<PAGE>
As filed with the Securities and Exchange Commission on April 29, 1997
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. 18
AND
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 19
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 30, 1997 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, 1996 on February 26, 1997.
<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) Management of the Fund - *
Investment Adviser
(d) Management of the Fund - *
Administrator
(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
(h) * *
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
(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
(g) Expense Summary; Information *
Concerning Shares of the
Fund Purchases; Information
Concerning Shares of the
Fund - Exchanges;
Information Concerning
Shares of the Fund -
Redemptions and
Repurchases; Information
Concerning Shares of the
Fund - Distribution Plan;
Information Concerning
Shares of the Fund -
Distributions; Information
Concerning Shares of the
Fund Performance
Information; Shareholder
Services
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>
<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;
Trustee Compensation Table
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; Administrator
(e) * Portfolio Transactions and
Brokerage Commissions
(f) Information Concerning Distribution Plan
Shares of the Fund -
Distribution Plan
(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) * *
22 (a) * *
(b) * Determination of Net Asset
Value and Performance; Performance
Information
23 * Independent Auditors
and Financial Statements
</TABLE>
- ------------------------
* Not Applicable
** Contained in Annual Report
<PAGE>
MFS GOVERNMENT LIMITED MATURITY FUND
Supplement to the May 1, 1997 Prospectus and Statement of Additional Information
The following information should be read in conjunction with the Fund's
Prospectus and Statement of Additional Information ("SAI"), dated May 1, 1997,
and contains a description of Class I shares.
Class I shares are available for purchase only by certain investors as
described under the caption "Eligible Purchasers" below.
EXPENSE SUMMARY
SHAREHOLDER TRANSACTION EXPENSES: CLASS I
-------
Maximum Initial Sales Charge Imposed on Purchases of Fund
Shares (as a percentage of offering price)................. None
Maximum Contingent Deferred Sales Charge (as a percentage
of original purchase price or redemption proceeds,
as applicable) ............................................ None
ANNUAL OPERATING EXPENSES OF THE FUND (AS A PERCENTAGE OF
AVERAGE NET ASSETS):
Management Fees.............................................. 0.40%
Rule 12b-1 Fees.............................................. None
Other Expenses(1)(2)......................................... 0.285%
-----
Total Operating Expenses..................................... 0.685%
- ----------------
(1) "Other Expenses" is based on Class A expenses incurred during the fiscal
year ended December 31, 1996.
(2) The Fund has an expense offset arrangement which reduces the Fund's
custodian fee based upon the amount of cash maintained by the Fund with its
custodian and dividend disbursing agent, and may enter into other such
arrangements and directed brokerage arrangements (which would also have the
effect of reducing the Fund's expenses). Any such fee reductions are not
reflected under "Other Expenses."
EXAMPLE OF EXPENSES
An investor would pay the following dollar amounts of expenses on a $1,000
investment in Class I shares of the Fund, assuming (a) a 5% annual return and
(b) redemption at the end of each of the time periods indicated:
PERIOD CLASS I
------ -------
1 year........................................ $ 7
3 years....................................... 22
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. A more complete description of the Fund's
management fee is set forth under the caption "Management of the Fund" in the
Prospectus.
THE "EXAMPLE" SET FORTH ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST
OR FUTURE EXPENSES OF THE FUND; ACTUAL EXPENSES MAY BE GREATER OR LESS THAN
THOSE SHOWN.
ELIGIBLE PURCHASERS
Class I shares are available for purchase only by the following purchasers
("Eligible Purchasers"):
(i) certain retirement plans established for the benefit of employees of
Massachusetts Financial Services Company ("MFS"), the Fund's investment
adviser, and employees of MFS' affiliates; and
(ii) any fund distributed by MFS Fund Distributors, Inc. ("MFD"), the Fund's
distributor, if the fund seeks to achieve its investment objective by
investing primarily in shares of the Fund and other funds distributed by
MFD.
In no event will the Fund, MFS, MFD or any of their affiliates pay any sales
commissions or compensation to any third party in connection with the sale of
Class I shares; the payment of any such sales commission or compensation would,
under the Fund's policies, disqualify the purchaser as an eligible investor of
Class I shares.
SHARE CLASSES OFFERED BY THE FUND
Four classes of shares of the Fund currently are offered for sale, Class A
shares, Class B shares, Class C shares and Class I shares. Class I shares are
available for purchase only by Eligible Purchasers, as defined above, and are
described in this Supplement. Class A shares, Class B shares and Class C shares
are described in the Fund's Prospectus and are available for purchase by 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 contingent deferred sales
charge (a "CDSC") upon redemption of 1.00% during the first year in the case of
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 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 I shares are
offered at net asset value without an initial sales charge or CDSC and are not
subject to a distribution or service fee. Class C and Class I shares do not
convert to any other class of shares of the Fund.
OTHER INFORMATION
Eligible Purchasers may purchase Class I shares only directly through MFD.
Eligible Purchasers may exchange Class I shares of the Fund for Class I shares
of any other MFS Fund available for purchase by such Eligible Purchasers at
their net asset value (if available for sale), and may exchange Class I shares
of the Fund for shares of the MFS Money Market Fund (if available for sale), and
may redeem Class I shares of the Fund at net asset value. Distributions paid by
the Fund with respect to Class I shares generally will be greater than those
paid with respect to Class A shares, Class B shares and Class C shares because
expenses attributable to Class A shares, Class B shares and Class C shares
generally will be higher.
THE DATE OF THIS SUPPLEMENT IS MAY 1, 1997.
<PAGE>
PROSPECTUS
May 1, 1997
MFS(R) GOVERNMENT Class A Shares of Beneficial Interest
LIMITED MATURITY FUND Class B Shares of Beneficial Interest
(A Member of the MFS Family of Funds(R)) Class C Shares of Beneficial 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 ................................................... 15
Redemptions and Repurchases ................................. 16
Distribution Plan ........................................... 18
Distributions ............................................... 20
Tax Status .................................................. 20
Net Asset Value ............................................. 21
Description of Shares, Voting Rights and Liabilities ........ 21
Performance Information ..................................... 21
7. Shareholder Services ........................................... 22
Appendix A ..................................................... A-1
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 dated May 1, 1997, as amended or supplemented from time to time (the
"SAI"), which contains more detailed information about the Fund. The SAI is
incorporated into this Prospectus by reference. See page 24 for a further
description of the information set forth in the SAI. A copy of the SAI may be
obtained without charge by contacting the Shareholder Servicing Agent (see back
cover for address and phone number). The SEC maintains an Internet World Wide
Web site that contains the SAI, materials that are incorporated by reference
into this Prospectus and the SAI, and other information regarding the Fund. This
Prospectus is available on the Adviser's Internet World Wide Web site at
http://www.mfs.com.
INVESTORS SHOULD READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE REFERENCE.
<PAGE>
1. EXPENSE SUMMARY
<TABLE>
<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) 0.96 %(3) 1.00 %(3)
Other Expenses(4) ............................................. 0.285% 0.285% 0.285%
----- ----- -----
Total Operating Expenses ...................................... 0.835% 1.645% 1.685%
- ------------
(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 shares in accordance with Rule 12b-1 under the Investment
Company Act of 1940, as amended (the "1940 Act") (the "Distribution Plan"), 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. 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. (see "Information Concerning Shares of the Fund -- Distribution
Plan" below).
(3) The Fund's Distribution Plan provides 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 Class B and Class C shares,
respectively. 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 the Distribution Plan, 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 (see "Information
Concerning Shares of the Fund -- Distribution Plan" below).
(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."
</TABLE>
<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):
<TABLE>
<CAPTION>
PERIOD CLASS A CLASS B CLASS C
- ------ ------- ---------------------------- --------------------------
<S> <C> <C> <C> <C> <C>
(1) (1)
1 year ........................................ $ 33 $ 57 $ 17 $ 27 $ 17
3 years ........................................ 51 82 52 53 53
5 years ........................................ 70 109 89 92 92
10 years ........................................ 126 173(2) 173(2) 199 199
- ------------
(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.
</TABLE>
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 Plan."
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 for sale 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. In addition, the Fund offers an
additional class of shares, Class I shares, exclusively to certain institutional
investors. Class I shares are made available by means of a separate Prospectus
Supplement provided to institutional investors eligible to purchase Class I
shares and are offered at net asset value without an initial sales charge or
CDSC upon redemption and without an annual distribution and service fee.
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>
FINANCIAL HIGHLIGHTS
<CAPTION>
CLASS A SHARES
YEAR ENDED
YEAR ENDED DECEMBER 31, FEBRUARY 28,
------------------------------------------------------------- ------------------
1996 1995 1994 1993 1992 1991 1990(S) 1990 1989*
- ----------------------------------------------------------------------------------------------------------------------------------
CLASS A
- ----------------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD):
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value -- beginning of period ......... $ 8.68 $ 8.42 $ 8.99 $ 8.98 $ 9.06 $ 9.09 $ 9.33 $ 9.51 $ 9.63
------ ------ ------ ------ ------ ------ ------ ------ ------
Income from investment operations# --
Net investment income ........................ $ 0.56 $ 0.59 $ 0.54 $ 0.52 $ 0.49 $ 0.52 $ 0.53 $ 0.69 $ 0.23
Net realized and unrealized gain (loss)
on investments ............................. (0.30) 0.25 (0.61) 0.10 0.07 0.21 -- 0.10 (0.11)
------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment operations ........... $ 0.26 $ 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 ................... $(0.53) $(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 ............................. $(0.53) $(0.58) $(0.50) $(0.61) $(0.64) $(0.76) $(0.77) $(0.97) $(0.24)
------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value -- end of period ............... $ 8.41 $ 8.68 $ 8.42 $ 8.99 $ 8.98 $ 9.06 $ 9.09 $ 9.33 $ 9.51
====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN(+) ................................ 2.98% 10.36% (0.76)% 7.00% 6.51% 8.44% 7.39%+ 8.43% 3.02%+
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA:
Expenses## ................................... 0.84% 0.88% 0.89% 1.14% 1.38% 1.33% 1.40%+ 1.43% 1.41%+
Net investment income ........................ 6.55% 6.91% 6.28% 5.62% 5.50% 5.89% 7.01%+ 7.16% 6.97%+
PORTFOLIO TURNOVER ............................. 301% 447% 328% 247% 391% 1,256% 845% 615% 170%
NET ASSETS AT END OF PERIOD (000 OMITTED) ......$226,976 $248,955 $257,154 $345,597 $296,788 $365,644 $427,849 $350,011 $117,584
(S)For the 10 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.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS -- continued
<CAPTION>
CLASS B AND C SHARES
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------------------------
1996 1995 1994 1993** 1996 1995 1994***
- ----------------------------------------------------------------------------------------------------------------------------
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 ..... $ 8.67 $ 8.41 $ 8.98 $ 9.17 $ 8.65 $ 8.39 $ 8.62
------ ------ ------ ------ ------ ------ ------
Income from investment operations# -
Net investment income .. $ 0.47 $ 0.51 $ 0.47 $ 0.12 $ 0.48 $ 0.51 $ 0.17
Net realized and
unrealized gain (loss)
on investments ........ (0.30) 0.25 (0.62) (0.17) (0.30) 0.25 (0.20)
Total from investment
operations .......... $ 0.17 $ 0.76 $(0.15) $(0.05) $ 0.18 $ 0.76 $(0.03)
------ ------ ------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment
income ................ $(0.45) $(0.50) $(0.42) $(0.11) $(0.46) $(0.50) $(0.20)
From net realized gain
on investments ........ -- -- -- (0.03) -- -- --
------ ------ ------ ------ ------ ------ ------
Total distributions
declared to
shareholders ........ $(0.45) $(0.50) $(0.42) $(0.14) $(0.46) $(0.50) $(0.20)
------ ------ ------ ------ ------ ------ ------
Net asset value - end of
period .................. $ 8.39 $ 8.67 $ 8.41 $ 8.98 $ 8.37 $ 8.65 $ 8.39
====== ====== ====== ====== ====== ====== ======
Total return(+) .......... 2.08% 9.31% (1.65)% (1.54)%+ 2.12% 9.33% (0.33)%++
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA:
Expenses## ............. 1.72% 1.74% 1.79% 1.83%+ 1.69% 1.73% 1.62%+
Net investment income .. 5.67% 6.02% 5.42% 4.58%+ 5.68% 5.87% 6.10%+
PORTFOLIO TURNOVER ....... 301% 447% 328% 247% 301% 447% 328%
NET ASSETS AT END OF
PERIOD (000 OMITTED) .... $34,643 $33,759 $23,918 $11,268 $22,215 $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.
++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.
</TABLE>
<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 liquid assets 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, 1996, 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 Conduct Rules
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"). Under the Advisory Agreement, the Adviser provides the Fund with
investment advisory services. D. Richard Smith, a Vice President of the Adviser,
has been the Fund's portfolio manager since February, 1997. Mr. Smith has been
employed as a portfolio manager by the Adviser since 1993. Prior to 1993, Mr.
Smith was a portfolio manager at Solomon Brothers, Inc. 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, 1996 MFS
received management fees of $1,185,293 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 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
Institutional Advisors, 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
$51.5 billion on behalf of approximately 2.4 million investor accounts as of
March 31, 1997. As of such date, the MFS organization managed approximately
$18.9 billion of assets in fixed income portfolios and fixed income portfolios
of MFS Institutional Advisors, 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 Donald A. Stewart. 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 Stewart 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 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 has access to the extensive international equity
investment expertise of Foreign & Colonial, and Foreign & Colonial has access to
the extensive U.S. equity investment expertise of MFS. MFS and Foreign &
Colonial each have investment personnel working in each other's offices in
Boston and London, respectively.
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.
ADMINISTRATOR -- MFS provides the Fund with certain administrative services
pursuant to a Master Administrative Services Agreement dated March 1, 1997.
Under this Agreement, MFS provides the Fund with certain financial, legal,
compliance, shareholder communications and other administrative services. As a
partial reimbursement for the cost of providing these services, the Fund pays
MFS an administrative fee up to 0.015% per annum of the Fund's average daily net
assets, provided that the administrative fee is not assessed on Fund assets that
exceed $3 billion.
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
Class A, B and C 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.
This Prospectus offers Class A, B and C shares to the general public 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 four circumstances, Class A shares are 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;
(ii) on investments in Class A shares by certain retirement plans subject to
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
if, prior to July 1, 1996: (a) the Plan had established an account with the
Shareholder Servicing Agent and (b), the sponsoring organization had
demonstrated to the satisfaction of MFD that either (i) the employer had at
least 25 employees or (ii) the aggregate purchases by the retirement plan of
Class A shares of the MFS Funds would be in an amount of at least $250,000
within a reasonable period of time, as determined by MFD in its sole
discretion;
(iii) on investments in Class A shares by certain retirement plans subject
to ERISA, if: (a) the retirement plan and/or sponsoring organization
subscribes to the MFS FUNDamental 401(k) Program or any similar
recordkeeping system made available by the Shareholder Servicing Agent (the
"MFS Participant Recordkeeping System"); (b) the plan establishes an account
with the Shareholder Servicing Agent on or after July 1, 1996; and (c) the
aggregate purchases by the retirement plan of Class A shares of the MFS
Funds will be in an aggregate amount of at least $500,000 within a
reasonable period of time, as determined by MFD in its sole discretion; and
(iv) on investments in Class A shares by certain retirement plans subject to
ERISA, if: (a) the plan establishes an account with the Shareholder
Servicing Agent on or after July 1, 1996 and (b) the plan has, at the time
of purchase, a market value of $500,000 or more invested in shares of any
class or classes of the MFS Funds. THE RETIREMENT PLAN WILL QUALIFY UNDER
THIS CATEGORY ONLY IF THE PLAN OR ITS SPONSORING ORGANIZATION INFORMS THE
SHAREHOLDER SERVICING AGENT PRIOR TO THE PURCHASES THAT THE PLAN HAS A
MARKET VALUE OF $500,000 OR MORE INVESTED IN SHARES OF ANY CLASS OR CLASSES
OF THE MFS FUNDS. THE SHAREHOLDER SERVICING AGENT HAS NO OBLIGATION
INDEPENDENTLY TO DETERMINE WHETHER SUCH A PLAN QUALIFIES UNDER THIS
CATEGORY.
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. In addition to these circumstances,
the CDSC imposed upon the redemption of Class A shares is waived with respect to
shares held by certain retirement plans qualified under Section 401(a) or 403(b)
of the Internal Revenue Code of 1986, as amended (the "Code"), and subject to
ERISA, where:
(i) the retirement plan and/or sponsoring organization does not subscribe
to the MFS Participant Recordkeeping System; and
(ii) the retirement plan and/or sponsoring organization demonstrates to the
satisfaction of, and certifies to the Shareholder Servicing Agent that the
retirement plan has, at the time of certification or will have pursuant to a
purchase order placed with the certification, a market value of $500,000 or
more invested in shares of any class or classes of the MFS Funds and
aggregate assets of at least $10 million;
provided, however, that the CDSC will not be waived (i.e., it will be imposed)
in the event that there is a change in law or regulations which results in a
material adverse change to the tax advantaged nature of the plan, or in the
event that the plan and/or sponsoring organization: (i) becomes insolvent or
bankrupt; (ii) is terminated or partially terminated under ERISA or is
liquidated or dissolved; or (iii) is acquired by, merged into, or consolidated
with, any other entity.
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.
See "Redemptions and Repurchases -- Contingent Deferred Sales Charge" for
further discussion of the CDSC.
Except as described below, 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
Distribution Plan (see "Distribution Plan" 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).
Class B shares purchased by a retirement plan whose sponsoring organization
subscribes to the MFS Participant Recordkeeping System and which has established
its account with the Shareholder Servicing Agent on or after July 1, 1996 will
be subject to the CDSC described above, only under limited circumstances, as
explained below under "Waivers of CDSC." With respect to such purchases, MFD
pays an amount to dealers equal to 3.00% of the amount purchased through such
dealers (rather than the 4.00% payment described above), which is comprised of a
commission of 2.75% plus the advancement of the first year service fee equal to
0.25% of the purchase price payable under the Fund's Distribution Plan. As
discussed above, such retirement plans are eligible to purchase Class A shares
of the Fund at net asset value without an initial sales charge but subject to a
1% CDSC if the plan has, at the time of purchase, a market value of $500,000 or
more invested in shares of any class or classes of the MFS Funds. IN THIS EVENT,
THE PLAN OR ITS SPONSORING ORGANIZATION SHOULD INFORM THE SHAREHOLDER SERVICING
AGENT THAT THE PLAN IS ELIGIBLE TO PURCHASE CLASS A SHARES UNDER THIS CATEGORY;
THE SHAREHOLDER SERVICING AGENT HAS NO OBLIGATION INDEPENDENTLY TO DETERMINE
WHETHER SUCH A PLAN QUALIFIES UNDER THIS CATEGORY FOR THE PURCHASE OF CLASS A
SHARES.
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. In addition to these circumstances, the CDSC imposed upon the
redemption of Class B shares is waived with respect to shares held by a
retirement plan whose sponsoring organization subscribes to the MFS Participant
Recordkeeping System and which has established an account with the Shareholder
Servicing Agent on or after July 1, 1996; provided, however, that the CDSC will
not be waived (i.e., it will be imposed) in the event that there is a change in
law or regulations which results in a material adverse change to the tax
advantaged nature of the plan, or in the event that the plan and/or sponsoring
organization: (i) becomes insolvent or bankrupt; (ii) is terminated or partially
terminated under ERISA or is liquidated or dissolved; or (iii) is acquired by,
merged into, or consolidated with, any other entity.
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 Fund's Distribution Plan. See
"Distribution Plan" 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.
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 Fund's Distribution Plan by
the Fund to MFD for the first year after purchase (see "Distribution Plan"
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.
WAIVERS OF CDSC. In certain circumstances, the CDSC imposed upon redemption
of Class C shares is waived. These circumstances are described in Appendix A
to this Prospectus.
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.
SUBSEQUENT INVESTMENT BY TELEPHONE: -- Each shareholder may purchase additional
shares of any MFS Fund by telephoning the Shareholder Servicing Agent toll-free
at (800) 225-2606. The minimum purchase amount is $50 and the maximum purchase
amount is $100,000. Shareholders wishing to avail themselves of this telephone
purchase privilege must so elect on their Account Application and designate
thereon a bank and account number from which purchases will be made. If a
telephone purchase request is received by the Shareholder Servicing Agent on any
business day prior to the close of regular trading on the Exchange (generally,
4:00 p.m., Eastern time), the purchase will occur at the closing net asset value
of the shares purchased on that day. The Shareholder Servicing Agent may be
liable for any losses resulting from unauthorized telephone transactions if it
does not follow 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.
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 or restrict any specific purchase or exchange request. In the
event that the Fund or MFD rejects an exchange request, neither the redemption
nor the purchase side of the exchange will be processed.
The Fund is not designed for professional market timing organizations or other
entities using programmed or frequent exchanges. The Fund defines a "market
timer" as an individual, or organization acting on behalf of one or more
individudals, if (i) the individual or organization makes three or more exchange
requests out of the Fund per calender year and (ii) any one of such exchange
requests represents shares equal in value to 1/2 of 1% or more of the Fund's net
assets at the time of the request. Accounts under common ownership or control,
including accounts administered by market timers, will be aggregated for
purposes of this definition.
As noted above, the Fund and MFD each reserves the right to reject or restrict
any specific purchase and exchange request and, in addition, may impose specific
limitations with respect to market timers, including delaying for up to seven
days the purchase side of an exchange request by market timers or specifically
rejecting or otherwise restricting purchase or exchange requests by market
timers. Other funds in the MFS Family of Funds may have different and/or more
restrictive policies with respect to market timers than the Fund. These policies
are disclosed in the prospectuses of these other MFS Funds.
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/or 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.
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). Shares of one class
may not be exchanged for shares of any other class.
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 into
which an exchange is made 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.
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.
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. The Trust agrees to redeem shares of the Fund solely
in cash up to the lesser of $250,000 or 1% of the net asset value of the Fund
during any 90-day period for any one shareholder. The Fund has reserved the
right to pay other redemptions, 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 or exchanges, 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 PLAN
The Trustees have adopted a Distribution Plan 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 Plan"), after having concluded that there is a reasonable
likelihood that the Plan would benefit the Fund and its shareholders.
In certain circumstances, the fees described below may not be imposed or are
being waived. These circumstances, if any, are described below under the heading
"Current Level of Distribution and Service Fees."
FEATURES COMMON TO EACH CLASS OF SHARES: There are certain features of the
Distribution Plan that are common to each Class of shares, as described below.
SERVICE FEES. The 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 the 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. The 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 Plan, as does the use
by MFD of such distribution fees. Such amounts and uses are described below in
the discussion of the provisions of the Distribution Plan relating to each Class
of shares. 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 the Distribution Plan are charged
to, and therefore reduce, income allocated to shares of the Designated Class.
The provisions of the Distribution Plan relating to operating policies as well
as initial approval, renewal, amendment and termination are substantially
identical as they relate to each class of shares covered by the Distribution
Plan.
FEATURES UNIQUE TO EACH CLASS OF SHARES: There are certain features of the
Distribution Plan that are unique to each class of shares, as described below.
CLASS A SHARES. 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 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 commissions to dealers with respect to purchases
of $1 million or more and purchases by certain retirement plans 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
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 SHARES. 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 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 SHARES. 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 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 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%,
0.96% 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"). Because the Fund intends to distribute all of its net
investment income and net realized capital gains to its shareholders in
accordance with the timing requirements imposed by the Code, it is not expected
that the Fund will be required to pay any federal income or excise taxes.
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 the
distribution is paid in cash or in additional shares. The Fund expects that none
of its distributions will be eligible for the dividends received deduction for
corporations. Shareholders may not have to pay state or local taxes on dividends
derived from interest on U.S. Government obligations. Investors should consult
with their tax advisers in this regard. Shortly after the end of each calendar
year, each shareholder will be sent 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 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 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. Backup withholding will not,
however, 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.
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 which it offers to the general public,
entitled Class A, Class B and Class C Shares of Beneficial Interest (without par
value). The Fund also has a class of shares which it offers exclusively to
certain institutional investors, entitled Class I shares. 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 the 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 Securities Corporation 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 and Class C 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 and Class
C 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. The Fund offers multiple classes of shares which were initially
offered for sale to the public on different dates. The calculation of total rate
of return for a class of shares which initially was offered for sale to the
public subsequent to another class of shares of the Fund is based both on (i)
the performance of the Fund's newer class from the date it initially was offered
for sale to the public and (ii) the performance of the Fund's oldest class from
the date it initially was offered for sale to the public up to the date that the
newer class initially was offered for sale to the public. See the SAI for
further information on the calculation of total rate of return for share classes
initially offered for sale to the public on different dates.
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, 1996, 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 or the shareholder does not respond to mailings from the Shareholder
Servicing Agent with regard to uncashed checks, 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 Class A, B and C 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 on any day of the month. If the
shareholder does not specify a date, the investment will automatically occur on
the first business day of the month. 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 six
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, 1997, as amended or supplemented from time to time,
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 Distribution Plan; (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
o Shares acquired through dividend or capital gain reinvestment;
and
o 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
o 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:
o 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;
o Trustees and retired trustees of any investment company for which
MFS Fund Distributors, Inc. ("MFD") serves as distributor;
o Employees, directors, partners, officers and trustees of any sub-
adviser to any MFS Fund;
o Employees or registered representatives of dealers and other
financial institution ("dealers") which have a sales agreement
with MFD;
o 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
o Institutional Clients of MFS or MFS Institutional Advisors, Inc.
("MFSI").
4. INVOLUNTARY REDEMPTIONS (CDSC WAIVER ONLY)
o 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")
o Death or disability of the IRA owner.
SECTION 401(a) PLANS ("401(a) PLANS") AND SECTION 403(b) EMPLOYER
SPONSORED PLANS ("ESP PLANS")
o Death, disability or retirement of 401 (a) or ESP Plan
participant;
o Loan from 401(a) or ESP Plan (repayment of loans, however, will
constitute new sales for purposes of assessing sales charges);
o Financial hardship (as defined in Treasury Regulation Section
1.401(k)-1 (d)(2), as amended from time to time);
o Termination of employment of 401(a) or ESP Plan participant
(excluding, however, a partial or other termination of the 401(a)
or ESP Plan);
o Tax-free return of excess 401(a) or ESP Plan contributions;
o To the extent that redemption proceeds are used to pay expenses
(or certain participant expenses) of the 401(a) or ESP Plan
(e.g., participant account fees), provided that the 401(a) or ESP
Plan sponsor subscribes to the MFS FUNDamental 401(k) Plan or
another similar recordkeeping system made available by the
Shareholder Servicing Agent; and
o Distributions from a 401(a) or ESP 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 401(a) or ESP 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 401(a) or ESP Plan's shares in all MFS
Funds (i.e., all the assets of the 401(a) or ESP Plan invested in
the MFS Funds are withdrawn), unless immediately prior to the
redemption, the aggregate amount invested by the 401(a) or ESP
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 401(a) or ESP 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")
o Death or disability of SRO Plan participant.
6. CERTAIN TRANSFERS OF REGISTRATION (CDSC WAIVER ONLY). Shares
transferred:
o 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
o From a single account maintained for a 401(a) Plan to multiple
accounts maintained by the Shareholder Servicing Agent on behalf
of individual participants of such Plan, provided that the Plan
sponsor subscribes to the MFS FUNDamental 401(k) Plan or another
similar recordkeeping system made available by the Shareholder
Servicing Agent.
II. WAIVERS OF CLASS A SALES CHARGES
In addition to the waivers set forth in Section I above, in the following
circumstances the initial sales charge imposed on purchases of Class A
shares and the CDSC imposed on certain redemptions of Class A shares is
waived:
1. INVESTMENT OF REDEMPTION PROCEEDS FROM UNAFFILIATED MUTUAL FUNDS
o 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
o 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
o Shares acquired by insurance company separate accounts.
4. RETIREMENT PLANS
ADMINISTRATIVE SERVICES ARRANGEMENTS
o 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
o 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
o Distributions made on or after the IRA owner has attained the age
of 59 1/2 years old; and
o Tax-free returns of excess IRA contributions.
401(a) PLANS
o Distributions made on or after the 401 (a) Plan participant has
attained the age of 59 1/2 years old; and
o Certain involuntary redemptions and redemptions in connection
with certain automatic withdrawals from a Plan.
ESP PLANS AND SRO PLANS
o Distributions made on or after the ESP or SRO 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
o 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
o 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
o 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
o Distributions made on or after the IRA owner or the 401(a), ESP
or SRO 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")
o 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;
o 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, MA 02110
[logo] M F S(SM)
INVESTMENT MANAGEMENT
We invented the mutual fund(SM)
MFS(R) GOVERNMENT LIMITED
MATURITY FUND
500 Boylston Street
Boston, MA 02116
MGL-1-5/97/60M 28/228/328
[logo] M F S(SM)
INVESTMENT MANAGEMENT
We invented the mutual fund(SM)
MFS(R) GOVERNMENT LIMITED
MATURITY FUND
Prospectus
May 1, 1997
<PAGE>
MFS(SM)
INVESTMENT MANAGEMENT
MFS(R) GOVERNMENT STATEMENT OF
LIMITED MATURITY FUND ADDITIONAL INFORMATION
(A Member of the MFS Family of Funds(R)) May 1, 1997
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Page
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1. Definitions ............................................... 2
2. Investment Objective, Policies and Restrictions ........... 2
3. Management of the Fund .................................... 5
Trustees ............................................... 5
Officers ............................................... 5
Trustee Compensation Table ............................. 6
Investment Adviser ..................................... 6
Administrator .......................................... 7
Custodian .............................................. 7
Shareholder Servicing Agent ............................ 7
Distributor ............................................ 7
4. Portfolio Transactions and Brokerage Commissions .......... 8
5. Shareholder Services ...................................... 9
Investment and Withdrawal Programs ..................... 9
Exchange Privilege ..................................... 11
Tax-Deferred Retirement Plans .......................... 11
6. Tax Status ................................................ 11
7. Determination of Net Asset Value and Performance .......... 12
8. Distribution Plan ......................................... 14
9. Description of Shares, Voting Rights and Liabilities ...... 15
10. Independent Auditors and Financial Statements ............. 16
Appendix A -- Performance Information ..................... A-1
MFS GOVERNMENT LIMITED MATURITY FUND
500 Boylston Street, Boston, Massachusetts 02116
(617) 954-5000
This Statement of Additional Information, as amended or supplemented from time
to time (the "SAI"), sets forth information which may be of interest to
investors but which is not necessarily included in the Fund's Prospectus, dated
May 1, 1997. 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, 1997, 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
liquid assets 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. The Fund records these transactions as sale and purchase transactions,
rather than as borrowing transactions. 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 (born 8/4/35)
Massachusetts Financial Services Company, Chairman
RICHARD B. BAILEY* (born 9/14/26)
Private Investor; Massachusetts Financial Services Company, former Chairman
(prior to September 30, 1991); Cambridge Bancorp, Director; Cambridge Trust
Company, Director
MARSHALL N. COHAN (born 11/14/26)
Private Investor
Address: 2524 Bedford Mews Drive, Wellington, Florida
LAWRENCE H. COHN, M.D. (born 3/11/37)
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 (born 6/15/27)
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 (born 4/27/28)
Private Investor; Rockefeller Financial Services, Inc. (investment advisers),
Director
Address: Room 5600, 30 Rockefeller Plaza, New York, New York
WALTER E. ROBB, III (born 8/18/26)
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* (born 12/16/42)
Massachusetts Financial Services Company, Senior Executive Vice President and
Secretary
JEFFREY L. SHAMES* (born 6/2/55)
Massachusetts Financial Services Company, President
J. DALE SHERRATT (born 9/23/38)
Insight Resources, Inc. (acquisition planning specialists), President
Address: One Liberty Square, Boston, Massachusetts
WARD SMITH (born 9/13/30)
NACCO Industries (holding company), Chairman (prior to June, 1994); Sundstrand
Corporation (diversified mechanical manufacturer), Director
Address: 5875 Landerbrook Drive, Mayfield Heights, Ohio
OFFICERS
W. THOMAS LONDON,* Treasurer (born 3/1/44)
Massachusetts Financial Services Company, Senior Vice President
STEPHEN E. CAVAN,* Secretary and Clerk (born 11/6/53)
Massachusetts Financial Services Company, Senior Vice President, General
Counsel and Assistant Secretary
JAMES R. BORDEWICK, JR.,* Assistant Secretary (born 3/6/59)
Massachusetts Financial Services Company, Vice President and Associate General
Counsel
JAMES O. YOST,* Assistant Treasurer (born 6/12/60)
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 below is certain information concerning the cash compensation paid to
the Trustees and benefits accrued, and estimated benefits payable, under the
retirement plan.
TRUSTEE COMPENSATION TABLE
RETIREMENT
BENEFIT TOTAL TRUSTEE
ACCRUED AS ESTIMATED FEES FROM FUND
TRUSTEE FEES PART OF FUND CREDITED YEARS AND FUND
TRUSTEE FROM FUND(1) EXPENSE(1) OF SERVICE(2) COMPLEX(3)
- -----------------------------------------------------------------------------
Richard B. Bailey $3,050 $ 912 10 $247,168
A. Keith Brodkin --0-- --0-- N/A --0--
Marshall N. Cohan 4,175 1,980 14 149,258
Dr. Lawrence Cohn 3,725 559 18 136,508
Sir David Gibbons 3,725 1,520 13 136,508
Abby M. O'Neill 3,275 685 10 123,758
Walter E. Robb, III 4,175 2,200 17 149,258
Arnold D. Scott --0-- --0-- N/A --0--
Jeffrey L. Shames --0-- --0-- N/A --0--
J. Dale Sherratt 4,175 643 20 149,258
Ward Smith 4,175 865 13 149,258
- ----------
(1) For fiscal year ended December 31, 1996.
(2) Based on normal retirement age of 75.
(3) Information provided is provided for calendar year 1996. All Trustees
receiving compensation served as Trustees of 41 funds within the MFS fund
complex (having aggregate net assets at December 31, 1996, of approximately
$15 billion) except Mr. Bailey, who served as Trustee of 81 funds within the
MFS fund complex (having aggregate net assets at December 31, 1996, of
approximately $38.5 billion).
ESTIMATED ANNUAL BENEFITS PAYABLE BY FUND UPON RETIREMENT(4)
YEARS OF SERVICE
--------------------------------------------
AVERAGE TRUSTEE FEES 3 5 7 10 OR MORE
- --------------------------------------------------------------------------
$2,745 $412 $ 686 $ 961 $1,373
3,115 467 779 1,090 1,557
3,484 523 871 1,219 1,742
3,854 578 963 1,349 1,927
4,223 633 1,056 1,478 2,112
4,593 689 1,148 1,607 2,296
- ----------
(4) Other funds in the MFS fund complex provide similar retirement benefits to
the Trustees.
As of March 31, 1997, all officers and Trustees as a group owned less than 1% of
the outstanding shares of the Fund.
As of March 31, 1997, Merrill Lynch, Pierce, Fenner and Smith Inc., MFBFX 98437,
P.O. Box 45286, Jacksonville, Florida 32232-5286 was the record owner of
approximately 14.7% of the outstanding Class B shares of the Fund.
As of March 31, 1997, BHC Securities, Inc. FAO 70711520, Attn: Mutual Funds
Dept., One Commerce Square, 2005 Market Street, Suite 1200, Philadelphia, PA
19103-7042 and Randolph Telephone Membership Corp., 3733 Old Cox Road, Asheboro,
NC 27203-1517 were the record owners of approximately 12.93% and 7.03%,
respectively, of the outstanding Class C Shares of the Fund.
As of March 31, 1997, MFS Defined Contribution Plan, c/o Mark Leary,
Massachusetts Financial Services, 500 Boylston Street, Boston, MA 02116-3740 was
the record owner of approximately 99.97% of the outstanding Class I 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"). Under
the Advisory Agreement, the Adviser provides the Fund with overall investment
advisory services. 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 year ended December 31, 1994, MFS voluntarily reduced its
management fee to $1,401,230, equivalent to 0.38% of the Fund's average daily
net assets and 5.36% of gross income. If MFS had not reduced its management fee,
MFS would have received a management fee of $1,561,767, under the Advisory
Agreement, which would have been equivalent on an annualized basis to 0.40% of
the Fund's average daily net assets. For the fiscal years ended December 31,
1996 and 1995, MFS received management fees of $1,185,293 and $1,145,992,
respectively, equivalent on an annualized basis to 0.40% of the Fund's average
daily net assets 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, 1996 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, 1997, 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.
ADMINISTRATOR
MFS provides the Fund with certain administrative services pursuant to a Master
Administrative Services Agreement dated March 1, 1997. Under this Agreement, MFS
provides the Fund with certain financial, legal, compliance, shareholder
communications and other administrative services. As a partial reimbursement for
the cost of providing these services, the Fund pays MFS an administrative fee up
to 0.015% per annum of the Fund's average daily net assets, provided that the
administrative fee is not assessed on Fund assets that exceed $3 billion.
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 the Fund at an effective annual rate of 0.13%
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.
CLASS B SHARES, CLASS C SHARES AND CLASS I SHARES: MFD acts as agent in selling
Class B shares, Class C shares and Class I shares to dealers. The public
offering price of Class B shares, Class C shares and Class I shares is their net
asset value next computed after the sale (see "Purchases" in the Prospectus and
the Prospectus Supplement to which Class I shares are offered).
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, 1996, MFD received sales
charges of $27,345 and dealers received sales charges of $233,785 (as their
concession on gross sales charges of $261,130) for selling Class A shares of the
Fund; the Fund received $46,464,713 representing the aggregate net asset value
of such shares. 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.
For the fiscal years ended December 31, 1994, 1995 and 1996, the contingent
deferred sales charges ("CDSC") imposed on redemption of Class A shares were
$238,743, $22,488 and $6,765, respectively. For the fiscal years ended December
31, 1996, 1995 and 1994, the CDSC imposed on redemption of Class B shares was
$131,522, $121,288 and $192,283, respectively. For the fiscal year ended
December 31, 1996, the CDSC imposed on redemption of Class C shares was $2,718.
The Distribution Agreement will remain in effect until August 1, 1997, 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 Conduct Rules 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.
For the fiscal year ended December 31, 1996, the Fund acquired and retained
securities issued by Goldman Sachs, a regular broker dealer of the Fund, which
securities had a value of $5,784,000 as of December 31, 1996.
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
Class A, B and C shares 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.
SUBSEQUENT INVESTMENT BY TELEPHONE: Each shareholder may purchase additional
shares of any MFS Fund by telephoning the Shareholder Servicing Agent toll-free
at (800) 225-2606. The minimum purchase amount is $50 and the maximum purchase
amount is $100,000. Shareholders wishing to avail themselves of this telephone
purchase privilege must so elect on their Account Application and designate
thereon a bank and account number from which purchases will be made. If a
telephone purchase request is received by the Shareholder Servicing Agent on any
business day prior to the close of regular trading on the Exchange (generally,
4:00 p.m., Eastern time), the purchase will occur at the closing net asset value
of the shares purchased on that day. The Shareholder Servicing Agent may be
liable for any losses resulting from unauthorized telephone transactions if it
does not follow 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.
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 six 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 and if the purchaser
is eligible to purchase the Class of shares) 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 Code, by meeting all
applicable requirements of Subchapter M, including requirements as to the nature
of the Fund's gross income, the amount of Fund distributions, and the
composition and holding period of the Fund's portfolio assets. Because the Fund
intends to distribute all of its net investment income and net realized capital
gains to shareholders in accordance with the timing requirements imposed by the
Code, it is not expected that the Fund will be required to pay any federal
income or excise taxes. 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.
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 are
taxable to shareholders as ordinary income for federal income tax purposes
whether the distributions are made in cash or in additional shares. 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 held their shares. Any Fund dividend that is declared in
October, November, or December of any calendar year, that is payable to
shareholders of record in such a month, and that is paid the following January
will be treated as if received by the shareholders on December 31 of the year in
which the dividend is declared. The Fund will notify shareholders regarding the
federal tax status of its distributions after the end of each calendar year.
Any Fund 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 bonds 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 those securities. In order to distribute this income and avoid a tax on the
Fund, the Fund may be required to liquidate portfolio securities that it might
otherwise have continued to hold, potentially resulting in additional taxable
gain or loss to the Fund. An 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 shareholders.
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 dividends and other
payments to Non-U.S. Persons that are subject to such withholding, regardless of
whether a lower rate may be permitted under an applicable treaty. 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 appropriate to such
claims. Distributions received from the Fund by Non-U.S. Persons may also be
subject to tax under the laws of their own jurisdictions. The Fund is also
required in certain circumstances to apply backup withholding at 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. Backup
withholding will not, however, be applied to payments which have been subject to
30% withholding.
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 the possible exclusion of such
portion of their dividends for state and local income tax purposes as well as
regarding the tax consequences of an investment in the Fund.
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.
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 offers multiple classes of shares which were initially offered for sale
to the public on different dates. The calculation of total rate of return for a
class of shares which initially was offered for sale to the public subsequent to
another class of shares of the Fund is based both on (i) the performance of the
Fund's newer class from the date it initially was offered for sale to the public
and (ii) the performance of the Fund's oldest class from the date it initially
was offered for sale to the public up to the date that the newer class initially
was offered for sale to the public.
As discussed in the Prospectus, the sales charges, expenses and expense ratios,
and therefore the performance, of the Fund's classes of shares differ. In
calculating total rate of return for a newer class of shares in accordance with
certain formulas required by the SEC, the performance will be adjusted to take
into account the fact that the newer class is subject to a different sales
charge than the oldest class (e.g., if the newer class is Class A shares, the
total rate of return quoted will reflect the deduction of the initial sales
charge applicable to Class A shares; if the newer class is Class B shares, the
total rate of return quoted will reflect the deduction of the CDSC applicable to
Class B shares). However, the performance will not be adjusted to take into
account the fact that the newer class of shares bears different class specific
expenses than the oldest shares (e.g., Rule 12b-1 fees). Therefore, the total
rate of return quoted for a newer class of shares will differ from the return
that would be quoted had the newer class of shares been outstanding for the
entire period over which the calculation is based (i.e., the total rate of
return quoted for the newer class will be higher than the return that would have
been quoted had the newer class of shares been outstanding for the entire period
over which the calculation is based if the class specific expenses for the newer
class are higher than the class specific expenses of the oldest class, and the
total rate of return quoted for the newer class will be lower than the return
that would be quoted had the newer class of shares been outstanding for this
entire period if the class specific expenses for the newer class are lower than
the class specific expenses of the oldest class).
Total rate of return quotations for each class are presented in Appendix A
attached hereto under the heading "Performance Quotations."
PERFORMANCE RESULTS: The performance results for Class A shares presented in
Appendix A attached hereto under the heading "Performance Results" assume an
intial investment of $10,000 in Class A shares, and cover the period from the
Fund's commencement of investment operations, September 26, 1988, to December
31, 1996. 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).
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. Yield quotations for each class of shares are presented in
Appendix A attached hereto under the heading "Performance Quotations."
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. Current distribution rate quotations for each class of shares are
presented in Appendix A hereto.
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. and other similar or related matters.
From time to time the Fund may also discuss or quote the views of its
distributor, its investment adviser and other financial planning, legal, tax,
accounting, insurance, estate planning and other professionals, or from surveys,
regarding individual and family financial planning. Such views may include
information regarding the following: retirement planning; tax management
strategies; estate planning; general investment techniques (e.g., asset
allocation and disciplined saving and investing); business succession; ideas and
information provided through the MFS Heritage Planningsm program, an
inter-generational financial planning assistance program; issues with respect to
insurance (e.g., disability and life insurance and Medicare supplemental
insurance); issues regarding financial and health care management for elderly
family members; and other similar or related matters.
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 PLAN
The Trustees have adopted a Distribution Plan for Class A, Class B and Class C
shares (the "Distribution Plan") 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 the Distribution Plan would benefit the Fund and the
respective class of shareholders. The provisions of the Distribution Plan are
severable with respect to each Class of shares offered by the Fund. The
Distribution Plan is 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 Plan is described in the Prospectus under the caption
"Distribution Plan," which is incorporated herein by reference. The following
information supplements this Prospectus discussion.
SERVICE FEES: With respect to Class A shares, 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 shares, 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
the 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 Plan 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, 1996, 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
CLASSES OF SHARES BY FUND BY MFD BY DEALERS
- ----------------- ------- ------------- -------------
Class A Shares $363,114 $ 13,230 $349,884
Class B Shares $325,993 $255,937 $ 70,056
Class C Shares $203,644 $ 127 $203,517
GENERAL: The Distribution Plan will remain in effect until August 1, 1997, 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"). The Distribution Plan 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. The Distribution Plan 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 the
Distribution Plan 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 the Distribution Plan
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. The Distribution Plan may not 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 not 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 the Distribution Plan 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 four classes of shares of the Fund, Class A,
Class B and Class C shares as well as Class I 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, 1996, the Statement of Operations for the year ended December 31, 1996, the
Statement of Changes in Net Assets for each of the two years in the period ended
December 31, 1996, 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
PERFORMANCE INFORMATION
The performance results and quotations below 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. See
"Determination of Net Asset Value and Performance" in the SAI.
PERFORMANCE RESULTS -- CLASS A SHARES
VALUE OF VALUE OF VALUE OF
INITIAL $10,000 CAPITAL GAIN REINVESTED TOTAL
YEAR ENDED INVESTMENT DISTRIBUTIONS DIVIDENDS VALUE
---------- -------------- ------------- ---------- -----
December 31, 1988* $9,645 $0 $ 163 $ 9,808
December 31, 1989 9,635 0 1,206 10,841
December 31, 1990 9,200 0 2,161 11,361
December 31, 1991 9,170 0 3,150 12,320
December 31, 1992 9,089 0 4,033 13,122
December 31, 1993 9,099 0 4,941 14,040
December 31, 1994 8,522 0 5,412 13,934
December 31, 1995 8,795 0 6,583 15,378
December 31, 1996 8,512 0 7,324 15,836
*For the period from the commencement of investment operations, September 26,
1988, to December 31, 1988.
Explanatory Notes: The results in the table assume that income dividends and
capital gain distributions were invested in additional shares. The results also
assume that the initial investment in Class A shares was reduced by the current
maximum applicable sales charge. No adjustment has been made for income taxes,
if any, payable by shareholders.
PERFORMANCE QUOTATIONS
All performance quotations are for the fiscal year ended December 31, 1996.
<TABLE>
<CAPTION>
ACTUAL
30-DAY 30-DAY
YIELD YIELD
AVERAGE ANNUAL TOTAL RETURNS (INCLUDING (WITHOUT CURRENT
---------------------------- ANY ANY DISTRIBUTION
1 YEAR 5 YEAR LIFE OF FUND(1) WAIVERS) WAIVERS) RATE
------ ------ -------------- ---------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Class A Shares with sales charge ......... 0.43% 4.62% 5.72% N/A 5.18% 6.11%
Class A Shares without sales charge ...... 2.98% 5.15% 6.05% N/A N/A N/A
Class B Shares with CDSC ................. -1.79% 4.19%(2) 5.65%(2) N/A N/A N/A
Class B Shares without CDSC .............. 2.08% 4.51%(2) 5.65%(2) N/A 4.40% 5.40%
Class C Shares with CDSC ................. 1.15% 4.64%(3) 5.74%(3) N/A N/A N/A
Class C Shares without CDSC .............. 2.12% 4.64%(3) 5.74%(3) N/A 4.33% 5.44%
</TABLE>
(1) From the initial public offering date of the Fund on September 26, 1988.
(2) Class B share performance includes the performance of the Fund's Class A
shares for periods prior to the commencement of offering of Class B shares
on September 7, 1993. Sales charges, expenses and expense ratios, and
therefore performance, for Class A and Class B shares differ. Class B share
performance has been adjusted to reflect that Class B shares generally are
subject to a CDSC (unless the performance quotation does not give effect to
the CDSC) whereas Class A shares generally are subject to an initial sales
charge. Class B share performance has not, however, been adjusted to reflect
differences in operating expenses (e.g., Rule 12b-1 fees), which generally
are lower for Class A shares.
(3) Class C share performance includes the performance of the Fund's Class A
shares for periods prior to the commencement of offering of Class C shares
on August 1, 1994. Sales charges, expenses and expense ratios, and therefore
performance, for Class A and Class C shares differ. Class C share
performance has been adjusted to reflect that Class C shares generally are
subject to a CDSC (unless the performance quotation does not give effect to
the CDSC) whereas Class A shares generally are subject to an initial sales
charge. Class C share performance has not, however, been adjusted to reflect
differences in operating expenses (e.g., Rule 12b-1 fees), which generally
are lower for Class A shares.
<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
[LOGO] MFS(SM)
INVESTMENT MANAGEMENT
We invented the Mutual fund(SM)
MFS(R) GOVERNMENT LIMITED MATURITY FUND
500 Boylston Street
Boston, MA 02116
MGL-13-5/97/525 28/228/328
<PAGE>
<PAGE> 1
[LOGO M F S]
MFS Government Limited Maturity Fund
[Graphics]
Learning financial basics the easy way (see page 22)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter from the Chairman................................................... 1
Portfolio Manager's Overview............................................... 3
Portfolio Manager's Profile................................................ 5
Fund Facts................................................................. 6
Performance Summary........................................................ 6
Portfolio of Investments................................................... 9
Financial Statements....................................................... 10
Notes to Financial Statements.............................................. 16
Independent Auditors' Report............................................... 21
The ABCs of Investing...................................................... 22
The MFS Family of Funds(R)................................................. 24
Trustees and Officers...................................................... 25
</TABLE>
- -------------------------------------------------------------------------------
HIGHLIGHTS
- FOR THE YEAR ENDED DECEMBER 31, 1996, CLASS A SHARES OF THE FUND PROVIDED A
TOTAL RETURN AT NET ASSET VALUE OF 2.98%, CLASS B SHARES 2.08%, AND CLASS C
SHARES 2.12%.
- WHILE ECONOMIC MOMENTUM EASED IN LATE SUMMER, AND U.S. TREASURY YIELDS
DECLINED, MORE RECENT ECONOMIC DATA SUGGEST GROWTH HAS RETURNED TO SOMEWHAT
ABOVE-TREND LEVELS.
- THE FUND HAS A 50% POSITION IN MORTGAGE SECURITIES. WE CONTINUE TO BELIEVE
THAT THIS IS AN ATTRACTIVE SECTOR, AS YIELD SPREADS REMAIN FAVORABLE,
ISSUANCE PATTERNS LIGHT, AND THE LEVEL OF MORTGAGE REFINANCINGS LOW.
- -------------------------------------------------------------------------------
<PAGE> 3
LETTER FROM THE CHAIRMAN
Dear Shareholders:
[LOGO PHOTOGRAPH OF After more than six years of expansion, the U.S.
A. KEITH BRODKIN] economy appears headed toward another year of at
least moderate growth in 1997, although a few
signs point to the possibility of a modest rise in
inflation during the year. On the positive side,
the pattern of moderate growth and inflation set
over the past few years now seems fairly well
entrenched in the economy and, short of a major
international or domestic crisis, appears to have
enough momentum to remain on track for some time. Also, recent gains in such
important sectors as housing, automobiles, industrial production, and exports
indicate a fair amount of underlying strength in the economy. However, some
reason for caution can be seen in the continuing high level of consumer debt and
the attendant rise in personal bankruptcies, as well as in the modestly
disappointing level of holiday sales. Also, the ongoing tightness in labor
markets, and price rises in such important sectors as energy, could add some
inflationary pressures to the economy. Given these somewhat conflicting
indicators, we expect real (inflation-adjusted) growth to revolve around 2% in
1997, which would represent a modest decline from 1996.
In the bond markets, conflicting signals over the strength of the economy
have created near-term volatility. Even comments by Federal Reserve Chairman
Alan Greenspan late in 1996 created some uncertainty over the Federal Reserve
Board's next move. However, we expect the Fed to maintain its anti-inflationary
stance should signs of more rapid economic growth and, particularly, higher
inflation resurface. While inflationary forces largely remained in check in
1996, the continued strength in the labor market and rising energy prices mean
that a pickup in inflation is still possible. At the same time, the U.S. budget
deficit continues to decline and, as a percentage of gross domestic product, is
now less than 1%, which we consider a positive development for the bond markets.
Although interest rates may move higher over the coming months, we believe that,
at current levels, fixed-income markets remain equitably valued.
1
<PAGE> 4
LETTER FROM THE CHAIRMAN - continued
We appreciate your support and welcome any questions or comments you may
have.
Respectfully,
/S/ A. KEITH BRODKIN
A. Keith Brodkin
Chairman and President
January 12, 1997
2
<PAGE> 5
PORTFOLIO MANAGER'S OVERVIEW
[LOGO PHOTOGRAPH OF Dear Shareholders:
STEVEN E. NOTHERN] Expectations in the fixed-income markets have
shifted over the past 12 months. Early in 1996,
expectations were for continued lowering of
short-term interest rates by the Federal Reserve
Board. Stronger economic conditions during the
second quarter, however, pushed growth sharply
above the Fed's long-term targeted trend rate of
2.0% to 2.5%, precluding further easing. The
market responded to this above-trend growth with a
sharp sell-off, as yields on two-year U.S. Treasuries moved from 5.17% on
January 1, 1996 to 6.12% by the end of June. As economic momentum eased in late
summer, however, market participants increasingly believed that economic growth
was once again slipping to a below-trend pace, and two-year Treasury yields
dropped back to the 5.60% level by the end of November. The latest economic data
suggest growth has returned to somewhat above-trend levels. Unemployment remains
low and consumer confidence high; with the U.S. economy now bumping up against
capacity constraints, the risk is that the inflation rate could continue to inch
upward. This has caused expectations to once again turn negative in the final
month of the year, with rising yields reversing much of the sharp rally enjoyed
by the bond markets since late summer.
For the year, two-year Treasury yields, which stood at 5.17% on January 1,
1996, rose to 5.88% by December 31, 1996, while yields on five-year Treasuries
rose from 5.39% to 6.21% over the same period. An investment in two-year
Treasuries during this period would have produced a total return of 4.80%, and
an investment in five-year Treasuries would have produced a total return of
2.43%.
In this environment, Class A shares of the Fund provided a total return of
2.98%, Class B shares 2.08%, and Class C shares 2.12% for the 12 months ended
December 31, 1996. 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 (the Lehman 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 4.60%. The
performance of the Fund lagged that of the broader market index for the year.
Early in the year, we had been suspect about the economy's ability to sustain an
above-trend surge, and were not
3
<PAGE> 6
PORTFOLIO MANAGER'S OVERVIEW - continued
positioned for the sharp sell-off caused by the cessation of Federal Reserve
easing of interest rates and by the failure of federal budget negotiations in
January. Also, we had not anticipated the growth slowdown later in the year,
believing that the move to lower rates was unjustified based on economic
fundamentals. Consequently, we maintained overall portfolio durations that were
slightly short to the broader market index, detracting from relative performance
during the second half of the year.
The Fund is a short-maturity (securities with remaining maturities of five
years or less)government-only fund that limits its overall interest rate
sensitivity to approximately that of a three-year Treasury. (While U.S. Treasury
securities fluctuate in value, they are guaranteed as to the timely payment of
interest and, if held to maturity, provide a guaranteed return of principal.)
The portfolio is currently positioned for stable to rising yields in the near
term, and it is 10% to 15% less sensitive to market price movements than the
Lehman Index, with a focus on securities which add incremental yield to the
Fund. In order to help protect principal in a rising interest rate environment,
we will continue to maintain above-average cash positions.
The portfolio currently has a 50% position in mortgage securities. We
remain optimistic about the mortgage market and continue to believe that this is
an attractive sector. Yield spreads remain favorable, issuance patterns light,
and prepayment volatility muted given the low level of mortgage refinancing.
Also, there are many potential buyers in the marketplace, especially for
securities exhibiting moderate price volatility. Portfolio positions are
concentrated in five- and 15-year balloon agency pass-throughs. These issues
have a price sensitivity comparable to two- and three-year Treasuries, with
yield advantages of 0.50% to 0.80%. Other positions represented are 30-year,
high-coupon agency pass-throughs, which yield 1.10% more than three-year
Treasuries, and very stable short-maturity collateralized mortgage obligations.
These short issues yield 0.40% and 0.50% more than two-year Treasuries.
4
<PAGE> 7
PORTFOLIO MANAGER'S OVERVIEW - continued
Our ability to invest in both Treasury 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 futures, option contracts, or the more volatile
mortgage-derivative securities. As always, we will continue to maintain our
commitment to providing competitive returns over the long term.
Respectfully,
/S/Steven E. Nothern
Steven E. Nothern
Portfolio Manager
- -------------------------------------------------------------------------------
PORTFOLIO MANAGER'S PROFILE
STEVEN E. 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.
NOTE TO SHAREHOLDERS: EFFECTIVE JANUARY 1, 1997, KEVIN M. CRONIN SUCCEEDS MR.
NOTHERN AS PORTFOLIO MANAGER OF THE FUND. MR. CRONIN JOINED MFS IN 1993 AS A
MEMBER OF THE FIXED INCOME DEPARTMENT AND IS A VICE PRESIDENT OF MFS. HE ALSO
MANAGES FIXED-INCOME PORTFOLIOS FOR MFS INSTITUTIONAL ADVISORS, INC. MR. CRONIN
IS A GRADUATE OF WESLEYAN UNIVERSITY AND HAS AN M.B.A. FROM BOSTON COLLEGE. HE
IS A CHARTERED FINANCIAL ANALYST. MR. NOTHERN WILL CONTINUE TO MANAGE MFS
GOVERNMENT SECURITIES FUND AS WELL AS THE GOVERNMENT SECURITIES PORTIONS OF THE
MFS CLOSED-END FUNDS.
- -------------------------------------------------------------------------------
5
<PAGE> 8
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
FUND FACTS
STRATEGY: THE FUND'S INVESTMENT OBJECTIVE IS TO PRESERVE
CAPITAL AND PROVIDE HIGH CURRENT INCOME
(COMPARED TO A PORTFOLIO ENTIRELY INVESTED IN
MONEY MARKET INSTRUMENTS).
COMMENCEMENT OF
INVESTMENT
OPERATIONS: SEPTEMBER 26, 1988
SIZE: $283.8 MILLION NET ASSETS AS OF DECEMBER 31, 1996
- --------------------------------------------------------------------------------
</TABLE>
PERFORMANCE SUMMARY
The information below and on the following page illustrates the historical
performance of MFS Government Limited Maturity Fund Class A shares in comparison
to various market indicators. Class A share performance results reflect the
deduction of the 2.50% maximum sales charge; benchmark comparisons are unmanaged
and do not reflect any fees or expenses. The performance of other share 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. You
cannot invest in an index. All results are historical and assume the
reinvestment of dividends and capital gains.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT]
(For the Period from October 1, 1988 to December 31, 1996)
[CHART]
MFS Government Consumer Lehman Brothers
Limited Maturity Price Index- 1-5 Year
Class A US Government Bond Index
9747 10000 10000
9808 10126 10076
10841 10597 11247
11362 11244 12357
12321 11588 13958
13122 11921 14892
14040 12252 15916
13934 12580 15759
15378 12890 17774
15836 13353 18590
6
<PAGE> 9
PERFORMANCE SUMMARY - continued
<TABLE>
<CAPTION>
Life of
AVERAGE ANNUAL TOTAL RETURNS 1 Year 3 Years 5 Years Fund+
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MFS Government Limited Maturity Fund
(Class A) including 2.50% sales charge + 0.43% + 3.22% + 4.62% + 5.72%
- --------------------------------------------------------------------------------
MFS Government Limited Maturity Fund
(Class A)
at net asset value + 2.98% + 4.09% + 5.15% + 6.05%
- --------------------------------------------------------------------------------
MFS Government Limited Maturity Fund
(Class B)
with CDSC - 1.79% + 2.26% + 4.19% + 5.65%
- --------------------------------------------------------------------------------
MFS Government Limited Maturity Fund
(Class B) without CDSC + 2.08% + 3.15% + 4.51% + 5.65%
- --------------------------------------------------------------------------------
MFS Government Limited Maturity Fund
(Class C)
with CDSC + 1.15% + 3.25% + 4.64% + 5.74%
- --------------------------------------------------------------------------------
MFS Government Limited Maturity Fund
(Class C) without CDSC + 2.12% + 3.25% + 4.64% + 5.74%
- --------------------------------------------------------------------------------
Average short-term U.S. government fund + 4.35% + 4.43% + 4.72% + 7.81%
- --------------------------------------------------------------------------------
Lehman Brothers 1 - 5 Year Government
Bond Index** + 4.59% + 5.31% + 5.90% + 7.84%
- --------------------------------------------------------------------------------
Consumer Price Index*++ + 3.56% + 2.91% + 2.88% + 3.56%
- --------------------------------------------------------------------------------
<FN>
* The Consumer Price Index is a popular measure of change in prices.
+ For the period from the commencement of investment operations, September 26,
1988 to December 31, 1996.
** Source: Lipper Analytical Services.
++ Source: CDA/Wiesenberger. Benchmark comparisons begin on August 1, 1988.
</TABLE>
Investment return and principal value will fluctuate, and shares, when redeemed,
may be worth more or less than their original cost. Past performance is no
guarantee of future results.
Class B results, including the contingent deferred sales charge (CDSC), reflect
the applicable CDSC which declines over six years as follows: 4%, 4%, 3%, 3%,
2%, 1%, 0%. Class C shares have no initial sales charge but, along with Class B
shares, have higher annual fees and expenses than Class A shares. As of April 1,
1996, Class C shares redeemed within 12 months of purchase will be subject to a
1% CDSC.
Class B and Class C share performance includes the performance of the Fund's
Class A shares for periods prior to the commencement of offering of Class B
shares on September 7, 1993 and of Class C shares on August 1, 1994. Sales
charges and operating expenses for Class A, Class B, and Class C shares differ.
The Class A share performance, which is included within the Class B and Class C
share performance, including the CDSC, has been adjusted to reflect the CDSC
generally applicable to Class B and Class C shares rather than the initial sales
charge generally applicable to Class A shares. Class B and Class C share
performance has not been adjusted, however, to reflect differences in operating
expenses (e.g., Rule 12b-1 fees), which generally are lower for Class A shares.
Fund results reflect any applicable expense subsidies and waivers, without which
the performance results would have been less favorable. Subsidies and waivers
may be rescinded at any time. See the prospectus for details.
7
<PAGE> 10
PORTFOLIO STRUCTURE AS OF DECEMBER 31, 1996
[PIE CHART]
U.S. Treasuries 48%
Government Agencies 45%
Mortgage Backed 4%
Other 3%
- -------------------------------------------------------------------------------
TAX FORM SUMMARY
IN JANUARY 1997, SHAREHOLDERS WILL BE MAILED A TAX FORM SUMMARY
REPORTING THE FEDERAL TAX STATUS OF ALL DISTRIBUTIONS PAID DURING THE
CALENDAR YEAR 1996.
- -------------------------------------------------------------------------------
8
<PAGE> 11
PORTFOLIO OF INVESTMENTS - December 31, 1996
<TABLE>
Bonds - 97.1%
<CAPTION>
- ------------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted) Value
- ------------------------------------------------------------------------------
<S> <C> <C>
U.S. Federal Agencies - 45.1%
Federal Home Loan Mortgage Corp., 6.5s, 2001 $ 9,123 $ 9,136,114
Federal Home Loan Mortgage Corp., 7s, 2001 23,769 23,932,463
Federal Home Loan Mortgage Corp., 7.625s, 2022 9,503 9,455,918
Federal Home Loan Mortgage Corp., 8.5s,
2024 - 2026 13,186 13,676,500
Federal National Mortgage Assn., 7s, 2010 23 22,548
Federal National Mortgage Assn., 7.1s, 2001 5,450 5,438,065
Federal National Mortgage Assn., 7.5s,
2009 - 2099 42,986 43,577,280
Federal National Mortgage Assn., 8s, 2001 6,844 6,961,184
Federal National Mortgage Assn., 8.5s,
2001 - 2010 15,290 15,910,733
------------
$128,110,805
- ------------------------------------------------------------------------------
U.S. Government Guaranteed - 52.0%
Government National Mortgage Association - 4.1%
GNMA, 7.5s, 2009 $ 25 $ 25,147
GNMA, 8.5s, 2002 - 2010 3,803 3,972,064
GNMA, 9s, 2001 - 2007 7,208 7,554,672
------------
$ 11,551,883
- ------------------------------------------------------------------------------
U.S. Treasury Obligations - 47.9%
U.S. Treasury Notes, 8.75s, 1997 $29,000 $ 29,693,390
U.S. Treasury Notes, 7.75s, 1999 33,500 35,002,140
U.S. Treasury Notes, 9.125s, 1999 30,900 33,019,431
U.S. Treasury Notes, 6.125s, 2001 5,000 4,981,250
U.S. Treasury Notes, 6.25s, 2001 13,000 13,012,220
U.S. Treasury Notes, 6.625s, 2001 20,000 20,318,800
------------
$136,027,231
- ------------------------------------------------------------------------------
Total U.S. Government Guaranteed $147,579,114
- ------------------------------------------------------------------------------
Total Bonds (Identified Cost, $277,907,948) $275,689,919
- ------------------------------------------------------------------------------
Repurchase Agreement - 2.1%
- ------------------------------------------------------------------------------
Investments in repurchase agreements with
Goldman Sachs, in a joint trading account
($5,784,000 par), dated 12/31/96, due
1/01/97, total to be received by the Fund,
$5,786,121, collateralized by various U.S.
Treasury and federal agency obligations
(with $65,939,000 par and valued at
$65,464,808), at Cost $ 5,784 $ 5,784,000
- ------------------------------------------------------------------------------
Total Investments (Identified Cost, $283,691,948) $281,473,919
Other Assets, Less Liabilities - 0.8% 2,360,381
- ------------------------------------------------------------------------------
Net Assets - 100.0% $283,834,300
- ------------------------------------------------------------------------------
</TABLE>
See notes to financial statements
9
<PAGE> 12
FINANCIAL STATEMENTS
<TABLE>
Statement of Assets and Liabilities
<CAPTION>
- --------------------------------------------------------------------------------
December 31, 1996
- --------------------------------------------------------------------------------
<S> <C>
Assets:
Investments, at value (identified cost, $283,691,948) $281,473,919
Cash 231,840
Receivable for Fund shares sold 691,598
Receivable for investments sold 9,205,505
Interest receivable 2,630,012
Other assets 3,330
------------
Total assets $294,236,204
------------
Liabilities:
Payable for Fund shares reacquired $ 576,872
Payable for investments purchased 9,131,172
Distributions payable 504,766
Payable to affiliates -
Distribution fee 24,930
Management fee 9,286
Shareholder servicing agent fee 3,682
Accrued expenses and other liabilities 151,196
------------
Total liabilities $ 10,401,904
------------
Net assets $283,834,300
------------
Net assets consist of:
Paid-in capital $307,166,208
Unrealized depreciation on investments (2,218,029)
Accumulated net realized loss on investments (21,023,868)
Accumulated distributions in excess of net investment income (90,011)
------------
Total $283,834,300
============
Shares of beneficial interest outstanding 33,770,105
============
Class A shares:
Net asset value and redemption price per share
(net assets of $226,976,084 / 26,989,613 shares of
beneficial interest outstanding) $ 8.41
============
Offering price per share (100/97.5 of net asset value per
share) $ 8.63
============
Class B shares:
Net asset value and offering price per share
(net assets of $34,643,156 / 4,127,694 shares of
beneficial interest outstanding) $ 8.39
============
Class C shares:
Net asset value and offering price per share
(net assets of $22,215,060 / 2,652,798 shares of
beneficial interest outstanding) $ 8.37
============
On sales of $100,000 or more, the offering price of Class A
shares is reduced. A contingent deferred sales charge may be
imposed on redemptions of Class A, Class B, and Class C
shares.
</TABLE>
See notes to financial statements
10
<PAGE> 13
FINANCIAL STATEMENTS - continued
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
- --------------------------------------------------------------------------------
Year Ended December 31, 1996
- --------------------------------------------------------------------------------
<S> <C>
Net investment income:
Interest income $ 21,845,689
------------
Expenses -
Management fee $ 1,185,293
Trustees' compensation 41,656
Shareholder servicing agent fee (Class A) 363,114
Shareholder servicing agent fee (Class B) 74,543
Shareholder servicing agent fee (Class C) 30,547
Distribution and service fee (Class A) 363,114
Distribution and service fee (Class B) 325,993
Distribution and service fee (Class C) 203,644
Custodian fee 126,148
Postage 38,351
Auditing fees 34,250
Printing 20,109
Legal fees 5,533
Miscellaneous 150,226
------------
Total expenses $ 2,962,521
Fees paid indirectly (43,583)
------------
Net expenses $ 2,918,938
------------
Net investment income $ 18,926,751
------------
Realized and unrealized gain (loss) on investments:
Realized loss (identified cost basis) $ (4,741,975)
Change in unrealized depreciation (6,064,184)
------------
Net realized and unrealized loss on investments $(10,806,159)
------------
Increase in net assets from operations $ 8,120,592
============
</TABLE>
See notes to financial statements
11
<PAGE> 14
FINANCIAL STATEMENTS - continued
<TABLE>
Statement of Changes in Net Assets
<CAPTION>
- ----------------------------------------------------------------------------------
Year Ended December 31, 1996 1995
- ----------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 18,926,751 $ 19,387,987
Net realized loss on investments (4,741,975) (3,334,299)
Net unrealized gain (loss) on investments (6,064,184) 11,705,046
------------- ------------
Increase in net assets from operations $ 8,120,592 $ 27,758,734
------------- ------------
Distributions declared to shareholders -
From net investment income (Class A) $ (15,042,192) $(16,740,225)
From net investment income (Class B) (1,810,243) (1,710,513)
From net investment income (Class C) (1,094,415) (459,749)
------------- -------------
Total distributions declared to shareholders $ (17,946,850) $(18,910,487)
------------- ------------
Fund share (principal) transactions -
Net proceeds from sale of shares $ 92,855,987 $ 98,891,174
Net asset value of shares issued to shareholders
in reinvestment of distributions 11,747,911 12,202,052
Cost of shares reacquired (111,021,792) (104,337,806)
------------- ------------
Increase (decrease) in net assets from Fund
share transactions $ (6,417,894) $ 6,755,420
------------- ------------
Total increase (decrease) in net assets $ (16,244,152) $ 15,603,667
Net assets:
At beginning of period 300,078,452 284,474,785
------------- ------------
At end of period (including accumulated
distributions in excess of net investment income
of $90,011 and $213,793, respectively) $ 283,834,300 $300,078,452
============= ============
</TABLE>
See notes to financial statements
12
<PAGE> 15
FINANCIAL STATEMENTS - continued
<TABLE>
Financial Highlights
- ----------------------------------------------------------------------------------------
<CAPTION>
Year Ended December 31, 1996 1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------
Class A
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset
value - beginning of
period $ 8.68 $ 8.42 $ 8.99 $ 8.98 $ 9.06 $ 9.09
-------- -------- -------- -------- -------- --------
Income from investment
operations# -
Net investment income $ 0.56 $ 0.59 $ 0.54 $ 0.52 $ 0.49 $ 0.52
Net realized and
unrealized gain
(loss) on
investments (0.30) 0.25 (0.61) 0.10 0.07 0.21
-------- -------- -------- -------- -------- --------
Total from
investment
operations $ 0.26 $ 0.84 $ (0.07) $ 0.62 $ 0.56 $ 0.73
-------- -------- -------- -------- -------- --------
Less distributions
declared to
shareholders -
From net investment
income $ (0.53) $ (0.58) $ (0.50) $ (0.51) $ (0.45) $ (0.49)
From net realized gain
on investments -- -- -- (0.10) (0.14) --
From paid-in capital -- -- -- -- (0.05) (0.27)
-------- -------- -------- -------- -------- --------
Total
distributions
declared to
shareholders $ (0.53) $ (0.58) $ (0.50) $ (0.61) $ (0.64) $ (0.76)
-------- -------- -------- -------- -------- --------
Net asset value - end of
period $ 8.41 $ 8.68 $ 8.42 $ 8.99 $ 8.98 $ 9.06
-------- -------- -------- -------- -------- --------
Total return++ 2.98% 10.36% (0.76)% 7.00% 6.51% 8.44%
Ratios (to average net
assets)/Supplemental
data:
Expenses## 0.84% 0.88% 0.89% 1.14% 1.38% 1.33%
Net investment income 6.55% 6.91% 6.28% 5.62% 5.50% 5.89%
Portfolio turnover 301% 447% 328% 247% 391% 1,256%
Net assets at end of
period (000 omitted) $226,976 $248,955 $257,154 $345,597 $296,788 $365,644
<FN>
++ 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 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.
</TABLE>
See notes to financial statements
13
<PAGE> 16
FINANCIAL STATEMENTS - continued
<TABLE>
Financial Highlights - continued
- ------------------------------------------------------------------------------------
<CAPTION>
Year Ended
Year Ended February 28, Year Ended
December 31, -------------------- December 31,
1990sec. 1990 1989* 1996
- ------------------------------------------------------------------------------------
Class A Class B
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share data (for a share
outstanding throughout each
period):
Net asset value - beginning of
period $ 9.33 $ 9.51 $ 9.63 $ 8.67
-------- -------- -------- --------
Income from investment
operations# -
Net investment income $ 0.53 $ 0.69 $ 0.23 $ 0.47
Net realized and unrealized
gain (loss) on investments -- 0.10 (0.11) (0.30)
------- -------- -------- --------
Total from investment
operations $ 0.53 $ 0.79 $ 0.12 $ 0.17
-------- -------- -------- --------
Less distributions declared to
shareholders -
From net investment income $ (0.48) $ (0.67) $ (0.17) $ (0.45)
From net realized gain on
investments -- (0.14) (0.02) --
From paid-in capital (0.29) (0.16) (0.05) --
-------- -------- -------- --------
Total distributions
declared to
shareholders $ (0.77) $ (0.97) $ (0.24) $ (0.45)
-------- -------- -------- --------
Net asset value - end of
period $ 9.09 $ 9.33 $ 9.51 $ 8.39
-------- -------- -------- --------
Total return++ 7.39%+ 8.43% 3.02%+ 2.08%
Ratios (to average net
assets)/Supplemental data:
Expenses## 1.40%+ 1.43% 1.41%+ 1.72%
Net investment income 7.01%+ 7.16% 6.97%+ 5.67%
Portfolio turnover 845% 615% 170% 301%
Net assets at end of period
(000 omitted) $427,849 $350,011 $117,584 $ 34,643
<FN>
sec. For the 10 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 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.
</TABLE>
See notes to financial statements
14
<PAGE> 17
FINANCIAL STATEMENTS - continued
Financial Highlights - continued
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31, 1995 1994 1993** 1996 1995 1994***
<S> <C> <C> <C> <C> <C> <C>
---------------------------------------------------------------------------------------
<CAPTION>
Class B Class C
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning
of period $ 8.41 $ 8.98 $ 9.17 $ 8.65 $ 8.39 $ 8.62
------- ------- ------- ------- ------- ------
Income from investment
operations# -
Net investment income $ 0.51 $ 0.47 $ 0.12 $ 0.48 $ 0.51 $ 0.17
Net realized and
unrealized gain (loss)
on investments 0.25 (0.62) (0.17) (0.30) 0.25 (0.20)
------- ------- ------- ------- ------- ------
Total from investment
operations $ 0.76 $ (0.15) $ (0.05) $ 0.18 $ 0.76 $ (0.03)
------- ------- ------- ------- ------- ------
Less distributions declared
to shareholders -
From net investment
income $ (0.50) $ (0.42) $ (0.11) $ (0.46) $ (0.50) $ (0.20)
From net realized gain on
investments -- -- (0.03) -- -- --
------- ------- ------- ------- ------- ------
Total distributions
declared to
shareholders $ (0.50) $ (0.42) $ (0.14) $ (0.46) $ (0.50) $ (0.20)
------- ------- ------- ------- ------- ------
Net asset value - end of
period $ 8.67 $ 8.41 $ 8.98 $ 8.37 $ 8.65 $ 8.39
------- ------- ------- ------- ------- ------
Total return 9.31% (1.65)% (1.54)%+ 2.12% 9.33% (0.33)%++
Ratios (to average net
assets)/Supplemental
data:
Expenses## 1.74% 1.79% 1.83%+ 1.69% 1.73% 1.62%+
Net investment income 6.02% 5.42% 4.58%+ 5.68% 5.87% 6.10%
Portfolio turnover 447% 328% 247% 301% 447% 328%
Net assets at end of period
(000 omitted) $33,759 $ 23,918 $ 11,268 $ 22,215 $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.
# Per share data for 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.
</TABLE>
See notes to financial statements
15
<PAGE> 18
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
General - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
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. The
Fund, along with other affiliated entities of Massachusetts Financial Services
Company (MFS), may utilize a joint trading account for the purpose of entering
into one or more repurchase agreements.
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.
Some government securities may be purchased on a "when-issued" or
"forward-delivery" basis, which means that the
16
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS - continued
securities will be delivered to the Fund at a future date usually beyond
customary settlement time.
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, 1996, $856,119 was reclassified from
accumulated net realized loss on investments to accumulated distributions in
excess of net investment income 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, 1996, the Fund, for federal income tax purposes, had a capital
loss carryforward of $20,968,145, 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), December 31, 2003 ($2,302,419)
and December 31, 2004 ($4,284,511).
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,
17
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS - continued
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 $11,181 for the year ended
December 31, 1996.
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$27,345 for the year ended December 31, 1996, 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 (reduced to a maximum of 0.15% per annum for an indefinite
period) 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 $13,230 for the year ended
December 31, 1996. Payment of the 0.10% per annum Class A distribution fee will
commence on such date as the Trustees of the Trust may determine. Fees incurred
under the distribution plan during the year ended December 31, 1996 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
18
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS - continued
annum, of the Fund's average daily net assets attributable to Class B and Class
C shares. The service fee is currently being reduced to 0.15% 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 $1,814 and $127 for Class
B and Class C shares, respectively, for the year ended December 31, 1996. Fees
incurred under the distribution plans during the year ended December 31, 1996
were 0.96% and 1.00% of average daily net assets attributable to Class B and
Class C shares on an annualized basis, respectively.
A contingent deferred sales charge is imposed on shareholder redemption 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. A contingent
deferred sales charge is imposed on shareholder redemptions of Class C shares in
the event of a shareholder redemption within 12 months of purchases made on or
after April 1, 1996. MFD receives all contingent deferred sales charges.
Contingent deferred sales charges imposed during the year ended December 31,
1996 were $6,765, $131,522 and $2,718 for Class A, Class B and Class C 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:
<TABLE>
<CAPTION>
PURCHASES SALES
- ----------------------------------------------------------------------------------
<S> <C> <C>
U.S. government securities $835,900,576 $849,500,403
============ ============
</TABLE>
The cost and unrealized depreciation in value of the investments owned by the
Fund, as computed on a federal income tax basis, are as follows:
<TABLE>
<S> <C>
Aggregate cost $283,758,452
============
Gross unrealized depreciation $ (2,457,322)
Gross unrealized appreciation 172,789
------------
Net unrealized depreciation $ (2,284,533)
============
</TABLE>
19
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS - continued
(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
<TABLE>
<CAPTION>
Year Ended December 31, Year Ended December 31,
1996 1995
--------------------------- ---------------------------
Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 5,719,260 $ 48,727,419 6,429,099 $ 55,071,853
Shares issued to
shareholders in
reinvestment of
distributions 1,141,768 9,677,959 1,254,515 10,748,996
Shares reacquired (8,536,403) (72,327,666) (9,556,148) (81,707,574)
---------- ------------ ---------- ------------
Net decrease (1,675,375) $(13,922,288) (1,872,534) $(15,886,725)
========== ============ ========== ============
</TABLE>
Class B Shares
<TABLE>
<CAPTION>
Year Ended December 31, Year Ended December 31,
1996 1995
--------------------------- ---------------------------
Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 2,611,809 $ 22,099,165 2,787,579 $ 23,805,586
Shares issued to
shareholders in
reinvestment of
distributions 135,194 1,143,275 123,565 1,057,296
Shares reacquired (2,513,098) (21,287,379) (1,862,226) (15,909,193)
---------- ------------ ---------- ------------
Net increase 233,905 $ 1,955,061 1,048,918 $ 8,953,689
========== ============ ========== ============
</TABLE>
Class C Shares
<TABLE>
<CAPTION>
Year Ended December 31, Year Ended December 31,
1996 1995
--------------------------- ---------------------------
Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 2,592,106 $ 22,029,403 2,341,030 $ 20,013,735
Shares issued to
shareholders in
reinvestment of
distributions 109,719 926,677 46,197 395,760
Shares reacquired (2,056,120) (17,406,747) (785,621) (6,721,039)
---------- ------------ --------- ------------
Net increase 645,705 $ 5,549,333 1,601,606 $ 13,688,456
========== ============ ========== ============
<FN>
(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, 1996 was $3,108.
</TABLE>
20
<PAGE> 23
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, 1996, and the related statement of operations
for the year then ended, the statement of changes in net assets for each of the
two years in the period then ended, and the financial highlights for each of the
three 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 audit. 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, 1996, by correspondence with the custodian 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, 1996, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and financial highlights for each of the
three years in the period then ended, in conformity with generally accepted
accounting principles.
Boston, Massachusetts /S/Ernst & Young LLP
February 3, 1997
---------------------------------------------------------------------
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.
21
<PAGE> 24
Introducing a quick and easy way to learn some financial basics:
THE ABCs OF INVESTING
part of MFS(R) Heritage Planning(SM)
[Picture of children with blocks]
This series of brief messages provides an overview of investment topics,
including:
* Dollar-cost Averaging: a simple method of investing that could work for
anyone
* Interest Rate Changes: What every fixed-income investor should know
* Lump-sum Rollovers: how to handle a windfall
* Professional Financial Advisers: why even smart investors may need one
* Straw into Gold: tips for weaving small lifestyle changes into dollars to
invest
* Weathering Market Downturns: how to maintain perspective
* Basic Steps Smart Investors Take Automatically
The series will include messages on other topics as they become available.
You can read through each topic quickly -- in five minutes at most. Of course,
these materials are not designed to turn you into an expert. Your financial
adviser can provide more information on any of the ABC subjects. A
conversation with your adviser might also provide an opportune occasion to
review your portfolio and to assess your present and future financial needs.
To request your free copy of THE ABCS OF INVESTING series, call MFS at
1-800-225-2606 any business day from 8 a.m. to 8 p.m. Eastern time.
As part of MFS Heritage Planning, your adviser has access to a wide range of
MFS materials he or she would be happy to share with you on topics related to
the intergenerational concerns of people today. These include financing
college tuition and a secure retirement, eldercare, tax-smart gifting
strategies, estate and health care planning, and other issues.
22
<PAGE> 25
It's Easy to Contact Us
[LOGO]
MFS AUTOMATED INFORMATION
ACCOUNT INFORMATION:
Call 1-800-MFS-TALK (1-800-637-8255)
anytime.
INVESTMENT OUTLOOK:
Call 1-800-637-4458 anytime for the MFS outlook
on the bond and stock markets.
[LOGO]
MFS PERSONAL SERVICE
ACCOUNT SERVICE/LITERATURE:
Call 1-800-225-2606 any business day
from 8 a.m. to 8 p.m. Eastern time.
PRODUCT INFORMATION:
Call 1-800-637-2929 any business day
from 9 a.m. to 5 p.m. Eastern time.
IRA SERVICE:
Call 1-800-637-1255 any business day
from 9 a.m. to 5 p.m. Eastern time.
SERVICE FOR THE HEARING-IMPAIRED:
Call 1-800-637-6576 any business day
from 9 a.m. to 5 p.m. Eastern time (TDD required).
[LOGO]
MFS ADDRESSES
MFS Service Center, Inc.
P.O. Box 2281
Boston, MA 02107-9906
WORLD WIDE WEB:
www.mfs.com
23
<PAGE> 26
THE MFS FAMILY OF FUNDS(R)
AMERICA'S OLDEST MUTUAL FUND GROUP
The members of the MFS Family of Funds are grouped below according to the types
of securities in their portfolios. For free prospectuses containing more
complete information, including the exchange privilege and all charges and
expenses, please contact your financial adviser or call MFS at 1-800-225-2606
any business day from 8 a.m. to 8 p.m. Eastern time (or leave a message
anytime). This material should be read carefully before investing or sending
money.
STOCK
- -------------------------------------------------------------------
Massachusetts Investors Trust
Massachusetts Investors Growth Stock Fund
MFS(R) Capital Growth Fund
MFS(R) Emerging Growth Fund
MFS(R) Gold & Natural Resources Fund
MFS(R) Growth Opportunities Fund
MFS(R) Managed Sectors Fund
MFS(R) OTC Fund
MFS(R) Research Fund
MFS(R) Research Growth and Income Fund
MFS(R) Value Fund
STOCK AND BOND
- -------------------------------------------------------------------
MFS(R) Total Return Fund
MFS(R) Utilities Fund
BOND
- -------------------------------------------------------------------
MFS(R) Bond Fund
MFS(R) Government Mortgage Fund
MFS(R) Government Securities Fund
MFS(R) High Income Fund
MFS(R) Intermediate Income Fund
MFS(R) Strategic Income Fund
LIMITED MATURITY BOND
- -------------------------------------------------------------------
MFS(R) Government Limited Maturity Fund
MFS(R) Limited Maturity Fund
MFS(R) Municipal Limited Maturity Fund
WORLD
- -------------------------------------------------------------------
MFS(R)/Foreign & Colonial Emerging Markets
Equity Fund
MFS(R)/Foreign & Colonial International
Growth Fund
MFS(R)/Foreign & Colonial International
Growth and Income Fund
MFS(R) World Asset Allocation Fundsm
MFS(R) World Equity Fund
MFS(R) World Governments Fund
MFS(R) World Growth Fund
MFS(R) World Total Return Fund
NATIONAL TAX-FREE BOND
- -------------------------------------------------------------------
MFS(R) Municipal Bond Fund
MFS(R) Municipal High Income Fund
MFS(R) Municipal Income Fund
STATE TAX-FREE BOND
- -------------------------------------------------------------------
Alabama, Arkansas, California, Florida, Georgia, Maryland,
Massachusetts, Mississippi, New York, North Carolina, Pennsylvania,
South Carolina, Tennessee, Virginia,
West Virginia
MONEY MARKET
- -------------------------------------------------------------------
MFS(R) Cash Reserve Fund
MFS(R) Government Money Market Fund
MFS(R) Money Market Fund
24
<PAGE> 27
MFS[REGISTRATION MARK] GOVERNMENT LIMITED MATURITY FUND
TRUSTEES
A. Keith Brodkin* - Chairman and President
RICHARD B. BAILEY* - Private Investor; Former Chairman and Director (until
1991), Massachusetts Financial Services Company; Director, Cambridge Bancorp;
Director, Cambridge Trust Company
MARSHALL N. COHAN - Private Investor
LAWRENCE H. COHN, M.D. - Chief of Cardiac Surgery, Brigham and Women's Hospital;
Professor of Surgery, Harvard Medical School
THE HON. SIR J. DAVID GIBBONS, KBE - Chief Executive Officer, Edmund Gibbons
Ltd.; Chairman, Bank of N.T. Butterfield & Son Ltd.
ABBY M. O'NEILL - Private Investor; Director, Rockefeller Financial Services,
Inc. (investment advisers)
WALTER E. ROBB, III - President and Treasurer, Benchmark Advisors, Inc.
(corporate financial consultants); President, Benchmark Consulting Group, Inc.
(office services); Trustee, Landmark Funds (mutual funds)
ARNOLD D. SCOTT* - Senior Executive Vice President, Director and Secretary,
Massachusetts Financial Services Company
JEFFREY L. SHAMES* - President and Director, Massachusetts Financial Services
Company
J. DALE SHERRATT - President, Insight Resources, Inc. (acquisition planning
specialists)
WARD SMITH - Former Chairman (until 1994), NACCO Industries; Director,
Sundstrand Corporation
INVESTMENT ADVISER
Massachusetts Financial Services Company
500 Boylston Street
Boston, MA 02116-3741
DISTRIBUTOR
MFS Fund Distributors, Inc.
500 Boylston Street
Boston, MA 02116-3741
PORTFOLIO MANAGER
STEVEN E. NOTHERN*
TREASURER
W. THOMAS LONDON*
ASSISTANT TREASURER
JAMES O. YOST*
SECRETARY
STEPHEN E. CAVAN*
ASSISTANT SECRETARY
JAMES R. BORDEWICK, JR.*
* Affiliated with the Investment Adviser
CUSTODIAN
State Street Bank and Trust Company
AUDITORS
Ernst & Young LLP
INVESTOR INFORMATION
For MFS stock and bond market outlooks, call toll free: 1-800-637-4458 anytime
from a touch-tone telephone.
For information on MFS mutual funds, call your financial adviser or, for an
information kit, call toll free: 1-800-637-2929 any business day from 9 a.m. to
5 p.m. Eastern time (or leave a message anytime).
INVESTOR SERVICE
MFS Service Center, Inc.
P.O. Box 2281
Boston, MA 02107-9906
For general information, call toll free: 1-800-225-2606 any business day from 8
a.m. to 8 p.m. Eastern time.
For service to speech- or hearing-impaired, call toll free: 1-800-637-6576 any
business day from 9 a.m. to 5 p.m. Eastern time. (To use this service, your
phone must be equipped with a Telecommunications Device for the Deaf.)
For share prices, account balances and exchanges, call toll free: 1-800-MFS-TALK
(1-800-637-8255) anytime from a touch-tone telephone.
WORLD WIDE WEB
www.mfs.com
[DALBAR #1 LOGO] For the third year in a row, MFS earned a #1 ranking in the
DALBAR, Inc. Broker/Dealer Survey, Main Office Operations Service Quality
Category. The firm achieved a 3.48 overall score on a scale of 1 to 4 in the
1996 survey. A total of 110 firms responded, offering input on the quality of
service they received from 29 mutual fund companies nationwide. The survey
contained questions about service quality in 15 categories, including "knowledge
of phone service contacts," "accuracy of transaction processing," and "overall
ease of doing business with the firm."
25
<PAGE> 28
[Set horizontally on page]
MFS(R) GOVERNMENT LIMITED MATURITY FUND [DALBAR #1 Logo]
BULK RATE
500 Boylston Street U.S. POSTAGE
Boston, MA 02116 PAID
PERMIT #55638
[MFS(SM) Logo] BOSTON, MA
INVESTMENT MANGEMENT
WE INVENTED THE MUTUAL FUND(TM)
(C) 1997 MFS Fund Distributors, Inc., 500 Boylston Street, Boston, MA 02116
MGL-2 2/97/20M 28/228/328
<PAGE> 29
MFS(R) GOVERNMENT LIMITED MATURITY [DALBAR LOGO]
FUND ---------------------
500 Boylston Street BULK RATE
Boston, MA 02116 U.S. POSTAGE
LOGO PAID
PERMIT #55638
BOSTON, MA
---------------------
(C)1997 MFS Fund Distributors, Inc., MGL-2 2/97/20M 28/228/328
500 Boylston Street, Boston, MA 02116
<PAGE>
PART C
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(A) FINANCIAL STATEMENTS INCLUDED IN PART A:
For the six years ended December 31, 1996, 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, 1996:
Portfolio of Investments*
Statement of Assets and Liabilities*
For the year ended December 31, 1996:
Statement of Operations*
For the two years ended December 31, 1996:
Statement of Changes in Net Assets*
- -----------------------------
* Incorporated herein by reference to the Fund's Annual Report to
Shareholders dated December 31, 1996, filed via EDGAR with the SEC on
February 24, 1997.
(B) EXHIBITS
1 (a) Amended and Restated Declaration of Trust, dated
February 8, 1995. (1)
(b) Amendment to Declaration of Trust, dated June 12, 1996.
(8)
(c) Amendment to Declaration of Trust dated December 19,
1996; filed herewith.
2 Amended and Restated By-Laws, dated December 14, 1994.
(1)
3 Not Applicable.
4 Form of Share Certificate for Classes of Shares. (7)
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 to amend fee schedule dated January 1, 1997;
filed herewith.
(c) Exchange Privilege Agreement, dated September 1, 1993 as
amended and restated through and including January 1,
1997. (10)
(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) Master Administrative Services Agreement dated March 1,
1997. (9)
(f) Dividend Disbursing Agency Agreement dated August 10,
1988. (6)
10 Consent and Opinion of Counsel for the fiscal year ended
December 31, 1996, filed with the Rule 24f-2 Notice on
February 26, 1997.
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 Master Distribution Plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940, effective January 1, 1997
and amended thereto on April 10, 1997; filed herewith.
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 Plan pursuant to Rule 18f-3(d) under the Investment
Company Act of 1940. (7)
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 I (File Nos. 33-7638 and
811-4777) Post-Effective Amendment No. 25 filed with the SEC via EDGAR on
August 27, 1996.
(8) Incorporated by reference to the Registrant's Post-Effective Amendment No.
17 filed with the SEC via EDGAR on August 29, 1996.
(9) Incorporated by reference to MFS/Sun Life Series Trust (File Nos. 2-83616
and 811-3732) Post-Effective Amendment No. 19 filed with the SEC via EDGAR
on March 18, 1997.
(10) Incorporated by reference to MFS Series Trust VIII (File Nos. 33-37972 and
811-5262) Post-Effective Amendment No. 13 filed with the SEC via EDGAR on
February 27, 1997.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Not applicable.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
(1) (2)
TITLE OF CLASS NUMBER OF RECORD HOLDERS
Class A Shares of Beneficial Interest 7,216
(without par value) (as of March 31, 1997)
Class B Shares of Beneficial Interest 1,621
(without par value) (as of March 31, 1997)
Class C Shares of Beneficial Interest 673
(without par value) (as of March 31, 1997)
Class I Shares of Beneficial Interest 2
(without par value) (as of March 31, 1997)
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 thirteen 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, MFS Special
Opportunities Fund, MFS Convertible Securities Fund, MFS Blue Chip Fund, MFS New
Discovery Fund, MFS Science and Technology Fund and MFS Research International
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 16 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
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 Virginia
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
MFS 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"). 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 MFS Closed-End Funds is 500 Boylston
Street, Boston, Massachusetts 02116.
Lastly, MFS serves as investment adviser to MFS/Sun Life Series Trust
("MFS/SL"), Money Market Variable Account, High Yield Variable Account, Capital
Appreciation Variable Account, Government Securities Variable Account, World
Governments Variable Account, Total Return Variable Account and Managed Sectors
Variable Account. The principal business address of each of the aforementioned
funds is One Sun Life Executive Park, Wellesley Hills, Massachusetts 02181.
MFS International Ltd. ("MIL"), a limited liability company organized
under the laws of Bermuda and a subsidiary of MFS, whose principal business
address is Cedar House, 41 Cedar Avenue, Hamilton HM12 Bermuda, serves as
investment adviser to and distributor for MFS American Fund (which has six
portfolios: MFS American Funds-U.S. Equity Fund, MFS American Funds-U.S.
Emerging Growth Fund, MFS American Funds-U.S. High Yield Bond Fund, MFS American
Funds - U.S. Dollar Reserve Fund, MFS American Funds-Charter Income Fund and MFS
American Funds-U.S. Research 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, MFS Meridian Research Fund and MFS
Emerging Markets Debt 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 Institutional Advisors, Inc. ("MFSI"), 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, Donald A. Stewart 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, Robert T. Burns is a
Senior Vice President, Associate General Counsel and an Assistant Secretary of
MFS, and Thomas B. Hastings is a Vice President and Treasurer of MFS.
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., Senior 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, 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 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, Assistant Vice President of MFS, and Daniel E. McManus, Vice
President 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,
Vice President of MFS, is an Assistant Vice President, Stephen E. Cavan is the
Secretary, W. Thomas London is the Treasurer, James O. Yost is the Assistant
Treasurer and James R. Bordewick, Jr., is the Assistant Secretary.
MFS VARIABLE INSURANCE TRUST
MFS UNION STANDARD TRUST
MFS INSTITUTIONAL TRUST
A. Keith Brodkin is the Chairman and President, Stephen E. Cavan is
the Secretary, W. Thomas London is the Treasurer, James O. Yost is the Assistant
Treasurer and James R. Bordewick, Jr., is the Assistant Secretary.
MFS MUNICIPAL INCOME TRUST
A. Keith Brodkin is the Chairman and President, Cynthia M. Brown and
Robert J. Manning are Vice Presidents, Stephen E. Cavan is the Secretary, W.
Thomas London is the Treasurer, James O. Yost, is the Assistant Treasurer and
James R. Bordewick, Jr., is the Assistant Secretary.
MFS MULTIMARKET INCOME TRUST
MFS CHARTER INCOME TRUST
A. Keith Brodkin is the Chairman and President, 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 and
Robert J. Manning are Vice Presidents, Stephen E. Cavan is the Secretary, W.
Thomas London is the Treasurer, James O. Yost, is the Assistant Treasurer and
James R. Bordewick, Jr., is the Assistant Secretary.
MFS/SUN LIFE SERIES TRUST
John D. McNeil, Chairman and Director of Sun Life Assurance Company of
Canada, is the Chairman, 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.
MONEY MARKET VARIABLE ACCOUNT
HIGH YIELD VARIABLE ACCOUNT
CAPITAL APPRECIATION VARIABLE ACCOUNT
GOVERNMENT SECURITIES VARIABLE ACCOUNT
TOTAL RETURN VARIABLE ACCOUNT
WORLD GOVERNMENTS VARIABLE ACCOUNT
MANAGED SECTORS VARIABLE ACCOUNT
John D. McNeil is the Chairman, Stephen E. Cavan is the Secretary, and
James R. Bordewick, Jr., is the Assistant Secretary.
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,
Senior Vice President and Chief Financial Officer of MFS, 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, Richard W. S. Baker and William F. Waters are
Directors, Stephen E. Cavan is the Secretary, W. Thomas London is the Treasurer,
James O. Yost is the Assistant Treasurer and James R. Bordewick, Jr., is the
Assistant Secretary, and Ziad Malek is a Senior Vice President.
MFS MERIDIAN FUNDS
A. Keith Brodkin is the Chairman, President and a Director, Richard B.
Bailey, John A. Brindle, Richard W. S. Baker, Arnold D. Scott, Jeffrey L. Shames
and William F. Waters 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.
MFSI
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. and Bruce C. Avery are Directors, Arnold D.
Scott is the Chairman and a Director, 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 and
Martin E. Beaulieu are Senior Vice Presidents.
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
Donald A. Stewart President and a Director, Sun Life
Assurance Company of Canada, Sun Life
Centre, 150 King Street West, Toronto,
Ontario, Canada (Mr. Stewart is also an
officer and/or Director of various
subsidiaries and affiliates of Sun Life)
John D. McNeil Chairman, Sun Life Assurance Company of
Canada, Sun Life Centre, 150 King Street
West, Toronto, Ontario, Canada (Mr.
McNeil is also an officer and/or
Director of various subsidiaries and
affiliates of Sun Life)
Joseph W. Dello Russo Director of Mutual Fund Operations, The
Boston Company, Exchange Place, Boston,
Massachusetts (until August, 1994)
ITEM 29. DISTRIBUTORS
(a) Reference is hereby made to Item 28 above.
(b) Reference is hereby made to Item 28 above; the principal business
address of each of these persons is 500 Boylston Street, Boston, Massachusetts
02116.
(c) Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
The accounts and records of the Registrant are located, in whole or in
part, at the office of the Registrant and the following locations:
NAME ADDRESS
Massachusetts Financial 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 29th day of April, 1997.
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 29, 1997.
SIGNATURE TITLE
--------- -----
A. KEITH BRODKIN* Chairman, President (Principal
- ------------------------------ Executive Officer) and Trustee
A. Keith Brodkin
W. THOMAS LONDON* Treasurer (Principal Financial Officer
- ------------------------------ and Principal Accounting Officer)
W. Thomas London
RICHARD B. BAILEY* Trustee
- ------------------------------
Richard B. Bailey
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 via EDGAR on April
28, 1995.
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT PAGE NO.
<C> <S> <C>
1 (c) Amendment to Declaration of Trust dated December 19, 1996.
9 (b) Amendment to Exhibit B of the Shareholder Servicing Agent Agreement
to amend fee schedule dated January 1, 1997.
11 Consent of Ernst & Young LLP.
15 Master Distribution Plan pursuant to Rule 12b-1 under the Investment
Company Act of 1940, effective January 1, 1997 and amended thereto
on April 10, 1997.
17 Financial Data Schedules.
</TABLE>
<PAGE>
EXHIBIT NO. 99.1(c)
MFS GOVERNMENT LIMITED MATURITY FUND
CERTIFICATION OF AMENDMENT
TO THE DECLARATION OF TRUST
REDESIGNATION
OF CLASS P SHARES AS CLASS I SHARES
The undersigned, being a majority of the Trustees of MFS Government
Limited Maturity Fund (the "Trust"), a business trust organized under the laws
of The Commonwealth of Massachusetts pursuant to an Amended and Restated
Declaration of Trust dated February 8, 1995 as amended (the "Declaration"),
acting pursuant to Section 6.10 of the Declaration, do hereby redesignate the
shares previously designated as Class P shares as Class I shares.
IN WITNESS WHEREOF, a majority of the Trustees of the Trust have executed
this amendment, in one or more counterparts, all constituting a single
instrument, as an instrument under seal in The Commonwealth of Massachusetts, as
of this 11th day of December, 1996.
A. KEITH BRODKIN WALTER E. ROBB, III
- ------------------------------ ------------------------------
A. Keith Brodkin Walter E. Robb, III
76 Farm Road 35 Farm Road
Sherborn, MA 01770 Sherborn, MA 01770
RICHARD B. BAILEY ARNOLD D. SCOTT
- ------------------------------ ------------------------------
Richard B. Bailey Arnold D. Scott
63 Atlantic Avenue 20 Rowes Wharf
Boston, MA 02110 Boston, MA 02110
MARSHALL N. COHAN JEFFREY L. SHAMES
- ------------------------------ ------------------------------
Marshall N. Cohan Jeffrey L. Shames
2524 Bedford Mews Drive 60 Brookside Road
Wellington, FL 33414 Needham, MA 02192
LAWRENCE H. COHN J. DALE SHERRATT
- ------------------------------ ------------------------------
Lawrence H. Cohn J. Dale Sherratt
45 Singletree Road 86 Farm Road
Chestnut Hill, MA 02167 Sherborn, MA 01770
SIR J. DAVID GIBBONS WARD SMITH
- ------------------------------ ------------------------------
Sir J. David Gibbons Ward Smith
"Leeward" 36080 Shaker Blvd
5 Leeside Drive Hunting Valley, OH 44022
"Point Shares"
Pembroke, Bermuda HM 05
ABBY M. O'NEILL
- ------------------------------
Abby M. O'Neill
200 Sunset Road
Oyster Bay, NY 11771
<PAGE>
EXHIBIT NO. 99.9(b)
MFS GOVERNMENT LIMITED MATURITY FUND
500 Boylston Street o Boston o Massachusetts o 02116
(617) o 954-5000
January 1, 1997
MFS Service Center, Inc.
500 Boylston Street
Boston, MA 02116
Dear Sir/Madam:
This will confirm our understanding that Exhibit B to the Shareholder Servicing
Agent Agreement between us, dated August 1, 1985, as amended, is hereby amended,
effective immediately, to read in its entirety as set forth on Attachment 1
hereto.
Please indicate your acceptance of the foregoing by signing below.
Sincerely,
MFS GOVERNMENT LIMITED MATURITY FUND
By: W. THOMAS LONDON
--------------------------
W. Thomas London
Treasurer
Accepted and Agreed:
MFS SERVICE CENTER, INC.
By: JOSEPH W. DELLO RUSSO
--------------------------
Joseph W. Dello Russo
Treasurer
<PAGE>
ATTACHMENT 1
January 1, 1997
EXHIBIT B TO THE SHAREHOLDER
SERVICING AGENT AGREEMENT BETWEEN
MFS SERVICE CENTER, INC. ("MFSC")
AND MFS GOVERNMENT LIMITED MATURITY FUND (the "Fund")
The fees to be paid by the Fund on behalf of its series with respect to all
shares of each series of the Fund to MFSC, for MFSC's services as shareholder
servicing agent, shall be 0.13% of the average daily net assets of the Fund.
<PAGE>
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. 18 to Registration No. 2-96738
on Form N-1A of our report dated February 3, 1997, on the financial statements
and financial highlights of MFS Government Limited Maturity Fund, included in
the 1996 Annual Report to Shareholders.
ERNST & YOUNG LLP
Ernst & Young LLP
Boston, Massachusetts
April 25, 1997
<PAGE>
EXHIBIT NO. 99.15
MFS FUNDS
MASTER DISTRIBUTION PLAN PURSUANT TO RULE 12B-1 UNDER THE
INVESTMENT COMPANY ACT OF 1940
Effective January 1, 1997
This Distribution Plan (the "Plan") has been adopted by each of the
registered investment companies identified from time to time on Exhibit A hereto
(the "Trust" or "Trusts"), severally and not jointly, pursuant to Rule 12b-1
under the Investment Company Act of 1940, as amended (the "1940 Act"), and sets
forth the material aspects of the financing of the distribution of the classes
of shares representing interests in the same portfolio issued by the Trusts.
WITNESSETH:
WHEREAS, each Trust is engaged in business as an open-end management investment
company and is registered under the 1940 Act, some consisting of multiple
investment portfolios or series, each of which has separate investment
objectives and policies and segregated assets (the "Fund" or "Funds"); and
WHEREAS, each Fund intends to distribute its Shares of Beneficial Interest
(without par value) ("Shares") in accordance with Rule 12b-1 under the 1940 Act,
and desires to adopt this Distribution Plan as a plan of distribution pursuant
to such Rule; and
WHEREAS, each Fund presently offers multiple classes of Shares, some Funds
presently offering only certain classes of Shares to investors;
WHEREAS, each Trust has entered into a distribution agreement (the "Distribution
Agreement") in a form approved by the Board of Trustees of each Trust (the
"Board of Trustees") in the manner specified in Rule 12b-1, with MFS Fund
Distributors, Inc., a Delaware corporation, as distributor (the "Distributor"),
whereby the Distributor provides facilities and personnel and renders services
to each Fund in connection with the offering and distribution of Shares; and
WHEREAS, each Trust recognizes and agrees that the Distributor may retain the
services of firms or individuals to act as dealers (the "Dealers") of the Shares
in connection with the offering of Shares; and
WHEREAS, the Distribution Agreement provides that: (a) a sales charge may be
paid by investors who purchase Shares designated "Class A" and that the
Distributor and Dealers will receive such sales charge as partial compensation
for their services in connection with the sale of Class A Shares, and (b) the
Distributor may (but is not required to) impose certain deferred sales charges
in connection with the repurchase of Shares and the Distributor may retain or
receive from a fund, as the case may be, all such deferred sales charges; and
WHEREAS, the Board of Trustees of each Trust, in considering whether each Fund
should adopt and implement this Plan, has evaluated such information as it
deemed necessary to an informed determination as to whether this Plan should be
adopted and implemented and has considered such pertinent factors as it deemed
necessary to form the basis for a decision to use assets of a Fund for such
purposes, and has determined that there is a reasonable likelihood that the
adoption and implementation of this Plan will benefit the Fund and its
shareholders; and
NOW THEREFORE, the Board of Trustees of each Trust hereby adopts this Plan for
each Fund as a plan of distribution in accordance with Rule 12b-1, relating to
the classes of Shares each Fund from time to time offers, on the following terms
and conditions:
1. SERVICES PROVIDED AND EXPENSES BORNE BY DISTRIBUTOR.
1.1. As specified in the Distribution Agreement, the Distributor
shall provide facilities, personnel and a program with respect
to the offering and sale of Shares. Among other things, the
Distributor shall be responsible for any commissions payable
to Dealers (including any ongoing maintenance commissions),
all expenses of printing (excluding typesetting) and
distributing prospectuses to prospective shareholders and
providing such other related services as are reasonably
necessary in connection therewith.
1.2. The Distributor shall bear all distribution-related expenses
to the extent specified in the Distribution Agreement in
providing the services described in Section 1.1, including,
without limitation, the compensation of personnel necessary to
provide such services and all costs of travel, office expenses
(including rent and overhead), equipment, printing, delivery
and mailing costs.
2. DISTRIBUTION FEES AND SERVICE FEES.
2.1 Distribution and Service Fees Common to Each Class of Shares.
2.1.1. Service Fees. As partial consideration for the personal
services and/or account maintenance services performed by each
Dealer in the performance of its obligations under its dealer
agreement with the Distributor, each Fund shall pay each
Dealer a service fee periodically at a rate not to exceed
0.25% per annum of the portion of the average daily net assets
of the Fund that is represented by the Class of Shares that
are owned by investors for whom such Dealer is the holder or
dealer of record. That portion of the Fund's average daily net
assets on which the fees payable under this Section 2.1.1.
hereof are calculated may be subject to certain minimum amount
requirements as may be determined, and additional or different
dealer qualification standards that may be established, from
time to time, by the Distributor. The Distributor shall be
entitled to be paid any fees payable under this Section 2.1.1.
hereof with respect to Shares for which no Dealer of record
exists or qualification standards have not been met as partial
consideration for personal services and/or account maintenance
services provided by the Distributor to those Shares. The
service fee payable pursuant to this Section 2.1.1. may from
time to time be paid by a Fund to the Distributor and the
Distributor will then pay these fees to Dealers on behalf of
the Fund or retain them in accordance with this paragraph.
2.1.2. Distribution Fees. As partial consideration for the
services performed as specified in the Distribution Agreement
and expenses incurred in the performance of its obligations
under the Distribution Agreement, a Fund shall pay the
Distributor a distribution fee periodically at a rate based on
the average daily net assets of a Fund attributable to the
designated Class of Shares. The amount of the distribution fee
paid by the Fund differs with respect to each Class of Shares,
as does the use by the Distributor of such distribution fees.
2.2. Distribution Fees Relating to Class A Shares
2.2.1. It is understood that the Distributor may impose
certain deferred sales charges in connection with the
repurchase of Class A Shares by a Fund and the Distributor may
retain (or receive from the Fund, as the case may be) all such
deferred sales charges. Each Fund listed on Exhibit B hereto
shall pay the Distributor a distribution fee periodically at a
rate of 0.10% per annum of average daily net assets of the
Fund attributable to Class A Shares. Each Fund listed on
Exhibit C hereto shall pay the Distributor a distribution fee
periodically at a rate not to exceed 0.25% per annum of
average daily net assets of the Fund attributable to Class A
Shares. Such payments shall commence following shareholder
approval of the Plan but only upon notification by the
Distributor to the Fund of the commencement of the Plan (the
"Commencement Date").
2.2.2. The aggregate amount of fees and expenses paid pursuant
to Sections 2.1. and 2.2. hereof shall not exceed 0.35% per
annum and 0.50% per annum of the average daily net assets
attributable to Class A Shares of each Fund listed on Exhibit
B hereto and Exhibit C, hereto, respectively. No fees shall be
paid pursuant to Section 2.2.1. hereof or this Section 2.2.2.
to any insurance company which has entered into an agreement
with the Trust on behalf of a Fund and the Distributor that
permits such insurance company to purchase Class A Shares from
a Fund at their net asset value in connection with annuity
agreements issued in connection with the insurance company's
separate accounts.
2.3. Distribution Fees Relating to Class B Shares
2.3.1. It is understood that the Distributor may impose
certain deferred sales charges in connection with the
repurchase of Class B Shares by a Fund and the Distributor may
retain (or receive from the Fund, as the case may be) all such
deferred sales charges. As additional consideration for all
services performed and expenses incurred in the performance of
its obligations under the Distribution Agreement relating to
Class B Shares, a Fund shall pay the Distributor a
distribution fee periodically at a rate not to exceed 0.75%
per annum of the Fund's average daily net assets attributable
to Class B Shares.
2.3.2. Each Fund understands that agreements between the
Distributor and the Dealers may provide for payment of
commissions to Dealers in connection with the sale of Class B
Shares and may provide for a portion (which may be all or
substantially all) of the fees payable by a Fund to the
Distributor under the Distribution Agreement to be paid by the
Distributor to the Dealers in consideration of the Dealer's
services as a dealer of the Class B Shares. Except as
described in Section 2.1., nothing in this Plan shall be
construed as requiring a Fund to make any payment to any
Dealer or to have any obligations to any Dealer in connection
with services as a dealer of Class B Shares. The Distributor
shall agree and undertake that any agreement entered into
between the Distributor and any Dealer shall provide that,
except as provided in Section 2.1., such Dealer shall look
solely to the Distributor for compensation for its services
thereunder and that in no event shall such Dealer seek any
payment from the Fund.
2.4. Distribution Fees Relating to Class C Shares
2.4.1. It is understood that the Distributor may (but is not
required to) impose certain deferred sales charges in
connection with the repurchase of Class C Shares by a Fund and
the Distributor may retain (or receive from the Fund, as the
case may be) all such deferred sales charges. As additional
consideration for all services performed and expenses incurred
in the performance of its obligations under the Distribution
Agreement relating to Class C Shares, a Fund shall pay the
Distributor a distribution fee periodically at a rate not to
exceed 0.75% per annum of the Fund's average daily net assets
attributable to Class C Shares.
2.4.2. Each Fund understands that agreements between the
Distributor and the Dealers may provide for payment of
commissions to Dealers in connection with the sales of Class C
Shares and may provide for a portion (which may be all or
substantially all) of the fees payable by a Fund to the
Distributor under the Distribution Agreement to be paid to the
Dealers in consideration of the Dealer's services as a dealer
of the Class C Shares. Except as described in Section 2.1.,
nothing in this Plan shall be construed as requiring a Fund to
make any payment to any Dealer or to have any obligations to
any Dealer in connection with services as a dealer of Class C
Shares. The Distributor shall agree and undertake that any
agreement entered into between the Distributor and any Dealer
shall provide that, except as provided in Section 2.1., such
Dealer shall look solely to the Distributor for compensation
for its services thereunder and that in no event shall such
Dealer seek any payment from the Fund.
3. EXPENSES BORNE BY FUND. Each Fund shall pay all fees and expenses of
any independent auditor, legal counsel, investment adviser,
administrator, transfer agent, custodian, shareholder servicing agent,
registrar or dividend disbursing agent of the Fund; expenses of
distributing and redeeming Shares and servicing shareholder accounts;
expenses of preparing, printing and mailing prospectuses, shareholder
reports, notices, proxy statements and reports to governmental officers
and commissions and to shareholders of a Fund, except that the
Distributor shall be responsible for the distribution-related expenses
as provided in Section 1 hereof.
4. ACTION TAKEN BY THE TRUST. Nothing herein contained shall be deemed to
require a Trust to take any action contrary to its Declaration of Trust
or By-laws or any applicable statutory or regulatory requirement to
which it is subject or by which it is bound, or to relieve or deprive
the Board of Trustees of the responsibility for and control of the
conduct of the affairs of a Fund.
5. EFFECTIVENESS OF PLAN. This Plan shall become effective upon (a)
approval by a vote of at least a "majority of the outstanding voting
securities" of each particular class of Shares (unless previously so
approved), and (b) approval by a vote of the Board of Trustees and a
vote of a majority of the Trustees who are not "interested persons" of
the Trust and who have no direct or indirect financial interest in the
operation of the Plan or in any agreement related to the Plan (the
"Qualified Trustees"), such votes to be cast in person at a meeting
called for the purpose of voting on this Plan.
6. DURATION OF PLAN. This Plan shall continue in effect indefinitely;
provided however, that such continuance is "specifically approved at
least annually" by vote of both a majority of the Trustees of the Trust
and a majority of the Qualified Trustees, such votes to be cast in
person at a meeting called for the purpose of voting on the continuance
of this Plan. If such annual approval is not obtained, this Plan, with
respect to the classes of Shares with respect to which such approval
was not obtained, shall expire 12 months after the effective date of
the last approval.
7. AMENDMENTS OF PLAN. This Plan may be amended at any time by the Board
of Trustees; provided that this Plan may not be amended to increase
materially the amount of permitted expenses hereunder without the
approval of holders of a "majority of the outstanding voting
securities" of the affected Class of Shares and may not be materially
amended in any case without a vote of a majority of both the Trustees
and the Qualified Trustees. This Plan may be terminated at any time by
a vote of a majority of the Qualified Trustees or by a vote of the
holders of a "majority of the outstanding voting securities" of Shares.
8. REVIEW BY BOARD OF TRUSTEES. Each Fund and the Distributor shall
provide the Board of Trustees, and the Board of Trustees shall review,
at least quarterly, a written report of the amounts expended under this
Plan and the purposes for which such expenditures were made.
9. SELECTION AND NOMINATION OF QUALIFIED TRUSTEES. While this Plan is in
effect, the selection and nomination of Qualified Trustees shall be
committed to the discretion of the Trustees who are not "interested
persons" of the Trust.
10. DEFINITIONS; COMPUTATION OF FEES. For the purposes of this Plan, the
terms "interested persons", "majority of the outstanding voting
securities" and "specifically approved at least annually" are used as
defined in the 1940 Act or the rules and regulations adopted
thereunder. All references herein to "Fund" shall be deemed to refer to
a Trust where such Trust does not have multiple portfolios or series.
In addition, for purposes of determining the fees payable to the
Distributor hereunder, (i) the value of a Fund's net assets shall be
computed in the manner specified in each Fund's then-current prospectus
and statement of additional information for computation of the net
asset value of Shares of the Fund and (ii) the net asset value per
Share of a particular class shall reflect any plan adopted under Rule
18f-3 under the 1940 Act.
11. RETENTION OF PLAN RECORDS. Each Trust shall preserve copies of this
Plan, and each agreement related hereto and each report referred to in
Section 8.1 hereof (collectively, the "Records") for a period of six
years from the end of the fiscal year in which such Record was made and
each such record shall be kept in an easily accessible place for the
first two years of said record-keeping.
12. APPLICABLE LAW. This Plan shall be construed in accordance with the
laws of The Commonwealth of Massachusetts and the applicable provisions
of the 1940 Act.
13. SEVERABILITY OF PLAN. If any provision of this Plan shall be held or
made invalid by a court decision, statute, rule or otherwise, the
remainder of the Plan shall not be affected thereby. The provisions of
this Plan are severable with respect to each Class of Shares offered by
a Fund and with respect to each Fund.
14. SCOPE OF TRUST'S OBLIGATION. A copy of the Declaration of Trust of each
Trust is on file with the Secretary of State of The Commonwealth of
Massachusetts. It is acknowledged that the obligations of or arising
out of this Plan are not binding upon any of the Trust's trustees,
officers, employees, agents or shareholders individually, but are
binding solely upon the assets and property of the Trust in accordance
with its proportionate interest hereunder. If this Plan is adopted by
the Trust on behalf of one or more series of the Trust, it is further
acknowledged that the assets and liabilities of each series of the
Trust are separate and distinct and that the obligations of or arising
out of this Plan are binding solely upon the assets or property of the
series on whose behalf the Trust has adopted this Plan. If the Trust
has adopted this Plan on behalf of more than one series of the Trust,
it is also acknowledged that the obligations of each series hereunder
shall be several and not joint, in accordance with its proportionate
interest hereunder, and no series shall be responsible for the
obligations of another series.
<PAGE>
EXHIBIT A
Dated: April 10, 1997
- --------------------------------------------------------------------------------
CLASSES OF
SHARES COVERED
BY RULE 12B-1 DATE RULE 12b-1
FUND PLAN PLAN ADOPTED
- --------------------------------------------------------------------------------
MFS Managed Sectors Fund A,B January 1, 1997
- --------------------------------------------------------------------------------
MFS Cash Reserve Fund A,B,C January 1, 1997
- --------------------------------------------------------------------------------
MFS World Asset Allocation Fund A,B,C January 1, 1997
- --------------------------------------------------------------------------------
MFS Strategic Growth Fund A,B,C January 1, 1997
- --------------------------------------------------------------------------------
MFS Research Growth and Income Fund A,B,C January 1, 1997
- --------------------------------------------------------------------------------
MFS Core Growth Fund A,B,C January 1, 1997
- --------------------------------------------------------------------------------
MFS Equity Income Fund A,B,C January 1, 1997
- --------------------------------------------------------------------------------
MFS Special Opportunities Fund A,B,C January 1, 1997
- --------------------------------------------------------------------------------
MFS Convertible Securities Fund A,B,C January 1, 1997
- --------------------------------------------------------------------------------
MFS Blue Chip Fund A,B,C January 1, 1997
- --------------------------------------------------------------------------------
MFS New Discovery Fund A,B,C January 1, 1997
- --------------------------------------------------------------------------------
MFS Science and Technology Fund A,B,C January 1, 1997
- --------------------------------------------------------------------------------
MFS Research International Fund A,B,C January 1, 1997
- --------------------------------------------------------------------------------
MFS Emerging Growth Fund A,B,C January 1, 1997
- --------------------------------------------------------------------------------
MFS Capital Growth Fund A,B January 1, 1997
- --------------------------------------------------------------------------------
MFS Intermediate Income Fund A,B January 1, 1997
- --------------------------------------------------------------------------------
MFS Gold & Natural Resources Fund A,B January 1, 1997
- --------------------------------------------------------------------------------
MFS World Total Return Fund A,B,C January 1, 1997
- --------------------------------------------------------------------------------
MFS Utilities Fund A,B,C January 1, 1997
- --------------------------------------------------------------------------------
MFS World Equity Fund A,B,C January 1, 1997
- --------------------------------------------------------------------------------
MFS Strategic Income Fund A,B,C January 1, 1997
- --------------------------------------------------------------------------------
MFS World Growth Fund A,B,C January 1, 1997
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT A
(Continued)
- --------------------------------------------------------------------------------
CLASSES OF
SHARES COVERED
BY RULE 12B-1 DATE RULE 12b-1
FUND PLAN PLAN ADOPTED
- --------------------------------------------------------------------------------
MFS Alabama Municipal Bond Fund A,B January 1, 1997
- --------------------------------------------------------------------------------
MFS Arkansas Municipal Bond Fund A,B January 1, 1997
- --------------------------------------------------------------------------------
MFS California Municipal Bond Fund A,B,C January 1, 1997
- --------------------------------------------------------------------------------
MFS Florida Municipal Bond Fund A,B January 1, 1997
- --------------------------------------------------------------------------------
MFS Georgia Municipal Bond Fund A,B January 1, 1997
- --------------------------------------------------------------------------------
MFS Maryland Municipal Bond Fund A,B January 1, 1997
- --------------------------------------------------------------------------------
MFS Massachusetts Municipal Bond Fund A,B January 1, 1997
- --------------------------------------------------------------------------------
MFS Mississippi Municipal Bond Fund A,B January 1, 1997
- --------------------------------------------------------------------------------
MFS New York Municipal Bond Fund A,B January 1, 1997
- --------------------------------------------------------------------------------
MFS North Carolina Municipal Bond Fund A,B,C January 1, 1997
- --------------------------------------------------------------------------------
MFS Pennsylvania Municipal Bond Fund A,B January 1, 1997
- --------------------------------------------------------------------------------
MFS South Carolina Municipal Bond Fund A,B January 1, 1997
- --------------------------------------------------------------------------------
MFS Tennessee Municipal Bond Fund A,B January 1, 1997
- --------------------------------------------------------------------------------
MFS Virginia Municipal Bond Fund A,B,C January 1, 1997
- --------------------------------------------------------------------------------
MFS West Virginia Municipal Bond Fund A,B January 1, 1997
- --------------------------------------------------------------------------------
MFS Municipal Income Fund A,B,C January 1, 1997
- --------------------------------------------------------------------------------
MFS Government Limited Maturity Fund A,B,C January 1, 1997
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT B
Dated: April 10, 1997
MFS Managed Sectors Fund
MFS Cash Reserve Fund
MFS Research Growth & Income Fund
MFS Emerging Growth Fund
MFS Capital Growth Fund
MFS Intermediate Income Fund
MFS Gold & Natural Resources Fund
MFS World Total Return Fund
MFS Utilities Fund
MFS World Equity Fund
MFS Strategic Income Fund
MFS World Growth Fund
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 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 Virginia Municipal Bond Fund
MFS West Virginia Municipal Bond Fund
MFS Municipal Income Fund
MFS Government Limited Maturity Fund
MFS Strategic Growth Fund
<PAGE>
EXHIBIT C
Dated: April 10, 1997
MFS World Asset Allocation Fund
MFS Equity Income Fund
MFS Core Growth Fund
MFS Special Opportunities Fund
MFS Convertible Securities Fund
MFS Blue Chip Fund
MFS New Discovery Fund
MFS Science and Technology Fund
MFS Research International Fund
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