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MFS(R) NEW YORK MUNICIPAL BOND FUND
PROXY STATEMENT AND PROSPECTUS DATED MARCH 29, 1995
500 BOYLSTON STREET
BOSTON, MASSACHUSETTS 02116
TELEPHONE 617-954-5000
SECURITIES OFFERED HEREBY
This Proxy Statement and Prospectus relates to shares of beneficial interest
designated as Class B shares, no par value, of MFS New York Municipal Bond Fund
(the "MFS Fund"), a series of MFS Municipal Series Trust (the "MFS Trust"), to
be issued in exchange for all of the assets of The New York Portfolio (the
"Advantage Fund"), a series of The Advantage Municipal Bond Fund (the "Advantage
Trust"). The number of the MFS Fund's shares of beneficial interest designated
as Class B shares (the "MFS Fund Shares") to be issued to the Advantage Fund
will be that number of MFS Fund Shares having an aggregate net asset value equal
to the aggregate value of the Advantage Fund's assets, less liabilities assumed,
transferred to the MFS Fund. Following receipt of the MFS Fund Shares, the
Advantage Fund will be liquidated, the MFS Fund Shares will be distributed to
the former shareholders of the Advantage Fund and the Advantage Trust will be
terminated. The terms and conditions of these transactions are more fully
described in this Proxy Statement and Prospectus and in the Agreement and Plan
of Reorganization attached as Exhibit A hereto.
The MFS Trust is an open-end, management investment company of the series type.
The MFS Trust currently has 19 separate series, one of which is the MFS Fund, a
non-diversified series of the Trust. The investment objective of the MFS Fund is
to provide current income exempt from federal income taxes and from the personal
income taxes of the State of New York. As a matter of fundamental policy, the
MFS Fund seeks to achieve its investment objective by investing primarily (i.e.,
at least 80% of its net assets under normal circumstances) in municipal bonds
and notes and other debt instruments, the interest on which is exempt from
federal income taxes and from the personal income taxes, if any, of the State of
New York ("Municipal Obligations" or "tax-exempt securities"). The MFS Fund may
invest up to 33 1/3% of its assets in Municipal Obligations rated lower than the
three highest grades of recognized rating agencies and in comparable unrated
Municipal Obligations, including Municipal Obligations commonly known as "junk
bonds," that entail greater risks, including default risks, than those found in
higher rated Municipal Obligations. The MFS Fund Shares may be redeemed at any
time at net asset value subject to any applicable contingent deferred sales
charge.
The Advantage Fund's principal place of business is 100 Federal Street, Boston,
Massachusetts 02110 and its telephone number is 617-348-3100.
This Proxy Statement and Prospectus sets forth concisely the information that a
shareholder of the Advantage Fund should know before voting on the proposed
transaction described above. It should be read and retained for future
reference.
A Statement of Additional Information dated March 29, 1995 (the "Combined SAI")
relating to the MFS Fund and the Advantage Fund, including historical financial
statements, and the Prospectus and Statement of Additional Information for the
Advantage Fund, each dated April 18, 1994, as supplemented (the "Advantage Fund
Prospectus and SAI"), are on file with the Securities and Exchange Commission.
The Advantage Fund Annual Report for the fiscal year ended December 31, 1994
(the "Advantage Fund Annual Report") has previously been sent to shareholders of
the Advantage Fund. The Prospectus and a Statement of Additional Information,
each dated June 1, 1994, as supplemented, of the MFS Fund (the "MFS Fund
Prospectus and SAI") are also on file with the Securities and Exchange
Commission. The MFS Fund Semi-Annual Report for the six-month period ended
September 30, 1994 (the "MFS Fund Semi-Annual Report"), together with the MFS
Fund Prospectus, are enclosed with this Proxy Statement and Prospectus. The
other documents identified above are available, upon oral or written request,
and at no charge, from Advest Transfer Services, Inc. at 280 Trumbull Street,
Hartford, Connecticut 06103, telephone number 800-544-9268. The Combined SAI is
incorporated by reference into this Proxy Statement and Prospectus. The
Advantage Fund Prospectus and SAI, the financial statements from the Advantage
Fund Annual Report, the MFS Fund Prospectus and SAI and the financial statements
from the MFS Fund Semi-Annual Report are also incorporated by reference into
this Proxy Statement and Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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TABLE OF CONTENTS
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ITEM 1: PROPOSAL TO APPROVE AGREEMENT AND PLAN OF REORGANIZATION..................... 1
SUMMARY.......................................................................... 1
SPECIAL FACTORS.................................................................. 9
PROPOSAL TO APPROVE AGREEMENT AND PLAN OF REORGANIZATION......................... 16
DESCRIPTION OF AGREEMENT......................................................... 17
CAPITALIZATION................................................................... 19
TAX CONSIDERATIONS............................................................... 20
COMPARATIVE PERFORMANCE INFORMATION.............................................. 20
BUSINESS OF THE MFS FUND......................................................... 22
BUSINESS OF THE ADVANTAGE FUND................................................... 23
NO APPRAISAL RIGHTS.............................................................. 24
LEGAL MATTERS.................................................................... 24
EXPERTS.......................................................................... 24
AVAILABLE INFORMATION............................................................ 24
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT OF THE MFS AND ADVANTAGE FUNDS...................................... 25
VOTING RIGHTS AND REQUIRED VOTE.................................................. 25
SECURITY OWNERSHIP OF THE ADVANTAGE FUND.............................................. 25
MANNER OF VOTING PROXIES.............................................................. 25
SUBMISSION OF CERTAIN PROPOSALS....................................................... 25
ADDITIONAL INFORMATION................................................................ 25
EXHIBITS
A -- Agreement and Plan of Reorganization dated February 23, 1995 by and between
the MFS Trust, on behalf of the MFS Fund, and the Advantage Trust, on behalf of
the Advantage Fund.............................................................. A-1
ENCLOSURES
Prospectus of the MFS Fund, dated June 1, 1994, as supplemented.
Semi-Annual Report of the MFS Fund for the period ended September 30, 1994.
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PROXY STATEMENT AND PROSPECTUS
This Proxy Statement and Prospectus (the "Proxy Statement and Prospectus") is
furnished in connection with the solicitation of proxies by and on behalf of the
Board of Trustees of The Advantage Municipal Bond Fund (the "Advantage Trust")
to be used at the Special Meeting of Shareholders of The New York Portfolio (the
"Advantage Fund"), a series of the Advantage Trust, to be held at the offices of
Ropes & Gray, One International Place, 36th Floor, Boston, Massachusetts, on
April 28, 1995, for the purposes set forth in the accompanying Notice (the
"Meeting"). If the enclosed form of proxy is executed and returned, it may
nevertheless be revoked prior to its exercise by a signed writing filed with the
transfer agent, Advest Transfer Services, Inc. ("ATS"), 280 Trumbull Street,
Hartford Connecticut 06103, or delivered at the Meeting. On March 20, 1995,
there were outstanding 1,733,137 shares of the Advantage Fund. Shareholders of
record at the close of business on March 20, 1995 will be entitled to one vote
for each share held. This Proxy Statement and Prospectus includes and
incorporates by reference the Prospectus (which is enclosed) and Statement of
Additional Information of the MFS New York Municipal Bond Fund (the "MFS Fund"),
a series of the MFS Municipal Series Trust (the "MFS Trust"), each dated June 1,
1994, as supplemented (the "MFS Fund Prospectus and SAI") and incorporates by
reference the Prospectus and Statement of Additional Information of the
Advantage Fund, each dated April 18, 1994, as supplemented (the "Advantage Fund
Prospectus and SAI"). This Proxy Statement and Prospectus also includes and
incorporates by reference the financial statements from the MFS Fund Semi-Annual
Report for the period ended September 30, 1994 (which is enclosed) (the "MFS
Fund Semi-Annual Report") and the financial statements from the Advantage Fund
Annual Report for the year ended December 31, 1994 (the "Advantage Fund Annual
Report"). This Proxy Statement and Prospectus is being sent to shareholders of
the Advantage Fund on or before March 30, 1995. The mailing address of the
Advantage Fund is 100 Federal Street, Boston, Massachusetts 02110. The MFS Fund
and the Advantage Fund are sometimes referred to herein individually as a "Fund"
and collectively as the "Funds."
The information concerning the MFS Fund in this Proxy Statement and Prospectus
has been supplied by the MFS Fund, and the information regarding the Advantage
Fund in this Proxy Statement and Prospectus has been supplied by the Advantage
Fund.
ITEM 1--PROPOSAL TO APPROVE AGREEMENT AND PLAN OF REORGANIZATION
SUMMARY
The following is a summary of certain information contained elsewhere in this
Proxy Statement and Prospectus and is qualified by reference to the more
complete information contained herein and in the attached Exhibit as well as in
the Advantage Fund Prospectus and the enclosed MFS Fund Prospectus. Shareholders
should read this entire Proxy Statement and Prospectus carefully.
OVERVIEW OF PROPOSED REORGANIZATION
The Board of Trustees of the Advantage Trust has reviewed various alternatives
and determined that it is in the best interest of the Advantage Fund and its
shareholders that Advantage Fund shareholders become shareholders of the MFS
Fund. The MFS Fund, like the Advantage Fund, invests to provide current income
exempt from federal income taxes and from the personal income taxes, if any, of
the State of New York. The investment adviser of the Advantage Fund is Boston
Security Counsellors, Inc. ("BSC"), a wholly-owned subsidiary of The Advest
Group, Inc., a publicly-owned holding company. The investment adviser of the MFS
Fund is Massachusetts Financial Services Company ("MFS"), a wholly-owned
subsidiary of Sun Life Assurance Company of Canada (U.S.), which in turn is a
wholly-owned subsidiary of Sun Life Assurance Company of Canada. The investment
adviser of each Fund is sometimes referred to herein as that Fund's "Adviser."
If the transaction is consummated, shareholders of the Advantage Fund will
become holders of Class B shares of the MFS Fund ("MFS Fund Shares"). Class B
shares of the MFS Fund are not subject to a front-end sales charge but may be
subject upon redemption to a contingent deferred sales charge (a "CDSC"). No new
sales charges will apply to the MFS Fund Shares issued to Advantage Fund
shareholders in this transaction, but, if any Advantage Fund shares on the date
the transaction is consummated are subject to a CDSC, the MFS Fund Shares
acquired in respect
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of such Advantage Fund shares will be subject to a CDSC in accordance with the
MFS Fund CDSC schedule as described under "Other Significant Fees" below. For
purposes of calculating the CDSC and determining when any MFS Fund Shares issued
in the Reorganization will convert to Class A shares of the MFS Fund (which are
subject to a lower distribution fee than Class B shares), the MFS Fund Shares
will be treated as if purchased forty-two months prior to the date the
transaction is consummated. Therefore, assuming that the transaction is
consummated on May 1, 1995 as scheduled, the MFS Fund Shares received by
Advantage Fund shareholders will be treated as if purchased on November 1, 1991,
and, with respect to such MFS Fund Shares issued in respect of Advantage Fund
shares which are subject to a CDSC on the date the transaction is consummated,
will be treated as held during the fourth year after purchase and subject to a
3% CDSC until November 30, 1995, which will decline thereafter to 2% after
November 30, 1995, 1% after November 30, 1996 and 0% after November 30, 1997,
and with respect to all MFS Shares issued in the transaction, will convert to
Class A shares of the MFS Fund on or about November 1, 1999 (approximately four
and a half years after consummation of the transaction).
The Class B shares of the MFS Fund are subject to a 0.75% annual distribution
fee and a 0.25% annual service fee payable pursuant to a distribution plan (a
"Distribution Plan") adopted pursuant to Section 12(b) of the Investment Company
Act of 1940, as amended (the "1940 Act") and Rule 12b-1 thereunder. Shares of
the Advantage Fund are currently subject to a 0.40% annual distribution fee and
a 0.10% annual service fee payable under a Distribution Plan with respect to
such shares.
The Boards of Trustees of the Advantage Trust and the MFS Trust have each
approved the acquisition of the assets of the Advantage Fund by the MFS Fund,
and the Advantage Trust and the MFS Trust have entered into an Agreement and
Plan of Reorganization on behalf of the Advantage Fund and the MFS Fund,
respectively. See Exhibit A hereto. The consummation of the transaction,
however, is subject to the approval of the Advantage Fund's shareholders and
certain other conditions. See "Description of Agreement" below.
As noted below, the transaction provides for the transfer of all the assets of
the Advantage Fund in exchange for MFS Fund Shares and the assumption by the MFS
Fund of the Advantage Fund's stated liabilities, as set forth in a schedule of
assets and liabilities delivered by the Advantage Trust to the MFS Trust on the
date the transaction is consummated. The MFS Fund Shares will then be
distributed to the Advantage Fund's shareholders (the "Reorganization"). Each
Advantage Fund shareholder will receive MFS Fund Shares that will have an
aggregate net asset value equal to the aggregate net asset value of his or her
shares of the Advantage Fund on the date the Reorganization occurs. The
Reorganization is being structured as a tax-free reorganization, and the
consummation of the Reorganization is subject to the receipt of an opinion from
legal counsel to this effect.
Class B shares of the MFS Fund may be exchanged for Class B shares of certain
other funds advised by MFS (if available for sale) or may be redeemed at net
asset value less any applicable CDSC. No CDSC is imposed upon any such exchange;
rather, the CDSC is carried over to the shares received in the exchange. There
are currently 49 funds advised by MFS which are available for exchange
privileges with the MFS Fund. Advantage Fund shareholders may redeem (subject to
any applicable CDSC) or may exchange their Advantage Fund shares for shares of
certain other funds sponsored by Advest, Inc. ("Advest"), the Advantage Fund's
distributor, at any time prior to the consummation of the Reorganization or, if
earlier, at the time Advest ceases to be the Advantage Fund's distributor. There
are currently eight other Advantage funds, including the two other series of the
Advantage Trust, sponsored by Advest which are available for exchange privileges
with the Advantage Fund. Prior to the Reorganization, Advantage Fund
shareholders may also redeem their Advantage Fund Shares and invest the proceeds
in the Advantage Insured Account (the "AIA"), which is a money market deposit
account maintained at Advest Bank. Deposits of up to $100,000 in the AIA are
insured by the Federal Deposit Insurance Corporation (the "FDIC"). Withdrawals
from the AIA may be subject to a CDSC, as described in the Advantage Fund
prospectus under "Shareholder Services." Any redemption or exchange from the MFS
Fund or the Advantage Fund would be a taxable event on which a shareholder may
recognize a gain or loss under applicable income tax provisions.
Upon consummation of the Reorganization and the Related Reorganizations (as
defined below under "Description of Agreement -- Conditions Precedent to
Closing"), MFS will pay $1.2 million to The Advest Group, Inc.
The Board of Trustees of the Advantage Trust believes that the proposed
Reorganization will be advantageous to the shareholders of the Advantage Fund in
several respects which they considered in approving the Reorganization. The
Reorganization will permit the shareholders of the Advantage Fund to become
shareholders of a fund with a similar
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investment objective and similar investment policies that has in the past
generally achieved a higher total return than the Advantage Fund. See
"Comparative Performance Information" below. Also, to the extent that the MFS
Fund has a substantially larger asset base than the Advantage Fund as a result
of the Reorganization, its investment portfolio can be spread over a greater
number of securities. Greater diversification is beneficial to shareholders
because it reduces the negative effect which the adverse performance of any one
portfolio security may have on the performance of the entire portfolio. Finally,
as shareholders of the MFS Fund, shareholders will enjoy exchange privileges
with other funds advised by MFS (currently there are 49 such funds).
BUSINESS OF THE ADVANTAGE FUND
The Advantage Trust is an open-end, diversified, management investment company
organized as a Massachusetts business trust under a Declaration of Trust dated
February 25, 1993. The investment objective of the Advantage Fund is to earn a
high level of current income exempt from federal, New York state and local
income taxes by investing in a diversified group of obligations, including
bonds, notes and commercial paper, the interest on which is exempt from federal,
New York state and local income taxes ("Municipal Obligations"). The Advantage
Fund commenced investment operations on July 1, 1993.
As of March 20, 1995, the Advantage Fund's net assets were approximately
$16,031,000.
BUSINESS OF THE MFS FUND
The MFS Trust is an open-end, management investment company organized as a
Massachusetts business trust under an amended and restated Declaration of Trust
dated February 3, 1995. The MFS Fund is a non-diversified series of the MFS
Trust. The investment objective of the MFS Fund is to provide current income
exempt from federal income taxes and from the personal income taxes of the State
of New York. The MFS Fund commenced investment operations on June 6, 1988. Class
B shares of the MFS Fund were first offered to the public on September 7, 1993.
As of March 20, 1995, the MFS Fund's net assets were approximately $162,712,785.
COMPARISON OF THE ADVANTAGE FUND AND THE MFS FUND
The investment objectives of the Advantage Fund and MFS Fund are substantially
similar.
The policy of each of the Advantage Fund and the MFS Fund is to invest at least
80% of its assets in Municipal Obligations. The Advantage Fund has a
non-fundamental policy, which can be changed by the Advantage Trust Trustees
without a shareholder vote, that at least 65% of the total assets of the
Advantage Fund will be invested in Municipal Obligations which are bonds. Each
Fund invests primarily in Municipal Obligations which are rated "investment
grade" (rated Aaa, Aa, A or Baa by Moody's Investors Service, Inc. ("Moody's")
or AAA, AA, A or BBB or A, by Standard and Poor's Ratings Group ("S&P")),
comparable unrated Municipal Obligations and securities which are guaranteed,
backed or secured by the U.S. Government. The MFS Fund may also invest up to
33 1/3% of its assets in Municipal Obligations rated lower than A by Moody's or
S&P and in comparable unrated Municipal Obligations. The Advantage Fund may
invest up to 10% of its assets in Municipal Obligations rated Ba or B by Moody's
or BB or B by S&P and in comparable unrated Municipal Obligations. Municipal
Obligations rated lower than Baa by Moody's or BBB by S&P and comparable unrated
Municipal Obligations are commonly known as "junk bonds," which entail greater
risks, including default risks, than those found in higher rated securities.
Because the MFS Fund may invest a higher percentage of its assets in junk bonds
than the Advantage Fund, an investment in the MFS Fund entails greater risk and
may be subject to greater volatility than an investment in the Advantage Fund.
However, investing a higher percentage of assets in lower rated securities
generally offers an opportunity to earn higher levels of income. It is not the
policy of either Fund to rely exclusively on ratings issued by established
credit agencies but rather to supplement such ratings with its Adviser's own
individual and ongoing review of credit quality.
Both the Advantage Fund and the MFS Fund may, within certain limits, enter into
repurchase agreements, purchase securities on a "when-issued basis, and invest
in certain restricted and illiquid securities. Both Funds may also invest in
floating or variable rate instruments, zero coupon bonds, options on securities,
futures contracts, options on futures contracts, municipal lease obligations
and, for defensive purposes, short-term investments. The MFS Fund may purchase
inverse floating rate obligations, combinations of options known as "straddles,"
futures contracts for
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non-hedging purposes, participation interests and deferred interest bonds. The
Advantage Fund may invest in money market investment companies and make loans of
its portfolio securities.
See "Special Factors -- Investment Objectives, Policies and Restrictions" below.
FORM OF ORGANIZATION
Both the Advantage Trust and the MFS Trust are business trusts organized under
the laws of The Commonwealth of Massachusetts. The Advantage Fund commenced
investment operations in 1993 and the MFS Fund commenced investment operations
in 1988. Each Fund is permitted to issue an unlimited number of shares of
beneficial interest and each share represents an equal proportionate beneficial
interest in such Fund.
SHARES OF THE ADVANTAGE FUND
The Advantage Fund has only one class of shares, which is offered at net asset
value without a sales charge but subject to a CDSC, as described in the
Advantage Fund Prospectus, if redeemed within four years of purchase, and
subject to a Distribution Plan providing for a combined 0.50% annual
distribution fee and service fee.
CLASSES OF SHARES OF THE MFS FUND
The MFS Fund currently offers two classes of shares, Class A and Class B shares,
and may in the future offer additional classes of shares. Class A shares are
offered at net asset value plus an initial sales charge (or a CDSC in the case
of certain purchases of $1 million or more) and subject to a Distribution Plan
providing for a distribution fee of up to 0.10% per annum (which is currently
being waived), and a service fee of up to 0.25% per annum, of the average daily
net assets attributable to the class. Class B shares are offered at net asset
value without a sales charge but subject to a CDSC, as described below under
"Other Significant Fees," if redeemed within six years of purchase, and a
Distribution Plan providing for a distribution fee of up to 0.75% per annum, and
service fee of up to 0.25% per annum, of the average daily net assets
attributable to the class. Class B shares convert to Class A shares
approximately eight years after purchase. No sales charge is applicable upon
conversion of the Class B shares to Class A shares. Class B shares were first
offered to the public on September 7, 1993.
Advantage Fund shareholders will be issued Class B shares (i.e., MFS Fund
Shares) in the Reorganization, which will not be subject to an initial sales
charge but may be subject to a CDSC upon redemption (as noted under "Other
Significant Fees" below). As noted above, the MFS Fund Shares will also be
subject to a 0.75% annual distribution fee and a 0.25% annual service fee, and,
assuming that the Reorganization is consummated on May 1, 1995, will convert to
Class A shares approximately four and a half years after consummation of the
Reorganization.
Each share of the MFS Fund, regardless of class, will share pro rata in the
assets and income of the MFS Fund and will share pro rata in the MFS Fund
expenses, except for differences resulting from different class Distribution
Plan expenses and certain other class specific expenses. Shares of all classes
of the MFS Fund will vote together on all matters affecting the MFS Fund, except
for certain matters, such as approval of a Distribution Plan, affecting only a
particular class or classes. See "Business of the MFS Fund -- MFS Fund Shares
and Purchase of MFS Fund Shares" below.
ADVISER AND ADVISORY FEES
The MFS Fund employs MFS as its investment adviser. The Advantage Fund employs
BSC as its investment adviser.
On July 1, 1994, the MFS Fund commenced paying MFS an annual management fee,
computed and paid monthly, in an amount equal to 0.55% of the MFS Fund's average
daily net assets. Prior to October 1, 1993, MFS voluntarily reduced advisory
fees due from the MFS Fund to 0.35% per annum of the MFS Fund's average daily
net assets, which increased by 0.05% per annum each quarter commencing in the
fourth quarter of 1993, up to 0.55% per annum of the MFS Fund's average daily
net assets. For the fiscal year ended January 31, 1994, MFS received management
fees under the Advisory Agreement of $575,578, equivalent on an annualized basis
to 0.35% of the MFS Fund's average daily net assets. The amount of advisory fees
that would have been received by MFS absent this waiver for this period is
$916,193. The MFS Fund changed its fiscal year end from January 31 to March 31
in 1994. For the two-month period from February 1, 1994 through March 31, 1994,
MFS received management fees under the Advisory Agreement of $138,429,
equivalent on an annualized basis to 0.45% of the MFS Fund's average
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daily net assets. The amount of advisory fees that would have been received by
MFS absent this waiver for this period is $168,692. For the six month period
ended September 30, 1994, MFS received management fees under the Advisory
Agreement of $443,063, equal on an annualized basis to 0.525% of the MFS Fund's
average daily net assets. The amount of advisory fees that would have been
received by MFS absent this waiver for this period is $464,122.
The Advantage Fund's fees and expenses were and are being voluntarily waived or
reimbursed by BSC, Advest and their affiliates to the extent necessary to keep
the Advantage Fund's total operating expenses no greater than 0.70% per annum
through June 30, 1994, and no greater than 1.00% per annum from July 1, 1994
through April 30, 1995. While the Advantage Fund is obligated to pay BSC a
management fee equal to, on an annual basis, 0.45% of the Advantage Fund's
average daily net assets, pursuant to this expense waiver and reimbursement
arrangement, for the period from July 1, 1993 (commencement of investment
operations) through December 31, 1993, BSC waived all advisory fees due from the
Advantage Fund, and, for the fiscal year ended December 31, 1994, BSC waived a
portion of advisory fees due from the Advantage Fund and received $33,215 in
advisory fees from the Advantage Fund (equal to 0.24% per annum of the Advantage
Fund's average daily net assets). The amount of advisory fees that would have
been received by BSC absent these waivers for these periods is $19,210 and
$61,697, respectively.
DISTRIBUTION PLAN FEES
The Class B Distribution Plan of the MFS Fund provides that the MFS Fund will
pay MFS Fund Distributors, Inc. ("MFD") (as the MFS Fund's distributor) a daily
distribution/service fee payable monthly and equal to, on an annual basis, 1.00%
of such Fund's average daily net assets attributable to Class B shares (0.75% of
which constitutes the distribution fee and 0.25% of which constitutes the
service fee). The Distribution Plan also provides that MFD will receive all
CDSCs, including CDSCs imposed upon redemption of MFS Fund Shares issued in the
Reorganization, as described below under "Other Significant Fees." MFD pays
commissions to dealers of 3.75% of the purchase price of MFS Fund Class B shares
purchased through dealers. MFD, on behalf of the MFS Fund, will also pay dealers
a service fee equal to 0.25% per annum on that portion of the MFS Fund's average
daily net assets attributed to Class B shares of the MFS Fund owned by investors
for whom the dealer is the holder or the dealer of record. MFD may advance to
dealers the first year service fee at a rate of up to 0.25% of the purchase
price of such shares and, as compensation therefor, MFD may retain the service
fee paid by the MFS Fund with respect to such shares for the first year after
purchase.
The Distribution Plan of the Advantage Fund provides that the Advantage Fund
will pay Advest (as the Advantage Fund's distributor) a daily
distribution/service fee payable monthly equal to, on an annual basis, 0.50% of
the Advantage Fund's average daily net assets (0.40% of which constitutes the
distribution fee and 0.10% of which constitutes the service fee). The
Distribution Plan also provides that Advest will receive all CDSCs imposed upon
redemption of Advantage Fund shares. No CDSC will be imposed in connection with
effecting the Reorganization. Advest pays commissions to its registered
representatives at the time of purchase of Advantage Fund shares, and pays
service fees to such registered representatives on an ongoing basis while such
shares are outstanding.
Distribution/service fees paid by each Fund under its respective Distribution
Plan are charged to, and therefore reduce, income.
OTHER SIGNIFICANT FEES
Both the MFS Fund and the Advantage Fund pay additional fees in connection with
their operations, including legal, accounting, shareholder servicing agent and
custodial fees, except to the extent such fees are borne by either Fund's
Adviser, as described below.
The MFS Fund's ratio of expenses to average net assets for Class B shares was
1.86% (annualized) for the six month period ended September 30, 1994, 1.87%
(annualized) for the two month fiscal period ended March 31, 1994, and 1.79%
(annualized) for the period commencing September 7, 1993 (commencement of
offering of Class B shares) through January 31, 1994. Had MFS not elected to
waive its advisory fee as described above under "Adviser and Advisory Fees" the
MFS Fund's annualized ratio of expenses to average net assets for these period
would have been 1.89%, 1.97% and 2.00%, respectively.
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The Advantage Fund's ratio of expenses to average net assets was, after expense
waivers and reimbursements described above under "Adviser and Advisory Fees" and
after the expense reimbursement described below, 0.52% for the fiscal year ended
December 31, 1994 and 0.36% (annualized) for the period from July 1, 1993
(commencement of investment operations) through December 31, 1993. Advest
voluntarily reimbursed $92,166 and $45,637 of the Advantage Fund's expenses for
the fiscal year ended December 31, 1994 and the fiscal period ended December 31,
1993, respectively. Had BSC not elected to waive its advisory fee and had Advest
not elected to reimburse expenses, the Advantage Fund's annualized ratio of
expenses to average net assets for these periods would have been 1.40% and
1.87%, respectively. Had the Reorganization occurred on December 31, 1993, the
ratio of expenses to average net assets for Class B shares of the MFS Fund for
the year ended December 31, 1994 would have been 1.88% taking into account the
MFS advisory fee waiver described above, and 1.92% without giving effect to this
MFS advisory fee waiver.
<TABLE>
The MFS Fund imposes a CDSC as a percentage of redemption proceeds as follows:
<CAPTION>
CONTINGENT
DEFERRED
YEAR OF REDEMPTION SALES
AFTER PURCHASE CHARGE
------------------ ----------
<S> <C>
First....................................................................... 4%
Second...................................................................... 4%
Third....................................................................... 3%
Fourth...................................................................... 3%
Fifth....................................................................... 2%
Sixth....................................................................... 1%
Seventh and Following....................................................... 0%
</TABLE>
The Advantage Fund imposes a CDSC as a percentage of redemption proceeds as
follows:
<TABLE>
<CAPTION>
CONTINGENT
DEFERRED
YEAR OF REDEMPTION SALES
AFTER PURCHASE CHARGE
------------------ ----------
<S> <C>
First....................................................................... 4%
Second...................................................................... 3%
Third....................................................................... 2%
Fourth...................................................................... 1%
Fifth and Following......................................................... 0%
</TABLE>
With respect to both the Class B shares of the MFS Fund and the shares of the
Advantage Fund, no CDSC is imposed on shares acquired through reinvestment of
dividends and distributions or amounts derived from increases in either Fund's
net asset value per share. In determining whether a CDSC will be payable and, if
so, the percentage charge applicable, shares acquired through reinvestment and
then shares held the longest are considered the first to be redeemed by both the
MFS Fund and the Advantage Fund, thus resulting in the lowest possible CDSC. For
purposes of calculating the appropriate CDSC, Class B shares of the MFS Fund are
aggregated on a calendar month basis, meaning that all transactions made during
a calendar month, regardless of when during the month they have occurred, will
age one year at the close of business on the last day of such month in the
following calendar year and each subsequent year, while shares of the Advantage
Fund age one year from the date of purchase in each subsequent year.
No new sales charges will apply to the MFS Fund Shares acquired by the Advantage
Fund shareholders in the Reorganization, but, if any Advantage Fund shares are,
on the date the Reorganization is consummated, subject to a CDSC, the MFS Fund
Shares acquired in respect of such Advantage Fund shares will be subject to a
CDSC in accordance with the MFS Fund CDSC schedule, as described above, and, for
purposes of calculating the CDSC and determining when any MFS Fund Shares issued
in the Reorganization will convert to Class A shares of the MFS Fund (but not
for calculating the holding period for tax purposes), the MFS Fund Shares will
be treated as if purchased forty-two months prior to the date the Reorganization
is consummated. Therefore, assuming that Advantage Fund shareholders approve the
Agreement (as defined under "Reorganization" below) and that the Reorganization
is consummated as scheduled on May 1, 1995, the MFS Fund Shares received by
Advantage Fund shareholders will be treated as if purchased on November 1, 1991.
Thus, the MFS Fund Shares issued in respect of Advantage Fund shares which are
subject to a CDSC on the date the Reorganization is consummated will be treated
as if held during the fourth year after purchase and will be subject to a CDSC
of 3%, which will decline to 2% on December 1, 1995,
6
<PAGE> 9
to 1% on December 1, 1996 and to 0% on December 1, 1997 and will remain at 0%
thereafter, and all MFS Fund Shares issued in the Reorganization will convert to
Class A shares of the MFS Fund on or about November 1, 1999.
The MFS Fund does not anticipate that, following the Reorganization, its
portfolio turnover rate (and the expenses related thereto) will be significantly
higher than its current portfolio turnover rate (and the expenses related
thereto). However, the portfolio turnover rate (and expense related thereto) of
the MFS Fund following the Reorganization is likely to be significantly higher
than that of the Advantage Fund. Therefore, transaction costs incurred by, and
realized gains and losses of, the MFS Fund may be higher than that of the
Advantage Fund.
<TABLE>
COMPARISON OF THE EXPENSES OF THE MFS FUND AND ADVANTAGE FUND
<CAPTION>
MFS FUND ADVANTAGE PRO FORMA CLASS B
CLASS B(1) FUND(1) OF MFS FUND(2)
---------- ----------------- ------------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum CDSC (as a percentage of original purchase
price or redemption proceeds, as applicable)....... 4.00% 4.00% 4.00%
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS):
Advisory Fees (after applicable waivers and
reimbursements).................................... 0.51%(3) 0.24%(4) 0.51%(3)
Rule 12b-1 Fees...................................... 1.00% 0.50% 1.00%
Other Expenses (after applicable waivers and
reimbursements).................................... 0.37% (0.22)%(4) 0.35%
---- ------ ----
Total Operating Expenses (after applicable waivers
and
reimbursements).................................... 1.88%(3) 0.52%(4) 1.86%(3)
<FN>
---------------
(1) For the year ended December 31, 1994.
(2) For the year ended December 31, 1994, assuming the Reorganization occurred
on December 31, 1993.
(3) MFS waived a portion of its advisory fees as described above under "Adviser
and Advisory Fees." Absent this waiver, "Advisory Fees" and "Total Operating
Expenses" would be 0.55% and 1.92%, respectively, for the MFS Fund Class B
shares, and 0.55% and 1.90%, respectively, for Pro Forma MFS Fund Class B
shares.
</TABLE>
(4) The Advantage Fund's fees and expenses were and are being voluntarily waived
or reimbursed by BSC, Advest and their affiliates to the extent necessary to
keep "Total Operating Expenses" no greater than 0.70% per annum through June
30, 1994 and no greater than 1.00% per annum from July 1, 1994 through April
30, 1995. If these voluntary expense limitations were not in effect,
"Advisory Fees," "Other Expenses" and "Total Operating Expenses" would be
0.45%, 0.45% and 1.40%, respectively, for the Advantage Fund.
PURCHASES AND EXCHANGES
Class B shares of the MFS Fund and shares of the Advantage Fund are available
through certain authorized dealers at the effective public offering price, which
is based on the effective net asset value per share. The MFS Fund, with respect
to Class B shares, and the Advantage Fund each receive 100% of the dollars
invested in each Fund without any deduction for sales charges. The minimum
initial investment per account for Class B shares of the MFS Fund and for shares
of the Advantage Fund is $1,000, and the minimum additional investment is $50
for Class B shares of the MFS Fund and $500 for shares of the Advantage Fund,
except in certain instances as described in each Fund's Prospectus. Class B
shareholders of the MFS Fund may exchange their shares for Class B shares of
certain other funds advised by MFS (currently, 49 funds advised by MFS are
available for exchange privileges with the MFS Fund) provided the exchange
involves shares with an aggregate net asset value of $1,000 or more or all of
the shares in the account. Shareholders of the Advantage Fund may exchange their
shares for shares of eight other Advantage Funds sponsored by Advest, including
the other two series of the Advantage Trust, subject to the minimum investment
requirements of the fund or series into which the exchange is being made.
Shareholders of the Advantage Fund may also redeem their Advantage Fund shares
and invest the proceeds in the AIA (see "Overview of Proposed Reorganization"
above), in which case any applicable CDSC will not be imposed but will be
carried over to the AIA. AIA depositors may withdraw money from the AIA and
invest in shares of a series of the Advantage Trust, or receive cash upon
withdrawal, in which case a CDSC may be imposed. The MFS Fund will not maintain
this relationship with the AIA or have exchange privileges with the funds
sponsored by Advest, and an AIA depositor who desires to withdraw money from the
AIA, or a shareholder of any such other fund sponsored by Advest who desires to
redeem shares of such fund, and invest the proceeds of such withdrawal or
redemption in Class B shares of the MFS Fund, will be treated like any other new
purchaser of shares and accordingly will be subject to the CDSC schedule set
forth in the MFS Fund Prospectus. Each exchange and redemption represents a sale
of shares, which may produce a gain or loss for tax purposes.
7
<PAGE> 10
DISTRIBUTION OPTIONS
The shareholders of both the MFS Fund and the Advantage Fund have available the
following distribution options: (i) dividends and capital gain distributions
reinvested in additional shares (this option will be assigned if no other option
is specified); and (ii) dividends and capital gain distributions paid in cash.
In addition, shareholders of the MFS Fund may elect to receive dividends in cash
and have capital gain distributions reinvested in additional shares.
Reinvestments (net of any tax withholding) of dividends and capital gain
distributions will be made in additional full and fractional shares at the net
asset value in effect at the close of business on the record date.
REDEMPTION PROCEDURES
Class B shares of the MFS Fund are redeemable at any time at a price equal to
the net asset value of the shares next determined after receipt by its transfer
agent, MFS Service Center, Inc. ("MFSC"), of a written or telephonic redemption
request in good order reduced by the amount of any applicable CDSC and the
amount of any income tax required to be withheld. Shares of the Advantage Fund
are redeemable at any time at a price equal to the net asset value of the shares
next determined after receipt by its transfer agent, ATS, of a written
redemption request in good order reduced by the amount of any applicable CDSC
and the amount of any income tax required to be withheld. Alternatively, Class B
shareholders of the MFS Fund and shareholders of the Advantage Fund may sell
their shares through securities dealers, who may charge a fee. No such fees will
be incurred in the proposed Reorganization.
REORGANIZATION
EFFECT OF THE REORGANIZATION
Pursuant to the terms of the Agreement and Plan of Reorganization (the
"Agreement") between the MFS Trust, on behalf of the MFS Fund, and the Advantage
Trust, on behalf of the Advantage Fund, the proposed Reorganization will consist
of (i) the transfer of all of the assets of the Advantage Fund to the MFS Fund
in exchange solely for Class B shares of the MFS Fund (the "MFS Fund Shares")
and the assumption by the MFS Fund of the stated liabilities of the Advantage
Fund, (ii) the distribution of the MFS Fund Shares to the shareholders of the
Advantage Fund in liquidation of the Advantage Fund as provided in the Agreement
and (iii) the termination of the Advantage Trust. These transactions are
referred to as the "Reorganization."
The Reorganization will become effective as soon as practicable after the
shareholder approval noted under "Conditions Precedent to Closing" is obtained
(see "Description of Agreement" below), but in no event later than June 30, 1995
(the "Closing Date"). The assets of the Advantage Fund will be valued on the
last business day immediately preceding the Closing Date (the "Valuation Date").
The Agreement provides that, except to the extent that, pursuant to an agreement
dated February 7, 1995, MFS and The Advest Group, Inc. have agreed to bear
certain expenses in connection with the Reorganization which would otherwise be
borne by the MFS Fund and the Advantage Fund (see "Description of the Agreement"
below), the MFS Fund and the Advantage Fund will each be liable for its own
expenses incurred in connection with the Reorganization.
TAX CONSIDERATIONS
The consummation of the Reorganization is subject to the receipt of an opinion
of legal counsel, satisfactory to the MFS Fund and the Advantage Fund,
substantially to the effect that for federal income tax purposes: (i) the
acquisition by the MFS Fund of all of the assets of the Advantage Fund solely in
exchange for the MFS Fund Shares and the assumption by the MFS Fund of the
stated liabilities of the Advantage Fund, followed by the distribution by the
Advantage Fund of the MFS Fund Shares in complete liquidation to the
shareholders of the Advantage Fund in exchange for their shares of beneficial
interest of the Advantage Fund and the termination of the Advantage Trust, will
constitute a reorganization within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code"), and the Advantage Fund and the
MFS Fund will each be "a party to a reorganization" within the meaning of
Section 368(b) of the Code; (ii) no gain or loss will be recognized by the
Advantage Fund upon the transfer of all of its assets to the MFS Fund solely in
exchange for the MFS Fund Shares and the assumption by the MFS Fund of the
stated liabilities of the Advantage Fund or upon the distribution to the
shareholders of the Advantage Fund of such MFS Fund Shares pursuant to the
Agreement; (iii) no gain or loss will be recognized by the MFS Fund upon the
receipt of the assets of the Advantage Fund solely in exchange for the MFS Fund
Shares and the assumption by the MFS Fund of the stated liabilities of the
Advantage Fund as set forth on a schedule of assets and
8
<PAGE> 11
liabilities delivered by the Advantage Trust to the MFS Trust on the Closing
Date; (iv) the basis of the assets of the Advantage Fund acquired by the MFS
Fund will be, in each instance, the same as the basis of those assets in the
hands of the Advantage Fund immediately prior to the transfer; (v) the holding
period of the assets of the Advantage Fund in the hands of the MFS Fund will
include, in each instance, the holding period of such assets in the hands of the
Advantage Fund; (vi) the shareholders of the Advantage Fund will not recognize
gain or loss upon the exchange of all of their shares of beneficial interest of
the Advantage Fund solely for the MFS Fund Shares as part of the transaction;
(vii) the basis of the MFS Fund Shares to be received by each Advantage Fund
shareholder will be, in the aggregate, the same as the basis, in the aggregate,
of the shares of beneficial interest of the Advantage Fund surrendered by such
shareholder in exchange therefor; and (viii) the holding period of the MFS Fund
Shares to be received by each Advantage Fund shareholder will include the
holding period of the shares of beneficial interest of the Advantage Fund
surrendered by such shareholder in exchange therefor, provided the shares of the
Advantage Fund were held by such shareholder as capital assets on the date of
the exchange.
VOTE REQUIRED FOR APPROVAL
The Reorganization was approved by the Trustees of the Advantage Trust on
February 23, 1995. Approval of the Reorganization by the Advantage Fund's
shareholders requires the affirmative vote of not less than two thirds of the
shares of the Advantage Fund outstanding and entitled to vote at the Meeting.
RECOMMENDATION OF THE BOARD OF TRUSTEES OF THE ADVANTAGE TRUST
THE TRUSTEES OF THE ADVANTAGE TRUST UNANIMOUSLY RECOMMEND THAT SHAREHOLDERS VOTE
IN FAVOR OF THE REORGANIZATION AS SET FORTH IN ITEM 1.
SPECIAL FACTORS
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
Investment Objectives and Policies. The Advantage Fund seeks to provide a high
level of current income exempt from federal, New York State and New York City
income taxes by investing in a diversified portfolio of Municipal Obligations.
The MFS Fund seeks to provide current income exempt from federal income taxes
and from the personal income taxes, if any, of the State of New York.
The investment policies of both the Advantage Fund and the MFS Fund are
described above under "Summary" and certain of these policies are described to a
greater extent below.
Municipal Obligations: Each Fund will invest primarily (i.e., at least 80% of
its net assets under normal circumstances) in "Municipal Obligations," which are
debt obligations issued by New York and its political subdivisions,
municipalities, agencies, public authorities and instrumentalities, as well as
other qualifying issuers, to obtain funds for various public and private
purposes. Each Fund may also invest in Municipal Obligations the interest on
which is exempt from federal income taxes but would be subject to the personal
income taxes, if any, of the State of New York during periods when market
conditions limit the availability of New York Municipal Obligations. Municipal
Obligations include industrial revenue bonds issued by state and local agencies
to finance various public projects, as well as revenue bonds issued for housing,
health care facilities or electric utilities. Each Fund may also invest in
municipal lease obligations, which are undivided interests in a portion of a
Municipal Obligation in the form of a lease or installment purchase which are
issued by state and local governments to acquire equipment and facilities. The
Advantage Fund may invest in substantial amounts of long-term (maturities of 10
years or greater) Municipal Obligations, which are more susceptible to
fluctuations in their market price. See Appendix B in the MFS Fund Prospectus
for more information including the risks associated therewith.
Lower Rated Securities: Each Fund may invest to a limited extent in lower rated
Municipal Obligations or securities which are unrated but considered by the
Fund's Adviser to be of comparable quality. While these securities offer the
current income sought by the Funds, they entail greater risk of principal and
income and greater price volatility than investments in higher rated securities.
Such high yielding, lower rated securities also tend to reflect economic
changes, short-term corporate and industry developments and the market's
perception of their credit quality to a greater extent than higher rated
securities. The market for these obligations may also be less liquid than for
9
<PAGE> 12
investment grade securities because there are fewer investors in lower quality
securities. The Advantage Fund may invest up to 10% of its assets in securities
rated Ba or B by Moody's or BB or B by S&P and comparable unrated securities,
while the MFS Fund may invest up to 33 1/3% of its assets in securities rated
Baa or lower by Moody's or BBB or lower by S&P and comparable unrated
securities. Securities rated below Baa by Moody's or BBB by S&P and comparable
unrated securities are commonly known as "junk bonds." Because the MFS Fund may
invest a higher percentage of its assets in lower rated securities than the
Advantage Fund, an investment in the MFS Fund entails greater risk and may be
subject to greater volatility than an investment in the Advantage Fund. However,
investing a higher percentage of assets in lower rated securities generally
offers an opportunity to earn higher levels of income. See "Investment Objective
and Policies" in the MFS Fund Prospectus for more information including the
risks associated therewith. The tables below show the percentages of the MFS
Fund's and the Advantage Fund's assets at December 31, 1994 invested in
Municipal Obligations assigned to the various rating categories by rating
organizations used by the respective Adviser and in unrated securities
determined by the respective Adviser to be of comparable quality:
<TABLE>
MFS FUND
<CAPTION>
UNRATED SECURITIES
RATING RATED SECURITIES OF COMPARABLE QUALITY TOTAL
<S> <C> <C> <C>
AAA/Aaa 28.9% -- 28.9%
AA/Aa 20.7 -- 20.7
A/A 18.2 1.5% 19.7
BBB/Baa 24.3 3.6 27.9
BB/Ba -- 0.6 0.6
B/B -- 2.2 2.2
CCC/Caa -- -- --
CC/Ca -- -- --
C/C -- -- --
Default -- -- --
Total 92.1% 7.9% 100.0%
</TABLE>
<TABLE>
ADVANTAGE FUND
<CAPTION>
UNRATED SECURITIES
RATING RATED SECURITIES OF COMPARABLE QUALITY TOTAL
<S> <C> <C> <C>
AAA/Aaa 17.19% -- 17.19%
AA/Aa 5.85 -- 5.85
A/A 34.41 -- 34.41
BBB/Baa 37.96 4.59% 42.55
BB/Ba -- -- --
B/B -- -- --
CCC/Caa -- -- --
CC/Ca -- -- --
C/C -- -- --
Default -- -- --
Total 95.41% 4.59% 100.0%
</TABLE>
These charts do not necessarily indicate what the composition of either Fund's
portfolio will be in subsequent years. Rather, each Fund's investment objective,
policies and restrictions indicate the extent to which the Fund may purchase
securities in the various categories.
Illiquid Securities: Each Fund may invest up to 15% of its net assets in
illiquid securities. Such securities may include Municipal Obligations issued in
private placements, repurchase agreements maturing in more than seven days,
over-the-counter options and other securities subject to legal or contractual
restrictions on resale. Each Fund may also purchase securities that are not
registered under the Securities Act of 1933, including those that can be offered
and sold to "qualified buyers" under Rule 144A under the Act. The MFS Trust's
Board of Trustees determines, based upon a continuing review of the trading
markets for a specific Rule 144A security, whether the security is illiquid and
thus subject to the MFS Fund's limitation on investing not more than 15% of its
net assets in illiquid securities, or liquid and not subject to this limitation.
While the Advantage Fund may invest up to 15% of its net assets in illiquid
securities, it may only invest up to 10% of its total assets in restricted
securities not subject to
10
<PAGE> 13
Rule 144A. The Funds may not be able to sell these securities when the
applicable Adviser wishes to do so, or might have to sell them at less than fair
value. Additionally, market quotations are less readily available. Therefore,
the judgment of the Adviser may at times play a greater role in valuing these
securities than in the case of liquid securities. See "Investment Objective and
Policies" in the MFS Fund Prospectus for more information including the risks
associated therewith.
Short-Term Investments for Defensive Purposes: During periods of unusual market
conditions when its Adviser believes that investing for defensive purposes is
appropriate, each Fund may make temporary investments in cash or cash
equivalents. Cash equivalents include obligations of banks having 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. The MFS Fund may not invest
more than 50% of its total assets in cash and cash equivalents. See Appendix B
to the MFS Fund Prospectus for a description of U.S. Government obligations and
certain short-term investments.
Repurchase Agreements: Each Fund may invest in repurchase agreements either for
temporary defensive purposes due to adverse market conditions or to generate
income from cash balances. Under a repurchase agreement, a Fund acquires
securities subject to the seller's agreement to repurchase the securities at a
specified time and price. Repurchase agreements maturing more than seven days in
the future are considered illiquid and are, therefore, subject to the Funds'
restrictions on investing in illiquid securities. The MFS Fund may not invest
more than 10% of its total assets in repurchase agreements maturing more than
seven days in the future. The MFS Fund may only enter into repurchase agreements
with member banks of the Federal Reserve System and broker-dealers and only with
respect to U.S. Government securities. See "Investment Objective, Policies and
Restrictions" in the MFS Fund SAI for more information including risks
associated therewith.
When-Issued Securities: Each Fund may purchase securities on a "when-issued" or
on a "forward delivery" basis, which means that the obligations will be
delivered at a future date usually beyond customary settlement time. When-issued
securities involve a risk of loss if the value of the security to be purchased
declines prior to the settlement date. See "Investment Objective and Policies"
in the MFS Fund Prospectus and "Investment Objective, Policies and Restrictions"
in the MFS Fund SAI for more information including risks associated therewith.
Zero Coupon Bonds and Deferred Interest Bonds: Each Fund may invest in zero
coupon bonds, which are debt obligations that do not pay periodic interest and
are issued or purchased at a significant discount from face value. The MFS Fund
may also invest in deferred interest bonds, which provide for a period of delay
before the regular payment of interest begins, and are also issued at a
significant discount from face value. The discount approximates the total amount
of interest the bond 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. The prices of these securities are
affected to a greater extent by interest rate fluctuations and tend to be more
volatile than securities that pay interest periodically and in cash. Each Fund
accrues income on such investments for tax and accounting purposes, which is
distributable to shareholders and which, because no cash is received at the time
of accrual, may require the liquidation of other portfolio securities to satisfy
the Fund's distribution obligations. See "Characteristics of Municipal
Obligations" in the MFS Fund Prospectus for more information including the risks
associated therewith.
Options on Securities: Each Fund may write (sell) covered call and put options
on fixed income securities in order to increase its return on such securities
and/or protect the value of its portfolio. If a Fund writes an option which
expires unexercised or is closed out by the Fund at a profit, it will retain the
premium paid for the option which will offset, in part, the reduced value of a
portfolio security in connection with which the option may have been written or
the increased cost of portfolio securities to be acquired. If the price of the
underlying security moves adversely to the Fund's position, however, the option
may be exercised and the Fund will be required to purchase or sell the
underlying security at a disadvantageous price, which may only be partially
offset by the amount of the premium.
The MFS Fund may also write combinations of put and call options on the same
security, known as "straddles." These transactions can generate additional
premium income but also present increased risk. The MFS Fund may also purchase
detachable call options on Municipal Obligations, which are options issued by an
issuer of the underlying Municipal Obligations giving the purchaser the right to
purchase the Obligations at a fixed price, at a stated time in the future, or in
some cases, on a future date.
11
<PAGE> 14
Each Fund may 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 Fund wants to purchase at a later date. In the event that
the expected market fluctuations occur, each Fund may be able to offset the
resulting adverse effect on its portfolio, in whole or in part, through the
options purchased. The risk assumed by the Funds in connection with such
transactions is limited to the amount of the premium and related transaction
costs associated with the option, although the Funds may be required to forfeit
such amounts in the event that the prices of securities underlying the options
do not move in the direction or to the extent anticipated. Each Fund is
restricted from purchasing put and call options on securities, indices and
Futures Contracts (see "Options on Futures Contracts" below) if, as a result,
more than 5% of its total assets would be invested in such options. In addition,
each Fund may write and purchase uncovered options on securities only for
hedging purposes. See "Investment Objective, Policies and Restrictions" in the
MFS Fund SAI for more information including risks associated therewith.
Futures Contracts: Each Fund may enter into interest rate futures contracts on
fixed income securities and indexes of such securities for hedging purposes
(collectively "Futures Contracts"). These transactions will be used to protect
the Fund's current or intended investments from the effects of interest rate
fluctuations. In the event that an anticipated decrease in the value of
portfolio securities occurs as a result of a general increase in interest rates,
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, caused by a general decline in interest rates, may be
offset, in whole or in part, by gains on Futures Contracts purchased by each
Fund.
The MFS Fund may also enter into futures contracts for non-hedging purposes, to
the extent permitted by applicable law, in order to increase portfolio returns.
Non-hedging transactions in such investments involve greater risks and may
result in losses which may not be offset by increases in the value of portfolio
securities.
The Funds will incur brokerage fees when they purchase and sell Futures
Contracts, and will be required to maintain margin deposits. Although each
Adviser believes that use of such contracts will benefit the Funds, if its
investment judgment about the general direction of interest rates is incorrect,
the Funds' overall performance may be worse than if they had not entered into
the contract and result in a loss. Accordingly, it is the policy of the
Advantage Fund not to enter into Futures Contracts and Options on Futures
Contracts (see below), if, immediately thereafter, more than 5% of the Advantage
Fund's net assets will be committed to initial margin deposits and premiums paid
on open Options or if more than 30% of its total assets would be set aside as an
offset to the Futures Contract and Options on Futures Contracts. The MFS Fund
will not enter into Futures Contracts if, immediately thereafter, the value of
securities and other obligations underlying all such Futures Contracts would
exceed 50% of the value of the MFS Fund's total assets. In addition, the MFS
Fund will not enter into Futures Contracts or Options on Futures Contracts (see
below) for non-hedging purposes if the initial margins and premiums on such
non-hedging positions are greater than 5% of its total assets. See "Investment
Objective, Policies and Restrictions" in the MFS Fund SAI for more information
including risks associated therewith.
Options on Futures Contracts: Each Fund may purchase and write options on
Futures Contracts ("Options on Futures Contracts"). These instruments are used
to protect against anticipated changes in interest rates which otherwise might
adversely affect either the value of the Fund's portfolio securities or the
price of securities to be acquired. The MFS Fund may also invest in Options on
Futures Contracts for non-hedging purposes, to the extent permitted by
applicable law. Purchases of Options on Futures Contracts may present less risk
in hedging the Fund's portfolio than the purchase or sale of the underlying
Futures Contracts since the potential loss is limited to the amount of the
premium plus related transaction costs, although it may be necessary to exercise
the option to realize any profit, which results in the establishment of a
futures position. The writing of Options on Futures Contracts, however, does not
present less risk than the trading of Futures Contracts and will constitute only
a partial hedge, up to the amount of the premium received. If an option is
exercised, the Fund may suffer a loss on the transaction. Accordingly, it is the
policy of the Advantage Fund not to enter into Futures Contracts and Options on
Futures Contracts if, immediately thereafter, more than 5% of the Advantage
Fund's net assets will be committed to initial margin deposits and premiums paid
on open Options or if more than 30% of its total assets would be set aside as an
offset to the Futures Contracts and Options on Futures Contracts. In addition,
the MFS Fund will not enter into Futures Contracts or Options on Futures
Contracts (see below) for non-hedging purposes if the initial margins and
premiums on such non-hedging positions are greater than 5% of its total assets.
Moreover, the MFS Fund will not purchase Options on Futures Contracts if, as a
result, more than 5% of the total assets of the MFS Fund would be
12
<PAGE> 15
invested in such Options. See "Investment Objective, Policies and Restrictions"
in the MFS Fund SAI for more information including risks associated therewith.
Variable and Floating Rate Obligations: Each Fund may invest in floating or
variable rate instruments, which may provide for interest rate adjustments at
specified intervals. Variable rate obligations have an interest rate which is
adjusted at pre-designated periods and interest on floating rate obligations is
adjusted whenever there is a change in the market rate of interest on which the
payable interest rate is based. See "Investment Objective, Policies and
Restrictions" in the MFS Fund SAI for more information concerning these
obligations.
Inverse Floating Rate Obligations: The MFS Fund may invest in "inverse floating
rate obligations," "residual interest" bonds, or other obligations or
certificates structured to have similar features. Such obligations generally
have floating or variable interest rates that move in the opposite direction of
short-term interest rates and generally increase or decrease in value in
response to changes in short-term interest rates at a rate which is a multiple
(typically two) of the rate at which fixed-rate long-term tax-exempt securities
increase or decrease in response to such changes. As a result, such obligations
have the effect of providing investment leverage and may be more volatile than
long-term fixed rate tax-exempt obligations. See "Investment Objective, Policies
and Restrictions" in the MFS Fund SAI for more information concerning these
obligations.
Participation Interests. The MFS Fund may purchase from banks participation
interests in all or part of specific holdings of Municipal Obligations. Each
participation interest is backed by an irrevocable letter of credit or guarantee
of the selling bank. Participation interests will only be purchased if, in the
opinion of counsel, interest income on such interests will be tax-exempt when
distributed as dividends to shareholders of the Fund.
Money Market Investment Companies: The Advantage Fund may from time-to-time
invest up to 5% of its assets in money market investment companies sponsored by
a third party for short-term liquidity purposes. See "Investment Techniques" in
the Advantage Fund Prospectus and "Investment Restrictions" in the Advantage
Fund SAI for more information concerning these securities.
Lending of Portfolio Securities: The Advantage Fund may make loans of its
portfolio securities to the extent such loans do not, in the aggregate, exceed
33 1/3% of the Fund's total assets. Such loans will usually be made only to
member banks of the Federal Reserve System and member firms and subsidiaries of
the New York Stock Exchange or borrowers considered by its Adviser to be
creditworthy. Loans of portfolio securities must be secured continuously by
collateral at an amount at least equal to the market value of the securities
loaned. Income from securities loaned will be taxable when distributed to
Advantage Fund shareholders. See "Other Investment Policies and Techniques" in
the Advantage Fund Prospectus for more information including risks associated
therewith.
------------------------
The investment objectives and policies of the Advantage Fund and the MFS Fund
described above may be changed without shareholder approval.
Fundamental Investment Restrictions. The investment restrictions summarized
below are fundamental and may not be changed without the approval of the holders
of a majority of outstanding shares (as defined in the 1940 Act) of the
Advantage Fund or the MFS Fund, as applicable.
Neither Fund may borrow money except as a temporary measure for extraordinary or
emergency purposes. Each Fund must maintain asset coverage of at least 300% for
all such borrowings. The MFS Fund may not pledge, mortgage or hypothecate more
than 33 1/3% of its assets to secure permitted borrowings (for the purpose of
this restriction, collateral arrangements with respect to Options, Futures
Contracts and Options on Futures Contracts and payment of initial and variation
margin in connection therewith are not considered a pledge of assets).
Neither Fund may underwrite securities issued by other persons except insofar as
the Fund may technically be deemed an underwriter under the Securities Act of
1933 in selling a portfolio security.
Neither Fund may make any investment in real estate, commodities or commodity
contracts, except each Fund may (a) purchase or sell readily marketable
securities which are secured by interests in real estate or issued by companies
which deal in real estate, including, with respect to the Advantage Fund, real
estate investment trusts and mortgage investment trusts; and (b) engage in
certain options, Futures Contracts, and Options on Futures Contracts in the
ordinary course of business. It is also the fundamental policy of the MFS Fund
not to purchase interests in oil,
13
<PAGE> 16
gas or mineral leases. The MFS Fund reserves the freedom of action to hold and
to sell real estate acquired as a result of the ownership of securities.
Neither Fund may make loans to other persons except that each Fund may (a)
purchase obligations in which the Fund is authorized to invest and (b) invest in
repurchase agreements. The Advantage Fund may lend its portfolio securities in
amounts up to one-third of the market or other fair value of its total assets.
Not more than 10% of the MFS Fund's total assets (taken at market value) may be
subject to repurchase agreements maturing in more than seven days.
Neither Fund may purchase the securities of any issuer if, as a result, more
than 10% of the outstanding voting securities of the issuer would be held by the
Fund. Up to 25% of the Advantage Fund's total assets may be invested without
regard to this limitation.
Neither Fund may issue any senior security as that term is defined in the 1940
Act, except with respect to permitted borrowings. Collateral arrangements with
respect to options, Futures Contracts and Options on Futures Contracts and
collateral arrangements with respect to initial and variation margins are not
deemed to be the issuance of a senior security.
The Advantage Fund may not:
(i) Concentrate its investments in any particular industry, provided,
however, that there is no limitation with respect to investments or
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities; and
(ii) Purchase the securities of any one issuer (except U.S. Government
securities) if, as a result, more than 5% the Fund's total assets would be
invested in that issuer. Up to 25% of the Fund's total assets may be
invested without regard to this limitation.
The MFS Fund may not:
(i) Purchase any securities or evidences of interest therein on
margin, except that the Fund may obtain such short-term credit as may be
necessary for the clearance or purchases and sales of securities and the
Fund may make margin deposits in connection with Futures Contracts, Options
on Futures Contracts, and options; and
(ii) Purchase or sell any put or call option or any combination
thereof, provided that this shall not prevent the purchase, ownership,
holding or sale of Futures Contracts or the writing, purchasing and selling
of puts, calls or combinations thereof with respect to securities or
Futures Contracts.
Non-fundamental Investment Policies. As described below, each Fund has certain
operating policies which are not fundamental and may be changed without
shareholder approval.
The Advantage Fund may not borrow money in excess of 5% of its total
assets taken at market value. The MFS Fund may not borrow money in excess
of 10% of its assets taken at cost. The MFS Fund may not purchase any
securities at any time or at which borrowings exceed 5% of the MFS Fund's
total assets taken at market value.
Neither Fund may invest more than 15% of its net assets in illiquid
securities, including repurchase agreements maturing in more than seven
days, that cannot be disposed of within the normal course of business at
approximately the amount at which the Fund has valued the securities.
Securities that are not registered under the 1933 Act and that are sold in
reliance on Rule 144A thereunder, but are determined to be liquid by the
MFS Trust's Board of Trustees (or its delegee), will not be subject to this
15% limitation with respect to the MFS Fund.
The Advantage Fund may not purchase securities of any issuer with a
record of less than three years of continuous operation, including
predecessors, except U.S. Government securities and obligations issued or
guaranteed by any foreign government or its agencies or instrumentalities,
if such purchase would cause the investments of the Advantage Fund in all
such issuers to exceed 5% of the total assets of the Advantage Fund taken
at market value. The MFS Fund may not invest more than 5% of its total
assets in unsecured obligations
14
<PAGE> 17
of issuers which, including predecessors, controlling persons, general
partners and guarantors, have a record of less than three years' continuous
business operation or relevant business experience.
Neither Fund may invest in securities of any issuer if any officer or
trustee of the Advantage Trust or the MFS Trust or any officer or director
of the Fund's respective Adviser owns more than 1/2 of 1% of the
outstanding securities of the issuer and such officers, directors and
trustees own in the aggregate more than 5% of the securities of such
issuer.
Neither Fund may purchase securities of any investment company except
by purchase in the open market where no commission or profit to a sponsor
or dealer results from such purchase or except when such purchase, though
not made in the open market, is part of a plan of merger, consolidation,
reorganization or acquisition of assets. Neither Fund may purchase more
than 3% of the outstanding voting securities of another investment company,
and the Advantage Fund may not invest more than 5% of its total assets in
any single investment company. Neither Fund may invest more than 10% of its
total assets in other investment companies in the aggregate. The MFS Fund
may not purchase securities issued by any open-end investment company.
Neither Fund may make short sales, unless, by virtue of its ownership
of other securities, the Fund has the right to obtain securities equivalent
in kind and amount to the securities sold and, if the right is conditional,
the sale is made upon the same conditions, except, with respect to the
Advantage Fund, in connection with arbitrage transactions.
The Advantage Fund may not:
(i) Pledge, mortgage or hypothecate in excess of 5% of its total
assets. The deposit or payment by the Fund of initial or maintenance margin
in connection with Futures Contracts and Options on Futures Contracts is
not considered a pledge or hypothecation of assets;
(ii) Purchase more than 10% of the voting securities of any one
issuer, except U.S. Government securities;
(iii) Purchase securities on margin, except the Fund may obtain such
short-term credits as may be necessary for the clearing of purchases and
sales of securities. The deposit or payment by the Fund of initial or
maintenance margin in connection with Futures Contracts or Options on
Futures Contracts is not considered the purchase of a security on margin;
(iv) Write put and call options unless the options are covered and the
Fund invests though premium payments no more than 5% of its total assets in
options transactions other than Options on Futures Contracts;
(v) Purchase and sell Futures Contracts and Options on Futures
Contracts unless the sum of margin deposits on all Futures Contracts held
by the Fund (other than bona fide hedging positions) and premiums paid on
related options held by the Fund does not exceed 5% of the Fund's assets.
(In the case of an option that is in-the-money at the time of purchase, the
in-the-money amount may be excluded in computing this 5% test.);
(vi) Invest in interests in oil, gas or other mineral exploration or
development programs (although it may invest in issuers which own or invest
in such interests);
(vii) Purchase warrants if as a result warrants taken at the lower of
cost or market value would represent more than 5% of the value of the
Fund's net assets or if warrants that are not listed on the New York or
American Stock Exchanges or on an exchange with comparable listing
requirements taken at the lower of cost or market value would represent
more than 2% of the value of the Fund's net assets. (For this purpose,
warrants attached to securities will be deemed to have no value.);
(viii) Purchase securities which are not publicly traded and which the
Fund is restricted from selling to the public without registration under
the Securities Act of 1933 if by reason thereof the value of its aggregate
investment in such classes will exceed 10% of its total assets (not
including for these purposes securities sold pursuant to Rule 144A under
the Securities Act of 1933), or
(ix) Invest in interests of real estate limited partnerships.
15
<PAGE> 18
The MFS Fund may not:
(i) Invest for the purpose of exercising control or management;
(ii) Purchase securities (other than bonds, notes, and obligations
issued by the United States or any agency or instrumentality of the United
States, which may be purchased without limitation) if as a result, at the
close of any quarter in the Fund's taxable year, more than 25% of the
Fund's total assets would be invested in securities of any one issuer; or
(iii) Enter into repurchase agreements unless they are with member
banks of the Federal Reserve System and broker-dealers and then only for
U.S. Government securities.
RISK FACTORS
Due to the similarities in the investment objectives and techniques of the
Advantage Fund and the MFS Fund, the risks involved in investing in the Funds,
as referred to in the subsection entitled "Investment Objectives, Policies and
Restrictions" of this "Special Factors" section, can be considered similar. It
should be noted, however, that the Advantage Fund may invest in money market
investment companies and make loans of its portfolio securities, while the MFS
Fund may invest in combinations of options known as "straddles," Futures
Contracts for non-hedging purposes, inverse floating rate obligations,
participation interests and deferred interest bonds. THE MFS FUND MAY ALSO
INVEST A LARGER PERCENTAGE OF ITS ASSETS (33 1/3% OF ITS ASSETS) IN LOWER
QUALITY SECURITIES (INCLUDING JUNK BONDS) THAN THE ADVANTAGE FUND (10% OF ITS
ASSETS), AND THUS AN INVESTMENT IN THE MFS FUND ENTAILS GREATER RISK AND MAY BE
SUBJECT TO GREATER VOLATILITY THAN AN INVESTMENT IN THE ADVANTAGE FUND.
Additionally, the MFS Fund is a non-diversified series of the MFS Trust, which
means that more than 5% of the assets of the Fund may be invested in the
obligations of each of one or more issuers, subject to the diversification
requirements of the Code. Since a relatively high percentage of the assets of
the MFS Fund may be invested in the obligations of a limited number of issuers,
the value of shares of the MFS Fund may be more susceptible to any single
economic, political or regulatory occurrence than the shares of the Advantage
Fund, which is a diversified series of the Advantage Trust.
PROPOSAL TO APPROVE AGREEMENT AND PLAN OF REORGANIZATION
GENERAL
The shareholders of the Advantage Fund are being asked to approve the Agreement
between the MFS Trust, on behalf of the MFS Fund, and the Advantage Trust, on
behalf of the Advantage Fund. A copy of the Agreement is attached as Exhibit A.
Detailed information with respect to the MFS Fund is set forth in the MFS Fund
Prospectus, which is enclosed with this Proxy Statement and Prospectus. The
Reorganization will consist of (i) the transfer of all of the assets of the
Advantage Fund to the MFS Fund in exchange solely for the MFS Fund Shares and
the assumption by the MFS Fund of the stated liabilities of the Advantage Fund
as set forth on a schedule of assets and liabilities delivered by the Advantage
Trust to the MFS Trust on the Closing Date, (ii) the distribution of the MFS
Fund Shares to the shareholders of the Advantage Fund in liquidation of the
Advantage Fund, as provided in the Agreement, and (iii) the termination of the
Advantage Trust. The number of MFS Fund Shares to be issued upon the
consummation of the Reorganization will be calculated on the basis of the net
asset value of the Advantage Fund, less liabilities assumed, and the net asset
value of the Class B shares of the MFS Fund, as more fully described under
"Description of Agreement."
The Agreement and the transactions provided for therein were approved by the
Board of Trustees of the Advantage Trust and of the MFS Trust, the MFS Trust or
their Advisers, on February 23, 1995 and February 2, 1995, respectively. In the
event that the Reorganization is not consummated, the Advantage Fund will
continue to engage in business as a series of an open-end, registered investment
company.
REASONS FOR THE PROPOSED REORGANIZATION
The Board of Trustees of the Advantage Trust believes that the proposed
Reorganization will be to the advantage of the shareholders of the Advantage
Fund.
16
<PAGE> 19
In determining to approve the Reorganization, the Trustees considered a variety
of factors, including the following:
First, Advest has informed the Trustees that it is in the process of withdrawing
generally from the business of sponsoring and advising mutual funds. Advest has
announced that sponsorship of the other mutual funds in the Advantage Family of
Funds will be assumed by another organization, subject to approval by the
shareholders of those funds and satisfaction of certain other conditions. Upon
consummation of that transaction, the Advantage Trust would be the only
remaining mutual fund sponsored by Advest.
Second, the Advantage Fund and the other portfolios of the Advantage Trust have
relatively low levels of net assets. At these low asset levels, the Portfolios
would be unable to earn a competitive investment return in the absence of
voluntary fee waivers and expense assumptions by BSC and Advest. BSC and Advest
have no obligation to continue subsidizing the operations of the Advantage
Trust, and have indicated that they would not expect to continue such
subsidization indefinitely.
Third, the Trustees considered the advantages and disadvantages of the
Reorganization to the shareholders of the Advantage Fund. These considerations
included the following, among others:
(1) Following the Reorganization, shareholders would, as shareholders of the MFS
Fund, be shareholders of a fund with a larger asset base. This larger asset
base may permit enhanced portfolio management flexibility and greater
portfolio diversification. The Trustees also considered, however, that there
can be no assurance that a greater asset base will in fact result in
enhanced investment performance. The Trustees also considered that the MFS
Fund has an advisory fee rate and total expense ratio significantly higher
than the Advantage Fund's.
(2) As shareholders of the MFS Fund, shareholders will enjoy exchange privileges
into a much larger range of funds (49 other MFS Funds, as compared to 8
other Advantage Funds).
(3) Although Class B shares of the MFS Fund are subject to significantly higher
Rule 12b-1 fees than are shares of the Advantage Fund, this extra cost may,
for long-term shareholders, be offset by the benefits of conversion from
Class B to Class A shares of the MFS Fund. For shares of the Advantage Fund
outstanding at the time of the Reorganization, such conversion is scheduled
to occur on or about November 1, 1999. Class A shares of the MFS Fund are
subject to Rule 12b-1 fees at the annual rate of 0.35% of net assets, as
compared to the 0.50% rate for the Advantage Fund and the 1.00% rate for
Class B shares of the MFS Fund.
DESCRIPTION OF AGREEMENT
The following explanation of the Agreement is a summary, does not purport to be
complete, and is subject in all respects to the provisions of, and is qualified
in its entirety by reference to, the Agreement. A copy of the Agreement is
attached hereto as Exhibit A to this Proxy Statement and Prospectus and should
be read in its entirety. Paragraph references are to the numbered paragraphs of
the Agreement.
METHOD OF CARRYING OUT REORGANIZATION. If shareholders of the Advantage Fund
holding at least a majority (as described in the section entitled "Voting Rights
and Required Vote" below) of the outstanding shares of the Advantage Fund
approve the Agreement, the Reorganization will be consummated promptly after all
the various conditions to the obligations of each of the parties are satisfied
(see Agreement paragraphs 4 through 8). The Reorganization will be effected as
soon as practicable after this shareholder approval is obtained, but in no event
later than June 30, 1995 (the "Closing Date").
On the Closing Date, the Advantage Fund will transfer all of its assets to the
MFS Fund in exchange for (i) MFS Fund Shares having an aggregate net asset value
equal to the value of the assets, less the stated liabilities of the Advantage
Fund as set forth on a schedule of assets and liabilities delivered by the
Advantage Trust to the MFS Trust on the Closing Date, determined as of the close
of business on the last business day preceding the Closing Date (the "Valuation
Date") and (ii) the assumption by the MFS Fund of all of the Advantage Fund's
stated liabilities as set forth on such schedule (see Agreement paragraphs 1 and
2). The Advantage Fund will distribute as of the Closing Date such MFS Fund
Shares pro rata to its shareholders of record, determined as of the Valuation
Date, in exchange for their shares of the Advantage Fund.
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<PAGE> 20
The net asset value of the MFS Fund Shares and the value of the Advantage Fund's
assets and the amount of its liabilities will be determined in accordance with
the valuation procedures set forth in the Declarations of Trust and By-laws of
the MFS Trust and the Advantage Trust and each Fund's current Prospectus and
Statement of Additional Information (see "Net Asset Value" in the MFS Fund
Prospectus and "Purchase of Shares" in the Advantage Fund Prospectus). No
initial sales charge will be imposed on the MFS Fund Shares delivered in
exchange for the assets of the Advantage Fund.
SURVIVAL OF CONTINGENT DEFERRED SALES CHARGE AND CONVERSION TO CLASS A
SHARES. The MFS Fund Shares issued in connection with the Reorganization will
not be subject to any initial sales charge; however, if any Advantage Fund
shares are at the Closing Date subject to a CDSC, the MFS Fund Shares issued in
respect of such Advantage Fund Shares may be subject, upon redemption, to a CDSC
imposed by the MFS Fund in accordance with the MFS Fund CDSC schedule, and, for
purposes of calculating the CDSC with respect to such MFS Fund Shares and
determining when all MFS Fund Shares will convert to Class A shares of the MFS
Fund (but not for calculating the holding period for tax purposes), the MFS Fund
Shares will be treated as if purchased 42 months prior to the date the
Reorganization is consummated. Therefore, assuming that Advantage Fund
shareholders approve the Agreement and that the Reorganization is consummated on
May 1, 1995, the MFS Fund Shares received by Advantage Fund shareholders will be
treated as if purchased on November 1, 1991, and therefore, with respect to
those MFS Fund Shares issued in respect of Advantage Fund Shares which are
subject to a CDSC on the Closing Date, will be treated as if held during the
fourth year after purchase and will be subject to a CDSC of 3%, which will
decline to 2% on December 1, 1995, to 1% on December 1, 1996 and to 0% on
December 1, 1997 and will remain at 0% thereafter, and, with respect to all such
MFS Fund Shares will convert to Class A shares of the MFS Fund on or about
November 1, 1999.
SURRENDER OF SHARE CERTIFICATES. Shareholders of the Advantage Fund whose
shares of beneficial interest are represented by one or more share certificates
should, prior to the Closing Date, either surrender such certificates to the
Advantage Fund or deliver to the Advantage Fund an affidavit with respect to
lost certificates, in such form and accompanied by such surety bonds as the
Advantage Fund may require (collectively, an "Affidavit"). On the Closing Date,
all certificates which have not been so surrendered will be deemed to be
cancelled, will no longer evidence ownership of shares of the Advantage Fund and
will not evidence ownership of the MFS Fund Shares. Shareholders of the
Advantage Fund who have not surrendered their certificates or delivered an
Affidavit may not redeem or transfer the MFS Fund Shares received in the
Reorganization until such certificates are surrendered or an Affidavit is
received by MFSC, the MFS Fund's shareholder servicing agent. Such shareholders
will, however, receive distributions payable by the MFS Fund. The MFS Fund will
not issue share certificates except in connection with pledges and assignments
and in certain other limited circumstances.
CONDITIONS PRECEDENT TO CLOSING. The obligation of the Advantage Fund to
transfer its assets to the MFS Fund pursuant to the Agreement is subject, at its
election, to the satisfaction of certain conditions precedent, including
performance by the MFS Fund of all acts and undertakings required to be
performed under the Agreement, the receipt of certain documents from the MFS
Fund, the receipt of an opinion of Stephen E. Cavan, Senior Vice President and
General Counsel of MFS, and the receipt of all consents, orders and permits
necessary to consummate the Reorganization (see Agreement paragraphs 4 through
8).
The MFS Fund's obligation to consummate the Reorganization is subject, at its
election, to the satisfaction of certain conditions precedent, including the
performance by the Advantage Fund of all acts and undertakings to be performed
under the Agreement, the receipt of certain documents and financial statements
from the Advantage Fund, the receipt of an opinion of counsel to the Advantage
Fund and the receipt of all consents, orders and permits necessary to consummate
the Reorganization (see Agreement paragraphs 4 through 8).
The obligations of both Funds are subject to the receipt of approval and
authorization of the Agreement by the vote of not less than two-thirds of the
shares of the Advantage Fund outstanding and entitled to vote (as defined in the
section entitled "Voting Rights and Required Vote" below) (see Agreement
paragraph 8.1) and the receipt of a favorable opinion of legal counsel as to the
federal income tax consequences of the transaction (see Agreement paragraph
8.6). In addition, the obligations of both Funds are subject to the receipt of
approval and authorization of separate agreements and plans of reorganization
(the "Related Agreements") by the vote of not less than two-thirds of the
outstanding shares of The National Portfolio and The Pennsylvania Portfolio
(each of which is a
18
<PAGE> 21
separate series of the Advantage Trust), respectively, which, subject to such
approvals and the satisfaction of certain other conditions, will transfer all of
their respective assets to the MFS Municipal Income Fund and the MFS
Pennsylvania Municipal Bond Fund (each of which is a separate series of the MFS
Trust), respectively, in separate transactions, which are substantially similar
to the Reorganization, scheduled to occur contemporaneously with the
Reorganization (the "Related Reorganizations").
EXPENSES OF THE REORGANIZATION. Except to the extent that, pursuant to an
agreement dated February 7, 1995, (i) The Advest Group, Inc. has agreed to pay
all of the following expenses associated with the Reorganization: (a)
typesetting the MFS Fund registration statement on Form N-14 filed with the
Securities and Exchange Commission, of which this Proxy Statement and Prospectus
is a part; (b) printing this Proxy Statement and Prospectus and the Advantage
Fund Prospectus and SAI; (c) mailing this Proxy Statement and Prospectus, the
MFS Fund Prospectus, the MFS Fund Semi-Annual Report and, if requested, the MFS
Fund SAI and the Advantage Fund Prospectus and SAI to shareholders of the
Advantage Fund in connection with the Meeting; and (d) any solicitation and
meeting expenses associated with the Meeting; and (ii) The Advest Group, Inc.
and MFS have each agreed to pay 50% of the reasonable legal expenses of the MFS
Fund and the Advantage Fund incurred in connection with the Reorganization,
provided that MFS' maximum obligation in relation to the Reorganization and the
Related Reorganizations is limited to $25,000 in the aggregate, the MFS Fund and
the Advantage Fund will each be liable for its own expenses incurred in
connection with entering into and carrying out the provisions of the Agreement
whether or not the Reorganization is consummated, provided, however, that if the
Reorganization is not consummated due to the failure of the shareholders of the
Advantage Fund to approve the Agreement or due to the failure of the
shareholders of the other two series of the Advantage Trust to approve the
Related Agreements, The Advest Group, Inc. shall promptly reimburse or pay the
costs and expenses incurred by the MFS Fund and the other two series of the MFS
Trust and by MFS in relation to matters contemplated by the Agreement and the
Related Agreements.
CAPITALIZATION
The following table sets forth the capitalization of the MFS Fund (with respect
to Class B shares) and the Advantage Fund as of December 31, 1994, and the pro
forma combined capitalization of both Funds as if the Reorganization had
occurred on that date. The table reflects a pro forma exchange ratio of
approximately 0.860113 of an MFS Fund Share being issued for each share of the
Advantage Fund. If the Reorganization is consummated, the actual exchange ratio
on the Closing Date may vary from the ratio indicated below due to changes in
the market value of the portfolio securities of both the MFS Fund and the
Advantage Fund between December 31, 1994 and the Valuation Date, changes in the
relative asset sizes of each Fund, and changes in the amount of undistributed
net investment income of the MFS Fund and the Advantage Fund during that period
resulting from income and distributions and changes in the accrued liabilities
of the MFS Fund and the Advantage Fund during the same period.
<TABLE>
DECEMBER 31, 1994 (UNAUDITED)
<CAPTION>
THE MFS FUND THE ADVANTAGE PRO FORMA
CLASS B FUND COMBINED
------------ ------------- -----------
<S> <C> <C> <C>
Net Assets........................................ $ 10,397,961 $ 14,867,552 $25,265,513
Net Asset Value per Share......................... $ 9.97 $ 8.58 $ 9.97
Shares Outstanding................................ 1,043,044 1,733,759 2,534,273(1)
Shares Authorized................................. Unlimited Unlimited Unlimited
<FN>
---------------
(1) If the Reorganization had taken place on December 31, 1994, the Advantage
Fund would have received 1,491,229 MFS Fund Shares, which would be available
for distribution to its shareholders. No assurances can be given as to the
number of MFS Fund Shares the Advantage Fund will receive on the Closing
Date. The foregoing is merely an example of what the Advantage Fund would
have received and distributed had the Reorganization been consummated on
December 31, 1994, and should not be relied upon to reflect the amount that
will actually be received on or after the Closing Date.
</TABLE>
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<PAGE> 22
TAX CONSIDERATIONS
The consummation of the Reorganization is subject to the receipt of a favorable
opinion of Ropes & Gray, counsel to the Advantage Fund, substantially to the
effect that for federal tax purposes:
(i) the acquisition by the MFS Fund of all of the assets of the
Advantage Fund solely in exchange for MFS Fund Shares and the assumption by
the MFS Fund of the Advantage Fund's stated liabilities as set forth on a
schedule of assets and liabilities delivered by the Advest Trust to the MFS
Trust on the Closing Date, followed by the distribution by the Advantage
Fund of MFS Fund Shares in complete liquidation to shareholders of the
Advantage Fund in exchange for their shares of the Advantage Fund and the
termination of the Advantage Trust, will constitute a reorganization within
the meaning of Section 368(a) of the Code, and the Advantage Fund and the
MFS Fund will each be "a party to a reorganization" within the meaning of
Section 368(b) of the Code;
(ii) no gain or loss will be recognized by the Advantage Fund upon the
transfer of all of its assets to the MFS Fund solely in exchange for MFS
Fund Shares and the assumption by the MFS Fund of the Advantage Fund's
stated liabilities as set forth on a schedule of assets and liabilities
delivered by the Advest Trust to the MFS Trust on the Closing Date or upon
the distribution to the shareholders of the Advantage Fund of such MFS Fund
Shares pursuant to the Agreement;
(iii) no gain or loss will be recognized by the MFS Fund upon the
receipt of the assets of the Advantage Fund solely in exchange for MFS Fund
Shares and the assumption by the MFS Fund of the Advantage Fund's stated
liabilities as set forth on a schedule of assets and liabilities delivered
by the Advest Trust to the MFS Trust on the Closing Date;
(iv) the basis of the assets of the Advantage Fund acquired by the MFS
Fund will be, in each instance, the same as the basis of those assets in
the hands of the Advantage Fund immediately prior to the transfer;
(v) the holding period of the assets of the Advantage Fund in the
hands of the MFS Fund will include, in each instance, the holding period of
such assets in the hands of the Advantage Fund;
(vi) the shareholders of the Advantage Fund will not recognize gain or
loss upon the exchange of all of their Advantage Fund shares solely for MFS
Fund Shares as part of the transaction;
(vii) the basis of the MFS Fund Shares to be received by each
Advantage Fund shareholder will be, in the aggregate, the same as the
basis, in the aggregate, of the shares of the Advantage Fund surrendered by
such shareholder in exchange therefor; and
(viii) the holding period of the MFS Fund Shares to be received each
Advantage Fund shareholder will include the holding period of the shares of
the Advantage Fund surrendered by such shareholder in exchange therefor,
provided the shares of the Advantage Fund were held by such shareholder as
capital assets on the date of the exchange.
20
<PAGE> 23
COMPARATIVE PERFORMANCE INFORMATION
TOTAL RETURN
The table below indicates the total return (with capital gains and all dividends
and distributions reinvested) on a hypothetical investment of $1,000 in shares
of the Advantage Fund and Class B shares of the MFS Fund covering the indicated
periods.
<TABLE>
VALUE OF A $1,000 INVESTMENT IN THE ADVANTAGE FUND
<CAPTION>
NET ASSET NET ASSET
VALUE OF VALUE OF TOTAL RETURN TOTAL RETURN
INVESTMENT ON INVESTMENT ON GIVING EFFECT NOT GIVING
DECEMBER 31, 1994 DECEMBER 31,1994 TO CDSC* EFFECT TO CDSC
INVESTMENT INVESTMENT AMOUNT OF GIVING EFFECT TO NOT GIVING EFFECT ----------------------- -----------------------
PERIOD DATE INVESTMENT CDSC* TO CDSC CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
------------ ---------- ---------- ----------------- ----------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
July 1, 1993+
to December
31, 1994...... 7/1/93 $1,000 $ 904 $ 930 -9.61% -6.51% -7.03% -4.74%
1 Year ended
December 31,
1994.......... 1/1/94 $1,000 $ 857 $ 890 -14.34% -14.34% -10.97% -10.97%
<FN>
---------------
* Based on the CDSC schedule described under "Other Significant Fees" above with
respect to the Advantage Fund.
+ Commencement of investment operations.
</TABLE>
The total return of the Advantage Fund as reflected in this table would have
been lower had BSC not agreed to waive its advisory fee and Advest had not
agreed to bear certain Advantage Fund expenses, as described under "Adviser and
Advisory Fees" and "Other Significant Fees" above.
<TABLE>
VALUE OF A $1,000 INVESTMENT IN CLASS B SHARES OF THE MFS FUND
<CAPTION>
NET ASSET
NET ASSET VALUE OF
VALUE OF INVESTMENT ON TOTAL RETURN TOTAL RETURN
INVESTMENT ON DECEMBER 31, 1994 GIVING EFFECT NOT GIVING EFFECT
DECEMBER 31, 1994 NOT GIVING TO CDSC* TO CDSC
INVESTMENT INVESTMENT AMOUNT OF GIVING EFFECT TO EFFECT TO ----------------------- -----------------------
PERIOD DATE INVESTMENT CDSC* CDSC CUMULATIVE ANNUALIZED CUMULATIVE ANNUALIZED
------------ ---------- ---------- ----------------- ----------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
September 7, 1993+
to December
31, 1994.......... 9/7/93 $1,000 $ 905 $ 940 -9.47% -7.29% -5.91% -4.53%
1 Year ended
December 31,
1994............. 1/1/94 $1,000 $ 895 $ 930 -10.46% -10.46% -6.92% -6.92%
<FN>
---------------
* Based on CDSC schedule described under "Other Significant Fees" above with
respect to the MFS Fund.
+ Commencement of offering Class B shares.
</TABLE>
The total return on Class B shares of the MFS Fund as reflected in this table
would have been lower had MFS not agreed to waive a portion of its advisory fee,
as described under "Adviser and Advisory Fees" above.
Each Fund calculates its total rate of return for a certain period by
determining the average annual compounded rates of return over the period that
would cause an investment of $1,000 (made at net asset value with all
distributions reinvested) to reach the value of that investment at the end of
the period. If the total rate of return gives effect to the CDSC, then the
investment of $1,000 will be reduced by the applicable CDSC.
YIELD
The yield for Advantage Fund shares for the 30-day period ended December 31,
1994 was 5.73%. Had the waiver and reimbursement arrangements described above
under "Adviser and Advisory Fees" and "Other Significant Fees" not been in
effect, the yield for Advantage Fund shares for this period would have been
4.85%. The yield for Class B shares of the MFS Fund for the 30-day period ended
December 31, 1994 was 4.97%.
21
<PAGE> 24
Yield is calculated by dividing the net investment income per share earned
during the period by the public offering price per share on the last day of the
period. The resulting figure is then annualized.
TAX EQUIVALENT YIELD
The tax-equivalent yield for Advantage Fund shares for the 30-day period ended
December 31, 1994 was 8.64% (assuming a tax-bracket of 28%) and 9.01% (assuming
a tax-bracket of 31%). Had the waiver and reimbursement arrangements described
above under "Adviser and Advisory Fees" and "Other Significant Fees" not been in
effect, the tax-equivalent yield for Advantage Fund shares for this period would
have been 7.31% (assuming a tax-bracket of 28%) and 7.63% (assuming a
tax-bracket of 31%). The tax-equivalent yield for Class B shares of the MFS Fund
for the 30-day period ended December 31, 1994 was 7.49% (assuming a tax-bracket
of 28%) and 7.82% (assuming a tax-bracket of 31%).
Tax-equivalent yield is calculated by determining the rate of return that would
have to be achieved on a fully taxable investment to produce the after-tax
equivalent of that yield. The calculation of tax-equivalent yields assumes
certain federal tax brackets for shareholders and does not take into account
state taxes.
For further information as to the manner in which total return, yield and tax
equivalent yield are calculated, see "Information Concerning Shares of the Fund
-- Performance Information" in the MFS Fund Prospectus, and "Determination of
Net Assets; Performance Information" in the MFS Fund SAI.
BUSINESS OF THE MFS FUND
FINANCIAL INFORMATION
For the Condensed Financial Information of the MFS Fund, see "Condensed
Financial Information" in the MFS Fund Prospectus, and the MFS Fund Semi-Annual
Report.
GENERAL
For a discussion of the organization and operation of the MFS Fund, see
"Synopsis" and "Information Concerning Shares of the Trust -- Description of
Shares, Voting Rights and Liabilities" in the MFS Fund Prospectus, and "MFS Fund
Shares and Purchase of MFS Fund Shares" below.
INVESTMENT OBJECTIVE AND POLICIES
For a discussion of the MFS Fund's investment objective and policies, see
"Synopsis" and "Investment Objective and Policies" in the MFS Fund Prospectus.
TRUSTEES
For a discussion of the responsibilities of the MFS Trust's Board of Trustees,
see "Synopsis" and "Management of the Trust" in the MFS Fund Prospectus.
INVESTMENT ADVISER AND DISTRIBUTOR
For information concerning the MFS Fund's investment adviser and distributor,
see "Synopsis," "Management of the Trust," "Information Concerning Shares of the
Trust -- Purchases" and "Information Concerning Shares of the Trust --
Distribution Plans" in the MFS Fund Prospectus.
EXPENSES
For a discussion of the MFS Fund's expenses, see "Synopsis," "Condensed
Financial Information," "Management of the Trust" and "Information Concerning
Shares of the Trust -- Distribution Plans" in the MFS Fund Prospectus, and the
MFS Fund Semi-Annual Report.
22
<PAGE> 25
CUSTODIAN AND TRANSFER AGENT
For a description of the MFS Trust's custodian and transfer agent, see
"Shareholder Services" and the back cover of the MFS Fund Prospectus.
MFS FUND SHARES AND PURCHASE OF MFS FUND SHARES
For a description of MFS Fund Shares, see "Condensed Financial Information" and
"Information Concerning Shares of the Trust -- Description of Shares, Voting
Rights and Liabilities" in the MFS Fund Prospectus.
For a description of how shares of the MFS Fund may be purchased or exchanged,
see "Information Concerning Shares of the Trust -- Purchases," "Information
Concerning Shares of the Trust -- Exchanges" and "Shareholder Services" in the
MFS Fund Prospectus.
REDEMPTION OF THE MFS FUND SHARES
For a discussion of how the MFS Fund Shares may be redeemed, see "Information
Concerning Shares of the Trust -- Redemptions and Repurchases" in the MFS Fund
Prospectus. Shareholders of the Advantage Fund whose shares are represented by
certificates will be required to surrender their certificates for cancellation
or deliver an Affidavit to the Advantage Fund or MFSC, the MFS Fund's transfer
agent, in order to redeem or transfer the MFS Fund Shares received in the
Reorganization.
DIVIDENDS, DISTRIBUTIONS AND TAXES
For information concerning the MFS Fund's policy with respect to dividends,
distributions and taxes, see "Information Concerning Shares of the Trust --
Distributions," "Information Concerning Shares of the Trust -- Tax Status" and
"Shareholder Services" in the MFS Fund Prospectus.
BUSINESS OF THE ADVANTAGE FUND
FINANCIAL INFORMATION
For the condensed financial information of the Advantage Fund, see "Financial
Highlights" in the Advantage Fund Prospectus, and the Advantage Fund Annual
Report.
GENERAL
For a discussion of the organization and operation of the Advantage Fund, see
"The Fund and its Shares" in the Advantage Fund Prospectus.
INVESTMENT OBJECTIVE AND POLICIES
For a discussion of the Advantage Fund's investment objective and policies, see
"Investment Objectives and Policies," "Risk Factors," "Types of Municipal
Obligations" and "Other Investment Policies and Techniques" in the Advantage
Fund Prospectus.
TRUSTEES
For a discussion of the responsibilities of the Advantage Trust's Board of
Trustees, see "The Fund and its Shares" in the Advantage Fund Prospectus.
INVESTMENT ADVISER AND DISTRIBUTOR
For information concerning the Advantage Fund's investment adviser and
distributor, see "Investment Adviser" and "Distributor and Rule 12b-1 Plans" in
the Advantage Fund Prospectus.
23
<PAGE> 26
EXPENSES
For a discussion of the Advantage Fund's expenses, see "Summary of Expenses,"
"Financial Highlights," "Investment Adviser" and "Distributor and Rule 12b-1
Plans" in the Advantage Fund Prospectus, and the Advantage Fund Annual Report.
CUSTODIAN AND TRANSFER AGENT
For a description of the Advantage Fund's custodian and transfer agent, see
"Custodian; Transfer Agent and Dividend Disbursing Agent" and the back cover of
the Advantage Fund Prospectus.
ADVANTAGE FUND SHARES AND PURCHASE OF THE ADVANTAGE FUND SHARES
For a description of the Advantage Fund's shares, see "Financial Highlights" and
"The Fund and its Shares" in the Advantage Fund Prospectus.
For a description of how the Advantage Fund shares may be purchased or
exchanged, see "Purchase of Shares" and "Shareholder Services" in the Advantage
Fund Prospectus.
REDEMPTION OF THE ADVANTAGE FUND SHARES
For a discussion of how the Advantage Fund shares may be redeemed, see
"Redemption of Shares" in the Advantage Fund Prospectus.
DIVIDENDS, DISTRIBUTIONS AND TAXES
For information concerning the Advantage Fund's policy with respect to
dividends, distributions and taxes, see "Dividends and Distributions; Taxes" in
the Advantage Fund Prospectus.
NO APPRAISAL RIGHTS
Shareholders are not entitled to any rights of share appraisal under the
Advantage Trust's Declaration of Trust or under the laws of The Commonwealth of
Massachusetts in connection with the Reorganization. Shareholders have, however,
the right to redeem from the Advantage Fund their Advantage Fund shares at net
asset value subject to any applicable CDSC until the Closing Date of the
Reorganization, and thereafter shareholders may redeem from the MFS Fund the
Class B shares issued to them in the Reorganization subject to any applicable
CDSC, as described herein.
LEGAL MATTERS
Certain legal matters in connection with the issuance of the MFS Fund Shares
will be passed upon for the MFS Fund by Stephen E. Cavan, Senior Vice President
and General Counsel of Massachusetts Financial Services Company, the Adviser to
the MFS Fund, and for the Advantage Fund by Ropes & Gray, its legal counsel.
EXPERTS
The financial statements of the MFS Fund incorporated in this Proxy Statement
and Prospectus by reference to the Annual Report to Shareholders for the year
ended March 31, 1994, and by reference to the Annual Report to Shareholders for
the year ended January 31, 1994, have been so incorporated in reliance on the
reports of Deloitte & Touche LLP, independent certified public accountants,
given on the authority of said firm as experts in auditing and accounting.
The financial statements of the Advantage Fund incorporated in this Proxy
Statement and Prospectus by reference to the Annual Report to Shareholders for
the year ended December 31, 1994, and by reference to the Fund's SAI dated April
18, 1994, as supplemented, into which the Annual Report to Shareholders for the
year ended December 31, 1993 was incorporated by reference, have been so
incorporated in reliance on the reports of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
24
<PAGE> 27
AVAILABLE INFORMATION
The Advantage Fund and the MFS Fund are subject to the informational
requirements of the Securities Exchange Act of 1934 and the 1940 Act, and in
accordance therewith file reports, proxy statements and other information with
the SEC. Such reports, proxy statements and other information filed by the
Advantage Fund and the MFS Fund can be inspected and copied at the public
reference facilities of the SEC at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C., and at the following regional offices: Chicago (Room 1204,
Everett McKinley Dirksen Building, 219 South Dearborn Street, Chicago,
Illinois); and New York (Room 1102, Federal Building, 26 Federal Plaza, New
York, New York). Copies of such material can also be obtained by mail from the
Public Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
OF THE MFS AND ADVANTAGE FUNDS
To the knowledge of the MFS Fund, as of March 20, 1995, Merrill Lynch, Pierce,
Fenner & Smith, Inc., P.O. Box 45286, Jacksonville, Florida, owned 7.2% of the
outstanding Class B shares of the MFS Fund. To the knowledge of the Advantage
Fund, as of March 20, 1995, no person owned of record or beneficially 5% or more
of the outstanding shares of the Advantage Fund.
As of March 20, 1995, the Trustees and officers of the MFS Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the MFS Fund.
As of March 20, 1995, the Trustees and officers of the Advantage Trust, as a
group, owned in the aggregate less than 1% of the outstanding shares of the
Advantage Fund.
VOTING RIGHTS AND REQUIRED VOTE
The Reorganization, having been approved by the Trustees of the Advantage Trust
on February 23, 1995, requires the approval of the Advantage Fund's shareholders
by the affirmative vote of not less than two thirds of the shares of the
Advantage Fund outstanding and entitled to vote at the Meeting.
Consummation of the Reorganization will require both the approval of the
Advantage Fund's shareholders as described above and the approval of
substantially similar transactions with two other series of the MFS Trust by the
shareholders of the two other series of the Advantage Trust as described above.
See "Description of Agreement -- Conditions Precedent to Closing."
MANNER OF VOTING PROXIES
All proxies received by the management will be voted on all matters presented at
the Meeting, and, if not limited to the contrary, will be voted for Item 1.
The management of the Advantage Trust knows of no other matters to be brought
before the Meeting. If, however, because of any unexpected occurrence, any
matters properly come before the Meeting, it is the management's intention that
proxies not limited to the contrary will be voted in accordance with the
judgment of the persons named in the enclosed form of proxy.
All proxies voted, including abstentions, will be counted toward establishing a
quorum. Passage of any proposal being considered at the Meeting will occur only
if a sufficient number of votes are cast FOR the proposal. With respect to the
proposal described in Item 1, abstentions and broker non-votes have the effect
of a negative vote on the proposal.
If sufficient votes to approve Item 1 are not received, the persons named as
proxies may propose one or more adjournments of the Meeting with respect to such
Item to permit further solicitation of proxies. Any such adjournment with
respect to Item 1 will require the affirmative vote of a majority of those
shares which are voted on the motion to adjourn present in person or by proxy at
the session of the Meeting to be adjourned. When voting on a proposed
adjournment, the persons named as proxies will vote FOR the proposed adjournment
all shares that they are entitled to vote with respect to such Item, unless
directed to vote AGAINST the Item, in which case such shares will be voted
against the proposed adjournment with respect to Item 1.
25
<PAGE> 28
SUBMISSION OF CERTAIN PROPOSALS
If the Reorganization is not consummated, proposals of shareholders which are
intended to be presented at a future meeting of shareholders must be received by
the Advantage Fund a reasonable amount of time prior to the Advantage Fund's
solicitation of proxies relating to such future meeting.
ADDITIONAL INFORMATION
Upon the consummation of the Reorganization and the Related Reorganizations, MFS
shall pay The Advest Group, Inc. $1.2 million; provided, however, that if the
Agreement and the Related Agreements have not been approved by the shareholders
of the Advantage Fund, The National Portfolio and The Pennsylvania Portfolio, as
the case may be, MFS will not make such payment and The Advest Group, Inc. shall
promptly reimburse or pay the costs and expenses incurred by the MFS Fund, the
MFS Municipal Income Fund and the MFS Pennsylvania Municipal Bond Fund and by
MFS in relation to matters contemplated by the Agreement and the Related
Agreements. See "Description of Agreement -- Conditions Precedent to Closing"
above.
The Advantage Trust, solely on behalf of the Advantage Fund, and The Advest
Group, Inc. have agreed, jointly and severally, to indemnify and hold harmless
the MFS Trust, its trustees and officers, each person who controls the MFS Fund
within the meaning of applicable federal securities laws, and MFS, its
wholly-owned subsidiaries and the directors, officers and employees of MFS and
such subsidiaries (collectively, the "MFS Indemnified Parties"), against any
loss, claim, damage and expense, paid or incurred, arising out of (i) any untrue
statement or alleged untrue statement of material fact contained in the Notice
of Special Meeting or this Proxy Statement and Prospectus or in the registration
statement of the MFS Trust containing this Proxy Statement and Prospectus filed
with the Securities and Exchange Commission (the "SEC") with respect thereto, or
the omission or alleged omission therefrom of a material fact required to be
stated therein or necessary to make the statements therein not misleading, but
only with respect to untrue statements or omissions in or from those sections
thereof identified as being the responsibility of the Advantage Fund; (ii) any
breach of any representation, warranty or covenant of the Advantage Trust or the
Advantage Fund set forth in the Agreement or set forth in any certificate
provided by the Advantage Trust in connection with the consummation of the
Reorganization (including, without limitation, any certificate provided by the
Advantage Trust in support of the legal opinion required pursuant to Section 8.6
of the Agreement); (iii) the failure of the Advantage Fund or its designee to
timely file all federal, state and other tax returns, forms and reports when due
by the Advantage Fund with respect to all periods up to and including the
Closing Date or to pay any taxes due by the Advantage Fund to any taxing
authority with respect to all such periods, including, without limitation, any
failure to pay such taxes due in a timely manner; and (iv) non-compliance of the
Advantage Fund with any applicable federal or state securities laws or with
applicable provisions of the Internal Revenue Code of 1986, as amended, or with
the investment policies and restrictions contained in the Advantage Fund's
prospectus and statement of additional information, as in effect from time to
time. The Advantage Trust, on behalf of its other two series, and The Advest
Group, Inc. have agreed to provide substantially similar indemnification with
respect to the Related Transactions. The obligations of the Advantage Trust, on
behalf of the Advantage Fund, and of The Advest Group, Inc. as set forth in
clauses (ii), (iii) and (iv) above, together with their obligations with respect
to the corresponding indemnification provided with respect to the Related
Transactions, are limited to $1.2 million in the aggregate and to obligations
arising with respect to an action or actions which have been commenced against
one or more MFS Indemnified Parties within two years after the Closing Date.
The MFS Trust, solely on behalf of the MFS Fund, has agreed to indemnify and
hold harmless the Advantage Trust, its trustees and officers, each person who
controls the Advantage Fund within the meaning of applicable federal securities
laws, and The Advest Group, Inc., its wholly-owned subsidiaries and the
directors, officers and employees of The Advest Group, Inc. and such
subsidiaries (collectively, the "Advantage Indemnified Parties"), against any
loss, claim, damage and expense, paid or incurred, arising out of (i) any untrue
statement or alleged untrue statement of material fact contained in the Notice
of Special Meeting or this Proxy Statement and Prospectus or in the registration
statement of the MFS Trust containing this Proxy Statement and Prospectus filed
with the SEC with respect thereto, or the omission or alleged omission therefrom
of a material fact required to be stated therein or necessary to make the
statements therein not misleading, but only with respect to untrue statements of
omissions in or from those sections thereof identified as not being the
responsibility of the Advantage Fund or as not being the
26
<PAGE> 29
responsibility of either the Advantage Fund or the MFS Fund and (ii) any breach
of any representation, warranty or covenant of the MFS Trust or the MFS Fund set
forth in the Agreement or set forth in any certificate provided by the MFS Trust
in connection with the consummation of the Reorganization (including, without
limitation, any certificate provided by the MFS Trust in support of the legal
opinion required pursuant to Section 8.6 of the Agreement). The MFS Trust, on
behalf of two of its other series, had agreed to provide substantially similar
indemnification with respect to the Related Transactions. The obligations of the
MFS Trust, on behalf of the MFS Fund, as set forth in clause (ii) above,
together with its obligations with respect to the corresponding indemnification
provided with respect to the Related Transactions, are limited to $1.2 million
in the aggregate and to obligations arising with respect to an action or actions
which have been commenced against one or more Advantage Indemnified Parties
within two years after the Closing Date.
To obtain the necessary representation at the Meeting, solicitations may be made
by mail, telephone or interview by Shareholder Communications Corporation
("SCC") or its agents as well as by officers of the Advantage Trust and
employees of The Advest Group, Inc. and its subsidiaries. It is anticipated that
the total cost of any such solicitations, if made by SCC or its agents, would be
approximately $2,500 including out-of-pocket expenses, and if made by any other
party, would be nominal.
The expense of solicitations as well as of the preparation, printing and mailing
of the enclosed form of proxy, and this Notice and Proxy Statement, will be
borne by The Advest Group, Inc.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY.
THE NEW YORK PORTFOLIO
March 29, 1995 a series of
THE ADVANTAGE MUNICIPAL
BOND FUND
27
<PAGE> 30
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made this 23rd
day of February, 1995, by and between the Advantage Municipal Bond Fund, a
Massachusetts business trust (the "Advantage Trust"), with its principal place
of business at 100 Federal Street, Boston, Massachusetts 02110, on behalf of The
New York Portfolio, a series thereof (the "Advantage Fund"), and MFS Municipal
Series Trust, a Massachusetts business trust (the "MFS Trust"), with its
principal place of business at 500 Boylston Street, Boston, Massachusetts 02116,
on behalf of MFS New York Municipal Bond Fund, a series thereof (the "MFS
Fund").
This Agreement is intended to be and is adopted as a plan of reorganization and
liquidation within the meaning of Section 368(a) of the United States Internal
Revenue Code of 1986, as amended (the "Code"). The reorganization will consist
(i) of the transfer of all of the assets of the Advantage Fund to the MFS Fund
in exchange solely for the assumption by the MFS Fund of the stated liabilities
of the Advantage Fund and the issuance to the Advantage Fund of shares of
beneficial interest of the MFS Fund designated as Class B shares (the "MFS Fund
Shares"), (ii) the distribution, promptly after the Closing Date hereinafter
referred to, of the MFS Fund Shares to the shareholders of the Advantage Fund in
liquidation of the Advantage Fund as provided herein, and (iii) the termination
of the Advantage Trust, all upon the terms and conditions hereinafter set forth
in this Agreement.
All representations, warranties, covenants and obligations of the MFS Fund and
the Advantage Fund contained herein shall be deemed to be representations,
warranties, covenants and obligations of the MFS Trust and the Advantage Trust,
respectively, acting on behalf of the MFS Fund and the Advantage Fund,
respectively, and all rights and benefits created hereunder in favor of the MFS
Fund and the Advantage Fund shall inure to the MFS Trust and the Advantage
Trust, respectively, and shall be enforceable by the MFS Trust and the Advantage
Trust, respectively, acting on behalf of the MFS Fund and the Advantage Fund,
respectively.
In consideration of the premises of the covenants and agreements hereinafter set
forth, the parties hereto covenant and agree as follows:
1. TRANSFER OF ASSETS OF THE ADVANTAGE FUND IN EXCHANGE FOR THE MFS FUND SHARES
AND LIQUIDATION OF THE ADVANTAGE FUND
1.1 The Advantage Fund will transfer its assets (consisting, without
limitation, of portfolio securities and instruments, dividend and interest
receivables, cash and other assets) as set forth in the statement of assets and
liabilities as of the Valuation Date (as defined in paragraph 1.4 hereof)
delivered by the Advantage Trust to the MFS Trust pursuant to paragraph 7.2
hereof (the "Statement of Assets and Liabilities") to the MFS Fund, free and
clear of all liens and encumbrances, except as otherwise provided herein, in
exchange for (a) the assumption by the MFS Fund of all of the stated liabilities
of the Advantage Fund as set forth in the Statement of Assets and Liabilities
and (b) the issuance and delivery by the MFS Fund to the Advantage Fund, for
distribution in accordance with paragraph 1.4 hereof pro rata to the Advantage
Fund shareholders as of the close of business on the Valuation Date, of a number
of the MFS Fund Shares having an aggregate net asset value equal to the value of
the assets, less such liabilities (herein referred to as the "net value of the
assets"), of the Advantage Fund so transferred, assigned and delivered, all
determined as provided in paragraph 2 and as of a date and time as specified
therein. Such transactions shall take place at the closing provided for in
paragraph 3.1 hereof (the "Closing"). All computations for the Advantage Fund
shall be provided by State Street Bank and Trust Company (the "Custodian"), as
custodian and pricing agent for the Advantage Fund, and all computations for the
MFS Fund shall be provided by the Custodian, as custodian and pricing agent for
the MFS Fund. The determinations of the Custodian shall be conclusive and
binding on all parties in interest.
1.2 The Advantage Fund has provided the MFS Fund with a list of the current
securities holdings of the Advantage Fund as of the date of execution of this
Agreement. The Advantage Fund reserves the right to sell any of these securities
(except to the extent sales may be limited by representations made in connection
with issuance of the tax opinion described in paragraph 8.6 hereof) but will
not, without the prior approval of the MFS Fund, acquire any additional
securities other than securities of the type in which the MFS Fund is permitted
to invest.
A-1
<PAGE> 31
1.3 Except to the extent that another party has agreed to bear certain expenses
in connection with the transactions contemplated by this Agreement, the MFS
Trust and the Advantage Trust shall each bear its own expenses in connection
with the transactions contemplated by this Agreement.
1.4 On or as soon after the closing date established in paragraph 3.1 hereof
(the "Closing Date") as is conveniently practicable (the "Liquidation Date"),
the Advantage Fund will liquidate and distribute pro rata to shareholders of
record ("Advantage Fund shareholders"), determined as of the close of business
on the last business day preceding the Closing Date (the "Valuation Date"), the
MFS Fund Shares received by the Advantage Fund pursuant to paragraph 1.1 in
actual or constructive exchange for the shares of the Advantage Fund held by the
Advantage Fund shareholders. Such liquidation and distribution will be
accomplished by the transfer of the MFS Fund Shares then credited to the account
of the Advantage Fund on the books of the MFS Fund, to open accounts on the
share records of the MFS Fund in the names of the Advantage Fund shareholders
and representing the respective pro rata number of the MFS Fund Shares due such
shareholders. The MFS Fund will not issue share certificates representing the
MFS Fund Shares in connection with such exchange, except in connection with
pledges and assignments and in certain other limited circumstances.
1.5 Advantage Fund shareholders holding certificates representing their
ownership of shares of beneficial interest of the Advantage Fund shall surrender
such certificates or deliver an affidavit with respect to lost certificates, in
such form and accompanied by such surety bonds as the Advantage Fund may require
(collectively, an "Affidavit"), to the Advantage Fund prior to the Closing Date.
Any Advantage Fund certificate which remains outstanding on the Closing Date
shall be deemed to be cancelled, shall no longer evidence ownership of shares of
beneficial interest of the Advantage Fund and shall not evidence ownership of
the MFS Fund Shares. Unless and until any such certificate shall be so
surrendered or an Affidavit relating thereto shall be delivered, dividends and
other distributions payable by the MFS Fund subsequent to the Closing Date with
respect to the MFS Fund Shares allocable to the holders of such certificate(s)
shall be paid to the holder of such certificate(s), but such shareholder may not
redeem or transfer the MFS Fund Shares received in the Reorganization.
1.6 Any transfer taxes payable upon issuance of the MFS Fund Shares in a name
other than the registered holder of the MFS Fund Shares on the books of the
Advantage Fund as of that time shall, as a condition of such issuance and
transfer, be paid by the person to whom such MFS Fund Shares are to be issued
and transferred.
1.7 The Advantage Trust shall be terminated promptly following the later of (i)
the Liquidation Date, and (ii) the date that the other two series of the
Advantage Trust liquidate and distribute the MFS Shares received by such series
pursuant to the terms of separate Agreements and Plans of Reorganization entered
into by the Advantage Trust, on behalf of such series, and MFS Municipal Series
Trust, on behalf of two of its other series, dated the date hereof.
2. VALUATION
2.1 The net asset value of the MFS Fund Shares and the net value of the assets
of the Advantage Fund to be transferred shall in each case be determined as of
the close of business on the Valuation Date. The net asset value of the MFS Fund
Shares shall be computed by the Custodian in the manner set forth in the MFS
Trust's Declaration of Trust or By-laws and the MFS Fund's then current
prospectus and statement of additional information and shall be computed to not
less than two decimal places. The net value of the assets of the Advantage Fund
to be transferred shall be computed by the Custodian by calculating the value of
the assets transferred by the Advantage Fund and by subtracting therefrom the
amount of the liabilities assigned and transferred to the MFS Fund, said assets
and liabilities to be valued in the manner set forth in the Advantage Trust's
Declaration of Trust or By-laws and the Advantage Fund's then current prospectus
and statement of additional information.
2.2 The number of MFS Fund Shares to be issued (including fractional shares, if
any) in exchange for the Advantage Fund's assets shall be determined by dividing
the net value of the Advantage Fund assets by the net asset value per MFS Fund
Share, both as determined in accordance with paragraph 2.1.
2.3 All computations of value shall be made by the Custodian in accordance with
its regular practice as pricing agent for the MFS Fund and the Advantage Fund,
as applicable.
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3. CLOSING AND CLOSING DATE
3.1 The Closing Date shall be as soon as practicable after the reorganization
described above is approved by shareholders of the Advantage Fund, but in no
event later than June 30, 1995. The Closing shall be held at 10:00 a.m., Boston
time, at the offices of the MFS Fund, 500 Boylston Street, Boston, Massachusetts
02116, or at such other time and/or place as the parties may agree.
3.2 Portfolio securities shall be delivered by the Advantage Fund to the
Custodian for the account of the MFS Fund on the Closing Date, duly endorsed in
proper form for transfer, in such condition as to constitute good delivery
thereof in accordance with the custom of brokers, and shall be accompanied by
all necessary federal and state stock transfer stamps or a check for the
appropriate purchase price thereof. The cash delivered shall be in the form of
currency, certified or official bank check in Boston funds or federal fund wire,
payable to the order of "State Street Bank and Trust Company, Custodian for MFS
New York Municipal Bond Fund" or in the name of any successor organization.
3.3 In the event that on the proposed Valuation Date (a) the New York Stock
Exchange shall be closed to trading or trading thereon shall be restricted, or
(b) trading or the reporting of trading on said Exchange or elsewhere shall be
disrupted so that accurate appraisal of the net value of the assets of the MFS
Fund or the Advantage Fund is impracticable, the Closing Date shall be postponed
until the first business day after the day when trading shall have been fully
resumed and reporting shall have been restored; provided that if trading shall
not be fully resumed and reporting restored on or before June 30, 1995, this
Agreement may be terminated by the MFS Fund or the Advantage Fund upon the
giving of written notice to the other party.
3.4 The Advantage Fund shall deliver at the Closing a list of the names,
addresses, federal taxpayer identification numbers and backup withholding and
nonresident alien withholding status of the Advantage Fund shareholders and the
number of outstanding shares of beneficial interest of the Advantage Fund owned
by each such shareholder, all as of the close of business on the Valuation Date
(the "Shareholder List"). The MFS Fund shall issue and deliver to the Advantage
Fund a confirmation evidencing the MFS Fund Shares to be credited on the
Liquidation Date, or provide evidence satisfactory to the Advantage Fund that
such MFS Fund Shares have been credited to the Advantage Fund's account on the
books of the MFS Fund. At the Closing each party shall deliver to the other such
bills of sale, checks, assignments, stock certificates, receipts or other
documents as such other party or its counsel may reasonably request.
4. REPRESENTATIONS AND WARRANTIES
4.1 The Advantage Trust and the Advantage Fund represent and warrant to the MFS
Trust and the MFS Fund as follows:
(a) The Advantage Trust is a business trust duly organized, validly
existing and in good standing under the laws of The Commonwealth of
Massachusetts and has the power to own all of its properties and assets
and, subject to approval by the shareholders of the Advantage Fund, to
carry out the Agreement. Neither the Advantage Trust nor the Advantage Fund
is required to qualify to do business in any other jurisdiction. The
Agreement has been duly authorized by the Advantage Trust, subject to the
approval of the shareholders of the Advantage Fund. The Advantage Trust has
all necessary federal, state and local authorizations to own all of the
properties and assets of the Advantage Trust and to carry on its business
as now being conducted;
(b) The Advantage Trust is a duly registered investment company
classified as a management company of the open-end, diversified type and
its registration with the Securities and Exchange Commission (the
"Commission") as an investment company under the Investment Company Act of
1940, as amended (the "1940 Act"), is in full force and effect;
(c) The Advantage Trust is not, and the execution, delivery and
performance of this Agreement by the Advantage Trust will not result, in
violation of any provision of the Declaration of Trust or By-Laws of the
Advantage Trust or of any agreement, indenture, instrument, contract, lease
or other undertaking to which the Advantage Trust is a party or by which
the Advantage Trust or the Advantage Fund is bound;
(d) The Advantage Trust has no material contracts or other commitments
(other than this Agreement) which will not be terminated without liability
to the Advantage Fund at or prior to the Closing Date;
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(e) Except as otherwise disclosed in writing to and accepted by the
MFS Fund, no litigation or administrative proceeding or investigation of or
before any court or governmental body is currently pending or threatened as
to the Advantage Trust or any of its properties or assets. The Advantage
Trust knows of no facts which might form the basis for the institution of
such proceedings, and the Advantage Trust is not a party to or subject to
the provisions of any order, decree or judgment of any court or
governmental body which materially and adversely affects its business or
its ability to consummate the transactions herein contemplated;
(f) The statement of assets and liabilities, including the schedule of
portfolio investments, of the Advantage Fund as of December 31, 1994 and
the related statement of operations for the year ended December 31, 1994,
and the statement of changes in net assets for the year ended December 31,
1994 and the period ended December 31, 1993 (copies of which have been
furnished to the MFS Fund) have been audited by Price Waterhouse LLP,
independent accountants, and present fairly in all material respects the
financial position of the Advantage Fund as of December 31, 1994 and the
results of its operations and changes in net assets for the respective
stated periods in accordance with generally accepted accounting principles
consistently applied, and there are no known actual or contingent
liabilities of the Advantage Fund as of the respective dates thereof not
disclosed therein;
(g) Since December 31, 1994, there has not been any material adverse
change in the Advantage Fund's financial condition, assets, liabilities or
business other than changes occurring in the ordinary course of business,
or any incurrence by the Advantage Fund of indebtedness maturing more than
one year from the date such indebtedness was incurred, except as otherwise
disclosed to and accepted by the MFS Fund. For the purposes of this
subparagraph (g), a decline in net asset value per share of beneficial
interest of the Advantage Fund as a result of losses upon the disposition
of investments or from changes in the value of investments held by the
Advantage Fund, or a distribution or a payment of dividends shall not
constitute a material adverse change;
(h) At the date hereof and at the Closing Date, all federal, state and
other tax returns and reports, including information returns and payee
statements, of the Advantage Fund required by law to have been filed or
furnished by such dates shall have been filed or furnished, and all
federal, state and other taxes, interest and penalties shall have been paid
so far as due, and to the best of the Advantage Fund's knowledge no such
return is currently under audit and no assessment has been asserted with
respect to such returns or reports;
(i) The Advantage Fund has elected to be treated as a regulated
investment company for federal tax purposes, has qualified as such for each
taxable year of its operation and will qualify as such as of the Closing
Date;
(j) The authorized capital of the Advantage Trust consists of an
unlimited number of shares of beneficial interest, no par value, divided
into three series, all of one class, at the date hereof. All issued and
outstanding shares of beneficial interest attributable to the Advantage
Fund are, and at the Closing Date will be, duly and validly issued and
outstanding, fully paid and nonassessable by the Advantage Trust. All of
the issued and outstanding shares of beneficial interest attributable to
the Advantage Fund will, at the time of Closing, be held by the persons and
in the amounts set forth in the Shareholder List. The Advantage Trust does
not have outstanding any options, warrants or other rights to subscribe for
or purchase any shares of beneficial interest attributable to the Advantage
Fund, nor is there outstanding any security convertible into any shares of
beneficial interest attributable to the Advantage Fund;
(k) Except as previously disclosed to the MFS Fund, at the Closing
Date the Advantage Trust will have good and marketable title to the assets
attributable to the Advantage Fund to be transferred to the MFS Fund
pursuant to paragraph 1.1, and full right, power and authority to sell,
assign, transfer and deliver such assets hereunder, and upon delivery and
payment for such assets, the MFS Fund will acquire good and marketable
title thereto subject to no restrictions on the full transfer thereof,
including such restrictions as might arise under the Securities Act of
1933, as amended (the "1933 Act");
(l) The execution, delivery and performance of this Agreement have
been duly authorized by all necessary action on the part of the Advantage
Trust (with the exception of the approval of this Agreement by Advantage
Fund shareholders holding at least two-thirds of the issued and outstanding
Advantage Fund
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shares), and this Agreement constitutes a valid and binding obligation of
the Advantage Trust enforceable in accordance with its terms, subject to
the approval of the Advantage Fund shareholders;
(m) The information to be furnished by the Advantage Fund for use in
applications for orders, registration statements, proxy materials and other
documents which may be necessary in connection with the transactions
contemplated hereby shall be accurate and complete and shall comply fully
with federal securities and other laws and regulations thereunder
applicable thereto;
(n) The proxy statement of the Advantage Fund (the "Proxy Statement")
to be included in the Registration Statement referred to in paragraph 5.7
(other than written information furnished by the MFS Fund for inclusion
therein, as covered by the MFS Fund's warranty in paragraph 4.2(n)), on the
effective date of the Registration Statement, on the date of the meeting of
the Advantage Fund shareholders and on the Closing Date, will not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which such statements were made, not
misleading;
(o) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by the Advantage
Trust and the Advantage Fund of the transactions contemplated by this
Agreement, except such as have been obtained under the 1933 Act, the
Securities Exchange Act of 1934, as amended (the "1934 Act") and the 1940
Act, and such as may be required under state securities laws;
(p) All of the issued and outstanding shares of beneficial interest of
the Advantage Trust attributable to the Advantage Fund have been offered
for sale and sold in conformity with all applicable federal and state
securities laws, except as may have been previously disclosed in writing to
the MFS Fund; and
(q) The current prospectus and statement of additional information of
the Advantage Fund, each dated April 18, 1994 as supplemented and updated
from time to time (the "Advantage Fund Prospectus"), will conform in all
material respects to the applicable requirements of the 1933 Act and the
1940 Act and the rules and regulations of the Commission thereunder on the
date of the Proxy Statement, on the date of the meeting of Advantage Fund
shareholders and on the Closing Date and will not on such dates include any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
4.2 The MFS Trust and the MFS Fund represent and warrant to the Advantage Trust
and the Advantage Fund as follows:
(a) The MFS Trust is a business trust duly organized, validly existing
and in good standing under the laws of The Commonwealth of Massachusetts
and has the power to own all of its properties and assets and to carry out
the Agreement. Neither the MFS Trust nor the MFS Fund is required to
qualify to do business in any other jurisdiction. The Agreement has been
duly authorized by the MFS Trust. The MFS Trust has all necessary federal,
state and local authorization to own all of its properties and assets and
to carry on its business as now being conducted;
(b) The MFS Trust is a duly registered investment company classified
as a management company of the open-end type and its registration with the
Commission as an investment company under the 1940 Act is in full force and
effect;
(c) The current prospectus and statement of additional information of
the MFS Fund, each dated June 1, 1994, as supplemented and updated from
time to time (the "MFS Fund Prospectus"), and the Registration Statement
referred to in paragraph 5.7 (other than written information furnished by
the Advantage Fund for inclusion therein as covered by the Advantage Fund's
warranty in paragraph 4.1(m)) will conform in all material respects to the
applicable requirements of the 1933 Act and the 1940 Act and the rules and
regulations of the Commission thereunder on the date of the Proxy
Statement, on the date of the meeting of the Advantage Fund shareholders
and on the Closing Date and will not on such dates include any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading;
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(d) At the Closing Date, the MFS Trust, will have good and marketable
title to the assets of the MFS Fund;
(e) The MFS Trust is not, and the execution, delivery and performance
of this Agreement will not result, in violation of any provisions of its
Declaration of Trust or By-Laws or of any agreement, indenture, instrument,
contract, lease or other undertaking to which the MFS Trust is a party or
by which the MFS Trust or the MFS Fund is bound;
(f) No material litigation or administrative proceeding or
investigation of or before any court or governmental body is currently
pending or threatened against the MFS Trust or any of its properties or
assets, except as previously disclosed in writing to the Advantage Fund.
The MFS Trust knows of no facts which might form the basis for the
institution of such proceedings, and the MFS Trust is not a party to or
subject to the provisions of any order, decree or judgment of any court or
governmental body which materially and adversely affects its business or
its ability to consummate the transaction herein contemplated;
(g) The statement of assets and liabilities, including the schedule of
portfolio investments, of the MFS Fund as of March 31, 1994, and the
related statements of operations for the two months then ended and the year
ended January 31, 1994, and the statements of changes in net assets for the
two months ended March 31, 1994, the year ended January 31, 1994 and the
year ended January 31, 1993 (copies of which have been furnished to the
Advantage Fund), have been audited by Deloitte & Touche LLP, independent
auditors. The statement of assets and liabilities, including the schedule
of portfolio investments, of the MFS Fund as of September 30, 1994, and the
related statements of operations and changes in net assets for the six
months ended September 30, 1994 (copies of which have been furnished to the
Advantage Fund), are unaudited. These audited and unaudited financial
statements present fairly in all material respects the financial position
of the MFS Fund as of their respective dates and the results of its
operations and changes in net assets for the respective stated periods in
accordance with generally accepted accounting principles consistently
applied (with respect to the unaudited financial statements, subject to
normal year-end adjustments), and there are no known actual or contingent
liabilities of the MFS Fund as of the respective dates thereof not
disclosed therein;
(h) Since September 30, 1994, there has not been any material adverse
change in the MFS Fund's financial condition, assets, liabilities or
business other than changes occurring in the ordinary course of business or
any incurrence by the MFS Fund of indebtedness maturing more than one year
from the date such indebtedness was incurred except as otherwise disclosed
to the Advantage Fund. For the purposes of this subparagraph (h), a decline
in net asset value per share of beneficial interest of the MFS Fund
resulting from losses upon the disposition of investments or from changes
in the value of investments held by the MFS Fund, or a distribution or a
payment of dividends, shall not constitute a material adverse change;
(i) The MFS Fund has elected to be treated as a regulated investment
company for federal tax purposes, has qualified as such for each taxable
year of its operation, and will qualify as such as of the Closing Date;
(j) At the date hereof and at the Closing Date, all federal, state and
other tax returns and reports, including information returns and payee
statements, of the MFS Fund required by law to have been filed or furnished
by such dates shall have been filed or furnished, and all federal, state
and other taxes, interest and penalties shall have been paid so far as due,
or provision shall have been made for the payment thereof, and to the best
of the MFS Fund's knowledge no such return is currently under audit and no
assessment has been asserted with respect to such returns or reports;
(k) The authorized capital of the MFS Trust consists of an unlimited
number of shares of beneficial interest, no par value, divided into
nineteen series and, with respect to the MFS Fund, into two classes, at the
date hereof. All issued and outstanding shares of beneficial interest
attributable to the MFS Fund are, and at the Closing Date will be, duly and
validly issued and outstanding, fully paid and nonassessable by the MFS
Trust. The MFS Trust does not have outstanding any options, warrants or
other rights to subscribe for or purchase any shares of beneficial interest
attributable to the MFS Fund, nor is there outstanding any security
convertible into any shares of beneficial interest attributable to the MFS
Fund;
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(l) The execution, delivery and performance of this Agreement have
been duly authorized by all necessary action on the part of the MFS Trust,
and this Agreement constitutes a valid and binding obligation of the MFS
Trust enforceable in accordance with its terms;
(m) The MFS Fund Shares to be issued and delivered to the Advantage
Trust pursuant to the terms of this Agreement will have been duly
authorized at the Closing Date, and when so issued and delivered, will be
duly and validly issued MFS Fund Shares and will be fully paid and
nonassessable by the MFS Trust;
(n) The information to be furnished by the MFS Fund for use in
applications for orders, registration statements, proxy materials and other
documents which may be necessary in connection with the transactions
contemplated hereby shall be accurate and complete and shall comply fully
with federal securities and other laws and regulations applicable thereto;
(o) The MFS Trust agrees to use all reasonable efforts to obtain the
approvals and authorizations required by the 1933 Act, the 1940 Act and
such of the state Blue Sky or securities laws as it may deem appropriate in
order to continue its operations and the operations of the MFS Fund after
the Closing Date;
(p) All of the MFS Trust's issued and outstanding shares of beneficial
interest attributable to the MFS Fund have been offered for sale and sold
in conformity with all applicable federal and state securities laws, except
as may have been previously disclosed in writing to the Advantage Fund; and
(q) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by the MFS Trust of
the transactions contemplated by the Agreement, except such as have been
obtained under the 1933 Act, the 1934 Act and the 1940 Act, and such as may
be required under state securities laws.
5. COVENANTS
5.1 The Advantage Fund and the MFS Fund each will operate its business in the
ordinary course between the date hereof and the Closing Date, it being
understood that such ordinary course of business will include the declaration
and payment of customary dividends and distributions.
5.2 The Advantage Trust will call a meeting of shareholders of the Advantage
Fund (the "Meeting") to consider and act upon this Agreement and to take all
other action necessary to obtain approval of the transactions contemplated
herein.
5.3 The Advantage Trust covenants that the MFS Fund Shares to be issued
hereunder are not being acquired for the purpose of making any distribution
thereof other than in accordance with the terms of this Agreement.
5.4 The Advantage Trust will provide such information as the MFS Trust
reasonably requests concerning the ownership of the Advantage Fund's shares of
beneficial interest, including the information specified in paragraph 3.4.
5.5 Subject to the provisions of this Agreement, the Advantage Trust and the
MFS Trust each will take, or cause to be taken, all action, and do or cause to
be done all things, reasonably necessary, proper or advisable to consummate and
make effective the transactions contemplated by this Agreement.
5.6 The Advantage Trust shall furnish to the MFS Trust on the Closing Date the
Statement of Assets and Liabilities of the Advantage Fund as of the Valuation
Date, which statement shall be prepared in accordance with generally accepted
accounting principles consistently applied and shall be certified by the
Advantage Trust's Treasurer or Assistant Treasurer. As promptly as practicable,
but in any case within 60 days after the Closing Date, the Advantage Trust or
its designee shall furnish to the MFS Trust, in such form as is reasonably
satisfactory to the MFS Trust, a statement of the earnings and profits of the
Advantage Fund for federal income tax purposes, and of any capital loss
carryovers and other items that the MFS Fund will succeed to and take into
account as a result of Section 381 of the Code.
5.7 The MFS Trust will prepare and file with the Securities and Exchange
Commission a Registration Statement on Form N-14 (the "Registration Statement"),
in compliance with the 1933 Act and the 1940 Act, in connection with the
issuance of the MFS Fund Shares as contemplated herein.
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5.8 The MFS Trust will prepare a Proxy Statement, to be included in the
Registration Statement in compliance with the 1933 Act, the 1934 Act and the
1940 Act and the rules and regulations thereunder (collectively, the "Acts") in
connection with the Meeting of Advantage Fund shareholders to consider approval
of this Agreement. The Advantage Trust agrees to provide the MFS Trust with
information applicable to the Advantage Trust and Advantage Fund required under
the Acts for inclusion in the Proxy Statement.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ADVANTAGE TRUST
The obligations of the Advantage Trust to consummate the transactions provided
for herein shall be, at its election, subject to the performance by the MFS
Trust of all the obligations to be performed by it hereunder on or before the
Closing Date, and, in addition thereto, the following further conditions:
6.1 All representations and warranties of the MFS Trust and the MFS Fund
contained in this Agreement shall be true and correct in all material respects
as of the date hereof and, except as they may be affected by the transactions
contemplated by this Agreement, as of the Closing Date with the same force and
effect as if made on and as of the Closing Date;
6.2 The MFS Trust shall have delivered to the Advantage Trust a certificate
executed in its name by its President, Vice President, Secretary or its
Assistant Secretary and its Treasurer or Assistant Treasurer, in form
satisfactory to the Advantage Trust and dated as of the Closing Date, to the
effect that the representations and warranties of the MFS Trust and the MFS Fund
made in this Agreement are true and correct at and as of the Closing Date,
except as they may be affected by the transactions contemplated by this
Agreement, and as to such other matters as the Advantage Trust shall reasonably
request; and
6.3 The Advantage Trust shall have received on the Closing Date a favorable
opinion from Stephen E. Cavan, General Counsel and Senior Vice President of
Massachusetts Financial Services Company ("MFS"), the MFS Trust's investment
adviser, dated as of the Closing Date, in a form satisfactory to Ropes & Gray,
counsel to the Advantage Trust, to the effect that:
(a) The MFS Trust is a business trust duly organized and validly
existing under the laws of The Commonwealth of Massachusetts and has power
to own all of its properties and assets and to carry on its business as
currently conducted, as described in the Registration Statement; (b) the
Agreement has been duly authorized, executed and delivered by the MFS Trust
and, assuming that the MFS Fund Prospectus contained in the Registration
Statement, the Registration Statement, and Proxy Statement comply with the
1933 Act, the 1934 Act and the 1940 Act and the rules and regulations
thereunder, and assuming the due authorization, execution and delivery of
the Agreement by the Advantage Trust, is a valid and binding obligation of
the MFS Trust enforceable against the MFS Trust in accordance with its
terms, except as the same may be limited by bankruptcy, insolvency,
reorganization or other similar laws affecting the enforcement of
creditors' rights generally and other equitable principles; (c) the MFS
Fund Shares to be issued to the Advantage Fund shareholders as provided by
this Agreement are duly authorized and upon such delivery will be validly
issued and outstanding and fully paid and nonassessable by the MFS Trust,
and no shareholder of the MFS Fund has any preemptive right to subscription
or purchase in respect thereof pursuant to any federal or Massachusetts law
or the Declaration of Trust or By-laws of the MFS Trust; (d) the execution
and delivery of the Agreement did not, and the consummation of the
transactions contemplated hereby will not, violate the MFS Trust's
Declaration of Trust or By-Laws, or any material provision of any agreement
(known to such counsel) to which the MFS Trust is a party or by which it or
the MFS Fund is bound; (e) to the knowledge of such counsel, no consent,
approval, authorization or order of any court or governmental authority is
required for the consummation by the MFS Trust of the transactions
contemplated herein, except such as have been obtained under the 1933 Act,
the 1934 Act and the 1940 Act, and such as may be required under state
securities laws; (f) the descriptions in the Registration Statement of
statutes, legal and governmental proceedings and contracts and other
documents, if any, only insofar as they relate to the MFS Trust and the MFS
Fund, are accurate in all material respects; (g) such counsel does not know
of any legal or governmental proceedings existing on or before the date of
mailing of the Proxy Statement or the Closing Date, only insofar as they
relate to the MFS Trust or the MFS Fund, required to be described in the
Registration Statement which are not described as required; (h) to the
knowledge of such counsel, the MFS Trust is a duly registered investment
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company and its registration with the Securities and Exchange Commission as
an investment company under the 1940 Act is in full force and effect; and
(i) to the best knowledge of such counsel, no litigation or administrative
proceeding or investigation of or before any court or governmental body
currently is pending or threatened as to the MFS Trust or the MFS Fund or
any of the MFS Trust's properties or assets, and the MFS Trust is not a
party to or subject to the provisions of any order, decree or judgment of
any court or governmental body, which materially and adversely affects its
business or its ability to consummate the transactions contemplated hereby.
Such opinion shall also state that while such counsel has not verified, and
is not passing upon and does not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Registration Statement, he generally reviewed and discussed certain of such
statements with certain officers of the MFS Trust and that in the course of
such review and discussion no facts came to the attention of such counsel
which led him to believe that, on the effective date of the Registration
Statement or on the date of the Advantage Fund shareholders' meeting and
only insofar as such statements relate to the MFS Trust and the MFS Fund,
the Registration Statement contained any statement which, in the light of
the circumstances under which it was made, was false or misleading with
respect to any material fact or which omitted to state any material fact
required to be stated therein or necessary to make the statements therein
not false or misleading. Such opinion may state that such counsel does not
express any opinion or belief as to the financial statements or other
financial or statistical data, or as to the information relating to the
Advantage Trust or the Advantage Fund, contained in the Proxy Statement or
Registration Statement. Such opinion may also state that such opinion is
solely for the benefit of the Advantage Trust, its Board of Trustees and
its officers and of the Advantage Fund. Such opinion shall also include
such other matters incidental to the transaction contemplated hereby as the
Advantage Trust may reasonably request.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE MFS TRUST
The obligations of the MFS Trust to complete the transactions provided for
herein shall be, at its election, subject to the performance by the Advantage
Trust of all the obligations to be performed by it hereunder on or before the
Closing Date and, in addition thereto, the following conditions:
7.1 All representations and warranties of the Advantage Trust and the Advantage
Fund contained in this Agreement shall be true and correct in all material
respects as of the date hereof and, except as they may be affected by the
transactions contemplated by this Agreement, as of the Closing Date with the
same force and effect as if made on and as of the Closing Date;
7.2 The Advantage Trust shall have delivered to the MFS Trust the Statement of
Assets and Liabilities, together with a list of the Advantage Fund's portfolio
securities showing the federal income tax bases and holding periods of such
securities, as of the Closing Date, certified by the Treasurer or Assistant
Treasurer of the Advantage Trust;
7.3 The Advantage Trust shall have delivered to the MFS Trust on the Closing
Date a certificate executed in its name by its President, Vice President,
Secretary or its Assistant Secretary and its Treasurer or Assistant Treasurer,
in form and substance satisfactory to the MFS Trust and dated as of the Closing
Date, to the effect that the representations and warranties of the Advantage
Trust in this Agreement are true and correct at and as of the Closing Date,
except as they may be affected by the transactions contemplated by this
Agreement, and as to such other matters as the MFS Trust shall reasonably
request;
7.4 The MFS Trust shall have received on the Closing Date a favorable opinion
from Ropes & Gray, counsel to the the Advantage Trust, in a form satisfactory to
the MFS Trust to the effect that:
(a) the Advantage Trust is a business trust duly organized and validly
existing under the laws of The Commonwealth of Massachusetts and has power
to own all of its properties and assets and to carry on its business as
currently conducted; (b) the Agreement has been duly authorized, executed
and delivered by the Advantage Trust and, assuming that the MFS Fund
Prospectus, the Registration Statement and the Proxy Statement comply with
the 1933 Act, the 1934 Act and the 1940 Act and the rules and regulations
thereunder, and assuming due authorization, execution and delivery of the
Agreement by the MFS Trust, is a valid and binding obligation of the
Advantage Trust enforceable against the Advantage Trust and the Advantage
Fund in accordance with its terms, except as the same may be limited by
bankruptcy, insolvency, reorganization or other similar laws affecting the
enforcement of creditors' rights generally and other equitable principles;
(c) the
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<PAGE> 39
execution and delivery of the Agreement did not, and the consummation of
the transactions contemplated hereby will not, violate the Advantage
Trust's Declaration of Trust or By-Laws, or any material provision of any
agreement (known to such counsel) to which the Advantage Trust is a party
or by which it or the Advantage Fund is bound; (d) to the knowledge of such
counsel, no consent, approval, authorization or order of any court or
governmental authority is required for the consummation by the Advantage
Trust of the transactions contemplated herein, except such as have been
obtained under the 1933 Act, the 1934 Act and the 1940 Act, and such as may
be required under state securities laws; (e) the descriptions in the Proxy
Statement of statutes, legal and governmental proceedings and contracts and
other documents, if any, only insofar as they relate to the Advantage Trust
and the Advantage Fund, are accurate in all material respects; (f) such
counsel does not know of any legal or governmental proceedings existing on
or before the date of mailing the Proxy Statement or the Closing Date, only
insofar as they relate to the Advantage Trust or the Advantage Fund,
required to be described in the Proxy Statement which are not described as
required; (g) to the knowledge of such counsel, the Advantage Trust is a
duly registered investment company and its registration with the Securities
and Exchange Commission as an investment company under the 1940 Act is in
full force and effect; and (h) to the best knowledge of such counsel, no
litigation or administrative proceeding or investigation of or before any
court or governmental body is currently pending or threatened as to the
Advantage Trust or any of its properties or assets and the Advantage Trust
is not a party to or subject to the provisions of any order, decree or
judgment of any court or governmental body, which materially and adversely
affects its business or its ability to consummate the transactions
contemplated hereby. Such opinion shall also state that while such counsel
have not verified, and are not passing upon and do not assume any
responsibility for the accuracy, completeness or fairness of the statements
contained in the Proxy Statement, they generally reviewed and discussed
certain of such statements with certain officers of the Advantage Trust and
that in the course of such review and discussion no facts came to the
attention of such counsel which led them to believe that, on the effective
date of the Registration Statement or on the date of the Advantage Fund
shareholders' meeting and only insofar as such statements relate to the
Advantage Trust or the Advantage Fund, the Proxy Statement contained any
statement which, in the light of the circumstances under which it was made,
was false or misleading with respect to any material fact or which omitted
to state any material fact required to be stated therein or necessary to
make the statements therein not false or misleading. Such opinion may state
that such counsel does not express any opinion or belief as to the
financial statements or other financial or statistical data, or as to the
information relating to the MFS Trust and the MFS Fund, contained in the
Proxy Statement or Registration Statement. Such opinion may also state that
such opinion is solely for the benefit of the MFS Trust, its Board of
Trustees and its officers and of the MFS Fund. Such opinion shall also
include such other matters incident to the transaction contemplated hereby
as the MFS Trust may reasonably request; and
7.5 Any shares of the Advantage Fund issued in order to provide the initial
capital of the Advantage Trust as required by Section 14(a) of the 1940 Act and
outstanding as of the date of this Agreement shall have been redeemed and the
proceeds of such redemption reduced by the amount of any unamortized
organizational expenses allocated to the Advantage Fund prior to the Valuation
Date.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE MFS TRUST AND ADVANTAGE
TRUST
The obligations of the Advantage Trust hereunder are, at the option of the MFS
Trust, and the obligations of the MFS Trust hereunder are, at the option of the
Advantage Trust, each subject to the further conditions that on or before the
Closing Date:
8.1 The Agreement and the transactions contemplated herein shall have been
approved by the requisite vote of the holders of the outstanding shares of
beneficial interest of the Advantage Fund in accordance with the provisions of
the Advantage Trust's Declaration of Trust and By-Laws, and certified copies of
the resolutions evidencing such approval shall have been delivered to the MFS
Trust;
8.2 On the Closing Date no action, suit or other proceeding shall be pending
before any court or governmental agency in which it is sought to restrain or
prohibit, or obtain damages or other relief in connection with, this Agreement
or the transactions contemplated herein;
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<PAGE> 40
8.3 All consents of other parties and all other consents, orders and permits of
federal, state and local regulatory authorities (including those of the
Commission and of state Blue Sky and securities authorities, including "no-
action" positions of such federal or state authorities) deemed necessary by the
MFS Trust or the Advantage Trust to permit consummation, in all material
respects, of the transactions contemplated hereby shall have been obtained,
except where failure to obtain any such consent, order or permit would not
involve a risk of a material adverse effect on the assets or properties of the
MFS Fund or the Advantage Fund, provided that either the MFS Trust or the
Advantage Trust may waive any such conditions for itself or for the MFS Fund or
the Advantage Fund, respectively;
8.4 The Registration Statement shall have become effective under the 1933 Act
and no stop orders suspending the effectiveness thereof shall have been issued
and, to the best knowledge of the parties hereto, no investigation or proceeding
for that purpose shall have been instituted or be pending, threatened or
contemplated under the 1933 Act;
8.5 The Advantage Fund shall have distributed to its shareholders all of the
excess of (i) its investment income excludable from gross income under Section
103(a) of the Code over (ii) its deductions disallowed under Sections 265 and
171(a)(2) of the Code, all of its investment company taxable income as defined
in Section 852(b)(2) of the Code and all of its net capital gain as such term is
used in Section 852(b)(3)(C) of the Code, after reduction by any capital loss
carryforward, in each case for its taxable year ending December 31, 1994 and its
short taxable year ending on the Closing Date;
8.6 The parties shall have received an opinion of Ropes & Gray, satisfactory to
the Advantage Trust and the MFS Trust, substantially to the effect that for
federal income tax purposes:
(a) The acquisition by the MFS Fund of all of the assets of the
Advantage Fund, solely in exchange for MFS Fund Shares and the assumption
by the MFS Fund of the stated liabilities of the Advantage Fund, followed
by the MFS Fund, followed by the distribution by the Advantage Fund of the
MFS Fund Shares in complete liquidation to the shareholders of the
Advantage Fund in exchange for their Advantage Fund shares of beneficial
interest and the termination of the Advantage Trust, will constitute a
reorganization within the meaning of Section 368(a) of the Code, and the
Advantage Fund and the MFS Fund will each be "a party to a reorganization"
within the meaning of Section 368(b) of the Code;
(b) No gain or loss will be recognized by the Advantage Fund upon the
transfer of all of its assets to the MFS Fund solely in exchange for MFS
Fund Shares and the assumption by the MFS Fund of the stated liabilities of
the Advantage Fund or upon the distribution to the Advantage Fund
shareholders of such MFS Fund Shares pursuant to the Agreement;
(c) No gain or loss will be recognized by the MFS Fund upon the
receipt of the assets of the Advantage Fund solely in exchange for MFS Fund
Shares and the assumption by the MFS Fund of the stated liabilities of the
Advantage Fund;
(d) The basis of the assets of the Advantage Fund acquired by the MFS
Fund will be, in each instance, the same as the basis of those assets in
the hands of the Advantage Fund immediately prior to the transfer;
(e) The holding period of the assets of the Advantage Fund in the
hands of the MFS Fund will include, in each instance, the holding period of
such assets in the hands of the Advantage Fund;
(f) The shareholders of the Advantage Fund will not recognize gain or
loss upon the exchange of all of their Advantage Fund shares of beneficial
interest solely for MFS Fund Shares as part of the transaction;
(g) The basis of the MFS Fund Shares to be received by each Advantage
Fund shareholder will be, in the aggregate, the same as the basis, in the
aggregate, of the Advantage Fund shares of beneficial interest surrendered
by such shareholder in exchange therefor; and
(h) The holding period of the MFS Fund Shares to be received by each
Advantage Fund shareholder will include the holding period of the Advantage
Fund shares of beneficial interest surrendered by such shareholder in
exchange therefor, provided the Advantage Fund shares were held by such
shareholder as capital assets on the date of the exchange.
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<PAGE> 41
The MFS Trust and the Advantage Trust each agree to make and provide
representations with respect to the MFS Fund and the Advantage Fund,
respectively, which are reasonably necessary to enable legal counsel to deliver
an opinion substantially as set forth in this paragraph 8.6. Notwithstanding
anything herein to the contrary, the MFS Trust and the Advantage Trust may not
waive in any material respect the conditions set forth in this paragraph 8.6;
and
8.7 Separate agreements and plans of reorganization shall be approved by the
vote of not less than a majority of the outstanding shares of The National
Portfolio and The Pennsylvania Portfolio (each of which is a separate series of
the Advantage Trust), respectively, which, subject to such approvals and the
satisfaction of certain other conditions, will transfer all of their respective
assets to the MFS Municipal Income Fund and the MFS Pennsylvania Municipal Bond
Fund (each of which is a separate series of the MFS Trust), respectively, in
separate transactions, which are substantially similar to the Reorganization,
scheduled to occur contemporaneously with the Reorganization (the "Related
Reorganizations").
9. BROKERAGE FEES AND EXPENSES; CONTINGENT DEFERRED SALES CHARGES; CERTAIN TAX
MATTERS; CERTAIN RECORDS
9.1 The MFS Trust and the Advantage Trust each represents and warrants to the
other that there are no brokers or finders entitled to receive any payments from
either party to this Agreement in connection with the transactions provided for
herein.
9.2 Except to the extent that, pursuant to an agreement dated February 7, 1995,
(i) The Advest Group, Inc. has agreed to pay all of the following expenses
associated with the Reorganization: (a) typesetting the Registration Statement;
(b) printing the Proxy Statement and the Advantage Fund Prospectus; (c) mailing
the Proxy Statement, the MFS Fund Prospectus, other than the MFS Fund Statement
of Additional Information (the "MFS Fund SAI"), the MFS Fund Semi-Annual Report
for the six month period ended September 30, 1994 and, if requested, the MFS
Fund SAI and the Advantage Fund Prospectus to shareholders of the Advantage Fund
in connection with the Meeting; and (d) any solicitation and Meeting expenses
associated with the Meeting; and (ii) The Advest Group, Inc. and Massachusetts
Financial Services Company ("MFS") have each agreed to pay 50% of the reasonable
legal expenses of the MFS Fund and the Advantage Fund incurred in connection
with the Reorganization, provided that MFS' maximum obligation in relation to
the Reorganization and the Related Reorganizations is limited to $25,000 in the
aggregate; the MFS Fund and the Advantage Fund will each be liable for its own
expenses incurred in connection with entering into and carrying out the
provisions of this Agreement whether or not the Reorganization is consummated.
9.3 MFS Fund Shares issued in connection with the transactions contemplated
herein will not be subject to any initial sales charge; however, if any
Advantage Fund shares are at the Closing Date subject to a contingent deferred
sales charge ("CDSC"), the MFS Fund CDSC schedule for shares purchased on or
after September 1, 1993 and the methodology of aging such shares as set forth in
the MFS Fund Prospectus will apply to the MFS Fund Shares issued in respect of
such Advantage Fund shares and the MFS Fund Shares received by Advantage Fund
shareholders pursuant to paragraph 1.4 hereof will, for purposes of calculating
the CDSC, if applicable, and determining when the MFS Fund Shares will convert
to Class A shares of the MFS Fund, be treated as if purchased by the Advantage
Fund shareholders forty-two months prior to the Closing Date.
9.4 The Advantage Trust agrees that it or its designee shall, on behalf of the
Advantage Fund, file or furnish all federal, state and other tax returns, forms
and reports, including information returns and payee statements, if applicable,
of the Advantage Fund required by law to be filed or furnished by such dates as
required by law to be filed or furnished, and shall provide such other federal
and state tax information to shareholders of the Advantage Fund as has been
customarily provided by the Advantage Fund, all with respect to the fiscal
period commencing January 1, 1995 and ending on the Closing Date.
9.5 The Advantage Trust agrees that it or its designee shall, on behalf of the
Advantage Fund, deliver to MFS on the Closing Date or as soon thereafter as
possible: (i) Advantage Fund shareholder statements and tax forms (i.e., Forms
1099) for the year ended December 31, 1993, the year ended December 31, 1994 and
the period commencing January 1, 1995 through the Closing Date (all on microfilm
or microfiche, if available); (ii) detailed records indicating the status of all
certificates representing ownership of Advantage Fund shares issued since
inception of the Advantage Fund (e.g., indicating whether the certificates are
outstanding or cancelled); and (iii) for
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<PAGE> 42
each Advantage Fund shareholder as of the Valuation Date, a record indicating
the dollar amount of such shareholder's Advantage Fund share holdings as of such
Date representing that portion of such holdings subject to a CDSC as of such
Date and that portion of such holdings not subject to a CDSC as of such Date,
together with such other information with respect thereto as MFS may reasonably
request.
10. ENTIRE AGREEMENT
The MFS Trust and the Advantage Trust agree that neither party has made any
representation, warranty or covenant not set forth herein or referred to in
paragraph 4 hereof or required in connection with paragraph 8.6 hereof and that
this Agreement constitutes the entire agreement between the parties.
11. TERMINATION
11.1 This Agreement may be terminated by the mutual agreement of the MFS Trust
and the Advantage Trust. In addition, either party may at its option terminate
this Agreement at or prior to the Closing Date because of:
(a) a material breach by the other of any representation, warranty or
agreement contained herein to be performed at or prior to the Closing Date;
or
(b) a condition herein expressed to be precedent to the obligations of
the terminating party which has not been met and which reasonably appears
will not or cannot be met.
11.2 In the event of any such termination, there shall be no liability for
damages on the part of either the MFS Trust or the Advantage Trust, or their
respective trustees or officers, to the other party or its trustees or officers,
but each shall bear the expenses incurred by it incidental to the preparation
and carrying out of this Agreement.
12. AMENDMENTS
This Agreement may be amended, modified or supplemented in such manner as may be
mutually agreed upon in writing by the authorized officers of the Advantage
Trust and the MFS Trust; provided, however, that following the meeting of
shareholders called by the Advantage Trust pursuant to paragraph 5.2 of this
Agreement, no such amendment may have the effect of changing the provisions for
determining the number of MFS Fund Shares to be issued to the Advantage Fund
shareholders under this Agreement to the detriment of such shareholders without
their further approval; and provided further that nothing contained in this
Article 12 shall be construed to prohibit the parties from amending this
Agreement to change the Closing Date or the Valuation Date.
13. NOTICES
Any notice, report, statement or demand required or permitted by any provisions
of this Agreement shall be in writing and shall be given by prepaid telegraph,
telecopy or certified mail addressed to the MFS Trust, 500 Boylston Street,
Boston, Massachusetts 02116, Attention: President, or to the Advantage Trust,
100 Federal Street, Boston, Massachusetts 02110, Attention: President, in either
case with a copy to Stephen E. Cavan, General Counsel, MFS, 500 Boylston Street,
Boston, Massachusetts 02116, and to Ropes & Gray, One International Place,
Boston, Massachusetts 02110, Attention: John M. Loder, Esq.
14. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT
14.1 The article and paragraph headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
14.2 This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
14.3 This Agreement shall be governed by and construed in accordance with the
laws of The Commonwealth of Massachusetts.
14.4 This Agreement shall bind and inure to the benefit of the parties hereto
and their respective successors and assigns, but no assignment or transfer
hereof or of any rights or obligations hereunder shall be made by any party
without the written consent of the other party. Nothing herein expressed or
implied is intended or shall be construed
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<PAGE> 43
to confer upon or give any person, firm or corporation, other than the parties
hereto and their respective successors and assigns, any rights or remedies under
or by reason of this Agreement.
14.5 A copy of the MFS Trust's Declaration of Trust is on file with the
Secretary of State of The Commonwealth of Massachusetts. The Advantage Trust
acknowledges that the obligations of or arising out of this instrument are not
binding upon any of the MFS Trust's trustees, officers, employees, agents or
shareholders individually, but are binding solely upon the assets and property
of the MFS Trust in accordance with its proportionate interest hereunder. The
Advantage Trust further acknowledges that the assets and liabilities of each
series of the MFS 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 MFS Trust has executed this instrument.
14.6 A copy of the Advantage Trust's Declaration of Trust is on file with the
Secretary of State of The Commonwealth of Massachusetts. The MFS Trust
acknowledges that the obligations of or arising out of this instrument are not
binding upon any of the Advantage Trust's trustees, officers, employees, agents
or shareholders individually, but are binding solely upon the assets and
property of the Advantage Trust in accordance with its proportionate interest
hereunder. The MFS Trust further acknowledges that the assets and liabilities of
each series of the Advantage 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 Advantage Trust has
executed this instrument.
14.7 Notwithstanding Article 12 of the Agreement, but subject to the first
proviso contained therein, either party to this Agreement, with the consent of
its President, Vice President, Secretary or its Assistant Secretary, may waive
any condition or covenant to which the other party is subject or may modify such
condition or covenant in a manner deemed appropriate by any such officer.
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<PAGE> 44
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
executed by its Chairman or President and its seal to be affixed thereto and
attested by its Secretary or Assistant Secretary.
Attest: THE ADVANTAGE MUNICIPAL BOND FUND,
on its behalf and on behalf of THE
DAVID A. HOROWITZ NEW YORK PORTFOLIO, one of its series
____________________________
DAVID A. HOROWITZ, SECRETARY ROBERT L. THOMAS
AND NOT INDIVIDUALLY By:_________________________________
ROBERT L. THOMAS, PRESIDENT AND
NOT INDIVIDUALLY
Attest: MFS MUNICIPAL SERIES TRUST, on its
behalf and on behalf of MFS NEW
YORK MUNICIPAL BOND FUND, one of
STEPHEN E. CAVAN its series
___________________________
STEPHEN E. CAVAN, SECRETARY A. KEITH BRODKIN
AND NOT INDIVIDUALLY By:________________________________
A. KEITH BRODKIN, PRESIDENT
AND NOT INDIVIDUALLY
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<PAGE> 45
THE NEW YORK PORTFOLIO
a series of
THE ADVANTAGE MUNICIPAL BOND FUND
100 Federal Street
Boston, MA 02110
<PAGE> 46
MFS NEW YORK BOND FUND
STATEMENT OF ADDITIONAL INFORMATION
("COMBINED SAI")
MARCH 29, 1995
This Combined SAI is not a prospectus but should be read in conjunction with the
related Proxy Statement and Prospectus (the "Prospectus") dated March 29, 1995
which covers shares of beneficial interest of MFS New York Municipal Bond Fund
(the "MFS Fund"), a series of MFS Municipal Series Trust (the "MFS Trust"), to
be issued in exchange for all of the net assets of The New York Portfolio (the
"Advantage Fund"), a series of The Advantage Municipal Bond Fund (the "Advantage
Trust"). Please retain this Combined SAI for further reference.
To obtain additional copies of the Prospectus or Combined SAI, please call
Advest Transfer Services, Inc. at 800-544-9268.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NUMBER
-----------
<S> <C>
Introduction................................................................... 2
Additional Information About the Advantage Fund................................ 2
Cover Page and Table of Contents.......................................... 2
General Information and History........................................... 2
Investment Objective and Policies......................................... 2
Management of the Advantage Fund.......................................... 2
Investment Advisory and Other Services.................................... 2
Brokerage Allocation and Portfolio Turnover............................... 2
Shares of Beneficial Interest............................................. 2
Redemption and Pricing of Shares.......................................... 3
Tax Status................................................................ 3
Distribution Agreement.................................................... 3
Performance Information................................................... 3
Financial Statements...................................................... 3
Additional Information About the MFS Fund...................................... 3
Cover Page and Table of Contents.......................................... 3
General Information and History........................................... 3
Investment Objective and Policies......................................... 3
Management of the MFS Fund................................................ 3
Principal Holders of Securities........................................... 3
Investment Advisory and Other Services.................................... 3
Brokerage Allocation and Portfolio Turnover............................... 4
Shares of Beneficial Interest............................................. 4
Purchase, Redemption and Pricing of Shares................................ 4
Tax Status................................................................ 4
Distribution Agreement.................................................... 4
Performance Information................................................... 4
Financial Statements...................................................... 4
Exhibits
A -- The MFS Fund SAI, dated June 1, 1994, as supplemented, together with
the MFS Fund Annual Report for the year ended January 31, 1994, the
Annual Report for the two months ended March 31, 1994 and the
Semi-Annual Report for the six months ended September 30, 1994
B -- The Advantage Fund Prospectus dated April 18, 1994, as supplemented
C -- The Advantage Fund SAI dated April 18, 1994, as supplemented,
together with the Advantage Fund Annual Report for the year ended
December 31, 1994 and the Annual Report for the year ended December
31, 1993
</TABLE>
<PAGE> 47
INTRODUCTION
This Combined SAI is intended to supplement the information provided in the
Prospectus. The Prospectus has been sent to the shareholders of the Advantage
Fund in connection with the solicitation of proxies by the management of the
Advantage Fund to be voted at the Special Meeting of Shareholders of the
Advantage Fund to be held on April 28, 1995. This Combined SAI includes the
Statement of Additional Information of the MFS Fund dated June 1, 1994 (the "MFS
Fund SAI"), the Annual Report of the MFS Fund for the year ended January 31,
1994 (the "MFS Fund's Annual Report"), the Annual Report of the MFS Fund for the
two months ended March 31, 1994 (the "MFS Fund's Interim Annual Report"), the
Semi-Annual Report of the MFS Fund for the six-month period ended September 30,
1994 (the "MFS Fund's Semi-Annual Report"), the Prospectus of the Advantage Fund
dated April 18, 1994, as supplemented (the "Advantage Fund Prospectus"), the
Statement of Additional Information of the Advantage Fund dated April 18, 1994,
as supplemented (the "Advantage Fund SAI"), the Annual Report of the Advantage
Fund for the year ended December 31, 1994 (the "Advantage Fund's 1994 Annual
Report") and the Annual Report for the Advantage Fund for the year ended
December 31, 1993 (the "Advantage Fund's 1993 Annual Report"). Each of the MFS
Fund SAI, together with the financial statements from the MFS Fund's Annual
Report, MFS Fund's Interim Annual Report and the MFS Fund's Semi-Annual Report,
the Advantage Fund Prospectus and the Advantage Fund SAI, together with the
financial statements from the Advantage Fund's 1994 Annual Report and the
Advantage Fund's 1993 Annual Report, is included with this Combined SAI as
Exhibits A, B and C, respectively, and is incorporated herein by reference.
ADDITIONAL INFORMATION ABOUT THE ADVANTAGE FUND
COVER PAGE AND TABLE OF CONTENTS
See the cover page and inside cover page of the Advantage Fund SAI.
GENERAL INFORMATION AND HISTORY
For additional information about the Advantage Fund generally and its history,
see "Description of the Fund" in the Advantage Fund SAI.
INVESTMENT OBJECTIVE AND POLICIES
For additional information about the Advantage Fund's investment objective and
policies, see "Investment Policies and Techniques" and "Investment Restrictions"
in the Advantage Fund SAI.
MANAGEMENT OF THE ADVANTAGE FUND
For additional information about the Advantage Trust's Trustees and officers,
see "Trustees and Officers" in the Advantage Fund SAI.
INVESTMENT ADVISORY AND OTHER SERVICES
For additional information about the Advantage Fund's investment adviser,
custodian, principal underwriter, shareholder servicing agent and independent
accountants, see "Investment Adviser," "Transfer Agent and Dividend Disbursing
Agent," "Distribution Agreement and Rule 12b-1 Plans" and "Financial Statements"
in the Advantage Fund SAI, and the Advantage Fund's 1994 Annual Report and the
Advantage Fund's 1993 Annual Report.
BROKERAGE ALLOCATION AND PORTFOLIO TURNOVER
For additional information about the Advantage Fund's brokerage allocation
practices and portfolio turnover rate, see "Portfolio Transactions" in the
Advantage Fund SAI, and the Advantage Fund's 1994 Annual Report and the
Advantage Fund's 1993 Annual Report.
SHARES OF BENEFICIAL INTEREST
For additional information about the voting rights and other characteristics of
the Advantage Fund shares of beneficial interest, see "Description of the Fund"
in the Advantage Fund SAI.
2
<PAGE> 48
REDEMPTION AND PRICING OF SHARES
For additional information about the redemption of the Advantage Fund shares of
beneficial interest and the determination of net asset value, see "Special
Redemptions" and "Net Asset Value" in the Advantage Fund SAI.
TAX STATUS
For additional information about tax matters affecting the Advantage Fund and
its shareholders, see "Taxation" in the Advantage Fund SAI.
DISTRIBUTION AGREEMENT
For additional information about the Advantage Fund's distributor and the
distribution agreement between the distributor and the Advantage Fund, see
"Distribution Agreement and Rule 12B-1 Plans" in the Advantage Fund SAI.
PERFORMANCE INFORMATION
For additional information about the investment performance of the Advantage
Fund, see "Net Asset Value" and "Performance Information" in the Advantage Fund
SAI, and the Advantage Fund's 1994 Annual Report and the Advantage Fund's 1993
Annual Report.
FINANCIAL STATEMENTS
Audited financial statements of the Advantage Fund as at December 31, 1994 are
set forth in the Advantage Fund's 1994 Annual Report, and audited financial
statements of the Advantage Fund as at December 31, 1993 are set forth in the
Advantage Fund's 1993 Annual Report, each of which is attached hereto as Exhibit
C.
ADDITIONAL INFORMATION ABOUT THE MFS FUND
COVER PAGE AND TABLE OF CONTENTS
See the cover page of the MFS Fund SAI.
GENERAL INFORMATION AND HISTORY
For additional information about the MFS Fund generally and its history, see
"The Trust" and "Description of Shares, Voting Rights and Liabilities" in the
MFS Fund SAI.
INVESTMENT OBJECTIVE AND POLICIES
For additional information about the MFS Fund's investment objective and
policies, see "Investment Objective, Policies and Restrictions" in the MFS Fund
SAI.
MANAGEMENT OF THE MFS FUND
For additional information about the MFS Trust's Trustees and officers, see
"Management of the Trust" in the MFS Fund SAI.
PRINCIPAL HOLDERS OF SECURITIES
For additional information about principal holders of the shares of beneficial
interest of the MFS Fund, see "Management of the Trust" in the MFS Fund SAI.
INVESTMENT ADVISORY AND OTHER SERVICES
For additional information about the MFS Fund's investment adviser, custodian,
principal underwriter, shareholder servicing agent and independent accountants,
see "Management of the Trust," "Management of the Trust -- Investment Adviser,
Custodian, Shareholder Servicing Agent and Distributor" and "Independent
Accountants and Financial Statements" in the MFS Fund SAI and the MFS Fund's
Annual Report, the MFS Fund's Interim Annual Report and the MFS Fund's
Semi-Annual Report.
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BROKERAGE ALLOCATION AND PORTFOLIO TURNOVER
For additional information about the MFS Fund's brokerage allocation practices
and portfolio turnover rate, see "Portfolio Transactions" in the MFS Fund SAI,
and the MFS Fund's Annual Report, the MFS Fund's Interim Annual Report and the
MFS Fund's Semi-Annual Report.
SHARES OF BENEFICIAL INTEREST
For additional information about the voting rights and other characteristics of
the MFS Fund shares of beneficial interest, see "Description of Shares, Voting
Rights and Liabilities" in the MFS Fund SAI.
PURCHASE, REDEMPTION AND PRICING OF SHARES
For additional information about the purchase and redemption of the MFS Fund
shares of beneficial interest and the determination of net asset value, see
"Shareholder Services," "Management of the Trust -- Distributor" and
"Determination of Public Offering Price and Net Asset Value; Valuation of
Portfolio Securities" in the MFS Fund SAI.
TAX STATUS
For additional information about tax matters affecting the MFS Fund and its
shareholders, see "Taxation" in the MFS Fund SAI.
DISTRIBUTION AGREEMENT
For additional information about the MFS Fund's distributor and the distribution
agreement between the distributor and the MFS Fund, see "Management of the Trust
-- Distributor" in the MFS Fund SAI.
PERFORMANCE INFORMATION
For additional information about the investment performance of the MFS Fund, see
"Performance Information" in the MFS Fund SAI, and the MFS Fund's Annual Report,
the MFS Fund Interim Annual Report and the MFS Fund's Semi-Annual Report.
FINANCIAL STATEMENTS
Audited financial statements of the MFS Fund as at January 31, 1994 and March
31, 1994, and unaudited financial statements of the MFS Fund as at September 30,
1994, are set forth in the MFS Fund's Annual Report, the MFS Fund's Interim
Annual Report and the MFS Fund's Semi-Annual Report, respectively, included in
Exhibit A hereto.
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