<TABLE>
<S> <S>
Massachusetts Investors Trust MFS(R) World Total Return Fund
Massachusetts Investors Growth Stock Fund MFS(R) Municipal Bond Fund
MFS(R) Capital Growth Fund MFS(R) Municipal High Income Fund
MFS(R) Emerging Growth Fund MFS(R) Municipal Income Fund
MFS(R) Gold & Natural Resources Fund MFS(R) Alabama Municipal Bond Fund
MFS(R) Growth Opportunities Fund MFS(R) Arkansas Municipal Bond Fund
MFS(R) Managed Sectors Fund MFS(R) California Municipal Bond Fund
MFS(R) OTC Fund MFS(R) Florida Municipal Bond Fund
MFS(R) Research Fund MFS(R) Georgia Municipal Bond Fund
MFS(R) Value Fund MFS(R) Louisiana Municipal Bond Fund
MFS(R) Total Return Fund MFS(R) Maryland Municipal Bond Fund
MFS(R) Utilities Fund MFS(R) Massachusetts Municipal Bond Fund
MFS(R) Bond Fund MFS(R) Mississippi Municipal Bond Fund
MFS(R) Government Mortgage Fund MFS(R) New York Municipal Bond Fund
MFS(R) Government Securities Fund MFS(R) North Carolina Municipal Bond Fund
MFS(R) High Income Fund MFS(R) Pennsylvania Municipal Bond Fund
MFS(R) Intermediate Income Fund MFS(R) South Carolina Municipal Bond Fund
MFS(R) Strategic Income Fund MFS(R) Tennessee Municipal Bond Fund
MFS(R) Government Limited Maturity Fund MFS(R) Texas Municipal Bond Fund
MFS(R) Limited Maturity Fund MFS(R) Virginia Municipal Bond Fund
MFS(R) Municipal Limited Maturity Fund MFS(R) Washington Municipal Bond Fund
MFS(R) World Equity Fund MFS(R) West Virginia Municipal Bond Fund
MFS(R) World Governments Fund MFS(R) World Asset Allocation Fund
MFS(R) World Growth Fund
</TABLE>
Supplement to the Current Prospectus
During the period from February 1, 1995 through April 14, 1995 (the "Sales
Period") (unless extended by MFS Fund Distributors, Inc. ("MFD"), the Funds'
distributor), MFD will pay Corelink Financial Inc. ("Corelink") an additional
commission equal to 0.10% of the gross commissionable sales for Class A shares
and Class B shares and the net asset value for Class C shares (if applicable) of
the Funds sold by Corelink during the Sales Period.
The date of this Supplement is February 1, 1995.
MFS-16CL-2/95/5M
<PAGE>
MFS(R) Managed Sectors Fund MFS(R) Municipal Limited Maturity Fund
MFS(R) Cash Reserve Fund MFS(R) Alabama Municipal Bond Fund
MFS(R) World Asset Allocation Fund MFS(R) Arkansas Municipal Bond Fund
MFS(R) Emerging Growth Fund MFS(R) California Municipal Bond Fund
MFS(R) Capital Growth Fund MFS(R) Florida Municipal Bond Fund
MFS(R) Gold & Natural Resources Fund MFS(R) Georgia Municipal Bond Fund
MFS(R) Intermediate Income Fund MFS(R) Louisiana Municipal Bond Fund
MFS(R) High Income Fund MFS(R) Maryland Municipal Bond Fund
MFS(R) Municipal High Income Fund MFS(R) Massachusetts Municipal Bond Fund
MFS(R) Money Market Fund MFS(R) Mississippi Municipal Bond Fund
MFS(R) Government Money Market Fund MFS(R) New York Municipal Bond Fund
MFS(R) Municipal Bond Fund MFS(R) North Carolina Municipal Bond Fund
MFS(R) OTC Fund MFS(R) Pennsylvania Municipal Bond Fund
MFS(R) Total Return Fund MFS(R) South Carolina Municipal Bond Fund
MFS(R) Research Fund MFS(R) Tennessee Municipal Bond Fund
MFS(R) World Total Return Fund MFS(R) Texas Municipal Bond Fund
MFS(R) Utilities Fund MFS(R) Virginia Municipal Bond Fund
MFS(R) World Equity Fund MFS(R) Washington Municipal Bond Fund
MFS(R) World Governments Fund MFS(R) West Virginia Municipal Bond Fund
MFS(R) Value Fund MFS(R) Growth Opportunities Fund
MFS(R) Strategic Income Fund MFS(R) Government Mortgage Fund
MFS(R) World Growth Fund MFS(R) Government Securities Fund
MFS(R) Bond Fund Massachusetts Investors Growth Stock Fund
MFS(R) Limited Maturity Fund MFS(R) Government Limited Maturity Fund
Massachusetts Investors Trust
Supplement to the Current Prospectus
Effective as of January 1, 1995, MFS Fund Distributors, Inc. ("MFD") has
replaced MFS Financial Services, Inc. ("FSI") as the Fund's distributor Both MFD
and FSI are wholly-owned subsidiaries of Massachusetts Financial Services
Company ("MFS"), the Fund's investment adviser.
Class A shares of the Fund may be purchased at net asset value by certain
retirement plans subject to the Employee Retirement Income Security Act of 1974,
as amended, subject to the following
(i) The sponsoring organization must demonstrate to the satisfaction of
MFD that either (a) the employer has at least 25 employees or (b) the
aggregate purchases by the retirement plan of Class A shares of the
Funds will be in an amount of at least $250,000 within a reasonable
period of time, as determined by MFD in its sole discretion; and
(ii) A contingent deferred sales charge of 1% will be imposed on such
purchases in the event of certain redemption transactions within 12
months following such purchases.
Class A shares may be sold at net asset value, subject to appropriate
documentation, through a dealer where the amount invested represents redemption
proceeds from a registered open-end management investment company not
distributed or managed by MFD or its affiliates if (i) the redeemed shares were
subject to an initial sales charge or a deferred sales charge (whether or not
actually imposed); (ii) such redemption has occurred no more than 90 days prior
to the purchase of Class A shares of the Fund; and (iii) the Fund, MFD or its
affiliates have not agreed with such company or its affiliates, formally or
informally, to sell Class A shares at net asset value or provide any other
incentive with respect to such redemption and sale.
Class A shares of the Fund may be purchased at net asset value by
retirement plans whose third party administrators have entered into an
administrative services agreement with MFD or one or more of its affiliates to
perform certain administrative services, subject to certain operational
requirements specified from time to time by MFD or one or more of its
affiliates.
(Over)
Class A shares of the Fund (except of the MFS municipal bond funds
identified above may be purchased at net asset value by retirement plans
qualified under Section 401 (k) of the Code through certain broker-dealers and
other financial institutions which have entered into an agreement with MFD which
includes certain minimum size qualifications for such retirement plans and pro-
vides that the broker-dealer or other financial institution will perform certain
administrative services with respect to the plan's account.
The CDSC on Class A and Class B shares will be waived upon redemption by a
retirement plan where the redemption pro- ceeds are used to pay expenses of the
retirement plan or certain expenses of participants under the retirement plan
(e.g., participant account fees), provided that the retirement plan's sponsor
subscribes to the MFS Fundamental 401(k) Plan'-' or another similar
recordkeeping system made available by MFS Service Center, Inc. (the
"Shareholder Servicing Agent").
The CDSC on Class A and B shares will be waived upon the transfer of
registration from shares held by a retirement plan through a single account
maintained by the Shareholder Servicing Agent to multiple Class A and B share
accounts, respectively, maintained by the Shareholder Servicing Agent on behalf
of individual participants in the retirement plan, provided that the retirement
plan's sponsor subscribes to the MFS Fundamental 401(k) Plan(sm) another similar
recordkeeping system made available by the Shareholder Servicing Agent.
The applicability of a CDSC will be unaffected by exchanges or transfers of
registration, except that, with respect to transfers of registration to an IRA
rollover account, the CDSC will be waived if the shares being reregistered would
have been eligible for a CDSC waiver had they been redeemed.
The current Prospectus discloses that "Class A shares of the Fund may also
be purchased at net asset value where the pur- chase is in an amount of $3
million or more and where the dealer and FS/ enter into an agreement in which
the dealer agrees to return any commission paid to it on the sale (or a pro rata
portion thereof} as described above if the shareholder redeems his or her shares
within one year of purchase. (Shareholders who purchase shares at NAV pursuant
to these conditions are called ("$3 Million Shareholders")." This policy is
terminated effective as of the date of this Supplement and the above-referenced
language, and all references to "$3 Million Shareholders," are deleted from the
Prospectus.
From time to time, MFD may pay dealers 100% of the applicable sales charge
on sales of Class A shares of certain specified 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 shares of certain specified Funds sold by such dealer
during a specified sales period.
If a shareholder has elected to receive dividends and/or capital gain
distributions in cash and the postal or other delivery service is unable to
deliver checks to the shareholder's address of record, such shareholder's
distribution option will automatically be convened to reinvest all dividends and
other distributions reinvested in additional shares.
From time to time, MFS 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).
The date of this Supplement is January 13,1995.
MFS-16-1/95/605M
<PAGE>
<TABLE>
<S> <S>
MFS(R) Total Return Fund MFS(R) Alabama Municipal Bond Fund
Massachusetts Investors Growth Stock Fund MFS(R) Arkansas Municipal Bond Fund
MFS(R) Growth Opportunities Fund MFS(R) California Municipal Bond Fund
MFS(R) Emerging Growth Fund MFS(R) Florida Municipal Bond Fund
MFS(R) Capital Growth Fund MFS(R) Georgia Municipal Bond Fund
MFS(R) Intermediate Income Fund MFS(R) Louisiana Municipal Bond Fund
MFS(R) Gold & Natural Resources Fund MFS(R) Maryland Municipal Bond Fund
MFS(R) Managed Sectors Fund MFS(R) Massachusetts Municipal Bond Fund
MFS(R) Value Fund MFS(R) Mississippi Municipal Bond Fund
MFS(R) Utilities Fund MFS(R) New York Municipal Bond Fund
MFS(R) World Equity Fund MFS(R) North Carolina Municipal Bond Fund
MFS(R) World Total Return Fund MFS(R) Pennsylvania Municipal Bond Fund
MFS(R) Bond Fund MFS(R) South Carolina Municipal Bond Fund
MFS(R) Limited Maturity Fund MFS(R) Tennessee Municipal Bond Fund
MFS(R) Government Mortgage Fund MFS(R) Texas Municipal Bond Fund
MFS(R) Government Limited Maturity Fund MFS(R) Virginia Municipal Bond Fund
MFS(R) Government Securities Fund MFS(R) Washington Municipal Bond Fund
MFS(R) High Income Fund MFS(R) West Virginia Municipal Bond Fund
MFS(R) Strategic Income Fund MFS(R) Municipal Limited Maturity Fund
MFS(R) World Governments Fund MFS(R) Municipal Bond Fund
MFS(R) World Growth Fund MFS(R) Municipal Income Fund
MFS(R) OTC Fund MFS(R) Research Fund
MFS(R) Municipal High Income Fund MFS(R) World Asset Allocation Fund
Massachusetts Investors Trust
</TABLE>
Supplement to the Current Prospectus
During the period from January 3, 1995 through April 28, 1995 (the "Sales
Period") (unless extended by MFS Fund Distributors, Inc. ("MFD"), the funds'
principal underwriter), MFD will pay A. G. Edwards and Sons, Inc., ("A. G.
Edwards") 100% of the applicable sales charge on sales of Class A shares of each
of the funds listed above (the "Funds") sold for investment in Individual
Retirement Accounts ("IRAs") (excluding SEP-IRAs). In addition, MFD will pay A.
G. Edwards an additional commission equal to 0.50% of the net asset value of all
of the Class B shares of the Funds sold by A. G. Edwards during the Sales
Period.
The date of this Supplement is January 3, 1995
MFS-16AG-1/95/3.5M
<PAGE>
<TABLE>
<S> <S>
MASSACHUSETTS INVESTORS TRUST MFS(R) TOTAL RETURN FUND
MASSACHUSETTS INVESTORS GROWTH STOCK FUND MFS(R) GOVERNMENT MONEY MARKET FUND
MFS(R) GROWTH OPPORTUNITIES FUND MFS(R) CASH RESERVE FUND
MFS(R) EMERGING GROWTH FUND MFS(R) ALABAMA MUNICIPAL BOND FUND
MFS(R) CAPITAL GROWTH FUND MFS(R) ARKANSAS MUNICIPAL BOND FUND
MFS(R) INTERMEDIATE INCOME FUND MFS(R) CALIFORNIA MUNICIPAL BOND FUND
MFS(R) GOLD & NATURAL RESOURCES FUND MFS(R) FLORIDA MUNICIPAL BOND FUND
MFS(R) MANAGED SECTORS FUND MFS(R) GEORGIA MUNICIPAL BOND FUND
MFS(R) VALUE FUND MFS(R) LOUISIANA MUNICIPAL BOND FUND
MFS(R) WORLD EQUITY FUND MFS(R) MARYLAND MUNICIPAL BOND FUND
MFS(R) WORLD TOTAL RETURN FUND MFS(R) MASSACHUSETTS MUNICIPAL BOND FUND
MFS(R) BOND FUND MFS(R) MISSISSIPPI MUNICIPAL BOND FUND
MFS(R) LIMITED MATURITY FUND MFS(R) NEW YORK MUNICIPAL BOND FUND
MFS(R) GOVERNMENT MORTGAGE FUND MFS(R) NORTH CAROLINA MUNICIPAL BOND FUND
MFS(R) GOVERNMENT LIMITED MATURITY FUND MFS(R) SOUTH CAROLINA MUNICIPAL BOND FUND
MFS(R) GOVERNMENT SECURITIES FUND MFS(R) TENNESSEE MUNICIPAL BOND FUND
MFS(R) HIGH INCOME FUND MFS(R) TEXAS MUNICIPAL BOND FUND
MFS(R) INCOME & OPPORTUNITY FUND MFS(R) VIRGINIA MUNICIPAL BOND FUND
MFS(R) WORLD GOVERNMENTS FUND MFS(R) WASHINGTON MUNICIPAL BOND FUND
MFS(R) WORLD GROWTH FUND MFS(R) WEST VIRGINIA MUNICIPAL BOND FUND
MFS(R) MONEY MARKET FUND MFS(R) MUNICIPAL LIMITED MATURITY FUND
MFS(R) RESEARCH FUND MFS(R) MUNICIPAL BOND FUND
MFS(R) MUNICIPAL HIGH INCOME FUND MFS(R) MUNICIPAL INCOME FUND
</TABLE>
Supplement to the Current Prospectus
Effective immediately, the Funds have expanded their policies with respect to
exchanges effected by market timers to be as follows:
FSI may enter into an agreement with shareholders who intend to make
exchanges among certain classes of certain MFS Funds (as determined by FSI)
which follow a timing pattern, and with individuals or entities acting on
such shareholders' behalf (collectively, "market timers"), setting forth
the terms, procedures and restrictions with respect to such exchanges. In
the absence of such an agreement it is the policy of the Fund and FSI to
reject or restrict purchases by market timers if (i) more than two exchange
purchases are effected in a timed account in the same calendar quarter or
(ii) a purchase would result in shares being held in timed accounts by
market timers representing more than (x) one percent of the Fund's net
assets or (y) specified dollar amounts in the case of certain MFS Funds
which may include the Fund and which may change from time to time. The Fund
and FSI each reserve the right to request market timers to redeem their
shares at net asset value, less any applicable CDSC, if either of these
restrictions is violated.
The date of this Supplement is April 1, 1994.
MFS-I 6F-4/94/500M
<PAGE>
MFS(R) GOVERNMENT
MORTGAGE FUND
(A member of the MFS Family of Funds(R))
PROSPECTUS
April 1, 1994
Class A Shares of Beneficial Interest
Class B Shares of Beneficial Interest
Page
----------
1. The Fund 2
2. Expense Summary 2
3. Condensed Financial Information 4
4. Investment Objective and Policies 5
5. Management of the Fund 10
6. Information Concerning Shares of the Fund 10
Purchases 10
Exchanges 15
Redemptions and Repurchases 16
Distribution Plans 18
Distributions 19
Tax Status 20
Net Asset Value 20
Description of Shares, Voting Rights and Liabilities 20
Performance Information 21
7. Shareholder Services 21
Appendix A-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 MORTGAGE FUND
500 Boylston Street, Boston, Massachusetts 02116 (617) 954-5000
The primary investment objective of MFS Government Mortgage Fund (the "Fund")
is to provide a high level of current income. The secondary objective of the
Fund is to protect shareholders' capital. The Fund seeks to achieve this
objective by investing, under normal circumstances, at least 65% of its
assets in obligations issued or guaranteed by the Government National
Mortgage Association ("GNMA") (including pass-through certificates of GNMA)
and in obligations fully collateralized or otherwise fully secured by
obligations issued or guaranteed by GNMA. (See "Investment Objective and
Policies"). The minimum initial investment is generally $1,000 per account
(see "Purchases").
The Fund's investment adviser and distributor are Massachusetts Financial
Services Company and MFS Financial Services, Inc., respectively, both of
which are located at 500 Boylston Street, Boston, Massachusetts 02116.
Shares of the Fund are not deposits or obligations of, or guaranteed or
endorsed by, any bank and the shares are not federally insured by the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
agency.
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 April 1, 1994, which contains more detailed
information about the Fund and is incorporated into this Prospectus by
reference. See page 23 for a further description of the information set forth
in the Statement of Additional Information. A copy of the Statement of
Additional Information may be obtained without charge by contacting the
Shareholder Servicing Agent (see back cover for address and phone number).
Investors should read this Prospectus and retain it for future reference.
<PAGE>
1. THE FUND
The Fund is an open-end, diversified management investment company which was
organized as a business trust under the laws of The Commonwealth of
Massachusetts in 1985. Shares of the Fund are continuously sold to the public
and the Fund then uses the proceeds to buy securities for its portfolio. Two
classes of shares of the Fund currently are offered to the general public.
Class A shares are offered at net asset value plus an initial sales charge
(or a contingent deferred sales charge (a "CDSC") in the case of certain
purchases of $1 million or more) and subject to a Distribution Plan providing
for a distribution fee and a service fee. Class B shares are offered at net
asset value without a sales charge but subject to a CDSC and a Distribution
Plan providing for a distribution fee and service fee which are greater than
the Class A distribution fee and service fee. Class B shares will convert to
Class A shares approximately eight years after purchase.
The Board of Trustees provides broad supervision over the affairs of the
Fund. Massachusetts Financial Services Company, a Delaware corporation ("MFS"
or the "Adviser"), is the Fund's investment adviser. The Adviser is
responsible for the management of the Fund's assets and the officers of the
Fund are responsible for its operations. The Adviser manages the portfolio
from day to day in accordance with the Fund's investment objective and
policies. A majority of the Trustees are not affiliated with the Adviser. The
Fund also offers to buy back (redeem) its shares from its shareholders at any
time at net asset value, less any applicable CDSC.
2. EXPENSE SUMMARY
<TABLE>
<CAPTION>
Class A Class B
-------------- ------------
<S> <C> <C>
Shareholder Transaction Expenses:
Maximum Initial Sales Charge Imposed on Purchases of Fund Shares (as a percentage of
offering price) 4.75% 0.00%
Maximum Contingent Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds, as applicable) See Below(1) 4.00%(2)
Annual Operating Expenses (as a percentage of average net assets):(3)
Management Fees (after applicable fee reduction)(4) 0.65% 0.65%
Rule 12b-1 Fees 0.35%(5) 1.00%(6)
Other Expenses 0.31% 0.33%
------------ ----------
Total Operating Expenses (after applicable fee reduction) 1.31% 1.98%
<FN>
(1) Purchases of $1 million or more are not subject to an initial sales charge; however, 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) Class B shares attributable to shareholders of MFS Lifetime Government Mortgage Fund (which was acquired by
the Fund on September 7, 1993), which were purchased prior to September 1, 1993 will be subject to a CDSC
of 5% in the event of a redemption within the first year after purchase.
(3) For Class A shares, percentages are based on fees and expenses incurred during the fiscal year ended
November 30, 1993 with the exception of management fees (see footnote 4). Percentages for Class B shares,
which were initially offered on September 7, 1993, are based on Class A fees and expenses adjusted for
Class B specific expenses incurred during such partial fiscal year.
(4) Effective September 7, 1993, the Adviser voluntarily reduced the management fee to 0.65% of the Fund's
average daily net assets. Otherwise, "Management Fees" would have been 0.79% of the Fund's average daily
net assets.
(5) The Fund has adopted a Distribution Plan for its Class A shares in accordance with Rule 12b-1 under the
Investment Company Act of 1940, as amended (the "1940 Act"), which provides that it will pay
distribution/service fees aggregating up to (but not necessarily all of) 0.35% per annum of the average
daily net assets attributable to the Class A shares (see "Distribution Plans"). After a substantial period
of time, distribution expenses paid under this Plan, together with the initial sales charge, may total more
than the maximum sales charge that would have been permissible if imposed entirely as an initial sales
charge.
2
<PAGE>
(6) The Fund has adopted a Distribution Plan for its Class B shares in accordance with Rule 12b-1 under the
1940 Act, which provides that it will pay distribution/service fees aggregating up to 1.00% per annum of
the average daily net assets attributable to the Class B shares (see "Distribution Plans"). After a
substantial period of time, distribution expenses paid under this Plan, together with any CDSC, may total
more than the maximum sales charge that would have been permissible if imposed entirely as an initial sales
charge.
</FN>
</TABLE>
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
- ------------- --------- ---------------------
(1)
<S> <C> <C> <C>
1 year $ 60 $ 60 $ 20
3 years 87 92 62
5 years 116 127 107
10 years 198 213(2) 213(2)
<FN>
(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.
</FN>
</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
Fund expenses are set forth in the following sections: (i) varying sales
charges on sale purchases--"Purchases"; (ii) varying CDSCs--"Purchases";
(iii) management fees--"Investment Adviser"; and (iv) Rule 12b-1 (i.e.,
distribution plan) fees--"Distribution Plans."
The "Example" set forth above should not be considered a representation of
past or future expenses of the Fund; actual expenses may be greater or less
than those shown.
3
<PAGE>
3. CONDENSED FINANCIAL INFORMATION
The following information should be read in conjunction with the financial
statements included in the Fund's Annual Report to Shareholders which is
incorporated by reference into the Statement of Additional Information in
reliance upon the report of Deloitte & Touche, independent certified public
accountants, as experts in accounting and auditing.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Year Ended November 30, 1993 1992 1991 1990 1989 1988 1987 1986+ 1993
- -------------------------------------------------------------------------------------------------------------------------------
Class A Class B**
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per share data (for a share
outstanding throughout each
period):
Net asset value--beginning of
period $ 6.82 $ 6.95 $ 7.01 $ 7.86 $ 7.82 $ 8.34 $ 9.82 $ 9.53 $ 6.97
----- ---- ---- ---- ---- ---- ---- ---- --------
Income from investment operations--
Net investment income $ 0.34 $ 0.46 $ 0.48 $ 0.53 $ 0.59 $ 0.64 $ 0.75 $ 0.72 $ 0.38
Net realized and unrealized gain
(loss) on investments 0.20 0.09 0.25 (0.40) 0.48 (0.06) (1.08) 0.43 (0.44)
----- ---- ---- ---- ---- ---- ---- ---- --------
Total from investment operations $ 0.54 $ 0.55 $ 0.73 $ 0.13 $ 1.07 $ 0.58 $(0.33) $ 1.15 $(0.06)
----- ---- ---- ---- ---- ---- ---- ---- --------
Less distributions declared to
shareholders--
From net investment income $(0.47) $(0.42) $(0.44) $(0.49) $(0.58) $(0.64) $(0.82) $(0.65) $(0.07)
From paid-in capital -- (0.26) (0.35) (0.49) (0.45) (0.46) (0.32) -- --
From net realized gain on
investments -- -- -- -- -- -- (0.01) (0.21) --
In excess of net realized gains (0.04) -- -- -- -- -- -- -- --
----- ---- ---- ---- ---- ---- ---- ---- --------
Total distributions declared to
shareholders $(0.51) $(0.68) $(0.79) $(0.98) $(1.03) $(1.10) $(1.15) $(0.86) $(0.07)
----- ---- ---- ---- ---- ---- ---- ---- --------
Net asset value--end of period $ 6.85 $ 6.82 $ 6.95 $ 7.01 $ 7.86 $ 7.82 $ 8.34 $ 9.82 $ 6.84
===== ==== ==== ==== ==== ==== ==== ==== ========
Total return# 8.11% 8.25% 11.00% 2.05% 14.72% 7.39% (3.37)% 13.75% (4.67)%*
Ratios (to average net
assets)/Supplemental data:
Expenses 1.38% 1.42% 1.44% 1.40% 1.37% 1.38% 1.34% 1.00%* 1.87%*
Net investment income 6.30% 6.57% 6.91% 7.29% 7.57% 7.88% 8.34% 9.54%* 5.92%*
Portfolio turnover 167% 484% 731% 507% 489% 285% 212% 169% 167%
Net assets at end of period ($000
omitted) 522 715 886 1,068 1,380 1,295 1,129 593 1,628
<FN>
*Annualized.
+For the period from January 9, 1986 (commencement of investment operations) to November 30, 1986.
#These results do not include the applicable sales charge. If the charge had been included, the results would have been
lower.
**For the period from the commencement of offering of Class B shares, September 7, 1993 to November 30, 1993.
</FN>
</TABLE>
4
<PAGE>
4. INVESTMENT OBJECTIVE AND POLICIES
Investment Objective--The Fund's primary investment objective is to provide a
high level of current income. The Fund's secondary objective is to protect
shareholders' capital. 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 investment objective by
investing, under normal circumstances, at least 65% of its total assets under
normal circumstances in obligations issued or guaranteed by the Government
National Mortgage Association ("GNMA") (including pass-through certificates
of GNMA which are described below) and in obligations fully collateralized or
otherwise fully secured by obligations issued or guaranteed by GNMA. The Fund
may also invest in other securities that are issued or guaranteed as to
principal and interest by the U.S. Government, its agencies, authorities or
instrumentalities ("Government Securities"). Such Government Securities
include (1) 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), U.S. Treasury notes (maturities of one to 10 years), and
U.S. Treasury bonds (generally maturities of greater than 10 years) all of
which are backed by the full faith and credit of the United States; and (2)
obligations issued or guaranteed by U.S. Government agencies or
instrumentalities, some of which are backed by the full faith and credit of
the U.S. Treasury; some of which are supported by the right of the issuer to
borrow from the U.S. Government, e.g., obligations of Federal Home Loan
Banks; some of which are backed only by the credit of the issuer itself,
e.g., obligations of the Student Loan Marketing Association; and some of
which are supported by the discretionary authority of the U.S. Government to
purchase the agency's obligations, e.g., obligations of the Federal National
Mortgage Association ("FNMA"). No assurance can be given that the U.S.
Government will provide financial support to these agencies and
instrumentalities because it is not obligated by law, in certain instances,
to do so. The primary types of Government Securities in which the Fund
invests are listed in the Appendix.
The Fund may invest in pass-through certificates of GNMA. These certificates
are mortgage-backed securities which represent a partial ownership interest
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 either insured by the Federal Housing Administration
or guaranteed by the Veterans Administration. For a further description of
these and other such obligations and of the consequences of the prepayment of
mortgages underlying these certificates, see "Mortgage Pass-Through
Securities" below and the Appendix.
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.
Depending on market conditions, the Fund may temporarily take a defensive
position by investing a substantial portion of its assets in cash, short-term
Government Securities and related repurchase agreements.
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 fixed income 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 at higher yields
can be expected to rise. Conversely, when interest rates rise, the value of a
portfolio invested at lower yields can be expected to decline. 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. The dividends paid by the Fund will increase
or decrease in relation to the income received by the Fund from its
investments which will in any case be reduced by the Fund's expenses before
being distributed to the Fund's shareholders.
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 inter-
5
<PAGE>
est 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 prepayment. Prepayments
on underlying mortgages result in a loss of anticipated interest, and all or
part of a premium if any has been paid, and the actual yield (or total
return) to the 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.
Repurchase Agreements: The Fund may enter into repurchase agreements in order
to earn additional 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 Statement of Additional
Information, the Fund has adopted certain procedures intended to minimize any
risk.
"When-Issued" Securities: Some Government Securities may be purchased on a
"when-issued" or on a "forward delivery" basis, which means that the
securities will be delivered to the Fund at a future date usually beyond
customary settlement time. The commitment to purchase a security for which
payment will be made on a future date may be deemed a separate security.
Although the Fund is not limited as to the amount of Government Securities
for which it may have commitments to purchase on such bases, it is expected
that under normal circumstances the Fund will not commit more than 30% of its
total assets to such purchases. The Fund does not pay for the securities
until received, and does not start earning interest on the securities until
the contractual settlement date. While awaiting delivery of the securities
purchased on such bases, the Fund will hold cash, short-term money market
instruments or Government Securities in a segregated account.
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.
Zero Coupon Bonds: The Fund may invest in zero coupon bonds, which are debt
obligations issued or purchased at a significant discount from face value.
The Fund will only purchase zero coupon bonds which are Government
Securities. The discount approximates the total amount of interest the bonds
will accrue and compound over the period until maturity or the first interest
payment date at a rate of interest reflecting the market rate of the security
at the time of issuance. Zero coupon bonds do not require the periodic
payment of interest. Such investments benefit the issuer by mitigating its
need for cash to meet debt service, but also require a higher rate of return
to attract investors who are willing to defer receipt of such cash. Such
investments may experience greater volatility in market value due to changes
in interest rates than debt obligations 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.
Collateralized Mortgage Obligations and Multiclass Pass-Through Securities:
The Fund may invest a portion of its assets in collateralized mortgage
obligations ("CMOs") which are debt obligations collateralized by mortgage
loans or mortgage pass- through securities (such collateral collectively
hereinafter referred to as "Mortgage Assets"). Mortgage Assets underlying
CMOs purchased by the Fund must be issued or guaranteed by the U.S.
Government, its agencies, authorities or instrumentalities.
6
<PAGE>
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. 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. Certain classes of CMOs have priority over others with respect
to the receipt of prepayments on the mortgages. Therefore, depending on the
type of CMOs in which the Fund invests, the investment may be subject to a
greater or lesser risk of prepayment than other types of mortgage- related
securities.
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. For a further description of CMOs and the risks related to
transactions therein, see the Statement of Additional Information.
Stripped Mortgage-Backed Securities: The Fund may invest a portion of its
assets in stripped mortgage-backed securities ("SMBS") which are derivative
multiclass mortgage securities usually structured with two classes that
receive different proportions of the interest and principal distributions
from an underlying pool of mortgage assets. The Fund will only invest in SMBS
whose mortgage assets are issued or guaranteed by the U.S. Government, its
agencies, authorities or instrumentalities. For a further description of SMBS
and the risks related to transactions therein, see the Statement of
Additional Information.
Swaps and Related Transactions: As one way of managing its exposure to
different types of investments, the Fund may enter into interest rate swaps
and other types of available swap agreements, such as caps, collars and
floors. Swaps involve the exchange by the Fund with another party of cash
payments based upon different interest rate indexes and other prices or
rates, such as the value of mortgage prepayment rates. For example, in the
typical interest rate swap, the Fund might exchange a sequence of cash
payments based on a floating rate index for cash payments based on a fixed
rate. Payments made by both parties to a swap transaction are based on a
principal amount determined by the parties.
The Fund may also purchase and sell caps, floors and collars. In a typical
cap or floor agreement, one party agrees to make payments only under
specified circumstances, usually in return for payment of a fee by the
counterparty. For example, the purchase of an interest rate cap entitles the
buyer, to the extent that a specified index exceeds a predetermined interest
rate, to receive payments of interest on a contractually-based principal
amount from the counterparty selling such interest rate cap. The sale of an
interest rate floor obligates the seller to make payments to the extent that
a specified interest rate falls below an agreed-upon level. A collar
arrangement combines elements of buying a cap and selling a floor.
Swap agreements will tend to shift a Fund investment exposure from one type
of investment to another. For example, a Fund may agree to exchange fixed
rate payments for floating rate payments, in each case denominated in
dollars, thereby benefiting from an increase in interest rates above the
fixed rate it is obligated to pay but subjecting it to the risk that interest
rates will fall below this fixed rate. Caps and floors have an effect similar
to buying or writing options. Depending on how they are used, swap agreements
may increase or decrease the overall volatility of a Fund's investments and
its share price and yield.
Swap agreements are sophisticated hedging instruments that typically involve
a small investment of cash relative to the magnitude of risks assumed. As a
result, swaps can be highly volatile and may have a considerable impact on a
Fund's performance. Swap agreements are subject to risks related to the
counterparty's ability to perform, and may decline in value if the
counterparty's creditworthiness deteriorates. A Fund may also suffer losses
if it is unable to terminate outstanding swap agreements or reduce its
exposure through offsetting transactions.
7
<PAGE>
Swaps, caps, floors and collars are highly specialized activities which
involve certain risks. See the Statement of Additional Information on, and
the risks involved in, these activities.
Lending of Securities and Short Sales: The Fund may make loans of its
portfolio securities. Such loans will usually be made to member banks of the
Federal Reserve System and member firms of the New York Stock Exchange (and
subsidiaries thereof) under contracts calling for collateral in U.S.
Government securities, cash or cash equivalents. 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). The Fund may pay finder's and other
fees in connection with securities loans. The Fund may also make short sales
involving either securities retained in the Fund's portfolio or securities
which the Fund has the right to acquire without paying additional
consideration.
For additional information concerning the use, risks and costs of "when-
issued" and "forward delivery" securities, the lending of securities and
Futures Contracts, see the Statement of Additional Information.
Portfolio Trading: The Fund intends to manage its portfolio by buying and
selling Government Securities, as well as holding selected obligations to
maturity, and by engaging in transactions involving related options and
Futures Contracts. In managing its portfolio the Fund seeks to maximize the
return on its portfolio by taking advantage of market developments and yield
disparities. As the Fund has historically had a relatively high portfolio
turnover rate, transaction costs incurred by the Fund and the Fund's realized
capital gains and losses may be greater than that of a fund with a lesser
portfolio turnover rate. For a description of the strategies which may be
used by the Fund in managing its portfolio, see the Statement of Additional
Information.
The primary consideration in placing portfolio security transactions with
broker-dealers for execution is to obtain and maintain the availability of
execution at the most favorable prices and in the most effective manner
possible. Consistent with the foregoing primary consideration, the Rules of
Fair Practice of the National Association of Securities Dealers, Inc.
("NASD") and such other policies as the Trustees may determine, the Adviser
may consider sales of shares of the Fund and of other investment company
clients of MFS Financial Services, Inc. ("FSI"), the Fund's distributor, as a
factor in the selection of broker-dealers to execute the Fund's portfolio
transactions. For a further discussion of portfolio trading, see the
Statement of Additional Information.
Options on Fixed Income Securities: The Fund may write (sell) covered put and
call options on fixed income securities and purchase put and call options.
The Fund will write such options for hedging purposes and to increase its
return; however, it will not write such options for the purpose of attempting
to pay out a pre-established level of dividends or distributions. The Fund
may also write combinations of put and call options on the same security,
known as "straddles." The Fund may purchase put or call options in
anticipation of declines in the value of fixed income portfolio securities or
increases in the value of securities to be acquired.
The Fund may also enter into options on the yield "spread," or yield
differential, between two securities, a transaction referred to as a "yield
curve" option, for hedging purposes. In contrast to other types of options, a
yield curve option is based on the difference between the yields of
designated securities rather than the actual prices of the individual
securities, and is settled through cash payments. Accordingly, a yield curve
option is profitable to the holder if this differential widens (in the case
of a call) or narrows (in the case of a put), regardless of whether the
yields of the underlying securities increase or decrease. Yield curve options
written by the Fund will be covered as described in the Statement of
Additional Information. The trading of yield curve options is subject to all
the risks associated with trading other types of options, as discussed below
under "Risks of Investment in Options, Futures Contracts and Options on
Futures Contracts" and in the Statement of Additional Information. In
addition, such options present risks of loss even if the yield on one of the
underlying securities remains constant, if the spread moves in a direction or
to an extent which was not anticipated.
In certain instances, the Fund may enter into options on Treasury Securities
which may be referred to as "reset" options or "adjustable strike" options.
These options provide for periodic adjustment of the strike price and may
also provide for the periodic adjustment of the premium during the term of
the option.
8
<PAGE>
The Fund may purchase and sell options that are traded on U.S. exchanges, and
options traded over-the-counter, with broker- dealers who deal in these
options. The ability to terminate over-the-counter options is more limited
than with exchange-traded options and may involve the risk that
broker-dealers participating in such transactions will not fulfill their
obligations. The Fund will treat assets used to cover over-the-counter
options as illiquid unless the dealer is a primary dealer in U.S. Government
securities and has given the Fund the unconditional right to close such
options at a formula price, in which event only an amount of the cover
determined with reference to the formula will be considered illiquid. The
Fund may also write over-the-counter options with non-primary dealers and
will treat the assets used to cover these options as illiquid. See
"Investment Objectives, Policies and Restrictions--Options on Fixed Income
Securities" in the Statement of Additional Information for further discussion
of Options on Fixed Income Securities, as well as the associated risks.
Futures Contracts: The Fund may enter into futures contracts on fixed income
securities ("Futures Contracts"). Such transactions may be used to hedge
against anticipated future changes in interest rates which otherwise might
either adversely affect the value of the Fund's portfolio securities or
adversely affect the prices of Government Securities which the Fund intends
to purchase at a later date. Should interest rates move in an unexpected
manner, the Fund may not achieve the anticipated benefits of Futures
Contracts or may realize a loss.
The Fund may also enter into Futures Contracts for non-hedging purposes, to
the extent permitted by applicable law, which involves greater risks. See
"Investment Objectives, Policies and Restrictions--Futures Contracts" in the
Statement of Additional Information for further discussion of Futures
Contracts, as well as the associated risks.
Options on Futures Contracts: The Fund may also purchase and write options on
Futures Contracts ("Options on Futures Contracts") for hedging purposes for
the purpose of protecting against declines in the value of fixed income
portfolio securities or against increases in the cost of such securities to
be acquired, as well as for non-hedging purposes to the extent permitted by
applicable law. Purchases of Options on Futures Contracts may present less
risk in hedging the portfolio of the Fund than the purchase or sale of the
underlying Futures Contracts, since the potential loss is limited to the
amount of the premium paid for the option, plus related transaction costs.
The writing of such options, however, does not present less risk than the
trading of Futures Contracts, and will constitute only a partial hedge, up to
the amount of the premium received, less related transaction costs. In
addition, if an option is exercised, the Fund may suffer a loss on the
transaction. See "Investment Objectives, Policies and Restrictions--Options
on Futures Contracts" in the Statement of Additional Information for further
discussion of Options on Futures Contracts, as well as the associated risks.
Risks of Investment in Options, Futures Contracts and Options on Futures
Contracts: The Fund's use of options, Futures Contracts and Options on
Futures Contracts involves certain risks. For example, a lack of correlation
between the instrument underlying an option or Futures Contract and the
assets being hedged, or unexpected adverse price movements, could render the
Fund's hedging strategy unsuccessful and could result in losses. The Fund
also may enter into transactions in such instruments for non-hedging purposes
to the extent permitted by applicable law, which involves greater risk. In
particular, such transactions may result in losses for the Fund which are not
offset by gains on other portfolio positions, thereby reducing gross income.
There also can be no assurance that a liquid secondary market will exist for
any contract purchased or sold, and the Fund may be required to maintain a
position until exercise or expiration, which could result in losses. The
Statement of Additional Information contains a description of the nature and
trading mechanics of options, Futures Contracts and Options on Futures
Contracts and includes a discussion of the risks related to transactions
therein.
The investment objective and the policies described above may be changed
without shareholder approval.
The Statement of Additional Information includes a discussion of other
investment policies and a listing of specific investment restrictions which
govern the Fund's investment policies. The specific investment restrictions
listed in the Statement of Additional Information may not be changed without
shareholder approval. 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.
9
<PAGE>
5. MANAGEMENT OF THE FUND
Investment Adviser--The Adviser manages the assets of the Fund pursuant to an
Investment Advisory Agreement, dated December 19, 1985, as amended February
1, 1994 (the "Advisory Agreement"). The Adviser provides the Fund with
overall investment advisory and administrative services, as well as general
office facilities. James J. Calmas, a Vice President of the Adviser, is the
Fund's portfolio manager. Mr. Calmas became the portfolio manager of the Fund
in January, 1993. Mr. Calmas joined the Adviser in 1988 as an Investment
Analyst. 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, computed and paid monthly, equal to
the lesser of (i) 0.65% of the Fund's average daily net assets or (ii) 0.30%
of the Fund's average daily net assets and 6.1% 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 Fund's fiscal year ended November 30, 1993, MFS received management
fees under the Advisory Agreement of $7,174,766 (of which $2,975,262 was
based on average daily net assets and $4,199,504 on gross income), equivalent
on an annualized basis to 0.71% of the Fund's average daily net assets. Due
to the voluntary reduction of management fees, $757,448 of additional
management fees was not imposed on the Fund.
MFS also serves as investment adviser to each of the other funds in the MFS
Family of Funds (the "MFS Funds"), 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 Institutional Trust, MFS Union Standard Trust, MFS/Sun Life Series Trust,
Sun Growth Variable Annuity Fund, Inc. and seven variable accounts, each of
which is a registered investment company established by Sun Life Assurance
Company of Canada (U.S.) ("Sun Life of Canada (U.S.)") in connection with the
sale of Compass-2 and Compass-3 combination fixed/variable annuity contracts.
The MFS Asset Management Group, a division of MFS, provides investment advice
to substantial private clients.
MFS is America's oldest mutual fund organization. MFS and its predecessor
organizations have a history of money management dating from 1924 and the
founding of the first mutual fund in the United States, Massachusetts
Investors Trust. Net assets under the management of the MFS organization were
approximately $34.9 billion on behalf of over 1.4 million investor accounts
as of February 28, 1994. As of such date, the MFS organization managed
approximately $21.5 billion of assets in fixed income securities and $9.9
billion of assets in equity securities. MFS is a subsidiary of Sun Life of
Canada (U.S.), which in turn is a 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 R. Gardner and John D. McNeil. Mr. Brodkin is
the Chairman, Mr. Shames is the President and Mr. Scott is the Secretary and
a Senior Executive Vice President of MFS. Messrs. McNeil and Gardner are the
Chairman and 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 U.S. since 1895, establishing a
headquarters office 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 also the Chairman, President and a Trustee of the Fund. W. Thomas London,
Stephen E. Cavan, James R. Bordewick, Jr., James O. Yost and Linda J. Hoard,
who are officers of MFS, are also officers of the Fund.
Distributor--FSI, a wholly owned subsidiary of MFS, is the distributor of
shares of the Fund and serves as distributor for each of the other MFS Funds.
Shareholder Servicing Agent--MFS Service Center, Inc. (the "Shareholder
Servicing Agent"), a wholly owned subsidiary of MFS, performs transfer
agency, certain dividend disbursing agency and other services for the Fund.
6. INFORMATION CONCERNING SHARES OF THE FUND
Purchases
Shares of the Fund may be purchased at the public offering price through any
securities dealer, certain banks and other financial institutions having
selling agreements with FSI. Non-securities dealer financial institutions
will receive transaction fees that
10
<PAGE>
are the same as commission fees to dealers. Securities dealers and other
financial institutions may also charge their customers fees relating to
investments in the Fund.
The Fund offers two classes of shares which bear sales charges and
distribution fees in different forms and amounts:
Class A shares: Class A shares are offered at net asset value plus an initial
sales charge (or CDSC in the case of certain purchases of $1 million or more)
as follows:
<TABLE>
<CAPTION>
Sales Charge*
as percentage of: Dealer
----------------------- Allowance
Net as a Percent-
Offering Amount age of Offer-
Amount of Purchase Price Invested ing Price
<S> <C> <C> <C>
Less than $100,000 4.75% 4.99% 4.00%
$100,000 but less than $250,000 4.00 4.17 3.20
$250,000 but less than $500,000 2.95 3.04 2.25
$500,000 but less than $1,000,000 2.20% 2.25% 1.70%
$1,000,000 or more None** None** See Below**
<FN>
* 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 may apply in certain circumstances. FSI will pay a commission on
purchases of $1 million or more.
</FN>
</TABLE>
No sales charge is payable at the time of purchase of Class A shares on
investments of $1 million or more. However, a CDSC shall be imposed on such
investments in the event of a share redemption within 12 months following the
share purchase, at the rate of 1% of the lesser of the value of the shares
redeemed (exclusive of reinvested dividends and capital gain distributions)
or the total cost of such shares.
In determining whether a CDSC on such Class A shares is payable, and, if so,
the amount of the charge, it is assumed that shares not subject to the CDSC
are the first redeemed followed by other shares held for the longest period
of time. All investments 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. Except as noted below, the CDSC on
Class A shares will be waived in the case of: (i) exchanges (except that if
the shares acquired by exchange were then redeemed within 12 months of the
initial purchase (other than in connection with subsequent exchanges to other
MFS Funds), the charge would not be waived); (ii) distributions to
participants from a retirement plan qualified under section 401(a) of the
Internal Revenue Code of 1986, as amended (the "Code") (a "Retirement Plan"),
due to: (a) a loan from the plan (repayments of loans, however, will
constitute new sales for purposes of assessing the CDSC); (b) "financial
hardship" of the participant in the plan, as that term is defined in Treasury
Regulation Section 1.401(k)-1(d)(2), as amended from time to time; or (c) the
death of a participant in such a plan; (iii) distributions from a 403(b) plan
or an Individual Retirement Account ("IRA") due to death, disability, or
attainment of age 59-1/2; (iv) tax-free returns of excess contributions to an
IRA; (v) distributions by other employee benefit plans to pay benefits; and
(vi) certain involuntary redemptions and redemptions in connection with
certain automatic withdrawals from a qualified retirement plan. The CDSC on
Class A shares will not be waived, however, if the Retirement Plan withdraws
from the Fund except if the Retirement Plan has invested its assets in Class
A shares of 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 Retirement Plan
first invests its assets in Class A shares of one or more of the MFS Funds,
the CDSC on Class A shares will be waived in the case of a redemption of all
of the Retirement Plan's shares (including shares of any other class) in all
MFS Funds (i.e., all the assets of the Retirement Plan invested in the MFS
Funds are withdrawn), unless, immediately prior to the redemption, the
aggregate amount invested by the Retirement Plan in Class A shares of the MFS
Funds (excluding the reinvestment of distributions) during the prior four
year period equals 50% or more of the total value of the Retirement Plan's
assets in the MFS Funds, in which case the CDSC will not be waived. Any
applicable CDSC will be deferred upon an exchange of Class A shares of the
Fund for units of participation of the MFS Fixed Fund (a bank collective
investment fund) (the "Units"), and the CDSC will be deducted from the
redemption proceeds when such Units are subsequently redeemed (assuming the
CDSC is then payable). No CDSC will be assessed upon an exchange of Units for
Class A shares of the Fund. For purposes of calculating the CDSC payable upon
redemption of Class A shares of the Fund or Units acquired pursuant to one or
more exchanges, the period during which the Units are held will be aggregated
with the period during which the Class A shares are held. The applicability
of the CDSC will be unaffected by transfers of registration. FSI shall
receive all CSDCs.
11
<PAGE>
FSI 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 4% and FSI retains approximately
3/4 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 and
other funds owned or being purchased, the existence of an agreement to
purchase additional shares during a 13-month period (or a 36-month period for
purchases of $1 million or more), or special purchase programs. A description
of the Right of Accumulation, Letter of Intent and Group Purchase privileges
by which the sales charge may also be reduced is set forth in the Statement
of Additional Information. In addition, FSI pays a commission to dealers who
initiate and are responsible for purchases of $1 million or more as follows:
1.00% on sales up to $5 million; plus 0.25% on the amount in excess of $5
million. Purchases of $1 million or more for each shareholder account will be
aggregated over a 12-month period (commencing from the date of the first such
purchase) for purposes of determining the level of commissions to be paid
during that period with respect to such account.
Class A shares of the Fund may be sold at their net asset value to the
officers of the Fund, to any of the subsidiary companies of Sun Life, to
eligible Directors, officers, employees (including retired employees) and
agents of MFS, Sun Life or any of their subsidiary companies, to any trust,
pension, profit-sharing or any other benefit plan for such persons, to any
trustees and retired trustees of any investment company for which FSI serves
as distributor or principal underwriter, and to certain family members of
such individuals and their spouses, provided the shares will not be resold
except to the Fund. Class A shares of the Fund may be sold at net asset value
to any employee, partner, officer or trustee of any sub-adviser to any MFS
Fund and to certain family members of such individuals and their spouses, or
to any trust, pension, profit-sharing or other retirement plan for the sole
benefit of such employee or representative, provided such shares will not be
resold except to the Fund. Class A shares of the Fund may be sold at their
net asset value to any employee or registered representative of any dealer or
other financial institution which has a sales agreement with FSI or its
affiliates, to certain family members of such employees or representatives
and their spouses, or to any trust, pension, profit-sharing or other
retirement plan for the sole benefit of such employee or representative, as
well as to clients of the MFS Asset Management Group. Class A shares of the
Fund also may be sold at net asset value, subject to appropriate
documentation, through a dealer where the amount invested represents
redemption proceeds from a registered open-end management investment company
not distributed or managed by FSI or its affiliates, if such redemption has
occurred no more than 60 days prior to the purchase of Class A shares of the
Fund and the shareholder either (i) paid an initial sales charge or (ii) was
at some time subject to, but did not actually pay, a deferred sales charge
with respect to the redemption proceeds. Class A shares of the Fund may also
be sold at net asset value where the amount invested represents redemption
proceeds from the MFS Fixed Fund. In addition, Class A shares of the Fund may
also be sold at net asset value in connection with the acquisition or
liquidation of the assets of other investment companies or personal holding
companies. Insurance company separate accounts may purchase Class A shares of
the Fund at their net asset value. Class A shares of the Fund may also be
purchased at their net asset value by retirement plans where third party
administrators of such plans have entered into certain arrangements with FSI
or its affiliates provided that no commission is paid to dealers. Class A
shares of the Fund may be purchased at net asset value through certain
broker-dealers and other financial institutions which have entered into an
agreement with FSI, which includes a requirement that such shares be sold for
the benefit of clients participating in a "wrap account" or a similar program
under which such clients pay a fee to such broker-dealer or other financial
institution.
Class A shares of the Fund may be purchased at net asset value by retirement
plans qualified under section 401(a) or 403(b) of the Code which are subject
to the Employee Retirement Income Security Act of 1974, as amended, as
follows:
(i) the retirement plan and/or the sponsoring organization must subscribe
to the MFS FUNDamental 401(k) Plan|PS or another similar Section 401(a) or
403(b) recordkeeping program made available by MFS Service Center, Inc.;
(ii) either (a) the sponsoring organization must have at least 25 employees
or (b) the aggregate purchases by the retirement plan of Class A shares of
the MFS Funds must be in an amount of at least $250,000 within a reasonable
period of time, as determined by FSI in its sole discretion; and
(iii) a CDSC of 1% will be imposed on such purchases in the event of
certain redemption transactions within 12 months following such purchases.
12
<PAGE>
Dealers who initiate and are responsible for purchases of Class A shares of
the Fund in this manner will be paid a commission by FSI, as follows: 1.00%
on sales up to $5 million, plus 0.25% on the amount in excess of $5 million;
provided, however, that FSI may pay a commission, on sales in excess of $5
million to certain retirement plans, of 1.00% to certain dealers which, at
FSI's invitation, enter into an agreement with FSI in which the dealer agrees
to return any commission paid to it on the sale (or on a pro rata portion
thereof) if the shareholder redeems his or her shares within a period of time
after purchase as specified by FSI. Purchases of $1 million or more for each
shareholder account will be aggregated over a 12-month period (commencing
from the date of the first such purchase) for purposes of determining the
level of commissions to be paid during that period with respect to such
account. Class A shares of the Fund may also be sold at net asset value
through the automatic reinvestment of Class A and Class B periodic
distributions which constitute required withdrawals from qualified retirement
plans. Class A shares of the Fund may also be purchased at net asset value
("NAV") where the purchase is in an amount of $3 million or more and where
the dealer and FSI enter into an agreement in which the dealer agrees to
return any commission paid to it on the sale (or on a pro rata portion
thereof) as described above if the shareholder redeems his or her shares
within a year of purchase. (Shareholders who purchase shares at NAV pursuant
to these conditions are called "$3 Million Shareholders.") Furthermore, Class
A shares of the Fund may be sold at net asset value through the automatic
reinvestment of distributions of dividends and capital gains of other MFS
Funds pursuant to the Distribution Investment Program (see "Shareholder
Services" in the Statement of Additional Information).
Class B shares: Class B shares are offered at net asset value without an
initial sales charge but subject to a CDSC as follows:
<TABLE>
<CAPTION>
Year of Contingent
Redemption Deferred Sales
After Purchase Charge
- ---------------------------- -------------------
<S> <C>
First 4%*
Second 4%
Third 3%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and following 0%
<FN>
*Class B shares purchased during the period January 1, 1993 up to September
1, 1993 will be subject to a CDSC of 5% in the event of a redemption within
the first year after purchase.
</FN>
</TABLE>
For Class B shares purchased prior to January 1, 1993, the Fund imposes a
CDSC as a percentage of redemption proceeds as follows:
<TABLE>
<CAPTION>
Year of Contingent
Redemption Deferred Sales
After Purchase Charge
- ---------------------------- -------------------
<S> <C>
First 6%
Second 5%
Third 4%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and following 0%
</TABLE>
No CDSC is paid upon an exchange of 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. See "Redemptions and
Repurchases--Contingent Deferred Sales Charge" for further discussion of the
CDSC.
The CDSC on Class B shares will be waived upon the death or disability (as
defined in section 72(m)(7) of the Code) of any investor, provided the
account is registered (i) in the case of a deceased individual, solely in the
deceased individual's name,
13
<PAGE>
(ii) in the case of a disabled individual, solely or jointly in the disabled
individual's name or (iii) in the name of a living trust for the benefit of
the deceased or disabled individual. The CDSC on Class B shares will also be
waived in the case of redemptions of shares of the Fund pursuant to a
systematic withdrawal plan. In addition, the CDSC on Class B shares will be
waived in the case of distributions from an IRA, SAR-SEP or any other
retirement plan qualified under section 401(a), 401(k) or 403(b) of the Code
(in the case of the SAR-SEP) due to death or disability, or in the case of
required minimum distributions from any such retirement plan due to
attainment of age 70-1/2. The CDSC on Class B shares will be waived in the
case of distributions from a retirement plan qualified under Section 401(a)
of the Code due to (i) returns of excess contribution to the plan, (ii)
retirement of a participant in the plan, (iii) a loan from the plan
(repayments of loans, however, will constitute new sales for purposes of
assessing the CDSC), (iv) "financial hardship" of the participant in the
plan, as that term is defined in Treasury Regulation Section
1.401(k)-1(d)(2), as amended from time to time, and (v) termination of
employment of the participant in the plan (excluding, however, a partial or
other termination of the plan). The CDSC on Class B shares will also be
waived upon redemptions by (i) officers of the Trust, (ii) any of the
subsidiary companies of Sun Life, (iii) eligible Directors, officers,
employees (including retired employees) and agents of MFS, Sun Life or any of
their subsidiary companies, (iv) any trust, pension, profit-sharing or any
other benefit plan for such persons, (v) any trustees and retired trustees of
any investment company for which FSI serves as distributor or principal
underwriter, and (vi) certain family members of such individuals and their
spouses, provided in each case that the shares will not be resold except to
the Fund. The CDSC on Class B shares will also be waived in the case of
redemptions by any employee or registered representative of any dealer or
other financial institution which has a sales agreement with FSI, by certain
family members of any such employee or representative and their spouses, by
any trust, pension, profit-sharing or other retirement plan for the sole
benefit of such employee or representative and by clients of the MFS Asset
Management Group. A retirement plan qualified under section 401(a) of the
Code (a "Retirement Plan"), that has invested its assets in Class B shares of
one or more of the MFS Family of Funds (the "MFS Funds") for more than 10
years from the later to occur of (i) January 1, 1993 or (ii) the date the
Retirement Plan first invests its assets in Class B shares of one or more of
the funds in the MFS Funds will have the CDSC on Class B shares waived in the
case of a redemption of all the Retirement Plan's shares (including any Class
A shares) in all MFS Funds (i.e., all the assets of the Retirement Plan
invested in the MFS Funds are withdrawn), except that if, immediately prior
to the redemption, the aggregate amount invested by the Retirement Plan in
Class B shares of the MFS Funds (excluding the reinvestment of distributions)
during the prior four year period equals 50% or more of the total value of
the Retirement Plan's assets in the MFS Funds, then the CDSC will not be
waived. The CDSC on Class B shares may also be waived in connection with the
acquisition or liquidation of the assets of other investment companies or
personal holding companies.
Conversion of Class B Shares. Class B shares of the Fund will convert to
Class A shares of the Fund approximately eight years after the purchase date.
Shares purchased through the reinvestment of distributions paid in respect of
Class B shares will be treated as Class B shares for purposes of the payment
of the distribution and service fees under the Distribution Plan applicable
to Class B shares. 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 bear to the shareholder's total Class B shares not acquired through
such 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.
General: 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
14
<PAGE>
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 FSI. The Fund reserves the right to cease offering its shares
for sale at any time.
For shareholders who elect to participate in certain investment programs
(e.g., the automatic investment plan) or other shareholder services, FSI 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.
A shareholder whose shares are held in the name of, or controlled by, an
investment 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.
The Fund and FSI each reserve the right to reject any specific purchase order
or to restrict purchases by a particular purchaser (or group of related
purchasers). The Fund or FSI may reject or restrict any purchases of the
Fund's shares by a particular purchaser or group, for example, when a pattern
of frequent purchases and sales of shares of the Fund is evident, or if the
purchase and sale orders are, or a subsequent abrupt redemption might be, of
a size that would disrupt management of the Fund. The Fund and FSI intend
specifically to exercise this right in order to reject or restrict purchases
by market timers (including asset allocators) and the shareholder(s) whose
accounts are exchanged periodically based on an arrangement with or advice
from such persons or whose transactions seem to follow a timing pattern. In
particular, action may be taken if: (i) more than two exchange purchases are
effected in a timed account in the same calendar quarter; or (ii) a purchase
would result in shares being held in timed accounts by an individual or firm
representing more than (x) one percent of the Fund's net assets or (y)
specified dollar amounts in the case of certain MFS Funds, which may include
the Fund and which may change from time to time. The Fund and FSI each
reserve the right to request holders of timed accounts to redeem their shares
at net asset value, less any CDSC otherwise applicable, if either of these
restrictions is violated.
Securities dealers and other financial institutions may receive different
compensation with respect to sales of Class A and Class B shares.
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, FSI believes that such Act
should not preclude banks from entering into agency agreements with FSI (as
described above). 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. 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 pursuant to state law.
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 (if available for sale) at net asset value. Shares of
one class may not be exchanged for shares of any other class. Exchanges will
be made 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
MFS FUNDamental 401(k) Plan or another similar 401(k) recordkeeping system
made available by MFS Service Center, Inc.) 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 (the
15
<PAGE>
"Exchange"), the exchange usually will occur on that day if all the
requirements set forth above have been complied with at that time. 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 investment dealers or the
Shareholder Servicing Agent. A shareholder should read the prospectus of the
other MFS Fund and consider the differences in objectives and policies before
making any exchange. 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 timer accounts (see "Purchases").
Redemptions and Repurchases
A shareholder may withdraw all or any portion of the amount in his account on
any date on which the Fund is open for business by redeeming shares at their
net asset value or by selling such shares to the Fund through a dealer (a
repurchase). Since the net asset value of shares of the account fluctuate,
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 15 days from the purchase date in an effort to assure that such check has
cleared. Payment of redemption proceeds 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.
A. Redemption By Mail--Each shareholder has the right to 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 a letter of instruction, together with his
share certificates (if any were issued), all in "good order" for transfer.
"Good order" generally means that a 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" may 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 by the Shareholder
Servicing Agent in "good order", 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 Investment Company
Act of 1940 the ("1940 Act"), if an emergency exists (see "Tax Status").
B. Redemption By Telephone--Each shareholder may redeem an amount from his
account by telephoning 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 commercial 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 described above and
the amount of any income tax required to be withheld, are mailed by check to
the designated account, without charge. As a special service, investors may
arrange to have proceeds in excess of $1,000 wired in federal funds to the
designated account. 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
16
<PAGE>
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.
C. Repurchase Through a Dealer--If a shareholder desires to sell his shares
at their net asset value through his securities 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 FSI on
the same day before FSI closes for business, the shareholder will receive the
net asset value calculated on that day.
D. Redemption By Check--Only Class A shares may be redeemed by check. A
shareholder (except a $3 Million 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 shares from his or
her account by check. The Bank will provide each Class A 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", and must return any Class A 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 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 the Class A 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
fluctuation 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.
Signature Guarantee: In order to protect shareholders against fraud to the
greatest extent possible, 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.
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 twelve months of the initial purchase for 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 Statement
of Additional Information regarding this privilege.
Subject to the Fund's compliance with applicable regulations, the Fund has
reserved the right to pay the redemption or repurchase price of shares of the
Fund, either totally or partially, by a distribution in kind of securities
(instead of cash) from the
17
<PAGE>
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, he would incur transaction charges when he converted
the securities to cash.
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 (which will be promptly paid to the shareholder) if at any time the
total investment in such account drops below $500 because of redemptions,
except in the case of accounts being established for monthly automatic
investments and certain payroll savings programs, Automatic Exchange Plan
accounts and tax-deferred retirement plans, for which there is a lower
minimum investment requirement. See "Information Concerning Shares of the
Fund--Purchases". 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. No CDSC
will be imposed with respect to such involuntary redemptions.
Contingent Deferred Sales Charge--Investments ("Direct Purchases") will be
subject to a CDSC for a period of 12 months (in the case of purchases of $1
million or more of Class A shares) or six years (in the case of purchases of
Class B shares). 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 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 attributable to shareholders of MFS Lifetime Government Fund (which
was merged into the Fund on September 7, 1993), which were 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 represented by Direct Purchases exceeds the sum of the six
calendar year aggregations (twelve months in the case of purchases of $1
million or more 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 shares of a particular class, (i) any
Free Amount is not subject to the CDSC, and (ii) the amount of 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 will be calculated as
set forth in "Purchases" above.
The applicability of the CDSC will be unaffected by exchanges or transfers of
registration.
Distribution Plans
The Trustees have adopted separate distribution plans for Class A and Class B
shares 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 plans would benefit the Fund and its shareholders.
Class A Distribution Plan. The Class A Distribution Plan provides that the
Fund will pay FSI a distribution/service fee aggregating up to (but not
necessarily all of) 0.35% of the average daily net assets attributable to
Class A shares annually in order that FSI may pay expenses on behalf of the
Fund related to the distribution and servicing of Class A shares. The
expenses to be paid by FSI on behalf of the Fund include a service fee to
securities dealers which enter into a sales agreement with FSI of up to 0.25%
per annum of the Fund's average daily net assets attributable to Class A
shares that are owned by investors for whom such securities dealer is the
dealer of record. This fee is intended to be partial consideration for all
personal services
18
<PAGE>
and/or account maintenance services rendered by the holder or dealer with
respect to Class A shares. FSI may from time to time reduce the amount of the
service fee paid for shares sold prior to a certain date. Service fees may be
reduced for a securities 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. FSI or its affiliates
are entitled to retain all service fees payable under the Class A
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 FSI or its
affiliates to shareholder accounts. FSI will also retain a distribution fee
of 0.10% of the Fund's average daily net assets attributable to Class A
shares as partial consideration for services performed and expenses incurred
in the performance of FSI's obligations under its distribution agreement with
the Fund. In addition, to the extent that the aggregate of the foregoing fees
does 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 other
distribution-related expenses, including commissions to dealers and payments
to wholesalers employed by FSI for sales at or above a certain dollar level.
Fees payable under the Class A Distribution Plan are charged to, and
therefore reduce, income allocated to Class A shares. Certain banks and other
financial institutions that have agency agreements with FSI will receive
service fees that are the same as service fees to dealers.
Class B Distribution Plan. The Class B Distribution Plan provides that the
Fund will pay FSI a daily distribution fee payable equal on an annual basis
to 0.75% of the Fund's average daily net assets attributable to Class B
shares and will pay FSI a service fee of up to 0.25% per annum of the Fund's
average daily net assets attributable to Class B shares (which FSI will in
turn pay to securities dealers which enter into a sales agreement with FSI at
a rate of up to 0.25% per annum of the Fund's average daily net assets
attributable to Class B shares owned by investors for whom that securities
dealer is the holder or dealer of record). This service fee is intended to be
additional consideration for all personal services and/or account maintenance
services rendered by the dealer with respect to Class B shares. The Class B
Distribution Plan also provides that FSI will receive all CDSCs attributable
to Class B shares (see "Redemptions and Repurchases" above), which do not
reduce the distribution fee. FSI will pay commissions to dealers of 3.75% of
the purchase price of Class B shares purchased through dealers. FSI will also
advance to dealers the first year service fee at a rate equal to 0.25% of the
purchase price of such shares and as compensation therefor, FSI may retain
the service fee paid by the Fund with respect to such shares for the first
year after purchase. Therefore, the total amount paid to a dealer upon the
sale of shares is 4.00% of the purchase price of the shares (commission rate
of 3.75% plus service fee equal to 0.25% of the purchase price). Dealers will
become eligible for additional service fees with respect to such shares
commencing in the thirteenth month following purchase. Dealers may from time
to time be required to meet certain criteria in order to receive service
fees. FSI or its affiliates are entitled to retain all service fees payable
under the Class B 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 FSI or
its affiliates to shareholder accounts. The purpose of the distribution
payments to FSI under the Class B Distribution Plan is to compensate FSI for
its distribution services to the Fund. Since FSI's compensation is not
directly tied to its expenses, the amount of compensation received by FSI
during any year may be more or less than its actual expenses. For this
reason, this type of distribution fee arrangement is characterized by the
staff of the SEC as being of the "compensation" variety. However, the Fund is
not liable for any expenses incurred by FSI in excess of the amount of
compensation it receives. The expenses incurred by FSI, including commissions
to dealers, are likely to be greater than the distribution fees for the next
several years, but thereafter such expenses may be less than the amount of
the distribution fees. Fees payable under the Class B Distribution Plan are
charged to, and therefore reduce, income allocated to Class B shares. Certain
banks and other financial institutions that have agency agreements with FSI
will receive agency transaction and service fees that are the same as
commissions and service fees to dealers.
Distributions
The Fund intends to pay substantially all of its net investment income for
any calendar year to its shareholders as dividends on a monthly basis. In
determining the net investment income available for distributions, the Fund
may rely on projections of its anticipated net investment income rather than
its actual net investment income for the period. In addition, the Fund may
make one or more distributions during the calendar year to its shareholders
from any long-term capital gains. The Fund also may make one or more
distributions during the calendar year to its shareholders from short-term
capital gains. If the Fund
19
<PAGE>
earns less than projected, or otherwise distributes more than its earnings
for the year, a portion of the distributions may constitute a return of
capital. Shareholders may elect to receive dividends and capital gain
distributions in either cash or additional shares of the class with respect
to which the distribution is paid. 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 shares because expenses attributable to Class B shares
will generally be higher.
Tax Status
In order to minimize the taxes the Fund would otherwise be required to pay,
the Fund intends to qualify each year as a "regulated investment company"
under Subchapter M of the Code and to make distributions to its shareholders
in accordance with the timing requirements set out in the Code. It is
expected that the Fund will not be required to pay entity level federal
income or excise taxes. Shareholders of the Fund normally will have to pay
federal income taxes, and any state or local taxes, on the dividends and
capital gain distributions they receive from the Fund, whether paid in cash
or additional shares. The Fund expects that none of its dividends and
distributions will be eligible for the dividends-received deduction for
corporations. A statement setting forth the federal income tax status of all
dividends and distributions for each calendar year, including the portion
taxable as ordinary income, the portion taxable as long-term capital gains,
the portion, if any, representing a return of capital (which is generally
free of current taxes but results in a basis reduction) and the amount of any
federal income tax withheld will be sent to each shareholder promptly after
the end of such year.
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 of 31% of 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 his or her correct taxpayer
identification number and certain information and certificates, 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
information regarding backup withholding of federal income tax and consult
their own tax advisors as to the tax consequences of an investment in the
Fund.
State and Local Taxes. Dividends of the Fund which 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. In other states, arguments can be made on the basis of a U.S.
Supreme Court decision to the effect that such distributions should be exempt
from state and local taxes. The Fund intends to advise shareholders of the
proportion of its distributions which consists of interest derived from such
sources. Shareholders should consult their tax advisers regarding the
possible exclusion of such portion of their dividends for state and local
income tax purposes.
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. This determination is made
once during each such day as of the close of regular trading on the Exchange
by deducting the amount of the Fund's liabilities attributable to the class
from the value of the Fund's 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 Statement of Additional Information. The net asset
value of each class of shares is effective for orders received by the dealer
prior to its calculation and received by FSI prior to the close of that
business day.
Description of Shares, Voting Rights and Liabilities
The Fund has two classes of shares, entitled Class A and Class B Shares of
Beneficial Interest (without par value). The Fund has reserved the right to
create and issue additional classes and series of shares, in which case each
class of shares of a series would participate equally in the earnings,
dividends and assets attributable to that class of shares of that particular
series. Share-
20
<PAGE>
holders are entitled to one vote for each share held and shares 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.
Additionally, each class of shares of a series will vote separately on any
material increases in the fees under its Distribution Plan or on any other
matter that affects solely that class of shares, but will otherwise vote
together with all other classes of shares of the series on all other matters.
The Fund does not intend to hold annual shareholder meetings. The 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
Statement of Additional Information).
Each share of a class of the Fund represents an equal proportionate interest
in the Fund with each other class share, subject to the liabilities of the
particular class. Shares have no pre-emptive or conversion rights (except as
described above in "Information Concerning Shares of the
Fund--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 of the Fund 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 omission insurance)
and the Fund itself was unable to meet its obligations.
Performance Information
From time to time, the Fund will provide yield, current distribution rate and
total rate of return quotations for each class of shares and may also quote
fund rankings in the relevant fund category from various sources, such as the
Lipper Analytical Services, Inc. and Weisenberger Investment Companies
Service. Yield quotations will be based on the annualized net investment
income per share of a class of the Fund over a 30 day period stated as a
percent of the maximum public offering price of shares of that class on the
last day of that period. Yield calculations for Class B shares assume 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 twelve 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
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
will reflect the average annual percentage change over stated periods in the
value of an investment in a class of the Fund made at the maximum public
offering price of shares of that class with all distributions reinvested and
which, if quoted for periods of six years or less, will give effect to the
imposition of the CDSC assessed upon redemption of the Fund's Class B shares.
Such total rate of return quotations may be accompanied by quotations which
do not reflect the reduction in the value of the initial investment due to
the sales charge or the deduction of a CDSC, and which will thus be higher.
All performance quotations are based on historical performance and are not
intended to indicate future performance. Yield reflects only net portfolio
income as of a stated period of 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
Statement of Additional Information. 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 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).
21
<PAGE>
Account and Confirmation Statements--Each shareholder will receive
confirmation statements showing the transaction activity in his account. At
the end of each calendar year, each shareholder will receive income tax
information regarding reportable dividends and capital gain 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 (including short-term capital gains) in cash; long-term 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 at the net asset value in effect at the close of
business on the record date. Dividends and capital gain distributions in
amounts less than $10 will automatically be reinvested in additional shares
of the Fund. 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 Statement of Additional Information) anticipates purchasing
$100,000 or more of Class A shares of the Fund alone or in combination with
the total value of all shares of all classes 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 of the Fund at the same reduced sales charge as though the
total quantity were invested in one lump sum, subject to escrow agreements
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 all classes of
shares of that shareholder in the MFS Funds or the MFS Fixed Fund (a bank
collective investment fund) reaches a discount level.
Distribution Investment Program: Shares of a particular class of the Fund
may be sold at net asset value (and without any applicable CDSC) through the
automatic reinvestment of dividend and capital gain distributions from the
same class of another MFS Fund. Furthermore, distributions made by the Fund
may be automatically invested at net asset value in shares of the same class
of another MFS Fund, if shares of such Fund are available for sale (and
without any applicable CDSC).
Systematic Withdrawal Plan: A shareholder (except a $3 Million Shareholder)
may direct the Shareholder Servicing Agent to send him (or anyone he
designates) regular periodic payments, as designated on the Account
Application and based upon the value of his account. Each payment under a
Systematic Withdrawal Plan must be at least $100, except in certain limited
circumstances. The aggregate withdrawals of Class B 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 establishment of the SWP. The CDSC
will not be waived in the case of SWP redemptions of Class A shares which are
subject to a CDSC.
Dollar Cost Averaging Programs--
Automatic Investment Plan: Cash investments of $50 or more may be made
through a shareholder's checking account twice monthly, monthly or quarterly.
Required forms are available from the Shareholder Servicing Agent or
investment dealers.
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<PAGE>
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 other MFS Funds under the Automatic Exchange Plan, a dollar cost averaging
program. The Automatic Exchange Plan provides for automatic monthly or
quarterly transfers of funds from the shareholder's account in an MFS Fund
for investment in the same class of shares in other MFS Funds selected by the
shareholder. Under the Automatic Exchange Plan, transfers of at least $50
each may be made to up to four different funds. A shareholder should consider
the objectives and policies of a fund and review its prospectus before
electing to transfer money into such fund through the Automatic Exchange
Plan. No transaction fee is imposed in connection with transfer transactions
under the Automatic Exchange Plan. However, transfers 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. For federal and
(generally) state income tax purposes, a transfer is treated as a sale of the
shares transferred and, therefore, could result in a capital gain or loss to
the shareholder making the transfer. See the Statement of Additional
Information 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--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 Statement of Additional Information, dated April 1, 1994, contains
more detailed information about the Fund, including information related to
(i) investment policies and restrictions, (ii) its Trustees, officers and
investment adviser, (iii) portfolio transactions and brokerage commissions,
(iv) the method used to calculate performance quotations of the Fund, (v) the
Distribution Plans, and (vi) various services and privileges provided by the
Fund for the benefit of its shareholders, including additional information
with respect to the exchange privilege.
23
<PAGE>
APPENDIX
Description of Obligations Issued or Guaranteed by
U.S. Government Agencies, Authorities or Instrumentalities
GNMA Certificates--are mortgage-backed securities which represent a partial
ownership interest 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 either insured by the Federal Housing
Administration or guaranteed by the Veterans Administration.
The Fund will purchase only GNMA Certificates of the "modified pass-through"
type, which entitle the holder to receive its proportionate share of all
interest and principal payments owed on the mortgage pool, net of fees paid
to the issuer and GNMA. Payment of principal of and interest on GNMA
Certificates of the "modified pass-through" type is guaranteed by GNMA.
The average life of a GNMA Certificate is likely to be substantially less
than the original maturity of the mortgage pools underlying the securities.
Prepayments of principal by mortgagors and mortgage foreclosures will usually
result in the return of the greater part of principal invested far in advance
of the maturity of the mortgages in the pool. Foreclosures impose no risk to
principal investment because of the GNMA guarantee.
As the prepayment rates of individual mortgage pools will vary widely, it is
not possible to accurately predict the average life of a particular issue of
GNMA Certificates. However, statistics published by the FHA indicate that the
average life of a single-family dwelling mortgage with a 25- 30-year
maturity, the type of mortgage which backs the vast majority of GNMA
Certificates, is approximately 12 years. It is therefore customary practice
to treat GNMA Certificates as 30-year mortgage-backed securities which prepay
fully in the twelfth year.
As a consequence of the fees paid to GNMA and the issuer of GNMA
Certificates, the coupon rate of interest of GNMA Certificates is lower than
the interest paid on the VA-guaranteed or FHA-insured mortgages underlying
the GNMA Certificates.
The yield which will be earned on GNMA Certificates may vary from their
coupon rates for the following reasons: (i) Certificates may be issued at a
premium or discount, rather than at par; (ii) Certificates may trade in the
secondary market at a premium or discount after issuance; (iii) interest is
earned and compounded monthly which has the effect of raising the effective
yield earned on the Certificates; and (iv) the actual yield of each
Certificate is affected by the prepayment of mortgages included in the
mortgage pool underlying the Certificates and the rate at which principal so
prepaid is reinvested. In addition, prepayment of mortgages included in the
mortgage pool underlying a GNMA Certificate purchased at a premium may result
in a loss to the Fund.
Due to the large amount of GNMA Certificates outstanding and active
participation in the secondary market by securities dealers and investors,
GNMA Certificates are highly liquid instruments. Prices of GNMA Certificates
are readily available from securities dealers and depend on, among other
things, the level of market rates, the Certificate's coupon rate and the
prepayment experience of the pool of mortgages backing each Certificate.
FNMA Bonds--are bonds issued and guaranteed by the Federal National Mortgage
Association and supported by the discretionary authority of the U.S.
Government to purchase the agency's obligations.
FHLMC Bonds--are bonds issued and guaranteed by the Federal Home Loan
Mortgage Corporation and supported by the discretionary authority of the U.S.
Government to purchase the agency's obligations.
Export-Import Bank Certificates--are certificates of beneficial interest and
participation certificates issued and guaranteed by the Export-Import Bank of
the United States.
Federal Agricultural Mortgage Corporation Certificates--are certificates of
beneficial interest guaranteed by the Federal Agricultural Mortgage
Corporation.
24
<PAGE>
Federal Agricultural Mortgage Corporation Bonds and Notes--are bonds and
notes guaranteed by the Federal Agricultural Mortgage Corporation.
Federal Farm Credit Banks Consolidated Systemwide Notes and Bonds--are bonds
issued and guaranteed by a cooperatively owned nationwide system of banks and
associations supervised by the Farm Credit Administration.
Federal Home Loan Bank Notes and Bonds--are notes and bonds issued by the
Federal Home Loan Bank System.
Federal Home Loan Bank Certificates--are certificates of beneficial interest
and participation certificates issued and guaranteed by the Federal Home Loan
Bank System.
FHA Debentures--are debentures issued by the Federal Housing Authority of the
U.S. Government.
FICO Bonds and Notes--are bonds and notes issued and guaranteed by the
Financing Corporation.
GSA Participation Certificates--are participation certificates issued by the
General Services Administration of the U.S. Government.
Maritime Administration Bonds--are bonds issued by the Department of
Transportation of the U.S. Government.
New Communities Debentures--are debentures issued in accordance with the
provisions of Title IV of the Housing and Urban Development Act of 1968, as
supplemented and extended by Title VII of the Housing and Urban Development
Act of 1970, the payment of which is guaranteed by the U.S. Government.
REFCORP Bonds and Notes--are bonds and notes issued and guaranteed by the
Resolution Funding Corporation.
SBA Debentures--are debentures fully 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.
Title XI Bonds--are bonds issued in accordance with the provisions of Title
XI of the Merchant Marine Act of 1936, as amended, the payment of which is
guaranteed by the U.S. Government.
TVA Bonds and Notes--are bonds and notes issued and guaranteed by the
Tennessee Valley Authority.
U.S. Department of Veteran Affairs Certificates--are certificates of
beneficial interest guaranteed by the U.S. Department of Veteran Affairs.
Washington Metropolitan Area Transit Authority Bonds-- are bonds issued by
the Washington Metropolitan Area Transit Authority and guaranteed by the
Secretary of Transportation of the U.S. Government.
Although this list includes the primary types of Government Securities in
which the Fund invests (other than U.S. Treasury obligations), the Fund may
also invest in Government Securities other than those listed above.
25
<PAGE>
- --------------------------------------------------------------------------------
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 the MFS Service Center
at 1-800-225-2606 any business day from 8 a.m. to 8 p.m. Eastern time. This
material should be read carefully efore investing or sending money.
- ------------------------------------------
Stock Funds
- ------------------------------------------
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) Value Fund
- ------------------------------------------
MFS(R) World Equity Fund
- ------------------------------------------
MFS(R) World Growth Fund
- ------------------------------------------
- ------------------------------------------
Stock and Bond Funds
- ------------------------------------------
MFS(R) Total Return Fund
- ------------------------------------------
MFS(R) Utilities Fund
- ------------------------------------------
MFS(R) World Total Return Fund
- ------------------------------------------
- ------------------------------------------
Bond Funds
- ------------------------------------------
MFS(R) Bond Fund
- ------------------------------------------
MFS(R) Government Limited Maturity Fund
- ------------------------------------------
MFS(R) Government Mortgage Fund
- ------------------------------------------
MFS(R) Government Securities Fund
- ------------------------------------------
MFS(R) High Income Fund
- ------------------------------------------
MFS(R) Income & Opportunity Fund
- ------------------------------------------
MFS(R) Intermediate Income Fund
- ------------------------------------------
MFS(R) Limited Maturity Fund
- ------------------------------------------
MFS(R) World Governments Fund
- ------------------------------------------
- ------------------------------------------
Tax-Free Bond Funds
- ------------------------------------------
MFS(R) Municipal Bond Fund
- ------------------------------------------
MFS(R) Municipal High Income Fund**
- ------------------------------------------
MFS(R) Municipal Income Fund
- ------------------------------------------
MFS(R) Municipal Limited Maturity Fund
- ------------------------------------------
MFS(R) Municipal Series Trust (AL, AR, CA, FL,
GA, LA, MD, MA, MS, NY, NC, PA, SC, TN, TX, VA, WA, WV)
- ------------------------------------------
- ------------------------------------------
Money Market Funds
- ------------------------------------------
MFS(R) Cash Reserve Fund
- ------------------------------------------
MFS(R) Government Money Market Fund
- ------------------------------------------
MFS(R) Money Market Fund
- ------------------------------------------
* Closed to new investors, commencing January 14, 1994.
** Closed to new investors.
<PAGE>
Investment Adviser
Massachusetts Financial Services Company
500 Boylston Street, Boston, MA 02116
(617) 954-5000
Distributor
MFS Financial Services, 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 Accountants
Deloitte & Touche
125 Summer Street, Boston, MA 02110
(MFS LOGO(R))
MFS(R) GOVERNMENT
MORTGAGE FUND
500 Boylston Street, Boston, MA 02116
MGM-1 4/94/227M 31/231
MFS(R)
GOVERNMENT
MORTGAGE
FUND
PROSPECTUS
April 1, 1994
