custodian
and brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Massachusetts
Investors Trust at December 31, 1995, the results of its operations, the
changes in its net assets, and its financial highlights for the respective
stated periods in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 1, 1996
----------------
This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by a current prospectus.
24
<PAGE>
It's Easy to Contact Us
[Phone Graphic] MFS Automated Information
Account Information:
Call 1-800-MFS-TALK (1-800-637-8255) anytime.
Market Outlook:
Call 1-800-637-4458 anytime for the MFS outlook on the bond and stock
markets.
[Graphic Question Mark] MFS Personal Service
Account Service:
Call 1-800-225-2606 any business day from 8 a.m. to 8 p.m. Eastern time.
Product Information:
Call 1-800-637-2929 any business day from 9 a.m. to 5 p.m. Eastern time.
IRA Service:
Call 1-800-637-1255 any business day from 8 a.m. to 6 p.m. Eastern time.
Service for the Hearing-Impaired:
Call 1-800-637-6576 any business day from 9 a.m. to 5 p.m. Eastern time (TDD
required).
[Graphic Envelope] MFS Mailing Addresses
For Personal Accounts:
MFS Service Center, Inc.
P.O. Box 2281
Boston, MA 02107-9906
For IRA Accounts:
MFS Service Center, Inc.
J.W. McCormack Station
P.O. Box 4501
Boston, MA 02101-9817
25
<PAGE>
A Word About MFS Products and Services
Making Additional Investments at Your Convenience
There are several easy ways to make additional single investments of at least
$50:
(bullet) send a check with the lower portion of your account statement
(bullet) contact your financial adviser to purchase shares on your behalf
(bullet) wire additional investments through your bank; call us first for
instructions
Making Additional Investments Automatically
By investing a set amount at regular intervals, over time you will buy more
shares when prices are low, and fewer shares when prices are high. Because
dollar cost averaging involves periodic purchases regardless of fluctuating
share prices, you should consider your financial ability to continue
investing in periods of low prices. MFS offers two dollar-cost-averaging
programs. See the prospectus for further details. Dollar cost averaging does
not assure a profit or avoid a loss.
The Automatic Investment Plan offers a simple way to make regular investments
of at least $50 through automatic withdrawals from your checking account.
The Automatic Exchange Plan automatically exchanges shares from any MFS fund
with $5,000 or more into the same class of shares in up to four other MFS
funds. You choose the amounts of the exchanges (as little as $50) and their
frequency.
A Hypothetical Example of Automatic Monthly Investing Compounding at 8% a Year
<TABLE>
<CAPTION>
5
Amount Years 10 15 20 25
- ------- ------ ----- ----- ------ -------
<S> <C> <C> <C> <C> <C>
$50 3,671 9,064 16,989 28,633 45,742
$75 5,506 13,596 25,483 42,950 68,613
$100 7,341 18,128 33,978 57,266 91,484
$200 14,683 36,257 67,956 114,532 182,968
</TABLE>
For illustration only. Not indicative of future performance of any MFS fund.
For applications or further information call 1-800-225-2606 any business day
from 8 a.m. to 8 p.m. Eastern time.
If you are a participant in a retirement plan, check with your plan sponsor
regarding the availability of these options.
26
<PAGE>
A Financial Adviser Can Help You Be a Better Investor
Financial advisers can be valuable resources for their clients, providing
ongoing education and guidance about investments, as well as a wide range of
services. Here are just some of the ways your financial adviser may be able
to help you be a better investor:
[checkmark] Day-to-day monitoring of your portfolio
[checkmark] Tax recordkeeping
[checkmark] In-depth information on fund managers, their track records and
their tenure
[checkmark] Risk/reward analyses of current or potential holdings
[checkmark] Asset allocation advice
[checkmark] Construction of a detailed personal financial profile
[checkmark] Order and confirmation processing
[checkmark] Information on a fund group's range of shareholder services
[checkmark] Portfolio adjustments based on lifestyle changes
[checkmark] Assistance with business retirement planning
[checkmark] Evaluation of lump-sum distribution options
[checkmark] Recommendations on a selection of fund groups
[checkmark] Specialized research and investment information not readily
available to individuals
[checkmark] In-depth knowledge of markets and products, kept current by
ongoing tracking
[checkmark] Estate, tax, insurance, and business planning
[checkmark] Help with possible savings on sales charges through breakpoints,
rights of accumulation, and letters of intent
27
<PAGE>
MFS Investment Opportunities
Mutual Funds
The MFS Family of Funds(R), shown on the facing page, falls into the eight
general categories below. All offer full-time professional management, a
diversified portfolio, and a wide array of shareholder services.
Stock funds seek growth of capital rather than income through investments in
stocks.
Stock and bond funds seek current income and growth of capital through
investments in both stocks and bonds.
Bond funds seek current income through investments in debt securities.
World funds seek stock, balanced, and bond fund objectives through
investments in U.S. and foreign stocks and bonds.
Limited-maturity bond funds seek current income and preservation of capital
through investments in debt securities with remaining maturities of five
years or less.
National tax-free bond funds seek current income exempt from federal income
tax through investments in debt securities issued by states and
municipalities.(1)
State tax-free bond funds seek current income exempt from federal and state
income taxes through investments in debt securities issued by a single state
and its municipalities.(1)
Money market funds seek preservation of capital and current income through
investments in short-term debt securities.(2)
To determine which MFS fund may be appropriate for you, please contact your
financial adviser, who can help you relate these investment opportunities to
your financial goals. If you prefer, you may call MFS Investor Information
for literature(3) on MFS products and services: 1-800-637-2929, from 9 a.m.
to 5 p.m. Eastern time any business day (leave a message anytime).
(1) A small portion of the income may be subject to federal, state and/or
alternative minimum tax.
(2) Investments in money market funds are not issued or guaranteed by the
U.S. government and there is no assurance that the fund will be able to
maintain a stable net asset value.
(3) Including a prospectus containing more complete information including
charges and expenses. Read the prospectus carefully before investing.
28
<PAGE>
The MFS Family of Funds(R)
America's Oldest Mutual Fund Group
The members of the MFS Family of Funds are grouped below according to the
types of securities in their portfolios. For free prospectuses containing
more complete information, including the exchange privilege and all charges
and expenses, please contact your financial adviser or call MFS at
1-800-637-2929 any business day from 9 a.m. to 5 p.m. Eastern time (or, leave
a message anytime). This material should be read carefully before investing
or sending money.
Stock
- -------------------------------------------------------------
Massachusetts Investors Trust
Massachusetts Investors Growth Stock Fund
MFS(R) Capital Growth Fund
MFS(R) Emerging Growth Fund
MFS(R) Gold & Natural Resources Fund
MFS(R) Growth Opportunities Fund
MFS(R) Managed Sectors Fund
MFS(R) OTC Fund
MFS(R) Research Fund
MFS(R) Value Fund
Stock and Bond
- -------------------------------------------------------------
MFS(R) Total Return Fund
MFS(R) Utilities Fund
Bond
- -------------------------------------------------------------
MFS(R) Bond Fund
MFS(R) Government Mortgage Fund
MFS(R) Government Securities Fund
MFS(R) High Income Fund
MFS(R) Intermediate Income Fund
MFS(R) Strategic Income Fund
Limited Maturity Bond
- -------------------------------------------------------------
MFS(R) Government Limited Maturity Fund
MFS(R) Limited Maturity Fund
MFS(R) Municipal Limited Maturity Fund
- -------------------------------------------------------------
World
- ----------------------------------------------------------------
MFS(R)/Foreign & Colonial Emerging Markets Equity Fund
MFS(R)/Foreign & Colonial International Growth Fund
MFS(R)/Foreign & Colonial International Growth and Income Fund
MFS(R) World Asset Allocation Fund(SM)
MFS(R) World Equity Fund
MFS(R) World Governments Fund
MFS(R) World Growth Fund
MFS(R) World Total Return Fund
National Tax-Free Bond
- ----------------------------------------------------------------
MFS(R) Municipal Bond Fund
MFS(R) Municipal High Income Fund (closed to new investors)
MFS(R) Municipal Income Fund
State Tax-Free Bond
- ----------------------------------------------------------------
Alabama, Arkansas, California, Florida, Georgia, Louisiana,
Maryland, Massachusetts, Mississippi, New York, North Carolina,
Pennsylvania, South Carolina, Tennessee, Texas, Virginia,
Washington, West Virginia
Money Market
- ----------------------------------------------------------------
MFS(R) Cash Reserve Fund
MFS(R) Government Money Market Fund
MFS(R) Money Market Fund
- ----------------------------------------------------------------
<PAGE>
Massachusetts
Investors Trust
500 Boylston Street
Boston, MA 02116
[MFS LOGO]
THE FIRST NAME IN MUTUAL FUNDS
[MFS DALBAR LOGO]
Bulk Rate
U.S. Postage
PAID
Permit #55638
Boston, MA
MIT-2 2/96 127M 12/212
<PAGE>
PART C
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(A) FINANCIAL STATEMENTS INCLUDED IN PART A:
For the ten years ended December 31, 1995:
Financial Highlights
FINANCIAL STATEMENTS INCLUDED IN PART B:
At December 31, 1995:
Portfolio of Investments*
Statement of Assets and Liabilities*
For the two years ended December 31, 1995:
Statement of Changes in Net Assets*
For the year ended December 31, 1995:
Statement of Operations*
- ---------------------
*Incorporated herein by reference to the Trust's Annual Report to
shareholders dated December 31, 1995, filed with the SEC via EDGAR on
February 29, 1996.
(B) EXHIBITS
1 Agreement and Declaration of Trust, dated March 21, 1924,
as amended through September 29, 1994. (3)
2 Not Applicable.
3 Not Applicable.
4 Form of Share Certificate for Class A and Class B Shares.
(4)
5 Investment Advisory Agreement, dated May 20, 1982. (6)
6(a) Distribution Agreement dated January 1, 1995. (3)
(b) Dealer Agreement between MFS Fund Distributors, Inc. ("MFD")
and a dealer, dated December 28, 1994 and Form of Mutual
Fund Agreement between MFS Financial Services, Inc. and a
bank or NASD affiliate, dated December 28, 1994. (1)
7 Retirement Plan for Non-Interested Person Trustees, dated
January 1, 1991. (6)
8(a) Custodian Agreement, dated December 6, 1934.(6)
(b) Amendment to Custodian Agreement, dated February 22, 1978.
(6)
(c) Amendment to Custodian Agreement, dated February 29, 1988.
(6)
(d) Amendment to Custodian Agreement, dated October 1, 1989. (6)
(e) Amendment to Custodian Agreement, dated October 21, 1993.
(6)
(f) Amendment to Custodian Agreement, dated December 15, 1993.
(3)
9(a) Shareholder Servicing Agent Agreement, dated August 1,
1985. (6)
(b) Amendment to Shareholder Servicing Agent Agreement dated
September 7, 1993. (6)
(d) Exchange Privilege Agreement, dated September 1, 1993. (4)
(e) Dividend Disbursing Agency Agreement, dated February 1,
1986. (4)
(f) Loan Agreement Among MFS Borrowers and the First National
Bank of Boston, as of February 21, 1995. (2)
10 Consent and Opinion of Counsel for the fiscal year ended
December 31, 1995; filed herewith.
11 Consent of Deloitte & Touche; filed herewith.
12 Not Applicable.
13 Not Applicable.
14(a) Forms for Individual Retirement Account Disclosure
Statement as currently in effect. (5)
(b) Forms for MFS 403(b) Custodial Account Agreement as
currently in effect. (5)
(c) Forms for MFS Prototype Paired Defined Contribution Plans
and Trust Agreement as currently in effect. (5)
15 (a) Amended and Restated Distribution Plan for Class A
Shares, dated December 21, 1994. (3)
(b) Distribution Plan for Class B Shares, dated December 21,
1994. (3)
16 Schedule for Computation of Performance Quotations - Average
Annual Total Rate of Return, Aggregate Total Rate of Return
and Standardized Yield. (1)
17 Financial Data Schedule for each class of shares;filed
herewith.
18 Not Applicable.
Power of Attorney, dated September 21, 1994. (3)
- -----------------------------
(1) Incorporated by reference to MFS Municipal Series Trust (File Nos. 2-92915
and 811-4096) Post-Effective Amendment No. 26 filed with the SEC via EDGAR
on February 22, 1995.
(2) Incorporated by reference 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.
(3) Incorporated by reference to Post-Effective Amendment No. 68 to the Trust's
Registration Statement on Form N-1A, filed with the SEC via EDGAR on April
28, 1995. (4) Incorporated by reference to MFS Municipal Series Trust (File
Nos. 2-92915 and 811-4096) Post-Effective Amendment No. 28, filed with the
SEC via EDGAR on July 28, 1995.
(5) 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.
(6) Incorporated by reference to Post-Effective Amendment No. 69 to the Trust's
Registration Statement on Form N-1A, filed with the SEC via EDGAR on October
13, 1995.
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 107,260
($0.33 1/3 par value) (as of March 29, 1996)
Class B Shares of Beneficial Interest 21,404
($0.33 1/3 par value) (as of March 29, 1996)
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: 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 eight
series: MFS Managed Sectors Fund, MFS Cash Reserve Fund, MFS World Asset
Allocation Fund, MFS Aggressive Growth Fund, MFS Research Growth and Income
Fund, MFS Core Growth Fund, MFS Equity Income Fund and MFS Special Opportunities
Fund), MFS Series Trust II (which has four series: MFS Emerging Growth Fund, MFS
Capital Growth Fund, MFS Intermediate Income Fund and MFS Gold & Natural
Resources 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 OTC Fund), MFS Series Trust V (which has two series: MFS Total
Return Fund and MFS Research 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 four series: MFS Government Mortgage Fund,
MFS/Foreign & Colonial Emerging Markets Equity Fund, MFS/Foreign & Colonial
International Growth Fund and MFS/Foreign & Colonial International Growth and
Income Fund), and MFS Municipal Series Trust (which has 19 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
Louisiana 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 Texas Municipal Bond Fund, MFS Virginia
Municipal Bond Fund, MFS Washington 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 aforementioned Funds is 500 Boylston
Street, Boston, Massachusetts 02116.
MFS also serves as investment adviser of the following no-load, open-end
Funds: MFS Institutional Trust ("MFSIT") (which has seven series), MFS Variable
Insurance Trust ("MVI") (which has twelve series) and MFS Union Standard Trust
("UST") (which has two 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 aforementioned Funds is 500 Boylston Street, Boston,
Massachusetts 02116.
Lastly, MFS serves as investment adviser to MFS/Sun Life Series Trust
("MFS/SL"), Sun Growth Variable Annuity Funds, Inc. ("SGVAF"), 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. The
principal business address of each is One Sun Life Executive Park, Wellesley
Hills, Massachusetts 02181.
MFS International Ltd. ("MIL"), a limited liability company organized under
the laws of the Republic of Ireland and a subsidiary of MFS, whose principal
business address is 41-45 St. Stephen's Green, Dublin 2, Ireland, serves as
investment adviser to and distributor for MFS International Fund (which has four
portfolios: MFS International Funds-U.S. Equity Fund, MFS International
Funds-U.S. Emerging Growth Fund, MFS International Funds-Global Governments Fund
and MFS International Funds-Charter Income 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
Government 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 and MFS Meridian Research 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 Fund Distributors, Inc. ("MFD"), a wholly owned subsidiary of MFS,
serves as distributor for the MFS Funds, MVI, UST and MFSIT.
Clarendon Insurance Agency, Inc. ("CIAI"), a wholly owned subsidiary of
MFS, serves as distributor for certain life insurance and annuity contracts
issued by Sun Life Assurance Company of Canada (U.S.).
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, MVI and UST.
MFS Asset Management, Inc. ("AMI"), a wholly owned subsidiary of MFS,
provides investment advice to substantial private clients.
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 A. Keith Brodkin, Jeffrey L. Shames, Arnold D.
Scott, John R. Gardner and John D. McNeil. Mr. Brodkin is the Chairman, Mr.
Shames is the President, Mr. Scott is a Senior Executive Vice President and
Secretary, Bruce C. Avery, William S. Harris, William W. Scott, Jr., and
Patricia A. Zlotin are Executive Vice Presidents, Stephen E. Cavan is a Senior
Vice President, General Counsel and an Assistant Secretary, Joseph W. Dello
Russo is a Senior Vice President, Chief Financial Officer and Treasurer, Robert
T. Burns is a Vice President, Associate General Counsel and an Assistant
Secretary of MFS, and Thomas B. Hastings is a Vice President and Assistant
Treasurer.
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
A. Keith Brodkin is the Chairman and President, Stephen E. Cavan is the
Secretary, W. Thomas London is the Treasurer, James O. Yost, Vice President of
MFS, is the Assistant Treasurer, James R. Bordewick, Jr., Vice President and
Associate General Counsel of MFS, is the Assistant Secretary.
MFS SERIES TRUST II
A. Keith Brodkin is the Chairman and President, 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 is the Assistant Treasurer, and
James R. Bordewick, Jr., is the Assistant Secretary.
MFS GOVERNMENT MARKETS INCOME TRUST
MFS INTERMEDIATE INCOME TRUST
A. Keith Brodkin is the Chairman and President, Patricia A. Zlotin,
Executive Vice President of MFS and Leslie J. Nanberg, Senior Vice President of
MFS, are Vice Presidents, Stephen E. Cavan is the Secretary, W. Thomas London is
the Treasurer, James O. Yost is the Assistant Treasurer, and James R. Bordewick,
Jr., is the Assistant Secretary.
MFS SERIES TRUST III
A. Keith Brodkin is the Chairman and President, James T. Swanson, Robert J.
Manning, Cynthia M. Brown and Joan S. Batchelder, Senior Vice Presidents of MFS,
Bernard Scozzafava, Vice President of MFS, and Matthew Fontaine, Assistant Vice
President of MFS, are Vice Presidents, Sheila Burns-Magnan and Daniel E.
McManus, Assistant Vice Presidents of MFS, are Assistant Vice Presidents,
Stephen E. Cavan is the Secretary, W. Thomas London is the Treasurer, James O.
Yost is the Assistant Treasurer, and James R. Bordewick, Jr., is the Assistant
Secretary.
MFS SERIES TRUST IV
MFS SERIES TRUST IX
A. Keith Brodkin is the Chairman and President, 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 is the Assistant Treasurer and James R. Bordewick, Jr., is the Assistant
Secretary.
MFS SERIES TRUST VII
A. Keith Brodkin is the Chairman and President, 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 is
the Assistant Treasurer and James R. Bordewick, Jr., is the Assistant Secretary.
MFS SERIES TRUST VIII
A. Keith Brodkin is the Chairman and President, Jeffrey L. Shames, Leslie
J. Nanberg, Patricia A. Zlotin, James T. Swanson and John D. Laupheimer, Jr.,
Vice President of MFS, are Vice Presidents, Stephen E. Cavan is the Secretary,
W. Thomas London is the Treasurer, James O. Yost is the Assistant Treasurer and
James R. Bordewick, Jr., is the Assistant Secretary.
MFS MUNICIPAL SERIES TRUST
A. Keith Brodkin is the Chairman and President, Cynthia M. Brown and Robert
A. Dennis are Vice Presidents, David B. Smith, Geoffrey L. Schechter and David
R. King, Vice Presidents of MFS, are Vice Presidents, Daniel E. McManus,
Assistant Vice President of MFS, is an Assistant Vice President, Stephen E.
Cavan is the Secretary, W. Thomas London is the Treasurer, James O. Yost is the
Assistant Treasurer and James R. Bordewick, Jr., is the Assistant Secretary.
MFS VARIABLE INSURANCE TRUST
MFS UNION STANDARD TRUST
MFS INSTITUTIONAL TRUST
A. Keith Brodkin is the Chairman and President, Stephen E. Cavan is the
Secretary, W. Thomas London is the Treasurer, James O. Yost is the Assistant
Treasurer and James R. Bordewick, Jr., is the Assistant
Secretary.
MFS MUNICIPAL INCOME TRUST
A. Keith Brodkin is the Chairman and President, Cynthia M. Brown and Robert
J. Manning are Vice Presidents, Stephen E. Cavan is the Secretary, W. Thomas
London is the Treasurer, James O. Yost, is the Assistant Treasurer and James R.
Bordewick, Jr., is the Assistant Secretary.
MFS MULTIMARKET INCOME TRUST
MFS CHARTER INCOME TRUST
A. Keith Brodkin is the Chairman and President, Patricia A. Zlotin, 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, Vice President of
MFS, is the Assistant Treasurer and James R. Bordewick, Jr., is the Assistant
Secretary.
MFS SPECIAL VALUE TRUST
A. Keith Brodkin is the Chairman and President, Jeffrey L. Shames, Patricia
A. Zlotin and Robert J. Manning are Vice Presidents, Stephen E. Cavan is the
Secretary, W. Thomas London is the Treasurer, and James O. Yost, is the
Assistant Treasurer and James R. Bordewick, Jr., is the Assistant Secretary.
SGVAF
W. Thomas London is the Treasurer.
MIL
A. Keith Brodkin is a Director and the Chairman, Arnold D. Scott and
Jeffrey L. Shames are Directors, Ziad Malek, Senior Vice President of MFS, is
the President, Thomas J. Cashman, Jr., a Senior Vice President of MFS, is a
Senior Vice President, Stephen E. Cavan is a Director, Senior Vice President and
the Clerk, James R. Bordewick, Jr. is a Director, Vice President and an
Assistant Clerk, Robert T. Burns is an Assistant Clerk, Joseph W. Dello Russo is
the Treasurer and Thomas B. Hastings is the Assistant Treasurer.
MIL-UK
A. Keith Brodkin is a Director and the Chairman, Arnold D. Scott, Jeffrey
L. Shames, and James R. Bordewick, Jr., are Directors, Stephen E. Cavan is a
Director and the Secretary, Ziad Malek is the President, James E. Russell is the
Treasurer, and Robert T. Burns is the Assistant Secretary.
MIL FUNDS
A. Keith Brodkin is the Chairman, President and a Director, Richard B.
Bailey, John A. Brindle and Richard W. S. Baker are Directors, Stephen E. Cavan
is the Secretary, W. Thomas London is the Treasurer, James O. Yost is the
Assistant Treasurer and James R. Bordewick, Jr., is the Assistant Secretary, and
Ziad Malek is a Senior Vice President.
MFS MERIDIAN FUNDS
A. Keith Brodkin is the Chairman, President and a Director, Richard B.
Bailey, John A. Brindle, Richard W. S. Baker, Arnold D. Scott and Jeffrey L.
Shames are Directors, Stephen E. Cavan is the Secretary, W. Thomas London is the
Treasurer, James R. Bordewick, Jr., is the Assistant Secretary, James O. Yost is
the Assistant Treasurer, and Ziad Malek is a Senior Vice President.
MFD
A. Keith Brodkin is the Chairman and a Director, 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.
CIAI
A. Keith Brodkin is the Chairman and a Director, Arnold D. Scott and
Jeffrey L. Shames are Directors, Cynthia Orcott is President, Bruce C. Avery is
the 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.
MFSC
A. Keith Brodkin is the Chairman and a Director, Arnold D. Scott and
Jeffrey L. Shames are Directors, Joseph A. Recomendes, a Senior Vice President
of MFS, is Vice Chairman and a Director, Janet A. Clifford is the Executive 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.
AMI
A. Keith Brodkin is the Chairman and a Director, 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, George F. Bennett, Carol A. Corley, John A. Gee, Brianne Grady and
Kevin R. Parke 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
William W. Scott, Jr., Joseph A. Recomendes and Bruce C. Avery are
Directors, Arnold D. Scott is the Chairman and a Director, Douglas C. Grip, a
Senior Vice President of MFS, is the President, Joseph W. Dello Russo is the
Treasurer, Thomas B. Hastings is the Assistant Treasurer, Stephen E. Cavan is
the Secretary, Robert T. Burns is the Assistant Secretary and Sharon A. Brovelli
is a Senior Vice President.
In addition, the following persons, Directors or officers of MFS, have the
affiliations indicated:
A. Keith Brodkin Director, Sun Life Assurance Company of Canada (U.S.),
One Sun Life Executive Park, Wellesley Hills,
Massachusetts
Director, Sun Life Insurance and Annuity Company of
New York, 67 Broad Street, New York, New York
John R. Gardner President and a Director, Sun Life Assurance Company
of Canada, Sun Life Centre, 150 King Street West,
Toronto, Ontario, Canada (Mr. Gardner is also an
officer and/or Director of various subsidiaries and
affiliates of Sun Life)
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 and the following locations:
NAME ADDRESS
Massachusetts Financial Services 500 Boylston Street
Company (investment adviser) Boston, MA 02116
MFS Fund Distributors, Inc. 500 Boylston Street
(distributor) Boston, MA 02116
State Street Bank and Trust State Street South
Company (custodian) 5 - West
North Quincy, MA 02171
MFS Service Center, Inc. 500 Boylston Street
(transfer agent) Boston, MA 02116
ITEM 31. MANAGEMENT SERVICES
(a) Not applicable.
ITEM 32. UNDERTAKINGS
(a) Not applicable.
(b) Not applicable.
(c) The registrant undertakes to furnish each person to whom a prospectus
is delivered a copy of the Registrant's latest annual report to Shareholders
upon request and without a 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 April, 1996.
MASSACHUSETTS INVESTORS TRUST
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 April 24, 1996.
SIGNATURE TITLE
--------- -----
A. KEITH BRODKIN* Chairman, President (Principal Executive
- ------------------------------ Officer) and Trustee
A. Keith Brodkin
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
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 a
Power of Attorney dated September 21,
1994, incorporated by reference to the
Registrant's Post-Effective Amendment
No. 68 filed with the Securities and
Exchange Commission on April 28, 1995.
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION OF EXHIBIT PAGE NO.
- ---------- ---------------------- --------
10 Consent and Opinion of Counsel for
the fiscal year ended December 31, 1995.
11 Consent of Deloitte & Touche.
<PAGE>
EXHIBIT 99.10
MASSACHUSETTS FINANCIAL SERVICES COMPANY
500 BOYLSTON STREET
BOSTON, MA 02116
April 25, 1996
Massachusetts Investors Trust
500 Boylston Street
Boston, MA 02116
Re: POST-EFFECTIVE AMENDMENT NO. 70 TO REGISTRATION STATEMENT ON
FORM N-1A (FILE NO. 2-11401) (THE "REGISTRATION STATEMENT")
Gentlemen:
I am Vice President and Associate General Counsel of Massachusetts
Financial Services Company, which serves as investment adviser to
Massachusetts Investors Trust (the "Fund"). I am admitted to practice law in
The Commonwealth of Massachusetts. The Fund is a trust created under a written
Agreement and Declaration of Trust dated March 21, 1924, as amended through
September 29, 1994, executed and delivered in Boston, Massachusetts. The
beneficial interest thereunder is represented by transferable shares. The
Trustees have the powers set forth in the Agreement and Declaration of Trust,
as modified by various amendments, subject to the terms, provisions and
conditions therein provided.
I am of the opinion that the legal requirements have been complied with
in the original creation of the Fund and that said Agreement and Declaration
of Trust, as amended, is legal and valid.
Under Article III, Section 1(i), the Trustees are empowered in their
absolute and uncontrolled discretion from time to time to sell shares of the
Fund either for cash or for property, whenever and in such amounts as the
Trustees may deem desirable, except that under Article VIII, Section 5, no
shares may be sold to net the Trust (before taxes and expenses exclusive of
sales charge or commission) less than the net asset value in effect at the
time of the sale. Under Article VIII, Section 5, it is provided that the
number of shares shall be fixed from time to time by the Trustees, and such
number may be increased or reduced by them, and that the Trustees shall have
the right to sell additional shares without offering them to the holders of
the then outstanding shares.
The Fund is about to register under the Securities Act of 1933, as
amended, 19,155,578 shares of beneficial interest by Post-Effective Amendment
No. 70 to the Fund's Registration Statement. I am of the opinion that all
necessary Fund action precedent to the issue of the shares of beneficial
interest of the Fund comprising the shares covered by Post-Effective Amendment
No. 70 to the Registration Statement, has been duly taken, and that all such
shares may legally and validly be issued for cash, and when sold will be fully
paid and nonassessable by the Trust upon receipt by the Trust or its agent of
consideration therefor in accordance with the terms described in the
Registration Statement, subject to compliance with the Securities Act of 1933,
the Investment Company Act of 1940 and applicable state laws regulating the
sale of securities.
I consent to your filing this opinion with the Securities and Exchange
Commission as an exhibit to Post-Effective Amendment No. 70 to the
Registration Statement.
Very truly yours,
JAMES R. BORDEWICK, JR.
James R. Bordewick, Jr.
JRB/bjn
<PAGE>
EXHIBIT NO. 99.11
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Post-Effective
Amendment No. 70 to Registration Statement No. 2-11401 of Massachusetts
Investors Trust of our report dated February 1, 1996 appearing in the annual
report to shareholders for the year ended December 31, 1995, 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, which are a part of such Registration Statement.
DELOITTE & TOUCHE LLP
-------------------------------------
Deloitte & Touche LLP
Boston, Massachusetts
April 23, 1996
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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