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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 23, 1995.
FILE NO. 2-83616
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 17
AND
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 21
MFS/SUN LIFE SERIES 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
COPIES TO:
BONNIE S. ANGUS, SECRETARY DAVID N. BROWN, ESQ.
MFS/SUN LIFE SERIES TRUST COVINGTON & BURLING
ONE SUN LIFE EXECUTIVE PARK 1201 PENNSYLVANIA AVENUE, N.W.
WELLESLEY HILLS, MASSACHUSETTS 02181 P.O. BOX 7566
(NAME AND ADDRESS OF AGENT FOR SERVICE) WASHINGTON, D.C. 20044
[X]IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE 75 DAYS AFTER FILING
PURSUANT TO PARAGRAPH (A)(ii) OF RULE 485.
PURSUANT TO RULE 24F-2(A)(1), REGISTRANT HAS REGISTERED AN INDEFINITE NUMBER
OF ITS SHARES OF BENEFICIAL INTEREST (WITHOUT PAR VALUE) UNDER THE SECURITIES
ACT OF 1933. THE RULE 24F-2 NOTICE FOR THE REGISTRANT'S FISCAL YEAR ENDED
DECEMBER 31, 1994 WAS FILED ON FEBRUARY 28, 1995.
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MFS/SUN LIFE SERIES 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
Item Number
Form N-1A Prospectus Caption
--------- ------------------
Part A.
1. Front Cover Pages
2. *
3. Condensed Financial Information
4. The Series Fund; Investment
Objectives and Policies; Risk Factors
5. The Series Fund; Management of
the Series Fund; Investment
Objectives and Policies; Back Cover Page
5. A. Information included in Registrant's
1994 Annual Report to Shareholders for
the year ended December 31, 1994
6. Additional Information With Respect
to Shares of Each Series
7. Additional Information With Respect
to Shares of Each Series
8. Additional Information with Respect
to Shares of Each Series
9. *
* Not Applicable
<PAGE>
Item Number Statement of Additional
Form N-1A Information Caption
------------ -----------------------
Part B.
10. Front Cover Page
11. Table of Contents
12. *
13. Investment Objectives, Policies and
Restrictions
14. Management of the Series Fund
15. *
16. Management of the Series Fund (Also,
see same caption in the Prospectus);
Independent Accountants and Financial
Statements; Back Cover Page
17. Portfolio Transactions and Brokerage
Commissions
18. Additional Information With Respect
to Shares of Each Series
19. Additional Information With Respect
to Shares of Each Series
20. Additional Information With Respect
to Shares of Each Series
21. *
22. *
23. Independent Accountants and Financial
Statements
* Not Applicable
<PAGE>
PART A
Attached hereto and made a part hereof are the Prospectus Supplement dated
September 1, 1995 and the Prospectus dated May 1, 1995.
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MFS/SUN LIFE SERIES TRUST
SUPPLEMENT TO THE PROSPECTUS DATED MAY 1, 1995
SEPTEMBER 1, 1995
MFS/Sun Life Series Trust (the "Series Fund") has added three new series
(collectively referred to as the MFS/Foreign & Colonial Series), each of which
will be available for investment ONLY UNDER REGATTA GOLD CONTRACTS ISSUED BY
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.), on or about the dates indicated
below.
MFS/FOREIGN & COLONIAL INTERNATIONAL GROWTH SERIES (the "International Growth
Series") will seek capital appreciation by investing, under normal market
conditions, at least 65% of its total assets in equity securities of companies
whose principal activities are outside the U.S. growing at rates expected to
be well above the growth rate of the overall U.S. economy (January 15, 1996).
MFS/FOREIGN & COLONIAL INTERNATIONAL GROWTH AND INCOMES SERIES (the
"International Growth and Income Series") will seek capital appreciation and
current income by investing primarily in equity and fixed income securities of
issuers whose principal activities are outside the U.S. ( , 199 ).
MFS/FOREIGN & COLONIAL EMERGING MARKETS EQUITY SERIES (the "Emerging Markets
Equity Series") will seek capital appreciation by investing, under normal
market conditions, at least 65% of its total assets in equity securities of
issuers whose principal activities are in emerging market countries (January
15, 1996).
There can be no assurance that the investment objectives of any series will
be achieved. An investment in these series involves certain risks and may not
be appropriate for all purchasers.
THE MFS/FOREIGN & COLONIAL SERIES ARE INTENDED FOR INVESTORS WHO UNDERSTAND
AND ARE WILLING TO ACCEPT THE RISKS ENTAILED IN SEEKING CAPITAL APPRECIATION
AND INVESTING IN FOREIGN SECURITIES.
Massachusetts Financial Services Company ("MFS" or the "Adviser") is the
Series Fund's investment adviser. Foreign & Colonial Management Ltd. ("FCM")
and its subsidiary, Foreign & Colonial Emerging Markets Limited ("FCEM"), will
serve as sub-advisers to these series (collectively, the "Sub-Adviser"). Both
FCM and FCEM are located at Exchange House, Primrose Street, London EC2A 2NY,
United Kingdom.
This Prospectus Supplement sets forth information concerning the MFS/Foreign
and Colonial Series only. Please refer to the Prospectus for the Series Fund
dated May 1, 1995 (the "Prospectus") for information applicable to all series
of the Series Fund and to the Series Fund generally. This Prospectus
Supplement, together with the Prospectus, sets forth concisely the information
concerning the MFS/Foreign & Colonial Series that a prospective investor ought
to know before investing. The Series Fund has filed with the Securities and
Exchange Commission a Statement of Additional Information dated May 1, 1995,
and a Supplement thereto dated September 1, 1995, which contain more detailed
information about each series and are incorporated into the Prospectus and
this Prospectus Supplement by reference. A copy of the Statement of Additional
Information and Supplement thereto may be obtained without charge by
contacting the Sun Life Annuity Service Center, P.O. Box 1024, Boston,
Massachusetts 02103, telephone (800) 752-7215.
The information contained in this Prospectus Supplement and the Prospectus
should be read together with the Prospectus for the Regatta Gold contracts and
the Supplement thereto.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
INVESTORS SHOULD READ AND RETAIN THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS FOR FURTHER REFERENCE.
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1. THE MFS/FOREIGN & COLONIAL SERIES
Each of the MFS/Foreign & Colonial Series is a diversified series of the
Series Fund, a no-load open-end management investment company which was
organized under the laws of the Commonwealth of Massachusetts in 1983. Please
refer to the Prospectus for information concerning the Series Fund and the
other series as well as general information applicable to the MFS/Foreign &
Colonial Series.
Currently, shares of each of the MFS/Foreign & Colonial Series will be sold
only to Sub-Accounts established by Sun Life Assurance Company of Canada
(U.S.) to fund benefits under MFS Regatta Gold variable annuity contracts
issued in connection with Sun Life of Canada (U.S.) Variable Account F.
2. INVESTMENT OBJECTIVES AND POLICIES OF THE
MFS/FOREIGN & COLONIAL SERIES
The investment objectives and policies of the MFS/Foreign & Colonial Series
are discussed below. Any investment involves risk and there can be no
assurance that the investment objectives of any series will be achieved.
Shareholder approval is not required to change the investment objectives of
any series or the manner in which each series seeks to achieve its objectives.
More than one series may invest in the same instruments and employ the same
investment techniques. For convenient reference and to avoid duplication,
descriptions of most of the instruments and techniques used by the MFS/Foreign
& Colonial Series are centralized and arranged in alphabetical order in
Appendix A ("Description of Instruments") and Appendix B ("Investment
Techniques") to the Prospectus. Several additional instruments and techniques
are described in this Prospectus Supplement. A description of ratings by
Standard & Poor's Rating Group ("S&P"), Fitch Investors Service, Inc.
("Fitch") and Moody's Investor Service, Inc. ("Moody's") used to evaluate
commercial paper, bonds and debt is provided in Appendix C to the Prospectus.
More information concerning instruments and investment techniques can be found
in the Appendix to the Statement of Additional Information (the "SAI
Appendix"). THESE APPENDIXES PROVIDE IMPORTANT INFORMATION CONCERNING THE
RISKS INVOLVED IN INVESTING IN A PARTICULAR SERIES.
(1) INTERNATIONAL GROWTH SERIES
The International Growth Series' investment objective is to seek capital
appreciation. The series seeks to achieve its objective by investing, under
normal market conditions, at least 65% of its total assets in equity
securities of companies whose principal activities are outside the U.S.
growing at rates expected to be well above the growth rate of the overall U.S.
economy. The foreign growth securities in which the series may invest include
securities of more established companies which represent opportunities for
long-term growth. See "Investment Instruments and Techniques--Foreign Growth
Securities" below. The selection of securities is made solely on the basis of
potential for capital appreciation. Dividend and interest income from
portfolio securities, if any, is incidental to the series' investment
objective of capital appreciation.
The series may invest up to 25% of its net assets in securities of issuers
whose principal activities are in emerging market countries. See "Investment
Instruments and Techniques--Emerging Market Securities" below.
While the series intends to invest primarily in equity securities, the
series may also invest up to 35% of its net assets (and generally expects to
invest not more than 20% of its net assets) in fixed
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income securities of government, government-related, supranational and
corporate issuers whose principal activities are outside the U.S., including
up to 10% of its net assets in fixed income securities rated Ba or lower by
Moody's or BB or lower by S&P or Fitch and comparable unrated securities. See
"Additional Risk Factors--Lower Rated Fixed Income Securities" below. The
Adviser and Sub-Adviser consider a variety of factors in selecting fixed
income securities to achieve capital appreciation, including the
creditworthiness of issuers, interest rates and currency exchange rates.
It is anticipated that initially approximately 75% of the series' net assets
will be invested in foreign growth securities (including 30% in securities of
established companies) and approximately 25% of its net assets will be
invested in emerging market securities. Such allocation will change from time
to time.
(2) INTERNATIONAL GROWTH AND INCOME SERIES
The International Growth and Income Series' investment objective is to seek
capital appreciation and current income. The series seeks to achieve its
objective by investing primarily in equity and fixed income securities of
issuers whose principal activities are outside the U.S.
The series will invest, under normal market conditions, at least 65% of its
total assets (and generally expects to invest a substantial portion of its
total assets) in a combination of the following:
(a) equity securities of foreign "blue chip" companies and foreign growth
companies. See "Investment Instruments and Techniques--Foreign Growth
Securities" below. The series considers a security to be "blue chip" if the
total equity market capitalization of the issuer is at least U.S. $1
billion; and
(b) fixed income securities of government, government-related,
supranational and corporate issuers whose principal activities are outside
the U.S. The series may invest up to 50% (and generally expects to invest
between 25% to 30%) of its net assets in fixed income securities, including
up to 25% of its net assets in fixed income securities rated Ba or lower by
Moody's or BB or lower by S&P or Fitch and comparable unrated securities.
See "Additional Risk Factors--Lower Rated Fixed Income Securities" below.
The series may invest up to 10% of its net assets in securities of issuers
whose principal activities are in emerging market countries. See "Investment
Instruments and Techniques--Emerging Market Securities" below.
(3) EMERGING MARKETS EQUITY SERIES
The Emerging Markets Equity Series' investment objective is to seek capital
appreciation. The series seeks to achieve its objective by investing, under
normal market conditions, at least 65% of its total assets in equity
securities of issuers whose principal activities are in emerging market
countries. The Adviser and the Sub-Adviser expect to take a global approach to
portfolio management by weighting the series' investments towards countries in
Latin America, Asia, Africa, the Middle East and the developing countries of
Europe, primarily in Eastern Europe. See "Investment Instruments and
Techniques--Emerging Market Securities" below. The selection of securities is
made solely on the basis of potential for capital appreciation. Dividend and
interest income from portfolio securities, if any, is incidental to the
series' investment objective of capital appreciation.
While the series intends to invest primarily in equity securities, the
series may also invest less than 35% of its net assets in fixed income
securities of government, government-related, supranational and corporate
issuers whose principal activities are outside the U.S., rated Ba or lower by
Moody's or BB or lower by S&P or Fitch and comparable unrated securities. See
"Additional Risk Factors--Lower Rated Fixed Income Securities" below. The
Adviser and the Sub-Adviser consider a variety of factors in selecting fixed
income securities to achieve capital appreciation, including the
creditworthiness of issuers, interest rates and currency exchange rates.
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POLICIES APPLICABLE TO THE MFS/FOREIGN & COLONIAL SERIES
The MFS/Foreign & Colonial Series do not intend to emphasize any particular
country or region in making their investments, but under normal market
conditions, each series will be invested in at least three countries (outside
the U.S.) and will not invest more than 50% of its net assets in issuers whose
principal activities are located in a single country. See "Additional Risk
Factors--Concentration in One or More Countries" below. Currently none of the
series expect to invest more than 25% of their net assets in issuers whose
principal activities are located in a single country, except that the
International Growth Series and the International Growth and Income Series
generally expect to invest between 15% to 45% of their net assets in issuers
whose principal activities are in Japan. Each series will seek to reduce risk
by investing its assets in a number of markets and issuers, performing credit
analyses of potential investments and monitoring current developments and
trends in both the international economy and financial markets.
Each series may invest in all types of equity securities, including the
following: common stocks, preferred stocks and preference stocks; securities
such as bonds, warrants or rights that are convertible into stocks; and
depositary receipts for those securities. These securities may be listed on
securities exchanges, traded in various over-the-counter markets or have no
organized market.
For temporary defensive reasons such as during times of international
political or economic uncertainty or turmoil, most or all of each series'
investments may be in cash (U.S. dollars, foreign currencies or multinational
currency units) and/or securities that are denominated in U.S. dollars or
whose issuers are domiciled in the U.S. Each series is not restricted as to
the portions of its assets which may be invested in securities denominated in
a particular currency and up to 100% of each series' net assets may be
invested in securities denominated in foreign currencies and multinational
currency units.
The Adviser and the Sub-Adviser determine where an issuer's principal
activities are located 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 are generally
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.
INVESTMENT INSTRUMENTS AND TECHNIQUES
In order to achieve its investment objective, each of the MFS/Foreign &
Colonial series may employ the investment instruments and techniques described
below.
FOREIGN GROWTH SECURITIES: Each series may invest in securities of foreign
growth companies, including established foreign companies, whose rates of
earnings growth are expected to accelerate because of special factors, such as
rejuvenated management, new products, changes in consumer demand, or basic
changes in the economic environment or which otherwise represent opportunities
for long-term growth. See "Additional Risk Factors" below. It is anticipated
that these companies will primarily be in nations with more developed
securities markets, such as Japan, Australia, Canada, New Zealand and most
Western European countries, including Great Britain.
EMERGING MARKET SECURITIES: Each series may invest in securities of issuers
whose principal activities are located in countries or regions with relatively
low gross national product per capita compared to the world's major economies,
and in countries or regions with the potential for rapid economic growth
(emerging markets). See Appendix A to the Prospectus--"Emerging Market
Securities" for a description of emerging market securities, and the risks
involved in these investments. See also "Additional Risk Factors--Emerging
Markets" below.
FIXED INCOME SECURITIES: Fixed income securities in which each series may
invest include all types of long- or short-term debt obligations, such as
bonds, notes, bills, debentures, loans, loan
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assignments and commercial paper. Each series may invest in emerging market
fixed income securities, which, in addition to the securities identified
above, may take the form of interests issued by entities organized and
operated for the purpose of restructuring the investment characteristics of
instruments issued by emerging market country issuers. Fixed income securities
in which each series may invest include securities in the lower rating
categories of recognized rating agencies and comparable unrated securities.
See "Additional Risk Factors--Lower Rated Fixed Income Securities" below. The
International Growth Series will not invest more than 10% of its total assets,
the International Growth and Income Series will not invest more than 25% of
its total assets and the Emerging Markets Equity Series will not invest 35% or
more of its total assets in fixed income securities rated Ba or lower by
Moody's or BB or lower by S&P or Fitch and comparable unrated securities.
However, because most foreign fixed income securities are not rated, a series
will invest in foreign fixed income securities primarily based on the
Adviser's or the Sub-Adviser's credit analysis without relying on published
ratings.
INVESTMENT IN OTHER INVESTMENT COMPANIES: Each series may invest in other
investment companies to the extent permitted by the Investment Company Act of
1940 (the "1940 Act") (i) as a means by which the series may invest in
securities of certain countries which do not otherwise permit investment, (ii)
as a means to purchase thinly traded securities of emerging market companies,
or (iii) when the Adviser or the Sub-Adviser believes such investments may be
more advantageous to the series than a direct market purchase of securities.
If a series invests in such investment companies, the series' shareholders
will bear not only their proportionate share of the expenses of the series
(including operating expenses and the fees of the Adviser) but also will
indirectly bear similar expenses of the underlying investment companies.
PRIVATIZATIONS: The governments in some countries, including emerging market
countries, have been engaged in programs of selling part or all of their
stakes in government owned or controlled enterprises ("privatizations"). Each
series may invest in privatizations. In certain countries, the ability of
foreign entities to participate in privatizations may be limited by local law
and the terms on which the foreign entities may be permitted to participate
may be less advantageous than those afforded local investors.
DEPOSITARY RECEIPTS: Each series may invest in American Depositary Receipts
("ADRs"), Global Depositary Receipts ("GDRs") and other types of depositary
receipts. ADRs are certificates issued by a U.S. depositary (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. See Appendix A to the
Prospectus--"American Depositary Receipts". GDRs and other types of depositary
receipts are typically issued by foreign banks or trust companies and evidence
ownership of underlying securities issued by either a foreign or a U.S.
company. Generally, ADRs are in registered form and are designed for use in
U.S. securities markets and GDRs are in bearer form and are designed for use
in foreign securities markets. For the purposes of these series' policy of
investing a certain percentage of their assets in foreign securities, the
investments of a series in ADRs, GDRs and other types of depositary receipts
are deemed to be investments in the underlying securities.
BRADY BONDS: Each series may invest in Brady Bonds. Brady Bonds and their
attendant risks are described in Appendix A to the Prospectus--"Brady Bonds."
In addition to the countries listed therein, Brady Plan debt restructurings
have now been implemented in Jordan.
STRUCTURED SECURITIES: Each series may invest a portion of its assets in
entities organized and operated solely for the purpose of restructuring the
investment characteristics of sovereign debt obligations. This type of
restructuring involves the deposit with, or purchase by, an entity, such as a
corporation or trust, of specified instruments (such as commercial bank loans
or Brady Bonds) and the issuance by that entity of one or more classes of
securities ("Structured Securities") backed by, or representing interests in,
the underlying instruments. The cash flow on the underlying instruments may
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be apportioned among the newly issued Structured Securities to create
securities with different investment characteristics, such as varying
maturities, payment priorities and interest rate provisions, and the extent of
the payments made with respect to Structured Securities is dependent on the
extent of the cash flow on the underlying instruments. Because Structured
Securities of the type in which each series anticipates it will invest
typically involve no credit enhancement, their credit risk generally will be
equivalent to that of the underlying instruments. Each series is permitted to
invest in a class of Structured Securities that is either subordinated or
unsubordinated to the right of payment of another class. Subordinated
Structured Securities typically have higher yields and present greater risks
than unsubordinated Structured Securities. Structured Securities are typically
sold in private placement transactions, and there currently is no active
trading market for Structured Securities.
REPURCHASE AGREEMENTS: Each series may enter into repurchase agreements with
both domestic and foreign securities dealers or institutions in order to earn
additional income on available cash or as a temporary defensive measure.
Repurchase agreements and their attendant risks are described in Appendix A to
the Prospectus--"Repurchase Agreements." In addition, foreign repurchase
agreements may be less well secured than U.S. repurchase agreements, and may
be denominated in foreign currencies. They may also involve greater risk of
loss if the counterparty defaults. Some counterparties in these transactions
may be less creditworthy than those in U.S. markets.
OTHER INSTRUMENTS: Each series may also invest in zero coupon bonds,
deferred interest bonds and PIK bonds, indexed securities, restricted
securities (subject to the limitation on investing more than 15% of a series'
net assets in securities that are not readily marketable) and loans and other
direct indebtedness (including loans to corporate, government or other
borrowers). See Appendix A to the Prospectus for a discussion of these
instruments and their attendant risks.
INVESTMENT TECHNIQUES: In order to achieve their investment objectives, each
of the MFS/Foreign & Colonial Series may employ the following investment
techniques: (1) lending portfolio securities to entities deemed creditworthy
by the Adviser or the Sub-Adviser, usually to member banks of the Federal
Reserve System and member firms (and subsidiaries thereof) of the New York
Stock Exchange; (2) purchasing securities on a "when issued" or a "forward
delivery" basis; (3) writing (selling) covered put and call options on
securities for the purpose of increasing its return and/or to protect the
value of its portfolio, and purchasing put or call options on securities in
anticipation of declines in the value of portfolio securities or increases in
the value of securities to be acquired (the series may also write combinations
of put and call options on the same security, known as "straddles," which
transactions can generate additional income, but also present increased
risks); (4) entering into "yield curve" options for hedging and non-hedging
purposes; (5) writing covered call and put options and purchasing call and put
options on domestic and foreign stock indexes for the purpose of increasing
its current income and/or for hedging purposes and to attempt to reduce the
risk of missing a market or industry segment advance; (6) entering into
contracts for the purchase or sale for future delivery of contracts based on
indexes of securities as such instruments become available for trading or
fixed income securities or foreign currencies ("futures contracts") for
hedging purposes (to protect the series' current or intended investments from
the effects of changes in interest or exchange rates or declines in a
securities market, or for non-hedging proposes, to the extent permitted by law
(which involves greater risks and could result in losses which are not offset
by gains on other portfolio assets); (7) purchasing and writing options on
futures contracts for the purpose of protecting against declines in the value
of portfolio securities or against increases in the cost of securities to be
acquired and also for non-hedging purposes, to the extent permitted by law;
(8) purchasing and writing 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; and (10) entering into interest rate swaps, currency swaps, and
other types of available swap agreements which will tend to shift the series'
investment exposure from one type of investment to another. See Appendix B
to
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the Prospectus and the Appendix to the Statement of Additional Information for
a discussion of these investment techniques and their attendant risks.
PORTFOLIO TRADING
While it is not generally each series' policy to invest or trade for short-
term profits, each series may dispose of a portfolio security whenever the
Adviser or the Sub-Adviser is of the opinion that such security no longer has
an appropriate appreciation potential or when another security appears to
offer relatively greater appreciation potential. Portfolio changes are made
without regard to the length of time a security has been held, or whether a
sale would result in a profit or loss. Therefore, the rate of portfolio
turnover is not a limiting factor when a change in the portfolio is otherwise
appropriate. It is anticipated that each series' portfolio turnover rate will
not exceed 300% during the series' first fiscal year. Transaction costs
incurred by each series and realized capital gains and losses of each series
may be greater than that of a series with a lower portfolio turnover rate.
The primary consideration in placing portfolio security transactions is
execution at the most favorable prices. 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 the sale of Contracts, as defined in
the Prospectus, and thus the sale of Series Fund shares through the allocation
of purchase payments under the Contracts, as a factor in the selection of
broker-dealers to execute the Series Fund's portfolio transactions. The Series
Fund also has the ability to direct portfolio security transactions to broker-
dealers in consideration of the payment of certain Series Fund expenses. For a
further discussion of portfolio trading, see the Statement of Additional
Information.
PROSPECTIVE PURCHASERS SHOULD REVIEW THIS SECTION CAREFULLY AND CONSIDER THE
INVESTMENT RISKS INVOLVED BEFORE ALLOCATING PURCHASE PAYMENTS UNDER THE
CONTRACTS TO THE MFS/FOREIGN & COLONIAL SERIES.
ADDITIONAL RISK FACTORS
FOREIGN SECURITIES: Each series may invest up to 100% of its assets in
foreign securities, including foreign securities that are not traded on a U.S.
exchange. Transactions involving foreign equity or debt securities or foreign
currencies, and transactions entered into in foreign countries, involve
considerations and risks not typically associated with investing in U.S.
markets. See Appendix A to the Prospectus--"Foreign Securities".
EMERGING MARKETS: The risks of investing in foreign securities may be
intensified in the case of investments in emerging markets. Investment in
emerging market countries could decrease the series' liquidity, as a result of
settlement problems and other factors. Certain markets may require payment for
securities before delivery, and in such markets the series bear the risk that
the securities will not be delivered and that the series' payments will not be
returned. See Appendix A to the Prospectus--"Emerging Market Securities."
ALLOCATION AMONG EMERGING MARKETS: Each series may allocate all or a portion
of its investment in emerging market securities among the emerging markets of
Latin America, Asia, Africa, the Middle East and the developing countries of
Europe, primarily in Eastern Europe. Each series will allocate its investments
among these emerging markets in accordance with the Adviser's and the Sub-
Adviser's determination as to the allocation most appropriate with respect to
the series' investment objective and policies. Each series may invest its
assets allocated for investment in emerging markets without limitation in any
particular region, and, in accordance with the Adviser's and the
Sub-Adviser's
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investment discretion, at times may invest all of its assets allocated for
investment in emerging markets in securities of emerging market issuers
located in a single region (e.g., Latin America). To the extent that a series'
investments are concentrated in one or a few emerging market regions, the
series' investment performance correspondingly will be more dependent upon the
economic, political and social conditions and changes in those regions. The
ability of a series to allocate its investments among emerging market regions
without restriction may have the effect of increasing the volatility of the
series, as compared to a series which limits such allocations.
CONCENTRATION IN ONE OR MORE COUNTRIES: Each series will seek to reduce risk
by investing its assets in a number of markets and issuers. However, each
series may invest up to 50% of its net assets in issuers located in a single
country. To the extent that a series' investments are concentrated
significantly in a single country, the series' investment performance
correspondingly will be more dependent upon the economic, political and social
conditions and changes in that country, and the risks associated with
investments in that country will be particularly significant. The ability of a
series to focus its investments in one or more countries may have the effect
of increasing the volatility of that fund.
EMERGING GROWTH COMPANIES: Each series may invest in securities of emerging
growth companies, including established companies. Investing in emerging
growth companies involves greater risk than is customarily associated with
investing in more established companies. Emerging growth companies often have
limited product lines, markets or financial resources, and they may be
dependent on one-person management. The securities of emerging growth
companies may have limited marketability and may be subject to more abrupt or
erratic market movements than securities of larger, more established companies
or the market averages in general. Similarly, many of the securities offering
the capital appreciation sought by the series will involve a higher degree of
risk than would established growth stocks.
FOREIGN CURRENCIES: Because each series may invest up to 100% of its assets
in securities denominated in currencies other than the U.S. dollar, and
because each series may hold foreign currencies, the value of a series'
investments, and the value of dividends and interest earned by a series, may
be significantly affected by changes in currency exchange rates. Some foreign
currency values may be volatile, and there is the possibility of governmental
controls on currency exchange or governmental intervention in currency
markets, which could adversely affect the series. Although the Adviser and
Sub-Adviser may attempt to manage currency exchange rate risks, there is no
assurance that the Adviser and Sub-Adviser will do so at an appropriate time
or that the Adviser and Sub-Adviser will be able to predict exchange rates
accurately. For example, if the Adviser and Sub-Adviser hedge a series'
exposure to a foreign currency, and that currency's value rises, the series
will lose the opportunity to participate in the currency's appreciation. Each
series may hold foreign currency received in connection with investments in
foreign securities, and enter into forward contracts, futures contracts and
options on foreign currencies when, in the judgment of the Adviser or Sub-
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 rates.
While the holding of foreign currencies will permit a series to take advantage
of favorable movements in the applicable exchange rate, it also exposes the
series to risk of loss if such rates move in a direction adverse to the
series' position. Such losses could also adversely affect the series' hedging
strategies. See the Supplement to the Statement of Additional Information for
further discussion of the holding of foreign currencies as well as the
associated risks.
FIXED INCOME SECURITIES: To the extent a series invests in fixed income
securities, the net asset value of the series may change as the general levels
of interest rates fluctuate. When interest rates decline, the value of fixed
income securities can be expected to rise. Conversely, when interest rates
rise, the value of fixed income securities can be expected to decline. Each
series is subject to no restrictions on the maturities of the fixed income
securities it holds. A series' investments in fixed income securities with
longer terms to maturity are subject to greater volatility than the series'
shorter-term obligations.
8
<PAGE>
LOWER RATED FIXED INCOME SECURITIES: Each series may invest in fixed income
securities rated Baa by Moody's or BBB by S&P or Fitch (and comparable unrated
securities). For a description of these and other rating categories, see
Appendix C to the Prospectus. These securities, while normally exhibiting
adequate protection parameters, have speculative characteristics and changes
in economic conditions or other circumstances are more likely to lead to a
weakened capacity to make principal and interest payments than in the case of
higher grade fixed income securities. Each series may also invest in fixed
income securities rated Ba or lower by Moody's or BB or lower by S&P or Fitch
(and comparable unrated securities). No minimum rating standard is required by
any series. These securities are considered speculative and, while generally
providing greater yield than investments in higher rated securities, will
involve greater risk of principal and income. See "Additional Risk Factors
Regarding Lower Rated Securities" under "High Yield Series" in the Prospectus.
TRANSACTIONS IN OPTIONS, FUTURES CONTRACTS AND FORWARD CONTRACTS: See
Appendix B to the Prospectus--"Risks of Transactions in Options, Futures
Contracts and Forward Contracts" and the SAI Appendix.
INVESTMENT RESTRICTIONS
The Supplement to the Statement of Additional Information includes a listing
of specific investment restrictions and a discussion of investment policies
applicable to each of the MFS/Foreign & Colonial Series. The specific
investment restrictions listed in the Supplement to the Statement of
Additional Information may not be changed without shareholder approval. If a
percentage restriction or a rating restriction on investments or utilization
of assets is adhered to at the time an investment is made or assets are so
utilized, a later change in percentage resulting from changes in the value of
the Series Fund's portfolio securities or a change in the rating of a
portfolio security will not be considered a violation of policy.
3. MANAGEMENT OF THE MFS/FOREIGN & COLONIAL SERIES
INVESTMENT ADVISER--The Adviser manages the assets of each of the
MFS/Foreign & Colonial Series pursuant to separate investment advisory
agreements, each dated September , 1995 (the "Advisory Agreements"). The
Adviser provides each series 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 each series.
For these services and facilities, the Adviser receives a management fee,
computed and paid monthly, at an annual rate equal to the sum of (i) 0.975% of
the first $500 million of average daily net assets of the International Growth
Series and the International Growth and Income Series for the Series Fund's
then-current fiscal year and 0.925% of the average daily net assets of such
series in excess of $500 million, and (ii) 1.25% of the average daily net
assets of the Emerging Markets Equity Series for the Series Fund's then-
current fiscal year. The Adviser has voluntarily agreed to reduce the
management fee to 0% of these series' average daily net assets. The voluntary
fee reduction may be rescinded with respect to any or all series at any time
without notice to shareholders as to the fees accruing after the date of such
recision.
The Adviser has also undertaken to reimburse each of the MFS/Foreign &
Colonial Series for aggregate expenses, excluding taxes, extraordinary
expenses and brokerage costs, in excess of 1.50% of the average daily net
assets of such series for the fiscal year.
Additional information about the Adviser, management of the Series Fund and
expenses of the Series Fund appear in the Prospectus under "Management of the
Series Fund."
SUB-INVESTMENT ADVISERS--Each Advisory Agreement permits the Adviser from
time to time to engage one or more sub-advisers to assist in the performance
of its services. Pursuant to each Advisory Agreement, the Adviser has engaged
Foreign & Colonial Management Ltd., a company incorporated under the laws of
England and Wales ("FCM"), located at Exchange House, Primrose
9
<PAGE>
Street, London EC2A 2NY, United Kingdom, as sub-adviser to render advisory
services to the MFS/Foreign & Colonial Series. FCM is a wholly owned
subsidiary of Hypo Foreign & Colonial Management (Holdings) Ltd. ("Hypo F&C").
Fifty percent of the outstanding voting securities of Hypo F&C is owned by
each of (i) Pountney Hill Holdings Ltd., which is wholly-owned by five closed-
end, publicly listed investment trusts managed by FCM, including Foreign &
Colonial Investment Trust PLC, and (ii) Hypo (U.K.) Holdings Ltd., which is a
wholly-owned subsidiary of HYPO-BANK (Bayerische Hypotheken-und Wechsel-Bank
AG), the oldest publicly listed, and fifth largest, commercial bank in
Germany, founded in 1835. FCM has a history of money management dating from
1868 and the establishment of the world's oldest closed-end fund, Foreign &
Colonial Investment Trust PLC. As of , 1995, FCM managed approximately
U.S. $ billion of assets, including approximately U.S.$ billion of assets
in equity securities and approximately U.S.$ billion of assets in fixed
income securities.
Under separate Sub-Advisory Agreements between the Adviser and FCM, each
dated September , 1995 (the "Sub-Advisory Agreements"), the Adviser may
delegate to FCM the authority to make investment decisions for each of the
MFS/Foreign & Colonial Series. It is presently intended that FCM will provide
portfolio management services for all of the assets of the International
Growth Series and the Emerging Markets Equity Series and for the equity
portion of the assets of the International Growth and Income Series. For its
services, the Adviser pays FCM a management fee, computed and paid monthly, in
an amount equal to 0.80% and 1.00% of the average daily net assets of the
International Growth Series and the Emerging Markets Equity Series,
respectively, on an annualized basis and 0.75% of the average daily net assets
managed by FCM of the International Growth and Income Series on an annualized
basis. In addition, the Adviser and FCM expect to enter into an arrangement
whereby certain expenses and revenues relating to their joint activities are
shared. FCM has voluntarily agreed to waive the management fee. This waiver
may be rescinded at any time without notice to shareholders as to fees
accruing after the date of such recision, although FCM has agreed not to
rescind the waiver as long as MFS continues to waive its fees.
Each Sub-Advisory Agreement permits FCM from time to time to engage one or
more sub-advisers to assist in the performance of its services. Pursuant to
each Sub-Advisory Agreement, FCM has engaged Foreign & Colonial Emerging
Markets Limited, a company incorporated under the laws of England and Wales
("FCEM"), located at Exchange House, Primrose Street, London EC2A, 2NY, United
Kingdom, as sub-adviser to render advisory services to the MFS/Foreign &
Colonial Series. FCEM is an affiliate of FCM. FCEM serves as the investment
adviser to public closed-end and open-end funds and segregated accounts
specializing in emerging markets. As of , 1995, FCEM managed
approximately U.S.$ billion of assets invested in emerging markets.
Under separate Sub-Advisory Agreements between FCM and FCEM, each dated
September , 1995, FCM may delegate to FCEM the authority to make investment
decisions for each of the MFS/Foreign & Colonial Series. It is presently
intended that FCEM will provide portfolio management services for the portion
of the assets of the series invested in emerging markets securities. For its
services, FCM pays FCEM a management fee, computed and paid monthly, in an
amount equal to 1.00% of the average daily net assets managed by FCEM of each
series on an annualized basis. FCEM has voluntarily agreed to waive the
management fee. This waiver may be rescinded at any time without notice to
shareholders as to fees accruing after the date of such recision, although
FCEM has agreed not to rescind the waiver as long as MFS continues to waive
its fees.
PORTFOLIO MANAGERS--The identity and background of the portfolio managers
for each of the MFS/Foreign & Colonial Series is set forth below. Each of the
portfolio managers has acted in that capacity since the commencement of
investment operations of that series.
International Growth Series--R. Steward Edgar, Director of the European Desk
of FCM, and Jonathan Sharpe, an Assistant Director and an Investment Manager
of FCM, are the series' portfolio
10
<PAGE>
managers. Mr. Edgar has been employed by FCM since 1993 before which he served
as a Director of the European Desk at HD International Ltd. since 1990. Mr.
Sharpe has been employed by FCM since 1990.
International Growth and Income Series--Chilton Thomson, Chief Investment
Officer of FCM, Atul Patel, Assistant Director and Global Funds Manager of
FCM, and Richard O. Hawkins, a Senior Vice President of the Adviser, are the
series' portfolio managers. Mr. Thomson has been employed by FCM since 1994
before which he was employed by Bankers Trust Investment Management as Chief
International Investment Officer since 1992 and by Gartmore Investment
Management as International Director since 1989. Mr. Patel has been employed
by FCM since 1994 before which he was employed by Bankers Trust Investment
Management as Investment Manager since 1992 and by Gartmore Investment
Management as Global Fund Manager since 1990. Mr. Hawkins has been employed by
Adviser since 1988.
Emerging Markets Equity Series--Dr. Arnab Kumar Banerji, Chief Investment
Officer of FCEM, is the series' portfolio manager. Dr. Banerji has been
employed by FCEM since 1993 before which he served as Joint Head of Emerging
Markets for Citibank Global Asset Management since 1989.
4. ADDITIONAL INFORMATION
WITH RESPECT TO SHARES OF EACH SERIES
Please refer to the Prospectus for general information about the series and
the Series Fund, including information concerning purchases of shares, net
asset value, dividends and distributions, tax status, redemptions, description
of shares, voting rights and liabilities, and the contents of the Statement of
Additional information. With respect to net asset value, dividends and
distributions, information applicable to the MFS/Foreign & Colonial Series is
that set forth in the Prospectus for all previously existing series other than
the Money Market Series.
11
<PAGE>
MFS/SUN LIFE SERIES TRUST
Supplement dated June 26, 1995 to the
Prospectus dated May 1, 1995
The second paragraph under the caption "Management of the Series Fund -
Investment Adviser" on page 39 of the Prospectus is hereby revised as follows to
reflect changes in portfolio management of the Total Return Series and the World
Growth Series:
David M. Calabro, a Vice President of the Adviser, Geoffrey L. Kurinsky,
a Senior Vice President of the Adviser, Judith N. Lamb, a Vice President of the
Adviser, Lisa B. Nurme, a Vice President of the Adviser and Maura A.
Shaughnessy, a Vice President of the Adviser are the Total Return Series'
portfolio managers. Mr. Calabro, the head of this portfolio management team, has
been employed by the Adviser since 1992 and served as an analyst and sector
portfolio manager with Fidelity Investments prior to that time. Mr. Kurinsky has
been employed by the Adviser since 1987. Ms. Lamb has been employed by the
Adviser since 1992 and served as an analyst with Fidelity Investments prior to
that time. Ms. Nurme has been employed by the Adviser since 1987. Ms.
Shaughnessy has been employed by the Adviser since 1991 and served as an analyst
with Harvard Management Company prior to that time.
Toni Y. Shimura and David R. Manheim, Vice Presidents of the Adviser,
are the portfolio managers of the World Growth Series. They have been employed
by the Adviser since 1987 and 1988, respectively.
<PAGE>
PROSPECTUS
MFS/SUN LIFE SERIES TRUST MAY 1, 1995
--------------------------------------------------------------------------------
MFS/Sun Life Series Trust (the "Series Fund"), 500 Boylston Street, Boston,
Massachusetts 02116, Telephone (617) 954-5000, is a no-load, open-end
management investment company which offers a choice of fifteen separate series
of shares. The shares of each series will be sold only to variable accounts
(collectively, the "Variable Accounts") established by Sun Life Assurance
Company of Canada (U.S.) ("Sun Life of Canada (U.S.)"), Sun Life Insurance and
Annuity Company of New York ("Sun Life (N.Y.)") and their affiliated companies
to fund benefits under variable contracts (the "Contracts") issued by such
companies. The Variable Accounts will purchase shares of each series in
accordance with the allocation instructions received from owners of the
Contracts.
The fifteen series and their investment objectives are as follows:
Capital Appreciation Series will seek capital appreciation by investing in
securities of all types, with major emphasis on common stocks (See page 10).
Conservative Growth Series will seek long-term growth of capital and future
income while providing more current dividend income than is normally obtainable
from a portfolio of only growth stocks by investing a substantial proportion of
its assets in the common stocks or securities convertible into common stocks of
companies believed to possess better than average prospects for long-term
growth and a smaller proportion of its assets in securities whose principal
characteristic is income production (See page 11).
Emerging Growth Series will seek long-term growth of capital by investing
primarily (i.e. at least 80% of its assets under normal circumstances) in
common stocks of emerging growth companies. Emerging growth companies include
small and medium sized companies that are early in their life cycle but which
have the potential to become major enterprises. Dividend and interest income
from portfolio securities, if any, is incidental to its objective of long-term
growth of capital (See page 11).
Government Securities Series will seek current income and preservation of
capital by investing in U.S. Government and U.S. Government-related Securities
(See page 14).
High Yield Series will seek high current income and capital appreciation by
investing primarily in fixed income securities of United States and foreign
issuers which may be in the lower rated categories or unrated (commonly known
as "junk bonds") and may include equity features (See page 14). Securities
offering the high current income sought by the High Yield Series generally
involve greater volatility of price and risk of principal and income, and less
liquidity than securities in the higher rated categories of recognized rating
agencies.
Managed Sectors Series will seek capital appreciation by varying the
weighting of its portfolio of common stocks among certain industry sectors.
Dividend income, if any, is incidental to its objective of capital appreciation
(See page 17).
Money Market Series will seek maximum current income to the extent consistent
with stability of principal by investing exclusively in money market
instruments maturing in less than 13 months (See page 18). An investment in
this series is neither insured nor guaranteed by the U.S. government. There can
be no assurance that the series will be able to maintain a stable net asset
value of $1.00 per share.
Research Series will seek to provide long-term growth of capital and future
income (See page 19).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
Total Return Series will seek primarily to obtain above-average income
(compared to a portfolio entirely invested in equity securities) consistent
with prudent employment of capital; its secondary objective is to take
advantage of opportunities for growth of capital and income. Assets will be
allocated and reallocated from time to time between money market, fixed income
and equity securities. Generally at least 40% of its assets will be invested
in equity securities (See page 20).
Utilities Series will seek capital growth and current income (income above
that available from a portfolio invested entirely in equity securities) by
investing at least 65% of its assets under normal market conditions in equity
and debt securities issued by domestic and foreign utility companies (See page
21).
World Asset Allocation Series will seek total return over the long term
through investments in equity and fixed income securities and will also seek
to have low volatility of share price (i.e., net asset value per share) and
reduced risk (compared to an aggressive equity/fixed income portfolio) (See
page 24).
World Governments Series will seek moderate current income and preservation
and growth of capital by investing in a portfolio of U.S. and Foreign
Government Securities (See page 28).
World Growth Series will seek capital appreciation by investing in
securities of companies worldwide growing at rates expected to be well above
the growth rate of the overall U.S. economy (See page 30).
World Total Return Series will seek total return by investing in securities
which will provide above average current income (compared to a portfolio
invested entirely in equity securities) and opportunities for long-term growth
of capital and income. The series will invest primarily in global equity and
fixed income securities (i.e., those of U.S. and non-U.S. issuers) (See page
33).
Zero Coupon Series, Portfolios 1995 and 2000--will seek the highest
predictable compounded investment return for a specific period of time,
consistent with the safety of invested capital, by investing primarily in debt
obligations of the United States Treasury that have been issued without
interest coupons or stripped of their unmatured interest coupons, interest
coupons that have been stripped from such debt obligations, and receipts and
certificates for such stripped debt obligations and stripped coupons. The two
Portfolios of the Zero Coupon Series, each of which is a separate sub-series
of the Zero Coupon Series, will differ only in their respective liquidation
dates, which for each Portfolio is November 15 of the specified year (See page
36.) These Portfolios are currently available only in connection with the
purchase of variable life insurance contracts issued by Sun Life of Canada
(U.S.).
There can be no assurance that the investment objectives of any series will
be achieved. In addition, an investment in the Capital Appreciation Series,
Emerging Growth Series, High Yield Series, Managed Sectors Series, Research
Series, Utilities Series, World Asset Allocation Series, World Governments
Series, World Growth Series or World Total Return Series may involve certain
additional risks, and may not be appropriate for all purchasers.
The investment adviser of each series is Massachusetts Financial Services
Company ("MFS" or the "Adviser"), 500 Boylston Street, Boston, Massachusetts
02116. The World Growth Series also has two sub-advisers, Batterymarch
Financial Management, Inc., located at 200 Clarendon Street, Boston,
Massachusetts 02116 and Oechsle International Advisors, L.P. located at One
International Place, Boston, Massachusetts 02110 (the "Sub-Adviser(s)").
This Prospectus sets forth concisely the information concerning each series
that a prospective investor ought to know before investing. The Series Fund
has filed with the Securities and Exchange Commission a Statement of
Additional Information dated May 1, 1995, which contains more detailed
information about each series and is incorporated into this Prospectus by
reference. See page 45 for a further description of the information set forth
in the Statement of Additional Information. A copy of the Statement of
Additional Information may be obtained without charge by contacting the Sun
Life Annuity Service Center, P.O. Box 1024, Boston, Massachusetts 02103,
telephone (800) 752-7215.
The information contained in this Prospectus should be read together with
the prospectus for the Contracts.
INVESTORS SHOULD READ AND RETAIN THIS PROSPECTUS FOR FUTURE REFERENCE.
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------------------------------------------------------------------
<S> <C>
1. The Series Fund 3
---------------------------------------------------------------------
2. Condensed Financial Information 3
---------------------------------------------------------------------
3. Investment Objectives and Policies 10
---------------------------------------------------------------------
4. Management of the Series Fund 39
---------------------------------------------------------------------
5. Additional Information with Respect to Shares of Each Series 42
Purchases 42
Net Asset Value, Dividends and Distributions 42
Tax Status 44
Redemptions 44
Description of Shares, Voting Rights and Liabilities 44
Contents of Statement of Additional Information 45
</TABLE>
--------------------------------------------------------------------------------
1. THE SERIES FUND
The Series Fund is a no-load, open-end management investment company which
was organized under the laws of the Commonwealth of Massachusetts in 1983. The
Series Fund has fifteen separate portfolios, each of which is represented by a
separate series of shares: (1) the "Capital Appreciation Series", (2) the
"Conservative Growth Series", (3) the "Emerging Growth Series", (4) the
"Government Securities Series", (5) the "High Yield Series", (6) the "Managed
Sectors Series", (7) the "Money Market Series", (8) the "Research Series", (9)
the "Total Return Series", (10) the "Utilities Series", (11) the "World Asset
Allocation Series," (12) the "World Governments Series", (13) the "World Growth
Series", (14) the "World Total Return Series" and (15) the "Zero Coupon
Series". The High Yield Series, Managed Sectors Series, Utilities Series, World
Asset Allocation Series, World Governments Series, World Growth Series and
World Total Return Series are non-diversified as that term is defined in the
Investment Company Act of 1940.
The shares of each series will be sold only to variable accounts
(collectively, the "Variable Accounts") established by Sun Life of Canada
(U.S.), Sun Life (N.Y.) and their affiliated companies to fund benefits under
variable contracts (the "Contracts") issued by such companies. The Zero Coupon
Series currently will be sold only for the purpose of funding benefits under
variable life insurance contracts issued by Sun Life of Canada (U.S.). The
Variable Accounts will purchase shares of each series in accordance with the
allocation instructions received from owners of the Contracts. The Series Fund
then uses the proceeds to buy securities for the portfolio for which such
shares were sold. The investment adviser manages each portfolio from day to day
in accordance with its investment objectives. The kinds of investments and the
way they are managed depend on the conditions and trends in the economy and the
financial marketplaces. The Series Fund also offers to redeem shares of each
series from the Variable Accounts at any time at net asset value.
2. CONDENSED FINANCIAL INFORMATION
The following information about each series since its inception should be
read in conjunction with the financial statements included in the Series Fund's
Annual Report to shareholders for the year ended December 31, 1994, which are
incorporated by reference into the Statement of Additional Information, all of
which have been audited by Deloitte & Touche LLP, independent certified public
accountants. Additional information about the performance of the Series Fund is
contained in such Annual Report which may be obtained without charge from the
Sun Life Annuity Service Center, P.O. Box 1024, Boston, Massachusetts 02103,
Telephone (800) 752-7215.
3
<PAGE>
MFS/SUN LIFE SERIES TRUST
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CAPITAL APPRECIATION SERIES
-------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985+
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per share data
(for a share
outstanding
throughout each
period):
Net asset value--
beginning of
period........... $28.1892 $24.8989 $23.0886 $16.6242 $19.9804 $13.6006 $12.9601 $12.9025 $10.7135 $10.0000#
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Income from
investment
operations--
Net investment
income.......... $ 0.0523 $ 0.1036 $ 0.0909 $ 0.1809 $ 0.2737 $ 0.3809 $ 0.2925 $ 0.1560 $ 0.0887 $ 0.0761
Net realized and
unrealized gain
(loss) on
investments and
foreign currency
transactions.... (1.1104) 4.2197 2.9238 6.5415 (2.1219) 5.9989 0.6500 0.1596 2.1831 0.6374
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total from
investment
operations..... $(1.0581) $ 4.3233 $ 3.0147 $ 6.7224 $(1.8482) $ 6.3798 $ 0.9425 $ 0.3156 $ 2.2718 $ 0.7135
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Less
distributions--
From net
investment
income........... $(0.1306) $(0.1095) $(0.1831) $(0.2580) $(0.3940) $ -- $(0.3020) $(0.2580) $(0.0486) $ --
From net realized
gain on
investments and
foreign currency
transactions..... (2.5929) (0.9235) (1.0213) -- (1.1140) -- -- -- (0.0342) --
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total
distributions.. $(2.7235) $(1.0330) $(1.2044) $(0.2580) $(1.5080) $ -- $(0.3020) $(0.2580) $(0.0828) $ --
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net asset value--
end of period.... $24.4076 $28.1892 $24.8989 $23.0886 $16.6242 $19.9804 $13.6006 $12.9601 $12.9025 $10.7135
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Total return##.... (3.60)% 18.00% 13.61% 40.95% (9.69)% 46.91% 7.27% 2.40% 21.35% 15.61%*
Ratios (to average
net
assets)/Supplemental
data:
Expenses.......... 0.83% 0.83% 0.87% 0.85% 0.88% 0.81% 0.91% 0.89% 1.20% 1.25%*
Net investment
income........... 0.24% 0.48% 0.50% 1.20% 1.99% 2.25% 1.86% 1.47% 1.68% 4.48%*
Portfolio
turnover......... 52% 70% 69% 92% 84% 123% 128% 140% 104% --
Net assets, end of
period (000
omitted)......... $476,508 $420,552 $262,645 $180,846 $ 77,746 $ 51,092 $ 35,492 $ 42,388 $ 20,333 $ 1,992
</TABLE>
<TABLE>
<CAPTION>
CONSERVATIVE GROWTH SERIES
---------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987 1986++
-------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per share data (for a
share outstanding
throughout each
period):
Net asset value--
beginning of period... $16.9289 $16.0717 $16.8547 $12.6137 $13.4162 $ 9.8745 $ 9.6097 $ 9.9999 $10.0000#
-------- -------- -------- -------- -------- -------- -------- -------- --------
Income from investment
operations--
Net investment income
(expense)............ $ 0.2942 $ 0.2041 $ 0.1810 $ 0.1515 $ 0.3027 $ 0.3110 $ 0.4448 $ 0.2187 $(0.0001)
Net realized and
unrealized gain
(loss) on
investments.......... (0.4790) 1.1280 0.6747 4.4025 (0.7712) 3.2307 0.2720 (0.4209) --
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total from investment
operations.......... $(0.1848) $ 1.3321 $ 0.8557 $ 4.5540 $(0.4685) $ 3.5417 $ 0.7168 $(0.2022) $(0.0001)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Less distributions--
From net investment
income............... $(0.1996) $(0.1509) $(0.1387) $(0.3130) $(0.3340) $ -- $(0.4520) $(0.1880) $ --
From net realized gain
on investments and
foreign currency
transactions......... (0.0882) (0.3240) (1.5000) -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total distributions.. $(0.2878) $(0.4749) $(1.6387) $(0.3130) $(0.3340) $ -- $(0.4520) $(0.1880) $ 0.0000
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net asset value--end of
period................ $16.4563 $16.9289 $16.0717 $16.8547 $12.6137 $13.4162 $ 9.8745 $ 9.6097 $ 9.9999
======== ======== ======== ======== ======== ======== ======== ======== ========
Total return##......... ( 1.10)% 8.43% 5.71% 36.74% (3.48)% 35.97% 7.41% (2.02)% 0.00%*
Ratios (to average net
assets)/Supplemental
data:
Expenses.............. 0.64% 0.66% 0.80% 0.98% 1.00% 1.02% 0.87% 0.95% 1.25%*
Net investment income
(expense)............ 2.42% 2.05% 1.84% 1.07% 2.29% 2.38% 3.71% 3.61% (0.41%)*
Portfolio turnover..... 146% 19% 40% 51% 82% 34% 78% 98% --
Net assets, end of
period (000 omitted).. $150,318 $ 95,770 $ 44,455 $ 15,818 $ 11,680 $ 13,323 $ 11,646 $ 13,573 $ 469
</TABLE>
--------
* Annualized.
+ From July 19, 1985 (date of commencement of operations) to December 31, 1985.
++ From November 14, 1986 (date of commencement of operations) to December 31,
1986.
# Net asset value on date of commencement of operations.
## The total return information shown above does not reflect expenses that
apply to the separate accounts established by Sun Life Assurance Company of
Canada (U.S.) and Sun Life Insurance and Annuity Company of New York.
Inclusion of these charges would reduce the total return figures for all
periods shown.
4
<PAGE>
MFS/SUN LIFE SERIES TRUST
FINANCIAL HIGHLIGHTS--CONTINUED
<TABLE>
<CAPTION>
GOVERNMENT SECURITIES SERIES
--------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985+
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per share data
(for a share
outstanding
throughout each
period):
Net asset value--
beginning of
period........... $13.0951 $13.0059 $13.0369 $12.0359 $11.9612 $10.6128 $10.7858 $12.1211 $10.4751 $10.0000#
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Income from
investment
operations--
Net investment
income........... $ 0.6366 $ 0.5742 $ 0.7170 $ 0.7835 $ 0.7723 $ 0.9270 $ 1.0085 $ 0.7284 $ 0.6173 $ 0.0952
Net realized and
unrealized gain
(loss) on
investments and
foreign currency
transactions..... (0.9238) 0.5220 0.0976 1.0115 0.1954 0.4324 (0.1825) (0.4047) 1.0925 0.3799
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total from
investment
operations..... $(0.2872) $ 1.0962 $ 0.8146 $ 1.7950 $ 0.9677 $ 1.3594 $ 0.8260 $ 0.3237 $ 1.7098 $ 0.4751
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Less
distributions--
From net
investment
income........... $(0.4959) $(0.6603) $(0.8027) $(0.7940) $(0.8930) $(0.0110) $(0.9990) $(1.3840) $(0.0638) $ --
From net realized
gain on
investments and
foreign currency
transactions..... (0.1901) (0.3467) (0.0429) -- -- -- -- (0.2750) -- --
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total
distributions.. $(0.6860) $(1.0007) $(0.8456) $(0.7940) $(0.8930) $(0.0110) $(0.9990) $(1.6590) $(0.0638) $ 0.0000
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net asset value--
end of period.... $12.1219 $13.0951 $13.0059 $13.0369 $12.0359 $11.9612 $10.6128 $10.7858 $12.1211 $10.4751
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Total return##.... (2.21)% 8.70% 6.81% 15.81% 8.92% 12.83% 7.59% 2.94% 16.37% 10.33%*
Ratios (to average
net
assets)/Supplemental
data:
Expenses.......... 0.62% 0.63% 0.66% 0.64% 0.67% 0.61% 0.61% 0.60% 0.76% 1.20%*
Net investment
income........... 6.01% 5.92% 6.56% 7.60% 8.12% 8.47% 8.01% 8.28% 9.10% 6.76%*
Portfolio
turnover......... 90% 96% 304% 203% 62% 139% 386% 424% 185% --
Net assets, end of
period (000
omitted)......... $347,150 $310,521 $203,739 $144,172 $ 97,977 $ 61,483 $ 57,798 $ 62,850 $ 33,067 $ 5,877
</TABLE>
<TABLE>
<CAPTION>
HIGH YIELD SERIES
---------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985+
--------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per share data
(for a share
outstanding
throughout each
period):
Net asset value--
beginning of
period........... $ 9.1120 $ 8.3279 $ 8.1299 $ 6.9758 $ 9.9462 $10.0835 $10.1008 $11.7988 $10.3842 $10.0000#
--------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Income from
investment
operations--
Net investment
income........... $ 0.8226 $ 0.5915 $ 0.7314 $ 0.8230 $ 1.6596 $ 1.5234 $ 1.5331 $ 1.2281 $ 0.6045 $ 0.0922
Net realized and
unrealized gain
(loss) on
investments and
foreign currency
transactions..... (1.0387) 0.8242 0.3823 1.9201 (2.9030) (1.6487) (0.0244) (1.0871) 0.9145 0.2320
--------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total from
investment
operations..... $ (0.2161) $ 1.4157 $ 1.1137 $ 2.7431 $(1.2434) $(0.1253) $ 1.5087 $ 0.1410 $ 1.5190 $ 0.3842
--------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Less
distributions--
From net
investment
income........... $(0.7099) $(0.6316) $(0.9157) $(1.5890) $(1.7270) $(0.0120) $(1.5260) $(1.8180) $(0.1044) $ --
From net realized
gain on
investments...... -- -- -- -- -- -- -- (0.0210) -- --
--------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total
distributions.. $ (0.7099) $(0.6316) $(0.9157) $(1.5890) $(1.7270) $(0.0120) $(1.5260) $(1.8390) $(0.1044) $ 0.0000
--------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net asset value--
end of period.... $ 8.1860 $ 9.1120 $ 8.3279 $ 8.1299 $ 6.9758 $ 9.9462 $10.0835 $10.1008 $11.7988 $10.3842
========= ======== ======== ======== ======== ======== ======== ======== ======== ========
Total return##.... (2.16)% 17.68% 14.99% 47.47% (14.16)% (1.17)% 14.91% 1.05% 14.82% 8.36%*
Ratios (to average
net
assets)/Supplemental
data:
Expenses.......... 0.86% 0.88% 0.97% 1.05% 1.05% 0.96% 0.89% 0.88% 1.16% 1.25%*
Net investment
income........... 8.94% 8.76% 9.07% 12.23% 17.07% 12.51% 12.83% 9.74% 10.28% 7.64%*
Portfolio
turnover......... 82% 53% 73% 45% 22% 25% 32% 54% 31% --
Net assets, end of
period (000
omitted)......... $102,194 $ 97,884 $ 54,564 $ 31,254 $ 19,216 $ 31,983 $ 41,954 $ 42,341 $ 27,534 $ 4,532
</TABLE>
--------
* Annualized.
+ From July 19, 1985 (date of commencement of operations) to December 31, 1985.
# Net asset value on date of commencement of operations.
## The total return information shown above does not reflect expenses that
apply to the separate accounts established by Sun Life Assurance Company of
Canada (U.S.) and Sun Life Insurance and Annuity Company of New York.
Inclusion of these charges would reduce the total return figures for all
periods shown.
5
<PAGE>
MFS/SUN LIFE SERIES TRUST
FINANCIAL HIGHLIGHTS--CONTINUED
<TABLE>
<CAPTION>
MANAGED SECTORS SERIES
------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988+
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Per share data (for a
share outstanding
throughout each
period):
Net asset value--
beginning of period.... $23.2419 $22.3342 $21.0115 $13.0731 $15.1367 $10.4213 $10.0000#
-------- -------- -------- -------- -------- -------- --------
Income from investment
operations--
Net investment income
(expense)............. $ 0.0982 $ 0.0027 $(0.0565) $ 0.0337 $ 0.1163 $ 0.0831 $ 0.0653
Net realized and
unrealized gain (loss)
on investments and
foreign currency
transactions.......... (0.6610) 0.9050 1.4184 8.0287 (1.6919) 4.6323 0.4150
-------- -------- -------- -------- -------- -------- --------
Total from investment
operations........... $(0.5628) $ 0.9077 $ 1.3619 $ 8.0624 $(1.5756) $ 4.7154 $ 0.4803
-------- -------- -------- -------- -------- -------- --------
Less distributions--
From net investment
income................ $(0.0239) $ -- $(0.0392) $(0.1240) $(0.0720) $ -- $(0.0590)
From net realized gain
on investments and
foreign currency
transactions.......... (2.7729) -- -- -- (0.4160) -- --
-------- -------- -------- -------- -------- -------- --------
Total distributions... $(2.7968) $ -- $(0.0392) $(0.1240) $(0.4880) $ -- $(0.0590)
-------- -------- -------- -------- -------- -------- --------
Net asset value--end of
period................. $19.8823 $23.2419 $22.3342 $21.0115 $13.0731 $15.1367 $10.4213
======== ======== ======== ======== ======== ======== ========
Total return##.......... (1.94)% 4.08% 6.48% 62.15% (10.50)% 45.30% 7.32%*
Ratios (to average net
assets)/Supplemental
data:
Expenses............... 0.87% 0.84% 0.93 % 1.03% 1.25% 1.25% 1.25%*
Net investment income
(expense)............. 0.53% 0.01% (0.35)% 0.34% 1.52% 1.51% 1.90%*
Portfolio turnover...... 103% 116% 22% 45% 51% 75% 122%
Net assets, end of
period (000 omitted)... $118,987 $104,954 $83,413 $41,752 $15,290 $ 4.054 $ 507
</TABLE>
<TABLE>
<CAPTION>
MONEY MARKET SERIES
---------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985++
-------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per share data
(for a share
outstanding
throughout each
period):
Net asset value--
beginning of
period........... $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000#
-------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Income from
investment
operations....... $ 0.0363 $ 0.0256 $ 0.0325 $ 0.0565 $ 0.0760 $ 0.0855 $ 0.0549 $ 0.0379 $ 0.0376 $ 0.0044
-------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Less distributions
from net
investment
income........... $(0.0363) $(0.0256) $(0.0325) $(0.0565) $(0.0760) $(0.0855) $(0.0549) $(0.0379) $(0.0376) $(0.0044)
-------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Net asset
value--end of
period......... $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
======== ========= ========= ========= ========= ========= ========= ========= ========= =========
Total
return##....... 3.69% 2.59% 3.30% 5.79% 7.81% 8.91% 7.13% 5.95% 5.54% 5.43%*
Ratios (to average
net
assets)/Supplemental
data:
Expenses.......... 0.58% 0.58% 0.60% 0.59% 0.62% 0.72% 0.72% 0.80% 1.25% 1.25%*
Net investment
income........... 3.74% 2.60% 3.29% 5.64% 7.48% 8.60% 6.97% 6.26% 5.45% 6.29%*
Net assets, end of
period (000
omitted)......... $252,175 $142,464 $134,799 $129,683 $112,901 $ 40,015 $ 34,179 $ 23,711 $ 6,405 $ 2,522
</TABLE>
--------
* Annualized.
+ From May 2, 1988 (date of commencement of operations) to December 31, 1988.
++ From July 19, 1985 (date of commencement of operations) to December 31,
1985.
# Net asset value on date of commencement of operations.
## The total return information shown above does not reflect expenses that
apply to the separate accounts established by Sun Life Assurance Company of
Canada (U.S.) and Sun Life Insurance and Annuity Company of New York.
Inclusion of these charges would reduce the total return figures for all
periods shown.
6
<PAGE>
MFS/SUN LIFE SERIES TRUST
FINANCIAL HIGHLIGHTS--CONTINUED
<TABLE>
<CAPTION>
TOTAL RETURN SERIES
-------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988+
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Per share data (for a
share outstanding
throughout each
period):
Net asset value--
beginning of period.... $16.0946 $14.7219 $14.2209 $12.1220 $12.0912 $10.2903 $10.0000#
Income from investment
operations--
Net investment income.. $ 0.5639 $ 0.4319 $ 0.5389 $ 0.5646 $ 0.4091 $ 0.2898 $ 0.2445
Net realized and
unrealized gain (loss)
on investments and
foreign currency
transactions.......... (0.9310) 1.5044 0.6247 1.9793 (0.0993) 1.5111 0.3298
-------- -------- -------- -------- -------- -------- --------
Total from investment
operations........... $(0.3671) $ 1.9363 $ 1.1636 $ 2.5439 $ 0.3098 $ 1.8009 $ 0.5743
-------- -------- -------- -------- -------- -------- --------
Less distributions--
From net investment
income................ $(0.4344) $(0.4798) $(0.5673) $(0.4450) $(0.2360) $ -- $(0.2410)
From net realized gain
on investments and
foreign currency
transactions.......... (0.2069) (0.0838) (0.0953) -- (0.0430) -- (0.0430)
-------- -------- -------- -------- -------- -------- --------
Total distributions... $(0.6413) $(0.5636) $(0.6626) $(0.4450) $(0.2790) $ -- $(0.2840)
-------- -------- -------- -------- -------- -------- --------
Net asset value--end of
period................. $15.0862 $16.0946 $14.7219 $14.2209 $12.1220 $12.0912 $10.2903
======== ======== ======== ======== ======== ======== ========
Total return##.......... (2.22)% 13.37% 8.57% 21.60% 2.69% 17.49% 8.77%*
Ratios (to average net
assets)/Supplemental
data:
Expenses............... 0.76% 0.78% 0.85% 0.85% 0.91% 1.25% 1.25%*
Net investment income.. 4.34% 4.06% 4.96% 5.83% 6.48% 6.49% 6.08%*
Portfolio turnover...... 66% 102% 71% 69% 42% 49% 31%
Net assets, end of
period (000 omitted)... $839,614 $696,496 $397,385 $224,216 $103,658 $ 18,001 $ 3,288
</TABLE>
<TABLE>
<CAPTION>
WORLD ASSET WORLD GOVERNMENTS SERIES
ALLOCATION -------------------------------------------------------------------
SERIES YEAR ENDED DECEMBER 31,
----------- -------------------------------------------------------------------
1994** 1994 1993 1992 1991 1990 1989 1988+
----------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Per share data (for a
share outstanding
throughout each
period):
Net asset value--
beginning of period.... $10.0000# $13.0212 $11.7966 $12.7397 $11.5967 $11.0195 $10.0259 $10.0000#
-------- -------- -------- -------- -------- -------- -------- --------
Income from investment
operations--
Net investment income... $ 0.0220 $ 0.6095 $ 0.5352 $ 0.6429 $ 0.7024 $ 0.2649 $ 0.8680 $ 0.3595
Net realized and
unrealized gain (loss)
on investments and
foreign currency
transactions.......... 0.0359 (1.2295) 1.5819 (0.6141) 0.9616 1.0963 0.1286 0.0614
-------- -------- -------- -------- -------- -------- -------- --------
Total from investment
operations........... $ 0.0579 $(0.6200) $ 2.1171 $ 0.0288 $ 1.6640 $ 1.3612 $ 0.9936 $ 0.4209
-------- -------- -------- -------- -------- -------- -------- --------
Less distributions--
From net investment
income................ $ -- $(0.8823) $(0.8925) $(0.6581) $(0.5210) $(0.7840) $ -- $(0.3590)
From net realized gain
on investments and
foreign currency
transactions.......... -- (0.1420) -- (0.3138) -- -- -- (0.0360)
-------- -------- -------- -------- -------- -------- -------- --------
Total distributions... -- $(1.0243) $(0.8925) $(0.9719) $(0.5210) $(0.7840) $ -- $(0.3950)
-------- -------- -------- -------- -------- -------- -------- --------
Net asset value--end of
period................. $10.0579 $11.3769 $13.0212 $11.7966 $12.7397 $11.5967 $11.0195 $10.0259
======== ======== ======== ======== ======== ======== ======== ========
Total return##.......... 0.60% (4.46)% 18.84% 0.54% 14.83% 13.37% 9.87% 6.49%*
Ratios (to average net
assets)/Supplemental
data:
Expenses............... 1.50%* 0.90% 0.95% 1.03% 1.12% 1.25% 1.25% 1.25%*
Net investment income.. 3.13%* 6.06% 6.01% 7.02% 7.50% 7.51% 8.10% 8.91%*
Portfolio turnover...... 2% 269% 173% 147% 192% 165% 168% --
Net assets, end of
period (000 omitted)... $ 3,003 $139,155 $135,085 $ 73,540 $ 36,566 $ 11,506 $ 1,951 $ 2,057
</TABLE>
-------
* Annualized.
**From November 7, 1994 (date of commencement of operations) to December 31,
1994.
+ From May 2, 1988 (date of commencement of operations) to December 31, 1988.
# Net asset value on date of commencement of operations.
## The total return information shown above does not reflect expenses that
apply to the separate accounts established by Sun Life Assurance Company of
Canada (U.S.) and Sun Life Insurance and Annuity Company of New York.
Inclusion of these charges would reduce the total return figures for all
periods shown.
7
<PAGE>
MFS/SUN LIFE SERIES TRUST
FINANCIAL HIGHLIGHTS--CONTINUED
<TABLE>
<CAPTION>
ZERO COUPON SERIES
-----------------------------------------------------------------------------------------
1995 PORTFOLIO
-----------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1994 1993 1992 1991 1990 1989 1988 1987 1986+
-------- -------- -------- -------- -------- -------- -------- -------- --------
Per share data (for a
share outstanding
throughout each
period):
Net asset value--
beginning of period.... $10.9687 $11.2196 $11.2957 $10.3469 $10.2985 $ 8.8320 $ 8.7546 $ 9.8250 $10.0000#
-------- -------- -------- -------- -------- -------- -------- -------- --------
Income from investment
operations--
Net investment income... $ 0.7908 $ 0.7853 $ 0.8329 $ 0.7617 $ 0.5986 $ 0.7717 $ 0.5758 $ 0.2853 $ --
Net realized and
unrealized gain (loss)
on investments......... (0.6877) (0.0683) (0.0796)** 0.7891 0.2038 0.6948 0.0986 (1.0697) (0.1750)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total from investment
operations........... $ 0.1031 $ 0.7170 $ 0.7533 $ 1.5508 $ 0.8024 $ 1.4665 $ 0.6744 $(0.7814) $(0.1750)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Less distributions--
From net investment
income................. $(0.7949) $(0.8298) $(0.7900) $(0.5990) $(0.7540) $ -- $(0.5740) $(0.2890) $ --
From net realized gain
on investments......... (0.1225) (0.1381) (0.0394) (0.0030) -- -- (0.0230) -- --
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total distributions... $(0.9174) $(0.9679) $(0.8294) $(0.6020) $(0.7540) $ -- $(0.5970) $(0.2890) $(0.0000)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net asset value--end of
period................. $10.1544 $10.9687 $11.2196 $11.2957 $10.3469 $10.2985 $ 8.8320 $ 8.7546 $ 9.8250
======== ======== ======== ======== ======== ======== ======== ======== ========
Total return##.......... 1.05% 6.59% 7.26% 15.80% 8.69% 16.65% 7.74% (8.00)% (13.31)%*
Ratios (to average net
assets)/Supplemental
data:
Expenses................ 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.49% 0.50% 0.50%*
Net investment income... 7.36% 7.06% 7.20% 7.35% 7.93% 8.03% 8.26% 8.03% --
Portfolio turnover...... 1% 3% 0% 7% 8% 17% 22% 27% --
Net assets, end of
period (000 omitted)... $ 4,857 $ 5,335 $ 5,340 $ 5,655 $ 4,962 $ 3,421 $ 2,931 $ 1,371 $ 2
</TABLE>
<TABLE>
<CAPTION>
ZERO COUPON SERIES
-----------------------------------------------------------------------------------------
2000 PORTFOLIO
-----------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1994 1993 1992 1991 1990 1989 1988 1987 1986+
-------- -------- -------- -------- -------- -------- -------- -------- --------
Per share data (for a
share outstanding
throughout each
period):
Net asset value--
beginning of period.... $11.1167 $11.0966 $11.3060 $10.2772 $10.6719 $ 8.8187 $ 8.4758 $ 9.7300 $10.0000#
-------- -------- -------- -------- -------- -------- -------- -------- --------
Income from investment
operations--
Net investment income... $ 0.3807 $ 0.6921 $ 0.8970 $ 0.8217 $ 0.8473 $ 0.7145 $ 0.5361 $ 0.3011 $ --
Net realized and
unrealized gain (loss)
on investments......... (1.1094) .8997 (0.0904)** 1.1301 (0.3340) 1.1387 0.4928 (1.2533) (0.2700)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total from investment
operations........... $(0.7287) $ 1.5918 $ 0.8066 $ 1.9518 $ 0.5133 $ 1.8532 $ 1.0289 $(0.9522) $(0.2700)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Less distributions--
From net investment
income................. $(0.6250) $(0.8915) $(0.8539) $(0.7990) $(0.7620) $ -- $(0.5350) $(0.3020) $ --
From net realized gain
on investments......... (1.8057) (0.6802) (0.1621) (0.1240) (0.1460) -- (0.1510) -- --
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total distributions... $(2.4307) $(1.5717) $(1.0160) $(0.9230) $(0.9080) $ -- $(0.6860) $(0.3020) $ 0.0000
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net asset value--end of
period................. $ 7.9573 $11.1167 $11.0966 $11.3060 $10.2772 $10.6719 $ 8.8187 $ 8.4758 $ 9.7300
======== ======== ======== ======== ======== ======== ======== ======== ========
Total return##.......... (6.99)% 15.03% 8.18% 20.54% 5.92% 20.98% 12.23% (9.85)% (20.53)%*
Ratios (to average net
assets)/Supplemental
data:
Expenses................ 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.48% 0.50% 0.50%*
Net investment income... 4.93% 5.48% 7.08% 7.63% 8.06% 7.88% 8.57% 8.62% --
Portfolio turnover...... 12% 65% 16% 8% 24% 15% 39% 31% --
Net assets, end of
period (000 omitted)... $ 3,280 $ 3,547 $ 3,713 $ 4,525 $ 4,381 $ 4,584 $ 3,050 $ 1,436 $ 2
</TABLE>
-------
* Annualized.
+ From November 14, 1986 (date of commencement of operations) to December 31,
1986.
** The per share amount is not in accord with the net realized and unrealized
gain for the period because of the timing of sales of Trust shares and the
amount of per share realized and unrealized gains and losses at such time.
# Net asset value on date of commencement of operations.
## The total return information shown above does not reflect expenses that
apply to the separate accounts established by Sun Life Assurance Company of
Canada (U.S.) and Sun Life Insurance and Annuity Company of New York.
Inclusion of these charges would reduce the total return figures for all
periods shown.
8
<PAGE>
MFS/SUN LIFE SERIES TRUST
FINANCIAL HIGHLIGHTS--CONTINUED
<TABLE>
<CAPTION>
RESEARCH WORLD TOTAL
SERIES UTILITIES SERIES WORLD GROWTH SERIES RETURN SERIES
------------- ------------------------- ------------------------- -------------
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1994** 1994 1993+ 1994 1993+ 1994**
------------- ------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Per share data (for a
share outstanding
throughout each
period):
Net asset value--
beginning of period.... $10.0000# $10.0164 $10.0000# $10.6366 $10.0000# $10.0000#
-------- -------- -------- -------- -------- --------
Income from investment
operations--
Net investment
income++............. $ 0.0131 $ 0.2899 $ 0.0128 $ 0.1506 $ 0.0088 $ 0.0247
Net realized and
unrealized gain (loss)
on investments and
foreign currency
transactions.......... (0.1370) (0.7817) 0.0036 0.1590 0.6278 0.0158
-------- -------- -------- -------- -------- --------
Total from investment
operations........... $(0.1239) $(0.4918) $ 0.0164 $ 0.3096 $ 0.6366 $ 0.0405
-------- -------- -------- -------- -------- --------
Less distributions from
net investment income.. $ -- $(0.0037) $ -- $(0.0037) $ -- $ --
-------- -------- -------- -------- -------- --------
Net asset value--end of
period................. $ 9.8761 $ 9.5209 $10.0164 $10.9425 $10.6366 $10.0405
======== ======== ======== ======== ======== ========
Total return##.......... (1.20)% (4.96)% 1.59% 2.86% 50.78% 0.40%
Ratios (to average net
assets)/Supplemental
data++:
Expenses............... 1.50%* 0.39% 1.50%* 0.47% 1.02%* 1.50%*
Net investment income.. 1.80%* 4.59% 2.58%* 2.20% 1.23%* 3.31%*
Portfolio turnover...... 3% 103% --% 231% 2% 1%
Net assets, end of year
(000 omitted).......... $ 3,869 $ 21,448 $ 2,798 $100,045 $ 18,879 $ 1,384
--------
* Annualized.
** From November 7, 1994 (date of commencement of operations) to December 31,
1994.
+ From November 16, 1993 (date of commencement of operations) to December 31,
1993.
# Net asset value on date of commencement of operations.
++ The investment adviser voluntarily waived its management fee for the
Utilities Series and World Growth Series for the periods indicated. If the
waiver had not been in place, the net investment income per share and ratios
would have been:
Net investment income.. $ 0.2412 $ 0.0989 $ 0.005
Ratios (to average net
assets)...............
Expenses.............. 1.14% 1.20% 1.50%*
Net investment income. 3.84% 1.47% 0.75%*
</TABLE>
## The total return information shown above does not reflect expenses that
apply to the separate accounts established by Sun Life Assurance Company of
Canada (U.S.) and Sun Life Insurance and Annuity Company of New York.
Inclusion of these charges would reduce the total return figures for all
periods shown.
9
<PAGE>
3. INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and policies of the fifteen series of the Series
Fund are discussed below. Any investment involves risk and there can be no
assurance that the investment objectives of any series will be achieved.
Shareholder approval is not required to change the investment objectives of any
series or the manner in which each series seeks to achieve its objectives.
More than one series may invest in the same instruments and employ the same
investment techniques. For convenient reference and to avoid duplication,
descriptions of instruments and techniques are centralized and arranged in
alphabetical order in Appendix A ("Description of Instruments") and Appendix B
("Investment Techniques") to this Prospectus. A description of ratings by
Standard & Poor's Rating Group ("S&P"), Fitch Investors Service, Inc. ("Fitch")
and Moody's Investors Service, Inc. ("Moody's") used to evaluate commercial
paper, bonds and debt is provided in Appendix C. More information concerning
instruments and investment techniques can be found in the Appendix to the
Statement of Additional Information (the "SAI Appendix"). THESE APPENDIXES
PROVIDE IMPORTANT INFORMATION CONCERNING THE RISKS INVOLVED IN INVESTING IN A
PARTICULAR SERIES. WE URGE YOU TO REVIEW THEM BEFORE MAKING YOUR INVESTMENT
DECISION.
(1) CAPITAL APPRECIATION SERIES
The Capital Appreciation Series will seek to maximize capital appreciation by
investing in securities of all types with a major emphasis on common stocks.
The Capital Appreciation Series seeks to achieve this objective by maintaining
a flexible approach toward the type of securities and the relative
attractiveness of the various securities markets. Securities are selected based
upon their potential for capital appreciation. Income is not a significant
factor in portfolio selection.
While the Capital Appreciation Series usually will invest primarily in common
stocks, the series will also seek capital appreciation in other types of
securities, including fixed-income securities, convertible bonds, preferred
stocks and warrants when they appear attractive for capital appreciation. The
Capital Appreciation Series may hold part or all of its assets in cash or
short-term obligations or other forms of debt securities for temporary
defensive purposes or as a reserve for future purchases. The Capital
Appreciation Series may enter into futures contracts and options on futures
contracts for hedging purposes, and may write covered call and put options and
purchase call and put options on securities and stock indexes in an effort to
increase current income and for hedging purposes.
The Capital Appreciation Series may invest up to 50% (and generally expects
to invest between 10% and 50%) of its total assets in foreign securities, which
may include emerging market securities, may invest in American Depositary
Receipts ("ADRs") and may enter into forward foreign currency exchange
contracts ("forward contracts") for the purchase or sale of foreign currency
for hedging purposes. The series may invest in restricted securities, subject
to the limitation on investing more than 10% of its net assets in securities
that are not readily marketable.
The Capital Appreciation Series is focused on growth companies and may be
subject to fluctuations in the value of its shares during periods of stock
market volatility. The series involves the assumption of a higher degree of
risk as compared to a conservative equity fund. While it is not the series'
policy generally to invest or trade for short-term profits, portfolio
securities may be disposed of without regard to the length of time held
whenever the Adviser is of the opinion that a security no longer has an
appropriate appreciation potential or has reached its anticipated level of
performance, or when another security appears to offer relatively greater
appreciation potential or a relatively greater anticipated level
10
<PAGE>
of performance. The rate of portfolio turnover is not a limiting factor when
changes are appropriate. Higher levels of portfolio activity result in higher
brokerage commissions.
See Appendix A for a discussion of restricted securities, foreign securities
and emerging market securities and the risks involved in these investments.
Options, futures contracts, options on futures contracts and forward contracts
and their attendant risks are discussed in Appendix B. Please refer to the SAI
Appendix for further discussion of these techniques.
(2) CONSERVATIVE GROWTH SERIES
The Conservative Growth Series will seek long-term growth of capital and
future income, while providing more current dividend income than is normally
obtainable from a portfolio of only growth stocks. The Conservative Growth
Series seeks to achieve this objective by investing a substantial proportion of
its assets in the common stocks or securities convertible into common stocks of
companies believed to possess better than average prospects for long-term
growth. A smaller proportion of the assets may be invested in bonds, short-term
obligations, preferred stocks or common stocks whose principal characteristic
is income production rather than growth. Such securities may also offer
opportunities for growth of capital as well as income. In the case of both
growth stocks and income issues, emphasis is placed on the selection of
progressive, well-managed companies. Most of the non-convertible long-term debt
investments of the Conservative Growth Series, if any, will consist of
"investment grade" securities (rated Baa or better by Moody's or BBB or better
by S&P or Fitch). (See Appendix C.) The Conservative Growth Series may enter
into repurchase agreements for U.S. Government Securities, may seek to increase
its income by lending its portfolio securities, to the extent consistent with
present regulatory policies, and may invest up to 35% (and generally expects to
invest between 5% and 15%) of its total assets in foreign securities, which may
include emerging market securities. From time to time, the Adviser will
exercise its judgment with respect to the proportions invested in growth
stocks, income-producing securities or cash and cash equivalents depending on
its view of their relative attractiveness. The series may invest in restricted
securities, subject to the limitation on investing more than 10% of its net
assets in securities that are not readily marketable.
Since shares of the Conservative Growth Series represent an investment in
securities with fluctuating market prices, shareholders should understand that
the value of their shares will vary as the aggregate value of the portfolio
securities of the Conservative Growth Series increases or decreases. Moreover,
any dividend the Conservative Growth Series pays will increase or decrease in
relation to the income received from its investments. The Conservative Growth
Series does not intend to trade in securities for short-term profits. However,
the Conservative Growth Series will trade whenever it believes that changes are
appropriate.
See Appendix A for a discussion of restricted securities, repurchase
agreements, foreign securities and emerging market securities, and the risks
involved in these investments. Securities lending transactions and the
attendant risks are discussed in Appendix B.
(3) EMERGING GROWTH SERIES
The Emerging Growth Series seeks to provide long-term growth of capital.
Dividend and interest income from portfolio securities, if any, is incidental
to the series' investment objective of long-term growth of capital.
11
<PAGE>
The series' policy is to invest primarily (i.e., at least 80% of its assets
under normal circumstances) in common stocks of emerging growth companies.
Emerging growth companies include small and medium-sized companies that are
early in their life cycle but which have the potential to become major
enterprises. These companies generally have annual gross revenues ranging from
$10 million to $2 billion, would be expected to show earnings growth over time
that is well above the growth rate of the overall economy and the rate of
inflation, and would have the products, management and market opportunities
which are usually necessary to become more widely recognized as growth
companies. Emerging growth companies also include more established companies
whose rates of earnings growth are expected to accelerate because of special
factors, such as rejuvenated management, new products changes in consumer
demand, or basic changes in the economic environment or which otherwise
represent opportunities for long-term growth. Investments in emerging growth
companies may include, to a limited extent, restricted securities of companies
which are believed to have significant growth potential. These securities may
be considered speculative and may not be readily marketable.
While the Emerging Growth Series will invest primarily in common stocks, the
series may, to a limited extent, seek appreciation in other types of securities
such as fixed income securities, convertible securities and warrants when
relative values make such purchases appear attractive either as individual
issues or as types of securities in certain economic environments. The series
may invest in fixed income securities rate BBB by S&P or Fitch or Baa by
Moody's and may invest up to 25% of its assets in lower rated fixed income
securities or comparable unrated securities (commonly known as "junk bonds").
(See Appendix C; see also "Additional Risk Factors Regarding Lower Rated
Securities" under "High Yield Series" above.)
The series may invest up to 25% of its total assets in foreign securities,
and may invest in American Depositary Receipts ("ADRs"). The series may also
invest in corporate asset-backed securities, loan participations, repurchase
agreements and restricted securities.
The Emerging Growth Series may hold part or all of its assets in cash or
short term obligations for temporary defensive purposes, as a reserve for
future purchases, or to meet liquidity needs. During periods of unusual market
conditions when the Adviser believes that investing for defensive purposes is
appropriate, or in order to meet anticipated redemption requests, a large
portion or all of the assets of the series may be invested in cash or cash
equivalents including, but not limited to, obligations of banks (including
certificates of deposit, bankers' acceptances and repurchase agreements) with
assets of $1 billion or more, commercial paper, short-term notes, obligations
issued or guaranteed by the U.S. Government or any of its agencies, authorities
or instrumentalities and related repurchase agreements. For these purposes,
U.S. Government securities also include interests in trusts or other entities
representing interests in obligations that are issued or guaranteed by the U.S.
Government, its agencies, authorities or instrumentalities.
In order to achieve its investment objective, the Emerging Growth Series may
employ the investment techniques described below: (1) lending portfolio
securities; (2) purchasing securities on a "when-issued" or on a "forward
delivery" basis; (3) writing (selling) covered put and call options on
securities for the purpose of increasing its return and/or to protect the value
of its portfolio, and purchasing put and call options on securities in
anticipation of declines in the value of portfolio securities or increases in
the value of securities to be acquired (the series may also write combinations
of put and call options on the security, know as "straddles", which
transactions can generate additional income, but also present increased risks);
(4) writing covered call and put options and purchasing call and put
12
<PAGE>
options on domestic and foreign stock indexes for the purpose of increasing its
current income and/or for hedging purposes and to attempt to reduce the risk of
missing a market or industry segment advance; (5) entering into contracts for
the purchase or sale for future delivery of fixed income securities or foreign
currencies or contracts based on indexes of securities or currencies (including
any index of U.S. or foreign securities) as such instruments become available
for trading ("futures contracts'), for hedging purposes (to protect the series'
current or intended investments from the effects of changes in interest or
exchange rates or declines in a securities market) as well as for nonhedging
purposes, to the extent permitted by law (which involves greater risks and
could result in losses which are not offset by gains and other portfolio
assets); (6) entering into forward foreign currency exchange contracts
("forward contracts") for hedging purposes as well as nonhedging purposes; and
(7) purchasing and selling 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 securities to be acquired.
The portfolio of the series is aggressively managed and, therefore, the value
of its shares is subject to greater fluctuation and investments in its shares
involve the assumption of a higher degree of risk than would be the case with
an investment in a conservative equity fund or a growth fund investing entirely
in proven growth equities.
While it is not generally the series' policy to invest or trade for short
term profits, the series may dispose of a portfolio security whenever the
Adviser is of the opinion that such security no longer has an appropriate
appreciation potential or when another security appears to offer relatively
greater appreciation potential. The Emerging Growth Series' portfolio turnover
rate is not expected to exceed 200% in its first fiscal year. A portfolio
turnover rate in excess of 100% involves greater expenses, including higher
brokerage and transaction costs, than a lower rate.
See Appendix A for a discussion of foreign securities, U.S. government
securities, corporate asset backed securities, loan participations, repurchase
agreements and restricted securities and the risks involved in these
investments. The investment techniques set forth above and their attendant
risks are discussed in Appendix B. Please refer to the SAI Appendix for further
discussion of some of these instruments and techniques.
PROSPECTIVE PURCHASERS SHOULD REVIEW THIS SECTION CAREFULLY AND CONSIDER THE
INVESTMENT RISKS INVOLVED BEFORE ALLOCATING PURCHASE PAYMENTS UNDER THE
CONTRACTS TO THE EMERGING GROWTH SERIES.
ADDITIONAL RISK FACTORS RELATING TO EMERGING GROWTH COMPANIES
The nature of investing in emerging growth companies involves greater risk
than is customarily associated with investments in more established companies.
Emerging growth companies often have limited product lines, markets or
financial resources, and they may be dependent on one-person management. The
securities of emerging growth companies may have limited marketability and may
be subject to more abrupt or erratic market movements than securities of
larger, more established growth companies or the market averages in general.
Similarly, many of the securities offering the capital appreciation sought in
making these investments will involve a higher degree of risk than would
established growth stocks. Shares of the series, therefore, are subject to
greater fluctuation in value than shares of a conservative equity fund or of a
growth fund which invests entirely in proven growth stocks.
13
<PAGE>
(4) GOVERNMENT SECURITIES SERIES
The Government Securities Series will seek current income and preservation of
capital by investing in debt obligations that are issued or guaranteed as to
principal and interest by the U.S. government, its agencies, authorities or
instrumentalities ("U.S. Government Securities") and obligations that are fully
collateralized or otherwise fully backed by U.S. Government securities ("U.S.
Government-related Securities"), including collateralized mortgage obligations
("CMOs") and government backed trust certificates ("GBTs"). The series may
invest a significant portion of its assets in Government National Mortgage
Association ("GNMA") certificates and other mortgage pass-through securities.
The series may also engage in transactions involving options, futures contracts
and options on futures contracts as a hedge against anticipated future changes
in interest rates that otherwise might adversely affect the value of its
portfolio of securities and may enter into mortgage "dollar roll" transactions.
The Government Securities Series may also hold part or all of its assets in
cash or in short-term U.S. government debt securities and related repurchase
agreements for temporary defensive purposes or as a buying reserve.
GBTs and certain CMOs and other U.S. Government-related Securities are issued
by private entities, are not U.S. Government Securities and are not directly
guaranteed by any government agency. They are secured by the underlying
collateral held by the private issuer. Certain of these securities may have
variable or floating interest rates and others may be stripped (securities
which provide only the principal or interest feature of the underlying
security). The series intends to invest in privately issued CMOs only if they
are rated at the time of purchase in the two highest ratings by nationally
recognized rating agencies. (See Appendix C).
Some U.S. Government Securities and U.S. Government-related Securities do not
generally involve the credit risks associated with other types of interest
bearing securities, although, as a result, yields available from these
securities are generally lower than the yields available from corporate
interest bearing securities. Like other interest bearing securities, however,
the values of U.S. Government Securities and U.S. Government-related Securities
change as interest rates fluctuate. Therefore, when interest rates decline the
market value of a portfolio invested at higher yields can be expected to rise.
Conversely, when interest rates rise the market value of a portfolio invested
at lower yields can be expected to decline. Therefore, the Government
Securities Series will engage in portfolio trading to take advantage of market
developments and yield disparities, e.g., shortening the average maturity of
the portfolio in anticipation of a rise in interest rates so as to minimize
depreciation of principal or lengthening the average maturity of the portfolio
in anticipation of a decline in interest rates so as to maximize the
appreciation of principal.
See Appendix A for a discussion of U.S. Government Securities, CMOs, GBTs,
mortgage pass- through securities, repurchase agreements, and other instruments
set forth above, and the risks involved in these investments. Options, futures
contracts, options on futures contracts, and mortgage "dollar roll"
transactions and their attendant risks are discussed in Appendix B. Please
refer to the SAI Appendix for further discussion of these techniques.
(5) HIGH YIELD SERIES
The High Yield Series will seek high current income and capital appreciation
by investing primarily in certain low-rated or unrated fixed-income securities
(possibly with equity features) of U.S. and foreign issuers. These securities
may be denominated in U.S. dollars or foreign currencies. Securities offering
14
<PAGE>
the high current income sought by the High Yield Series are ordinarily in the
lower rated categories of recognized rating agencies (that is, rated BBB or
lower by S&P or Fitch or Baa or lower by Moody's) or are unrated and may
involve greater volatility of price and risk of principal and income than
securities in the higher rated categories. (See Appendix C). In particular,
securities rated BBB by S&P or Fitch or Baa by Moody's (and comparable unrated
securities) are considered to have speculative characteristics while securities
rated lower than BBB by S&P or Fitch or Baa by Moody's (and comparable unrated
securities) (commonly known as "junk bonds") are considered speculative. (See
"Additional Risk Factors Regarding Lower Rated Securities" below and Appendix C
for a further description of the risks associated with investing in these
securities; see Appendix E for a chart indicating the composition of the High
Yield Series' portfolio for the fiscal year ended December 31, 1994, with the
debt securities separated into rating categories and comparable unrated
securities.)
Fixed-income securities include preferred and preference stocks and all types
of debt obligations of both domestic and foreign corporate and government
issuers, such as bonds, debentures, notes, repurchase agreements, equipment
lease contracts, loan participations, corporate asset-backed securities,
commercial paper, and obligations issued or guaranteed by the U.S. Government,
any foreign government or any of their respective political subdivisions,
agencies or instrumentalities (including obligations secured by such
instruments). The High Yield Series may also enter into mortgage "dollar roll"
transactions.
Corporate debt securities may bear fixed, fixed and contingent, or variable
rates of interest and may involve equity features, such as: conversion or
exchange rights or warrants for the acquisition of stock of the same or a
different issuer; participations based on revenues, sales or profits; or the
purchase of common stock in a unit transaction (where corporate debt securities
and common stock are offered as a unit). Under normal market conditions, no
more than 25% of the value of the High Yield Series' total assets will be
invested in equity securities, including common stock, warrants and stock
subscription rights, but excluding convertible debt securities.
The fixed income securities in which the High Yield Series may invest also
include zero coupon bonds, deferred interest bonds, bonds on which the interest
is payable in kind ("PIK Bonds") and, to the extent permitted by its investment
restrictions (see "Investment Restrictions" in the Statement of Additional
Information) collateralized mortgage obligations, multi-class pass-through
securities, stripped mortgage-backed securities, and interests in trusts or
other entities representing interests in fixed income securities or holding
fixed income securities in amounts sufficient to cover all payments due from
such entities. The High Yield Series may purchase securities on a "when-issued"
basis. The series may also invest up to 50% (and generally expects to invest
between 0% and 25%) of its total assets in foreign securities, which may
include emerging market securities and Brady Bonds, and may invest in American
Depositary Receipts ("ADRs"). The series may invest in restricted securities,
subject to the limitation on investing more than 10% of its net assets in
securities that are not readily marketable.
In seeking to achieve its objectives and lessen risks, the High Yield Series
will engage in portfolio trading to take advantage of market developments and
yield disparities and will utilize credit analysis of the issues in which it
invests and evaluation of changes and trends in the world economies and
international financial markets.
15
<PAGE>
See Appendix A for a discussion of foreign securities, emerging market
securities, Brady Bonds, loan participations, restricted securities and other
instruments set forth above, and the risks involved in these investments.
"When-issued" securities transactions and mortgage "dollar roll" transactions
and their attendant risks are discussed in Appendix B. Please refer to the SAI
Appendix for a further discussion of some of these instruments and techniques.
PROSPECTIVE PURCHASERS SHOULD REVIEW THIS SECTION CAREFULLY AND CONSIDER THE
INVESTMENT RISKS INVOLVED BEFORE ALLOCATING PURCHASE PAYMENTS UNDER THE
CONTRACTS TO THE HIGH YIELD SERIES.
ADDITIONAL RISK FACTORS REGARDING LOWER RATED SECURITIES--Investments in
lower rated fixed income securities, while generally providing greater income
and opportunity for gain than investments in higher rated securities, usually
entail greater risk of principal and income (including the possibility of
default or bankruptcy of the issuers of such securites), and may involve
greater volatility of price (especially during periods of economic uncertainty
or change) than investments in higher rated securities. In addition, since
yields may vary over time, no specific level of income or yield differential
can ever be assured.
Securities rated lower than Baa by Moody's or BBB by S&P or Fitch (or
comparable unrated securities) (commonly known as "junk bonds") are considered
speculative. These high yielding fixed income securities generally tend to
reflect economic changes and short-term corporate and industry developments to
a greater extent than higher rated securities which react primarily to
fluctuations in the general level of interest rates. These fixed income
securities will also be affected by the market's perception of their credit
quality (especially during times of adverse publicity) and the outlook for
economic growth. In the past, economic downturns or a rise in interest rates
have under certain circumstances caused a higher incidence of default by the
issuers of these securities and may do so in the future, especially in the case
of highly leveraged issuers. During certain periods, the higher yields on the
Series' lower rated high yielding fixed income securities are paid primarily
because of the increased risk of loss of principal and income, arising from
such factors as the heightened possibility of default or bankruptcy of the
issuers of such securities. Due to the fixed income payments of these
securities, the Series may continue to earn the same level of interest income
while its net asset value declines due to portfolio losses, which could result
in an increase in the Series' yield despite the actual loss of principal. The
prices for these securities may be affected by legislative and regulatory
developments. Change in the value of securities subsequent to their acquisition
will not affect cash income or yield to maturity to a series but will be
reflected in the net asset value of shares of the series. The market for these
lower rated fixed income securities may be less liquid than the market for
investment grade fixed income securities. Furthermore, the liquidity of these
lower rated securities may be affected by the market's perception of their
credit quality. Therefore, credit judgment may at times play a greater role in
valuing these securities than in the case of investment grade fixed income
securities, and it also may be more difficult during certain adverse market
conditions to sell these lower rated securities at their fair value to meet
redemption requests or to respond to changes in the market.
Securities rated Baa by Moody's or BBB by S&P or Fitch (and comparable
unrated securities), while normally exhibiting adequate protection parameters,
have speculative characteristics and changes in economic conditions and other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than in the case of higher grade fixed income securities.
16
<PAGE>
While the Adviser may refer to ratings issued by established credit rating
agencies, it is not the policy of the High Yield Series to rely exclusively on
ratings issued by these credit rating agencies, but rather to supplement such
ratings with the Adviser's own independent and ongoing review of credit
quality. The High Yield Series' achievement of its investment objectives may be
more dependent on the Adviser's own credit analysis than it would be in the
case of a fund or series investing primarily in higher quality bonds.
The net asset value of shares of the High Yield Series changes as the general
levels of interest rates fluctuate; when interest rates decline, the value of a
portfolio invested at higher yields can be expected to rise, and conversely
when interest rates rise, the value of a portfolio invested at lower yields can
be expected to decline. The High Yield Series is aggressively managed and,
thus, is subject to greater fluctuations in the value of its shares and
involves the assumption of a higher degree of risk as compared to a
conservative income fund.
(6) MANAGED SECTORS SERIES
The Managed Sectors Series will seek capital appreciation by varying the
weighting of its portfolio among fifteen industry sectors. Dividend income, if
any, is incidental to the Managed Sectors Series' objective of capital
appreciation.
The fifteen sectors from among which the Managed Sectors Series chooses its
investments are: autos and housing; consumer goods and services; defense and
aerospace; energy; financial services; health care; heavy industry; leisure;
machinery and equipment; precious metals; retailing; technology;
transportation; utilities; and foreign securities. (See Appendix D for a
description of the scope of and potential risks associated with each of these
industry sectors.) Certain sectors may overlap; for example, the defense and
aerospace sector and the technology sector both include companies involved in
the development of computer-related products. Therefore, securities of certain
companies or industries may simultaneously be held in more than one industry
sector.
In response to changes or anticipated changes in the general economy or
within one or more particular industry sectors, the Managed Sectors Series may
increase, decrease or eliminate entirely a particular sector's representation
in its portfolio; similarly, it may acquire securities of a sector not then
represented in its portfolio. A sector or stock of a particular company will be
added to or eliminated from the portfolio based upon such factors as such
sector's or company's economic cycle and sensitivity to interest rates. For
example, as interest rates rise and the performance of interest-sensitive
stocks declines, the Managed Sectors Series expects to remove such stocks from
its portfolio. Any one sector may comprise up to 50% of the portfolio, as may
cash held as a temporary defensive measure or to meet anticipated redemption
requests. The Managed Sectors Series is "non-diversified" so that more than 5%
of the series' assets may be invested in the securities of each of one or more
issuers. As a result of such non-diversified status, the Managed Sectors Series
may be more susceptible to adverse changes in the value of securities of a
particular company than would be a diversified series. Similarly, due to the
series' ability to concentrate in as few as two industry sectors, the Managed
Sectors Series' assets may be more susceptible to any single economic,
political or regulatory occurrence than would be those of an investment company
without a policy of concentration in particular industry sectors.
While the Managed Sectors Series' policy is to invest primarily in common
stocks, it may seek appreciation in other types of securities, such as non-
convertible and convertible bonds, convertible preferred stocks, and in
warrants to purchase common stock, when relative values make such
17
<PAGE>
investments appear attractive either as individual issues or as types of
securities in certain economic environments. The non-convertible bonds invested
in by the Managed Sectors Series will include (i) obligations issued or
guaranteed by the U.S. Treasury or U.S. government agencies or
instrumentalities, and (ii) obligations of the U.S. Treasury that have been
issued without interest coupons or stripped of their unmatured interest
coupons, interest coupons that have been stripped from such debt obligations,
and receipts and certificates for such stripped debt obligations and stripped
coupons. The Managed Sectors Series may invest up to 20% (and generally expects
to invest between 10% and 20%) of its total assets in foreign securities, which
may include emerging market securities, may invest in American Depositary
Receipts ("ADRs") and may enter into forward foreign currency exchange
contracts ("forward contracts") for the purchase or sale of foreign currency
for hedging purposes. The Managed Sectors Series may write covered put and call
options and purchase put and call options on securities and stock indexes in an
effort to increase current income and for hedging purposes. The Managed Sectors
Series may also purchase and sell stock index futures contracts and may write
and purchase options thereon for hedging purposes. The Managed Sectors Series
may invest in restricted securities, subject to the limitation on investing
more than 10% of its net assets in securities that are not readily marketable.
The Managed Sectors Series' portfolio is aggressively managed and the series
assumes above average risk of loss. Portfolio changes are made without regard
to the length of time a security has been held, or whether a sale would result
in a profit or loss. Therefore, the rate of portfolio turnover is not a
limiting factor when changes are believed by its investment adviser to be
appropriate and the annual portfolio turnover rate may exceed 100%. A
relatively high level of portfolio activity may result in relatively
substantial brokerage commissions.
See Appendix A for a discussion of foreign securities, emerging market
securities and other instruments set forth above and the risks involved in
these investments. Options, futures contracts, options on futures contracts and
forward contracts and their attendant risks are discussed in Appendix B. Please
refer to the SAI Appendix for further discussion of these techniques.
PROSPECTIVE PURCHASERS SHOULD REVIEW THIS SECTION CAREFULLY AND CONSIDER THE
INVESTMENT RISKS INVOLVED BEFORE ALLOCATING PURCHASE PAYMENTS UNDER THE
CONTRACTS TO THE MANAGED SECTORS SERIES.
(7) MONEY MARKET SERIES
The Money Market Series will seek maximum current income to the extent
consistent with stability of principal by investing exclusively in the
following types of U.S. dollar-denominated money market instruments which
mature in less than 13 months:
(a) Obligations of, or guaranteed by, the U.S. Government, its agencies
or instrumentalities.
(b) Certificates of deposit issued by domestic or foreign branches of any
U.S. or Canadian-chartered bank which has total assets in excess of $1
billion ("Eurodollar CD's") and bankers' acceptances issued by domestic
branches of any such bank. (See Appendix A.)
(c) Commercial paper which at the date of investment is rated A-1 by S&P
or P-1 by Moody's. (See Appendix C.)
(d) Repurchase agreements for the purchase of obligations which are
suitable for investment under paragraph (a) above. (See Appendix A.)
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Under regulations currently in effect, the average maturity of the
investments in the Money Market Series may not exceed 90 days.
To the extent the Adviser attempts to increase yield by trading to take
advantage of short-term market variations, a high turnover rate could result,
but this should not adversely affect the Money Market Series. High portfolio
turnover may result in additional transaction costs.
(8) RESEARCH SERIES
The Research Series' investment objective is to provide long-term growth of
capital and future income.
The portfolio securities of the Research Series are selected by the
investment research analysts in the Equity Research Group of the Adviser. The
series' assets are allocated to economic sectors (e.g. health care, technology,
consumer staples), and then to industry groups within these sectors (e.g.
within the health care sector, the managed care, drug and medical supply
industries). The allocation by sector and industry is determined by the
analysts acting together as a group. Individual analysts are then responsible
for selecting what they view as the best securities for capital appreciation
and future income within their assigned industries.
The Series' policy is to invest a substantial proportion of its assets in the
common stocks or securities convertible into common stocks of companies
believed to possess better than average prospects for long-term growth. A
smaller proportion of the assets may be invested in bonds, short-term
obligations, preferred stocks or common stocks whose principal characteristic
is income production rather than growth. Such securities may also offer
opportunities for growth of capital as well as income. In the case of both
growth stocks and income issues, emphasis is placed on the selection of
progressive, well-managed companies. From time to time, the Research Series'
management will exercise its judgment with respect to the proportions invested
in growth stocks, income-producing securities or cash (including foreign
currency) and cash equivalents depending on its view of their relative
attractiveness. The Research Series may hold part or all of its assets in cash
or short-term obligations for temporary defensive purposes or as a reserve for
future purchases.
The Research Series' debt investments, if any, may consist of "investment
grade" securities (rated BBB or better by S&P or Fitch or Baa or better by
Moody's), and, with respect to no more than 10% of its assets, securities rated
BB or lower by S&P or Fitch or Ba or lower by Moody's or securities which the
Adviser believes to be of similar quality (commonly known as "junk bonds").
(See Appendix C; see also "Additional Risk Factors Regarding Lower Rated
Securities" under "High Yield Series" above.) It is not the Research Series'
policy to rely exclusively on ratings issued by established credit rating
agencies but rather to supplement such ratings with the Adviser's own
independent and ongoing review of credit quality. The Research Series'
achievement of its investment objective may be more dependent on the Adviser's
own credit analysis than in the case of a Series or fund investing in primarily
higher quality bonds.
The Research Series may enter into repurchase agreements for U.S. Government
Securities, lend portfolio securities, and invest in restricted securities. The
Series may invest between 10%-20% of its total assets in foreign securities,
which may include emerging market securities and Brady Bonds, may invest in
American Depositary Receipts ("ADRs"), and may enter into forward foreign
currency
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exchange contracts ("forward contracts") for hedging purposes. The Research
Series may invest in restricted securities, subject to the limitation on
investing more than 15% of its net assets in securities that are not readily
marketable.
The Research Series does not intend to trade in securities for short-term
profits. However, the Series will trade whenever it believes that changes are
appropriate. It is anticipated that the Research Series portfolio turnover rate
will not exceed 200% in its first fiscal year. A portfolio turnover rate in
excess of 100% involves greater expenses, including higher brokerage and
transaction costs, than a lower rate.
See Appendix A for a discussion of foreign securities, emerging market
securities, Brady Bonds, restricted securities and other instruments set forth
above and the risks involved in these investments. Securities lending and
forward contracts and the attendant risks are discussed in Appendix B. Please
refer to the SAI Appendix for further discussion of forward contracts.
(9) TOTAL RETURN SERIES
The Total Return Series' primary investment objective is to obtain above-
average income (compared to a portfolio entirely invested in equity securities)
consistent with the prudent employment of capital. While current income is the
primary objective, this series also will seek a reasonable opportunity for
growth of capital and income, since many securities offering a better than
average yield may also possess growth potential. Assets will be allocated and
reallocated from time to time between money market, fixed income and equity
securities. Generally at least 40% of the series' assets are invested in equity
securities, including preferred stocks.
The Total Return Series' policy is to invest in a broad portfolio of
securities, including short-term obligations. The portfolio may be diversified
not only by companies and industries, but also by type of securities, for
example, equity securities, fixed income securities, and securities
representing cash equivalents. Thus fixed income securities, such as bonds, may
be held as well as common stocks. In addition, some fixed income securities
held by this series may include a right to purchase common stock by means of a
conversion privilege or attached warrants. This series may vary the percentage
of assets invested in any one type of security in accordance with its
interpretation of economic and money market conditions, fiscal and monetary
policy, and underlying security values. Most of the series' long-term debt
investments will consist of "investment grade" securities (rated Baa or better
by Moody's or BBB or better by S&P or Fitch), although the series may invest up
to 20% of its total assets in lower rated securities. (See Appendix C and
"Additional Risk Factors Regarding Lower Rated Securities" under "High Yield
Series" above.) The series may enter into repurchase agreements for U.S.
Government Securities and may seek to increase its income by lending its
portfolio securities to the extent consistent with present regulatory policies.
The series may enter into mortgage "dollar roll" transactions and invest in
corporate asset-backed securities. The series may invest up to 20% (and
generally expects to invest between 10% and 20%) of its total assets in foreign
securities, including emerging market securities and Brady Bonds, and may
invest in American Depositary Receipts ("ADRs"). The series may invest in
restricted securities, subject to the limitation on investing more than 10% of
its net assets in securities that are not readily marketable.
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Securities offering above-average yield may at times involve greater than
average risk. For this reason, and because the value of securities and the
income earned on them may fluctuate according to the earnings of the issuers
and changes in economic and money market conditions, there can be no assurance
that the series' investment objectives will be achieved.
The Total Return Series does not intend to trade in securities for short-term
profits and anticipates that portfolio securities will ordinarily be held for
one year or longer. However, the series will trade whenever it believes that
changes in the portfolio are appropriate.
See Appendix A for discussion of foreign securities, emerging market
securities, Brady Bonds, corporate asset-backed securities, restricted
securities and repurchase agreements and the risks involved in these
investments. Mortgage "dollar roll" transactions and lending portfolio
securities and their attendant risks are discussed in Appendix B.
(10) UTILITIES SERIES
The Utilities Series will seek capital growth and current income (income
above that available from a portfolio invested entirely in equity securities)
by investing, under normal market conditions, at least 65% (but up to 100% at
the discretion of the Adviser) of its assets in equity and debt securities of
both domestic and foreign companies in the utilities industry. Equity
securities in which the Utilities Series may invest include common stocks,
preferred stocks, securities convertible into common stocks or preferred
stocks, and warrants to purchase common or preferred stocks. At least 80% of
the debt securities held by the Utilities Series will be rated at the time of
investment at least Baa by Moody's or BBB by S&P or Fitch (see Appendix C) or
will be of comparable quality as determined by the Adviser (see "Additional
Risk Factors Regarding Lower Rated Securities" under "High Yield Series"
above). The Utilities Series may also invest in debt and equity securities of
issuers in other industries, as discussed below, although under normal
circumstances not more than 35% of the series' assets will be so invested. In
addition, the Utilities Series may hold a portion of its assets in cash and
money market instruments.
Companies in the utilities industry include (i) companies engaged in the
manufacture, production, generation, transmission, sale or distribution of
electric, gas or other types of energy, water or other sanitary services and
(ii) companies engaged in telecommunications, including telephone, cellular
telephones, telegraph, satellite, microwave, cable television and other
communications media (but not companies engaged in public broadcasting). The
Adviser deems a particular company to be in the utilities industry if, at the
time of investment, the Adviser determines that at least 50% of the company's
assets or revenues are derived from one or more of those industries. For a
description of the principal sectors of the utilities industry, see Appendix D.
The portion of the Utilities Series' assets invested in a particular type of
utility and in equity or debt securities will vary in light of changes in
interest rates, market conditions and economic conditions and other factors.
The Utilities Series may invest in foreign securities, including non-dollar
denominated securities and emerging market securities, and in American
Depositary Receipts ("ADRs"), although under normal circumstances it is not
expected that more than 35% of the Utilities Series' assets will be invested in
foreign securities.
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The Utilities Series is permitted to invest in securities of issuers that are
outside the utilities industry, although under normal circumstances not more
than 35% of the Utilities Series' assets will be so invested. Such investments
may include common stocks, debt securities (including municipal debt
securities) and preferred stocks and will be selected to meet the Utilities
Series' investment objective of both capital appreciation and current income.
These securities may be issued by either U.S. or non-U.S. companies. Some of
these issuers may be in industries related to the utilities industry and,
therefore, may be subject to similar risks. Investments outside the utilities
industry may also include U.S. Government Securities, including U.S. Government
Securities that are mortgage pass-through securities.
Some U.S. Government Securities do not generally involve the credit risks
associated with other types of interest bearing securities, although, as a
result, the yields available from these securities are generally lower than the
yields available from corporate interest bearing securities. Like other
interest bearing securities, however, the values of U.S. Government Securities
change as interest rates fluctuate.
When unfavorable economic or market conditions exist, the Utilities Series
may, until favorable conditions return, invest up to 75% of its assets in cash
(or foreign currency), cash equivalents (such as certificates of deposit,
bankers' acceptances and time deposits), commercial paper, short-term
obligations, repurchase agreements and obligations issued or guaranteed by the
U.S. or any foreign government or any of their agencies, authorities or
instrumentalities.
See "Additional Risk Factors" below for further information on investing in
the securities described above as well as the risks associated therewith.
In order to achieve its investment objective the Utilities Series may employ
the investment techniques noted below and purchase the securities described
below in accordance with the above-mentioned investment policies: (1) entering
into repurchase agreements for U.S. Government Securities; (2) lending
portfolio securities to the extent consistent with present regulatory policies
for the purpose of increasing the Utilities Series' income; (3) entering into
covered mortgage "dollar roll" transactions; (4) investing in corporate asset-
backed securities; (5) purchasing securities on a "when-issued" or on a
"forward delivery" basis; (6) investing in indexed securities whose value is
linked to foreign currencies, interest rates, commodities, indexes or other
financial indicators; (7) purchasing restricted securities, subject to the
limitation on investing more than 15% of its net assets in securities that are
not readily marketable; (8) writing covered put and call options and purchasing
put and call options on domestic and foreign stock indexes for the purpose of
increasing the Utilities Series' gross income or for hedging purposes, and to
attempt to reduce the risk of missing a market or industry segment advance; (9)
investing in collateralized mortgage obligations ("CMO's"), multiclass pass-
through securities, parallel pay CMO's and Planned Amortization Class CMO's
("PAC Bonds"); (10) investing in zero coupon bonds; (11) entering into futures
contracts, options on futures contracts and options on foreign currencies for
hedging purposes in order to protect the Utilities Series' current or intended
investments from the effects of changes in interest or exchange rates or
declines in the stock market and entering into futures contracts and options on
futures contracts for non-hedging purposes to the extent permitted by
applicable law; and (12) entering into forward foreign currency exchange
contracts ("forward contracts") for hedging purposes as well as for non-hedging
(i.e. speculative) purposes.
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The Utilities Series' portfolio will be managed actively and the selection of
securities modified as the Adviser deems necessary. Although the Utilities
Series does not intend to seek short-term profits, securities in its portfolio
will be sold whenever the Adviser believes it is appropriate to do so without
regard to the length of time the particular asset may have been held. The
Utilities Series cannot predict its annual portfolio turnover rate, but it is
anticipated that such turnover rate will not exceed 200%. A high turnover rate
(over 100%) involves greater expenses, including higher brokerage and
transaction costs, to the Utilities Series. The Utilities Series engages in
portfolio trading if it believes a transaction, net of costs (including
custodian charges), will help in achieving its investment objective.
See Appendix A for a discussion of foreign securities, emerging market
securities, U.S. Government Securities, repurchase agreements and other
instruments set forth above and the risks involved in these investments. The
investment techniques set forth above and their attendant risks are discussed
in Appendix B. Please refer to the SAI Appendix for further discussion of these
techniques.
PROSPECTIVE PURCHASERS SHOULD REVIEW THIS SECTION CAREFULLY AND CONSIDER THE
INVESTMENT RISKS INVOLVED BEFORE ALLOCATING PURCHASE PAYMENTS UNDER THE
CONTRACTS TO THE UTILITIES SERIES.
ADDITIONAL RISK FACTORS
UTILITY COMPANIES: Since the Utilities Series' investments are concentrated
in utility securities, the value of the shares of the series will be especially
affected by factors peculiar to the utilities industry and may fluctuate more
widely than the value of shares of a series that invests in a broader range of
industries. The rates many utility companies may charge their customers are
controlled by governmental regulatory commissions which may result in a delay
in the utility company passing along increases in costs to its customers.
Furthermore, there is no assurance that regulatory authorities will, in the
future, grant rate increases or that such increases will be adequate to permit
the payment of dividends on common stocks. Many utility companies, especially
electric and gas and other energy related utility companies, are subject to
various uncertainties, including: risks of increases in fuel and other
operating costs; the high cost of borrowing to finance capital construction
during inflationary periods; difficulty obtaining adequate returns on invested
capital, even if frequent rate increases are approved by public service
commissions; restrictions on operations and increased costs and delays as a
result of environmental and nuclear safety regulations; securing financing for
large construction projects during an inflationary period; difficulties of the
capital markets in absorbing utility debt and equity securities; difficulty in
raising capital in adequate amounts on reasonable terms in periods of high
inflation and unsettled capital markets; technological innovations which may
render existing plants, equipment or products obsolete; the potential impact of
natural or man-made disasters; difficulties in obtaining natural gas for resale
or fuel for electric generation at reasonable prices; coping with the general
effects of energy conservation, particularly in light of changing policies
regarding energy; and special risks associated with the construction and
operation of nuclear power generating facilities, including technical factors
and costs, and the possibility that federal, state and municipal government
authorities may from time to time review existing requirements and impose
additional requirements. Certain utility companies, especially gas and
telephone utility companies, have in recent years been affected by increased
competition, which could adversely affect the profitability of such utility
companies. Furthermore, there are uncertainties resulting from certain
telecommunications companies' diversification into new domestic and
international businesses as well as agreements by many such companies linking
future rate increases to inflation or other factors not directly related to the
active operating profits of the enterprise.
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FOREIGN UTILITY COMPANIES: Foreign utility companies are also subject to
regulation, although such regulations may or may not be comparable to those in
the U.S. Foreign utility companies may be more heavily regulated by their
respective governments than utilities in the U.S. and, as in the U.S.,
generally are required to seek government approval for rate increases. In
addition, since many foreign utilities use fuel that causes more pollution than
those used in the U.S., such utilities may be required to invest in pollution
control equipment to meet any proposed pollution restrictions. Foreign
regulatory systems vary from country to country and may evolve in ways
different from regulation in the U.S.
(11) WORLD ASSET ALLOCATION SERIES
The World Asset Allocation Series' investment objective is to seek total
return over the long term through investments in equity and fixed income
securities; the Series will also seek to have low volatility of share price
(i.e., net asset value per share) and reduced risk (compared to an aggressive
equity/fixed income portfolio).
The World Asset Allocation Series will seek to achieve its objective by
allocating portfolio assets among various asset classes of equity and fixed
income securities where the opportunities for total return are expected to be
most attractive. On average, over time, the World Asset Allocation Series
intends to invest approximately 65% of its total assets in equity securities;
however, at any particular point in time, equity securities may constitute more
or less than 65% of the Series' total assets. Under normal circumstances, the
Series intends to invest at least 30% of its total assets in equity securities
and allocate its assets among at least three asset classes, except when the
Adviser believes that investing for temporary defensive purposes is appropriate
as noted below.
Equity securities include: common and preferred stock; securities such as
bonds, warrants or rights that are convertible into stock; and depositary
receipts for those securities. Fixed income securities include: bonds,
debentures and other debt instruments issued by a variety of issuers, including
corporations and other business entities, the U.S. and foreign governments and
their agencies, authorities, instrumentalities and political subdivisions and
supranational entities; mortgage-backed and other asset backed securities;
receipts evidencing separately traded interest and principal component parts of
obligations; and repurchase agreements involving any of the foregoing types of
securities.
The Adviser will allocate assets among some or all of the following five
asset classes of securities.
(i) U.S. Equity Securities--equity securities of U.S. issuers including
securities of emerging growth companies;
(ii) Foreign Equity Securities--equity securities of foreign issuers
including securities of issuers in emerging markets (as described below);
(iii) U.S. Investment Grade Fixed Income Securities--fixed income
securities of U.S. issuers (including U.S. Government Securities, short-
term instruments and municipal obligations) rated Baa or better by Moody's
or BBB or better by S&P or Fitch or comparable unrated securities;
(iv) U.S. High Yield Fixed Income Securities--high yield fixed income
securities of U.S. issuers, including municipal obligations, rated Ba or
below by Moody's or BB or below by S&P or Fitch or comparable unrated
securities (commonly known as "junk bonds"); and
(v) Foreign Fixed Income Securities--fixed income securities of foreign
issuers including securities of issuers in emerging markets (as described
below). Foreign fixed income securities may include securities in any of
the rating categories (and comparable unrated securities) including
securities in lower rating categories.
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As of the date of this Prospectus, the target allocations of assets among the
asset classes are in the following approximate proportions of the World Asset
Allocation Series' portfolio: U.S. Equity Securities--15%; Foreign Equity
Securities--40%; U.S. Investment Grade Fixed Income Securities--10%; U.S. High
Yield Fixed Income Securities--15%; and Foreign Fixed Income Securities--20%.
Such allocation will change from time to time, as described below. (See
Appendix E for a chart indicating the composition of the World Asset Allocation
Series' Portfolio for the fiscal year ended December 31, 1994, with the debt
securities separated into rating categories, and comparable unrated
securities.)
The Adviser will allocate the assets of the World Asset Allocation Series
among some or all of the various asset classes described above where the
opportunities for total return are expected to be the most attractive,
consistent with the objective of seeking low share price volatility and reduced
risk. The judgment of the Adviser concerning the allocation of the World Asset
Allocation Series' assets will be based on the Adviser's experience in
qualitative and fundamental analysis and disciplined quantitative techniques.
The Adviser will make changes in the allocation of assets of the World Asset
Allocation Series when its research and analysis indicate the likely occurrence
of changes in financial markets or economic conditions affecting the various
asset classes that may change the expected total return from the various asset
classes. To the extent World Asset Allocation Series assets are allocated among
most or all of the asset classes, this will reduce the impact of the poorer
performing classes at any point in time. By following this asset allocation
strategy, the World Asset Allocation Series' performance in part will be
dependent on the Adviser's skill in allocating assets.
Although the percentage of the World Asset Allocation Series' assets invested
in foreign securities will vary, the Series will be invested in at least three
different countries, one of which may be the United States, except when the
Adviser believes that investing for defensive purposes is appropriate as noted
below.
The risks of each asset class vary. For example, the values of equity
securities change in response to general market and economic conditions and the
activities and changing circumstances of individual issuers, and the values of
fixed income securities change in response to changes in economic conditions,
interest rates and the creditworthiness of individual issuers. A significant
portion of the World Asset Allocation Series' assets may be allocated to equity
and fixed income investments in foreign securities which involve the risks set
forth under "Additional Risk Factors" below. The World Asset Allocation Series
may also invest in high yield fixed income securities (see "Additional Risk
Factors regarding Lower Rated Securities" under "High Yield Series" above).
Emerging Growth Companies: The World Asset Allocation Series may invest in
securities of U.S. and foreign emerging growth companies. For a discussion of
emerging growth companies see the description of these companies and
"Additional Risk Factors Relating to Emerging Growth Companies" under "Emerging
Growth Series".
Emerging Market Securities: The World Asset Allocation Series may invest in
countries or regions with relatively low gross national product per capita
compared to the world's major economies, and in countries or regions with the
potential for rapid economic growth (emerging markets); including investments
in Brady Bonds. See Appendix A--Emerging Market Securities and Brady Bonds for
a discussion of emerging market securities and Brady Bonds and the risks
involved in these investments.
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The World Asset Allocation Series may also invest in securities of emerging
market governments or any of their political subdivisions, agencies,
authorities or instrumentalities. See "Additional Risk Factors--Foreign
Securities" below.
Investments in Other Investment Companies: The World Asset Allocation Series
may invest in other investment companies to the extent permitted by the
Investment Company Act of 1940 (i) as a means by which the series may invest in
securities of certain countries which do not otherwise permit investment, (ii)
as a means to acquire securities of emerging market companies where the supply
of such securities available for purchase is limited, or (iii) when the Adviser
believes such investments may be more advantageous to the series than a direct
market purchase of securities. Such investment may also involve the payment of
substantial premiums above the value of such investment companies' portfolio
securities, and the total return on such investment will be reduced by the
operating expenses and fees of such other investment companies, including
advisory fees.
Investments for Defensive Purposes: When the Adviser believes that investing
for defensive purposes is appropriate, such as during periods of unusual or
unfavorable market or economic conditions, or in order to meet anticipated
redemption requests, up to 100% of the World Asset Allocation Series' assets
may be temporarily invested in cash (including foreign currency) or cash
equivalents including, but not limited to, obligations of banks (including
certificates of deposit, bankers' acceptances and repurchase agreements) with
assets of $1 billion or more, commercial paper, short-term notes, obligations
issued or guaranteed by the U.S. or any foreign government or any of their
agencies, authorities or instrumentalities and repurchase agreements.
Other Investments and Techniques: In order to achieve its investment
objective, the World Asset Allocation Series also may purchase the securities
and employ the investment techniques described below: (1) purchasing zero
coupon bonds, deferred interest bonds, PIK bonds, loan participations and other
direct indebtedness, indexed securities, municipal obligations, mortgage
securities, collateralized mortgage obligations and multiclass pass-through
securities, stripped mortgage-backed securities, and restricted securities,
subject to the limitation on investing more than 15% of its net assets in
securities that are not readily marketable; (2) lending portfolio securities;
(3) entering into mortgage "dollar roll" transactions; (4) writing (selling)
covered put and call options on securities for the purpose of increasing its
return and/or to protect the value of its portfolio, and purchasing put and
call options on securities in anticipation of declines in the value of
portfolio securities or increases in the value of securities to be acquired
(the Series may also write combinations of put and call options on the same
security, known as "straddles", which transactions can generate additional
income, but also present increased risks); (5) entering into "yield curve"
options for hedging and nonhedging purposes; (6) writing covered call and put
options and purchasing call and put options on domestic and foreign stock
indexes for the purpose of increasing its current income and/or for hedging
purposes and to attempt to reduce the risk of missing a market or industry
segment advance; (7) entering into contracts for the purchase or sale for
future delivery of fixed income securities or foreign currencies or contracts
based on indexes of securities or currencies (including any index of U.S. or
foreign securities) as such instruments become available for trading ("futures
contracts") for hedging purposes (to protect the Series' current or intended
investments from the effects of changes in interest or exchange rates or
declines in a securities market) as well as for nonhedging purposes, to the
extent permitted by law (which involves greater risks and could result in
losses which are not offset by gains and other portfolio assets); (8)
purchasing and writing options on futures contracts for the purpose of
protecting against declines in
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the value of portfolio securities or against increases in the cost of
securities to be acquired and also for non hedging purposes, to the extent
permitted by applicable law; (9) entering into forward foreign currency
exchange contracts ("forward contracts") for hedging purposes as well as
nonhedging purposes; (10) purchasing and selling 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 securities to
be acquired; and (11) entering into interest rate swaps, currency swaps, and
other types of available swap agreements for the purpose of shifting the
Series' investment exposure from one type of investment to another.
Portfolio Trading: Although the World Asset Allocation Series does not intend
to seek short-term profits, securities in its portfolio will be sold whenever
the Adviser believes it is appropriate to do so without regard to the length of
time the particular asset may have been held or whether the sale would result
in a gain or loss. Therefore, the rate of portfolio turnover is not a limiting
factor when a change in the portfolio is otherwise appropriate. It is
anticipated that the Series' portfolio turnover rate will not exceed 200% in
the case of equity securities and 200% in the case of fixed income securities
during its first fiscal year. Transaction costs incurred by the Series and the
realized capital gains and losses of the Series may be greater than that of a
Series with a lower portfolio turnover rate.
See Appendix A for a discussion of foreign securities, emerging market
securities, Brady Bonds, zero coupon bonds, PIK bonds, loan participations,
mortgage pass through securities, collateralized mortgage obligations and
multiclass pass through securities and other instruments set forth above, and
the risks involved in these investments. The investment techniques set forth
above and their attendant risks are discussed in Appendix B. Please refer to
the SAI Appendix for further discussion for these instruments and techniques.
PROSPECTIVE PURCHASERS SHOULD REVIEW THIS SECTION CAREFULLY AND CONSIDER THE
INVESTMENT RISKS INVOLVED BEFORE ALLOCATING PURCHASE PAYMENTS UNDER THE
CONTRACTS TO THE WORLD ASSET ALLOCATION SERIES.
ADDITIONAL RISK FACTORS
EMERGING GROWTH COMPANIES: Investing in emerging growth companies involves
greater risk than is customarily associated with investing in more established
companies. See "Additional Risk Factors Relating to Emerging Growth Companies"
under "Emerging Growth Series" above.)
FOREIGN SECURITIES: Transactions involving foreign equity or debt securities
or foreign currencies, and transactions entered into in foreign countries,
involve considerations and risks not typically associated with investing in
U.S. markets (see Appendix A--Foreign Securities). In addition, investments in
emerging markets involve special risks (see Appendix A--Emerging Market
Securities).
FOREIGN CURRENCIES: To the extent the series invests in securities not
denominated in U.S. dollars, the value of the series' foreign investments, and
the value of dividends and interest earned by the series on such investments,
may be significantly affected by changes in currency exchange rates. Some
foreign currency values may be volatile, and there is the possibility of
governmental controls on currency exchange or governmental intervention in
currency markets which could adversely affect the series. Although the Adviser
(or a Sub-Adviser, if applicable) may attempt to manage currency exchange rate
risks, there is no assurance that they will do so at an appropriate time or
that they will be able to
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predict exchange rates accurately. For example, if the Adviser hedges the
series' exposure to a foreign currency, and that currency's value rises, the
series will lose the opportunity to participate in the currency's appreciation.
The series may hold foreign currency received in connection with investments in
foreign securities, forward contracts and options on foreign currencies 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 rates. While the holding of foreign currencies will permit the series
to take advantage of favorable movements in the applicable exchange rate, it
also exposes the series to risk of loss if such rates move in a direction
adverse to the series' position. Such losses could also adversely affect the
series' hedging strategies.
(12) WORLD GOVERNMENTS SERIES
The World Governments Series will seek moderate current income and
preservation and growth of capital by investing in debt obligations that are
issued or guaranteed as to principal and interest by (1) the U.S. government,
its agencies, authorities or instrumentalities ("U.S. Government Securities")
or (2) the governments of foreign countries ("Foreign Government Securities")
(to the extent the Adviser believes that the higher yields available from such
Foreign Government Securities are sufficient to justify the risks of investing
in such securities). The World Governments Series may also hold its assets in
cash or short-term obligations. In pursuing its objectives, the World
Governments Series will consider the preservation and growth of capital by
balancing the yields of various fixed income securities against their attendant
risks.
The World Governments Series will seek to provide purchasers with an
opportunity to enhance the value and increase the protection of their
investment against inflation and otherwise by taking advantage of investment
opportunities in the United States as well as in other countries where
opportunities may be more rewarding. It is believed that diversification of
assets on an international basis decreases the degree to which events in any
one country, including the United States, can affect the entire portfolio.
Although the percentage of the series' assets invested in securities issued
abroad and denominated in foreign currencies ("non-dollar securities") will
vary depending on the state of the economies of the principal countries of the
world, their financial markets and the relationships of their currencies to the
U.S. dollar, under normal conditions the series' portfolio will be
internationally diversified. However, for defensive reasons or during times of
international, political, or economic uncertainty or turmoil, most or all of
the series' investments may be in the United States.
The World Governments Series will purchase non-dollar securities denominated
in the currency of countries where the interest rate environment as well as the
general economic climate provide an opportunity for declining interest rates
and currency appreciation. If interest rates decline, such non-dollar
securities will appreciate in value. If the currency also appreciates against
the dollar, the total investment in such non-dollar securities would be
enhanced further. Conversely, a rise in interest rates or decline in currency
exchange rates would adversely affect the series' return. Investments in non-
dollar securities are evaluated primarily on the strength of a particular
currency against the dollar and on the interest rate climate of that country.
Currency is judged on the basis of fundamental economic criteria (e.g.,
relative inflation levels and trends, growth rate forecasts, balance of
payments status, and economic policies) as well as technical and political
data. In addition to the foregoing, interest rates are evaluated on the basis
of differentials or anomalies that may exist between different countries.
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The phrase "preservation of capital" is generally understood to imply that
the portfolio is invested in very low risk securities and that the major risk
is loss of purchasing power through the effects of inflation or major changes
in interest rates. However, while the World Governments Series will invest in
securities which are believed by the Adviser to have minimal credit risk, an
error of judgment in selecting a currency or an interest rate environment could
result in loss of capital.
The World Governments Series may invest in Foreign Government Securities of
issuers considered stable by the Adviser. The Adviser does not believe that the
credit risk inherent in the obligations of such stable foreign governments is
significantly greater than that of U.S. Government Securities. The percentage
of the World Governments Series' assets invested in Foreign Government
Securities will vary depending on the relative yields of such securities, the
economies of the countries in which the investments are made and such
countries' financial markets, the interest rate climate of such countries and
the relationship of such countries' currencies to the U.S. dollar. To the
extent that the World Governments Series invests in Foreign Government
Securities, its portfolio, under normal conditions, will include securities of
a number of foreign countries. As a "non-diversified" series, the World
Governments Series will be able to invest more than 5% of its assets in
obligations of one or more foreign governments, to the extent consistent with
federal income tax diversification requirements; the World Governments Series
may also hold foreign currency for hedging purposes.
When the Adviser believes that investing for temporary defensive purposes is
appropriate, such as during periods of unusual market conditions, or when
relative yields are deemed attractive, part or all of the World Governments
Series' assets may be invested in cash (including foreign currency) or cash
equivalent short-term obligations including, but not limited to, certificates
of deposit, commercial paper, notes, U.S. Government Securities, Foreign
Government Securities and repurchase agreements.
Some U.S. Government Securities do not generally involve the credit risks
associated with other types of interest bearing securities, although, as a
result, the yields available from such securities are generally lower than the
yields available from other interest bearing securities. Like other interest
bearing securities, however, the values of U.S. Government Securities change as
interest rates fluctuate. When interest rates decline, the value of a portfolio
invested at higher yields can be expected to rise. Conversely, when interest
rates rise, the value of a portfolio invested at lower yields can be expected
to decline. If the series' expectations of changes in interest rates or its
evaluation of the normal yield relationship between two securities proves to be
incorrect, the series' income and the value of its shares decreases.
In order to achieve its investment objectives, the World Governments Series
may employ the following investment techniques: (1) writing covered put and
call options and purchasing put and call options on U.S. and Foreign Government
Securities that are traded on United States and foreign securities exchanges
and over the counter in an effort to increase current income and to reduce
fluctuations in the value of its shares; (2) entering into contracts for the
purchase or sale for future delivery of fixed income securities or foreign
currencies, or contracts based on financial indexes, including any index of
U.S. or Foreign Government Securities ("futures contracts") and purchasing and
writing options to buy or sell futures contracts ("options on futures
contracts") but only as a hedge against anticipated further changes in interest
or exchange rates; (3) purchasing and writing put and call options on foreign
currencies traded on U.S. and foreign exchanges or over the counter for the
purpose of protecting against declines in the dollar value of foreign portfolio
securities and against increase in the dollar cost of foreign securities to be
acquired; (4) entering into forward foreign currency
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exchange contracts ("forward contracts") to attempt to minimize the risk to the
series from adverse changes in the relationship between the U.S. dollar and
foreign currencies; (5) lending portfolio securities to the extent consistent
with present regulatory policies for the purpose of increasing the World
Governments Series' income; (6) purchasing securities on a "when-issued" or on
a "forward delivery" basis; (7) entering into repurchase agreements for U.S.
Government Securities; (8) entering into mortgage "dollar roll" transactions;
(9) purchasing restricted securities, subject to the limitation on investing
more than 15% of its net assets in securities that are not readily marketable;
and, subject to approval by the Board of Trustees, (10) entering into interest
rate swaps, currency swaps and other types of swap agreements; and (11)
purchasing indexed securities.
The World Governments Series will engage in portfolio trading if it believes
that a transaction, net of costs, will help in achieving its investment
objective. The World Governments Series cannot accurately predict its portfolio
turnover rate, but it is anticipated that the annual turnover rate generally
will not exceed 200% (excluding turnover of securities having a maturity of one
year or less). A higher turnover rate necessarily involves greater expenses to
the World Governments Series.
See Appendix A for a discussion of foreign securities, indexed securities,
U.S. Government Securities, and other instruments set forth above, and the
risks involved in such investments. The investment techniques set forth above
and their attendant risks are discussed in Appendix B. Please refer to the SAI
Appendix for further discussion of these instruments and techniques.
PROSPECTIVE PURCHASERS SHOULD REVIEW THIS SECTION CAREFULLY AND CONSIDER THE
INVESTMENT RISKS INVOLVED BEFORE ALLOCATING PURCHASE PAYMENTS UNDER THE
CONTRACTS TO THE WORLD GOVERNMENTS SERIES.
(13) WORLD GROWTH SERIES
The World Growth Series will seek capital appreciation by investing in
securities of companies worldwide growing at rates expected to be well above
the growth rate of the overall U.S. economy. The World Growth Series will seek
to achieve this objective by investing primarily in securities in three market
sectors: U.S. emerging growth companies; foreign growth companies; and emerging
market companies. (The U.S. emerging growth and foreign growth sectors may
include securities of more established companies which represent opportunities
for long-term growth.) Although the percentage of the World Growth Series'
assets invested in securities issued abroad and denominated or quoted in
foreign currencies ("non-dollar securities") will vary depending on the state
of the economies of the various countries of the world, their financial markets
and the relationship of their currencies to the U.S. dollar, under normal
conditions, the series will be invested in at least three different countries,
one of which will be the United States. For defensive reasons or during times
of international political or economic uncertainty or turmoil, most or all of
the series' investments may be in the United States.
While the World Growth Series intends to invest primarily in equity
securities, the series may also invest in fixed income securities as described
below. Equity securities include: common and preferred stocks; securities such
as bonds, warrants or rights that are convertible into stock; and depository
receipts for those securities. The selection of securities, except for
defensive purposes, is made solely on the basis of potential for capital
appreciation. Dividend and interest income from portfolio securities, if any,
is incidental to the series' investment objective of capital appreciation.
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U.S. Emerging Growth Companies: The World Growth Series may invest in
securities of U.S. emerging growth companies. For a discussion of emerging
growth companies see the description of these companies and "Additional Risk
Factors Relating to Emerging Growth Companies" under Emerging Growth Series
above.
Foreign Growth Companies: The World Growth Series may invest in securities
and in American Depositary Receipts ("ADRs") of foreign growth companies and
more established foreign companies whose rates of earnings growth are expected
to accelerate because of special factors, such as rejuvenated management, new
products, changes in consumer demand, or basic changes in the economic
environment or which otherwise represent opportunities for long-term growth. It
is anticipated that these companies will primarily be in nations with more
developed securities markets such as Australia, Canada, Japan, New Zealand and
Western European countries. (See "Additional Risk Factors--Foreign Securities"
below.)
Emerging Market Companies: The World Growth Series may invest in countries or
regions with relatively low gross national product per capita compared to the
world's major economies, and in countries or regions with the potential for
rapid economic growth (emerging markets). See Appendix A--"Emerging Market
Securities" for a description of emerging market securities, and the risks
involved in these investments.
Fixed Income and Debt Securities: Debt securities of both domestic and
foreign issuers in which the World Growth Series may invest include all types
of long- or short-term debt obligations, such as bonds, debentures, notes,
equipment lease certificates, equipment trust certificates, conditional sales
contracts and commercial paper. The World Growth Series may also invest in zero
coupon bonds, deferred interest bonds, bonds on which the interest is payable
in kind ("PIK bonds"), and corporate asset-backed securities. Fixed income
securities in which the World Growth Series may invest include securities in
the lower rating categories of recognized rating agencies (and comparable
unrated securities). The series will not invest more than 35% of its assets in
fixed income securities rated Ba or lower by Moody's or BB or lower by S&P or
Fitch (or comparable unrated securities). (See Appendix C for a description of
these ratings. See also "Additional Risk Factors Regarding Lower-Rated
Securities" under "High Yield Series" above.) To the extent the World Growth
Series invests in fixed income securities, the net asset value of the series
may change as the general levels of interest rates fluctuate. When interest
rates decline, the value of fixed income securities can be expected to rise.
Conversely, when interest rates rise, the value of fixed income securities can
be expected to decline.
Investments in Other Investment Companies: The World Growth Series may invest
in other investment companies to the extent permitted by the Investment Company
Act of 1940 (i) as a means by which the series may invest in securities of
certain countries which do not otherwise permit investment, (ii) as a means to
acquire securities of emerging market companies where the supply of such
securities available for purchase is limited, or (iii) when the Adviser or a
Sub-Adviser believes such investments may be more advantageous to the series
than a direct market purchase of securities. Such investment may also involve
the payment of substantial premiums above the value of such investment
companies' portfolio securities, and the total return on such investment will
be reduced by the operating expenses and fees of such other investment
companies, including advisory fees.
Investments for Defensive Purposes: When the Adviser or a Sub-Adviser
believes that investing for defensive purposes is appropriate, such as during
periods of unusual market conditions, or when
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relative yields are deemed attractive, part or all of the World Growth Series'
assets may be temporarily invested in cash (including foreign currency) or cash
equivalent short-term obligations including, but not limited to, certificates
of deposit, commercial paper, short-term notes, U.S. Government Securities and
repurchase agreements.
Other Investments and Techniques: In order to achieve its investment
objective, the World Growth Series also may purchase the securities and employ
the investment techniques described below: (1) entering into repurchase
agreements; (2) purchasing restricted securities, subject to the limitation on
investing more than 15% of its net assets in securities that are not readily
marketable; (3) writing (selling) covered put and call options on securities
that are traded on U.S. and foreign securities exchanges and over the counter
for the purpose of increasing its current income and/or to protect the value of
the series' portfolio and purchasing put and call options on securities in
anticipation of declines in the value of portfolio securities or increases in
the value of securities to be acquired (the series may also write combinations
of put and call options on the same security, known as "straddles," which
transactions can generate additional income, but also present increased risk);
(4) writing covered call and put options and purchasing call and put options on
domestic and foreign stock indexes for the purpose of increasing current income
and/or for hedging purposes and to attempt to reduce the risk of missing a
market or industry segment advance; (5) entering into futures contracts and
options on futures contracts to protect the series' current or intended stock
investments from broad fluctuations in stock prices and, to the extent
permitted by applicable law, for non-hedging purposes, which involves greater
risks and could result in losses which are not offset by gains on other
portfolio assets; (6) entering into forward foreign currency exchange contracts
("forward contracts") for hedging purposes as well as for the non-hedging
purpose of increasing the World Growth Series' current income; (7) entering
into options on foreign currencies for the purpose of protecting against
declines in the dollar value of foreign portfolio securities and against
increases in the cost of securities to be acquired; (8) lending portfolio
securities; and (9) purchasing securities on a "when-issued" or a "forward
delivery" basis.
Portfolio Trading: The World Growth Series' portfolio will be managed
actively and the asset allocation modified as the Adviser or a Sub-Adviser
deems necessary. While it is not generally the series' policy to invest or
trade for short-term profits, the series may dispose of a portfolio security
whenever the Adviser or a Sub-Adviser is of the opinion that such security no
longer has an appropriate appreciation potential or when another security
appears to offer relatively greater appreciation potential. Portfolio changes
are made without regard to the length of time a security has been held, or
whether a sale would result in a profit or loss. Therefore, the rate of
portfolio turnover is not a limiting factor when a change in the portfolio is
otherwise appropriate. It is anticipated that the series' portfolio turnover
rate will not exceed 100% during the World Growth Series' first year.
See Appendix A for a discussion of foreign securities, emerging market
securities, PIK bonds, corporate asset-backed securities, restricted
securities, repurchase agreements, and other instruments set forth above, and
the risks involved in these investments. The investment techniques set forth
above and their attendant risks are discussed in Appendix B. Please refer to
the SAI Appendix for further discussion of these instruments and techniques.
PROSPECTIVE PURCHASERS SHOULD REVIEW THIS SECTION CAREFULLY AND CONSIDER THE
INVESTMENT RISKS INVOLVED BEFORE ALLOCATING PURCHASE PAYMENTS UNDER THE
CONTRACTS TO THE WORLD GROWTH SERIES.
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ADDITIONAL RISK FACTORS
See the discussion of risks involved in emerging growth companies, foreign
securities, emerging market securities, and foreign currencies in "Additional
Risk Factors" under World Asset Allocation Series above.
(14) WORLD TOTAL RETURN SERIES
The World Total Return Series' investment objective is to seek total return
by investing in securities which will provide above-average current income
(compared to a portfolio invested entirely in equity securities) and
opportunities for long-term growth of capital and income. The Series will
invest primarily in global equity and fixed income securities (i.e., those of
U.S. and non-U.S. issuers).
The World Total Return Series will seek to achieve its investment objective
through a professionally managed, internationally diversified portfolio
consisting of equity and fixed income securities. The World Total Return Series
will attempt to provide investors with an opportunity to enhance the value and
increase the protection of their investment against inflation and otherwise by
taking advantage of investment opportunities in the United States as well as in
other countries where opportunities may be more rewarding. It is believed that
diversification of assets on an international basis decreases the degree to
which events in any one country, including the United States, can affect the
entire portfolio. Although the percentage of the World Total Return Series'
assets invested in securities issued abroad and denominated or quoted in
foreign currencies ("non-dollar securities") will vary depending on the state
of the economies of the various countries of the world, their financial markets
and the relationship of their currencies to the U.S. dollar, under normal
conditions the Series will be invested in at least three different countries,
one of which will be the United States. For defensive reasons or during times
of international or political or economic uncertainty or turmoil, most or all
of the Series' investments may be in the United States.
While the World Total Return Series will invest no less than 40% of its
assets in equity securities under normal economic and market conditions, the
Series expects that 60% of its assets will most likely be so invested. Such
securities will include common stocks and equivalents (such as convertible
securities and warrants) and preferred stocks of (i) U.S. issuers which derive,
or have the potential to derive, a meaningful portion (approximately 25% or
more) of their revenues and earnings in foreign markets; (ii) non-U.S. issuers;
and (iii) to a lesser extent, other U.S. issuers. The Series may invest up to
90% (and expects generally to invest between 25% to 90%) of its total assets in
foreign securities (not including American Depositary Receipts), which may be
traded on foreign exchanges. Convertible securities in which the Series may
invest will be rated BBB or better by S&P or Fitch or Baa or better by Moody's
or, if unrated, will be determined by the Adviser to be of comparable quality.
If a security purchased by the World Total Return Series is subsequently
downgraded to below BBB by S&P or Fitch or Baa by Moody's (or comparable
standards for unrated securities), the security will be sold only if the
Adviser believes it is advantageous to do so. The Series may invest up to 5% of
its assets in convertible securities rated below BBB or Baa (commonly known as
"junk bonds") (see Appendix C and "Additional Risk Factors Regarding Lower
Rated Securities" under "High Yield Series" above).
In managing the World Total Return Series conservatively, the Adviser
attempts to exercise prudence, discretion and intelligence in the selection of
securities of high or improving investment quality, with due regard for
probable income and probable safety of capital. The words "high investment
quality" reflect the intention of the World Total Return Series to invest in
securities of well-known,
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established issuers and to avoid the acquisition of speculative securities or
those of doubtful character even if the immediate prospect is tempting. The
Adviser may determine that a security possesses high or improving investment
quality if, for instance, there has been an increase in the issuer's sales and
earnings or if current trends indicate that an increase in the issuer's sales
and earnings is likely, or if the issuer's balance sheet is strong or has
improved. The opportunity for currency appreciation generally is not a
significant factor in the Series' selection of equity securities.
Under normal economic and market conditions the remaining portion of the
World Total Return Series' portfolio will be invested in fixed income
securities, such as bonds, debentures, mortgage securities, notes, commercial
paper, obligations issued or guaranteed by a government or any of its political
subdivisions, agencies or instrumentalities, certificates of deposit, as well
as debt obligations which may have a call on common stock by means of attached
warrants. Debt securities in which the Series may invest may also include zero
coupon bonds.
The World Total Return Series will purchase non-dollar fixed income
securities denominated in the currency of countries where the interest rate
environment as well as the general economic climate provide an opportunity for
declining interest rates and currency appreciation. If interest rates decline,
such non-dollar fixed income securities will generally appreciate in value. If
the currency also appreciates against the dollar, the total investment in such
non-dollar fixed income securities would be enhanced further.
Conversely, a rise in interest rates or decline in currency exchange rates
would adversely affect the World Total Return Series' return. Investments in
non-dollar fixed income securities are evaluated by the Adviser primarily on
the strength of a particular currency against the dollar and on the interest
rate climate of that country. Currency is judged on the basis of fundamental
economic criteria (e.g., relative inflation levels and trends, growth rate
forecasts, balance of payments status and economic policies) as well as
technical and political data. In addition to the foregoing, interest rates are
evaluated on the basis of differentials or anomalies that may exist between
different countries. The World Total Return Series may hold foreign currency
received in connection with investments in non-dollar fixed income 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 World Total Return Series will invest in investment grade U.S. and non-
U.S. fixed income securities. Such securities will be rated BBB or better by
S&P or Fitch or Baa or better by Moody's or, if unrated, will be determined by
the Adviser to be of comparable quality. Securities rated BBB or Baa, while
normally exhibiting adequate protection parameters, have speculative
characteristics and changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to make principal and interest
payments than in the case of higher grade fixed income securities.
Assets invested in fixed income securities of non-U.S. issuers will be
diversified among countries where opportunities for total return are expected
to be most attractive. It is currently expected that fixed income investments
within foreign countries will be primarily in securities issued or guaranteed
by governments, including their political subdivisions, authorities, agencies
and instrumentalities, or supranational authorities (such as the World Bank) to
minimize credit risk. While the World Total Return Series will invest in fixed
income securities which are believed to have minimal credit risk, an error of
judgment in selecting a currency or an interest rate environment could result
in a loss of capital.
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Although it may invest anywhere in the world, the World Total Return Series
expects to invest most of its assets in the equity securities of issuers
located in Europe, Japan or the United States and in the debt securities of
issuers located in any of such regions or countries or Australia, New Zealand
or Canada. The Series may also invest in emerging market securities and Brady
Bonds. The Series may invest more than 25% of its assets in securities of
issuers located in the United States. The Adviser will determine the amount of
the Series' assets to be invested in the United States and the amount to be
invested abroad.
When unfavorable economic or market conditions exist, the Series may, until
favorable conditions return, invest all or a portion of its assets in cash (or
foreign currency) or cash equivalents (such as certificates of deposit, bankers
acceptances and time deposits), commercial paper, short-term obligations,
repurchase agreements and obligations issued or guaranteed by the U.S. or any
foreign government or any of their agencies, authorities or instrumentalities.
In order to achieve its investment objective, the World Total Return Series
may also purchase the securities and employ the investment techniques described
below: (1) entering into repurchase agreements; (2) lending portfolio
securities; (3) purchasing securities on a "when issued" or "forward delivery"
basis; (4) purchasing restricted securities, subject to the limitation on
investing more than 15% of its net assets in securities that are not readily
marketable, and American Depositary Receipts ("ADRs"); (5) entering into
mortgage "dollar roll" transactions; (6) writing (selling) covered put and call
options on fixed income securities for the purpose of increasing its return
and/or to protect the value of its portfolio, and purchasing put and call
options on securities in anticipation of declines in the value of portfolio
securities or increases in the value of securities to be acquired (the Series
may also write combinations of put and call options on the same security, known
as "straddles", which transactions can generate additional income, but also
present increased risks); (7) entering into "yield curve" options for hedging
and nonhedging purposes; (8) entering into contracts for the purchase or sale
for future delivery of fixed income securities or foreign currencies or
contracts based on indexes of fixed income securities as such instruments
become available for trading ("futures contracts") for hedging purposes (to
protect the Series' current or intended investments from the effects of changes
in interest or exchange rates, or declines in the value of fixed income
portfolio securities or increases in the cost of such securities to be
acquired) as well as for nonhedging purposes, to the extent permitted by
applicable law (which involves greater risks and could result in losses which
are not offset by gains and other portfolio assets); (9) purchasing and writing
options on futures contracts for the purpose of protecting against declines in
the value of portfolio securities or against increases in the cost of
securities to be acquired and also for non hedging purposes, to the extent
permitted by applicable law; (10) entering into forward foreign currency
exchange contracts ("forward contracts") for hedging purposes as well as for
the nonhedging purpose of increasing current income; (11) purchasing and
selling options on foreign currencies for the purpose of protecting against
declines in the dollar value of fixed income portfolio securities and against
increases in the dollar cost of fixed income securities to be acquired; and
(12) entering into interest rate swaps, currency swaps and other types of swap
agreements.
The World Total Return Series portfolio will be managed actively and the
asset allocations modified as the Adviser deems necessary. Although the Series
does not intend to seek short-term profits, securities in its portfolio will be
sold whenever the Adviser believes it is appropriate to do so without regard to
the length of time the particular asset may have been held. It is anticipated
that the Series'
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portfolio turnover rate will not exceed 200% in the case of equity securities
and 200% in the case of fixed income securities during its first fiscal year. A
high turnover rate involves greater expenses, including higher brokerage and
transaction costs to the Series. The Series engages in portfolio trading if it
believes a transaction net of costs (including custodian charges) will help in
achieving its investment objective.
See Appendix A for discussion of foreign securities, emerging market
securities, Brady Bonds, ADRs, corporate asset-backed securities, zero coupon
bonds, restricted securities and other instruments set forth above, and the
risks involved in these securities. The investment techniques set forth above
and their attendant risks are discussed in Appendix B. Please refer to the SAI
Appendix for further discussion of these techniques.
PROSPECTIVE PURCHASERS SHOULD REVIEW THIS SECTION CAREFULLY AND CONSIDER THE
INVESTMENT RISKS INVOLVED BEFORE ALLOCATING PURCHASE PAYMENTS UNDER THE
CONTRACTS TO THE WORLD TOTAL RETURN SERIES.
(15) ZERO COUPON SERIES, PORTFOLIOS 1995 AND 2000
The Zero Coupon Series, Portfolios 1995 and 2000 will seek the highest
predictable compounded investment return for a specific period of time,
consistent with the safety of invested capital, by investing primarily in debt
obligations of the United States Treasury that have been issued without
interest coupons or stripped of their unmatured interest coupons, interest
coupons that have been stripped from such debt obligations, and receipts and
certificates for such stripped debt obligations and stripped coupons
(collectively, "Zero Coupon Obligations"). The two Portfolios of the Zero
Coupon Series, each of which is a separate sub-series of the Zero Coupon
Series, will differ only in their respective liquidation dates, which for each
Portfolio is November 15 of the specified year. These Portfolios are currently
available only in connection with the purchase of variable life insurance
contracts issued by Sun Life of Canada (U.S.).
The Zero Coupon Series invests only in readily marketable debt securities. It
is the policy of the Zero Coupon Series to invest at least 90% of its assets in
Zero Coupon Obligations. Up to 10% of the assets may be invested and held in
stripped securities issued by corporations with a quality rating of Baa or
better. (See Appendix C.) MFS will evaluate the creditworthiness of potential
investments in corporate securities in order to determine whether such
securities are suitable for purchase by the Zero Coupon Series.
Because it does not make periodic interest payments, a Zero Coupon Obligation
normally trades at a price significantly less than face value, often referred
to as a "deep discount." The size of this discount depends upon the final
maturity of the Zero Coupon Obligation and current market interest rates.
Investment return consists of the difference between the face value of the Zero
Coupon Obligation (which is paid at the time of maturity, or the payment date
in the case of coupons) and the price at which the Zero Coupon Obligation was
acquired. Investment return is normally expressed in terms of a compounded rate
of return, which is calculated as though there were an automatic reinvestment
of current earnings at a rate of return that is "locked in" at the time of
initial investment.
As with any fixed income investment, when interest rates decline, the market
value of an investment made at higher yields can be expected to rise.
Conversely, when interest rates rise, the market value of an investment made at
lower yields can be expected to decline. Because they
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"automatically reinvest" current earnings, investments in Zero Coupon
Obligations eliminate the risk of being unable to reinvest current earnings at
a rate as high as the implicit yield on the Zero Coupon Obligations;
conversely, they forego the ability to reinvest at higher rates should market
interest rates rise in the future.
The value of the Zero Coupon Obligations acquired by these Portfolios, and
therefore the value of shares in these Portfolios, may be subject to greater
fluctuations in response to changing market interest rates than the value of
debt obligations that pay interest currently. The degree of fluctuation with
interest rate changes is typically greater when the period to maturity is
longer.
It is the policy of the Zero Coupon Series to invest as great a portion of
its assets as is practicable in Zero Coupon Obligations. Any Zero Coupon
Obligations purchased will mature within one year of the respective Portfolio
liquidation date. A portion of the Zero Coupon Series may be invested in
interest-bearing debt obligations in order to make effective use of cash
reserves pending investments in the securities described above, pending
liquidation and to permit the payment of current operating expenses of the Zero
Coupon Series.
On the liquidation date of each Portfolio, all of the securities held by the
Portfolio will be sold and all outstanding shares of the Portfolio will be
redeemed. As explained in the prospectus for the Contracts, the redemption
proceeds will, except as otherwise directed by Contract owners, be used to
purchase shares of the Money Market Series.
RISK FACTORS
The Zero Coupon Series seeks to realize a higher yield than would be obtained
simply by maintaining the Zero Coupon Series' initial investments. The Zero
Coupon Series is actively managed by MFS to take advantage of trading
opportunities that may exist from time to time due to price and yield
distortions resulting from changes in the supply and demand characteristics or
perceived differences in quality or liquidity characteristics of the securities
available for purchase by the Zero Coupon Series. There is a corresponding risk
that, to the extent that this strategy is unsuccessful, the initial yield
objective will not be met.
As described above, Zero Coupon Obligations, if held to maturity, provide a
predictable yield. However, in light of the fluctuation in the market value of
the Zero Coupon Obligations that occurs with changes in market interest rates,
Contract owners who desire to attain the growth rate anticipated at the time of
investment must plan to leave their Account Values invested in Portfolio shares
until the Portfolio matures. Any Contract owner who transfers his or her
Account Values in the Portfolio prior to the Portfolio liquidation date is
likely to achieve quite a different investment return than the return that was
anticipated on the date the investment was made, and may even suffer a loss.
DETERMINATION OF NET ASSET VALUE
The Net Asset Value of the shares of each Portfolio of the Zero Coupon Series
will be determined in accordance with the procedures set forth at page 43 of
this Prospectus. This determination will be made at the close of regular
trading on the New York Stock Exchange on each day the Exchange is open for
trading. MFS also will calculate the compounded annual yield that would result
if all securities in the Portfolio were held until the liquidation date or
until their maturity dates, if earlier (with the
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proceeds reinvested until the liquidation date). This is the anticipated yield
for that Portfolio on a given date. It can also be expressed as the amount to
which an investment of $10,000 is predicted to grow by the Portfolio
liquidation date. To the extent permitted by regulations of the Securities and
Exchange Commission, MFS will furnish both of these numbers on request.
The calculation of a Portfolio's anticipated yield assumes that (a) all
dividends and disbursements will be reinvested and (b) the expense ratio and
portfolio composition of a Portfolio remains unchanged for the life of that
Portfolio. Factors such as MFS' investment skills and changes in the economy's
interest rate structure will determine how closely the return actually realized
by a Contract owner matches the anticipated yield if such owner's Account Value
remains invested in a Portfolio's shares and all dividends and distributions
are reinvested until the Portfolio matures.
PORTFOLIO TRANSACTIONS
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. and such
other policies as the Trustees may determine, MFS may consider the sale of
Contracts, and thus the sale of Series Fund shares through the allocation of
purchase payments under the Contracts, as a factor in the selection of broker-
dealers to execute the Series Fund's portfolio transactions. The Series Fund
also has the ability to direct portfolio security transactions to broker-
dealers in consideration of the payment of certain Series Fund expenses. For a
further discussion of portfolio trading, see the Statement of Additional
Information.
INVESTMENT RESTRICTIONS
The Statement of Additional Information includes a listing of specific
investment restrictions and a discussion of investment policies applicable to
the series. The specific investment restrictions listed in the Statement of
Additional Information may not be changed without shareholder approval. If a
percentage restriction or a rating restriction on investments or utilization of
assets is adhered to at the time an investment is made or assets are so
utilized, a later change in percentage resulting from changes in the value of
the Series Fund's portfolio securities or a change in the rating of a portfolio
security will not be considered a violation of policy.
NON-DIVERSIFIED STATUS
The High Yield Series, Managed Sectors Series, Utilities Series, World Asset
Allocation Series, World Governments Series, World Growth Series, and World
Total Return Series are "non-diversified" as that term is defined in the
Investment Company Act of 1940, so that the proportion of their assets that may
be invested in the securities of any one issuer is limited only by the series'
own investment restrictions and the diversification requirements of the
Internal Revenue Code of 1986, as amended. Since these series may invest a
relatively high percentage of their assets in a limited number of issuers, they
will be more susceptible to any single economic, political or regulatory
occurrence and to the financial conditions of the issuers in which they invest.
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4. MANAGEMENT OF THE SERIES FUND
The Series Fund's Board of Trustees provides broad supervision over the
affairs of the Series Fund. Massachusetts Financial Services Company is
responsible for the management of each series' assets (including supervision of
the Sub-Advisers), and the officers of the Series Fund are responsible for the
Series Fund's operations.
INVESTMENT ADVISER--Massachusetts Financial Services Company, a Delaware
corporation ("MFS" or the "Adviser"), 500 Boylston Street, Boston,
Massachusetts 02116, manages the assets of the Money Market Series, the
Government Securities Series, the High Yield Series and the Capital
Appreciation Series pursuant to an Investment Advisory Agreement dated May 24,
1985 and manages the assets of the Conservative Growth Series and the Zero
Coupon Series pursuant to an Investment Advisory Agreement dated July 23, 1986.
MFS manages the assets of the World Governments Series, Total Return Series and
Managed Sectors Series pursuant to an Investment Advisory Agreement dated
January 26, 1988, manages the assets of the World Growth Series and Utilities
Series pursuant to Investment Advisory Agreements dated November 1, 1993;
manages the assets of the Research Series, World Asset Allocation Series and
World Total Return Series pursuant to Investment Advisory Agreements dated
September 16, 1994; and manages the assets of the Emerging Growth Series
pursuant to an Investment Advisory Agreement dated May 1, 1995.
The Adviser provides each series of the Series Fund with overall investment
advisory and administrative services, as well as general office facilities.The
portfolio manager(s) of each series and his/her position with MFS are shown
below. Each has been an investment analyst with MFS since the year indicated:
Money Market Series and Zero Coupon Series, Geoffrey L. Kurinsky, Senior Vice
President (1987); Government Securities Series, James J. Calmas, Vice President
(1988); High Yield Series, Bernard Scozzafova, Vice President (1989); Capital
Appreciation Series, Paul M. McMahon, Senior Vice President (1981);
Conservative Growth Series, John D. Laupheimer, Jr., Senior Vice President
(1981), Kevin R. Parke, Senior Vice President (1985) and Mitchell D. Dynan,
Vice President (1986); World Governments Series, Stephen C. Bryant, Senior Vice
President (1987); Total Return Series, Richard E. Dahlberg, Senior Vice
President (1968) and Geoffrey L. Kurinsky, Senior Vice President (1987);
Managed Sectors Series, Kenneth J. Enright, Vice President (1986); World Growth
Series and Emerging Growth Series, John W. Ballen, Senior Vice President
(1984); Utilities Series, Maura A. Shaughnessy, Vice President (1991) (from
1987 to 1991 Ms. Shaughnessy was an equity analyst with the Harvard Management
Company); World Asset Allocation Series, James T. Swanson, Senior Vice
President (1985); and World Total Return Series, Frederick J. Simmons, Senior
Vice President (1971). The Research Series is currently managed by a committee
comprised of various equity research analysts employed by the Adviser.
Subject to such policies as the Trustees may determine, the Adviser makes
investment decisions for each series of the Series Fund. For these services and
facilities, the Adviser receives a fee computed and paid monthly at an annual
rate equal to the sum of (i) 0.50% of the average daily net assets of the Money
Market Series for the Series Fund's then-current fiscal year, (ii) 0.55% of the
average daily net assets of each of the Conservative Growth Series and the
Government Securities Series for the Series Fund's then-current fiscal year;
(iii) 0.75% of the average daily net assets of each of the High Yield Series
and the Capital Appreciation Series for the Series Fund's then-current fiscal
year; (iv) 0.75% of the first $300 million of average daily net assets of each
of the World Governments Series, the Total Return Series, the Managed Sectors
Series, the Utilities Series, the Research Series, the World Asset Allocation
Series, the World Total Return Series and the Emerging Growth Series for
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the Series Fund's then-current fiscal year, and 0.675% of the average daily net
assets of each of these series in excess of $300 million, (v) 0.25% of the
average daily net assets of the Zero Coupon Series for the Series Fund's then-
current fiscal year; and (vi) 0.90% of the average daily net assets of the
World Growth Series for the Series Fund's then-current fiscal year. Effective
January 1, 1995, the fee for the Total Return Series was reduced to 0.60% of
the average daily net assets of such series in excess of $1 billion. The
Adviser has voluntarily agreed to reduce the management fee to 0% of the
Emerging Growth Series', Utilities Series', Research Series', World Asset
Allocation Series' and World Total Return Series' average daily net assets. The
voluntary fee reduction may be rescinded at any time without notice to
shareholders as to the fees accruing after the date of such recision. For the
Series Fund's fiscal year ended December 31, 1994 the Series Fund's Adviser
received fees under the investment advisory agreements as follows: Money Market
Series, $1,090,506; Government Securities Series, $1,872,095; High Yield
Series, $745,658; Capital Appreciation Series, $3,421,246; Conservative Growth
Series, $699,509; World Governments Series, $1,086,621; Total Return Series,
$5,700,358; Managed Sectors Series, $843,914; Zero Coupon Series, $21,500; and
World Growth Series, $111,479. MFS voluntarily waived the following fees:
Research Series, $2,145; Utilities Series, $109,624; World Asset Allocation
Series, $1,577; World Total Return Series, $773; and World Growth Series,
$472,698. The Research Series, World Asset Allocation Series and World Total
Return Series commenced operations in November, 1994.
The Adviser also has undertaken to reimburse each series except the Zero
Coupon Series for aggregate expenses, excluding taxes, extraordinary expenses
and brokerage costs, in excess of the following percentages of the average
daily net assets of such series for the fiscal year: Research Series, Utilities
Series, World Asset Allocation Series, World Growth Series, Emerging Growth
Series and World Total Return Series, 1.50%; and the remaining series, 1.25%.
Effective January 1, 1995 the percentages were reduced for certain series as
follows: Money Market Series, 0.60%; and Utilities Series and World Governments
Series: 1.00% from January 1, 1995 through December 31, 1996, 1.25% from
January 1, 1997 through December 31, 1998 and 1.50% from January 1, 1999
through December 31, 2004. MFS has agreed that no Portfolio of the Zero Coupon
Series shall be charged fees and expenses aggregating more than 0.50% of the
average daily net assets of such portfolio in any fiscal year. For the Series
Fund's fiscal year ended December 31, 1994, the Adviser made reimbursements as
follows: Research Series, $3,543; World Asset Allocation Series, $3,774; World
Total Return Series, $4,827; and Zero Coupon Series--2,000 Portfolio, $3,224.
MFS also serves as investment adviser to each of the funds in the MFS Family
of Funds and to certain other registered investment companies established by
MFS and/or Sun Life of Canada (U.S.). The MFS Asset Management Group, a
division of MFS, provides investment advice to substantial private clients. MFS
is America's oldest mutual fund organization. MFS and its predecessor
organizations have a history of money management dating from 1924 and the
founding of the first mutual fund in the United States, Massachusetts Investors
Trust. Net assets under the management of the MFS organization were
approximately $33.4 billion on behalf of 1.6 million investor accounts as of
January 31, 1995, consisting of approximately $18.7 billion of assets invested
in fixed income funds or portfolios, approximately $3.1 billion in foreign
securities and approximately $10.8 billion in equity securities. MFS is a
wholly-owned subsidiary of Sun Life of Canada (U.S.), which, in turn, is a
wholly-owned subsidiary of Sun Life Assurance Company of Canada ("Sun Life").
The Directors of MFS are A. Keith Brodkin, Arnold D. Scott, John R. Gardner,
John D. McNeil and Jeffrey L. Shames. Messrs. Brodkin, Shames and Scott are the
Chairman, the President and the Secretary and a Senior Executive
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Vice President, respectively, of MFS and 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
in the world and has been operating in the United States since 1895. The
executive officers of MFS report directly to the Chairman of Sun Life.
John D. McNeil is the Chairman and a Trustee of the Series Fund and David D.
Horn is a Trustee of the Series Fund. Both are directors and/or officers of Sun
Life, Sun Life of Canada (U.S.) and Sun Life (N.Y.). W. Thomas London and James
O. Yost are officers of the Series Fund and of MFS. Bonnie S. Angus is an
officer of the Series Fund and of Sun Life, Sun Life of Canada (U.S.) and Sun
Life (N.Y.).
SUB-INVESTMENT ADVISERS TO THE WORLD GROWTH SERIES--The Investment Advisory
Agreement with respect to the World Growth Series permits the Adviser from time
to time to engage one or more sub-advisers to assist in the performance of its
services. The Adviser has engaged Oechsle International Advisors, L.P.
("Oechsle"), a Delaware limited partnership, located at One International
Place, Boston, Massachusetts 02110, and Batterymarch Financial Management, Inc.
("Batterymarch"), a Massachusetts business trust, located at 200 Clarendon
Street, Boston, Massachusetts 02116, as sub-advisers to the World Growth
Series. Oechsle is an independent international investment adviser that has a
history of money management dating from 1986. As of January 31, 1995, Oechsle
had discretionary management authority with respect to approximately $6.5
billion of assets. Batterymarch is the successor to the business of
Batterymarch Financial Management ("BFM"), the series' previous sub-adviser,
which was an independent investment adviser with a history of money management
dating from 1969. Batterymarch, a newly organized wholly-owned subsidiary of
Legg Mason, Inc., acquired substantially all of the operating assets and
business of BFM on January 5, 1995. Legg Mason is a publicly held holding
company that provides securities brokerage, investment advisory, corporate and
public finance and mortgage banking services through its wholly-owned
subsidiaries. As of January 31, 1995 BFM had discretionary management authority
with respect to approximately $4.8 billion of assets including approximately
$1.5 billion of assets in emerging market securities.
Under the sub-investment advisory agreement between Oechsle and the Adviser
dated November 1, 1993, the Adviser may delegate to Oechsle the authority to
make investment decisions for the World Growth Series. It is presently intended
that Oechsle will provide portfolio management services for assets of the World
Growth Series to be invested in Western Europe, Japan, Australia and New
Zealand. Walter Oechsle is the portfolio manager for the assets of the World
Growth Series allocated to Oechsle. Mr. Oechsle is the managing general partner
and chief financial officer of Oechsle and has been a portfolio manager with
Oechsle since the firm was formed in 1986. For its services, the Adviser pays
Oechsle an annual management fee, computed and paid monthly, in an amount equal
to 0.15% of the World Growth Series' average daily net assets on an annualized
basis.
Under the sub-investment advisory agreement between Batterymarch and the
Adviser dated January 5, 1995, the Adviser may delegate to Batterymarch the
authority to make investment decisions for the World Growth Series. It is
presently intended that Batterymarch will provide portfolio management services
for assets of the World Growth Series to be invested in emerging markets.
Joseph C. Williams is the portfolio manager for the assets of the World Growth
Series allocated to Batterymarch. Mr. Williams, Director, Emerging Growth
Markets at BFM since November 1, 1994, has 24 years of investment experience in
Europe and Asia, most recently as a Director at Morgan Grenfell Investment
services in London. Prior to that he worked at Alliance Capital Management in
London and
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in Tokyo for ten years. For its services, the Adviser pays Batterymarch an
annual management fee computed and paid monthly, in an amount equal to 1.00% on
an annualized basis of the average daily net asset value of the World Growth
Series' assets managed by Batterymarch.
The Series Fund pays the compensation of the four Trustees who are not
affiliated with MFS or Sun Life of Canada (U.S.) as well as certain of its
other expenses and fees, including governmental fees, taxes, brokerage
expenses, fees and expenses of legal counsel, independent auditors, any
shareholder servicing agent, dividend disbursing agent and the custodian and
expenses of preparing, printing and mailing materials to shareholders and
government authorities, all subject to limited reimbursement by MFS (See
"Management of the Series Fund" in the Statement of Additional Information).
Shares of the Series Fund may be offered to Variable Accounts established by
Sun Life of Canada (U.S.), Sun Life (N.Y.) and their affiliated companies to
fund benefits under both variable annuity and variable life insurance products.
The Series Fund does not anticipate any disadvantage to contract owners arising
out of its simultaneous funding of both variable annuity and variable life
insurance contracts. Such conflict could occur due to a change in laws
affecting the operation of variable life and/or variable annuity separate
accounts or for some other reason. The management of the Series Fund intends to
monitor events in order to identify any material conflicts among the interests
of variable annuity contract owners and the interests of variable life
insurance contract owners and to determine what action, if any, should be taken
in response. In addition, if Sun Life of Canada (U.S.) and/or Sun Life (N.Y.)
believe the Series Fund's response to any such events or conflicts is
insufficient to protect contract owners, they will take additional appropriate
action. Such action might include withdrawal by one or more separate accounts
of their investment in the Series Fund, which could force the Series Fund to
liquidate portfolio securities at disadvantageous prices.
5. ADDITIONAL INFORMATION WITH RESPECT TO SHARES OF EACH SERIES
PURCHASES
Sun Life of Canada (U.S.) and Sun Life (N.Y.) buy shares of each series at
their net asset value without a sales charge for their Variable Accounts
through the allocation of purchase payments made under Contracts issued by Sun
Life of Canada (U.S.) and Sun Life (N.Y.) in accordance with the allocation
instructions received from owners of the Contracts.
NET ASSET VALUE, DIVIDENDS AND DISTRIBUTIONS
The Net Asset Value of each series is determined as of the close of regular
trading on the New York Stock Exchange on each day the Exchange is open for
trading.
MONEY MARKET SERIES--All the Net Income, as defined in the Statement of
Additional Information, of the Money Market Series is declared as a dividend to
its shareholders at the time of such determination. Shares purchased become
entitled to dividends declared as of the first day following the date of
investment. Dividends are distributed on the last business day of each month.
If paid in the form of additional shares, dividends are paid at the rate of one
share (and fraction thereof) for each one dollar (and fraction thereof) of
dividend income attributable to the Money Market Series.
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Securities held by the Money Market Series are valued at amortized cost,
which the Trustees have determined in good faith constitutes fair value for the
purposes of complying with the Investment Company Act of 1940. This valuation
method will continue to be used until such time as the Trustees determine that
it does not constitute fair value for such purposes. Since the Net Income of
the Money Market Series is declared as a dividend each time the Net Income of
that series is determined, the net asset value per share of that series (i.e.,
the value of the net assets of that series divided by the number of its shares
outstanding) remains at $1.00 per share immediately after each such
determination and dividend declaration.
It is expected that the Money Market Series will have a positive Net Income
at the time of each determination thereof. If for any reason the Net Income
determined at any time is a negative amount the Series Fund will first offset
the negative amount against the dividends declared during the month and will
then, to the extent necessary, reduce the number of its outstanding shares by
treating each shareholder of that series as having contributed to the capital
of that series that number of full and fractional shares in the account of such
shareholder which represents his proportion of the negative amount. Each
shareholder of the Money Market Series will be deemed to have agreed to such
contribution in these circumstances by his investment in that series. This
procedure will permit the net asset value per share of the Money Market Series
to be maintained at a constant $1.00 per share. There can be no assurance that
the Money Market Series will be able to maintain a stable net asset value of
$1.00 per share, other than by such offset of dividends or reduction in the
number of shares in a shareholder account.
CAPITAL APPRECIATION SERIES, CONSERVATIVE GROWTH SERIES, EMERGING GROWTH
SERIES, GOVERNMENT SECURITIES SERIES, HIGH YIELD SERIES, MANAGED SECTORS
SERIES, RESEARCH SERIES, TOTAL RETURN SERIES, UTILITIES SERIES, WORLD ASSET
ALLOCATION SERIES, WORLD GOVERNMENTS SERIES, WORLD GROWTH SERIES, WORLD TOTAL
RETURN SERIES AND ZERO COUPON SERIES.--With respect to these series,
determination of the net asset value per share is made by deducting the
liabilities of that series from the value of its assets and dividing the
difference by the number of its shares outstanding. Equity securities in the
portfolio of a series are normally valued at the last sale price during regular
hours on the exchange on which they are primarily traded or on the NASDAQ
system for unlisted national market issues, or at the last quoted bid price for
unlisted securities or listed securities in which there were no sales during
that day. Debt securities of U.S. issuers (other than short-term obligations)
in any of these portfolios are normally valued on the basis of valuations
provided by a pricing service since such valuations are believed to reflect the
fair value of such securities. Valuations provided by the pricing service may
be determined without exclusive reliance on quoted prices and may take into
account appropriate 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. Forward Contracts will be valued
using a pricing model taking into consideration market data from an external
pricing service. Use of the pricing services has been approved by the Board of
Trustees. Short-term obligations in any of these portfolios (i.e., obligations
maturing in not more than sixty days) are valued at amortized cost, which
constitutes fair value as determined by the Board of Trustees. Short-term
obligations with a remaining maturity in excess of 60 days will be valued upon
dealer supplied valuations. All other securities, futures contracts and options
in the series' 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
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securities, futures contracts or options are traded; but if a securities
exchange is not the principal market for securites, 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 that day, at
the last quoted bid price. Portfolio securities and other assets 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.
All investments and assets are expressed in U.S. dollars based upon current
currency exchange rates.
The Conservative Growth Series, High Yield Series, Government Securities
Series, World Governments Series, Total Return Series, Zero Coupon Series and
Utilities Series receive dividends, interest or other earnings from
substantially all of their investments. Substantially all of the net income of
these series and of the Capital Appreciation Series, Emerging Growth Series,
Managed Sectors Series, Research Series, World Asset Allocation Series, World
Growth Series and World Total Return Series is paid to their shareholders as a
dividend at least annually. Each series will also distribute its net profits
from the sale of securities, if any, on at least an annual basis.
DISTRIBUTIONS--The Variable Accounts can choose to receive distributions from
the Series Fund in either cash or additional shares. It is expected that the
Variable Accounts will choose to receive distributions in additional shares. If
the Variable Accounts choose to receive distributions in cash, they will
reinvest the cash in the Series Fund to purchase additional shares at their net
asset value.
TAX STATUS
Each series and each portfolio of the Zero Coupon Series is treated as a
separate entity for federal income tax purposes. Each individual series or
portfolio of the Series Fund intends to qualify and elect to be treated as a
regulated investment company pursuant to Subchapter M of the Internal Revenue
Code of 1986, as amended, and to distribute all of its net investment income
and realized capital gains to its shareholders, and it should therefore pay no
federal income tax.
REDEMPTIONS
Sun Life of Canada (U.S.) and Sun Life (N.Y.) will redeem shares of each
series held in their Variable Accounts as they deem necessary to make benefit
or surrender payments under the terms of their Contracts. Redemptions are
processed on any day on which the net asset value of the Series Fund is
calculated and are effected at the net asset value next determined after the
redemption order is received.
The Series Fund may suspend the right of redemption with respect to the
shares of any series only under the following unusual circumstances: when the
New York Stock Exchange is closed or trading is restricted; when an emergency
exists, making disposal of portfolio securities or the valuation of net assets
not reasonably practicable; or during any period when the Securities and
Exchange Commission has by order permitted a suspension of redemptions for the
protection of shareholders.
DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional Shares of Beneficial Interest (without par value) and to
divide or combine the shares into a greater or
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lesser number of shares without thereby changing the proportionate beneficial
interests in the Series Fund. The Series Fund presently has fifteen series of
shares and has reserved the right to create additional series of shares. Each
share of a series (including each Portfolio of the Zero Coupon Series)
represents an equal proportionate interest in that series with each other share
of that series. Shares of each series (including each Portfolio of the Zero
Coupon Series) participate equally in the earnings, dividends and assets of
that series or portfolio. Shares when issued are fully paid and non-assessable.
Shareholders are entitled to one vote for each share held. Shares of each
series (including the Portfolios of the Zero Coupon Series in the aggregate)
are entitled to vote separately to approve investment advisory agreements or
changes in investment restrictions, but shares of all series would vote
together in the election of Trustees and selection of accountants. Upon
liquidation of the Series Fund, shareholders of each series (including each
Portfolio of the Zero Coupon Series) would be entitled to share pro rata in the
net assets of their respective series available for distribution to
shareholders.
The Series Fund is an entity of the type commonly known as a "Massachusetts
business trust". Under Massachusetts law, shareholders of any series of such a
trust may, under certain circumstances, be held personally liable as partners
for its obligations. However, the Series Fund's Declaration of Trust contains
an express disclaimer of shareholder liability for acts or obligations of the
Series Fund and provides for indemnification and reimbursement of expenses out
of the Series Fund property for any shareholder held personally liable for the
obligations of the Series Fund. The Series Fund's Declaration of Trust also
provides that it shall maintain appropriate insurance (for example, fidelity
bonding and errors and omissions insurance) for the protection of the Series
Fund, its shareholders, Trustees, officers, employees and agents covering
possible tort and other liabilities. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability would be limited to
circumstances in which both inadequate insurance existed and the Series Fund
itself was unable to meet its obligations.
CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
The Series Fund's Statement of Additional Information, dated May 1, 1995
contains more detailed information about the Series Fund, including information
related to (i) the Series Fund's investment policies and restrictions, (ii) its
Trustees, officers, investment adviser and sub-investment advisers, (iii)
portfolio transactions and brokerage commissions, (iv) the Series Fund's
shares, including rights and liabilities of shareholders, and (v) various
services and privileges provided by the Series Fund for the benefit of its
shareholders. The following audited financial statements of the Series Fund are
incorporated in the Statement of Additional Information by reference from the
Series Fund's Annual Report to shareholders for the year ended December 31,
1994; Portfolios of Investments at December 31, 1994; Statements of Assets and
Liabilities at December 31, 1994; Statements of Operations for the year ended
December 31, 1994; and Statements of Changes in Net Assets for the years ended
December 31, 1994 and December 31, 1993.
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APPENDIX A
DESCRIPTION OF INSTRUMENTS
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. Each series that invests in foreign securities may
invest in either type of ADR. Although the U.S. investor holds a substitute
receipt of ownership rather than direct stock certificates, the use of the
depository receipts in the United States can reduce costs and delays as well as
potential currency exchange and other difficulties. These series 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 series' custodian in
five days. Each such series may also execute trades on the U.S. markets using
existing ADRs. Because ADRs trade on United States securities exchanges, the
Adviser does not treat them as foreign securities. However, they are subject to
many of the risks of foreign securities. 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 traded in foreign currency.
BANKERS' ACCEPTANCES--Bankers' acceptances are short-term credit instruments
used to finance the import, export, transfer or storage of goods. They are
termed "accepted" when a bank guarantees their payment at maturity.
BRADY BONDS--Brady Bonds are securities created through the exchange of
existing commercial bank loans to public and private entities in certain
emerging markets for new bonds in connection with debt restructurings under a
debt restructuring plan introduced by former U.S. Secretary of the Treasury,
Nicholas F. Brady (the "Brady Plan"). Brady Plan debt restructurings have been
implemented to date in Mexico, Uruguay, Venezuela, Costa Rica, Ecuador,
Argentina, Nigeria, Brazil, Bulgaria, Poland and the Philippines. Brady Bonds
have been issued only recently, and for that reason do not have a long payment
history. Brady Bonds may be collateralized or uncollateralized, are issued in
various currencies (but primarily the U.S. dollar) and are actively traded in
over-the-counter secondary markets. U.S. dollar-denominated, collateralized
Brady Bonds, which may be fixed-rate bonds or floating-rate bonds, are
generally collateralized in full as to principal by U.S. Treasury zero coupon
bonds having the same maturity as the bonds. Brady Bonds are often viewed as
having three or four valuation components: the collateralized repayment of
principal at final maturity; the collateralized interest payments; the
uncollateralized interest payments; and any uncollateralized repayment of
principal at maturity (these uncollateralized amounts constituting the
"residual risk"). In light of the residual risk of Brady Bonds and the history
of defaults of countries issuing Brady Bonds with respect to commercial bank
loans by public and private entities, investments in Brady Bonds may be viewed
as speculative.
CERTIFICATES OF DEPOSIT--Certificates of deposit are certificates issued
against funds deposited in a bank, are for a definite period of time, earn a
specified rate of return, and are normally negotiable. An investment in
certificates of deposit issued by foreign branches of U.S. or Canadian-
chartered banks
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("Eurodollar CD's") may be subject to risks in addition to those incurred by an
investment in debt obligations issued in the United States. Such risks may
include future political and economic developments, the possible imposition of
foreign withholding taxes on interest income payable on the Eurodollar CD's,
the possible seizure or nationalization of foreign deposits, the possible
establishment of exchange controls or the adoption of other foreign
governmental restrictions which might adversely affect the payment of the
principal of and interest on the Eurodollar CD's. Also, Eurodollar CD's are not
insured by the Federal Deposit Insurance Corporation.
COLLATERALIZED MORTGAGE OBLIGATIONS AND MULTI-CLASS PASS-THROUGH SECURITIES--
Collateralized mortgage obligations ("CMOs") are debt obligations
collateralized by mortgage loans or mortgage pass-through securities.
Typically, CMOs are collateralized by certificates issued by the Government
National Mortgage Association, the Federal National Mortgage Association or the
Federal Home Loan Mortgage Corporation but also may be collateralized by whole
loans or private mortgage pass-through securities (such collateral collectively
hereinafter referred to as "Mortgage Assets"). Multi-class pass-through
securities are equity interests in a trust composed of Mortgage Assets. Unless
the context indicates otherwise, all references herein to CMOs include multi-
class pass-through securities. Payments of principal of and interest on the
Mortgage Assets and any reinvestment income thereon provide the funds to pay
debt service on the CMOs or make scheduled distributions on the multi-class
pass-through securities. CMOs may be issued by agencies or instrumentalities of
the United States government or by private originators of, or investors in,
mortgage loans, including savings and loan associations, mortgage banks,
commercial banks, investment banks and special purpose subsidiaries of the
foregoing.
In a CMO, a series of bonds or certificates is usually issued in multiple
classes. Each class of CMOs, often referred to as a "tranche", is issued at a
specific fixed or floating coupon rate and has a stated maturity or final
distribution date. Principal prepayment on a Mortgage Asset may cause the CMOs
to be retired substantially earlier than their stated maturities or final
distribution dates, resulting in a loss of all or part of the premium if any
has been paid. Certain classes of CMOs have priority over others with respect
to the receipt of prepayments on the mortgages. Therefore, depending on the
type of CMOs in which the series invests, the investment may be subject to a
greater or lesser risk of prepayment than other types of mortgage-related
securities. Interest is paid or accrues on all classes of the CMOs on a
monthly, quarterly or semi-annual basis. The principal of and interest on the
Mortgage Assets may be allocated under several classes of a series of a CMO in
innumerable ways. In a common structure, payments of principal, including any
principal prepayment, on the Mortgage Assets are applied to the classes of the
series of a CMO in the order of their respective stated maturities or final
distribution dates, so that no payment of principal will be made on any class
of CMOs until all other classes having an earlier stated maturity or final
distribution date have been paid in full.
Parallel pay CMOs are structured to provide payments of principal on each
payment date to more than one class. These simultaneous payments are taken into
account in calculating the stated maturity date or final distribution date of
each class, which, as with other CMO structures, must be retired by its stated
maturity date or final distribution date but may be retired earlier. Planned
amortization class CMOs ("PAC Bonds") generally require payments of the
specified amount of principal on each payment date. PAC Bonds are always
parallel pay CMOs with the required principal payment of such securities having
the highest priority after interest has been paid to all classes.
COMMERCIAL PAPER--Commercial paper refers to promissory notes issued by
corporations in order to finance their short-term credit needs.
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CONVERTIBLE BONDS--Convertible bonds are bonds which, at the option of the
holder, are convertible into other securities of the issuer, usually into
equity securities.
CORPORATE ASSET-BACKED SECURITIES--Corporate asset-backed securities are
issued by trusts and special purpose corporations and are backed by a pool of
assets, such as credit card and automobile loan receivables, representing the
obligations of a number of different parties.
Corporate asset-backed securities present certain risks. For instance, in the
case of credit card receivables, these securities may not have the benefit of
any security interest in the related collateral. Credit card receivables are
generally unsecured and the debtors are entitled to the protection of a number
of state and federal consumer credit laws, many of which give such debtors the
right to set off certain amounts owed on the credit cards, thereby reducing the
balance due. Most issuers of automobile receivables permit the servicers to
retain possession of the underlying obligations. If the servicer were to sell
these obligations to another party, there is a risk that the purchaser would
acquire an interest superior to that of the holders of the related automobile
receivables. In addition, because of the large number of vehicles involved in a
typical issuance and technical requirements under state laws, the trustee for
the holders of the automobile receivables may not have a proper security
interest in all of the obligations backing such receivables. Therefore, there
is the possibility that recoveries on repossessed collateral may not, in some
cases, be available to support payments on these securities. The underlying
assets (e.g. loans) are also subject to prepayments which shorten the
securities' weighted average life and may lower their return.
As noted above, corporate asset-backed securities are often backed by a pool
of assets representing the obligations of a number of different parties. To
lessen the effect of failures by obligors on underlying assets to make
payments, the securities may contain elements of credit support which fall into
two categories: (i) liquidity protection; and (ii) protection against losses
resulting from ultimate default by an obligor on the underlying assets.
Liquidity protection refers to the provision of advances, generally by the
entity administering the pool of assets, to ensure that the receipt of payments
on the underlying pool occurs in a timely fashion. Protection against losses
resulting from ultimate default ensures payment through insurance policies or
letters of credit obtained by the issuer or sponsor from third parties. The
series will not pay any additional or separate fees for credit support. The
degree of credit support provided for each issue is generally based on
historical information respecting the level of credit risk associated with the
underlying assets. Delinquency or loss in excess of that anticipated or failure
of the credit support could adversely affect the return on an investment in
such a security.
CORPORATE OBLIGATIONS--Corporate obligations include bonds and notes issued
by corporations in order to finance long-term credit needs. The Money Market
Series will invest only in corporate obligations which have a maturity when
purchased of less than 13 months.
EMERGING MARKET SECURITIES--Emerging markets are countries or regions with
relatively low gross national product per capita compared to the world's major
economies, and countries or regions with the potential for rapid economic
growth. Emerging markets will include any country: (i) having an "emerging
stock market" as defined by the International Finance Corporation: (ii) with
low- to middle-income economies according to the International Bank for
Reconstruction and Development (the "World Bank"); (iii) listed in World Bank
publications as developing; or (iv) determined by the Adviser (or a Sub-
Adviser, if applicable) to be an emerging market as defined above. Series
investing in emerging market companies may invest in securities of: (i)
companies the principal securities trading
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market for which is an emerging market country; (ii) companies organized under
the laws of, and with a principal office in, an emerging market country; (iii)
companies whose principal activities are located in emerging market countries;
or (iv) companies traded in any market that derive 50% or more of their total
revenue from either goods or services produced in an emerging market or sold in
an emerging market.
The risks of investing in foreign securities may be intensified in the case
of investments in emerging markets. 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, present the risk of nationalization of
businesses, restrictions on foreign ownership, or prohibitions of repatriation
of assets, and may have less protection of property rights than more developed
countries. The 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.
These securities may be considered speculative and, while generally offering
higher income and the potential for capital appreciation, may present
significantly greater risk. Emerging markets may have different clearance and
settlement procedures, and in certain markets there have been times when
settlements have been unable to keep pace with the volume of securities
transactions, making it difficult to conduct such transactions. Delays in
settlement could result in temporary periods when a portion of the assets of a
series is uninvested and no return is earned thereon. The inability of a series
to make intended security purchases due to settlement problems could cause the
series to miss attractive investment opportunities. Inability to dispose of
portfolio securities due to settlement problems could result in losses to the
series due to subsequent declines in values of the portfolio securities or, if
the series has entered into a contract to sell the security, possible liability
to the purchaser. Certain markets may require payment for securities before
delivery.
Certain emerging markets may require governmental approval for the
repatriation of investment income, capital or the proceeds of sales of
securities by foreign investors. In addition, if a deterioration occurs in an
emerging market's balance of payments or for other reasons, a country could
impose temporary restrictions on foreign capital remittances. A series 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 a series 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 a Series.
FOREIGN SECURITIES--Investing in foreign securities involves considerations
and risks not typically associated with investing in U.S. markets. Such
investments may be favorably or unfavorably affected by changes in interest
rates, currency exchange rates and exchange control regulations, application of
foreign tax laws, including withholding taxes, changes in governmental
administration or economic or
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monetary policy (in the U.S. or abroad) or changed circumstances between
nations. There may be less publicly-available information about a foreign
company than about a domestic company, and foreign companies may not be subject
to accounting, auditing and financial reporting standards and requirements
comparable to those of U.S. companies. Foreign securities markets, while
growing in volume, have substantially less volume than U.S. markets, and
securities of many foreign companies are less liquid and their prices more
volatile than securities of comparable domestic companies. Fixed brokerage
commissions and other transaction costs are generally higher than in the United
States. There is generally less government supervision and regulation of
exchanges, brokers and issuers in foreign countries than there is in the United
States. In addition, investments in foreign countries could be affected by
other factors generally not thought to be present in the United States,
including the possibility of heavy taxation, political or social instability,
limitations on the removal of funds or other assets of the series,
expropriation of assets, diplomatic developments adverse to U.S. investors and
difficulties in enforcing contractual obligations, and could be subjected to
extended settlement periods.
As a result of its investments in foreign securities, a series 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. In that event, the series may promptly convert such currencies
into dollars at the current exchange rate. Under certain circumstances,
however, 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
series may hold such currencies for an indefinite period of time. The series
may also hold foreign currency in anticipation of purchasing foreign
securities.
While the holding of currencies will permit a series to take advantage of
favorable movements in the applicable exchange rate, it also exposes the series
to risk of loss if such rates move in a direction adverse to the series'
position. Such losses could reduce any profits or increase any losses sustained
by the series from the sale or redemption of securities, and could reduce the
dollar value of interest or dividend payments received. Costs may also be
incurred in connection with conversions between various currencies.
GOVERNMENT BACKED TRUST CERTIFICATES--Government backed trust certificates
("GBTs") are obligations of certain private trusts formed for the purpose of
refinancing certain foreign government loans. The assets of the trust typically
include (a) a foreign government loan (the "Note"), 90% of principal and
interest payments on which are backed by a full faith and credit guaranty of
the United States government and (b) a beneficial interest in a trust holding
direct obligations of the United States government, calculated to provide
amounts equal to at least 10% of all principal and interest payments on the
Note. Funds scheduled to be received from these assets are calculated to cover
all scheduled distributions on the GBTs.
INDEXED SECURITIES--The value of indexed securities is linked to foreign
currencies, interest rates, commodities, indices, or other financial
indicators. Most indexed securities are short to intermediate term fixed-income
securities whose values at maturity or interest rates rise or fall according to
the change in one or more specified underlying instruments. Indexed securities
may include securities that have embedded swap agreements (see "Swaps and
Related Transactions"). Indexed securities may be positively or negatively
indexed (i.e., their value may increase or decrease if the underlying
instrument appreciates), and may have return characteristics similar to direct
investments in the underlying instrument or to one or more options on the
underlying instrument. Indexed securities may be more volatile than the
underlying instrument itself.
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The performance of indexed securities depends to a great extent on the
performance of the securities, currencies, or other instruments to which they
are indexed, and may also be influenced by interest rate changes in the U.S.
and abroad. At the same time, indexed securities are subject to the credit
risks associated with the issuer of the security, and their values may decline
substantially if the issuer's creditworthiness deteriorates. Recent issuers of
indexed securities have included banks, corporations, and certain U.S.
government agencies.
LOAN PARTICIPATIONS AND OTHER DIRECT INDEBTEDNESS--By purchasing a loan
participation, the series acquires some or all of the interest of a bank or
other lending institution in a loan to a corporate borrower. Many such loans
are secured, and most impose restrictive covenants which must be met by the
borrower. These loans are made generally to finance internal growth, mergers,
acquisitions, stock repurchases, leveraged buy-outs and other corporate
activities. Such loans may be in default at the time of purchase. The series
may also purchase trade or other claims against companies, which generally
represent money owed by the company to a supplier of goods or services. These
claims may also be purchased at a time when the company is in default. Certain
of the loan participations acquired by a series may involve revolving credit
facilities or other standby financing commitments which obligate the series to
pay additional cash on a certain date or on demand.
The highly leveraged nature of many such loans may make such loans especially
vulnerable to adverse changes in economic or market conditions. Loan
participations and other direct investments may not be in the form of
securities or may be subject to restrictions on transfer, and only limited
opportunities may exist to resell such instruments. As a result, the series may
be unable to sell such investments at an opportune time or may have to resell
them at less than fair market value. For a further discussion of loan
participations and the risks related to transactions therein, see the SAI
Appendix.
MORTGAGE PASS-THROUGH SECURITIES--Mortgage pass-through securities are
securities representing interests in "pools" of mortgage loans. Monthly
payments of interest and principal by the individual borrowers on mortgages are
passed through to the holders of the securities (net of fees paid to the issuer
or guarantor of the securities) as the mortgages in the underlying mortgage
pools are paid off. The average life of mortgage pass-throughs are variable
when issued because their average lives depend on prepayment rates. The average
life of these securities is likely to be substantially shorter than their
stated final maturity as a result of unscheduled principal prepayment.
Prepayments on underlying mortgages result in a loss of anticipated interest,
and all or part of a premium if any has been paid, and the actual yield (or
total return) to the series may be different than the quoted yield on the
securities. Mortgage prepayments generally increase with falling interest rates
and decrease with rising interest rates. Like other fixed income securities,
when interest rates rise the value of a mortgage pass-through security
generally will decline; however, when interest rates are declining, the value
of mortgage pass-through securities with prepayment features may not increase
as much as that of other fixed-income securities. Payment of principal and
interest on some mortgage pass-through securities (but not the market value of
the securities themselves) will be guaranteed by either the full faith and
credit of the U.S. Government (in the case of securities guaranteed by GNMA);
or guaranteed by agencies or instrumentalities of the U.S. Government but not
guaranteed by the U.S. Government (such as the Federal National Mortgage
Association ("FNMA") or the Federal Home Loan Mortgage Corporation ("FHLMC").
Mortgage pass-through securities may also be issued by nongovernmental issuers
(such as commercial banks, savings and loan institutions, private mortgage
insurance companies, mortgage bankers and other secondary market issuers). Some
of these mortgage pass-through securities may be supported by various forms of
insurance or guarantees.
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REPURCHASE AGREEMENTS--Repurchase agreements are agreements by which a person
purchases a security and simultaneously commits to resell that security to the
seller (such as a member bank of the Federal Reserve System or recognized
securities dealer) at an agreed upon price on an agreed upon date. The
repurchase price may be higher than the purchase price, the difference being
income to the Series, or the purchase and repurchase price may be the same,
with interest at a standard rate due to the Series together with the repurchase
price on repurchase. In either case, the income to the Series is unrelated to
the coupon rate or maturity of the purchased security. Such transactions afford
an opportunity for a series to earn a return on available cash. However the
series may be subject to various delays and risks of loss (including risk of
decline in market value of the underlying securities) if the seller is unable
to meet its obligation to repurchase. In evaluating whether to enter into a
repurchase agreement the Adviser will carefully consider the creditworthiness
of the seller and will follow guidelines regarding the determination of
creditworthiness established by the Board of Trustees of the Series Fund. A
series may enter into repurchase agreements only with member banks of the
Federal Reserve System, member firms (or subsidiaries thereof) of the New York
Stock Exchange, recognized primary U.S. Government Securities dealers or other
institutions that the Adviser has determined to be of comparable credit-
worthiness.
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 Series will have the right to liquidate the securities. If at
the time the Series 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
Series' exercise of its right to liquidate the securities may be delayed and
result in certain losses and costs to the Series. The Series Fund has adopted
and follows procedures which are intended to minimize the risks of repurchase
agreements. For example, a Series 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
Series has the right to make margin calls at any time if the value of the
securities falls below the agreed upon margin.
RESTRICTED SECURITIES--Restricted securities are securities that are subject
to legal or contractual restrictions on resale, including securities which
cannot be sold to the public without registration under the Securities Act of
1933 (the "Securities Act"). Unless registered for sale, such securities can
only be sold in privately negotiated transactions or pursuant to an exemption
from registration, such as pursuant to Rule 144A under the Securities Act for
offers and sales to "qualified institutional buyers". Consequently, there may
be a more limited trading market for these securities and market quotations may
be less readily available. However, as to certain restricted securities, a
substantial market of qualified institutional buyers may develop pursuant to
Rule 144A ("Rule 144A Securities"). The Series Fund's Board of Trustees may
determine based upon a continuing review of the trading markets for the
specific Rule 144A Security that such securities are readily marketable. The
Board of Trustees has adopted guidelines and delegated to the Adviser the daily
function of determining and monitoring liquidity of Rule 144A Securities. The
Board, however, will retain sufficient oversight and is ultimately responsible
for the determinations. The Board will carefully monitor a series' investments
in Rule 144A Securities, focusing on such important factors, among others, as
valuation, liquidity and availability of information. This Investment practice
could have the effect of increasing the level of illiquidity in a series to the
extent that qualified institutional buyers become for a time uninterested in
purchasing Rule 144A
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Securities held in the series' portfolio. As a result, the series 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, judgment may at times play a greater role in
valuing these securities than in the case of unrestricted securities. A series
may invest in restricted securities as to which the Board has made such a
determination of ready marketability, to the extent consistent with its
investment objectives. Where the Board has not made such a determination,
investments in restricted securities are subject to the series' investment
restrictions on investments in securities that are not readily marketable.
STRIPPED MORTGAGE-BACKED SECURITIES--Stripped mortgage-backed securities
("SMBS") are derivative multi-class mortgage securities issued by agencies or
instrumentalities of the United States Government or by private originators of,
or investors in, mortgage loans including savings and loan associations,
mortgage banks, commercial banks and investment banks. SMBS are usually
structured with two classes that receive different proportions of the interest
and principal distributions from a pool of Mortgage Assets. A common type of
SMBS will have one class receiving some of the interest and most of the
principal from the Mortgage Assets while the other class will receive most of
the interest and the remainder of the principal. In the most extreme case, one
class will receive all of the interest (the interest only or "IO" class) while
the other class will receive all of the principal (the principal only or "PO"
class). The yield to maturity on an IO is extremely sensitive to the rate of
principal payments (including prepayments) on the related underlying Mortgage
Assets, and a rapid rate of principal payments may have a material adverse
effect on such securities' yield to maturity. If the underlying Mortgage Assets
experience more than anticipated prepayments of principal, a series may fail to
fully recoup its initial investment in these securities. The market value of
the class consisting primarily or entirely of principal payments generally is
unusually volatile in response to changes in interest rates.
U.S. GOVERNMENT SECURITIES--U.S. Government Securities include: (1) U.S.
Treasury obligations, which differ only in their interest rates, maturities and
times of issuance: U.S. Treasury bills (maturity of one year or less), U.S.
Treasury notes (maturities of one to 10 years), and U.S. Treasury bonds
(generally maturities of greater than 10 years), all of which are backed by the
full faith and credit of the United States; and (2) obligations issued or
guaranteed by U.S. government agencies or instrumentalities, some of which are
backed by the full faith and credit of the U.S. Treasury, e.g., direct pass-
through certificates of the Government National Mortgage Association ("GNMA");
some of which are supported by the right of the issuer to borrow from the U.S.
government, e.g., obligations of Federal Home Loan Banks; some of which are
backed only by the credit of the issuer itself, e.g., obligations of the
Student Loan Marketing Association; and some of which are supported by the
discretionary authority of the U.S. government to purchase the agency's
obligations, e.g., obligations of the Federal National Mortgage Association
("FNMA"). Agencies and instrumentalities of the U.S. Government are established
under the authority of an act of Congress and include, but are not limited to,
in addition to those mentioned above, the Tennessee Valley Authority, the Bank
for Cooperatives, the Farmers Home Administration, Federal Intermediate Credit
Banks, Federal Land Banks, the Federal Home Loan Mortgage Corporation, the
Small Business Administration, the Resolution Funding Corporation, the
Financing Corporation, and the Federal Agricultural Mortgage Corporation.
No assurance can be given that the U.S. Government will provide financial
support to instrumentalities sponsored by the U.S. Government as it is not
obligated by law, in certain instances, to do so.
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WARRANTS--Warrants are certificates giving the holder the right, either for a
specified period of time or indefinitely, to purchase a security at a
stipulated price.
ZERO COUPON BONDS, DEFERRED INTEREST BONDS AND PIK BONDS--Zero coupon and
deferred interest 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 or the first interest payment date 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 and deferred interest bonds
provide for a period of delay before the regular payment of interest begins.
PIK bonds are debt obligations which provide that the issuer thereof may, at
its option, pay interest on such bonds in cash or in the form of additional
debt obligations. 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 and/or credit quality than debt obligations which make regular
payments of interest. A series 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 series' distribution obligations.
APPENDIX B
INVESTMENT TECHNIQUES
LENDING OF PORTFOLIO SECURITIES
The Conservative Growth Series, Emerging Growth Series, Research Series,
Total Return Series, Utilities Series, World Asset Allocation Series, World
Governments Series, World Total Return Series and World Growth Series may seek
to increase their income by lending portfolio securities to the extent
consistent with present regulatory policies, including those of the Board of
Governors of the Federal Reserve System and the Securities and Exchange
Commission. Such loans may be made to member banks of the Federal Reserve
System and to member firms (and subsidiaries thereof) of the New York Stock
Exchange and would be required to be secured continuously by collateral,
including cash, cash equivalents or U.S. Government Securities maintained on a
current basis at an amount at least equal to the market value of the securities
loaned. A series would have the right to call a loan and obtain the securities
loaned at any time on customary industry settlement notice (which will usually
not exceed five days). For the duration of a loan, the series would continue to
receive the equivalent of the interest or dividends paid by the issuer on the
securities loaned and would also receive compensation from the investment of
the collateral. A series would not, however, have the right to vote any
securities having voting rights during the existence of the loan, but would
call the loan in anticipation of an important vote to be taken among holders of
the securities or of the giving or withholding of their consent on a material
matter affecting the investment. As with other extensions of credit, there are
risks of delay in recovery or even loss of rights in the collateral should the
borrower of the securities fail financially. However, the loans would be made
only to firms deemed by the investment adviser to be of good standing, and
when, in the judgment of the investment adviser, the consideration which could
be earned currently from securities loans of this type justified the attendant
risk. If the investment adviser determines to make securities loans, it is
intended that the value of the securities loaned would not exceed 30% of the
value of a series' total assets.
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MORTGAGE "DOLLAR ROLL" TRANSACTIONS
The Government Securities Series, High Yield Series, Total Return Series,
Utilities Series, World Asset Allocation Series, World Governments Series and
World Total Return Series may enter into mortgage "dollar roll" transactions
with selected banks and broker-dealers pursuant to which the series sells
mortgage-backed securities for delivery in the future (generally within 30
days) and simultaneously contracts to repurchase substantially similar (same
type, coupon and maturity) securities on a specified future date. The series
will only enter into covered rolls. A "covered roll" is a specific type of
dollar roll for which there is an offsetting cash position or a cash equivalent
security position which matures on or before the forward settlement date of the
dollar roll transaction. During the roll period, the series foregoes principal
and interest paid on the mortgage-backed securities. The series is compensated
for the lost interest by the difference between the current sales price and the
lower price for the futures purchase (often referred to as the "drop") as well
as by the interest earned on the cash proceeds of the initial sale. The series
may also be compensated by receipt of a commitment fee.
In the event that the party with whom a Series contracts to repurchase
substantially similar securities on a future date fails to deliver such
securities, the Series may not be able to obtain such securities at the price
specified in such contract and thus may not benefit from the price differential
between the current sales price and the repurchase price. The market value of
securities purchased by the Series may decline below the price of securities
that the Series has sold but is obligated to repurchase under the agreement.
Under the terms of these transactions, the securities purchased may have
different prepayment characteristics and both the Series and the dealer may be
permitted to over or underdeliver the aggregate principal amount of the
securities by 2%.
OPTIONS, FUTURES AND FORWARD CONTRACTS
Certain series may enter into transactions in options, futures and forward
contracts on a variety of instruments and indexes, in order to protect against
declines in the value of portfolio securities or increases in the cost of
securities or other assets to be acquired and, subject to applicable law, to
increase the series' gross income. The types of instruments that may be
purchased and sold by each series and the permissible purposes of these
transactions are described in the series' statement of investment objectives
and policies. Among other risks, the trading of options, futures contracts and
forward contracts entails the risk that, if the Adviser's judgment as to the
general direction of interest or exchange rates is incorrect, the series'
overall performance may be poorer than if it had not entered into any such
contract. For example, if the series has hedged against the possibility of an
increase in interest rates, and rates instead decline, the series will lose
part or all of the benefit of the increased value of the securities being
hedged, and may be required to meet ongoing daily variation margin payments.
The SAI Appendix, which should be read in conjunction with the following
section, contains a further discussion of the nature of the transactions which
may be entered into and the risks associated therewith.
OPTIONS ON SECURITIES AND SECURITIES INDEXES
The Capital Appreciation Series, Emerging Growth Series, Government
Securities Series, Managed Sectors Series, Utilities Series, World Asset
Allocation Series, World Governments Series, World Growth Series and World
Total Return Series may write (sell) "covered" call and put options and
purchase call and put options on securities or securities indexes. These
transactions may be designed for the purpose of increasing a series' return on
such securities and/or to protect the value of its
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portfolio. In particular, where the series writes an option which expires
unexercised or is closed out by the series 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 the portfolio security underlying the
option, or the increased cost of portfolio securities to be acquired. In
contrast, however, if the price of the underlying security or index moves
adversely to the series' position, the option may be exercised and the series
will be required to purchase or sell the underlying security or index at a
disadvantageous price, which may only be partially offset by the amount of the
premium. The series 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.
By writing a call option on a security, the series limits its opportunity to
profit from any increase in the market value of the underlying security, since
the holder will usually exercise the call option when the market value of the
underlying security exceeds the exercise price of the call. However, the series
retains the risk of depreciation in value of securities on which it has written
call options.
A series may also purchase put or call options in anticipation of market
fluctuations which may adversely affect the value of its portfolio or the
prices of securities that the series wants to purchase at a later date, or, in
the case of an option on a stock index, to attempt to reduce the risk of
missing a market or industry segment advance. In the event that the expected
market fluctuations occur, the series may be able to offset the resulting
adverse effect on its portfolio, in whole or in part, through the options
purchased. The premium paid for a put or call option plus any transaction costs
will reduce the benefit, if any, realized by the series upon exercise or
liquidation of the option, and, unless the price of the underlying security
changes sufficiently, the option may expire without value to the series.
"Yield curve" options are options on the yield "spread," or yield
differential between two securities. In contrast to other types of options a
yield curve option is based on the difference between the yields of designated
securities rather than the actual prices of the individual securities, and is
settled through cash payments. Accordingly, a yield curve option is profitable
to the holder if this differential widens (in the case of a call) or narrows
(in the case of a put), regardless of whether the yields of the underlying
securities increase or decrease. Yield curve options will be "covered" but
could involve additional risks, as discussed in the SAI Appendix.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
The Capital Appreciation Series, Emerging Growth Series, Government
Securities Series, Managed Sectors Series, Utilities Series, World Asset
Allocation Series, World Governments Series, World Growth Series and World
Total Return Series may enter into contracts for the purchase or sale for
future delivery of securities, securities indexes or currency ("futures
contracts"). These instruments may be used for hedging purposes, in order to
protect the series' current or intended investments from a decline in value due
to changes in exchange rates or interest rates or declines in the stock market,
and for non-hedging purposes subject to applicable law. With respect to hedging
purposes, if an anticipated decrease in the value of portfolio securities or
currency occurs as a result of market movements, the adverse effects of such
changes may be offset, in whole or in part, by gains on the sale of futures
contracts. Conversely, the increased cost of portfolio securities to be
acquired may be offset, in whole or in part, by gains on futures contracts
purchased. The series 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
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series, if its investment judgment about the general direction of exchange
rates, interest rates or the stock market is incorrect, the series' overall
performance may be poorer than if it had not entered into any such contract and
the series may realize a loss. The series will not enter into any futures
contract if immediately thereafter the value of all such futures contracts
would exceed 50% of the value of its total assets.
These series may also purchase and write options on such futures contracts.
Purchases of options on futures contracts may present less risk in hedging the
series' 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 series may suffer a loss on the transaction. These transactions
may also be used for non-hedging purposes, to the extent permitted by
applicable law.
In order to assure that the series 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 series 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
series' assets. In addition, the series must comply with the requirements of
various state securities laws in connection with such transactions.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS ("FORWARD CONTRACTS")
The Capital Appreciation Series, Emerging Growth Series, Managed Sectors
Series, Research Series, Utilities Series, World Asset Allocation Series, World
Governments Series, World Growth Series and World Total Return Series may enter
into 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"). Forward
contracts may be entered into for hedging and non-hedging purposes. Hedging
purposes include seeking to minimize the risk to the series from adverse
changes in the relationship between the U.S. dollar and foreign currencies.
Transactions in forward contracts entered into for hedging purposes may 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.
The series may also enter into forward contracts for "cross hedging" purposes,
e.g., the purchase or sale of a forward contract on one type of currency as a
hedge against adverse fluctuations in the value of a second type of currency.
By entering into such transactions, however, the series may be required to
forgo the benefits of advantageous changes in exchange rates. Certain series
may also enter into transactions in forward contracts for other than hedging
purposes. 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, a series may purchase or sell such currency, respectively, through a
forward contract. If the expected changes in the value of the currency occur,
the series will realize profits which will increase its gross income. Where
exchange rates do not move in the direction or to the extent anticipated, such
series may sustain losses which will reduce its gross income. Such
transactions, however, may be considered speculative and could involve
significant risk of loss, as set forth below.
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The series has established procedures consistent with statements of the
Securities and Exchange Commission (the "SEC") and its staff regarding the use
of forward contracts by registered investment companies, which requires use of
segregated assets or "cover" in connection with the purchase and sale of such
contracts.
Forward contracts are traded over-the-counter, and not on organized
commodities or securities exchanges. As a result, such contracts operate in a
manner distinct from exchange-traded instruments, and their use involves
certain risks beyond those associated with transactions in the futures and
options contracts described above.
OPTIONS ON FOREIGN CURRENCIES
The Emerging Growth Series, Utilities Series, World Asset Allocation Series,
World Governments Series, World Growth Series, and World Total Return Series
may purchase and write 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.
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 series 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 series' position, it may forfeit the entire amount of the
premium paid for the option plus related transaction costs. The series may also
choose to, or be required to, receive delivery of the foreign currencies
underlying options on foreign currencies it has entered into. Under certain
circumstances, such as where the Adviser believes that the applicable exchange
rate is unfavorable at the time the currencies are received, or the Adviser
anticipates for any other reason that the exchange rate will improve, the
series may hold such currencies for an indefinite period of time. (See Appendix
A--Foreign Securities for information on the risks associated with holding
foreign currency.)
RISKS OF TRANSACTIONS IN OPTIONS, FUTURES CONTRACTS AND FORWARD
CONTRACTS: Even where a series enters into transactions in futures contracts,
options on futures contracts, forward contracts and options for hedging
purposes, such transactions do involve certain risks. For example, a lack of
correlation between the index or instrument underlying an option, futures
contract or forward contract and the assets being hedged, or unexpected adverse
price movements, could render the series' hedging strategy unsuccessful and
could result in losses. "Cross hedging" transactions may involve greater
correlation risks. In addition, there can be no assurance that a liquid
secondary market will exist for any contract purchased or sold, and the series
may be required to maintain a position until exercise or expiration, which
could result in the series' being unable to control losses. As noted, certain
series may also enter into transactions in such instruments (except for options
on foreign currencies) for other than hedging purposes (subject to applicable
law), including speculative transactions, which involve greater risk. In
particular, in entering into such transactions, a series may experience losses
which are not offset by gains on other portfolio positions, thereby lowering
the series' return and the loss from investing in certain futures transactions
is potentially unlimited. In addition, the markets for such instruments may be
extremely volatile from time to time, as discussed in the SAI Appendix, which
could increase the risks incurred by the series in entering into such
transactions. Gains and losses on investments in such instruments depend on the
ability of the Adviser to predict correctly the direction of stock prices,
interest rates or other economic factors affecting market conditions and
incorrect decisions by the Adviser may cause a series to experience losses or
otherwise reduce its return.
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Transactions in options may be entered into on U.S. exchanges regulated by
the SEC, in the over-the-counter market and on foreign exchanges, while 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 Commodity Futures Trading Commission (the "CFTC")
and on foreign exchanges. The securities underlying options and futures
contracts traded by a series may include domestic as well as foreign
securities. Investors should recognize that transactions involving foreign
securities or foreign currencies, and transactions entered into in foreign
countries, may involve considerations and risks not typically associated with
investing in U.S. markets.
SWAPS AND RELATED TRANSACTIONS
The World Asset Allocation Series, World Governments Series and World Total
Return Series may enter into interest rate swaps, currency swaps and other
types of available swap agreements (such as caps, collars and floors), as one
way of managing their exposure to different types of investments. These
transactions involve the exchange by a series with another party of cash
payments based upon different interest rate indexes, currencies, and other
prices or rates, such as the value of mortgage prepayment rates. For example,
in the typical interest rate swap, the series might exchange a sequence of cash
payments based on a floating rate index for cash payments based on a fixed
rate. Payments made by both parties to a swap transaction are based on a
principal amount determined by the parties.
These series may also purchase and sell caps, floors and collars. In a
typical cap or floor agreement, one party agrees to make payments only under
specified circumstances, usually in return for payment of a fee by the
counterparty. For example, the purchase of an interest rate cap entitles the
buyer, to the extent that a specified index exceeds a predetermined interest
rate, to receive payments of interest on a contractually-based principal amount
from the counterparty selling such interest rate cap. The sale of an interest
rate floor obligates the seller to make payments to the extent that a specified
interest rate falls below an agreed-upon level. A collar arrangement combines
elements of buying a cap and selling a floor.
Swap agreements will tend to shift a Series' investment exposure from one
type of investment to another. For example, if a series agreed to exchange
payments in dollars for payments in foreign currency, in each case based on a
fixed rate, the swap agreement would tend to decrease a Series' exposure to
U.S. interest rates and increase its exposure to foreign currency and interest
rates. Caps and floors have an effect similar to buying or writing options.
Depending on how they are used, swap agreements may increase or decrease the
overall volatility of a Series' investments and its share price and yield.
Swap agreements are sophisticated hedging instruments that typically involve
a small investment of cash relative to the magnitude of risks assumed. As a
result, swaps can be highly volatile and may have a considerable impact on a
series' performance. Swap agreements are subject to risks related to the
counterparty's ability to perform, and may decline in value if the
counterparty's creditworthiness deteriorates. A series may also suffer losses
if it is unable to terminate outstanding swap agreements or reduce its exposure
through offsetting transactions.
Swaps, caps, floors and collars are highly specialized activities which
involve certain risks different from those associated with ordinary portfolio
transactions. See the SAI Appendix for further information on, and the risks
involved in, these activities.
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"WHEN-ISSUED" SECURITIES
The Emerging Growth Series, Government Securities Series, High Yield Series,
Utilities Series, World Asset Allocation Series, World Governments Series,
World Growth Series and World Total Return Series may purchase securities on a
"when-issued" or on a "forward delivery" basis, which means that the
obligations will be delivered at a future date usually beyond customary
settlement time. The commitment to purchase a security for which payment will
be made on a future date may be deemed a separate security. Although a series
is not limited to the amount of securities for which it may have commitments to
purchase on such basis, it is expected that under normal circumstances, a
series will not commit more than 30% of its assets to such purchase. A series
does not pay for the securities until received or start earning interest on
them until the settlement date. In order to invest its assets immediately,
while awaiting delivery of securities purchased on such basis, a series will
normally invest in short-term securities that offer same-day settlement and
earnings, but that may bear interest at a lower rate than longer term
securities.
When a series commits to purchase a security on a "when issued" or "forward
delivery" basis it will set up a segregated account consistent with the
statements of the SEC referred to above under "Forward Foreign Currency
Exchange Contracts." While the series do not intend to make such purchases for
speculative purposes and intend to adhere to the provisions of the SEC policy,
purchases of securities on such bases may involve more risk than other types of
purchases. For example, if a series determines it is necessary to sell the
"when issued" or "forward delivery" securities before delivery, it may incur a
gain or a loss because of market fluctuations since the time the commitment to
purchase such securities was made.
APPENDIX C
DESCRIPTION OF STANDARD & POOR'S RATING GROUP ("S&P"), FITCH INVESTORS SERVICE,
INC. ("FITCH") AND MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") HIGHEST
COMMERCIAL PAPER RATINGS AND BOND RATINGS:
A-1 AND P-1 COMMERCIAL PAPER RATINGS
Description of S&P and Moody's highest commercial paper ratings:
The rating "A" is the highest commercial paper rating assigned by S&P and
issues so rated are regarded as having the greatest capacity for timely
payment. Issues in the "A" category are delineated with the numbers 1, 2
and 3 to indicate the relative degree of safety. The A-1 designation
indicates that the degree of safety regarding timely payment is either
overwhelming or very strong. Those A-1 issues determined to possess
overwhelming safety characteristics will be denoted with a plus (+) sign
designation.
The rating P-1 is the highest commercial paper rating assigned by
Moody's. Issuers rated P-1 have a superior ability for repayment. P-1
repayment capacity will normally be evidenced by the following
characteristics: (1) leading market positions in well established
industries; (2) high rates of return on funds employed; (3) conservative
capitalization structure with moderate reliance on debt and ample asset
protection; (4) broad margins in earnings coverage of fixed financial
charges and high internal cash generation; and (5) well established access
to a range of financial markets and assured sources of alternate liquidity.
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BOND/DEBT RATINGS
The ratings of S&P, Fitch and Moody's represent their opinions as to the
quality of various debt instruments. It should be emphasized, however, that
ratings are not absolute standards of quality. Consequently, debt instruments
with the same maturity, coupon and rating may have different yields while debt
instruments of the same maturity and coupon with different ratings may have the
same yield.
S&P DEBT RATINGS
AAA: Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC and C: Debt rated BB, B, CCC, CC and C is regarded, on
balance, as predominantly speculative with respect to the issuer's capacity to
pay interest and repay principal in accordance with the terms of the
obligation. BB indicates the lowest degree of speculation and C the highest
degree of speculation. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions.
BB: Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B: Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
CCC: Debt rated CCC has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions it is not likely to have
the capacity to pay interest and repay principal. The CCC rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied B or B- rating.
CC: The rating CC is typically applied to debt subordinated to senior debt
that is assigned an actual or implied CCC rating.
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C: The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating. The C rating may be
used to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.
CI: The rating CI is reserved for income bonds on which no interest is being
paid.
D: Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
Plus (+) or Minus (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
categories.
NR: indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
FITCH'S BOND RATINGS
AAA: Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA: Bonds considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated "AAA'. Because bonds rated in the
"AAA' and "AA' categories are not significantly vulnerable to foreseeable
future developments, short-term debt of these issuers is generally rated "F-
1+'.
A: Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions
and circumstances than bonds with higher ratings.
BBB: Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these bonds,
and therefore impair timely payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than for bonds with higher
ratings.
BB: Bonds are considered speculative. The obligor's ability to pay interest
and repay principal may be affected over time by adverse economic changes.
However, business and financial alternatives can be identified which could
assist the obligor in satisfying its debt service requirements.
B: Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued
timely payment of principal and interest reflects the obligor's limited margin
of safety and the need for reasonable business and economic activity throughout
the life of the issue.
CCC: Bonds have certain identifiable characteristics which, if not remedied,
may lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
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CC: Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C: Bonds are in imminent default in payment of interest or principal.
Plus (+) Minus (-) Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the "AAA' category.
NR indicates that Fitch does not rate the specific issue.
Conditional: A conditional rating is premised on the successful completion of
a project or the occurrence of a specific event.
Suspended: A rating is suspended when Fitch deems the amount of information
available from the issuer to be inadequate for rating purposes.
Withdrawn: A rating will be withdrawn when an issue matures or is called or
refinanced, and, at Fitch's discretion, when an issuer fails to furnish proper
and timely information.
FitchAlert: Ratings are placed on FitchAlert to notify investors of an
occurrence that is likely to result in a rating change and the likely direction
of such change. These are designated as "Positive", indicating a potential
upgrade, "Negative", for potential downgrade, or "Evolving", where ratings may
be raised or lowered. FitchAlert is relatively short-term, and should be
resolved within 12 months.
MOODY'S BOND RATINGS
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt-edge". Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A: Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
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Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance or
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Absence of Rating: Where no rating has been assigned or where a rating has
been suspended or withdrawn, it may be for reasons unrelated to the quality of
the issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies that
are not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise,
the effects of which preclude satisfactory analysis; if there is no longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.
Note: Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B. The modifier 1 indicates that the security
ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the issue
ranks in the lower end of its generic rating category.
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APPENDIX D
INDUSTRY SECTORS
The Managed Sectors Series seeks to achieve its investment objective by
varying the weighting of its portfolio among the following fifteen industry
sectors (i.e., industry groupings):
(1) AUTOS AND HOUSING SECTOR: companies engaged in the design, production
and sale of automobiles, automobile parts, mobile homes and related
products, and in the design, construction, renovation and refurbishing of
residential dwellings. The value of automobile industry securities is
affected by foreign competition, consumer confidence, consumer debt and
installment loan rates. The housing construction industry is affected by
the level of consumer confidence, consumer debt, mortgage rates and the
inflation outlook.
(2) CONSUMER GOODS AND SERVICES SECTOR: companies engaged in providing
consumer goods and services such as: the design, processing, production and
storage of packaged, canned, bottled and frozen foods and beverages; and
the design, production and sale of home furnishings, appliances, clothing,
accessories, cosmetics and perfumes. Certain such companies are subject to
government regulation affecting the permissibility of using various food
additives and production methods, which regulations could affect company
profitability. Also, the success of food- and fashion-related products may
be strongly affected by fads, marketing campaigns and other factors
affecting supply and demand.
(3) DEFENSE AND AEROSPACE SECTOR: companies engaged in the research,
manufacture, or sale of products or services related to the defense and
aerospace industries, such as: air transport; data processing or computer-
related services; communications systems; military weapons and
transportation; general aviation equipment, missiles, space launch vehicles
and spacecraft; units for guidance, propulsion and control of flight
vehicles; and airborne and ground-based equipment essential to the test,
operation and maintenance of flight vehicles. Since such companies rely
largely on U.S. (and other) governmental demand for their products and
services, their financial conditions are heavily influenced by federal (and
other governmental) defense spending policies.
(4) ENERGY SECTOR: companies in the energy field, including oil, gas,
electricity and coal as well as nuclear, geothermal, oil shale and solar
sources of energy. The business activities of companies comprising this
sector may include: production, generation, transmission, marketing,
control or measurement of energy or energy fuels; provision of component
parts or services to companies engaged in such activities; energy research
or experimentation; environmental activities related to the solution of
energy problems; and activities resulting from technological advances or
research discoveries in the energy field. The value of such companies'
securities varies based on the price and supply of energy fuels and may be
affected by events relating to international politics, energy conservation,
the success of exploration projects, and the tax and other regulatory
policies of various governments.
(5) FINANCIAL SERVICES SECTOR: companies providing financial services to
consumers and industry, such as: commercial banks and savings and loan
associations; consumer and industrial finance companies; securities
brokerage companies; leasing companies; and firms in all segments of the
insurance field (such as multiline, property and casualty, and life
insurance). These kinds of companies are subject to extensive governmental
regulations, some of which regulations are currently being studied by
Congress. The profitability of these groups may fluctuate significantly as
a result of volatile interest rates and general economic conditions.
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<PAGE>
(6) HEALTH CARE SECTOR: companies engaged in the design, manufacture or
sale of products or services used in connection with health care or
medicine, such as: pharmaceutical companies; firms that design,
manufacture, sell or supply medical, dental and optical products, hardware
or services; companies involved in biotechnology, medical diagnostic and
biochemical research and development; and companies involved in the
operation of health care facilities. Many of these companies are subject to
government regulation, which could affect the price and availability of
their products and services. Also, products and services in this sector
could quickly become obsolete.
(7) HEAVY INDUSTRY SECTOR: companies engaged in the research,
development, manufacture or marketing of products, processes or services
related to the agriculture, chemicals, containers, forest products, non-
ferrous metals, steel and pollution control industries, such as: synthetic
and natural materials, for example, chemicals, plastics, fertilizers,
gases, fibers, flavorings and fragrances; paper; wood products; steel and
cement. Certain companies in this sector are subject to regulation by state
and federal authorities, which could require alteration or cessation of
production of a product, payment of fines or cleaning of a disposal site.
In addition, since some of the materials and processes used by these
companies involve hazardous components, there are risks associated with
their production, handling and disposal. The risk of product obsolescence
is also present.
(8) LEISURE SECTOR: companies engaged in the design, production or
distribution of goods or services in the leisure industry, such as:
television and radio broadcast or manufacture; motion pictures and
photography; recordings and musical instruments; publishing; sporting
goods, camping and recreational equipment; sports arenas; toys and games;
amusement and theme parks; travel-related services and airlines; hotels and
motels; fast food and other restaurants; and gaming casinos. Many products
produced by companies in this sector--for example, video and electronic
games--may quickly become obsolete.
(9) MACHINERY AND EQUIPMENT SECTOR: companies engaged in the research,
development or manufacture of products, processes or services relating to
electrical equipment, machinery, pollution control and construction
services, such as: transformers, motors, turbines, hand tools, earth-moving
equipment and waste disposal services. The profitability of most companies
in this group may fluctuate significantly in response to capital spending
and general economic conditions. Since some of the materials and processes
used by these companies involve hazardous components, there are risks
associated with their production, handling and disposal. The risk of
product obsolescence is also present.
(10) PRECIOUS METALS SECTOR: companies engaged in exploration, mining,
processing or dealing in gold, silver, platinum, diamonds or other precious
metals or companies which, in turn, invest in companies engaged in these
activities. A significant portion of this sector may be represented by
securities of foreign companies, and investors should understand the
special risks related to such an investment emphasis. Also, such securities
depend heavily on prices in metals, some of which may experience extreme
price volatility based on international economic and political
developments.
(11) RETAILING SECTOR: companies engaged in the retail distribution of
home furnishings, food products, clothing, pharmaceuticals, leisure
products and other consumer goods, such as: department stores;
supermarkets; and retail chains specializing in particular items such as
shoes, toys or pharmaceuticals. The value of securities in this sector will
fluctuate based on consumer
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<PAGE>
spending patterns, which depend on inflation and interest rates, level of
consumer debt and seasonal shopping habits. The success or failure of a
particular company in this highly competitive sector will depend on such
company's ability to predict rapidly changing consumer tastes.
(12) TECHNOLOGY SECTOR: companies which are expected to have or develop
products, processes or services which will provide or will benefit
significantly from technological advances and improvements or future
automation trends in the office and factory, such as: semiconductors:
computers and peripheral equipment; scientific instruments; computer
software; telecommunications; and electronic components, instruments and
systems. Such companies are sensitive to foreign competition and import
tariffs. Also, many products produced by companies in this sector may
quickly become obsolete.
(13) TRANSPORTATION SECTOR: companies involved in the provision of
transportation of people and products, such as: airlines, railroads and
trucking firms. Revenues of companies in this sector will be affected by
fluctuations in fuel prices resulting from domestic and international
events, and government regulation of fares.
(14) UTILITIES SECTOR: companies in the public utilities industry and
companies deriving a substantial majority of their revenues through
supplying public utilities such as: companies engaged in the manufacture,
production, generation, transmission and sale of gas and electric energy;
and companies engaged in the communications field, including telephone,
telegraph, satellite, microwave and the provision of other communication
facilities to the public. The gas and electric public utilities industries
are subject to various uncertainties, including the outcome of political
issues concerning the environment, prices of fuel for electric generation,
availability of natural gas, and risks associated with the construction and
operation of nuclear power facilities.
(15) FOREIGN SECTOR: companies whose primary business activity takes
place outside of the United States. The securities of foreign companies
would be heavily influenced by the strength of national economies,
inflation levels and the value of the U.S. dollar versus foreign
currencies. Foreign investments will be subject to certain risks not
generally associated with domestic investments. Such investments may be
favorably or unfavorably affected by changes in interest rates, currency
exchange rates and exchange control regulations, and costs may be incurred
in connection with conversions between currencies. In addition, investments
in foreign countries could be affected by less favorable tax provisions,
less publicly available information, less securities regulation, political
or social instability, limitations on the removal of funds or other assets
of the Managed Sectors Series, expropriation of assets, diplomatic
developments adverse to U.S. investments and difficulties in enforcing
contractual obligations.
PRINCIPAL SECTORS OF THE UTILITIES INDUSTRY
The principal sectors of the utilities industry in which the Utilities Series
may invest are discussed below.
ELECTRIC--The electric utility industry consists of companies that are
engaged principally in the generation, transmission and sale of electric
energy, although many also provide other energy-related services. Domestic
electric utility companies, in general, recently have been favorably affected
by lower fuel and financing costs and the full or near completion of major
construction programs. In addition, many of these companies recently have
generated cash flows in excess of current operating expenses
67
<PAGE>
and construction expenditures, permitting some degree of diversification into
unregulated businesses. Some electric utilities have also taken advantage of
the right to sell power outside of their traditional geographic areas. Electric
utility companies historically have been subject to the risks associated with
increases in fuel and other operating costs, high interest costs on borrowings
needed for capital construction programs, costs associated with compliance with
environmental and safety regulations and changes in the regulatory climate.
In the U.S., the construction and operation of nuclear power facilities is
subject to increased scrutiny by, and evolving regulations of, the Nuclear
Regulatory Commission and state agencies having comparable jurisdiction.
Increased scrutiny might result in higher operating costs and higher capital
expenditures, with the risk that the regulators may disallow inclusion of these
costs in rate authorizations or the risk that a company may not be permitted to
operate or complete construction of a facility. In addition, operators of
nuclear power plants may be subject to significant costs for disposal of
nuclear fuel and for the de-commissioning of such plants.
TELECOMMUNICATIONS--The telephone industry is large and highly concentrated.
Companies that distribute telephone services and provide access to the
telephone networks comprise the greatest portion of this segment. Telephone
companies in the U.S. are still experiencing the effects of the breakup of
American Telephone & Telegraph Company, which occurred in 1984. Since 1984,
companies engaged in telephone communication services have expanded their non-
regulated activities into other businesses, including cellular telephone
services, data processing, equipment retailing, computer software and hardware
services, and financial services. This expansion has provided significant
opportunities for certain telephone companies to increase their earnings and
dividends at faster rates than had been allowed in traditionally regulated
businesses. Increasing competition, technological innovations and other
structural changes, however, could adversely affect the profitability of such
utilities.
GAS--Gas transmission companies and gas distribution companies are also
undergoing significant changes. In the U.S., interstate transmission companies
are regulated by the Federal Energy Regulatory Commission, which is reducing
its regulation of the industry. Many companies have diversified into oil and
gas exploration and development, making returns more sensitive to energy
prices. In the recent decade, gas utility companies have been adversely
affected by disruptions in the oil industry and have also been affected by
increased concentration and competition. In the opinion of the Adviser,
however, environmental considerations could improve the gas industry outlook in
the future. For example, natural gas is the cleanest of the hydrocarbon fuels,
and this may result in incremental shifts in fuel consumption toward natural
gas and away from oil and coal.
WATER--Water supply utilities are companies that collect, purify, distribute
and sell water. In the U.S. and around the world, the industry is highly
fragmented because most of the supplies are owned by local authorities.
Companies in this industry are generally mature and are experiencing little or
no per capita volume growth.
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APPENDIX E
PORTFOLIO COMPOSITION CHARTS
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
The charts below show the percentages of the Series' assets at December 31,
1994 invested in securities assigned to the various rating categories by S&P,
Moody's (provided only for securities not rated by S&P) and Fitch (provided
only for securities not rated by S&P or Moody's) and unrated securities
determined by the Adviser to be of comparable quality:
HIGH YIELD SERIES
<TABLE>
<CAPTION>
UNRATED
SECURITIES OF
COMPARABLE
S&P MOODY'S FITCH QUALITY TOTAL
RATING ----- ------- ----- ------------- -----
<S> <C> <C> <C> <C> <C>
AAA/Aaa................................. -- -- -- -- --
AA/Aa................................... -- -- -- -- --
A/A..................................... -- -- -- -- --
BBB/Baa................................. -- -- -- -- --
BB/Ba................................... 17.8% -- -- 0.5% 18.3%
B/B..................................... 57.5% 0.8% -- 2.6% 60.9%
CCC/Caa................................. 7.4% -- -- 0.7% 8.1%
CC/Ca................................... 0.6% -- -- -- 0.6%
C/C..................................... -- -- -- -- --
Default................................. 0.1% -- -- 1.1% 1.2%
Other................................... -- -- -- -- 10.9%
</TABLE>
WORLD ASSET ALLOCATION SERIES
<TABLE>
<CAPTION>
UNRATED
SECURITIES OF
COMPARABLE
S&P MOODY'S FITCH QUALITY TOTAL
RATING ---- ------- ----- ------------- -----
<S> <C> <C> <C> <C> <C>
AAA/Aaa.................................. 3.6% -- -- -- 3.6%
AA/Aa.................................... -- -- -- -- --
A/A...................................... -- -- -- -- --
BBB/Baa.................................. -- -- -- -- --
BB/Ba.................................... 6.9% -- -- -- 6.9%
B/B...................................... -- -- -- -- --
CCC/Caa.................................. -- -- -- -- --
CC/Ca.................................... -- -- -- -- --
C/C...................................... -- -- -- -- --
Default.................................. -- -- -- -- --
Other.................................... -- -- -- -- 89.5%
</TABLE>
The charts do not necessarily indicate what the composition of the Series'
portfolios will be in subsequent years. Rather, the Series' investment
objectives, policies and restrictions indicate the extent to which the Series
may purchase securities in the various categories.
69
<PAGE>
SUN-1--5/95
MFS/SUN LIFE SERIES TRUST
An Open-End Management Investment Company
INVESTMENT ADVISER
Massachusetts Financial Services Company
500 Boylston Street, Boston, MA 02116
(617) 954-5000
CUSTODIAN
State Street Bank and Trust Company
225 Franklin Street, Boston, MA 02110
SHAREHOLDER SERVICING AGENT
MFS Service Center, Inc.
MAILING ADDRESS:
P.O. Box 1024, Boston, MA 02103
BUSINESS ADDRESS:
500 Boylston Street, Boston, MA 02116
AUDITORS
Deloitte & Touche llp
125 Summer Street, Boston, MA 02110
LEGAL COUNSEL
Covington & Burling
1201 Pennsylvania Avenue, NW
P.O. Box 7566, Washington, DC 20044
<PAGE>
PART B
Attached hereto and made a part of hereof are the Statement of Additional
Information Supplement dated September 1, 1995 and the Statement of Additional
Information dated May 1, 1995.
<PAGE>
MFS/SUN LIFE SERIES TRUST
SUPPLEMENT TO THE STATEMENT OF ADDITIONAL INFORMATION
DATED MAY 1, 1995
SEPTEMBER 1, 1995
This Supplement, together with the Statement of Additional Information dated
May 1, 1995, sets forth information which may be of interest to investors in
the MFS/Foreign & Colonial International Growth Series (the "International
Growth Series"), the MFS/Foreign & Colonial International Growth and Income
Series (the "International Growth and Income Series"), and the MFS/Foreign &
Colonial Emerging Markets Equity Series (the "Emerging Markets Equity
Series")(collectively, the "MFS/Foreign & Colonial Series") of MFS/Sun Life
Series Trust (the "Series Fund"), but which is not necessarily included in the
Series' Fund's Prospectus dated May 1, 1995 and the Prospectus Supplement
dated September 1, 1995. This Supplement and the Statement of Additional
Information should be read in conjunction with the Prospectus and Prospectus
Supplement, copies of which may be obtained without charge by contacting the
Sun Life Annuity Service Center, P.O. Box 1024, Boston, Massachusetts 02103;
telephone (800) 752-7215.
THIS SUPPLEMENT, LIKE THE STATEMENT OF ADDITIONAL INFORMATION, IS NOT A
PROSPECTUS AND IS AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF
PRECEDED BY AN EFFECTIVE PROSPECTUS.
1. INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and policies of each of the MFS/Foreign & Colonial
Series are described in the Prospectus Supplement dated September 1, 1995.
Additional information about some of the investment instruments and techniques
which the Series may employ and the series' investment restrictions can be
found below.
The following discussion should be read in conjunction with the information
set forth in the "Investment Objectives and Policies" section of the
Prospectus Supplement and Appendixes A and B to the Prospectus.
INVESTMENT INSTRUMENTS AND TECHNIQUES
EMERGING MARKETS: Each of the MFS/Foreign & Colonial Series may invest in
securities of government, government-related, supranational and corporate
issuers located in emerging markets. Such investments entail significant risks
as described in the Prospectus Supplement under the caption "Additional Risk
Factors" and as more fully described below.
COMPANY DEBT--Governments of many emerging market countries have exercised
and continue to exercise substantial influence over many aspects of the
private sector through the ownership or control of many companies, including
some of the largest in any given country. As a result, government actions in
the future could have a significant effect on economic conditions in emerging
markets, which in turn, may adversely affect companies in the private sector,
general market conditions and prices and yields of certain of the securities
in a Series' portfolio. Expropriation, confiscatory taxation, nationalization,
political, economic or social instability or other similar developments have
occurred frequently over the history of certain emerging markets and could
adversely affect a Series' assets should these conditions recur.
<PAGE>
SOVEREIGN DEBT--Investment in sovereign debt can involve a high degree of
risk. The governmental entity that controls the repayment of sovereign debt
may not be able or willing to repay the principal and/or interest when due in
accordance with the terms of such debt. A governmental entity's willingness or
ability to repay principal and interest due in a timely manner may be affected
by, among other factors, its cash flow situation, the extent of its foreign
reserves, the availability of sufficient foreign exchange on the date a
payment is due, the relative size of the debt service burden to the economy as
a whole, the governmental entity's policy towards the International Monetary
Fund and the political constraints to which a governmental entity may be
subject. Governmental entities may also be dependent on expected disbursements
from foreign governments, multilateral agencies and others abroad to reduce
principal and interest on their debt. The commitment on the part of these
governments, agencies and others to make such disbursements may be conditioned
on a governmental entity's implementation of economic reforms and/or economic
performance and the timely service of such debtor's obligations. Failure to
implement such reforms, achieve such levels of economic performance or repay
principal or interest when due may result in the cancellation of such third
parties' commitments to lend funds to the governmental entity, which may
further impair such debtor's ability or willingness to service its debts in a
timely manner. Consequently, governmental entities may default on their
sovereign debt. Holders of sovereign debt (including a Series) may be
requested to participate in the rescheduling of such debt and to extend
further loans to governmental entities. There is no bankruptcy proceeding by
which sovereign debt on which governmental entities have defaulted may be
collected in whole or in part.
Emerging market governmental issuers are among the largest debtors to
commercial banks, foreign governments, international financial organizations
and other financial institutions. Certain emerging market governmental issuers
have not been able to make payments of interest on or principal of debt
obligations as those payments have come due. Obligations arising from past
restructuring agreements may affect the economic performance and political and
social stability of those issuers.
The ability of emerging market governmental issuers to make timely payments
on their obligations is likely to be influenced strongly by the issuer's
balance of payments, including export performance, and its access to
international credits and investments. An emerging market whose exports are
concentrated in a few commodities could be vulnerable to a decline in the
international prices of one or more of those commodities. Increased
protectionism on the part of an emerging market's trading partners could also
adversely affect the country's exports and tarnish its trade account surplus,
if any. To the extent that emerging markets receive payment for their exports
in currencies other than dollars or non-emerging market currencies, its
ability to make debt payments denominated in dollars or non-emerging market
currencies could be affected.
To the extent that an emerging market country cannot generate a trade
surplus, it must depend on continuing loans from foreign governments,
multilateral organizations or private commercial banks, aid payments from
foreign governments and on inflows of foreign investment. The access of
emerging markets to these forms of external funding may not be certain, and a
withdrawal of external funding could adversely affect the capacity of emerging
market country governmental issuers to make payments on their obligations. In
addition, the cost of servicing emerging market debt obligations can be
affected by a change in international interest rates since the majority of
these obligations carry interest rates that are adjusted periodically based
upon international rates.
Another factor bearing on the ability of emerging market countries to repay
debt obligations is the level of international reserves of the country.
Fluctuations in the level of these reserves affect the amount of foreign
exchange readily available for external debt payments and thus could have a
bearing on the capacity of emerging market countries to make payments on these
debt obligations.
2
<PAGE>
LIQUIDITY; TRADING VOLUME; REGULATORY OVERSIGHT--The securities markets of
emerging market countries are substantially smaller, less developed, less
liquid and more volatile than the major securities markets in the U.S.
Disclosure and regulatory standards are in many respects less stringent than
U.S. standards. Furthermore, there is a lower level of monitoring and
regulation of the markets and the activities of investors in such markets.
The limited size of many emerging market securities markets and limited
trading volume in the securities of emerging market issuers compared to volume
of trading in the securities of U.S. issuers could cause prices to be erratic
for reasons apart from factors that affect the soundness and competitiveness
of the securities issuers. For example, limited market size may cause prices
to be unduly influenced by traders who control large positions. Adverse
publicity and investors' perceptions, whether or not based on in-depth
fundamental analysis, may decrease the value and liquidity of portfolio
securities.
The risk also exists that an emergency situation may arise in one or more
emerging markets, as a result of which trading of securities may cease or may
be substantially curtailed and prices for a Series' securities in such markets
may not be readily available. The Series Fund may suspend redemption of its
shares for any period during which an emergency exists, as determined by the
Securities and Exchange Commission (the "SEC"). Accordingly, if a Series
believes that appropriate circumstances exist, it will promptly apply to the
SEC for a determination that an emergency is present. During the period
commencing from the Series' identification of such condition until the date of
the SEC action, the Series' securities in the affected markets will be valued
at fair value determined in good faith by or under the direction of the Board
of Trustees.
DEFAULT; LEGAL RECOURSE--A Series may have limited legal recourse in the
event of a default with respect to certain debt obligations it may hold. If
the issuer of a fixed-income security owned by a Series defaults, the Series
may incur additional expenses to seek recovery. Debt obligations issued by
emerging market governments differ from debt obligations of private entities;
remedies from defaults on debt obligations issued by emerging market
governments, unlike those on private debt, must be pursued in the courts of
the defaulting party itself. A Series' ability to enforce its rights against
private issuers may be limited. The ability to attach assets to enforce a
judgment may be limited. Legal recourse is therefore somewhat diminished.
Bankruptcy, moratorium and other similar laws applicable to private issuers of
debt obligations may be substantially different from those of other countries.
The political context, expressed as an emerging market governmental issuer's
willingness to meet the terms of the debt obligation, for example, is of
considerable importance. In addition, no assurance can be given that the
holders of commercial bank debt may not contest payments to the holders of
debt obligations in the event of default under commercial bank loan
agreements.
INFLATION--Many emerging markets have experienced substantial, and in some
periods extremely high, rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates have had and may continue to have adverse
effects on the economies and securities markets of certain emerging market
countries. In an attempt to control inflation, wage and price controls have
been imposed in certain countries. Of these countries, some, in recent years,
have begun to control inflation through prudent economic policies.
WITHHOLDING--Income from securities held by a Series could be reduced by a
withholding tax on the source or other taxes imposed by the emerging market
countries in which the Series makes its investments. A Series' net asset value
may also be affected by changes in the rates or methods of taxation applicable
to the Series or to entities in which the Series has invested. The Adviser and
the Sub-Adviser will consider the cost of any taxes in determining whether to
acquire any particular investments, but can provide no assurance that the
taxes will not be subject to change.
3
<PAGE>
FOREIGN CURRENCIES--Each Series may invest up to 100% of its assets in
securities denominated in foreign currencies. Accordingly, changes in the
value of these currencies against the U.S. dollar may result in corresponding
changes in the U.S. dollar value of a Series' asset denominated in those
currencies. Each Series will attempt to minimize the impact of these changes
to the U.S. dollar value of the Series' portfolio by engaging in certain
hedging practices, such as entering into Futures Contracts and Options on
Foreign Securities as described below.
Some emerging market countries also may have managed currencies, which are
not free floating against the U.S. dollar. In addition, there is risk that
certain emerging market countries may restrict the free conversion of their
currencies into other currencies. Further, certain emerging market currencies
may not be internationally traded. Certain of these currencies have
experienced a steep devaluation relative to the U.S. dollar. Any devaluations
in the currencies in which a Series' portfolio securities are denominated may
have a detrimental impact on the Series' net asset value.
INVESTMENT IN OTHER INVESTMENT COMPANIES: A Series' investment in other
investment companies, as described in the Prospectus Supplement, is limited in
amount by the Investment Company Act of 1940, as amended (the "1940 Act"), so
that a Series may purchase shares or interests in another investment company
unless (i) such a purchase would cause the Series to own in aggregate more
than 3% of the total outstanding voting stock of the company or (ii) such a
purchase would cause the Series to have more than 5% of its total assets
invested in one investment company or more than 10% of its total assets
invested in the aggregate in all other investment companies. Such investment
may also involve the payment of substantial premiums above the value of such
investment companies' portfolio securities, and the total return on such
investment will be reduced by the operating expenses and fees of such other
investment companies, including advisory fees.
REPURCHASE AGREEMENTS: Each Series may enter into repurchase agreements with
sellers who are member firms (or a subsidiary thereof) of the New York Stock
Exchange (the "Exchange"), members of the Federal Reserve System, recognized
domestic or foreign securities dealers or institutions which the Adviser or
the Sub-Adviser has determined to be of comparable creditworthiness. The
securities that a Series purchases and holds have values 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 Series, or the purchase and repurchase prices may be the same,
with interest at a standard rate due to the Series together with the
repurchase price on repurchase.
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, a Series will have the right to liquidate the securities. If at
the time the Series 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
Series' exercise of its right to liquidate the securities may be delayed and
result in certain losses and costs to the Series. Each Series has adopted and
follows procedures which are intended to minimize the risks of repurchase
agreements. For example, a Series only enters into repurchase agreements after
the Adviser or the Sub-Adviser has determined that the seller is creditworthy,
and the Adviser or the Sub-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 Series has the right to make margin calls at any
time if the value of the securities falls below the agreed upon margin.
LOANS AND OTHER DIRECT INDEBTEDNESS: Each Series may purchase loans and
other direct claims against an issuer of emerging market debt instruments (a
"borrower"). In purchasing a loan, a Series acquires some or all of the
interest of a bank or other lending institution in a loan to a corporate,
governmental or other borrower. Many such loans are secured, although some may
be unsecured.
4
<PAGE>
Such loans may be in default at the time of purchase. Loans that are fully
secured offer a Series more protection than an unsecured loan in the event of
non-payment of scheduled interest or principal. However, there is no assurance
that the liquidation of collateral from a secured loan would satisfy the
corporate borrower's obligation, or that the collateral can be liquidated.
Certain of the loans acquired by a Series may involve revolving credit
facilities or other standby financing commitments which obligate the Series to
pay additional cash on a certain date or on demand. These commitments may have
the effect of requiring a Series to increase its investment in a company at a
time when the Series might not otherwise decide to do so (including at a time
when the company's financial condition makes it unlikely that such amounts
will be repaid). To the extent that a Series is committed to advance
additional funds, it will at all times hold and maintain in a segregated
account cash or other high grade debt obligations in an amount sufficient to
meet such commitments.
A Series' ability to receive payments of principal, interest and other
amounts due in connection with these investments will depend primarily on the
financial condition of the borrower. Direct indebtedness of developing
countries involves the risk that the governmental entities responsible for the
repayment of the note may be unable, or unwilling, to pay interest and repay
principal where due. In selecting the loans and other direct investments which
a Series will purchase, the Adviser or Sub-Advisor will rely upon their (and
not that of the original lending institution's) own credit analysis of the
borrower. As a Series may be required to rely upon another lending institution
to collect and pass on to the Series amounts payable with respect to the loan
and to enforce the Series' rights under the loan, an insolvency, bankruptcy or
reorganization of the lending institution may delay or prevent the Series from
receiving such amounts. In such cases, the Series will evaluate as well the
creditworthiness of the lending institution and will treat both the borrower
and the lending institution as an "Issuer" of the loan for purposes of certain
investment restrictions pertaining to the diversification of the Series'
portfolio investments. The highly leveraged nature of many such loans may make
such loans especially vulnerable to adverse changes in economic or market
conditions. Investments in such loans may involve additional risks to a
Series.
WARRANTS: Each Series will not invest more than 10% of its net assets, taken
at market value, in warrants not acquired in a unit transaction. Warrants are
securities that give a Series the right to purchase equity securities from the
issuer at a specific price (the "strike price") for a limited period of time.
The strike price of warrants typically is much lower than the current market
price of the underlying securities, yet they are subject to similar price
fluctuations. As a result, warrants may be more volatile investments than the
underlying securities and may offer greater potential for capital appreciation
as well as capital loss.
Warrants do not entitle a holder to dividends or voting rights with respect
to the underlying securities and do not represent any rights in the assets of
the issuing company. Also, the value of the warrant does not necessarily
change with the value of the underlying securities and a warrant ceases to
have value if it is not exercised prior to the expiration date. These factors
can make warrants more speculative than other types of investments.
DEPOSITARY RECEIPTS: Each Series may purchase depositary receipts, including
unsponsored depositary receipts. Under the terms of most sponsored
arrangements, depositaries 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 depositary 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. For further discussion of
depositary receipts see the Supplement to the Prospectus and Appendix A to the
Prospectus --"American Depositary Receipts."
5
<PAGE>
INVESTMENT RESTRICTIONS
The Series Fund has adopted the following policies which apply to the
MFS/Foreign & Colonial Series and, except where specifically indicated, cannot
be changed with respect to any of these series without the approval of the
holders of a majority of the shares of that series (which, as used in this
Supplement to the Statement of Additional Information, means the lesser of (i)
67% or more of the outstanding shares present at a meeting at which holders of
more than 50% of the outstanding shares are represented in person or by proxy,
or (ii) more than 50% of the outstanding shares):
INVESTMENT RESTRICTIONS THAT APPLY TO THE MFS/FOREIGN & COLONIAL SERIES
None of these series may, except as indicated:
(1) borrow amounts in excess of 33 1/3% of its assets including amounts
borrowed;
(2) underwrite securities issued by other persons except insofar as a
series may technically be deemed an underwriter under the Securities Act of
1933 in selling a portfolio security;
(3) purchase or sell real estate (including limited partnership interests
but excluding securities secured by real estate or interests therein and
securities of companies, such as real estate investment trusts, which deal
in real estate or interests therein), interests in oil, gas or mineral
leases, commodities or commodity contracts (excluding currencies, any type
of option, any type of futures contract, and Forward Contracts) in the
ordinary course of its business. The series reserve the freedom of action
to hold and to sell real estate, mineral leases, commodities or commodity
contracts (including currencies, any type of option, any type of futures
contract, and Forward Contracts) acquired as a result of the ownership of
securities;
(4) issue any senior securities except as permitted by the 1940 Act. (For
purposes of this restriction, collateral arrangements with respect to any
type of option, any type of swap agreement, Forward Contracts and any type
of futures contract and collateral arrangements with respect to initial and
variation margin are not deemed to be the issuance of a senior security);
(5) make loans to other persons. For these purposes the purchase of
short-term commercial paper, the purchase of a portion or all of an issue
of debt securities, the purchase of loan participations and other direct
indebtedness in accordance with its investment objectives, the lending of
portfolio securities, and the investment of a series' assets in repurchase
agreements shall not be considered the making of a loan; or
(6) purchase any securities of an issuer of a particular industry, if as
a result 25% or more of its gross assets would be invested in securities of
issuers whose principal business activities are in the same industry
(except for obligations issued or guaranteed by the U.S. Government or its
agencies, authorities or instrumentalities and repurchase agreements
collateralized by such obligations).
Except with respect to Investment Restriction (1), these investment
restrictions and the investment restrictions below 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;
OTHER INVESTMENT POLICIES THAT APPLY TO THE MFS/FOREIGN & COLONIAL SERIES
The MFS/Foreign & Colonial Series have the following additional
nonfundamental policies which may be changed without shareholder approval.
Each of these series will not:
(1) invest in illiquid investments, including securities subject to legal
or contractual restrictions on resale or for which there is no readily
available market (e.g., trading in the security is suspended, or, in the
case of unlisted securities, where no market exists) if more than 15% of
the series' net assets (taken at market value) would be invested in such
securities. Repurchase
6
<PAGE>
agreements maturing in more than seven days will be deemed to be illiquid
for purposes of this limitation. Securities that are not registered under
the 1933 Act and sold in reliance on Rule 144A thereunder, but are
determined to be liquid by the Series Fund's Board of Trustees (or its
delegee), will not be subject to this 15% limitation;
(2) invest more than 10% of the value of the series' net assets, valued
at the lower of cost or market, in warrants. Included within such amount
may be warrants which are not listed on the New York or American Stock
Exchange. Warrants acquired by a series in units or attached to securities
may be deemed to be without value;
(3) purchase securities issued by any other investment company in excess
of the amount permitted by the 1940 Act, except when such purchase is part
of a plan of merger or consolidation;
(4) purchase or retain securities of an issuer any of whose officers,
directors, trustees or security holders is an officer or trustee of the
Series Fund, or is an officer or a director of the Adviser, or any Sub-
Adviser to the series, if one or more of such persons also owns
beneficially more than 1/2 of 1% of the securities of such issuer, and such
persons owning more than 1/2 of 1% of such securities together own
beneficially more than 5% of such securities;
(5) purchase any securities or evidences of interest therein on margin,
except that a Series may obtain such short-term credit as may be necessary
for the clearance of any transaction and except that a series may make
margin deposits in connection with any type of option, any type of futures
contract, any type of swap agreement and Forward Contracts;
(6) sell any security which the series does not own unless by virtue of
its ownership of other securities the series 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;
(7) invest more than 5% of its gross assets in companies which, including
predecessors, controlling persons, sponsoring entities, general partners
and guarantors, have a record of less than three years' continuous
operation or relevant business experience;
(8) pledge, mortgage or hypothecate in excess of 33 1/3% of its gross
assets. For purposes of this restriction, collateral arrangements with
respect to any type of option, any type of futures contracts, any type of
swap agreement, Forward Contracts and payments of initial and variation
margin in connection therewith are not considered a pledge of assets;
(9) purchase or sell any put or call option or any combination thereof,
provided that this shall not prevent (a) the purchase, ownership, holding
or sale of (i) warrants where the grantor of the warrants is the issuer of
the underlying securities or (ii) put or call options or combinations
thereof with respect to securities, indexes of securities, foreign
currency, any type of swap agreement or any type of futures contracts or
(b) the purchase, ownership, holding or sale of contracts for the future
delivery of securities or currencies;
(10) invest for the purpose of exercising control or management.
2. MANAGEMENT OF THE SERIES FUND
Massachusetts Financial Services Company ("MFS" or the "Adviser") manages
the assets of each of the MFS/Foreign & Colonial Series pursuant to separate
Investment Advisory Agreements, each dated as of September , 1995. These
Advisory Agreements will remain in effect until , and will continue
in effect thereafter only if such continuance is specifically approved at
least annually by the Series Fund's Board of Trustees or by the vote of a
majority of the outstanding voting securities of each series and, in either
case, by a majority of the Trustees who are not parties to the Advisory
Agreements or interested persons of any such party. The Advisory Agreements
terminate automatically if assigned and, since they are severable with respect
to each series, may be terminated with respect to any series without penalty
by vote of a majority of the outstanding voting securities of that series or
by either party on not more than 60 days' nor less than 30 days' written
7
<PAGE>
notice. The Advisory Agreements provide that MFS may render services to others
and that neither MFS nor its personnel shall be liable for any error of
judgment or mistake of law or for any loss arising out of any investment or
for any act or omission in the execution and management of the Series Fund,
except for wilful misfeasance, bad faith or gross negligence in the
performance of its duties or by reason of reckless disregard of its
obligations and duties under the Advisory Agreements.
Please refer to the Statement of Additional Information for information
about the Adviser, services provided by the Adviser to the Series Fund,
expenses of the Series Fund, and the Series Fund's Shareholder Servicing
Agent.
Foreign & Colonial Management Ltd. ("FCM") serves as each series' sub-aviser
pursuant to separate Sub-Advisory Agreements, each dated , 1995, between
the Adviser and FCM (the "FCM Sub-Advisory Agreements"). Foreign & Colonial
Emerging Markets Limited ("FCEM") serves as each series' sub-adviser pursuant
to separate Sub-Advisory Agreements, each dated , 1995, between FCM and
FCEM (the "FCEM Sub-Advisory Agreements"). Each Sub-Advisory Agreement will
remain in effect until , and will continue in effect thereafter only if
such continuance is specifically approved at least annually by the Series
Fund's Board of Trustees or by the vote of a majority of the relevant series'
outstanding voting securities, and, in either case, by a majority of the
Trustees who are not parties to the Sub-Advisory Agreement or interested
persons of any such party. Each FCM Sub-Advisory Agreement terminates
automatically if it is assigned or if the Advisory Agreement has terminated
for any reason, and may be terminated without penalty by the Trustees, by vote
of a majority of the relevant series' outstanding voting securities, by the
Adviser on not less than 30 days' nor more than 60 days' written notice or by
FCM on not less than 60 days' nor more than 90 days' written notice. Each FCEM
Sub-Advisory Agreement terminates automatically if it is assigned or in the
event that the FCM Sub-Advisory Agreement or the Advisory Agreement shall have
terminated for any reason, and may be terminated without penalty by the
Trustees, by vote of a majority of the relevant series' outstanding voting
securities, by the Adviser or by FCM on not less than 30 days' nor more than
60 days' written notice or by FCEM on not less than 60 days' nor more than 90
days' written notice.
Each FCM Sub-Advisory Agreement provides that if FCM ceases to serve as the
sub-adviser to the series, the series will change its name so as to delete the
words "Foreign & Colonial" and that FCM may render services to others and may
permit other fund clients to use the words "Foreign & Colonial" in their
names. Each Sub-Advisory Agreement specifically provides that neither FCM or
FCEM, as the case may be, 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 relevant
series, except for wilful 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 Sub-Advisory Agreement.
TRUSTEE COMPENSATION TABLE
<TABLE>
<CAPTION>
TRUSTEE FEE
FROM
TRUSTEE SERIES FUND*
------- ------------
<S> <C>
Samuel Adams.............................. $3,000
Geoffrey Crofts........................... 3,300
David D. Horn............................. 0**
John D. McNeil............................ 0**
Garth Marston............................. 3,000
Derwyn F. Phillips........................ 3,300
</TABLE>
--------
* For the year ended December 31, 1994.
** Messrs. Horn and McNeil are affiliated with MFS and receive no compensation
from the Series Fund.
8
<PAGE>
3. CUSTODIAN
State Street Bank and Trust Company (the "Custodian") is the custodian of
each series' assets. The Custodian's responsibilities include safekeeping and
controlling each series' cash and securities, handling the receipt and
delivery of securities, determining income and collecting interest and
dividends on each series' 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 the shares of each series. The
Custodian does not determine the investment policies of each series or decide
which securities each series will buy or sell. Each series may, however,
invest in securities of the Custodian and may deal with the Custodian as
principal in securities transactions. The Trustees have reviewed and approved
as in the best interests of each series and the shareholders subcustodial
arrangements with State Street Bank and Trust Company for securities for each
series held outside the United States. 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.
4. ADDITIONAL INFORMATION WITH RESPECT TO THE SERIES FUND
AND SHARES OF EACH SERIES
The Statement of Additional Information contains general information about
the series and the Series Fund, including information concerning independent
accountants and financial statements, purchases of shares, exchange
privileges, net asset value, dividends and distributions, tax status,
redemptions, description of shares, voting rights and liabilities, and
portfolio transactions and brokerage commissions. With respect to information
in the Statement of Additional Information under the headings "Additional
Information with Respect to Shares of Each Series--Net Asset Value, Dividends
and Distributions" and "Portfolio Transactions and Brokerage Commission,"
information applicable to the MFS/Foreign & Colonial Series is that set forth
for all previously existing series other than the Money Market Series.
9
<PAGE>
MFS/SUN LIFE SERIES TRUST
STATEMENT OF ADDITIONAL INFORMATION MAY 1, 1995
--------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------------------------------------------------------------------------------
<S> <C>
1. Definitions 2
--------------------------------------------------------------------------------
2. Investment Objectives, Policies and Restrictions 2
--------------------------------------------------------------------------------
3. Management of the Series Fund 12
Trustees and Officers 12
Investment Adviser 13
Custodian 17
Shareholder Servicing Agent 17
--------------------------------------------------------------------------------
4. Independent Accountants and Financial Statements 17
--------------------------------------------------------------------------------
5. Additional Information with Respect to Shares of Each Series 17
Purchases 17
Exchange Privilege 18
Net Asset Value, Dividends and Distributions 18
Tax Status 20
Description of Shares, Voting Rights and Liabilities 20
--------------------------------------------------------------------------------
6. Portfolio Transactions and Brokerage Commissions 21
--------------------------------------------------------------------------------
</TABLE>
This Statement of Additional Information sets forth information which may be of
interest to investors but which is not necessarily included in the Series
Fund's Prospectus dated May 1, 1995. This Statement of Additional Information
should be read in conjunction with the Prospectus, a copy of which may be
obtained without charge by contacting the Sun Life Annuity Service Center, P.O.
Box 1024, Boston, Massachusetts 02103, telephone (800) 752-7215.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS AUTHORIZED
FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY AN
EFFECTIVE PROSPECTUS.
<PAGE>
1. DEFINITIONS
"Series Fund"-- MFS/Sun Life Series Trust, a Massachusetts business trust. The
Series Fund changed its name from "Compass Series Trust" in
January, 1985. The shares of each series will be used to fund
benefits under variable annuity contracts and variable life
insurance contracts.
"Sun Life of Canada (U.S.)"-- Sun Life Assurance Company of Canada (U.S.), a
Delaware corporation.
"Sun Life (N.Y.)"-- Sun Life Insurance and Annuity Company of New York, a New
York corporation.
"Contracts"-- Variable annuity and variable life insurance contracts issued by
Sun Life of Canada (U.S.), Sun Life (N.Y.) or any of their
affiliated companies.
"Variable Accounts"-- Variable accounts established by Sun Life of Canada
(U.S.), Sun Life (N.Y.) and their affiliated companies to
fund Contracts.
"MFS" or the "Adviser"-- Massachusetts Financial Services Company, a Delaware
corporation.
"Prospectus"-- The Prospectus, dated May 1, 1995, of the Series Fund.
2. INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and policies of the fifteen series of the Series
Fund are described in the Prospectus. More information about some of the
series' investment techniques can be found in the Appendix to this Statement of
Additional Information. There can be no assurance that the investment
objectives of any series will be achieved. Shareholder approval is not required
to change the investment objectives of any series or the manner in which each
series seeks to achieve its objectives.
INVESTMENT RESTRICTIONS
The Series Fund has adopted the following policies which apply to the various
series and, except where specifically indicated, cannot be changed with respect
to any series without the approval of the holders of a majority of the shares
of that series (which, as used in this Statement of Additional Information,
means the lesser of (i) 67% or more of the outstanding shares present at a
meeting at which holders of more than 50% of the outstanding shares are
represented in person or by proxy, or (ii) more than 50% of the outstanding
shares):
(1) INVESTMENT RESTRICTIONS THAT APPLY TO THE CAPITAL APPRECIATION SERIES,
CONSERVATIVE GROWTH SERIES, GOVERNMENT SECURITIES SERIES, HIGH YIELD SERIES,
MANAGED SECTORS SERIES, MONEY MARKET SERIES, TOTAL RETURN SERIES, WORLD
GOVERNMENTS SERIES AND ZERO COUPON SERIES.
None of these series may, except as indicated:
(1) Enter into repurchase agreements if, as a result of such agreement,
more than 10% of the series' total assets valued at the time of the
transaction would be subject to repurchase agreements maturing in more than
seven days.
2
<PAGE>
(2) Lend money or securities, provided that the making of time or demand
deposits with banks and the purchase of debt securities such as bonds,
debentures, commercial paper, repurchase agreements and short-term
obligations in accordance with its investment objectives and policies are
not prohibited; and provided that the Conservative Growth Series, Total
Return Series, World Governments Series and Managed Sectors Series may
purchase a portion of an issue of debt securities of types commonly
distributed privately to financial institutions, and provided that this
shall not prohibit the World Governments Series, Total Return Series or
Conservative Growth Series from lending securities in accordance with their
investment objectives or the Managed Sectors Series from purchasing
convertible debt instruments consistent with its investment objectives. For
the purposes of this restriction, the purchase of short-term commercial
paper or a portion of an issue of debt securities which are part of an
issue to the public shall not be considered the making of a loan.
(3) Borrow money except as a temporary measure for extraordinary or
emergency purposes and then only in an amount up to 1/3 of the value of its
total assets, in order to meet redemption requests without immediately
selling any portfolio securities (any such borrowings under this section
will not be collateralized). If, for any reason, the current value of the
total assets of any series falls below an amount equal to three times the
amount of its indebtedness for money borrowed, that series will, within
three business days, reduce its indebtedness to the extent necessary. No
series will borrow for leverage purposes. No series will purchase any
investments while borrowings are outstanding. For this purpose a borrowing
shall not be deemed the issuance of a senior security.
(4) Write, purchase or sell puts, calls or combinations thereof, provided
however that warrants and convertible securities may be purchased and sold
by a series, and provided further that this shall not prevent the Capital
Appreciation Series, the Government Securities Series, the World
Governments Series or the Managed Sectors Series from writing, purchasing
and selling puts, calls or combinations thereof or from purchasing, owning,
holding or selling contracts for the future delivery of securities or
currencies in accordance with their objectives and policies.
(5) Purchase or retain the securities of any issuer if any of the members
of the Board of Trustees or the Directors and Officers of Sun Life of
Canada (U.S.), Sun Life (N.Y.) or MFS own beneficially more than 1/2 of 1%
of the securities of such issuer and together own more than 5% of the
securities of such issuer.
(6) Invest for the purpose of exercising control or management of another
issuer.
(7) Invest in oil, gas or other mineral exploration or development
programs.
(8) Purchase securities of other investment companies, except that the
Government Securities Series may purchase U.S. Government-related
Securities in accordance with its investment objectives and policies; and
except, as regards the Total Return Series, the World Governments Series
and the Managed Sectors Series, by purchase in the open market where no
commission or profit to a sponsor or dealer results from such purchase
other than the customary broker's commission, or except when such purchase,
though not made in the open market, is part of a plan of merger or
consolidation; and provided, however that the Managed Sectors Series shall
not purchase the securities of any investment company if such purchase at
the time thereof would cause more than 10% of the series' total assets
(taken at market value) to be invested in the securities of such issuers;
and provided, further, that these series shall not purchase securities
issued by any registered open-end investment company.
3
<PAGE>
(9) Underwrite securities issued by others except to the extent the
series may be deemed to be an underwriter, under the federal securities
laws, in connection with the disposition of portfolio securities.
(10) Make short sales of securities or purchase any securities on margin
except to obtain such short term credits as may be necessary for the
clearance of transactions; provided that this shall not prevent the Capital
Appreciation Series, Government Securities Series, World Governments Series
or Managed Sectors Series from making margin deposits in connection with
options, Futures Contracts, Options on Futures Contracts, Forward Contracts
or options on foreign currencies; and provided that this shall not prevent
the Total Return Series, Managed Sectors Series or Conservative Growth
Series from making any short sales of securities or selling a security
which it does not own if, by virtue of its ownership of other securities,
the series 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.
(11) Invest in commodities or commodity futures contracts or in real
estate; except that this restriction shall not prevent the Capital
Appreciation Series, Government Securities Series, World Governments Series
or Managed Sectors Series from writing, selling or purchasing Futures
Contracts, Options on Futures Contracts, Forward Contracts or options on
foreign currencies or from holding or selling real estate or mineral
leases, commodities or commodity contracts acquired as a result of the
ownership of securities in accordance with their investment objectives and
policies and provided that this restriction shall not apply to the
Conservative Growth Series;
(2) INVESTMENT RESTRICTIONS THAT APPLY ONLY TO THE CAPITAL APPRECIATION SERIES
The Capital Appreciation Series will operate under the general investment
restrictions described above. In addition, the Capital Appreciation Series will
not:
(1) Purchase securities of any issuer (other than obligations of, or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
as a result of such purchase, more than 5% of the value of its assets would
be invested in the securities of that issuer.
(2) Purchase more than 10% of any class of securities of any issuer. All
debt securities and all preferred stocks shall each be considered one
class.
(3) Concentrate more than 25% of the value of its assets in any one
industry. Water, communications, electric, and gas utilities shall each be
considered a separate industry.
(4) Invest more than 10% of its total assets in securities of issuers
which are not readily marketable (including repurchase agreements maturing
in more than seven days).
(3) INVESTMENT RESTRICTIONS THAT APPLY ONLY TO THE CONSERVATIVE GROWTH SERIES
The Conservative Growth Series will operate under the general investment
restrictions described above. In addition, the Conservative Growth Series will
not:
(1) Pledge, mortgage or hypothecate an amount of assets which (taken at
market value) exceeds 15% of its gross assets (taken at the lower of cost
or market value).
(2) Concentrate more than 25% of the value of its assets in any one
industry.
4
<PAGE>
(3) Purchase securities of any issuer (other than obligations of or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
as a result of such purchase, more than 5% of the value of its assets would
be invested in the securities of that issuer.
(4) Purchase voting securities of any issuer if such purchase, at the
time thereof, would cause more than 10% of the outstanding voting
securities of such issuer to be held by the Conservative Growth Series; or
purchase securities of any issuer if such purchase at the time thereof
would cause the Conservative Growth Series to hold more than 10% of any
class of securities of such issuer. For this purpose all indebtedness of an
issuer shall be deemed a single class and all preferred stock of an issuer
shall be deemed a single class.
(5) Invest more than 10% of its total assets, taken at market value, in
securities of issuers which are not readily marketable (including
repurchase agreements maturing in more than seven days).
(6) Purchase or sell real estate (including limited partnership interests
but excluding securities of companies, such as real estate investment
trusts, which deal in real estate or interests therein) or mineral leases,
commodities or commodity contracts in the ordinary course of its business.
The Conservative Growth Series reserves the freedom of action to hold and
to sell real estate or mineral leases, commodities or commodity contracts
acquired as a result of the ownership of securities, but will not purchase
securities for the purpose of acquiring real estate or mineral leases,
commodities or commodity contracts.
(4) INVESTMENT RESTRICTIONS THAT APPLY ONLY TO THE GOVERNMENT SECURITIES SERIES
The Government Securities Series will operate under the general investment
restrictions described above. In addition, the Government Securities Series
will not:
(1) Purchase securities of any issuer (other than obligations of or
guaranteed by the U.S. Government, its agencies or instrumentalities that
are backed by the full faith and credit of the United States Government)
if, as a result of such purchase, more than 10% of the value of its assets
would be invested in securities of that issuer (for this purpose,
investments in certificates representing individual interests in pools of
U.S. Treasury securities will be treated as direct investments in U.S.
Treasury obligations).
(2) Purchase more than 10% of any class of securities of any issuer (for
this purpose all indebtedness of an issuer shall be deemed a single class).
(3) Purchase equity securities or voting securities.
(4) Purchase interests in pools of mortgages evidenced by direct pass
through mortgage certificates if, as a result of such purchase, more than
90% of the value of its assets would be evidenced by direct pass through
mortgage certificates.
(5) Invest in securities of issuers which are not readily marketable
(except for repurchase agreements maturing in more than seven days).
(5) INVESTMENT RESTRICTIONS THAT APPLY ONLY TO THE HIGH YIELD SERIES
The High Yield Series will operate under the general investment restrictions
described above. In addition, the High Yield Series will not:
(1) Purchase securities of any issuer (other than obligations of or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
as a result of such purchase, more than 10% of the value of its assets
would be invested in the securities of that issuer.
5
<PAGE>
(2) Concentrate more than 25% of the value of its assets in any one
industry. Water, communications, electric, and gas utilities shall each be
considered a separate industry.
(3) Invest more than 10% of its total assets, taken at market value, in
securities of issuers which are not readily marketable (including
repurchase agreements maturing in more than seven days).
(6) INVESTMENT RESTRICTIONS THAT APPLY ONLY TO THE MANAGED SECTORS SERIES:
The Managed Sectors Series will operate under the general investment
restrictions described above. In addition, the Managed Sectors Series will not:
(1) Purchase the securities of any issuer (other than obligations of, or
guaranteed by the United States government, its agencies or
instrumentalities) if, as to 50% of the series' total assets, such
purchase, at the time thereof, would cause more than 5% of its total
assets, taken at market value, to be invested in the securities of such
issuer.
(2) Purchase voting securities of any issuer if, as to 50% of the value
of the series' assets, such purchase, at the time thereof, would cause more
than 10% of the outstanding voting securities of such issuer to be held by
the series.
(3) Invest more than 10% of its total assets, taken at market value, in
securities of issuers which are not readily marketable (including
repurchase agreements maturing in more than seven days).
The Managed Sectors Series has also adopted the following nonfundamental
investment policy, which may be changed by the series without approval of its
shareholders. The series' purchase of warrants will not exceed 5% of its
assets. Included within that amount, but not exceeding 2% of assets, may be
warrants for which there is no public market. Any such warrants will be valued
at their market value, except that warrants which are attached to securities at
the time such securities are acquired by the Managed Sectors Series will be
deemed to be without value for the purpose of this restriction.
(7) INVESTMENT RESTRICTIONS THAT APPLY ONLY TO THE MONEY MARKET SERIES
The Money Market Series will operate under the general investment
restrictions described above. In addition, the Money Market Series will not:
(1) Purchase securities of any issuer (other than obligations of or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
as a result of such purchase, more than 5% of the value of its assets would
be invested in securities of that issuer.
(2) Purchase more than 10% of any class of securities of any issuer (for
this purpose all indebtedness of an issuer shall be deemed a single class).
(3) Concentrate more than 25% of the value of its assets in any one
industry, provided that this restriction shall not apply to obligations
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, or certificates of deposit or securities issued or
guaranteed by domestic banks.
(4) Purchase equity securities, voting securities or local or state
government securities.
(5) Invest in securities of issuers which are not readily marketable
(except for repurchase agreements maturing in more than seven days).
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(8) INVESTMENT RESTRICTIONS THAT APPLY ONLY TO THE TOTAL RETURN SERIES:
The Total Return Series will operate under the general investment
restrictions described above. In addition, the Total Return Series will not:
(1) Concentrate its investments in any particular industry, but if it is
deemed appropriate for the attainment of its investment objectives, up to
25% of its assets, taken at market value at the time of each investment,
may be invested in any one industry.
(2) Purchase the securities of any issuer (other than obligations of, or
guaranteed by the United States government, its agencies or
instrumentalities) if such purchase, at the time thereof, would cause more
than 5% of its total assets, taken at market value, to be invested in the
securities of such issuer.
(3) Purchase voting securities of any issuer if such purchase, at the
time thereof, would cause more than 10% of the outstanding voting
securities of such issuer to be held by the series, or purchase securities
of any issuer if such purchase at the time thereof, would cause the series
to hold more than 10% of any class of securities of such issuer. For this
purpose, all indebtedness of an issuer shall be deemed a single class and
all preferred stock of an issuer shall be deemed a single class.
(4) Invest more than 10% of its total assets, taken at market value, in
securities of issuers which are not readily marketable (including
repurchase agreements maturing in more than seven days).
(9) INVESTMENT RESTRICTIONS THAT APPLY ONLY TO THE WORLD GOVERNMENTS SERIES:
The World Governments Series will operate under the general investment
restrictions described above. In addition the World Governments Series will
not:
(1) Purchase the securities of any issuer (other than obligations of, or
guaranteed by the United States government, its agencies or
instrumentalities) if such purchase at the time thereof would cause more
than 10% of the voting securities of such issuer to be held by the series.
(2) Invest more than 10% of its total assets, taken at market value, in
securities of issuers which are not readily marketable (including
repurchase agreements maturing in more than seven days).
(10) INVESTMENT RESTRICTIONS THAT APPLY ONLY TO THE ZERO COUPON SERIES
The Zero Coupon Series will operate under the general investment restrictions
described above. In addition, the Zero Coupon Series will not:
(1) Purchase securities of any issuer (other than the U.S. Treasury) if,
as a result of such purchase, more than 10% of the value of its assets
would be invested in securities of that issuer (for this purpose,
investments in certificates representing individual interests in pools of
U.S. Treasury securities will be treated as direct investments in U.S.
Treasury obligations).
(2) Purchase more than 10% of any class of securities of any issuer (for
this purpose all indebtedness of an issuer shall be deemed a single class).
(3) Purchase equity securities, voting securities, securities of agencies
or instrumentalities of the United States Government which are not backed
by the full faith and credit of the United States Treasury.
(4) Invest in securities of issuers which are not readily marketable
(except for repurchase agreements maturing in more than seven days).
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PERCENTAGE RESTRICTIONS: With respect to the above restrictions (1) through
(10) applicable to all series except the Emerging Growth Series, Research
Series, World Asset Allocation Series, World Growth Series, World Total Return
Series and the Utilities Series, if a percentage restriction is adhered to at
the time of investment, a later increase or decrease in percentage beyond the
specified limit resulting from a change in values or assets will not be
considered a violation of policy.
(11) INVESTMENT RESTRICTIONS THAT APPLY ONLY TO THE UTILITIES SERIES
The Utilities Series will not:
(1) Borrow amounts in excess of 33 1/3% of its gross assets, and then
only as a temporary measure for extraordinary or emergency purposes, or
pledge, mortgage or hypothecate its assets (taken at market value) to an
extent greater than 33 1/3% of its gross assets, in each case taken at the
lower of cost or market value and subject to a 300% asset coverage
requirement (for the purpose of this restriction, collateral arrangements
with respect to options, Futures Contracts, Options on Futures Contracts,
Forward Contracts and Options on Foreign Currencies and payments of initial
and variation margin in connection therewith are not considered a pledge of
assets); while such borrowings exceed 5% of the series' gross assets, no
securities may be purchased; however, the series' may complete the purchase
of securities already contracted for;
(2) Underwrite securities issued by other persons except insofar as the
series may technically be deemed an underwriter under the Securities Act of
1933 in selling a portfolio security;
(3) Invest 25% or more of the market value of its total assets in
securities of issuers in any one industry (excluding obligations of the
U.S. Government and repurchase agreements collateralized by obligations of
the U.S. Government), except that the series will invest at least 25% of
its total assets in the utilities industry;
(4) Purchase or sell real estate (including limited partnership interests
but excluding securities secured by real estate or interests therein),
interests in oil, gas or mineral leases, commodities or commodity contracts
(except foreign currencies, Forward Contracts, Futures Contracts, options,
Options on Futures Contracts and Options on Foreign Currencies) in the
ordinary course of its business. The series reserves the freedom of action
to hold and to sell real estate and commodities acquired as a result of the
ownership of securities;
(5) Make loans to other persons except through the lending of its
portfolio securities and except through repurchase agreements. For these
purposes the purchase of commercial paper or all or a portion of an issue
of debt securities shall not be considered the making of a loan;
(6) Invest for the purpose of exercising control or management;
(7) Purchase any securities or evidences of interest therein on margin,
except that the series may obtain such short-term credit as may be
necessary for the clearance of any transactions and except that the series
may make margin deposits in connection with Futures Contracts, Options on
Futures Contracts, Forward Contracts, options and Options on Foreign
Currencies;
(8) Sell any security which the series does not own unless by virtue of
its ownership of other securities the series 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;
8
<PAGE>
(9) Invest in illiquid investments, including securities which are
subject to legal or contractual restrictions on resale, or for which there
is no readily available market (e.g., trading in the security is suspended
or, in the case of unlisted securities, market makers do not exist or will
not entertain bids or offers), unless the Board of Trustees of the Series
Fund has determined that such securities are liquid based upon trading
markets for the specific security, if more than 15% of the series' assets
(taken at market value) would be invested in such securities.
Except with respect to Investment Restriction (1), these investment
restrictions applicable to the Utilities Series 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.
OTHER INVESTMENT POLICIES THAT APPLY ONLY TO THE UTILITIES SERIES
The Utilities Series has also adopted the following additional nonfundamental
investment policies that may be required by various laws and administrative
positions. These investment policies are not fundamental and may be changed by
the series without approval of its shareholders.
(a) Repurchase agreements maturing in more than seven days will be deemed to
be illiquid for purposes of the series' limitation on investment in illiquid
securities; (b) during the coming year, (i) less than 5% of the series' assets
will be used to engage in short sales permitted by Investment Restriction (8)
above and (ii) purchases of warrants will not exceed 5% of the series' net
assets (included within that amount, but not exceeding 2% of the series' net
assets, may be warrants not listed on the New York or American Stock Exchange);
(c) the series will not invest more than 5% of its total assets in companies
which, including their respective predecessors, have a record of less than
three years' continuous operation; (d) the series will not purchase or retain
in its portfolio any securities issued by an issuer any of whose officers,
directors, trustees or security holders is an officer or Trustee of the Series
Fund, or is a partner, officer or a director of the Adviser, if after the
purchase of the securities of such issuer by the series one or more of such
persons owns beneficially more than 1/2 of 1% of the shares or securities, or
both, of such issuer, and such persons owning more than 1/2 of 1% of such
shares or securities together own beneficially more than 5% of such shares or
securities, or both; (e) the series will not write, purchase or sell any put or
call option or any combination thereof, provided that this shall not prevent
the series from writing, purchasing and selling puts, calls or combinations
thereof with respect to securities (including yields on securities), indexes of
securities, foreign currencies and futures contracts; (f) the series may not
purchase voting securities of any issuer if such purchase, at the time thereof,
would cause more than 10% of the outstanding voting securities of such issuer
to be held by the series (for this purpose, all indebtedness of an issuer shall
be deemed a single class and all preferred stock of an issuer shall be deemed a
single class); (g) the series will not purchase securities issued by any
closed-end investment company except by purchase in the open market where no
commission or profit to a sponsor or dealer results from such purchase other
than the customary broker's commission, or except when such purchase, though
not made in the open market, is part of a plan of merger or consolidation;
provided, however, that the series shall not purchase such securities if such
purchase at the time thereof would cause more than 10% of its total assets
(taken at market value) to be invested in the securities of such issuers, or
more than 3% of the total outstanding voting securities of any closed-end
investment company to be held by the series. The series shall not purchase
securities issued by any open-end investment company; (h) the series will only
borrow amounts from banks and then only as permitted by Investment Restriction
(1); and (i) the Board of Trustees of the Series Fund will determine a security
is liquid based upon trading markets for the specific security as stated in
Investment Restriction (9) only if the security is a Rule 144A restricted
security.
9
<PAGE>
(12) INVESTMENT RESTRICTIONS THAT APPLY ONLY TO THE EMERGING GROWTH SERIES,
RESEARCH SERIES, WORLD ASSET ALLOCATION SERIES, WORLD GROWTH SERIES AND WORLD
TOTAL RETURN SERIES (see (13) below for two additional restrictions applicable
only to the Emerging Growth Series and Research Series)
None of these series may, except as indicated:
(1) borrow amounts in excess of 33 1/3% of its assets including amounts
borrowed, and then only as a temporary measure for extraordinary or
emergency purposes;
(2) underwrite securities issued by other persons except insofar as a
series may technically be deemed an underwriter under the Securities Act of
1933 in selling a portfolio security;
(3) purchase or sell real estate (including limited partnership interests
but excluding securities secured by real estate or interests therein and
securities of companies, such as real estate investment trusts, which deal
in real estate or interests therein), interests in oil, gas or mineral
leases, commodities or commodity contracts (excluding currencies, any type
of option, any type of futures contract, and Forward Contracts) in the
ordinary course of its business. The series reserve the freedom of action
to hold and to sell real estate, mineral leases, commodities or commodity
contracts (including currencies, any type of option, any type of futures
contract, and Forward Contracts) acquired as a result of the ownership of
securities;
(4) issue any senior securities except as permitted by the 1940 Act. (For
purposes of this restriction, collateral arrangements with respect to any
type of option, any type of swap agreement, Forward Contracts and any type
of futures contract and collateral arrangements with respect to initial and
variation margin are not deemed to be the issuance of a senior security);
(5) make loans to other persons. For these purposes the purchase of
short-term commercial paper, the purchase of a portion or all of an issue
of debt securities, the purchase of loan participations and other direct
indebtedness in accordance with its investment objectives, the lending of
portfolio securities, and the investment of a series' assets in repurchase
agreements shall not be considered the making of a loan; or
(6) purchase any securities of an issuer of a particular industry, if as
a result 25% or more of its gross assets would be invested in securities of
issuers whose principal business activities are in the same industry
(except for obligations issued or guaranteed by the U.S. Government or its
agencies, authorities or instrumentalities and repurchase agreements
collateralized by such obligations).
Except with respect to Investment Restriction (1), these investment
restrictions and the investment restrictions below 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;
OTHER INVESTMENT POLICIES THAT APPLY TO THE EMERGING GROWTH SERIES, RESEARCH
SERIES, WORLD ASSET ALLOCATION SERIES, WORLD GROWTH SERIES AND WORLD TOTAL
RETURN SERIES
The Emerging Growth Series, Research Series, World Asset Allocation Series,
World Growth Series and World Total Return Series have the following additional
nonfundamental policies which may be changed without shareholder approval. Each
of these Series will not:
(1) invest in illiquid investments, including securities subject to legal
or contractual restrictions on resale or for which there is no readily
available market (e.g., trading in the security is suspended, or, in the
case of unlisted securities, where no market exists) if more than 15% of
the series' net assets (taken at market value) would be invested in such
securities. Repurchase agreements
10
<PAGE>
maturing in more than seven days will be deemed to be illiquid for purposes
of this limitation. Securities that are not registered under the 1933 Act
and sold in reliance on Rule 144A thereunder, but are determined to be
liquid by the Series Fund's Board of Trustees (or its delegee), will not be
subject to this 15% limitation;
(2) invest more than 5% of the value of the series' net assets, valued at
the lower of cost or market, in warrants. Included within such amount, but
not to exceed 2% of the value of the series' net assets, may be warrants
which are not listed on the New York or American Stock Exchange. Warrants
acquired by a series in units or attached to securities may be deemed to be
without value;
(3) purchase securities issued by any other investment company in excess
of the amount permitted by the 1940 Act, except when such purchase is part
of a plan of merger or consolidation;
(4) purchase or retain securities of an issuer any of whose officers,
directors, trustees or security holders is an officer or trustee of the
Series Fund, or is an officer or a director of the Adviser, or any Sub-
Adviser to the series, if one or more of such persons also owns
beneficially more than 1/2 of 1% of the securities of such issuer, and such
persons owning more than 1/2 of 1% of such securities together own
beneficially more than 5% of such securities;
(5) purchase any securities or evidences of interest therein on margin,
except that a Series may obtain such short-term credit as may be necessary
for the clearance of any transaction and except that a series may make
margin deposits in connection with any type of option, any type of futures
contract, any type of swap agreement and Forward Contracts entered into in
accordance with its investment objectives and policies;
(6) sell any security which the series does not own unless by virtue of
its ownership of other securities the series 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;
(7) invest more than 5% of its gross assets in companies which, including
predecessors, controlling persons, sponsoring entities, general partners
and guarantors, have a record of less than three years' continuous
operation or relevant business experience;
(8) pledge, mortgage or hypothecate in excess of 33 1/3% of its gross
assets. For purposes of this restriction, collateral arrangements with
respect to any type of option, any type of futures contracts, any type of
swap agreement, Forward Contracts and payments of initial and variation
margin in connection therewith, in each case in accordance with the Series'
investment objectives and policies, are not considered a pledge of assets;
(9) purchase or sell any put or call option or any combination thereof,
provided that this shall not prevent (a) the purchase, ownership, holding
or sale of (i) warrants where the grantor of the warrants is the issuer of
the underlying securities or (ii) put or call options or combinations
thereof with respect to securities, indexes of securities, foreign
currency, any type of swap agreement or any type of futures contracts or
(b) the purchase, ownership, holding or sale of contracts for the future
delivery of securities or currencies, in each case in accordance with the
series' investment objectives and policies;
(10) purchase securities while borrowings pursuant to fundamental
investment restriction (1) exceed 5% of the series' total assets; however,
a series may complete the purchase of securities already contracted for; or
(11) invest for the purpose of exercising control or management.
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<PAGE>
(13) INVESTMENT RESTRICTIONS THAT APPLY ONLY TO THE EMERGING GROWTH SERIES AND
THE RESEARCH SERIES.
Neither the Emerging Growth Series nor the Research Series may:
(1) purchase the securities of any issuer if such purchase, at the time
thereof, would cause more than 5% of its total assets (taken at market
value) to be invested in the securities of such issuer, other than U.S.
Government securities;
(2) purchase voting securities of any issuer if such purchase, at the
time thereof, would cause more than 10% of the outstanding voting
securities of such issuer to be held by the series; or purchase securities
of any issuer if such purchase at the time thereof would cause the series
to hold more than 10% of any class of securities of such issuer. For this
purpose all indebtedness of an issuer shall be deemed a single class and
all preferred stock of an issuer shall be deemed a single class.
----------------
INSURANCE LAW RESTRICTIONS: In connection with the Series Fund's agreement
to sell shares to the Variable Accounts, MFS and Sun Life of Canada (U.S.),
Sun Life (N.Y.) or any of their affiliated companies may enter into
agreements, required by certain state insurance departments, under which MFS
may agree to use its best efforts to ensure that the Series Fund complies with
the investment restrictions and limitations prescribed by state insurance
laws, and the regulations promulgated thereunder, insofar as such investment
restrictions and limitations are applicable to the investment of assets of the
Variable Accounts in shares of the Series Fund, and to permit Sun Life of
Canada (U.S.), Sun Life (N.Y.) or any of their affiliated companies to monitor
investments made by the Series Fund to ensure compliance with those
restrictions and limitations. If the Series Fund fails to comply with such
restrictions or limitations, the Variable Accounts will take appropriate
action which might include ceasing to make investments in the Series Fund or
ceasing to issue Contracts in the state imposing the limitation. It is not
expected that such restrictions and limitations will have a significant impact
on the operations of the Series Fund.
3. MANAGEMENT OF THE SERIES FUND
The Series Fund's Board of Trustees provides broad supervision over the
affairs of the Series Fund. MFS is responsible for the investment management
of each series, and the officers of the Series Fund are responsible for the
Series Fund's 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
SAMUEL ADAMS GARTH MARSTON
Partner, Warner & Stackpole, Chairman-Retired, Provident Institution
(Attorneys). for Savings,
Address: 75 State Street, Address: 90 Beacon Street, Boston,
Boston, Massachusetts Massachusetts
JOHN D. McNEIL*, Chairman DAVID D. HORN*
Chairman and Director, Sun Life Senior Vice President and General Manager,
Assurance Company of Canada, Sun Life Assurance Company of Canada,
Address: 150 King Street West, Address: One Sun Life Executive Park,
Toronto, Ontario, Canada Wellesley Hills, Massachusetts
GEOFFREY CROFTS DERWYN F. PHILLIPS
Professor Emeritus, University Vice Chairman-Retired, The Gillette
of Hartford, Company,
Address: 74 Scott Drive, Address: One Cliff Street
Bloomfield, Connecticut Marblehead, Massachusetts
----------------
12
<PAGE>
OFFICERS
BONNIE S. ANGUS*, Secretary and
W. THOMAS LONDON*, Treasurer Clerk
Massachusetts Financial Services Sun Life Assurance Company of
Company, Senior Vice President Canada, Assistant Secretary for the
and Assistant Treasurer United States; Sun Life Assurance
Company of Canada (U.S.), and Sun
Life Insurance and Annuity Company
of New York, Secretary
JAMES O. YOST*, Assistant Treasurer
Massachusetts Financial Services
Company, Vice President
--------
* "Interested persons" (as defined in the Investment Company Act of 1940) of
MFS whose address is 500 Boylston Street, Boston, Massachusetts.
All of the Trustees are also Directors of Sun Growth Variable Annuity Fund,
Inc. and are Members of the Boards of Managers of 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, which were
established by Sun Life of Canada (U.S.) in connection with the sale of Compass
combination fixed/variable annuity contracts. Ms. Angus is also the Secretary
for this fund and these variable accounts, and Mr. London is Treasurer of the
fund. Mr. McNeil is a Director of Massachusetts Financial Services Company, the
Series Fund's investment adviser, President of Sun Growth Variable Annuity
Fund, Inc. and Chairman of the Boards of Managers of the aforementioned
variable accounts.
No Trustee or Officer owned shares of the Series Fund on the date of this
Statement of Additional Information.
The Series Fund's Declaration of Trust provides that the Series Fund will
indemnify its Trustees and Officers against liabilities and expenses incurred
in connection with litigation in which they may be involved because of their
offices with the Series Fund, unless it is finally adjudicated or, in case of a
settlement, it has been determined by fair and reasonable means, that they have
not acted in good faith in the reasonable belief that their actions were in the
best interests of the Series Fund. However, no indemnification will be paid to
any Trustee or Officer for any liability to the Series Fund or its shareholders
which arose by reason of his wilful misfeasance, bad faith, gross negligence or
reckless disregard of his duties.
INVESTMENT ADVISER
Massachusetts Financial Services Company, a Delaware corporation ("MFS"), is
the investment adviser of the Series Fund and in such capacity manages the
portfolio of each series. MFS also serves as investment adviser to the funds in
the MFS Family of Funds, and to certain other registered investment companies
established by MFS and/or Sun Life of Canada (U.S.). MFS Asset Management Group
provides investment advice to substantial private clients. For information
concerning the allocation by MFS of simultaneous securities transactions for
different clients, see "Portfolio Transactions and Brokerage Commissions".
MFS and its predecessor organizations have a history of money management
dating from 1924. MFS is a wholly owned subsidiary of Sun Life of Canada (U.S.)
which in turn is a wholly owned subsidiary of Sun Life Assurance Company of
Canada ("Sun Life"). The Prospectus contains information with respect to the
management of the Adviser and other investment companies for which MFS serves
as investment adviser.
13
<PAGE>
INVESTMENT ADVISORY AGREEMENTS--MFS manages the Money Market Series, the
Government Securities Series, the High Yield Series and the Capital
Appreciation Series pursuant to an Investment Advisory Agreement dated May 24,
1985, the Conservative Growth Series and the Zero Coupon Series pursuant to an
Investment Advisory Agreement dated July 23, 1986, the World Governments
Series, the Total Return Series and the Managed Sectors Series pursuant to an
Investment Advisory Agreement dated January 26, 1988, the World Growth Series
and the Utilities Series pursuant to Investment Advisory Agreements dated
November 1, 1993, the Research Series, World Asset Allocation Series and World
Total Return Series pursuant to Investment Advisory Agreements dated September
16, 1994 and the Emerging Growth Series pursuant to an Investment Advisory
Agreement dated May 1, 1995. MFS provides each series of the Series Fund with
overall investment advisory and administrative services, as well as general
office facilities. Subject to such policies as the Trustees may determine, MFS
makes investment decisions for each series of the Series Fund. For these
services and facilities, MFS receives a fee which is paid monthly at an annual
rate equal to the sum of (i) 0.50% of the average daily net assets of the Money
Market Series for the Series Fund's then-current fiscal year, (ii) 0.55% of the
average daily net assets of each of the Conservative Growth Series and the
Government Securities Series for the Series Fund's then-current fiscal year,
(iii) 0.75% of the average daily net assets of each of the High Yield Series
and the Capital Appreciation Series for the Series Fund's then current fiscal
year; (iv) 0.75% of the first $300 million of average daily net assets of each
of the Emerging Growth Series, the World Governments Series, the Total Return
Series, the Managed Sectors Series, the Utilities Series, the Research Series,
the World Asset Allocation Series and the World Total Return Series for the
Series Fund's then-current fiscal year and 0.675% of the assets of each of such
series in excess of $300 million; (v) 0.25% of the average daily net assets of
the Zero Coupon Series for the Series Fund's then-current fiscal year; and (vi)
0.90% of the average daily net assets of the World Growth Series for the Series
Fund's then current fiscal year. Effective January 1, 1995, the fee for the
Total Return Series was reduced to 0.60% of the average daily net assets of
such series in excess of $1 billion. The Adviser has voluntarily agreed to
reduce the management fee to 0% of the average daily net assets of each of the
Emerging Growth Series, Utilities Series, Research Series, World Asset
Allocation Series and World Total Return Series. The voluntary fee reduction
may be rescinded at any time without notice to shareholders as to fees accruing
after the date of such recision. The investment management fees paid by each
series in 1992 were as follows: Capital Appreciation Series, $1,553,688;
Conservative Growth Series, $154,219; Government Securities Series, $940,000;
High Yield Series, $367,751; Managed Sectors Series, $435,620; Money Market
Series, $698,057; Total Return Series, $2,274,548; World Governments Series,
$372,578; and Zero Coupon Series, $23,805. The investment management fees paid
by each series in 1993 were as follows: Capital Appreciation Series,
$2,460,124; Conservative Growth Series, $364,008; Government Securities Series,
$1,386,343; High Yield Series, $550,126; Managed Sectors Series, $670,185;
Money Market Series, $692,729; Total Return Series, $3,860,161; World
Governments Series, $744,147; and Zero Coupon Series, $23,082. MFS voluntarily
waived fees of $1,037 and $11,772, respectively, for the Utilities Series and
World Growth Series. The Utilities Series and the World Growth Series commenced
operations in November, 1993. The investment management fees paid by each
series in 1994 were as follows: Money Market Series, $1,090,506; Government
Securities Series, $1,872,095; High Yield Series, $745,658; Capital
Appreciation Series, $3,421,246; Conservative Growth Series, $699,509; World
Governments Series, $1,086,621; Total Return Series, $5,700,358; Managed
Sectors Series, $843,914; Zero Coupon Series, $21,500; and World Growth Series,
$111,479. MFS voluntarily waived the following fees: Research Series, $2,145;
Utilities Series, $109,624; World Asset Allocation Series, $1,577; World Total
Return Series, $773; and World Growth Series, $472,698. The Research Series,
World Asset Allocation Series
14
<PAGE>
and World Total Return Series commenced operations in November, 1994. The
Emerging Growth Series commenced operations in May, 1995.
The Series Fund pays the compensation of the four Trustees who are not
affiliated with MFS or Sun Life of Canada (U.S.) (who will each receive from
$1,500 to $3,300 annually, depending on attendance at meetings) and all
expenses (other than those assumed by MFS), including governmental fees,
interest charges, taxes, membership dues in the Investment Company Institute
allocable to the Series Fund, fees and expenses of independent auditors, of
legal counsel and of any transfer agent or registrar of the Series Fund,
expenses of repurchasing and redeeming shares, expenses of preparing, printing
and mailing 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
including currency conversion costs, insurance premiums, fees and expenses of
State Street Bank and Trust Company, the Series Fund's Custodian, for all
services to the Series Fund, including safekeeping of funds and securities and
maintaining required books and accounts, expenses of calculating the net asset
value of the shares of each series, and expenses of shareholder meetings.
Payment by the Series Fund of brokerage commissions for brokerage and research
services of value to MFS in serving its clients is discussed under the caption
"Portfolio Transactions and Brokerage Commissions" on page 21. Expenses of the
Series Fund which are not attributable to a specific series are allocated among
the series in a manner believed to be fair and equitable to each.
MFS furnishes at its own expense all necessary administrative services,
including office space, equipment, clerical personnel, investment advisory
facilities, and executive and supervisory personnel for managing the Series
Fund's investments, effecting the Series Fund's portfolio transactions and, in
general, administering the Series Fund's affairs. MFS has undertaken to
reimburse each series, except the Zero Coupon Series, for aggregate expenses,
excluding taxes, extraordinary expenses and brokerage costs, in excess of
certain percentages of the average daily net assets of such series for the
fiscal year, as described in the Prospectus under "4. Management of the Series
Fund." MFS has agreed that no Portfolio of the Zero Coupon Series shall be
charged fees and expenses aggregating more than 0.50% of the average daily net
assets of such Portfolio in any fiscal year. For the year ended December 31,
1992 MFS reimbursed the Zero Coupon Series $21,519. For the year ended
December 31, 1993, MFS reimbursed the Utilities Series $10,667 and the Zero
Coupon Series $15,704. For the year ended December 31, 1994, MFS reimbursed the
series as follows: Research Series, $3,543; World Asset Allocation Series,
$3,774; World Total Return Series, $4,827; and Zero Coupon Series, $3,224. No
other series received any reimbursement for 1992, 1993 or 1994.
The six Investment Advisory Agreements will remain in effect until November
1, 1995 and will continue in effect thereafter only if such continuance is
specifically approved at least annually by the Series Fund's Board of Trustees
or by the vote of a majority of the outstanding voting securities of each
series and, in either case, by a majority of the Trustees who are not parties
to the Advisory Agreements or interested persons of any such party. The
Advisory Agreements terminate automatically if assigned and, since they are
severable with respect to each series, may be terminated with respect to any
series without penalty by vote of a majority of the outstanding voting
securities of that series or by either party on not more than 60 days' nor less
than 30 days' written notice. The Advisory Agreements provide that MFS may
render services to others and that neither MFS nor its personnel shall be
liable for any error of judgment or mistake of law or for any loss arising out
of any investment or for any act or omission in
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the execution and management of the Series Fund, except for wilful misfeasance,
bad faith or gross negligence in the performance of its duties or by reason of
reckless disregard of its obligations and duties under the Advisory Agreements.
SUB-ADVISERS TO THE WORLD GROWTH SERIES
Oechsle International Advisors, L.P., a Delaware limited partnership, serves
as a Sub-Adviser to the World Growth Series pursuant to a Sub-Investment
Advisory Agreement dated November 1, 1993, between MFS and Oechsle (the
"Oechsle Sub-Advisory Agreement"). The Oechsle Sub-Advisory Agreement provides
that MFS may delegate to Oechsle the authority to make investment decisions for
the World Growth Series. It is presently intended that Oechsle will provide
portfolio management services for the assets of such series to be invested in
Western Europe, Japan, Australia and New Zealand. For these services, the
Adviser pays Oechsle an annual fee computed and paid monthly in an amount equal
to 0.15% of the World Growth Series' average daily net assets on an annualized
basis.
The Oechsle Sub-Advisory Agreement will remain in effect until November 1,
1995 and will continue in effect thereafter only if such continuance is
specifically approved at least annually by the Board of Trustees or by the vote
of a majority of the World Growth Series' outstanding shares, and, in either
case, by a majority of the Trustees who are not parties to the Oechsle Sub-
Advisory Agreement or interested persons of any such party. The Oechsle Sub-
Advisory Agreement terminates automatically if it is assigned and may be
terminated without penalty by the Trustees, by vote of a majority of the World
Growth Series' outstanding shares, by MFS or by Oechsle on not less than 30
days' nor more than 60 days' written notice.
The Oechsle Sub-Advisory Agreement also specifically provides that neither
the Sub-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 World Growth Series, 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 Oechsle Sub-Advisory Agreement.
Batterymarch Financial Management, Inc. a Maryland corporation, also serves
as a Sub-Adviser to the World Growth Series pursuant to a Sub-Investment
Advisory Agreement dated January 5, 1995, between MFS and Batterymarch (the
"Batterymarch Sub-Advisory Agreement"). The Batterymarch Sub-Advisory Agreement
provides that MFS may delegate to Batterymarch the authority to make investment
decisions for the World Growth Series. It is presently intended that
Batterymarch will provide portfolio management services for the assets of such
series to be invested in emerging markets. For these services, the Adviser pays
Batterymarch an annual fee computed and paid monthly in an amount equal to
1.00% on an annualized basis of the average daily net asset value of the World
Growth Series' assets managed by Batterymarch.
The Batterymarch Sub-Advisory Agreement will remain in effect until January
5, 1996 and will continue in effect thereafter only if such continuance is
specifically approved at least annually by the Board of Trustees or by the vote
of a majority of the World Growth Series' outstanding shares, and, in either
case, by a majority of the Trustees who are not parties to the Sub-Advisory
Agreement or interested persons of any such party. The Batterymarch Sub-
Advisory Agreement terminates automatically if it is assigned and may be
terminated without penalty by the Trustees, by vote of a majority of the World
Growth Series' outstanding shares, by MFS or by Batterymarch on not less than
30 days' nor more than 60 days' written notice.
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The Batterymarch Sub-Advisory Agreement also specifically provides that the
Sub-Adviser shall not 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 World Growth Series except for willful
misfeasance, bad faith or gross negligence in the performance of its duties or
by reason of reckless disregard of its obligations and duties under the
Batterymarch Sub-Advisory Agreement.
CUSTODIAN
State Street Bank and Trust Company (the "Custodian") is the custodian of the
Series Fund's assets. The Custodian's responsibilities include safekeeping and
controlling the Series Fund's cash and securities, handling the receipt and
delivery of securities, determining income and collecting interest and
dividends on the Series 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, public offering price and redemption
price of shares of the Series Fund. The Custodian does not determine the
investment policies of the Series Fund or decide which securities the Series
Fund will buy or sell. The Series Fund may, however, invest in securities of
the Custodian and may deal with the Custodian as principal in securities
transactions. Portfolio securities may be deposited into the Federal Reserve--
Treasury Department Book Entry System, the Depository Trust Company, or the
Mortgage Backed Securities Clearing Corporation.
SHAREHOLDER SERVICING AGENT
MFS Service Center, Inc. (the "Shareholder Servicing Agent"), a wholly owned
subsidiary of MFS, is the Series Fund's shareholder servicing agent, pursuant
to a Shareholder Servicing Agreement effective August 1, 1985 (the "Agency
Agreement") with the Series Fund. The Shareholder Servicing Agent's
responsibilities under the Agency Agreement include administering and
performing transfer agent functions and the keeping of records in connection
with the issuance, transfer and redemption of the shares of the Series Fund. In
addition, State Street Bank and Trust Company, the dividend and distribution
disbursing agent for the Series Fund, has contracted with the Shareholder
Servicing Agent to administer and perform certain dividend and distribution
disbursing functions for the Series Fund. For these services, the Shareholder
Servicing Agent will receive a fee based on the number of accounts in the
Series Fund, computed and paid monthly. In addition, the Shareholder Servicing
Agent will be reimbursed by the Series Fund for certain expenses incurred by
the Shareholder Servicing Agent on behalf of the Series Fund.
4. INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS
The financial statements incorporated in this Statement of Additional
Information by reference from the Series Fund's Annual Report to shareholders
for the year ended December 31, 1994 have been audited by Deloitte & Touche
llp, independent auditors, as stated in their report, which is incorporated
herein by reference, and have been so incorporated in reliance upon the report
of such firm given upon their authority as experts in accounting and auditing.
A copy of the Annual Report accompanies this Statement of Additional
Information.
5. ADDITIONAL INFORMATION WITH RESPECT TO SHARES OF EACH SERIES
PURCHASES
Sun Life of Canada (U.S.) and Sun Life (N.Y.) buy shares of each series for
their Variable Accounts without a sales charge at their net asset value through
the allocation of purchase payments made under
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Contracts issued by Sun Life of Canada (U.S.) and Sun Life (N.Y.) in accordance
with the allocation instructions received from owners of the Contracts.
EXCHANGE PRIVILEGE
Shares of any series of the Series Fund may be exchanged for shares of any
other series of the Series Fund (if shares of that series are available for
purchase) at net asset value so as to facilitate exchanges among Sub-Accounts
of the Variable Accounts, as described in the prospectuses for the Variable
Accounts.
NET ASSET VALUE, DIVIDENDS AND DISTRIBUTIONS
The Net Asset Value of each series is determined once daily as of the close
of regular trading on the New York Stock Exchange on each day the Exchange is
open for trading. As of the date of this Statement of Additional Information,
the Exchange is open for trading every weekday except for the following
holidays (or the days on which they are observed): New Year's Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day.
MONEY MARKET SERIES--All the Net Income, as defined below, of the Money
Market Series determined at the times stated above is declared as a dividend to
its shareholders at the time of such determination. (Shares purchased become
entitled to dividends declared as of the first day following the date of
investment.) Dividends are distributed on the last business day of each month.
If paid in the form of additonal shares, dividends are paid at the rate of one
share (and fraction thereof) for each one dollar (and fraction thereof) of
dividend income attributable to the Money Market Series.
For this purpose the Net Income of the Money Market Series (from the time of
the immediately preceding determination thereof) shall consist of (i) all
interest income accrued on the portfolio assets of the series, (ii) less all
actual and accrued expenses of the series determined in accordance with
generally accepted accounting principles, and (iii) plus or minus net realized
or net unrealized gains and losses on the assets of the series. Interest income
shall include discount earned (including both original issue and market
discount) on discount paper accrued ratably to the date of maturity. Securities
are valued at amortized cost, which the Trustees have determined in good faith
constitutes fair value for the purposes of complying with the Investment
Company Act of 1940. This valuation method will continue to be used until such
time as the Trustees determine that it does not constitute fair value for such
purposes.
Since the Net Income of the Money Market Series is declared as a dividend
each time the Net Income of that series is determined, the net asset value per
share of that series (i.e., the value of the net assets of that series divided
by the number of its shares outstanding) remains at $1.00 per share immediately
after each such determination and dividend declaration.
It is expected that the Money Market Series will have a positive Net Income
at the time of each determination thereof. If for any reason the Net Income
determined at any time is a negative amount, which could occur, for instance,
upon default by an issuer of a portfolio security, the Series Fund will first
offset the negative amount with respect to each shareholder account against the
dividends declared during the month with respect to each such account. If and
to the extent that such negative amount exceeds such declared dividends at the
end of the month, the Series Fund will reduce the number of outstanding shares
of the Money Market Series by treating each shareholder of that series as
having contributed to the capital of that series that number of full and
fractional shares in the account
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of such shareholder which represents his proportion of the negative amount.
Each shareholder of the Money Market Series will be deemed to have agreed to
such contribution in these circumstances by his investment in that series. This
procedure will permit the net asset value per share of the Money Market Series
to be maintained at a constant $1.00 per share. There can be no assurance that
the Money Market Series will be able to maintain a stable net asset value of
$1.00 per share other than by such offset of dividends or reduction in the
number of shares in a shareholder account.
CAPITAL APPRECIATION SERIES, CONSERVATIVE GROWTH SERIES, EMERGING GROWTH
SERIES, GOVERNMENT SECURITIES SERIES, HIGH YIELD SERIES, MANAGED SECTORS
SERIES, RESEARCH SERIES, TOTAL RETURN SERIES, UTILITIES SERIES, WORLD ASSET
ALLOCATION SERIES, WORLD GOVERNMENTS SERIES, WORLD GROWTH SERIES, WORLD TOTAL
RETURN SERIES AND ZERO COUPON SERIES--With respect to these series, the
determination of net asset value per share is made by deducting the liabilities
of each series from the value of its assets and dividing the difference by the
number of its shares outstanding. Equity securities in the portfolio of a
series are normally valued at the last sale price during regular hours on the
exchange on which they are primarily traded or on the NASDAQ system for
unlisted national market issues, or at the last quoted bid price for unlisted
securities or listed securities in which there were no sales during that day.
Debt securities of U.S. issuers (other than short-term obligations) in the
portfolio of any of these series are normally valued on the basis of valuations
provided by a pricing service since such prices are believed to reflect the
fair value of such securities. Prices provided by the pricing service may be
determined without exclusive reliance on quoted prices and may take into
account appropriate 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. Forward Contracts will be valued
using a pricing model taking into consideration market data from an external
pricing source. Use of the pricing services has been approved by the Board of
Trustees. Short-term obligations in the portfolios of any of these series
(i.e., obligations maturing in not more than sixty days) are valued at
amortized cost, which constitutes fair value as determined by the Board of
Trustees. Short-term obligations with a remaining maturity in excess of 60 days
will be valued upon dealer supplied valuations. All other securities, futures
contracts and options in the series' 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. 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.
All investments and assets are expressed in U.S. dollars based upon current
currency exchange rates.
Generally, trading in foreign securities is substantially completed each day
at various times prior to the close of regular trading on the exchange.
Occasionally, events affecting the values of such securities may occur between
the times at which they are determined and the close of regular trading on the
exchange which will not be reflected in the computation of the series' net
asset value unless the Trustees deem that such event would materially affect
the net asset value in which case an adjustment would be made.
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The Conservative Growth Series, High Yield Series, Government Securities
Series, World Governments Series, Total Return Series, Zero Coupon Series and
Utilities Series receive dividends, interest or other earnings from
substantially all of their investments. Substantially all of the net income of
these series and of the Capital Appreciation Series, Emerging Growth Series,
Managed Sectors Series, Research Series, World Asset Allocation Series, World
Growth Series and World Total Return Series is paid to their shareholders as a
dividend at least annually. Each series will also distribute its net profits
from the sale of securities, if any, on at least an annual basis.
DISTRIBUTIONS--The Variable Accounts can choose to receive distributions from
the Series Fund in either cash or additional shares. It is expected that the
Variable Accounts will choose to receive distributions in additional shares. If
the Variable Accounts choose to receive distributions in cash, they will
reinvest the cash in the Series Fund to purchase additional shares at their net
asset value.
TAX STATUS
Each series and each Portfolio of the Zero Coupon Series is treated as a
separate entity for federal income tax purposes. Each individual series or
portfolio of the Series Fund intends to qualify and elect to be treated as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986, as amended, and to distribute all of its net investment income and
realized capital gains to its shareholders, and should, therefore, pay no
federal income tax. Distributions by the Series Fund, to the extent applied to
increase reserves under the Contracts, are not taxable to Sun Life of Canada
(U.S.) or Sun Life (N.Y.).
DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional Shares of Beneficial Interest (without par value) and to
divide or combine the shares into a greater or lesser number of shares without
thereby changing the proportionate beneficial interests in the Series Fund. The
Series Fund presently has fifteen series of shares and has reserved the right
to create additional series of shares. Each share of a series (including each
Portfolio of the Zero Coupon Series) represents an equal proportionate interest
in that series with each other share of that series. Shares of each series
(including each Portfolio of the Zero Coupon Series) participate equally in the
earnings, dividends and assets of that series (or Portfolio). Shares when
issued are fully paid and non-assessable. Shares of each series (including the
Portfolios of the Zero Coupon Series in the aggregate) are entitled to vote
separately to approve investment advisory agreements or changes in investment
restrictions, but shares of all series would vote together in the election or
selection of Trustees and accountants. Upon liquidation of the Series Fund,
shareholders of each series (including each Portfolio of the Zero Coupon
Series) would be entitled to share pro rata in the net assets of their
respective series available for distribution to shareholders.
Shareholders are entitled to one vote for each share held and may vote in the
election of Trustees and on other matters submitted to meetings of
shareholders. Although Trustees are not elected annually by the shareholders,
shareholders have under certain circumstances the right to remove one or more
Trustees. No material amendment may be made to the Declaration of Trust without
the affirmative vote of a majority of the outstanding shares of the Series
Fund. For a discussion of the manner in which the Variable Account will vote
its shares, see the prospectuses for the Contracts. No shares of any series
have pre-emptive or conversion rights. The Series Fund may be terminated (i)
upon
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the sale of its assets to another open-end management investment company, if
approved by the vote of the holders of a majority (as defined in the Investment
Company Act of 1940) of the outstanding shares of the Series Fund, or (ii) upon
liquidation and distribution of the assets of the Series Fund, if approved by
the vote of the holders of a majority (as defined in the Investment Company Act
of 1940) of the outstanding shares of the Series Fund, or (iii) by the Trustees
by written notice to the shareholders of the Series Fund. If not so terminated,
the Series Fund will continue indefinitely.
The Series Fund is an entity of the type commonly known as a "Massachusetts
business trust". Under Massachusetts law, shareholders of any series of such a
trust may, under certain circumstances, be held personally liable as partners
for the obligations of the Series Fund. However, the Declaration of Trust
contains an express disclaimer of shareholder liability for acts or obligations
of the Series Fund and provides for indemnification and reimbursement of
expenses out of the Series Fund property for any shareholder held personally
liable for the obligations of the Series Fund. The Declaration of Trust also
provides that the Series Fund shall maintain appropriate insurance (for
example, fidelity bonding or errors and omissions insurance) for the protection
of the Series Fund, shareholders of each of its series, Trustees, officers,
employees and agents covering possible tort and other liabilities. Thus, the
risk of a shareholder incurring financial loss on account of shareholder
liability is limited to circumstances in which both inadequate insurance
existed and the Series Fund itself was unable to meet its obligations.
The Declaration of Trust further provides that obligations of the Series Fund
are not binding upon the Trustees individually but only upon the property of
the Series Fund and that the Trustees will not be liable for errors of judgment
or mistakes of fact or law, but nothing in the Declaration of Trust protects a
Trustee against any liability to which he would otherwise be subject by reason
of wilful misfeasance, bad faith, gross negligence, or reckless disregard of
the duties involved in the conduct of his office.
6. PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
Specific decisions to purchase or sell securities for each series or sub-
series of the Series Fund are made by a portfolio manager for that series or
sub-series each of whom is an employee of MFS appointed and supervised by its
senior officers or by persons affiliated with a Sub-Adviser. Any such person
may serve other clients of the Adviser or a Sub-Adviser or any subsidiary of
the Adviser or a Sub-Adviser in a similar capacity. Changes in the investments
of each series are reviewed by the Board of Trustees.
The primary consideration in placing portfolio security transactions for each
series is "best execution", i.e., execution at the most favorable prices and in
the most effective manner possible. In certain instances there may be
securities which are suitable for the portfolio of one or more series of the
Series Fund as well as for that of one or more of the Adviser's or a Sub-
Adviser's other clients. Investment decisions for each series of the Series
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
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simultaneously engaged in the purchase or sale of the same security, the
securities are allocated among clients in a manner believed to be equitable to
each. It is recognized that in some cases this system could have a detrimental
effect on the price or volume of the security as far as any series of the
Series Fund is concerned. In other cases, however, the Series Fund believes
that the ability of the series to participate in volume transactions will
produce better executions for the series.
Consistent with the foregoing primary consideration, the Rules of Fair
Practice of the National Association of Securities Dealers, Inc. and such other
policies as the Trustees may determine, the Adviser or a Sub-Adviser may
consider the sale of Contracts, and thus the sale of Series Fund shares through
the allocation of purchase payments from the Contracts, as a factor in the
selection of broker-dealers to execute the Series Fund's portfolio
transactions.
MONEY MARKET SERIES--MFS has complete freedom as to the markets in and the
broker-dealers through which it seeks to achieve "best execution". It is
expected that most transactions will be with the issuer or with major dealers
acting for their own account and not as brokers. Subject to the requirement of
seeking "best execution", securities may be bought from or sold to broker-
dealers who have furnished research and investment services to MFS. Such
research and investment services are those which brokerage houses customarily
provide to institutional investors and include statistical and economic data
and research reports on particular companies and industries. In placing orders
with such broker-dealers MFS will, where possible, take into account the
comparative usefulness of such research and investment services. Such research
and investment services are useful to MFS even though their dollar value may be
indeterminable and their receipt or availability generally does not reduce the
normal research activities or expenses of MFS.
CAPITAL APPRECIATION SERIES, EMERGING GROWTH SERIES, CONSERVATIVE GROWTH
SERIES, GOVERNMENT SECURITIES SERIES, HIGH YIELD SERIES, MANAGED SECTORS
SERIES, RESEARCH SERIES, TOTAL RETURN SERIES, UTILITIES SERIES, WORLD ASSET
ALLOCATION SERIES, WORLD GOVERNMENTS SERIES, WORLD GROWTH SERIES, WORLD TOTAL
RETURN SERIES AND ZERO COUPON SERIES--MFS has complete freedom as to the
markets in and the broker-dealers through which it seeks to achieve "best
execution". The Equity Trading Department of MFS or a Sub-Adviser, which also
serves other clients of MFS or a Sub-Adviser, attempts to achieve "best
execution" by selecting broker-dealers to execute portfolio transactions on
behalf of the Series Fund and other clients of MFS or a Sub-Adviser on the
basis of their professional capability, the value and quality of their
brokerage services and the level of their brokerage commissions. In the United
States and some other countries debt securities are traded principally in the
over-the-counter market on a net basis through dealers acting for their own
account and not as brokers. In other countries, both debt and equity securities
are traded on exchanges at fixed commission rates. The cost of securities
purchased from underwriters includes an underwriter's commission or concession,
and the prices at which securities are purchased and sold from and to dealers
include a dealer's mark-up or mark-down. MFS normally seeks to deal directly
with the primary market makers or on major exchanges unless, in its opinion,
better prices are available elsewhere. Subject to the requirement of seeking
execution at the best available price, securities may, as authorized by the
respective Advisory Agreements, be bought from or sold to dealers who have
furnished statistical, research and other information or services to MFS.
From time to time soliciting dealer fees are available to MFS or a Sub-
Adviser on the tender of securities from the portfolio of these series in so-
called tender or exchange offers. Such soliciting dealer fees are in effect
recaptured for these series by the Adviser or a Sub-Adviser. At present no
other recapture arrangements are in effect.
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Under the Investment Advisory Agreements or either Sub-Advisory Agreement and
as permitted by Section 28(e) of the Securities Exchange Act of 1934, MFS or a
Sub-Adviser may cause these series to pay a broker-dealer which provides
brokerage and research services to such series and MFS or a Sub-Adviser an
amount of commission for effecting a securities transaction for such series in
excess of the amount other broker-dealers would have charged for the
transaction if MFS or a Sub-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 their overall responsibilities to such series and to
accounts as to which they exercise investment discretion.
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 MFS
or a Sub-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 series and other clients of MFS or a Sub-Adviser 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 MFS or a Sub-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 Series Fund.
The investment management personnel of MFS attempt to evaluate the quality of
Research provided by brokers. Results of this effort are sometimes used by the
Adviser as a consideration in the selection of brokers to execute portfolio
transactions. However, MFS is unable to quantify the amount of commissions
which are paid as a result of such Research because a substantial number of
transactions are effected through brokers which provide Research but which are
selected principally because of their execution capabilities.
The management fee paid by the Series Fund to MFS or by MFS to a Sub-Adviser
will not be reduced as a consequence of the receipt of brokerage and research
services. To the extent portfolio transactions of a series are used to obtain
such services, the brokerage commissions paid by such series 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 MFS or a Sub-Adviser
in serving the series and other clients and conversely, such services obtained
by the placement of brokerage business of other clients would be useful to MFS
or a Sub-Adviser in carrying out its obligations to the series. While such
services are not expected to reduce the expenses of MFS or a Sub-Adviser, MFS
or a Sub-Adviser would, through use of the services, avoid the additional
expenses which would be incurred if they should attempt to develop comparable
information through their own staff.
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The portfolio turnover rates of any series cannot be accurately predicted.
However, it is anticipated that the annual turnover rate will exceed 100%
(excluding short-term obligations). For example, a 100% annual portfolio
turnover rate would occur if all the securities in a series' portfolio were
replaced once in a period of one year.
For the years ended December 31, 1992, 1993 and 1994, brokerage commissions
paid by the Series Fund were as follows: Capital Appreciation Series, $111,042,
$781,553 and $1,215,985; Conservative Growth Series, $36,409, $77,236 and
$602,120; High Yield Series, $676, $194 and $340; Managed Sectors Series,
$9,316, $274,749 and $430,233; Total Return Series, $146,687, $123,664 and
$331,065. For the year ended December 31, 1994 brokerage commissions paid by
the other series were as follows: Utilities Series, $54,179; World Asset
Allocation Series, $4,277; World Total Return Series, $1,119; and Research
Series, $2,631. No commissions were paid by any other series.
During the year ended December 31, 1994 each of the Capital Appreciation
Series ("CAS"), Conservative Growth Series ("CGS"), Total Return Series
("TRS"), Managed Sectors Series ("MSS") and Money Market Series ("MMS")
purchased and sold and/or retained securities issued by their regular broker-
dealers and/or securities issued by affiliates of their regular broker-dealers,
as follows:
CAS, CGS, MMS and TRS purchased and sold securities of affiliates of Kidder
Peabody & Co., Incorporated, a regular broker-dealer of these series.
TRS purchased and sold securities of an affiliate of Prudential Securities, a
regular broker-dealer of this series.
TRS purchased and retained securities of an affiliate of Kidder Peabody &
Co., Incorporated, a regular broker-dealer of this series, which securities had
a value of $4,284,000 at December 31, 1994; and CAS and MSS purchased and
retained securities of Charles Schwab Corp., a regular broker-dealer of these
series, which securities had values of $11,414,588 and $1,813,500,
respectively, at December 31, 1994.
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APPENDIX
OPTIONS AND FUTURES
A discussion of options, Futures Contracts, Options on Futures Contracts,
Forward Foreign Currency Contracts and options on foreign currencies follows.
OPTIONS ON SECURITIES--A call option written by a series will be covered (i)
through ownership of the security underlying the option or through ownership of
an absolute and immediate right to acquire such security upon conversion or
exchange of other securities held in its portfolio; or (ii) in such other
manner as may be in accordance with the rules of the exchange on which the
option is traded and applicable laws and regulations. A put option will be
covered through (i) segregation in a segregated account held by the custodian
of cash, short-term U.S. government securities or money market instruments or
high quality debt securities in an amount equal to the exercise price of the
option; or (ii) in such other manner as may be in accordance with the
requirements of the exchange on which the option is traded and applicable laws
and regulations.
Effecting a closing transaction in the case of a written call option will
permit a series 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 a series 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 a series 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 cash or proceeds from the
concurrent sale of any securities subject to the option to be used for other
investments, provided that another option on such security is not written. If a
series 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.
A series will realize a profit from a closing transaction if the premium paid
in connection with the closing of an option written by it 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 it is more than the
premium paid for the original purchase. Conversely, a series 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 repurchase of a call option previously
written by a series is likely to be offset in whole or in part by appreciation
of the underlying security owned by a series.
A series may write options in connection with buy-and-write transactions;
that is, a series may purchase a security and then write a call option against
that security. The exercise price of the call option 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 series' maximum gain will be the premium received by it for writing the
option, adjusted upwards or downwards by the difference between the series'
purchase price of the security and the exercise price. 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.
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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 a
series in the same market environments that call options would be used in
equivalent buy-and-write transactions.
A series may write combinations of put and call options on the same security,
a practice known as a "straddle." By writing a straddle, a series 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 series 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, a series 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, a series 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 loss unless the security
subsequently appreciated in value. The writing of options on securities by the
Capital Appreciation Series, Government Markets Series, Managed Sectors Series,
Utilities Series, World Asset Allocation Series, World Growth Series and World
Total Return Series will not be undertaken solely for hedging purposes, 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.
A series also may purchase put and call options on securities. Put options
would be purchased to hedge against a decline in the value of the securities
held in its portfolio. If such a decline occurs, the put options will permit a
series to sell the securities at the exercise price, or to close out the
options at a profit. By using put options in this way, the series 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. A
series may purchase call options to hedge against an increase in the price of
securities that the series anticipates purchasing in the future. If such an
increase occurs, the call option will permit the series 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 series upon exercise of the option, and,
unless the price of the underlying security rose or declined sufficiently, the
option may expire worthless to the series.
Yield curve options may be used for the same purposes as other options on
securities. Specifically, a series may purchase or write such options for
hedging purposes. For example, a series may purchase a call option on the yield
spread between two securities, if it owns one of the securities and anticipates
purchasing the other security and wants to hedge against an adverse change in
the yield spread between the two securities. The series may also purchase or
write yield curve options for other than hedging purposes (i.e., in an effort
to increase its current income) if, in the judgment of the Adviser, the series
will be able to profit from movements in the spread between the yields of the
underlying
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securities. The trading of yield curve options is subject to all of the risks
associated with the trading of other types of options. In addition, however,
such options present risk of loss even if the yield of one of the underlying
securities remains constant, if the spread moves in a direction or to an extent
which was not anticipated. Yield curve options written by the series will be
"covered." A call (or put) option is covered if the series holds another call
(or put) option on the spread between the same two securities and maintains in
a segregated account with its custodian cash or cash equivalents sufficient to
cover the series' net liability under the two options. Therefore, the series'
liability for such a covered option is generally limited to the difference
between the amount of the series' liability under the option written by the
series less the value of the option held by the series. Yield curve options may
also be covered in such other manner as may be in accordance with the
requirements of the counter party with which the option is traded and
applicable laws and regulations. Yield curve options are traded over-the-
counter and because they have been only recently introduced, established
trading markets for these securities have not yet developed.
OPTIONS ON INDEXES--A series will cover call options on indexes by owning
securities whose price changes, in the opinion of MFS, are expected to be
similar to those of the index, or in such other manner as may be in accordance
with the rules of the exchange on which the option is traded and applicable
laws and regulations. Nevertheless, where a series covers a call option on an
index through ownership of securities, such securities may not match the
composition of the index. In that event, the series 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 series will cover put options on indexes by segregating
assets equal to the option's exercise price, or in such other manner as may be
in accordance with the rules of the exchange on which the option is traded and
applicable laws and regulations.
A series will receive a premium from writing a put or call option, which
increases its gross income in the event the option expires unexercised or is
closed out at a profit. If the value of an index on which a series has written
a call option falls or remains the same, the series 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 series will realize a loss in its call
option position, which will reduce the benefit of any unrealized appreciation
in the series' investments. By writing a put option, a series assumes the risk
of a decline in the index. To the extent that the price changes of securities
owned by the series correlate with changes in the value of the index, writing
covered put options on indexes will increase the series' loss 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 indexes may be used by a series 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 a series holds uninvested cash or short-term
debt securities awaiting investment. When purchasing call options for this
purpose, the series 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 indexes when the series 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
series owns.
A series also may purchase put options on indexes to hedge its investments
against a decline in value. By purchasing a put option on an index, a series
will seek to offset a decline in the value of securities it owns through
appreciation of the put option. If the value of the series' investments does
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not decline as anticipated, or if the value of the option does not increase,
the series' 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 series' security holdings.
FUTURES CONTRACTS--The Capital Appreciation Series, Emerging Growth Series,
Government Securities Series, World Governments Series, Managed Sectors Series,
Utilities Series, World Asset Allocation Series, World Growth Series and World
Total Return Series may enter into interest rate or stock index futures
contracts ("Futures Contracts") in order to protect the series' current or
intended investments from broad fluctuations in interest rates or stock prices.
The Emerging Growth Series, Utilities Series, World Asset Allocation Series,
World Growth Series and World Total Return Series may also enter into Futures
Contracts for non-hedging purposes, which involves greater risk and could
result in losses which are not offset by gains on other portfolio assets. The
Emerging Growth Series, Utilities Series, World Asset Allocation Series, World
Governments Series, World Growth Series and World Total Return Series may also
enter into foreign currency futures contracts.
For example, a series may sell Futures Contracts in anticipation of or during
a market decline to attempt to offset the decrease in market value of the
series' securities portfolio that might otherwise result. If such decline
occurs, the loss in value of portfolio securities may be offset, in whole or in
part, by gains on the futures position. When a series is not fully invested in
the securities market and anticipates a significant market advance, it may
purchase Futures Contracts in order to gain rapid market exposure that may, in
part or in whole, offset increase in the cost of securities that the series
intends to purchase. As such acquisitions are made, the corresponding positions
in Futures Contracts will be closed out. In a substantial majority of these
transactions, a series will purchase such securities upon the termination of
the futures position, but under unusual market conditions, a long futures
position may be terminated without a related purchase of securities.
OPTIONS ON FUTURES CONTRACTS--The writing of a call Option on a Futures
Contract constitutes a partial hedge against declining prices of the securities
underlying the Futures Contract or of the securities comprising the index
underlying the Futures Contact. If the futures price at expiration of the
option is below the exercise price, the series will retain the full amount of
the option premium which provides a partial hedge against any decline that may
have occurred in the series' portfolio holdings. The writing of a put Option on
a Futures Contract constitutes a partial hedge against increasing prices of the
securities underlying the Futures Contract or of the securities comprising the
index underlying the Futures Contract. If the futures price at expiration of
the option is higher than the exercise price, a series will retain the full
amount of the option premium which provides a partial hedge against any
increase in the price of securities which a series intends to purchase. If a
put or call option a series has written is exercised, it 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 series'
losses from existing Options of Futures Contracts may to some extent be reduced
or increased by changes in the value of portfolio securities.
A series will cover the writing of call Options on Futures Contracts through
purchases of the underlying Futures Contract, and will cover the writing of put
Options on Futures Contracts through sales of the underlying Futures Contract.
Upon the exercise of a call Option on a Futures Contract written by a series,
the series will be required to sell the underlying Futures Contract which, if
the series has covered its obligation through the purchase of such Contract,
will serve to liquidate its futures
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position. Similarly, where a put Option on a Futures Contract written by a
series is exercised, the series will be required to purchase the underlying
Futures Contract which, if the series has covered its obligation through the
sale of such Contract, will close out its futures position. Put and call
Options on Futures Contracts may also be covered in such other manner as may be
in accordance with the rules of the exchange on which the option is traded and
applicable laws and regulations.
A series 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, a series 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 a series will increase prior to acquisition, due to a market advance, the
series could purchase call Options on Futures Contracts, rather than purchasing
the underlying Futures Contracts.
FORWARD CONTRACTS--The Capital Appreciation Series, Managed Sectors Series,
Research Series and World Governments Series may enter into contracts for the
purchase or sale of a specific currency at a future date at a price set at the
time the contract is entered into (a "Forward Contract") for hedging purposes
only. The Emerging Growth Series, Utilities Series, World Asset Allocation
Series, World Growth Series and World Total Return Series may enter into
Forward Contracts for hedging purposes and non-hedging purposes. A series will
enter into Forward Contracts for the purpose of protecting its current or
intended investments from fluctuations in currency exchange rates. A Forward
Contract to sell a currency may be entered into, for example, in lieu of the
sale of a foreign currency futures contract where a series seeks to protect
against an anticipated increase in the exchange rate for a specific currency
which could reduce the dollar value of portfolio securities denominated in such
currency. Conversely, a series may enter into a Forward Contract to purchase a
given currency to protect against a projected increase in the dollar value of
securities denominated in such currency which a series intends to acquire.
If a hedging transaction in Forward Contracts is successful, the decline in
the value of portfolio securities or the increase in the cost of securities to
be acquired may be offset, at least in part, by profits on the Forward
Contract. Nevertheless, by entering into such Forward Contracts, a series may
be required to forego all or a portion of the benefits which otherwise could
have been obtained from favorable movements in exchange rates. The series do
not presently intend to hold Forward Contracts entered into until maturity, at
which time they would be required to deliver or accept delivery of the
underlying currency, but will seek in most instances to close out positions in
such Contracts by entering into offsetting transactions, which will serve to
fix the series' profit or loss based upon the value of the Contracts at the
time the offsetting transaction is executed.
Each of the series has established procedures consistent with Securities and
Exchange Commission policies concerning the use of "cover" or the establishment
of segregated accounts in connection with purchases of foreign currency through
Forward Contracts. Since those policies currently require the use of "cover" or
that assets of the series equal to the amount of the purchase be held aside or
segregated in an account maintained by the custodian to be used to pay for the
commitment, each series will always use "cover" or have cash, cash equivalents
or high quality debt securities available sufficient to cover any commitments
under these contracts or to limit any potential risk.
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OPTIONS ON FOREIGN CURRENCIES--The Emerging Growth Series, Utilities Series,
World Asset Allocation Series, World Governments Series, World Growth Series
and World Total Return Series may purchase and write options on foreign
currencies for hedging purposes in a manner similar to that in which Futures
Contracts on foreign currencies, or Forward Contracts, will be utilized. All
call options written on foreign currencies will be covered. A call option
written on a foreign currency is "covered" if the series owns the underlying
foreign currency covered by the call or has an absolute and immediate right to
acquire that foreign currency without additional cash consideration (or for
additional cash consideration held in a segregated account by the series'
custodian) upon conversion or exchange of other foreign currency held in its
portfolio. A call option is also covered if the series has a call on the same
foreign currency 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 series in cash and high grade
U.S. government securities in a segregated account with its custodian. Options
on foreign currencies may also be covered in such other manner as may be in
accordance with the requirements of the exchange on which they are traded and
applicable laws and regulations.
RISK FACTORS: IMPERFECT CORRELATION OF HEDGING INSTRUMENTS WITH A SERIES'
PORTFOLIO--A series' ability effectively to hedge all or a portion of its
portfolio through transactions in options, Futures Contracts, options on
foreign currencies, Options on 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
portfolio. Because the securities in the portfolio will most likely not be the
same as those securities underlying an 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 the futures and options market.
In this regard, trading by speculators in such instruments 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 indexes and Options on Futures Contracts, a series 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, a series 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.
Transactions in Forward Contracts or options on foreign currencies designed to
hedge against exposure arising from currency fluctuations will subject a series
to the risk of imperfect correlation between changes in the value of the
currencies underlying the forwards or options and changes in the value of the
currencies being hedged.
A series will invest in a hedging instrument only if, in the judgment of MFS,
there would be expected to be a sufficient degree of correlation between
movements in the value of the instrument and
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movements in the value of the relevant portion of the series' portfolio for
such hedge to be effective. There can be no assurance that MFS's judgment will
be accurate.
It should also be noted that the Capital Appreciation Series, Managed Sectors
Series, Utilities Series, World Governments Series, World Asset Allocation
Series, World Growth Series and World Total Return Series would be able to
purchase and write options on securities and indexes not only for hedging
purposes, but also for the purpose of increasing their return on portfolio
securities. The Utilities Series, World Asset Allocation Series, World Growth
Series and the World Total Return Series may also purchase and write Futures
Contracts, Options on Futures Contracts and Forward Contracts for non-hedging
purposes. As a result, in the event of adverse market movements, such series
might be required to forfeit the entire amount of the premium paid for an
option purchased, which might 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 a series may not fully
protect it against risk of loss and, in any event, a series 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, a series would incur
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 a series 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 a
series and the series 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 series 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 a series' ability effectively to hedge its
portfolio, 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 of clearing house or
other disruptions of normal trading activity, which could at times make if
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.To the extent
a series engages in the purchase or sale of Futures Contracts and the writing
of Options on Futures Contracts solely for hedging purposes, however, and to
the extent that the series purchases and writes options on securities and
indexes 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
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securities held by the series or decreases in the prices of securities the
series intends to acquire. If a series writes options on securities or options
on indexes for other than hedging purposes, the margin requirements associated
with such transactions could expose the series to greater risk.
TRADING AND POSITION LIMITS--The exchanges on which Futures Contracts and
options are traded may impose limitations governing the maximum number of
positions on the same side of the market and involving the same underlying
instrument which may be held by a single investor, whether acting alone or in
concert with others (regardless of whether such contracts are held on the same
or different exchanges or held or written in one or more accounts or through
one or more brokers). In addition, the Commodity Futures Trading Commission
("CFTC") and the various contract markets have established limits referred to
as "speculative position limits" on the maximum net long or net short position
which any person may hold or control in a particular futures or option
contract. An exchange may order the liquidation of positions found to be in
violation of these limits and it may impose other sanctions or restrictions.
MFS does not believe that these trading and position limits will have any
adverse impact on the strategies for hedging the portfolio of a series.
RISK OF OPTIONS ON FUTURES CONTRACTS--The amount of risk a series 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 RELATED TO FOREIGN CURRENCIES AND
TRANSACTIONS NOT CONDUCTED ON U.S. 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 a series. 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 a series 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 a series 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, over-the-counter options on securities, and options on
foreign exchanges are not traded on contract markets regulated by the CFTC or
the Securities and Exchange Commission, but through financial institutions
acting as market-makers. In an over-the-counter trading environment,
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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 series' position unless the institution acts as broker and is able to
find another counterparty willing to enter into the transaction with the
series. 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 a series could be required to
retain options purchased or written, or Forward Contracts entered into, until
exercise, expiration or maturity. This in turn could limit a series' 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 a series 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, a series' ability to utilize Forward Contracts in
the manner set forth above could be restricted.
Options on securities, options on indexes, Futures Contracts, Options on
Futures Contracts and options on foreign currencies may be traded on exchanges
located in foreign countries. Such transactions may not be conducted in the
same manner as those entered into on United States exchanges, and may be
subject to different margin, exercise, settlement or expiration procedures. As
a result, many of the risks of over-the-counter trading may be present in
connection with such transactions.
RESTRICTIONS ON THE USE OF OPTIONS AND FUTURES--In order to assure that a
series will not be deemed to be a "commodity pool" for purposes of the
Commodity Exchange Act, regulations of the CFTC require that the series 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 series' assets.
The Board of Trustees of the Series Fund has adopted the additional
restriction that a series 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
series' assets, taken at market value. Moreover, a series 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 a series purchases a Futures Contract an amount of cash and cash
equivalents will be deposited in a segregated account with the series'
custodian so that the amount so segregated will at all times equal the value of
the Futures Contract, thereby insuring that the use of such Futures Contract is
unleveraged.
The staff of the Securities and Exchange Commission ("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 held by a series, cannot exceed 15% of such series'
assets, or such lower ceiling on illiquid securities imposed by a series'
investment restrictions (the "SEC Illiquidity Ceiling"). Although the
investment adviser disagrees with this position, the investment adviser intends
to limit a series' writing of over-the-counter options in accordance with the
33
<PAGE>
following procedure. Except as provided below, each series which may write
options intends to write over-the-counter options only with primary U.S.
Government securities dealers recognized as such by the Federal Reserve Bank of
New York. Also, the contracts these series have in place with such primary
dealers provide that the series 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 generally is based on a multiple of the premium received
by the series 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-the-money. A series will treat all or a portion of the formula as illiquid
for purposes of the SEC Illiquidity Ceiling. Each series which may write
options may also write over-the-counter options with non-primary dealers,
including foreign dealers (where applicable), and will treat the assets used to
cover these options as illiquid for purposes of such SEC Illiquidity Ceiling.
LOAN PARTICIPATIONS AND OTHER DIRECT INDEBTEDNESS
The Emerging Growth Series, High Yield Series and World Asset Allocation
Series may purchase loan participations and other direct claims against a
borrower. In purchasing a loan participation, the series acquires some or all
of the interest of a bank or other lending institution in a loan to a corporate
borrower. Many such loans are secured, although some may be unsecured. Such
loans may be in default at the time of purchase. Loans that are fully secured
offer the series more protection than an unsecured loan in the event of non-
payment of scheduled interest or principal. However, there is no assurance that
the liquidation of collateral from a secured loan would satisfy the corporate
borrower's obligation, or that the collateral can be liquidated.
These loans are made generally to finance internal growth, mergers,
acquisitions, stock repurchases, leveraged buy-outs and other corporate
activities. Such loans are typically made by a syndicate of lending
institutions, represented by an agent lending institution which has negotiated
and structured the loan and is responsible for collecting interest, principal
and other amounts due on its own behalf and on behalf of the others in the
syndicate, and for enforcing its and their other rights against the borrower.
Alternatively, such loans may be structured as a novation, pursuant to which
the series would assume all of the rights of the lending institution in a loan,
or as an assignment, pursuant to which the series would purchase an assignment
of a portion of a lender's interest in a loan either directly from the lender
or through an intermediary. The series may also purchase trade or other claims
against companies, which generally represent money owed by the company to a
supplier of goods or services. These claims may also be purchased at a time
when the company is in default.
Certain of the loan participations acquired by the series may involve
revolving credit facilities or other standby financing commitments which
obligate the series to pay additional cash on a certain date or on demand.
These commitments may have the effect of requiring the series to increase its
investment in a company at a time when the series might not otherwise decide to
do so (including at a time when the company's financial condition makes it
unlikely that such amounts will be repaid). To the extent that the series is
committed to advance additional funds, it will at all times hold and maintain
in a segregated account cash or other high grade debt obligations in an amount
sufficient to meet such commitments.
34
<PAGE>
The series' ability to receive payments of principal, interest and other
amounts due in connection with these investments will depend primarily on the
financial condition of the borrower. In selecting the loan participations and
other direct investments which the series will purchase, the Adviser will rely
upon its (and not that of the original lending institution's) own credit
analysis of the borrower. As the series may be required to rely upon another
lending institution to collect and pass on to the series amounts payable with
respect to the loan and to enforce the series' rights under the loan, an
involvency, bankruptcy or reorganization of the lending institution may delay
or prevent the series from receiving such amounts. In such cases, the series
will evaluate as well the creditworthiness of the lending institution and will
treat both the borrower and the lending institution as an "issuer" of the loan
participation for purposes of certain investment restrictions pertaining to the
diversification of the series' portfolio investments. The highly leveraged
nature of many such loans may make such loans especially vulnerable to adverse
changes in economic or market conditions. Investments in such loans may involve
additional risks to the series. For example, if a loan is foreclosed, the
series could become part owner of any collateral, and would bear the costs and
liabilities associated with owning and disposing of the collateral. In
addition, it is conceivable that under emerging legal theories of lender
liability, the series could be held liable as a co-lender. It is unclear
whether loans and other forms of direct indebtedness offer securities law
protections against fraud and misrepresentation. In the absence of definitive
regulatory guidance, the series relies on the Adviser's research in an attempt
to avoid situations where fraud or misrepresentation could adversely affect the
series. In addition, loan participations and other direct investments may not
be in the form of securities or may be subject to restrictions on transfer, and
only limited opportunities may exist to resell such instruments. As a result,
the series may be unable to sell such instruments at an opportune time or may
have to resell them at less than fair market value. To the extent that the
Adviser determines that any such investments are illiquid, the series will
include them in the investment limitations applicable to the series.
SWAPS AND RELATED TRANSACTIONS
The World Asset Allocation Series, World Government Series and World Total
Return Series may enter into interest rate swaps, currency swaps and other
types of available swap agreements, such as caps, collars and floors. Swap
agreements may be individually negotiated and structured to include exposure to
a variety of different types of investments or market factors. Depending on
their structure, swap agreements may increase or decrease a series' exposure to
long or short-term interest rates (in the U.S. or abroad), foreign currency
values, mortgage securities, corporate borrowing rates, or other factors such
as securities prices or inflation rates. Swap agreements can take many
different forms and are known by a variety of names. A series is not limited to
any particular form or variety of swap agreement if the Adviser determines it
is consistent with the series' investment objective and policies.
The series will maintain cash or appropriate liquid assets with its custodian
to cover its current obligations under swap transactions. If the series enters
into a swap agreement on a net basis (i.e., the two payment streams are netted
out, with the series receiving or paying, as the case may be, only the net
amount of the two payments), the series will maintain cash or liquid assets
with its custodian with a daily value at least equal to the excess, if any, of
the series' accrued obligations under the swap agreement over the accrued
amount the series is entitled to receive under the agreement. If the series
enters into a swap agreement on other than a net basis, it will maintain cash
or liquid assets with a value equal to the full amount of the series' accrued
obligations under the agreement.
35
<PAGE>
The most significant factor in the performance of swaps, caps, floors and
collars is the change in the specific interest rate, currency or other factor
that determines the amount of payments to be made under the arrangement. If the
Adviser is incorrect in its forecasts of such factors, the investment
performance of the series would be less than what it would have been if these
investment techniques had not been used. If a swap agreement calls for payments
by the series, the series must be prepared to make such payments when due. In
addition, if the counterparty's creditworthiness declined, the value of the
swap arrangement would be likely to decline, potentially resulting in losses.
If the counterparty defaults, the series' risk of loss consists of the net
amount of payments that the series is contractually entitled to receive. The
series anticipates that it will be able to eliminate or reduce its exposure
under these arrangements by assignment or other disposition or by entering into
an offsetting agreement with the same or another counterparty.
36
<PAGE>
MFS/SUN LIFE SERIES TRUST
An Open-end Management Investment Company
INVESTMENT ADVISER
Massachusetts Financial Services Company
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.
MAILING ADDRESS:
P.O. Box 2281, Boston, MA 02107
BUSINESS ADDRESS:
500 Boylston Street, Boston, MA 02116
TELEPHONE:
Toll free: (800) 225-2606;
in Massachusetts and Alaska,
collect: (617) 954-5000
AUDITORS
Deloitte & Touche LLP
125 Summer Street, Boston, MA 02110
LEGAL COUNSEL
Covington & Burling
1201 Pennsylvania Avenue, N.W.
P.O. Box 7566, Washington, D.C. 20044
SUN-1 3--5/95
<PAGE>
PART C
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS INCLUDED IN PART A:
For the period from July 19, 1985 to December 31, 1985; the years or
periods, as applicable to each series, ended December 31, 1986, 1987,
1988, 1989, 1990, 1991, 1992, 1993 and 1994.
Financial Highlights
FINANCIAL STATEMENTS INCLUDED IN PART B:
Portfolios of Investments, December 31, 1994
Statements of Assets and Liabilities, December 31, 1994
Statements of Operations, year ended December 31, 1994
Statements of Changes in Net Assets, years ended December 31, 1994 and
1993
(b) EXHIBITS
*1.(a) Copy of Declaration of Trust of Registrant.
** (b) Copy of Amendment to Declaration of Trust and Restated
Declaration of Trust of Registrant.
++ (c) Amendment to Declaration of Trust of Registrant.
+++ (d) Amendment to Declaration of Trust of Registrant.
(e) Amendment to Declaration of Trust of Registrant (filed
herewith).
(f) Amendment to Declaration of Trust of Registrant (filed
herewith).
*2. By-Laws of Registrant
**5. Investment Advisory Agreement between Registrant and
Massachusetts Financial Services Company dated May 24, 1985.
****5.(a) Investment Advisory Agreement between Registrant and
Massachusetts Financial Services Company dated July 23, 1986.
*****5.(b) Investment Advisory Agreement between Registrant and
Massachusetts Financial Services Company dated January 26,
1988.
++5.(c) Investment Advisory Agreement between Registrant and
Massachusetts Financial Services Company relating to the
World Growth Series.
++5.(d) Investment Advisory Agreement between Registrant and
Massachusetts Financial Services Company relating to the
Utilties Series.
++5.(e) Sub-Investment Advisory Agreement by and between
Massachusetts Financial Services Company and Oechsle
International Advisors, L.P. relating to the World Growth
Series.
++5.(f) Sub-Investment Advisory Agreement by and between
Massachusetts Financial Services Company and Batterymarch
Financial Management relating to the World Growth Series.
C-1
<PAGE>
+++5.(g) Investment Advisory Agreement between Registrant and
Massachusetts Financial Services Company relating to the
Research Series.
+++5.(h) Investment Advisory Agreement between Registrant and
Massachusetts Financial Services Company relating to the
World Asset Allocation Series.
+++5.(i) Investment Advisory Agreement between Registrant and
Massachusetts Financial Services Company relating to the
World Total Return Series.
5.(j) Investment Advisory Agreement between Registrant and
Massachusetts Financial Services Company relating to the
Emerging Growth Series (filed herewith).
(k) Investment Advisory Agreement between Registrant and
Massachusetts Financial Services Company relating to the
MFS/Foreign & Colonial International Growth Series (filed
herewith).
(l) Investment Advisory Agreement between Registrant and
Massachusetts Financial Services Company relating to the
MFS/Foreign & Colonial International Growth and Income Series
(filed herewith).
(m) Investment Advisory Agreement between Registrant and
Massachusetts Financial Services Company relating to the
MFS/Foreign & Colonial Emerging Markets Equity Series (filed
herewith).
(n) Sub-Advisory Agreement by and between Massachusetts Financial
Services Company and Foreign & Colonial Management Ltd.
relating to the MFS/Foreign & Colonial International Growth
Series (filed herewith).
(o) Sub-Advisory Agreement by and between Massachusetts Financial
Services Company and Foreign & Colonial Management Ltd.
relating to the MFS/Foreign & Colonial International Growth
and Income Series (filed herewith).
(p) Sub-Advisory Agreement by and between Massachusetts Financial
Services Company and Foreign & Colonial Management Ltd.
relating to the MFS/Foreign & Colonial Emerging Markets
Equity Series (filed herewith).
(q) Sub-Advisory Agreement between Foreign & Colonial Management
Ltd. and Foreign & Colonial Emerging Markets Limited relating
to the MFS/Foreign & Colonial International Growth Series
(filed herewith).
(r) Sub-Advisory Agreement between Foreign & Colonial Management
Ltd. and Foreign & Colonial Emerging Markets Limited relating
to the MFS/Foreign & Colonial International Growth and Income
Series (filed herewith).
(s) Sub-Advisory Agreement between Foreign & Colonial Management
Ltd. and Foreign & Colonial Emerging Markets Limited relating
to the MFS/Foreign & Colonial Emerging Markets Equity Series
(filed herewith).
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<PAGE>
**8. Custodian Agreement between Registrant and State Street Bank
and Trust Company dated May 24, 1985.
****8.(a) Amendment dated July 23, 1986 to Custodian Agreement filed as
Exhibit 8.
+9. Shareholder Servicing Agent Agreement between Registrant and
Massachusetts Financial Service Center, Inc.
+10. Opinion and Consent of Covington & Burling.
11. Consent of Deloitte & Touche (filed herewith).
***13. Investment representation letter from initial shareholder.
17. Financial Data Schedules (filed herewith)
--------------
* Incorporated by reference from the Registrant's Registration
Statement, File No. 2-83616, filed September 9, 1983.
** Incorporated by reference from Amendment No. 1 to the
Registrant's Registration Statement, File No. 2-83616, filed
March 25, 1985.
*** Incorporated by reference from Amendment No. 2 to the
Registrant's Registration Statement, File No. 2-83616, filed
June 5, 1985.
**** Incorporated by reference from Amendment No. 4 to the
Registrant's Registration Statement, File No. 2-83616, filed
September 30, 1986.
***** Incorporated by reference from Post-Effective Amendment No. 7
to the Registrant's Registration Statement, File No. 2-83616,
filed April 28, 1988.
+ Incorporated by reference from Post-Effective Amendment No. 2
to the Registrant's Registration Statement, File No. 2-83616,
filed February 25, 1986.
++ Incorporated by reference from Post-Effective Amendment No.
13 to the Registrant's Registration Statement, File No. 2-
83616, filed October 26, 1993.
+++ Incorporated by reference from Post-Effective Amendment No.
15 to the Registrant's Registration Statement, File No. 2-
83616, filed September 2, 1994.
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<PAGE>
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
Shares of Beneficial Interest 8
(without par value) (as at July 30, 1995)
ITEM 27. INDEMNIFICATION
Reference is hereby made to (a) Article V of Registrant's Declaration
of Trust, filed as an Exhibit to the Registrant's Registration Statement on Form
N-1 and (b) the undertaking of the Registrant regarding indemnification set
forth in Registrant's Registration Statement on Form N-1.
The Trustees and officers of the Registrant and the personnel of the
Registrant's investment adviser are insured under an errors and omissions
liability insurance policy. The Registrant and its officers also are 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 Funds, MFS Growth Opportunities Funds, MFS
Government Securities Funds, MFS Government Mortgage Funds, MFS Government
Limited Maturity Funds, MFS Series Trust I (which has three series: MFS Managed
Sectors Funds, MFS Cash Reserve Funds and MFS World Asset Allocation Funds),
MFS Series Trust II (which has four series: MFS Emerging Growth Funds, MFS
Capital Growth Funds, MFS Intermediate Income Funds and MFS Gold & Natural
Resources Funds), MFS Series Trust III (which has two series: MFS High Income
Funds and MFS Municipal High Income Funds), MFS Series Trust IV (which has four
series: MFS Money Market Funds, MFS Government Money Market Funds, MFS Municipal
Bond Funds and MFS OTC Funds), MFS Series Trust V (which has two series: MFS
Total Return Funds and MFS Research Funds), MFS Series Trust VI (which has three
series: MFS World Total Return Funds, MFS Utilities Funds and MFS World Equity
Funds), MFS Series Trust VII (which has two series: MFS World Governments Funds
and MFS Value Funds), MFS Series Trust VIII (which has two series: MFS Strategic
Income Funds and MFS World Growth Funds), MFS Municipal Series Trust (which has
19 series: MFS Alabama Municipal Bond Funds, MFS Arkansas Municipal Bond Funds,
MFS California Municipal Bond Funds, MFS Florida Municipal Bond Funds, MFS
Georgia Municipal Bond Funds, MFS
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<PAGE>
Louisiana Municipal Bond Funds, MFS Maryland Municipal Bond Funds, MFS
Massachusetts Municipal Bond Funds, MFS Mississippi Municipal Bond Funds, MFS
New York Municipal Bond Funds, MFS North Carolina Municipal Bond Funds, MFS
Pennsylvania Municipal Bond Funds, MFS South Carolina Municipal Bond Funds, MFS
Tennessee Municipal Bond Funds, MFS Texas Municipal Bond Funds, MFS Virginia
Municipal Bond Funds, MFS Washington Municipal Bond Funds, MFS West Virginia
Municipal Bond Funds and MFS Municipal Income Funds) and MFS Series Trust IX
(which has three series: MFS Bond Funds, MFS Limited Maturity Funds and MFS
Municipal Limited Maturity Funds) (the "MFS Funds"). The principal business
address of each of the afore-mentioned 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 two 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 Fund, 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 of the above except MFS/SL is One Sun
Life Executive Park, Wellesley Hills, Massachusetts 02181. The principal
business address of MFS/SL is 500 Boylston Street, Boston, Massachusetts 02116.
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 Funds
(which has four portfolios: MFS International Funds-U.S. Equity Funds, MFS
International Funds-U.S. Emerging Growth Funds, MFS International Funds-
International Governments Funds and MFS International Funds-Charter Income
Funds) (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.
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MIL also serves as investment adviser to and distributor for MFS
Meridian U.S. Government Bond Funds, MFS Meridian Charter Income Funds, MFS
Meridian Global Government Funds, MFS Meridian U.S. Emerging Growth Funds, MFS
Meridian Global Equity Funds, MFS Meridian Limited Maturity Funds, MFS Meridian
World Growth Funds, MFS Meridian Money Market Funds and MFS Meridian U.S. Equity
Funds (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 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 Funds 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.)and Sun Life Insurance and
Annuity Company of New York.
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, MFS Institutional Trust, MFS Variable Insurance Trust, MFS Union Standard
Trust and MFS/SL.
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, James E. Russell is a Senior Vice President and the Treasurer,
Stephen E. Cavan is a Senior Vice President, General Counsel and an Assistant
Secretary, and Robert T. Burns is a Vice President and an Assistant Secretary of
MFS.
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Massachusetts Investors Trust
-----------------------------
Massachusetts Investors Growth Stock Funds
------------------------------------------
MFS Growth Opportunities Funds
------------------------------
MFS Government Securities Funds
-------------------------------
MFS Government Mortgage Funds
-----------------------------
MFS Series Trust I
------------------
MFS Series Trust V
------------------
MFS Government Limited Maturity Funds
-------------------------------------
MFS Series Trust VI
-------------------
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 Assistant Treasurer, James R. Bordewick, Jr., Vice President and
Associate General Counsel of MFS, is 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 Assistant
Treasurer, and James R. Bordewick, Jr., is 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 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 Assistant Treasurer, and James R. Bordewick, Jr., is
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 Assistant Treasurer and James R. Bordewick, Jr., is Assistant Secretary.
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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
Assistant Treasurer and James R. Bordewick, Jr., is 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 Assistant
Treasurer and James R. Bordewick, Jr., is 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, Stephen E. Cavan is
the Secretary, W. Thomas London is the Treasurer, James O. Yost is Assistant
Treasurer and James R. Bordewick, Jr., is Assistant Secretary.
MFS Variable Insurance 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 Union Standard Trust
------------------------
A. Keith Brodkin is the Chairman and President, Stephen E. Cavan is the
Secretary, W. Thomas London is the Treasurer, James O. Yost and Karen C. Jordan
are Assistant Treasurers 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 Assistant Treasurer and James
R. Bordewick, Jr., is Assistant Secretary.
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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 Assistant Treasurer and James R. Bordewick, Jr., is 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
Assistant Treasurer and James R. Bordewick, Jr., is 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, Anthony F. Clarizio is an Assistant 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 and James E. Russell is the Treasurer.
MIL-UK
------
A. Keith Brodkin, 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, Arnold D.
Scott and Jeffrey L. Shames 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.
C-9
<PAGE>
MFS Meridian Funds
------------------
A. Keith Brodkin is the Chairman, President and a Director, 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 and Ziad Malek is a Senior Vice President.
MFD
---
A. Keith Brodkin is the Chairman, 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, and James E. Russell is the Treasurer.
CIAI
----
A. Keith Brodkin is the Chairman, Arnold D. Scott and Jeffrey L. Shames
are Directors, Cynthia Orcutt is President, Bruce C. Avery, Executive Vice
President of MFS, is the Vice President, James E. Russell is the Treasurer,
Stephen E. Cavan is the Secretary, and Robert T. Burns is the Assistant
Secretary.
MFSC
----
A. Keith Brodkin is the Chairman, Arnold D. Scott and Jeffrey L. Shames
are Directors, Joseph A. Recomendes, Senior Vice President of MFS, is the
President, James E. Russell is the 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,
Leslie J. Nanberg and Arnold D. Scott are Directors, Thomas J. Cashman is the
President and a Director, James E. Russell is the 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, Douglas C. Grip, a Senior Vice
President of MFS, is the President, James E. Russell is the Treasurer, Stephen
E. Cavan is the Secretary, Robert T. Burns is the Assistant Secretary and Henry
A. Shea is an Executive Vice President.
In addition, the following persons, Directors or officers of MFS, have
the affiliations indicated:
C-10
<PAGE>
A. Keith Brodkin: Director, Sun Life Assurance Company of Canada
(U.S.), One Sun Life Executive Park, Wellesley Hills, Massachusetts 02181;
Director, Sun Life Insurance and Annuity Company of New York, 80 Broad Street,
New York, New York 10004.
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).
The business of Batterymarch Financial Management, Inc.
("Batterymarch") and Oechsle International Advisors, L.P. ("Oechsle") is
summarized under "Management of the Series Fund -Sub-Investment Advisers to the
World Growth Series" in the Prospectus dated May 1, 1995 contained in Part A of
this Post-Effective Amendment to the Registrant's Registration Statement on Form
N-1A, which summary is incorporated herein by reference.
The business or other connections of each trustee and officer of
Batterymarch is currently listed in the investment adviser registration on Form
ADV for Batterymarch (File No. 801-25379) and is hereby incorporated herein by
reference thereto.
The business or other connections of each partner and officer of
Oechsle is currently listed in the investment adviser registration on Form ADV
for Oechsle (File No. 801-28111) and is hereby incorporated herein by reference
thereto.
The business of Foreign & Colonial Management Ltd. ("FCM") and Foreign
& Colonial Emerging Markets Limited ("FCEM") is summarized under the section of
the Prospectus Supplement entitled "Management of the MFS/Foreign & Colonial
Series-Sub-Investment Advisers" contained in Part A of this Post-Effective
Amendment to the Registrant's Registration Statement on Form N-1A, which summary
is incorporated herein by reference.
The business or other connections of each trustee and officer of FCM
and FCEM is currently listed in the investment adviser registrations on Form ADV
for FCM and FCEM (File Nos. 801-44724 and 801-40119, respectively) and is hereby
incorporated herein by reference thereto.
ITEM 29. PRINCIPAL UNDERWRITER
Not applicable.
C-11
<PAGE>
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 Boston, MA 02116
MFS Service Center, Inc. 500 Boylston Street
Boston, MA 02116
State Street Bank and Trust State Street South
Company 5-North
North Quincy, MA 02171
Sun Life Annuity Service Center 50 Milk Street
Boston, MA 02109
ITEM 31. MANAGEMENT SERVICES
Not applicable.
ITEM 32. UNDERTAKINGS
(a) Not Applicable.
(b) Not Applicable.
(c) The Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest annual
report to shareholders upon request and without charge.
C-12
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND THE
INVESTMENT COMPANY ACT OF 1940, THE REGISTRANT HAS DULY CAUSED THIS POST-
EFFECTIVE AMENDMENT TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY
THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE TOWN OF WELLESLEY AND
COMMONWEALTH OF MASSACHUSETTS ON THE 22ND DAY OF AUGUST, 1995.
MFS/SUN LIFE SERIES TRUST
By /s/ John D. McNeil*
--------------------------
JOHN D. MCNEIL, CHAIRMAN
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS POST-
EFFECTIVE AMENDMENT TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE
FOLLOWING PERSONS IN THE CAPACITIES INDICATED ON AUGUST 22, 1995.
SIGNATURES TITLE
---------- -----
John D. McNeil*
----------------------------- Chairman, Principal Executive
JOHN D. MCNEIL Officer, and Trustee
W. Thomas London*
----------------------------- Treasurer, Principal Financial
W. THOMAS LONDON Officer, and Principal Account-
ing Officer
Samuel Adams*
----------------------------- Trustee
SAMUEL ADAMS
Geoffrey Crofts*
----------------------------- Trustee
GEOFFREY CROFTS
Garth Marston*
----------------------------- Trustee
GARTH MARSTON
David D. Horn*
----------------------------- Trustee
DAVID D. HORN
Derwyn F. Phillips*
----------------------------- Trustee
DERWYN F. PHILLIPS
* By /s/ Bonnie S. Angus
----------------------------
BONNIE S. ANGUS
ATTORNEY-IN-FACT
* Executed by Bonnie S. Angus on behalf
of those indicated pursuant to Powers-of-
Attorney incorp-orated by reference from
Post-Effective Amendment No. 15 to the
Registration Statement of the Regis-
trant, File No. 2-83616, filed on
September 2, 1994.
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT PAGE NO.
----------- ---------------------- --------
<S> <C> <C>
1.(e) Amendment to Declaration of Trust of Registrant
1.(f) Amendment to Declaration of Trust of Registrant
5.(j) Investment Advisory Agreement between Registrant and Massachusetts
Financial Services Company relating to the Emerging Growth Series.
(k) Investment Advisory Agreement between Registrant and Massachusetts
Financial Services Company relating to the MFS/Foreign & Colonial
International Growth Series.
(l) Investment Advisory Agreement between Registrant and Massachusetts
Financial Services Company relating to the MFS/Foreign & Colonial
International Growth and Income Series.
(m) Investment Advisory Agreement between Registrant and Massachusetts
Financial Services Company relating to the MFS/Foreign & Colonial
Emerging Markets Equity Series.
(n) Sub-Advisory Agreement by and between Massachusetts Financial
Services Company and Foreign & Colonial Management Ltd. relating
to the MFS/Foreign & Colonial International Growth Series.
(o) Sub-Advisory Agreement by and between Massachusetts Financial
Services Company and Foreign & Colonial Management Ltd. relating
to the MFS/Foreign & Colonial International Growth and Income
Series.
(p) Sub-Advisory Agreement by and between Massachusetts Financial
Services Company and Foreign & Colonial Management Ltd. relating
to the MFS/Foreign & Colonial Emerging Markets Equity Series.
(q) Sub-Advisory Agreement between Foreign & Colonial Management Ltd.
and Foreign & Colonial Emerging Markets Limited relating to the
MFS/Foreign & Colonial International Growth Series.
(r) Sub-Advisory Agreement between Foreign & Colonial Management Ltd.
and Foreign & Colonial Emerging Markets Limited relating to the
MFS/Foreign & Colonial International Growth and Income Series.
(s) Sub-Advisory Agreement between Foreign & Colonial Management Ltd.
and Foreign & Colonial Emerging Markets Limited relating to the
MFS/Foreign & Colonial Emerging Markets Equity Series.
11. Consent of Deloitte & Touche.
17. Financial Data Schedules.
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF MFS/SUN LIFE SERIES TRUST - CAPITAL APPRECIATION SERIES
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 01
<NAME> MFS/SUN LIFE SERIES TRUST - CAPITAL APPRECIATION SERIES
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 439523355
<INVESTMENTS-AT-VALUE> 470281047
<RECEIVABLES> 11134214
<ASSETS-OTHER> 5542
<OTHER-ITEMS-ASSETS> 74343
<TOTAL-ASSETS> 481495146
<PAYABLE-FOR-SECURITIES> 4780398
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 206966
<TOTAL-LIABILITIES> 4987364
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 430452594
<SHARES-COMMON-STOCK> 19522903
<SHARES-COMMON-PRIOR> 14918894
<ACCUMULATED-NII-CURRENT> 635008
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 13818567
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 31601613
<NET-ASSETS> 476507782
<DIVIDEND-INCOME> 4014321
<INTEREST-INCOME> 829929
<OTHER-INCOME> 0
<EXPENSES-NET> 3750903
<NET-INVESTMENT-INCOME> 1093347
<REALIZED-GAINS-CURRENT> 13292898
<APPREC-INCREASE-CURRENT> (30787712)
<NET-CHANGE-FROM-OPS> (16401467)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2034467)
<DISTRIBUTIONS-OF-GAINS> (40403394)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 10770067
<NUMBER-OF-SHARES-REDEEMED> (7931360)
<SHARES-REINVESTED> 1765302
<NET-CHANGE-IN-ASSETS> 55955869
<ACCUMULATED-NII-PRIOR> 1900333
<ACCUMULATED-GAINS-PRIOR> 40564369
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3421246
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3750903
<AVERAGE-NET-ASSETS> 456166133
<PER-SHARE-NAV-BEGIN> 28.19
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> (1.11)
<PER-SHARE-DIVIDEND> (0.13)
<PER-SHARE-DISTRIBUTIONS> (2.59)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 24.41
<EXPENSE-RATIO> 0.83
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF MFS/SUN LIFE SERIES TRUST-RESEARCH SERIES AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 14
<NAME> MFS SUN LIFE TRUST-RESEARCH SERIES
<S> <C>
<PERIOD-TYPE> 2-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 4422326
<INVESTMENTS-AT-VALUE> 4437492
<RECEIVABLES> 73806
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 41010
<TOTAL-ASSETS> 4552308
<PAYABLE-FOR-SECURITIES> 675574
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 7820
<TOTAL-LIABILITIES> 683394
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3863948
<SHARES-COMMON-STOCK> 391744
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 5137
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (15337)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 15166
<NET-ASSETS> 3868914
<DIVIDEND-INCOME> 2499
<INTEREST-INCOME> 6939
<OTHER-INCOME> 0
<EXPENSES-NET> 4301
<NET-INVESTMENT-INCOME> 5137
<REALIZED-GAINS-CURRENT> (15337)
<APPREC-INCREASE-CURRENT> 15166
<NET-CHANGE-FROM-OPS> 4966
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 408911
<NUMBER-OF-SHARES-REDEEMED> (17167)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 3868914
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2145
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 9989
<AVERAGE-NET-ASSETS> 1969623
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .01
<PER-SHARE-GAIN-APPREC> (0.14)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.88
<EXPENSE-RATIO> 1.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF MFS/SUN LIFE SERIES TRUST - TOTAL RETURN SERIES AND
IS QUALIFIED IN ITS ENTIRETY BY REFERNCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 08
<NAME> MFS/SUN LIFE SERIES TRUST-TOTAL RETURN SERIES
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 826524554
<INVESTMENTS-AT-VALUE> 834918695
<RECEIVABLES> 9529361
<ASSETS-OTHER> 9179
<OTHER-ITEMS-ASSETS> 672146
<TOTAL-ASSETS> 845129381
<PAYABLE-FOR-SECURITIES> 5015394
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 499637
<TOTAL-LIABILITIES> 5515031
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 801035420
<SHARES-COMMON-STOCK> 55654402
<SHARES-COMMON-PRIOR> 43275236
<ACCUMULATED-NII-CURRENT> 34941335
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (4756546)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8394141
<NET-ASSETS> 839614350
<DIVIDEND-INCOME> 15403544
<INTEREST-INCOME> 25757529
<OTHER-INCOME> 0
<EXPENSES-NET> 6165595
<NET-INVESTMENT-INCOME> 34995478
<REALIZED-GAINS-CURRENT> (4760324)
<APPREC-INCREASE-CURRENT> (49169203)
<NET-CHANGE-FROM-OPS> (18934049)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (21606168)
<DISTRIBUTIONS-OF-GAINS> (10289267)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 14399892
<NUMBER-OF-SHARES-REDEEMED> (4141433)
<SHARES-REINVESTED> 2120707
<NET-CHANGE-IN-ASSETS> 143118264
<ACCUMULATED-NII-PRIOR> 21606149
<ACCUMULATED-GAINS-PRIOR> 10238932
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 5700358
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6165595
<AVERAGE-NET-ASSETS> 811164148
<PER-SHARE-NAV-BEGIN> 16.09
<PER-SHARE-NII> .56
<PER-SHARE-GAIN-APPREC> (0.93)
<PER-SHARE-DIVIDEND> (0.43)
<PER-SHARE-DISTRIBUTIONS> (0.21)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.09
<EXPENSE-RATIO> .76
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF MFS/SUN LIFE SERIES TRUST-WORLD GOVERNMENTS SERIES AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINNCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 04
<NAME> MFS/SUN LIFE SERIES TRUST - WORLD GOVERNMENTS SERIES
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 138440336
<INVESTMENTS-AT-VALUE> 136050638
<RECEIVABLES> 4090645
<ASSETS-OTHER> 1776
<OTHER-ITEMS-ASSETS> 106718
<TOTAL-ASSETS> 140249777
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1094870
<TOTAL-LIABILITIES> 1094870
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 132620144
<SHARES-COMMON-STOCK> 12231369
<SHARES-COMMON-PRIOR> 10370474
<ACCUMULATED-NII-CURRENT> (656903)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 9401967
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (2210301)
<NET-ASSETS> 139154907
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 10026619
<OTHER-INCOME> 0
<EXPENSES-NET> 1294185
<NET-INVESTMENT-INCOME> 8732434
<REALIZED-GAINS-CURRENT> (13970783)
<APPREC-INCREASE-CURRENT> (1384328)
<NET-CHANGE-FROM-OPS> (6622677)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (10678177)
<DISTRIBUTIONS-OF-GAINS> (1718738)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3477740
<NUMBER-OF-SHARES-REDEEMED> (2743837)
<SHARES-REINVESTED> 1126992
<NET-CHANGE-IN-ASSETS> 4118693
<ACCUMULATED-NII-PRIOR> 7753111
<ACCUMULATED-GAINS-PRIOR> 5431268
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1086621
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1294185
<AVERAGE-NET-ASSETS> 144882800
<PER-SHARE-NAV-BEGIN> 13.02
<PER-SHARE-NII> 0.61
<PER-SHARE-GAIN-APPREC> (1.23)
<PER-SHARE-DIVIDEND> (0.88)
<PER-SHARE-DISTRIBUTIONS> (0.14)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.38
<EXPENSE-RATIO> .90
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF MFS/SUN LIFE SERIES TRUST-ZERO COUPON SERIES 1995
PORTFOLIO AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 10
<NAME> MFS/SUN LIFE SERIES TRUST-ZERO COUPON SERIES 1995 PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 4799680
<INVESTMENTS-AT-VALUE> 4853822
<RECEIVABLES> 0
<ASSETS-OTHER> 429
<OTHER-ITEMS-ASSETS> 6300
<TOTAL-ASSETS> 4860551
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3944
<TOTAL-LIABILITIES> 3944
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 4404986
<SHARES-COMMON-STOCK> 478278
<SHARES-COMMON-PRIOR> 486462
<ACCUMULATED-NII-CURRENT> 370374
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 27105
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 54142
<NET-ASSETS> 4856607
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 395291
<OTHER-INCOME> 0
<EXPENSES-NET> 25272
<NET-INVESTMENT-INCOME> 370019
<REALIZED-GAINS-CURRENT> 27473
<APPREC-INCREASE-CURRENT> (345842)
<NET-CHANGE-FROM-OPS> 51650
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (378356)
<DISTRIBUTIONS-OF-GAINS> (58325)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2907
<NUMBER-OF-SHARES-REDEEMED> (54934)
<SHARES-REINVESTED> 43843
<NET-CHANGE-IN-ASSETS> (479239)
<ACCUMULATED-NII-PRIOR> 378711
<ACCUMULATED-GAINS-PRIOR> 57957
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 12635
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 25272
<AVERAGE-NET-ASSETS> 5054000
<PER-SHARE-NAV-BEGIN> 10.97
<PER-SHARE-NII> 0.79
<PER-SHARE-GAIN-APPREC> (0.69)
<PER-SHARE-DIVIDEND> (0.79)
<PER-SHARE-DISTRIBUTIONS> (0.12)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.15
<EXPENSE-RATIO> .50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF MFS/SUN LIFE SERIES TRUST - HIGH YIELD SERIES AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 18
<NAME> MFS/SUN LIFE SERIES TRUST-HIGH YIELD SERIES
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 112648868
<INVESTMENTS-AT-VALUE> 104316188
<RECEIVABLES> 2821249
<ASSETS-OTHER> 1291
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 107138728
<PAYABLE-FOR-SECURITIES> 4801387
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 143488
<TOTAL-LIABILITIES> 4944875
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 110309568
<SHARES-COMMON-STOCK> 12483980
<SHARES-COMMON-PRIOR> 10742327
<ACCUMULATED-NII-CURRENT> 7468541
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (7251523)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (8332733)
<NET-ASSETS> 102193853
<DIVIDEND-INCOME> 1537
<INTEREST-INCOME> 9692962
<OTHER-INCOME> 0
<EXPENSES-NET> 849693
<NET-INVESTMENT-INCOME> 8844806
<REALIZED-GAINS-CURRENT> (1214152)
<APPREC-INCREASE-CURRENT> (9202797)
<NET-CHANGE-FROM-OPS> (1572143)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (6608417)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 12380273
<NUMBER-OF-SHARES-REDEEMED> (11460562)
<SHARES-REINVESTED> 821942
<NET-CHANGE-IN-ASSETS> 4309908
<ACCUMULATED-NII-PRIOR> 5103949
<ACCUMULATED-GAINS-PRIOR> (5911988)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 745658
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 849693
<AVERAGE-NET-ASSETS> 99421067
<PER-SHARE-NAV-BEGIN> 9.11
<PER-SHARE-NII> .82
<PER-SHARE-GAIN-APPREC> (1.04)
<PER-SHARE-DIVIDEND> (0.71)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.19
<EXPENSE-RATIO> .86
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF MFS/SUN LIFE SERIES TRUST-CONSERVATIVE GROWTH SERIES AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 02
<NAME> MFS/SUN LIFE SERIES TRUST-CONSERVATIVE GROWTH SERIES
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 147945328
<INVESTMENTS-AT-VALUE> 148700701
<RECEIVABLES> 1707830
<ASSETS-OTHER> 1259
<OTHER-ITEMS-ASSETS> 40422
<TOTAL-ASSETS> 150450212
<PAYABLE-FOR-SECURITIES> 85943
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 46469
<TOTAL-LIABILITIES> 132412
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 145125870
<SHARES-COMMON-STOCK> 9134387
<SHARES-COMMON-PRIOR> 5657188
<ACCUMULATED-NII-CURRENT> 3056467
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1379847
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 755616
<NET-ASSETS> 150317800
<DIVIDEND-INCOME> 3200107
<INTEREST-INCOME> 665312
<OTHER-INCOME> 0
<EXPENSES-NET> 808891
<NET-INVESTMENT-INCOME> 3056528
<REALIZED-GAINS-CURRENT> 1340199
<APPREC-INCREASE-CURRENT> (6383215)
<NET-CHANGE-FROM-OPS> (1986488)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1357824)
<DISTRIBUTIONS-OF-GAINS> (599688)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3768650
<NUMBER-OF-SHARES-REDEEMED> (408948)
<SHARES-REINVESTED> 117497
<NET-CHANGE-IN-ASSETS> 54547588
<ACCUMULATED-NII-PRIOR> 1357763
<ACCUMULATED-GAINS-PRIOR> 573648
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 699509
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 808891
<AVERAGE-NET-ASSETS> 127183455
<PER-SHARE-NAV-BEGIN> 16.93
<PER-SHARE-NII> 0.29
<PER-SHARE-GAIN-APPREC> (0.48)
<PER-SHARE-DIVIDEND> (0.20)
<PER-SHARE-DISTRIBUTIONS> (.09)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 16.46
<EXPENSE-RATIO> 0.64
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF MFS/SUN LIFE SERIES TRUST-ZERO COUPON SERIES 2000
PORTFOLIO AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 11
<NAME> MFS/SUN LIFE SERIES TRUST-ZERO COUPON SERIES 2000 PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 3472638
<INVESTMENTS-AT-VALUE> 3272406
<RECEIVABLES> 3224
<ASSETS-OTHER> 47
<OTHER-ITEMS-ASSETS> 7959
<TOTAL-ASSETS> 3283636
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3383
<TOTAL-LIABILITIES> 3383
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3344536
<SHARES-COMMON-STOCK> 412231
<SHARES-COMMON-PRIOR> 319062
<ACCUMULATED-NII-CURRENT> 173997
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (38048)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (200232)
<NET-ASSETS> 3280253
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 191510
<OTHER-INCOME> 0
<EXPENSES-NET> 17812
<NET-INVESTMENT-INCOME> 173698
<REALIZED-GAINS-CURRENT> (37726)
<APPREC-INCREASE-CURRENT> (391737)
<NET-CHANGE-FROM-OPS> 255765
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (212310)
<DISTRIBUTIONS-OF-GAINS> (613361)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 79593
<NUMBER-OF-SHARES-REDEEMED> (88108)
<SHARES-REINVESTED> 101684
<NET-CHANGE-IN-ASSETS> (266669)
<ACCUMULATED-NII-PRIOR> 212609
<ACCUMULATED-GAINS-PRIOR> 613039
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 8865
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 21036
<AVERAGE-NET-ASSETS> 3546000
<PER-SHARE-NAV-BEGIN> 11.12
<PER-SHARE-NII> .38
<PER-SHARE-GAIN-APPREC> (1.11)
<PER-SHARE-DIVIDEND> (.63)
<PER-SHARE-DISTRIBUTIONS> (1.81)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 7.96
<EXPENSE-RATIO> .50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF MFS/SUN LIFE SERIES TRUST-WORLD TOTAL RETURN SERIES AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 15
<NAME> MFS/SUN LIFE SERIES TRUST-WORLD TOTAL RETURN SERIES
<S> <C>
<PERIOD-TYPE> 2-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 1361189
<INVESTMENTS-AT-VALUE> 1365741
<RECEIVABLES> 37189
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 15520
<TOTAL-ASSETS> 1418450
<PAYABLE-FOR-SECURITIES> 27603
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 6818
<TOTAL-LIABILITIES> 34421
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1379789
<SHARES-COMMON-STOCK> 137844
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 3409
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3275)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4106
<NET-ASSETS> 1384029
<DIVIDEND-INCOME> 521
<INTEREST-INCOME> 4437
<OTHER-INCOME> 0
<EXPENSES-NET> 1549
<NET-INVESTMENT-INCOME> 3409
<REALIZED-GAINS-CURRENT> (3275)
<APPREC-INCREASE-CURRENT> 4106
<NET-CHANGE-FROM-OPS> 4240
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 141167
<NUMBER-OF-SHARES-REDEEMED> (3323)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 1384029
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 773
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 7149
<AVERAGE-NET-ASSETS> 709799
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .02
<PER-SHARE-GAIN-APPREC> .02
<PER-SHARE-DIVIDEND> .00
<PER-SHARE-DISTRIBUTIONS> .00
<RETURNS-OF-CAPITAL> .00
<PER-SHARE-NAV-END> 10.04
<EXPENSE-RATIO> 1.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF MFS/SUN LIFE SERIES TRUST - WORLD GROWTH SERIES AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 13
<NAME> MFS/SUN LIFE SERIES TRUST - WORLD GROWTH SERIES
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 100996396
<INVESTMENTS-AT-VALUE> 98883443
<RECEIVABLES> 1920675
<ASSETS-OTHER> 2841
<OTHER-ITEMS-ASSETS> 284602
<TOTAL-ASSETS> 101091561
<PAYABLE-FOR-SECURITIES> 948277
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 99120
<TOTAL-LIABILITIES> 1047397
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 99428030
<SHARES-COMMON-STOCK> 9142775
<SHARES-COMMON-PRIOR> 1775975
<ACCUMULATED-NII-CURRENT> 1404752
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1324457
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (2113075)
<NET-ASSETS> 100044164
<DIVIDEND-INCOME> 1167267
<INTEREST-INCOME> 560658
<OTHER-INCOME> 0
<EXPENSES-NET> 305168
<NET-INVESTMENT-INCOME> 1422757
<REALIZED-GAINS-CURRENT> 1309472
<APPREC-INCREASE-CURRENT> (2824420)
<NET-CHANGE-FROM-OPS> (92191)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (15288)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 9554782
<NUMBER-OF-SHARES-REDEEMED> (2189420)
<SHARES-REINVESTED> 1438
<NET-CHANGE-IN-ASSETS> 81153818
<ACCUMULATED-NII-PRIOR> 15666
<ACCUMULATED-GAINS-PRIOR> (3389)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 584177
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 777866
<AVERAGE-NET-ASSETS> 64908556
<PER-SHARE-NAV-BEGIN> 10.64
<PER-SHARE-NII> .15
<PER-SHARE-GAIN-APPREC> .16
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.94
<EXPENSE-RATIO> .47
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF MFS/SUN LIFE SERIES TRUST - WORLD ASSET ALLOCATION
SERIES AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 16
<NAME> MFS/SUN LIFE SERIES TRUST - WORLD ASSET ALLOCATION SERIES
<S> <C>
<PERIOD-TYPE> 2-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 2785019
<INVESTMENTS-AT-VALUE> 2801347
<RECEIVABLES> 335827
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3137174
<PAYABLE-FOR-SECURITIES> 119415
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 14584
<TOTAL-LIABILITIES> 133999
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2985485
<SHARES-COMMON-STOCK> 298587
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 6575
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (4886)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 16001
<NET-ASSETS> 3003175
<DIVIDEND-INCOME> 879
<INTEREST-INCOME> 8859
<OTHER-INCOME> 0
<EXPENSES-NET> 3163
<NET-INVESTMENT-INCOME> 6575
<REALIZED-GAINS-CURRENT> (4886)
<APPREC-INCREASE-CURRENT> 16001
<NET-CHANGE-FROM-OPS> 17690
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 300343
<NUMBER-OF-SHARES-REDEEMED> (1756)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 3003175
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1577
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 8514
<AVERAGE-NET-ASSETS> 1448063
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .02
<PER-SHARE-GAIN-APPREC> .04
<PER-SHARE-DIVIDEND> .00
<PER-SHARE-DISTRIBUTIONS> .00
<RETURNS-OF-CAPITAL> .00
<PER-SHARE-NAV-END> 10.06
<EXPENSE-RATIO> 1.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF MFS/SUN LIFE SERIES TRUST - UTILITIES SERIES AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 12
<NAME> MFS/SUN LIFE SERIES TRUST-UTILITIES SERIES
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 21271617
<INVESTMENTS-AT-VALUE> 20686501
<RECEIVABLES> 1072866
<ASSETS-OTHER> 35
<OTHER-ITEMS-ASSETS> 124633
<TOTAL-ASSETS> 21884035
<PAYABLE-FOR-SECURITIES> 414479
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 21204
<TOTAL-LIABILITIES> 435683
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 21982738
<SHARES-COMMON-STOCK> 2252765
<SHARES-COMMON-PRIOR> 279317
<ACCUMULATED-NII-CURRENT> 673522
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (622482)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (585426)
<NET-ASSETS> 21448352
<DIVIDEND-INCOME> 464240
<INTEREST-INCOME> 268698
<OTHER-INCOME> 0
<EXPENSES-NET> 58056
<NET-INVESTMENT-INCOME> 674882
<REALIZED-GAINS-CURRENT> (622482)
<APPREC-INCREASE-CURRENT> (604453)
<NET-CHANGE-FROM-OPS> (552053)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (4930)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2286741
<NUMBER-OF-SHARES-REDEEMED> (313802)
<SHARES-REINVESTED> 509
<NET-CHANGE-IN-ASSETS> 18650613
<ACCUMULATED-NII-PRIOR> 3570
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 109624
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 167680
<AVERAGE-NET-ASSETS> 14616533
<PER-SHARE-NAV-BEGIN> 10.02
<PER-SHARE-NII> .29
<PER-SHARE-GAIN-APPREC> (.78)
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> .00
<RETURNS-OF-CAPITAL> .00
<PER-SHARE-NAV-END> 9.52
<EXPENSE-RATIO> .39
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF MFS/SUN LIFE SERIES TRUST-MONEY MARKET SERIES AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 19
<NAME> MFS/SUN LIFE SERIES TRUST-MONEY MARKET SERIES
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 252030425
<INVESTMENTS-AT-VALUE> 252030425
<RECEIVABLES> 400996
<ASSETS-OTHER> 2914
<OTHER-ITEMS-ASSETS> 6711
<TOTAL-ASSETS> 252441046
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 266054
<TOTAL-LIABILITIES> 266054
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 252174992
<SHARES-COMMON-STOCK> 252174992
<SHARES-COMMON-PRIOR> 142464249
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 252174992
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 9425154
<OTHER-INCOME> 0
<EXPENSES-NET> 1272251
<NET-INVESTMENT-INCOME> 8152903
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 8152903
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (8152903)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 450186088
<NUMBER-OF-SHARES-REDEEMED> (348628248)
<SHARES-REINVESTED> 8152903
<NET-CHANGE-IN-ASSETS> 109710743
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1090506
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1272251
<AVERAGE-NET-ASSETS> 218101200
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .02
<PER-SHARE-GAIN-APPREC> .00
<PER-SHARE-DIVIDEND> (.02)
<PER-SHARE-DISTRIBUTIONS> .00
<RETURNS-OF-CAPITAL> .00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .58
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF MFS/SUN LIFE SERIES TRUST-MANAGED SECTORS SERIES AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 05
<NAME> MFS/SUN LIFE SERIES TRUST-MANAGED SECTORS SERIES
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 114947957
<INVESTMENTS-AT-VALUE> 118472463
<RECEIVABLES> 2045033
<ASSETS-OTHER> 1389
<OTHER-ITEMS-ASSETS> 27494
<TOTAL-ASSETS> 120546379
<PAYABLE-FOR-SECURITIES> 1477000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 82306
<TOTAL-LIABILITIES> 1559306
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 111826766
<SHARES-COMMON-STOCK> 5984570
<SHARES-COMMON-PRIOR> 4516153
<ACCUMULATED-NII-CURRENT> 342446
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 3293355
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3524506
<NET-ASSETS> 118987073
<DIVIDEND-INCOME> 1191329
<INTEREST-INCOME> 370854
<OTHER-INCOME> 0
<EXPENSES-NET> 969502
<NET-INVESTMENT-INCOME> 592681
<REALIZED-GAINS-CURRENT> 3043237
<APPREC-INCREASE-CURRENT> (5941813)
<NET-CHANGE-FROM-OPS> (2305895)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (111562)
<DISTRIBUTIONS-OF-GAINS> (12937855)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2473797
<NUMBER-OF-SHARES-REDEEMED> (1688238)
<SHARES-REINVESTED> 682858
<NET-CHANGE-IN-ASSETS> 14023298
<ACCUMULATED-NII-PRIOR> 111536
<ACCUMULATED-GAINS-PRIOR> 12937764
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 843914
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 969502
<AVERAGE-NET-ASSETS> 112521867
<PER-SHARE-NAV-BEGIN> 23.24
<PER-SHARE-NII> .10
<PER-SHARE-GAIN-APPREC> (.66)
<PER-SHARE-DIVIDEND> (.02)
<PER-SHARE-DISTRIBUTIONS> (2.77)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 19.88
<EXPENSE-RATIO> .87
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF MFS/SUN LIFE SERIES TRUST - GOVERNMENT SECURITIES SERIES
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 03
<NAME> MFS/SUN LIFE SERIES TRUST - GOVERNMENT SECURITIES SERIES
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 357750498
<INVESTMENTS-AT-VALUE> 342572305
<RECEIVABLES> 4940144
<ASSETS-OTHER> 4102
<OTHER-ITEMS-ASSETS> 149086
<TOTAL-ASSETS> 347665637
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 515531
<TOTAL-LIABILITIES> 515531
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 349788183
<SHARES-COMMON-STOCK> 28638373
<SHARES-COMMON-PRIOR> 23712724
<ACCUMULATED-NII-CURRENT> 19677210
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (7137094)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (15178193)
<NET-ASSETS> 347150106
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 22445596
<OTHER-INCOME> 0
<EXPENSES-NET> 2091407
<NET-INVESTMENT-INCOME> 20354189
<REALIZED-GAINS-CURRENT> (7813444)
<APPREC-INCREASE-CURRENT> (19253931)
<NET-CHANGE-FROM-OPS> (6713186)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (13515608)
<DISTRIBUTIONS-OF-GAINS> (5181096)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 9183899
<NUMBER-OF-SHARES-REDEEMED> (5809843)
<SHARES-REINVESTED> 1551593
<NET-CHANGE-IN-ASSETS> 36628970
<ACCUMULATED-NII-PRIOR> 13530499
<ACCUMULATED-GAINS-PRIOR> 5156072
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1872095
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2091407
<AVERAGE-NET-ASSETS> 340380909
<PER-SHARE-NAV-BEGIN> 13.10
<PER-SHARE-NII> .64
<PER-SHARE-GAIN-APPREC> (.92)
<PER-SHARE-DIVIDEND> (.50)
<PER-SHARE-DISTRIBUTIONS> (.19)
<RETURNS-OF-CAPITAL> .00
<PER-SHARE-NAV-END> 12.12
<EXPENSE-RATIO> .62
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
Exhibit 99.1(e)
MFS/SUN LIFE SERIES TRUST
AMENDMENT TO THE DECLARATION OF TRUST
Establishment and Designation
of Additional Series of Shares of Beneficial Interest
(without par value)
Pursuant to Section 6.9 of the Amended and Restated Declaration of Trust
dated February 15, 1985, as amended (the "Declaration of Trust"), of MFS/SUN
LIFE SERIES TRUST (the "Trust"), the Trustees of the Trust hereby establish and
designate a new series of Shares (as defined in the Declaration of Trust), such
series to have the following special and relative rights:
1. The new series shall be designated:
- Emerging Growth Series
2. The series shall be authorized to invest in cash, securities,
instruments and other property as from time to time described in the
Trust's then currently effective registration statement under the
Securities Act of 1933 to the extent pertaining to the offering of
Shares of such series. Each Share of the series shall be redeemable,
shall be entitled to one vote or fraction thereof in respect of a
fractional share on matters on which Shares of the series shall be
entitled to vote, shall represent a pro rata beneficial interest in
the assets allocated or belonging to the series, and shall be entitled
to receive its pro rata share of the net assets of that series upon
liquidation of the series, all as provided in Section 6.9 of the
Declaration of Trust.
3. Shareholders of the series shall vote separately as a class from
shareholders of each other series on any matter to the extent required
by, and any matter shall be deemed to have been effectively acted upon
with respect to the series as provided in Rule 18f-2, as from time to
time in effect, under the Investment Company Act of 1940, as amended,
or any successor rule, and by the Declaration of Trust.
4. The assets and liabilities of the Trust shall be allocated among the
previously established and existing series of the Trust and this
series as set forth in Section 6.9 of the Declaration of Trust.
<PAGE>
5. Subject to the provisions of Section 6.9 and Article IX of the
Declaration of Trust, the Trustees (including any successor Trustees)
shall have the right at any time and from time to time to reallocate
assets and expenses or to change the designation of any series now or
hereafter created, or to otherwise change the special and relative
rights of any such series.
Pursuant to Section 6.9(h) of the Declaration of Trust, this establishment
and designation of series of Shares shall be effective upon execution by a
majority of the Trustees of the Trust.
IN WITNESS WHEREOF, a majority of the Trustees of the Trust, have executed
this establishment and designation, in one or more counterparts, all
constituting a single instrument, as an instrument under seal in The
Commonwealth of Massachusetts, as of this 2nd day of February, 1995.
/s/Samuel Adams /s/Garth Marston
------------------------------ -----------------------------
Samuel Adams, Trustee Garth Marston, Trustee
/s/Geoffrey Crofts /s/John D. McNeil
------------------------------ -----------------------------
Geoffrey Crofts, Trustee John D. McNeil, Trustee
/s/David D. Horn /s/Derwyn F. Phillips
------------------------------ ----------------------------
David D. Horn, Trustee Derwyn F. Phillips, Trustee
<PAGE>
Exhibit 99.1(f)
MFS/SUN LIFE SERIES TRUST
AMENDMENT TO THE DECLARATION OF TRUST
Establishment and Designation
of Additional Series of Shares of Beneficial Interest
(without par value)
Pursuant to Section 6.9 of the Amended and Restated Declaration of Trust
dated February 15, 1985, as amended (the "Declaration of Trust"), of MFS/SUN
LIFE SERIES TRUST (the "Trust"), the Trustees of the Trust hereby establish and
designate new series of Shares (as defined in the Declaration of Trust), such
series to have the following special and relative rights:
1. The new series shall be designated:
- MFS/Foreign & Colonial International Growth Series
- MFS/Foreign & Colonial International Growth and Income
Series
- MFS/Foreign & Colonial Emerging Markets Equity Series
2. The series shall be authorized to invest in cash, securities,
instruments and other property as from time to time described in the
Trust's then currently effective registration statement under the
Securities Act of 1933 to the extent pertaining to the offering of
Shares of such series. Each Share of each series shall be redeemable,
shall be entitled to one vote or fraction thereof in respect of a
fractional share on matters on which Shares of the series shall be
entitled to vote, shall represent a pro rata beneficial interest in
the assets allocated or belonging to the series, and shall be entitled
to receive its pro rata share of the net assets of that series upon
liquidation of the series, all as provided in Section 6.9 of the
Declaration of Trust.
3. Shareholders of the series shall vote separately as a class from
shareholders of each other series on any matter to the extent required
by, and any matter shall be deemed to have been effectively acted upon
with respect to the series as provided in Rule 18f-2, as from time to
time in effect, under the Investment Company Act of 1940, as amended,
or any successor rule, and by the Declaration of Trust.
4. The assets and liabilities of the Trust shall be allocated among the
previously established and existing series of the Trust and these
series as set forth in Section 6.9 of the Declaration of Trust.
<PAGE>
5. Subject to the provisions of Section 6.9 and Article IX of the
Declaration of Trust, the Trustees (including any successor Trustees)
shall have the right at any time and from time to time to reallocate
assets and expenses or to change the designation of any series now or
hereafter created, or to otherwise change the special and relative
rights of any such series.
Pursuant to Section 6.9(h) of the Declaration of Trust, this establishment
and designation of series of Shares shall be effective upon execution by a
majority of the Trustees of the Trust.
IN WITNESS WHEREOF, a majority of the Trustees of the Trust, have executed
this establishment and designation, in one or more counterparts, all
constituting a single instrument, as an instrument under seal in The
Commonwealth of Massachusetts, as of this 28th day of July, 1995.
/s/Samuel Adams /s/Garth Marston
------------------------------ -----------------------------
Samuel Adams, Trustee Garth Marston, Trustee
/s/Geoffrey Crofts /s/John D. McNeil
------------------------------ -----------------------------
Geoffrey Crofts, Trustee John D. McNeil, Trustee
/s/David D. Horn /s/Derwyn F. Phillips
------------------------------ ----------------------------
David D. Horn, Trustee Derwyn F. Phillips, Trustee
<PAGE>
EXHIBIT 99.5(j)
INVESTMENT ADVISORY AGREEMENT
-----------------------------
INVESTMENT ADVISORY AGREEMENT, dated this 1st day of May, 1995, by
and between MFS/SUN LIFE SERIES TRUST, a Massachusetts business trust (the
"Trust"), on behalf of the EMERGING GROWTH SERIES (the "Fund"), a series of the
Trust and MASSACHUSETTS FINANCIAL SERVICES COMPANY, a Delaware corporation (the
"Adviser").
WITNESSETH:
WHEREAS, the Trust is engaged in business as an open-end investment
company registered under the Investment Company Act of 1940; and
WHEREAS, the Adviser is wiling to provide business services to the Fund
on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
of the parties hereto as herein set forth, the parties covenant and agree as
follows:
ARTICLE 1. Duties of the Adviser. The Adviser shall provide the Fund
---------------------
with such investment advice and supervision as the Trustees of the Trust may
from time to time consider necessary for the proper supervision of the Fund's
assets. The Adviser shall act as Adviser to the Fund and as such shall furnish
continuously an investment program and shall determine from time to time what
securities shall be purchased, sold or exchanged and what portion of the assets
of the Fund shall be held uninvested, subject always to the restrictions of the
Declaration of Trust of the Trust, dated February 15, 1985, and By-Laws, each as
amended from time to time (respectively, the "Declaration" and the "By-Laws"),
to the provisions of the Investment Company act of 1940 and the Rules,
Regulations and orders thereunder and to the Trust's then-current Prospectus and
Statement of Additional Information. The Adviser shall also make
recommendations as to the manner in which voting rights, rights to consent to
corporate action and any other rights pertaining to the Fund's portfolio
securities shall be exercised. Should the Trustees at any time,however, make any
definite determination as to the investment policy and notify the Adviser
thereof in writing, the Adviser shall be bound by such determination for the
period, if any, specified in such notice or until similarly notified that such
determination shall be revoked. The Adviser shall take, on behalf of the Fund,
all actions which it deems necessary to implement the investment policies
determined as provided above, and in particular to place all orders for the
purchase or sale of portfolio securities for the Fund's account with brokers or
dealers selected by it, and to that end, the Adviser is authorized as the agent
of the Fund to give instructions to the Custodian of the Fund as to the
deliveries of securities and payments of cash for the account of the Fund. In
connection with the selection of such brokers or dealers and the placing of such
orders, the Adviser is directed to seek for the Fund execution at the most
reasonable price by responsible brokerage firms at reasonably competitive
commission rates. In fulfilling this requirement
<PAGE>
the Adviser shall not be deemed to have acted unlawfully or to have breached any
duty, created by this Agreement or otherwise, solely by reason of its having
caused the Fund to pay a broker or dealer an amount of commission for effecting
a securities transaction in excess of the amount of commission another broker or
dealer would have charged for effecting that transaction, if the Adviser
determined in good faith that such amount of commission was reasonable in
relation to the value of the brokerage and research services provided by such
broker or dealer, viewed in terms of either that particular transaction or the
Adviser's overall responsibilities with respect to the Fund and to other clients
of the Adviser as to which the Adviser exercises investment discretion.
The Adviser may from time to time enter into sub-investment advisory
agreements with one or more investment advisors with such terms and conditions
as the Adviser may determine provided that such sub-investment advisory
agreements have been approved by a majority of the Trustees of the Trust who are
not "interested persons" of the Trust, or the Adviser or the Sub-Adviser and by
"vote of a majority of the outstanding voting securities" of the Fund. Subject
to the provisions of Article 5, the Adviser shall not be liable for any error of
judgment or mistake of law by any sub-advisor or for any loss arising out of any
investment made by any sub-advisor or for any act or omission in the execution
and management of the Fund by any sub-advisor.
ARTICLE 2. Allocation of Charges and Expenses. The Adviser shall
----------------------------------
furnish at its own expense investment advisory and administrative services,
office space, equipment and clerical personnel necessary for servicing the
investments of the Fund and maintaining its organization, and investment
advisory facilities and executive and supervisory personnel for managing the
investments and effecting the portfolio transactions of the Fund. The Adviser
shall arrange, if desired by the Trust, for Directors, officers and employees of
the Adviser or its "affiliates" to serve without compensation as Trustees,
officers or agents of the Trust if duly elected or appointed to such positions
and subject to their individual consent and to any limitations imposed by law.
It is understood that the Fund will pay all of its own expenses including,
without limitation, compensation of Trustees "not affiliated" with the Adviser;
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 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 the
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 shareholders'
meetings.
- 2 -
<PAGE>
ARTICLE 3. Compensation of the Adviser. For the services to be
---------------------------
rendered and the facilities provided, the Fund shall pay to the Adviser an
investment advisory fee computed and paid monthly at an annual rate equal to
0.75% of the first $300 million of the Fund's average daily net assets and
0.675% of the Fund's average daily net assets in excess of $300 million. If the
Adviser shall serve for less than the whole of any period specified in this
Article 3, the compensation payable to the Adviser with respect to the Fund will
be prorated.
ARTICLE 4. Covenants of the Adviser. The Adviser agrees that it will
------------------------
not deal with itself, or with the Trustees of the Trust as principals in making
purchases or sales of securities or other property for the account of the Fund,
except as permitted by the Investment Company Act of 1940 and the Rules,
Regulations or orders thereunder, will not take a long or short position in the
shares of the Fund except as permitted by the Declaration and will comply with
all other provisions of the declaration and the By-Laws and the then-current
Prospectus and Statement of Additional Information of the Trust relative to the
Adviser and its Directors and officers.
ARTICLE 5. Limitation of Liability of the Adviser. The Adviser shall
--------------------------------------
not 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 duties and obligations hereunder. As used
in this Article 5, the term "Adviser" shall include Directors, officers and
employees of the Adviser as well as that corporation itself.
ARTICLE 6. Activities of the Adviser. The services of the Adviser to
------------------------
the Trust and the Fund are not deemed to be exclusive, the Adviser being free to
render investment advisory and/or other services to others. The Adviser may
permit other fund clients to use the initials "MFS" in their names. The Trust
agrees that if the Adviser shall for any reason no longer serve as the Adviser
to the Fund, the Trust will change its name so as to delete the initials "MFS".
It is understood that the Trustees, officers and shareholders of the Trust are
or may be or become interested in the Adviser, as Directors, officers,
employees, or otherwise and that Directors, officers and employees of the
Adviser are or may become similarly interested in the Trust, and that the
Adviser may be or become interested in the Fund as a shareholder or otherwise.
ARTICLE 7. Duration, Termination and Amendment of this Agreement. This
-----------------------------------------------------
Agreement shall become effective on the date first above written and shall
govern the relations between the parties hereto thereafter, and shall remain in
force until November 1, 1995 on which date it will terminate unless its
continuance after November 1, 1995 in "specifically approved at least annually"
(i) by the vote of a majority of the Trustees of the Trust who are not
"interested persons" of the Trust or of the Adviser at a meeting specifically
called for the purpose of voting on such approval, and (ii) by the Board of
Trustees of the Trust, or by "vote of a majority of the outstanding voting
securities" of the Fund.
- 3 -
<PAGE>
This Agreement may be terminated at any time without the payment of any
penalty by the Trustees or by "vote of a majority of the outstanding voting
securities" of the Fund, or by the Adviser, in each case on not more than sixty
days' nor less than thirty days' written notice to the other party. This
Agreement shall automatically terminate in the event of its "assignment".
This Agreement may be amended only if such amendment is approved by
"vote of a majority of the outstanding voting securities" of the Fund.
The terms "specifically approved at least annually", "vote of a majority
of the outstanding voting securities", "assignment", "affiliated person", and
"interested person", when used in this Agreement, shall have the respective
meanings specified, and shall be construed in a manner consistent with, the
Investment Company Act of 1940 and the Rules and Regulations promulgated
thereunder, subject, however, to such exemptions as may be granted by the
Securities and Exchange Commission under said Act.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered in their names and on their behalf by the undersigned,
thereunto duly authorized, and their respective seals to be hereto affixed, all
as of the day and year first written above. The undersigned Trustee of the Trust
has executed this Agreement not individually, but as Trustee under the
Declaration and the obligations of this Agreement are not binding upon any of
the Trustees or Shareholders of the Trust, individually, but bind only the trust
estate applicable to the Fund.
MFS/SUN LIFE SERIES TRUST ON
BEHALF OF THE EMERGING GROWTH SERIES
By:
------------------------------------
John D. McNeil
Chairman and Trustee
MASSACHUSETTS FINANCIAL
SERVICES COMPANY
By:
------------------------------------
A. Keith Brodkin,
Chairman
- 4 -
<PAGE>
Exhibit 99.5(k)
INVESTMENT ADVISORY AGREEMENT
INVESTMENT ADVISORY AGREEMENT, dated as of this _____ day of September, 1995 by
and between MFS/SUN LIFE SERIES TRUST, a Massachusetts business trust (the
"Trust"), on behalf of the MFS/FOREIGN & COLONIAL INTERNATIONAL GROWTH SERIES
(the "Fund"), and MASSACHUSETTS FINANCIAL SERVICES COMPANY, a Delaware
corporation (the "Adviser").
WITNESSETH:
WHEREAS, the Trust is engaged in business as an open-end investment
company registered under the Investment Company Act of 1940 (the "1940 Act");
and
WHEREAS, the Adviser is willing to provide business management
services to the Fund on the terms and conditions hereinafter set forth
NOW, THEREFORE, in consideration of the mutual covenants and
agreements of the parties hereto as herein set forth, the parties covenant and
agree as follows:
ARTICLE 1: DUTIES OF THE ADVISER. The Adviser shall provide the Fund
with such investment advice and supervision as the latter may from time to time
consider necessary for the proper management of its funds. The Adviser shall
act as Adviser to the Fund and as such shall furnish continuously an investment
program and shall determine from time to time what securities shall be
purchased, sold or exchanged and what portion of the assets of the Fund shall be
held uninvested, subject always to the restrictions of the Trust's Amended and
Restated Declaration of Trust, dated February 15, 1995 and By-Laws, each as
amended from time to time (respectively, the "Declaration" and the "By-Laws"),
to the provisions of the 1940 Act and the rules and regulations thereunder and
to the Fund's then-current Prospectus and Statement of Additional Information.
Should the Trustees at any time, however, make any determination as to
investment policy and notify the Adviser thereof in writing, the Adviser shall
be bound by such determination for the period, if any, specified in such notice
or until similarly notified that such determination has been revoked. The
Adviser shall take, on behalf of the Fund, all actions which it deems necessary
to implement the investment policies determined as provided above, and in
particular to place all orders for the purchase or sale of portfolio securities
for the Fund's account with brokers, dealers or other entities selected by it,
and to that end the Adviser is authorized as the agent of the Fund to give
instructions to the Custodian of the Fund as to deliveries of securities and
payments of cash for the account of the Fund. In connection with the selection
of such brokers, dealers or other entities and the placing of such orders, the
Adviser is directed to seek for the Fund execution at the most favorable price
by responsible brokerage firms at reasonably competitive commission rates. In
fulfilling this requirement the Adviser shall not be deemed to have acted
unlawfully or to have breached any duty, created by this Agreement or otherwise,
solely by reason of its having caused the Fund to pay a broker, dealer or other
entity an amount of commission for effecting a securities transaction in excess
of the amount of commission another broker, dealer or would have charged for
effecting that transaction, if the
- 1 -
<PAGE>
Adviser determined in good faith that such amount of commission was reasonable
in relation to the value of the brokerage and research services (within the
meaning of Section 28(e) of the Securities Exchange Act of 1934, as amended)
provided by such broker, dealer or other entity, viewed in terms of either that
particular transaction or the Adviser's overall responsibilities with respect
to the Fund and to other clients of the Adviser as to which the Adviser
exercises investment discretion.
The Adviser may from time to time enter into investment sub-advisory
agreements with one or more investment advisers (a "Sub-Adviser") to the Fund
to perform some or all of the services for which the Adviser is responsible
pursuant to this Article 1 upon such terms and conditions as the Adviser may
determine provided that such investment sub-advisory agreements have been
approved by a majority of the Trustees of the Trust who are not interested
persons of the Trust, the Adviser or the Sub-Adviser and by vote of a majority
of the outstanding voting securities of the Fund. The Adviser may terminate
the services of any Sub-Adviser at any time in its sole discretion, and shall
at such time assume the responsibilities of such Sub-Adviser unless and until a
successor Sub-Adviser is selected. Subject to the provisions of Article 6, the
Adviser shall not be liable for any error of judgment or mistake of law by any
Sub-Adviser or for any loss arising out of any investment made by any
Sub-Adviser or for any act or omission in the execution and management of the
Fund by any Sub-Adviser.
ARTICLE 2: ALLOCATION OF CHARGES AND EXPENSES. The Adviser shall
furnish at its own expense investment advisory and administrative services,
office space, equipment and clerical personnel necessary for servicing the
investments of the Fund and maintaining the Trust's organization, and investment
advisory facilities and executive and supervisory personnel for managing the
investments and effecting the portfolio transactions of the Fund. The Adviser
shall arrange, if desired by the Trust, for Directors, officers and employees of
the Adviser to serve as Trustees, officers or agents of the Trust if duly
elected or appointed to such positions and subject to their individual consent
and to any limitations imposed by law. It is understood that the Trust will pay
all of its own expenses including, without limitation, compensation of Trustees
of the Trust who are not affiliated persons of the Trust or the Adviser,
governmental fees, interest charges, taxes, membership dues in the Investment
Company Institute allocable to the Trust, fees and expenses of independent
auditors, of legal counsel and of any transfer agent, registrar or dividend
disbursing agent of the Trust, expenses of repurchasing and redeeming shares and
servicing shareholder accounts, expenses of preparing, printing and mailing
stock certificates, prospectuses, periodic reports, notices and proxy statements
to shareholders and 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 the
custodian for all services to the Trust, including safekeeping of funds and
securities, keeping of books and accounts and calculation of the net asset value
of shares of the Fund, expenses of shareholder meetings, and expenses relating
to the issuance, registration and qualification of shares of the Fund and the
preparation, printing and mailing of prospectuses for such purposes (except to
the extent that any Distribution Agreement to which the Trust is a party on
behalf of the Fund provides that another party is to pay some or all of such
expenses).
- 2 -
<PAGE>
ARTICLE 3: COMPENSATION OF THE ADVISER. For the services to be rendered
and the facilities to be provided, the Fund shall pay to the Adviser an
investment advisory fee computed and paid monthly at an annual rate equal to
0.975% of the first $500 million of the Fund's average daily net assets and
0.925% of the average daily net assets of the Fund in excess of $500 million. If
the Adviser shall serve for less than the whole of any period specified in this
Article 3, the compensation payable to the Adviser with respect to the Fund
shall be prorated.
ARTICLE 4: SPECIAL SERVICES. Should the Fund have occasion to request
the Adviser to perform services not herein contemplated or to request the
Adviser to arrange for the services of others, the Adviser will act for the Fund
upon request to the best of its ability, with compensation for the Adviser's
services to be agreed upon with respect to each such occasion as it arises.
ARTICLE 5: COVENANTS OF THE ADVISER. The Adviser agrees that it will
not deal with itself, or with the Trustees of the Trust or the Trust's
distributor as principals in making purchases or sales of securities or other
property for the account of the Fund, except as permitted by the 1940 Act, will
not take a long or short position in the shares of the Fund, except as provided
by the Declaration, and will comply with all other provisions of the Declaration
and By-Laws relative to the Adviser and its Directors and officers.
ARTICLE 6: LIMITATION OF LIABILITY OF THE ADVISER. The Adviser, and
its Directors, officers and employees, shall not 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 hereunder.
ARTICLE 7: ACTIVITIES OF THE ADVISER. The services of the Adviser to
the Fund are not to be deemed to be exclusive, the Adviser being free to render
services to others. The Adviser may permit other fund clients to use the words
"Massachusetts Financial" or "MFS" in their names. The Fund agrees that if the
Adviser shall for any reason no longer serve as the Adviser to the Fund, the
Fund will change its name so as to delete the words "Massachusetts Financial"
or "MFS". It is understood that Trustees, officers, and shareholders of the
Trust are or may be or become interested in the Adviser, as Directors, officers,
employees, or otherwise and that Directors, officers and employees of the
Adviser are or may become similarly interested in the Trust and that the Adviser
may be or become interested in the Trust as a shareholder or otherwise.
ARTICLE 8: DURATION, TERMINATION AND AMENDMENTS OF THIS AGREEMENT.
This Agreement shall become effective on the date of its execution and shall
govern the relations between the parties hereto thereafter, and shall remain in
force until November 1, 1996, and each year thereafter but only so long as its
continuance is specifically approved at least annually (i) by the vote of a
majority of the Trustees of the Trust who are not interested persons of the
Trust or of the Adviser at a meeting specifically called for the purpose of
voting on such approval, and (ii) by the Trustees of the Trust, or by vote of a
majority of the outstanding voting securities of the Fund.
- 3 -
<PAGE>
This Agreement may be terminated at any time without the payment of
any penalty by the Trustees of the Trust or by vote of a majority of the
outstanding voting securities of the Fund, or by the Adviser, on not more than
sixty days' nor less that thirty days' written notice to the other party. This
Agreement shall automatically terminate in the event of its assignment.
This Agreement may be amended only if such amendment is approved by
vote of a majority of the outstanding voting securities of the Fund.
ARTICLE 9: CERTAIN TERMS. The terms "vote of a majority of the
outstanding voting securities," "assignment," "specifically approved at least
annually," "affiliated person" and "interested persons," when used in this
Agreement, shall have the respective meanings specified in the 1940 Act and the
rules and regulations thereunder, subject, however, to such exemptions as may be
granted by the Securities and Exchange Commission under the 1940 Act.
ARTICLE 10: RECORD KEEPING. The Adviser will maintain records in a
form acceptable to the Trust and in compliance with the rules and regulations
of the Securities and Exchange Commission, including but not limited to records
required to be maintained by Section 31(a) of the 1940 Act and the rules and
regulations thereunder, which at all times will be the property of the Trust
and will be available for inspection and use by the Trust.
ARTICLE 11: LIMITATION OF LIABILITY OF THE TRUSTEES AND SHAREHOLDERS.
A copy of the Declaration of the Trust is on file with the Secretary of State
of The Commonwealth of Massachusetts. The parties hereto acknowledge that the
obligations of or arising out of this instrument are not binding upon any of
the Trust's trustees, officers, employees, agents or shareholders individually,
but are binding solely upon the assets and property of the Trust in accordance
with its proportionate interest hereunder. If this instrument is executed by
the Trust on behalf of one or more series of the Trust, the parties hereto
acknowledge that the assets and liabilities of each series of the Trust are
separate and distinct and that the obligations of or arising out of this
instrument are binding solely upon the assets or property of the series on
whose behalf the Trust has executed this instrument. If the Trust has executed
this instrument on behalf of more than one series of the Trust, the parties
hereto also agree that the obligations of each series hereunder shall be
several and not joint, in accordance with its proportionate interest hereunder,
and the parties hereto agree not to proceed against any series for the
obligations of another series.
- 4 -
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered in their names and on their behalf by the undersigned,
thereunto duly authorized, and their respective seals to be hereto affixed, all
as of the day and year first written above.
MFS/SUN LIFE SERIES TRUST,
on behalf of the MFS/FOREIGN &
COLONIAL INTERNATIONAL
GROWTH SERIES
By:
-------------------------------
John D. McNeil
Chairman and Trustee
MASSACHUSETTS FINANCIAL
SERVICES COMPANY
By:
-------------------------------
Jeffrey L. Shames
President
- 5 -
<PAGE>
Exhibit 99.5(l)
INVESTMENT ADVISORY AGREEMENT
INVESTMENT ADVISORY AGREEMENT, dated as of this _____ day of September, 1995 by
and between MFS/SUN LIFE SERIES TRUST, a Massachusetts business trust (the
"Trust"), on behalf of the MFS/FOREIGN & COLONIAL INTERNATIONAL GROWTH AND
INCOME SERIES (the "Fund"), and MASSACHUSETTS FINANCIAL SERVICES COMPANY, a
Delaware corporation (the "Adviser").
WITNESSETH:
WHEREAS, the Trust is engaged in business as an open-end investment
company registered under the Investment Company Act of 1940 (the "1940 Act");
and
WHEREAS, the Adviser is willing to provide business management services
to the Fund on the terms and conditions hereinafter set forth
NOW, THEREFORE, in consideration of the mutual covenants and agreements
of the parties hereto as herein set forth, the parties covenant and agree as
follows:
ARTICLE 1: DUTIES OF THE ADVISER. The Adviser shall provide the Fund
with such investment advice and supervision as the latter may from time to time
consider necessary for the proper management of its funds. The Adviser shall
act as Adviser to the Fund and as such shall furnish continuously an investment
program and shall determine from time to time what securities shall be
purchased, sold or exchanged and what portion of the assets of the Fund shall be
held uninvested, subject always to the restrictions of the Trust's Amended and
Restated Declaration of Trust, dated February 15, 1985 and By-Laws, each as
amended from time to time (respectively, the "Declaration" and the "By-Laws"),
to the provisions of the 1940 Act and the rules and regulations thereunder and
to the Fund's then-current Prospectus and Statement of Additional Information.
Should the Trustees at any time, however, make any determination as to
investment policy and notify the Adviser thereof in writing, the Adviser shall
be bound by such determination for the period, if any, specified in such notice
or until similarly notified that such determination has been revoked. The
Adviser shall take, on behalf of the Fund, all actions which it deems necessary
to implement the investment policies determined as provided above, and in
particular to place all orders for the purchase or sale of portfolio securities
for the Fund's account with brokers, dealers or other entities selected by it,
and to that end the Adviser is authorized as the agent of the Fund to give
instructions to the Custodian of the Fund as to deliveries of securities and
payments of cash for the account of the Fund. In connection with the selection
of such brokers, dealers or other entities and the placing of such orders, the
Adviser is directed to seek for the Fund execution at the most favorable price
by responsible brokerage firms at reasonably competitive commission rates. In
fulfilling this requirement the Adviser shall not be deemed to have acted
unlawfully or to have breached any duty, created by this Agreement or otherwise,
solely by reason of its having caused the Fund to pay a broker, dealer or other
entity an amount of commission for effecting a securities transaction in excess
of the amount of commission another broker, dealer or would have charged for
effecting that transaction, if the
- 1 -
<PAGE>
Adviser determined in good faith that such amount of commission was reasonable
in relation to the value of the brokerage and research services (within the
meaning of Section 28(e) of the Securities Exchange Act of 1934, as amended)
provided by such broker, dealer or other entity, viewed in terms of either that
particular transaction or the Adviser's overall responsibilities with respect to
the Fund and to other clients of the Adviser as to which the Adviser exercises
investment discretion.
The Adviser may from time to time enter into investment sub-advisory
agreements with one or more investment advisers (a "Sub-Adviser") to the Fund to
perform some or all of the services for which the Adviser is responsible
pursuant to this Article 1 upon such terms and conditions as the Adviser may
determine provided that such investment sub-advisory agreements have been
approved by a majority of the Trustees of the Trust who are not interested
persons of the Trust, the Adviser or the Sub-Adviser and by vote of a majority
of the outstanding voting securities of the Fund. The Adviser may terminate the
services of any Sub-Adviser at any time in its sole discretion, and shall at
such time assume the responsibilities of such Sub-Adviser unless and until a
successor Sub-Adviser is selected. Subject to the provisions of Article 6, the
Adviser shall not be liable for any error of judgment or mistake of law by any
Sub-Adviser or for any loss arising out of any investment made by any
Sub-Adviser or for any act or omission in the execution and management of the
Fund by any Sub-Adviser.
ARTICLE 2: ALLOCATION OF CHARGES AND EXPENSES. The Adviser shall
furnish at its own expense investment advisory and administrative services,
office space, equipment and clerical personnel necessary for servicing the
investments of the Fund and maintaining the Trust's organization, and investment
advisory facilities and executive and supervisory personnel for managing the
investments and effecting the portfolio transactions of the Fund. The Adviser
shall arrange, if desired by the Trust, for Directors, officers and employees of
the Adviser to serve as Trustees, officers or agents of the Trust if duly
elected or appointed to such positions and subject to their individual consent
and to any limitations imposed by law. It is understood that the Trust will pay
all of its own expenses including, without limitation, compensation of Trustees
of the Trust who are not affiliated persons of the Trust or the Adviser,
governmental fees, interest charges, taxes, membership dues in the Investment
Company Institute allocable to the Trust, fees and expenses of independent
auditors, of legal counsel and of any transfer agent, registrar or dividend
disbursing agent of the Trust, expenses of repurchasing and redeeming shares and
servicing shareholder accounts, expenses of preparing, printing and mailing
stock certificates, prospectuses, periodic reports, notices and proxy statements
to shareholders and 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 the
custodian for all services to the Trust, including safekeeping of funds and
securities, keeping of books and accounts and calculation of the net asset value
of shares of the Fund, expenses of shareholder meetings, and expenses relating
to the issuance, registration and qualification of shares of the Fund and the
preparation, printing and mailing of prospectuses for such purposes (except to
the extent that any Distribution Agreement to which the Trust is a party on
behalf of the Fund provides that another party is to pay some or all of such
expenses).
- 2 -
<PAGE>
ARTICLE 3: COMPENSATION OF THE ADVISER. For the services to be
rendered and the facilities to be provided, the Fund shall pay to the Adviser an
investment advisory fee computed and paid monthly at an annual rate equal to
0.975% of the first $500 million of the Fund's average daily net assets and
0.925% of the average daily net assets of the Fund in excess of $500 million. If
the Adviser shall serve for less than the whole of any period specified in this
Article 3, the compensation payable to the Adviser with respect to the Fund
shall be prorated.
ARTICLE 4: SPECIAL SERVICES. Should the Fund have occasion to request
the Adviser to perform services not herein contemplated or to request the
Adviser to arrange for the services of others, the Adviser will act for the Fund
upon request to the best of its ability, with compensation for the Adviser's
services to be agreed upon with respect to each such occasion as it arises.
ARTICLE 5: COVENANTS OF THE ADVISER. The Adviser agrees that it will
not deal with itself, or with the Trustees of the Trust or the Trust's
distributor as principals in making purchases or sales of securities or other
property for the account of the Fund, except as permitted by the 1940 Act, will
not take a long or short position in the shares of the Fund, except as provided
by the Declaration, and will comply with all other provisions of the Declaration
and By-Laws relative to the Adviser and its Directors and officers.
ARTICLE 6: LIMITATION OF LIABILITY OF THE ADVISER. The Adviser, and
its Directors, officers and employees, shall not 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 hereunder.
ARTICLE 7: ACTIVITIES OF THE ADVISER. The services of the Adviser to
the Fund are not to be deemed to be exclusive, the Adviser being free to render
services to others. The Adviser may permit other fund clients to use the words
"Massachusetts Financial" or "MFS" in their names. The Fund agrees that if the
Adviser shall for any reason no longer serve as the Adviser to the Fund, the
Fund will change its name so as to delete the words "Massachusetts Financial"
or "MFS". It is understood that Trustees, officers, and shareholders of the
Trust are or may be or become interested in the Adviser, as Directors, officers,
employees, or otherwise and that Directors, officers and employees of the
Adviser are or may become similarly interested in the Trust and that the Adviser
may be or become interested in the Trust as a shareholder or otherwise.
ARTICLE 8: DURATION, TERMINATION AND AMENDMENTS OF THIS AGREEMENT.
This Agreement shall become effective on the date of its execution and shall
govern the relations between the parties hereto thereafter, and shall remain in
force until November 1, 1996, and each year thereafter but only so long as its
continuance is specifically approved at least annually (i) by the vote of a
majority of the Trustees of the Trust who are not interested persons of the
Trust or of the Adviser at a meeting specifically called for the purpose of
voting on such approval, and (ii) by the Trustees of the Trust, or by vote of a
majority of the outstanding voting securities of the Fund.
- 3 -
<PAGE>
This Agreement may be terminated at any time without the payment of any
penalty by the Trustees of the Trust or by vote of a majority of the outstanding
voting securities of the Fund, or by the Adviser, on not more than sixty days'
nor less that thirty days' written notice to the other party. This Agreement
shall automatically terminate in the event of its assignment.
This Agreement may be amended only if such amendment is approved by
vote of a majority of the outstanding voting securities of the Fund.
ARTICLE 9: CERTAIN TERMS. The terms "vote of a majority of the
outstanding voting securities," "assignment," "specifically approved at least
annually," "affiliated person" and "interested persons," when used in this
Agreement, shall have the respective meanings specified in the 1940 Act and the
rules and regulations thereunder, subject, however, to such exemptions as may be
granted by the Securities and Exchange Commission under the 1940 Act.
ARTICLE 10: RECORD KEEPING. The Adviser will maintain records in a
form acceptable to the Trust and in compliance with the rules and regulations of
the Securities and Exchange Commission, including but not limited to records
required to be maintained by Section 31(a) of the 1940 Act and the rules and
regulations thereunder, which at all times will be the property of the Trust and
will be available for inspection and use by the Trust.
ARTICLE 11: LIMITATION OF LIABILITY OF THE TRUSTEES AND SHAREHOLDERS.
A copy of the Declaration of the Trust is on file with the Secretary of State of
The Commonwealth of Massachusetts. The parties hereto acknowledge that the
obligations of or arising out of this instrument are not binding upon any of the
Trust's trustees, officers, employees, agents or shareholders individually, but
are binding solely upon the assets and property of the Trust in accordance with
its proportionate interest hereunder. If this instrument is executed by the
Trust on behalf of one or more series of the Trust, the parties hereto
acknowledge that the assets and liabilities of each series of the Trust are
separate and distinct and that the obligations of or arising out of this
instrument are binding solely upon the assets or property of the series on whose
behalf the Trust has executed this instrument. If the Trust has executed this
instrument on behalf of more than one series of the Trust, the parties hereto
also agree that the obligations of each series hereunder shall be several and
not joint, in accordance with its proportionate interest hereunder, and the
parties hereto agree not to proceed against any series for the obligations of
another series.
- 4 -
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered in their names and on their behalf by the undersigned,
thereunto duly authorized, and their respective seals to be hereto affixed, all
as of the day and year first written above.
MFS/SUN LIFE SERIES TRUST,
on behalf of MFS/FOREIGN &
COLONIAL INTERNATIONAL
GROWTH AND INCOME SERIES
By:
----------------------------------
John D. McNeil
Chairman and Trustee
MASSACHUSETTS FINANCIAL
SERVICES COMPANY
By:
----------------------------------
Jeffrey L. Shames
President
- 5 -
<PAGE>
Exhibit 99.5(m)
INVESTMENT ADVISORY AGREEMENT
INVESTMENT ADVISORY AGREEMENT, dated as of this _____ day of September, 1995 by
and between MFS/SUN LIFE SERIES TRUST, a Massachusetts business trust (the
"Trust"), on behalf of the MFS/FOREIGN & COLONIAL EMERGING MARKETS EQUITY
SERIES, (the "Fund"), and MASSACHUSETTS FINANCIAL SERVICES COMPANY, a Delaware
corporation (the "Adviser").
WITNESSETH:
WHEREAS, the Trust is engaged in business as an open-end investment
company registered under the Investment Company Act of 1940 (the "1940 Act");
and
WHEREAS, the Adviser is willing to provide business management services
to the Fund on the terms and conditions hereinafter set forth
NOW, THEREFORE, in consideration of the mutual covenants and agreements
of the parties hereto as herein set forth, the parties covenant and agree as
follows:
ARTICLE 1: DUTIES OF THE ADVISER. The Adviser shall provide the Fund
with such investment advice and supervision as the latter may from time to time
consider necessary for the proper management of its funds. The Adviser shall act
as Adviser to the Fund and as such shall furnish continuously an investment
program and shall determine from time to time what securities shall be
purchased, sold or exchanged and what portion of the assets of the Fund shall be
held uninvested, subject always to the restrictions of the Trust's Amended and
Restated Declaration of Trust, dated February 15, 1985 and By-Laws, each as
amended from time to time (respectively, the "Declaration" and the "By-Laws"),
to the provisions of the 1940 Act and the rules and regulations thereunder and
to the Fund's then-current Prospectus and Statement of Additional Information.
Should the Trustees at any time, however, make any determination as to
investment policy and notify the Adviser thereof in writing, the Adviser shall
be bound by such determination for the period, if any, specified in such notice
or until similarly notified that such determination has been revoked. The
Adviser shall take, on behalf of the Fund, all actions which it deems necessary
to implement the investment policies determined as provided above, and in
particular to place all orders for the purchase or sale of portfolio securities
for the Fund's account with brokers, dealers or other entities selected by it,
and to that end the Adviser is authorized as the agent of the Fund to give
instructions to the Custodian of the Fund as to deliveries of securities and
payments of cash for the account of the Fund. In connection with the selection
of such brokers, dealers or other entities and the placing of such orders, the
Adviser is directed to seek for the Fund execution at the most favorable price
by responsible brokerage firms at reasonably competitive commission rates. In
fulfilling this requirement the Adviser shall not be deemed to have acted
unlawfully or to have breached any duty, created by this Agreement or otherwise,
solely by reason of its having caused the Fund to pay a broker, dealer or other
entity an amount of commission for effecting a securities transaction in excess
of the amount of commission another broker, dealer or would have charged for
effecting that transaction, if the
- 1 -
<PAGE>
Adviser determined in good faith that such amount of commission was reasonable
in relation to the value of the brokerage and research services (within the
meaning of Section 28(e) of the Securities Exchange Act of 1934, as amended)
provided by such broker, dealer or other entity, viewed in terms of either that
particular transaction or the Adviser's overall responsibilities with respect to
the Fund and to other clients of the Adviser as to which the Adviser exercises
investment discretion.
The Adviser may from time to time enter into investment sub-advisory
agreements with one or more investment advisers (a "Sub-Adviser") to the Fund to
perform some or all of the services for which the Adviser is responsible
pursuant to this Article 1 upon such terms and conditions as the Adviser may
determine provided that such investment sub-advisory agreements have been
approved by a majority of the Trustees of the Trust who are not interested
persons of the Trust, the Adviser or the Sub-Adviser and by vote of a majority
of the outstanding voting securities of the Fund. The Adviser may terminate the
services of any Sub-Adviser at any time in its sole discretion, and shall at
such time assume the responsibilities of such Sub-Adviser unless and until a
successor Sub-Adviser is selected. Subject to the provisions of Article 6, the
Adviser shall not be liable for any error of judgment or mistake of law by any
Sub-Adviser or for any loss arising out of any investment made by any
Sub-Adviser or for any act or omission in the execution and management of the
Fund by any Sub-Adviser.
ARTICLE 2: ALLOCATION OF CHARGES AND EXPENSES. The Adviser shall
furnish at its own expense investment advisory and administrative services,
office space, equipment and clerical personnel necessary for servicing the
investments of the Fund and maintaining the Trust's organization, and investment
advisory facilities and executive and supervisory personnel for managing the
investments and effecting the portfolio transactions of the Fund. The Adviser
shall arrange, if desired by the Trust, for Directors, officers and employees of
the Adviser to serve as Trustees, officers or agents of the Trust if duly
elected or appointed to such positions and subject to their individual consent
and to any limitations imposed by law. It is understood that the Trust will pay
all of its own expenses including, without limitation, compensation of Trustees
of the Trust who are not affiliated persons of the Trust or the Adviser,
governmental fees, interest charges, taxes, membership dues in the Investment
Company Institute allocable to the Trust, fees and expenses of independent
auditors, of legal counsel and of any transfer agent, registrar or dividend
disbursing agent of the Trust, expenses of repurchasing and redeeming shares and
servicing shareholder accounts, expenses of preparing, printing and mailing
stock certificates, prospectuses, periodic reports, notices and proxy statements
to shareholders and 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 the
custodian for all services to the Trust, including safekeeping of funds and
securities, keeping of books and accounts and calculation of the net asset value
of shares of the Fund, expenses of shareholder meetings, and expenses relating
to the issuance, registration and qualification of shares of the Fund and the
preparation, printing and mailing of prospectuses for such purposes (except to
the extent that any Distribution Agreement to which the Trust is a party on
behalf of the Fund provides that another party is to pay some or all of such
expenses).
- 2 -
<PAGE>
ARTICLE 3: COMPENSATION OF THE ADVISER. For the services to be rendered
and the facilities to be provided, the Fund shall pay to the Adviser an
investment advisory fee computed and paid monthly at an annual rate equal to
1.25% of the Fund's average daily net assets. If the Adviser shall serve for
less than the whole of any period specified in this Article 3, the compensation
payable to the Adviser with respect to the Fund shall be prorated.
ARTICLE 4: SPECIAL SERVICES. Should the Fund have occasion to request
the Adviser to perform services not herein contemplated or to request the
Adviser to arrange for the services of others, the Adviser will act for the Fund
upon request to the best of its ability, with compensation for the Adviser's
services to be agreed upon with respect to each such occasion as it arises.
ARTICLE 5: COVENANTS OF THE ADVISER. The Adviser agrees that it will
not deal with itself, or with the Trustees of the Trust or the Trust's
distributor as principals in making purchases or sales of securities or other
property for the account of the Fund, except as permitted by the 1940 Act, will
not take a long or short position in the shares of the Fund, except as provided
by the Declaration, and will comply with all other provisions of the Declaration
and By-Laws relative to the Adviser and its Directors and officers.
ARTICLE 6: LIMITATION OF LIABILITY OF THE ADVISER. The Adviser, and its
Directors, officers and employees, shall not 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 hereunder.
ARTICLE 7: ACTIVITIES OF THE ADVISER. The services of the Adviser to
the Fund are not to be deemed to be exclusive, the Adviser being free to render
services to others. The Adviser may permit other fund clients to use the words
"Massachusetts Financial" or "MFS" in their names. The Fund agrees that if the
Adviser shall for any reason no longer serve as the Adviser to the Fund, the
Fund will change its name so as to delete the words "Massachusetts Financial" or
"MFS". It is understood that Trustees, officers, and shareholders of the Trust
are or may be or become interested in the Adviser, as Directors, officers,
employees, or otherwise and that Directors, officers and employees of the
Adviser are or may become similarly interested in the Trust and that the Adviser
may be or become interested in the Trust as a shareholder or otherwise.
ARTICLE 8: DURATION, TERMINATION AND AMENDMENTS OF THIS AGREEMENT. This
Agreement shall become effective on the date of its execution and shall govern
the relations between the parties hereto thereafter, and shall remain in force
until November 1, 1996, and each year thereafter but only so long as its
continuance is specifically approved at least annually (i) by the vote of a
majority of the Trustees of the Trust who are not interested persons of the
Trust or of the Adviser at a meeting specifically called for the purpose of
voting on such approval, and (ii) by the Trustees of the Trust, or by vote of a
majority of the outstanding voting securities of the Fund.
- 3 -
<PAGE>
This Agreement may be terminated at any time without the payment of any
penalty by the Trustees of the Trust or by vote of a majority of the outstanding
voting securities of the Fund, or by the Adviser, on not more than sixty days'
nor less that thirty days' written notice to the other party. This Agreement
shall automatically terminate in the event of its assignment.
This Agreement may be amended only if such amendment is approved by
vote of a majority of the outstanding voting securities of the Fund.
ARTICLE 9: CERTAIN TERMS. The terms "vote of a majority of the
outstanding voting securities," "assignment," "specifically approved at least
annually," "affiliated person" and "interested persons," when used in this
Agreement, shall have the respective meanings specified in the 1940 Act and the
rules and regulations thereunder, subject, however, to such exemptions as may be
granted by the Securities and Exchange Commission under the 1940 Act.
ARTICLE 10: RECORD KEEPING. The Adviser will maintain records in a form
acceptable to the Trust and in compliance with the rules and regulations of the
Securities and Exchange Commission, including but not limited to records
required to be maintained by Section 31(a) of the 1940 Act and the rules and
regulations thereunder, which at all times will be the property of the Trust and
will be available for inspection and use by the Trust.
ARTICLE 11: LIMITATION OF LIABILITY OF THE TRUSTEES AND SHAREHOLDERS. A
copy of the Declaration of the Trust is on file with the Secretary of State of
The Commonwealth of Massachusetts. The parties hereto acknowledge that the
obligations of or arising out of this instrument are not binding upon any of the
Trust's trustees, officers, employees, agents or shareholders individually, but
are binding solely upon the assets and property of the Trust in accordance with
its proportionate interest hereunder. If this instrument is executed by the
Trust on behalf of one or more series of the Trust, the parties hereto
acknowledge that the assets and liabilities of each series of the Trust are
separate and distinct and that the obligations of or arising out of this
instrument are binding solely upon the assets or property of the series on whose
behalf the Trust has executed this instrument. If the Trust has executed this
instrument on behalf of more than one series of the Trust, the parties hereto
also agree that the obligations of each series hereunder shall be several and
not joint, in accordance with its proportionate interest hereunder, and the
parties hereto agree not to proceed against any series for the obligations of
another series.
- 4 -
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered in their names and on their behalf by the undersigned,
thereunto duly authorized, and their respective seals to be hereto affixed, all
as of the day and year first written above.
MFS/SUN LIFE SERIES TRUST,
on behalf of MFS/FOREIGN &
COLONIAL EMERGING
MARKETS EQUITY SERIES
By:
-----------------------
John D. McNeil
Chairman and Trustee
MASSACHUSETTS FINANCIAL
SERVICES COMPANY
By:
-----------------------
Jeffrey L. Shames
President
- 5 -
<PAGE>
Exhibit 99.5(n)
SUB-ADVISORY AGREEMENT
SUB-ADVISORY AGREEMENT, dated this _____ day of September, 1995, by and
between MASSACHUSETTS FINANCIAL SERVICES COMPANY, a Delaware corporation (the
"Adviser") and FOREIGN & COLONIAL MANAGEMENT LTD., a company incorporated under
the laws of England and Wales (the "Sub-Adviser").
WITNESSETH:
WHEREAS, the Adviser provides the MFS/Foreign & Colonial International
Growth Series (the "Fund"), a series of MFS/Sun Life Series Trust (the "Trust"),
an open-end investment company registered under the Investment Company Act of
1940, as amended (the "1940 Act"), business services pursuant to the terms and
conditions of an investment advisory agreement dated September , 1995 (the
"Advisory Agreement") between the Adviser and the Trust, on behalf of the Fund;
and
WHEREAS, the Sub-Adviser is willing to provide services to the Adviser
on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements of the parties hereto as herein set forth, the parties covenant and
agree as follows:
1. Duties of the Sub-Adviser. Subject to the supervision of the
Trustees of the Trust and the Adviser, the Sub-Adviser will: (a) manage such
Fund's assets on behalf of the Fund in accordance with the Fund's investment
objective, policies and limitations as stated in the Fund's then current
Prospectus (the "Prospectus") and Statement of Additional Information (the
"Statement"), and the Trust's Amended and Restated Declaration of Trust dated
February 15, 1985 and By-Laws, each as from time to time in effect
(respectively, the "Declaration" and the "By-Laws") and in compliance with the
1940 Act and the rules, regulations and orders thereunder; (b) make investment
decisions for the Fund; (c) place purchase and sale orders for portfolio
transactions for the Fund; (d) manage otherwise uninvested cash assets of the
Fund in accordance with instructions, which may be standing instructions, of the
Adviser; (e) as the agent of the Fund, give instructions (including trade
tickets) to the custodian and any sub-custodian of the Fund as to deliveries of
securities, transfers of currencies and payments of cash for the account of the
Fund (the Sub-Adviser shall promptly notify the Adviser of such instructions);
(f) employ professional portfolio managers to provide research services to the
Fund; (g) attend periodic meetings of the Board of Trustees of the Trust and (h)
obtain all the registrations, qualifications and consents, on behalf of the
Fund, which are necessary for the Fund to purchase and sell assets in each
jurisdiction (other than the United States) in which the Fund's assets are to be
invested (the Sub-Adviser shall promptly provide the Adviser with copies of any
such registrations, qualifications and consents). In providing these services,
the Sub-Adviser will furnish continuously an investment program with respect to
the
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Fund's assets. The Sub-Adviser shall be responsible for monitoring the Fund's
compliance with the Prospectus, the Statement, the Declaration, the By-Laws and
the 1940 Act and the rules, regulations and orders thereunder and in monitoring
such compliance the Sub-Adviser shall do so in the functional currency of the
Fund. The Adviser agrees to provide the Sub-Adviser with such assistance as may
be reasonably requested by the Sub-Adviser in connection with its activities
under this Agreement, including, without limitation, information concerning the
Fund, its funds available, or to become available, for investment and generally
as to the conditions of the Fund's affairs. From time to time the Adviser will
notify the Sub-Adviser of the aggregate U.S. Dollar amount of the Fund's
assets. The Adviser will have responsibility for exercising proxy, consent and
other rights pertaining to the Fund's portfolio securities; provided, however,
that the Sub-Adviser will provide the Adviser with the appropriate information
to permit the Adviser to exercise such proxy, consent and other rights and,
provided, further, that the Sub-Adviser will, as requested, make recommendations
to the Adviser as to the manner in which such proxy, consent and other rights
shall be exercised.
Should the Trustees of the Trust or the Adviser at any time make any
determination as to investment policy and notify the Sub-Adviser thereof in
writing, the Sub-Adviser shall be bound by such determination for the period,
if any, specified in such notice or until notified that such determination has
been revoked. Further, the Adviser or the Trustees of the Trust may at any
time, upon written notice to the Sub-Adviser, suspend or restrict the right of
the Sub-Adviser to determine what assets of the Fund shall be purchased or sold
and what portion, if any, of the Fund's assets shall be held uninvested. It
is understood that the Adviser undertakes to discuss with the Sub-Adviser any
such determinations of investment policy and any such suspension or
restrictions on the right of the Sub-Adviser to determine what assets of the
Fund shall be purchased or sold or held uninvested, prior to the implementation
thereof.
2. Certain Information to the Sub-Adviser. Copies of the
Prospectus, the Statement, the Declaration and the By-Laws have been delivered
to the Sub-Adviser. The Adviser agrees to notify the Sub-Adviser of each
change in the investment policies of the Fund and to provide to the Sub-Adviser
as promptly as practicable copies of all amendments and supplements to the
Prospectus, the Statement, the Declaration and the By-Laws. In addition, the
Adviser will promptly provide the Sub-Adviser with any procedures applicable to
the Sub-Adviser adopted from time to time by the Trustees of the Trust and
agrees to provide promptly to the Sub-Adviser copies of all amendments
thereto.
3. Execution of Certain Documents. Subject to any other written
instructions of the Adviser and the Trustees of the Trust, the Sub-Adviser is
hereby appointed the Adviser's and the Trust's agent and attorney-in-fact to
execute account documentation, agreements, contracts and other documents as the
Sub-Adviser shall be requested by brokers, dealers, counterparties and other
persons in connection with its management of the assets of the Fund.
4. Reports. The Sub-Adviser shall furnish to the Trustees of the
Trust or the Adviser, or both, as may be appropriate, quarterly reports of its
activities on behalf of the Fund, as required by applicable law or as otherwise
requested from time to time by the Trustees of the
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<PAGE>
Trust or the Adviser, and such additional information, reports, evaluations,
analyses and opinions as the Trustees of the Trust or the Adviser, as
appropriate, may request from time to time.
5. Brokerage. In connection with the selections of brokers,
dealers or other entities and the placing of orders for the purchase and sale
of portfolio investments for the Fund, the Sub-Adviser is directed to seek for
the Fund execution at the most favorable price by responsible brokerage firms
at reasonably competitive commission rates. In fulfilling this requirement,
the Sub-Adviser shall not be deemed to have acted unlawfully or to have
breached any duty, created by this Agreement or otherwise, solely by reason of
its having caused the Fund to pay a broker, dealer or other entity an amount of
commission for effecting a securities transaction in excess of the amount of
commission another broker, dealer or other entity would have charged for
effecting that transaction, if the Sub-Adviser determined in good faith that
such amount of commission was reasonable in relation to the value of the
brokerage and research services (within the meaning of Section 28(e) of the
Securities Exchange Act of 1934, as amended) provided by such broker, dealer or
other entity, viewed in terms of either that particular transaction or the
Sub-Adviser's overall responsibilities with respect to the Fund and to other
clients of the Sub-Adviser as to which the Sub-Adviser exercises investment
discretion.
6. Services to Other Companies or Accounts. On occasions when the
Sub-Adviser deems the purchase or sale of a security to be in the best interest
of the Fund as well as other clients, the Sub-Adviser, to the extent permitted
by applicable laws and regulations, may, but shall be under no obligation to,
aggregate the securities to be so purchased or sold in order to obtain the most
favorable price or lower brokerage commissions and efficient execution. In
such event, allocation of the securities so purchased or sold, as well as the
expenses incurred in the transaction will be made by the Sub-Adviser in the
manner it considers to be the most equitable. The Sub-Adviser agrees to
allocate similarly opportunities to sell or otherwise dispose of securities
among the Fund and other clients of the Sub-Adviser.
7. Other Sub-Advisers. The Sub-Adviser may from time to time enter
into investment sub-advisory agreements with one or more investment advisers,
(an "Other Sub-Adviser"), to the Fund to perform some or all of the services
for which the Sub-Adviser is responsible pursuant to this Agreement upon such
terms and conditions as the Adviser and the Sub-Adviser may determine;
provided, however, that such investment sub-advisory agreements have been
approved by a majority of the Trustees of the Trust who are not interested
persons of the Trust, or the Sub-Adviser or the Other Sub-Adviser and by vote
of a majority of the outstanding voting securities of the Fund; and, provided,
further, that the Sub-Adviser shall own a majority of the voting securities of
any Other Sub-Adviser. The Sub-Adviser may terminate the services of any
Other Sub-Adviser at any time in its sole discretion, and shall at such time
assume the responsibilities of such Other Sub-Adviser unless and until a
successor Other Sub-Adviser is selected. The Sub-Adviser shall be liable for
any error of judgment or mistake of law by any Other Sub-Adviser and for any
loss arising out of any investment made by any Other Sub-Adviser and for any
act or omission in the execution and management of the Fund by any Other Sub-
Adviser.
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<PAGE>
8. Compensation of the Sub-Adviser. For the services to be
rendered by the Sub-Adviser under this Agreement, the Adviser shall pay to the
Sub-Adviser compensation, computed and paid monthly in arrears in U.S. dollars,
at a rate of 0.80% of the average daily net asset value of the Fund's assets
on an annualized basis. If the Sub-Adviser shall serve for less than the whole
of any month, the compensation payable to the Sub-Adviser with respect to the
Fund will be prorated. The Sub-Adviser will pay its expenses incurred in
performing its duties under this Agreement. Neither the Trust nor the Fund
shall be liable to the Sub-Adviser for the compensation of the Sub-Adviser.
For the purpose of determining fees payable to the Sub-Adviser, the value of
the Fund's net assets shall be computed at the times and in the manner
specified in the Prospectus and/or Statement. In the event that the Adviser
reduces its management fee payable under the Advisory Agreement voluntarily
(e.g., in order to maintain the Fund's expenses at or below a specified level)
or in order to comply with the expense limitations of a State securities
commission or otherwise, the Sub-Adviser agrees to reduce its fee payable under
this Agreement by a pro rata amount.
9. Limitation of Liability of the Sub-Adviser. The Sub-Adviser
shall not 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 duties and obligations hereunder. The
Trust, on behalf of the Fund, may enforce any obligations of the Sub-Adviser
under this Agreement and may recover directly from the Sub-Adviser for any
liability it may have to the Fund.
10. Activities of the Sub-Adviser. The services of the Sub-Adviser
to the Fund are not deemed to be exclusive, the Sub-Adviser being free to
render investment advisory and/or other services to others. The Sub-Adviser
may permit other fund clients to use the words "Foreign & Colonial" in their
names. The Adviser and the Trust agree that if the Sub-Adviser shall for any
reason no longer serve as the Sub-Adviser to the Fund, the Fund will change its
name so as to delete the words "Foreign & Colonial". It is understood that
the Trustees, officers and shareholders of the Trust, the Fund or the Adviser
are or may be or become interested in the Sub-Adviser or any person
controlling, controlled by or under common control with the Sub-Adviser, as
trustees, officers, employees or otherwise and that trustees, officers and
employees of the Sub-Adviser or any person controlling, controlled by or under
common control with the Sub-Adviser may become similarly interested in the
Trust, the Fund or the Adviser and that the Sub-Adviser may be or become
interested in the Fund as a shareholder or otherwise.
11. Covenants of the Sub-Adviser. The Sub-Adviser agrees that it
(a) will not deal with itself, "affiliated persons" of the Sub-Adviser, the
Trustees of the Trust or the Fund's distributor, as principals, agents, brokers
or dealers in making purchases or sales of securities or other property for the
account of the Fund, except as permitted by the 1940 Act and the rules,
regulations and orders thereunder and subject to the prior written approval of
the Adviser, (b) will not take a long or short position in the shares of the
Fund except as permitted by the Declaration and (c) will comply with all other
provisions of the Declaration and the By-Laws and
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<PAGE>
the then-current Prospectus and Statement relative to the Sub-Adviser and its
trustees, officers, employees and affiliates.
12. Representations, Warranties and Additional Agreements of the
Sub-Adviser. The Sub-Adviser represents, warrants and agrees that:
(a) It: (i) is registered as an investment adviser under the U.S.
Investment Advisers Act of 1940 (the "Advisers Act"), is
authorized to undertake investment business in the United
Kingdom by virtue of its membership in the Investment Management
Regulatory Organisation ("IMRO") and is registered under the
laws of any jurisdiction in which the Sub-Adviser is required to
be registered as an investment adviser in order to perform its
obligations under this Agreement, and will continue to be so
registered for so long as this Agreement remains in effect;
(ii) is not prohibited by the 1940 Act or the Advisers Act from
performing the services contemplated by this Agreement; (iii)
has met, and will continue to meet for so long as this Agreement
remains in effect, any other applicable Federal or State
requirements, or the applicable requirements of any regulatory
or industry self-regulatory agency, necessary to be met in order
to perform the services contemplated by this Agreement; (iv)
has the authority to enter into and perform the services
contemplated by this Agreement; (v) will immediately notify the
Adviser in writing of the occurrence of any event that would
disqualify the Sub-Adviser from serving as an investment adviser
of an investment company pursuant to Section 9(a) of the 1940
Act or otherwise; and (vi) will immediately notify the Adviser
in writing of any change of control of the Sub-Adviser or any
parent of the Sub-Adviser resulting in an "assignment" of this
Agreement.
(b) It will maintain, keep current and preserve on behalf of the
Fund, in the manner and for the periods of time required or
permitted by the 1940 Act and the rules, regulations and orders
thereunder and the Advisers Act and the rules, regulations and
orders thereunder, records relating to investment transactions
made by the Sub-Adviser for the Fund as may be reasonably
requested by the Adviser or the Fund from time to time. The
Sub-Adviser agrees that such records are the property of the
Fund, and will be surrendered to the Fund promptly upon request;
provided, however, that the Sub-Adviser may retain copies of
such records for archival purposes as required by IMRO.
(c) The Sub-Adviser has adopted a written code of ethics complying
with the requirements of Rule 17j-1 under the 1940 Act and, if
it has not already done so, will provide the Adviser and the
Trust with a copy of such code of ethics, and upon any amendment
to such code of ethics, promptly provide such amendment. At
least annually the Sub-Adviser will provide the Trust and the
Adviser with a certificate signed by the chief compliance
officer (or the person performing such function) of the
Sub-Adviser certifying, to the best of his or her knowledge,
compliance with the code of ethics during the immediately
preceding twelve (12) month period,
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<PAGE>
including any material violations of or amendments to the code of
ethics or the administration thereof.
(d) It has provided the Adviser and the Trust with a copy of its
Form ADV as most recently filed with the Securities and Exchange
Commission (the "SEC") and will, promptly after filing any
amendment to its Form ADV with the SEC, furnish a copy of such
amendment to the Adviser and the Trust.
13. Duration and Termination of this Agreement. This Agreement shall
become effective on the date first above written and shall govern the relations
between the parties hereto thereafter, and shall remain in force until November
1, 1996 and each year thereafter but only so long as its continuance is
"specifically approved at least annually" (a) by the vote of a majority of the
Trustees of the Trust who are not "interested persons" of the Trust or of the
Adviser or of the Sub-Adviser at a meeting specifically called for the purpose
of voting on such approval, and (b) by the Board of Trustees of the Trust, or
by "vote of a majority of the outstanding voting securities" of the Fund. This
Agreement may be terminated at any time without the payment of any penalty by
the Trustees of the Trust, by "vote of a majority of the outstanding voting
securities" of the Fund or by the Adviser, on not more than sixty days nor less
than thirty days written notice, or by the Sub-Adviser on not more than ninety
days nor less than sixty days written notice. This Agreement shall
automatically terminate in the event of its "assignment" or in the event that
the Advisory Agreement shall have terminated for any reason.
14. Amendments to this Agreement. This Agreement may be amended
only if such amendment is approved by "vote of a majority of the outstanding
voting securities" of the Fund, by the Adviser and by the Sub-Adviser.
15. Certain Definitions. The terms "specifically approved at least
annually", "vote of a majority of the outstanding voting securities",
"assignment", "control", "affiliated persons" and "interested person", when
used in this Agreement, shall have the respective meanings specified, and shall
be construed in a manner consistent with, the 1940 Act and the rules,
regulations and orders thereunder, subject, however, to such exemptions as may
be granted by the SEC under the 1940 Act.
16. Survival of Representations and Warranties; Duty to Update
Information. All representations and warranties made by the Sub-Adviser
pursuant to Section 12 hereof shall survive for the duration of this Agreement
and the Sub-Adviser shall immediately notify, but in no event later than five
(5) business days, the Adviser in writing upon becoming aware that any of the
foregoing representations and warranties are no longer true.
17. Miscellaneous. This Agreement shall be governed by and construed
in accordance with the internal laws of The Commonwealth of Massachusetts. All
notices provided for by this Agreement shall be in writing and shall be deemed
given when received, against appropriate receipt, by ____________________ in
the case of the Sub-Adviser, ____________________ in the case of the Adviser,
and the Trust's Secretary in the case of the Fund, or such other person as
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<PAGE>
a party shall designate by notice to the other parties. This Agreement
constitutes the entire agreement among the parties hereto and supersedes any
prior agreement among the parties relating to the subject matter hereof. The
section headings of this Agreement are for convenience of reference and do not
constitute a part hereof.
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered in their names and on their behalf by the undersigned,
thereunto duly authorized, and their respective seals to be hereto affixed, all
as of the day and year first written above.
MASSACHUSETTS FINANCIAL
SERVICES COMPANY
By:
--------------------
A. Keith Brodkin
Chairman
FOREIGN & COLONIAL
MANAGEMENT LTD.
By:
--------------------
( )
( )
The foregoing is hereby agreed to:
A copy of the Declaration of Trust of the Trust is on file with the
Secretary of State of The Commonwealth of Massachusetts. The parties hereto
acknowledge that the obligations of or arising out of this instrument are not
binding upon any of the Trust's trustees, officers, employees, agents or
shareholders individually, but are binding solely upon the assets and property
of the Trust in accordance with its proportionate interest hereunder. If this
instrument is executed by the Trust on behalf of one or more series of the
Trust, the parties hereto acknowledge that the assets and liabilities of each
series of the Trust are separate and distinct and that the obligations of or
arising out of this instrument are binding solely upon the assets or property
of the series on whose behalf the Trust has executed this instrument. If the
Trust has executed this instrument on behalf of more than one series of the
Trust, the parties hereto also agree that the obligations of each series
hereunder shall be several and not joint, in accordance with its proportionate
interest hereunder, and the parties hereto agree not to proceed against any
series for the obligations of another series.
MFS/SUN LIFE SERIES TRUST,
on behalf of MFS/FOREIGN & COLONIAL INTERNATIONAL GROWTH SERIES
By:
--------------------------
John D. McNeil
Chairman and Trustee
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<PAGE>
EXHIBIT 99.5(o)
SUB-ADVISORY AGREEMENT
SUB-ADVISORY AGREEMENT, dated this ____ day of September, 1995, by and
between MASSACHUSETTS FINANCIAL SERVICES COMPANY, a Delaware corporation (the
"Adviser") and FOREIGN & COLONIAL MANAGEMENT LTD., a company incorporated under
the laws of England and Wales (the "Sub-Adviser").
WITNESSETH:
WHEREAS, the Adviser provides MFS/Foreign & Colonial International
Growth and Income Series (the "Fund"), a series of MFS/Sun Life Series Trust
(the "Trust"), an open-end investment company registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), business services pursuant to
the terms and conditions of an investment advisory agreement dated September ,
1995 (the "Advisory Agreement") between the Adviser and the Trust, on behalf of
the Fund; and
WHEREAS, the Sub-Adviser is willing to provide services to the Adviser
on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements of the parties hereto as herein set forth, the parties covenant and
agree as follows:
1. Duties of the Sub-Adviser. Subject to the supervision of the
Trustees of the Trust and the Adviser, the Sub- Adviser will: (a) manage such
portion of the Fund's assets as the Adviser shall from time to time designate
(the "Designated Assets") on behalf of the Fund in accordance with the Fund's
investment objective, policies and limitations as stated in the Fund's then
current Prospectus (the "Prospectus") and Statement of Additional Information
(the "Statement"), and the Trust's Amended and Restated Declaration of Trust
dated February 15, 1995 and By-Laws, each as from time to
time in effect (respectively, the "Declaration" and the "By-Laws") and in
compliance with the 1940 Act and the rules, regulations and orders thereunder;
(b) make investment decisions for the Fund with respect to the Designated
Assets; (c) place purchase and sale orders for portfolio transactions for the
Fund with respect to the Designated Assets; (d) manage otherwise uninvested
cash assets of the Fund with respect to the Designated Assets in accordance
with instructions, which may be standing instructions, of the Adviser; (e) as
the agent of the Fund, give instructions (including trade tickets) to the
custodian and any sub-custodian of the Fund as to deliveries of securities,
transfers of currencies and payments of cash for the account of the Fund with
respect to the Designated Assets (the Sub-Adviser shall promptly notify the
Adviser of such instructions); (f) employ professional portfolio managers to
provide research services to the Fund; (g) attend periodic meetings of the
Board of Trustees of the Trust and (h) obtain all the registrations,
qualifications and consents, on behalf of the Fund, which are necessary for the
Fund to purchase and sell assets in each jurisdiction (other than the United
States) in which the Designated Assets are to be invested (the Sub-Adviser
shall promptly provide the Adviser with copies of any such registrations,
qualifications and consents). In providing these services, the Sub- Adviser
will furnish continuously an investment program with respect to the Designated
Assets. The Sub-Adviser shall be responsible for monitoring the Fund's
compliance with the Prospectus, the Statement, the Declaration, the By-Laws and
the 1940 Act and the rules, regulations and orders thereunder and in monitoring
such compliance the Sub-Adviser shall do so in the functional currency of the
Fund. The Sub-Adviser shall only be responsible for compliance with the
above-mentioned restrictions in regards to the Designated Assets. The Adviser
agrees to provide the Sub-Adviser with such assistance as may be reasonably
requested by the Sub- Adviser in connection with its activities under this
Agreement, including, without limitation, information concerning the Fund, its
funds available, or to become available, for investment and generally as to the
conditions of the Fund's affairs. From time to time the Adviser will notify
the Sub-Adviser of the aggregate U.S. Dollar amount of the Designated Assets.
The Adviser will have responsibility for exercising proxy, consent and other
rights pertaining to the Fund's portfolio securities; provided, however, that
the Sub-Adviser will provide the Adviser with the appropriate information to
permit the Adviser to exercise such proxy, consent and other rights and,
provided, further, that the Sub-Adviser will, as requested, make
recommendations to the Adviser as to the manner in which such proxy, consent
and other rights shall be exercised.
Should the Trustees of the Trust or the Adviser at any time make any
determination as to investment policy and notify the Sub-Adviser thereof in
writing, the Sub-Adviser shall be bound by such determination for the period,
if any, specified in such notice or until notified that such determination has
been revoked. Further, the Adviser or the Trustees of the Trust may at any
time, upon written notice to the Sub-Adviser, suspend or restrict the right of
the Sub-Adviser to determine what assets of the Fund shall be purchased or sold
and what portion, if any, of the Fund's assets shall be held uninvested. It is
understood that the Adviser undertakes to discuss with the Sub-Adviser any such
determinations of investment policy and any such suspensions or restrictions on
the right of the Sub-Adviser to determine what assets of the Fund shall be
purchased or sold or held uninvested, prior to the implementation thereof.
2. Certain Information to the Sub-Adviser. Copies of the
Prospectus, the Statement, the Declaration and the By-Laws have been delivered
1
<PAGE>
to the Sub-Adviser. The Adviser agrees to notify the Sub-Adviser of each
change in the investment policies of the Fund and to provide to the Sub-Adviser
as promptly as practicable copies of all amendments and supplements to the
Prospectus, the Statement, the Declaration and the By-Laws. In addition, the
Adviser will promptly provide the Sub-Adviser with any procedures applicable to
the Sub-Adviser adopted from time to time by the Trustees of the Trust and
agrees to provide promptly to the Sub- Adviser copies of all amendments
thereto.
3. Execution of Certain Documents. Subject to any other written
instructions of the Adviser and the Trustees of the Trust, the Sub-Adviser is
hereby appointed the Adviser's and the Trust's agent and attorney-in-fact to
execute account documentation, agreements, contracts and other documents as the
Sub-Adviser shall be requested by brokers, dealers, counterparties and other
persons in connection with its management of the Designated Assets.
4. Reports. The Sub-Adviser shall furnish to the Trustees of the
Trust or the Adviser, or both, as may be appropriate, quarterly reports of its
activities on behalf of the Fund, as required by applicable law or as otherwise
requested from time to time by the Trustees of the Trust or the Adviser, and
such additional information, reports, evaluations, analyses and opinions as the
Trustees of the Trust or the Adviser, as appropriate, may request from time to
time.
5. Brokerage. In connection with the selections of brokers,
dealers or other entities and the placing of orders for the purchase and sale
of portfolio investments for the Fund with respect to the Designated Assets,
the Sub-Adviser is directed to seek for the Fund execution at the most
favorable price by responsible brokerage firms at reasonably competitive
commission rates. In fulfilling this requirement, the Sub-Adviser shall not be
deemed to have acted unlawfully or to have breached any duty, created by this
Agreement or otherwise, solely by reason of its having caused the Fund to pay a
broker, dealer or other entity an amount of commission for effecting a
securities transaction in excess of the amount of commission another broker,
dealer or other entity would have charged for effecting that transaction, if
the Sub-Adviser determined in good faith that such amount of commission was
reasonable in relation to the value of the brokerage and research services
(within the meaning of Section 28(e) of the Securities Exchange Act of 1934, as
amended) provided by such broker, dealer or other entity, viewed in terms of
either that particular transaction or the Sub-Adviser's overall
responsibilities with respect to the Fund and to other clients of the
Sub-Adviser as to which the Sub-Adviser exercises investment discretion.
6. Services to Other Companies or Accounts. On occasions when
the Sub-Adviser deems the purchase or sale of a security to be in the best
interest of the Fund as well as other clients, the Sub-Adviser, to the extent
permitted by applicable laws and regulations, may, but shall be under no
obligation to, aggregate the securities to be so purchased or sold in order to
obtain the most favorable price or lower brokerage commissions and efficient
execution. In such event, allocation of the securities so purchased or sold,
as well as the expenses incurred in the transaction will be made by the
Sub-Adviser in the manner it considers to be the most equitable. The
Sub-Adviser agrees to allocate similarly opportunities to sell or otherwise
dispose of securities among the Fund and other clients of the Sub-Adviser.
7. Other Sub-Advisers. The Sub-Adviser may from time to time
enter into investment sub-advisory agreements with one or more investment
advisers (an "Other Sub-Adviser") to the Fund to perform some or all of the
services for which the Sub-Adviser is responsible pursuant to this Agreement
upon such terms and conditions as the Adviser and the Sub-Adviser may
determine; provided, however, that such investment sub-advisory agreements have
been approved by a majority of the Trustees of the Trust who are not interested
persons of the Trust, or the Sub-Adviser or the Other Sub-Adviser and by vote
of a majority of the outstanding voting securities of the Fund; and, provided,
further, that the Sub-Adviser shall own a majority of the voting securities of
any Other Sub- Adviser. The Sub-Adviser may terminate the services of any
Other Sub-Adviser at any time in its sole discretion, and shall at such time
assume the responsibilities of such Other Sub-Adviser unless and until a
successor Other Sub-Adviser is selected. The Sub- Adviser shall be liable for
any error of judgment or mistake of law by any Other Sub-Adviser and for any
loss arising out of any investment made by any Other Sub-Adviser and for any
act or omission in the execution and management of the Fund by any Other Sub-
Adviser.
8. Compensation of the Sub-Adviser. For the services to be
rendered by the Sub-Adviser under this Agreement, the Adviser shall pay to the
Sub-Adviser compensation, computed and paid monthly in arrears in U.S. dollars,
at a rate of 0.75% of the average daily net asset value of the Designated
Assets on an annualized basis. If the Sub-Adviser shall serve for less than
the whole of any month, the compensation payable to the Sub-Adviser with
respect to the Fund will be prorated. The Sub-Adviser will pay its expenses
incurred in performing its duties under this Agreement. Neither the Trust nor
the Fund shall be liable to the Sub- Adviser for the compensation of the
Sub-Adviser. For the purpose of determining fees payable to the Sub-Adviser,
the value of the Fund's net assets shall be computed at the times and in the
manner specified in the Prospectus and/or Statement. In the event that the
Adviser reduces its management fee payable under the Advisory Agreement
voluntarily (e.g., in order to maintain the Fund's expenses at or below a
specified level) or in order to comply with the expense limitations of a State
securities commission or otherwise, the Sub-Adviser agrees to reduce its fee
payable under this Agreement by a pro rata amount.
2
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9. Limitation of Liability of the Sub-Adviser. The Sub-Adviser
shall not 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 duties and obligations hereunder. The
Trust, on behalf of the Fund, may enforce any obligations of the Sub-Adviser
under this Agreement and may recover directly from the Sub-Adviser for any
liability it may have to the Fund.
10. Activities of the Sub-Adviser. The services of the
Sub-Adviser to the Fund are not deemed to be exclusive, the Sub-Adviser being
free to render investment advisory and/or other services to others. The
Sub-Adviser may permit other fund clients to use the words "Foreign & Colonial"
in their names. The Adviser and the Trust agree that if the Sub-Adviser shall
for any reason no longer serve as the Sub-Adviser to the Fund, the Fund will
change its name so as to delete the words "Foreign & Colonial". It is
understood that the Trustees, officers and shareholders of the Trust, the Fund
or the Adviser are or may be or become interested in the Sub-Adviser or any
person controlling, controlled by or under common control with the Sub-Adviser,
as trustees, officers, employees or otherwise and that trustees, officers and
employees of the Sub-Adviser or any person controlling, controlled by or under
common control with the Sub-Adviser may become similarly interested in the
Trust, the Fund or the Adviser and that the Sub- Adviser may be or become
interested in the Fund as a shareholder or otherwise.
11. Covenants of the Sub-Adviser. The Sub-Adviser agrees that it
(a) will not deal with itself, "affiliated persons" of the Sub-Adviser, the
Trustees of the Trust or the Fund's distributor, as principals, agents, brokers
or dealers in making purchases or sales of securities or other property for the
account of the Fund, except as permitted by the 1940 Act and the rules,
regulations and orders thereunder and subject to the prior written approval of
the Adviser, (b) will not take a long or short position in the shares of the
Fund except as permitted by the Declaration and (c) will comply with all other
provisions of the Declaration and the By-Laws and the then-current Prospectus
and Statement relative to the Sub-Adviser and its trustees, officers, employees
and affiliates.
12. Representations, Warranties and Additional Agreements of the
Sub-Adviser. The Sub-Adviser represents, warrants and agrees that:
(a) It: (i) is registered as an investment adviser under the U.S.
Investment Advisers Act of 1940 (the "Advisers Act"), is
authorized to undertake investment business in the United
Kingdom by virtue of its membership in the Investment
Management Regulatory Organisation ("IMRO") and is registered
under the laws of any jurisdiction in which the Sub-Adviser is
required to be registered as an investment adviser in order to
perform its obligations under this Agreement, and will
continue to be so registered for so long as this Agreement
remains in effect; (ii) is not prohibited by the 1940 Act or
the Advisers Act from performing the services contemplated by
this Agreement; (iii) has met, and will continue to meet for
so long as this Agreement remains in effect, any other
applicable Federal or State requirements, or the applicable
requirements of any regulatory or industry self-regulatory
agency, necessary to be met in order to perform the services
contemplated by this Agreement; (iv) has the authority to
enter into and perform the services contemplated by this
Agreement; (v) will immediately notify the Adviser in writing
of the occurrence of any event that would disqualify the
Sub-Adviser from serving as an investment adviser of an
investment company pursuant to Section 9(a) of the 1940 Act or
otherwise; and (vi) will immediately notify the Adviser in
writing of any change of control of the Sub-Adviser or any
parent of the Sub-Adviser resulting in an "assignment" of this
Agreement.
(b) It will maintain, keep current and preserve on behalf of the
Fund, in the manner and for the periods of time required or
permitted by the 1940 Act and the rules, regulations and
orders thereunder and the Advisers Act and the rules,
regulations and orders thereunder, records relating to
investment transactions made by the Sub-Adviser for the Fund
as may be reasonably requested by the Adviser or the Fund from
time to time. The Sub-Adviser agrees that such records are
the property of the Fund, and will be surrendered to the Fund
promptly upon request; provided, however, that the Sub-Adviser
may retain copies of such records for archival purposes as
required by IMRO.
(c) The Sub-Adviser has adopted a written code of ethics complying
with the requirements of Rule 17j-1 under the 1940 Act and, if
it has not already done so, will provide the Adviser and the
Trust with a copy of such code of ethics, and upon any
amendment to such code of ethics, promptly provide such
amendment. At least annually the Sub-Adviser will provide the
Trust and the Adviser with a certificate signed by the chief
compliance officer (or the person performing such function) of
the Sub-Adviser certifying, to the best of his or her
knowledge, compliance with the code of ethics during the
3
<PAGE>
immediately preceding twelve (12) month period, including any
material violations of or amendments to the code of ethics or
the administration thereof.
(d) It has provided the Adviser and the Trust with a copy of its
Form ADV as most recently filed with the Securities and
Exchange Commission (the "SEC") and will, promptly after
filing any amendment to its Form ADV with the SEC, furnish a
copy of such amendment to the Adviser and the Trust.
13. Duration and Termination of this Agreement. This Agreement
shall become effective on the date first above written and shall govern the
relations between the parties hereto thereafter, and shall remain in force
until November 1, 1996 and each year thereafter but only so long as its
continuance is "specifically approved at least annually" (a) by the vote of a
majority of the Trustees of the Trust who are not "interested persons" of the
Trust or of the Adviser or of the Sub-Adviser at a meeting specifically called
for the purpose of voting on such approval, and (b) by the Board of Trustees of
the Trust, or by "vote of a majority of the outstanding voting securities" of
the Fund. This Agreement may be terminated at any time without the payment of
any penalty by the Trustees of the Trust, by "vote of a majority of the
outstanding voting securities" of the Fund or by the Adviser, on not more than
sixty days nor less than thirty days written notice, or by the Sub-Adviser on
not more than ninety days nor less than sixty days written notice. This
Agreement shall automatically terminate in the event of its "assignment" or in
the event that the Advisory Agreement shall have terminated for any reason.
14. Amendments to this Agreement. This Agreement may be amended
only if such amendment is approved by "vote of a majority of the outstanding
voting securities" of the Fund, by the Adviser and by the Sub-Adviser.
15. Certain Definitions. The terms "specifically approved at
least annually", "vote of a majority of the outstanding voting securities",
"assignment", "control", "affiliated persons" and "interested person", when
used in this Agreement, shall have the respective meanings specified, and shall
be construed in a manner consistent with, the 1940 Act and the rules,
regulations and orders thereunder, subject, however, to such exemptions as may
be granted by the SEC under the 1940 Act.
16. Survival of Representations and Warranties; Duty to Update
Information. All representations and warranties made by the Sub-Adviser
pursuant to Section 12 hereof shall survive for the duration of this Agreement
and the Sub-Adviser shall immediately notify, but in no event later than five
(5) business days, the Adviser in writing upon becoming aware that any of the
foregoing representations and warranties are no longer true.
17. Miscellaneous. This Agreement shall be governed by and
construed in accordance with the internal laws of The Commonwealth of
Massachusetts. All notices provided for by this Agreement shall be in writing
and shall be deemed given when received, against appropriate receipt, by
____________________ in the case of the Sub-Adviser, ____________________ in
the case of the Adviser, and the Trust's Secretary in the case of the Fund, or
such other person as a party shall designate by notice to the other parties.
This Agreement constitutes the entire agreement among the parties hereto and
supersedes any prior agreement among the parties relating to the subject matter
hereof. The section headings of this Agreement are for convenience of
reference and do not constitute a part hereof.
4
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered in their names and on their behalf by the undersigned,
thereunto duly authorized, and their respective seals to be hereto affixed, all
as of the day and year first written above.
MASSACHUSETTS FINANCIAL
SERVICES COMPANY
By:_________________________
A. Keith Brodkin
Chairman
FOREIGN & COLONIAL
MANAGEMENT LTD.
By:_________________________
[ ]
[ ]
The foregoing is hereby agreed to:
A copy of the Declaration of Trust of the Trust is on file with the
Secretary of State of The Commonwealth of Massachusetts. The parties hereto
acknowledge that the obligations of or arising out of this instrument are not
binding upon any of the Trust's trustees, officers, employees, agents or
shareholders individually, but are binding solely upon the assets and property
of the Trust in accordance with its proportionate interest hereunder. If this
instrument is executed by the Trust on behalf of one or more series of the
Trust, the parties hereto acknowledge that the assets and liabilities of each
series of the Trust are separate and distinct and that the obligations of or
arising out of this instrument are binding solely upon the assets or property
of the series on whose behalf the Trust has executed this instrument. If the
Trust has executed this instrument on behalf of more than one series of the
Trust, the parties hereto also agree that the obligations of each series
hereunder shall be several and not joint, in accordance with its proportionate
interest hereunder, and the parties hereto agree not to proceed against any
series for the obligations of another series.
MFS/SUN LIFE SERIES TRUST,
on behalf of MFS/FOREIGN & COLONIAL INTERNATIONAL GROWTH AND INCOME SERIES
By:_____________________________
John D. McNeil
Chairman and Trustee
5
<PAGE>
Exhibit 99.5(p)
SUB-ADVISORY AGREEMENT
SUB-ADVISORY AGREEMENT, dated this _____ day of September, 1995, by
and between MASSACHUSETTS FINANCIAL SERVICES COMPANY, a Delaware corporation
(the "Adviser") and FOREIGN & COLONIAL MANAGEMENT LTD., a company incorporated
under the laws of England and Wales (the "Sub-Adviser").
WITNESSETH:
WHEREAS, the Adviser provides the MFS/Foreign & Colonial Emerging
Markets Equity Series, (the "Fund"), a series of MFS/Sun Life Series Trust (the
"Trust"), an open-end investment company registered under the Investment Company
Act of 1940, as amended (the "1940 Act"), business services pursuant to the
terms and conditions of an investment advisory agreement dated September ___,
1995 (the "Advisory Agreement") between the Adviser and the Trust, on behalf of
the Fund; and
WHEREAS, the Sub-Adviser is willing to provide services to the Adviser
on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements of the parties hereto as herein set forth, the parties covenant and
agree as follows:
1. Duties of the Sub-Adviser. Subject to the supervision of the
Trustees of the Trust and the Adviser, the Sub-Adviser will: (a) manage such
Fund's assets on behalf of the Fund in accordance with the Fund's investment
objective, policies and limitations as stated in the Fund's then current
Prospectus (the "Prospectus") and Statement of Additional Information (the
"Statement"), and the Trust's Amended and Restated Declaration of Trust dated
February 15, 1985 and By-Laws, each as from time to time in effect
(respectively, the "Declaration" and the "By-Laws") and in compliance with the
1940 Act and the rules, regulations and orders thereunder; (b) make investment
decisions for the Fund; (c) place purchase and sale orders for portfolio
transactions for the Fund; (d) manage otherwise uninvested cash assets of the
Fund in accordance with instructions, which may be standing instructions, of the
Adviser; (e) as the agent of the Fund, give instructions (including trade
tickets) to the custodian and any sub-custodian of the Fund as to deliveries of
securities, transfers of currencies and payments of cash for the account of the
Fund (the Sub-Adviser shall promptly notify the Adviser of such instructions);
(f) employ professional portfolio managers to provide research services to the
Fund; (g) attend periodic meetings of the Board of Trustees of the Trust and (h)
obtain all the registrations, qualifications and consents, on behalf of the
Fund, which are necessary for the Fund to purchase and sell assets in each
jurisdiction (other than the United States) in which the Fund's assets are to be
invested (the Sub-Adviser shall promptly provide the Adviser with copies of any
such registrations, qualifications and consents). In providing these services,
the Sub-Adviser will furnish continuously an investment program with respect to
the
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<PAGE>
Fund's assets. The Sub-Adviser shall be responsible for monitoring the Fund's
compliance with the Prospectus, the Statement, the Declaration, the By-Laws and
the 1940 Act and the rules, regulations and orders thereunder and in monitoring
such compliance the Sub-Adviser shall do so in the functional currency of the
Fund. The Adviser agrees to provide the Sub-Adviser with such assistance as
may be reasonably requested by the Sub-Adviser in connection with its
activities under this Agreement, including, without limitation, information
concerning the Fund, its funds available, or to become available, for
investment and generally as to the conditions of the Fund's affairs. From time
to time the Adviser will notify the Sub-Adviser of the aggregate U.S. Dollar
amount of the Fund's assets. The Adviser will have responsibility for
exercising proxy, consent and other rights pertaining to the Fund's portfolio
securities; provided, however, that the Sub-Adviser will provide the Adviser
with the appropriate information to permit the Adviser to exercise such proxy,
consent and other rights and, provided, further, that the Sub-Adviser will, as
requested, make recommendations to the Adviser as to the manner in which such
proxy, consent and other rights shall be exercised.
Should the Trustees of the Trust or the Adviser at any time make any
determination as to investment policy and notify the Sub-Adviser thereof in
writing, the Sub-Adviser shall be bound by such determination for the period,
if any, specified in such notice or until notified that such determination has
been revoked. Further, the Adviser or the Trustees of the Trust may at any
time, upon written notice to the Sub-Adviser, suspend or restrict the right of
the Sub-Adviser to determine what assets of the Fund shall be purchased or sold
and what portion, if any, of the Fund's assets shall be held uninvested. It is
understood that the Adviser undertakes to discuss with the Sub-Adviser any such
determinations of investment policy and any such suspension or restrictions on
the right of the Sub-Adviser to determine what assets of the Fund shall be
purchased or sold or held uninvested, prior to the implementation thereof.
2. Certain Information to the Sub-Adviser. Copies of the
Prospectus, the Statement, the Declaration and the By-Laws have been delivered
to the Sub-Adviser. The Adviser agrees to notify the Sub-Adviser of each
change in the investment policies of the Fund and to provide to the Sub-Adviser
as promptly as practicable copies of all amendments and supplements to the
Prospectus, the Statement, the Declaration and the By-Laws. In addition, the
Adviser will promptly provide the Sub-Adviser with any procedures applicable to
the Sub-Adviser adopted from time to time by the Trustees of the Trust and
agrees to provide promptly to the Sub- Adviser copies of all amendments
thereto.
3. Execution of Certain Documents. Subject to any other written
instructions of the Adviser and the Trustees of the Trust, the Sub-Adviser is
hereby appointed the Adviser's and the Trust's agent and attorney-in-fact to
execute account documentation, agreements, contracts and other documents as the
Sub-Adviser shall be requested by brokers, dealers, counterparties and other
persons in connection with its management of the assets of the Fund.
4. Reports. The Sub-Adviser shall furnish to the Trustees of the
Trust or the Adviser, or both, as may be appropriate, quarterly reports of its
activities on behalf of the Fund, as required by applicable law or as otherwise
requested from time to time by the Trustees of the
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<PAGE>
Trust or the Adviser, and such additional information, reports, evaluations,
analyses and opinions as the Trustees of the Trust or the Adviser, as
appropriate, may request from time to time.
5. Brokerage. In connection with the selections of brokers,
dealers or other entities and the placing of orders for the purchase and sale
of portfolio investments for the Fund, the Sub-Adviser is directed to seek for
the Fund execution at the most favorable price by responsible brokerage firms
at reasonably competitive commission rates. In fulfilling this requirement,
the Sub-Adviser shall not be deemed to have acted unlawfully or to have
breached any duty, created by this Agreement or otherwise, solely by reason of
its having caused the Fund to pay a broker, dealer or other entity an amount of
commission for effecting a securities transaction in excess of the amount of
commission another broker, dealer or other entity would have charged for
effecting that transaction, if the Sub-Adviser determined in good faith that
such amount of commission was reasonable in relation to the value of the
brokerage and research services (within the meaning of Section 28(e) of the
Securities Exchange Act of 1934, as amended) provided by such broker, dealer or
other entity, viewed in terms of either that particular transaction or the
Sub-Adviser's overall responsibilities with respect to the Fund and to other
clients of the Sub-Adviser as to which the Sub-Adviser exercises investment
discretion.
6. Services to Other Companies or Accounts. On occasions when the
Sub-Adviser deems the purchase or sale of a security to be in the best interest
of the Fund as well as other clients, the Sub-Adviser, to the extent permitted
by applicable laws and regulations, may, but shall be under no obligation to,
aggregate the securities to be so purchased or sold in order to obtain the most
favorable price or lower brokerage commissions and efficient execution. In
such event, allocation of the securities so purchased or sold, as well as the
expenses incurred in the transaction will be made by the Sub-Adviser in the
manner it considers to be the most equitable. The Sub-Adviser agrees to
allocate similarly opportunities to sell or otherwise dispose of securities
among the Fund and other clients of the Sub-Adviser.
7. Other Sub-Advisers. The Sub-Adviser may from time to time enter
into investment sub-advisory agreements with one or more investment advisers,
(an "Other Sub-Adviser"), to the Fund to perform some or all of the services
for which the Sub-Adviser is responsible pursuant to this Agreement upon such
terms and conditions as the Adviser and the Sub-Adviser may determine;
provided, however, that such investment sub-advisory agreements have been
approved by a majority of the Trustees of the Trust who are not interested
persons of the Trust, or the Sub-Adviser or the Other Sub-Adviser and by vote
of a majority of the outstanding voting securities of the Fund; and, provided,
further, that the Sub-Adviser shall own a majority of the voting securities of
any Other Sub-Adviser. The Sub-Adviser may terminate the services of any
Other Sub-Adviser at any time in its sole discretion, and shall at such time
assume the responsibilities of such Other Sub-Adviser unless and until a
successor Other Sub-Adviser is selected. The Sub- Adviser shall be liable for
any error of judgment or mistake of law by any Other Sub-Adviser and for any
loss arising out of any investment made by any Other Sub-Adviser and for any
act or omission in the execution and management of the Fund by any Other Sub-
Adviser.
- 3 -
<PAGE>
8. Compensation of the Sub-Adviser. For the services to be
rendered by the Sub-Adviser under this Agreement, the Adviser shall pay to the
Sub-Adviser compensation, computed and paid monthly in arrears in U.S. dollars,
at a rate of 1.00% of the average daily net asset value of the Fund's assets on
an annualized basis. If the Sub-Adviser shall serve for less than the whole of
any month, the compensation payable to the Sub-Adviser with respect to the Fund
will be prorated. The Sub-Adviser will pay its expenses incurred in performing
its duties under this Agreement. Neither the Trust nor the Fund shall be
liable to the Sub-Adviser for the compensation of the Sub-Adviser. For the
purpose of determining fees payable to the Sub-Adviser, the value of the Fund's
net assets shall be computed at the times and in the manner specified in the
Prospectus and/or Statement. In the event that the Adviser reduces its
management fee payable under the Advisory Agreement voluntarily (e.g., in order
to maintain the Fund's expenses at or below a specified level) or in order to
comply with the expense limitations of a State securities commission or
otherwise, the Sub-Adviser agrees to reduce its fee payable under this
Agreement by a pro rata amount.
9. Limitation of Liability of the Sub-Adviser. The Sub-Adviser
shall not 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 duties and obligations hereunder. The
Trust, on behalf of the Fund, may enforce any obligations of the Sub-Adviser
under this Agreement and may recover directly from the Sub-Adviser for any
liability it may have to the Fund.
10. Activities of the Sub-Adviser. The services of the Sub-Adviser
to the Fund are not deemed to be exclusive, the Sub-Adviser being free to
render investment advisory and/or other services to others. The Sub-Adviser
may permit other fund clients to use the words "Foreign & Colonial" in their
names. The Adviser and the Trust agree that if the Sub-Adviser shall for any
reason no longer serve as the Sub-Adviser to the Fund, the Fund will change its
name so as to delete the words "Foreign & Colonial". It is understood that the
Trustees, officers and shareholders of the Trust, the Fund or the Adviser are
or may be or become interested in the Sub-Adviser or any person controlling,
controlled by or under common control with the Sub-Adviser, as trustees,
officers, employees or otherwise and that trustees, officers and employees of
the Sub-Adviser or any person controlling, controlled by or under common
control with the Sub-Adviser may become similarly interested in the Trust, the
Fund or the Adviser and that the Sub-Adviser may be or become interested in
the Fund as a shareholder or otherwise.
11. Covenants of the Sub-Adviser. The Sub-Adviser agrees that it
(a) will not deal with itself, "affiliated persons" of the Sub-Adviser, the
Trustees of the Trust or the Fund's distributor, as principals, agents, brokers
or dealers in making purchases or sales of securities or other property for the
account of the Fund, except as permitted by the 1940 Act and the rules,
regulations and orders thereunder and subject to the prior written approval of
the Adviser, (b) will not take a long or short position in the shares of the
Fund except as permitted by the Declaration and (c) will comply with all other
provisions of the Declaration and the By-Laws and the then-current Prospectus
and Statement relative to the Sub-Adviser and its trustees, officers, employees
and affiliates.
- 4 -
<PAGE>
12. Representations, Warranties and Additional Agreements of the
Sub-Adviser. The Sub-Adviser represents, warrants and agrees that:
(a) It: (i) is registered as an investment adviser under the U.S.
Investment Advisers Act of 1940 (the "Advisers Act"), is
authorized to undertake investment business in the United
Kingdom by virtue of its membership in the Investment Management
Regulatory Organisation ("IMRO") and is registered under the
laws of any jurisdiction in which the Sub-Adviser is required to
be registered as an investment adviser in order to perform its
obligations under this Agreement, and will continue to be so
registered for so long as this Agreement remains in effect; (ii)
is not prohibited by the 1940 Act or the Advisers Act from
performing the services contemplated by this Agreement; (iii)
has met, and will continue to meet for so long as this Agreement
remains in effect, any other applicable Federal or State
requirements, or the applicable requirements of any regulatory
or industry self-regulatory agency, necessary to be met in order
to perform the services contemplated by this Agreement; (iv)
has the authority to enter into and perform the services
contemplated by this Agreement; (v) will immediately notify the
Adviser in writing of the occurrence of any event that would
disqualify the Sub-Adviser from serving as an investment adviser
of an investment company pursuant to Section 9(a) of the 1940
Act or otherwise; and (vi) will immediately notify the Adviser
in writing of any change of control of the Sub-Adviser or any
parent of the Sub-Adviser resulting in an "assignment" of this
Agreement.
(b) It will maintain, keep current and preserve on behalf of the
Fund, in the manner and for the periods of time required or
permitted by the 1940 Act and the rules, regulations and orders
thereunder and the Advisers Act and the rules, regulations and
orders thereunder, records relating to investment transactions
made by the Sub-Adviser for the Fund as may be reasonably
requested by the Adviser or the Fund from time to time. The
Sub-Adviser agrees that such records are the property of the
Fund, and will be surrendered to the Fund promptly upon request;
provided, however, that the Sub-Adviser may retain copies of
such records for archival purposes as required by IMRO.
(c) The Sub-Adviser has adopted a written code of ethics complying
with the requirements of Rule 17j-1 under the 1940 Act and, if
it has not already done so, will provide the Adviser and the
Trust with a copy of such code of ethics, and upon any amendment
to such code of ethics, promptly provide such amendment. At
least annually the Sub-Adviser will provide the Trust and the
Adviser with a certificate signed by the chief compliance
officer (or the person performing such function) of the
Sub-Adviser certifying, to the best of his or her knowledge,
compliance with the code of ethics during the immediately
preceding twelve (12) month period, including any material
violations of or amendments to the code of ethics or the
administration thereof.
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<PAGE>
(d) It has provided the Adviser and the Trust with a copy of its
Form ADV as most recently filed with the Securities and Exchange
Commission (the "SEC") and will, promptly after filing any
amendment to its Form ADV with the SEC, furnish a copy of such
amendment to the Adviser and the Trust.
13. Duration and Termination of this Agreement. This Agreement shall
become effective on the date first above written and shall govern the relations
between the parties hereto thereafter, and shall remain in force until November
1, 1996 and each year thereafter but only so long as its continuance is
"specifically approved at least annually" (a) by the vote of a majority of the
Trustees of the Trust who are not "interested persons" of the Trust or of the
Adviser or of the Sub-Adviser at a meeting specifically called for the purpose
of voting on such approval, and (b) by the Board of Trustees of the Trust, or
by "vote of a majority of the outstanding voting securities" of the Fund. This
Agreement may be terminated at any time without the payment of any penalty by
the Trustees of the Trust, by "vote of a majority of the outstanding voting
securities" of the Fund or by the Adviser, on not more than sixty days nor less
than thirty days written notice, or by the Sub-Adviser on not more than ninety
days nor less than sixty days written notice. This Agreement shall
automatically terminate in the event of its "assignment" or in the event that
the Advisory Agreement shall have terminated for any reason.
14. Amendments to this Agreement. This Agreement may be amended
only if such amendment is approved by "vote of a majority of the outstanding
voting securities" of the Fund, by the Adviser and by the Sub-Adviser.
15. Certain Definitions. The terms "specifically approved at least
annually", "vote of a majority of the outstanding voting securities",
"assignment", "control", "affiliated persons" and "interested person", when
used in this Agreement, shall have the respective meanings specified, and shall
be construed in a manner consistent with, the 1940 Act and the rules,
regulations and orders thereunder, subject, however, to such exemptions as may
be granted by the SEC under the 1940 Act.
16. Survival of Representations and Warranties; Duty to Update
Information. All representations and warranties made by the Sub-Adviser
pursuant to Section 12 hereof shall survive for the duration of this Agreement
and the Sub-Adviser shall immediately notify, but in no event later than five
(5) business days, the Adviser in writing upon becoming aware that any of the
foregoing representations and warranties are no longer true.
17. Miscellaneous. This Agreement shall be governed by and construed
in accordance with the internal laws of The Commonwealth of Massachusetts. All
notices provided for by this Agreement shall be in writing and shall be deemed
given when received, against appropriate receipt, by ____________________ in
the case of the Sub-Adviser, ____________________ in the case of the Adviser,
and the Trust's Secretary in the case of the Fund, or such other person as a
party shall designate by notice to the other parties. This Agreement
constitutes the entire agreement among the parties hereto and supersedes any
prior agreement among the parties relating to the subject matter hereof. The
section headings of this Agreement are for convenience of reference and do not
constitute a part hereof.
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered in their names and on their behalf by the undersigned, thereunto
duly authorized, and their respective seals to be hereto affixed, all as of the
day and year first written above.
MASSACHUSETTS FINANCIAL
SERVICES COMPANY
By:
-------------------------------
A. Keith Brodkin
Chairman
FOREIGN & COLONIAL
MANAGEMENT LTD.
By:
-------------------------------
( )
( )
The foregoing is hereby agreed to:
A copy of the Declaration of Trust of the Trust is on file with the
Secretary of State of The Commonwealth of Massachusetts. The parties hereto
acknowledge that the obligations of or arising out of this instrument are not
binding upon any of the Trust's trustees, officers, employees, agents or
shareholders individually, but are binding solely upon the assets and property
of the Trust in accordance with its proportionate interest hereunder. If this
instrument is executed by the Trust on behalf of one or more series of the
Trust, the parties hereto acknowledge that the assets and liabilities of each
series of the Trust are separate and distinct and that the obligations of or
arising out of this instrument are binding solely upon the assets or property
of the series on whose behalf the Trust has executed this instrument. If the
Trust has executed this instrument on behalf of more than one series of the
Trust, the parties hereto also agree that the obligations of each series
hereunder shall be several and not joint, in accordance with its proportionate
interest hereunder, and the parties hereto agree not to proceed against any
series for the obligations of another series.
MFS/SUN LIFE SERIES TRUST,
on behalf of MFS/FOREIGN & COLONIAL EMERGING MARKETS EQUITY SERIES
By:
------------------------------
John D. McNeil
Chairman and Trustee
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<PAGE>
Exhibit 99.5(q)
SUB-ADVISORY AGREEMENT
SUB-ADVISORY AGREEMENT, dated this _____ day of September, 1995, by
and between FOREIGN & COLONIAL MANAGEMENT LTD., a company incorporated under the
laws of England and Wales (the "Sub-Adviser"), and FOREIGN & COLONIAL EMERGING
MARKETS LIMITED, a company incorporated under the laws of England and Wales
("FCEM").
WITNESSETH:
WHEREAS, Massachusetts Financial Services Company (the "Adviser")
provides MFS/Foreign & Colonial International Growth Series (the "Fund"), a
series of MFS/Sun Life Series Trust (the "Trust"), an open-end investment
company registered under the Investment Company Act of 1940, as amended (the
"1940 Act"), business services pursuant to the terms and conditions of an
investment advisory agreement dated September ___, 1995 (the "Advisory
Agreement") between the Adviser and the Trust, on behalf of the Fund;
WHEREAS, the Sub-Adviser provides services to the Adviser pursuant to
the terms and conditions of a sub-advisory agreement dated September ___, 1995
(the "FCM Sub-Advisory Agreement") between the Adviser and the Sub-Adviser; and
WHEREAS, FCEM is willing to provide services to the Sub-Adviser on the
terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements of the parties hereto as herein set forth, the parties covenant and
agree as follows:
1. Duties of FCEM. Subject to the supervision of the Trustees of
the Trust, the Adviser and the Sub-Adviser, FCEM will: (a) manage such portion
of the Fund's assets as the Sub-Adviser shall from time to time designate (the
"Designated Assets") on behalf of the Fund in accordance with the Fund's
investment objective, policies and limitations as stated in the Fund's then
current Prospectus (the "Prospectus") and Statement of Additional Information
(the "Statement"), and the Trust's Amended and Restated Declaration of Trust
dated February 15, 1985 and By-Laws, each as from time to time in effect
(respectively, the "Declaration" and the "By-Laws") and in compliance with the
1940 Act and the rules, regulations and orders thereunder; (b) make investment
decisions for the Fund with respect to the Designated Assets; (c) place purchase
and sale orders for portfolio transactions for the Fund with respect to the
Designated Assets; (d) manage otherwise uninvested cash assets of the Fund with
respect to the Designated Assets in accordance with instructions, which may be
standing instructions, of the Sub-Adviser; (e) as the agent of the Fund, give
instructions (including trade tickets) to the custodian and any sub-custodian of
the Fund as to deliveries of securities, transfers of currencies and payments of
cash for the account of the Fund with respect to the Designated
- 1 -
<PAGE>
Assets (FCEM shall promptly notify the Adviser and the Sub-Adviser of such
instructions); (f) employ professional portfolio managers to provide research
services to the Fund; (g) attend periodic meetings of the Board of Trustees of
the Trust and (h) obtain all the registrations, qualifications and consents, on
behalf of the Fund, which are necessary for the Fund to purchase and sell
assets in each jurisdiction (other than the United States) in which the
Designated Assets are to be invested (FCEM shall promptly provide the Adviser
and the Sub-Adviser with copies of any such registrations, qualifications and
consents). In providing these services, FCEM will furnish continuously an
investment program with respect to the Designated Assets. FCEM shall be
responsible for monitoring the Fund's compliance with the Prospectus, the
Statement, the Declaration, the By-Laws and the 1940 Act and the rules,
regulations and orders thereunder and in monitoring such compliance FCEM shall
do so in the functional currency of the Fund. FCEM shall only be responsible
for compliance with the above-mentioned restrictions in regards to the
Designated Assets. The Sub-Adviser agrees to provide FCEM with such assistance
as may be reasonably requested by FCEM in connection with its activities under
this Agreement, including, without limitation, information concerning the Fund,
its funds available, or to become available, for investment and generally as to
the conditions of the Fund's affairs.
Should the Trustees of the Trust or the Adviser and the Sub-Adviser at
any time make any determination as to investment policy and notify FCEM thereof
in writing, FCEM shall be bound by such determination for the period, if any,
specified in such notice or until notified that such determination has been
revoked. Further, the Adviser and the Sub-Adviser or the Trustees of the Trust
may at any time, upon written notice to FCEM, suspend or restrict the right of
FCEM to determine what assets of the Fund shall be purchased or sold and what
portion, if any, of the Fund's assets shall be held uninvested. It is
understood that the Adviser and the Sub-Adviser undertake to discuss with FCEM
any such determinations of investment policy and any such suspensions or
restrictions on the right of FCEM to determine what assets of the Fund shall be
purchased or sold or held uninvested, prior to the implementation thereof.
2. Execution of Certain Documents. Subject to any other written
instructions of the Adviser, the Sub-Adviser and the Trustees of the Trust,
FCEM is hereby appointed the Sub-Adviser's and the Trust's agent and
attorney-in-fact to execute account documentation, agreements, contracts and
other documents as FCEM shall be requested by brokers, dealers, counterparties
and other persons in connection with its management of the Designated Assets.
3. Brokerage. In connection with the selections of brokers,
dealers or other entities and the placing of orders for the purchase and sale
of portfolio investments for the Fund with respect to the Designated Assets,
FCEM is directed to seek for the Fund execution at the most favorable price by
responsible brokerage firms at reasonably competitive commission rates. In
fulfilling this requirement, FCEM shall not be deemed to have acted unlawfully
or to have breached any duty, created by this Agreement or otherwise, solely by
reason of its having caused the Fund to pay a broker, dealer or other entity an
amount of commission for effecting a securities transaction in excess of the
amount of commission another broker, dealer or other entity would have charged
for effecting that transaction, if FCEM determined in good faith that such
amount of commission was reasonable in relation to the value of the brokerage
and research
- 2 -
<PAGE>
services (within the meaning of Section 28(e) of the Securities Exchange Act of
1934, as amended) provided by such broker, dealer or other entity, viewed in
terms of either that particular transaction or FCEM's overall responsibilities
with respect to the Fund and to other clients of FCEM as to which FCEM exercises
investment discretion.
4. Reports. FCEM shall furnish to the Trustees of the Trust, the
Adviser or the Sub-Adviser, or all of them, as may be appropriate, quarterly
reports of its activities on behalf of the Fund, as required by applicable law
or as otherwise requested from time to time by the Trustees of the Trust, the
Adviser or the Sub-Adviser, and such additional information, reports,
evaluations, analyses and opinions as the Trustees of the Trust, the Adviser or
the Sub-Adviser, as appropriate, may request from time to time.
5. Services to Other Companies or Accounts. On occasions when FCEM
deems the purchase or sale of a security to be in the best interest of the Fund
as well as other clients, FCEM, to the extent permitted by applicable laws and
regulations, may, but shall be under no obligation to, aggregate the securities
to be so purchased or sold in order to obtain the most favorable price or lower
brokerage commissions and efficient execution. In such event, allocation of
the securities so purchased or sold, as well as the expenses incurred in the
transaction will be made by FCEM in the manner it considers to be the most
equitable. FCEM agrees to allocate similarly opportunities to sell or
otherwise dispose of securities among the Fund and other clients of FCEM.
6. Compensation of FCEM. For the services to be rendered by FCEM
under this Agreement, the Sub-Adviser shall pay to FCEM compensation, computed
and paid monthly in arrears, at a rate of 1.00% of the average daily net asset
value of the Designated Assets on an annualized basis. If FCEM shall serve for
less than the whole of any month, the compensation payable to FCEM with respect
to the Fund will be prorated. FCEM will pay its expenses incurred in
performing its duties under this Agreement. Neither the Trust, the Adviser nor
the Fund shall be liable to FCEM for the compensation of FCEM. For the purpose
of determining fees payable to FCEM, the value of the Fund's net assets shall
be computed at the times and in the manner specified in the Prospectus and/or
Statement. In the event that the Sub-Adviser reduces its management fee
payable under the FCM Sub-Advisory Agreement voluntarily (e.g., in order to
maintain the Fund's expenses at or below a specified level) or in order to
comply with the expense limitations of a State securities commission or
otherwise, FCEM agrees to reduce its fee payable under this Agreement by a pro
rata amount.
7. Limitation of Liability of FCEM. FCEM shall not 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 duties and obligations hereunder. The Trust, on behalf of
the Fund, may enforce any obligations of FCEM under this Agreement and may
recover directly from FCEM for any liability it may have to the Fund.
- 3 -
<PAGE>
8. Activities of FCEM. The services of FCEM to the Fund are not
deemed to be exclusive, FCEM being free to render investment advisory and/or
other services to others. It is understood that the Trustees, officers and
shareholders of the Trust, the Fund, the Adviser or the Sub-Adviser are or may
become interested in FCEM or any person controlling, controlled by or under
common control with FCEM, as trustees, officers, employees or otherwise and
that trustees, officers and employees of FCEM or any person controlling,
controlled by or under common control with FCEM may become similarly interested
in the Trust, the Fund, the Adviser or the Sub-Adviser and that FCEM may be or
become interested in the Fund as a shareholder or otherwise.
9. Covenants of FCEM. FCEM agrees that it (a) will not deal with
itself, "affiliated persons" of FCEM, the Trustees of the Trust or the Fund's
distributor, as principals, agents, brokers or dealers in making purchases or
sales of securities or other property for the account of the Fund, except as
permitted by the 1940 Act and the rules, regulations and orders thereunder and
subject to the prior written approval of the Adviser, (b) will not take a long
or short position in the shares of the Fund except as permitted by the
Declaration and (c) will comply with all other provisions of the Declaration
and the By-Laws and the then-current Prospectus and Statement relative to FCEM
and its trustees, officers, employees and affiliates.
10. Representations, Warranties and Additional Agreements of FCEM.
FCEM represents, warrants and agrees that:
(a) It: (i) is registered as an investment adviser under the U.S.
Investment Advisers Act of 1940 (the "Advisers Act"), is
authorized to undertake investment business in the United
Kingdom by virtue of its membership in the Investment Management
Regulatory Organisation ("IMRO") and is registered under the
laws of any jurisdiction in which FCEM is required to be
registered as an investment adviser in order to perform its
obligations under this Agreement, and will continue to be so
registered for so long as this Agreement remains in effect;
(ii) is not prohibited by the 1940 Act or the Advisers Act from
performing the services contemplated by this Agreement; (iii)
has met, and will continue to meet for so long as this Agreement
remains in effect, any other applicable Federal or State
requirements, or the applicable requirements of any regulatory
or industry self-regulatory agency, necessary to be met in order
to perform the services contemplated by this Agreement; (iv)
has the authority to enter into and perform the services
contemplated by this Agreement; (v) will immediately notify the
Adviser and the Sub-Adviser in writing of the occurrence of any
event that would disqualify FCEM from serving as an investment
adviser of an investment company pursuant to Section 9(a) of the
1940 Act or otherwise; and (vi) will immediately notify the
Adviser and the Sub-Adviser in writing of any change of control
of FCEM or any parent of FCEM resulting in an "assignment" of
this Agreement.
(b) It will maintain, keep current and preserve on behalf of the
Fund, in the manner and for the periods of time required or
permitted by the 1940 Act and the rules,
- 4 -
<PAGE>
regulations and orders thereunder and the Advisers Act and the
rules, regulations and orders thereunder, records relating to
investment transactions made by FCEM for the Fund as may be
reasonably requested by the Adviser or the Fund from time to
time. FCEM agrees that such records are the property of the
Fund, and will be surrendered to the Fund promptly upon request;
provided, however, that the Sub-Adviser may retain copies of
such records for archival purposes as required by IMRO.
(c) FCEM has adopted a written code of ethics complying with the
requirements of Rule 17j-1 under the 1940 Act and, if it has not
already done so, will provide the Adviser, the Sub-Adviser and
the Trust with a copy of such code of ethics, and upon any
amendment to such code of ethics, promptly provide such
amendment. At least annually FCEM will provide the Trust, the
Sub-Adviser and the Adviser with a certificate signed by the
chief compliance officer (or the person performing such
function) of FCEM certifying, to the best of his or her
knowledge, compliance with the code of ethics during the
immediately preceding twelve (12) month period, including any
material violations of or amendments to the code of ethics or
the administration thereof.
(d) It has provided the Adviser, the Sub-Adviser and the Trust with
a copy of its Form ADV as most recently filed with the
Securities and Exchange Commission (the "SEC") and will,
promptly after filing any amendment to its Form ADV with the
SEC, furnish a copy of such amendment to the Adviser, the
Sub-Adviser and the Trust.
11. Duration and Termination of this Agreement. This Agreement shall
become effective on the date first above written and shall govern the relations
between the parties hereto thereafter, and shall remain in force until August 1,
1997 and each year thereafter but only so long as its continuance is
"specifically approved at least annually" (a) by the vote of a majority of the
Trustees of the Trust who are not "interested persons" of the Trust, the
Adviser, the Sub-Adviser or FCEM at a meeting specifically called for the
purpose of voting on such approval, and (b) by the Board of Trustees of the
Trust, or by "vote of a majority of the outstanding voting securities" of the
Fund. This Agreement may be terminated at any time without the payment of any
penalty by the Trustees of the Trust, by "vote of a majority of the outstanding
voting securities" of the Fund or by the Sub-Adviser, on not more than sixty
days nor less than thirty days written notice, or by FCEM on not more than
ninety days nor less than sixty days written notice. This Agreement shall
automatically terminate in the event of its "assignment" or in the event that
the FCM Sub-Advisory Agreement or the Advisory Agreement shall have terminated
for any reason.
12. Amendments to this Agreement. This Agreement may be amended
only if such amendment is approved by "vote of a majority of the outstanding
voting securities" of the Fund, by the Adviser, by the Sub-Adviser and by FCEM.
- 5 -
<PAGE>
13. Certain Definitions. The terms "specifically approved at least
annually", "vote of a majority of the outstanding voting securities",
"assignment", "control", "affiliated person" and "interested person", when used
in this Agreement, shall have the respective meanings specified, and shall be
construed in a manner consistent with, the 1940 Act and the rules, regulations
and orders thereunder, subject, however, to such exemptions as may be granted by
the SEC under the 1940 Act.
14. Survival of Representations and Warranties; Duty to Update
Information. All representations and warranties made by FCEM pursuant to
Section 9 hereof shall survive for the duration of this Agreement and FCEM
shall immediately notify, but in no event later than five (5) business days,
the Adviser and the Sub-Adviser in writing upon becoming aware that any of the
foregoing representations and warranties are no longer true.
15. Miscellaneous. This Agreement shall be governed by and construed
in accordance with the internal laws of The Commonwealth of Massachusetts. All
notices provided for by this Agreement shall be in writing and shall be deemed
given when received, against appropriate receipt, by ____________________ in
the case of the Sub-Adviser, by ____________________ in the case of the
Adviser, by _____________________ in the case of FCEM and the Trust's
Secretary in the case of the Fund, or such other person as a party shall
designate by notice to the other parties. This Agreement constitutes the
entire agreement among the parties hereto and supersedes any prior agreement
among the parties relating to the subject matter hereof. The section headings
of this Agreement are for convenience of reference and do not constitute a part
hereof.
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed and delivered in their names and on their behalf by the
undersigned, thereunto duly authorized, and their respective seals to be hereto
affixed, all as of the day and year first written above.
FOREIGN & COLONIAL
MANAGEMENT LTD.
By:
-------------------------------
( )
( )
FOREIGN & COLONIAL EMERGING
MARKETS LIMITED
By:
-------------------------------
( )
( )
The foregoing is hereby agreed to:
A copy of the Declaration of Trust of the Trust is on file with the
Secretary of State of The Commonwealth of Massachusetts. The parties hereto
acknowledge that the obligations of or arising out of this instrument are not
binding upon any of the Trust's trustees, officers, employees, agents or
shareholders individually, but are binding solely upon the assets and property
of the Trust in accordance with its proportionate interest hereunder. If this
instrument is executed by the Trust on behalf of one or more series of the
Trust, the parties hereto acknowledge that the assets and liabilities of each
series of the Trust are separate and distinct and that the obligations of or
arising out of this instrument are binding solely upon the assets or property
of the series on whose behalf the Trust has executed this instrument. If the
Trust has executed this instrument on behalf of more than one series of the
Trust, the parties hereto also agree that the obligations of each series
hereunder shall be several and not joint, in accordance with its proportionate
interest hereunder, and the parties hereto agree not to proceed against any
series for the obligations of another series.
MFS/SUN LIFE SERIES TRUST
on behalf of MFS/FOREIGN & COLONIAL INTERNATIONAL GROWTH SERIES
By:
------------------------------
John D. McNeil
Chairman and Trustee
- 7 -
<PAGE>
MASSACHUSETTS FINANCIAL
SERVICES COMPANY
By:
------------------------------
Jeffrey L. Shames
President
- 8 -
<PAGE>
Exhibit 99.5(r)
SUB-ADVISORY AGREEMENT
SUB-ADVISORY AGREEMENT, dated this _____ day of September, 1995, by and
between FOREIGN & COLONIAL MANAGEMENT LTD., a company incorporated under the
laws of England and Wales (the "Sub-Adviser"), and FOREIGN & COLONIAL EMERGING
MARKETS LIMITED, a company incorporated under the laws of England and Wales
("FCEM").
WITNESSETH:
WHEREAS, Massachusetts Financial Services Company (the "Adviser")
provides MFS/Foreign & Colonial International Growth and Income Series (the
"Fund"), a series of MFS/Sun Life Series Trust (the "Trust"), an open-end
investment company registered under the Investment Company Act of 1940, as
amended (the "1940 Act"), business services pursuant to the terms and conditions
of an investment advisory agreement dated September ___, 1995 (the "Advisory
Agreement") between the Adviser and the Trust, on behalf of the Fund;
WHEREAS, the Sub-Adviser provides services to the Adviser pursuant to
the terms and conditions of a sub-advisory agreement dated September ___, 1995
(the "FCM Sub-Advisory Agreement") between the Adviser and the Sub-Adviser;
and
WHEREAS, FCEM is willing to provide services to the Sub-Adviser on the
terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements of the parties hereto as herein set forth, the parties covenant and
agree as follows:
1. Duties of FCEM. Subject to the supervision of the Trustees of
the Trust, the Adviser and the Sub-Adviser, FCEM will: (a) manage such portion
of the Fund's assets as the Sub-Adviser shall from time to time designate (the
"Designated Assets") on behalf of the Fund in accordance with the Fund's
investment objective, policies and limitations as stated in the Fund's then
current Prospectus (the "Prospectus") and Statement of Additional Information
(the "Statement"), and the Trust's Amended and Restated Declaration of Trust
dated February 15, 1985 and By-Laws, each as from time to time in effect
(respectively, the "Declaration" and the "By-Laws") and in compliance with the
1940 Act and the rules, regulations and orders thereunder; (b) make investment
decisions for the Fund with respect to the Designated Assets; (c) place purchase
and sale orders for portfolio transactions for the Fund with respect to the
Designated Assets; (d) manage otherwise uninvested cash assets of the Fund with
respect to the Designated Assets in accordance with instructions, which may be
standing instructions, of the Sub-Adviser; (e) as the agent of the Fund, give
instructions (including trade tickets) to the custodian and any sub-custodian of
the Fund as to deliveries of securities, transfers of currencies and payments of
cash for the account of the Fund with respect to the Designated
- 1 -
<PAGE>
Assets (FCEM shall promptly notify the Adviser and the Sub-Adviser of such
instructions); (f) employ professional portfolio managers to provide research
services to the Fund; (g) attend periodic meetings of the Board of Trustees of
the Trust and (h) obtain all the registrations, qualifications and consents, on
behalf of the Fund, which are necessary for the Fund to purchase and sell assets
in each jurisdiction (other than the United States) in which the Designated
Assets are to be invested (FCEM shall promptly provide the Adviser and the
Sub-Adviser with copies of any such registrations, qualifications and consents).
In providing these services, FCEM will furnish continuously an investment
program with respect to the Designated Assets. FCEM shall be responsible for
monitoring the Fund's compliance with the Prospectus, the Statement, the
Declaration, the By-Laws and the 1940 Act and the rules, regulations and orders
thereunder and in monitoring such compliance FCEM shall do so in the functional
currency of the Fund. FCEM shall only be responsible for compliance with the
above-mentioned restrictions in regards to the Designated Assets. The
Sub-Adviser agrees to provide FCEM with such assistance as may be reasonably
requested by FCEM in connection with its activities under this Agreement,
including, without limitation, information concerning the Fund, its funds
available, or to become available, for investment and generally as to the
conditions of the Fund's affairs.
Should the Trustees of the Trust or the Adviser and the Sub-Adviser at
any time make any determination as to investment policy and notify FCEM thereof
in writing, FCEM shall be bound by such determination for the period, if any,
specified in such notice or until notified that such determination has been
revoked. Further, the Adviser and the Sub-Adviser or the Trustees of the Trust
may at any time, upon written notice to FCEM, suspend or restrict the right of
FCEM to determine what assets of the Fund shall be purchased or sold and what
portion, if any, of the Fund's assets shall be held uninvested. It is
understood that the Adviser and the Sub-Adviser undertake to discuss with FCEM
any such determinations of investment policy and any such suspensions or
restrictions on the right of FCEM to determine what assets of the Fund shall be
purchased or sold or held uninvested, prior to the implementation thereof.
2. Execution of Certain Documents. Subject to any other written
instructions of the Adviser, the Sub-Adviser and the Trustees of the Trust,
FCEM is hereby appointed the Sub-Adviser's and the Trust's agent and
attorney-in-fact to execute account documentation, agreements, contracts and
other documents as FCEM shall be requested by brokers, dealers, counterparties
and other persons in connection with its management of the Designated Assets.
3. Brokerage. In connection with the selections of brokers,
dealers or other entities and the placing of orders for the purchase and sale
of portfolio investments for the Fund with respect to the Designated Assets,
FCEM is directed to seek for the Fund execution at the most favorable price by
responsible brokerage firms at reasonably competitive commission rates. In
fulfilling this requirement, FCEM shall not be deemed to have acted unlawfully
or to have breached any duty, created by this Agreement or otherwise, solely by
reason of its having caused the Fund to pay a broker, dealer or other entity an
amount of commission for effecting a securities transaction in excess of the
amount of commission another broker, dealer or other entity would have charged
for effecting that transaction, if FCEM determined in good faith that such
amount of commission was reasonable in relation to the value of the brokerage
and research
- 2 -
<PAGE>
services (within the meaning of Section 28(e) of the Securities Exchange Act of
1934, as amended) provided by such broker, dealer or other entity, viewed in
terms of either that particular transaction or FCEM's overall responsibilities
with respect to the Fund and to other clients of FCEM as to which FCEM exercises
investment discretion.
4. Reports. FCEM shall furnish to the Trustees of the Trust, the
Adviser or the Sub-Adviser, or all of them, as may be appropriate, quarterly
reports of its activities on behalf of the Fund, as required by applicable law
or as otherwise requested from time to time by the Trustees of the Trust, the
Adviser or the Sub-Adviser, and such additional information, reports,
evaluations, analyses and opinions as the Trustees of the Trust, the Adviser or
the Sub-Adviser, as appropriate, may request from time to time.
5. Services to Other Companies or Accounts. On occasions when FCEM
deems the purchase or sale of a security to be in the best interest of the Fund
as well as other clients, FCEM, to the extent permitted by applicable laws and
regulations, may, but shall be under no obligation to, aggregate the securities
to be so purchased or sold in order to obtain the most favorable price or lower
brokerage commissions and efficient execution. In such event, allocation of
the securities so purchased or sold, as well as the expenses incurred in the
transaction will be made by FCEM in the manner it considers to be the most
equitable. FCEM agrees to allocate similarly opportunities to sell or
otherwise dispose of securities among the Fund and other clients of FCEM.
6. Compensation of FCEM. For the services to be rendered by FCEM
under this Agreement, the Sub-Adviser shall pay to FCEM compensation, computed
and paid monthly in arrears, at a rate of 1.00% of the average daily net asset
value of the Designated Assets on an annualized basis. If FCEM shall serve for
less than the whole of any month, the compensation payable to FCEM with respect
to the Fund will be prorated. FCEM will pay its expenses incurred in
performing its duties under this Agreement. Neither the Trust, the Adviser nor
the Fund shall be liable to FCEM for the compensation of FCEM. For the purpose
of determining fees payable to FCEM, the value of the Fund's net assets shall
be computed at the times and in the manner specified in the Prospectus and/or
Statement. In the event that the Sub-Adviser reduces its management fee
payable under the FCM Sub-Advisory Agreement voluntarily (e.g., in order to
maintain the Fund's expenses at or below a specified level) or in order to
comply with the expense limitations of a State securities commission or
otherwise, FCEM agrees to reduce its fee payable under this Agreement by a pro
rata amount.
7. Limitation of Liability of FCEM. FCEM shall not 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 duties and obligations hereunder. The Trust, on behalf of
the Fund, may enforce any obligations of FCEM under this Agreement and may
recover directly from FCEM for any liability it may have to the Fund.
- 3 -
<PAGE>
8. Activities of FCEM. The services of FCEM to the Fund are not
deemed to be exclusive, FCEM being free to render investment advisory and/or
other services to others. It is understood that the Trustees, officers and
shareholders of the Trust, the Fund, the Adviser or the Sub-Adviser are or may
become interested in FCEM or any person controlling, controlled by or under
common control with FCEM, as trustees, officers, employees or otherwise and
that trustees, officers and employees of FCEM or any person controlling,
controlled by or under common control with FCEM may become similarly interested
in the Trust, the Fund, the Adviser or the Sub-Adviser and that FCEM may be or
become interested in the Fund as a shareholder or otherwise.
9. Covenants of FCEM. FCEM agrees that it (a) will not deal with
itself, "affiliated persons" of FCEM, the Trustees of the Trust or the Fund's
distributor, as principals, agents, brokers or dealers in making purchases or
sales of securities or other property for the account of the Fund, except as
permitted by the 1940 Act and the rules, regulations and orders thereunder and
subject to the prior written approval of the Adviser, (b) will not take a long
or short position in the shares of the Fund except as permitted by the
Declaration and (c) will comply with all other provisions of the Declaration
and the By-Laws and the then-current Prospectus and Statement relative to FCEM
and its trustees, officers, employees and affiliates.
10. Representations, Warranties and Additional Agreements of FCEM.
FCEM represents, warrants and agrees that:
(a) It: (i) is registered as an investment adviser under the U.S.
Investment Advisers Act of 1940 (the "Advisers Act"), is
authorized to undertake investment business in the United
Kingdom by virtue of its membership in the Investment Management
Regulatory Organisation ("IMRO") and is registered under the
laws of any jurisdiction in which FCEM is required to be
registered as an investment adviser in order to perform its
obligations under this Agreement, and will continue to be so
registered for so long as this Agreement remains in effect;
(ii) is not prohibited by the 1940 Act or the Advisers Act from
performing the services contemplated by this Agreement; (iii)
has met, and will continue to meet for so long as this Agreement
remains in effect, any other applicable Federal or State
requirements, or the applicable requirements of any regulatory
or industry self-regulatory agency, necessary to be met in order
to perform the services contemplated by this Agreement; (iv)
has the authority to enter into and perform the services
contemplated by this Agreement; (v) will immediately notify the
Adviser and the Sub-Adviser in writing of the occurrence of any
event that would disqualify FCEM from serving as an investment
adviser of an investment company pursuant to Section 9(a) of the
1940 Act or otherwise; and (vi) will immediately notify the
Adviser and the Sub-Adviser in writing of any change of control
of FCEM or any parent of FCEM resulting in an "assignment" of
this Agreement.
(b) It will maintain, keep current and preserve on behalf of the
Fund, in the manner and for the periods of time required or
permitted by the 1940 Act and the rules,
- 4 -
<PAGE>
regulations and orders thereunder and the Advisers Act and the
rules, regulations and orders thereunder, records relating to
investment transactions made by FCEM for the Fund as may be
reasonably requested by the Adviser or the Fund from time to
time. FCEM agrees that such records are the property of the
Fund, and will be surrendered to the Fund promptly upon request;
provided, however, that the Sub-Adviser may retain copies of such
records for archival purposes as required by IMRO.
(c) FCEM has adopted a written code of ethics complying with the
requirements of Rule 17j-1 under the 1940 Act and, if it has not
already done so, will provide the Adviser, the Sub-Adviser and
the Trust with a copy of such code of ethics, and upon any
amendment to such code of ethics, promptly provide such
amendment. At least annually FCEM will provide the Trust, the
Sub-Adviser and the Adviser with a certificate signed by the
chief compliance officer (or the person performing such
function) of FCEM certifying, to the best of his or her
knowledge, compliance with the code of ethics during the
immediately preceding twelve (12) month period, including any
material violations of or amendments to the code of ethics or
the administration thereof.
(d) It has provided the Adviser, the Sub-Adviser and the Trust with
a copy of its Form ADV as most recently filed with the
Securities and Exchange Commission (the "SEC") and will,
promptly after filing any amendment to its Form ADV with the
SEC, furnish a copy of such amendment to the Adviser, the
Sub-Adviser and the Trust.
11. Duration and Termination of this Agreement. This Agreement shall
become effective on the date first above written and shall govern the relations
between the parties hereto thereafter, and shall remain in force until August 1,
1997 and each year thereafter but only so long as its continuance is
"specifically approved at least annually" (a) by the vote of a majority of the
Trustees of the Trust who are not "interested persons" of the Trust, the
Adviser, the Sub-Adviser or FCEM at a meeting specifically called for the
purpose of voting on such approval, and (b) by the Board of Trustees of the
Trust, or by "vote of a majority of the outstanding voting securities" of the
Fund. This Agreement may be terminated at any time without the payment of any
penalty by the Trustees of the Trust, by "vote of a majority of the outstanding
voting securities" of the Fund or by the Sub-Adviser, on not more than sixty
days nor less than thirty days written notice, or by FCEM on not more than
ninety days nor less than sixty days written notice. This Agreement shall
automatically terminate in the event of its "assignment" or in the event that
the FCM Sub-Advisory Agreement or the Advisory Agreement shall have terminated
for any reason.
12. Amendments to this Agreement. This Agreement may be amended
only if such amendment is approved by "vote of a majority of the outstanding
voting securities" of the Fund, by the Adviser, by the Sub-Adviser and by FCEM.
- 5 -
<PAGE>
13. Certain Definitions. The terms "specifically approved at least
annually", "vote of a majority of the outstanding voting securities",
"assignment", "control", "affiliated person" and "interested person", when
used in this Agreement, shall have the respective meanings specified, and shall
be construed in a manner consistent with, the 1940 Act and the rules,
regulations and orders thereunder, subject, however, to such exemptions as may
be granted by the SEC under the 1940 Act.
14. Survival of Representations and Warranties; Duty to Update
Information. All representations and warranties made by FCEM pursuant to
Section 9 hereof shall survive for the duration of this Agreement and FCEM
shall immediately notify, but in no event later than five (5) business days,
the Adviser and the Sub-Adviser in writing upon becoming aware that any of the
foregoing representations and warranties are no longer true.
15. Miscellaneous. This Agreement shall be governed by and construed
in accordance with the internal laws of The Commonwealth of Massachusetts. All
notices provided for by this Agreement shall be in writing and shall be deemed
given when received, against appropriate receipt, by ____________________ in
the case of the Sub-Adviser, by ____________________ in the case of the
Adviser, by _____________________ in the case of FCEM and the Trust's
Secretary in the case of the Fund, or such other person as a party shall
designate by notice to the other parties. This Agreement constitutes the
entire agreement among the parties hereto and supersedes any prior agreement
among the parties relating to the subject matter hereof. The section headings
of this Agreement are for convenience of reference and do not constitute a part
hereof.
- 6 -
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered in their names and on their behalf by the undersigned,
thereunto duly authorized, and their respective seals to be hereto affixed,
all as of the day and year first written above.
FOREIGN & COLONIAL
MANAGEMENT LTD.
By:
--------------------------------
( )
( )
FOREIGN & COLONIAL EMERGING
MARKETS LIMITED
By:
--------------------------------
( )
( )
The foregoing is hereby agreed to:
A copy of the Declaration of Trust of the Trust is on file with the
Secretary of State of The Commonwealth of Massachusetts. The parties hereto
acknowledge that the obligations of or arising out of this instrument are not
binding upon any of the Trust's trustees, officers, employees, agents or
shareholders individually, but are binding solely upon the assets and property
of the Trust in accordance with its proportionate interest hereunder. If this
instrument is executed by the Trust on behalf of one or more series of the
Trust, the parties hereto acknowledge that the assets and liabilities of each
series of the Trust are separate and distinct and that the obligations of or
arising out of this instrument are binding solely upon the assets or property
of the series on whose behalf the Trust has executed this instrument. If the
Trust has executed this instrument on behalf of more than one series of the
Trust, the parties hereto also agree that the obligations of each series
hereunder shall be several and not joint, in accordance with its proportionate
interest hereunder, and the parties hereto agree not to proceed against any
series for the obligations of another series.
MFS/SUN LIFE SERIES TRUST
on behalf of MFS/FOREIGN & COLONIAL INTERNATIONAL GROWTH AND INCOME SERIES
By:
-----------------------------
John D. McNeil
Chairman and Trustee
- 7 -
<PAGE>
MASSACHUSETTS FINANCIAL
SERVICES COMPANY
By:
--------------------
Jeffrey L. Shames
President
- 8 -
<PAGE>
Exhibit 99.5(s)
SUB-ADVISORY AGREEMENT
SUB-ADVISORY AGREEMENT, dated this ___ day of September, ____ 1995,
by and between FOREIGN & COLONIAL MANAGEMENT LTD., a company incorporated
under the laws of England and Wales (the "Sub-Adviser"), and FOREIGN &
COLONIAL EMERGING MARKETS LIMITED, a company incorporated under the laws of
England and Wales ("FCEM").
WITNESSETH:
WHEREAS, Massachusetts Financial Services Company (the "Adviser")
provides MFS/Foreign & Colonial Emerging Markets Equity Series (the "Fund"), a
series of MFS/Sun Life Series Trust (the "Trust"), an open-end investment
company registered under the Investment Company Act of 1940, as amended (the
"1940 Act"), business services pursuant to the terms and conditions of an
investment advisory agreement dated September _____, 1995 (the "Advisory
Agreement") between the Adviser and the Trust, on behalf of the Fund;
WHEREAS, the Sub-Adviser provides services to the Adviser pursuant to
the terms and conditions of a sub-advisory agreement dated September ___, 1995
(the "FCM Sub-Advisory Agreement") between the Adviser and the Sub-Adviser; and
WHEREAS, FCEM is willing to provide services to the Sub-Adviser on the
terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
of the parties hereto as herein set forth, the parties covenant and agree as
follows:
1. Duties of FCEM. Subject to the supervision of the Trustees of the
Trust, the Adviser and the Sub-Adviser, FCEM will: (a) manage such portion of
the Fund's assets as the Sub-Adviser shall from time to time designate (the
"Designated Assets") on behalf of the Fund in accordance with the Fund's
investment objective, policies and limitations as stated in the Fund's then
current Prospectus (the "Prospectus") and Statement of Additional Information
(the "Statement"), and the Trust's Amended and Restated Declaration of Trust
dated February 15, 1985 and By-Laws, each as from time to time in effect
(respectively, the "Declaration" and the "By-Laws") and in compliance with the
1940 Act and the rules, regulations and orders thereunder; (b) make investment
decisions for the Fund with respect to the Designated Assets; (c) place purchase
and sale orders for portfolio transactions for the Fund with respect to the
Designated Assets; (d) manage otherwise uninvested cash assets of the Fund with
respect to the Designated Assets in accordance with instructions, which may be
standing instructions, of the Sub-Adviser; (e) as the agent of the Fund, give
instructions (including trade tickets) to the custodian and any sub-custodian of
the Fund as to deliveries of securities, transfers of currencies and payments of
cash for the account of the Fund with respect to the Designated
- 1 -
<PAGE>
Assets (FCEM shall promptly notify the Adviser and the Sub-Adviser of such
instructions); (f) employ professional portfolio managers to provide research
services to the Fund; (g) attend periodic meetings of the Board of Trustees of
the Trust and (h) obtain all the registrations, qualifications and consents, on
behalf of the Fund, which are necessary for the Fund to purchase and sell assets
in each jurisdiction (other than the United States) in which the Designated
Assets are to be invested (FCEM shall promptly provide the Adviser and the
Sub-Adviser with copies of any such registrations, qualifications and consents).
In providing these services, FCEM will furnish continuously an investment
program with respect to the Designated Assets. FCEM shall be responsible for
monitoring the Fund's compliance with the Prospectus, the Statement, the
Declaration, the By-Laws and the 1940 Act and the rules, regulations and orders
thereunder and in monitoring such compliance FCEM shall do so in the functional
currency of the Fund. FCEM shall only be responsible for compliance with the
above-mentioned restrictions in regards to the Designated Assets. The
Sub-Adviser agrees to provide FCEM with such assistance as may be reasonably
requested by FCEM in connection with its activities under this Agreement,
including, without limitation, information concerning the Fund, its funds
available, or to become available, for investment and generally as to the
conditions of the Fund's affairs.
Should the Trustees of the Trust or the Adviser and the Sub-Adviser at
any time make any determination as to investment policy and notify FCEM thereof
in writing, FCEM shall be bound by such determination for the period, if any,
specified in such notice or until notified that such determination has been
revoked. Further, the Adviser and the Sub-Adviser or the Trustees of the Trust
may at any time, upon written notice to FCEM, suspend or restrict the right of
FCEM to determine what assets of the Fund shall be purchased or sold and what
portion, if any, of the Fund's assets shall be held uninvested. It is understood
that the Adviser and the Sub-Adviser undertake to discuss with FCEM any such
determinations of investment policy and any such suspensions or restrictions on
the right of FCEM to determine what assets of the Fund shall be purchased or
sold or held uninvested, prior to the implementation thereof.
2. Execution of Certain Documents. Subject to any other written
instructions of the Adviser, the Sub-Adviser and the Trustees of the Trust, FCEM
is hereby appointed the Sub-Adviser's and the Trust's agent and attorney-in-fact
to execute account documentation, agreements, contracts and other documents as
FCEM shall be requested by brokers, dealers, counterparties and other persons in
connection with its management of the Designated Assets.
3. Brokerage. In connection with the selections of brokers, dealers or
other entities and the placing of orders for the purchase and sale of portfolio
investments for the Fund with respect to the Designated Assets, FCEM is directed
to seek for the Fund execution at the most favorable price by responsible
brokerage firms at reasonably competitive commission rates. In fulfilling this
requirement, FCEM shall not be deemed to have acted unlawfully or to have
breached any duty, created by this Agreement or otherwise, solely by reason of
its having caused the Fund to pay a broker, dealer or other entity an amount of
commission for effecting a securities transaction in excess of the amount of
commission another broker, dealer or other entity would have charged for
effecting that transaction, if FCEM determined in good faith that such amount of
commission was reasonable in relation to the value of the brokerage and research
- 2 -
<PAGE>
services (within the meaning of Section 28(e) of the Securities Exchange Act of
1934, as amended) provided by such broker, dealer or other entity, viewed in
terms of either that particular transaction or FCEM's overall responsibilities
with respect to the Fund and to other clients of FCEM as to which FCEM exercises
investment discretion.
4. Reports. FCEM shall furnish to the Trustees of the Trust, the
Adviser or the Sub-Adviser, or all of them, as may be appropriate, quarterly
reports of its activities on behalf of the Fund, as required by applicable law
or as otherwise requested from time to time by the Trustees of the Trust, the
Adviser or the Sub-Adviser, and such additional information, reports,
evaluations, analyses and opinions as the Trustees of the Trust, the Adviser or
the Sub-Adviser, as appropriate, may request from time to time.
5. Services to Other Companies or Accounts. On occasions when FCEM
deems the purchase or sale of a security to be in the best interest of the Fund
as well as other clients, FCEM, to the extent permitted by applicable laws and
regulations, may, but shall be under no obligation to, aggregate the securities
to be so purchased or sold in order to obtain the most favorable price or lower
brokerage commissions and efficient execution. In such event, allocation of the
securities so purchased or sold, as well as the expenses incurred in the
transaction will be made by FCEM in the manner it considers to be the most
equitable. FCEM agrees to allocate similarly opportunities to sell or otherwise
dispose of securities among the Fund and other clients of FCEM.
6. Compensation of FCEM. For the services to be rendered by FCEM under
this Agreement, the Sub-Adviser shall pay to FCEM compensation, computed and
paid monthly in arrears, at a rate of 1.00% of the average daily net asset value
of the Designated Assets on an annualized basis. If FCEM shall serve for less
than the whole of any month, the compensation payable to FCEM with respect to
the Fund will be prorated. FCEM will pay its expenses incurred in performing its
duties under this Agreement. Neither the Trust, the Adviser nor the Fund shall
be liable to FCEM for the compensation of FCEM. For the purpose of determining
fees payable to FCEM, the value of the Fund's net assets shall be computed at
the times and in the manner specified in the Prospectus and/or Statement. In the
event that the Sub-Adviser reduces its management fee payable under the FCM Sub-
Advisory Agreement voluntarily (e.g., in order to maintain the Fund's expenses
at or below a specified level) or in order to comply with the expense
limitations of a State securities commission or otherwise, FCEM agrees to reduce
its fee payable under this Agreement by a pro rata amount.
7. Limitation of Liability of FCEM. FCEM shall not 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 duties and obligations hereunder. The Trust, on behalf of the
Fund, may enforce any obligations of FCEM under this Agreement and may recover
directly from FCEM for any liability it may have to the Fund.
- 3 -
<PAGE>
8. Activities of FCEM. The services of FCEM to the Fund are not deemed
to be exclusive, FCEM being free to render investment advisory and/or other
services to others. It is understood that the Trustees, officers and
shareholders of the Trust, the Fund, the Adviser or the Sub-Adviser are or may
become interested in FCEM or any person controlling, controlled by or under
common control with FCEM, as trustees, officers, employees or otherwise and that
trustees, officers and employees of FCEM or any person controlling, controlled
by or under common control with FCEM may become similarly interested in the
Trust, the Fund, the Adviser or the Sub-Adviser and that FCEM may be or become
interested in the Fund as a shareholder or otherwise.
9. Covenants of FCEM. FCEM agrees that it (a) will not deal with
itself, "affiliated persons" of FCEM, the Trustees of the Trust or the Fund's
distributor, as principals, agents, brokers or dealers in making purchases or
sales of securities or other property for the account of the Fund, except as
permitted by the 1940 Act and the rules, regulations and orders thereunder and
subject to the prior written approval of the Adviser, (b) will not take a long
or short position in the shares of the Fund except as permitted by the
Declaration and (c) will comply with all other provisions of the Declaration and
the By-Laws and the then-current Prospectus and Statement relative to FCEM and
its trustees, officers, employees and affiliates.
10. Representations, Warranties and Additional Agreements of FCEM. FCEM
represents, warrants and agrees that:
(a) It: (i) is registered as an investment adviser under the U.S.
Investment Advisers Act of 1940 (the "Advisers Act"), is authorized
to undertake investment business in the United Kingdom by virtue of
its membership in the Investment Management Regulatory Organisation
("IMRO") and is registered under the laws of any jurisdiction in
which FCEM is required to be registered as an investment adviser in
order to perform its obligations under this Agreement, and will
continue to be so registered for so long as this Agreement remains
in effect; (ii) is not prohibited by the 1940 Act or the Advisers
Act from performing the services contemplated by this Agreement;
(iii) has met, and will continue to meet for so long as this
Agreement remains in effect, any other applicable Federal or State
requirements, or the applicable requirements of any regulatory or
industry self-regulatory agency, necessary to be met in order to
perform the services contemplated by this Agreement; (iv) has the
authority to enter into and perform the services contemplated by
this Agreement; (v) will immediately notify the Adviser and the
Sub-Adviser in writing of the occurrence of any event that would
disqualify FCEM from serving as an investment adviser of an
investment company pursuant to Section 9(a) of the 1940 Act or
otherwise; and (vi) will immediately notify the Adviser and the
Sub-Adviser in writing of any change of control of FCEM or any
parent of FCEM resulting in an "assignment" of this Agreement.
(b) It will maintain, keep current and preserve on behalf of the Fund,
in the manner and for the periods of time required or permitted by
the 1940 Act and the rules,
- 4 -
<PAGE>
regulations and orders thereunder and the Advisers Act and the
rules, regulations and orders thereunder, records relating to
investment transactions made by FCEM for the Fund as may be
reasonably requested by the Adviser or the Fund from time to time.
FCEM agrees that such records are the property of the Fund, and
will be surrendered to the Fund promptly upon request; provided,
however, that the Sub-Adviser may retain copies of such records for
archival purposes as required by IMRO.
(c) FCEM has adopted a written code of ethics complying with the
requirements of Rule 17j-1 under the 1940 Act and, if it has not
already done so, will provide the Adviser, the Sub-Adviser and the
Trust with a copy of such code of ethics, and upon any amendment to
such code of ethics, promptly provide such amendment. At least
annually FCEM will provide the Trust, the Sub-Adviser and the
Adviser with a certificate signed by the chief compliance officer
(or the person performing such function) of FCEM certifying, to the
best of his or her knowledge, compliance with the code of ethics
during the immediately preceding twelve (12) month period,
including any material violations of or amendments to the code of
ethics or the administration thereof.
(d) It has provided the Adviser, the Sub-Adviser and the Trust with a
copy of its Form ADV as most recently filed with the Securities and
Exchange Commission (the "SEC") and will, promptly after filing any
amendment to its Form ADV with the SEC, furnish a copy of such
amendment to the Adviser, the Sub-Adviser and the Trust.
11. Duration and Termination of this Agreement. This Agreement shall
become effective on the date first above written and shall govern the relations
between the parties hereto thereafter, and shall remain in force until August 1,
1997 and each year thereafter but only so long as its continuance is
"specifically approved at least annually" (a) by the vote of a majority of the
Trustees of the Trust who are not "interested persons" of the Trust, the
Adviser, the Sub-Adviser or FCEM at a meeting specifically called for the
purpose of voting on such approval, and (b) by the Board of Trustees of the
Trust, or by "vote of a majority of the outstanding voting securities" of the
Fund. This Agreement may be terminated at any time without the payment of any
penalty by the Trustees of the Trust, by "vote of a majority of the outstanding
voting securities" of the Fund or by the Sub-Adviser, on not more than sixty
days nor less than thirty days written notice, or by FCEM on not more than
ninety days nor less than sixty days written notice. This Agreement shall
automatically terminate in the event of its "assignment" or in the event that
the FCM Sub-Advisory Agreement or the Advisory Agreement shall have terminated
for any reason.
12. Amendments to this Agreement. This Agreement may be amended only if
such amendment is approved by "vote of a majority of the outstanding voting
securities" of the Fund, by the Adviser, by the Sub-Adviser and by FCEM.
- 5 -
<PAGE>
13. Certain Definitions. The terms "specifically approved at least
annually", "vote of a majority of the outstanding voting securities",
"assignment", "control", "affiliated person" and "interested person", when used
in this Agreement, shall have the respective meanings specified, and shall be
construed in a manner consistent with, the 1940 Act and the rules, regulations
and orders thereunder, subject, however, to such exemptions as may be granted by
the SEC under the 1940 Act.
14. Survival of Representations and Warranties; Duty to Update
Information. All representations and warranties made by FCEM pursuant to Section
9 hereof shall survive for the duration of this Agreement and FCEM shall
immediately notify, but in no event later than five (5) business days, the
Adviser and the Sub-Adviser in writing upon becoming aware that any of the
foregoing representations and warranties are no longer true.
15. Miscellaneous. This Agreement shall be governed by and construed in
accordance with the internal laws of The Commonwealth of Massachusetts. All
notices provided for by this Agreement shall be in writing and shall be deemed
given when received, against appropriate receipt, by ____________________ in the
case of the Sub-Adviser, by ____________________ in the case of the Adviser, by
_____________________ in the case of FCEM and the Trust's Secretary in the case
of the Fund, or such other person as a party shall designate by notice to the
other parties. This Agreement constitutes the entire agreement among the parties
hereto and supersedes any prior agreement among the parties relating to the
subject matter hereof. The section headings of this Agreement are for
convenience of reference and do not constitute a part hereof.
- 6 -
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered in their names and on their behalf by the undersigned,
thereunto duly authorized, and their respective seals to be hereto affixed, all
as of the day and year first written above.
FOREIGN & COLONIAL
MANAGEMENT LTD.
By:
-----------------------------------
( )
( )
FOREIGN & COLONIAL EMERGING
MARKETS LIMITED
By:
-----------------------------------
( )
( )
The foregoing is hereby agreed to:
A copy of the Declaration of Trust of the Trust is on file with the
Secretary of State of The Commonwealth of Massachusetts. The parties hereto
acknowledge that the obligations of or arising out of this instrument are not
binding upon any of the Trust's trustees, officers, employees, agents or
shareholders individually, but are binding solely upon the assets and property
of the Trust in accordance with its proportionate interest hereunder. If this
instrument is executed by the Trust on behalf of one or more series of the
Trust, the parties hereto acknowledge that the assets and liabilities of each
series of the Trust are separate and distinct and that the obligations of or
arising out of this instrument are binding solely upon the assets or property of
the series on whose behalf the Trust has executed this instrument. If the Trust
has executed this instrument on behalf of more than one series of the Trust, the
parties hereto also agree that the obligations of each series hereunder shall be
several and not joint, in accordance with its proportionate interest hereunder,
and the parties hereto agree not to proceed against any series for the
obligations of another series.
MFS/SUN LIFE SERIES TRUST
on behalf of MFS/FOREIGN & COLONIAL EMERGING MARKETS EQUITY SERIES
By:
---------------------------
John D. McNeil
Chairman and Trustee
- 7 -
<PAGE>
MASSACHUSETTS FINANCIAL
SERVICES COMPANY
By:
---------------------------
Jeffrey L. Shames
President
- 8 -
<PAGE>
EXHIBIT 99.11
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Post-Effective
Amendment No. 17 to Registration Statement No. 2-83616 of MFS/Sun Life Series
Trust of our report dated February 3, 1995, appearing in the annual report to
shareholders for the year ended December 31, 1994, and to the references to us
under the headings "Condensed Financial Information" in the Prospectus and
"Independent Accountants and Financial Statements" in the Statement of
Additional Information, both of which are part of such Registration Statement.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
August 22, 1995
