<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 10, 1996.
FILE NO. 2-83616
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 18
AND
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 22
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, 1995 WAS FILED ON FEBRUARY 29, 1996.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
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 is the Prospectus dated
May 1, 1996.
<PAGE>
PROSPECTUS
MFS/SUN LIFE SERIES TRUST
MAY 1, 1996
- -------------------------------------------------------------------------------
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 nineteen 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 nineteen 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
companies that MFS believes 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 12).
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 15). 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).
MFS/Foreign & Colonial Series (The following three series are currently
available for investment only under Regatta Gold contracts issued by Sun Life
of Canada (U.S.):
MFS/Foreign & Colonial 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 (See page 19).
MFS/Foreign & Colonial International Growth and Income Series will seek
capital appreciation and current income by investing, under normal market
conditions, at least 65% of its total assets in equity and fixed income
securities of issuers whose principal activities are outside the U.S. (See
page 19).
MFS/Foreign & Colonial 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
located in emerging market countries (See page 20).
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>
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 26). 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 26).
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. Under normal market conditions, at least 25% of the
series' assets will be invested in fixed income securities and at least 40%
and no more than 75% of its assets will be invested in equity securities (See
page 28).
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
29).
Value Series will seek capital appreciation (See page 32). This series is
currently available only in connection with Regatta Gold Contracts issued by
Sun Life of Canada (U.S.).
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 33).
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 37).
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 39).
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
42).
Zero Coupon Series, Portfolio 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 liquidation date for the
Portfolio is November 15, 2000 (See page 45.) This series is 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, Value Series, World Asset Allocation Series, World
Governments Series, World Growth Series or World Total Return Series and in
the MFS/Foreign & Colonial 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. MFS has retained as sub-advisers to each of the MFS/Foreign & Colonial
Series Foreign & Colonial Management Limited ("FCM") and its subsidiary,
Foreign & Colonial Emerging Markets Limited ("FCEM"), both located at Exchange
House, Primrose Street, London EC2A 2NY, United Kingdom (together, with
respect to these series, the "Sub-Advisers(s). MFS has also retained FCM and
FCEM and Oechsle International Advisors, L.P. located at One International
Place, Boston, Massachusetts 02110 as sub-advisers to the World Growth Series
(collectively, with respect to this series, 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, 1996, which contains more detailed
information about each series and is incorporated into this Prospectus by
reference. See page 57 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 48
- ---------------------------------------------------------------------
5. Additional Information with Respect to Shares of Each Series 54
Purchases 54
Net Asset Value, Dividends and Distributions 55
Tax Status 56
Redemptions and Exchanges 56
Description of Shares, Voting Rights and Liabilities 57
Contents of Statement of Additional Information 57
</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 nineteen 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 "MFS/Foreign & Colonial International Growth Series",
(8) the "MFS/Foreign & Colonial International Growth and Income Series", (9)
the "MFS/Foreign & Colonial Emerging Markets Equity Series", (10) the "Money
Market Series", (11) the "Research Series", (12) the "Total Return Series",
(13) the "Utilities Series", (14) the "Value Series", (15) the "World Asset
Allocation Series," (16) the "World Governments Series", (17) the "World
Growth Series", (18) the "World Total Return Series" and (19) 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. Currently the
MFS/Foreign & Colonial Series and Value Series are available only under
Regatta Gold Contracts issued by Sun Life of Canada (U.S.). The Zero Coupon
Series 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, 1995,
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,
-------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<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........... $24.4076 $28.1892 $24.8989 $23.0886 $16.6242 $19.9804 $13.6006 $12.9601 $12.9025 $10.7135
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Income from
investment
operations--
Net investment
income.......... 0.0933 $ 0.0523 $ 0.1036 $ 0.0909 $ 0.1809 $ 0.2737 $ 0.3809 $ 0.2925 $ 0.1560 $ 0.0887
Net realized and
unrealized gain
(loss) on
investments and
foreign currency
transactions.... 8.1619 (1.1104) 4.2197 2.9238 6.5415 (2.1219) 5.9989 0.6500 0.1596 2.1831
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total from
investment
operations..... $ 8.2552 $(1.0581) $ 4.3233 $ 3.0147 $ 6.7224 $(1.8482) $ 6.3798 $ 0.9425 $ 0.3156 $ 2.2718
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Less
distributions--
From net
investment
income........... $(0.0568) $(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..... (0.6182) (2.5929) (0.9235) (1.0213) -- (1.1140) -- -- -- (0.0342)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total
distributions.. $(0.6750) $(2.7235) $(1.0330) $(1.2044) $(0.2580) $(1.5080) $ -- $(0.3020) $(0.2580) $(0.0828)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net asset value--
end of period.... $31.9878 $24.4076 $28.1892 $24.8989 $23.0886 $16.6242 $19.9804 $13.6006 $12.9601 $12.9025
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Total return++++.. 34.46% (3.60)% 18.00% 13.61% 40.95% (9.69)% 46.91% 7.27% 2.40% 21.35%
Ratios (to average
net
assets)/Supplemental
data:
Expenses.......... 0.83% 0.83% 0.83% 0.87% 0.85% 0.88% 0.81% 0.91% 0.89% 1.20%
Net investment
income........... 0.32% 0.24% 0.48% 0.50% 1.20% 1.99% 2.25% 1.86% 1.47% 1.68%
Portfolio
turnover......... 89% 52% 70% 69% 92% 84% 123% 128% 140% 104%
Net assets, end of
period (000
omitted)......... $797,102 $476,508 $420,552 $262,645 $180,846 $ 77,746 $ 51,092 $ 35,492 $ 42,388 $ 20,333
<CAPTION>
CONSERVATIVE GROWTH SERIES
-------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986++
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<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........... $16.4563 $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)....... $ 0.4318 $ 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..... 5.6172 (0.4790) 1.1280 0.6747 4.4025 (0.7712) 3.2307 0.2720 (0.4209) --
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total from
investment
operations..... $ 6.0490 $(0.1848) $ 1.3321 $ 0.8557 $ 4.5540 $(0.4685) $ 3.5417 $ 0.7168 $(0.2022) $(0.0001)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Less
distributions--
From net
investment
income.......... $(0.3037) $(0.1996) $(0.1509) $(0.1387) $(0.3130) $(0.3340) $ -- $(0.4520) $(0.1880) $ --
From net realized
gain on
investments and
foreign currency
transactions.... (0.1834) (0.0882) (0.3240) (1.5000) -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total
distributions.. $(0.4871) $(0.2878) $(0.4749) $(1.6387) $(0.3130) $(0.3340) $ -- $(0.4520) $(0.1880) $ 0.0000
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net asset value--
end of period.... $22.0182 $16.4563 $16.9289 $16.0717 $16.8547 $12.6137 $13.4162 $ 9.8745 $ 9.6097 $ 9.9999
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Total return++++.. 37.41% ( 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% 0.64% 0.66% 0.80% 0.98% 1.00% 1.02% 0.87% 0.95% 1.25%*
Net investment
income
(expense)....... 2.25% 2.42% 2.05% 1.84% 1.07% 2.29% 2.38% 3.71% 3.61% (0.41%)*
Portfolio
turnover......... 60% 146% 19% 40% 51% 82% 34% 78% 98% --
Net assets, end of
period (000
omitted)......... $302,024 $150,318 $ 95,770 $ 44,455 $ 15,818 $ 11,680 $ 13,323 $ 11,646 $ 13,573 $ 469
</TABLE>
- --------
* Annualized.
++ 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,
---------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
-------- --------- -------- -------- -------- -------- -------- -------- -------- --------
<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........... $12.1219 $ 13.0951 $13.0059 $13.0369 $12.0359 $11.9612 $10.6128 $10.7858 $12.1211 $10.4751
-------- --------- -------- -------- -------- -------- -------- -------- -------- --------
Income from
investment
operations--
Net investment
income........... $ 0.8311 $ 0.6366 $ 0.5742 $ 0.7170 $ 0.7835 $ 0.7723 $ 0.9270 $ 1.0085 $ 0.7284 $ 0.6173
Net realized and
unrealized gain
(loss) on
investments and
foreign currency
transactions..... 1.2183 (0.9238) 0.5220 0.0976 1.0115 0.1954 0.4324 (0.1825) (0.4047) 1.0925
-------- --------- -------- -------- -------- -------- -------- -------- -------- --------
Total from
investment
operations..... $ 2.0494 $ (0.2872) $ 1.0962 $ 0.8146 $ 1.7950 $ 0.9677 $ 1.3594 $ 0.8260 $ 0.3237 $ 1.7098
-------- --------- -------- -------- -------- -------- -------- -------- -------- --------
Less
distributions--
From net
investment
income........... $(0.7813) $ (0.4959) $(0.6603) $(0.8027) $(0.7940) $(0.8930) $(0.0110) $(0.9890) $(1.3840) $(0.0638)
From net realized
gain on
investments and
foreign currency
transactions..... -- (0.1901) (0.3467) (0.0429) -- -- -- -- (0.2750) --
-------- --------- -------- -------- -------- -------- -------- -------- -------- --------
Total
distributions.. $(0.7813) $ (0.6860) $(1.0007) $(0.8456) $(0.7940) $(0.8530) $(0.0110) $(0.9980) $(1.6590) $(0.0638)
-------- --------- -------- -------- -------- -------- -------- -------- -------- --------
Net asset value--
end of period.... $13.3900 $ 12.1219 $13.0951 $13.0059 $13.0369 $12.0359 $11.9612 $10.6128 $10.7858 $12.1211
======== ========= ======== ======== ======== ======== ======== ======== ======== ========
Total return++++.. 17.66% (2.21)% 8.70% 6.81% 15.81% 8.92% 12.83% 7.59% 2.94% 16.37%
Ratios (to average
net
assets)/Supplemental
data:
Expenses.......... 0.63% 0.62% 0.63% 0.66% 0.64% 0.67% 0.61% 0.61% 0.60% 0.76%
Net investment
income........... 6.59% 6.01% 5.92% 6.56% 7.60% 8.12% 8.47% 8.01% 8.28% 9.10%
Portfolio
turnover......... 80% 90% 96% 304% 203% 62% 139% 386% 424% 185%
Net assets, end of
period (000
omitted)......... $368,848 $347,150 $310,521 $203,739 $144,172 $ 97,977 $ 61,483 $ 57,798 $ 62,850 $ 33,067
<CAPTION>
HIGH YIELD SERIES
---------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
-------- --------- -------- -------- -------- -------- -------- -------- -------- --------
<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........... $ 8.1860 $ 9.1120 $ 8.3279 $ 8.1299 $ 6.9758 $ 9.9462 $10.0835 $10.1008 $11.7988 $10.3842
-------- --------- -------- -------- -------- -------- -------- -------- -------- --------
Income from
investment
operations--
Net investment
income........... $ 0.7891 $ 0.8226 $ 0.5915 $ 0.7314 $ 0.8230 $ 1.6596 $ 1.5234 $ 1.5331 $ 1.2281 $ 0.6045
Net realized and
unrealized gain
(loss) on
investments and
foreign currency
transactions..... 0.5494 (1.0387) 0.8242 0.3823 1.9201 (2.9030) (1.6487) (0.0244) (1.0871) 0.9145
-------- --------- -------- -------- -------- -------- -------- -------- -------- --------
Total from
investment
operations..... $ 1.3385 $ (0.2161) $ 1.4157 $ 1.1137 $ 2.7431 $(1.2434) $(0.1253) $ 1.5087 $ 0.1410 $ 1.5190
-------- --------- -------- -------- -------- -------- -------- -------- -------- --------
Less
distributions--
From net
investment
income........... $(0.6023) $(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.. $ 0.6023 $ (0.7099) $(0.6316) $(0.9157) $(1.5890) $(1.7270) $(0.0120) $(1.5260) $(1.8390) $(0.1044)
-------- --------- -------- -------- -------- -------- -------- -------- -------- --------
Net asset value--
end of period.... $ 8.9222 $ 8.1860 $ 9.1120 $ 8.3279 $ 8.1299 $ 6.9758 $ 9.9462 $10.0835 $10.1008 $11.7988
======== ========= ======== ======== ======== ======== ======== ======== ======== ========
Total return++++.. 16.93% (2.16)% 17.68% 14.99% 47.47% (14.16)% (1.17)% 14.91% 1.05% 14.82%
Ratios (to average
net
assets)/Supplemental
data:
Expenses.......... 0.87% 0.86% 0.88% 0.97% 1.05% 1.05% 0.96% 0.89% 0.88% 1.16%
Net investment
income........... 9.17% 8.94% 8.76% 9.07% 12.23% 17.07% 12.51% 12.83% 9.74% 10.28%
Portfolio
turnover......... 65% 82% 53% 73% 45% 22% 25% 32% 54% 31%
Net assets, end of
period (000
omitted)......... $153,800 $102,194 $ 97,884 $ 54,564 $ 31,254 $ 19,216 $ 31,983 $ 41,954 $ 42,341 $ 27,534
</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.
5
<PAGE>
MFS/SUN LIFE SERIES TRUST
FINANCIAL HIGHLIGHTS--CONTINUED
<TABLE>
<CAPTION>
MANAGED SECTORS SERIES
----------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
1995 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.... $19.8823 $23.2419 $22.3342 $21.0115 $13.0731 $15.1367 $10.4213 $10.0000++
-------- -------- -------- -------- -------- -------- -------- --------
Income from investment
operations--
Net investment income
(expense)............. $ 0.0979 $ 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.......... 6.1880 (0.6610) 0.9050 1.4184 8.0287 (1.6919) 4.6323 0.4150
-------- -------- -------- -------- -------- -------- -------- --------
Total from investment
operations........... $ 6.2859 $(0.5628) $ 0.9077 $ 1.3619 $ 8.0624 $(1.5756) $ 4.7154 $ 0.4803
-------- -------- -------- -------- -------- -------- -------- --------
Less distributions--
From net investment
income................ $(0.0542) $(0.0239) $ -- $(0.0392) $(0.1240) $(0.0720) $ -- $(0.0590)
From net realized gain
on investments and
foreign currency
transactions.......... (0.6672) (2.7729) -- -- -- (0.4160) -- --
-------- -------- -------- -------- -------- -------- -------- --------
Total distributions... $(0.7214) $(2.7968) $ -- $(0.0392) $(0.1240) $(0.4880) $ -- $(0.0590)
-------- -------- -------- -------- -------- -------- -------- --------
Net asset value--end of
period................. $25.4468 $19.8823 $23.2419 $22.3342 $21.0115 $13.0731 $15.1367 $10.4213
======== ======== ======== ======== ======== ======== ======== ========
Total return++++........ 32.29% (1.94)% 4.08% 6.48% 62.15% (10.50)% 45.30% 7.32%*
Ratios (to average net
assets)/Supplemental
data:
Expenses............... 0.84% 0.87 % 0.84% 0.93 % 1.03% 1.25% 1.25 % 1.25%*
Net investment income
(expense)............. 0.42% 0.53 % 0.01% (0.35)% 0.34% 1.52% 1.51 % 1.90%*
Portfolio turnover...... 113% 103 % 116% 22% 45% 51% 75 % 122%
Net assets, end of
period (000 omitted)... $194,351 $118,987 $104,954 $ 83,413 $ 41,752 $ 15,290 $ 4.054 $ 507
</TABLE>
<TABLE>
<CAPTION>
MONEY MARKET SERIES
--------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<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........ $ 0.0520 $ 0.0363 $ 0.0256 $ 0.0325 $ 0.0565 $ 0.0760 $ 0.0855 $ 0.0549 $ 0.0379 $ 0.0376
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Less distributions
from net
investment income. $(0.0520) $(0.0363) $(0.0256) $(0.0325) $(0.0565) $(0.0760) $(0.0855) $(0.0549) $(0.0379) $(0.0376)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
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++++... 5.44% 3.69% 2.59% 3.30% 5.79% 7.81% 8.91% 7.13% 5.95% 5.54%
Ratios (to average
net
assets)/Supplemental
data:
Expenses........... 0.59% 0.58% 0.58% 0.60% 0.59% 0.62% 0.72% 0.72% 0.80% 1.25%
Net investment
income............ 5.30% 3.74% 2.60% 3.29% 5.64% 7.48% 8.60% 6.97% 6.26% 5.45%
Net assets, end of
period
(000 omitted)..... $282,754 $252,175 $142,464 $134,799 $129,683 $112,901 $ 40,015 $ 34,179 $ 23,711 $ 6,405
</TABLE>
- --------
* Annualized.
+ 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.
6
<PAGE>
MFS/SUN LIFE SERIES TRUST
FINANCIAL HIGHLIGHTS--CONTINUED
<TABLE>
<CAPTION>
TOTAL RETURN SERIES
-------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------
1995 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.... $ 15.0862 $16.0946 $14.7219 $14.2209 $12.1220 $12.0912 $10.2903 $10.0000++
Income from investment
operations--
Net investment income.. $ 0.7824 $ 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.......... 3.1527 (0.9310) 1.5044 0.6247 1.9793 (0.0993) 1.5111 0.3298
---------- -------- -------- -------- -------- -------- -------- --------
Total from investment
operations........... $ 3.9351 $(0.3671) $ 1.9363 $ 1.1636 $ 2.5439 $ 0.3098 $ 1.8009 $ 0.5743
---------- -------- -------- -------- -------- -------- -------- --------
Less distributions--
From net investment
income................ $ (0.6365) $(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... $ (0.6365) $(0.6413) $(0.5636) $(0.6626) $(0.4450) $(0.2790) $ -- $(0.2840)
---------- -------- -------- -------- -------- -------- -------- --------
Net asset value--end of
period................. $ 18.3848 $15.0862 $16.0946 $14.7219 $14.2209 $12.1220 $12.0912 $10.2903
========== ======== ======== ======== ======== ======== ======== ========
Total return++++........ 26.71% (2.22)% 13.37% 8.57% 21.60% 2.69% 17.49% 8.77%*
Ratios (to average net
assets)/Supplemental
data:
Expenses............... 0.76% 0.76% 0.78% 0.85% 0.85% 0.91% 1.25% 1.25%*
Net investment income.. 4.70% 4.34% 4.06% 4.96% 5.83% 6.48% 6.49% 6.08%*
Portfolio turnover...... 108% 66% 102% 71% 69% 42% 49% 31%
Net assets, end of
period (000 omitted)... $1,099,887 $839,614 $696,496 $397,385 $224,216 $103,658 $ 18,001 $ 3,288
</TABLE>
<TABLE>
<CAPTION>
WORLD GOVERNMENTS SERIES
-----------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------
1995 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.... $11.3769 $13.0212 $11.7966 $12.7397 $11.5967 $11.0195 $10.0259 $10.0000++
-------- -------- -------- -------- -------- -------- -------- --------
Income from investment
operations--
Net investment income... $0.8031 $ 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.......... 0.9511 (1.2295) 1.5819 (0.6141) 0.9616 1.0963 0.1256 0.0614
-------- -------- -------- -------- -------- -------- -------- --------
Total from investment
operations........... $ 1.7542 $(0.6200) $ 2.1171 $ 0.0288 $ 1.6640 $ 1.3612 $ 0.9936 $ 0.4209
-------- -------- -------- -------- -------- -------- -------- --------
Less distributions--
From net investment
income................ $(0.0058) $(0.8823) $(0.8925) $(0.6581) $(0.5210) $(0.7840) $ -- $(0.3590)
From net realized gain
on investments and
foreign currency
transactions.......... (0.6387) (0.1420) -- (0.3138) -- -- -- (0.0360)
-------- -------- -------- -------- -------- -------- -------- --------
Total distributions... $(0.6445) $(1.0243) $(0.8925) $(0.9719) $(0.5210) $(0.7840) $ -- $(0.3950)
-------- -------- -------- -------- -------- -------- -------- --------
Net asset value--end of
period................. $12.4866 $11.3769 $13.0212 $11.7966 $12.7397 $11.5967 $11.0195 $10.0259
======== ======== ======== ======== ======== ======== ======== ========
Total return++++........ 15.69% (4.46)% 18.84% 0.54% 14.83% 13.37% 9.87% 6.49%*
Ratios (to average net
assets)/Supplemental
data:
Expenses............... 0.89% 0.90% 0.95% 1.03% 1.12% 1.25% 1.25% 1.25%*
Net investment income.. 6.67% 6.06% 6.01% 7.02% 7.50% 7.51% 8.10% 8.91%*
Portfolio turnover...... 329% 269% 173% 147% 192% 165% 168% --
Net assets, end of
period (000 omitted)... $152,487 $139,155 $135,085 $ 73,540 $ 36,566 $ 11,506 $ 1,951 $ 2,057
</TABLE>
- --------
* Annualized.
+ 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
---------------------------------------------------------------------------------------------------
2000 PORTFOLIO
---------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986+
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<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........... $ 7.9573 $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........... $ 0.4340 $ 0.3807 $ 0.6921 $ 0.8970 $ 0.8217 $ 0.8473 $ 0.7145 $ 0.5361 $ 0.3011 $ --
Net realized and
unrealized gain
(loss) on
investments...... 1.1038 (1.1094) .8997 (0.0904)** 1.1301 (0.3340) 1.1387 0.4928 (1.2533) (0.2700)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total from
investment
operations..... $ 1.5378 $(0.7287) $ 1.5918 $ 0.8066 $ 1.9518 $ 0.5133 $ 1.8532 $ 1.0289 $(0.9522) $(0.2700)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Less
distributions--
From net
investment
income........... $(0.4332) $(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.. $(0.4332) $(2.4307) $(1.5717) $(1.0160) $(0.9230) $(0.9080) $ -- $(0.6860) $(0.3020) $ 0.0000
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net asset value--
end of period.... $ 9.0619 $ 7.9573 $11.1167 $11.0966 $11.3060 $10.2772 $10.6719 $ 8.8187 $ 8.4758 $ 9.7300
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Total return++++.. 19.88% (6.99)% 15.03% 8.18% 20.54% 5.92% 20.98% 12.23% (9.85)% (2053)%*
Ratios (to average
net
assets)/Supplemental
data:
Expenses.......... 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.48% 0.50% 0.50%*
Net investment
income........... 5.16% 4.93% 5.48% 7.08% 7.63% 8.06% 7.88% 8.57% 8.62% --
Portfolio
turnover......... 27% 12% 65% 16% 8% 24% 15% 39% 31% --
Net assets, end of
period (000
omitted)......... $ 4,616 $ 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>
MFS/FOREIGN
& COLONIAL
EMERGING INTERNATIONAL
GROWTH GROWTH AND
SERIES INCOME SERIES RESEARCH SERIES UTILITIES SERIES
------------ ------------- ------------------------- --------------------------------------
PERIOD ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995*** 1995**** 1995 1994** 1995 1994 1993+
------------ ------------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Per share data
(for a share
outstanding
throughout each
period):
Net asset value--
beginning of
period........... $10.0000++ $10.0000++ $ 9.8761 $10.0000++ $ 9.5209 $10.0164 $10.0000++
-------- -------- -------- -------- -------- -------- --------
Income from
investment
operations--
Net investment
income(S)....... $ 0.0788 $ 0.0295 $ 0.1401 $ 0.0131 $ 0.4918 $ 0.2899 $ 0.0128
Net realized and
unrealized gain
(loss) on
investments and
foreign currency
transactions.... 2.6079 0.0987 3.5651 (0.1370) 2.5197 (0.7817) 0.0036
-------- -------- -------- -------- -------- -------- --------
Total from
investment
operations..... $ 2.6867 $ 0.1282 $ 3.7052 $(0.1239) $ 3.0115 $(0.4918) $ 0.0164
-------- -------- -------- -------- -------- -------- --------
Less distributions
from net
investment
income........... $ -- $ -- $(0.0036) $ -- $(0.2726) $(0.0037) $ --
Realized gain on
investments and
foreign currency
transactions..... -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Distributions..... $ -- $ -- $(0.0036) -- $(0.2726) $(0.0037) --
-------- -------- -------- -------- -------- -------- --------
Net asset value--
end of period.... $12.6867 $10.1282 $13.5777 $ 9.8761 $12.2598 $ 9.5209 $10.0164
======== ======== ======== ======== ======== ======== ========
Total return++++.. 26.80% 1.30% 37.50% (1.20)% 32.36% (4.96)% 1.59%*
Ratios (to average
net
assets)/Supplemental
data(S):
Expenses......... 0.24%* 1.50%* 0.58% 1.50%* 0.44% 0.39% 1.50%*
Net investment
income.......... 1.13%* 1.64%* 1.16% 1.80%* 4.62% 4.59% 2.58%*
Portfolio
turnover......... 28% -- 81% 3% 119% 103% --
Net assets, end of
year (000
omitted)......... $ 67,255 $ 7,179 $ 71,828 $ 3,869 $ 43,134 $ 21,448 $ 2,798
<CAPTION>
WORLD ASSET
ALLOCATION SERIES
-------------------------
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31,
1995 1994**
------------ ------------
<S> <C> <C>
Per share data
(for a share
outstanding
throughout each
period):
Net asset value--
beginning of
period........... $10.0579 $10.0000++
------------ ------------
Income from
investment
operations--
Net investment
income(S)....... $0.4205 $ 0.0220
Net realized and
unrealized gain
(loss) on
investments and
foreign currency
transactions.... 1.7540 0.0359
------------ ------------
Total from
investment
operations..... $2.1745 $ 0.0579
------------ ------------
Less distributions
from net
investment
income........... $(0.0074) $ --
Realized gain on
investments and
foreign currency
transactions..... -- --
------------ ------------
Distributions..... $(0.0074) --
------------ ------------
Net asset value--
end of period.... $12.2250 $10.0579
============ ============
Total return++++.. 21.56% 0.60%
Ratios (to average
net
assets)/Supplemental
data(S):
Expenses......... 0.67% 1.50%*
Net investment
income.......... 3.70% 3.13%*
Portfolio
turnover......... 146% 2%
Net assets, end of
year (000
omitted)......... $ 25,863 $ 3,003
</TABLE>
<TABLE>
<CAPTION>
WORLD GROWTH SERIES WORLD TOTAL RETURN SERIES
-------------------------------------- -------------------------
YEAR ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1994 1993+ 1995 1994**
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Per share data (for a
share outstanding
throughout each
period):
Net asset value--
beginning of period.... $10.9425 $10.6366 $10.0000++ $10.0405 $10.0000++
-------- -------- -------- -------- --------
Income from investment
operations--
Net investment
income(S)............. $0.0689 $ 0.1506 $ 0.0088 $0.4437 $ 0.0247
Net realized and
unrealized gain (loss)
on investments and
foreign currency
transactions.......... 1.6388 0.1590 0.6278 1.3564 0.0158
-------- -------- -------- -------- --------
Total from investment
operations........... $1.7077 $ 0.3096 $ 0.6366 $1.8001 $ 0.0405
-------- -------- -------- -------- --------
Less distributions from
net investment income.. $(0.1361) $(0.0037) $ -- $(0.0060) $ --
Realized gain on
investments and foreign
currency transactions (0.1677) -- -- -- --
-------- -------- -------- -------- --------
Distributions........... $(0.3038) $(0.0037) -- $(0.0060) --
-------- -------- -------- -------- --------
Net asset value--end of
period................. $12.3464 $10.9425 $10.6366 $11.8345 $10.0405
======== ======== ======== ======== ========
Total return++++........ 16.06% 2.86% 50.78%* 17.89% 0.40%
Ratios (to average net
assets)/Supplemental
data(S):
Expenses............... 1.07% 0.47% 1.02%* 0.77% 1.50%*
Net investment income.. 0.60% 2.20% 1.23%* 4.01% 3.31%*
Portfolio turnover...... 162% 231% 2% 146% 1%
Net assets, end of year
(000 omitted).......... $146,388 $100,045 $ 18,879 $13,786 $ 1,384
</TABLE>
- -------
*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.
*** From May 1, 1995 (date of commencement of operations) to December 31, 1995.
****From October 2, 1995 (date of commencement of operations) to December 31,
1995.
(S)For the periods shown below the investment adviser voluntarily waived all or
a portion of its management fee for the Emerging Growth Series, Research
Series, Utilities Series, World Asset Allocation Series, World Growth Series
and World Total Return Series. If the waiver had not been in place, the net
investment income per share and ratios would have been:
<TABLE>
<CAPTION>
EMERGING GROWTH RESEARCH WORLD ASSET
SERIES SERIES UTILITIES SERIES ALLOCATION SERIES WORLD GROWTH SERIES
--------------- ------------ ------------------------- ----------------- -------------------------
PERIOD ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995*** 1995 1995 1994 1995 1994 1993+
--------------- ------------ ------------ ------------ ----------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net investment
income.......... $0.0265 $0.0954 $0.4375 $0.2412 $0.3716 $0.0989 $0.005
Ratios (to
average net
assets).........
Expenses........ 1.00%* 0.95% 0.95% 1.14% 1.11% 1.20% 1.50%*
Net investment
income......... 0.38%* 0.79% 4.12% 3.84% 3.27% 1.47% 0.75%*
<CAPTION>
WORLD TOTAL
RETURN SERIES
-------------
YEAR ENDED
DECEMBER 31,
1995
-------------
<S> <C>
Net investment
income.......... $0.3972
Ratios (to
average net
assets).........
Expenses........ 1.19%
Net investment
income......... 3.59%
</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 all 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 most of the 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% 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
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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 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 0% 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.
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(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.
The series' policy is to invest primarily (i.e., at least 80% of its assets
under normal circumstances) in common stocks of companies that MFS believes
are early in their life cycle but which have the potential to become major
enterprises ("emerging growth companies"). These companies generally 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,
technologies, management and market and other opportunities which are usually
necessary to become more widely recognized as growth companies. Emerging
growth companies can be of any size, and may include larger and 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. 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 net 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" below.)
The series may invest up to 25% and generally expects to invest between 0%
and 10% 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
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"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 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
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management. In addition, there may be less research available on many
promising small and medium sized emerging growth companies, making it more
difficult to find and analyze these companies. 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.
(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.
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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
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, 1995, 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
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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. 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.
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 securities), 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 (although these lower
rated securities are also affected by changes in interest rates, as described
below). 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
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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.
While the Adviser may refer to ratings issued by established credit rating
agencies, it is not the policy of the 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 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.
(6) MANAGED SECTORS SERIES
The Managed Sectors Series will seek capital appreciation by varying the
weighting of its portfolio among thirteen industry sectors. Dividend income,
if any, is incidental to the Managed Sectors Series' objective of capital
appreciation.
The thirteen sectors from among which the Managed Sectors Series chooses its
investments are: autos and housing; basic materials and consumer staples;
defense and aerospace; energy; financial services; health care; industrial
goods and services; leisure; 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
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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 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% 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.
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(7), (8) AND (9) MFS/FOREIGN & COLONIAL SERIES
The following three series, collectively referred to as the "MFS/Foreign &
Colonial Series", have separate investment objectives, but employ many of the
same investment policies, instruments and techniques. Those investment
policies, instruments and techniques that are common to all three of the
MFS/Foreign & Colonial Series are set forth below, following the separate
statements of investment objectives and policies for each series.
(7) MFS/FOREIGN & COLONIAL INTERNATIONAL GROWTH SERIES ("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 located 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 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.
(8) MFS/FOREIGN & COLONIAL INTERNATIONAL GROWTH AND INCOME SERIES
("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
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generally expects to invest from 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 located in emerging market countries. See
"Investment Instruments and Techniques--Emerging Market Securities" below.
(9) MFS/FOREIGN & COLONIAL EMERGING MARKETS EQUITY SERIES ("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 located 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.
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--Investments in One or a Limited Number of Countries" below. Currently
none of the series expect to invest more than 25% of its 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 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
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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 emerging market countries. Emerging
market countries include any country determined by the Adviser or Sub-Adviser
to have an emerging market economy, taking into account a number of factors,
including whether the country has a low- to middle-income economy according to
the International Bank for Reconstruction and Development, the country's
foreign currency debt rating, its political and economic stability and the
development of its financial and capital markets. See Appendix A --"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
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 net assets,
the International Growth and Income Series will not invest more than 25% of
its net assets and the Emerging Markets Equity Series will not invest 35% or
more 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. However,
because
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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") and any applicable state securities laws (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--"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--"Brady Bonds."
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
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
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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--
"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 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; (9) entering into forward foreign currency exchange contracts
("forward contracts") for hedging purposes as well as for the non-hedging
purpose of increasing the series' current income; and (10) entering into
interest rate
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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 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. Because each series is
expected to have a portfolio turnover rate of over 100%, 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.
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--"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--"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
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'
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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.
INVESTMENTS IN ONE OR A LIMITED NUMBER OF 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 invests a significant portion
of its assets in a single or limited number of countries, the series'
investment performance correspondingly will be more dependent upon the
economic, political and social conditions and changes in that country or
countries, and the risks associated with investments in such country or
countries will be particularly significant. The ability of a series to focus
its investments in one or a limited number of countries may have the effect of
increasing the volatility of that series.
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 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
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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.
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. 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" above.
TRANSACTIONS IN OPTIONS, FUTURES CONTRACTS AND FORWARD CONTRACTS: See
Appendix B-- "Risks of Transactions In Options, Futures Contracts and Forward
Contracts" and the Appendix to the Statement of Additional Information.
(10) 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.)
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.
(11) RESEARCH SERIES
The Research Series' investment objective is to provide long-term growth of
capital and future income.
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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 industry groups (e.g., pharmaceuticals, retail
and computer software). The allocation by industry group is determined by the
analysts acting together. Individual analysts are then responsible for
selecting what they view as the securities best suited to meet the Research
Series' investment objective within their assigned industry group.
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 net 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 up to 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 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.
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.
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(12) 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. Under normal market conditions, at least 25% of the
series' assets will be invested in fixed income securities and at least 40%
and no more than 75% of the series' assets will be 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 net 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%
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.
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' portfolio will be managed actively with respect to
fixed income securities, and the asset allocations will be modified as the
Adviser deems necessary. Although the Total Return Series does not intend to
seek short-term profits, fixed income 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. With respect to
its equity securities, the Total Return Series does not intend to trade in
securities for short-term profits and anticipates that equity securities in
its portfolio 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
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involved in these investments. Mortgage "dollar roll" transactions and lending
portfolio securities and their attendant risks are discussed in Appendix B.
(13) 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.
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
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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.
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.
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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.
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.
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(14) VALUE SERIES
The Value Series' investment objective is to seek capital appreciation.
Dividend income, if any, is a consideration incidental to the series'
objective of capital appreciation.
While the Value Series' policy is to invest primarily in common stocks, it
may seek appreciation in other types of securities such as fixed income
securities (which may be unrated), convertible bonds, convertible preferred
stocks 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 income securities rated lower than
"investment grade" (investment grade securities are rated at least Baa by
Moody's or BBB by S&P or Fitch), or in comparable unrated securities, when, in
the opinion of the Adviser, such an investment presents a greater opportunity
for appreciation with comparable risk to an investment in "investment grade"
securities. Under normal market conditions, the series will invest not more
than 25% of its net assets in these securities. Such lower rated or unrated
fixed income securities may have speculative risk characteristics (see
"Additional Risk Factors Regarding Lower Rated Securities" under "High Yield
Series" above). Fixed income securities that the Value Series may invest in
also include zero coupon bonds, deferred interest bonds and bonds on which the
interest is payable in kind ("PIK bonds"). There is no formula as to the
percentage of assets that may be invested in any one type of security. Cash,
commercial paper, short-term obligations, repurchase agreements or debt
securities are held to provide a reserve for future purchases of common stock
or other securities and may also be held as a temporary defensive measure when
the Adviser determines security markets to be overvalued.
The Value Series may invest up to 50% of its total assets in foreign
securities, which may include emerging market securities and Brady Bonds. The
series may also invest a portion of its assets in loans, loan participations
or other direct indebtedness.
In order to achieve its investment objective, the Value 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; (5)
purchasing American Depositary Receipts ("ADRs"); (6) 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); (7) entering into "yield curve"
options for hedging and nonhedging purposes; (8) entering into stock index and
foreign currency 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 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 nonhedging 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
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of increasing current income; (11) purchasing and selling options on foreign
currencies for the purpose of protecting against declines in the dollar value
of portfolio securities and against increases in the dollar cost of securities
to be acquired; (12) writing covered call and put options and purchasing call
and put options on 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; and (13) investing in indexed
securities whose value is linked to foreign currencies, precious metals,
interest rates, commodities, indexes or other financial indicators.
The Value Series is designed for purchasers who understand and are willing
to accept the risks inherent in seeking capital appreciation.
The Value Series' portfolio is aggressively managed. Portfolio changes are
made without regard to the length of time a security has been held, or whether
a sale would result in profit or loss. Therefore, the rate of portfolio
turnover is not a limiting factor when appropriate. It is anticipated that the
series' portfolio turnover rate will not exceed 200% during its first fiscal
year. A high turnover rate (over 100%) involves greater expenses, including
higher brokerage and transaction costs, to the series.
See Appendix A for discussion of foreign securities, emerging market
securities, Brady Bonds, ADRs, zero coupon bonds, deferred interest bonds and
PIK bonds, restricted securities, loans and loan participations, 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 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 VALUE SERIES.
(15) 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
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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.
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--45%; U.S. Investment Grade Fixed Income Securities--10%;
U.S. High Yield Fixed Income Securities--10%; 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,
1995, 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
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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
securities of issuers whose principal activities are in emerging market
countries, 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. 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
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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
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%. 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.
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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 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.
(16) 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
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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.
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
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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 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 300% (excluding turnover of securities having a
maturity of one year or less). A high turnover rate (in excess of 100%)
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.
(17) 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
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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.
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 securities
of issuers whose principal activities are in emerging market countries. 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 net 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
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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 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
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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 300%. A high turnover rate (in excess of 100%)
necessarily involves greater expenses to the World Growth Series. Oechsle
International Advisors, L.P., one of the Sub-Advisers to the World Growth
Series, may allocate brokerage transactions to broker-dealers affiliated with
Oechsle in accordance with procedures adopted by the Series Fund's Board of
Trustees and to the extent permitted by applicable law. Oechsle will effect
transactions with such broker-dealers only if the commissions paid to such
brokers are comparable to those charged by other nonaffiliated broker-dealers
for comparable services.
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.
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.
(18) 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
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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.
Under normal economic and market conditions, the World Total Return Series
will invest not less than 40% and not more than 75% of its assets in equity
securities. 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% of its total assets in foreign securities (not
including American Depositary Receipts), which may be traded on foreign
exchanges.
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, 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, at least 25% of the World Total
Return Series' assets 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.
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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. 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 (see Appendix C and "Additional Risk Factors
Regarding Lower Rated Securities" under "High Yield Series" above).
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.
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
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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' portfolio turnover rate will not exceed 200%. A
high turnover rate (in excess of 100%) 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.
(19) ZERO COUPON SERIES, PORTFOLIO 2000
The Zero Coupon Series, Portfolio 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"). This portfolio is a sub-series of the Zero Coupon Series and
has a liquidation date of November 15, 2000. This series is currently
available only in connection with the purchase of variable life insurance
contracts issued by Sun Life of Canada (U.S.).
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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 "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 the Portfolio, and
therefore the value of shares in the Portfolio, 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 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 the 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
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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 the Zero Coupon Series will be
determined in accordance with the procedures set forth at page 55 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 proceeds reinvested until the
liquidation date). This is the anticipated yield for the 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 Adviser and
the Sub-Advisers also have 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
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the Statement of Additional Information may not be changed without shareholder
approval, unless otherwise indicated. 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.
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; manages the assets of the Emerging Growth Series pursuant
to an Investment Advisory Agreement dated May 1, 1995; manages the assets of
each of the MFS/Foreign & Colonial Series pursuant to separate Investment
Advisory Agreements each dated September 1, 1995; and manages the assets of
the Value Series pursuant to an Investment Advisory Agreement dated May 1,
1996.
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 Scozzafava, Vice President
(1989); Capital Appreciation Series, Paul M. McMahon,
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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, David M.
Calabro, Vice President (1992) (previously Mr. Calabro was an analyst and
sector portfolio manager with Fidelity Investments) and Geoffrey L. Kurinsky,
Senior Vice President (1987); Managed Sectors Series, Kenneth J. Enright, Vice
President (1986); World Growth Series, John W. Ballen, Senior Vice President
(1984), Toni Y. Shimura, Vice President (1987) and David R. Mannheim, Vice
President (1988); Emerging Growth Series, John W. Ballen, Senior Vice
President (1984); Utilities Series, Maura A. Shaughnessy, Vice President
(1991) (previously Ms. Shaughnessy was an equity analyst with the Harvard
Management Company); World Asset Allocation Series, James T. Swanson, Senior
Vice President (1985), David R. Mannheim, Vice President (1988), Joan S.
Batchelder, Senior Vice President (1978), Geoffrey L. Kurinsky, Senior Vice
President (1987), John F. Brennan, Jr., Senior Vice President (1985) and
Leslie J. Nanberg, Senior Vice President, (1980); World Total Return Series,
Frederick J. Simmons, Senior Vice President (1971); and Value Series, John F.
Brennan, Jr., Senior Vice President (1985). The Research Series is currently
managed by a committee comprised of various equity research analysts employed
by the Adviser.
The identity and background of the portfolio managers for the MFS/Foreign &
Colonial Series and those employed by the Sub-Advisers for the World Growth
Series are set forth below, under the discussion of the Sub-Advisers.
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 Value Series, the Research
Series, the World Asset Allocation Series, the World Total Return Series and
the Emerging Growth Series for 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 (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), (v) 0.25% of the average daily net assets of the Zero Coupon
Series for the Series Fund's then-current fiscal year; (vi) 0.90% of the
average daily net assets of the World Growth Series for the Series Fund's
then-current fiscal year, (vii) 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 (viii) 1.25% of the average daily net assets of the Emerging
Markets Equity Series for the Series Fund's then-current fiscal year. The
management fees for the MFS/Foreign & Colonial Series are greater than the
management fees paid by most other investment companies, but are comparable to
fees paid by other investment companies having similar investment objectives
and policies. The Adviser has voluntarily agreed to reduce the management fee
to 0% of the International Growth Series', Emerging Markets Equity Series' and
Value 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.
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For the Series Fund's fiscal year ended December 31, 1995 the Series Fund's
Adviser received fees under the investment advisory agreements as follows:
Capital Appreciation Series, $4,876,631; Conservative Growth Series,
$1,160,504; Government Securities Series, $1,877,922; High Yield Series,
$990,965; Managed Sectors Series, $1,202,378; Money Market Series, $1,204,609;
Research Series, $106,482; Total Return Series, $6,671,672; Utilities Series,
$70,277; World Asset Allocation Series, $41,031; World Governments Series,
$1,136,612; World Growth Series, $1,090,977; World Total Return Series,
$21,382; and Zero Coupon Series, $8,185. MFS voluntarily waived the following
fees: Emerging Growth Series, $149,156; International Growth and Income
Series, $7,653; Research Series, $105,489; Utilities Series, $148,727; World
Asset Allocation Series, $57,610; and World Total Return Series, $27,327. The
International Growth Series, the Emerging Markets Equity Series and the Value
Series commenced operations in 1996.
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: Emerging Growth Series,
Research Series, Utilities Series, Value Series, World Asset Allocation
Series, World Growth Series and World Total Return Series, and the MFS/Foreign
& Colonial 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 the Zero Coupon Series shall not 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, 1995, the Adviser made no reimbursements.
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.). MFS Asset Management Inc., a wholly
owned subsidiary 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 $42.3 billion on behalf of 1.8 million investor accounts as of
January 31, 1996, consisting of approximately $20.6 billion of assets invested
in fixed income funds or portfolios, approximately $1.1 billion in foreign
securities and approximately $18.7 billion in equity securities. MFS is a
subsidiary of Sun Life of Canada (U.S.), which, in turn, is a wholly-owned
subsidiary of Sun Life Assurance Company of Canada ("Sun Life"). The 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 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.).
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STRATEGIC ALLIANCE--MFS has established a strategic alliance with Foreign &
Colonial Management Limited ("FCM"). The ownership of FCM is discussed below
under "Sub-Advisers to the MFS/Foreign Colonial Series" . As part of this
alliance, the portfolio managers and investment analysts of MFS and FCM will
share their views on a variety of investment related issues, such as the
economy, securities markets, portfolio securities and their issuers,
investment recommendations, strategies and techniques, risk analysis, trading
strategies and other portfolio management matters. MFS will have access to the
extensive international equity investment expertise of FCM, and FCM will have
access to the extensive U.S. equity investment expertise of MFS. One or more
MFS investment analysts are expected to work for an extended period with FCM's
portfolio managers and investment analysts at their offices in London. In
return, one or more FCM employees are expected to work in a similar manner at
MFS' Boston offices.
In certain instances there may be securities which are suitable for the
Series Fund's portfolio as well as for portfolios of other clients of MFS or
clients of FCM. Some simultaneous transactions are inevitable when several
clients receive investment advice from MFS and FCM, particularly when the same
security is suitable for more than one client. While in some cases this
arrangement could have a detrimental effect on the price or availability of
the security as far as a Series is concerned, in other cases, however, it may
produce increased investment opportunities for a Series.
SUB-INVESTMENT ADVISERS--The Advisory Agreements with respect to the
MFS/Foreign & Colonial Series and the World Growth Series permit the Adviser
from time to time to engage one or more sub-advisers to assist in the
performance of its services. MFS has engaged the following sub-advisers with
respect to these series:
SUB-ADVISERS TO THE MFS/FOREIGN & COLONIAL SERIES
The Adviser has engaged Foreign & Colonial Management Limited, a company
incorporated under the laws of England and Wales ("FCM") (see "Strategic
Alliance" above), located at Exchange House, Primrose 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
December 31, 1995, FCM managed approximately U.S.$19.1 billion of assets,
including approximately U.S.$12.6 billion of assets in equity securities and
approximately U.S.$6.5 billion of assets in fixed income securities.
Under separate Sub-Advisory Agreements between the Adviser and FCM, each
dated September 1, 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,
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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. As described under "Strategic Alliance" above,
the Adviser and FCM have agreed to cooperate in distributing, advising and
managing investment products throughout the world. In this arrangement they
anticipate that certain expenses and revenues relating to their cooperative
activities, including investment advisory fees received from the series and
certain expenses incurred by MFS, FCM and their affiliates attributable to
their services to the series, will be shared. FCM has voluntarily agreed to
waive the management fee with respect to the International Growth Series and
the Emerging Markets Equity Series. 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 a subsidiary 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 December 31, 1995, FCEM managed
approximately U.S.$3.4 billion of assets invested in emerging markets.
Under separate Sub-Advisory Agreements between FCM and FCEM, each dated
September 1, 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 with respect to the International Growth Series and the
Emerging Markets Equity Series. 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.
The identity and background of the portfolio managers for each of the
MFS/Foreign & Colonial Series is set forth below.
International Growth Series--Ian Wright, Director of the Board of FCM, is
the series' portfolio manager. Mr. Wright has been employed by FCM since 1981.
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
the Adviser since 1988.
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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.
SUB-ADVISERS TO THE WORLD GROWTH SERIES
The Adviser has engaged as sub-advisers to the World Growth Series Oechsle
International Advisors, L.P. ("Oechsle"), a Delaware limited partnership,
located at One International Place, Boston, Massachusetts 02110, and FCM and
FCEM. Oechsle is an independent international investment adviser that has a
history of money management dating from 1986. As of January 31, 1996 Oechsle
had discretionary management authority with respect to approximately U.S.$7.9
billion of assets. FCM and FCEM are described above under "Strategic Alliance"
and "Sub-Advisers to the MFS/Foreign & Colonial Series."
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 FCM and the Adviser
dated May 1, 1996, the Adviser may delegate to FCM the authority to make
investment decisions for the World Growth Series. It is intended that FCM,
through FCEM, will provide portfolio management services for assets of the
World Growth Series to be invested in emerging markets. For its services, the
Adviser pays FCM 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 FCM.
The terms of the sub-advisory agreement with FCM (the "FCM Agreement")
permit FCM from time to time to engage one or more sub-advisers to assist in
the performance of its services. FCM has entered into a sub-advisory agreement
with FCEM, dated May 1, 1996 under which FCM may delegate to FCEM FCM's
obligations under the FCM Agreement, reflecting the fact that FCEM is the FCM
affiliate that has the investment expertise in emerging markets. For these
services, FCM pays FCEM a sub-advisory fee equal to 1.00% on an annualized
basis of the average daily net asset value of the assets of the World Growth
Series managed by FCEM. The Agreement with FCEM is substantially identical to
the FCM Agreement.
Dr. Arnab Kumar Banerji, Chief Investment Officer of FCEM, is the portfolio
manager for the assets of the World Growth Series allocated to FCM and FCEM.
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.
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FCM and FCEM became Sub-Advisers to the World Growth Series as of May 1,
1996, replacing Batterymarch Financial Management, Inc. ("Batterymarch"),
which, together with its predecessor, had served as Sub-Adviser since the
series' inception for the assets of the World Growth Series allocated to
emerging markets. The Board of Trustees approved the termination by MFS of
Batterymarch as a sub-adviser to the World Growth Series and the retention by
MFS of FCM and FCEM as new sub-advisers to the series to replace Batterymarch.
The sub-advisory agreements with FCM and FCEM were approved by shareholders of
the World Growth Series at a meeting held on April 29, 1996.
EXPENSES
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).
Expenses which are not attributable to a specific series are allocated among
the series in a manner believed to be fair and equitable to each.
POTENTIAL CONFLICTS
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.
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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.
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.
ALL SERIES OTHER THAN THE MONEY MARKET 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
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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 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
all series (other than the Money Market Series, which is discussed above) 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.
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
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exchanges among Sub-Accounts of the Variable Accounts as described in the
prospectuses for the Variable Accounts. Such exchanges are treated as a
redemption of shares in one series and a purchase of shares in one or more of
the other series and are effected at the respective net asset values per share
of each series on the date of the exchange. If a substantial portion of any
series' shares should be redeemed within a short period, the series might have
to liquidate portfolio securities it might otherwise hold and also incur the
additional costs related to such transactions.
Neither the Series Fund nor the Variable Accounts are designed for
professional market timing organizations or other entities using programmed
and frequent transfers. The Variable Accounts, in coordination with the Series
Fund, reserve the right to temporarily or permanently refuse exchange requests
if, in the Adviser's judgment, a series would be unable to invest effectively
in accordance with its investment objective and policies, or would otherwise
potentially be adversely affected. In particular, a pattern of exchanges that
coincide with a "market timing" strategy may be disruptive to a series and
therefore may be refused. Investors should consult the appropriate Variable
Account prospectus that accompanies this prospectus for information on other
specific limitations on the transfer privilege.
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 nineteen series of shares and has reserved
the right to create additional series of shares. Each share of a series
represents an equal proportionate interest in that series with each other
share of that series. Shares of each 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 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 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, 1996
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
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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, 1995; Portfolios of Investments
at December 31, 1995; Statements of Assets and Liabilities at December 31,
1995; Statements of Operations for the year ended December 31, 1995; and
Statements of Changes in Net Assets for the years ended December 31, 1995 and
December 31, 1994.
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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. depositaries. 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. 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, Dominican
Republic, Ecuador, Jordan, Argentina, Nigeria, Panama, 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;
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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 ("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.
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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.
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.
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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 market securities are securities of
issuers whose principal activities are located in emerging market countries.
Emerging market countries include any country determined by the Adviser or
Sub-Adviser to have an emerging market economy, taking into account a number
of factors, including whether the country has a low- to middle-income economy
according to the International Bank for Reconstruction and Development, the
country's foreign currency debt rating, its political and economic stability
and the development of its financial and capital markets. The Adviser or Sub-
Adviser determines whether an issuer's principal activities are located in an
emerging market country by considering such factors as its country of
organization, the principal trading market for its securities and the source
of its revenues and assets. The issuer's principal activities generally are
deemed to be located in a particular country if: (a) the security is issued or
guaranteed by the government of that country or any of its agencies,
authorities or instrumentalities; (b) the issuer is organized under the laws
of, and maintains a principal office in, that country; (c) the issuer has its
principal securities trading market in that country; (d) the issuer derives
50% or more of its total revenues from goods sold or services performed in
that country; or (e) the issuer has 50% or more of its assets in that country.
The risks of investing in foreign securities may be intensified in the case
of investments in emerging markets. Securities prices in emerging markets can
be significantly more volatile and less liquid 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, a decrease in the level of liquidity in the series' portfolio, or,
if the series has entered into a contract to sell the security, possible
liability to the purchaser. Certain markets may require payment
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for securities before delivery, and in such markets the series bears the risk
that the securities will not be delivered and that the series' payments will
not be returned.
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 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.
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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 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.
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.
LOANS, LOAN PARTICIPATIONS AND OTHER DIRECT INDEBTEDNESS--By purchasing a
loan or loan participation, the series acquires some or all of the interest of
a bank or other lending institution in a loan to a corporate, government, or
other 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
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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.
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, unless otherwise indicated.
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,
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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 decreasing the
level of liquidity in a series to the extent that qualified institutional
buyers become for a time uninterested in purchasing Rule 144A 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.
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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.
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.
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APPENDIX B
INVESTMENT TECHNIQUES
LENDING OF PORTFOLIO SECURITIES
The Conservative Growth Series, Emerging Growth Series, Research Series,
Total Return Series, Utilities Series, Value Series, World Asset Allocation
Series, World Governments Series, World Total Return Series and World Growth
Series and the MFS/Foreign & Colonial 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 (unless otherwise
indicated) and would be required to be secured continuously by collateral,
including cash, U.S. Government Securities, or an irrevocable letter of credit
maintained on a current basis at an amount at least equal to the market value
of the securities loaned. 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.
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
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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, Value Series,
World Asset Allocation Series, World Governments Series, World Growth Series
and World Total Return Series and the MFS/Foreign & Colonial 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 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 (less related transaction costs) 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.
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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, Value Series,
World Asset Allocation Series, World Governments Series, World Growth Series,
World Total Return Series and the MFS/Foreign & Colonial 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 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 securities and other
obligations underlying 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
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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, Value Series, World Asset
Allocation Series, World Governments Series, World Growth Series, World Total
Return Series and the MFS/Foreign & Colonial 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 may be considered speculative and could involve significant risk
of loss, as set forth below. 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
future contracts or options traded on exchanges. The series have 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.
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OPTIONS ON FOREIGN CURRENCIES
The Emerging Growth Series, Utilities Series, Value Series, World Asset
Allocation Series, World Governments Series, World Growth Series, World Total
Return Series and the MFS/Foreign & Colonial 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 or Sub-Adviser believes that the
applicable exchange rate is unfavorable at the time the currencies are
received, or the Adviser or Sub-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 or Sub-Adviser to predict
correctly the direction of stock prices, interest rates or other economic
factors affecting market conditions and incorrect decisions by the Adviser or
Sub-Adviser may cause a series to experience losses or otherwise reduce its
return.
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
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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, World Total
Return Series and the MFS/Foreign & Colonial 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.
"WHEN-ISSUED" SECURITIES
The Emerging Growth Series, Government Securities Series, High Yield Series,
Utilities Series, Value Series, World Asset Allocation Series, World
Governments Series, World Growth Series, World Total Return Series and the
MFS/Foreign & Colonial Series may purchase securities on a "when-
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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.
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.
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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.
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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.
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.
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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.
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.
78
<PAGE>
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) BASIC MATERIALS AND CONSUMER STAPLES 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
79
<PAGE>
currently being studied by Congress. The profitability of these groups may
fluctuate significantly as a result of volatile interest rates and general
economic conditions.
(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) INDUSTRIAL GOODS AND SERVICES 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) 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 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.
(10) 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.
(11) 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
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sector will be affected by fluctuations in fuel prices resulting from
domestic and international events, and government regulation of fares.
(12) 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.
(13) 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.
Diversified companies will generally be included in the sector of their
predominant industry activity, as determined by the Adviser.
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 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
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<PAGE>
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, 1995
The charts below show the percentages of the Series' assets at December 31,
1995 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 in unrated bonds
determined by the Adviser to be of comparable quality. For a split rated bond,
the S&P rating is used, and when an S&P rating is unavailable, secondary
sources are selected in the following order: Moody's and Fitch.
HIGH YIELD SERIES
<TABLE>
<CAPTION>
UNRATED
BONDS OF
COMPARABLE
RATING COMPILED RATINGS QUALITY TOTAL
- ------ ---------------- ---------- -----
<S> <C> <C> <C>
AAA/Aaa....................................... -- -- --
AA/Aa......................................... -- -- --
A/A........................................... -- -- --
BBB/Baa....................................... -- -- --
BB/Ba......................................... 26.9 -- 26.9
B/B........................................... 59.5 2.0 61.5
CCC/Caa....................................... 2.8 .3 3.1
CC/Ca......................................... .6 -- .6
C/C........................................... -- -- --
Default....................................... .3 -- .3
----- --- -----
Total....................................... 90.1 2.3 92.4
WORLD ASSET ALLOCATION SERIES
<CAPTION>
UNRATED
BONDS OF
COMPARABLE
RATING COMPILED RATINGS QUALITY TOTAL
- ------ ---------------- ---------- -----
<S> <C> <C> <C>
AAA/Aaa....................................... 9.84 -- 9.84
AA/Aa......................................... 7.52 -- 7.52
A/A........................................... -- -- --
BBB/Baa....................................... -- -- --
BB/Ba......................................... 4.62 -- 4.62
B/B........................................... 5.70 -- 5.70
CCC/Caa....................................... -- -- --
CC/Ca......................................... -- -- --
C/C........................................... -- -- --
Default....................................... -- -- --
----- --- -----
Total....................................... 27.68 -- 27.68
</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.
83
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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 is the Statement of Additional
Information dated May 1, 1996.
<PAGE>
MFS/SUN LIFE SERIES TRUST
STATEMENT OF ADDITIONAL INFORMATION MAY 1, 1996
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C>
- -------------------------------------------------------------------------------
1. Definitions 2
- -------------------------------------------------------------------------------
2. Investment Objectives, Policies and Restrictions 2
- -------------------------------------------------------------------------------
3. Management of the Series Fund 14
Trustees and Officers 14
Investment Adviser 15
Custodian 20
Shareholder Servicing Agent 21
- -------------------------------------------------------------------------------
4. Independent Accountants and Financial Statements 21
- -------------------------------------------------------------------------------
5. Additional Information with Respect to Shares of Each Series 21
Purchases 21
Exchange Privilege 21
Net Asset Value, Dividends and Distributions 21
Tax Status 23
Description of Shares, Voting Rights and Liabilities 24
- -------------------------------------------------------------------------------
6. Portfolio Transactions and Brokerage Commissions 25
- -------------------------------------------------------------------------------
</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, 1996. 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.
1
<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, 1996, of the Series Fund.
2. INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and policies of the nineteen series of the Series
Fund are described in the Prospectus. More information about some of the
series' investment instruments and 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.
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(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).
7
<PAGE>
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, VALUE 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, VALUE SERIES, WORLD ASSET ALLOCATION SERIES, WORLD GROWTH SERIES AND
WORLD TOTAL RETURN SERIES
The Emerging Growth Series, Research Series, Value 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
10
<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 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.
(14) INVESTMENT RESTRICTIONS THAT APPLY ONLY 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).
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<PAGE>
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 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) borrow, except as a temporary measure for extraordinary or emergency
purposes;
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<PAGE>
(10) 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, or foreign
currency, or (iii) 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; or
(11) invest for the purpose of exercising control or management.
----------------
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.)
<TABLE>
TRUSTEES
<S> <C>
SAMUEL ADAMS GARTH MARSTON
Partner, Warner & Stackpole, (Attorneys). Chairman-Retired, Provident Institution for Savings,
Address: 75 State Street, Boston, Massachusetts Address: 90 Beacon Street, Boston, Massachusetts
JOHN D. McNEIL*, Chairman DAVID D. HORN*
Chairman and Director, Sun Life Assurance Senior Vice President and General Manager,
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 of Hartford, Vice Chairman-Retired, The Gillette Company,
Address: 74 Scott Drive, Bloomfield, Connecticut Address: One Cliff Street
Marblehead, Massachusetts
</TABLE>
----------------
14
<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" or
the "Adviser"), 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, Inc., a wholly owned subsidiary of MFS, 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 subsidiary of Sun Life of Canada (U.S.) which in
turn is a wholly owned subsidiary of Sun
15
<PAGE>
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.
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, the Emerging Growth Series pursuant to an Investment Advisory
Agreement dated May 1, 1995, each of the MFS/Foreign & Colonial Series
pursuant to separate Investment Advisory Agreements, each dated as of
September 1, 1995 and the Value Series pursuant to an Investment Advisory
Agreement dated May 1, 1996. 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 Value
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; (vi) 0.90% of the average daily net assets of the
World Growth Series for the Series Fund's then current fiscal year; (vii)
0.975% of the first $500 million of average daily net assets of the
MFS/Foreign & Colonial International Growth Series and the MFS/Foreign &
Colonial 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 (viii) 1.25% of the average daily net assets of
the MFS/Foreign & Colonial Emerging Markets Equity 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 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
16
<PAGE>
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
investment management fees paid by each series in 1995 were as follows:
Capital Appreciation Series, $4,876,631; Conservative Growth Series,
$1,160,504; Government Securities Series, $1,877,922; High Yield Series,
$990,965; Managed Sectors Series, $1,202,378; Money Market Series, $1,204,609;
Research Series, $106,482; Total Return Series, $6,671,672; Utilities Series,
$70,277; World Asset Allocation Series, $41,031; World Governments Series,
$1,136,612; World Growth Series, $1,090,977; World Total Return Series,
$21,382; and Zero Coupon Series, $8,185. MFS voluntarily waived the following
fees: Emerging Growth Series, $149,156; MFS/Foreign & Colonial International
Growth and Income Series, $7,653; Research Series, $105,489; Utilities Series,
$148,727; World Asset Allocation Series, $57,610; and World Total Return
Series, $27,327. The MFS/Foreign & Colonial International Growth Series,
MFS/Foreign & Colonial Emerging Markets Equity Series and the Value Series
commenced operations in 1996.
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 25. 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 the Zero Coupon Series shall not 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, 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
17
<PAGE>
Coupon Series, $3,224. No other series received any reimbursement for 1993 and
1994. For the year ended December 31, 1995, MFS made no reimbursement.
The Investment Advisory Agreements will remain in effect until November 1,
1996 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 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,
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 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.
Foreign & Colonial Management Limited ("FCM") and its subsidiary, Foreign &
Colonial Emerging Markets Limited ("FCEM"), each a company incorporated under
the laws of England and Wales also serve as sub-advisers to the World Growth
Series. FCM serves as sub-adviser to the series pursuant to a Sub-Advisory
Agreement dated May 1, 1996, between MFS and FCM (the "FCM Sub-Advisory
Agreement"). The FCM Sub-Advisory Agreement provides that MFS may delegate to
FCM
18
<PAGE>
the authority to make investment decisions for the World Growth Series. It is
intended that FCM, through FCEM, will provide portfolio management services
for the assets of the series to be invested in emerging markets. For these
services, the Adviser pays FCM 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 FCM.
The terms of the FCM Sub-Advisory Agreement permit FCM from time to time to
engage one or more sub-advisers to assist in the performance of its services.
Under the terms of a sub-advisory agreement between FCM and FCEM dated May 1,
1996 (the "FCEM Sub-Advisory Agreement"), FCM may delegate to FCEM its
obligations under the terms of the FCM Sub-Advisory Agreement, which reflects
the fact that FCEM is the FCM affiliate that has the investment expertise in
emerging markets. For these services, FCM pays FCEM under the FCEM Sub-
Advisory Agreement a sub-advisory fee equal to 1.00% on an annualized basis of
the average daily net asset value of the assets of the World Growth Series
managed by FCEM.
The FCM and FCEM Sub-Advisory Agreements will remain in effect until
November 1, 1996 and each 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 FCM
and FCEM Sub-Advisory Agreements terminate automatically if 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 World Growth
Series' outstanding shares, by MFS or by FCM, and, with respect to the FCEM
Sub-Advisory Agreement by FCEM, in each case on not less than 30 days' nor
more than 60 days' written notice, unless terminated by FCM, with respect to
the FCM Sub-Advisory Agreement, or by FCEM, with respect to the FCEM Sub-
Advisory Agreement, in which case such termination is required to be on not
less than 60 days' or more than 90 days' written notice.
The FCM and FCEM Sub-Advisory Agreements also specifically provide that the
respective 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 FCM or FCEM Sub-Advisory Agreement, respectively.
SUB-ADVISER TO THE MFS/FOREIGN & COLONIAL SERIES
Foreign & Colonial Management Ltd. ("FCM") serves as each series' sub-
adviser pursuant to separate Sub-Advisory Agreements, each dated September 1,
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 September 1,
1995, between FCM and FCEM (the "FCEM Sub-Advisory Agreements"). Each Sub-
Advisory Agreement will remain in effect until November 1, 1996, 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
19
<PAGE>
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.
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 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. 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.
TRUSTEE COMPENSATION TABLE
<TABLE>
<CAPTION>
TRUSTEE FEES TOTAL TRUSTEE FEES
FROM FROM SERIES FUND
TRUSTEE SERIES FUND* AND FUND COMPLEX
------- ------------ ------------------
<S> <C> <C>
Samuel Adams.............................. $3,300 $26,200
Geoffrey Crofts........................... 3,300 26,200
David D. Horn............................. 0** 0**
John D. McNeil............................ 0** 0**
Garth Marston............................. 3,300 26,200
Derwyn F. Phillips........................ 3,000 23,500
</TABLE>
- --------
*For the year ended December 31, 1995.
** Messrs. Horn and McNeil are affiliated with MFS and receive no compensation
from the Series Fund.
20
<PAGE>
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, 1995 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 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. See the Prospectus for a further discussion of the exchange
privilege.
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
21
<PAGE>
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 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.
ALL SERIES OTHER THAN THE MONEY MARKET 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
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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.
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
all series (other than the Money Market Series, which is discussed above) 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 is treated as a separate entity for federal income tax purposes.
Each individual series 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.).
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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 nineteen series of shares and has reserved
the right to create additional series of shares. Each share of a series
represents an equal proportionate interest in that series with each other
share of that series. Shares of each series participate equally in the
earnings, dividends and assets of that series. Shares when issued are fully
paid and non-assessable. Shares of each series 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 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 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
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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 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
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though their dollar value may be indeterminable and their receipt or
availability generally does not reduce the normal research activities or
expenses of MFS.
ALL SERIES OTHER THAN THE MONEY MARKET 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.
Under the Investment Advisory Agreements and Sub-Advisory Agreements 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
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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.
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, 1993, 1994 and 1995 brokerage commissions
paid by the series were as follows: Capital Appreciation Series, $781,553,
$1,215,985 and $1,644,280; Conservative Growth Series, $77,236, $602,120 and
$453,519; High Yield Series, $194, $340 and $0; Managed Sectors Series,
$274,749, $430,233 and $691,688; Total Return Series, $123,664, $331,065 and
$745,342. For the years ended December 31, 1994 and 1995 brokerage commissions
paid by the series commencing operations in 1994 were as follows: Utilities
Series, $54,179 and $154,286; World Asset Allocation Series, $4,277 and
$114,957; World Total Return Series, $1,119 and $76,890; and Research Series,
$2,631 and $223,769. For the year ended December 31, 1995 brokerage
commissions paid by the series commencing operations in 1995 were: Emerging
Growth Series, $119,816; and MFS/Foreign & Colonial Growth and Income Series,
$1,404. No commissions were paid by any other series.
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During the year ended December 31, 1995 each of the Capital Appreciation
Series ("CAS"), Total Return Series ("TRS"), Managed Sectors Series ("MSS")
and Emerging Growth Series ("EGS") purchased and retained securities issued by
affiliates of their regular broker-dealers, as follows:
CAS purchased and retained securities of Charles Schwab Corp., a regular
broker-dealer of this series, which securities had a value of $11,163,338 at
December 31, 1995; MSS purchased and retained securities of an affiliate of
Travelers Group, Inc., which securities had a value of $4,904,250 at December
31, 1995; EGS purchased and retained securities of an affiliate of Donaldson,
Lufkin & Jenrette, Inc., which securities had a value of $21,875 at December
31, 1995; and TRS purchased and retained securities of the following
affiliates of its regular broker-dealers in the amounts shown: Goldman Sachs
Group, $1,457,413; Alex. Brown, Inc., $2,125,820; Lehman Brothers, $3,491,381;
J.P. Morgan & Co., $1,203,750; and Dean Witter Discover & Co., $583,647.
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APPENDIX
ADDITIONAL INFORMATION CONCERNING INVESTMENT INSTRUMENTS AND TECHNIQUES
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
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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.
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, Value Series, World Asset Allocation Series, World
Growth Series and World Total Return Series and the MFS/Foreign & Colonial
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
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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 or Sub Adviser, the series will be able to profit from movements in
the spread between the yields of the underlying 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
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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
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, Value Series, World Asset Allocation Series, World
Growth Series and World Total Return Series and the MFS/Foreign & Colonial
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, Value Series, World Asset Allocation Series, World
Growth Series and World Total Return Series and the MFS/Foreign & Colonial
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, Value
Series, World Asset Allocation Series, World Governments Series, World Growth
Series and World Total Return Series and the MFS/Foreign & Colonial 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
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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 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, Value Series, World Asset
Allocation Series, World Growth Series and World Total Return Series and the
MFS/Foreign & Colonial 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.
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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.
OPTIONS ON FOREIGN CURRENCIES--The Emerging Growth Series, Utilities Series,
Value Series, World Asset Allocation Series, World Governments Series, World
Growth Series and World Total Return Series and the MFS/Foreign & Colonial
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
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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 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 and the
MFS/Foreign & Colonial 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 and the MFS/Foreign & Colonial 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
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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 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
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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, 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.
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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 leveraging of such Futures
Contract is minimized.
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 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.
LOANS, LOAN PARTICIPATIONS AND OTHER DIRECT INDEBTEDNESS
The Emerging Growth Series, High Yield Series Value Series and World Asset
Allocation Series and the MFS/Foreign & Colonial Series may purchase loans,
loan participations and other direct claims against a borrower. In purchasing
a loan or 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
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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.
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 or Sub-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 or a Sub-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 and the MFS/Foreign & Colonial 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
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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.
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.
INVESTMENT INSTRUMENTS AND TECHNIQUES OF THE MFS/FOREIGN & COLONIAL SERIES
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 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.
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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.
41
<PAGE>
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.
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
42
<PAGE>
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.
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 may 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 is limited in amount by
the Investment Company Act of 1940, as amended (the "1940 Act"), and any
applicable state securities laws. 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
43
<PAGE>
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. 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
44
<PAGE>
investment 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 Prospectus and Appendix A to the Prospectus--
"American Depositary Receipts."
45
<PAGE>
SUN-1 3--5/96
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
<PAGE>
PART C
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS INCLUDED IN PART A:
For the years or periods, as applicable to each series, ended December
31, 1986, 1987, 1988, 1989, 1990, 1991, 1992, 1993, 1994 and 1995.
Financial Highlights
FINANCIAL STATEMENTS INCLUDED IN PART B:
Portfolios of Investments, December 31, 1995
Statements of Assets and Liabilities, December 31, 1995
Statements of Operations, year ended December 31, 1995
Statements of Changes in Net Assets, years ended December 31, 1995 and
1994
(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.
++++ (f) Amendment to Declaration of Trust of Registrant.
(g) 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.
++++ (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.
(t) Sub-Advisory Agreement by and between Massachusetts Financial
Services Company and Foreign & Colonial Management Limited
relating to the World Growth Series.(filed herewith)
(u) Sub-Advisory Agreement between Foreign & Colonial Management
Limited and Foreign & Colonial Emerging Markets Limited
relating to the World Growth Series.(filed herewith)
(v) Investment Advisory Agreement between Registrant and
Massachusetts Financial Services Company relating to the
Value Series.(filed herewith)
C-2
<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.
++++ Incorporated by reference from Post-Effective Amendment No.
17 to the Registrant's Registration Statement, File No. 2-
83616, filed August 23, 1995.
C-3
<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 March 31, 1996)
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 Fund, MFS Growth Opportunities Fund, MFS Government
Securities Fund, MFS Government Limited Maturity Fund, MFS Series Trust I (which
has eight series: MFS Managed Sectors Fund, MFS Cash Reserve Fund, MFS World
Asset Allocation Fund, MFS Aggressive Growth Fund, MFS Research Growth and
Income Fund, MFS Core Growth Fund, MFS Equity Income Fund and MFS Special
Opportunities Fund), MFS Series Trust II (which has four series: MFS Emerging
Growth Fund, MFS Capital Growth Fund, MFS Intermediate Income Fund and MFS Gold
& Natural Resources Fund), MFS Series Trust III (which has two series: MFS High
Income Fund and MFS Municipal High Income Fund), MFS Series Trust IV (which has
four series: MFS Money Market Fund, MFS Government Money Market Fund, MFS
Municipal Bond Fund and MFS OTC Fund), MFS Series Trust V (which has two series:
MFS Total Return Fund and MFS Research Fund), MFS Series Trust VI (which has
three series: MFS World Total Return Fund, MFS Utilities Fund and MFS World
Equity Fund), MFS Series Trust VII (which has two series: MFS World Governments
Fund and MFS Value Fund), MFS Series Trust VIII (which has two series: MFS
Strategic Income Fund and MFS World Growth Fund), MFS Series Trust IX (which has
three series: MFS Bond Fund, MFS Limited Maturity Fund and MFS Municipal Limited
Maturity fund), MFS Series Trust X (which has four series: MFS Government
Mortgage Fund, MFS/Foreign & Colonial Emerging Markets Equity Fund, MFS/Foreign
& Colonial International Growth Fund and MFS/Foreign & Colonial International
Growth and Income Fund), and MFS Municipal Series Trust (which has 19 series:
MFS Alabama Municipal Bond Fund, MFS Arkansas Municipal Bond Fund, MFS
California Municipal Bond Fund, MFS Florida Municipal Bond Fund, MFS Georgia
Municipal Bond Fund, MFS Louisiana Municipal Bond Fund, MFS Maryland Municipal
Bond Fund, MFS Massachusetts Municipal Bond Fund, MFS Mississipi Municipal Bond
Fund, MFS New York Municipal Bond Fund, MFS North Carolina Municipal Bond Fund,
MFS Pennsylvania Municipal Bond Fund, MFS South Carolina Municipal Bond Fund,
MFS Tennessee Municipal Bond Fund, MFS Texas Municipal Bond Fund, MFS Virginia
Municipal Bond Fund, MFS Washington Municipal Bond Fund, MFS West Virginia
Municipal Bond Fund and MFS Municipal Income Fund) (the "MFS Funds"). The
principal business address of each of the aforementioned Funds is 500 Boylston
Street, Boston, Masasachusetts 02116.
MFS also serves as investment adviser of the following no-load,
open-end Funds: MFS Institutional Trust ("MFSIT") (which has seven series), MFS
Variable Insurance Trust ("MVI") (which has twelve series) and MFS Union
Standard Trust ("UST") (which has two series). The principal business address
of each of the aforementioned Funds is 500 Boylston Street, Boston,
Massachusetts 02116.
In addition, MFS serves as investment adviser to the following
closed-end Funds: MFS Municipal Income Trust, MFS Multimarket Income Trust, MFS
Government Markets Income Trust, MFS Intermediate Income Trust, MFS Charter
Income Trust and MFS Special Value Trust (the "MFS Closed-End Funds"). The
principal business address of each of the aforementioned Funds is 500 Boylston
Street, Boston, Massachusetts 02116.
Lastly, MFS serves as investment adviser to 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 is One
Sun Life Executive Park, Wellesley Hills, Massachusetts 02181.
MFS International Ltd. ("MIL"), a limited liability company organized
under the laws of the Republic of Ireland and a subsidiary of MFS, whose
principal business address if 41-45 St. Stephen's Green, Dublin 2, Ireland,
serves as investment adviser to and distributor for MFS International Fund
(which has four portfolios: MFS International Funds-U.S. Equity Fund, MFS
Internatinal Funds-U.S. Emerging Growth Fund, MFS International Funds-Global
Governments Fund and MFS International Funds-Charter Income Fund) (the "MIL
Funds"). The MIL Funds are organized in Luxembourg and qualify as an
undertaking for collective investments in transferable securities (UCITS). The
principal business address of the MIL Funds is 47, Boulevard Royal, L-2449
Luxembourg.
MIL also serves as investment adviser to and distributor for MFS
Meridian U.S. Government Bond Fund, MFS Meridian Charter Income Fund, MFS
Meridian Global Government Fund, MFS Meridian U.S. Emerging Growth Fund, MFS
Meridian Global Equity Fund, MFS Meridian Limited Maturity Fund, MFS Meridian
World Growth Fund, MFS Meridian Money Market Fund, MFS Meridian World Total
Return Fund, MFS Meridian U.S. Equity Fund and MFS Meridian Research Fund
(collectively the "MFS Meridian Funds"). Each of the MFS Meridian Funds
is organized as an exempt company under the laws of the Cayman Islands. The
principal business address of each of the MFS Meridian Funds is P.O. Box 309,
Grand Cayman, Cayman Islands, British West Indies.
MFS International (U.K.) Ltd. ("MIL-UK"), a private limited company
registered with the Registrar of Companies for England and Wales whose current
address is 4 John Carpenter Street, London, England ED4Y ONH, is involved
primarily in marketing and investment research activities with respect to
private clients and the MIL Funds and the MFS Meridian Funds.
MFS Fund Distributors, Inc. ("MFD"), a wholly owned subsidiary of MFS,
serves as distributor for the MFS Funds, MVI, UST and MFSIT.
Clarendon Insurance Agency, Inc. ("CIAI"), a wholly owned subsidiary of
MFS, serves as distributor for certain life insurance and annuity contracts
issued by Sun Life Assurance Company of Canada (U.S.).
MFS Service Center, Inc. ("MFSC"), a wholly owned subsidiary of MFS,
serves as shareholder servicing agent to the MFS Funds, the MFS Closed-End
Funds, MFSIT, MVI and UST.
MFS Asset Management, Inc. ("AMI"), a wholly owned subsidiary of MFS,
provides investment advice to substantial private clients.
MFS Retirement Services, Inc. ("RSI"), a wholly owned subsidiary of
MFS, markets MFS products to retirement plans and provides administrative and
record keeping services for retirement plans.
MFS
---
The Directors of MFS are A. Keith Brodkin, Jeffrey L. Shames, Arnold D.
Scott, John R. Gardner and John D. McNeil. Mr. Brodkin is the Chairman, Mr.
Shames is the President, Mr. Scott is a Senior Executive Vice President and
Secretary, Bruce C. Avery, William S. Harris, William W. Scott, Jr., and
Patricia A. Zlotin are Executive Vice Presidents, Stephen E. Cavan is a Senior
Vice President, General Counsel and an Assistant Secretary, Joseph W. Dello
Russo is a Senior Vice President, Chief Financial Officer and Treasurer, Robert
T. Burns is a Vice President, Associate General Counsel and an Assistant
Secretary of MFS, and Thomas B. Hastings is a Vice President and Assistant
Treasurer.
MASSACHUSETTS INVESTORS TRUST
-----------------------------
MASSACHUSETTS INVESTORS GROWTH STOCK FUND
-----------------------------------------
MFS GROWTH OPPORTUNITIES FUND
-----------------------------
MFS GOVERNMENT SECURITIES FUND
------------------------------
MFS SERIES TRUST I
------------------
MFS SERIES TRUST V
------------------
MFS SERIES TRUST VI
-------------------
MFS SERIES TRUST X
------------------
MFS GOVERNMENT LIMITED MATURITY FUND
------------------------------------
A. Keith Brodkin is the Chairman and President, Stephen E. Cavan is the
Secretary, W. Thomas London is the Treasurer, James O. Yost, Vice President of
MFS, is the Assistant Treasurer, James R. Bordewick, Jr., Vice President and
Associate General Counsel of MFS, is the Assistant Secretary.
MFS SERIES TRUST II
-------------------
A Keith Brodkin is the Chairman and President, Leslie J. Nanberg,
Senior Vice President of MFS, is a Vice President, Stephen E. Cavan is the
Secretary, W. Thomas London is the Treasurer, James O. Yost is the Assistant
Treasurer, and James R. Bordewick, Jr., is the Assistant Secretary.
MFS GOVERNMENT MARKETS INCOME TRUST
-----------------------------------
MFS INTERMEDIATE INCOME TRUST
-----------------------------
A. Keith Brodkin is the Chairman and President, Patricia A. Zlotin,
Executive Vice President of MFS and Leslie J. Nanberg, Senior Vice President of
MFS, are Vice Presidents, Stephen E. Cavan is the Secretary, W. Thomas London is
the Treasurer, James O. Yost is the Assistant Treasurer, and James R. Bordewick,
Jr., is the Assistant Secretary.
MFS SERIES TRUST III
--------------------
A. Keith Brodkin is the Chairman and President, James T. Swanson,
Robert J. Manning, Cynthia M. Brown and Joan S. Batchelder, Senior Vice
Presidents of MFS, Bernard Scozzafava, Vice President of MFS, and Matthew
Fontaine, Assistant Vice President of MFS, are Vice Presidents,Sheila
Burns-Magnan and Daniel E. McManus, Assistant Vice Presidents of MFS, are
Assistant Vice Presidents, Stephen E. Cavan is the Secretary, W. Thomas London
is the Treasurer, James O. Yost is the Assistant Treasurer, and James R.
Bordewick, Jr., is the Assistant Secretary.
MFS SERIES TRUST IV
-------------------
MFS SERIES TRUST IX
-------------------
A. Keith Brodkin is the Chairman and President, Robert A. Dennis and
Geoffrey L. Kurinsky, Senior Vice Presidents of MFS, are Vice Presidents,
Stephen E. Cavan is the Secretary, W. Thomas London is the Treasurer, James O.
Yost is the Assistant Treasurer and James R. Bordewick, Jr., is the Assistant
Secretary.
MFS SERIES TRUST VII
--------------------
A Keith Brodkin is the Chairman and President, Leslie J. Nanberg and
Stephen C. Bryant, Senior Vice Presidents of MFS, are Vice Presidents, Stephen
E. Cavan is the Secretary, W. Thomas London is the Treasurer, James O. Yost is
the Assistant Treasurer and James R. Bordewick, Jr., is the Assistant
Secretary.
MFS SERIES TRUST VIII
---------------------
A. Keith Brodkin is the Chairman and President, Jeffrey L. Shames,
Leslie J. Nanberg, Patricia A. Zlotin, James T. Swanson and John D. Laupheimer,
Jr., Vice President of MFS, are Vice Presidents, Stephen E. Cavan is the
Secretary, W. Thomas London is the Treasurer, James O. Yost is the Assistant
Treasurer and James R. Bordewick, Jr., is the Assistant Secretary.
MFS MUNCIPAL SERIES TRUST
-------------------------
A. Keith Brodkin is the Chairman and President, Cynthia M. Brown and
Robert A. Dennis are Vice Presidents, David B. Smith, Geoffrey L. Schechter and
David R. King, Vice Presidents of MFS, are Vice Presidents, Daniel E. McManus,
Assistant Vice President of MFS, is an Assistant Vice President, Stephen E.
Cavan is the Secretary, W. Thomas London is the Treasurer, James O. Yost is the
Assistant Treasurer and James R. Bordewick, Jr., is the Assistant
Secretary.
MFS VARIABLE INSURANCE TRUST
----------------------------
MFS UNION STANDARD TRUST
------------------------
MFS INSTITUTIONAL TRUST
-----------------------
A. Keith Brodkin is the Chairman and President, Stephen E. Cavan is the
Secretary, W. Thomas London is the Treasurer, James O. Yost is the Assistant
Treasurer and James R. Bordewick, Jr., is the Assistant Secretary.
MFS MUNICIPAL INCOME TRUST
--------------------------
A. Keith Brodkin is the Chairman and President, Cynthia M. Brown and
Robert J. Manning are Vice Presidents, Stephen E. Cavan is the Secretary, W.
Thomas London is the Treasurer, James O. Yost, is the Assistant Treasurer and
James R. Bordewick, Jr., is the Assistant Secreary.
MFS MULTIMARKET INCOME TRUST
----------------------------
MFS CHARTER INCOME TRUST
------------------------
A. Keith Brodkin is the Chairman and President, Patricia A.
Zlotin, Leslie J. Nanberg and James T. Swanson are Vice Presidents,Stephen E.
Cavan is the Secretary, W. Thomas London is the Treasurer, James O. Yost, Vice
President of MFS, is the Assistant Treasurer and James R. Bordewick, Jr., is the
Assistant Secretary.
MFS SPEICAL VALUE TRUST
-----------------------
A. Keith Brodkin is the Chairman and President, Jeffrey L. Shames,
Patricia A. Zlotin and Robert J. Manning are Vice Presidents, Stephen E. Cavan
is the Secretary, W. Thomas London is the Treasurer, and James O. Yost, is the
Assistant Treasurer and James R. Bordewick, Jr., is the Assistant
Secretary.
SGVAF
-----
W. Thomas London is the Treasurer.
MIL
---
A. Keith Brodkin is a Director and the Chairman, Arnold D. Scott and
Jeffrey L. Shames are Directors, Ziad Malek, Senior Vice President of MFS, is
the President, Thomas J. Csahman, Jr., a Senior Vice President of MFS, is a
Senior Vice President, Stephen E. Cavan is a Director, Senior Vice President and
the Clerk, James R. Bordewick, Jr. is a Director, Vice President and an
Assistant Clerk, Robert T. Burns is an Assistant Clerk, Joseph W. Dello Russo is
the Treasurer and Thomas B. Hastings is the Assistant Treasurer.
MIL-UK
------
A. Keith Brodkin is a Director and the Chairman, Arnold D. Scott,
Jeffrey L. Shames, and James R. Bordewick Jr., are Directors, Stephen E. Cavan
is a Director and the Secretary, Ziad Malek is the President, James E. Russell
is the Treasurer, and Robert T. Burns is the Assistant Secretary.
MIL FUNDS
---------
A. Keith Brodkin is the Chairman, President and a Director, Richard B.
Bailey, John A. Brindle and Richard W.S. Baker are Directors, Stephen E. Cavan
is the Secretary, W. Thomas London is the Treasurer, James O. Yost is the
Assistant Treasurer and James R. Bordewick, Jr., is the Assistant Secretary, and
Ziad Malek is a Senior Vice President.
MFS MERIDIAN FUNDS
------------------
A. Keith Brodkin is the Chairman, President and a Director, Richard B.
Bailey, John A. Brindle, Richard W.S. Baker, Arnold D. Scott and Jeffrey L.
Shames are Directors, Stephen E. Cavan is the Secretary, W. Thomas London is the
Treasurer, James R. Bordewick, Jr., is the Assistant Secretary, James O. Yost is
the Assistant Treasurer, and Ziad Malek is a Senior Vice President.
MFD
---
A. Keith Brodkin is the Chairman and a Director, Arnold D. Scott and
Jeffrey L. Shames are Directors, William W. Scott, Jr., an Executive Vice
President of MFS, is the President, Stephen E. Cavan is the Secretary, Robert T.
Burns is the Assistant Secretary, Joseph W. Dello Russo is the Treasurer, and
Thomas B. Hastings is the Assistant Treasurer.
CIAI
----
A. Keith Brodkin is the Chairman and a Director, Arnold d. Scott and
Jeffrey L. Shames are Directors, Cynthia Orcutt is President, Bruce C. Avery is
the Vice President, Joseph W. Dello Russo is the Treasurer, Thomas B. Hastings
is the Assistant Treasurer, Stephen E. Cavan is the Secretary, and Robert T.
Burns is the Assistant Secretary.
MFSC
----
A. Keith Brodkin is the Chairman and a Director, Arnold D. Scott and
Jeffrey L. Shames are Directors, Joseph A. Recomendes, a Senior Vice President
of MFS, is Vice Chairman and a Director, Janet A. Clifford is the Executive Vice
President, Joseph W. Dello Russo is the Treasurer, Thomas B. Hastings is the
Assistant Treasurer, Stephen E. Cavan is the Secretary, and Robert T. Burns is
the Assistant Secretary.
AMI
---
A. Keith Brodkin is the Chairman and a Director, Jeffrey L. Shames, and
Arnold D. Scott are Directors, Thomas J. Cashman, Jr., is the President and a
Director, Leslie J. Nanberg is a Senior Vice President, a Managing Director and
a Director, George F. Bennett, Carol A. Corley, John A. Gee, Brianne Grady and
Kevin R. Parke are Senior Vice Presidents and Managing Directors, Joseph w.
Dello Russo is the Treasurer, Thomas B. Hastings is the Assistant Treasurer and
Robert T. Burns is the Secretary.
RSI
---
William W. Scott, Jr., Joseph A. Recomendes and Bruce C. Avery are
Directors, Arnold D. Scott is the Chairman and a Director, Douglas C. Grip, a
Senior Vice President of MFS, is the President, Joseph W. Dello Russo is the
Treasurer, Thomas B. Hastings is the Assistant Treasurer, Stephen E. Cavan is
the Secretary, Robert T. Burns is the Assistant Secretary and Sharon A. Brovelli
is a Senior Vice President.
C-4
<PAGE>
In addition, the following persons, Directors or officers of MFS, have
the affiliations indicated:
C-5
<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).
Joseph W. Dello Russo: Director of Mutual Fund Operations, The Boston
Company, Exchange Place, Boston Massachusetts (until August, 1994).
The business of Oechsle International Advisors, L.P. ("Oechsle") is
summarized under "Management of the Series Fund -Sub-Advisers to the
World Growth Series" in the Prospectus dated May 1, 1996 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 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 Limited ("FCM") and
Foreign & Colonial Emerging Markets Limited ("FCEM") is summarized under
"Management of the Series Fund - "Strategic Alliance" and - "Sub-Advisers to the
MFS/Foreign & Colonial Series" in the Prospectus dated May 1, 1996 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-6
<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-7
<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 8TH DAY OF APRIL, 1996.
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 APRIL 8, 1996.
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 incorporated 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.
C-8
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT PAGE NO.
- ----------- ---------------------- --------
<S> <C> <C>
1.(g) Amendment to Declaration of Trust of Registrant
5.(t) Sub-Advisory Agreement by and between Massachusetts Financial
Services Company and Foreign & Colonial Management Limited
relating to the World Growth Series.
5.(u) Sub-Advisory Agreement between Foreign & Colonial Management
Limited and Foreign & Colonial Emerging Markets Limited relating
to the World Growth Series.
5.(v) Investment Advisory Agreement between Registrant and Massachusetts
Financial Services Company relating to the Value Series.
11. Consent of Deloitte & Touche.
17. Financial Data Schedules.
</TABLE>
<PAGE>
EXHIBIT 11
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Post-Effective
Amendment No. 18 to Registration Statement No. 2-83616 of MFS/Sun Life Series
Trust of our report dated February 2, 1996, appearing in the annual report to
shareholders for the year ended December 31, 1995, and to the references to us
under the headings "Condensed Financial Information" in the Prospectus and
"Independent Accountants and Financial Statements" in the Statement of
Additional Information, both of which are part of such Registration Statement.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
April 8, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF MFS/SUN LIFE SERIES TRUST AND IS QUALIFIES IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000719269
<NAME> MFS SUN LIFE SERIES TRUST
<SERIES>
<NUMBER> 01
<NAME> CAPITAL APPRECIATION SERIES
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 656,842,827
<INVESTMENTS-AT-VALUE> 797,691,610
<RECEIVABLES> 4,991,523
<ASSETS-OTHER> 10,301
<OTHER-ITEMS-ASSETS> 224,174
<TOTAL-ASSETS> 802,917,608
<PAYABLE-FOR-SECURITIES> 5,304,161
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 511,755
<TOTAL-LIABILITIES> 5,815,916
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 580,301,078
<SHARES-COMMON-STOCK> 24,918,918
<SHARES-COMMON-PRIOR> 19,522,903
<ACCUMULATED-NII-CURRENT> 850,657
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 75,057,616
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 140,892,341
<NET-ASSETS> 797,101,692
<DIVIDEND-INCOME> 5,995,785
<INTEREST-INCOME> 1,501,611
<OTHER-INCOME> (31,467)
<EXPENSES-NET> 5,361,307
<NET-INVESTMENT-INCOME> 2,104,622
<REALIZED-GAINS-CURRENT> 74,291,934
<APPREC-INCREASE-CURRENT> 109,290,728
<NET-CHANGE-FROM-OPS> 185,687,284
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,257,607
<DISTRIBUTIONS-OF-GAINS> 13,684,251
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 11,620,628
<NUMBER-OF-SHARES-REDEEMED> 6,799,964
<SHARES-REINVESTED> 57,351
<NET-CHANGE-IN-ASSETS> 320,593,910
<ACCUMULATED-NII-PRIOR> 635,008
<ACCUMULATED-GAINS-PRIOR> 13,818,567
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4,876,631
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5,363,479
<AVERAGE-NET-ASSETS> 648,471,723
<PER-SHARE-NAV-BEGIN> 24.41
<PER-SHARE-NII> 0.09
<PER-SHARE-GAIN-APPREC> 8.16
<PER-SHARE-DIVIDEND> 0.06
<PER-SHARE-DISTRIBUTIONS> 0.62
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 31.99
<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 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000719269
<NAME> MFS/SUN LIFE SERIES TRUST
<SERIES>
<NUMBER> 02
<NAME> CONSERVATIVE GROWTH SERIES
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 249,766,880
<INVESTMENTS-AT-VALUE> 301,127,538
<RECEIVABLES> 1,358,082
<ASSETS-OTHER> 11,707
<OTHER-ITEMS-ASSETS> 10,574
<TOTAL-ASSETS> 302,507,901
<PAYABLE-FOR-SECURITIES> 366,956
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 117,333
<TOTAL-LIABILITIES> 484,289
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 235,355,134
<SHARES-COMMON-STOCK> 13,716,985
<SHARES-COMMON-PRIOR> 9,134,387
<ACCUMULATED-NII-CURRENT> 4,723,052
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 10,583,858
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 51,361,568
<NET-ASSETS> 302,023,612
<DIVIDEND-INCOME> 5,088,507
<INTEREST-INCOME> 1,027,519
<OTHER-INCOME> (39,413)
<EXPENSES-NET> 1,344,514
<NET-INVESTMENT-INCOME> 4,732,099
<REALIZED-GAINS-CURRENT> 11,000,468
<APPREC-INCREASE-CURRENT> 50,605,952
<NET-CHANGE-FROM-OPS> 66,338,519
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,990,858
<DISTRIBUTIONS-OF-GAINS> 1,805,444
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,959,971
<NUMBER-OF-SHARES-REDEEMED> 644,875
<SHARES-REINVESTED> 267,502
<NET-CHANGE-IN-ASSETS> 151,705,812
<ACCUMULATED-NII-PRIOR> 3,056,467
<ACCUMULATED-GAINS-PRIOR> 1,370,847
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,160,504
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,348,204
<AVERAGE-NET-ASSETS> 210,436,212
<PER-SHARE-NAV-BEGIN> 16.46
<PER-SHARE-NII> 0.43
<PER-SHARE-GAIN-APPREC> 5.62
<PER-SHARE-DIVIDEND> 0.30
<PER-SHARE-DISTRIBUTIONS> 0.18
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 22.02
<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 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000719269
<NAME> MFS/SUN LIFE SERIES TRUST
<SERIES>
<NUMBER> 17
<NAME> EMERGING GROWTH SERIES
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 63,687,219
<INVESTMENTS-AT-VALUE> 69,268,994
<RECEIVABLES> 282,611
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 556,668
<TOTAL-ASSETS> 70,108,273
<PAYABLE-FOR-SECURITIES> 2,130,993
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 722,493
<TOTAL-LIABILITIES> 2,853,486
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 61,469,973
<SHARES-COMMON-STOCK> 5,301,215
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 223,573
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 20,534
<ACCUM-APPREC-OR-DEPREC> 5,581,775
<NET-ASSETS> 67,254,787
<DIVIDEND-INCOME> 12,456
<INTEREST-INCOME> 253,400
<OTHER-INCOME> 0
<EXPENSES-NET> 42,283
<NET-INVESTMENT-INCOME> 223,573
<REALIZED-GAINS-CURRENT> (20,534)
<APPREC-INCREASE-CURRENT> 5,581,775
<NET-CHANGE-FROM-OPS> 5,784,814
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,726,769
<NUMBER-OF-SHARES-REDEEMED> 1,425,554
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 67,254,787
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 149,156
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 197,571
<AVERAGE-NET-ASSETS> 29,668,369
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.08
<PER-SHARE-GAIN-APPREC> 2.61
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 12.69
<EXPENSE-RATIO> 0.24
<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 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000719269
<NAME> MFS/SUN LIFE SERIES TRUST
<SERIES>
<NUMBER> 18
<NAME> MFS/F&C INTL GROWTH AND INCOME SERIES
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 6,644,365
<INVESTMENTS-AT-VALUE> 6,766,556
<RECEIVABLES> 389,754
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 40,551
<TOTAL-ASSETS> 7,196,861
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 18,033
<TOTAL-LIABILITIES> 18,033
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 7,067,550
<SHARES-COMMON-STOCK> 708,797
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 12,903
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 17,271
<ACCUM-APPREC-OR-DEPREC> 115,646
<NET-ASSETS> 7,178,828
<DIVIDEND-INCOME> 4,872
<INTEREST-INCOME> 20,420
<OTHER-INCOME> 589
<EXPENSES-NET> 11,800
<NET-INVESTMENT-INCOME> 12,903
<REALIZED-GAINS-CURRENT> 17,261
<APPREC-INCREASE-CURRENT> 115,646
<NET-CHANGE-FROM-OPS> 111,278
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 710,005
<NUMBER-OF-SHARES-REDEEMED> 1,208
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 7,178,828
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 7,653
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 19,453
<AVERAGE-NET-ASSETS> 3,218,721
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 0.10
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.13
<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 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000719269
<NAME> MFS/SUN LIFE SERIES TRUST
<SERIES>
<NUMBER> 03
<NAME> GOVERNMENT SECURITIES SERIES
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 345,450,076
<INVESTMENTS-AT-VALUE> 363,794,805
<RECEIVABLES> 5,210,471
<ASSETS-OTHER> 4,791
<OTHER-ITEMS-ASSETS> 154,154
<TOTAL-ASSETS> 369,164,221
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 316,261
<TOTAL-LIABILITIES> 316,261
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 335,631,551
<SHARES-COMMON-STOCK> 27,546,526
<SHARES-COMMON-PRIOR> 28,638,372
<ACCUMULATED-NII-CURRENT> 22,253,104
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 7,381,424
<ACCUM-APPREC-OR-DEPREC> 18,344,729
<NET-ASSETS> 368,847,960
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 24,585,722
<OTHER-INCOME> 0
<EXPENSES-NET> 2,136,118
<NET-INVESTMENT-INCOME> 22,449,604
<REALIZED-GAINS-CURRENT> 440,209
<APPREC-INCREASE-CURRENT> 33,522,922
<NET-CHANGE-FROM-OPS> 55,532,317
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 19,677,861
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,453,676
<NUMBER-OF-SHARES-REDEEMED> 8,182,612
<SHARES-REINVESTED> 1,637,090
<NET-CHANGE-IN-ASSETS> 21,697,854
<ACCUMULATED-NII-PRIOR> 19,677,210
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 7,137,094
<GROSS-ADVISORY-FEES> 1,877,922
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,136,118
<AVERAGE-NET-ASSETS> 340,521,491
<PER-SHARE-NAV-BEGIN> 12.12
<PER-SHARE-NII> 0.83
<PER-SHARE-GAIN-APPREC> 1.22
<PER-SHARE-DIVIDEND> 0.78
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 13.39
<EXPENSE-RATIO> 0.63
<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 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000719269
<NAME> MFS/SUN LIFE SERIES TRUST
<SERIES>
<NUMBER> 05
<NAME> HIGH YIELD SERIES
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 147,219,338
<INVESTMENTS-AT-VALUE> 148,841,260
<RECEIVABLES> 5,277,206
<ASSETS-OTHER> 1,410
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 154,119,876
<PAYABLE-FOR-SECURITIES> 84,313
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 235,408
<TOTAL-LIABILITIES> 319,721
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 150,393,798
<SHARES-COMMON-STOCK> 17,237,934
<SHARES-COMMON-PRIOR> 12,483,980
<ACCUMULATED-NII-CURRENT> 12,049,652
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 10,265,217
<ACCUM-APPREC-OR-DEPREC> 1,621,922
<NET-ASSETS> 153,800,155
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 13,230,927
<OTHER-INCOME> 0
<EXPENSES-NET> 1,143,156
<NET-INVESTMENT-INCOME> 12,087,771
<REALIZED-GAINS-CURRENT> 1,843,888
<APPREC-INCREASE-CURRENT> 9,954,655
<NET-CHANGE-FROM-OPS> 20,198,538
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 8,657,037
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 11,405,259
<NUMBER-OF-SHARES-REDEEMED> 7,709,622
<SHARES-REINVESTED> 1,058,317
<NET-CHANGE-IN-ASSETS> 51,606,302
<ACCUMULATED-NII-PRIOR> 7,468,541
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 7,251,523
<GROSS-ADVISORY-FEES> ,990,965
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,146,619
<AVERAGE-NET-ASSETS> 131,773,499
<PER-SHARE-NAV-BEGIN> 8.19
<PER-SHARE-NII> 0.79
<PER-SHARE-GAIN-APPREC> 0.55
<PER-SHARE-DIVIDEND> 0.60
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 8.92
<EXPENSE-RATIO> 0.87
<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 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000719269
<NAME> MFS/LIFE SERIES TRUST
<SERIES>
<NUMBER> 07
<NAME> MONEY MARKET SERIES
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 284,299,446
<INVESTMENTS-AT-VALUE> 284,299,446
<RECEIVABLES> 475,477
<ASSETS-OTHER> 4,491
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 284,761,414
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,007,306
<TOTAL-LIABILITIES> 2,007,306
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 282,754,108
<SHARES-COMMON-STOCK> 282,754,108
<SHARES-COMMON-PRIOR> 252,174,992
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 282,754,108
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 14,132,869
<OTHER-INCOME> 0
<EXPENSES-NET> 1,405,576
<NET-INVESTMENT-INCOME> 12,727,293
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 12,727,293
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 12,727,293
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 450,493,345
<NUMBER-OF-SHARES-REDEEMED> 432,641,522
<SHARES-REINVESTED> 12,727,293
<NET-CHANGE-IN-ASSETS> 30,579,116
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,204,609
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,411,791
<AVERAGE-NET-ASSETS> 240,274,524
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.05
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.59
<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 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000719269
<NAME> MFS/SUN LIFE SERIES TRUST
<SERIES>
<NUMBER> 06
<NAME> MANAGED SECTORS SERIES
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 178,309,205
<INVESTMENTS-AT-VALUE> 192,992,986
<RECEIVABLES> 2,757,381
<ASSETS-OTHER> 1,637
<OTHER-ITEMS-ASSETS> 198,205
<TOTAL-ASSETS> 195,950,209
<PAYABLE-FOR-SECURITIES> 1,311,686
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 287,744
<TOTAL-LIABILITIES> 1,599,430
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 150,383,045
<SHARES-COMMON-STOCK> 7,637,531
<SHARES-COMMON-PRIOR> 5,984,570
<ACCUMULATED-NII-CURRENT> 637,060
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 28,650,287
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 14,680,387
<NET-ASSETS> 194,350,779
<DIVIDEND-INCOME> 1,488,727
<INTEREST-INCOME> 531,522
<OTHER-INCOME> 5,300
<EXPENSES-NET> 1,348,174
<NET-INVESTMENT-INCOME> 666,775
<REALIZED-GAINS-CURRENT> 29,542,920
<APPREC-INCREASE-CURRENT> 11,155,881
<NET-CHANGE-FROM-OPS> 41,365,576
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 342,457
<DISTRIBUTIONS-OF-GAINS> 4,215,692
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,814,579
<NUMBER-OF-SHARES-REDEEMED> 1,372,643
<SHARES-REINVESTED> 211,025
<NET-CHANGE-IN-ASSETS> 75,363,706
<ACCUMULATED-NII-PRIOR> 342,446
<ACCUMULATED-GAINS-PRIOR> 3,293,355
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,202,378
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,349,644
<AVERAGE-NET-ASSETS> 159,886,566
<PER-SHARE-NAV-BEGIN> 19.88
<PER-SHARE-NII> 0.10
<PER-SHARE-GAIN-APPREC> 6.19
<PER-SHARE-DIVIDEND> 0.05
<PER-SHARE-DISTRIBUTIONS> 0.67
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 25.45
<EXPENSE-RATIO> 0.84
<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 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000719269
<NAME> MFS/SUN LIFE SERIES TRUST
<SERIES>
<NUMBER> 14
<NAME> RESEARCH SERIES
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 64,245,364
<INVESTMENTS-AT-VALUE> 71,137,306
<RECEIVABLES> 1,442,417
<ASSETS-OTHER> 39
<OTHER-ITEMS-ASSETS> 315,962
<TOTAL-ASSETS> 72,895,724
<PAYABLE-FOR-SECURITIES> 977,361
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 90,250
<TOTAL-LIABILITIES> 1,067,611
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 62,822,072
<SHARES-COMMON-STOCK> 5,290,149
<SHARES-COMMON-PRIOR> 391,744
<ACCUMULATED-NII-CURRENT> 328,042
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,786,257
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 6,891,742
<NET-ASSETS> 71,828,113
<DIVIDEND-INCOME> 293,450
<INTEREST-INCOME> 202,658
<OTHER-INCOME> 3,347
<EXPENSES-NET> 162,587
<NET-INVESTMENT-INCOME> 330,174
<REALIZED-GAINS-CURRENT> 1,799,538
<APPREC-INCREASE-CURRENT> 6,876,576
<NET-CHANGE-FROM-OPS> 9,006,288
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 5,213
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,208,741
<NUMBER-OF-SHARES-REDEEMED> 310,821
<SHARES-REINVESTED> 485
<NET-CHANGE-IN-ASSETS> 67,959,199
<ACCUMULATED-NII-PRIOR> 5,137
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 15,337
<GROSS-ADVISORY-FEES> 211,971
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 270,435
<AVERAGE-NET-ASSETS> 28,405,452
<PER-SHARE-NAV-BEGIN> 9.88
<PER-SHARE-NII> 0.14
<PER-SHARE-GAIN-APPREC> 3.57
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 13.58
<EXPENSE-RATIO> 0.58
<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 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000719269
<NAME> MFS/SUN LIFE SERIES TRUST
<SERIES>
<NUMBER> 08
<NAME> TOTAL RETURN SERIES
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 95,143,428
<INVESTMENTS-AT-VALUE> 1,096,507,395
<RECEIVABLES> 17,937,852
<ASSETS-OTHER> 11,576
<OTHER-ITEMS-ASSETS> 574,487
<TOTAL-ASSETS> 1,115,031,310
<PAYABLE-FOR-SECURITIES> 14,416,106
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 727,807
<TOTAL-LIABILITIES> 15,143,913
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 871,630,646
<SHARES-COMMON-STOCK> 59,825,771
<SHARES-COMMON-PRIOR> 55,654,402
<ACCUMULATED-NII-CURRENT> 44,654,745
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 41,237,596
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 142,364,410
<NET-ASSETS> 1,099,887,397
<DIVIDEND-INCOME> 19,664,592
<INTEREST-INCOME> 32,449,073
<OTHER-INCOME> 153,024
<EXPENSES-NET> 7,189,684
<NET-INVESTMENT-INCOME> 44,770,957
<REALIZED-GAINS-CURRENT> 45,877,957
<APPREC-INCREASE-CURRENT> 133,970,269
<NET-CHANGE-FROM-OPS> 224,619,183
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 34,941,362
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8,109,408
<NUMBER-OF-SHARES-REDEEMED> 6,150,918
<SHARES-REINVESTED> 2,212,879
<NET-CHANGE-IN-ASSETS> 260,273,047
<ACCUMULATED-NII-PRIOR> 34,941,335
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 4,756,546
<GROSS-ADVISORY-FEES> 6,671,672
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 7,219,751
<AVERAGE-NET-ASSETS> 952,492,435
<PER-SHARE-NAV-BEGIN> 15.09
<PER-SHARE-NII> 0.78
<PER-SHARE-GAIN-APPREC> 3.15
<PER-SHARE-DIVIDEND> 0.64
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 18.38
<EXPENSE-RATIO> 0.76
<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 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000719269
<NAME> MFS/SUN LIFE SERIES TRUST
<SERIES>
<NUMBER> 12
<NAME> UTILITIES SERIES
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 39,064,234
<INVESTMENTS-AT-VALUE> 43,695,897
<RECEIVABLES> 929,791
<ASSETS-OTHER> 6,273
<OTHER-ITEMS-ASSETS> 276,294
<TOTAL-ASSETS> 44,908,255
<PAYABLE-FOR-SECURITIES> 1,702,553
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 71,342
<TOTAL-LIABILITIES> 1,773,895
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 35,813,064
<SHARES-COMMON-STOCK> 3,518,347
<SHARES-COMMON-PRIOR> 2,252,765
<ACCUMULATED-NII-CURRENT> 1,347,427
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,343,519
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,630,350
<NET-ASSETS> 43,134,360
<DIVIDEND-INCOME> 1,007,323
<INTEREST-INCOME> 499,766
<OTHER-INCOME> 29,045
<EXPENSES-NET> 128,357
<NET-INVESTMENT-INCOME> 1,349,687
<REALIZED-GAINS-CURRENT> 1,964,180
<APPREC-INCREASE-CURRENT> 5,215,776
<NET-CHANGE-FROM-OPS> 8,529,643
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 673,961
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,993,567
<NUMBER-OF-SHARES-REDEEMED> 796,757
<SHARES-REINVESTED> 68,772
<NET-CHANGE-IN-ASSETS> 21,686,008
<ACCUMULATED-NII-PRIOR> 673,522
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 622,482
<GROSS-ADVISORY-FEES> 219,004
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 277,803
<AVERAGE-NET-ASSETS> 29,190,179
<PER-SHARE-NAV-BEGIN> 9.52
<PER-SHARE-NII> 0.49
<PER-SHARE-GAIN-APPREC> 2.52
<PER-SHARE-DIVIDEND> 0.27
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 12.26
<EXPENSE-RATIO> 0.44
<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 AND IS QUALIFIED IN ITS
ENTIRETY TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000719269
<NAME> MFS/SUN LIFE SERIES TRUST
<SERIES>
<NUMBER> 16
<NAME> WORLD ASSET ALLOCATION SERIES
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 24,241,229
<INVESTMENTS-AT-VALUE> 25,654,502
<RECEIVABLES> 667,695
<ASSETS-OTHER> 3,724
<OTHER-ITEMS-ASSETS> 63,334
<TOTAL-ASSETS> 26,389,255
<PAYABLE-FOR-SECURITIES> 411,928
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 113,934
<TOTAL-LIABILITIES> 525,862
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 23,164,046
<SHARES-COMMON-STOCK> 2,115,612
<SHARES-COMMON-PRIOR> 298,587
<ACCUMULATED-NII-CURRENT> 443,797
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 841,193
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,414,357
<NET-ASSETS> 25,863,393
<DIVIDEND-INCOME> 121,347
<INTEREST-INCOME> 458,343
<OTHER-INCOME> 6,344
<EXPENSES-NET> 84,461
<NET-INVESTMENT-INCOME> 488,885
<REALIZED-GAINS-CURRENT> 800,505
<APPREC-INCREASE-CURRENT> 1,398,356
<NET-CHANGE-FROM-OPS> 2,687,746
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 6,089
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,917,796
<NUMBER-OF-SHARES-REDEEMED> 101,344
<SHARES-REINVESTED> 573
<NET-CHANGE-IN-ASSETS> 22,860,218
<ACCUMULATED-NII-PRIOR> 6,575
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 4,886
<GROSS-ADVISORY-FEES> 98,641
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 146,356
<AVERAGE-NET-ASSETS> 13,206,291
<PER-SHARE-NAV-BEGIN> 10.06
<PER-SHARE-NII> 0.42
<PER-SHARE-GAIN-APPREC> 1.75
<PER-SHARE-DIVIDEND> 0.01
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 12.23
<EXPENSE-RATIO> 0.67
<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 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000719269
<NAME> MFS/SUN LIFE SERIES TRUST
<SERIES>
<NUMBER> 04
<NAME> WORLD GOVERNMENTS SERIES
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 157,535,679
<INVESTMENTS-AT-VALUE> 160,153,754
<RECEIVABLES> 6,464,751
<ASSETS-OTHER> 1,887
<OTHER-ITEMS-ASSETS> 56,337
<TOTAL-ASSETS> 166,676,729
<PAYABLE-FOR-SECURITIES> 2,249,990
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 11,939,547
<TOTAL-LIABILITIES> 14,189,537
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 132,382,504
<SHARES-COMMON-STOCK> 12,212,108
<SHARES-COMMON-PRIOR> 12,231,369
<ACCUMULATED-NII-CURRENT> 25,666,880
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,798,188
<NET-ASSETS> 153,251,196
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 11,407,927
<OTHER-INCOME> 0
<EXPENSES-NET> 1,330,623
<NET-INVESTMENT-INCOME> 10,077,304
<REALIZED-GAINS-CURRENT> 14,107,660
<APPREC-INCREASE-CURRENT> 2,587,887
<NET-CHANGE-FROM-OPS> 21,597,077
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 70,904
<DISTRIBUTIONS-OF-GAINS> 7,889,471
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,031,637
<NUMBER-OF-SHARES-REDEEMED> 3,718,715
<SHARES-REINVESTED> 667,817
<NET-CHANGE-IN-ASSETS> 13,332,285
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 9,401,967
<OVERDISTRIB-NII-PRIOR> 656,903
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,136,612
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,339,038
<AVERAGE-NET-ASSETS> 151,139,998
<PER-SHARE-NAV-BEGIN> 11.38
<PER-SHARE-NII> 0.80
<PER-SHARE-GAIN-APPREC> 0.95
<PER-SHARE-DIVIDEND> 0.01
<PER-SHARE-DISTRIBUTIONS> 0.64
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 12.49
<EXPENSE-RATIO> 0.88
<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 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000719269
<NAME> MFS/SUN LIFE SERIES TRUST
<SERIES>
<NUMBER> 13
<NAME> WORLD GROWTH SERIES
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 142,216,955
<INVESTMENTS-AT-VALUE> 146,694,758
<RECEIVABLES> 449,094
<ASSETS-OTHER> 1,371
<OTHER-ITEMS-ASSETS> 298,222
<TOTAL-ASSETS> 147,443,445
<PAYABLE-FOR-SECURITIES> 758,946
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 296,266
<TOTAL-LIABILITIES> 1,055,212
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 129,797,585
<SHARES-COMMON-STOCK> 11,856,784
<SHARES-COMMON-PRIOR> 9,142,775
<ACCUMULATED-NII-CURRENT> 1,148,560
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 10,941,406
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,500,682
<NET-ASSETS> 146,388,233
<DIVIDEND-INCOME> 1,188,471
<INTEREST-INCOME> 945,912
<OTHER-INCOME> (124,749)
<EXPENSES-NET> 1,281,066
<NET-INVESTMENT-INCOME> 728,568
<REALIZED-GAINS-CURRENT> 11,783,396
<APPREC-INCREASE-CURRENT> 6,613,885
<NET-CHANGE-FROM-OPS> 19,125,849
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,411,794
<DISTRIBUTIONS-OF-GAINS> 1,739,413
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,670,829
<NUMBER-OF-SHARES-REDEEMED> 2,248,059
<SHARES-REINVESTED> 291,239
<NET-CHANGE-IN-ASSETS> 46,344,069
<ACCUMULATED-NII-PRIOR> 1,404,752
<ACCUMULATED-GAINS-PRIOR> 1,324,457
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,090,977
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,290,415
<AVERAGE-NET-ASSETS> 120,894,067
<PER-SHARE-NAV-BEGIN> 10.94
<PER-SHARE-NII> 0.68
<PER-SHARE-GAIN-APPREC> 1.64
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.30
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 12.35
<EXPENSE-RATIO> 1.07
<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 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000719269
<NAME> MFS/SUN LIFE SERIES TRUST
<SERIES>
<NUMBER> 15
<NAME> WORLD TOTAL RETURN SERIES
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 13,075,251
<INVESTMENTS-AT-VALUE> 13,802,534
<RECEIVABLES> 336,119
<ASSETS-OTHER> 5
<OTHER-ITEMS-ASSETS> 58,058
<TOTAL-ASSETS> 14,196,716
<PAYABLE-FOR-SECURITIES> 257,292
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 153,486
<TOTAL-LIABILITIES> 410,778
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 12,695,923
<SHARES-COMMON-STOCK> 1,164,889
<SHARES-COMMON-PRIOR> 137,844
<ACCUMULATED-NII-CURRENT> 486,991
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 53,776
<ACCUM-APPREC-OR-DEPREC> 656,800
<NET-ASSETS> 13,785,938
<DIVIDEND-INCOME> 106,716
<INTEREST-INCOME> 211,546
<OTHER-INCOME> 8,155
<EXPENSES-NET> 48,974
<NET-INVESTMENT-INCOME> 261,133
<REALIZED-GAINS-CURRENT> 174,347
<APPREC-INCREASE-CURRENT> 652,694
<NET-CHANGE-FROM-OPS> 1,088,174
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,399
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,117,597
<NUMBER-OF-SHARES-REDEEMED> 90,774
<SHARES-REINVESTED> 222
<NET-CHANGE-IN-ASSETS> 12,401,909
<ACCUMULATED-NII-PRIOR> 3,409
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 3,275
<GROSS-ADVISORY-FEES> 48,709
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 77,551
<AVERAGE-NET-ASSETS> 6,519,670
<PER-SHARE-NAV-BEGIN> 10.04
<PER-SHARE-NII> 0.44
<PER-SHARE-GAIN-APPREC> 1.36
<PER-SHARE-DIVIDEND> 0.01
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.83
<EXPENSE-RATIO> 0.77
<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 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000719269
<NAME> MFS/SUN LIFE SERIES TRUST
<SERIES>
<NUMBER> 11
<NAME> ZERO COUPON SERIES
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 4,325,907
<INVESTMENTS-AT-VALUE> 4,587,499
<RECEIVABLES> 3,903
<ASSETS-OTHER> 45
<OTHER-ITEMS-ASSETS> 25,286
<TOTAL-ASSETS> 4,616,733
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 877
<TOTAL-LIABILITIES> 877
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 4,243,814
<SHARES-COMMON-STOCK> 509,370
<SHARES-COMMON-PRIOR> 412,231
<ACCUMULATED-NII-CURRENT> 168,949
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 58,499
<ACCUM-APPREC-OR-DEPREC> 261,592
<NET-ASSETS> 4,615,856
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 185,019
<OTHER-INCOME> 0
<EXPENSES-NET> 16,370
<NET-INVESTMENT-INCOME> 168,649
<REALIZED-GAINS-CURRENT> 20,451
<APPREC-INCREASE-CURRENT> 461,824
<NET-CHANGE-FROM-OPS> 610,022
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 173,697
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 180,804
<NUMBER-OF-SHARES-REDEEMED> 105,004
<SHARES-REINVESTED> 21,339
<NET-CHANGE-IN-ASSETS> 1,335,603
<ACCUMULATED-NII-PRIOR> 173,997
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 38,048
<GROSS-ADVISORY-FEES> 8,185
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 16,924
<AVERAGE-NET-ASSETS> 3,265,392
<PER-SHARE-NAV-BEGIN> 7.96
<PER-SHARE-NII> 0.43
<PER-SHARE-GAIN-APPREC> 1.10
<PER-SHARE-DIVIDEND> 0.43
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 9.06
<EXPENSE-RATIO> 0.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
Exhibit 99.1(g)
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:
- Value 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 th day of April 1996.
/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(t)
FORM OF
SUB-INVESTMENT ADVISORY AGREEMENT
SUB-ADVISORY AGREEMENT, dated this 1st day of May, 1996, by and between
MASSACHUSETTS FINANCIAL SERVICES COMPANY, a Delaware corporation (the "Adviser")
and FOREIGN & COLONIAL MANAGEMENT LIMITED, a company incorporated under the laws
of England and Wales (the "Sub-Adviser").
WITNESSETH:
WHEREAS, the Adviser provides World 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 November 1, 1993 (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. The Sub-Adviser will furnish the
Adviser with information and advice, including advice on the allocation of
investments among emerging market countries or regions, relating to such portion
of the Fund's assets as the Adviser shall from time to time designate (the
"Designated Assets"). Subject to the supervision of the Trustees of the Trust
and the Adviser, the Sub-Adviser will: (a) manage 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 Declaration of Trust dated February 15, 1995 and By-Laws, each as
amended from time to time (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 with respect to the Designated Assets;
(c) place purchase and sale orders for portfolio transactions with respect to
the Designated Assets; (d) manage otherwise uninvested cash assets with respect
to the Designated Assets (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 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 Fund's 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 Designated Assets's; provided, however, that the Sub-
Adviser will as requested, make recommendations to the Adviser as to the manner
in which such proxy, consent and other rights should 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 Designated Assets shall be purchased or sold and what
portion, if any, of the Designated 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 Designated Assets 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, 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
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 1.00% per annum of the average daily net asset value of the
Designated Assets. 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 in order to comply with the expense
limitations of a State securities commission or otherwise (but not a voluntary
reduction), the Sub-Adviser agrees to reduce its fee payable under this
Agreement by a pro rata amount.
2
<PAGE>
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. 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
the Sub-Advisers Secretary in the case of the Sub-Adviser, the Adviser's General
Counsel in the case of the Adviser, and the Trust's Secretary in the case of the
Trust or 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:_________________________
Jeffrey L. Shames
President
FOREIGN & COLONIAL
MANAGEMENT LIMITED
By:_________________________
James Ogilvy
By:_________________________
Jonathan Lubran
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 the WORLD GROWTH SERIES
By:_____________________________
John D. McNeil
Chairman
5
<PAGE>
Exhibit 99.5(u)
FORM OF
SUB-INVESTMENT ADVISORY AGREEMENT
SUB-ADVISORY AGREEMENT, dated this 1st day of May 1996, by and
between FOREIGN & COLONIAL MANAGEMENT LIMITED, 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 the World 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
November 1, 1993 (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 the date hereof
(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. FCEM will furnish the Sub-Adviser with information
and advice, including advice on the allocation of investments among emerging
market countries or regions, relating to such portion of the Fund's assets as
the Adviser, Sub-Adviser and FCEM shall from time to time mutually designate
(the "Designated Assets"). Subject to the supervision of the Trustees of the
Trust, the Adviser and the Sub-Adviser, FCEM will: (a) manage 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 Declaration of Trust dated February 15, 1985 and By-Laws, each as
amended from time to time (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 with respect to the Designated Assets;
(c) place purchase and sale orders for portfolio transactions with respect to
the Designated Assets; (d) manage otherwise uninvested cash assets with respect
to the Designated Assets; (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 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% per annum of the average daily
net asset value of the Designated Assets. 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 in order to comply with the expense limitations of a State
securities commission or otherwise (but not a voluntary reduction), 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 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 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 FCEM may retain copies of such records
for archival purposes as required by IMRO.
(c) It 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 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, 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 Adviser or 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 the Sub-Adviser's Secretary
in the case of the Sub-Adviser, by the Adviser's General Counsel in the case of
the Adviser, by FCEM's Secretary in the case of FCEM and by 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 LIMITED
By:
--------------------------------
James Ogilvy
By:
--------------------------------
Jonathan Lubran
FOREIGN & COLONIAL EMERGING
MARKETS LIMITED
By:
--------------------------------
Audley Twiston Davies
By:
--------------------------------
Karen Clarke
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 the WORLD GROWTH SERIES
By:
-----------------------------
John D. McNeil
Chairman
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<PAGE>
MASSACHUSETTS FINANCIAL
SERVICES COMPANY
By:
--------------------
Jeffrey L. Shames
President
- 8 -
<PAGE>
EXHIBIT 99.5(v)
FORM OF
INVESTMENT ADVISORY AGREEMENT
-----------------------------
INVESTMENT ADVISORY AGREEMENT, dated this 1st day of May, 1996, by
and between MFS/SUN LIFE SERIES TRUST, a Massachusetts business trust (the
"Trust"), on behalf of the VALUE 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.
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<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 VALUE SERIES
By:
------------------------------------
John D. McNeil
Chairman
MASSACHUSETTS FINANCIAL
SERVICES COMPANY
By:
------------------------------------
Jeffrey L. Shames
President
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