<PAGE>
As filed with the Securities and Exchange Commission on April 26, 1996
1933 Act File No. 2-96738
1940 Act File No. 811-4253
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM N-1A
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 16
AND
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 17
MFS GOVERNMENT LIMITED MATURITY FUND
(Exact Name of Registrant as Specified in Charter)
500 Boylston Street, Boston, Massachusetts 02116
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code: 617-954-5000
Stephen E. Cavan, Massachusetts Financial Services Company
500 Boylston Street, Boston, Massachusetts 02116
(Name and Address of Agent for Service)
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
It is proposed that this filing will become effective (check appropriate box)
|_| immediately upon filing pursuant to paragraph (b)
|X| on April 29, 1996 pursuant to paragraph (b)
|_| 60 days after filing pursuant to paragraph (a)(i)
|_| on [date] pursuant to paragraph (a)(i)
|_| 75 days after filing pursuant to paragraph (a)(ii)
|_| on [date] pursuant to paragraph (a)(ii) of rule 485.
If appropriate, check the following box:
|_| this post-effective amendment designates a new effective date for
a previously filed post-effective amendment
Pursuant to Rule 24f-2, the Registrant has registered an indefinite number of
its shares of Beneficial Interest (without par value), under the Securities Act
of 1933. The Registrant filed a Rule 24f-2 Notice with respect to its fiscal
year ended December 31, 1995 on February 26, 1996.
<PAGE>
MFS GOVERNMENT LIMITED MATURITY FUND
CROSS REFERENCE SHEET
(Pursuant to Rule 404 showing location in Prospectus and/or Statement of
Additional Information of the responses to the Items in Parts A and B of Form
N-1A).
<TABLE>
<CAPTION>
ITEM NUMBER STATEMENT OF ADDITIONAL
FORM N-1A, PART A PROSPECTUS CAPTION INFORMATION CAPTION
- ----------------- ------------------ ----------------------
<S> <C> <C>
1 (a), (b) Front Cover Page *
2 (a) Expense Summary *
(b), (c) * *
3 (a) Condensed Financial Information *
(b) * *
(c) Information Concerning Shares of *
the Fund - Performance Information
(d) Condensed Financial Information *
4 (a) The Fund; Investment Objective *
and Policies
(b), (c) Investment Objective and Policies *
5 (a) The Fund; Management of the *
Fund - Investment Adviser
(b) Front Cover Page; Management of *
the Fund - Investment Adviser;
Back Cover Page
(c), (d) Management of the Fund - *
Investment Adviser
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ITEM NUMBER STATEMENT OF ADDITIONAL
FORM N-1A, PART A PROSPECTUS CAPTION INFORMATION CAPTION
- ----------------- ------------------ ----------------------
<S> <C> <C>
(e) Management of the Fund - *
Shareholder Servicing Agent;
Back Cover Page
(f) Expense Summary; Condensed *
Financial Information
(g) Information Concerning Shares *
of the Fund - Purchases
5A (a), (b), (c) ** **
6 (a) Information Concerning Shares *
of the Fund - Description of
Shares, Voting Rights and
Liabilities; Information Concerning
Shares of the Fund - Redemptions
and Repurchases; Information
Concerning Shares of the Fund -
Purchases; Information Concerning
Shares of the Fund - Exchanges
(b), (c), (d) * *
(e) Shareholder Services *
(f) Information Concerning Shares *
of the Fund - Distributions;
Shareholder Services - Distribution
Options
(g) Information Concerning Shares *
of the Fund - Tax Status;
Information Concerning Shares
of the Fund - Distributions
(h) * *
7 (a) Front Cover Page; Management *
of the Fund - Distributor;
Back Cover Page
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
ITEM NUMBER STATEMENT OF ADDITIONAL
FORM N-1A, PART A PROSPECTUS CAPTION INFORMATION CAPTION
- ----------------- ------------------ ----------------------
<S> <C> <C>
(b) Information Concerning Shares *
of the Fund - Purchases; Net
Asset Value
(c) Information Concerning Shares *
of the Fund - Purchases;
Information Concerning Shares
of the Fund - Exchanges;
Shareholder Services
(d) Front Cover Page; Information *
Concerning Shares of the Fund -
Purchases
(e) Information Concerning Shares *
of the Fund - Distribution Plan;
Expense Summary
(f) Information Concerning Shares *
of the Fund - Distribution Plan
8 (a) Information Concerning Shares *
of the Fund - Redemptions and
Repurchases; Information
Concerning Shares of the Fund -
Purchases
(b), (c), (d) Information Concerning Shares *
of the Fund - Redemptions and
Repurchases
9 * *
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
ITEM NUMBER STATEMENT OF ADDITIONAL
FORM N-1A, PART B PROSPECTUS CAPTION INFORMATION CAPTION
- ----------------- ------------------ ----------------------
<S> <C> <C>
10 (a), (b) * Front Cover Page
11 * Front Cover Page
12 * Definitions
13 (a), (b), (c) * Investment Objective,
Policies and Restrictions
(d) * *
14 (a), (b) * Management of the Fund -
Trustees and Officers
(c) * Management of the Fund -
Trustees and Officers;
Appendix A
15 (a) * *
(b), (c) * Management of the Fund -
Trustees and Officers
16 (a) Management of the Fund - Management of the Fund -
Investment Adviser Investment Adviser;
Management of the Fund -
Trustees and Officers
(b) Management of the Fund - Management of the Fund -
Investment Adviser Investment Adviser
(c) * *
(d) * Management of the Fund -
Investment Adviser
(e) * Portfolio Transactions and
Brokerage Commissions
(f) Information Concerning Distribution Plan
Shares of the Fund -
Distribution Plan
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
ITEM NUMBER STATEMENT OF ADDITIONAL
FORM N-1A, PART B PROSPECTUS CAPTION INFORMATION CAPTION
- ----------------- ------------------ ----------------------
<S> <C> <C>
(g) * *
(h) * Management of the Fund -
Custodian; Independent
Auditors and Financial
Statements; Back Cover
Page
(i) * Management of Fund -
Shareholder Servicing
Agent
17 (a), (b), (c), * Portfolio Transactions and
(d), (e) Brokerage Commissions
18 (a) Information Concerning Description of Shares
Shares of the Fund - Voting Rights and
Description of Shares, Liabilities
Voting Rights and
Liabilities
(b) * *
19 (a) Information Concerning Shareholder Services
Shares of the Fund - Purchases;
Shareholder Services
(b) Information Concerning Management of the Fund -
Shares of the Fund - Net Distributor; Determination of
Asset Value; Information Net Asset Value and Performance -
Concerning Shares of the Net Asset Value
Fund - Purchases
(c) * *
20 * Tax Status
21 (a), (b) * Management of the Fund -
Distributor; Distribution Plan
(c) * *
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
ITEM NUMBER STATEMENT OF ADDITIONAL
FORM N-1A, PART B PROSPECTUS CAPTION INFORMATION CAPTION
- ----------------- ------------------ ----------------------
<S> <C> <C>
22 (a) * *
(b) * Determination of Net Asset
Value and Performance
23 * Independent Auditors
and Financial Statements
- -----------------------------
* Not Applicable
** Contained in Annual Report
<PAGE>
PROSPECTUS
May 1, 1996
Class A Shares of Beneficial Interest
MFS(R) GOVERNMENT Class B Shares of Beneficial Interest
LIMITED MATURITY FUND Class C Shares of Beneficial
(A Member of the MFS Family of Funds(R)) Interest
- -------------------------------------------------------------------------------
Page
---
1. Expense Summary .................................................. 2
2. The Fund ......................................................... 3
3. Condensed Financial Information .................................. 4
4. Investment Objective and Policies ................................ 6
5. Management of the Fund ........................................... 9
6. Information Concerning Shares of the Fund ........................ 10
Purchases ..................................................... 10
Exchanges ..................................................... 13
Redemptions and Repurchases ................................... 14
Distribution Plans ............................................ 17
Distributions ................................................. 19
Tax Status .................................................... 19
Net Asset Value ............................................... 20
Description of Shares, Voting Rights and Liabilities .......... 20
Performance Information ....................................... 20
7. Shareholder Services ............................................. 21
Appendix A ....................................................... A-1
Appendix B ....................................................... B-1
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
MFS GOVERNMENT LIMITED MATURITY FUND
500 Boylston Street, Boston, Massachusetts 02116 (617) 954-5000
The investment objective of MFS Government Limited Maturity Fund (the "Fund") is
to preserve capital and provide high current income (compared to a portfolio
entirely invested in money market instruments). The Fund will seek to achieve
this objective by investing in obligations issued or guaranteed by the U.S.
Government, its agencies, authorities or instrumentalities. Under normal market
conditions, substantially all of the securities in the Fund's portfolio will
have remaining maturities of five years or less. See "Investment Objective and
Policies." The minimum initial investment generally is $1,000 per account (see
"Information Concerning Shares of the Fund -- Purchases").
The Fund's investment adviser and distributor are Massachusetts Financial
Services Company ("MFS" or the "Adviser") and MFS Fund Distributors, Inc.
("MFD"), respectively, both of which are located at 500 Boylston Street, Boston,
Massachusetts 02116.
INVESTMENT PRODUCTS ARE NOT INSURED BY THE FDIC OR ANY OTHER GOVERNMENT AGENCY,
AND ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR GUARANTEED BY, ANY FINANCIAL
INSTITUTION. SHARES OF MUTUAL FUNDS ARE SUBJECT TO INVESTMENT RISK, INCLUDING
POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED, AND WILL FLUCTUATE IN VALUE. YOU
MAY RECEIVE MORE OR LESS THAN YOU PAID WHEN YOU REDEEM YOUR SHARES.
This Prospectus sets forth concisely the information concerning the Fund that a
prospective investor ought to know before investing. The Fund has filed with the
Securities and Exchange Commission (the "SEC") a Statement of Additional
Information (the "SAI"), dated May 1, 1996, as amended or supplemented from time
to time, which contains more detailed information about the Fund. The SAI is
incorporated into this Prospectus by reference. See page 22 for a further
description of the information set forth in the SAI. A copy of the SAI may be
obtained without charge by contacting the Shareholder Servicing Agent (see back
cover for address and phone number).
INVESTORS SHOULD READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE REFERENCE.
<PAGE>
</TABLE>
<TABLE>
1. EXPENSE SUMMARY
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES: CLASS A CLASS B CLASS C
------- ------- -------
<S> <C> <C> <C>
Maximum Initial Sales Charge Imposed on Purchases of Fund
Shares (as a percentage of public offering price) ........... 2.50% 0.00% 0.00%
Maximum Contingent Deferred Sales Charge (as a percentage of
original purchase price or redemption proceeds, as
applicable) ................................................. See Below(1) 4.00% 1.00%
ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS):
Management Fees ............................................... 0.40% 0.40% 0.40%
Rule 12b-1 Fees ............................................... 0.15%(2) 0.95%(3) 1.00%(3)
Other Expenses(4) ............................................. 0.33% 0.39% 0.33%
---- ---- ----
Total Operating Expenses ...................................... 0.88% 1.74% 1.73%
- ----------
(1) Purchases of $1 million or more and certain purchases by retirement plans
are not subject to an initial sales charge; however, a contingent deferred
sales charge (a "CDSC") of 1% will be imposed on such purchases in the event
of certain redemption transactions within 12 months following such purchases
(see "Information Concerning Shares of the Fund -- Purchases" below).
(2) The Fund has adopted a Distribution Plan for its Class A shares in
accordance with Rule 12b-1 under the Investment Company Act of 1940, as
amended (the "1940 Act"), which provides that it will pay distribution/
service fees aggregating up to (but not necessarily all of) 0.35% per annum
of the average daily net assets attributable to Class A shares (see
"Information Concerning Shares of the Fund -- Distribution Plans" below).
Payment of the 0.10% per annum Class A distribution fee will commence on
such date as the Trustees of the Trust may determine. Service fee payments
in the amount of 0.15% of the average daily net assets of the Fund
attributable to Class A shares are currently being paid by the Fund. Payment
of the remaining portion of the service fee will commence on such date as
the Trustees of the Trust may determine. Distribution expenses paid under
this Plan, together with the initial sales charge, may cause long-term
shareholders to pay more than the maximum sales charge that would have been
permissible if imposed entirely as an initial sales charge.
(3) The Fund has adopted separate Distribution Plans for its Class B and its
Class C shares in accordance with Rule 12b-1 under the 1940 Act, which
provide that it will pay distribution/service fees aggregating up to (but
not necessarily all of) 1.00% per annum of the average daily net assets
attributable to the Class B shares under the Class B Distribution Plan and
the Class C shares under the Class C Distribution Plan (see "Information
Concerning Shares of the Fund -- Distribution Plans" below). Except in the
case of the first year service fee, the Class B service fee is currently set
at 0.15% per annum and may be increased to a maximum of 0.25% per annum on
such date as the Trustees of the Trust may determine. Distribution expenses
paid under these Plans, together with any CDSC payable upon redemption of
Class B and Class C shares, may cause long-term shareholders to pay more
than the maximum sales charge that would have been permissible if imposed
entirely as an initial sales charge.
(4) The Fund has an expense offset arrangement which reduces the Fund's
custodian fee based upon the amount of cash maintained by the Fund with its
custodian and dividend disbursing agent, and may enter into other such
arrangements and directed brokerage arrangements (which would also have the
effect of reducing the Fund's expenses). Any such fee reductions are not
reflected under "Other Expenses."
<PAGE>
EXAMPLE OF EXPENSES
-------------------
An investor would pay the following dollar amounts of expenses on a $1,000
investment in the Fund, assuming (a) 5% annual return and (b) redemption at the
end of each of the time periods indicated (unless otherwise noted):
PERIOD CLASS A CLASS B CLASS C
------ ------- ------------------ -----------------
(1) (1)
1 year ...... $ 34 $ 58 $ 18 $ 28 $ 18
3 years ...... 52 85 55 54 54
5 years ...... 73 114 94 94 94
10 years ...... 131 182(2) 182(2) 204 204
- ----------
(1) Assumes no redemption.
(2) Class B shares convert to Class A shares approximately eight years after
purchase; therefore, years nine and ten reflect Class A expenses.
The purpose of the expense table above is to assist investors in understanding
the various costs and expenses that a shareholder of the Fund will bear directly
or indirectly. More complete descriptions of the following expenses are set
forth in the following sections of this Prospectus: (i) varying sales charges on
share purchases -- "Purchases"; (ii) varying CDSCs -- "Purchases"; (iii)
management fee -- "Investment Adviser"; and (iv) Rule 12b-1 (i.e., distribution
plan) fees -- "Distribution Plans."
THE "EXAMPLE" SET FORTH ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
FUTURE EXPENSES OF THE FUND; ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN.
2. THE FUND
The Fund is an open-end, diversified management investment company which was
originally organized as a business trust under the laws of The Commonwealth of
Massachusetts in 1985 and reorganized in July, 1988. Shares of the Fund are sold
continuously to the public and the Fund uses the proceeds to buy securities
(issued or guaranteed as to principal and interest by the U.S. Government, its
agencies, authorities or instrumentalities) for its portfolio. Shares of the
Fund are not government-guaranteed and will fluctuate in value, whereas bank
certificates of deposit are insured and offer a fixed return and U.S. Treasury
notes guarantee a return of principal and an income return if held to maturity.
Three classes of shares of the Fund are currently offered to the general public.
Class A shares are offered at net asset value plus an initial sales charge up to
a maximum of 2.50% of the offering price (or a CDSC upon redemption of 1.00%
during the first year in the case of certain purchases of $1 million or more and
certain purchases by retirement plans) and are subject to an annual distribution
fee and service fee up to a maximum of 0.35% per annum. Class B shares are
offered at net asset value without an initial sales charge but are subject to a
CDSC upon redemption (declining from 4.00% during the first year to 0% after six
years) and an annual distribution fee and service fee up to a maximum of 1.00%
per annum. Class B shares will convert to Class A shares approximately eight
years after purchase. Class C shares are offered at net asset value without an
initial sales charge but are subject to a CDSC upon redemption of 1.00% during
the first year and an annual distribution fee and service fee up to a maximum of
1.00% per annum. Class C shares do not convert to any other class of shares of
the Fund.
The Fund's Board of Trustees provides broad supervision over the affairs of the
Fund. A majority of the Trustees of the Fund are not affiliated with the
Adviser. The Adviser is responsible for the management of the Fund's assets and
manages the Fund's portfolio from day to day in accordance with its investment
objective and policies. The selection of investments and the way they are
managed depend upon the conditions and trends in the economy and the financial
market places. The Fund also offers to buy back (redeem) its shares from its
shareholders at any time at net asset value, less the applicable CDSC.
<PAGE>
3. CONDENSED FINANCIAL INFORMATION
The following information has been audited for at least the latest five fiscal
years of the Fund and should be read in conjunction with the financial
statements included in the Fund's Annual Report to shareholders which are
incorporated by reference into the SAI in reliance upon the report of the Fund's
independent auditors, given upon their authority, as experts in accounting and
auditing. The Fund's independent auditors are Ernst & Young LLP.
</TABLE>
<TABLE>
FINANCIAL HIGHLIGHTS
CLASS A SHARES
<CAPTION>
YEAR ENDED
YEAR ENDED DECEMBER 31, FEBRUARY 28,
---------------------------------------------------------------------- --------------------------
1995 1994 1993 1992 1991 1990* 1990 1989**
- -----------------------------------------------------------------------------------------------------------------------------------
CLASS A
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD):
Net asset value --
beginning of period .... $ 8.42 $ 8.99 $ 8.98 $ 9.06 $ 9.09 $ 9.33 $ 9.51 $ 9.63
====== ====== ====== ====== ====== ====== ====== ======
Income from investment operations# --
Net investment
income(S) .............. $ 0.59 $ 0.54 $ 0.52 $ 0.49 $ 0.52 $ 0.53 $ 0.69 $ 0.23
Net realized and
unrealized gain (loss)
on investments ......... 0.25 (0.61) 0.10 0.07 0.21 -- 0.10 (0.11)
------ ------ ------ ------ ------ ------ ------ ------
Total from
investment operations $ 0.84 $(0.07) $ 0.62 $ 0.56 $ 0.73 $ 0.53 $ 0.79 $ 0.12
====== ======= ====== ====== ====== ====== ====== ======
Less distributions
declared to shareholders --
From net investment
income ................. $(0.58) $(0.50) $ 0.51) $(0.45) $(0.49) $ 0.48) $(0.67) $ 0.17)
From net realized gain
on investments ......... -- -- (0.10) (0.14) -- -- (0.14) (0.02)
From paid-in capital . -- -- -- (0.05) (0.27) (0.29) (0.16) (0.05)
====== ======= ====== ====== ====== ====== ====== ======
Total distributions
declared to
shareholders ......... $(0.58) $(0.50) $ 0.61) $(0.64) $ 0.76) $(0.77) $(0.97) $(0.24)
====== ====== ====== ====== ====== ====== ====== ======
Net asset value -- end
of period ................ $ 8.68 $ 8.42 $ 8.99 $ 8.98 $ 9.06 $ 9.09 $ 9.33 $ 9.51
====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN++ ............ 10.36% (0.76)% 7.00% 6.51% 8.44% 7.39%+ 8.43% 3.02%+
------ ------ ------ ------ ------ ------ ------ ------
<PAGE>
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA(S):
Expenses##............. 0.88% 0.89% 1.14% 1.38% 1.33% 1.40%+ 1.43%+ 1.41%+
Net investment income . 5.91% 6.28% 5.62% 5.50% 5.89% 7.01%+ 7.16%+ 6.97%+
PORTFOLIO TURNOVER ..... 447% 328% 247% 391% 1,256% 845% 615% 170%
NET ASSETS AT END OF
PERIOD (000 OMITTED) .. $248,955 $257,154 $345,597 $296,788 $365,644 $427,849 $350,011 $117,584
*For the ten months ended December 31, 1990.
**For the period from the commencement of investment operations, September
26, 1988 to February 28, 1989.
+Annualized.
++Total returns for Class A shares do not include the applicable sales charge. If the charge had been included, the results would
have been lower.
#Per share data for the periods subsequent to December 31, 1993 is based on average shares outstanding. ##For fiscal years ending
after September 1, 1995, the Fund's expenses are calculated without reduction for fees paid indirectly.
(S)The investment adviser and/or the distributor did not impose a portion of their management fee and/or distribution fee,
respectively, for the periods indicated. If these fees had been incurred by the Fund, the net investment income per share and
the ratios would have been:
Net investment
income $ 0.58 $ 0.53 $ 0.50 -- -- -- -- --
RATIOS (TO AVERAGE
NET ASSETS):
Expenses## 0.98% 1.04% 1.34% -- -- -- -- --
Net investment
income 6.81% 6.13% 5.42% -- -- -- -- --
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS -- continued
CLASS B AND C SHARES
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1995 1994 1993** 1995 1994***
- ------------------------------------------------------------------------------
CLASS B CLASS C
- ------------------------------------------------------------------------------
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD):
Net asset value -
beginning of period ... $ 8.41 $ 8.98 $ 9.17 $ 8.39 $ 8.62
------ ------ ------ ------ ------
Income from investment
operations# -
Net investment
income(S) ............. $ 0.51 $ 0.47 $ 0.12 $ 0.51 $ 0.17
Net realized and
unrealized gain (loss)
on investments ........ 0.25 (0.62) (0.17) 0.25 (0.20)
------ ------ ------ ------ ------
Total from investment
operations .......... $ 0.76 $(0.15) $(0.05) $ 0.76 $(0.03)
------ ------ ------ ------ ------
Less distributions declared
to shareholders -
From net investment
income ................ $(0.50) $(0.42) $(0.11) $(0.50) $(0.20)
From net realized
gain on investments ... -- -- (0.03) -- --
From paid-in capital -- -- -- -- --
------ ------ ------ ------ ------
Total distributions
declared to
shareholders ..... $(0.50) $ 0.42) $(0.14) $(0.50) $(0.20)
------ ------ ------ ------ ------
Net asset value - end
of period ............ $ 8.67 $ 8.41 $ 8.98 $ 8.65 $ 8.39
====== ====== ====== ====== ======
Total return+++ ....... 9.31% (1.65)% (1.54)%+ 9.33% (0.33)%++
RATIOS (TO AVERAGE NET
ASSETS)/SUPPLEMENTAL DATA(S):
Expenses## ........... 1.74% 1.79% 1.83%+ 1.73% 1.62%+
Net investment income 6.02% 5.42% 4.58%+ 5.87% 6.10%+
PORTFOLIO TURNOVER .... 447% 328% 247% 447% 328%
NET ASSETS AT END OF
PERIOD (000 OMITTED) . $33,759 $23,918 $11,268 $17,365 $3,403
**For the period from the commencement of offering of Class B shares,
September 7, 1993 to December 31, 1993.
***For the period from the commencement of offering of Class C shares, August
1, 1994 to December 31, 1994.
+Annualized.
++Not annualized.
+++Total returns for Class A shares do not include the applicable sales
charge. If the charge had been included, the results would have been
lower.
#Per share data for the periods subsequent to December 31, 1993 is based
on average shares outstanding.
##For fiscal years ending after September 1, 1995, the Fund's expenses are
calculated without reduction for fees paid indirectly.
(S)The investment adviser and/or the distributor did not impose a portion of
their management fee and/or distribution fee, respectively, for the
periods indicated. If these fees had been incurred by the Fund, the net
investment income per share and the ratios would have been:
Net investment
income .......... -- $ 0.46 $ 0.11 -- --
RATIOS TO(AVERAGE NET ASSETS):
Expenses## ...... -- 1.82% 2.60%+ -- --
Net invesment
income ......... -- 5.39% 3.82%+ -- --
<PAGE>
4. INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE -- The investment objective of the Fund is to preserve
capital and provide high current income (compared to a portfolio entirely
invested in money market instruments). Any investment involves risk and there
can be no assurance that the Fund will achieve its objective.
INVESTMENT POLICIES -- The Fund seeks to achieve its objective by investing in
obligations issued or guaranteed by the U.S. Government, its agencies,
authorities or instrumentalities ("Government Securities"). Under normal market
conditions, substantially all of the securities in the Fund's portfolio will
have remaining maturities of five years or less.
For purposes of the foregoing investment policy, securities having a certain
maturity will be deemed to include securities with an equivalent "duration" of
such securities. "Duration" is a commonly used measure of the longevity of a
debt instrument that takes into account the full stream of payments received on
the instrument, including both interest and principal payments, based on their
present values. A debt instrument's duration is derived by discounting principal
and interest payments to their present value using the instrument's current
yield to maturity and taking the dollar-weighted average time until those
payments will be received. Contractual rights to dispose of a security, call
options and prepayment assumptions may be considered in calculating duration
because such rights limit the period during which the Fund bears a market risk
with respect to the security.
U.S. GOVERNMENT SECURITIES: The Government Securities in which the Fund intends
to invest include (i) U.S. Treasury obligations, which differ only in their
interest rates, maturities and times of issuance: U.S. Treasury bills
(maturities of one year or less) and U.S. Treasury notes (maturities of one to
ten years), all of which are backed by the full faith and credit of the United
States; and (ii) obligations issued or guaranteed by U.S. Government agencies,
authorities or instrumentalities, some of which are backed by the full faith and
credit of the U.S. Treasury, e.g., direct pass-through certificates of the
Government National Mortgage Association ("GNMA"); some of which are supported
by the right of the issuer to borrow from the U.S. Government, e.g., obligations
of Federal Home Loan Banks; and some of which are backed only by the credit of
the issuer itself, e.g., obligations of the Student Loan Marketing Association
("SLMA"). For a description of obligations issued or guaranteed by U.S.
Government agencies, authorities or instrumentalities, see Appendix B.
Government Securities do not generally involve the credit risks associated with
other types of fixed income securities, although, as a result, the yields
available from Government Securities are generally lower than the yields
available from corporate interest-bearing securities. Like other fixed income
securities, however, the values of Government Securities change as interest
rates fluctuate. THEREFORE, THE NET ASSET VALUE OF THE SHARES OF AN OPEN-END
INVESTMENT COMPANY SUCH AS THE FUND, WHICH INVESTS IN FIXED INCOME SECURITIES,
CHANGES AS THE GENERAL LEVELS OF INTEREST RATES FLUCTUATE. WHEN INTEREST RATES
DECLINE, THE VALUE OF A PORTFOLIO INVESTED IN SUCH SECURITIES CAN BE EXPECTED TO
RISE. CONVERSELY, WHEN INTEREST RATES RISE, THE VALUE OF A PORTFOLIO INVESTED IN
SUCH SECURITIES CAN BE EXPECTED TO DECLINE. Although changes in the value of the
Fund's portfolio securities subsequent to their acquisition are reflected in the
net asset value of shares of the Fund, such changes will not affect the income
received by the Fund from such securities. While the Fund seeks to maintain a
relatively high, stable dividend, no specific level of income or yield
differential can ever be assured since available yields vary over time.
When and if available, Government Securities may be purchased at a discount from
face value. However, the Fund does not intend to hold such securities to
maturity for the purpose of achieving potential capital gains, unless current
yields on these securities remain attractive.
In order to make the Fund an eligible investment for Federal Credit Unions
("FCUs") and national banks, the Fund will invest only in those Government
Securities that are eligible for investment by such institutions without
limitation, and will also generally be managed so as to qualify as an eligible
investment for such institutions. The Fund will comply with all investment
limitations applicable to FCUs including the requirement that a FCU may only
purchase Collateralized Mortgage Obligations (as described below) which would be
eligible under the high risk securities test of Part 703 of the National Credit
Union Administration Rules and Regulations.
Government Securities that the Fund may invest in also include zero coupon
Government Securities. The Fund will not invest in zero coupon Government
Securities with maturities exceeding 10 years and, under normal market
conditions, will not invest in zero coupon Government Securities with remaining
maturities exceeding five years. Zero coupon Government Securities are debt
obligations which are issued or purchased at a significant discount from face
value. The discount approximates the total amount of interest the bonds will
accrue and compound over the period until maturity at a rate of interest
reflecting the market rate of the security at the time of issuance. Zero coupon
Government Securities do not require the periodic payment of interest. Such
investments benefit the issuer by mitigating its need for cash to meet debt
service, but also require a higher rate of return to attract investors who are
willing to defer receipt of such cash. Such investments may experience greater
volatility in market value than Government Securities which make regular
payments of interest. The Fund will accrue income on such investments for tax
and accounting purposes, as required, 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.
MORTGAGE PASS-THROUGH SECURITIES: The Fund may invest in mortgage pass-through
securities that are Government Securities. Mortgage pass-through securities are
securities representing interests in "pools" of mortgage loans. Monthly payments
of interest and principal by the individual borrowers on mortgages are passed
through to the holders of the securities (net of fees paid to the issuer or
guarantor of the securities) as the mortgages in the underlying mortgage pools
are paid off. The average lives of mortgage pass-throughs are variable when
issued because their average lives depend on prepayment rates. The average life
of these securities is likely to be substantially shorter than their stated
final maturity as a result of unscheduled principal prepayments. Prepayments on
underlying mortgages result in a loss of anticipated interest, and all or part
of a premium, if any has been paid, and the actual yield (or total return) to
the Fund may be different than the quoted yield on the securities. Mortgage
prepayments generally increase with falling interest rates and decrease with
rising interest rates. Like other fixed income securities, when interest rates
rise the value of a mortgage pass-through security generally will decline;
however, when interest rates are declining, the value of mortgage pass-through
securities with prepayment features may not increase as much as that of other
fixed income securities. For a further description of mortgage pass-through
securities, see the SAI.
COLLATERALIZED MORTGAGE OBLIGATIONS AND MULTICLASS PASS-THROUGH SECURITIES: The
Fund may invest a portion of its assets in collateralized mortgage obligations
or "CMOs," which are debt obligations collateralized by mortgage loans or
mortgage pass-through securities (such collateral collectively herein referred
to as "Mortgage Assets"). Mortgage Assets underlying CMOs purchased by the Fund
must be Government Securities. The Fund may also invest a portion of its assets
in multiclass pass-through securities which are interests in a trust composed of
Mortgage Assets. The Fund may only invest in CMOs and multiclass pass-through
securities which are issued or guaranteed by the U.S. Government, its agencies,
authorities or instrumentalities. Unless the context indicates otherwise, all
references herein to CMOs include multiclass pass-through securities. Payments
of principal of and interest on the Mortgage Assets, and any reinvestment income
thereon, provide the funds to pay debt service on the CMOs or make scheduled
distributions on the multiclass pass-through securities.
In a CMO, a series of bonds or certificates is usually issued in multiple
classes with different maturities. Each class of CMOs, often referred to as a
"tranche," is issued at a specific fixed or floating coupon rate and has a
stated maturity or final distribution date. Principal prepayments on the
Mortgage Assets may cause the CMOs to be retired substantially earlier than
their stated maturities or final distribution dates, resulting in a loss of all
or part of the premium, if any has been paid.
The Fund may also invest in parallel pay CMOs and Planned Amortization Class
CMOs ("PAC Bonds"). Parallel pay CMOs are structured to provide payments of
principal on each payment date to more than one class. PAC Bonds generally
require payments of a specified amount of principal on each payment date. PAC
Bonds are always parallel pay CMOs with the required principal payment on such
securities having the highest priority after interest has been paid to all
classes.
REPURCHASE AGREEMENTS: The Fund may enter into repurchase agreements in order to
earn income on available cash or as a temporary defensive measure. Under a
repurchase agreement, the Fund acquires securities subject to the seller's
agreement to repurchase at a specified time and price. If the seller becomes
subject to a proceeding under the bankruptcy laws or its assets are otherwise
subject to a stay order, the Fund's right to liquidate the securities may be
restricted (during which time the value of the securities could decline). As
discussed in the SAI, the Fund has adopted certain procedures intended to
minimize risk.
"WHEN-ISSUED" SECURITIES: Some Government Securities may be purchased on a
"when-issued" or on a "forward delivery" basis, which means that the obligations
will be delivered to the Fund at a future date usually beyond customary
settlement time. The commitment to purchase an obligation for which payment will
be made on a future date may be deemed a separate security. Although the Fund is
not limited as to the amount of Government Securities for which it has such
commitments, it is expected that under normal circumstances not more than 30% of
the Fund's total assets will be committed to such purchases. The Fund does not
pay for such obligations until received and does not start earning interest on
the obligations until the contractual settlement date. The Fund will establish a
segregated account consisting of cash, short-term money market instruments or
Government Securities equal to the amount of its commitments to purchase
securities issued on such basis.
MORTGAGE "DOLLAR ROLL" TRANSACTIONS: The Fund may enter into mortgage "dollar
roll" transactions with selected banks and broker-dealers pursuant to which the
Fund sells mortgage-backed securities for delivery in the future (generally
within 30 days) and simultaneously contracts to repurchase substantially similar
(same type, coupon and maturity) securities on a specified future date. The Fund
will only enter into covered rolls. A "covered roll" is a specific type of
dollar roll for which there is an offsetting cash position or a cash equivalent
security position which matures on or before the forward settlement date of the
dollar roll transaction.
LENDING OF SECURITIES: The Fund may seek to increase its income by lending
portfolio securities. Such loans will usually be made only to member banks of
the Federal Reserve System and member firms (and subsidiaries thereof) of the
New York Stock Exchange (the "Exchange") and would be required to be secured
continuously by collateral in cash, Government Securities or an irrevocable
letter of credit maintained on a current basis at an amount at least equal to
the market value of the securities loaned. The Fund will continue to collect the
equivalent of interest on the securities loaned and will also receive either
interest (through investment of cash collateral) or a fee (if the collateral is
Government Securities or a letter of credit).
For additional information concerning the use, risks and costs of "when-issued"
and "forward delivery" securities, mortgage "dollar roll transactions, CMOs and
Mortgage Pass-Through Securities and the lending of securities, see the SAI.
----------------
PORTFOLIO TRADING -- The Fund intends to fully manage its portfolio by buying
and selling Government Securities, as well as holding selected obligations to
maturity. In managing its portfolio, the Fund seeks to take advantage of market
developments, yield disparities and variations in the creditworthiness of
issuers. For a description of the strategies which may be used by the Fund in
managing its portfolio, which may include adjusting the average duration of the
portfolio in anticipation of a change in interest rates, see the SAI. For the
fiscal year ended December 31, 1995, the Fund had a portfolio turnover rate in
excess of 100%. Transaction costs incurred by the Fund and the realized capital
gains and losses of the Fund may be greater than that of a fund with a lesser
portfolio turnover rate.
The primary consideration in placing portfolio security transactions with
broker-dealers for execution is to obtain, and maintain the availability of,
execution at the most favorable prices and in the most effective manner
possible. Consistent with the foregoing primary consideration, the Rules of Fair
Practice of the National Association of Securities Dealers, Inc. (the "NASD"),
and such other policies as the Trustees may determine, the Adviser may consider
sales of shares of the Fund and of the other investment company clients of MFD
as a factor in the selection of broker-dealers to execute the Fund's portfolio
transactions. From time to time, the Adviser may direct certain portfolio
transactions to broker-dealer firms which, in turn, have agreed to pay a portion
of the Fund's operating expenses (e.g., fees charged by the custodian of the
Fund's assets). For a further discussion of portfolio transactions, see the SAI.
----------------
The SAI includes a discussion of other investment policies and a listing of
investment restrictions which govern the investment policies of the Fund. The
specific investment restrictions listed in the SAI may be changed without
shareholder approval unless indicated otherwise (see "Investment Restrictions"
in the SAI). The Fund's investment limitations and policies are adhered to at
the time of purchase or utilization of assets; a subsequent change in
circumstances will not be considered to result in a violation of policy.
5. MANAGEMENT OF THE FUND
INVESTMENT ADVISER -- The Adviser manages the assets of the Fund pursuant to an
Investment Advisory Agreement, dated August 10, 1988, as amended (the "Advisory
Agreement"). The Adviser provides the Fund with investment advisory and
administrative services, as well as office facilities. Steven E. Nothern, a
Senior Vice President of the Adviser, has been the Fund's portfolio manager
since 1992. Mr. Nothern has been employed as a portfolio manager by the Adviser
since 1986. Subject to such policies as the Trustees may determine, the Adviser
makes investment decisions for the Fund. For these services and facilities, the
Adviser receives a management fee equal to the lesser of (i) 0.40% of the Fund's
average daily net assets or (ii) 0.38% of the Fund's average daily net assets
plus 5.36% of the Fund's gross income (i.e., income other than from the sale of
securities, and short term gains from futures transactions), in each case on an
annualized basis for the Fund's then-current fiscal year. For the fiscal year
ended December 31, 1995 MFS received management fees of $1,145,992 equivalent on
an annualized basis to 0.40% of the Fund's average daily net assets.
MFS also serves as investment adviser to each of the other funds in the MFS
Family of Funds (the "MFS Funds") and to MFS Municipal Income Trust, MFS
Multimarket Income Trust, MFS Government Markets Income Trust, MFS Intermediate
Income Trust, MFS Charter Income Trust, MFS Special Value Trust, MFS Union
Standard Trust, MFS Institutional Trust, MFS Variable Insurance Trust, MFS/Sun
Life Series Trust, Sun Growth Variable Annuity Fund, Inc. and seven variable
accounts, each of which is a registered investment company established by Sun
Life Assurance Company of Canada (U.S.) ("Sun Life of Canada (U.S.)") in
connection with the sale of various fixed/variable annuity contracts. MFS and
its wholly owned subsidiary, MFS Asset Management, Inc., provide investment
advice to substantial private clients.
MFS is America's oldest mutual fund organization. MFS and its predecessor
organizations have a history of money management dating from 1924 and the
founding of the first mutual fund in the United States, Massachusetts Investors
Trust. Net assets under management of the MFS organization were approximately
$44.3 billion on behalf of approximately 1.9 million investor accounts as of
March 31, 1996. As of such date, the MFS organization managed approximately
$19.9 billion of assets in fixed income portfolios and fixed income portfolios
of MFS Asset Management, Inc. MFS is a subsidiary of Sun Life of Canada (U.S.)
which in turn is a wholly owned subsidiary of Sun Life Assurance Company of
Canada ("Sun Life"). The Directors of MFS are A. Keith Brodkin, Jeffrey L.
Shames, Arnold D. Scott, John D. McNeil and John R. Gardner. Mr. Brodkin is the
Chairman, Mr. Shames is the President and Mr. Scott is the Secretary and a
Senior Executive Vice President, of MFS. Messrs. McNeil and Gardner are the
Chairman and the President, respectively, of Sun Life. Sun Life, a mutual life
insurance company, is one of the largest international life insurance companies
and has been operating in the United States since 1895, establishing a
headquarters here in 1973. The executive officers of MFS report to the Chairman
of Sun Life.
A. Keith Brodkin, the Chairman and a Director of MFS, is the Chairman,
President and a Trustee of the Fund. W. Thomas London, James O. Yost, Stephen
E. Cavan, and James R. Bordewick, Jr., all of whom are officers of MFS, are
officers of the Fund.
MFS has established a strategic alliance with Foreign & Colonial Management Ltd.
("Foreign & Colonial"). Foreign & Colonial is a subsidiary of two of the world's
oldest financial services institutions, the London-based Foreign & Colonial
Investment Trust PLC, which pioneered the idea of investment management in 1868,
and HYPO-BANK (Bayerische Hypotheken-und Wechsel-Bank AG), the oldest publicly
listed bank in Germany, founded in 1835. As part of this alliance, the portfolio
managers and investment analysts of MFS and Foreign & Colonial will share their
views on a variety of investment related issues, such as the economy, securities
markets, portfolio securities and their issuers, investment recommendations,
strategies and techniques, risk analysis, trading strategies and other portfolio
management matters. MFS will have access to the extensive international equity
investment expertise of Foreign & Colonial, and Foreign & Colonial will have
access to the extensive U.S. equity investment expertise of MFS. One or more MFS
investment analysts are expected to work for an extended period with Foreign &
Colonial's portfolio managers and investment analysts at their offices in
London. In return, one or more Foreign & Colonial employees are expected to work
in a similar manner at MFS' Boston offices.
In certain instances there may be securities which are suitable for the Fund's
portfolio as well as for portfolios of other clients of MFS or clients of
Foreign & Colonial. Some simultaneous transactions are inevitable when several
clients receive investment advice from MFS and Foreign & Colonial, particularly
when the same security is suitable for more than one client. While in some cases
this arrangement could have a detrimental effect on the price or availability of
the security as far as the Fund is concerned, in other cases, however, it may
produce increased investment opportunities for the Fund.
DISTRIBUTOR -- MFD, a wholly owned subsidiary of MFS, is the distributor of
shares of the Fund and also serves as distributor for each of the other MFS
Funds.
SHAREHOLDER SERVICING AGENT -- MFS Service Center, Inc. (the "Shareholder
Servicing Agent"), a wholly owned subsidiary of MFS, performs transfer agency,
certain dividend disbursing agency and other services for the Fund.
6. INFORMATION CONCERNING SHARES OF THE FUND
PURCHASES
Shares of the Fund may be purchased at the public offering price through any
dealer and other financial institutions ("dealers") having a selling agreement
with MFD. Dealers may also charge their customers fees relating to investments
in the Fund.
The Fund offers three classes of shares (Class A, B and C shares) which bear
sales charges and distribution fees in different forms and amounts, as described
below:
CLASS A SHARES: Class A shares are generally offered at net asset value plus an
initial sales charge, but in certain cases are offered at net asset value
without an initial sales charge but subject to a CDSC.
PURCHASES SUBJECT TO INITIAL SALES CHARGE. Class A shares are offered at
net asset value plus an initial sales charge as follows:
<TABLE>
<CAPTION>
SALES CHARGE* AS
PERCENTAGE OF:
-------------------------------- DEALER ALLOWANCE
NET AMOUNT AS A PERCENTAGE
AMOUNT OF PURCHASE OFFERING PRICE INVESTED OF OFFERING PRICE
- ------------------ -------------- ---------- -----------------
<S> <C> <C> <C>
Less than $50,000 .................. 2.50% 2.56% 2.25%
$50,000 but less than $100,000 ..... 2.25 2.30 2.25
$100,000 but less than $250,000 .... 2.00 2.04 1.75
$250,000 but less than $500,000 .... 1.75 1.78 1.50
$500,000 but less than $1,000,000 .. 1.50 1.52 1.25
$1,000,000 or more ................. None** None** See Below**
- ----------
*Because of rounding in the calculation of offering price, actual sales charges
may be more or less than those calculated using the percentages above.
**A CDSC will apply to such purchases, as discussed below.
</TABLE>
MFD allows discounts to dealers (which are alike for all dealers) from the
applicable public offering price, as shown in the above table. In the case of
the maximum sales charge, the dealer retains 2.25% and MFD retains approximately
1/4 of 1% of the public offering price. The sales charge may vary depending on
the number of shares of the Fund as well as certain other MFS Funds owned or
being purchased, the existence of an agreement to purchase additional shares
during a 13-month period (or 36-month period for purchases of $1 million or
more) or other special purchase programs. A description of the Right of
Accumulation, Letter of Intent and Group Purchase privileges by which the sales
charge may be reduced is set forth in the SAI.
PURCHASES SUBJECT TO A CDSC (but not subject to an initial sales charge). In
the following two circumstances, Class A shares are also offered at net asset
value without an initial sales charge but subject to a CDSC, equal to 1% of the
lesser of the value of the shares redeemed (exclusive of reinvested dividend and
capital gain distributions) or the total cost of such shares, in the event of a
share redemption within 12 months following the purchase:
(i) on investments of $1 million or more in Class A shares; and
(ii) on investments in Class A shares by certain retirement plans subject to
the Employee Retirement Income Security Act of 1974, as amended, if the
sponsoring organization demonstrates to the satisfaction of MFD that either
(a) the employer has at least 25 employees or (b) the aggregate purchases by
the retirement plan of Class A shares of the MFS Funds will be in an amount
of at least $250,000 within a reasonable period of time, as determined by
MFD in its sole discretion.
In the case of such purchases, MFD will pay commissions to dealers on new
investments in Class A shares made through such dealers as follows:
COMMISSION PAID
BY MFD
TO DEALERS CUMULATIVE PURCHASE AMOUNT
---------- --------------------------
1.00% On the first $2,000,000, plus
0.80% Over $2,000,000 to $3,000,000, plus
0.50% Over $3,000,000 to $50,000,000, plus
0.25% Over $50,000,000
For purposes of determining the level of commissions to be paid to dealers with
respect to a shareholder's new investment in Class A shares made on or after
April 1, 1996, purchases for each shareholder account (and certain other
accounts for which the shareholder is a record or beneficial holder) will be
aggregated over a 12-month period (commencing from the date of the first such
purchase).
See "Redemptions and Repurchases -- Contingent Deferred Sales Charge" for
further discussion of the CDSC.
WAIVERS OF INITIAL SALES CHARGE AND CDSC. In certain circumstances, the
initial sales charge imposed upon purchases of Class A shares and the CDSC
imposed upon redemptions of Class A shares is waived. These circumstances are
described in Appendix A to this Prospectus.
CLASS B SHARES: Class B shares are offered at net asset value without an initial
sales charge but subject to a CDSC upon redemption as follows:
YEAR OF CONTINGENT
REDEMPTION DEFERRED SALES
AFTER PURCHASE CHARGE
-------------- --------------
First .................................. 4%
Second ................................. 4%
Third .................................. 3%
Fourth ................................. 3%
Fifth .................................. 2%
Sixth .................................. 1%
Seventh and following .................. 0%
The CDSC imposed is assessed against the lesser of the value of the shares
redeemed (exclusive of reinvested dividends and capital gain distributions) or
the total cost of such shares. No CDSC is assessed against shares acquired
through the automatic reinvestment of dividends or capital gain distributions.
MFD will pay commissions to dealers of 3.75% of the purchase price of Class B
shares purchased through dealers. MFD will also advance to dealers the first
year service fee payable under the Fund's Class B Distribution Plan (see
"Distribution Plans" below) at a rate equal to 0.25% of the purchase price of
such shares. Therefore, the total amount paid to a dealer upon the sale of Class
B shares is 4% of the purchase price of the shares (commission rate of 3.75%
plus a service fee equal to 0.25% of the purchase price).
See "Redemptions and Repurchases -- Contingent Deferred Sales Charge" for
further discussion of the CDSC.
WAIVERS OF CDSC. In certain circumstances, the CDSC imposed upon
redemption of Class B shares is waived. These circumstances are described in
Appendix A to this Prospectus.
CONVERSION OF CLASS B SHARES. Class B shares of the Fund that remain
outstanding for approximately eight years will convert to Class A shares of the
Fund. Shares purchased through the reinvestment of distributions paid in respect
of Class B shares will be treated as Class B shares for purposes of the payment
of the distribution and service fees under the Distribution Plan applicable to
Class B shares. See "Distribution Plans" below. However, for purposes of
conversion to Class A shares, all shares in a shareholder's account that were
purchased through the reinvestment of dividends and distributions paid in
respect of Class B shares (and which have not converted to Class A shares as
provided in the following sentence) will be held in a separate sub-account. Each
time any Class B shares in the shareholder's account (other than those in the
sub-account) convert to Class A shares, a portion of the Class B shares then in
the sub-account will also convert to Class A shares. The portion will be
determined by the ratio that the shareholder's Class B shares not acquired
through reinvestment of dividends and distributions that are converting to Class
A shares bears to the shareholder's total Class B shares not acquired through
reinvestment. The conversion of Class B shares to Class A shares is subject to
the continuing availability of a ruling from the Internal Revenue Service or an
opinion of counsel that such conversion will not constitute a taxable event for
federal tax purposes. There can be no assurance that such ruling or opinion will
be available, and the conversion of Class B shares to Class A shares will not
occur if such ruling or opinion is not available. In such event, Class B shares
would continue to be subject to higher expenses than Class A shares for an
indefinite period.
CLASS C SHARES: Class C shares are offered at net asset value without an initial
sales charge but are subject to a CDSC upon redemption of 1.00% during the first
year. Class C shares do not convert to any other class of shares of the Fund.
The maximum investment in Class C shares that may be made is $1,000,000 per
transaction.
The CDSC imposed is assessed against the lesser of the value of the shares
redeemed (exclusive of reinvested dividend and capital gain distributions) or
the total cost of such shares. No CDSC is assessed against shares acquired
through the automatic reinvestment of dividend or capital gain distributions. In
certain circumstances, the CDSC imposed upon redemption of Class C shares is
waived. These circumstances are described in Appendix A to this Prospectus. See
"Redemptions and Repurchases -- Contingent Deferred Sales Charge" below for
further discussion of the CDSC.
MFD will pay dealers 1.00% of the purchase price of Class C shares purchased
through dealers and, as compensation therefor, MFD will retain the 1.00% per
annum distribution and service fee paid under the Class C Distribution Plan by
the Fund to MFD for the first year after purchase (see "Distribution Plans"
below).
Class C shares are not currently available for purchase by any retirement plan
qualified under Sections 401(a) or 403(b) of the Internal Revenue Code of 1986,
as amended (the "Code"), if the retirement plan and/or the sponsoring
organization subscribe to the MFS FUNDamental 401(k) Plan or another similar
recordkeeping program made available by the Shareholder Servicing Agent.
GENERAL: The following information applies to purchases of all classes of the
Fund's shares.
MINIMUM INVESTMENT. Except as described below, the minimum initial
investment is $1,000 per account and the minimum additional investment is $50
per account. Accounts being established for monthly automatic investments and
under payroll savings programs and tax-deferred retirement programs (other than
IRAs) involving the submission of investments by means of group remittal
statements are subject to a $50 minimum on initial and additional investments
per account. The minimum initial investment for IRAs is $250 per account and the
minimum additional investment is $50 per account. Accounts being established for
participation in the Automatic Exchange Plan are subject to a $50 minimum on
initial and additional investments per account. There are also other limited
exceptions to these minimums for certain tax-deferred retirement programs. Any
minimums may be changed at any time at the discretion of MFD. The Fund reserves
the right to cease offering its shares at any time.
RIGHT TO REJECT PURCHASE ORDERS/MARKET TIMING. Purchases and exchanges
should be made for investment purposes only. The Fund and MFD each reserve the
right to reject any specific purchase order or to restrict purchases by a
particular purchaser (or group of related purchasers). The Fund or MFD may
reject or restrict any purchases by a particular purchaser or group, for
example, when such purchase is contrary to the best interests of the Fund's
other shareholders or otherwise would disrupt the management of the Fund.
MFD may enter into an agreement with shareholders who intend to make exchanges
among certain classes of shares of certain MFS Funds (as determined by MFD)
which follow a timing pattern, and with individuals or entities acting on such
shareholders' behalf (collectively, "market timers"), setting forth the terms,
procedures and restrictions with respect to such exchanges. In the absence of
such an agreement, it is the policy of the Fund and MFD to reject or restrict
purchases by market timers if (i) more than two exchange purchases are effected
in a timed account in the same calendar quarter or (ii) a purchase would result
in shares being held in timed accounts by market timers representing more than
(x) one percent of the Fund's net assets or (y) specified dollar amounts in the
case of certain MFS Funds which may include the Fund and which may change from
time to time. The Fund and MFD each reserve the right to request market timers
to redeem their shares at net asset value, less any applicable CDSC, if either
of these restrictions is violated.
DEALER CONCESSIONS. Dealers may receive different compensation with respect
to sales of Class A, Class B and Class C shares. In addition, from time to time,
MFD may pay dealers 100% of the applicable sales charge on sales of Class A
shares of certain specified MFS Funds sold by such dealer during a specified
sales period. In addition, MFD or its affiliates may, from time to time, pay
dealers an additional commission equal to 0.50% of the net asset value of all of
the Class B and Class C shares of certain specified MFS Funds sold by such
dealer during a specified sales period. In addition, from time to time, MFD, at
its expense, may provide additional commissions, compensation or promotional
incentives ("concessions") to dealers which sell shares of the Fund. Such
concessions provided by MFD may include financial assistance to dealers in
connection with preapproved conferences or seminars, sales or training programs
for invited registered representatives, payment for travel expenses, including
lodging, incurred by registered representatives for such seminars or training
programs, seminars for the public, advertising and sales campaigns regarding one
or more MFS Funds, and/or other dealer-sponsored events. From time to time, MFD
may make expense reimbursements for special training of a dealer's registered
representatives in group meetings or to help pay the expenses of sales contests.
Other concessions may be offered to the extent not prohibited by state laws or
any self-regulatory agency, such as the NASD.
SPECIAL INVESTMENT PROGRAMS. For shareholders who elect to participate in
certain investment programs (e.g., the Automatic Investment Plan) or other
shareholder services, MFD or its affiliates may either (i) give a gift of
nominal value, such as a hand-held calculator, or (ii) make a nominal charitable
contribution on their behalf.
RETIREMENT PLAN ACCOUNTS. Following the termination of any agreement between
a plan sponsor and the Shareholder Servicing Agent or its affiliates with
respect to the MFS FUNDamental 401(k) Plan or another similar recordkeeping
system made available by the Shareholder Servicing Agent, the Shareholder
Servicing Agent shall combine all plan participant accounts into a single
omnibus or pooled account for each Fund in which the plan invests.
RESTRICTIONS ON ACTIVITIES OF NATIONAL BANKS. The Glass-Steagall Act
prohibits national banks from engaging in the business of underwriting, selling
or distributing securities. Although the scope of the prohibition has not been
clearly defined, MFD believes that such Act should not preclude banks from
entering into agency agreements with MFD. If, however, a bank were prohibited
from so acting, the Trustees would consider what actions, if any, would be
necessary to continue to provide efficient and effective shareholder services in
respect of Shareholders who invested in the Fund through a national bank. It is
not expected that shareholders would suffer any adverse financial consequence as
a result of these occurrences. In addition, state securities laws on this issue
may differ from the interpretation of federal law expressed herein and banks and
financial institutions may be required to register as broker-dealers pursuant to
state law.
------------------------
A shareholder whose shares are held in the name of, or controlled by, a dealer
might not receive many of the privileges and services from the Fund (such as
Right of Accumulation, Letter of Intent and certain recordkeeping services) that
the Fund ordinarily provides.
EXCHANGES
Subject to the requirements set forth below, some or all of the shares in an
account with the Fund for which payment has been received by the Fund (i.e., an
established account) may be exchanged for shares of the same class of any of the
other MFS Funds at net asset value (if available for sale).
EXCHANGES AMONG MFS FUNDS (EXCLUDING MFS MONEY MARKET FUNDS): No initial sales
charges or CDSC will be imposed in connection with an exchange from shares of an
MFS Fund to shares of any other MFS Fund, except with respect to exchanges from
an MFS money market fund to another MFS Fund which is not an MFS money market
fund (discussed below). With respect to an exchange involving shares subject to
a CDSC, the CDSC will be unaffected by the exchange and the holding period for
purposes of calculating the CDSC will carry over to the acquired shares.
EXCHANGES FROM AN MFS MONEY MARKET FUND: Special rules apply with respect to the
imposition of an initial sales charge or a CDSC for exchanges from an MFS money
market fund to another MFS Fund which is not an MFS money market fund. These
rules are described under the caption "Exchanges" in the Prospectuses of those
MFS money market funds.
EXCHANGES INVOLVING THE MFS FIXED FUND: Class A shares of any MFS Fund held by
certain qualified retirement plans may be exchanged for units of participation
of the MFS Fixed Fund (a bank collective investment fund) (the "Units"), and
Units may be exchanged for Class A shares of any MFS Fund. With respect to
exchanges between Class A shares subject to a CDSC and Units, the CDSC will
carry over to the acquired shares or Units and will be deducted from the
redemption proceeds when such shares or Units are subsequently redeemed,
assuming the CDSC is then payable (the period during which the Class A shares
and the Units were held will be aggregated for purposes of calculating the
applicable CDSC). In the event that a shareholder initially purchases Units and
then exchanges into Class A shares subject to an initial sales charge of an MFS
Fund, the initial sales charge shall be due upon such exchange, but will not be
imposed with respect to any subsequent exchanges between such Class A shares and
Units with respect to shares on which the initial sales charge has already been
paid. In the event that a shareholder initially purchases Units and then
exchanges into Class A shares subject to a CDSC of an MFS Fund, the CDSC period
will commence upon such exchange, and the applicability of the CDSC with respect
to subsequent exchanges shall be governed by the rules set forth in this
paragraph above.
GENERAL: A shareholder should read the prospectus of the other MFS Fund and
consider the differences in objectives, policies and restrictions before making
any exchange. Exchanges will be made only after instructions in writing or by
telephone (an "Exchange Request") are received for an established account by the
Shareholder Servicing Agent in proper form (i.e., if in writing -- signed by the
record owner(s) exactly as the shares are registered; if by telephone -- proper
account identification is given by the dealer or shareholder of record) and each
exchange must involve either shares having an aggregate value of at least $1,000
($50 in the case of retirement plan participants whose sponsoring organizations
subscribe to the MFS FUNDamental 401(k) Plan or another similar 401(k)
recordkeeping system made available by the Shareholder Servicing Agent) or all
the shares in the account. If an Exchange Request is received by the Shareholder
Servicing Agent on any business day prior to the close of regular trading on the
New York Stock Exchange (generally, 4:00 p.m., Eastern time) (the "Exchange"),
the exchange will occur on that day if all the requirements set forth above have
been complied with at that time and subject to the Fund's right to reject
purchase orders. No more than five exchanges may be made in any one Exchange
Request by telephone. Additional information concerning this exchange privilege
and prospectuses for any of the other MFS Funds may be obtained from dealers or
the Shareholder Servicing Agent. For federal and (generally) state income tax
purposes, an exchange is treated as a sale of the shares exchanged and,
therefore, an exchange could result in a gain or loss to the shareholder making
the exchange. Exchanges by telephone are automatically available to most
non-retirement plan accounts and certain retirement plan accounts. For further
information regarding exchanges by telephone, see "Redemptions by Telephone."
The exchange privilege (or any aspect of it) may be changed or discontinued and
is subject to certain limitations, including certain restrictions on purchases
by market timers. Special procedures, privileges and restrictions with respect
to exchanges may apply to market timers who enter into an agreement with MFD, as
set forth in such agreement. See "Purchases -- General -- Right to Reject
Purchase Orders/Market Timing."
REDEMPTIONS AND REPURCHASES
A shareholder may withdraw all or any portion of the value of his account on any
date on which the Fund is open for business by redeeming shares at their net
asset value (a redemption) or by selling such shares to the Fund through a
dealer (a repurchase). Certain redemptions and repurchases are, however, subject
to a CDSC. See "Contingent Deferred Sales Charge" below. Because the net asset
value of shares of the account fluctuates, redemptions or repurchases, which are
taxable transactions, are likely to result in gains or losses to the
shareholder. When a shareholder withdraws an amount from his account, the
shareholder is deemed to have tendered for redemption a sufficient number of
full and fractional shares in his account to cover the amount withdrawn. The
proceeds of a redemption or repurchase will normally be available within seven
days, except for shares purchased or received in exchange for shares purchased
by check (including certified checks or cashier's checks). Payment of redemption
proceeds may be delayed for up to 15 days from the purchase date in an effort to
assure that such check has cleared.
REDEMPTION BY MAIL: Each shareholder may redeem all or any portion of the shares
in his account by mailing or delivering to the Shareholder Servicing Agent (see
back cover for address) a stock power with a written request for redemption or
letter of instruction, together with his share certificates (if any were
issued), all in "good order" for transfer. "Good order" generally means that the
stock power, written request for redemption, letter of instruction or
certificate must be endorsed by the record owner(s) exactly as the shares are
registered and the signature(s) must be guaranteed in the manner set forth below
under the caption "Signature Guarantee." In addition, in some cases "good order"
will require the furnishing of additional documents. The Shareholder Servicing
Agent may make certain de minimis exceptions to the above requirements for
redemption. Within seven days after receipt of a redemption request in "good
order" by the Shareholder Servicing Agent, the Fund will make payment in cash of
the net asset value of the shares next determined after such redemption request
was received, reduced by the amount of any applicable CDSC described above and
the amount of any income tax required to be withheld, except during any period
in which the right of redemption is suspended or date of payment is postponed
because the Exchange is closed or trading on such Exchange is restricted or to
the extent otherwise permitted by the 1940 Act if an emergency exists. See "Tax
Status" below.
REDEMPTION BY TELEPHONE: Each shareholder may redeem an amount from his account
by telephoning the Shareholder Servicing Agent toll-free at (800) 225- 2606.
Shareholders wishing to avail themselves of this telephone redemption privilege
must so elect on their Account Application, designate thereon a bank and account
number to receive the proceeds of such redemption, and sign the Account
Application Form with the signature(s) guaranteed in the manner set forth below
under the caption "Signature Guarantee." The proceeds of such a redemption,
reduced by the amount of any applicable CDSC and the amount of any income tax
required to be withheld, are mailed by check to the designated account, without
charge, if the redemption proceeds do not exceed $1,000, and are wired in
federal funds to the designated account if the redemption proceeds exceed
$1,000. If a telephone redemption request is received by the Shareholder
Servicing Agent by the close of regular trading on the Exchange on any business
day, shares will be redeemed at the closing net asset value of the Fund on that
day. Subject to the conditions described in this section, proceeds of a
redemption are normally mailed or wired on the next business day following the
date of receipt of the order for redemption. The Shareholder Servicing Agent
will not be responsible for any losses resulting from unauthorized telephone
transactions if it follows reasonable procedures designed to verify the identity
of the caller. The Shareholder Servicing Agent will request personal or other
information from the caller, and will normally also record calls. Shareholders
should verify the accuracy of confirmation statements immediately after their
receipt.
REPURCHASE THROUGH A DEALER: If a shareholder desires to sell his shares through
his dealer (a repurchase), the shareholder can place a repurchase order with his
dealer, who may charge the shareholder a fee. IF THE DEALER RECEIVES THE
SHAREHOLDER'S ORDER PRIOR TO THE CLOSE OF REGULAR TRADING ON THE EXCHANGE AND
COMMUNICATES IT TO MFD BEFORE THE CLOSE OF BUSINESS ON THE SAME DAY, THE
SHAREHOLDER WILL RECEIVE THE NET ASSET VALUE CALCULATED ON THAT DAY, REDUCED BY
THE AMOUNT OF ANY APPLICABLE CDSC AND THE AMOUNT OF ANY INCOME TAX REQUIRED TO
BE WITHHELD.
REDEMPTION BY CHECK: Only Class A and Class C shares may be redeemed by check. A
shareholder owning Class A shares of the Fund may elect to have a special
account with State Street Bank and Trust Company (the "Bank") for the purpose of
redeeming Class A or Class C shares from his or her account by check. The Bank
will provide each Class A or Class C shareholder, upon request, with forms of
checks drawn on the Bank. Only shareholders having accounts in which no share
certificates have been issued will be permitted to redeem shares by check.
Checks may be made payable in any amount not less than $500. Shareholders
wishing to avail themselves of this redemption by check privilege should so
request on their Account Application, must execute signature cards (for
additional information, see the Account Application) with signature guaranteed
in the manner set forth under the caption "Signature Guarantee" below, and must
return any Class A or Class C share certificates issued to them. Additional
documentation will be required from corporations, partnerships, fiduciaries or
other such institutional investors. All checks must be signed by the
shareholder(s) of record exactly as the account is registered before the Bank
will honor them. The shareholders of joint accounts may authorize each
shareholder to redeem by check. The check may not draw on monthly dividends
which have been declared but not distributed. SHAREHOLDERS WHO PURCHASE CLASS A
AND CLASS C SHARES BY CHECK (INCLUDING CERTIFIED CHECKS OR CASHIER'S CHECKS) MAY
WRITE CHECKS AGAINST THOSE SHARES ONLY AFTER THEY HAVE BEEN ON THE FUND'S BOOKS
FOR 15 DAYS. WHEN SUCH A CHECK IS PRESENTED TO THE BANK FOR PAYMENT, A
SUFFICIENT NUMBER OF FULL AND FRACTIONAL SHARES WILL BE REDEEMED TO COVER THE
AMOUNT OF THE CHECK, ANY APPLICABLE CDSC AND THE AMOUNT OF ANY INCOME TAX
REQUIRED TO BE WITHHELD. IF THE AMOUNT OF THE CHECK, PLUS ANY APPLICABLE CDSC
AND THE AMOUNT OF ANY INCOME TAX REQUIRED TO BE WITHHELD IS GREATER THAN THE
VALUE OF CLASS A OR CLASS C SHARES HELD IN THE SHAREHOLDER'S ACCOUNT, THE CHECK
WILL BE RETURNED UNPAID, AND THE SHAREHOLDER MAY BE SUBJECT TO EXTRA CHARGES. TO
AVOID DISHONOR OF CHECKS DUE TO FLUCTUATIONS IN ACCOUNT VALUE, SHAREHOLDERS ARE
ADVISED AGAINST REDEEMING ALL OR MOST OF THEIR ACCOUNT BY CHECK. CHECKS SHOULD
NOT BE USED TO CLOSE A FUND ACCOUNT BECAUSE WHEN THE CHECK IS WRITTEN, THE
SHAREHOLDER WILL NOT KNOW THE EXACT TOTAL VALUE OF THE ACCOUNT ON THE DAY THE
CHECK CLEARS. There is presently no charge to the shareholder for the
maintenance of this special account or for the clearance of any checks, but the
Fund and the Bank reserve the right to impose such charges or to modify or
terminate the redemption by check privilege at any time.
CONTINGENT DEFERRED SALES CHARGE: Investments in Class A, Class B and Class C
shares ("Direct Purchases") will be subject to a CDSC for a period of: (i) with
respect to Class A and Class C shares, 12 months (however, the CDSC on Class A
shares is only imposed with respect to purchases of $1 million or more of Class
A shares or purchases by certain retirement plans of Class A shares); or (ii)
with respect to Class B shares, six years. Purchases of Class A shares made
during a calendar month, regardless of when during the month the investment
occurred, will age one month on the last day of the month and each subsequent
month. Class B shares purchased on or after January 1, 1993 and Class C share
purchases will be aggregated on a calendar month basis -- all transactions made
during a calendar month, regardless of when during the month they have occurred,
will age one year at the close of business on the last day of such month in the
following calendar year and each subsequent year. For Class B shares of the Fund
purchased prior to January 1, 1993, transactions will be aggregated on a
calendar year basis -- all transactions made during a calendar year, regardless
of when during the year they have occurred, will age one year at the close of
business on December 31 of that year and each subsequent year. Prior to April 1,
1996, Class C shares of the MFS Funds were not subject to a CDSC upon
redemption. In no event will Class C shares of the MFS Funds purchased prior to
this date be subject to a CDSC. For the purpose of calculating the CDSC upon
redemption of shares acquired in an exchange on or after April 1, 1996, the
purchase of shares acquired in one or more exchanges is deemed to have occurred
at the time of the original purchase of the exchanged shares (if such original
purchase occurred prior to April 1, 1996, then no CDSC would be imposed upon
such a redemption).
At the time of a redemption, the amount by which the value of a shareholder's
account for a particular class of shares represented by Direct Purchases exceeds
the sum of the six calendar year aggregations (12 months in the case of
purchases of Class C shares and of purchases of $1 million or more of Class A
shares or purchases by certain retirement plans of Class A shares) of Direct
Purchases may be redeemed without charge ("Free Amount"). Moreover, no CDSC is
ever assessed on additional shares acquired through the automatic reinvestment
of dividends or capital gain distributions ("Reinvested Shares"). Therefore, at
the time of redemption of a particular class, (i) any Free Amount is not subject
to the CDSC and (ii) the amount of the redemption equal to the then-current
value of Reinvested Shares is not subject to the CDSC, but (iii) any amount of
the redemption in excess of the aggregate of the then-current value of
Reinvested Shares and the Free Amount is subject to a CDSC. The CDSC will first
be applied against the amount of Direct Purchases which will result in any such
charge being imposed at the lowest possible rate. The CDSC to be imposed upon
redemptions of shares will be calculated as set forth in "Purchases" above.
The applicability of a CDSC will be unaffected by exchanges or transfers of
registration, except as described in Appendix A hereto.
GENERAL: The following information applies to redemptions and repurchases of
all classes of the Fund's shares.
SIGNATURE GUARANTEE. In order to protect shareholders against fraud, the
Fund requires, in certain instances as indicated above, that the shareholder's
signature be guaranteed. In these cases the shareholder's signature must be
guaranteed by an eligible bank, broker, dealer, credit union, national
securities exchange, registered securities association, clearing agency or
savings association. Signature guarantees shall be accepted in accordance with
policies established by the Shareholder Servicing Agent.
REINSTATEMENT PRIVILEGE. Shareholders of the Fund who have redeemed their
shares have a one-time right to reinvest the redemption proceeds in the same
class of shares of any of the MFS Funds (if shares of such Fund are available
for sale) at net asset value (with a credit for any CDSC paid) within 90 days of
the redemption pursuant to the Reinstatement Privilege. If the shares credited
for any CDSC paid are then redeemed within six years of the initial purchase in
the case of Class B shares or within 12 months of the initial purchase for Class
C Shares and certain Class A share purchases, a CDSC will be imposed upon
redemption. Such purchases under the Reinstatement Privilege are subject to all
limitations in the SAI regarding this privilege.
IN-KIND DISTRIBUTIONS. Subject to compliance with applicable regulations,
the Fund has reserved the right to pay the redemption or repurchase price of
shares of the Fund, either totally or partially, by a distribution in-kind of
securities (instead of cash) from the Fund's portfolio. The securities
distributed in such a distribution would be valued at the same amount as that
assigned to them in calculating the net asset value for the shares being sold.
If a shareholder received a distribution in-kind, the shareholder could incur
brokerage or transaction charges when converting the securities to cash.
INVOLUNTARY REDEMPTIONS/SMALL ACCOUNTS. Due to the relatively high cost of
maintaining small accounts, the Fund reserves the right to redeem shares in any
account for their then-current value if at any time the total investment in such
account drops below $500 because of redemptions, except in the case of accounts
being established for monthly automatic investments and certain payroll savings
programs, Automatic Exchange Plan accounts and tax-deferred retirement plans,
for which there is a lower minimum investment requirement. See "Purchases --
General -- Minimum Investment." Shareholders will be notified that the value of
their account is less than the minimum investment requirement and allowed 60
days to make an additional investment before the redemption is processed.
DISTRIBUTION PLANS
The Trustees have adopted separate Distribution Plans for Class A, Class B and
Class C shares pursuant to Section 12(b) of the 1940 Act and Rule 12b-1
thereunder (the "Distribution Plans"), after having concluded that there is a
reasonable likelihood that the Distribution Plans would benefit the Fund and its
shareholders.
In certain circumstances, the fees described below have not yet been imposed or
are being waived. These circumstances are described below under the heading
"Current Level of Distribution and Service Fees."
FEATURES COMMON TO EACH DISTRIBUTION PLAN: The Distribution Plans have certain
common features, as described below.
SERVICE FEES. Each Distribution Plan provides that the Fund may pay MFD a
service fee of up to 0.25% of the average daily net assets attributable to the
class of shares to which the Distribution Plan relates (i.e., Class A, Class B
or Class C shares, as appropriate) (the "Designated Class") annually in order
that MFD may pay expenses on behalf of the Fund relating to the servicing of
shares of the Designated Class. The service fee is used by MFD to compensate
dealers which enter into a sales agreement with MFD in consideration for all
personal services and/or account maintenance services rendered by the dealer
with respect to shares of the Designated Class owned by investors for whom such
dealer is the dealer or holder of record. MFD may from time to time reduce the
amount of the service fees paid for shares sold prior to a certain date. Service
fees may be reduced for a dealer that is the holder or dealer of record for an
investor who owns shares of the Fund having an aggregate net asset value at or
above a certain dollar level. Dealers may from time to time be required to meet
certain criteria in order to receive service fees. MFD or its affiliates are
entitled to retain all service fees payable under each Distribution Plan for
which there is no dealer of record or for which qualification standards have not
been met as partial consideration for personal services and/or account
maintenance services performed by MFD or its affiliates to shareholder accounts.
DISTRIBUTION FEES. Each Distribution Plan provides that the Fund may pay MFD
a distribution fee based on the average daily net assets attributable to the
Designated Class as partial consideration for distribution services performed
and expenses incurred in the performance of MFD's obligations under its
distribution agreement with the Fund. See "Management of the Fund --
Distributor" in the SAI. The amount of the distribution fee paid by the Fund
with respect to each class differs under the Distribution Plans, as does the use
by MFD of such distribution fees. Such amounts and uses are described below in
the discussion of the separate Distribution Plans. While the amount of
compensation received by MFD in the form of distribution fees during any year
may be more or less than the expense incurred by MFD under its distribution
agreement with the Fund, the Fund is not liable to MFD for any losses MFD may
incur in performing services under its distribution agreement with the Fund.
OTHER COMMON FEATURES. Fees payable under each Distribution Plan are charged
to, and therefore reduce, income allocated to shares of the Designated Class.
The Distribution Plans have substantially identical provisions with respect to
their operating policies and their initial approval, renewal, amendment and
termination.
FEATURES UNIQUE TO EACH DISTRIBUTION PLAN: The Distribution Plans have certain
features that are unique to each class of shares, as described below.
CLASS A DISTRIBUTION PLAN. Class A shares are generally offered pursuant to
an initial sales charge, a substantial portion of which is paid to or retained
by the dealer making the sale (the remainder of which is paid to MFD). See
"Purchases -- Class A Shares" above. In addition to the initial sales charge,
the dealer also generally receives the ongoing 0.25% per annum service fee, as
discussed above.
The distribution fee paid to MFD under the Class A Distribution Plan is equal,
on an annual basis, to 0.10% of the Fund's average daily net assets attributable
to Class A shares. As noted above, MFD may use the distribution fee to cover
distribution-related expenses incurred by it under its distribution agreement
with the Fund, including commissions to dealers and payments to wholesalers
employed by MFD (e.g., MFD pays commission to dealers with respect to purchases
of $1 million or more of Class A shares which are sold at net asset value but
which are subject to a 1% CDSC for one year after purchase). See "Purchases --
Class A Shares" above. In addition, to the extent that the aggregate service and
distribution fees paid under the Class A Distribution Plan do not exceed 0.35%
per annum of the average daily net assets of the Fund attributable to Class A
shares, the Fund is permitted to pay such distribution-related expenses or other
distribution-related expenses.
CLASS B DISTRIBUTION PLAN. Class B shares are offered at net asset value
without an initial sales charge but subject to a CDSC. See "Purchases -- Class B
Shares" above. MFD will advance to dealers the first year service fee described
above at a rate equal to 0.25% of the purchase price of such shares and, as
compensation therefore, MFD may retain the service fee paid by the Fund with
respect to such shares for the first year after purchase. Dealers will become
eligible to receive the ongoing 0.25% per annum service fee with respect to such
shares commencing in the thirteenth month following purchase.
Under the Class B Distribution Plan, the Fund pays MFD a distribution fee equal,
on an annual basis, to 0.75% of the Fund's average daily net assets attributable
to Class B shares. As noted above, this distribution fee may be used by MFD to
cover its distribution-related expenses under its distribution agreement with
the Fund (including the 3.75% commission it pays to dealers upon purchase of
Class B shares, as described under "Purchases -- Class B Shares" above).
CLASS C DISTRIBUTION PLAN. Class C shares are offered at net asset value
without an initial sales charge but subject to a CDSC. See "Purchases -- Class C
shares" above. MFD will pay a commission to dealers of 1.00% of the purchase
price of Class C shares purchased through dealers at the time of purchase. In
compensation for this 1.00% commission paid by MFD to dealers, MFD will retain
the 1.00% per annum Class C distribution and service fees paid by the Fund with
respect to such shares for the first year after purchase, and dealers will
become eligible to receive from MFD the ongoing 1.00% per annum distribution and
service fees paid by the Fund to MFD with respect to such shares commencing in
the thirteenth month following purchase.
This ongoing 1.00% fee is comprised of the 0.25% per annum service fee paid to
MFD under the Class C Distribution Plan (which MFD in turn pays to dealers), as
discussed above, and a distribution fee paid to MFD (which MFD also in turn pays
to dealers) under the Class C Distribution Plan equal, on an annual basis, to
0.75% of the Fund's average daily net assets attributable to Class C shares.
CURRENT LEVEL OF DISTRIBUTION AND SERVICE FEES: The Fund's Class A, Class B and
Class C distribution and service fees for its current fiscal year are 0.15%,
0.95% and 1.00% per annum, respectively. Payment of the 0.10% per annum Class A
distribution fee will commence on such date as the Trustees of the Trust may
determine. Service fee payments in the amount of 0.15% of the average daily net
assets of the Fund attributable to Class A shares are currently being paid by
the Fund. Payment of the remaining portion of the service fee will become
payable on such date as the Trustees of the Trust may determine. Except in the
case of the first year service fee, the Class B service fee is currently set at
0.15% per annum and may be increased to a maximum of 0.25% per annum on such
date as the Trustees of the Trust may determine.
DISTRIBUTIONS
Substantially all of the Fund's net investment income for any calendar year is
declared as dividends daily and paid to its shareholders as dividends on a
monthly basis. Dividends generally are distributed on the first business day of
the following month. The Fund may make one or more distributions during the
calendar year to its shareholders from any long-term capital gains, and may also
make one or more distributions during the calendar year to its shareholders from
short-term capital gains. Shareholders may elect to receive dividends and
capital gain distributions in either cash or additional shares of the same class
to which a distribution is made. See "Tax Status" and "Shareholder Services --
Distribution Options" below. Distributions paid by the Fund with respect to
Class A shares will generally be greater than those paid with respect to Class B
and Class C shares because expenses attributable to Class B and Class C shares
will generally be higher.
TAX STATUS
In order to minimize the taxes the Fund would otherwise be required to pay, the
Fund has elected to be treated and intends to qualify each year as a "regulated
investment company" under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"), and to make distributions to its shareholders in
accordance with the timing requirements imposed by the Code. It is expected that
the Fund will not be required to pay entity level federal income or excise
taxes.
Shareholders of the Fund normally will have to pay federal income taxes on the
dividends and capital gain distributions they receive from the Fund, whether
paid in cash or additional shares. The Fund expects that none of its
distributions will be eligible for the dividends received deduction for
corporations. Shortly after the end of each calendar year, each shareholder will
receive a statement setting forth the federal income tax status of all dividends
and distributions for that year, including the portion taxable as ordinary
income, the portion taxable as long-term capital gain, the portion, if any,
representing a return of capital (which is generally free of current taxes but
results in a basis reduction), the portion representing interest on U.S.
government obligations and the amount, if any, of federal income tax withheld.
Fund distributions of net capital gains or net short-term capital gains will
reduce the Fund's net asset value per share. Shareholders who buy shares shortly
before the Fund makes such a distribution may thus pay the full price for the
shares and then effectively receive a portion of the purchase price back as a
taxable distribution.
The Fund intends to withhold U.S. federal income tax at the rate of 30% on
dividends and other payments that are subject to such withholding and that are
made to persons who are neither citizens nor residents of the U.S., regardless
of whether a lower rate may be permitted under an applicable treaty. The Fund is
also required in certain circumstances to apply backup withholding at the rate
of 31% on taxable dividends and certain redemption proceeds paid to any
shareholder (including a shareholder who is neither a citizen nor a resident of
the U.S.) who does not furnish to the Fund certain information and
certifications or who is otherwise subject to backup withholding. However,
backup withholding will not be applied to payments that have been subject to 30%
withholding. Prospective investors should read the Fund's Account Application
for additional information regarding backup withholding of federal income tax
and should consult their own tax advisers as to the tax consequences to them of
an investment in the Fund.
Distributions of the Fund which are derived from interest on obligations of the
U.S. Government and certain of its agencies, authorities and instrumentalities
(but generally not from capital gains realized upon the disposition of such
obligations) may be exempt from state and local taxes in certain states. The
Fund intends to advise shareholders of the proportion of its distributions that
consists of such interest. Residents of certain states may be subject to an
intangibles tax or a personal property tax on all or a portion of the value of
their shares. Shareholders should consult their tax advisers regarding the
possible exclusion of such portion of their distributions from the Fund for
state and local income tax purposes.
NET ASSET VALUE
The net asset value per share of each class of shares of the Fund is determined
each day during which the Exchange is open for trading. This determination is
made once each day as of the close of regular trading on the Exchange by
deducting the amount of the liabilities attributable to the class from the value
of the assets attributable to the class and dividing the difference by the
number of shares of the class outstanding. Assets in the Fund's portfolio are
valued on the basis of their market or other fair value, as described in the
SAI. The net asset value per share of each class of shares is effective for
orders received by the dealer prior to its calculation and received by MFD prior
to the close of that business day.
DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Fund has three classes of shares, entitled Class A, Class B and Class C
Shares of Beneficial Interest (without par value). Each share of a class
represents an equal proportionate interest in the Fund with each other share of
that class subject to any liabilities of the particular class. Shareholders are
entitled to one vote for each share held and may vote in the election of
Trustees and on other matters submitted to meetings of shareholders. Each class
of shares of the Fund will vote separately on any material increase in the fees
under its Distribution Plan or on any other matter that affects solely that
class of shares, but will otherwise vote together with all other classes of
shares of the Fund on all other matters. The Fund has reserved the right to
create series of shares and to issue additional classes of shares. Each class of
shares of a series would participate equally in the earnings, dividends and
assets attributable to that class of that particular series. Shareholders of
each series would be entitled to vote separately to approve investment advisory
agreements or changes in investment restrictions, but shares of all series would
vote together in the election of Trustees and selection of accountants. The Fund
does not intend to hold annual shareholder meetings. The Fund's Declaration of
Trust provides that a Trustee may be removed from office in certain instances
(see "Description of Shares, Voting Rights and Liabilities" in the SAI).
Shares have no pre-emptive or conversion rights (except as set forth above in
"Purchases -- Conversion of Class B Shares"). Shares are fully paid and
non-assessable. Should the Fund be liquidated, shareholders of each class are
entitled to share pro rata in the net assets attributable to that class
available for distribution to shareholders. Shares will remain on deposit with
the Shareholder Servicing Agent and certificates will not be issued except in
connection with pledges and assignments and in certain other limited
circumstances.
The Fund is an entity of the type commonly known as a "Massachusetts business
trust." Under Massachusetts law, shareholders of such a trust may, under certain
circumstances, be held personally liable as partners for its obligations.
However, the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which both inadequate
insurance existed (e.g., fidelity bonding and errors and omissions insurance)
and the Fund itself was unable to meet its obligations.
PERFORMANCE INFORMATION
From time to time, the Fund will provide yield, current distribution rate and
total rate of return quotations for each class of shares and may also quote fund
rankings in the relevant fund category from various sources, such as the Lipper
Analytical Services, Inc. and Wiesenberger Investment Companies Service. Yield
quotations are based on the annualized net investment income per share of each
class over a 30-day period stated as a percent of the maximum public offering
price of the shares of that class on the last day of that period. The yield
calculation for Class B shares assumes no CDSC is paid. The current distribution
rate for each class is generally based upon the total amount of dividends per
share paid by the Fund to shareholders of that class during the past 12 months
and is computed by dividing the amount of such dividends by the maximum public
offering price of that class at the end of such period. Current distribution
rate calculations for Class B and Class C shares assume no CDSC is paid. The
current distribution rate differs from the yield calculation because it may
include distributions to shareholders from sources other than dividends and
interest, such as premium income from option writing, short-term capital gains,
and return of invested capital, and is calculated over a different period of
time. Total rate of return quotations reflect the average annual percentage
change over stated periods in the value of an investment in a class of shares of
the Fund made at the maximum public offering price of the shares of that class
with all distributions reinvested and which will give effect to the imposition
of any applicable CDSC assessed upon redemptions of the Fund's Class B shares.
Such total rate of return quotations may be accompanied by quotations which do
not reflect the deduction of an initial sales charge and which will thus be
higher. All performance quotations are based on historical performance and are
not intended to indicate future performance. Yield reflects only net portfolio
income as of a stated time and current distribution rate reflects only the rate
of distributions paid by the Fund over a stated period of time, while total rate
of return reflects all components of investment return over a stated period of
time. The Fund's quotations may from time to time be used in advertisements,
shareholder reports or other communications to shareholders. For a discussion of
the manner in which the Fund will calculate its yield, current distribution rate
and total rate of return, see the SAI. For further information about the Fund's
performance for the fiscal year ended December 31, 1995, please see the Fund's
Annual Report. A copy of the Annual Report may be obtained without charge by
contacting the Shareholder Servicing Agent (see back cover for address and phone
number). In addition to information provided in shareholder reports, the Fund
may, in its discretion, from time to time, make a list of all or a portion of
its portfolio holdings available to investors upon request.
7. SHAREHOLDER SERVICES
Shareholders with questions concerning the shareholder services described below
or concerning other aspects of the Fund should contact the Shareholder Servicing
Agent (see back cover for address and phone number).
ACCOUNT AND CONFIRMATION STATEMENTS -- Each shareholder will receive
confirmation statements showing the transaction activity in his account.
Cancelled checks, if any, will be sent to shareholders monthly. At the end of
each calendar year, each shareholder will receive information regarding the tax
status of reportable dividends and distributions for that year (see "Tax
Status").
DISTRIBUTION OPTIONS -- The following options are available to all accounts
(except Systematic Withdrawal Plan accounts) and may be changed as often as
desired by notifying the Shareholder Servicing Agent:
-- Dividends and capital gain distributions reinvested in additional
shares. This option will be assigned if no other option is specified;
-- Dividends in cash; capital gain distributions reinvested in additional
shares;
-- Dividends and capital gain distributions in cash.
Reinvestments (net of any tax withholding) will be made in additional full and
fractional shares of the same class of shares at the net asset value in effect
at the close of business on the last business day of the month. Dividends and
capital gain distributions in amounts less than $10 will automatically be
reinvested in additional shares of the Fund. If a shareholder has elected to
receive dividends and/or capital gain distributions in cash and the postal or
other delivery service is unable to deliver checks to the shareholder's address
of record, such shareholder's distribution option will automatically be
converted to having all dividends and other distributions reinvested in
additional shares. Any request to change a distribution option must be received
by the Shareholder Servicing Agent by the record date for a dividend or
distribution in order to be effective for that dividend or distribution. No
interest will accrue on amounts represented by uncashed distribution or
redemption checks.
INVESTMENT AND WITHDRAWAL PROGRAMS -- For the convenience of shareholders, the
Fund makes available the following programs designed to enable shareholders to
add to their investment in an account with the Fund or withdraw from it with a
minimum of paper work. The programs involve no extra charge to shareholders
(other than a sales charge in the case of certain Class A share purchases) and
may be changed or discontinued at any time by a shareholder or the Fund.
LETTER OF INTENT: If a shareholder (other than a group purchaser as
described in the SAI) anticipates purchasing $50,000 or more of Class A shares
of the Fund alone or in combination with shares of any class of other MFS Funds
or the MFS Fixed Fund (a bank collective investment fund) within a 13- month
period (or 36-month period for purchases of $1 million or more), the shareholder
may obtain such shares at the same reduced sales charge as though the total
quantity were invested in one lump sum, subject to escrow arrangements and the
appointment of an attorney for redemptions from the escrow amount if the
intended purchases are not completed, by completing the Letter of Intent section
of the Account Application.
RIGHT OF ACCUMULATION: A shareholder qualifies for cumulative quantity
discounts on purchases of Class A shares when his new investment, together with
the current offering price value of all holdings of any class of shares of that
shareholder in the MFS Funds or the MFS Fixed Fund (a bank collective investment
fund) reaches a discount level.
DISTRIBUTION INVESTMENT PROGRAM: Shares of a particular class of the Fund
may be sold at net asset value (and without any applicable CDSC) through the
automatic reinvestment of dividend and capital gain distributions from the same
class of another MFS Fund. Furthermore, distributions made by the Fund may be
automatically invested at net asset value (and without any applicable CDSC) in
shares of the same class of another MFS Fund, if shares of such Fund are
available for sale.
SYSTEMATIC WITHDRAWAL PLAN: A shareholder may direct the Shareholder
Servicing Agent to send him (or anyone he designates) regular periodic payments
based upon the value of his account. Each payment under a Systematic Withdrawal
Plan (a "SWP") must be at least $100, except in certain limited circumstances.
The aggregate withdrawals of Class B and Class C shares in any year pursuant to
a SWP will not be subject to a CDSC and are generally limited to 10% of the
value of the account at the time of the establishment of the SWP. The CDSC will
not be waived in the case of SWP redemptions of Class A shares which are subject
to a CDSC.
DOLLAR COST AVERAGING PROGRAMS --
AUTOMATIC INVESTMENT PLAN: Cash investments of $50 or more may be made
through a shareholder's checking account twice monthly, monthly or quarterly.
Required forms are available from the Shareholder Servicing Agent or investment
dealers.
AUTOMATIC EXCHANGE PLAN: Shareholders having account balances of at least
$5,000 in any MFS Fund may exchange their shares for the same class of shares of
the other MFS Funds (and, in the case of Class C shares, for shares of MFS Money
Market Fund) if such funds are available for sale under the Automatic Exchange
Plan, a dollar cost averaging program. The Automatic Exchange Plan provides for
automatic monthly or quarterly exchanges of funds from the shareholder's account
in an MFS Fund for investment in the same class of shares of other MFS Funds
selected by the shareholder if such fund is available for sale. Under the
Automatic Exchange Plan, exchanges of at least $50 each may be made to up to
four different funds. A shareholder should consider the objectives and policies
of a fund and review its prospectus before electing to exchange money into such
fund through the Automatic Exchange Plan. No transaction fee is imposed in
connection with exchange transactions under the Automatic Exchange Plan.
However, exchanges from MFS Money Market Fund, MFS Government Money Market Fund
or Class A shares of MFS Cash Reserve Fund will be subject to any applicable
sales charge. For federal and (generally) state income tax purposes, an exchange
is treated as a sale of the shares exchanged and, therefore, could result in a
capital gain or loss to the shareholder making the exchange. See the SAI for
further information concerning the Automatic Exchange Plan. Investors should
consult their tax advisers for information regarding the potential capital gain
and loss consequences of transactions under the Automatic Exchange Plan.
Because a dollar cost averaging program involves periodic purchases of
shares regardless of fluctuating share offering prices, a shareholder should
consider his financial ability to continue his purchases through periods of low
price levels. Maintaining a dollar cost averaging program concurrently with a
withdrawal program could be disadvantageous because of the sales charges
included in share purchases in the case of Class A shares, and because of the
assessment of the CDSC for certain share redemptions in the case of Class A
shares.
TAX-DEFERRED RETIREMENT PLANS -- Except as noted under "Purchases -- Class C
Shares," shares of the Fund may be purchased by all types of tax-deferred
retirement plans, including IRAs, SEP-IRA plans, 401(k) plans, 403(b) plans and
other corporate pension and profit-sharing plans. Investors should consult with
their tax advisers before establishing any of the tax-deferred retirement plans
described above.
----------------
The Fund's SAI, dated May 1, 1996, contains more detailed information about the
Fund, including, but not limited to, information related to: (i) investment
objective, policies and restrictions; (ii) Trustees, officers and investment
adviser; (iii) portfolio transactions; (iv) the method used to calculate
performance quotations of the Fund; (v) various services and privileges provided
for the benefit of shareholders; (vi) the Class A, Class B and Class C
Distribution Plans; (vii) determination of net asset value of shares of the
Fund; and (viii) certain voting rights of shareholders.
<PAGE>
APPENDIX A
WAIVERS OF SALES CHARGES
This Appendix sets forth the various circumstances in which all applicable sales
charges are waived (Section I), the initial sales charge and the contingent
deferred sales charge ("CDSC") for Class A shares is waived (Section II), and
the CDSC for Class B and Class C shares is waived (Section III).
I. WAIVERS OF ALL APPLICABLE SALES CHARGES
In the following circumstances, the initial sales charge imposed on
purchases of Class A shares and the CDSC imposed on certain redemptions of
Class A shares and on redemptions of Class B and Class C shares, as
applicable, is waived:
1. DIVIDEND REINVESTMENT
* Shares acquired through dividend or capital gain reinvestment; and
* Shares acquired by automatic reinvestment of distributions of
dividends and capital gains of any fund in the MFS Family of Funds
("MFS Funds") pursuant to the Distribution Investment Program.
2. CERTAIN ACQUISITIONS/LIQUIDATIONS
* Shares acquired on account of the acquisition or liquidation of assets
of other investment companies or personal holding companies.
3. AFFILIATES OF AN MFS FUND/CERTAIN DEALERS. Shares acquired by:
* Officers, eligible directors, employees (including retired employees)
and agents of MFS, Sun Life Assurance Company of Canada ("Sun Life")
or any of their subsidiary companies;
* Trustees and retired trustees of any investment company for which
MFD serves as distributor;
* Employees, directors, partners, officers and trustees of any sub-
adviser to any MFS Fund;
* Employees or registered representatives of dealers and other financial
institution ("dealers") which have a sales agreement with MFD;
* Certain family members of any such individual and their spouses
identified above and certain trusts, pension, profit-sharing or other
retirement plans for the sole benefit of such persons, provided the
shares are not resold except to the MFS Fund which issued the shares;
and
* Institutional Clients of MFS or MFS Asset Management, Inc. ("AMI").
4. INVOLUNTARY REDEMPTIONS (CDSC WAIVER ONLY)
* Shares redeemed at an MFS Fund's direction due to the small size of a
shareholder's account. See "Redemptions and Repurchases -- General --
Involuntary Redemptions/Small Accounts" in the Prospectus.
5. RETIREMENT PLANS (CDSC WAIVER ONLY). Shares redeemed on account of
distributions made under the following circumstances:
INDIVIDUAL RETIREMENT ACCOUNTS ("IRA'S")
* Death or disability of the IRA owner.
SECTION 401(A) PLANS ("401(A) PLANS") AND SECTION 403(B) EMPLOYER
SPONSORED PLANS ("ESP PLANS")
* Death, disability or retirement of Plan participant;
* Loan from Plan (repayment of loans, however, will constitute new sales
for purposes of assessing sales charges);
* Financial hardship (as defined in Treasury Regulation Section 1.401
(k)-1(d)(2), as amended from time to time);
* Termination of employment of Plan participant (excluding, however, a
partial or other termination of the Plan);
* Tax-free return of excess Plan contributions;
* To the extent that redemption proceeds are used to pay expenses (or
certain participant expenses) of the Plan (e.g., participant account
fees), provided that the Plan sponsor subscribes to the MFS
FUNDamental 401(k) Plan or another similar recordkeeping system made
available by the Shareholder Servicing Agent; and
* Distributions from a Plan that has invested its assets in one or more
of the MFS Funds for more than 10 years from the later to occur of:
(i) January 1, 1993 or (ii) the date such Plan first invests its
assets in one or more of the MFS Funds. The sales charges will be
waived in the case of a redemption of all of the Plan's shares in all
MFS Funds (i.e., all the assets of the Plan invested in the MFS Funds
are withdrawn), unless immediately prior to the redemption, the
aggregate amount invested by the Plan in shares of the MFS Funds
(excluding the reinvestment of distributions) during the prior four
years equals 50% or more of the total value of the Plan's assets in
the MFS Funds, in which case the sales charges will not be waived.
SECTION 403(B) SALARY REDUCTION ONLY PLANS ("SRO PLANS")
* Death or disability of Plan participant.
6. CERTAIN TRANSFERS OF REGISTRATION (CDSC WAIVER ONLY). Shares
transferred:
* To an IRA rollover account where any sales charges with respect to the
shares being reregistered would have been waived had they been
redeemed; and
* From a single account maintained for a 401(a) Plan to multiple
accounts maintained by the Shareholder Servicing Agent on behalf of
individual participants of such Plan, provided that the Plan sponsor
subscribes to the MFS FUNDamental 401(k) Plan or another similar
recordkeeping system made available by the Shareholder Servicing
Agent.
II. WAIVERS OF CLASS A SALES CHARGES
In addition to the waivers set forth in Section I above, in the following
circumstances the initial sales charge imposed on purchases of Class A
shares and the contingent deferred sales charge imposed on certain
redemptions of Class A shares is waived:
1. INVESTMENT OF REDEMPTION PROCEEDS FROM UNAFFILIATED MUTUAL FUNDS
* Shares acquired through the investment of redemption proceeds from
another open-end management investment company not distributed or
managed by MFD or its affiliates if: (i) the investment is made
through a dealer and appropriate documentation is submitted to MFD;
(ii) the redeemed shares were subject to an initial sales charge or
deferred sales charge (whether or not actually imposed); (iii) the
redemption occurred no more than 90 days prior to the purchase of
Class A shares; and (iv) the MFS Fund, MFD or its affiliates have not
agreed with such company or its affiliates, formally or informally, to
waive sales charges on Class A shares or provide any other incentive
with respect to such redemption and sale.
2. WRAP ACCOUNT INVESTMENTS
* Shares acquired by investments through certain dealers which have
entered into an agreement with MFD which includes a requirement that
such shares be sold for the sole benefit of clients participating in a
"wrap" account or a similar program under which such clients pay a fee
to such dealer.
3. INVESTMENT BY INSURANCE COMPANY SEPARATE ACCOUNTS
* Shares acquired by insurance company separate accounts.
4. RETIREMENT PLANS
ADMINISTRATIVE SERVICES ARRANGEMENTS
* Shares acquired by retirement plans whose third party administrators,
or dealers have entered into an administrative services agreement with
MFD or one of its affiliates to perform certain administrative
services, subject to certain operational and minimum size requirements
specified from time to time by MFD or one or more of its affiliates.
REINVESTMENT OF DISTRIBUTIONS FROM QUALIFIED RETIREMENT PLANS
* Shares acquired through the automatic reinvestment in Class A shares
of Class A or Class B distributions which constitute required
withdrawals from qualified retirement plans.
Shares redeemed on account of distributions made under the following
circumstances:
IRA'S
* Distributions made on or after the IRA owner has attained the age of
59 1/2 years old; and
* Tax-free returns of excess IRA contributions.
401(A) PLANS
* Distributions made on or after the Plan participant has attained the
age of 59 1/2 years old; and
* Certain involuntary redemptions and redemptions in connection with
certain automatic withdrawals from a Plan.
ESP PLANS AND SRO PLANS
* Distributions made on or after the Plan participant has attained the
age of 59 1/2 years old.
III. WAIVERS OF CLASS B AND CLASS C SALES CHARGES
In addition to the waivers set forth in Section I above, in the following
circumstances the CDSC imposed on redemptions of Class B and Class C shares
is waived:
1. SYSTEMATIC WITHDRAWAL PLAN
* Systematic Withdrawal Plan redemptions with respect to up to 10% per
year of the account value at the time of establishment.
2. DEATH OF OWNER
* Shares redeemed on account of the death of the account owner if the
shares are held solely in the deceased individual's name or in a
living trust for the benefit of the deceased individual.
3. DISABILITY OF OWNER
* Shares redeemed on account of the disability of the account owner if
shares are held either solely or jointly in the disabled individual's
name or in a living trust for the benefit of the disabled individual
(in which case a disability certification form is required to be
submitted to the Shareholder Servicing Agent).
4. RETIREMENT PLANS. Shares redeemed on account of distributions made
under the following circumstances:
IRA'S, 401(A) PLANS, ESP PLANS AND SRO PLANS
* Distributions made on or after the IRA owner or the Plan participant,
as applicable, has attained the age of 70 1/2 years old, but only with
respect to the minimum distribution under applicable Internal Revenue
Code ("Code") rules.
SALARY REDUCTION SIMPLIFIED EMPLOYEE PENSION PLANS ("SAR-SEP PLANS")
* Distributions made on or after the SAR-SEP Plan participant has
attained the age of 70 1/2 years old, but only with respect to the
minimum distribution under applicable Code rules;
* Death or disability of a SAR-SEP Plan participant.
<PAGE>
APPENDIX B
DESCRIPTION OF OBLIGATIONS ISSUED OR GUARANTEED BY
U.S. GOVERNMENT AGENCIES, AUTHORITIES OR INSTRUMENTALITIES
FHA DEBENTURES are debentures issued by the Federal Housing Administration and
fully and unconditionally guaranteed by the U.S. Government.
GNMA CERTIFICATES are mortgage-backed securities, with timely payment guaranteed
by the full faith and credit of the U.S. Government which represent partial
ownership interests in a pool of mortgage loans issued by lenders such as
mortgage bankers, commercial banks and savings and loan associations. Each
mortgage loan included in the pool is also insured or guaranteed by the Federal
Housing Administration, the Veterans Administration or the Farmers Home
Administration.
FHLMC BONDS are bonds issued and guaranteed by the Federal Home Loan Mortgage
Corporation and are not guaranteed by the U.S. Government.
FNMA BONDS are bonds issued and guaranteed by the Federal National Mortgage
Association and are not guaranteed by the U.S. Government.
PUBLIC HOUSING NOTES AND BONDS are short-term project notes and long-term bonds
issued by public housing and urban renewal agencies in connection with programs
administered by the Department of Housing and Urban Development of the U.S.
Government, the payment of which is guaranteed by the full faith and credit of
the U.S. Government.
SBA DEBENTURES are debentures issued and guaranteed as to principal and
interest by the Small Business Administration of the U.S. Government.
SLMA DEBENTURES are debentures backed by the Student Loan Marketing
Association and are not guaranteed by the U.S. Government.
TITLE XI BONDS are ship financing bonds issued under Title XI of the Merchant
Marine Act of 1936, as amended, and guaranteed by the Maritime Administration of
the U.S. Government.
WASHINGTON METROPOLITAN AREA TRANSIT AUTHORITY BONDS are bonds issued by the
Washington Metropolitan Area Transit Authority and guaranteed by the full faith
and credit of the U.S. Government.
The list of securities set forth above does not purport to be an exhaustive
compilation of all debt obligations issued or guaranteed by U.S. Government
agencies, authorities or instrumentalities. The Fund reserves the right to
invest in debt obligations issued or guaranteed by U.S. Government agencies,
authorities or instrumentalities in addition to those listed above.
<PAGE>
Investment Adviser
Massachusetts Financial Services Company
500 Boylston Street
Boston, MA 02116
(617) 954-5000
Distributor
MFS Fund Distributors, Inc.
500 Boylston Street
Boston, MA 02116
(617) 954-5000
Custodian and Dividend Disbursing Agent
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
Shareholder Servicing Agent
MFS Service Center, Inc.
500 Boylston Street
Boston, MA 02116
Toll-free: (800) 225-2606
Mailing Address:
P.O. Box 2281
Boston, MA 02107-9906
Independent Auditors
Ernst & Young LLP
200 Clarendon Street
Boston, MA02116
[logo]
MFS(R) GOVERNMENT LIMITED
MATURITY FUND
500 Boylston Street
Boston, MA 02116
[logo]
MFS(R) GOVERNMENT LIMITED
MATURITY FUND
Prospectus
May 1, 1996
MGL-1 5/96/64M 28/228/328
<PAGE>
[logo]
MFS(R) GOVERNMENT STATEMENT OF
LIMITED MATURITY FUND ADDITIONAL INFORMATION
(A Member of the MFS Family of Funds(R)) May 1, 1996
- -------------------------------------------------------------------------------
Page
----
1. Definitions .............................................. 2
2. Investment Objective, Policies and Restrictions .......... 2
3. Management of the Fund ................................... 5
Trustees .............................................. 5
Officers .............................................. 5
Investment Adviser .................................... 6
Custodian ............................................. 7
Shareholder Servicing Agent ........................... 7
Distributor ........................................... 7
4. Portfolio Transactions and Brokerage Commissions ......... 8
5. Shareholder Services ..................................... 8
Investment and Withdrawal Programs .................... 8
Exchange Privilege .................................... 10
Tax-Deferred Retirement Plans ......................... 11
6. Tax Status ............................................... 11
7. Determination of Net Asset Value and Performance ......... 12
8. Distribution Plans ....................................... 14
9. Description of Shares, Voting Rights and Liabilities ..... 14
10. Independent Auditors and Financial Statements ............ 15
Appendix A ............................................... 16
MFS GOVERNMENT LIMITED MATURITY FUND
500 Boylston Street, Boston, Massachusetts 02116
(617) 954-5000
This Statement of Additional Information (the "SAI"), as amended or supplemented
from time to time, sets forth information which may be of interest to investors
but which is not necessarily included in the Fund's Prospectus, dated May 1,
1996. This SAI should be read in conjunction with the Prospectus, a copy of
which may be obtained without charge by contacting the Shareholder Servicing
Agent (see last page for address and phone number).
THIS SAI IS NOT A PROSPECTUS AND IS AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE
INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS.
<PAGE>
1. DEFINITIONS
"Fund" -- MFS(R) Government Limited Maturity
Fund, a Massachusetts business
trust. The Fund was known as "MFS
Government Premium Account" until
its name was changed on August 3,
1992, and as "MFS Government
Premium Fund" until its name was
changed on May 1, 1993.
"MFS" or the "Adviser" -- Massachusetts Financial Services
Company, a Delaware corporation.
"MFD" -- MFS Fund Distributors, Inc., a
Delaware corporation.
"Prospectus" -- The Prospectus of the Fund, dated
May 1, 1996, as amended or
supplemented from time to time.
2. INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
INVESTMENT OBJECTIVE AND POLICIES. The investment objective and policies of the
Fund are described in the Prospectus and below. The following discussion of the
Fund's investment policies and restrictions supplements and should be read in
conjunction with the information set forth in the "Investment Objective and
Policies" section of the Prospectus.
The Fund may invest in collateralized mortgage obligations, multiclass
pass-through securities issued or guaranteed by the U.S. Government, its
agencies, authorities or instrumentalities and in zero coupon Government
Securities (as defined in the Prospectus).
MORTGAGE PASS-THROUGH SECURITIES: The Fund may invest in mortgage pass-through
securities as described in the Prospectus.
Payment of principal and interest on some mortgage pass-through securities (but
not the market value of the securities themselves) may be guaranteed by the full
faith and credit of the U.S. Government (in the case of securities guaranteed by
the Government National Mortgage Association ("GNMA")); or guaranteed by
agencies, authorities or instrumentalities of the U.S. Government (such as the
Federal National Mortgage Association ("FNMA") or the Federal Home Loan Mortgage
Corporation ("FHLMC"), which are supported only by the discretionary authority
of the U.S. Government to purchase the agency's obligations).
Interests in pools of mortgage-related securities differ from other forms of
debt securities, which normally provide for periodic payment of interest in
fixed amounts with principal payments at maturity or specified call dates.
Instead, these securities provide a monthly payment which consists of both
interest and principal payments. In effect, these payments are a "pass-through"
of the monthly payments made by the individual borrowers on their mortgage
loans, net of any fees paid to the issuer or guarantor of such securities.
Additional payments are caused by prepayments of principal resulting from the
sale, refinancing or foreclosure of the underlying property, net of fees or
costs which may be incurred. Some mortgage pass-through securities (such as
securities issued by the GNMA) are described as "modified pass-through." These
securities entitle the holder to receive all interests and principal payments
owed on the mortgages in the mortgage pool, net of certain fees, at the
scheduled payment dates regardless of whether the mortgagor actually makes the
payment.
The principal governmental guarantor of mortgage pass-through securities is
GNMA, a wholly owned U.S. Government corporation within the Department of
Housing and Urban Development. GNMA is authorized to guarantee, with the full
faith and credit of the U.S. Government, the timely payment of principal and
interest on securities issued by institutions approved by GNMA (such as savings
and loan institutions, commercial banks and mortgage bankers) and backed by
pools of Federal Housing Administration ("FHA") insured or Veteran's
Administration ("VA") guaranteed mortgages. These guarantees, however, do not
apply to the market value or yield of mortgage pass-through securities. GNMA
securities are often purchased at a premium over the maturity value of the
underlying mortgages. This premium is not guaranteed and will be lost if
prepayment occurs.
Government-related guarantors (i.e., whose guarantees are not backed by the full
faith and credit of the U.S. Government) include FNMA and FHLMC. FNMA is a
government-sponsored corporation owned entirely by private stockholders. It is
subject to general regulation by the Secretary of Housing and Urban Development.
FNMA purchases conventional residential mortgages (i.e., mortgages not insured
or guaranteed by any governmental agency) from a list of approved
seller/servicers which include state and federally-chartered savings and loan
associations, mutual savings banks, commercial banks, credit unions and mortgage
bankers. Pass-through securities issued by FNMA are guaranteed as to timely
payment by FNMA of principal and interest.
FHLMC was created by Congress in 1970 as a corporate instrumentality of the U.S.
Government for the purpose of increasing the availability of mortgage credit for
residential housing. FHLMC issues Participation Certificates ("PCs") which
represent interests in conventional mortgages (i.e., not federally insured or
guaranteed) from FHLMC's national portfolio. FHLMC guarantees timely payment of
interest and ultimate collection of principal regardless of the status of the
underlying mortgage loans.
REPURCHASE AGREEMENTS: The Fund may enter into repurchase agreements only with
sellers who are primary reporting dealers that report to the Federal Reserve
Bank of New York and with the 100 largest U.S. commercial banks. The securities
that the Fund purchases and holds through its agent are Government Securities,
the values of which are equal to or greater than the repurchase price agreed to
be paid by the seller. The repurchase price may be higher than the purchase
price, the difference being income to the Fund, or the purchase and repurchase
prices may be the same, with interest at a standard rate due to the Fund
together with the repurchase price on repurchase. In either case, the income to
the Fund is unrelated to the interest rate on the Government Securities.
The repurchase agreement provides that in the event the seller fails to pay the
price agreed upon on the agreed upon delivery date or upon demand, as the case
may be, the Fund will have the right to liquidate the securites. If at the time
the Fund is contractually entitled to exercise its right to liquidate the
securities, the seller is subject to a proceeding under the bankruptcy laws or
its assets are otherwise subject to a stay order, the Fund's exercise of its
right to liquidate the securities may be delayed and result in certain losses
and costs to the Fund. The Fund has adopted and follows procedures which are
intended to minimize the risks of repurchase agreements. For example, the Fund
only enters into repurchase agreements after the Adviser has determined that the
seller is creditworthy, and the Adviser monitors that seller's creditworthiness
on an ongoing basis. Moreover, under such agreements, the value of the
securities (which are marked to market every business day) is required to be
greater than the repurchase price, and the Fund has the right to make margin
calls at any time if the value of the securities falls below the agreed upon
margin.
"WHEN-ISSUED" SECURITIES: The Fund may purchase securities on a "when-issued" or
on a "forward delivery" basis. When the Fund commits to purchase Government
Securities on a "when-issued" or "forward delivery" basis, it will set up
procedures consistent with Securities and Exchange Commission ("SEC") policies
concerning such purchases. Since those policies currently recommend that an
amount of the Fund's assets equal to the amount of the purchase be held aside or
segregated to be used to pay for the commitment, the Fund will always have cash,
short-term money market instruments or Government Securities sufficient to cover
any commitments or to limit any potential risk. The Fund does not intend to make
such purchases for speculative purposes. The Fund will only make commitments to
purchase securities on a when-issued or delayed-delivery basis with the
intention of actually acquiring the securities. However, the Fund may sell these
securities before the settlement date if it is deemed advisable as a matter of
investment strategy. When the time comes to pay for when-issued or
delayed-delivery securities, the Fund will meet its obligations from then
available cash flow or the sale of securities, or, although it would not
normally expect to do so, from the sale of the when-issued or delayed- delivery
securities themselves (which may have a value greater or less than the Fund's
payment obligation).
MORTGAGE "DOLLAR ROLL" TRANSACTIONS: As described in the Prospectus, the Fund
may enter into mortgage "dollar roll" transactions pursuant to which it sells
mortgage-backed securities for delivery in the future and simultaneously
contracts to repurchase substantially similar securities on a specified future
date. During the roll period, the Fund foregoes principal and interest paid on
the mortgage-backed securities. The Fund is compensated for the lost interest by
the difference between the current sales price and the lower price for the
future purchase (often referred to as the "drop") as well as by the interest
earned on the cash proceeds of the initial sale. The Fund may also be
compensated by receipt of a commitment fee.
COLLATERALIZED MORTGAGE OBLIGATIONS AND MULTICLASS PASS-THROUGH SECURITIES: The
Fund may invest a portion of its assets in collateralized mortgage obligations
or "CMOs," which are debt obligations collateralized by mortgage loans or
mortgage pass-through securities. Collateral underlying CMOs purchased by the
Fund must be Government Securities. Typically, CMOs are collateralized by
certificates issued by GNMA, FNMA or FHLMC (such collateral collectively
hereinafter referred to as "Mortgage Assets"). The Fund may also invest a
portion of its assets in multiclass pass-through securities which are interests
in a trust composed of Mortgage Assets. In the case of the Fund, these Mortgage
Assets must be Government Securities. The Fund may only invest in CMOs and
multiclass pass-through securities which are issued or guaranteed by the U.S.
Government, its agencies, authorities or instrumentalities. Unless the context
indicates otherwise, all references herein to CMOs include multiclass
pass-through securities. Payments of principal of and interest on the Mortgage
Assets, and any reinvestment income thereon, provide the funds to pay debt
service on the CMOs or make scheduled distributions on the multiclass
pass-through securities.
In a CMO, a series of bonds or certificates is usually issued in multiple
classes. Each class of CMOs, often referred to as a "tranche," is issued at a
specific fixed or floating coupon rate and has a stated maturity or final
distribution date. Principal prepayments on the Mortgage Assets may cause the
CMOs to be retired substantially earlier than their stated maturities or final
distribution dates resulting in a loss of all or part of the premium if any has
been paid. Interest is paid or accrues on all classes of the CMOs on a monthly,
quarterly or semiannual basis. The principal of and interest on the Mortgage
Assets may be allocated among the several classes of a series of a CMO in
innumerable ways. In a common structure, payments of principal, including any
principal prepayments, on the Mortgage Assets are applied to the classes of the
series of a CMO in the order of their respective stated maturities or final
distribution dates, so that no payment of principal will be made on any class of
CMOs until all other classes having an earlier stated maturity or final
distribution date have been paid in full.
The Fund may also invest in parallel pay CMOs and Planned Amortization Class
CMOs ("PAC Bonds"). Parallel pay CMOs are structured to provide payments of
principal on each payment date to more than one class. These simultaneous
payments are taken into account in calculating the stated maturity date or final
distribution date of each class, which, as with other CMO structures, must be
retired by its stated maturity date or final distribution date but may be
retired earlier. PAC Bonds generally require payments of a specified amount of
principal on each payment date. PAC Bonds are always parallel pay CMOs with the
required principal payment on such securities having the highest priority after
interest has been paid to all classes.
LENDING OF PORTFOLIO SECURITIES: The Fund may seek to increase its income by
lending portfolio securities. Such loans usually are made only to member banks
of the Federal Reserve System and to member firms (and subsidiaries thereof)
of the New York Stock Exchange (the "Exchange"), and are secured continuously
by collateral in cash, U.S. Government Securities or an irrevocable letter of
credit maintained on a current basis at an amount at least equal to the market
value of the securities loaned. The Fund would have the right to call a loan
and obtain the securities loaned at any time on customary industry settlement
notice (which will not usually exceed five days). During the existence of a
loan, the Fund would continue to receive the equivalent of the interest paid
by the issuer on the securities loaned and would also receive compensation
based on investment of cash collateral or a fee. As with other extensions of
credit, there are risks of delay in recovery or even loss of rights in the
collateral should the borrower of the securities fail financially. However,
the loans would be made only to firms deemed by the Adviser to be of good
standing, and when, in the judgment of the Adviser, the consideration which
could be earned currently from securities loans of this type justifies the
attendant risk. If the Adviser determines to make securities loans, it is not
intended that the value of the securities loaned would exceed 30% of the value
of the Fund's total assets.
----------------
PORTFOLIO TRADING: The Fund intends to fully manage its portfolio by buying and
selling Government Securities, as well as holding selected obligations to
maturity. In managing its portfolio the Fund seeks to take advantage of market
developments and yield disparities, which may include use of the following
strategies:
(1) selling one type of Government Security (e.g., Treasury bonds) and
buying another (e.g., GNMA direct pass-through certificates) when disparities
arise in the relative values of each; and
(2) changing from one Government Security to an essentially similar
Government Security when their respective yields are distorted due to market
factors.
The Fund will also use the techniques described above under "Repurchase
Agreements" and " "When-Issued" Securities" to manage its portfolio.
These strategies may result in increases or decreases in the Fund's current
income available for distribution to the Fund's shareholders and in the holding
by the Fund of obligations which sell at moderate to substantial premiums or
discounts from face value. Moreover, if the Fund's expectations of changes in
interest rates or its evaluation of the normal yield relationship between two
obligations proves to be incorrect, the Fund's income, net asset value per share
and potential capital gain may be decreased or its potential capital loss may be
increased.
The Fund will engage in portfolio trading if it believes a transaction net of
costs (including custodian charges) will help in attaining its investment
objective. See "Portfolio Transactions and Brokerage Commissions."
The objective and the policies described above may be changed without
shareholder approval.
INVESTMENT RESTRICTIONS. The Fund has adopted the following restrictions which
cannot be changed without the approval of the holders of a majority of its
shares (which, as used in this SAI, means the lesser of (i) more than 50% of the
outstanding shares of the Fund (or a class, as applicable) or (ii) 67% or more
of the outstanding shares of the Fund (or a class, as applicable) present at a
meeting if holders of more than 50% of the outstanding shares of the Fund (or a
class, as applicable) are represented at such meeting in person or by proxy):
The Fund may not:
(1) borrow money or pledge, mortgage or hypothecate in excess of 1/3 of its
assets, and then only as a temporary measure for extraordinary or emergency
purposes or except as contemplated by clause (6) below (the Fund intends to
borrow money only from banks and only to accommodate requests for the
repurchase of shares of the Fund while effecting an orderly liquidation of
portfolio securities) (for the purpose of this restriction, collateral
arrangements with respect to options, Futures Contracts, Options on Futures
Contracts and collateral arrangements with respect to initial and variation
margins are not considered a pledge of assets);
(2) purchase any security or evidence of interest therein on margin, except
that the Fund may obtain such short-term credit as may be necessary for the
clearance of purchases and sales of securities and except that the Fund may
make deposits on margin in connection with Futures Contracts and related
options;
(3) write, purchase or sell any put or call option or any combination
thereof, provided that this shall not prevent the writing, purchasing and
selling of puts, calls or combinations thereof with respect to Government
Securities and with respect to Futures Contracts or the purchase, ownership,
holding or sale of contracts for the future delivery of fixed income
securities;
(4) 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;
(5) purchase or sell commodities or commodity contracts, except that the
Fund may purchase and sell Futures Contracts and related options;
(6) make short sales of securities or maintain a short position, unless at
all times when a short position is open it owns an equal amount of such
securities or securities convertible into or exchangeable for, without payment
of any further consideration, securities of the same issue as, and equal in
amount to, the securities sold short, and unless not more than 10% of the
Fund's total assets (taken at market value) is held as collateral for such
sales at any one time (it is the present intention of management to make such
sales only for the purpose of deferring realization of gain or loss for
Federal income tax purposes; such sales would not be made of securities
subject to outstanding options);
(7) make loans to other persons except through the lending of its portfolio
securities not in excess of 30% of its total assets (taken at market value)
and except through the use of repurchase agreements (for these purposes the
purchase of all or a portion of an issue of debt securities in accordance with
the Fund's investment objective and policies shall not be considered the
making of a loan);
(8) purchase securities of any issuer if such purchase at the time thereof
would cause more than 10% of the voting securities of such issuer to be held
by the Fund;
(9) purchase securities of any issuer if such purchase at the time thereof
would cause more than 5% of the Fund's assets (taken at market value) to be
invested in the securities of such issuer (other than securities or
obligations issued or guaranteed by the United States, any state or political
subdivision thereof, or any political subdivision of any such state, or any
agency or instrumentality of the United States or of any state or of any
political subdivision of any state or the United States); or
(10) issue any senior security (as that term is defined in the Investment
Company Act of 1940 (the "1940 Act")), if such issuance is specifically
prohibited by the 1940 Act or the rules and regulations promulgated thereunder
(for the purpose of this restriction, collateral arrangements with respect to
options, Futures Contracts and Options on Futures Contracts and collateral
arrangements with respect to initial and variation margin are not deemed to be
the issuance of a senior security).
The Fund has also adopted a policy which is fundamental and which provides that
the Fund's assets will be invested in Government Securities and related
repurchase agreements.
The Fund has also adopted the following policies which are not fundamental and
which may be changed without shareholder approval. The Fund will not knowingly
invest in securities which are restricted securities under the Securities Act of
1933, unless the Board of Trustees has determined that such securities are
liquid based upon trading markets for the specific security, if, as a result
thereof, more than 15% of the Fund's total assets (taken at market value) would
be so invested. The Fund will also not invest more than 10% of its assets in
repurchase agreements maturing in more than seven days.
STATE AND FEDERAL RESTRICTIONS: In order to comply with certain state and
federal statutes and policies, the Fund will not, as a matter of operating
policy, (i) invest more than 5% of its total assets at the time of investment in
companies which, including predecessors, have a record of less than three years'
continuous operation, (ii) purchase or retain in its portfolio any securities
issued by an issuer any of whose officers, directors, trustees or security
holders is an officer or Trustee of the Fund, or is an officer or Director of
the Adviser if, after the purchase of the securities of such issuer by the Fund,
one or more of such persons owns beneficially more than 1/2 of 1% of the shares
or securities, or both, of such issuer and such persons owning more than 1/2 of
1% of such shares or securities together own beneficially more than 5% of such
shares or securities, or both, (iii) invest for the purpose of exercising
control or management, (iv) purchase securities issued by any registered
investment company except by purchase in the open market where no commission or
profit to a sponsor or dealer results from such purchase other than the
customary broker's commission, or except when such purchase, though not made in
the open market, is part of a plan of merger or consolidation; provided,
however, that the Fund shall not purchase the securities of any registered
investment company if such purchase at the time thereof would cause more than
10% of the total assets of the Fund (taken at market value) to be invested in
the securities of such issuers or would cause more than 3% of the outstanding
voting securities of any such issuer to be held by the Fund and, provided
further, that the Fund shall not purchase securities issued by any open-end
investment company, or (v) invest more than 10% of its assets (taken at market
value) in securities (including repurchase agreements maturing in more than
seven days) for which there are no readily available market quotations. These
policies are not fundamental and may be changed by the Fund without shareholder
approval in response to changes in the various state and federal requirements.
APPLICABLITY OF RESTRICTIONS: Except with respect to Investment Restriction (1),
these investment restrictions are adhered to at the time of purchase or
utilization of assets; a subsequent change in circumstances will not be
considered to result in a violation of policy.
3. MANAGEMENT OF THE FUND
The Fund's Board of Trustees provides broad supervision over the affairs of the
Fund. The Adviser is responsible for the investment management of the Fund's
assets, and the officers of the Fund are responsible for its operations. The
Trustees and officers are listed below, together with their principal
occupations during the past five years. (Their titles may have varied during
that period.)
TRUSTEES
A. KEITH BRODKIN,* Chairman and President
Massachusetts Financial Services Company, Chairman
RICHARD B. BAILEY*
Private Investor; Massachusetts Financial Services Company, former Chairman
(prior to September 30, 1991); Cambridge Bancorp, Director; Cambridge Trust
Company, Director
MARSHALL N. COHAN
Private Investor
Address: 2524 Bedford Mews Drive, Wellington, Florida
LAWRENCE H. COHN, M.D.
Brigham and Women's Hospital, Chief of Cardiac Surgery; Harvard Medical
School, Professor of Surgery
Address: 75 Francis Street, Boston, Massachusetts
THE HON. SIR J. DAVID GIBBONS, KBE
Edmund Gibbons Limited, Chief Executive Officer; The Bank of N.T. Butterfield
& Son Ltd., Chairman
Address: 21 Reid Street, Hamilton, Bermuda
ABBY M. O'NEILL
Private Investor; Rockefeller Financial Services, Inc. (investment advisers),
Director
Address: Room 5600, 30 Rockefeller Plaza, New York, New York
WALTER E. ROBB, III
Benchmark Advisors, Inc. (corporate financial consultants), President and
Treasurer; Benchmark Consulting Group, Inc. (office services), President;
Landmark Funds (mutual fund), Trustee
Address: 110 Broad Street, Boston, Massachusetts
ARNOLD D. SCOTT*
Massachusetts Financial Services Company, Senior Executive Vice President and
Secretary
JEFFREY L. SHAMES*
Massachusetts Financial Services Company, President
J. DALE SHERRATT
Insight Resources, Inc. (acquisition planning specialists), President
Address: One Liberty Square, Boston, Massachusetts
WARD SMITH
NACCO Industries (holding company), Chairman (prior to June, 1994); Sundstrand
Corporation (diversified mechanical manufacturer), Director; Society
Corporation (bank holding company), Director (prior to April, 1992); Society
National Bank (commercial bank), Director (prior to April, 1992)
Address: 5875 Landerbrook Drive, Mayfield Heights, Ohio
OFFICERS
W. THOMAS LONDON,* Treasurer
Massachusetts Financial Services Company, Senior Vice President
STEPHEN E. CAVAN,* Secretary and Clerk
Massachusetts Financial Services Company, Senior Vice President, General
Counsel and Assistant Secretary
JAMES R. BORDEWICK, JR.,* Assistant Secretary
Massachusetts Financial Services Company, Vice President and Associate General
Counsel
JAMES O. YOST,* Assistant Treasurer
Massachusetts Financial Services Company, Vice President
- ----------
*"Interested persons" (as defined in the Investment Company Act of 1940 (the
"1940 Act")) of the Adviser, whose address is 500 Boylston Street, Boston,
Massachusetts 02116.
Each Trustee and officer holds comparable positions with certain MFS
affiliates or with certain other funds of which MFS or a subsidiary of MFS is
the investment adviser or distributor. Mr. Brodkin, the Chairman of MFD,
Messrs. Shames and Scott, Directors of MFD, and Mr. Cavan, the Secretary of
MFD, hold similar positions with certain other MFS affiliates. Mr. Bailey is a
Director of Sun Life Assurance Company of Canada (U.S.) ("Sun Life of Canada
(U.S.)"), the corporate parent of MFS.
The Fund pays the compensation of non-interested Trustees and Mr. Bailey (who
currently receive a fee of $1,250 per year plus $225 per meeting and $225 per
committee meeting attended together with such Trustees' out-of-pocket expenses).
The Fund has adopted a retirement plan for non-interested Trustees and Mr.
Bailey. Under this plan, a Trustee will retire upon reaching age 75 and if the
Trustee has completed at least five years of service, he would be entitled to
annual payments during his lifetime of up to 50% of such Trustee's average
annual compensation (based on the three years prior to his retirement) depending
on his length of service. A Trustee may also retire prior to age 75 and receive
reduced payments if he has completed at least five years of service. Under the
plan, a Trustee (or his beneficiaries) will also receive benefits for a period
of time in the event the Trustee is disabled or dies. These benefits will also
be based on the Trustee's average annual compensation and length of service.
There is no retirement plan provided by the Fund for Messrs. Brodkin, Scott or
Shames. The Fund will accrue compensation expenses each year to cover current
year's service and amortize past service cost.
Set forth in Appendix A hereto is certain information concerning the cash
compensation paid to the Trustees and benefits accrued, and estimated benefits
payable, under the retirement plan.
As of March 31, 1996, all officers and Trustees as a group owned less than 1% of
the outstanding shares of the Fund.
As of March 31, 1996, Merrill Lynch, Pierce, Fenner and Smith Inc., MFBFX 98437,
P.O. Box 45286, Jacksonville, Florida 32232-5286 was the record owner of
approximately 6.93% of the outstanding Class B shares of the Fund.
As of March 31, 1996, BHC Securities, Inc. FAO 70711520, Attn: Mutual Funds
Dept., One Commerce Square, 2005 Market Street, Suite 1200, Philadelphia, PA
19103-7042, BHC Securities, Inc., FAO 72681663, Attn: Mutual Funds Dept., One
Commerce Square, 2005 Market Street, Suite 1200, Philadelphia, PA 19103-7042,
Yadkin Valley Telephone Membership Corp., P.O. Box 368, Yadkinville, NC 27055-
0368, and Randolph Telephone Membership Corp., 3733 Old Cox Road, Asheboro, NC
27203-1517 were the record owners of approximately 10.14%, 9.77%, 12.12% and
5.51%, respectively, of the outstanding Class C Shares of the Fund.
The Fund's Declaration of Trust provides that it will indemnify its Trustees and
officers against liabilities and expenses incurred in connection with litigation
in which they may be involved because of their offices with the Fund, unless, as
to liabilities to the Fund or its shareholders, it is finally adjudicated that
they engaged in willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in their offices, or with respect to any
matter, unless it is adjudicated that they did not act in good faith in the
reasonable belief that their actions were in the best interest of the Fund. In
the case of settlement, such indemnification will not be provided unless it has
been determined pursuant to the Declaration of Trust, that such officers or
Trustees have not engaged in willful misfeasance, bad faith, gross negligence or
reckless disregard of their duties.
INVESTMENT ADVISER
MFS and its predecessor organizations have a history of money management dating
from 1924. MFS is a subsidiary of Sun Life of Canada (U.S.), which in turn is a
wholly owned subsidiary of Sun Life Assurance Company of Canada ("Sun Life").
The Prospectus contains information with respect to the management of the
Adviser and other investment companies for which MFS serves as investment
adviser.
The Adviser manages the assets of the Fund pursuant to an Investment Advisory
Agreement, dated August 10, 1988, as amended (the "Advisory Agreement"). The
Adviser provides the Fund with overall investment advisory and administrative
services, as well as general office facilities. Subject to such policies as the
Trustees may determine, the Adviser makes investment decisions for the Fund. For
its services and facilities, the Adviser receives a management fee equal to the
lesser of (i) 0.40% of the Fund's average daily net assets or (ii) 0.38% of the
Fund's average daily net assets plus 5.36% of the Fund's gross income (i.e.,
income other than from the sale of securities, and short term gains from futures
transactions), in each case on an annualized basis for the Fund's then-current
fiscal year. Prior to April 1, 1994, the Adviser received a management fee,
computed and paid monthly, in an amount equal to the sum of 0.38% of the average
daily net assets of the Fund plus 5.36% of the Fund's gross income (i.e., income
other than from the sale of securities, short-term gains from options and
futures transactions and premium income from options written), in each case on
an annualized basis for the Fund's then-current fiscal year. (For the period
from May 1, 1993 to April 1, 1994, however, the Adviser had voluntarily agreed
to establish its management fee as the lesser of (i) 0.55% of the Fund's average
daily net assets or (ii) the amount of such fee as otherwise calculated in
accordance with the Advisory Agreement, with the Fund.)
For the fiscal years ended December 31, 1993 and 1994, MFS voluntarily reduced
its management fees to $1,857,409 and $1,401,230, respectively. If MFS had not
reduced its management fees, MFS would have received management fees of
$2,264,078 and $1,561,767, respectively, under the Advisory Agreement. For the
fiscal year ended December 31, 1995, MFS received a management fee of $1,145,992
under the Advisory Agreement.
In order to comply with the requirements of certain state securities
commissions, the Adviser will reduce its management fee or otherwise reimburse
the Fund for any expenses, exclusive of interest, taxes and brokerage
commissions incurred by the Fund in any fiscal year to the extent such expenses
exceed the most restrictive of such state expense limitations. The Adviser will
make appropriate adjustments to such reimbursements in response to any amendment
or recission of the various state requirements.
The Fund pays all of its expenses (other than those assumed by the Adviser or
MFD), including: Trustee fees (discussed above); governmental fees; interest
charges; taxes; membership dues in the Investment Company Institute allocable to
the Fund; fees and expenses of independent accountants, of legal counsel, and of
any transfer agent, registrar and dividend disbursing agent of the Fund;
expenses of repurchasing and redeeming shares; expenses of preparing, printing
and mailing share certificates, shareholder reports, notices, proxy statements
to shareholders and reports to governmental officers and commissions; brokerage
and other expenses connected with the execution, recording and settlement of
portfolio security transactions; insurance premiums; fees and expenses of State
Street Bank and Trust Company, the Fund's Custodian, for all services to the
Fund, including safekeeping of funds and securities and maintaining required
books and accounts; expenses of calculating the net asset value of shares of the
Fund; and expenses of shareholder meetings. Expenses relating to the issuance,
registration and qualification of shares of the Fund and the preparation,
printing and mailing of prospectuses for such purposes are borne by the Fund
except that its Distribution Agreement with MFD, the Fund's principal
underwriter, requires MFD to pay for prospectuses that are to be used for sales
purposes. For a list of the Fund's expenses, including the compensation paid to
the Trustees who are not officers of MFS, during its fiscal year ended December
31, 1995 see "Financial Statements -- Statement of Operations" in the Annual
Report to shareholders. Payment by the Fund of brokerage commission for
brokerage and research services of value to the Adviser in serving its clients
is discussed under the caption "Portfolio Transactions and Brokerage
Commissions" below.
The Adviser pays the compensation of the Fund's officers and of any Trustee who
is an officer of MFS. The Adviser also furnishes at its own expense all
necessary administrative services, including office space, equipment, clerical
personnel, investment advisory facilities, and all executive and supervisory
personnel necessary for managing the Fund's investments, effecting the Fund's
portfolio transactions and, in general, administering the Fund's affairs.
The Advisory Agreement will remain in effect until August 1, 1996, and will
continue in effect thereafter only if such continuance is specifically approved
at least annually by the Board of Trustees or by vote of a majority of the
Fund's shares (as defined in "Investment Objective, Policies and Restrictions --
Investment Restrictions" above) and, in either case, by a majority of the
Trustees who are not parties to the Advisory Agreement or interested persons of
any such party. The Advisory Agreement terminates automatically if it is
assigned and may be terminated without penalty by vote of a majority of the
Fund's outstanding voting securities (as defined in "Investment Objective,
Policies and Restrictions -- Investment Restrictions") or by either party on not
more than 60 days' nor less than 30 days' written notice. The Advisory Agreement
further provides that MFS may render services to others and may permit fund
clients in addition to the Fund to use the initials "MFS" in their names. The
Advisory Agreement also provides that neither the Adviser nor its personnel
shall be liable for any error of judgment or mistake of law or for any loss
arising out of any investment or for any act or omission in the execution and
management of the Fund, except for willful misfeasance, bad faith or gross
negligence in the performance of its or their duties or by reason of reckless
disregard of its or their obligations and duties under the Advisory Agreement.
CUSTODIAN
State Street Bank and Trust Company (the "Custodian") is the custodian of the
Fund's assets. The Custodian's responsibilities include safekeeping and
controlling the Fund's cash and securities, handling the receipt and delivery of
securities, determining income and collecting interest on the Fund's
investments, maintaining books of original entry for portfolio and fund
accounting and other required books and accounts, and calculating the daily net
asset value of each class of shares of the Fund. The Custodian does not
determine the investment policies of the Fund or decide which securities the
Fund will buy or sell. The Fund may, however, invest in securities, including
repurchase agreements, issued by the Custodian and may deal with the Custodian
as principal in securities transactions. The Custodian also acts as the dividend
disbursing agent of the Fund. The Custodian has contracted with the Adviser for
the Adviser to perform certain accounting functions related to options
transactions for which the Adviser receives remuneration on a cost basis.
SHAREHOLDER SERVICING AGENT
MFS Service Center, Inc. (the "Shareholder Servicing Agent"), a wholly owned
subsidiary of MFS, is the Fund's shareholder servicing agent, pursuant to a
Shareholder Servicing Agreement, dated August 10, 1988 (the "Agency Agreement")
with the Fund. The Shareholder Servicing Agent's responsibilities under the
Agency Agreement include administering and performing transfer agent functions
and the keeping of records in connection with the issuance, transfer and
redemption of each class of shares of the Fund. For these services, the
Shareholder Servicing Agent will receive a fee calculated as a percentage of the
average daily net assets of each class of shares at an effective annual rate of
up to 0.15%, up to 0.22% and up to 0.15% attributable to Class A, Class B and
Class C shares, respectively. In addition, the Shareholder Servicing Agent will
be reimbursed by the Fund for certain expenses incurred by the Shareholder
Servicing Agent on behalf of the Fund. State Street Bank and Trust Company, the
dividend and distribution disbursing agent of the Fund, has contracted with the
Shareholder Servicing Agent to administer and perform certain dividend and
distribution disbursing functions for the Fund.
DISTRIBUTOR
MFD, a wholly owned subsidiary of MFS, serves as distributor for the continuous
offering of shares of the Fund pursuant to a Distribution Agreement, dated
January 1, 1995 (the "Distribution Agreement") with the Fund. Prior to January
1, 1995, MFS Financial Services, Inc. ("FSI"), another wholly owned subsidiary
of MFS, was the Fund's distributor. Where this SAI refers to MFD in relation to
the receipt or payment of money with respect to a period or periods prior to
January 1, 1995, such reference shall be deemed to include FSI, as the
predecessor in interest to MFD.
CLASS A SHARES: MFD acts as agent in selling Class A shares of the Fund to
dealers. The public offering price of Class A shares of the Fund is their net
asset value next computed after the sale plus a sales charge which varies based
upon the quantity purchased. The public offering price of Class A shares of the
Fund is calculated by dividing net asset value of a Class A share by the
difference (expressed as a decimal) between 100% and the sales charge percentage
of offering price applicable to the purchase (see "Purchases" in the
Prospectus). The sales charge scale set forth in the Prospectus applies to
purchases of Class A shares of the Fund alone or in combination with shares of
all classes of certain other funds in the MFS Family of Funds (the "MFS Funds")
and other Funds (as noted under Right of Accumulation) by any person, including
members of a family unit (e.g., husband, wife and minor children) and bona fide
trustees, and also applies to purchases made under the Right of Accumulation or
a Letter of Intent (see "Investment and Withdrawal Programs" below). A group
might qualify to obtain quantity sales charge discounts (see "Investment and
Withdrawal Programs" in this SAI).
Class A shares of the Fund may be sold at their net asset value to certain
persons or in certain instances as described in the Prospectus. Such sales are
made without a sales charge to promote good will with employees and others with
whom MFS, MFD and/or the Fund have business relationships, and because the sales
effort, if any, involved in making such sales is negligible.
MFD allows discounts to dealers (which are alike for all dealers) from the
applicable public offering price of the Class A shares. Dealer allowances
expressed as a percentage of offering price for all offering prices are set
forth in the Prospectus (see "Purchases" in the Prospectus). The difference
between the total amount invested and the sum of (a) the net proceeds to the
Fund and (b) the dealer commission, is the commission paid to the distributor.
Because of rounding in the computation of offering price, the portion of the
sales charge paid to the distributor may vary and the total sales charge may be
more or less than the sales charge calculated using the sales charge expressed
as a percentage of offering price or as a percentage of the net amount invested
as listed in the Prospectus. In the case of the maximum sales charge, the dealer
retains 2 1/4% and MFD retains approximately 1/4 of 1% of the public offering
price. In addition, MFD pays a commission to dealers who initiate and are
responsible for purchases of $1 million or more as described in the Prospectus.
For the fiscal years ended December 31, 1993, 1994 and 1995, the contingent
deferred sales charges ("CDSC") imposed on redemption of Class A shares were
$25,971, $238,743 and $22,488, respectively.
CLASS B SHARES AND CLASS C SHARES: MFD acts as agent in selling Class B and
Class C shares to dealers. The public offering price of Class B and Class C
shares is their net asset value next computed after the sale (see "Purchases" in
the Prospectus).
GENERAL: On occasion, MFD may obtain brokers loans from various banks, including
the custodian banks for the MFS Funds, to facilitate the settlement of sales of
shares of the Fund to dealers. MFD may benefit from its temporary holding of
funds paid to it by investment dealers for the purchase of Fund shares. Neither
MFD nor dealers are permitted to delay placing orders to benefit themselves by a
price change.
During the Fund's fiscal year ended December 31, 1995, MFD received sales
charges of $29,605 and dealers received sales charges of $325,395 (as their
concession on gross sales of $355,000) for selling Class A shares of the Fund;
the Fund received $56,232,743 representing the aggregate net asset value of such
shares. During the fiscal year ended December 31, 1994, MFD received sales
charges of $43,591 and dealers received sales charges of $345,947 (as their
concession on gross sales charges of $389,538) for selling Class A shares of the
Fund; the Fund received $59,857,104 representing the aggregate net asset value
of such shares. During the Fund's fiscal year ended December 31, 1993, MFD
received sales charges of $72,839 and dealers received sales charges of $964,003
(as their concession on gross sales charges of $1,036,842) for selling Class A
shares of the Fund; the Fund received $163,442,347 representing the aggregate
net asset value of such shares.
For the fiscal years ended December 31, 1995 and 1994 and for the period from
September 7, 1993 through December 31, 1993, the CDSC imposed on redemption of
Class B shares was $121,288, $192,283 and $2,897, respectively.
The Distribution Agreement will remain in effect until August 1, 1996, and will
continue in effect thereafter only if such continuance is specifically approved
at least annually by the Board of Trustees or by vote of a majority of the
Fund's shares and, in either case, by a majority of the Trustees who are not
parties to the Distribution Agreement or interested persons of any such party.
The Distribution Agreement terminates automatically if it is assigned and may be
terminated without penalty by either party on not more than 60 days' nor less
than 30 days' notice.
4. PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
Specific decisions to purchase or sell securities for the Fund are made by a
portfolio manager who is an employee of the Adviser and who is appointed and
supervised by its senior officers. Changes in the Fund's investments are
reviewed by the Board of Trustees. The Fund's portfolio manager may serve other
clients of the Adviser or any subsidiary of the Adviser in a similar capacity.
The primary consideration in placing portfolio security transactions is
execution at the most favorable prices. The Adviser has complete freedom as to
the markets in and broker-dealers through which it seeks this result. Government
Securities are traded principally in the over-the-counter market on a net basis
through dealers acting for their own account and not as brokers. The cost of
securities purchased from underwriters includes an underwriter's commission or
concession, and the prices at which securities are purchased and sold from and
to dealers include a dealer's mark-up or mark-down. The Adviser attempts to
negotiate with underwriters to decrease the commission or concession for the
benefit of the Fund. The Adviser normally seeks to deal directly with the
primary market makers unless, in its opinion, better prices are available
elsewhere. Securities firms may receive brokerage commissions on transactions
involving options, Futures Contracts and Options on Futures Contracts and the
purchase and sale of underlying securities upon exercise of options. The
brokerage commissions associated with buying and selling options may be
proportionately higher than those associated with general securities
transactions. Subject to the requirement of seeking execution at the most
favorable price, securities may, as authorized by the Advisory Agreement, be
bought from or sold to dealers who have furnished statistical, research and
other information or services to the Adviser. At present no arrangements for the
recapture of commission payments are in effect.
Consistent with the foregoing primary consideration, the Rules of Fair Practice
of the National Association of Securities Dealers, Inc. (the "NASD") and such
other policies as the Trustees may determine, the Adviser may consider sales of
shares of the Fund and of the other investment company clients of MFD as a
factor in the selection of broker-dealers to execute the Fund's portfolio
transactions.
In certain instances there may be securities which are suitable for the Fund's
portfolio as well as for that of one or more of the other clients of the Adviser
or any subsidiary of the Adviser. Investment decisions for the Fund and for such
other clients are made with a view to achieving their respective investment
objectives. It may develop that a particular security is bought or sold for only
one client even though it might be held by, or bought or sold for, other
clients. Likewise, a particular security may be bought for one or more clients
when one or more other clients are selling that same security. Some simultaneous
transactions are inevitable when several clients receive investment advice from
the same investment adviser, particularly when the same security is suitable for
the investment objectives of more than one client. When two or more clients are
simultaneously engaged in the purchase or sale of the same security, the
securities are allocated among clients in a manner believed by the Adviser to be
equitable to each. It is recognized that in some cases this system could have a
detrimental effect on the price or volume of the security as far as the Fund is
concerned. In some cases, however, the Fund believes that its ability to
participate in volume transactions will produce better executions for the Fund.
5. SHAREHOLDER SERVICES
INVESTMENT AND WITHDRAWAL PROGRAMS -- The Fund makes available the following
programs designed to enable shareholders to add to their investment or withdraw
from it with a minimum of paper work. These are described below and in certain
cases, in the Prospectus. The programs involve no extra charge to shareholders
(other than a sales charge in the case of certain Class A share purchases) and
may be changed or discontinued at any time by a shareholder or the Fund.
LETTER OF INTENT: If a shareholder (other than a group purchaser described
below) anticipates purchasing $50,000 or more of Class A shares of the Fund
alone or in combination with shares of Class B or Class C of the Fund or any of
the classes of other MFS Funds or MFS Fixed Fund (a bank collective investment
fund) within a 13-month period (or 36-month period, in the case of purchases of
$1 million or more), the shareholder may obtain Class A shares of the Fund at
the same reduced sales charge as though the total quantity were invested in one
lump sum by completing the Letter of Intent section of the Account Application
or filing a separate Letter of Intent application (available from the
Shareholder Servicing Agent) within 90 days of the commencement of purchases.
Subject to acceptance by MFD and the conditions mentioned below, each purchase
will be made at a public offering price applicable to a single transaction of
the dollar amount specified in the Letter of Intent application. The shareholder
or his dealer must inform MFD that the Letter of Intent is in effect each time
shares are purchased. The shareholder makes no commitment to purchase additional
shares, but if his purchases within 13 months (or 36 months in the case of
purchases of $1 million or more) plus the value of shares credited toward
completion of the Letter of Intent do not total the sum specified, he will pay
the increased amount of the sales charge as described below. Instructions for
issuance of shares in the name of a person other than the person signing the
Letter of Intent application must be accompanied by a written statement from the
dealer stating that the shares were paid for by the person signing such Letter.
Neither income dividends nor capital gain distributions taken in additional
shares will apply toward the completion of the Letter of Intent. Dividends and
distributions of other MFS Funds automatically reinvested in shares of the Fund
pursuant to the Distribution Investment Program also will not apply toward
completion of the Letter of Intent.
Out of the shareholder's initial purchase (or subsequent purchases if
necessary), 5% of the dollar amount specified in the Letter of Intent
application shall be held in escrow by the Shareholder Servicing Agent in the
form of shares registered in the shareholder's name. All income dividends and
capital gain distributions on escrowed shares will be paid to the shareholder or
to his order. When the minimum investment so specified is completed (either
prior to or by the end of the 13-month period or 36-month period, as
applicable), the shareholder will be notified and the escrowed shares will be
released.
If the intended investment is not completed, the Shareholder Servicing Agent
will redeem an appropriate number of the escrowed shares in order to realize
such difference. Shares remaining after any such redemption will be released by
the Shareholder Servicing Agent. By completing and signing the Account
Application or separate Letter of Intent application, the shareholder
irrevocably appoints the Shareholder Servicing Agent his attorney to surrender
for redemption any or all escrowed shares with full power of substitution in the
premises.
RIGHT OF ACCUMULATION: A shareholder qualifies for cumulative quantity
discounts on the purchase of Class A shares when that shareholder's new
investment, together with the current offering price value of all holdings of
all classes of that shareholder in the MFS Funds or the MFS Fixed Fund (a bank
collective investment fund) reaches a discount level. See "Purchases" in the
Prospectus for the sales charges on quantity discounts. For example, if a
shareholder owns shares with a current offering price value of $25,000 and
purchases an additional $25,000 of Class A shares of the Fund, the sales charge
for the $25,000 purchase would be at the rate of 2.25% (the rate applicable to
single transactions of $50,000). A shareholder must provide the Shareholder
Servicing Agent (or his investment dealer must provide MFD) with information to
verify that the quantity sales charge discount is applicable at the time the
investment is made.
DISTRIBUTION INVESTMENT PROGRAM: Distributions of dividends and capital gains
made by the Fund with respect to a particular class of shares may be
automatically invested in shares of the same class of one of the other MFS Funds
if shares of the fund are available for sale. Such investments will be subject
to additional purchase minimums. Distributions will be invested at net asset
value (exclusive of any sales charge) and will not be subject to a CDSC.
Distributions will be invested at the close of business on the payable date for
the distribution. A shareholder considering the Distribution Investment Program
should obtain and read the prospectus of the other fund and consider the
differences in objectives and policies before making any investment.
SYSTEMATIC WITHDRAWAL PLAN: A shareholder may direct the Shareholder Servicing
Agent to send him (or anyone he designates) regular periodic payments based upon
the value of his account. Each payment under a Systematic Withdrawal Plan
("SWP") must be at least $100, except in certain limited circumstances. The
aggregate withdrawals of Class B shares in any year pursuant to a SWP generally
are limited to 10% of the value of the account at the time of the establishment
of the SWP. SWP payments are drawn from the proceeds of share redemptions held
in the shareholder's account (which would be a return of principal and, if
reflecting a gain, would be taxable). Redemptions of Class B and Class C shares
will be made in the following order: (i) to the extent necessary, any "Free
Amount"; (ii) any "Reinvested Shares" and (iii) to the extent necessary, the
"Direct Purchase" subject to the lowest CDSC (as such terms are defined in
"Contingent Deferred Sales Charge" in the Prospectus). The CDSC will be waived
in the case of redemptions of Class B and Class C shares pursuant to a SWP, but
will not be waived in the case of SWP redemptions of Class A shares which are
subject to a CDSC. To the extent that redemptions for such periodic withdrawals
exceed dividend income reinvested in the account, such redemptions will reduce
and may eventually exhaust the number of shares in the shareholder's account.
All dividend and capital gain distributions for an account with a SWP will be
reinvested in additional full and fractional shares of the Fund at the net asset
value in effect at the close of business on the record date for such
distributions. To initiate this service, shares having an aggregate value of at
least $5,000 either must be held on deposit by, or certificates for such shares
must be deposited with, the Shareholder Servicing Agent. With respect to Class A
shares, maintaining a withdrawal plan concurrently with an investment program
would be disadvantageous because of the sales charges included in share
purchases and the imposition of a CDSC on certain redemptions. The shareholder
may deposit into the account additional shares of the Fund, change the payee or
change the dollar amount of each payment. The Shareholder Servicing Agent may
charge the account for services rendered and expenses incurred beyond those
normally assumed by the Fund with respect to the liquidation of shares. No
charge is currently assessed against the account, but one could be instituted by
the Shareholder Servicing Agent on 60 days' notice in writing to the shareholder
in the event that the Fund ceases to assume the cost of these services. The Fund
may terminate any SWP for an account if the value of the account falls below
$5,000 as a result of share redemptions (other than as a result of a SWP) or an
exchange of shares of the Fund for shares of another MFS Fund. Any SWP may be
terminated at any time by either the shareholder or the Fund.
INVEST BY MAIL: Additional investments of $50 or more may be made at any time
by mailing a check payable to the Fund directly to the Shareholder Servicing
Agent. The shareholder's account number and the name of his investment dealer
must be included with each investment.
GROUP PURCHASES: A bona fide group and all its members may be treated as a
single purchaser and, under the Right of Accumulation (but not a Letter of
Intent), obtain quantity sales charge discounts on the purchase of Class A
shares if the group (1) gives its endorsement or authorization to the investment
program so it may be used by the investment dealer to facilitate solicitation of
the membership, thus effecting economies of sales effort; (2) has been in
existence for at least six months and has a legitimate purpose other than to
purchase mutual fund shares at a discount; (3) is not a group of individuals
whose sole organizational nexus is as credit cardholders of a company,
policyholders of an insurance company, customers of a bank or broker-dealer,
clients of an investment adviser or other similar group; and (4) agrees to
provide certification of membership of those members investing money in the MFS
Funds upon the request of MFD.
AUTOMATIC EXCHANGE PLAN: Shareholders having account balances of at least
$5,000 in any MFS Fund may exchange their shares for the same class of shares of
the other MFS Funds (if available for sale) under the Automatic Exchange Plan.
The Automatic Exchange Plan provides for automatic exchanges of funds from the
shareholder's account in an MFS Fund for investment in the same class of shares
of other MFS Funds selected by the shareholder. Under the Automatic Exchange
Plan, exchanges of at least $50 each may be made to up to four different funds
effective on the seventh day of each month or of every third month, depending
whether monthly or quarterly exchanges are elected by the shareholder. If the
seventh day of the month is not a business day, the transaction will be
processed on the next business day. Generally, the initial exchange will occur
after receipt and processing by the Shareholder Servicing Agent of an
application in good order. Exchanges will continue to be made from a
shareholder's account in any MFS Fund as long as the balance of the account is
sufficient to complete the exchanges. Additional payments made to a
shareholder's account will extend the period that exchanges will continue to be
made under the Automatic Exchange Plan. However, if additional payments are
added to an account subject to the Automatic Exchange Plan shortly before an
exchange is scheduled, such funds may not be available for exchanges until the
following month; therefore, care should be used to avoid inadvertently
terminating the Automatic Exchange Plan through exhaustion of the account
balance.
No transaction fee will be charged for exchanges in connection with the
Automatic Exchange Plan. However, exchanges of shares of MFS Money Market Fund,
MFS Government Money Market Fund and Class A shares of MFS Cash Reserve Fund
will be subject to any applicable sales charge. Changes in amounts to be
exchanged to each fund, the funds to which exchanges are to be made and the
timing of exchanges (monthly or quarterly), or termination of a shareholder's
participation in the Automatic Exchange Plan will be made after instructions in
writing or by telephone (an "Exchange Change Request") are received by the
Shareholder Servicing Agent in proper form (i.e., if in writing -- signed by the
record owner(s) exactly as shares are registered; if by telephone -- proper
account identification is given by the dealer or shareholder of record). Each
Exchange Change Request (other than termination of participation in the program)
must involve at least $50. Generally, if an Exchange Change Request is received
by telephone or in writing before the close of business on the last business day
of a month, the Exchange Change Request will be effective for the following
month's exchange.
A shareholder's right to make additional investments in any of the MFS Funds, to
make exchanges of shares from one MFS Fund to another and to withdraw from an
MFS Fund, as well as a shareholder's other rights and privileges, are not
affected by a shareholder's participation in the Automatic Exchange Plan.
The Automatic Exchange Plan is part of the Exchange Privilege. For additional
information regarding the Automatic Exchange Plan, including the treatment of
any CDSC, see "Exchange Privilege" below.
REINSTATEMENT PRIVILEGE: Shareholders of the Fund and shareholders of the
other MFS Funds (except MFS Money Market Fund, MFS Government Money Market Fund
and Class A shares of MFS Cash Reserve Fund in the case where the shares are
acquired through direct purchase or reinvested dividends) who have redeemed
their shares have a one-time right to reinvest the redemption proceeds in the
same class of shares of any of the MFS Funds (if shares of the fund are
available for sale) at net asset value (without a sales charge) and, if
applicable, with credit for any CDSC paid. In the case of proceeds reinvested in
shares of MFS Money Market Fund, MFS Government Money Market Fund or Class A
shares of MFS Cash Reserve Fund, the shareholder has the right to exchange the
acquired shares for shares of another MFS Fund at net asset value pursuant to
the exchange privilege described below. Such a reinvestment must be made within
90 days of the redemption and is limited to the amount of the redemption
proceeds. If the shares credited for any CDSC paid are then redeemed within six
years of their initial purchase in the case of Class B shares or within 12
months of the initial purchase of Class C shares and certain Class A shares, a
CDSC will be imposed upon redemption. Although redemptions and repurchases of
shares are taxable events, a reinvestment within a certain period of time in the
same fund may be considered a "wash sale" and may result in the inability to
recognize currently all or a portion of a loss realized on the original
redemption for federal income tax purposes.
Please see your tax adviser for further information.
EXCHANGE PRIVILEGE -- Subject to the requirements set forth below, some or all
of the shares in an account with the Fund for which payment has been received by
the Fund (i.e., an established account) may be exchanged for shares of the same
class of any of the other MFS Funds (if available for sale) at their net asset
value. Exchanges will be made only after instructions in writing or by telephone
(an "Exchange Request") are received for an established account by the
Shareholder Servicing Agent.
Each Exchange Request must be in proper form (i.e., if in writing -- signed by
the record owner(s) exactly as the shares are registered; if by telephone --
proper account identification is given by the dealer or shareholder of record),
and each exchange must involve either shares having an aggregate value of at
least $1,000 ($50 in the case of retirement plan participants whose sponsoring
organizations subscribe to the MFS FUNDamental 401(k) Plan or another similar
401(k) recordkeeping system made available by the Shareholder Servicing Agent)
or all the shares in the account. Each exchange involves the redemption of the
shares of the Fund to be exchanged and the purchase at net asset value (i.e.,
without a sales charge) of shares of the same class of the other MFS Fund. Any
gain or loss on the redemption of the shares exchanged is reportable on the
shareholder's federal income tax return, unless both the shares received and the
shares surrendered in the exchange are held in a tax-deferred retirement plan or
other tax-exempt account. If the Exchange Request is received by the Shareholder
Servicing Agent prior to the close of regular trading on the Exchange on any
business day, the exchange usually will occur on that day if all the
requirements set forth above have been complied with at that time. However,
payment of the redemption proceeds by the Fund, and thus the purchase of shares
of the other MFS Fund, may be delayed for up to seven days if the Fund
determines that such a delay would be in the best interest of all its
shareholders. No more than five exchanges may be made in any one Exchange
Request by telephone. Investment dealers which have satisfied criteria
established by MFD may also communicate a shareholder's Exchange Request to MFD
by facsimile subject to the requirements set forth above.
No CDSC is imposed on exchanges among the MFS Funds, although liability for the
CDSC is carried forward to the exchanged shares. For purposes of calculating the
CDSC upon redemption of shares acquired in an exchange, the purchase of shares
acquired in one or more exchanges is deemed to have occurred at the time of the
original purchase of the exchanged shares.
Additional information with respect to any of the MFS Funds, including a copy of
its current prospectus, may be obtained from investment dealers or the
Shareholder Servicing Agent. A shareholder considering an exchange should obtain
and read the prospectus of the other MFS Fund and consider the differences in
objectives and policies before making any exchange. Shareholders of the other
MFS Funds (except shares of MFS Money Market Fund, MFS Government Money Market
Fund and Class A shares of MFS Cash Reserve Fund acquired through direct
purchase and dividends reinvested prior to June 1, 1992) have the right to
exchange their shares for shares of the MFS Funds, subject to the conditions, if
any, set forth in their respective prospectuses. In addition, unitholders of the
MFS Fixed Fund have the right to exchange their units (except units acquired
through direct purchases) for shares of the Fund, subject to the conditions, if
any, imposed upon such unitholders by the MFS Fixed Fund.
Any state income tax advantages for investment in shares of each state- specific
series of MFS Municipal Series Trust may only benefit residents of such states.
Investors should consult with their own tax advisers to be sure this is an
appropriate investment, based on their residency and each state's income tax
laws.
The exchange privilege (or any aspect of it) may be changed or discontinued and
is subject to certain limitations (see "Purchases" in the Prospectus).
TAX-DEFERRED RETIREMENT PLANS -- Shares of the Fund may be purchased by
certain types of tax-deferred retirement plans. MFD makes available through
investment dealers plans and/or custody agreements for the following:
Individual Retirement Accounts (IRAs) (for individuals and their non- employed
spouses who desire to make limited contributions to a tax-deferred retirement
program and, if eligible, to receive a federal income tax deduction for
amounts contributed);
Simplified Employee Pension (SEP-IRA) Plans;
Retirement Plans Qualified under Section 401(k) of the Internal Revenue Code
of 1986, as amended (the "Code");
403(b) Plans (deferred compensation arrangements for employees of public
school systems and certain non-profit organizations); and
Certain other qualified pension and profit-sharing plans.
The plan documents provided by MFD designate a trustee or custodian (unless
another trustee or custodian is designated by the individual or group
establishing the plan) and contain specific information about the plans. Each
plan provides that dividends and distributions will be reinvested automatically.
For further details with respect to any plan, including fees charged by the
trustee, custodian or MFD, tax consequences and redemption information, see the
specific documents for that plan. Plan documents other than those provided by
MFD may be used to establish any of the plans described above. Third party
administrative services, available for some corporate plans, may limit or delay
the processing of transactions.
Investors should consult with their tax advisers before establishing any of the
tax-deferred retirement plans described above.
Class C shares are not currently available for purchase by any retirement plan
qualified under Internal Revenue Code section 401(a) or 403(b) if the retirement
plan and/or the sponsoring organization subscribe to the MFS FUNDamental 401(k)
Plan or another similar 401(a) or 403(b) recordkeeping program made available by
the Shareholder Servicing Agent.
6. TAX STATUS
FEDERAL TAXES
The Fund has elected to be treated and intends to qualify each year as a
"regulated investment company" under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code"), by meeting all applicable requirements of
Subchapter M, including requirements as to the nature of the Fund's gross
income, the amount of Fund distributions, and the composition and holding period
of the Fund's portfolio assets. Because the Fund intends to distribute to
shareholders all of its net investment income and net realized capital gains in
accordance with the timing requirements imposed by the Code, it is not expected
that the Fund will be required to pay any federal income or excise taxes. If the
Fund should fail to qualify as a "regulated investment company" in any year, the
Fund would incur a regular corporate federal income tax upon its taxable income
and Fund distributions would generally be taxable as ordinary dividend income to
the shareholders. As long as it qualifies as a regulated investment company
under the Code, the Fund will not be required to pay Massachusetts income or
excise taxes.
Shareholders of the Fund normally will have to pay federal income taxes on the
dividends and capital gain distributions they receive from the Fund. Dividends
from ordinary income and any distributions from net short-term capital gains,
whether paid in cash or reinvested in additional shares, are taxable to the
Fund's shareholders as ordinary income for federal income tax purposes. Because
the Fund expects to earn primarily interest income, it is expected that no Fund
dividends will qualify for the dividends received deduction for corporations.
Distributions of net capital gains (i.e., the excess of net long-term capital
gains over net short-term capital losses), whether paid in cash or reinvested in
additional shares, are taxable to the Fund's shareholders as long-term capital
gains for federal income tax purposes without regard to the length of time
shareholders have owned their shares. The Fund will notify shareholders
regarding the federal tax status of its distributions after the end of each
calendar year.
Any distribution of net capital gains or net short-term capital gains will have
the effect of reducing the per share net asset value of shares in the Fund by
the amount of the distribution. Shareholders purchasing shares shortly before
the record date of any such distribution may thus pay the full price for the
shares and then effectively receive a portion of the purchase price back as a
taxable distribution.
In general, any gain or loss realized upon a taxable disposition of shares of
the Fund by a shareholder that holds such shares as a capital asset will be
treated as a long-term capital gain or loss if the shares have been held for
more than twelve months and otherwise as a short-term capital gain or loss.
However, any loss realized upon a disposition of shares in the Fund held for six
months or less will be treated as a long-term capital loss to the extent of any
distributions of net capital gain made with respect to those shares. Any loss
realized upon a disposition of shares may also be disallowed under rules
relating to wash sales. Gain may be increased (or loss reduced) upon a
redemption of Class A shares of the Fund within ninety days after their purchase
followed by any purchase without payment of an additional sales charge
(including purchases by exchange or by reinvestment) of Class A shares of the
Fund or of another MFS Fund (or any other shares of an MFS Fund generally sold
subject to a sales charge).
The Fund's current dividend and accounting policies will affect the amount,
timing and character of distributions to shareholders. Any investment in zero
coupon securities and certain securities purchased at a market discount will
cause the Fund to recognize income prior to the receipt of cash payments with
respect to these securities. In order to distribute this income and avoid a tax
on the Fund, the Fund may be required to liquidate portfolio securities that it
might otherwise have continued to hold, potentially resulting in additional
taxable gain or loss to the Fund.
Investment in residual interests of a CMO that has elected to be treated as a
real estate mortgage investment conduit, or "REMIC," can create complex tax
problems, especially if the Fund has state or local governments or other
tax-exempt organizations as investors.
Dividends and certain other payments to persons who are not citizens or
residents of the United States or U.S. entities ("Non-U.S. Persons") are
generally subject to U.S. tax withholding at the rate of 30%. The Fund intends
to withhold U.S. federal income tax at the rate of 30% on any payments made to
Non-U.S. Persons that are subject to such withholding, regardless of whether a
lower treaty rate may be permitted. Any amounts overwithheld may be recovered by
such persons by filing a claim for refund with the U.S. Internal Revenue Service
within the time period applicable to such claims. The Fund is also required in
certain circumstances to apply backup withholding at the rate of 31% on taxable
dividends and redemption proceeds paid to any shareholder (including a non-U.S.
Person) who does not furnish to the Fund certain information and certifications
or who is otherwise subject to backup withholding. However, backup withholding
will not be applied to payments which have been subject to 30% withholding.
Distributions received from the Fund by Non-U.S. Persons may also be subject to
tax under the laws of their own jurisdictions.
Distributions of the Fund that are derived from interest on obligations of the
U.S. Government and certain of its agencies and instrumentalities (but generally
not from capital gains realized upon the disposition of such obligations) may be
exempt from state and local taxes in certain states. Residents of certain states
may be subject to an intangibles tax or a personal property tax on all or a
portion of the value of their shares. The Fund intends to advise shareholders of
the proportion of its distributions that consists of such interest. Shareholders
are urged to consult their tax advisers regarding this, and other state and
local income tax matters.
7. DETERMINATION OF NET ASSET VALUE AND PERFORMANCE
NET ASSET VALUE: The net asset value per share of each class of the Fund is
determined each day during which the Exchange is open for trading. (As of the
date of this SAI, such Exchange is open for trading every weekday except for the
following holidays or the days on which they are observed: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.) This determination is made once during each
such day as of the close of regular trading on such Exchange by deducting the
amount of the liabilities attributable to the class from the value of the assets
attributable to the class and dividing the difference by the number of shares of
the class outstanding. Debt securities (other than short-term obligations) in
the Fund's portfolio are valued on the basis of valuations furnished by a
pricing service which utilizes both dealer-supplied valuations and electronic
data processing techniques which take into account appropriate factors such as
institutional-size trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, trading characteristics and other market
data, without exclusive reliance upon exchange or over-the-counter prices, since
such valuations are believed to reflect the fair value of such securities. Use
of the pricing service has been approved by the Board of Trustees. Short-term
obligations with a remaining maturity in excess of 60 days will be valued based
upon dealer supplied valuations. Other short-term obligations in the Fund's
portfolio are valued at amortized cost, which constitutes fair value as
determined by the Board of Trustees. Portfolio securities and other assets for
which there are no such quotations or valuations are valued at fair value as
determined in good faith by or at the direction of the Board of Trustees. A
share's net asset value is effective for orders received by the dealer prior to
its calculation and received by MFD prior to the close of that business day.
PERFORMANCE INFORMATION
TOTAL RATE OF RETURN: The Fund will calculate its total rate of return for each
class of shares for certain periods by determining the average annual compounded
rates of return over those periods that would cause an investment of $1,000
(made with all distributions reinvested and reflecting the CDSC or the maximum
public offering price) to reach the value of that investment at the end of the
periods. The Fund may also calculate (i) a total rate of return, which is not
reduced by the CDSC (4% maximum for Class B shares and 1% maximum for Class C
shares) and therefore may result in a higher rate of return, (ii) a total rate
of return assuming an initial account value of $1,000, which will result in a
higher rate of return since the value of the initial account will not be reduced
by the sales charge applicable to Class A shares (2.50% maximum), and/or (iii)
total rates of return which represent aggregate performance over a period or
year-by-year performance, and which may or may not reflect the effect of the
maximum or other sales charge or CDSC. The Fund's average annual total rates of
return for Class A shares, reflecting the initial investment at the maximum
public offering price, for the one- and five-year periods ended December 31,
1995 and for the period from September 26, 1988, the Fund's commencement of
investment operations, to December 31, 1995 were 7.60%, 5.70% and 6.10%,
respectively. The Fund's average annual total rates of return for Class A
shares, not giving effect to the sales charge on the initial investment, for the
one- and five-year periods ended December 31, 1995 and for the period from
September 26, 1988, the Fund's commencement of investment operations, to
December 31, 1995 were 10.36%, 6.24% and 6.48% respectively. The Fund's average
annual total rates of return for Class B shares, reflecting the CDSC, for the
one-year period ended December 31, 1995 and for the period from commencement of
operations on September 7, 1993 to December 31, 1995 were 5.31% and 1.77%,
respectively. The Fund's average annual total rates of return for Class B
shares, not giving effect to the CDSC, for the one-year period ended December
31, 1995 and for the period from commencement of operations on September 7, 1993
to December 31, 1995 were 9.31% and 2.96%, respectively. The Fund's average
annual total rate of return for Class C shares for the one-year period ended
December 31, 1995 and for the period from commencement of operations on August
1, 1994 to December 31, 1995 was 9.33% and 6.25%, respectively. During these
periods, a CDSC was not imposed on redemptions of Class C shares.
PERFORMANCE RESULTS: The performance results for Class A shares below, based on
an assumed initial investment of $10,000 in Class A shares, cover the period
from the Fund's commencement of investment operations, September 26, 1988, to
December 31, 1995. It has been assumed that dividends and capital gain
distributions were reinvested in additional shares. These performance results,
as well as any yield or total rate of return quotation provided by the Fund,
should not be considered as representative of the performance of the Fund in the
future since the net asset value and public offering price of shares of the Fund
will vary based not only on the type, quality and maturities of the securities
held in its portfolio, but also on changes in the current value of such
securities and on changes in the Fund's expenses. These factors and possible
differences in the methods used to calculate yields and total rates of return
should be considered when comparing the Fund's yield and total rate of return to
yields and total rates of return published for other investment companies or
other investment vehicles. Total rate of return reflects the performance of both
principal and income. Current net asset value and account balance information
may be obtained by calling 1-800-MFS-Talk (637-8255).
MFS GOVERNMENT LIMITED MATURITY FUND
VALUE OF
VALUE OF REINVESTED VALUE OF
YEAR ENDED INITIAL $10,000 CAPITAL GAIN REINVESTED TOTAL
DECEMBER 31 INVESTMENT DISTRIBUTIONS DIVIDENDS VALUE
----------- --------------- ------------- ---------- -----
1988* $9,645 $0 $ 163 $ 9,808
1989 9,635 0 1,206 10,841
1990 9,200 0 2,161 11,361
1991 9,170 0 3,150 12,320
1992 9,089 0 4,033 13,122
1993 9,099 0 4,941 14,040
1994 8,522 0 5,412 13,934
1995 8,795 0 6,583 15,378
*For the period from the commencement of investment operations, September 26,
1988, to December 31, 1988.
EXPLANATORY NOTES: The initial investment on September 26, 1988 has been reduced
by the maximum applicable sales charge (2.50%). No adjustment has been made for
any income taxes payable by shareholders.
YIELD: Any yield quotation for a class of shares of the Fund is based on the
annualized net investment income per share of that class of the Fund over a
30-day period. The yield is calculated by dividing the net investment income per
share allocated to a particular class of the Fund earned during the period by
the maximum public offering price per share of such class on the last day of
that period. The resulting figure is then annualized. Net investment income per
share of a class is determined by dividing (i) the dividends and interest earned
by the Fund allocated to that class during the period, minus accrued expenses of
such class for the period, by (ii) the average number of Fund shares of such
class entitled to receive dividends during the period multiplied by the maximum
public offering price per share of such class on the last day of the period. The
Fund's yield calculations for Class A shares assume a maximum sales charge of
2.50%. For Class B and Class C shares, the Fund's yield calculation assumes no
CDSC is paid. The yield for Class A shares of the Fund (assuming a maximum sales
charge of 2.50%) for the 30-day period ended December 31, 1995 was 5.20%. The
yield for Class B and Class C shares for the 30-day period ended December 31,
1995 was 4.53% and 4.63%, respectively.
CURRENT DISTRIBUTION RATE: Yield, which is calculated according to a formula
prescribed by the SEC, is not indicative of the amounts which were or will be
paid to the Fund's shareholders. Amounts paid to shareholders of each class are
reflected in the quoted "current distribution rate" for that class. The current
distribution rate for a class is computed by dividing the total amount of
dividends per share paid by the Fund to shareholders of that class during the
past 12 months by the maximum public offering price of that class at the end of
such period. Under certain circumstances, such as when there has been a change
in the amount of dividend payout, or a fundamental change in investment
policies, it might be appropriate to annualize the dividends paid over the
period such policies were in effect, rather than using the dividends paid during
the past 12 months. The current distribution rate differs from the yield
computation because it may include distributions to shareholders from sources
other than dividends and interest, such as premium income for option writing,
short-term capital gains and return of invested capital, and is calculated over
a different period of time. The Fund's current distribution rate calculation for
Class A shares assumes a maximum sales charge of 2.50%. The Fund's current
distribution rate calculation for Class B and Class C shares assumes no CDSC is
paid. The current distribution rates for Class A shares, Class B shares and
Class C shares of the Fund for the 12-month period ended on December 31, 1995
were 6.46%, 5.79% and 5.82%, respectively.
GENERAL: From time to time, the Fund may, as appropriate, quote Fund rankings or
reprint all or a portion of evaluations of Fund performance and operations
appearing in various independent publications, including but not limited to the
following: Money, Fortune, U.S. News and World Report, Kiplinger's Personal
Finance, The Wall Street Journal, Barron's, Investors Business Daily, Newsweek,
Financial World, Financial Planning, Investment Advisor, USA Today, Pensions and
Investments, SmartMoney, Forbes, Global Finance, Registered Representative,
Institutional Investor, the Investment Company Institute, Johnson's Charts,
Morningstar, Lipper Analytical Services, Inc., CDA Wiesenberger, Shearson Lehman
and Salomon Bros. Indices, Ibbotson, Business Week, Lowry Associates, Media
General, Investment Company Data, The New York Times, Your Money, Strangers
Investment Advisor, Financial Planning on Wall Street, Standard and Poor's,
Individual Investor, The 100 Best Mutual Funds You Can Buy by Gordon K.
Williamson, Consumer Price Index, and Sanford C. Bernstein & Co. Fund
performance may also be compared to the performance of other mutual funds
tracked by financial or business publications or periodicals.
The Fund may also quote evaluations mentioned in independent radio or television
broadcasts.
From time to time, the Fund may use charts and graphs to illustrate the past
performance of various indices such as those mentioned above and illustrations
using hypothetical rates of return to illustrate the effects of compounding and
tax-deferral.
The Fund may advertise examples of the effects of periodic investment plans,
including the principle of dollar cost averaging. In such a program, an investor
invests a fixed dollar amount in a fund at periodic intervals, thereby
purchasing fewer shares when prices are high and more shares when prices are
low. While such a strategy does not assure a profit or guard against a loss in a
declining market, the investor's average cost per share can be lower than if
fixed numbers of shares are purchased at the same intervals.
From time to time, the Fund may discuss or quote its current portfolio manager
as well as other investment personnel, including such persons' views on: the
economy; securities markets; portfolio securities and their issuers; investment
philosophies, strategies, techniques and criteria used in the selection of
securities to be purchased or sold for the Fund; the Fund's portfolio holdings;
the investment research and analysis process; the formulation and evaluation of
investment recommendations; and the assessment and evaluation of credit,
interest rate, market and economic risks.
MFS FIRSTS: MFS has a long history of innovations.
-- 1924 -- Massachusetts Investors Trust is established
as the first open-end mutual fund in America.
-- 1924 -- Massachusetts Investors Trust is the first mutual fund
to make full public disclosure of its operations in shareholder
reports.
-- 1932 -- One of the first internal research departments is
established to provide in-house analytical capability for an
investment management firm.
-- 1933 -- Massachusetts Investors Trust is the first mutual fund
to register under the Securities Act of 1933 ("Truth in
Securities Act" or "Full Disclosure
Act").
-- 1936 -- Massachusetts Investors Trust is the first mutual fund
to allow shareholders to take capital gain distributions either
in additional shares or cash.
-- 1976 -- MFS(R) Municipal Bond Fund is among the first municipal
bond funds established.
-- 1979 -- Spectrum becomes the first combination fixed/ variable
annuity with no initial sales charge.
-- 1981 -- MFS(R) World Governments Fund is established as
America's first globally diversified fixed-income mutual fund.
-- 1984 -- MFS(R) Municipal High Income Fund is the first open-end
mutual fund to seek high tax-free income from lower-rated
municipal securities.
-- 1986 -- MFS(R) Managed Sectors Fund becomes the first mutual
fund to target and shift investments among industry sectors for
shareholders.
-- 1986 -- MFS(R) Municipal Income Trust is the first closed-end,
high-yield municipal bond fund traded on the New York Stock
Exchange.
-- 1987 -- MFS(R) Multimarket Income Trust is the first
closed-end, multimarket high income fund listed on the New York
Stock Exchange.
-- 1989 -- MFS(R) Regatta becomes America's first non-qualified
market-value-adjusted fixed/variable annuity.
-- 1990 -- MFS(R) World Total Return Fund is the first
global balanced fund.
-- 1993 -- MFS(R) World Growth Fund is the first global emerging
markets fund to offer the expertise of two sub-advisers.
-- 1993 -- MFS becomes money manager of MFS(R) Union Standard
Trust, the first Trust to invest in companies deemed to be
union-friendly by an Advisory Board of senior labor officials,
senior managers of companies with significant labor contracts,
academics and other national labor leaders or experts.
8. DISTRIBUTION PLANS
The Trustees have adopted separate Distribution Plans for Class A, Class B and
Class C shares (the "Distribution Plans") pursuant to Section 12(b) of the 1940
Act and Rule 12b-1 thereunder (the "Rule") after having concluded that there is
a reasonable likelihood that each Distribution Plan would benefit the Fund and
the respective class of shareholders. The Distribution Plans are designed to
promote sales, thereby increasing the net assets of the Fund. Such an increase
may reduce the Fund's expense ratio to the extent the Fund's fixed costs are
spread over a larger net asset base. Also, an increase in net assets may lessen
the adverse effects that could result were the Fund required to liquidate
portfolio securities to meet redemptions. There is, however, no assurance that
the net assets of the Fund will increase or that the other benefits referred to
above will be realized.
The Distribution Plans are described in the Prospectus under the caption
"Distribution Plans," which is incorporated herein by reference. The following
information supplements this Prospectus discussion.
SERVICE FEES: With respect to the Class A Distribution Plan, no service fees
will be paid: (i) to any dealer who is the holder or dealer of record for
investors who own Class A shares having an aggregate net asset value less than
$750,000, or such other amount as may be determined from time to time by MFD
(MFD, however, may waive this minimum amount requirement from time to time); or
(ii) to any insurance company which has entered into an agreement with the Fund
and MFD that permits such insurance company to purchase Class A shares from the
Fund at their net asset value in connection with annuity agreements issued in
connection with the insurance company's separate accounts. Dealers may from time
to time be required to meet certain other criteria in order to receive service
fees.
With respect to the Class B Distribution Plan, except in the case of the first
year service fee, no service fees will be paid to any securities dealer who is
the holder or dealer of record for investors who own Class B shares having an
aggregate net asset value of less than $750,000 or such other amount as may be
determined by MFD from time to time. MFD, however, may waive this minimum amount
requirement from time to time. Dealers may from time to time be required to meet
certain other criteria in order to receive service fees.
MFD or its affiliates shall be entitled to receive any service fee payable under
any Distribution Plan for which there is no dealer of record or for which
qualification standards have not been met as partial consideration for personal
services and/or account maintenance services performed by MFD or its affiliates
for shareholder accounts.
DISTRIBUTION FEES: The purpose of distribution payments to MFD under the
Distribution Plans is to compensate MFD for its distribution services to the
Fund. MFD pays commissions to dealers as well as expenses of printing
prospectuses and reports used for sales purposes, expenses with respect to the
preparation and printing of sales literature and other distribution related
expenses, including, without limitation, the cost necessary to provide
distribution-related services, or personnel, travel, office expenses and
equipment.
DISTRIBUTION AND SERVICE FEES PAID DURING THE FUND'S LAST FISCAL YEAR: During
the fiscal year ended December 31, 1995, the Fund paid the following
Distribution Plan expenses:
AMOUNT OF AMOUNT OF AMOUNT OF
DISTRIBUTION DISTRIBUTION DISTRIBUTION
AND SERVICE AND SERVICE AND SERVICE
FEES PAID FEES RETAINED FEES RECEIVED
DISTRIBUTION PLANS BY FUND BY MFD BY DEALERS
- ------------------ ------- ------------- -------------
Class A Distribution Plan $622,463 $286,881 $335,582
Class B Distribution Plan $276,312 $221,825 $ 54,487
Class C Distribution Plan $ 80,026 $ 27 $ 79,999
GENERAL: Each of the Distribution Plans will remain in effect until August 1,
1996, and will continue in effect thereafter only if such continuance is
specifically approved at least annually by vote of both the Trustees and a
majority of the Trustees who are not "interested persons" or financially
interested parties of such Plan ("Distribution Plan Qualified Trustees"). Each
of the Distribution Plans also requires that the Fund and MFD each shall provide
the Trustees, and the Trustees shall review, at least quarterly, a written
report of the amounts expended (and purposes therefor) under such Plan. Each of
the Distribution Plans may be terminated at any time by vote of a majority of
the Distribution Plan Qualified Trustees or by vote of the holders of a majority
of the respective class of the Fund's shares (as defined in "Investment
Restrictions"). All agreements relating to any of the Distribution Plans entered
into between the Fund or MFD and other organizations must be approved by the
Board of Trustees, including a majority of the Distribution Plan Qualified
Trustees. Agreements under any of the Distribution Plans must be in writing,
will be terminated automatically if assigned, and may be terminated at any time
without payment of any penalty, by vote of a majority of the Distribution Plan
Qualified Trustees or by vote of the holders of a majority of the respective
class of the Fund's shares. None of the Distribution Plans may be amended to
increase materially the amount of permitted distribution expenses without the
approval of a majority of the respective class of the Fund's shares (as defined
in "Investment Restrictions") or may be materially amended in any case without a
vote of the Trustees and a majority of the Distribution Plan Qualified Trustees.
The selection and nomination of Distribution Plan Qualified Trustees shall be
committed to the discretion of the non-interested Trustees then in office. No
Trustee who is not an "interested person" has any financial interest in any of
the Distribution Plans or in any related agreement.
9. DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional Shares of Beneficial Interest (without par value)
and to divide or combine the shares into a greater or lesser number of shares
without thereby changing the proportionate beneficial interests in the Fund. The
Declaration of Trust further authorizes the Trustees to classify or reclassify
the shares of the Fund into one or more classes. Pursuant thereto, the Trustees
have authorized the issuance of three classes of shares of the Fund, Class A,
Class B and Class C shares. Each share of a class of the Fund represents an
equal proportionate interest in the assets of the Fund allocable to that class.
Upon liquidation of the Fund, the shareholders of each class of the Fund are
entitled to share pro rata in the Fund's net assets allocable to such class
available for distribution to its shareholders. The Fund reserves the right to
create and issue additional series of shares, in which case the shares of each
series would participate equally in the earnings, dividends and assets of the
particular series (subject to any class expenses) and each series may be
entitled to vote separately to approve investment advisory agreements or changes
in investment restrictions, but shareholders of all series would vote together
in the election of Trustees and the selection of accountants. The Fund reserves
the right to create additional classes of shares.
Shareholders are entitled to one vote for each share held and may vote in the
election of Trustees and on other matters submitted to meetings of shareholders.
Although Trustees are not elected annually by the shareholders, shareholders
have under certain circumstances the right to remove one or more Trustees. No
material amendment may be made to the Fund's Declaration of Trust without the
affirmative vote of a majority of its shares. The Fund may merge or consolidate
with another organization or sell all or substantially all of its assets, if
approved by the vote of the holders of two-thirds of its outstanding shares,
except that if the Trustees recommend such merger, consolidation or sale, the
approval by vote of the holders of a majority of the Fund's outstanding shares
will be sufficient. The Fund may be terminated upon liquidation and distribution
of its assets, if approved by the vote of the holders of two-thirds of its
outstanding shares or by the Trustees by written notice. If not so terminated,
the Fund will continue indefinitely.
The Fund is an entity of the type commonly known as a "Massachusetts business
trust." Under Massachusetts law, shareholders of such a trust may, under certain
circumstances, be held personally liable as partners for its obligations.
However, the Fund's Declaration of Trust contains an express disclaimer of
shareholder liability for acts or obligations of the Fund and provides for
indemnification and reimbursement of expenses out of Fund property for any
shareholder held personally liable for the obligations of the Fund. The Fund's
Declaration of Trust also provides that it shall maintain appropriate insurance
(for example, fidelity bonding and errors and omissions insurance) for the
protection of the Fund, its shareholders, Trustees, officers, employees and
agents covering possible tort and other liabilities. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which both inadequate insurance existed and the Fund
itself was unable to meet its obligations.
The Fund's Declaration of Trust further provides that obligations of the Fund
are not binding upon the Trustees individually but only upon the property of the
Fund and that the Trustees will not be liable for errors of judgment or mistakes
of fact or law, but nothing in the Declaration of Trust protects a Trustee
against any liability to which he would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of his office.
10. INDEPENDENT AUDITORS AND FINANCIAL STATEMENTS
Ernst & Young LLP are the Fund's independent auditors, providing audit services,
tax services, and assistance and consultation with respect to the preparation of
filings with the SEC.
The Portfolio of Investments and Statement of Assets and Liabilities at December
31, 1995, the Statement of Operations for the year ended December 31, 1995, the
Statement of Changes in Net Assets for each of the two years in the period ended
December 31, 1995, the Notes to Financial Statements and the Independent
Auditors' Report, each of which is included in the Annual Report to Shareholders
of the Fund, are incorporated by reference into this SAI in reliance upon the
report of Ernst & Young LLP, independent auditors, given upon their authority as
experts in accounting and auditing. A copy of the Annual Report accompanies this
SAI.
<PAGE>
APPENDIX A
<TABLE>
<CAPTION>
TRUSTEE COMPENSATION TABLE
RETIREMENT BENEFIT ESTIMATED TOTAL TRUSTEE FEES
TRUSTEE FEES ACCRUED AS PART OF CREDITED YEARS FROM FUND AND
TRUSTEE FROM FUND(1) FUND EXPENSE(1) OF SERVICE(2) FUND COMPLEX(3)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Richard B. Bailey $3,725 $ 715 10 $263,815
A. Keith Brodkin --0-- --0-- N/A --0--
Marshall N. Cohan 4,175 1,790 14 148,624
Dr. Lawrence Cohn 3,725 372 18 135,874
Sir David Gibbons 3,725 1,304 13 135,874
Abby M. O'Neill 3,500 508 10 129,499
Walter E. Robb, III 4,175 2,237 17 148,624
Arnold D. Scott --0-- --0-- N/A --0--
Jeffrey L. Shames --0-- --0-- N/A --0--
J. Dale Sherratt 4,175 440 20 148,624
Ward Smith 4,175 660 13 148,624
<FN>
(1) For fiscal year ended December 31, 1995.
(2) Based on normal retirement age of 75.
(3) Information provided is provided for calendar year 1995. All Trustees receiving compensation served as Trustees of 36 funds
within the MFS fund complex (having aggregate net assets at December 31, 1995, of approximately $12.5 billion) except Mr.
Bailey, who served as Trustee of 73 funds within the MFS fund complex (having aggregate net assets at December 31, 1995, of
approximately $31.7 billion).
</TABLE>
<TABLE>
<CAPTION>
ESTIMATED ANNUAL BENEFITS PAYABLE BY FUND UPON RETIREMENT(4)
YEARS OF SERVICE
------------------------------------------------------------------------
AVERAGE TRUSTEE FEES 3 5 7 10 OR MORE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$3,150 $473 $ 788 $1,103 $1,575
3,439 516 860 1,203 1,719
3,727 559 932 1,304 1,864
4,016 602 1,004 1,405 2,008
4,304 646 1,076 1,506 2,152
4,593 689 1,148 1,607 2,296
<FN>
(4) Other funds in the MFS fund complex provide similar retirement benefits to the Trustees.
</TABLE>
<PAGE>
INVESTMENT ADVISER
Massachusetts Financial Services Company
500 Boylston Street, Boston, MA 02116
(617) 954-5000
DISTRIBUTOR
MFS Fund Distributors, Inc.
500 Boylston Street, Boston, MA 02116
(617) 954-5000
CUSTODIAN AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company
225 Franklin Street, Boston, MA 02110
SHAREHOLDER SERVICING AGENT
MFS Service Center, Inc.
500 Boylston Street, Boston, MA 02116
Toll free: (800) 225-2606
MAILING ADDRESS
P.O. Box 2281, Boston, MA 02107-9906
INDEPENDENT AUDITORS
Ernst & Young LLP
200 Clarendon Street, Boston, MA 02116
MFS(R)
GOVERNMENT LIMITED
MATURITY FUND
500 BOYLSTON STREET
BOSTON, MA 02116
[logo]
MGL-13-5/96/500 28/228/328
<PAGE>
<PAGE>
[logo]
THE FIRST NAME IN MUTUAL FUNDS
Annual Report for
Year Ended
December 31, 1995
MFS(R) GOVERNMENT LIMITED MATURITY FUND
A photo of a columned building
<PAGE>
MFS(R) GOVERNMENT LIMITED MATURITY FUND
<TABLE>
<S> <C>
TRUSTEES SECRETARY
A. Keith Brodkin* - Chairman and President Stephen E. Cavan*
Richard B. Bailey* - Private Investor;
Former Chairman and Director (until 1991), ASSISTANT SECRETARY
Massachusetts Financial Services Company; James R. Bordewick, Jr.*
Director, Cambridge Bancorp; Director,
Cambridge Trust Company CUSTODIAN
Marshall N. Cohan - Private Investor State Street Bank and Trust Company
Lawrence H. Cohn, M.D. - Chief of Cardiac
Surgery, Brigham and Women's Hospital; AUDITORS
Professor of Surgery, Harvard Medical School Ernst & Young LLP
The Hon. Sir J. David Gibbons, KBE - Chief
Executive Officer, Edmund Gibbons Ltd.; INVESTOR INFORMATION
Chairman, Bank of N.T. Butterfield & Son Ltd. For MFS stock and bond market outlooks,
Abby M. O'Neill - Private Investor; call toll free: 1-800-637-4458 anytime from
Director, Rockefeller Financial Services, Inc. a touch-tone telephone.
(investment adviser) For information on MFS mutual funds,
Walter E. Robb, III - President and Treasurer, call your financial adviser or, for an
Benchmark Advisors, Inc. (corporate financial information kit, call toll free:
consultants); President, Benchmark Consulting Group, Inc. 1-800-637-2929 any business day from
(office services); Trustee, 9 a.m. to 5 p.m. Eastern time (or leave
Landmark Funds (mutual funds) a message anytime).
Arnold D. Scott* - Senior Executive Vice
President, Director and Secretary, INVESTOR SERVICE
Massachusetts Financial Services Company MFS Service Center, Inc.
Jeffrey L. Shames* - President and Director, P.O. Box 2281
Massachusetts Financial Services Company Boston, MA 02107-9906
J. Dale Sherratt - President, Insight Resources, Inc. For general information, call toll free:
(acquisition planning specialists) 1-800-225-2606 any business day from
Ward Smith - Former Chairman (until 1994), 8 a.m. to 8 p.m. Eastern time.
NACCO Industries; Director, Sundstrand For service to speech- or hearing-impaired,
Corporation call toll free: 1-800-637-6576 any business
day from 9 a.m. to 5 p.m. Eastern time.
INVESTMENT ADVISER (To use this service, your phone must be equipped with a
Massachusetts Financial Services Company Telecommunications Device for the Deaf.)
500 Boylston Street For share prices, account balances and
Boston, MA 02116-3741 exchanges, call toll free: 1-800-MFS-TALK
(1-800-637-8255) anytime from a touch-tone telephone.
DISTRIBUTOR
MFS Fund Distributors, Inc. TOP-RATED SERVICE
500 Boylston Street DALBAR For the second year in a row, MFS earned a #1
Boston, MA 02116-3741 MFS #1 MFS ranking in DALBAR, Inc.'s Broker/Dealer
DALBAR Survey, Main Office Operations Service Quality
PORTFOLIO MANAGER category. The firm achieved a 3.49 overall score
Steven E. Nothern* -- on a scale of 1 to 4 -- in the 1995 survey. A total of 71 firms
responded, offering input on the quality of service they receive
TREASURER from 36 mutual fund companies nationwide. The survey contained
W. Thomas London* questions about service quality in 17 categories, including
"knowledge of phone service contacts," "accuracy of transaction
ASSISTANT TREASURER processing," and "overall ease of doing business with the firm."
James O. Yost*
</TABLE>
*Affiliated with the Investment Adviser
<PAGE>
LETTER TO SHAREHOLDERS
Dear Shareholders:
The past 12 months have been a good period for fixed-income markets, bringing
strong investment returns to the Fund. The Federal Reserve Board ended its
year-long string of tightening steps this past February and left interest
rates unchanged through the spring. The Fed subsequently lowered the federal
funds' target by 25 basis points (0.25%) to 5.75% on July 6, and by an
additional 25 basis points, to 5.50%, on December 19, citing the reduced
threat of higher inflation. The fixed-income markets responded positively to
this, as well as to signs of an economic slowdown and of inflation pressures
remaining moderate. Two-year Treasury yields, which were at 7.69% on December
31, 1994, declined to 5.17% by year-end 1995, while yields on 10-year
Treasuries declined from 7.83% to 5.38%. The Fund, which seeks to preserve
capital and provide current income, was an active participant in this rally.
During this period, Class A shares of the Fund experienced a total return of
+10.36%, Class B shares +9.31%, and Class C shares +9.33%. These returns
assume the reinvestment of distributions but exclude the effects of any sales
charges. During this same period, the Lehman Brothers One- to Five-Year
Government Bond Index, a market-weighted index comprised of debt issued by the
U.S. government and its agencies with remaining maturities of one to five
years, returned +12.54%. A discussion of these results and our outlook for the
Fund may be found in the Portfolio Performance and Strategy section of this
letter.
Economic Outlook
Moderate but sustainable growth was the hallmark of the economic expansion's
fifth year, although some signs of sluggishness were evident late in the year.
Recent retail sales, for example, have been disappointing, in part because of
rising levels of consumer debt. Growth is not expected to get much help from
the manufacturing sector, either, as order flows from manufacturers have
moderated. Export activity, meanwhile, is also expected to remain modest as
continued weakness abroad limits demand for many U.S. goods. However, the
Federal Reserve's consistent and, so far, successful efforts to fight
inflation seem to be giving consumers and businesses enough longer-term
confidence to help maintain modest growth in real (adjusted for inflation)
gross domestic product into 1996.
Interest Rates
Given the recent signs of economic weakness, we believe that prospects for the
Fed's further decreasing short-term interest rates are good. Long-term rates,
meanwhile, have moved noticeably downward in recent months in anticipation of
more modest fourth-quarter growth with continued low inflation. While there
were some increases in commodity prices early in the year, companies found it
difficult to pass these on at the consumer level as they continue to fight for
market share. Additionally, unit labor costs remain under control and seem to
be growing at a pace that is near or below the ongoing inflation rate. Thus,
with long-term government bonds yielding approximately 6% in an environment of
2% to 3% inflation, real rates of return in the fixed-income markets remain
relatively attractive.
Portfolio Performance and Strategy
The Fund is a short maturity (substantially all securities with remaining
maturities of five years or less) government and government agency - only fund
that limits its overall interest rate sensitivity to approximately that of a
three-year Treasury (although principal value and interest on Treasury
securities are guaranteed by the U.S. government if held to maturity). The
Fund's performance over the last 12 months was aided by the sharp decline in
U.S. interest rates. We maintained approximately 53% of portfolio assets in
the U.S. Treasury sector, and positioned these holdings to benefit from
opportunities for capital appreciation as the U.S. Treasury market rallied.
The average duration of the portfolio is currently 2.3 years, approximately
equivalent to that of a 2.5-year Treasury.
The Fund has maintained a substantial position in government-sponsored
debentures and mortgage-backed pass-through securities. We believe we have
been able to add attractive incremental yield to the portfolio in this sector.
The Fund's mortgage exposure is currently about equivalent to the weighting of
mortgages in the Lehman Brothers Government/Mortgage Index, an unmanaged index
comprised of Treasuries, agencies, and all agency mortgages (FNMA, Freddie Mac
and GNMA). Given the current level of interest rates, mortgage securities have
a much lower price sensitivity than that witnessed last year. We believe that
these securities still have favorable yield characteristics and have used them
for the shortest maturity issues in the portfolio. Representative issues are
GNMA 30-year 8.5% pass-throughs (at +1.25% over the three-year Treasury) and
FNMA 15-year 7.5% pass-throughs (at +1.20% over the two-year Treasury). The
mortgage market has been an attractive segment recently, given the wide yield
spreads and the low levels of issuance, and we will likely increase exposure
to this sector in the next few months.
Our ability to invest in both Treasuries and mortgage-backed securities
within a range of maturities has proven helpful in this rapidly changing
environment. The Fund will, however, continue to adhere to its policy of
avoiding any exposure to the more volatile mortgage-derivative securities.
As always, we will continue to maintain our commitment to providing
competitive and consistent returns over the long term. We appreciate your
support and welcome any questions or comments you may have.
Respectfully,
[A photo of A. Keith [A photo of Steven E. Nothern, Portfolio
Brodkin, Chairman and Manager.]
President.]
/s/ A. Keith Brodkin /s/ Steven E. Nothern
A. Keith Brodkin Steven E. Nothern
Chairman and President Portfolio Manager
January 12, 1996
PORTFOLIO MANAGER PROFILE
Steven Nothern began his career at MFS in 1986 in the Fixed Income Department.
A graduate of Middlebury College and Boston University's Graduate School of
Management, he was named Assistant Vice President in 1987, Vice President in
1989 and Senior Vice President in 1993. In 1992, he became Portfolio Manager
of MFS Government Limited Maturity Fund. Mr. Nothern is a Chartered Financial
Analyst (C.F.A.).
OBJECTIVE AND POLICIES
The Fund's investment objective is to preserve capital and provide high
current income (compared to a portfolio entirely invested in money market
instruments).
The Fund seeks to achieve its objective by investing in obligations issued or
guaranteed by the U.S. government, its agencies, authorities or
instrumentalities, including mortgage-related securities. Under normal market
conditions substantially all of the securities in the Fund's portfolio will
have remaining maturities of five years or less. The government guarantee does
not apply to shares of the Fund, which will fluctuate with changes in market
conditions.
TAX FORM SUMMARY
In January 1996, shareholders will be mailed a Tax Form Summary reporting the
federal tax status of all distributions paid during the calendar year 1995.
PERFORMANCE
The information on the following page illustrates the historical performance
of MFS Government Limited Maturity Fund Class A shares in comparison to
various market indicators. Fund results in the graph reflect the deduction of
the 2.50% maximum sales charge; benchmark comparisons are unmanaged and do not
reflect any fees or expenses. You cannot invest in an index. All results
reflect the reinvestment of all dividends and capital gains.
Class B shares were offered effective September 7, 1993. Information on Class
B share performance appears on the next page.
Please note that effective August 1, 1994, Class C shares were offered.
Information on Class C share performance appears on the next page.
In the table on the next page, we have included the average annual total
returns of all short-term U.S. government funds (including the Fund) tracked
by Lipper Analytical Services, Inc. (an independent firm which rates mutual
fund performance) for the applicable time periods. Because these returns do
not reflect any applicable sales charges, we have also included the Fund's
results at net asset value (no sales charge) for comparison.
All results are historical and, therefore, are not an indication of future
results. The investment return and principal value of an investment in a
mutual fund will vary with changes in market conditions, and shares, when
redeemed, may be worth more or less than their original cost. All Class A
share results reflect the applicable expense subsidy which is explained in the
Notes to Financial Statements. Had the subsidy not been in effect, the results
would have been less favorable.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the Period from October 1, 1988 to December 31, 1995. The performance of
other classes will be greater than or less than the line shown, based on the
differences in loads and fees paid by shareholders investing in the different
classes.)
Line graph representing the growth of a $10,000 investment for the life-of-fund
period ended December 31, 1995. The graph is scaled from $8,000 to $18,000 in
$2,000 segments. The years are marked from 1988 to 1995. There are three lines
drawn to scale. One is a solid line representing Government Limited Maturity
Fund (Class A), a second line of short dashes represents the Lehman Brothers 1-5
Year Government Bond Index, and a third line of long dashes represents the
Consumer Price Index.
Government Limited Maturity Fund (Class A) $15,378
Lehman Brothers 1-5 Year Government Bond Index $17,774
Consumer Price Index $12,813
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
Life of
Class
through
1 Year 3 Years 5 Years 12/31/95
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MFS Government Limited Maturity Fund (Class A) including 2.50% sales charge + 7.60% +4.55% +5.70% +6.10%<F1>
- -------------------------------------------------------------------------------------------------------------------------
MFS Government Limited Maturity Fund (Class A) at net asset value +10.36% +5.43% +6.24% +6.48%<F1>
- -------------------------------------------------------------------------------------------------------------------------
MFS Government Limited Maturity Fund (Class B) with CDSC<F2> + 5.31% -- -- +1.77%<F3>
- -------------------------------------------------------------------------------------------------------------------------
MFS Government Limited Maturity Fund (Class B) without CDSC + 9.31% -- -- +2.96%
- -------------------------------------------------------------------------------------------------------------------------
MFS Government Limited Maturity Fund (Class C) + 9.33% -- -- +6.25%<F4>
- -------------------------------------------------------------------------------------------------------------------------
Average short-term U.S. government fund +11.25% +5.17% +6.61% +7.40%<F5>
- -------------------------------------------------------------------------------------------------------------------------
Lehman Brothers One- to Five-Year Government Bond Index +12.54% +6.07% +7.54% +8.26%<F6>
- -------------------------------------------------------------------------------------------------------------------------
Consumer Price Index<F7> + 2.54% +2.65% +2.79% +3.46%<F5>
- -------------------------------------------------------------------------------------------------------------------------
<FN>
<F1> For the period from the commencement of offering of Class A shares, September 26, 1988 to December 31, 1995.
<F2> These returns reflect the current Class B contingent deferred sales charge (CDSC) of 4% for the 1-year period and 3% for the
period commencing September 7, 1993.
<F3> For the period from the commencement of offering of Class B shares, September 7, 1993 to December 31, 1995.
<F4> #For the period from the commencement of offering of Class C shares, August 1, 1994 to December 31, 1995. Class C shares have
no initial sales charge or CDSC but, along with Class B shares, have higher annual fees and expenses than Class A shares.
<F5> Benchmark comparisons begin on October 1, 1988. Source: Lipper Analytical Services, Inc.
<F6> Benchmark comparisons begin on October 1, 1988. Source: Asset Investment Management software.
<F7> The Consumer Price Index is a popular measure of change in prices.
</TABLE>
<PAGE>
PORTFOLIO OF INVESTMENTS - December 31, 1995
Bonds - 98.4%
- -----------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted) Value
- -----------------------------------------------------------------------------
U.S. Federal Agencies - 29.1%
Federal Home Loan Mortgage Corp., 9s, 2025 $ 9,723,169 $ 10,230,524
Federal Home Loan Mortgage Corp., 9.5s,
2025 18,443,851 19,659,854
Federal National Mortgage Assn., 7.5s, 2010 39,680,828 40,808,954
Federal National Mortgage Assn., 7.645s,
2020 2,323,964 2,366,794
Federal National Mortgage Assn., 8.5s, 2004
- 2005 7,689,719 8,023,683
Federal National Mortgage Assn., 9s, 2007 4,833,722 5,088,990
Federal National Mortgage Assn., 9.5s, 2025 959,299 1,021,951
------------
$ 87,200,750
- -----------------------------------------------------------------------------
U.S. Government Guaranteed - 69.3%
Government National Mortgage Association - 17.9%
GNMA, 7.5s, 2009 $ 34,305 $ 35,473
GNMA, 8.5s, 2010 - 2023 23,233,735 24,395,422
GNMA, 9s, 2002 - 2024 18,891,762 20,016,373
GNMA, 10.5s, 2020 8,260,033 9,246,033
------------
$ 53,693,301
- -----------------------------------------------------------------------------
U.S. Treasury Obligations - 51.4%
Principal Stripped-Interest Payments, 0s,
1999 $ 34,200 $ 29,063,844
U.S. Treasury Notes, 6.5s, 1999 5,400 5,597,424
U.S. Treasury Notes, 7.5s, 1999 35,000 37,575,650
U.S. Treasury Notes, 9.125s, 1999 37,900 42,294,126
U.S. Treasury Notes, 5.5s, 2000 25,000 25,074,219
U.S. Treasury Notes, 6.875s, 2000 14,000 14,789,740
------------
$154,395,003
- -----------------------------------------------------------------------------
Total U.S. Government Guaranteed $208,088,304
- -----------------------------------------------------------------------------
Total Bonds (Identified Cost, $291,442,899) $295,289,054
- -----------------------------------------------------------------------------
Repurchase Agreement - 1.5%
- -----------------------------------------------------------------------------
Lehman Brothers, dated 12/29/95, due 1/02/ 96,
total to be received $4,412,867
(secured by $4,220,000 U.S. Treasury
Notes, 6.25s, 2/15/03, market value
$4,498,801), at Cost $ 4,410 $ 4,410,000
- ------------------------------------------------------------------------------
Total Investments (Identified Cost,
$295,852,899) $299,699,054
Other Assets, Less Liabilities - 0.1% 379,398
- -----------------------------------------------------------------------------
Net Assets - 100.0% $300,078,452
- -----------------------------------------------------------------------------
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
- ------------------------------------------------------------------------------
December 31, 1995
- ------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $295,852,899) $299,699,054
Cash 235
Receivable for investments sold 33,434,688
Receivable for Fund shares sold 3,484,320
Interest receivable 2,191,974
Other assets 3,917
------------
Total assets $338,814,188
------------
Liabilities:
Payable for investments purchased $ 37,361,094
Payable for Fund shares reacquired 580,507
Distributions payable 506,617
Payable to affiliates -
Distribution fee 113,234
Management fee 9,751
Shareholder servicing agent fee 3,849
Accrued expenses and other liabilities 160,684
------------
Total liabilities $ 38,735,736
------------
Net assets $300,078,452
============
Net assets consist of:
Paid-in capital $313,584,102
Unrealized appreciation on investments 3,846,155
Accumulated net realized loss on investments (17,138,012)
Accumulated distributions in excess of net investment
income (213,793)
------------
Total $300,078,452
============
Shares of beneficial interest outstanding 34,565,870
============
Class A shares:
Net asset value and redemption price per share
(net assets of $248,954,680 / 28,664,988 shares of
beneficial interest outstanding) $8.68
=====
Offering price per share (100/97.5 of net asset value per
share) $8.91
=====
Class B shares:
Net asset value and offering price per share
(net assets of $33,758,614 / 3,893,789 shares of
beneficial interest outstanding) $8.67
=====
Class C shares:
Net asset value, offering price and redemption price per share
(net assets of $17,365,158 / 2,007,093 shares of
beneficial interest outstanding) $8.65
----
On sales of $50,000 or more, the offering price of Class A shares is reduced.
A contingent deferred sales charge may be imposed on redemptions of Class A
and Class B shares.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Operations
- ------------------------------------------------------------------------------
Year Ended December 31, 1995
- ------------------------------------------------------------------------------
Net investment income:
Interest income $22,157,600
-----------
Expenses -
Management fee $ 1,145,992
Trustees' compensation 39,477
Shareholder servicing agent fee (Class A) 373,881
Shareholder servicing agent fee (Class B) 64,332
Shareholder servicing agent fee (Class C) 12,004
Distribution and service fee (Class A) 622,463
Distribution and service fee (Class B) 276,312
Distribution and service fee (Class C) 80,026
Custodian fee 137,750
Printing 82,471
Postage 39,809
Auditing fees 33,250
Legal fees 13,535
Miscellaneous 155,132
-----------
Total expenses $ 3,076,434
Fees paid indirectly (58,239)
Reduction of expenses by distributor (248,582)
-----------
Net expenses $ 2,769,613
-----------
Net investment income $19,387,987
===========
Realized and unrealized gain (loss) on investments:
Realized loss (identified cost basis) $(3,334,299)
Change in unrealized appreciation 11,705,046
-----------
Net realized and unrealized gain on investments $ 8,370,747
-----------
Increase in net assets from operations $27,758,734
===========
See notes to financial statements
<PAGE>
<TABLE>
FINANCIAL STATEMENTS - continued
Statement of Changes in Net Assets
<CAPTION>
- -----------------------------------------------------------------------------------------------
Year Ended December 31, 1995 1994
- -----------------------------------------------------------------------------------------------
Increase (decrease) in net assets:
From operations -
<S> <C> <C>
Net investment income $ 19,387,987 $ 19,591,055
Net realized loss on investments (3,334,299) (16,449,820)
Net unrealized gain (loss) on investments 11,705,046 (6,309,503)
------------ ------------
Increase (decrease) in net assets from operations $ 27,758,734 $ (3,168,268)
------------ ------------
Distributions declared to shareholders -
From net investment income (Class A) $(16,740,225) $(16,948,072)
From net investment income (Class B) (1,710,513) (1,023,255)
From net investment income (Class C) (459,749) (49,519)
------------ ------------
Total distributions declared to shareholders $(18,910,487) $(18,020,846)
------------ ------------
Fund share (principal) transactions -
Net proceeds from sale of shares $ 98,891,174 $ 88,499,662
Net asset value of shares issued to shareholders in
reinvestment of distributions 12,202,052 11,313,407
Cost of shares reacquired (104,337,806) (151,014,206)
------------ ------------
Increase (decrease) in net assets from Fund share
transactions $ 6,755,420 $(51,201,137)
------------ ------------
Total increase (decrease) in net assets $ 15,603,667 $(72,390,251)
Net assets:
At beginning of period 284,474,785 356,865,036
------------ ------------
At end of period (including distributions in excess of
net investment income of $213,793 and $38,287,
respectively) $300,078,452 $284,474,785
============ ============
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS - continued
Financial Highlights
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1995 1994 1993 1992 1991 1990<F1>
- -----------------------------------------------------------------------------------------------------------------------------------
Class A
- -----------------------------------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C> <C> <C> <C> <C>
Net asset value - beginning of period $ 8.42 $ 8.99 $ 8.98 $ 9.06 $ 9.09 $ 9.33
------ ------ ------ ------ ------ ------
Income from investment operations<F4> -
Net investment income<F6> $ 0.59 $ 0.54 $ 0.52 $ 0.49 $ 0.52 $ 0.53
Net realized and unrealized gain (loss) on investments 0.25 (0.61) 0.10 0.07 0.21 --
------ ------ ------ ------ ------ ------
Total from investment operations $ 0.84 $ (0.07) $ 0.62 $ 0.56 $ 0.73 $ 0.53
------ ------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.58) $(0.50) $(0.51) $(0.45) $(0.49) $(0.48)
From net realized gain on investments -- -- (0.10) (0.14) -- --
From paid-in capital -- -- -- (0.05) (0.27) (0.29)
------ ------ ------ ------ ------ ------
Total distributions declared to shareholders $(0.58) $(0.50) $(0.61) $(0.64) $(0.76) $(0.77)
------ ------ ------ ------ ------ ------
Net asset value - end of period $ 8.68 $ 8.42 $ 8.99 $ 8.98 $ 9.06 $ 9.09
====== ====== ====== ====== ====== ======
Total return<F3> 10.36% (0.76)% 7.00% 6.51% 8.44% 7.39%<F2>
Ratios (to average net assets)/Supplemental data<F6>:
Expenses<F5> 0.88% 0.89% 1.14% 1.38% 1.33% 1.40%<F2>
Net investment income 6.91% 6.28% 5.62% 5.50% 5.89% 7.01%<F2>
Portfolio turnover 447% 328% 247% 391% 1,256% 845%
Net assets at end of period (000 omitted) $248,955 $257,154 $345,597 $296,788 $365,644 $427,849
<FN>
<F1> For the ten months ended December 31, 1990.
<F2> Annualized.
<F3> Total returns for Class A shares do not include the applicable sales charge. If the charge had been included, the results
would have been lower.
<F4> Per share data for the periods subsequent to December 31, 1993 is based on average shares outstanding.
<F5> For fiscal years ending after September 1, 1995, the Fund's expenses are calculated without reduction for fees paid
indirectly.
<F6> The investment adviser and/or the distributor did not impose a portion of their management fee and/or distribution fee,
respectively, for the periods indicated. If these fees had been incurred by the Fund, the net investment income per share and
the ratios would have been:
Net investment income $ 0.58 $ 0.53 $ 0.50 -- -- --
Ratios (to average net assets):
Expenses<F5> 0.98% 1.04% 1.34% -- -- --
Net investment income 6.81% 6.13% 5.42% -- -- --
</TABLE>
See notes to financial statements
<PAGE>
<TABLE>
FINANCIAL STATEMENTS - continued
Financial Highlights - continued
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Year Ended
February 28, Year Ended December 31,
------------------- ------------------------------------------------------
1990 1989<F1> 1995 1994 1993<F2> 1995 1994<F3>
- -----------------------------------------------------------------------------------------------------------------------------------
Class A Class B Class C
- -----------------------------------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value - beginning of period $ 9.51 $ 9.63 $ 8.41 $ 8.98 $ 9.17 $ 8.39 $ 8.62
------ ------ ------ ------ ------ ------ ------
Income from investment operations<F7> -
Net investment income<F9> $ 0.69 $ 0.23 $ 0.51 $ 0.47 $ 0.12 $ 0.51 $ 0.17
Net realized and unrealized gain (loss) on
investments 0.10 (0.11) 0.25 (0.62) (0.17) 0.25 (0.20)
------ ------ ------ ------ ------ ------ ------
Total from investment operations $ 0.79 $ 0.12 $ 0.76 $(0.15) $(0.05) $ 0.76 $(0.03)
------ ------ ------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.67) $(0.17) $(0.50) $(0.42) $(0.11) $(0.50) $(0.20)
From net realized gain on investments (0.14) (0.02) -- -- (0.03) -- --
From paid-in capital (0.16) (0.05) -- -- -- -- --
------ ------ ------ ------ ------ ------ ------
Total distributions declared to shareholders $(0.97) $(0.24 $(0.50) $(0.42) $(0.14) $(0.50) $(0.20)
------ ------ ------ ------ ------ ------ ------
Net asset value - end of period $ 9.33 $ 9.51 $ 8.67 $ 8.41 $ 8.98 $ 8.65 $ 8.39
====== ====== ====== ====== ====== ====== ======
Total return<F5> 8.43% 3.02%<F4> 9.31% (1.65)% (1.54)%<F4> 9.33% (0.33)%<F5>
Ratios (to average net assets)/Supplemental data<F9>:
Expenses<F8> 1.43% 1.41%<F4> 1.74% 1.79% 1.83%<F4> 1.73% 1.62%<F4>
Net investment income 7.16% 6.97%<F4> 6.02% 5.42% 4.58%<F4> 5.87% 6.10%<F4>
Portfolio turnover 615% 170% 447% 328% 247% 447% 328%
Net assets at end of period (000 omitted) $350,011 $117,584 $33,759 $23,918 $11,268 $17,365 $3,403
<FN>
<F1> For the period from the commencement of investment operations, September 26, 1988 to February 28, 1989.
<F2> For the period from the commencement of offering of Class B shares, September 7, 1993 to December 31, 1993.
<F3> For the period from the commencement of offering of Class C shares, August 1, 1994 to December 31, 1994.
<F4> Annualized.
<F5> Not annualized.
<F6> Total returns for Class A shares do not include the applicable sales charge. If the charge had been included, the results
would have been lower.
<F7> Per share data for the periods subsequent to December 31, 1993 is based on average shares outstanding.
<F8> For fiscal years ending after September 1, 1995, the Fund's expenses are calculated without reduction for fees paid
indirectly.
<F9> The investment adviser and/or the distributor did not impose a portion of their management fee and/or distribution fee,
respectively, for the periods indicated. If these fees had been incurred by the Fund, the net investment income per share and
the ratios would have been:
------ ------ ------ ------ ------ ------ ------
Net investment income -- -- -- $ 0.46 $ 0.11 -- --
Ratios (to average net assets):
Expenses<F8> -- -- -- 1.82% 2.60%<F4> -- --
Net investment income -- -- -- 5.39% 3.82%<F4> -- --
</TABLE>
See notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
MFS Government Limited Maturity Fund (the Fund) is organized as a
Massachusetts business trust and is registered under the Investment Company
Act of 1940, as amended, as a diversified, open-end management investment
company.
(2) Significant Accounting Policies
Investment Valuations - Debt securities (other than short-term obligations
which mature in 60 days or less), including listed issues, are valued on the
basis of valuations furnished by dealers or by a pricing service with
consideration to factors such as institutional-size trading in similar groups
of securities, yield, quality, coupon rate, maturity, type of issue, trading
characteristics and other market data, without exclusive reliance upon
exchange or over-the-counter prices. Short-term obligations, which mature in
60 days or less, are valued at amortized cost, which approximates market
value. Securities for which there are no such quotations or valuations are
valued at fair value as determined in good faith by or at the direction of the
Trustees.
Repurchase Agreements - The Fund may enter into repurchase agreements with
institutions that the Fund's investment adviser has determined are
creditworthy. Each repurchase agreement is recorded at cost. The Fund requires
that the securities purchased in a repurchase transaction be transferred to
the custodian in a manner sufficient to enable the Fund to obtain those
securities in the event of a default under the repurchase agreement. The Fund
monitors, on a daily basis, the value of the securities transferred to ensure
that the value, including accrued interest, of the securities under each
repurchase agreement is greater than amounts owed to the Fund under each such
repurchase agreement.
Investment Transactions and Income - Investment transactions are recorded on
the trade date. Interest income is recorded on the accrual basis. All premium
and original issue discount are amortized or accreted for both financial
statement and tax reporting purposes as required by federal income tax
regulations. Interest payments received in additional securities are recorded
on the ex-interest date in an amount equal to the value of the security on
such date.
Fees Paid Indirectly - The Fund's custodian bank calculates its fee based on
the Fund's average daily net assets. The fee is reduced according to a fee
arrangement, which provides for custody fees to be reduced based on a formula
developed to measure the value of cash deposited with the custodian by the
Fund. This amount is shown as a reduction of expenses on the Statement of
Operations.
Tax Matters and Distributions - The Fund's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its net taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided.
The Fund files a tax return annually using tax accounting methods required
under provisions of the Code which may differ from generally accepted
accounting principles, the basis on which these financial statements are
prepared. Accordingly, the amount of net investment income and net realized
gain reported on these financial statements may differ from that reported on
the Fund's tax return and, consequently, the character of distributions to
shareholders reported in the financial highlights may differ from that
reported to shareholders on Form 1099-DIV. Distributions to shareholders are
recorded on the ex-dividend date.
The Fund distinguishes between distributions on a tax basis and a financial
reporting basis and requires that only distributions in excess of tax basis
earnings and profits are reported in the financial statements as a return of
capital. Differences in the recognition or classification of income between
the financial statements and tax earnings and profits which result in
temporary over-distributions for financial statement purposes, are classified
as distributions in excess of net investment income or accumulated net
realized gains. During the year ended December 31, 1995, accumulated
distributions in excess of net investment income were increased by $653,006,
accumulated net realized loss on investments was decreased by $649,589, and
paid-in capital was decreased by $3,417 due to differences between book and
tax accounting for mortgage-backed securities. This change had no effect on
the net assets or net asset value per share.
At December 31, 1995, the Fund, for federal income tax purposes, had a capital
loss carryforward of $16,683,634, which may be applied against any net taxable
realized gains of each succeeding year until the earlier of its utilization or
expiration on December 31, 2002 ($14,381,215) and December 31, 2003
($2,302,419).
Multiple Classes of Shares of Beneficial Interest - The Fund offers Class A,
Class B and Class C shares. The three classes of shares differ in their
respective shareholder servicing agent, distribution and service fees. All
shareholders bear the common expenses of the Fund pro rata based on the
average daily net assets of each class, without distinction between share
classes. Dividends are declared separately for each class. No class has
preferential dividend rights; differences in per share dividend rates are
generally due to differences in separate class expenses.
(3) Transactions with Affiliates
Investment Adviser - The Fund has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an effective annual rate
of 0.40% of average daily net assets.
The Fund pays no compensation directly to its Trustees who are officers of the
investment adviser, or to officers of the Fund, all of whom receive
remuneration for their services to the Fund from MFS. Certain of the officers
and Trustees of the Fund are officers or directors of MFS, MFS Fund
Distributors, Inc. (MFD) and MFS Service Center, Inc. (MFSC). The Fund has an
unfunded defined benefit plan for all its independent Trustees and Mr. Bailey.
Included in Trustees' compensation is a net periodic pension expense of $8,102
for the year ended December 31, 1995.
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$29,605 for the year ended December 31, 1995, as its portion of the sales
charge on sales of Class A shares of the Fund. The Trustees have adopted
separate distribution plans for Class A, Class B and Class C shares pursuant
to Rule 12b-1 of the Investment Company Act of 1940 as follows:
The Class A distribution plan provides that the Fund will pay MFD up to 0.35%
per annum of its average daily net assets attributable to Class A shares in
order that MFD may pay expenses on behalf of the Fund related to the
distribution and servicing of its shares. These expenses include a service fee
to each securities dealer that enters into a sales agreement with MFD of up to
0.25% per annum of the Fund's average daily net assets attributable to Class A
shares which are attributable to that securities dealer, a distribution fee to
MFD of up to 0.10% per annum of the Fund's average daily net assets
attributable to Class A shares, commissions to dealers and payments to MFD
wholesalers for sales at or above a certain dollar level, and other such
distribution-related expenses that are approved by the Fund. MFD retains the
service fee for accounts not attributable to a securities dealer, which
amounted to $38,299 for the period ended December 31, 1995. MFD is not
imposing the 0.10% distribution fee for an indefinite period. Fees incurred
under the distribution plan during the year ended December 31, 1995 were 0.15%
of average daily net assets attributable to Class A shares on an annualized
basis.
The Class B and Class C distribution plans provide that the Fund will pay MFD
a monthly distribution fee of 0.75% per annum, and a service fee of up to
0.25% per annum, of the Fund's average daily net assets attributable to Class
B and Class C shares. The service fee is not charged on Class B shares held
over one year. MFD will pay to securities dealers that enter into a sales
agreement with MFD all or a portion of the service fee attributable to Class B
and Class C shares, and will pay to such securities dealers all of the
distribution fee attributable to Class C shares. The service fee is intended
to be additional consideration for services rendered by the dealer with
respect to Class B and Class C shares. MFD retains the service fee for
accounts not attributable to a securities dealer, which amounted to $2,513 and
$27 for Class B and Class C shares, respectively, for the year ended December
31, 1995. Fees incurred under the distribution plans during the year ended
December 31, 1995 were 1.00% of average daily net assets attributable to Class
B and Class C shares on an annualized basis.
A contingent deferred sales charge is imposed on shareholder redemptions of
Class A shares, on purchases of $1 million or more, in the event of a
shareholder redemption within 12 months following the share purchase. A
contingent deferred sales charge is imposed on shareholder redemptions of
Class B shares in the event of a shareholder redemption within six years of
purchase. MFD receives all contingent deferred sales charges. Contingent
deferred sales charges imposed during the year ended December 31, 1995 were
$22,488 and $121,288 for Class A and Class B shares, respectively.
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earns a
fee for its services as shareholder servicing agent. The fee is calculated as
a percentage of the average daily net assets of each class of shares at an
effective annual rate of up to 0.15%, up to 0.22% and up to 0.15% attributable
to Class A, Class B and Class C shares, respectively.
(4) Portfolio Securities
Purchases and sales of investments, other than short-term obligations, were as
follows:
Purchases Sales
- ------------------------------------------------------------------------------
U.S. government securities $1,278,810,022 $1,256,833,440
============== ==============
The cost and unrealized appreciation (depreciation) in value of the
investments owned by the Fund, as computed on a federal income tax basis, are
as follows:
Aggregate cost $296,307,277
============
Gross unrealized appreciation $ 3,667,190
Gross unrealized depreciation (275,413)
------------
Net unrealized appreciation $ 3,391,777
============
(5) Shares of Beneficial Interest
The Fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without par
value). Transactions in Fund shares were as follows:
Class A Shares
1995 1994
Year Ended --------------------------- ----------------------------
December 31, Shares Amount Shares Amount
- -----------------------------------------------------------------------------
Shares sold 6,429,099 $ 55,071,853 6,636,068 $ 57,795,004
Shares issued to
shareholders in
reinvestment of
distributions 1,254,515 10,748,996 1,230,897 10,641,877
Shares reacquired (9,556,148) (81,707,574) (15,759,146) (137,039,970)
---------- ------------- ----------- -------------
Net decrease (1,872,534) $ (15,886,725) (7,892,181) $ (68,603,089)
========== ============= =========== =============
Class B Shares
1995 1994
Year Ended --------------------------- ----------------------------
December 31, Shares Amount Shares Amount
- -----------------------------------------------------------------------------
Shares sold 2,787,579 $ 23,805,586 3,133,094 $ 27,198,600
Shares issued to
shareholders in
reinvestment of
distributions 123,565 1,057,296 72,495 622,590
Shares reacquired (1,862,226) (15,909,193) (1,615,742) (13,879,579)
---------- ------------- ----------- -------------
Net increase 1,048,918 $ 8,953,689 1,589,847 $ 13,941,611
========== ============= =========== =============
Class C Shares
1995 1994*
Year Ended --------------------------- ----------------------------
December 31, Shares Amount Shares Amount
- -----------------------------------------------------------------------------
Shares sold 2,341,030 $20,013,735 410,854 $3,506,058
Shares issued to
shareholders in
reinvestment of
distributions 46,197 395,760 5,799 48,940
Shares reacquired (785,621) (6,721,039) (11,166) (94,657)
--------- ----------- ------- ----------
Net increase 1,601,606 $13,688,456 405,487 $3,460,341
========= =========== ======= ==========
*For the period from the commencement of offering of Class C shares, August 1,
1994 to December 31, 1994.
(6) Line of Credit
The Fund entered into an agreement which enables it to participate with other
funds managed by MFS, or an affiliate of MFS, in an unsecured line of credit
with a bank which permits borrowings up to $350 million, collectively.
Borrowings may be made to temporarily finance the acquisition of Fund shares.
Interest is charged to each fund, based on its borrowings, at a rate equal to
the bank's base rate. In addition, a commitment fee, based on the average
daily unused portion of the line of credit, is allocated among the
participating funds at the end of each quarter. The commitment fee allocated
to the Fund for the year ended December 31, 1995 was $3,783.
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Trustees and Shareholders of MFS Government Limited Maturity Fund:
We have audited the accompanying statement of assets and liabilities of MFS
Government Limited Maturity Fund, including the schedule of portfolio
investments, as of December 31, 1995, and the related statement of operations
for the year then ended and the statement of changes in net assets and the
financial highlights for each of the two years in the period then ended. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits. The
financial highlights for the periods prior to the year ended December 31, 1994
indicated herein, were audited by other auditors whose report dated January
19, 1994 expressed an unqualified opinion on those statements and financial
highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1995, by correspondence with the custodian and
brokers, or other appropriate auditing procedures where replies from brokers
were not received. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of MFS
Government Limited Maturity Fund at December 31, 1995, the results of its
operations for the year then ended, and the changes in its net assets and
financial highlights for each of the two years in the period then ended, in
conformity with generally accepted accounting principles.
Boston, Massachusetts
February 2, 1996
/s/ Ernest & Young LLP
---------------------------------------------
This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by a current prospectus.
<PAGE>
MFS(R)
GOVERNMENT
LIMITED
MATURITY
FUND
[Dalbar logo]
500 Boylston Street
Boston, MA 02116
[MFS logo]
THE FIRST NAME IN MUTUAL FUNDS
BULK RATE
U.S. POSTAGE
P A I D
PERMIT # 55638
BOSTON, MA
MGL-2-2/96/15.5M 28/228/328
<PAGE>
PART C
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(A) FINANCIAL STATEMENTS INCLUDED IN PART A:
For the five years ended December 31, 1995, for the
ten-month period ended December 31, 1990, for the
year ended February 28, 1990, and for the period
from September 26, 1988 (commencement of
operations) to February 28, 1989:
Financial Highlights
Financial Statements Included in Part B:
At December 31, 1995:
Portfolio of Investments*
Statement of Assets and Liabilities*
For the year ended December 31, 1995:
Statement of Operations*
For the two years ended December 31, 1995:
Statement of Changes in Net Assets*
- -----------------------------
* Incorporated herein by reference to the Fund's Annual Report to
Shareholders dated December 31, 1995, filed via EDGAR with the SEC on March
4, 1996.
(B) EXHIBITS
1 Amended and Restated Declaration of Trust,
dated February 8, 1995. (1)
2 Amended and Restated By-Laws, dated
December 14, 1994. (1)
3 Not Applicable.
4 Form of Share Certificate for Class A,
Class B and Class C Shares. (3)
5 Investment Advisory Agreement, dated August
10, 1988. (6)
6 (a) Distribution Agreement, dated
January 1, 1995. (1)
(b) Dealer Agreement between MFS Fund
Distributors, Inc. ("MFD"), and a dealer
dated December 28, 1994 and the Mutual Fund
Agreement between MFD and a bank or NASD
affiliate, dated December 28, 1994. (2)
7 Retirement Plan for Non-Interested Person
Trustees, dated January 1, 1991. (6)
8 (a) Custodian Agreement, dated
August 10, 1988. (6)
(b) Amendment No. 1 to Custodian Agreement,
dated August 10, 1988. (6)
(c) Amendment No. 2 to Custodian Agreement,
dated August 9, 1989. (6)
(d) Amendment No. 3 to Custodian Agreement,
dated October 1, 1989. (6)
(e) Amendment No. 4 to Custodian Agreement,
dated October 9, 1991. (6)
9 (a) Shareholder Servicing Agent Agreement,
dated August 10, 1988. (6)
(b) Amendment to Exhibit B of the Shareholder
Servicing Agent Agreement for Class C
shares, dated June 2, 1994. (6)
(c) Exchange Privilege Agreement, dated
February 8, 1989 as amended through
September 1, 1995. (7)
(d) Loan Agreement by and among the Banks named
therein, the MFS Funds named therein, and
The First National Bank of Boston, dated as
of February 21, 1995. (4)
(e) Dividend Disbursing Agency Agreement dated
August 10, 1988. (6)
10 Consent and Opinion of Counsel for the
fiscal year ended December 31, 1995, filed
with the Rule 24f-2 Notice on February 26,
1996.
11 Consent of Ernst & Young LLP; filed
herewith.
12 Not Applicable.
13 Not Applicable.
14 (a) Forms for Individual Retirement Account
Disclosure Statement as currently in
effect. (5)
(b) Forms for MFS 403(b) Custodial Account
Agreement as currently in effect. (5)
(c) Forms for MFS Prototype Paired Defined
Contribution Plans and Trust Agreement
as currently in effect. (5)
15 (a) Amended and Restated Distribution Plan for
Class A Shares, dated December 14, 1994.(1)
(b) Distribution Plan for Class B Shares, dated
December 14, 1994. (1)
(c) Distribution Plan for Class C Shares, dated
December 14, 1994. (1)
16 Schedule of Computation for Performance
Quotations: Average Annual Total Return and
Aggregate Total Return, Distribution Rate
and Standardized Yield Calculation. (1)
17 Financial Data Schedules; filed herewith.
18. Not Applicable.
Power of Attorney, dated
August 11, 1994. (1)
- -----------------------------
(1) Incorporated by reference to the Registrant's Post-Effective Amendment
No. 14 filed with the SEC via EDGAR on April 28, 1995.
(2) Incorporated by reference to MFS Municipal Series Trust (File Nos. 2-92915
and 811-4096) Post-Effective Amendment No. 26 filed with the SEC via
EDGAR on February 22, 1995.
(3) Incorporated by reference to MFS Municipal Series Trust (File Nos. 2-92915
and 811-4096) Post-Effective Amendment No. 28 filed with the SEC via
EDGAR on July 28, 1995.
(4) Incorporated by reference to Amendment No. 8 on Form N-2 for MFS Municipal
Income Trust (File No. 811-4841) filed with the SEC via EDGAR on
February 28, 1995.
(5) Incorporated by reference to MFS Series Trust IX (File Nos. 2-50409 and
811-2464) Post-Effective Amendment No. 32 filed with the SEC via EDGAR on
August 28, 1995.
(6) Incorporated by reference to the Registrant's Post-Effective Amendment
No. 15 filed with the SEC via EDGAR on October 19, 1995.
(7) Incorporated by reference to MFS Series Trust X (File Nos. 33-1657 and
811-4492) Post-Effective Amendment No. 13 filed with the SEC via EDGAR on
November 28, 1995.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Not applicable.
<PAGE>
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
<TABLE>
<CAPTION>
(1) (2)
TITLE OF CLASS NUMBER OF RECORD HOLDERS
<S> <C>
Class A Shares of Beneficial Interest 8,252
(without par value) (as of March 31, 1996)
Class B Shares of Beneficial Interest 1,523
(without par value) (as of March 31, 1996)
Class C Shares of Beneficial Interest 486
(without par value) (as of March 31, 1996)
</TABLE>
ITEM 27. INDEMNIFICATION
Reference is hereby made to (a) Article V of Registrant's
Amended and Restated Declaration of Trust, incorporated by reference to
Post-Effective Amendment No. 14, filed with the SEC on April 28, 1995 and (b)
Section 9 of the Shareholder Servicing Agent Agreement, incorporated by
reference to Registrant's Post-Effective Amendment No. 15 filed with the SEC via
EDGAR on October 19, 1995.
The Trustees and Officers of the Registrant and the personnel
of the Registrant's investment adviser and principal underwriter are insured
under an errors and omissions liability insurance policy. The Registrant and its
officers are also insured under the fidelity bond required by Rule 17g-1 under
the Investment Company Act of 1940, as amended.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
MFS serves as investment adviser to the following open-end
Funds comprising the MFS Family of Funds: Massachusetts Investors Trust,
Massachusetts Investors Growth Stock Fund, MFS Growth Opportunities Fund, MFS
Government Securities Fund, MFS Government Limited Maturity Fund, MFS Series
Trust I (which has eight series: MFS Managed Sectors Fund, MFS Cash Reserve
Fund, MFS World Asset Allocation Fund, MFS Aggressive Growth Fund, MFS Research
Growth and Income Fund, MFS Core Growth Fund, MFS Equity Income Fund and MFS
Special Opportunities Fund), MFS Series Trust II (which has four series: MFS
Emerging Growth Fund, MFS Capital Growth Fund, MFS Intermediate Income Fund and
MFS Gold & Natural Resources Fund), MFS Series Trust III (which has two series:
MFS High Income Fund and MFS Municipal High Income Fund), MFS Series Trust IV
(which has four series: MFS Money Market Fund, MFS Government Money Market Fund,
MFS Municipal Bond Fund and MFS OTC Fund), MFS Series Trust V (which has two
series: MFS Total Return Fund and MFS Research Fund), MFS Series Trust VI (which
has three series: MFS World Total Return Fund, MFS Utilities Fund and MFS World
Equity Fund), MFS Series Trust VII (which has two series: MFS World Governments
Fund and MFS Value Fund), MFS Series Trust VIII (which has two series: MFS
Strategic Income Fund and MFS World Growth Fund), MFS Series Trust IX (which has
three series: MFS Bond Fund, MFS Limited Maturity Fund and MFS Municipal Limited
Maturity Fund), MFS Series Trust X (which has four series: MFS Government
Mortgage Fund, MFS/Foreign & Colonial Emerging Markets Equity Fund, MFS/Foreign
& Colonial International Growth Fund and MFS/Foreign & Colonial International
Growth and Income Fund), and MFS Municipal Series Trust (which has 19 series:
MFS Alabama Municipal Bond Fund, MFS Arkansas Municipal Bond Fund, MFS
California Municipal Bond Fund, MFS Florida Municipal Bond Fund, MFS Georgia
Municipal Bond Fund, MFS Louisiana Municipal Bond Fund, MFS Maryland Municipal
Bond Fund, MFS Massachusetts Municipal Bond Fund, MFS Mississippi Municipal Bond
Fund, MFS New York Municipal Bond Fund, MFS North Carolina Municipal Bond Fund,
MFS Pennsylvania Municipal Bond Fund, MFS South Carolina Municipal Bond Fund,
MFS Tennessee Municipal Bond Fund, MFS Texas Municipal Bond Fund, MFS Virginia
Municipal Bond Fund, MFS Washington Municipal Bond Fund, MFS West Virginia
Municipal Bond Fund and MFS Municipal Income Fund) (the "MFS Funds"). The
principal business address of each of the aforementioned Funds is 500 Boylston
Street, Boston, Massachusetts 02116.
MFS also serves as investment adviser of the following
no-load, open-end Funds: MFS Institutional Trust ("MFSIT") (which has seven
series), MFS Variable Insurance Trust ("MVI") (which has twelve series) and MFS
Union Standard Trust ("UST") (which has two series). The principal business
address of each of the aforementioned Funds is 500 Boylston Street, Boston,
Massachusetts 02116.
In addition, MFS serves as investment adviser to the following
closed-end Funds: MFS Municipal Income Trust, MFS Multimarket Income Trust, MFS
Government Markets Income Trust, MFS Intermediate Income Trust, MFS Charter
Income Trust and MFS Special Value Trust (the "MFS Closed-End Funds"). The
principal business address of each of the aforementioned Funds is 500 Boylston
Street, Boston, Massachusetts 02116.
Lastly, MFS serves as investment adviser to MFS/Sun Life
Series Trust ("MFS/SL"), Sun Growth Variable Annuity Funds, Inc. ("SGVAF"),
Money Market Variable Account, High Yield Variable Account, Capital Appreciation
Variable Account, Government Securities Variable Account, World Governments
Variable Account, Total Return Variable Account and Managed Sectors Variable
Account. The principal business address of each is One Sun Life Executive Park,
Wellesley Hills, Massachusetts 02181.
MFS International Ltd. ("MIL"), a limited liability company
organized under the laws of the Republic of Ireland and a subsidiary of MFS,
whose principal business address is 41-45 St. Stephen's Green, Dublin 2,
Ireland, serves as investment adviser to and distributor for MFS International
Fund (which has four portfolios: MFS International Funds-U.S. Equity Fund, MFS
International Funds-U.S. Emerging Growth Fund, MFS International Funds-Global
Governments Fund and MFS International Funds-Charter Income Fund) (the "MIL
Funds"). The MIL Funds are organized in Luxembourg and qualify as an undertaking
for collective investments in transferable securities (UCITS). The principal
business address of the MIL Funds is 47, Boulevard Royal, L-2449 Luxembourg.
MIL also serves as investment adviser to and distributor for
MFS Meridian U.S. Government Bond Fund, MFS Meridian Charter Income Fund, MFS
Meridian Global Government Fund, MFS Meridian U.S. Emerging Growth Fund, MFS
Meridian Global Equity Fund, MFS Meridian Limited Maturity Fund, MFS Meridian
World Growth Fund, MFS Meridian Money Market Fund, MFS Meridian World Total
Return Fund, MFS Meridian U.S. Equity Fund and MFS Meridian Research Fund
(collectively the "MFS Meridian Funds"). Each of the MFS Meridian Funds is
organized as an exempt company under the laws of the Cayman Islands. The
principal business address of each of the MFS Meridian Funds is P.O. Box 309,
Grand Cayman, Cayman Islands, British West Indies.
MFS International (U.K.) Ltd. ("MIL-UK"), a private limited
company registered with the Registrar of Companies for England and Wales whose
current address is 4 John Carpenter Street, London, England ED4Y 0NH, is
involved primarily in marketing and investment research activities with respect
to private clients and the MIL Funds and the MFS Meridian Funds.
MFS Fund Distributors, Inc. ("MFD"), a wholly owned subsidiary
of MFS, serves as distributor for the MFS Funds, MVI, UST and MFSIT.
Clarendon Insurance Agency, Inc. ("CIAI"), a wholly owned
subsidiary of MFS, serves as distributor for certain life insurance and annuity
contracts issued by Sun Life Assurance Company of Canada (U.S.).
MFS Service Center, Inc. ("MFSC"), a wholly owned subsidiary
of MFS, serves as shareholder servicing agent to the MFS Funds, the MFS
Closed-End Funds, MFSIT, MVI and UST.
MFS Asset Management, Inc. ("AMI"), a wholly owned subsidiary
of MFS, provides investment advice to substantial private clients.
MFS Retirement Services, Inc. ("RSI"), a wholly owned
subsidiary of MFS, markets MFS products to retirement plans and provides
administrative and record keeping services for retirement plans.
MFS
The Directors of MFS are A. Keith Brodkin, Jeffrey L. Shames,
Arnold D. Scott, John R. Gardner and John D. McNeil. Mr. Brodkin is the
Chairman, Mr. Shames is the President, Mr. Scott is a Senior Executive Vice
President and Secretary, Bruce C. Avery, William S. Harris, William W. Scott,
Jr., and Patricia A. Zlotin are Executive Vice Presidents, Stephen E. Cavan is a
Senior Vice President, General Counsel and an Assistant Secretary, Joseph W.
Dello Russo is a Senior Vice President, Chief Financial Officer and Treasurer,
Robert T. Burns is a Vice President, Associate General Counsel and an Assistant
Secretary of MFS, and Thomas B. Hastings is a Vice President and Assistant
Treasurer.
MASSACHUSETTS INVESTORS TRUST
MASSACHUSETTS INVESTORS GROWTH STOCK FUND
MFS GROWTH OPPORTUNITIES FUND
MFS GOVERNMENT SECURITIES FUND
MFS SERIES TRUST I
MFS SERIES TRUST V
MFS SERIES TRUST VI
MFS SERIES TRUST X
MFS GOVERNMENT LIMITED MATURITY FUND
A. Keith Brodkin is the Chairman and President, Stephen E.
Cavan is the Secretary, W. Thomas London is the Treasurer, James O. Yost, Vice
President of MFS, is the Assistant Treasurer, James R. Bordewick, Jr., Vice
President and Associate General Counsel of MFS, is the Assistant Secretary.
MFS SERIES TRUST II
A. Keith Brodkin is the Chairman and President, Leslie J.
Nanberg, Senior Vice President of MFS, is a Vice President, Stephen E. Cavan is
the Secretary, W. Thomas London is the Treasurer, James O. Yost is the Assistant
Treasurer, and James R. Bordewick, Jr., is the Assistant Secretary.
MFS GOVERNMENT MARKETS INCOME TRUST
MFS INTERMEDIATE INCOME TRUST
A. Keith Brodkin is the Chairman and President, Patricia A.
Zlotin, Executive Vice President of MFS and Leslie J. Nanberg, Senior Vice
President of MFS, are Vice Presidents, Stephen E. Cavan is the Secretary, W.
Thomas London is the Treasurer, James O. Yost is the Assistant Treasurer, and
James R. Bordewick, Jr., is the Assistant Secretary.
MFS SERIES TRUST III
A. Keith Brodkin is the Chairman and President, James T.
Swanson, Robert J. Manning, Cynthia M. Brown and Joan S. Batchelder, Senior Vice
Presidents of MFS, Bernard Scozzafava, Vice President of MFS, and Matthew
Fontaine, Assistant Vice President of MFS, are Vice Presidents, Sheila
Burns-Magnan and Daniel E. McManus, Assistant Vice Presidents of MFS, are
Assistant Vice Presidents, Stephen E. Cavan is the Secretary, W. Thomas London
is the Treasurer, James O. Yost is the Assistant Treasurer, and James R.
Bordewick, Jr., is the Assistant Secretary.
MFS SERIES TRUST IV
MFS SERIES TRUST IX
A. Keith Brodkin is the Chairman and President, Robert A.
Dennis and Geoffrey L. Kurinsky, Senior Vice Presidents of MFS, are Vice
Presidents, Stephen E. Cavan is the Secretary, W. Thomas London is the
Treasurer, James O. Yost is the Assistant Treasurer and James R. Bordewick, Jr.,
is the Assistant Secretary.
MFS SERIES TRUST VII
A. Keith Brodkin is the Chairman and President, Leslie J.
Nanberg and Stephen C. Bryant, Senior Vice Presidents of MFS, are Vice
Presidents, Stephen E. Cavan is the Secretary, W. Thomas London is the
Treasurer, James O. Yost is the Assistant Treasurer and James R. Bordewick, Jr.,
is the Assistant Secretary.
MFS SERIES TRUST VIII
A. Keith Brodkin is the Chairman and President, Jeffrey L.
Shames, Leslie J. Nanberg, Patricia A. Zlotin, James T. Swanson and John D.
Laupheimer, Jr., Vice President of MFS, are Vice Presidents, Stephen E. Cavan is
the Secretary, W. Thomas London is the Treasurer, James O. Yost is the Assistant
Treasurer and James R. Bordewick, Jr., is the Assistant Secretary.
MFS MUNICIPAL SERIES TRUST
A. Keith Brodkin is the Chairman and President, Cynthia M.
Brown and Robert A. Dennis are Vice Presidents, David B. Smith, Geoffrey L.
Schechter and David R. King, Vice Presidents of MFS, are Vice Presidents, Daniel
E. McManus, Assistant Vice President of MFS, is an Assistant Vice President,
Stephen E. Cavan is the Secretary, W. Thomas London is the Treasurer, James O.
Yost is the Assistant Treasurer and James R. Bordewick, Jr., is the Assistant
Secretary.
MFS VARIABLE INSURANCE TRUST
MFS UNION STANDARD TRUST
MFS INSTITUTIONAL TRUST
A. Keith Brodkin is the Chairman and President, Stephen E.
Cavan is the Secretary, W. Thomas London is the Treasurer, James O. Yost is the
Assistant Treasurer and James R. Bordewick, Jr., is the Assistant Secretary.
MFS MUNICIPAL INCOME TRUST
A. Keith Brodkin is the Chairman and President, Cynthia M.
Brown and Robert J. Manning are Vice Presidents, Stephen E. Cavan is the
Secretary, W. Thomas London is the Treasurer, James O. Yost, is the Assistant
Treasurer and James R. Bordewick, Jr., is the Assistant Secretary.
<PAGE>
MFS MULTIMARKET INCOME TRUST
MFS CHARTER INCOME TRUST
A. Keith Brodkin is the Chairman and President, Patricia A.
Zlotin, Leslie J. Nanberg and James T. Swanson are Vice Presidents, Stephen E.
Cavan is the Secretary, W. Thomas London is the Treasurer, James O. Yost, Vice
President of MFS, is the Assistant Treasurer and James R. Bordewick, Jr., is the
Assistant Secretary.
MFS SPECIAL VALUE TRUST
A. Keith Brodkin is the Chairman and President, Jeffrey L.
Shames, Patricia A. Zlotin and Robert J. Manning are Vice Presidents, Stephen E.
Cavan is the Secretary, W. Thomas London is the Treasurer, and James O. Yost, is
the Assistant Treasurer and James R. Bordewick, Jr., is the Assistant Secretary.
SGVAF
W. Thomas London is the Treasurer.
MIL
A. Keith Brodkin is a Director and the Chairman, Arnold D.
Scott and Jeffrey L. Shames are Directors, Ziad Malek, Senior Vice President of
MFS, is the President, Thomas J. Cashman, Jr., a Senior Vice President of MFS,
is a Senior Vice President, Stephen E. Cavan is a Director, Senior Vice
President and the Clerk, James R. Bordewick, Jr. is a Director, Vice President
and an Assistant Clerk, Robert T. Burns is an Assistant Clerk, Joseph W. Dello
Russo is the Treasurer and Thomas B. Hastings is the Assistant Treasurer.
MIL-UK
A. Keith Brodkin is a Director and the Chairman, Arnold D.
Scott, Jeffrey L. Shames, and James R. Bordewick, Jr., are Directors, Stephen E.
Cavan is a Director and the Secretary, Ziad Malek is the President, James E.
Russell is the Treasurer, and Robert T. Burns is the Assistant Secretary.
MIL FUNDS
A. Keith Brodkin is the Chairman, President and a Director,
Richard B. Bailey, John A. Brindle and Richard W. S. Baker are Directors,
Stephen E. Cavan is the Secretary, W. Thomas London is the Treasurer, James O.
Yost is the Assistant Treasurer and James R. Bordewick, Jr., is the Assistant
Secretary, and Ziad Malek is a Senior Vice President.
<PAGE>
MFS MERIDIAN FUNDS
A. Keith Brodkin is the Chairman, President and a Director,
Richard B. Bailey, John A. Brindle, Richard W. S. Baker, Arnold D. Scott and
Jeffrey L. Shames are Directors, Stephen E. Cavan is the Secretary, W. Thomas
London is the Treasurer, James R. Bordewick, Jr., is the Assistant Secretary,
James O. Yost is the Assistant Treasurer, and Ziad Malek is a Senior Vice
President.
MFD
A. Keith Brodkin is the Chairman and a Director, Arnold D.
Scott and Jeffrey L. Shames are Directors, William W. Scott, Jr., an Executive
Vice President of MFS, is the President, Stephen E. Cavan is the Secretary,
Robert T. Burns is the Assistant Secretary, Joseph W. Dello Russo is the
Treasurer, and Thomas B. Hastings is the Assistant Treasurer.
CIAI
A. Keith Brodkin is the Chairman and a Director, Arnold D.
Scott and Jeffrey L. Shames are Directors, Cynthia Orcott is President, Bruce C.
Avery is the Vice President, Joseph W. Dello Russo is the Treasurer, Thomas B.
Hastings is the Assistant Treasurer, Stephen E. Cavan is the Secretary, and
Robert T. Burns is the Assistant Secretary.
MFSC
A. Keith Brodkin is the Chairman and a Director, Arnold D.
Scott and Jeffrey L. Shames are Directors, Joseph A. Recomendes, a Senior Vice
President of MFS, is Vice Chairman and a Director, Janet A. Clifford is the
Executive Vice President, Joseph W. Dello Russo is the Treasurer, Thomas B.
Hastings is the Assistant Treasurer, Stephen E. Cavan is the Secretary, and
Robert T. Burns is the Assistant Secretary.
AMI
A. Keith Brodkin is the Chairman and a Director, Jeffrey L.
Shames, and Arnold D. Scott are Directors, Thomas J. Cashman, Jr., is the
President and a Director, Leslie J. Nanberg is a Senior Vice President, a
Managing Director and a Director, George F. Bennett, Carol A. Corley, John A.
Gee, Brianne Grady and Kevin R. Parke are Senior Vice Presidents and Managing
Directors, Joseph W. Dello Russo is the Treasurer, Thomas B.
Hastings is the Assistant Treasurer and Robert T. Burns is the Secretary.
RSI
William W. Scott, Jr., Joseph A. Recomendes and Bruce C. Avery
are Directors, Arnold D. Scott is the Chairman and a Director, Douglas C. Grip,
a Senior Vice President of MFS, is the President, Joseph W. Dello Russo is the
Treasurer, Thomas B. Hastings is the Assistant Treasurer, Stephen E. Cavan is
the Secretary, Robert T. Burns is the Assistant Secretary and Sharon A. Brovelli
is a Senior Vice President.
In addition, the following persons, Directors or officers of
MFS, have the affiliations indicated:
A. Keith Brodkin Director, Sun Life Assurance Company of
Canada (U.S.), One Sun Life Executive
Park, Wellesley Hills, Massachusetts
Director, Sun Life Insurance and Annuity
Company of New York, 67 Broad Street,
New York, New York
John R. Gardner President and a Director, Sun
Life Assurance Company of Canada, Sun
Life Centre, 150 King Street West,
Toronto, Ontario, Canada (Mr. Gardner is
also an officer and/or Director of
various subsidiaries and affiliates of
Sun Life)
John D. McNeil Chairman, Sun Life Assurance Company of
Canada, Sun Life Centre, 150 King Street
West, Toronto, Ontario, Canada (Mr.
McNeil is also an officer and/or Director
of various subsidiaries and affiliates of
Sun Life)
Joseph W. Director of Mutual Fund Operations, The
Dello Russo Boston Company, Exchange Place, Boston,
Massachusetts (until August, 1994)
ITEM 29. DISTRIBUTORS
(a) Reference is hereby made to Item 28 above.
(b) Reference is hereby made to Item 28 above; the principal
business address of each of these persons is 500 Boylston Street, Boston,
Massachusetts 02116.
(c) Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
The accounts and records of the Registrant are located, in
whole or in part, at the office of the Registrant and the following locations:
NAME ADDRESS
Massachusetts Financial 500 Boylston Street
Services Company (investment Boston, MA 02116
(adviser)
MFS Fund Distributors, Inc. 500 Boylston Street
(principal underwriter) Boston, MA 02116
State Street Bank and Trust State Street South
Company (custodian) 5 - West
North Quincy, MA 02171
MFS Service Center, Inc. 500 Boylston Street
(transfer agent) Boston, MA 02116
ITEM 31. MANAGEMENT SERVICES
Not applicable.
ITEM 32. UNDERTAKINGS
(a) Not applicable.
(b) Not applicable.
(c) Registrant undertakes to furnish each person to whom a
prospectus is delivered with a copy of its latest annual report to shareholders
upon request and without charge.
(d) Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to trustees, officers and controlling
persons of the Registrant pursuant to the provisions set forth in Item 27 of
this Part C, or otherwise, the Registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a trustee, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the Securities being Registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Registrant certifies that it meets all
of the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Post-Effective Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereto duly authorized, in the City of Boston and
The Commonwealth of Massachusetts on the 26th day of April, 1996.
MFS GOVERNMENT LIMITED
MATURITY FUND
By: JAMES R. BORDEWICK, JR.
Name: James R. Bordewick, Jr.
Title: Assistant Secretary
Pursuant to the requirements of the Securities Act of 1933,
this Post-Effective Amendment to its Registration Statement has been signed
below by the following persons in the capacities indicated on April 26, 1996.
SIGNATURE TITLE
--------- -----
A. KEITH BRODKIN* Chairman, President
- ---------------------- (Principal Executive
A. Keith Brodkin Officer) and Trustee
W. THOMAS LONDON* Treasurer (Principal
- ---------------------- Financial Officer and
W. Thomas London Principal Accounting
Officer)
RICHARD B. BAILEY* Trustee
- ----------------------
Richard B. Bailey
MARSHALL N. COHAN* Trustee
- ----------------------
Marshall N. Cohan
LAWRENCE H. COHN, M.D.* Trustee
- ----------------------
Lawrence H. Cohn, M.D.
SIR J. DAVID GIBBONS* Trustee
- ----------------------
Sir J. David Gibbons
ABBY M. O'NEILL* Trustee
- ----------------------
Abby M. O'Neill
WALTER E. ROBB, III* Trustee
- ----------------------
Walter E. Robb, III
ARNOLD D. SCOTT* Trustee
- ----------------------
Arnold D. Scott
JEFFREY L. SHAMES* Trustee
- ----------------------
Jeffrey L. Shames
J. DALE SHERRATT* Trustee
- ----------------------
J. Dale Sherratt
WARD SMITH* Trustee
- ----------------------
Ward Smith
*By: JAMES R. BORDEWICK, JR.
Name: James R. Bordewick, Jr.
as Attorney-in-fact
Executed by James R. Bordewick, Jr. on
behalf of those indicated pursuant to a
Power of Attorney dated August 11, 1994,
incorporated by reference to the
Registrant's Post-Effective Amendment
No. 14 filed with the Securities and
Exchange Commission on April 28, 1995.
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION OF EXHIBIT PAGE NO.
- ------------ ---------------------- --------
11 Consent of Ernst & Young LLP.
17 Financial Data Schedules.
EXHIBIT NO. 99.11
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference made to our firm under the captions
"Condensed Financial Information" in the Prospectus and "Independent Auditors
and Financial Statements" in the Statement of Additional Information and to the
incorporation by reference in this Post-Effective Amendment No. 16 to
Registration Statement No. 2-96738 on Form N-1A of our report dated February 2,
1996, on the financial statements and financial highlights of MFS Government
Limited Maturity Fund, included in the 1995 Annual Report to Shareholders.
ERNST & YOUNG LLP
Ernst & Young LLP
Boston, Massachusetts
April 24, 1996
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