MFS SERIES TRUST X, 485BPOS, 1998-09-25

MFS SERIES TRUST X
485BPOS, 1998-09-25

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<PAGE> 1

As filed with the Securities and Exchange Commission on September 25, 1998

1933 Act File No. 33-1657
1940 Act File No. 811-4492
================================================================================

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

---------------

FORM N-1A

REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933

POST-EFFECTIVE AMENDMENT NO. 23

AND

REGISTRATION STATEMENT
UNDER THE INVESTMENT COMPANY ACT OF 1940

AMENDMENT NO. 24

MFS SERIES TRUST X
(Exact Name of Registrant as Specified in Charter)

500 Boylston Street, Boston, Massachusetts 02116
(Address of Principal Executive Offices)

Registrant's Telephone Number, including Area Code: 617-954-5000
Stephen E. Cavan, Massachusetts Financial Services Company,
500 Boylston Street, Boston, MA 02116
(Name and Address of Agent for Service)

APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
It is proposed that this filing will become effective (check appropriate box)

[ ] immediately upon filing pursuant to paragraph (b)

[X] on September 28, 1998 pursuant to paragraph (b)

[ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on [date] pursuant to paragraph (a)(i)
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on [date] pursuant to paragraph (a)(ii) of rule 485

If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment

================================================================================

<PAGE> 2

MFS/FOREIGN & COLONIAL EMERGING MARKETS EQUITY FUND
MFS INTERNATIONAL GROWTH AND INCOME FUND
MFS INTERNATIONAL GROWTH FUND

CROSS REFERENCE SHEET

(Pursuant to Rule 404 showing location in the Prospectus and/or Statement of
Additional Information of the responses to the Items in Parts A and B of Form
N-1A)

STATEMENT OF
ITEM NUMBER ADDITIONAL
FORM N-1A, PART A PROSPECTUS CAPTION INFORMATION CAPTION
- ----------------- ------------------ -------------------

1 (a), (b) Front Cover Page *

2 (a) Expense Summary *

(b), (c) * *

3 (a) Condensed Financial *
Information
(b) * *

(d) Condensed Financial *
Information

4 (a) The Fund; Investment Objective *
and Policies; Investment
Techniques; Risk Factors

(b), (c) Investment Objective and *
Policies; Risk Factors

5 (a) The Fund; Management of the *
Fund - Investment Adviser

<PAGE> 3

STATEMENT OF
ITEM NUMBER ADDITIONAL
FORM N-1A, PART A PROSPECTUS CAPTION INFORMATION CAPTION
- ----------------- ------------------ -------------------

(b) Front Cover Page; - Management *
of the Fund; Back Cover Page

(d) Management of the Fund - *
Investment Adviser;
Administrator - Back Cover
Page

(e) Management of the Fund - *
Shareholder Servicing Agent;
Back Cover Page

(f) Expense Summary; Condensed *
Financial Information;
Information Concerning Shares
of the Fund - Expenses

(g) Investment Objective and *
Policies - Portfolio Trading;
Information Concerning
Shares of the Fund - Purchases

5A (a), (b), (c) ** **

6 (a) Information Concerning Shares *
of the Fund - Purchases;
Information Concerning Shares
of the Fund - Exchanges;
Information Concerning Shares
of the Fund - Redemptions and
Repurchases; Information
Concerning Shares of the Fund -
Description of Shares, Voting
Rights and Liabilities

(b), (c), (d) * *

(e) Shareholder Services *

<PAGE> 4

STATEMENT OF
ITEM NUMBER ADDITIONAL
FORM N-1A, PART A PROSPECTUS CAPTION INFORMATION CAPTION
- ----------------- ------------------ -------------------

(f) Information Concerning Shares *
of the Fund - Distributions;
Shareholder Services -
Distribution Options

(g) Information Concerning Shares *
of the Fund - Distributions;
Information Concerning Shares
of the Fund - Tax Status

(h) * *

7 (a) Front Cover Page; Management *
of the Fund - Distributor; Back
Cover Page

(b) Information Concerning Shares *
of the Fund - Purchases;
Information Concerning Shares
of the Fund - Net Asset Value

(c) Information Concerning Shares *
of the Fund - Purchases;
Information Concerning Shares
of the Fund - Exchanges;
Shareholder Services

(d) Front Cover Page; Information *
Concerning Shares of the Fund -
Purchases; Shareholder Services

(e) Expense Summary; Information *
Concerning Shares of the Fund -
Purchases; Information Concerning
Shares of the Fund - Distribution
Plan

(f) Information Concerning Shares *
of the Fund - Distribution Plan

<PAGE> 5

STATEMENT OF
ITEM NUMBER ADDITIONAL
FORM N-1A, PART A PROSPECTUS CAPTION INFORMATION CAPTION
- ----------------- ------------------ -------------------

(g) Expense Summary; Information *
Concerning Shares of the
Fund - Purchases; Information
Concerning Shares of the
Fund - Exchanges; Information
Concerning Shares of the Fund -
Redemptions and Repurchases;
Information Concerning Shares
of the Fund - Distribution Plan;
Information Concerning Shares
of the Fund - Distributions;
Information Concerning Shares
of the Fund - Performance
Information; Shareholder
Services

8 (a) Information Concerning Shares *
of the Fund - Purchases;
Information Concerning Shares
of the Fund - Redemptions and
Repurchases; Shareholder Services

(b), (c), (d) Information Concerning Shares *
of the Fund - Redemptions and
Repurchases

9 * *

<PAGE> 6

STATEMENT OF
ITEM NUMBER ADDITIONAL
FORM N-1A, PART A PROSPECTUS CAPTION INFORMATION CAPTION
- ----------------- ------------------ -------------------

10 (a), (b) * Front Cover Page

11 * Front Cover Page

12 * Definitions

13 (a), (b), (c) * Investment Objective,
Policies and Restrictions

(d) * *

14 (a), (b) * Management of the Fund -
Trustees and Officers

15 (a) * *

(b), (c) * Management of the Fund -
Trustees and Officers

16 (a), (b) Management of the Fund Management of the Fund -
Investment Adviser;
Management of the Fund -
Trustees and Officers

(d) * Management of the Fund -
Investment Adviser;
Administrator

(e) * Portfolio Transactions and
Brokerage Commissions

(f) Information Concerning Distribution Plan
Shares of the Fund -
Distribution Plan

(g) * *

<PAGE> 7

STATEMENT OF
ITEM NUMBER ADDITIONAL
FORM N-1A, PART A PROSPECTUS CAPTION INFORMATION CAPTION
- ----------------- ------------------ -------------------

(h) * Management of the Fund -
Custodian; Independent
Auditors and Financial
Statements; Back Cover
Page

(i) * Management of the Fund -
Shareholder Servicing
Agent

17 (a), (b)
(c), (d), (e) * Portfolio Transactions and
Brokerage Commissions

18 (a) Information Concerning Description of Shares,
Shares of the Fund - Voting Rights and
Description of Shares, Liabilities
Voting

Rights and Liabilities

(b) * *

19 (a) Information Concerning Shareholder Services
Shares of the Fund -
Purchases;Shareholder
Services

(b) Information Concerning Management of the Fund -
Shares of the Fund - Net Distributor; Determination
Asset Value; Information of Net Asset Value and
Concerning Shares of the Performance - Net Asset
Fund - Purchases Value

20 * Tax Status

21 (a), (b) * Management of the Fund -
Distributor; Distribution
Plan

22 (a) * *

<PAGE> 8

STATEMENT OF
ITEM NUMBER ADDITIONAL
FORM N-1A, PART A PROSPECTUS CAPTION INFORMATION CAPTION
- ----------------- ------------------ -------------------

(b) * Determination of Net Asset
Value and Performance

23 * Independent Auditors and
Financial Statements

- -----------------------------
* Not Applicable
** Contained in Annual Report

<PAGE> 9

MFS INTERNATIONAL GROWTH FUND

Supplement to the October 1, 1998 Prospectus and Statement of Additional
Information

The following information should be read in conjunction with the Fund's
Prospectus and Statement of Additional Information ("SAI"), dated October 1,
1998, and contains a description of Class I shares.

Class I shares are available for purchase only by certain investors as
described under the caption "Eligible Purchasers" below.

EXPENSE SUMMARY

CLASS I SHARES
--------------

SHAREHOLDER TRANSACTION EXPENSES:
Maximum Initial Sales Charge Imposed on Purchases of
Fund Shares (as a percentage of offering price).......... None
Maximum Contingent Deferred Sales Charge (as a percentage
of original purchase price or redemption proceeds, as
applicable).............................................. None

ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE DAILY
NET ASSETS)(1):
Management Fees.......................................... 0.975%
Rule 12b-1 Fees.......................................... None
Other Expenses(2)........................................ 0.53%
Total Operating Expenses ................................ 1.50%

- -----------------------

(1) All expenses, other than "Management Fees," are rounded to two decimal
places.

(2) The Fund has an expense offset arrangement which reduces the Fund's
custodian fee based upon the amount of cash maintained by the Fund with its
custodian and dividend disbursing agent, and may enter into other such
arrangements and directed brokerage arrangements (which would also have the
effect of reducing the Fund's expenses). Any such fee reductions are not
reflected under "Other Expenses."

EXAMPLE OF EXPENSES

An investor would pay the following dollar amounts of expenses on a $1,000
investment in Class I shares of the Fund, assuming (a) a 5% annual return and
(b) redemption at the end of each of the time periods indicated:

PERIOD CLASS I SHARES
------ --------------

1 year................................ $ 15
3 years............................... 47
5 years............................... 82
10 years.............................. 179

The purpose of the expense table above is to assist investors in
understanding the various costs and expenses that a shareholder of the Fund will
bear directly or indirectly. A more complete description of the Fund's
management fee is set forth under the caption "Management of the Fund" in the
Prospectus.

The "example" set forth above should not be considered a representation of past
or future expenses of the fund; actual expenses may be greater or less than
those shown.

-1-
<PAGE> 10

CONDENSED FINANCIAL INFORMATION

The following information has been audited and should be read in
conjunction with the financial statements included in the Fund's Annual Report
to shareholders which are incorporated by reference into the SAI in reliance
upon the report of the Fund's independent auditors, given upon their authority
as experts in accounting and auditing. The Fund's independent auditors are Ernst
& Young LLP.

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
PERIOD ENDED PERIOD ENDED
MAY 31, 1998 MAY 31, 1997*
------------ -------------
<S> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $16.94 $15.90
------ ------
Income from investment operations# -
Net investment income $ 0.10 $ 0.11
Net realized and unrealized gain
on investments and foreign currency transactions 1.15 0.93
------ ------
Total from investment operations $ 1.25 $ 1.04
------ ------
Less distributions declared to shareholders -
From Net Investment Income $(0.31)
From net realized gain on investments and
foreign currency transactions $(0.07) $ --
------ ------
Total distributions declared to shareholders $(0.38) $ --
------ ------
Net asset value - end of period $17.81 $ 16.94
------ ------
Total return 7.65% 6.54%####
Ratios (to average net assets)/Supplemental data:
Expenses## 1.52% 1.52%###
Net investment income 0.59% 1.40%###
Portfolio turnover 225% 53%
Net assets at end of period (000 omitted) $ 155 $ 84
</TABLE>

- --------------------------

* For the period from the inception of offering of Class I shares,
January 2, 1997 to May 31, 1997.

# Per share data are based on average shares outstanding.

## The Fund's expenses are calculated without reduction for fees paid
indirectly.
### Annualized.
#### Not annualized.

ELIGIBLE PURCHASERS

Class I shares of the Fund are available for purchase only by the following
purchasers ("Eligible Purchasers"):

(i) certain retirement plans established for the benefit of employees of
Massachusetts Financial Services Company ("MFS"), the Fund's investment
adviser, and employees of MFS' affiliates;

(ii) any fund distributed by MFS Fund Distributors, Inc. ("MFD"), the Fund's
distributor, if the fund seeks to achieve its investment objective by
investing primarily in shares of the Fund and other funds distributed by
MFD;

(iii) any retirement plan, endowment or foundation which (a) purchases shares
directly through MFD (rather than through a third party broker or dealer
or other financial intermediary); (b) has, at the time of purchase of
Class I shares, aggregate assets of at least $100 million; and (c)
invests at least $10 million in Class I shares of the Fund either alone
or in combination with investments in Class I shares of other MFS funds
distributed by MFD (additional investments may be made in any amount);
provided that MFD may accept purchases from smaller plans, endowments or
foundations or in smaller amounts if it believes, in its sole discretion,
that such entity's aggregate assets will equal or exceed $100 million, or
that such entity will make additional investments which will cause its
total investment to equal or exceed $10 million, within a reasonable
period of time;

(iv) bank trust departments or law firms acting as trustee or manager for trust
accounts which initially invest, on behalf of their trust clients, at least
$100,000 in Class I shares of the Fund (additional investments may be made
in any amount); provided that MFD may accept smaller initial purchases if
it believes, in its sole discretion, that the bank trust department or law
firms will make additional

-2-

<PAGE> 11

investments, on behalf of its trust clients, which will cause its total
investment to equal or exceed $100,000 within a reasonable period of time;
and

(v) certain retirement plans offered, administered or sponsored by insurance
companies, provided that these plans and insurance companies meet certain
criteria established by MFD from time to time.

In no event will the Fund, MFS, MFD or any of their affiliates pay any sales
commissions or compensation to any third party in connection with the sale of
Class I shares; the payment of any such sales commission or compensation would,
under the Fund's policies, disqualify the purchaser as an eligible investor of
Class I shares.

SHARE CLASSES OFFERED BY THE FUND

Four classes of shares of the Fund currently are offered for sale, Class A
shares, Class B shares, Class C shares and Class I shares. Class I shares are
available for purchase only by Eligible Purchasers, as defined above, and are
described in this Supplement. Class A shares, Class B shares and Class C shares
are described in the Fund's Prospectus and are available for purchase by the
general public.

Class A shares are offered at net asset value plus an initial sales charge
up to a maximum of 4.75% of the offering price (or a contingent deferred sales
charge (a "CDSC") upon redemption of 1.00% during the first year in the case of
purchases of $1 million or more and certain purchases by retirement plans), and
are subject to an annual distribution fee and service fee up to a maximum of
0.50% per annum. Class B shares are offered at net asset value without an
initial sales charge but are subject to a CDSC upon redemption (declining from
4.00% during the first year to 0% after six years) and an annual distribution
fee and service fee up to a maximum of 1.00% per annum; Class B shares convert
to Class A shares approximately eight years after purchase. Class C shares are
offered at net asset value without an initial sales charge but are subject to a
CDSC upon redemption of 1.00% during the first year and an annual distribution
fee and service fee up to a maximum of 1.00% per annum. Class I shares are
offered at net asset value without an initial sales charge or CDSC and are not
subject to a distribution or service fee. Class C and Class I shares do not
convert to any other class of shares of the Fund.

OTHER INFORMATION

Eligible Purchasers may purchase Class I shares only directly through MFD.
Eligible Purchasers may exchange Class I shares of the Fund for Class I shares
of any other MFS Fund available for purchase by such Eligible Purchasers at
their net asset value (if available for sale), and may exchange Class I shares
of the Fund for shares of the MFS Money Market Fund (if available for sale), and
may redeem Class I shares of the Fund at net asset value. Distributions paid by
the Fund with respect to Class I shares generally will be greater than those
paid with respect to Class A shares, Class B shares and Class C shares because
expenses attributable to Class A shares, Class B shares and Class C shares
generally will be higher.

The date of this supplement is October 1, 1998

-3-

<PAGE> 12

[MFS(R)
INTERNATIONAL
GROWTH FUND
LOGO]
OCTOBER 1, 1998
PROSPECTUS

CLASS A SHARES OF BENEFICIAL INTEREST
CLASS B SHARES OF BENEFICIAL INTEREST
CLASS C SHARES OF BENEFICIAL INTEREST
- -------------------------------------------------------------

MFS INTERNATIONAL GROWTH FUND
500 BOYLSTON STREET, BOSTON, MASSACHUSETTS 02116 (617)
954-5000

MFS INTERNATIONAL GROWTH FUND (the "Fund") -- The investment
objective of the Fund is capital appreciation. The Fund seeks
to achieve its investment objective by investing, under
normal market conditions, at least 65% of its total assets in
equity securities of companies whose principal activities are
outside the U.S. growing at rates expected to be well above
the growth rate of the overall U.S. economy.

No assurance can be given that the Fund will achieve its
investment objective. The Fund is a diversified series of MFS
Series Trust X (the "Trust"), an open-end management
investment company. The minimum initial investment generally
is $1,000 per account (see "Purchases"). THE FUND IS INTENDED
FOR INVESTORS WHO UNDERSTAND AND ARE WILLING TO ACCEPT THE
RISKS ENTAILED IN SEEKING CAPITAL APPRECIATION AND IN
INVESTING IN FOREIGN SECURITIES.

The Fund's investment adviser and distributor are
Massachusetts Financial Services Company ("MFS" or the
"Adviser") and MFS Fund Distributors, Inc. ("MFD"),
respectively, both of which are located at 500 Boylston
Street, Boston, Massachusetts 02116. The International Growth
Fund also has retained as its sub-advisers Foreign & Colonial
Management Ltd. and Foreign & Colonial Emerging Markets
Limited (collectively, the "Sub-Adviser"), both of which are
located at Exchange House, Primrose Street, London EC2A 2NY,
United Kingdom.

INVESTMENT PRODUCTS ARE NOT INSURED BY THE FDIC OR ANY OTHER
GOVERNMENT AGENCY, AND ARE NOT DEPOSITS OR OTHER OBLIGATIONS
OF, OR GUARANTEED BY, ANY FINANCIAL INSTITUTION. SHARES OF
MUTUAL FUNDS ARE SUBJECT TO INVESTMENT RISK, INCLUDING
POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED, AND WILL
FLUCTUATE IN VALUE. YOU MAY RECEIVE MORE OR LESS THAN YOU
PAID WHEN YOU REDEEM YOUR SHARES.

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.

INVESTORS SHOULD READ THIS PROSPECTUS AND RETAIN IT FOR
FUTURE REFERENCE.
<PAGE> 13

This Prospectus sets forth concisely the information concerning the Fund and the
Trust that a prospective investor ought to know before investing. The Trust, on
behalf of the Fund, has filed with the Securities and Exchange Commission (the
"SEC") a Statement of Additional Information, dated October 1, 1998, as amended
or supplemented from time to time (the "SAI"), which contains more detailed
information about the Trust and the Fund and is incorporated into this
Prospectus by reference. See page 47 for a further description of the
information set forth in the SAI. A copy of the SAI may be obtained without
charge by contacting the Shareholder Servicing Agent (see back cover for address
and phone number). The SEC maintains an Internet World Wide Web site
(http://www.sec.gov) that contains the SAI, materials that are incorporated by
reference into the Prospectus and the SAI, and other information regarding the
Fund. This Prospectus is available on the Adviser's Internet World Wide Web site
at http://www.mfs.com.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
<S> <C>
1. Expense Summary......................................... 3
2. Condensed Financial Information......................... 4
3. The Fund................................................ 8
4. Investment Objective and Policies....................... 8
5. Certain Securities and Investment Techniques............ 10
6. Risk Factors............................................ 18
7. Management of the Fund.................................. 23
8. Information Concerning Shares of the Fund............... 26
Purchases............................................ 26
Exchanges............................................ 34
Redemptions and Repurchases.......................... 35
Distribution Plan.................................... 38
Distributions........................................ 41
Tax Status........................................... 41
Net Asset Value...................................... 42
Description of Shares, Voting Rights and
Liabilities....................................... 42
Performance Information.............................. 43
Expenses............................................. 44
Provision of Annual and Semiannual Reports........... 45
9. Shareholder Services.................................... 45
Appendix A -- Waivers of Sales Charges................... A-1
Appendix B -- Description of Bond Ratings................ B-1
</TABLE>

2
<PAGE> 14

1. EXPENSE SUMMARY

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHAREHOLDER TRANSACTION EXPENSES: ------- ------- -------
<S> <C> <C> <C>
Maximum Initial Sales Charge
Imposed on Purchases of Fund
Shares (as a percentage of
offering price)................ 4.75% 0.00% 0.00%
Maximum Contingent Deferred Sales
Charge (as a percentage of
original purchase price or
redemption proceeds, as
applicable).................... See Below(1) 4.00% 1.00%
ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE DAILY NET
ASSETS)(2) :
Management Fees.................. 0.975% 0.975% 0.975%
Rule 12b-1 Fees(3)............... 0.50% 1.00% 1.00%
Other Expenses(4)................ 0.53% 0.53%(5) 0.53%(5)
------ ------- -------
Total Operating Expenses......... 2.01% 2.51% 2.51%
</TABLE>

- ---------------
(1)
Purchases of $1 million or more and certain purchases by retirement plans are
not subject to an initial sales charge; however, a contingent deferred sales
charge ("CDSC") of 1% will be imposed on such purchases in the event of
certain redemption transactions within 12 months following such purchases
(see "Purchases" below).

(2)
All expenses, other than "Management Fees," are rounded to two decimal places.

(3)
The Fund has adopted a Distribution Plan for its shares in accordance with Rule
12b-1 under the Investment Company Act of 1940, as amended (the "1940 Act")
(the "Distribution Plan"), which provides that it will pay
distribution/service fees aggregating up to (but not necessarily all of)
0.50% per annum of the average daily net assets attributable to the Fund's
Class A shares. Distribution expenses paid under the Plan with respect to
Class A shares, together with the initial sales charge, may cause long-term
shareholders to pay more than the maximum sales charge that would have been
permissible if imposed entirely as an initial sales charge.

(4)
The Fund has an expense offset arrangement which reduces the Fund's custodian
fee based upon the amount of cash maintained by the Fund with its custodian
and dividend disbursing agent, and may enter into other such arrangements
and directed brokerage arrangements (which would also have the effect of
reducing the Fund's expenses). Any such fee reductions are not reflected
under "Other Expenses."

(5)
The Fund's Distribution Plan provides that it will pay distribution/service
fees aggregating up to (but not necessarily all of) 1.00% per annum of the
average daily net assets attributable to the Fund's Class B and Class C
shares, respectively, under the Distribution Plan (see "Distribution Plan"
below). Distribution expenses paid under the Plan with respect to Class B
and Class C shares, together with any CDSC payable upon redemption of Class
B and Class C shares, may cause long-term shareholders to pay more than the
maximum sales charge that would have been permissible if imposed entirely as
an initial sales charge.

3
<PAGE> 15

EXAMPLE OF EXPENSES

An investor would pay the following dollar amounts of expenses on a $1,000
investment in the Fund, assuming (a) a 5% annual return and, unless otherwise
noted, (b) redemption at the end of each of the time periods indicated:

<TABLE>
<CAPTION>
PERIOD CLASS A CLASS B CLASS C
------ ------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
(1) (1)
1 year........................ $ 67 $ 65 $ 25 $ 35 $ 25
3 years....................... 108 108 78 78 78
5 years....................... 151 154 134 134 134
10 years....................... 270 272(2) 272(2) 285 285
</TABLE>

- ---------------
(1)
Assumes no redemption.

(2)
Class B shares convert to Class A shares approximately 8 years after purchase;
therefore, years nine and ten reflect Class A expenses.

The purpose of the expense table above is to assist investors in understanding
the various costs and expenses that a shareholder of the Fund will bear directly
or indirectly. More complete descriptions of the following Fund expenses are set
forth in the following sections: (i) varying sales charges on share
purchases -- "Purchases"; (ii) varying CDSCs -- "Purchases"; (iii) management
fees -- "Management of the Fund"; and (iv) Rule 12b-1 (i.e., distribution plan)
fees -- "Distribution Plan."

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.

2. CONDENSED FINANCIAL INFORMATION
The following information has been audited since inception of the Fund and
should be read in conjunction with the financial statements included in the
Fund's Annual Report to shareholders which are incorporated by reference into
the SAI in reliance upon the report of the Fund's independent auditors, given
upon their authority as experts in accounting and auditing. The Fund's
independent auditors are Ernst & Young LLP.

4
<PAGE> 16

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
----------------------------
1998 1997 1996*
------- ------- --------
CLASS A
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD):
Net asset value - beginning of period...................... $ 16.90 $ 16.71 $ 15.00
------- ------- --------
Income from investment operations# -
Net investment income (loss)........................... $ (0.01) $ 0.02 $ 0.03
Net realized and unrealized gain on investments and
foreign currency transactions........................ 1.18 0.32 1.69
------- ------- --------
Total from investment operations................... $ 1.17 $ 0.34 $ 1.72
------- ------- --------
Less distributions declared to shareholders -
From net investment income............................... $ (0.22) $ -- $ (0.01)
From net realized gain on investments and foreign
currency transactions.................................. (0.07) (0.15) --
------- ------- --------
Total distributions declared to shareholders........... $ (0.29) $ (0.15) $ (0.01)
------- ------- --------
Net asset value - end of period............................ $ 17.78 $ 16.90 $ 16.71
======= ======= ========
Total return+++............................................ 7.08% 2.13% 11.43%++
RATIOS (TO AVERAGE DAILY NET ASSETS)/SUPPLEMENTAL DATA:
Expenses##............................................... 2.01% 1.99% 2.24%+
Net investment income (loss)............................. (0.08)% 0.13% 0.24%+
PORTFOLIO TURNOVER......................................... 225% 53% 11%
NET ASSETS AT END OF PERIOD (000 OMITTED).................. $53,659 $56,810 $41,483
</TABLE>

<TABLE>
<C> <S>
* For the period from the commencement of investment
operations, October 24, 1995, through May 31, 1996.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## The Fund's expenses are calculated without reduction for
fees paid indirectly.
+++ Total returns for Class A shares do not include the
applicable sales charge. If the charge had been included,
the results would have been lower.
</TABLE>

5
<PAGE> 17

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
----------------------------
1998 1997 1996*
------- ------- --------
CLASS B
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD):
Net asset value - beginning of period...................... $ 16.82 $ 16.66 $ 15.00
------- ------- --------
Income (loss) from investment operations# -
Net investment loss.................................... $ (0.10) $ (0.07) $ (0.03)
Net realized and unrealized gain on investments and
foreign currency transactions........................ 1.19 0.31 1.69
------- ------- --------
Total from investment operations................... $ 1.09 $ 0.24 $ 1.66
------- ------- --------
Less distributions declared to shareholders -
From net investment income............................... $ (0.13) $ -- $ --
From net realized gain on investments and foreign
currency transactions.................................. (0.07) (0.08) --
------- ------- --------
Total distributions declared to shareholders........... $ (0.20) $ (0.08) $
------- ------- --------
Net asset value - end of period............................ $ 17.71 $ 16.82 $ 16.66
======= ======= ========
Total return............................................... 6.59% 1.56% 11.07%++
RATIOS (TO AVERAGE DAILY NET ASSETS)/SUPPLEMENTAL DATA:
Expenses##............................................... 2.51% 2.53% 2.85%+
Net investment loss...................................... (0.57)% (0.42)% (0.31)%+
PORTFOLIO TURNOVER......................................... 225% 53% 11%
NET ASSETS AT END OF PERIOD (000 OMITTED).................. $59,055 $62,958 $43,264
</TABLE>

6
<PAGE> 18

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
MAY 31, 1998 MAY 31, 1997**
------------ --------------
CLASS C
- -----------------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD):
Net asset value - beginning of period................ $ 16.76 $ 16.83
------- --------
Income (loss) from investment operations# -
Net investment loss.............................. $ (0.10) $ (0.04)
Net realized and unrealized gain on investments
and foreign currency transactions.............. 1.19 0.15
------- --------
Total from investment operations............. $ 1.09 $ 0.11
------- --------
Less distributions declared to shareholders -
From net investment income......................... $ (0.16) $--
From net realized gain on investments and foreign
currency transactions............................ (0.07) (0.18)
------- --------
Total distributions declared to shareholders..... $ (0.23) $ (0.18)
------- --------
Net asset value - end of period...................... $ 17.62 $ 16.76
======= ========
Total return......................................... 6.62% 0.79%++
RATIOS (TO AVERAGE DAILY NET ASSETS)/SUPPLEMENTAL DATA:
Expenses##......................................... 2.52% 2.50%+
Net investment loss................................ (0.56)% (0.27)%+
PORTFOLIO TURNOVER................................... 225% 53%
NET ASSETS AT END OF PERIOD (000 OMITTED)............ $3,380 $2,397
</TABLE>

<TABLE>
<C> <S>
** For the period from the inception of Class C, July 1, 1996,
through May 31, 1997.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## The Fund's expenses are calculated without reduction for
fees paid indirectly.
</TABLE>

7
<PAGE> 19

3. THE FUND

The Fund is a diversified series of the Trust, an open-end management investment
company which was organized as a business trust under the laws of The
Commonwealth of Massachusetts in 1985. The Trust presently consists of seven
series, each of which represents a portfolio with separate investment objectives
and policies. This Prospectus relates to the Fund. Shares of the Fund are sold
continuously to the public and the Fund then uses the proceeds to buy securities
for its portfolio. Three 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 up to a maximum of 4.75% of the offering price (or a CDSC
of 1.00% upon redemption during the first year in the case of certain purchases
of $1 million or more and certain purchases by retirement plans) and are subject
to an annual distribution fee and service fee up to a maximum of 0.50% per
annum. Class B shares are offered at net asset value without an initial sales
charge but are subject to a CDSC upon redemption (declining from 4.00% during
the first year to 0% after six years) and an annual distribution fee and service
fee up to a maximum of 1.00% per annum; Class B shares will convert to Class A
shares approximately eight years after purchase. Class C shares are offered at
net asset value without an initial sales charge but are subject to a CDSC upon
redemption of 1.00% during the first year and an annual distribution fee and
service fee up to a maximum of 1.00% per annum. Class C shares do not convert to
any other class of shares of the Fund. In addition, the Fund offers an
additional class of shares, Class I shares, exclusively to certain institutional
investors. Class I shares are made available by means of a separate Prospectus
Supplement provided to institutional investors eligible to purchase Class I
shares and are offered at net asset value without an initial sales charge or
CDSC upon redemption and without an annual distribution and service fee.

The Trust's Board of Trustees provides broad supervision over the affairs of the
Fund. The Adviser is responsible for the management of the Fund's assets
(including supervision of the Sub-Adviser) and the officers of the Trust are
responsible for the operations of the Fund. The Adviser manages the Fund's
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 or the
Sub-Adviser. The Trust also offers to buy back (redeem) shares of the Fund from
shareholders at any time at net asset value, less any applicable CDSC.

4. INVESTMENT OBJECTIVE AND POLICIES
The Fund has an investment objective which it pursues through its investment
policies, as described below. The objectives and policies of the Fund can be
expected to affect the market and financial risk to which the Fund is subject
and the performance of the Fund. The investment objective and policies of the
Fund may, unless otherwise specifically stated, be changed by the Trustees of
the Trust without a vote of the shareholders. A change in the Fund's objective
may result in the Fund having an investment objective different from the
objective which the shareholder considered appropriate at the time of investment
in the Fund. Any investment involves risk and there is no assurance that the
investment objective of the Fund will be achieved.

8
<PAGE> 20

The Fund's investment objective is to seek capital appreciation. The Fund seeks
to achieve its objective by investing, under normal market conditions, at least
65% of its total assets in equity securities of companies whose principal
activities are outside the U.S. growing at rates expected to be well above the
growth rate of the overall U.S. economy. The foreign growth securities in which
the Fund may invest include securities of more established companies which
represent opportunities for long-term growth. See "Certain Securities and
Investment Techniques -- Foreign Growth Securities" below. The selection of
securities is made solely on the basis of potential for capital appreciation.
Dividend and interest income from portfolio securities, if any, is incidental to
the Fund's investment objective of capital appreciation.

The Fund may invest up to 25% of its net assets in securities of issuers whose
principal activities are located in emerging market countries. See "Certain
Securities and Investment Techniques -- Emerging Market Securities" below.

While the Fund intends to invest primarily in equity securities, the Fund may
also invest up to 35% of its net assets (and generally expects to invest not
more than 20% of its net assets) in fixed income securities of government,
government-related, supranational and corporate issuers whose principal
activities are outside the U.S., including up to 10% of its net assets in fixed
income securities rated Ba or lower by Moody's Investors Service, Inc.
("Moody's") or BB or lower by Standard & Poor's Ratings Services ("S&P"), Fitch
IBCA ("Fitch") or Duff & Phelps Credit Rating Co. ("Duff & Phelps") and
comparable unrated securities. See "Risk Factors -- Lower Rated Fixed Income
Securities" below. The Adviser and Sub-Adviser consider a variety of factors in
selecting fixed income securities to achieve capital appreciation, including the
creditworthiness of issuers, interest rates and currency exchange rates.

The Fund does not intend to emphasize any particular country or region in making
its investments, but under normal market conditions, the Fund will be invested
in at least three countries (outside the U.S.) and will not invest more than 50%
of its net assets in issuers whose principal activities are located in a single
country. See "Risk Factors -- Investments in One or a Limited Number of
Countries" below. Currently, the Fund does not expect to invest more than 25% of
its net assets in issuers whose principal activities are located in a single
country, except that the Fund generally expects to invest between 15% to 45% of
its assets in issuers whose principal activities are in Japan. The Fund will
seek to reduce risk by investing its assets in a number of markets and issuers,
performing credit analyses of potential investments and monitoring current
developments and trends in both the international economy and financial markets.

For temporary defensive reasons, such as during times of international political
or economic uncertainty or turmoil, most or all of the Fund's investments may be
in cash (U.S. dollars, foreign currencies or multinational currency units)
and/or securities that are denominated in U.S. dollars or whose issuers are
domiciled in the U.S. The Fund is not restricted as to the portions of its
assets which may be invested in securities denominated in a particular currency
and up to 100% of the Fund's net assets may be invested in securities
denominated in foreign currencies and multinational currency units.

9
<PAGE> 21

5. CERTAIN SECURITIES AND INVESTMENT TECHNIQUES
Consistent with the Fund's investment objective and policies, each Fund may
engage in the following securities transactions and investment techniques, many
of which are described more fully in the SAI. See "Investment Policies and
Restrictions" in the SAI.

EQUITY SECURITIES: The Fund may invest in all types of equity securities,
including the following: common stocks, preferred stocks and preference stocks;
securities such as bonds, warrants or rights that are convertible into stocks;
and depository receipts for those securities. These securities may be listed on
securities exchanges, traded in various over-the-counter markets or have no
organized markets.

FOREIGN GROWTH SECURITIES: The Fund may invest in securities of foreign growth
companies, including established foreign companies, whose rates of earnings
growth are expected to accelerate because of special factors, such as
rejuvenated management, new products, changes in consumer demand, or basic
changes in the economic environment or which otherwise represent opportunities
for long-term growth. See "Risk Factors" below. It is anticipated that these
companies will primarily be in nations with more developed securities markets,
such as Japan, Australia, Canada, New Zealand and most Western European
countries, including Great Britain.

EMERGING MARKET SECURITIES: Consistent with the Fund's objective and policies,
the Fund may invest in securities of issuers whose principal activities are
located in emerging market countries. Emerging market countries include any
country determined by the Adviser and the Sub-Adviser to have an emerging market
economy, taking into account a number of factors, including whether the country
has a low- to middle-income economy according to the International Bank for
Reconstruction and Development, the country's foreign currency debt rating, its
political and economic stability and the development of its financial and
capital markets. The Adviser and the Sub-Adviser determine whether an issuer's
principal activities are located in an emerging market country by considering
such factors as its country of organization, the principal trading market for
its securities and the source of its revenues and location of its assets. The
issuer's principal activities generally are deemed to be located in a particular
country if: (a) the security is issued or guaranteed by the government of that
country or any of its agencies, authorities or instrumentalities; (b) the issuer
is organized under the laws of, and maintains a principal office in, that
country; (c) the issuer has its principal securities trading market in that
country; (d) the issuer derives 50% or more of its total revenues from goods
sold or services performed in that country; or (e) the issuer has 50% or more of
its assets in that country. See "Risk Factors -- Emerging Markets" below.

10
<PAGE> 22

Factors" below. The Fund will not invest more than 10% of its net assets, in
fixed income securities rated Ba or lower by Moody's or BB or lower by S&P,
Fitch or Duff & Phelps and comparable unrated securities. See "Risk Factors --
Lower Rated Fixed Income Securities" below. However, because most foreign fixed
income securities are not rated, the Fund will invest in foreign fixed income
securities primarily based on the Adviser's or the Sub-Adviser's credit analysis
without relying on published ratings.

PRIVATIZATIONS: The governments in some countries, including emerging market
countries, have been engaged in programs of selling part or all of their stakes
in government owned or controlled enterprises ("privatizations"). The Fund may
invest in privatizations. In certain countries, the ability of foreign entities
to participate in privatizations may be limited by local law and the terms on
which the foreign entities may be permitted to participate may be less
advantageous than those afforded local investors.

DEPOSITARY RECEIPTS: The Fund may invest in American Depositary Receipts
("ADRs"), Global Depositary Receipts ("GDRs") and other types of depositary
receipts. ADRs are certificates issued by a U.S. depository (usually a bank) and
represent a specified quantity of shares of an underlying non-U.S. stock on
deposit with a custodian bank as collateral. GDRs and other types of depositary
receipts are typically issued by foreign banks or trust companies and evidence
ownership of underlying securities issued by either a foreign or a U.S. company.
Generally, ADRs are in registered form and are designed for use in U.S.
securities markets and GDRs are in bearer form and are designed for use in
foreign securities markets. For the purposes of the Fund's policy to invest a
certain percentage of its assets in foreign securities, the investments of the
Fund in ADRs, GDRs and other types of depositary receipts are deemed to be
investments in the underlying securities.

BRADY BONDS: The Fund may invest in Brady Bonds, which are securities created
through the exchange of existing commercial bank loans to public and private
entities in certain emerging markets for new bonds in connection with debt
restructurings under a debt restructuring plan introduced by former U.S.
Secretary of the Treasury, Nicholas F. Brady (the "Brady Plan"). Brady Plan debt
restructurings have been implemented to date in Argentina, Brazil, Bulgaria,
Costa Rica, Croatia, Dominican Republic, Ecuador, Jordan, Mexico, Morocco,
Nigeria, Panama, the Philippines, Peru, Poland, Slovenia, Uruguay and Venezuela.
Brady Bonds have been issued only recently, and for that reason do not have a
long payment history. Brady Bonds may be collateralized or uncollateralized, are
issued in various currencies (but primarily the U.S. dollar) and are actively
traded in over-the-counter secondary markets. U.S. dollar-denominated,
collateralized Brady Bonds, which may be fixed rate bonds or floating-rate
bonds, are generally collateralized in full as to principal by U.S. Treasury
zero coupon bonds having the same maturity as the bonds. Brady Bonds are often
viewed as having three or four valuation components: the collateralized
repayment of principal at final maturity; the collateralized interest payments;
the uncollateralized interest payments; and any uncollateralized repayment of
principal at maturity (these uncollateralized amounts constitute the "residual
risk"). In light of the residual risk of Brady Bonds and the history of defaults
of countries issuing Brady Bonds with respect to commercial bank loans by public
and private entities, investments in Brady Bonds may be viewed as speculative.

11
<PAGE> 23

STRUCTURED SECURITIES: The Fund may invest a portion of its assets in entities
organized and operated solely for the purpose of restructuring the investment
characteristics of sovereign debt obligations. This type of restructuring
involves the deposit with, or purchase by, an entity, such as a corporation or
trust, of specified instruments (such as commercial bank loans or Brady Bonds)
and the issuance by that entity of one or more classes of securities
("Structured Securities") backed by, or representing interests in, the
underlying instruments. The cash flow on the underlying instruments may be
apportioned among the newly issued Structured Securities to create securities
with different investment characteristics, such as varying maturities, payment
priorities and interest rate provisions, and the extent of the payments made
with respect to Structured Securities is dependent on the extent of the cash
flow on the underlying instruments. Because Structured Securities of the type in
which the Fund anticipates it will invest typically involve no credit
enhancement, their credit risk generally will be equivalent to that of the
underlying instruments. The Fund is permitted to invest in a class of Structured
Securities that is either subordinated or unsubordinated to the right of payment
of another class. Subordinated Structured Securities typically have higher
yields and present greater risks than unsubordinated Structured Securities.
Structured Securities are typically sold in private placement transactions, and
there currently is no active trading market for Structured Securities.

REPURCHASE AGREEMENTS: The Fund may enter into repurchase agreements in order to
earn income on available cash or as a temporary defensive measure. Under a
repurchase agreement, the Fund acquires securities subject to the seller's
agreement to repurchase at a specified time and price. If the seller becomes
subject to a proceeding under the bankruptcy laws or its assets are otherwise
subject to a stay order, the Fund's right to liquidate the securities may be
restricted (during which time the value of the securities could decline). As
discussed in the SAI, the Fund has adopted certain procedures intended to
minimize risk. Foreign repurchase agreements may be less well secured than U.S.
repurchase agreements, and may be denominated in foreign currencies. They may
also involve greater risk of loss if the counterparty defaults. Some
counterparties in these transactions may be less creditworthy than those in U.S.
markets.

ZERO COUPON BONDS, DEFERRED INTEREST BONDS AND PIK BONDS: Fixed income
securities in which the Fund may invest also include zero coupon bonds, deferred
interest bonds and bonds on which the interest is payable in kind ("PIK bonds").
Zero coupon and deferred interest bonds are debt obligations which are issued or
purchased at a significant discount from face value. The discount approximates
the total amount of interest the bonds will accrue and compound over the period
until maturity or the first interest payment date at a rate of interest
reflecting the market rate of the security at the time of issuance. While zero
coupon bonds do not require the periodic payment of interest, deferred interest
bonds provide for a period of delay before the regular payment of interest
begins. PIK bonds are debt obligations which provide that the issuer thereof
may, at its option, pay interest on such bonds in cash or in the form of
additional debt obligations. Such investments benefit the issuer by mitigating
its need for cash to meet debt service, but also require a higher rate of return
to attract investors who are willing to defer receipt of such cash. Such
investments may experience greater volatility in market value due to changes in
interest rates and other

12
<PAGE> 24

factors 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 under disadvantageous circumstances to satisfy the Fund's
distribution obligations.

INDEXED SECURITIES: The Fund may invest in indexed securities whose value is
linked to foreign currencies, interest rates, commodities, indices or other
financial indicators. Most indexed securities are short to intermediate term
fixed income securities whose values at maturity (i.e., principal value) or
interest rates rise or fall according to changes in the value of one or more
specified underlying instruments. Indexed securities may be positively or
negatively indexed (i.e., their principal value or interest rates may increase
or decrease if the underlying instrument appreciates), and may have return
characteristics similar to direct investments in the underlying instrument or to
one or more options on the underlying instrument. Indexed securities may be more
volatile than the underlying instrument itself and could involve the loss of all
or a portion of the principal amount of or interest on the instrument.

LOANS AND OTHER DIRECT INDEBTEDNESS: The Fund may invest a portion of its assets
in loans. By purchasing a loan, the Fund acquires some or all of the interest of
a bank or other lending institution in a loan to a corporate, government or
other borrower. Many such loans are secured, and most impose restrictive
covenants which must be met by the borrower. These loans are made generally to
finance internal growth, mergers, acquisitions, stock repurchases, leveraged
buy-outs and other corporate activities. Such loans may be in default at the
time of purchase. The Fund may also purchase trade or other claims against
companies, which generally represent money owed by the company to a supplier of
goods and services. These claims may also be purchased at a time when the
company is in default. Certain of the loans acquired by the Fund may involve
revolving credit facilities or other standby financing commitments which
obligate the Fund to pay additional cash on a certain date or on demand.

The highly leveraged nature of many such loans may make such loans especially
vulnerable to adverse changes in economic or market conditions. Loans and other
direct investments may not be in the form of securities or may be subject to
restrictions on transfer, and only limited opportunities may exist to resell
such instruments. As a result, the Fund may be unable to sell such investments
at an opportune time or may have to resell them at less than fair market value.
For a further discussion of loans and the risks related to transactions therein,
see the SAI.

13
<PAGE> 25

daily function of determining and monitoring liquidity of restricted securities.
The Board, however, retains oversight of the liquidity determinations, focusing
on factors, such as valuation, liquidity and availability of information.
Investing in Rule 144A securities could have the effect of decreasing the level
of liquidity in the Fund's portfolio to the extent that qualified institutional
buyers become for a time uninterested in purchasing Rule 144A securities held in
the Fund's portfolio. Subject to the Fund's 15% limitation on investments in
illiquid investments, the Fund may also invest in restricted securities that may
not be sold under Rule 144A, which presents certain risks. As a result, the Fund
might not be able to sell these securities when the Adviser or Sub-Adviser
wishes to do so, or might have to sell them at less than fair value. In
addition, market quotations are less readily available. Therefore, judgment may
at times play a greater role in valuing these securities than in the case of
unrestricted securities.

LENDING OF PORTFOLIO SECURITIES: The Fund may seek to increase its income by
lending portfolio securities. Such loans will usually be made to member firms
(and subsidiaries thereof) of the New York Stock Exchange, and to member banks
of the Federal Reserve System and would be required to be secured continuously
by collateral in cash, irrevocable letters of credit or U.S. Government
securities maintained on a current basis at an amount at least equal to the
market value of the securities loaned. The value of the securities loaned as
represented by the collateral received by the Fund in connection with such
loans, will not exceed 30% of the value of the Fund's net assets.

WHEN-ISSUED OR FORWARD DELIVERY SECURITIES: Securities may be purchased on a
"when-issued" or on a "forward delivery" basis, which means that the obligations
will be delivered to the Fund at a future date usually beyond customary
settlement time. The commitment to purchase a security for which payment will be
made on a future date may be deemed a separate security. Although the Fund is
not limited to the amount of securities for which it may have commitments to
purchase on such basis, it is expected that under normal circumstances, the Fund
will not commit more than 10% of its assets to such purchases. The Fund does not
pay for the securities until received or start earning interest on them until
the contractual settlement date. In order to invest its assets immediately,
while awaiting delivery of securities purchased on such basis, the Fund will
hold liquid assets in a segregated account to pay for the commitment. Although
the Fund does not intend to make such purchases for speculative purposes,
purchases of securities on such bases may involve more risk than other types of
purchases. For additional information concerning these securities, see the SAI.

OPTIONS ON SECURITIES: The Fund may write (sell) covered put and call options on
securities ("Options") and purchase put and call Options on securities that are
traded on foreign and U.S. securities exchanges and over the counter. The Fund
will write such Options for the purpose of increasing its return and/or
protecting the value of its portfolio. The Fund may also write combinations of
put and call Options on the same security, known as "straddles." Such
transactions can generate additional premium income but also present increased
risk. The Fund may purchase put or call Options in anticipation of declines in
the value of portfolio securities or increases in the value of securities to be
acquired. However, the

14
<PAGE> 26

writing of Options constitute only a partial hedge, up to the amount of the
premium, less any transaction costs.

The Fund may purchase and sell options that are traded on foreign and 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, including foreign dealers, and will treat the assets used
to cover these options as illiquid.

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 and non-hedging purposes. In contrast to other types
of options the yield curve option is based on the difference between the yields
of designated securities rather than the actual prices of the individual
securities. Yield curve options written by the Fund will be "covered" but could
involve additional risks, as discussed in the SAI.

OPTIONS ON STOCK INDICES: The Fund may write (sell) covered call and put Options
and purchase call and put Options on foreign and domestic stock indices
("Options on Stock Indices"). The Fund may write such options for the purpose of
increasing its current income and/or to protect its portfolio against declines
in the value of securities it owns or increases in the value of securities to be
acquired. When the Fund writes an option on a stock index, and the value of the
index moves adversely to the holder's position, the option will not be
exercised, and the Fund will either close out the option at a profit or allow it
to expire unexercised. The Fund will thereby retain the amount of the premium,
less related transaction costs, which will increase its gross income and offset
part of the reduced value of portfolio securities or the increased cost of
securities to be acquired. Such transactions, however, will constitute only
partial hedges against adverse price fluctuations, since any such fluctuations
will be offset only to the extent of the premium received by the Fund for the
writing of the option, less related transaction costs. In addition, if the value
of an underlying index moves adversely to the Fund's option position, the option
may be exercised, and the Fund will experience a loss which may only be
partially offset by the amount of the premium received.

The Fund may also purchase put or call options on stock indices in order,
respectively, to hedge its investments against a decline in value or to attempt
to reduce the risk of missing a market or industry segment advance. The Fund's
possible loss in either case will be limited to the premium paid for the option,
plus related transaction costs.

15
<PAGE> 27

transactions will be entered into for hedging purposes, in order to protect the
Fund's current or intended investments from the effects of changes in interest
or exchange rates, or for non-hedging purposes to the extent permitted by
applicable law. For example, in the event that an anticipated decrease in the
value of portfolio securities occurs as a result of a decline in the dollar
value of foreign currencies in which portfolio securities are denominated or a
general increase in interest rates, the adverse effects of such changes may be
offset, in whole or in part, by gains on Futures Contracts sold by the Fund.
Conversely, the adverse effects of an increase in the cost of portfolio
securities to be acquired, occurring as a result of a rise in the dollar value
of securities denominated in foreign currencies or a decline in interest rates,
may be offset, in whole or in part, by gains on Futures Contracts purchased by
the Fund. The Fund will incur brokerage fees when it purchases and sells Futures
Contracts, and will be required to maintain margin deposits. In addition,
Futures Contracts entail risks. Although the Fund believes that use of such
contracts will benefit the Fund, if its investment judgment about the general
direction of interest or exchange rates is incorrect, the Fund's overall
performance may be poorer than if it had not entered into any such contract and
the Fund may realize a loss. Transactions entered into for non-hedging purposes
involve greater risk including the risk of losses which are not offset by gains
on other portfolio assets.

OPTIONS ON FUTURES CONTRACTS: The Fund may purchase and write options on futures
contracts ("Options on Futures Contracts") in order to protect against declines
in the values of portfolio securities or against increases in the cost of
securities to be acquired. Purchases of Options on Futures Contracts may present
less risk in hedging the Fund's portfolio than the purchase or sale of the
underlying Futures Contracts since the potential loss is limited to the amount
of the premium plus related transaction costs, although it may be necessary to
exercise the option to realize any profit, which results in the establishment of
a futures position. The writing of Options on Futures Contracts, however, does
not present less risk than the trading of Futures Contracts and will constitute
only a partial hedge, up to the amount of the premium received. In addition, if
an option is exercised, the Fund may suffer a loss on the transaction. Options
on Futures Contracts may also be entered into for non-hedging purposes, to the
extent permitted under applicable law, which involves greater risks and could
result in losses which are not offset by gains on other portfolio assets.

OPTIONS ON FOREIGN CURRENCIES: The Fund may also purchase and write options on
foreign currencies ("Options on Foreign Currencies") for the purpose of
protecting against declines in the dollar value of foreign portfolio securities
and against increases in the dollar cost of foreign securities to be acquired.
As in the case of other types of options, however, the writing of an Option on
Foreign Currency will constitute only a partial hedge, up to the amount of the
premium received, and the Fund may be required to purchase or sell foreign
currencies at disadvantageous exchange rates, thereby incurring losses. The
purchase of an Option on Foreign Currency may constitute an effective hedge
against fluctuations in exchange rates although, in the event of rate movements
adverse to the Fund's position, it may forfeit the entire amount of the premium
paid for the Option plus related transaction costs. Options on Foreign
Currencies to be written or purchased by the Fund will be traded on foreign and
U.S. exchanges or over-the-counter.

16
<PAGE> 28

FORWARD CONTRACTS: The Fund may enter into forward foreign currency exchange
contracts for the purchase or sale of a fixed quantity of a foreign currency at
a future date at a price set at the time of the contract ("Forward Contracts").
The Fund may enter into Forward Contracts for hedging purposes as well as for
the non-hedging purpose of increasing the Fund's current income. By entering
into transactions in Forward Contracts, however, the Fund may be required to
forego the benefits of advantageous changes in exchange rates and, in the case
of Forward Contracts entered into for non-hedging purposes, the Fund may sustain
losses which will reduce its gross income. Such transactions, therefore, could
be considered speculative. Forward Contracts are traded over-the-counter, and
not on organized commodities or securities exchanges. As a result, such
contracts operate in a manner distinct from exchange-traded instruments, and
their use involves certain risks beyond those associated with transactions in
Futures Contracts or options traded on exchanges. The Fund may also enter into a
Forward Contract on one currency in order to hedge against risk of loss arising
from fluctuations in the value of a second currency (referred to as a "cross
hedge") if, in the judgment of the Adviser or the Sub-Adviser, a reasonable
degree of correlation can be expected between movements in the values of the two
currencies. The Fund has established procedures which require the use of
segregated assets or "cover" in connection with the purchase and sale of such
contracts.

SWAPS AND RELATED TRANSACTIONS: As one way of managing its exposure to different
types of investments, the Fund may enter into interest rate swaps, currency
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 indices, currencies 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 notional 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 could be used to shift the Fund's investment exposure from one
type of investment to another. For example, if the Fund agreed to exchange
payments in dollars for payments in foreign currency, in each case based on a
fixed rate, the swap agreement would tend to decrease the Fund's exposure to
U.S. interest rates and increase its exposure to foreign currency and interest
rates. Caps and floors have an effect similar to buying or writing options.

17
<PAGE> 29

Swap agreements are sophisticated hedging instruments that typically involve a
small investment of cash relative to the magnitude of risks assumed, or no
investment of cash. As a result, swaps can be highly volatile and may have a
considerable impact on the 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. The Fund may also suffer
losses if it is unable to terminate outstanding swap agreements or reduce its
exposure through offsetting transactions.

Swaps, caps, floors and collars are highly specialized activities which involve
certain risks. See the SAI for more information on, and the risks involved in,
these activities.

PORTFOLIO TRADING: The primary consideration in placing portfolio security
transactions is execution at the most favorable prices. Consistent with the
foregoing primary consideration, the Conduct Rules of the National Association
of Securities Dealers, Inc. (the "NASD") and such other policies as the Trustees
may determine, the Adviser may consider sales of shares of the Fund and of the
other investment company clients of MFD, the Funds' distributor, as a factor in
the selection of broker-dealers to execute the Fund's portfolio transactions.

From time to time, the Adviser and the Sub-Adviser may direct certain portfolio
transactions to broker-dealer firms which, in turn, have agreed to pay a portion
of the Fund's operating expenses (e.g., fees charged by the custodian of the
Fund's assets). For a further discussion of portfolio trading, see the SAI.

While it is not generally the Fund's policy to invest or trade for short-term
profits, the Fund may dispose of a portfolio security whenever the Adviser or
the Sub-Adviser is of the opinion that such security no longer has an
appropriate appreciation potential or when another security appears to offer
relatively greater appreciation potential. Portfolio changes are made without
regard to the length of time a security has been held, or whether a sale would
result in a profit or loss. Therefore, the rate of portfolio turnover is not a
limiting factor when a change in the portfolio is otherwise appropriate. For the
fiscal year ended May 31, 1998, the Fund had a portfolio turnover rate in excess
of 100%. Transaction costs incurred by the Fund and realized capital gains and
losses of the Fund may be greater than that of a fund with a lesser portfolio
turnover rate.

6. RISK FACTORS
FOREIGN SECURITIES: Transactions involving foreign equity or debt securities or
foreign currencies, and transactions entered into in foreign countries, involve
considerations and risks not typically associated with investing in U.S.
markets. These include changes in currency rates, exchange control regulations,
governmental administration or economic or monetary policy (in the U.S. or
abroad) or circumstances in dealings between nations. Costs may be incurred in
connection with conversions between various currencies. The Fund may invest up
to 100% of its assets in foreign securities which are not traded on a U.S.
exchange. Special considerations may also include more limited information about
foreign issuers, higher brokerage and custody costs, different or less stringent
accounting standards and thinner trading markets. Foreign securities markets may
also be less liquid,

18
<PAGE> 30

more volatile and less subject to government supervision than in the U.S.
Investments in foreign countries could be affected by other factors including
expropriation, confiscatory taxation and potential difficulties in enforcing
contractual obligations and could be subject to extended settlement periods.

EMERGING MARKETS: The risks of investing in foreign securities may be
intensified in the case of investments in emerging markets. Securities in
emerging markets may be less liquid and more volatile in price than securities
of comparable domestic issuers. Emerging markets also have different clearance
and settlement procedures, and in certain markets there have been times when
settlements have been unable to keep pace with the volume of securities
transactions, making it difficult to conduct such transactions. Delays in
settlement could result in temporary periods when a portion of the assets of the
Fund is uninvested and no return is earned thereon. The inability of the Fund to
make intended security purchases due to settlement problems could cause the Fund
to miss attractive investment opportunities. Inability to dispose of portfolio
securities due to settlement problems could result in losses to the Fund due to
subsequent declines in value of the portfolio security, a decrease in the level
of liquidity in the Fund's portfolio, or, if the Fund has entered into a
contract to sell the security, in possible liability to the purchaser. Certain
markets may require payment for securities before delivery, and in such markets
the Fund bears the risk that the securities will not be delivered and that the
Fund's payments will not be returned. Securities prices in emerging markets can
be significantly more volatile than in the more developed nations of the world,
reflecting the greater uncertainties of investing in less established markets
and economies. In particular, countries with emerging markets may have
relatively unstable governments, present the risk of nationalization of
businesses, restrictions on foreign ownership, or prohibitions against
repatriation of assets, and may have less protection of property rights than
more developed countries. The economies of countries with emerging markets may
be predominantly based on only a few industries, may be highly vulnerable to
changes in local or global trade conditions, and may suffer from extreme and
volatile debt burdens or inflation rates. Local securities markets may trade a
small number of securities and may be unable to respond effectively to increases
in trading volume, potentially making prompt liquidation of substantial holdings
difficult or impossible at times. Securities of issuers located in countries
with emerging markets may have limited marketability and may be subject to more
abrupt or erratic price movements.

Certain emerging markets may require governmental approval for the repatriation
of investment income, capital or the proceeds of sales of securities by foreign
investors. In addition, if a deterioration occurs in an emerging market's
balance of payments or for other reasons, a country could impose temporary
restrictions on foreign capital remittances. The Fund could be adversely
affected by a delay in obtaining a grant of, or a refusal to grant, any required
governmental approval for repatriation of capital, as well as by the application
to the Fund of any restrictions on investments.

Investment in certain foreign emerging market debt obligations may be restricted
or controlled to varying degrees. These restrictions or controls may at times
preclude investment in certain foreign emerging market debt obligations and
increase the expenses of

19
<PAGE> 31

the Fund. See the SAI for a further discussion of emerging markets securities as
well as the associated risks.

ALLOCATION AMONG EMERGING MARKETS: The Fund may allocate all or a portion of its
investments in emerging market securities among the emerging markets of Latin
America, Asia, Africa, the Middle East and the developing countries of Europe,
primarily in Eastern Europe. The Fund will allocate its investments among these
emerging markets in accordance with the Adviser's and the Sub-Adviser's
determination as to the allocation most appropriate with respect to the Fund's
investment objective and policies. The Fund may invest its assets allocated to
investment in emerging markets without limitation in any particular region, and,
in accordance with the Adviser's and the Sub-Adviser's investment discretion, at
times may invest all of its assets allocated to investment in emerging markets
in securities of emerging market issuers located in a single region (e.g., Latin
America). To the extent that the Fund's investments are concentrated in one or a
few emerging market regions, the Fund's investment performance correspondingly
will be more dependent upon the economic, political and social conditions and
changes in those regions. The ability of the Fund to allocate its investments
among emerging market regions without restriction may have the effect of
increasing the volatility of the Fund, as compared to a fund which limits such
allocations.

INVESTMENTS IN ONE OR A LIMITED NUMBER OF COUNTRIES: The Fund will seek to
reduce risk by investing its assets in a number of markets and issuers. However,
the Fund may invest up to 50% of its net assets in issuers located in a single
country. To the extent that the Fund invests a significant portion of its assets
in a single or limited number of countries, the Fund's investment performance
correspondingly will be more dependent upon the economic, political and social
conditions and changes in that country or countries, and the risks associated
with investments in such country or countries will be particularly significant.
The ability of the Fund to focus its investments in one or a limited number of
countries may have the effect of increasing the volatility of the Fund.

EMERGING GROWTH COMPANIES: The Fund may invest in securities of emerging growth
companies, including established companies. Investing in emerging growth
companies involves greater risk than is customarily associated with investing in
more established companies. Emerging growth companies often have limited product
lines, markets or financial resources, and they may be dependent on one-person
management. The securities of emerging growth companies may have limited
marketability and may be subject to more abrupt or erratic market movements than
securities of larger, more established companies or the market averages in
general. Similarly, many of the securities offering the capital appreciation
sought by the Fund will involve a higher degree of risk than would established
growth stocks.

FOREIGN CURRENCIES: Because the Fund may invest up to 100% of its assets in
securities denominated in currencies other than the U.S. dollar, and because the
Fund may hold foreign currencies, the value of the Fund's investments, and the
value of dividends and interest earned by the Fund, may be significantly
affected by changes in currency exchange rates. Some foreign currency values may
be volatile, and there is the possibility of

20
<PAGE> 32

governmental controls on currency exchange or governmental intervention in
currency markets, which could adversely affect the Fund. Although the Adviser
and Sub-Adviser may attempt to manage currency exchange rate risks, there is no
assurance that the Adviser and Sub-Adviser will do so at an appropriate time or
that the Adviser and Sub-Adviser will be able to predict exchange rates
accurately. For example, if the Adviser and Sub-Adviser hedge the Fund's
exposure to a foreign currency, and that currency's value rises, the Fund will
lose the opportunity to participate in the currency's appreciation. The Fund may
hold foreign currency received in connection with investments in foreign
securities, and enter into Forward Contracts, Futures Contracts and Options on
Foreign Currencies when, in the judgment of the Adviser or Sub-Adviser, it would
be beneficial to convert such currency into U.S. dollars at a later date, based
on anticipated changes in the relevant exchange rates. While the holding of
foreign currencies will permit the Fund to take advantage of favorable movements
in the applicable exchange rate, it also exposes the Fund to risk of loss if
such rates move in a direction adverse to the Fund's position. Such losses could
also adversely affect the Fund's hedging strategies. See the SAI for further
discussion of the holding of foreign currencies as well as the associated risks.

FIXED INCOME SECURITIES: To the extent the Fund invests in fixed income
securities, the net asset value of the Fund may change as the general levels of
interest rates fluctuate. When interest rates decline, the value of fixed income
securities can be expected to rise. Conversely, when interest rates rise, the
value of fixed income securities can be expected to decline. The Fund is subject
to no restrictions on the maturities of the fixed income securities it holds.
The Fund's investments in fixed income securities with longer terms to maturity
are subject to greater volatility than the Fund's shorter-term obligations.

LOWER RATED FIXED INCOME SECURITIES: Fixed income securities in which the Fund
may invest may be rated Baa by Moody's or BBB by S&P, Fitch or Duff & Phelps
(and comparable unrated securities). For a description of these and other rating
categories, see Appendix B. These securities, while normally exhibiting adequate
protection parameters, have speculative characteristics and changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
to make principal and interest payments than in the case of higher grade fixed
income securities.

21
<PAGE> 33

fluctuations in the general level of interest rates (although these lower rated
securities are also affected by changes in interest rates as described below).
In the past, economic downturns or an increase in interest rates have, under
certain circumstances, caused a higher incidence of default by the issuers of
these securities and may do so in the future, especially in the case of highly
leveraged issuers. During certain periods, the higher yields on the Fund's lower
rated high yielding fixed income securities are paid primarily because of the
increased risk of loss of principal and income, arising from such factors as the
heightened possibility of default or bankruptcy of the issuers of such
securities. Due to the fixed income payments of these securities, the Fund may
continue to earn the same level of interest income while its net asset value
declines due to portfolio losses, which could result in an increase in the
Fund's yield despite the actual loss of principal. The prices for these
securities may be affected by legislative and regulatory developments. The
market for these lower rated fixed income securities may be less liquid than the
market for investment grade fixed income securities. Furthermore, the liquidity
of these lower rated securities may be affected by the market's perception of
their credit quality. Therefore, the Adviser's and the Sub-Adviser's judgment
may at times play a greater role in valuing these securities than in the case of
investment grade fixed income securities, and it also may be more difficult
during times of certain adverse market conditions to sell these lower rated
securities to meet redemption requests or to respond to changes in the market.

While the Adviser and the Sub-Adviser may refer to ratings issued by established
credit rating agencies, it is not the Fund's policy to rely exclusively on
ratings issued by these rating agencies, but rather to supplement such ratings
with the Adviser's and the Sub-Adviser's own independent and ongoing review of
credit quality. The Fund's achievement of its investment objective may be more
dependent on the Adviser's and the Sub-Adviser's own credit analysis than in the
case of an investment company primarily investing in higher quality fixed income
securities.

Since shares of the Fund represent an investment in securities with fluctuating
market prices, shareholders should understand that the value of shares of the
Fund will vary as the aggregate value of the portfolio securities of the Fund
increases or decreases. However, changes in the value of securities subsequent
to their acquisition will not affect cash or yield to maturity to the Fund.

22
<PAGE> 34

There also can be no assurance that a liquid secondary market will exist for any
contract purchased or sold, and a Fund may be required to maintain a position
until exercise or expiration, which could result in losses. The SAI contains a
description of the nature and trading mechanics of Options, Options on Stock
Indices, Futures Contracts, Options on Futures Contracts, Forward Contracts and
Options on Foreign Currencies, and includes a discussion of the risks related to
transactions therein.

Transactions in Forward Contracts may be entered into only in the
over-the-counter market. Futures Contracts and Options on Futures Contracts may
be entered into on U.S. exchanges regulated by the Commodity Futures Trading
Commission and on foreign exchanges. In addition, the securities underlying
Options and Futures Contracts traded by the Fund will include U.S. Government
securities as well as foreign securities.
------------------------

The SAI includes a discussion of investment policies and a listing of specific
investment restrictions which govern the Fund's investment policies. The
specific investment restrictions listed in the SAI may be changed without
shareholder approval unless otherwise indicated. See "Investment Policies and
Restrictions" in the SAI.

Except with respect to the Fund's policy on borrowing and investing in illiquid
securities, the Fund's investment limitations, policies and rating standards 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.

7. MANAGEMENT OF THE FUND
INVESTMENT ADVISER -- The Adviser manages the Fund pursuant to an Investment
Advisory Agreement, dated September 1, 1995 (the "Advisory Agreement"). Under
the Advisory Agreement the Adviser provides the Fund with overall investment
advisory services. Subject to such policies as the Trustees may determine, the
Adviser makes investment decisions for the Fund. For its services and
facilities, the Adviser receives an annual management fee computed and paid
monthly, in an amount equal to 0.975% of the first $500 million of the average
daily net assets of the Fund and 0.925% thereafter.

For the fiscal year ended May 31, 1998, MFS received a management fee under the
Advisory Agreement of $1,187,777, (equivalent on an annualized basis to 0.975%,
of the Fund's average daily net assets).

This management fee is greater than the fees paid by most funds, but is
comparable to fees paid by funds having similar investment objectives and
policies. MFS also serves as investment adviser to each of the other funds in
the MFS Family of Funds (the "MFS Funds"), and to MFS(R) 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 Variable Insurance Trust, MFS/Sun Life Series
Trust, and seven variable accounts, each of which is a registered investment
company established by Sun Life Assurance Company of Canada (U.S.), a subsidiary
of Sun Life Assurance Company of Canada ("Sun Life"), in connection with the
sale of various

23
<PAGE> 35

fixed/variable annuity contracts. MFS and its wholly owned subsidiary, MFS
Institutional Advisors, Inc., provide investment advice to substantial private
clients.

MFS is America's oldest mutual fund organization. MFS and its predecessor
organizations have a history of money management dating from 1924 and the
founding of the first mutual fund in the U.S., Massachusetts Investors Trust.
Net assets under the management of the MFS organization were approximately $78.1
billion on behalf of approximately 3.4 million investor accounts as of August
31, 1998. As of such date, the MFS organization managed approximately $51.0
billion of assets in equity securities, approximately $20.6 billion of assets
invested in fixed income funds and fixed income portfolios and approximately
$4.4 billion of assets in foreign securities. MFS is a subsidiary of Sun Life of
Canada (U.S. Financial Services Holdings, Inc.), which in turn is an indirect
wholly owned subsidiary of Sun Life. The Directors of MFS are John W. Ballen,
Thomas J. Cashman, Joseph Dello Russo, John D. McNeil, Kevin R. Parke, Arnold D.
Scott, William W. Scott, Jr., Jeffrey L. Shames and Donald A. Stewart. Mr.
Shames is the Chairman and Chief Executive Officer of MFS, Mr. Ballen is the
President and the Chief Investment Officer of MFS, Mr. Cashman is the President
of MFS Institutional Advisors, Inc., MFS' institutional investment management
subsidiary, Mr. Dello Russo is the Chief Financial Officer and an Executive Vice
President of MFS, Mr. Parke is the Chief Equity Officer, Director of Equity
Research and an Executive Vice President of MFS, Mr. Arnold Scott is the
Secretary and a Senior Executive Vice President of MFS and Mr. William Scott is
the President of MFS Fund Distributors Inc., the distributor of MFS Funds.
Messrs. McNeil and Stewart 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.

Mr. Shames, the Chairman of MFS, is also a Trustee of the Trust. W. Thomas
London, Stephen E. Cavan, James O. Yost, Ellen Moynihan, Mark E. Bradley and
James R. Bordewick, Jr., all of whom are officers of MFS, are officers of the
Trust.

FCM -- The Advisory Agreement permits the Adviser from time to time to engage
one or more sub-advisers to assist in the performance of its services. Pursuant
to the Advisory Agreement, the Adviser has engaged Foreign & Colonial Management
Ltd., a company incorporated under the laws of England and Wales ("FCM"),
located at Exchange House, Primrose Street, London EC2A 2NY, United Kingdom, as
sub-adviser to render advisory services to the Fund with respect to the Fund's
investments in emerging markets securities. FCM is a wholly owned subsidiary of
Hypo Foreign & Colonial Management (Holdings) Ltd. ("Hypo F&C"). Sixty-five
percent of the outstanding voting securities of Hypo F&C is owned by Hypo (U.K.)
Holdings Ltd., which is a wholly owned subsidiary of HYPO-BANK (Bayerische
Hypotheken-und Wechsel-Bank AG), the oldest publicly listed, and fifth largest,
commercial bank in Germany, founded in 1835. The remaining 35% of the
outstanding voting securities of Hypo F&C is owned by four closed-end publicly
listed investment Trusts managed by FCM including Foreign & Colonial Investment
Trust PLC. FCM has a history of money management dating from 1868 and the
establishment of the world's oldest closed-end fund, Foreign &

24
<PAGE> 36

Colonial Investment Trust PLC. As of May 31, 1998, FCM managed approximately
U.S. $38.5 billion of assets, including approximately U.S. $30.80 billion of
assets in equity securities and approximately U.S. $7.70 billion of assets in
fixed income securities.

Under a separate Sub-Advisory Agreement between the Adviser and FCM, dated
September 1, 1995 (the "Sub-Advisory Agreement"), the Adviser may delegate to
FCM the authority to make investment decisions for the Fund. For its services,
the Adviser pays FCM a management fee, computed and paid monthly, in an amount
equal to 0.80% of the average daily net assets of the Fund, on an annualized
basis. Effective September 8, 1997, FCM has voluntarily agreed to waive for an
indefinite period of time, a portion of the sub-investment advisory fee it
receives from the Adviser from 0.80% to 0.65% of the average daily net assets
managed by FCM of the Fund on an annualized basis.

FCEM -- The Sub-Advisory Agreement for the Fund permits FCM from time to time to
engage one or more sub-advisers to assist in the performance of its services.
Pursuant to the Sub-Advisory Agreement, FCM has engaged Foreign & Colonial
Emerging Markets Limited, a company incorporated under the laws of England and
Wales ("FCEM"), located at Exchange House, Primrose Street, London EC2A 2NY,
United Kingdom, as sub-adviser to render advisory services to the Funds. FCEM is
a wholly owned subsidiary of FCM. FCEM serves as the investment adviser to
public closed-end and open-end funds and segregated accounts specializing in
emerging markets. As of May 31, 1998, FCEM managed approximately U.S. $4.02
billion of assets invested in emerging markets.

Under a separate Sub-Advisory Agreement between FCM and FCEM dated September 1,
1995, FCM may delegate to FCEM the authority to make investment decisions for
the Fund. It is presently intended that FCEM will provide portfolio management
services for the portion of the assets of the Fund invested in emerging markets
securities. For its services, FCM pays FCEM a management fee, computed and paid
monthly, in an amount equal to 0.80% of the average daily net assets of the Fund
managed by FCEM, on an annualized basis. Effective September 8, 1997 with
respect to the Fund, FCEM has voluntarily agreed to waive for an indefinite
period of time, a portion of the sub-investment advisory fee it receives from
the Adviser from 0.80% to 0.65% of the average daily net assets managed by FCEM
of the Fund on an annualized basis.

For the fiscal year ended May 31, 1998, the Adviser paid the Sub-Adviser fees
under the Sub-Advisory Agreement of $7,910 in connection with its services for
the Fund.

In certain instances there may be securities which are suitable for the Fund's
portfolio as well as for portfolios of other clients of MFS or clients of FCM.
Some simultaneous transactions are inevitable when several clients receive
investment advice from MFS and FCM, particularly when the same security is
suitable for more than one client. While in some cases this arrangement could
have a detrimental effect on the price or availability of the security as far as
the Fund is concerned, in other cases it may produce increased investment
opportunities for the Fund.

25
<PAGE> 37

PORTFOLIO MANAGER -- David R. Mannheim, a Senior Vice President of MFS, has been
a portfolio manager of the Fund since September, 1997. Mr. Mannheim has been
employed by MFS as a portfolio manager since 1992.

DISTRIBUTOR -- MFD, a wholly owned subsidiary of MFS, is the distributor of
shares of the Fund and also serves as distributor of 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
and certain other services for the Fund.

8. INFORMATION CONCERNING SHARES OF THE FUND

PURCHASES

Shares of the Fund may be purchased at the public offering price through any
dealer. As used in the Prospectus and any appendices thereto the term "dealer"
includes any broker, dealer, bank (including bank trust departments), registered
investment adviser, financial planner and any other financial institutions
having a selling agreement or other similar agreement with MFD. Dealers may also
charge their customers fees relating to investments in the Fund.

This prospectus offers three classes of shares to the general public (Class A,
Class B and Class C shares) which bear sales charges and distribution fees in
different forms and amounts, as described below:

CLASS A SHARES: Class A shares are generally offered at net asset value plus an
initial sales charge, but in certain cases are offered at net asset value
without an initial sales charge but subject to a CDSC.

26
<PAGE> 38

PURCHASES SUBJECT TO INITIAL SALES CHARGE. Class A shares of the Fund are
offered at net asset value plus an initial sales charge as follows:

<TABLE>
<CAPTION>
SALES CHARGE* AS PERCENTAGE OF: DEALER
-------------------------------- ALLOWANCE AS A
OFFERING NET AMOUNT PERCENTAGE OF
AMOUNT OF PURCHASE PRICE INVESTED OFFERING 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**
- ---------------------------------------------------------------------------------------
</TABLE>

*Because of rounding in the calculation of offering price, actual sales
charges may be more or less than those calculated using the percentages above
(see the SAI).

**A CDSC will apply to such purchases, as discussed below.

MFD allows discounts to dealers (which are alike for all dealers) from the
applicable public offering price, as shown in the above table. In the case of
the maximum sales charge, the dealer retains 4% and MFD 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 owned or
being purchased, the existence of an agreement to purchase additional shares
during a 13-month period (or 36-month period for purchases of $1 million or
more) or other special purchase programs. A description of the Right of
Accumulation, Letter of Intent and Group Purchase privileges by which the sales
charge may be reduced is set forth in the SAI.

PURCHASES SUBJECT TO A CDSC (but not an initial sales charge). In the following
five circumstances, Class A shares of the Fund are also offered at net asset
value without an initial sales charge but subject to a CDSC, equal to 1% of the
lesser of the value of the shares redeemed (exclusive of reinvested dividend and
capital gain distributions) or the total cost of such shares, in the event of a
share redemption within 12 months following the purchase:

(i) on investments of $1 million or more in Class A shares;

(ii) on investments in Class A shares by certain retirement plans subject to
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
if prior to July 1, 1996: (a) the plan had established an account with the
Shareholder Servicing Agent and (b) the sponsoring organization had
demonstrated to the satisfaction of MFD that either (i) the employer had
at least 25 employees or (ii) the aggregate purchases by the retirement
plan of Class A shares of the Funds in the MFS Funds would be in an
aggregate amount of at least $250,000 within a reasonable period of time,
as determined by MFD in its sole discretion;

27
<PAGE> 39

lishes an account with the Shareholder Servicing Agent on or after July 1,
1996; and (c) the aggregate purchases by the retirement plan of Class A
shares of the MFS Funds will be in an aggregate amount of at least
$500,000 within a reasonable period of time, as determined by MFD in its
sole discretion;

(iv) on investments in Class A shares by certain retirement plans subject to
ERISA, if: (a) the plan establishes an account with the Shareholder
Servicing Agent on or after July 1, 1996 and (b) the plan has, at the time
of purchase, a market value of $500,000 or more invested in shares of any
class or classes of the MFS Funds. THE RETIREMENT PLAN WILL QUALIFY UNDER
THIS CATEGORY ONLY IF THE PLAN OR ITS SPONSORING ORGANIZATION INFORMS THE
SHAREHOLDER SERVICING AGENT PRIOR TO THE PURCHASE THAT THE PLAN HAS A
MARKET VALUE OF $500,000 OR MORE INVESTED IN SHARES OF ANY CLASS OR CLASSES
OF THE MFS FUNDS. THE SHAREHOLDER SERVICING AGENT HAS NO OBLIGATION
INDEPENDENTLY TO DETERMINE WHETHER SUCH A PLAN QUALIFIES UNDER THIS
CATEGORY; AND

(v) on investments in Class A shares by certain retirement plans subject to
ERISA if: (a) the plan establishes an account with the Shareholder
Servicing Agent on or after July 1, 1997; (b) such plan's records are
maintained on a pooled basis by the Shareholder Servicing Agent; and (c)
the sponsoring organization demonstrates to the satisfaction of MFD that,
at the time of purchase, the employer has at least 200 eligible employees
and the plan has aggregate assets of at least $2,000,000.

In the case of such purchases, MFD will pay commissions to dealers on new
investments in Class A shares made through such dealers, as follows:

<TABLE>
<CAPTION>
COMMISSION PAID
BY MFD TO DEALERS CUMULATIVE PURCHASE AMOUNT
----------------- --------------------------
<S> <C>
1.00%.................................. On the first $2,000,000, plus
0.80%.................................. Over $2,000,000 to $3,000,000, plus
0.50%.................................. Over $3,000,000 to $50,000,000, plus
0.25%.................................. Over $50,000,000
</TABLE>

For purposes of determining the level of commissions to be paid to dealers with
respect to a shareholder's new investment in Class A shares, purchases for each
shareholder account (and certain other accounts for which the shareholder is a
record or beneficial holder) will be aggregated over a 12-month period
(commencing from the date of the first such purchase).

See "Redemptions and Repurchases -- Contingent Deferred Sales Charge" for
further discussion of the CDSC.

WAIVERS OF INITIAL SALES CHARGE AND CDSC. In certain circumstances, the initial
sales charge imposed upon purchases of Class A shares and the CDSC imposed upon
redemptions of Class A shares is waived. These circumstances are described in
Appendix A to this Prospectus. In addition to these circumstances, the CDSC
imposed upon the redemption of Class A shares is waived with respect to shares
held by certain retirement plans qualified

28
<PAGE> 40

under Section 401(a) or 403(b) of the Internal Revenue Code of 1986, as amended
(the "Code"), and subject to ERISA, where:

(i) the retirement plan and/or sponsoring organization does not subscribe to
the MFS Participant Recordkeeping System; and

(ii) the retirement plan and/or sponsoring organization demonstrates to the
satisfaction of, and certifies to the Shareholder Servicing Agent that the
retirement plan has, at the time of certification or will have pursuant to
a purchase order placed with the certification, a market value of $500,000
or more invested in shares of any class or classes of the MFS Funds and
aggregate assets of at least $10 million;

provided, however, that the CDSC will not be waived (i.e., it will be imposed)
(a) with respect to plans which establish an account with the Shareholder
Servicing Agent on or after November 1, 1997, in the event that the Plan makes a
complete redemption of all of its shares in the MFS Funds, or (b) with respect
to plans which established an account with the Shareholder Servicing Agent prior
to November 1, 1997, in the event that there is a change in law or regulation
which results in a material adverse change to the tax advantaged nature of the
plan, or in the event that the plan and/or sponsoring organization: (i) becomes
insolvent or bankrupt; (ii) is terminated under ERISA or is liquidated or
dissolved; or (iii) is acquired by, merged into, or consolidated with any other
entity.

CLASS B SHARES: Class B shares of the Fund are offered at net asset value
without an initial sales charge but subject to a CDSC upon redemption 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%
</TABLE>

The CDSC imposed is assessed against the lesser of the value of the shares
redeemed (exclusive of reinvested dividends and capital gain distributions) or
the total cost of such shares. No CDSC is assessed against shares acquired
through the automatic reinvestment of dividends or capital gain distributions.

Except as described below, MFD will pay commissions to dealers of 3.75% of the
purchase price of Class B shares purchased through dealers. MFD will also
advance to dealers the first year service fee payable under the Fund's
Distribution Plan (see "Distribution Plan" below) at a rate equal to 0.25% of
the purchase price of such shares. Therefore, the total amount paid to a dealer
upon the sale of Class B shares is 4% of the purchase price of the shares
(commission rate of 3.75% plus a service fee equal to 0.25% of the purchase
price).

29
<PAGE> 41

Class B shares purchased by a retirement plan whose sponsoring organization
subscribes to the MFS Participant Recordkeeping System and which has established
its account with the Shareholder Servicing Agent on or after July 1, 1996, will
be subject to the CDSC described above, only under limited circumstances, as
explained below under "Waivers of CDSC." With respect to such purchases, MFD
pays an amount to dealers equal to 3.00% of the amount purchased through such
dealers (rather than the 4.00% payment described above), which is comprised of a
commission of 2.75% plus the advancement of the first year service fee equal to
0.25% of the purchase price payable under the Fund's Distribution Plan. As
discussed above, such retirement plans are eligible to purchase Class A shares
of the Fund at net asset value without an initial sales charge but subject to a
1% CDSC if the plan has, at the time of purchase, a market value of $500,000 or
more invested in shares of any class or classes of the MFS Funds. IN THIS EVENT,
THE PLAN OR ITS SPONSORING ORGANIZATION SHOULD INFORM THE SHAREHOLDER SERVICING
AGENT THAT THE PLAN IS ELIGIBLE TO PURCHASE CLASS A SHARES UNDER THIS CATEGORY;
THE SHAREHOLDER SERVICING AGENT HAS NO OBLIGATION INDEPENDENTLY TO DETERMINE
WHETHER SUCH A PLAN QUALIFIES UNDER THIS CATEGORY FOR THE PURCHASE OF CLASS A
SHARES.

See "Redemptions and Repurchases -- Contingent Deferred Sales Charge" for
further discussion of the CDSC.

WAIVERS OF CDSC. In certain circumstances, the CDSC imposed upon redemption of
Class B shares is waived. These circumstances are described in Appendix A to
this Prospectus. In addition to these circumstances, the CDSC imposed upon the
redemption of Class B shares is waived with respect to shares held by a
retirement plan whose sponsoring organization subscribes to the MFS Participant
Recordkeeping System and which has established an account with the Shareholder
Servicing Agent on or after July 1, 1996; provided, however, that the CDSC will
not be waived (i.e., it will be imposed) in the event that there is a change in
law or regulations which results in a material adverse change to the tax
advantaged nature of the plan, or in the event that the plan and/or sponsoring
organization: (i) becomes insolvent or bankrupt; (ii) is terminated under ERISA
or is liquidated or dissolved; or (iii) is acquired by, merged into, or
consolidated with any other entity.

CONVERSION OF CLASS B SHARES. Class B shares of the Fund that remain outstanding
for approximately eight years will convert to Class A shares of the Fund. Shares
purchased through the reinvestment of distributions paid in respect of Class B
shares will be treated as Class B shares for purposes of the payment of the
distribution and service fees under the Fund's Distribution Plan. See
"Distribution Plan" below. However, for purposes of conversion to Class A
shares, all shares in a shareholder's account that were purchased through the
reinvestment of dividends and distributions paid in respect of Class B shares
(and which have not converted to Class A shares as provided in the following
sentence) will be held in a separate sub-account. Each time any Class B shares
in the shareholder's account (other than those in the sub-account) convert to
Class A shares, a portion of the Class B shares then in the sub-account will
also convert to Class A shares. The portion will be determined by the ratio that
the shareholder's Class B shares not acquired through reinvestment of dividends
and distributions that are converting to Class A shares bear to the

30
<PAGE> 42

shareholder's total Class B shares not acquired through reinvestment. The
conversion of Class B shares to Class A shares is subject to the continuing
availability of a ruling from the Internal Revenue Service or an opinion of
counsel that such conversion will not constitute a taxable event for federal tax
purposes. There can be no assurance that such ruling or opinion will be
available, and the conversion of Class B shares to Class A shares will not occur
if such ruling or opinion is not available. In such event, Class B shares would
continue to be subject to higher expenses than Class A shares for an indefinite
period.

CLASS C SHARES: Class C shares are offered at net asset value without an initial
sales charge but are subject to a CDSC upon redemption of 1.00% during the first
year. Class C shares do not convert to any other class of shares of the Fund.
The maximum investment in Class C shares that may be made is up to $1,000,000
per transaction.

The CDSC imposed is assessed against the lesser of the value of the shares
redeemed (exclusive of reinvested dividend and capital gain distributions) or
the total cost of such shares. No CDSC is assessed against shares acquired
through the automatic reinvestment of dividend or capital gain distributions.
See "Redemptions and Repurchases -- Contingent Deferred Sales Charge" below for
further discussion of the CDSC.

MFD will pay dealers 1.00% of the purchase price of Class C shares purchased
through dealers and, as compensation therefor, MFD will retain the 1.00% per
annum distribution and service fee paid under the Class C Distribution Plan by
the Fund to MFD for the first year after purchase (see "Distribution Plan"
below).

Class C shares are not currently available for purchase by any retirement plan
qualified under Sections 401(a) or 403(b) of the Internal Revenue Code of 1986,
as amended (the "Code"), if the retirement plan and/or the sponsoring
organization subscribe to the MFS FUNDamental 401(k) Plan or another similar
recordkeeping program made available by the Shareholder Servicing Agent.

WAIVERS OF CDSC: In certain circumstances, the CDSC imposed upon redemption of
Class C shares is waived. These circumstances are described in Appendix A to
this Prospectus.

GENERAL: The following information applies to purchases of each class of the
Fund's shares.

MINIMUM INVESTMENT. Except as described below, the minimum initial investment is
$1,000 per account and the minimum additional investment is $50 per account.
Accounts being established for monthly automatic investments and under payroll
savings programs and tax-deferred retirement programs (other than IRAs)
involving the submission of investments by means of group remittal statements
are subject to a $50 minimum on initial and additional investments per account.
The minimum initial investment for IRAs is $250 per account and the minimum
additional investment is $50 per account. Accounts being established for
participation in the Automatic Exchange Plan are subject to a $50 minimum on
initial and additional investments per account. There are also other limited
exceptions to these minimums for certain tax-deferred retirement programs. Any
minimums may be changed at any time at the discretion of MFD. The Fund reserves
the right to cease offering its shares at any time.

31
<PAGE> 43

SUBSEQUENT INVESTMENT BY TELEPHONE: Each shareholder may purchase additional
shares of any MFS Fund by telephoning the Shareholder Servicing Agent toll-free
at (800) 225-2606. The minimum purchase amount is $50 and the maximum purchase
amount is $100,000. Shareholders wishing to avail themselves of this telephone
purchase privilege must so elect on their Account Application and designate
thereon a bank and account number from which purchases will be made. If a
telephone purchase request is received by the Shareholder Servicing Agent on any
business day prior to the close of regular trading on the Exchange (generally,
4:00 p.m., Eastern time), the purchase will occur at the closing net asset value
of the shares purchased on that day. The Shareholder Servicing Agent may be
liable for any losses resulting from unauthorized telephone transactions if it
does not follow reasonable procedures designed to verify the identity of the
caller. The Shareholder Servicing Agent will request personal or other
information from the caller, and will normally also record calls. Shareholders
should verify the accuracy of confirmation statements immediately after their
receipt.

RIGHT TO REJECT PURCHASE ORDERS/MARKET TIMING. Purchases and exchanges should be
made for investment purposes only. The Fund and MFD each reserve the right to
reject or restrict any specific purchase or exchange request. Because an
exchange request involves both a request to redeem shares of one fund and to
purchase shares of another fund, the Fund considers the underlying redemption
request conditioned upon the acceptance of the underlying purchase request.
Therefore, in the event that the Fund or MFD rejects an exchange request,
neither the redemption nor the purchase side of the exchange will be processed.

The MFS Family of Funds is not designed for professional market timing
organizations or other entities using programmed or frequent exchanges. The MFS
Family of Funds defines a "market timer" as an individual or organization acting
on behalf of one or more individuals, if (i) the individual or organization
makes six or more exchange requests among the MFS Family of Funds or three or
more exchange requests out of any of the MFS high yield bond funds or MFS
municipal bond funds per calendar year and (ii) any one of such exchange
requests represents shares equal in value to $1 million or more. Accounts under
common ownership or control, including accounts administered by market timers,
will be aggregated for purposes of this definition.

As noted above, the Fund and MFD each reserves the right to reject or restrict
any specific purchase and exchange request and, in addition, may impose specific
limitations with respect to market timers, including (i) delaying for up to
seven days the purchase side of an exchange request by market timers, (ii)
rejecting or otherwise restricting purchase or exchange requests by market
timers; and (iii) permitting exchanges by market timers only into certain MFS
Funds.

The Fund is not designed for professional market timing organizations or other
entities using programmed or frequent exchanges. The Fund defines a "market
timer" as an individual, or organization acting on behalf of one or more
individuals, if (i) the individual or organization makes three or more exchange
requests out of the Fund per calendar year and (ii) any one of such exchange
requests represents shares equal in value to 1/2 of 1% or more of the Fund's

32
<PAGE> 44

net assets at the time of the request. Accounts under common ownership or
control, including accounts administered by market timers, will be aggregated
for purposes of this definition.

As noted above, the Fund and MFD each reserves the right to reject or restrict
any specific purchase and exchange request, and, in addition may impose specific
limitations with respect to market timers, including delaying for up to seven
days the purchase side of an exchange request by market timers or specifically
rejecting or otherwise restricting purchase or exchange requests by market
timers. In the event that any individual or entity is determined either by the
Fund or MFD, in its sole discretion, to be a market timer with respect to any
calendar year, the Fund and/or MFD will reject all exchange requests into the
Fund during the remainder of that calendar year. Other funds in the MFS Family
of Funds may have different and/or more restrictive policies with respect to
market timers than the Fund. These policies are disclosed in the prospectuses of
these other MFS Funds.

DEALER CONCESSIONS. Dealers may receive different compensation with respect to
sales of Class A and Class B shares. In addition, from time to time, MFD may pay
dealers 100% of the applicable sales charge on sales of Class A shares of
certain specified MFS Funds sold by such dealer during a specified sales period.
In addition, MFD or its affiliates may, from time to time, pay dealers an
additional commission equal to 0.50% of the net asset value of all of the Class
B and/or Class C shares of certain specified MFS Funds sold by such dealer
during a specified sales period. In addition, from time to time, MFD, at its
expense, may provide additional commissions, compensation or promotional
incentives ("concessions") to dealers which sell or arrange for the sale of
shares of the Fund. Such concessions provided by MFD may include financial
assistance to dealers in connection with preapproved conferences or seminars,
sales or training programs for invited registered representatives and other
employees, payment for travel expenses, including lodging, incurred by
registered representatives and other employees for such seminars or training
programs, seminars for the public, advertising and sales campaigns regarding one
or more MFS Funds, and/or other dealer-sponsored events. From time to time, MFD
may make expense reimbursements for special training of a dealer's registered
representatives and other employees in group meetings or to help pay the
expenses of sales contests. Other concessions may be offered to the extent not
prohibited by state laws or any self-regulatory agency, such as the NASD.

SPECIAL INVESTMENT PROGRAMS. For shareholders who elect to participate in
certain investment programs (e.g., the Automatic Investment Plan) or other
shareholder services, MFD or its affiliates may either (i) give a gift of
nominal value, such as a hand-held calculator, or (ii) make a nominal charitable
contribution on their behalf.

33
<PAGE> 45

expected that shareholders would suffer any adverse financial consequence as a
result of these occurrences. In addition, state securities laws on this issue
may differ from the interpretation of federal law expressed herein and banks and
financial institutions may be required to register as broker-dealers pursuant to
state law.

------------------------

A shareholder whose shares are held in the name of, or controlled by, a dealer
might not receive many of the privileges and services from the Fund (such as
Right of Accumulation, Letter of Intent and certain recordkeeping services) that
the Fund ordinarily provides.

EXCHANGES
Subject to the requirements set forth below, some or all of the shares in an
account with the Fund for which payment has been received by the Fund (i.e., an
established account) may be exchanged for shares of the same class of any of the
other MFS Funds at net asset value (if available for sale). Shares of one class
may not be exchanged for shares of any other class.

EXCHANGES AMONG MFS FUNDS (EXCLUDING EXCHANGES FROM MFS MONEY MARKET FUNDS): No
initial sales charges or CDSC will be imposed in connection with an exchange
from shares of an MFS Fund to shares of any other MFS Fund, except with respect
to exchanges from an MFS money market fund to another MFS Fund which is not an
MFS money market fund (discussed below). With respect to an exchange involving
shares subject to a CDSC, the CDSC will be unaffected by the exchange and the
holding period for purposes of calculating the CDSC will carry over to the
acquired shares.

EXCHANGES FROM AN MFS MONEY MARKET FUND: Special rules apply with respect to the
imposition of an initial sales charge or a CDSC for exchanges from an MFS money
market fund to another MFS Fund which is not an MFS money market fund. These
rules are described under the caption "Exchanges" in the Prospectuses of those
MFS money market funds.

EXCHANGES INVOLVING THE MFS FIXED FUND: Class A shares of any MFS Fund held by
certain qualified retirement plans may be exchanged for units of participation
of the MFS Fixed Fund (a bank collective investment fund) (the "Units"), and
Units may be exchanged for Class A shares of any MFS Fund. With respect to
exchanges between Class A shares subject to a CDSC and Units, the CDSC will
carry over to the acquired shares or Units and will be deducted from the
redemption proceeds when such shares or Units are subsequently redeemed,
assuming the CDSC is then payable (the period during which the Class A shares
and the Units were held will be aggregated for purposes of calculating the
applicable CDSC). In the event that a shareholder initially purchases Units and
then exchanges into Class A shares subject to an initial sales charge of an MFS
Fund, the initial sales charge shall be due upon such exchange, but will not be
imposed with respect to any subsequent exchanges between such Class A shares and
Units with respect to shares on which the initial sales charge has already been
paid. In the event that a shareholder initially purchases Units and then
exchanges into Class A shares subject to a CDSC of an MFS Fund, the CDSC

34
<PAGE> 46

period will commence upon such exchange, and the applicability of the CDSC with
respect to subsequent exchanges shall be governed by the rules set forth in this
paragraph above.

GENERAL: A shareholder should read the prospectus of the other MFS Fund and
consider the differences in objectives, policies and restrictions before making
any exchange. Exchanges will be made only after instructions in writing or by
telephone (an "Exchange Request") are received for an established account by the
Shareholder Servicing Agent in proper form (i.e., if in writing -- signed by the
record owner(s) exactly as the shares are registered; if by telephone -- proper
account identification is given by the dealer or shareholder of record) and each
exchange must involve either shares having an aggregate value of at least $1,000
($50 in the case of retirement plan participants whose sponsoring organizations
subscribe to the MFS FUNDamental 401(k) Plan or another similar 401(k)
recordkeeping system made available by the Shareholder Servicing Agent) or all
the shares in the account. If an Exchange Request is received by the Shareholder
Servicing Agent on any business day prior to the close of regular trading on the
New York Stock Exchange (generally, 4:00 p.m., Eastern time) (the "Exchange"),
the exchange will occur on that day if all the requirements set forth above have
been complied with at that time and subject to the Fund's right to reject
purchase orders. No more than five exchanges may be made in any one Exchange
Request by telephone. Additional information concerning this exchange privilege
and prospectuses for any of the other MFS Funds may be obtained from dealers or
the Shareholder Servicing Agent. For federal and (generally) state income tax
purposes, an exchange is treated as a sale of the shares exchanged and,
therefore, an exchange could result in a gain or loss to the shareholder making
the exchange. Exchanges by telephone are automatically available to most
non-retirement plan accounts and certain retirement plan accounts. For further
information regarding exchanges by telephone, see "Redemptions by Telephone."
The exchange privilege (or any aspect of it) may be changed or discontinued and
is subject to certain limitations, including certain restrictions on purchases
by market timers.

REDEMPTIONS AND REPURCHASES
A shareholder may withdraw all or any portion of the value of his account on any
date on which the Fund is open for business by redeeming shares at their net
asset value (a redemption) or by selling such shares to the Fund through a
dealer (a repurchase). Certain redemptions and repurchases are, however, subject
to a CDSC. See "Contingent Deferred Sales Charge" below. Because the net asset
value of shares of the account fluctuates, redemptions or repurchases, which are
taxable transactions, are likely to result in gains or losses to the
shareholder. When a shareholder withdraws an amount from his account, the
shareholder is deemed to have tendered for redemption a sufficient number of
full and fractional shares in his account to cover the amount withdrawn. The
proceeds of a redemption or repurchase will normally be available within seven
days, except for shares purchased or received in exchange for shares purchased
by check (including certified checks or cashier's checks). Payment of redemption
proceeds may be delayed for up to 15 days from the purchase date in an effort to
assure that such check has cleared. See "Tax Status" below.

35
<PAGE> 47

REDEMPTION BY MAIL: Each shareholder may redeem all or any portion of the shares
in his account by mailing or delivering to the Shareholder Servicing Agent (see
back cover for address) a stock power with a written request for redemption or
letter of instruction, together with his share certificates (if any were
issued), all in "good order" for transfer. "Good order" generally means that the
stock power, written request for redemption, letter of instruction or
certificate must be endorsed by the record owner(s) exactly as the shares are
registered and the signature(s) must be guaranteed in the manner set forth below
under the caption "Signature Guarantee." In addition, in some cases "good order"
will require the furnishing of additional documents. The Shareholder Servicing
Agent may make certain de minimis exceptions to the above requirements for
redemption. Within seven days after receipt of a redemption request in "good
order" by the Shareholder Servicing Agent, the Fund will make payment in cash of
the net asset value of the shares next determined after such redemption request
was received, reduced by the amount of any applicable CDSC described above and
the amount of any income tax required to be withheld, except during any period
in which the right of redemption is suspended or date of payment is postponed
because the Exchange is closed or trading on such Exchange is restricted or to
the extent otherwise permitted by the 1940 Act if an emergency exists.

REDEMPTION BY TELEPHONE: Each shareholder may redeem an amount from his account
by telephoning the Shareholder Servicing Agent toll-free at (800) 225-2606.
Shareholders wishing to avail themselves of this telephone redemption privilege
must so elect on their Account Application, designate thereon a bank and account
number to receive the proceeds of such redemption, and sign the Account
Application Form with the signature(s) guaranteed in the manner set forth below
under the caption "Signature Guarantee." The proceeds of such a redemption,
reduced by the amount of any applicable CDSC and the amount of any income tax
required to be withheld, are mailed by check to the designated account, without
charge, if the redemption proceeds do not exceed $1,000, and are wired in
federal funds to the designated account if the redemption proceeds exceed
$1,000. If a telephone redemption request is received by the Shareholder
Servicing Agent by the close of regular trading on the Exchange on any business
day, shares will be redeemed at the closing net asset value of the Fund on that
day. Subject to the conditions described in this section, proceeds of a
redemption are normally mailed or wired on the next business day following the
date of receipt of the order for redemption. The Shareholder Servicing Agent may
be responsible for any losses resulting from unauthorized telephone transactions
if it does not follow reasonable procedures designed to verify the identity of
the caller. The Shareholder Servicing Agent will request personal or other
information from the caller, and will normally also record calls. Shareholders
should verify the accuracy of confirmation statements immediately after their
receipt.

REPURCHASE THROUGH A DEALER: If a shareholder desires to sell his shares through
his dealer (a repurchase), the shareholder can place a repurchase order with his
dealer, who may charge the shareholder a fee. IF THE DEALER RECEIVES THE
SHAREHOLDER'S ORDER PRIOR TO THE CLOSE OF REGULAR TRADING ON THE EXCHANGE AND
COMMUNICATES IT TO MFD BEFORE THE CLOSE OF BUSINESS ON THE SAME DAY, THE
SHAREHOLDER WILL RECEIVE THE NET ASSET

36
<PAGE> 48

VALUE CALCULATED ON THAT DAY, REDUCED BY THE AMOUNT OF ANY APPLICABLE CDSC AND
THE AMOUNT OF ANY INCOME TAX REQUIRED TO BE WITHHELD.

CONTINGENT DEFERRED SALES CHARGE: Investments in Class A, Class B or Class C
shares ("Direct Purchases") will be subject to a CDSC for a period of (i) with
respect to Class A and Class C shares, 12 months (however, the CDSC on Class A
shares is only imposed with respect to purchases of $1 million or more of Class
A shares or purchases by certain retirement plans of Class A shares) or (ii)
with respect to Class B shares, six years. Purchases of Class A shares made
during a calendar month, regardless of when during the month the investment
occurred, will age one month on the last day of the month and each subsequent
month. Class C shares and Class B shares of any MFS Fund purchased on or after
January 1, 1993 will be aggregated on a calendar month basis -- all transactions
made during a calendar month, regardless of when during the month they have
occurred, will age one year at the close of business on the last day of such
month in the following calendar year and each subsequent year. For Class B
shares of any MFS Fund purchased prior to January 1, 1993, transactions will be
aggregated on a calendar year basis -- all transactions made during a calendar
year, regardless of when during the year they have occurred, will age one year
at the close of business on December 31 of that year and each subsequent year.

At the time of a redemption, the amount by which the value of a shareholder's
account for a particular class of shares represented by Direct Purchases exceeds
the sum of the six calendar year aggregations (12 months in the case of
purchases of Class C shares and of purchases of $1 million or more of Class A
shares or purchases by certain retirement plans of Class A shares) of Direct
Purchases may be redeemed without charge ("Free Amount"). Moreover, no CDSC is
ever assessed on additional shares acquired through the automatic reinvestment
of dividends or capital gain distributions ("Reinvested Shares"). Therefore, at
the time of redemption of a particular class, (i) any Free Amount is not subject
to the CDSC and (ii) the amount of the redemption equal to the then-current
value of Reinvested Shares is not subject to the CDSC, but (iii) any amount of
the redemption in excess of the aggregate of the then-current value of
Reinvested Shares and the Free Amount is subject to a CDSC. The CDSC will first
be applied against the amount of Direct Purchases which will result in any such
charge being imposed at the lowest possible rate. The CDSC to be imposed upon
redemptions of shares will be calculated as set forth in "Purchases" above.

The applicability of a CDSC will be unaffected by exchanges or transfers of
registration, except as described in Appendix A hereto.

GENERAL: The following information applies to redemptions and repurchases of
each class of the Fund's shares.

SIGNATURE GUARANTEE. In order to protect shareholders against fraud, the Fund
requires, in certain instances as indicated above, that the shareholder's
signature be guaranteed. In these cases the shareholder's signature must be
guaranteed by an eligible bank, broker, dealer, credit union, national
securities exchange, registered securities association, clearing agency or
savings association. Signature guarantees shall be accepted in accordance with
policies established by the Shareholder Servicing Agent.

37
<PAGE> 49

REINSTATEMENT PRIVILEGE. Shareholders of each Fund who have redeemed their
shares have a one-time right to reinvest the redemption proceeds in the same
class of shares of any of the MFS Funds (if shares of such Fund are available
for sale) at net asset value (with a credit for any CDSC paid) within 90 days of
the redemption pursuant to the Reinstatement Privilege. If the shares credited
for any CDSC paid are then redeemed within six years of the initial purchase in
the case of Class B shares or within 12 months of the initial purchase for Class
C shares and certain Class A share purchases, a CDSC will be imposed upon
redemption. Such purchases under the Reinstatement Privilege are subject to all
limitations in the SAI regarding this privilege.

IN-KIND DISTRIBUTIONS. The Trust agrees to redeem shares of the Fund solely in
cash up to the lesser of $250,000 or 1% of the net asset value of the Fund
during any 90-day period for any one shareholder. The Fund has reserved the
right to pay other redemptions either totally or partially, by a distribution
in-kind of securities (instead of cash) from the Fund's portfolio. The
securities distributed in such a distribution would be valued at the same amount
as that assigned to them in calculating the net asset value for the shares being
sold. If a shareholder received a distribution in-kind, the shareholder could
incur brokerage or transaction charges when converting the securities to cash.
Any distribution in-kind of portfolio securities may include foreign securities,
including securities of issuers in emerging markets. Such securities may be
subject to risks not typically associated with the risks of U.S. securities. See
"Risk Factors -- Foreign Securities" and "-- Emerging Markets."

INVOLUNTARY REDEMPTIONS/SMALL ACCOUNTS. Due to the relatively high cost of
maintaining small accounts, the Fund reserves the right to redeem shares in any
account for their then-current value if at any time the total investment in such
account drops below $500 because of redemptions or exchanges, except in the case
of accounts being established for monthly automatic investments and certain
payroll savings programs, Automatic Exchange Plan accounts and tax-deferred
retirement plans, for which there is a lower minimum investment requirement. See
"Purchases -- General -- Minimum Investment." Shareholders will be notified that
the value of their account is less than the minimum investment requirement and
allowed 60 days to make an additional investment before the redemption is
processed.

DISTRIBUTION PLAN
The Trustees have adopted a Distribution Plan for Class A, Class B and Class C
shares of the Fund pursuant to Section 12(b) of the 1940 Act and Rule 12b-1
thereunder (the "Distribution Plan"), after having concluded that there is a
reasonable likelihood that the Distribution Plan would benefit the Fund and its
shareholders.

In certain circumstances, the fees described below may not be imposed or are
being waived. These circumstances, if any, are described below under the heading
"Current Level of Distribution and Service Fees."

FEATURES COMMON TO EACH CLASS OF SHARES: There are certain features of the
Distribution Plan that are common to each class of Shares, as described below.

SERVICE FEES. The Distribution Plan provides that the Fund may pay MFD a service
fee of up to 0.25% of the average daily net assets attributable to the class of
shares to which the

38
<PAGE> 50

Distribution Plan relates (i.e., Class A, Class B or Class C shares, as
appropriate) (the "Designated Class") annually in order that MFD may pay
expenses on behalf of the Fund relating to the servicing of shares of the
Designated Class. The service fee is used by MFD to compensate dealers which
enter into a sales agreement with MFD in consideration for all personal services
and/or account maintenance services rendered by the dealer with respect to
shares of the Designated Class owned by investors for whom such dealer is the
dealer or holder of record. MFD may from time to time reduce the amount of the
service fees paid for shares sold prior to a certain date. Service fees may be
reduced for a dealer that is the holder or dealer of record for an investor who
owns shares of the Fund having an aggregate net asset value at or above a
certain dollar level. Dealers may from time to time be required to meet certain
criteria in order to receive service fees. MFD or its affiliates are entitled to
retain all service fees payable under the Distribution Plan for which there is
no dealer of record or for which qualification standards have not been met as
partial consideration for personal services and/or account maintenance services
performed by MFD or its affiliates to shareholder accounts.

DISTRIBUTION FEES. The Distribution Plan provides that the Fund may pay MFD a
distribution fee based on the average daily net assets attributable to the
Designated Class as partial consideration for distribution services performed
and expenses incurred in the performance of MFD's obligations under its
distribution agreement with the Fund. See "Management of the
Fund -- Distributor" in the SAI. The amount of the distribution fee paid by the
Fund with respect to each class differs under the Distribution Plan, as does the
use by MFD of such distribution fees. Such amounts and uses are described below
in the discussion of the provisions of the Distribution Plan relating to each
class of shares. While the amount of compensation received by MFD in the form of
distribution fees during any year may be more or less than the expenses incurred
by MFD under its distribution agreement with the Funds, the Fund is not liable
to MFD for any losses MFD may incur in performing services under its
distribution agreement with the Fund.

OTHER COMMON FEATURES. Fees payable under the Distribution Plan are charged to,
and therefore reduce, income allocated to shares of the Designated Class. The
provisions of the Distribution Plan relating to operating policies as well as
initial approval, renewal, amendment and termination are substantially identical
as they relate to each class of Shares covered by the Distribution Plan.

FEATURES UNIQUE TO EACH CLASS OF SHARES: There are certain features of the
Distribution Plan that are unique to each class of shares, as described below.

CLASS A SHARES. Class A shares of the Fund are generally offered pursuant to an
initial sales charge, a substantial portion of which is paid to or retained by
the dealer making the sale (the remainder of which is paid to MFD). See
"Purchases -- Class A Shares" above. In addition to the initial sales charge,
the dealer also generally receives the ongoing 0.25% per annum service fee, as
discussed above.

The distribution fee paid to MFD under the Distribution Plan is equal, on an
annual basis, to 0.25% of the Fund's average daily net assets attributable to
Class A shares. As noted above,

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<PAGE> 51

MFD may use the distribution fee to cover distribution-related expenses incurred
by it under its distribution agreement with the Fund (e.g., MFD pays commissions
to dealers with respect to purchases of $1 million or more and purchases by
certain retirement plans of Class A shares which are sold at net asset value but
which are subject to a 1% CDSC for one year after purchase). Distribution fee
payments under the Distribution Plan may be used by MFD to pay securities
dealers a distribution fee in an amount equal on an annual basis to 0.25% per
annum of the Fund's average daily net assets attributable to Class A shares
(other than Class A shares that have converted from Class B shares) owned by
investors for whom that securities dealer is the holder or dealer of record. See
"Purchases -- Class A Shares" above. In addition, to the extent that the
aggregate service and distribution fees paid under the Distribution Plan does
not exceed 0.50% per annum of the average daily net assets of a Fund
attributable to Class A shares, the Fund is permitted to pay such
distribution-related expenses or other distribution-related expenses.

CLASS B SHARES. Class B shares of the Fund are offered at net asset value
without an initial sales charge but subject to a CDSC. See "Purchases -- Class B
Shares" above. MFD will advance to dealers the first year service fee described
above at a rate equal to 0.25% of the purchase price of such shares and, as
compensation therefore, MFD may retain the service fee paid by the Fund with
respect to such shares for the first year after purchase. Dealers will become
eligible to receive the ongoing 0.25% per annum service fee with respect to such
shares commencing in the thirteenth month following purchase.

Under the Distribution Plan, the Fund pays MFD a distribution fee equal, on an
annual basis, to 0.75% of the Fund's average daily net assets attributable to
Class B shares. As noted above, this distribution fee may be used by MFD to
cover its distribution-related expenses under its distribution agreement with
the Fund (including the 3.75% commission it pays to dealers upon purchase of
Class B shares, as described under "Purchases -- Class B Shares" above).

CLASS C SHARES. Class C shares of the Fund are offered at net asset value
without an initial sales charge but subject to a CDSC. See "Purchases -- Class C
shares" above. MFD will pay a commission to dealers of 1.00% of the purchase
price of Class C shares purchased through dealers at the time of purchase. In
compensation for this 1.00% commission paid by MFD to dealers, MFD will retain
the 1.00% per annum Class C distribution and service fees paid by the Fund with
respect to such shares for the first year after purchase, and dealers will
become eligible to receive from MFD the ongoing 1.00% per annum distribution and
service fees paid by the Fund to MFD with respect to such shares commencing in
the thirteenth month following purchase.

This ongoing 1.00% fee is comprised of the 0.25% per annum service fee paid to
MFD under the Distribution Plan (which MFD in turn pays to dealers), as
discussed above, and a distribution fee paid to MFD (which MFD also in turn pays
to dealers) under the Distribution Plan equal, on an annual basis, to 0.75% of
the Fund's average daily net assets attributable to Class C shares.

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<PAGE> 52

CURRENT LEVEL OF DISTRIBUTION AND SERVICE FEES. The Fund's distribution/service
fee for its current fiscal year is equal to 0.50%, 1.00% and 1.00% per annum of
the average daily net assets attributable to the Fund's Class A shares, Class B
shares and Class C shares, respectively.

DISTRIBUTIONS
The Fund intends to pay substantially all of its net investment income as
dividends on an annual basis. In determining the net investment income available
for distributions, the Fund may rely on projections of its anticipated net
investment income over a longer term, rather than its actual net investment
income for the period. If the Fund 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. The Fund may make one or more distributions
during the calendar year to its shareholders from any long-term capital gains,
and may also make one or more distributions during the calendar year to its
shareholders from short-term capital gains. Shareholders may elect to receive
dividends and capital gain distributions in either cash or additional shares of
the same class with respect to which a distribution is made. See "Tax Status"
and "Shareholder Services -- Distribution Options" below. Distributions paid by
the Fund with respect to Class A shares will generally be greater than those
paid with respect to Class B and Class C shares because expenses attributable to
Class B and Class C shares will generally be higher.

TAX STATUS

The Fund is treated as an entity separate from the other series of the Trust for
federal income tax purposes. 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 Internal Revenue Code
of 1986, as amended (the "Code"). Because the Fund intends to distribute all of
its net investment income and net realized capital gains to its shareholders in
accordance with the timing requirements imposed by the Code, it is not expected
that the Fund will be required to pay entity level federal income or excise
taxes, although the Fund's foreign-source income may be subject to foreign
withholding 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 reinvested in additional shares.
The Fund expects that none of its distributions will be eligible for the
dividends received deduction for corporations.

Shortly after the end of each calendar year, each shareholder will be sent a
statement setting forth the federal income tax status of all dividends and
distributions for that year, including the portion taxable as ordinary income,
the portion taxable as long-term capital gain (as well as the rate category or
categories under which such gain is taxable), the portion, if any, representing
a return of capital (which is generally free of current taxes but which results
in a basis reduction) and the amount, if any, of federal income tax withheld. In
certain circumstances, the Fund may also elect to "pass through" to shareholders
foreign income taxes paid by the Fund. Under those circumstances, the Fund will
notify shareholders of their pro rata portion of the foreign income taxes paid
by the Fund; shareholders may be eligible for foreign tax credits or deductions
with respect to those taxes,

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<PAGE> 53

but will be required to treat the amount of the taxes as an amount distributed
to them and thus includible in their gross income for federal income tax
purposes.

Fund distributions will reduce the Fund's net asset value per share.
Shareholders who buy shares shortly before the Fund makes a distribution may
thus pay the full price for the shares and then effectively receive a portion of
the purchase price back as a taxable distribution.

The Fund intends to withhold U.S. federal income tax at the rate of 30% (or any
lower rate permitted under an applicable treaty) on taxable 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. The Fund is also required in
certain circumstances to apply backup withholding at the rate of 31% on taxable
dividends and redemption proceeds paid to any shareholder (including a
shareholder who is neither a citizen nor a resident of the U.S.) who does not
furnish to the Fund certain information and certifications or who is otherwise
subject to backup withholding. Backup withholding will not, however, be applied
to payments that have been subject to 30% withholding. Prospective investors
should read the Fund's Account Application for additional information regarding
backup withholding of federal income tax and should consult their own tax
advisers as to the tax consequences to them of an investment in the Fund.

NET ASSET VALUE
The net asset value per share of each class of the Fund is determined each day
during which the Exchange is open for trading. This determination is made once
each day as of the close of regular trading on the Exchange by deducting the
amount of the liabilities attributable to the class from the value of the assets
attributable to the class and dividing the difference by the number of shares of
the class outstanding. Assets in the Fund's portfolio are valued on the basis of
their market values or otherwise at their fair values, as described in the SAI.
All investments and assets are expressed in U.S. dollars based upon current
currency exchange rates. The net asset value per share of each class of shares
is effective for orders received by the dealer prior to its calculation and
received by MFD prior to the close of that business day.

DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Fund has three classes of shares which it offers to the general public,
entitled Class A, Class B and Class C shares of Beneficial Interest (without par
value). The Fund also has a class of shares which it offers exclusively to
certain institutional investors entitled Class I Shares. The Trust 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 that particular series.
Shareholders are entitled to one vote for each share held and shares of each
series are entitled to vote separately to approve investment advisory agreements
or changes in investment restrictions, but shares of all series 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 the Distribution Plan or on any other matter that affects solely that
class of shares, but will otherwise vote together with all other classes of
shares

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<PAGE> 54

of the series on all other matters. The Trust does not intend to hold annual
shareholder meetings. The Trust's Declaration of Trust provides that a Trustee
may be removed from office in certain instances. See "Description of Shares,
Voting Rights and Liabilities" in the SAI.

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 set
forth in "Purchases -- Conversion of Class B shares"). Shares are fully paid and
non-assessable. Should the Fund be liquidated, shareholders of each class are
entitled to share pro rata in the net assets attributable to that class
available for distribution to shareholders. Shares will remain on deposit with
the Shareholder Servicing Agent and certificates will not be issued except in
connection with pledges and assignments and in certain other limited
circumstances.

PERFORMANCE INFORMATION

From time to time, the Fund may provide 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 Lipper Analytical
Services, Inc., and Wiesenberger Investment Companies Service. The current
distribution rate for each class is calculated by (i) annualizing the
distributions (excluding short-term capital gains) of the class for a stated
period; (ii) adding any short-term capital gains paid within the immediately
preceding twelve-month period; and (iii) dividing the result by the maximum
offering price or net asset value per share on the last day of the period.
Current distribution rate calculations for Class B and Class C shares assumes no
CDSC is paid. The current distribution rate 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 may be calculated over a 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 each class of shares of the Fund made at the
maximum public offering price of the shares of that class with all distributions
reinvested and which will give effect to the imposition of any applicable CDSC
assessed upon redemptions of the Fund's Class B and Class C shares. Such total
rate of return quotations may be accompanied by quotations which do not reflect
the reduction in value of the initial investment due to sales charge or the
deduction of the CDSC, and which will therefore be higher.

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<PAGE> 55

from its inception date and (ii) the performance of the Fund's oldest class from
its inception date up to the class inception date of the newer class. See the
SAI for further information on the calculation of total rate of return for share
classes with different class inception dates.

All performance quotations are based on historical performance and are not
intended to indicate future performance. Current distribution rate reflects only
the annualized rate of distributions paid by the Fund over a stated period of
time, while total rate of return reflects all components of investment return.
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 current distribution rate and
total rate of return, see the SAI. For further information about the Fund's
performance for the fiscal year ended May 31, 1998, please see the Fund's annual
report. A copy of the Funds' Annual Report may be obtained without charge by
contacting the Shareholder Servicing Agent (see back cover for address and phone
number). In addition to information provided in shareholder reports, the Fund
may, in its discretion, from time to time, make a list of all or a portion of
its holdings available to investors upon request.

EXPENSES

The Trust pays the compensation of the Trustees who are not officers of MFS and
all expenses of the Fund (other than those assumed by MFS) including but not
limited to: advisory and administrative services; governmental fees; interest
charges; taxes; membership dues in the Investment Company Institute allocable to
the Fund; fees and expenses of independent auditors, of legal counsel, and of
any transfer agent, registrar or dividend disbursing agent of the Fund; expenses
of repurchasing and redeeming shares and servicing shareholder accounts;
expenses of preparing, printing and mailing prospectuses, periodic reports,
notices and proxy statements to shareholders and to governmental officers and
commissions; brokerage and other expenses connected with the execution,
recording and settlement of portfolio security transactions; insurance premiums;
fees and expenses of State Street Bank and Trust Company, the Trust's Custodian,
for all services to the Fund, including safekeeping of funds and securities and
maintaining required books and accounts; expenses of calculating the net asset
value of shares of the Fund; and expenses of shareholder meetings. Expenses
relating to the issuance, registration and qualification of shares of the Fund
and the preparation, printing and mailing of prospectuses are borne by the Fund
except that the Distribution Agreement with MFD requires MFD to pay for
prospectuses that are to be used for sales purposes. Expenses of the Trust which
are not attributable to a specific series of the Trust are allocated among the
series in a manner believed by management of the Trust to be fair and equitable.

PROVISION OF ANNUAL AND SEMIANNUAL REPORTS

To avoid sending duplicate copies of materials to households, only one copy of
each Fund annual and semiannual report may be mailed to shareholders having the
same residential address on the Fund's records. However, any shareholder may
call the Shareholder Servicing Agent at 1-800-225-2606 to request that copies of
such reports be sent personally to that shareholder.

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<PAGE> 56

9. SHAREHOLDER SERVICES
Shareholders with questions concerning the shareholder services described below
or concerning other aspects of the Fund, should contact the Shareholder
Servicing Agent (see back cover for address and phone number).

ACCOUNT AND CONFIRMATION STATEMENTS -- Each shareholder will receive
confirmation statements showing the transaction activity in his account. At the
end of each calendar year, each shareholder will receive information regarding
the tax status of reportable dividends and distributions for that year (see "Tax
Status").

DISTRIBUTION OPTIONS -- The following options are available to all accounts
(except Systematic Withdrawal Plan accounts described below) and may be changed
as often as desired by notifying the Shareholder Servicing Agent:

-- Dividends and capital gain distributions reinvested in additional
shares; this option will be assigned if no other option is specified.

-- Dividends in cash; capital gain distributions reinvested in additional
shares.

-- Dividends and capital gain distributions in cash.

Reinvestments (net of any tax withholding) will be made in additional full and
fractional shares of the same class of shares at the net asset value in effect
at the close of business on the record date. Dividends and capital gain
distributions in amounts less than $10 will automatically be reinvested in
additional shares of the Fund. If a shareholder has elected to receive dividends
and/or capital gain distributions in cash, and the postal or other delivery
service is unable to deliver checks to the shareholder's address of record, or
the shareholder does not respond to mailings from the Shareholder Servicing
Agent with regard to uncashed distribution checks, such shareholder's
distribution option will automatically be converted to having all dividends and
other distributions reinvested in additional shares. Any request to change a
distribution option must be received by the Shareholder Servicing Agent by the
record date for a dividend or distribution in order to be effective for that
dividend or distribution. No interest will accrue on amounts represented by
uncashed distribution or redemption checks.

INVESTMENT AND WITHDRAWAL PROGRAMS -- For the convenience of shareholders, the
Fund makes available the following programs designed to enable shareholders to
add to their investment in an account with the Fund or withdraw from it with a
minimum of paper work. The programs involve no extra charge to shareholders
(other than a sales charge in the case of certain Class A share purchases) and
may be changed or discontinued at any time by a shareholder or the Fund:

LETTER OF INTENT: If a shareholder (other than a group purchaser as
described in the SAI) anticipates purchasing $100,000 or more of Class A shares
of the Fund alone or in combination with shares of any of the classes of other
MFS Funds or MFS Fixed Fund (a bank collective investment fund) within a
13-month period (or 36-month period for purchases of $1 million or more), the
shareholder may obtain such shares at the same reduced sales charge as though
the total quantity were invested in one lump sum, subject to escrow
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<PAGE> 57

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 Class A, B and C shares of
that shareholder in the MFS Funds or 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 not subject to any CDSC) through the
automatic reinvestment of dividend and capital gain distributions from the same
class of another MFS Fund. Furthermore, distributions made by a Fund may be
automatically invested at net asset value (and not subject to any CDSC) in
shares of the same class of another MFS Fund, if shares of such MFS Fund are
available for sale.

SYSTEMATIC WITHDRAWAL PLAN: A shareholder may direct the Shareholder
Servicing Agent to send to him (or any one 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 (a "SWP") must be
at least $100, except in certain limited circumstances. The aggregate
withdrawals of Class B and Class C shares in any year pursuant to a SWP will not
be subject to a CDSC and are generally limited to 10% of the value of the
account at the time of the establishment of the SWP. The CDSC will not be waived
in the case of SWP redemptions of Class A shares which are subject to a CDSC.

DOLLAR COST AVERAGING PROGRAMS --
AUTOMATIC INVESTMENT PLAN: Cash investments of $50 or more may be made
through a shareholder's checking account on any day of the month. If the
shareholder does not specify a date, the investment will automatically occur on
the first business day of the month. Required forms are available from the
Shareholder Servicing Agent or investment dealers.

AUTOMATIC EXCHANGE PLAN: Shareholders having account balances of at least
$5,000 in any MFS Fund may participate in the Automatic Exchange Plan, a dollar
cost averaging program. The Automatic Exchange Plan provides for automatic
monthly or quarterly exchanges of funds from the shareholder's account in an MFS
Fund for investment in the same class of shares of other MFS Funds selected by
the shareholder (if available for sale). Under the Automatic Exchange Plan,
exchanges of at least $50 each may be made to up to six different funds. A
shareholder should consider the objectives and policies of a fund and review its
prospectus before electing to exchange money into such fund through the
Automatic Exchange Plan. No transaction fee is imposed in connection with
exchange transactions under the Automatic Exchange Plan. However, exchanges of
shares of MFS Money Market Fund, MFS Government Money Market Fund or Class A
shares of MFS Cash Reserve Fund will be subject to any applicable sales charge.
For federal and (generally) state income tax purposes, an exchange is treated as
a sale of the shares exchanged and, therefore, could result in a capital gain or
loss to the shareholder making the exchange. See

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<PAGE> 58

the SAI for further information concerning the Automatic Exchange Plan.
Investors should consult their tax advisers for information regarding the
potential capital gain and loss consequences of transactions under the Automatic
Exchange Plan.

Because a dollar cost averaging program involves periodic purchases of shares
regardless of fluctuating share offering prices, a shareholder should consider
his financial ability to continue his purchases through periods of low price
levels. Maintaining an investment program concurrently with a withdrawal program
would 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 share redemption (if applicable) 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 adviser before establishing any of the
tax-deferred retirement plans described above.
------------------------

The Fund's SAI, dated October 1, 1998, as amended or supplemented from time to
time, contains more detailed information about the Fund, including information
related to (i) the Fund's investment policies and restrictions, including the
purchase and sale of Options, Options on Stock Indices, Futures Contracts,
Options on Futures Contracts, Forward Contracts and Options on Foreign
Currencies; (ii) the Trustees, officers, Investment Adviser and Sub-Adviser;
(iii) portfolio trading; (iv) the shares, including rights and liabilities of
shareholders; (v) tax status of dividends and distributions; (vi) the
Distribution Plan; and (vii) various services and privileges provided by the
Fund for the benefit of its shareholders, including additional information with
respect to the exchange privilege.

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<PAGE> 59

APPENDIX A

WAIVERS OF SALES CHARGES

This Appendix sets forth the various circumstances in which all applicable sales
charges are waived (Section I), the initial sales charge and the CDSC for Class
A shares are waived (Section II), and the CDSC for Class B and Class C shares is
waived (Section III). Some of the following information will not apply to
certain funds in the MFS Family of Funds depending on which classes of shares
are offered. As used in this Appendix, the term "dealer" includes any broker,
dealer, bank (including bank trust departments), registered investment adviser,
financial planner and any other financial institution having a selling agreement
or other similar agreement with MFS Fund Distributors, Inc. ("MFD").

I. WAIVERS OF ALL APPLICABLE SALES CHARGES
In the following circumstances, the initial sales charge imposed on
purchases of Class A shares and the CDSC imposed on certain redemptions of
Class A shares and on redemptions of Class B shares and Class C shares, as
applicable, are waived:

1. DIVIDEND REINVESTMENT

- Shares acquired through dividend or capital gain reinvestment; and

- Shares acquired by automatic reinvestment of distributions of dividends
and capital gains of any MFS Fund in the MFS Family of Funds ("MFS
Funds") pursuant to the Distribution Investment Program.

2. CERTAIN ACQUISITIONS/LIQUIDATIONS
- Shares acquired on account of the acquisition or liquidation of assets
of other investment companies or personal holding companies.

3. AFFILIATES OF AN MFS FUND/CERTAIN DEALERS. SHARES ACQUIRED BY:
- Officers, eligible directors, employees (including retired employees)
and agents of Massachusetts Financial Services Company ("MFS"), Sun
Life Assurance Company of America ("Sun Life") or any of their
subsidiary companies;

- Trustees and retired trustees of any investment company for which MFD
serves as distributor;

- Employees, directors, partners, officers and trustees of any
sub-adviser to any MFS Fund;

- Employees or registered representatives of dealers;

- Certain family members of any such individual and their spouses
identified above and certain trusts, pension, profit-sharing or other
retirement plans for the sole benefit of such persons, provided the
shares are not resold except to the MFS Fund which issued the shares;
and

- Institutional Clients of MFS or MFS Institutional Advisors, Inc.
("MFSI")

A-1
<PAGE> 60

4. INVOLUNTARY REDEMPTIONS (CDSC WAIVER ONLY)

- Shares redeemed at an MFS Fund's direction due to the small size of a
shareholder's account. See "Redemptions and Repurchases -- General --
Involuntary Redemptions/Small Accounts" in the Prospectus.

5. RETIREMENT PLANS (CDSC WAIVER ONLY). Shares redeemed on account of
distributions made under the following circumstances:

INDIVIDUAL RETIREMENT ACCOUNTS ("IRAS")

- Death or disability of the IRA owner.

SECTION 401(a) PLANS ("401(a) PLANS") AND SECTION 403(b) EMPLOYER
SPONSORED PLANS ("ESP PLANS")

- Death, disability or retirement of 401(a) or ESP Plan participant;

- Loan from 401(a) or ESP Plan (repayment of loans, however, will
constitute new sales for purposes of assessing sales charges);

- Financial hardship (as defined in Treasury Regulation Section
1.401(k)-1(d)(2), as amended from time to time);

- Termination of employment of 401(a) or ESP Plan participant (excluding,
however, a partial or other termination of the Plan);

- Tax-free return of excess 401(a) or ESP Plan contributions;

- To the extent that redemption proceeds are used to pay expenses (or
certain participant expenses) of the 401(a) or ESP Plan (e.g.,
participant account fees), provided that the Plan sponsor subscribes to
the MFS FUNDamental 401(k) Plan or another similar recordkeeping system
made available by the Shareholder Servicing Agent; and

- Distributions from a 401(a) or ESP Plan that has invested its assets in
one or more of the MFS Funds for more than 10 years from the later to
occur of: (i) January 1, 1993 or (ii) the date such 401(a) or ESP Plan
first invests its assets in one or more of the MFS Funds. The sales
charges will be waived in the case of a redemption of all of the 401(a)
or ESP Plan's shares in all MFS Funds (i.e., all the assets of the
401(a) or ESP Plan invested in the MFS Funds are withdrawn), unless
immediately prior to the redemption, the aggregate amount invested by
the 401(a) or ESP Plan in shares of the MFS Funds (excluding the
reinvestment of distributions) during the prior four years equals 50%
or more of the total value of the 401(a) or ESP Plan's assets in the
MFS Funds, in which case the sales charges will not be waived.

A-2
<PAGE> 61

SECTION 403(b) SALARY REDUCTION ONLY PLANS ("SRO PLANS")

- Death or disability of SRO Plan participant.

6. CERTAIN TRANSFERS OF REGISTRATION (CDSC WAIVER ONLY). Shares transferred:

- To an IRA rollover account where any sales charges with respect to the
shares being reregistered would have been waived had they been
redeemed; and

- From a single account maintained for a 401(a) Plan to multiple accounts
maintained by the Shareholder Servicing Agent on behalf of individual
participants of such Plan, provided that the Plan sponsor subscribes to
the MFS FUNDamental 401(k) Plan or another similar recordkeeping system
made available by the Shareholder Servicing Agent.

7. LOAN REPAYMENTS

- Shares acquired pursuant to repayments by retirement plan participants
of loans from 401(a) or ESP Plans with respect to which such Plan or
its sponsoring organization subscribes to the MFS FUNDamental 401(k)
Program or the MFS Recordkeeper Plus Program (but not the MFS
Recordkeeper Program).

II. WAIVERS OF CLASS A SALES CHARGES

In addition to the waivers set forth in Section I above, in the following
circumstances the initial sales charge imposed on purchases of Class A
shares and the CDSC imposed on certain redemption of Class A shares are
waived:

1. WRAP ACCOUNT INVESTMENTS AND FUND "SUPERMARKET" INVESTMENTS

- Shares acquired by investments through certain dealers (including
registered investment advisers and financial planners) which have
established certain operational arrangements with MFD which include a
requirement that such shares be sold for the sole benefit of clients
participating in a "wrap" account, mutual fund "Supermarket" account or
a similar program under which such clients pay a fee to such dealer.

2. INVESTMENT BY INSURANCE COMPANY SEPARATE ACCOUNTS

- Shares acquired by insurance company separate accounts.

3. RETIREMENT PLANS

ADMINISTRATIVE SERVICES ARRANGEMENTS

- Shares acquired by retirement plans or trust accounts whose third party
administrators or dealers have entered into an administrative services
agreement with MFD or one of its affiliates to perform certain
administrative services, subject to certain operational and minimum
size requirements specified from time to time by MFD or one or more of
its affiliates.

A-3
<PAGE> 62

REINVESTMENT OF DISTRIBUTIONS FROM QUALIFIED RETIREMENT PLANS

- Shares acquired through the automatic reinvestment in Class A shares of
Class A or Class B distributions which constitute required withdrawals
from qualified retirement plans.

SHARES REDEEMED ON ACCOUNT OF DISTRIBUTIONS MADE UNDER THE FOLLOWING
CIRCUMSTANCES:

IRAS

- Distributions made on or after the IRA owner has attained the age of
59 1/2 years old; and

- Tax-free returns of excess IRA contributions.

401(a) PLANS

- Distributions made on or after the 401(a) Plan participant has attained
the age of 59 1/2 years old; and

- Certain involuntary redemptions and redemptions in connection with
certain automatic withdrawals from a 401(a) Plan.

ESP PLANS AND SRO PLANS

- Distributions made on or after the ESP or SRO Plan participant has
attained the age of 59 1/2 years old.

4. PURCHASES OF AT LEAST $5 MILLION (CDSC WAIVER ONLY)

- Shares acquired of Eligible Funds (as defined below) if the
shareholder's investment equals or exceeds $5 million in one or more
Eligible Funds (the "Initial Purchase") (this waiver applies to the
shares acquired from the Initial Purchase and all shares of Eligible
Funds subsequently acquired by the shareholder); provided that the
dealer through which the Initial Purchase is made enters into an
agreement with MFD to accept delayed payment of commissions with
respect to the Initial Purchase and all subsequent investments by the
shareholder in the Eligible Funds subject to such requirements as may
be established from time to time by MFD (for a schedule of the amount
of commissions paid by MFD to the dealer on such investments, see
"Purchases -- Class A Shares -- Purchases subject to a CDSC" in the
Prospectus). The Eligible Funds are all funds included in the MFS
Family of Funds, except for Massachusetts Investors Trust,
Massachusetts Investors Growth Stock Fund, MFS Municipal Bond Fund, MFS
Municipal Limited Maturity Fund, MFS Money Market Fund, MFS Government
Money Market Fund and MFS Cash Reserve Fund.

A-4
<PAGE> 63

5. BANK TRUST DEPARTMENTS AND LAW FIRMS

- Shares acquired by certain bank trust departments or law firms acting
as trustee or manager for trust accounts which have entered into an
administrative services agreement with MFS and are acquiring such
shares for the benefit of their trust account clients.

6. INVESTMENT OF PROCEEDS FROM CERTAIN REDEMPTIONS OF CLASS I SHARES

- The initial sales charge imposed on purchases of Class A shares, and
the contingent deferred sales charge imposed on certain redemptions of
Class A shares, are waived with respect to Class A shares acquired of
any of the MFS Funds through the immediate reinvestment of the proceeds
of a redemption of Class I shares of any of the MFS Funds.

III. WAIVERS OF CLASS B AND CLASS C SALES CHARGES

In addition to the waivers set forth in Section I above, in the following
circumstances the CDSC imposed on redemptions of Class B shares and Class
C shares is waived:

1. SYSTEMATIC WITHDRAWAL PLAN

- Systematic Withdrawal Plan redemptions with respect to up to 10% per
year (or 15% per year, in the case of accounts registered as IRAs where
the redemption is made pursuant to Section 72(t) of the Internal
Revenue Code of 1986, as amended) of the account value at the time of
establishment.

2. DEATH OF OWNER

- Shares redeemed on account of the death of the account owner if the
shares are held solely in the deceased individual's name or in a living
trust for the benefit of the deceased individual.

3. DISABILITY OF OWNER

- Shares redeemed on account of the disability of the account owner if
shares are held either solely or jointly in the disabled individual's
name or in a living trust for the benefit of the disabled individual
(in which case a disability certification form is required to be
submitted to the Shareholder Servicing Agent).

4. RETIREMENT PLANS. Shares redeemed on account of distributions made under
the following circumstances:

IRAS, 401(a) PLANS, ESP PLANS AND SRO PLANS

- Distributions made on or after the IRA owner or the 401(a), ESP or SRO
Plan participant, as applicable, has attained the age of 70 1/2 years
old, but only with respect to the minimum distribution under applicable
Code rules.

A-5
<PAGE> 64

SALARY REDUCTION SIMPLIFIED EMPLOYEE PENSION PLANS ("SAR-SEP PLANS")

- Distributions made on or after the SAR-SEP Plan participant has
attained the age of 70 1/2 years old, but only with respect to the
minimum distribution under applicable Code rules;

- Death or disability of a SAR-SEP Plan participant.

A-6
<PAGE> 65

APPENDIX B

DESCRIPTION OF BOND RATINGS

MOODY'S INVESTORS SERVICE, INC.

Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.

Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risk appear somewhat larger than in Aaa securities.

A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.

Baa: Bonds which are rated Baa are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Some bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.

B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.

Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.

Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.

C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.

ABSENCE OF RATING: Where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
B-1
<PAGE> 66

Should no rating be assigned, the reason may be one of the following:

1. An application for rating was not received or accepted.

2. The issue or issuer belongs to a group of securities or companies that
are not rated as a matter of policy.

3. There is a lack of essential data pertaining to the issue or issuer.

4. The issue was privately placed, in which case the rating is not
published in Moody's publications.

Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer available
reasonable up-to-date data to permit a judgment to be formed; if a bond is
called for redemption; or for other reasons.

NOTE: Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa to B. The modifier 1 indicates that the company ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the company ranks in the
lower end of its generic rating category.

STANDARD & POOR'S RATINGS SERVICES

AAA: An obligation rated AAA has the highest rating assigned by S&P. The
obligor's capacity to meet its financial commitment on the obligation is
EXTREMELY STRONG.

AA: An obligation rated AA differs from the highest rated obligations only in
small degree. The obligor's capacity to meet its financial commitment on the
obligation is VERY STRONG.

A: An obligation rated A is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in higher
rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still STRONG.

BBB: An obligation rated BBB exhibits ADEQUATE protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity of the obligor to meet its financial commitment on the
obligation.

Obligations rated BB, B, CCC, CC, and C are regarded as having significant
speculative characteristics. BB indicates the least degree of speculation and C
the highest. While such obligations will likely have some quality and protective
characteristics, these may be outweighed by large uncertainties or major
exposures to adverse conditions.

BB: An obligation rated BB is LESS VULNERABLE to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.

B-2
<PAGE> 67

B: An obligation rated B is MORE VULNERABLE to nonpayment than obligations rated
BB, but the obligor currently has the capacity to meet its financial commitment
on the obligation. Adverse business, financial, or economic conditions will
likely impair the obligor's capacity or willingness to meet its financial
commitment on the obligation.

CCC: An obligation rated CCC is CURRENTLY VULNERABLE to nonpayment, and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions the obligor is not likely to
have the capacity to meet its financial commitment on the obligation.

CC: An obligation rated CC is CURRENTLY HIGHLY VULNERABLE to nonpayment.

C: The C rating may be used to cover a situation where a bankruptcy petition has
been filed or similar action has been taken, but payments on this obligation are
being continued.

D: An obligation rated D is in payment default. The D rating category is used
when payments on an obligation are not made on the date due even if the
applicable grace period has not expired, unless Standard & Poor's believes that
such payments will be made during such grace period. The D rating also will be
used upon the filing of a bankruptcy petition or the taking of a similar action
if payments on an obligation are jeopardized.

PLUS (+) OR MINUS (-) The ratings from AA to CCC may be modified by the addition
of a plus or minus sign to show relative standing within the major rating
categories.

r: This symbol is attached to the ratings of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk -- such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.

FITCH IBCA

AAA: Highest credit quality. AAA ratings denote the lowest expectation of credit
risk. They are assigned only in case of exceptionally strong capacity for timely
payment of financial commitments. This capacity is highly unlikely to be
adversely affected by foreseeable events.

AA: Very high credit quality. AA ratings denote a very low expectation of credit
risk. They indicate very strong capacity for timely payment of financial
commitments. This capacity is not significantly vulnerable to foreseeable
events.

A: High credit quality. A ratings denote a low expectation of credit risk. The
capacity for timely payment of financial commitments is considered strong. This
capacity may, nevertheless, be more vulnerable to changes in circumstances or in
economic conditions than is the case for higher ratings.

B-3
<PAGE> 68

BBB: Good credit quality. BBB ratings indicate that there is currently a low
expectation of credit risk. The capacity for timely payment of financial
commitments is considered adequate, but adverse changes in circumstances and in
economic conditions are more likely to impair this capacity. This is the lowest
investment-grade category.

Speculative Grade

BB: Speculative. BB ratings indicate that there is a possibility of credit risk
developing, particularly as the result of adverse economic change over time;
however, business or financial alternatives may be available to allow financial
commitments to be met. Securities rated in this category are not investment
grade.

B: Highly speculative. B ratings indicate that significant credit risk is
present, but a limited margin of safety remains. Financial commitments are
currently being met; however, capacity for continued payment is contingent upon
a sustained, favorable business and economic environment.

CCC, CC, C: High default risk. Default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon sustained, favorable
business or economic developments. A CC rating indicates that default of some
kind appears probable. C ratings signal imminent default.

DDD, DD, D: Default. Securities are not meeting current obligations and are
extremely speculative. DDD designates the highest potential for recovery of
amounts outstanding on any securities involved. For U.S. corporates, for
example, DD indicates expected recovery of 50% -- 90% of such outstandings, and
D the lowest recovery potential, i.e. below 50%.

DUFF & PHELPS CREDIT RATING CO.

AAA: Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.

AA+, AA, AA-: High credit quality. Protection factors are strong. Risk is modest
but may vary slightly from time to time because of economic conditions.

A+, A, A-: Protection factors are average but adequate. However, risk factors
are more variable and greater in periods of economic stress.

BBB+, BBB, BBB-: Below-average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk during
economic cycles.

BB+, BB, BB-: Below investment grade but deemed likely to meet obligations when
due. Present or prospective financial protection factors fluctuate according to
industry conditions or company fortunes. Overall quality may move up or down
frequently within this category.

B+, B, B-: Below investment grade and possessing risk that obligations will not
be met when due. Financial protection factors will fluctuate widely according to
economic cycles, industry conditions and/or company fortunes. Potential exists
for frequent changes in the rating within this category or into a higher or
lower rating grade.

B-4
<PAGE> 69

CCC: Well below investment-grade securities. Considerable uncertainty exists as
to timely payment of principal, interest or preferred dividends. Protection
factors are narrow and risk can be substantial with unfavorable
economic/industry conditions, and/or with unfavorable company developments.

DD: Defaulted debt-obligations. Issuer failed to meet scheduled principal and/or
interest payments.

DP: Preferred stock with dividend arrearages.

DUFF & PHELPS SHORT-TERM RATINGS

D-1+: Highest certainty of timely payment. Short-term liquidity, including
internal operation factors and/or access to alternative sources of funds, is
outstanding and safety is just below risk-free U.S. Treasury short-term
obligations.

D-1: Very high certainty of timely payment. Liquidity factors are excellent and
supported by good fundamental protection factors. Risk factors are minor.

D-1-: High certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are very small.

D-2: Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.

D-3: Satisfactory liquidity and other protection factors qualify issues as to
investment grade. Risk factors are larger and subject to more variation.
Nevertheless, timely payment is expected.

D-4: Speculative investment characteristics. Liquidity is not sufficient to
insure against disruption in debt service. Operating factors and market access
may be subject to a high degree of variation.

D-5: Issuer failed to meet scheduled principal and/or interest payments.

B-5
<PAGE> 70
Investment Adviser
Massachusetts Financial
Services Company
500 Boylston Street
Boston, MA 02116
(617)954-5000

Distributor
MFS Fund Distributors, Inc.
500 Boylston Street
Boston, MA 02116
(617)954-5000

Custodian and Dividend
Disbursing Agent
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110

Shareholder Servicing Agent
MFS Service Center
500 Boylston Street
Boston, MA 02116
Toll-free:(800)225-2606

Mailing Address
P.O. Box 2281
Boston, MA 02107-9906

Independent Auditors
Ernst & Young LLP
200 Clarendon Street
Boston, MA 02116

MIF-1-10/98/127M 86/286/386/886

<PAGE> 71

[MFS INVESTMENT MANAGEMENT LOGO]

MFS(R)INTERNATIONAL GROWTH FUND STATEMENT OF
ADDITIONAL INFORMATION

(Members of the MFS Family of Funds(R)) October 1, 1998
</TABLE>

- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
1. Definitions................................................. 2
2. Investment Policies and Restrictions........................ 2
3. Management of the Fund...................................... 15
Trustees.................................................... 15
Officers.................................................... 15
Trustee Compensation Table.................................. 17
Investment Adviser.......................................... 17
Administrator............................................... 17
FCM......................................................... 18
FCEM........................................................ 18
Custodian................................................... 19
Shareholder Servicing Agent................................. 19
Distributor................................................. 19
4. Portfolio Transactions and Brokerage Commissions............ 20
5. Shareholder Services........................................ 21
Investment and Withdrawal Programs.......................... 21
Exchange Privilege.......................................... 24
Tax-Deferred Retirement Plans............................... 25
6. Tax Status.................................................. 25
7. Distribution Plan........................................... 26
8. Determination of Net Asset Value and Performance............ 27
9. Description of Shares, Voting Rights and Liabilities........ 30
10. Independent Auditors and Financial Statements............... 31
Appendix A -- Performance Information....................... A-1
</TABLE>

MFS(R) INTERNATIONAL GROWTH FUND
A series of MFS Series Trust X
500 Boylston Street, Boston, MA 02116
(617) 954-5000

This Statement of Additional Information, as amended or supplemented from time
to time (the "SAI"), sets forth information which may be of interest to
investors but which is not necessarily included in the Fund's Prospectus dated
October 1, 1998. This SAI should be read in conjunction with the Prospectus, a
copy of which may be obtained without charge by contacting the Shareholder
Servicing Agent (see back cover for address and phone number).

THIS SAI IS NOT A PROSPECTUS AND IS AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE
INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS.
<PAGE> 72

1. DEFINITIONS

<TABLE>
<S> <C> <C>
"Fund" -- MFS International Growth
Fund, a diversified series
of the Trust. The Fund was
known as MFS/Foreign &
Colonial International
Growth Fund prior to
September 8, 1997.
"MFS" or the "Adviser" -- Massachusetts Financial
Services Company, a
Delaware corporation.
"Sub-Adviser" -- Foreign & Colonial Manage-
ment Ltd., a company
incorporated under the laws
of England and Wales
("FCM") and Foreign &
Colonial Emerging Markets
Limited, a company
incorporated under the laws
of England and Wales
("FCEM").
"MFD" -- MFS Fund Distributors,
Inc., a Delaware
corporation.
"Prospectus" -- The Prospectus of the Fund,
dated October 1, 1998 as
amended or supplemented
from time to time.
"Trust" -- MFS Series Trust X, a
Massachusetts business
trust. The Trust has
changed its name several
times during the past five
years. The Trust was
previously known as MFS
Government Mortgage Fund
(prior to June 2, 1995),
MFS Government Income Plus
Fund (prior to March 1,
1993), MFS Government
Income Plus Trust (prior to
August 3, 1992) and MFS
Government Securities Trust
(after December 7, 1990).
</TABLE>

2. INVESTMENT POLICIES AND
RESTRICTIONS

INVESTMENT POLICIES: The investment policies of the Fund are described in the
Prospectus and below. The following discussion of the Fund's investment policies
and restrictions supplements and should be read in conjunction with the
information set forth in the "Investment Objective and Policies" section of the
Prospectus.

FOREIGN SECURITIES: The Fund may invest up to 100% of its assets in foreign
securities as discussed in the Prospectus. Investments in foreign issues involve
considerations and possible risks not typically associated with investments in
securities issued by domestic companies or with debt securities issued by
foreign governments. There may be less publicly available information about a
foreign company than about a domestic company, and many foreign companies are
not subject to accounting, auditing and financial reporting standards and
requirements comparable to those to which U.S. companies are subject. Foreign
securities markets, while growing in volume, have substantially less volume than
U.S. markets, and securities of many foreign companies are less liquid and their
prices more volatile than securities of comparable domestic companies. Fixed
brokerage commissions and other transaction costs on foreign securities
exchanges are generally higher than in the U.S. There is also less government
supervision and regulation of exchanges, brokers and issuers in foreign
countries than there is in the U.S.

EMERGING MARKETS: The Fund may invest in securities of government,
government-related, supranational and corporate issuers located in emerging
markets. Such investments entail significant risks as described in the
Prospectus under the caption "Risk Factors" and as more fully described below.

COMPANY DEBT -- Governments of many emerging market countries have
exercised and continue to exercise substantial influence over many aspects of
the private sector through the ownership or control of many companies, including
some of the largest in any given country. As a result, government actions in the
future could have a significant effect on economic conditions in emerging
markets, which in turn, may adversely affect companies in the private sector,
general market conditions and prices and yields of certain of the securities in
the Fund's portfolio. Expropriation, confiscatory taxation, nationalization,
political, economic or social instability or other similar developments have
occurred frequently over the history of certain emerging markets and could
adversely affect the Fund's assets should these conditions recur.

SOVEREIGN DEBT -- Investment in sovereign debt can involve a high degree of
risk. The governmental entity that controls the repayment of sovereign debt may
not be able or willing to repay the principal and/or interest when due in
accordance with the terms of such debt. A governmental entity's willingness or
ability to repay principal and interest due in a timely manner may be affected
by, among other factors, its cash flow situation, the extent of its foreign
reserves, the availability of sufficient foreign exchange on the date a payment
is due, the relative size of the debt service burden to the economy as a whole,
the governmental entity's policy towards the International Monetary Fund and the
political constraints to which a governmental entity may be subject.
Governmental entities may also be dependent on expected disbursements from
foreign governments, multilateral agencies and others abroad to reduce principal
and interest on their debt. The commitment on the part of these governments,
agencies and others to make such disbursements may be conditioned on a
governmental entity's implementation of economic reforms and/or economic
performance and the timely service of such debtor's obligations. Failure to
implement such reforms, achieve such levels of economic performance or repay
principal or interest when due may result in the cancellation of such third
parties' commitments to lend funds to the governmental

2
<PAGE> 73

entity, which may further impair such debtor's ability or willingness to service
its debts in a timely manner. Consequently, governmental entities may default on
their sovereign debt. Holders of sovereign debt (including the Fund) may be
requested to participate in the rescheduling of such debt and to extend further
loans to governmental entities. There is no bankruptcy proceeding by which
sovereign debt on which governmental entities have defaulted may be collected in
whole or in part.

Emerging market governmental issuers are among the largest debtors to commercial
banks, foreign governments, international financial organizations and other
financial institutions. Certain emerging market governmental issuers have not
been able to make payments of interest on or principal of debt obligations as
those payments have come due. Obligations arising from past restructuring
agreements may affect the economic performance and political and social
stability of those issuers.

The ability of emerging market governmental issuers to make timely payments on
their obligations is likely to be influenced strongly by the issuer's balance of
payments, including export performance, and its access to international credits
and investments. An emerging market whose exports are concentrated in a few
commodities could be vulnerable to a decline in the international prices of one
or more of those commodities. Increased protectionism on the part of an emerging
market's trading partners could also adversely affect the country's exports and
tarnish its trade account surplus, if any. To the extent that emerging markets
receive payment for their exports in currencies other than dollars or
non-emerging market currencies, its ability to make debt payments denominated in
dollars or non-emerging market currencies could be affected.

To the extent that an emerging market country cannot generate a trade surplus,
it must depend on continuing loans from foreign governments, multilateral
organizations or private commercial banks, aid payments from foreign governments
and on inflows of foreign investment. The access of emerging markets to these
forms of external funding may not be certain, and a withdrawal of external
funding could adversely affect the capacity of emerging market country
governmental issuers to make payments on their obligations. In addition, the
cost of servicing emerging market debt obligations can be affected by a change
in international interest rates since the majority of these obligations carry
interest rates that are adjusted periodically based upon international rates.

Another factor bearing on the ability of emerging market countries to repay debt
obligations is the level of international reserves of the country. Fluctuations
in the level of these reserves affect the amount of foreign exchange readily
available for external debt payments and thus could have a bearing on the
capacity of emerging market countries to make payments on these debt
obligations.

LIQUIDITY; TRADING VOLUME; REGULATORY OVERSIGHT -- The securities markets
of emerging market countries are substantially smaller, less developed, less
liquid and more volatile than the major securities markets in the U.S.
Disclosure and regulatory standards are in many respects less stringent than
U.S. standards. Furthermore, there is a lower level of monitoring and regulation
of the markets and the activities of investors in such markets.

The limited size of many emerging market securities markets and limited trading
volume in the securities of emerging market issuers compared to volume of
trading in the securities of U.S. issuers could cause prices to be erratic for
reasons apart from factors that affect the soundness and competitiveness of the
securities issuers. For example, limited market size may cause prices to be
unduly influenced by traders who control large positions. Adverse publicity and
investors' perceptions, whether or not based on in-depth fundamental analysis,
may decrease the value and liquidity of portfolio securities.

The risk also exists that an emergency situation may arise in one or more
emerging markets, as a result of which trading of securities may cease or may be
substantially curtailed and prices for the Fund's securities in such markets may
not be readily available. The Trust may suspend redemption of its shares for any
period during which an emergency exists, as determined by the Securities and
Exchange Commission (the "SEC"). Accordingly, if the Fund believes that
appropriate circumstances exist, it will promptly apply to the SEC for a
determination that an emergency is present. During the period commencing from
the Fund's identification of such condition until the date of the SEC action,
the Fund's securities in the affected markets will be valued at fair value
determined in good faith by or under the direction of the Board of Trustees.

DEFAULT; LEGAL RECOURSE -- The Fund may have limited legal recourse in the
event of a default with respect to certain debt obligations it may hold. If the
issuer of a fixed-income security owned by the Fund defaults, the Fund may incur
additional expenses to seek recovery. Debt obligations issued by emerging market
governments differ from debt obligations of private entities; remedies from
defaults on debt obligations issued by emerging market governments, unlike those
on private debt, must be pursued in the courts of the defaulting party itself.
The Fund's ability to enforce its rights against private issuers may be limited.
The ability to attach assets to enforce a judgment may be limited. Legal
recourse is therefore somewhat diminished. Bankruptcy, moratorium and other
similar laws applicable to private issuers of debt obligations may be
substantially different from those of other countries. The political context,
expressed as an emerging market governmental issuer's willingness to meet the
terms of the debt obligation, for example, is of considerable importance. In
addition, no assurance can be given that the holders of commercial bank debt may
not contest payments to the holders of debt

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obligations in the event of default under commercial bank loan agreements.

INFLATION -- Many emerging markets have experienced substantial, and in
some periods extremely high, rates of inflation for many years. Inflation and
rapid fluctuations in inflation rates have had and may continue to have adverse
effects on the economies and securities markets of certain emerging market
countries. In an attempt to control inflation, wage and price controls have been
imposed in certain countries. Of these countries, some, in recent years, have
begun to control inflation through prudent economic policies.

WITHHOLDING -- Income from securities held by the Fund could be reduced by
a withholding tax on the source or other taxes imposed by the emerging market
countries in which the Fund makes its investments. The Fund's net asset value
may also be affected by changes in the rates or methods of taxation applicable
to the Fund or to entities in which the Fund has invested. The Adviser and the
Sub-Adviser will consider the cost of any taxes in determining whether to
acquire any particular investments, but can provide no assurance that the taxes
will not be subject to change.

FOREIGN CURRENCIES -- The Fund may invest up to 100% of its assets in
securities denominated in foreign currencies. Accordingly, changes in the value
of these currencies against the U.S. dollar may result in corresponding changes
in the U.S. dollar value of the Fund's assets denominated in those currencies.
The Fund may attempt to minimize the impact of these changes to the U.S. dollar
value of the Fund's portfolio by engaging in certain hedging practices, such as
entering into Futures Contracts and Options on Foreign Securities as described
below.

Some emerging market countries also may have managed currencies, which are not
free floating against the U.S. dollar. In addition, there is risk that certain
emerging market countries may restrict the free conversion of their currencies
into other currencies. Further, certain emerging market currencies may not be
internationally traded. Certain of these currencies have experienced a steep
devaluation relative to the U.S. dollar. Any devaluations in the currencies in
which the Fund's portfolio securities are denominated may have a detrimental
impact on the Fund's net asset value.

REPURCHASE AGREEMENTS: The Fund may enter into repurchase agreements with
sellers who are member firms (or a subsidiary thereof) of the New York Stock
Exchange (the "Exchange"), members of the Federal Reserve System, recognized
domestic or foreign securities dealers or institutions which the Adviser or the
Sub-Adviser has determined to be of comparable creditworthiness. The securities
that the Fund purchases and holds have values which are equal to or greater than
the repurchase price agreed to be paid by the seller. The repurchase price may
be higher than the purchase price, the difference being income to the Fund, or
the purchase and repurchase prices may be the same, with interest at a standard
rate due to the Fund together with the repurchase price on repurchase.

The repurchase agreement provides that in the event the seller fails to pay the
amount agreed upon on the agreed upon delivery date or upon demand, as the case
may be, the Fund will have the right to liquidate the securities. If at the time
the Fund is contractually entitled to exercise its right to liquidate the
securities, the seller is subject to a proceeding under the bankruptcy laws or
its assets are otherwise subject to a stay order, the Fund's exercise of its
right to liquidate the securities may be delayed and result in certain losses
and costs to the Fund. The Fund has adopted and follows procedures which are
intended to minimize the risks of repurchase agreements. For example, the Fund
only enters into repurchase agreements after the Adviser or the Sub-Adviser has
determined that the seller is creditworthy, and the Adviser or the Sub-Adviser
monitors that seller's creditworthiness on an ongoing basis. Moreover, under
such agreements, the value of the securities (which are marked to market every
business day) is required to be greater than the repurchase price, and the Fund
has the right to make margin calls at any time if the value of the securities
falls below the agreed upon collateral.

DEPOSITARY RECEIPTS: The Fund may invest in American Depositary Receipts
("ADRs") which are certificates issued by a U.S. depository (usually a bank) and
represent a specified quantity of shares of an underlying non-U.S. stock on
deposit with a custodian bank as collateral. ADRs may be sponsored or
unsponsored. A sponsored ADR is issued by a depository which has an exclusive
relationship with the issuer of the underlying security. An unsponsored ADR may
be issued by any number of U.S. depositories. Under the terms of most sponsored
arrangements, depositories agree to distribute notices of shareholder meetings
and voting instructions, and to provide shareholder communications and other
information to the ADR holders at the request of the issuer of the deposited
securities. The depository of an unsponsored ADR, on the other hand, is under no
obligation to distribute shareholder communications received from the issuer of
the deposited securities or to pass through voting rights to ADR holders in
respect of the deposited securities. The Fund may invest in either type of ADR.
Although the U.S. investor holds a substitute receipt of ownership rather than
direct stock certificates, the use of the depositary receipts in the United
States can reduce costs and delays as well as potential currency exchange and
other difficulties. The Fund may purchase securities in local markets and direct
delivery of these ordinary shares to the local depository of an ADR agent bank
in the foreign country. Simultaneously, the ADR agents create a certificate
which settles at the Fund's custodian in five days. The Fund may also execute
trades on the U.S. markets using existing ADRs. A foreign issuer of the security
underlying an ADR is generally not subject to the same reporting requirements in
the United States as a domestic issuer. Accordingly, information available to a
U.S. investor will be limited to the information the
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<PAGE> 75

foreign issuer is required to disclose in its own country and the market value
of an ADR may not reflect undisclosed material information concerning the issuer
of the underlying security. ADRs may also be subject to exchange rate risks if
the underlying foreign securities are denominated in a foreign currency. The
Fund may also invest in Global Depositary Receipts ("GDRs") and other types of
depositary receipts. GDRs and other types of depositary receipts are typically
issued by foreign banks or trust companies and evidence ownership of underlying
securities issued by either a foreign or U.S. company.

LOANS AND OTHER DIRECT INDEBTEDNESS: The Fund may purchase loans and other
direct claims against an issuer of emerging market debt instruments (a
"borrower"). In purchasing a loan, the Fund acquires some or all of the interest
of a bank or other lending institution in a loan to a corporate, governmental or
other borrower. Many such loans are secured, although some may be unsecured.
Such loans may be in default at the time of purchase. Loans that are fully
secured offer the Fund more protection than an unsecured loan in the event of
non-payment of scheduled interest or principal. However, there is no assurance
that the liquidation of collateral from a secured loan would satisfy the
corporate borrower's obligation, or that the collateral can be liquidated.

Certain of the loans acquired by the Fund may involve revolving credit
facilities or other standby financing commitments which obligate the Fund to pay
additional cash on a certain date or on demand. These commitments may have the
effect of requiring the Fund to increase its investment in a company at a time
when the Fund might not otherwise decide to do so (including at a time when the
company's financial condition makes it unlikely that such amounts will be
repaid). To the extent that the Fund is committed to advance additional funds,
it will at all times hold and maintain in a segregated account liquid assets in
an amount sufficient to meet such commitments.

The Fund's ability to receive payments of principal, interest and other amounts
due in connection with these investments will depend primarily on the financial
condition of the borrower. Direct indebtedness of developing countries involves
the risk that the governmental entities responsible for the repayment of the
note may be unable, or unwilling, to pay interest and repay principal where due.
In selecting the loans and other direct investments which the Fund will
purchase, the Adviser will rely upon its (and not that of the original lending
institution's) own credit analysis of the borrower. As a Fund may be required to
rely upon another lending institution to collect and pass on to the Fund amounts
payable with respect to the loan and to enforce the Fund's rights under the
loan, an insolvency, bankruptcy or reorganization of the lending institution may
delay or prevent the Fund from receiving such amounts. In such cases, the Fund
will evaluate as well the creditworthiness of the lending institution and will
treat both the borrower and the lending institution as an "issuer" of the loan
for purposes of certain investment restrictions pertaining to the
diversification of the Fund's portfolio investments. The highly leveraged nature
of many such loans may make such loans especially vulnerable to adverse changes
in economic or market conditions. Investments in such loans may involve
additional risks to the Fund.

WHEN-ISSUED OR FORWARD DELIVERY SECURITIES:When the Fund commits to purchase a
security on a "when-issued" or "forward delivery" basis, it will set up
procedures consistent with the General Statement of Policy of the SEC concerning
such purchases. Since that policy currently recommends that an amount of the
Fund's assets equal to the amount of the purchase be held aside or segregated to
be used to pay for the commitment, the Fund will always have liquid assets
sufficient to cover any commitments or to limit any potential risk. However,
although the Fund does not intend to make such purchases for speculative
purposes and intends to adhere to the provisions of the SEC policy, purchases of
securities on such bases may involve more risk than other types of purchases.
For example, the Fund may have to sell assets which have been set aside in order
to meet redemptions. Also, if the Fund determines it necessary to sell the
"when-issued" or "forward delivery" securities before delivery, it may incur a
loss because of market fluctuations since the time the commitment to purchase
such securities was made.

LENDING OF SECURITIES: The Fund may seek to increase its income by lending
portfolio securities to entities deemed creditworthy by the Adviser or the
Sub-Adviser. Such loans would be required to be secured continuously by
collateral in cash, irrevocable letters of credit or U.S. Government securities
maintained on a current basis at an amount at least equal to the market value of
the securities loaned. The Fund would have the right to call a loan and obtain
the securities loaned at any time on customary industry settlement notice (which
will usually not exceed five days). During the existence of a loan, the Fund
would continue to receive the equivalent of the interest or dividends paid by
the issuer on the securities loaned. The Fund would also receive a fee from the
borrower or compensation from the investment of cash collateral less a fee paid
to the borrower, if the collateral is in the form of cash. The Fund would not,
however, have the right to vote any securities having voting rights during the
existence of the loan, but would call the loan in anticipation of an important
vote to be taken among holders of the securities or of the giving or withholding
of their consent on a material matter affecting the investment. As with other
extensions of credit there are risks of delay in recovery or even loss of rights
in the collateral should the borrower of the securities fail financially.
However, the loans would be made only to firms deemed by the Adviser and the
Sub-Adviser to be of good standing, and when, in the judgment of the Adviser or
the Sub-Adviser, the consideration which could be earned currently from
securities loans of this type justifies the attendant risk. If the Adviser or
the Sub-Adviser determines to make securities loans, it is not

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intended that the value of the securities loaned would exceed 30% of the value
of the Fund's total assets.

WARRANTS: The Fund will not invest more than 10% of its net assets, taken at
market value, in warrants not acquired in a unit transaction. Warrants are
securities that give the Fund the right to purchase equity securities from the
issuer at a specific price (the "strike price") for a limited period of time.
Warrants may be more volatile investments than the underlying securities and may
offer greater potential for capital appreciation as well as capital loss.

Warrants do not entitle a holder to dividends or voting rights with respect to
the underlying securities and do not represent any rights in the assets of the
issuing company. Also, the value of the warrant does not necessarily change with
the value of the underlying securities and a warrant ceases to have value if it
is not exercised prior to the expiration date. These factors can make warrants
more speculative than other types of investments.

OPTIONS ON SECURITIES: The Fund may write (sell) covered call and put options on
securities ("Options") and purchase call and put Options. An Option provides the
purchaser, or "holder", with the right, but not the obligation, to purchase, in
the case of a "call" Option, or sell, in the case of a "put" Option, the
security or securities in connection with which the Option was written, for a
fixed exercise price up to a stated expiration date or, in the case of certain
options, on such date. The holder pays a non-refundable purchase price for the
Option, known as the "premium." The maximum amount of risk the purchaser of the
Option assumes is equal to the premium plus related transaction costs, although
this entire amount may be lost. The risk of the seller, or "writer", however, is
potentially unlimited, unless the Option is "covered." A call option written by
the Fund is "covered" if the Fund owns the security underlying the call or has
an absolute and immediate right to acquire that security without additional cash
consideration (or for additional cash consideration segregated by the Fund) upon
conversion or exchange of other securities held in its portfolio. A call option
is also covered if the Fund holds a call on the same security and in the same
principal amount as the call written where the exercise price of the call held
(a) is equal to or less than the exercise price of the call written or (b) is
greater than the exercise price of the call written if liquid assets
representing the difference are segregated by the Fund. A put option written by
the Fund is "covered" if the Fund maintains liquid assets with a value equal to
the exercise price, or else holds a put on the same security and in the same
principal amount as the put written where the exercise price of the put held is
(a) equal to or greater than the exercise price of the put written or (b) is
less than the exercise price of the put written if liquid assets representing
the difference are segregated by the Fund. Put and call options written by the
Fund may also be covered in such other manner as may be in accordance with the
requirements of the exchange on which, or the counter party with which the
option is traded, and applicable laws and regulations. If the writer's
obligation is not so covered, it is subject to the risk of the full change in
value of the underlying security from the time the option is written until
exercise.

The Fund may write Options for the purpose of increasing its return and for
hedging purposes. In particular, if the Fund writes an Option which expires
unexercised or is closed out by the Fund at a profit, the Fund retains the
premium paid for the Option less related transaction costs, which increases its
gross income and offsets in part the reduced value of the portfolio security in
connection with which the Option is written, or the increased cost of portfolio
securities to be acquired. In contrast, however, if the price of the security
underlying the Option moves adversely to the Fund's position, the Option may be
exercised and the Fund will then be required to purchase or sell the security at
a disadvantageous price, which might only partially be offset by the amount of
the premium.

The Fund may write Options in connection with buy-and-write transactions; that
is, the Fund may purchase a security and then write a call Option against that
security. The exercise price of the call Option the Fund determines to write
depends upon the expected price movement of the underlying security. The
exercise price of a call Option may be below ("in-the-money"), equal to
("at-the-money") or above ("out-of-the-money") the current value of the
underlying security at the time the Option is written.

The writing of covered put Options is similar in terms of risk/return
characteristics to buy-and-write transactions. Put Options may be used by the
Fund in the same market environments in which call Options are used in
equivalent buy-and-write transactions.

The Fund may also write combinations of put and call Options on the same
security, a practice known as a "straddle." By writing a straddle, the Fund
undertakes a simultaneous obligation to sell or purchase the same security in
the event that one of the Options is exercised. If the price of the security
subsequently rises sufficiently above the exercise price to cover the amount of
the premium and transaction costs, the call will likely be exercised and the
Fund will be required to sell the underlying security at a below market price.
This loss may be offset, however, in whole or in part, by the premiums received
on the writing of the two Options. Conversely, if the price of the security
declines by a sufficient amount, the put will likely be exercised. The writing
of straddles will likely be effective, therefore, only where the price of a
security remains stable and neither the call nor the put is exercised. In an
instance where one of the Options is exercised, the loss on the purchase or sale
of the underlying security may exceed the amount of the premiums received.

underlying security for an exercise price above its then current market value,
resulting in a loss unless the security subsequently appreciates in value. The
writing of Options will not be undertaken by the Fund solely for hedging
purposes, and may involve certain risks which are not present in the case of
hedging transactions. Moreover, even where Options are written for hedging
purposes, such transactions will constitute only a partial hedge against
declines in the value of portfolio securities or against increases in the value
of securities to be acquired, up to the amount of the premium.

The Fund may also purchase put and call Options. Put Options are purchased to
hedge against a decline in the value of securities held in the Fund's portfolio.
If such a decline occurs, the put Options will permit the Fund to sell the
securities underlying such Options at the exercise price, or to close out the
Options at a profit. The Fund will purchase call Options to hedge against an
increase in the price of securities that the Fund anticipates purchasing in the
future. If such an increase occurs, the call Option will permit the Fund to
purchase the securities underlying such Option at the exercise price or to close
out the Option at a profit. The premium paid for a call or put Option plus any
transaction costs will reduce the benefit, if any, realized by the Fund upon
exercise of the Option, and, unless the price of the underlying security rises
or declines sufficiently, the Option may expire worthless to the Fund. In
addition, in the event that the price of the security in connection with which
an Option was purchased moves in a direction favorable to the Fund, the benefits
realized by the Fund as a result of such favorable movement will be reduced by
the amount of the premium paid for the Option and related transaction costs.

The staff of the SEC has taken the position that purchased over-the-counter
Options and assets used to cover written over-the-counter Options are illiquid
and, therefore, together with other illiquid securities, cannot exceed 15% of
the Fund's assets. Although the Adviser disagrees with this position, the
Adviser intends to limit the Fund's writing of over-the-counter Options in
accordance with the following procedure. Except as provided below, the Fund
intends to write over-the-counter Options only with primary U.S. Government
securities dealers recognized by the Federal Reserve Bank of New York. Also, the
contracts the Fund has in place with such primary dealers will provide that the
Fund has the absolute right to repurchase an Option it writes at any time at a
price which represents the fair market value, as determined in good faith
through negotiation between the parties, but which in no event will exceed a
price determined pursuant to a formula in the contract. Although the specific
formula may vary between contracts with different primary dealers, the formula
will generally be based on a multiple of the premium received by the Fund for
writing the Option, plus the amount, if any, of the Option's intrinsic value
(i.e., the amount that the Option is in-the-money). The formula may also include
a factor to account for the difference between the price of the security and the
strike price of the Option if the Option is written out-of-the-money. The Fund
will treat all or a portion of the formula as illiquid for purposes of the 15%
test imposed by the SEC staff. The Fund may also write over-the-counter Options
with non-primary dealers, including foreign dealers, and will treat the assets
used to cover these Options as illiquid for purposes of such 15% test.

OPTIONS ON STOCK INDICES: As noted in the Prospectus, the Fund may write (sell)
covered call and put options and purchase call and put options on stock indices
("Options on Stock Indices"). The Fund may cover call Options on Stock Indices
by owning securities whose price changes, in the opinion of the Adviser or the
Sub-Adviser, are expected to be similar to those of the underlying index, or by
having an absolute and immediate right to acquire such securities without
additional cash consideration (or for additional cash consideration segregated
by the Fund) upon conversion or exchange of other securities in its portfolio.
Where the Fund covers a call option on a stock index through ownership of
securities, such securities may not match the composition of the index and, in
that event, the Fund will not be fully covered and could be subject to risk of
loss in the event of adverse changes in the value of the index. The Fund may
also cover call options on stock indices by holding a call on the same index and
in the same principal amount as the call written where the exercise price of the
call held (a) is equal to or less than the exercise price of the call written or
(b) is greater than the exercise price of the call written if liquid assets
representing the difference are segregated by the Fund. The Fund may cover put
options on stock indices by segregating liquid assets, or else by holding a put
on the same security and in the same principal amount as the put written where
the exercise price of the put held (a) is equal to or greater than the exercise
price of the put written or (b) is less than the exercise price of the put
written if liquid assets representing the difference are segregated by the Fund.
Put and call options on stock indices may also be covered in such other manner
as may be in accordance with the rules of the exchange on which, or the
counterparty with which, the option is traded and applicable laws and
regulations.

The Fund will receive a premium from writing a put or call option on a stock
index, which increases the Fund's gross income in the event the option expires
unexercised or is closed out at a profit. If the value of an index on which a
Fund has written a call option falls or remains the same, the Fund will realize
a profit in the form of the premium received (less transaction costs) that could
offset all or a portion of any decline in the value of the securities it owns.
If the value of the index rises, however, the Fund will realize a loss in its
call option position, which will reduce the benefit of any unrealized
appreciation in the Fund's stock investments. By writing a put option, the Fund
assumes the risk of a decline in the index. To the extent that the price changes
of securities owned by the Fund correlate with

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<PAGE> 78

changes in the value of the index, writing covered put options on indices will
increase the Fund's losses in the event of a market decline, although such
losses will be offset in part by the premium received for writing the option.

The Fund may also purchase put options on stock indices to hedge its investments
against a decline in value. By purchasing a put option on a stock index, the
Fund will seek to offset a decline in the value of securities it owns through
appreciation of the put option. If the value of the Fund's investments does not
decline as anticipated, or if the value of the option does not increase, the
Fund's loss will be limited to the premium paid for the option plus related
transaction costs. The success of this strategy will largely depend on the
accuracy of the correlation between the changes in value of the index and the
changes in value of the Fund's security holdings.

The purchase of call options on stock indices may be used by the Fund to attempt
to reduce the risk of missing a broad market advance, or an advance in an
industry or market segment, at a time when the Fund holds uninvested cash or
short-term debt securities awaiting investment. When purchasing call options for
this purpose, the Fund will also bear the risk of losing all or a portion of the
premium paid if the value of the index does not rise. The purchase of call
options on stock indices when the Fund is substantially fully invested is a form
of leverage, up to the amount of the premium and related transaction costs, and
involves risks of loss and of increased volatility similar to those involved in
purchasing calls on securities the Fund owns.

FUTURES CONTRACTS: The Fund may enter into contracts for the purchase or sale
for future delivery of fixed income securities or foreign currencies or
contracts based on indices of securities as such instruments become available
for trading ("Futures Contracts"). This investment technique is designed to
hedge (i.e., to protect) against anticipated future changes in interest or
exchange rates which otherwise might adversely affect the value of the Fund's
portfolio securities or adversely affect the prices of long-term bonds or other
securities which the Fund intends to purchase at a later date. Futures Contracts
may also be entered into for non-hedging purposes to the extent permitted by
applicable law. A "sale" of a Futures Contract means a contractual obligation to
deliver the securities or foreign currency called for by the contract at a fixed
price at a specified time in the future. A "purchase" of a Futures Contract
means a contractual obligation to acquire the securities or foreign currency at
a fixed price at a specified time in the future.

While Futures Contracts provide for the delivery of securities or currencies,
such deliveries are very seldom made. Generally, a Futures Contract is
terminated by entering into an offsetting transaction. The Fund will incur
brokerage fees when it purchases and sells Futures Contracts. At the time such a
purchase or sale is made, the Fund must allocate cash or securities as a margin
deposit ("initial deposit"). It is expected that the initial deposit will vary
but may be as low as 5% or less of the value of the contract. The Futures
Contract is valued daily thereafter and the payment of "variation margin" may be
required to be paid or received, so that each day the Fund may provide or
receive cash that reflects the decline or increase in the value of the contract.

One purpose of the purchase or sale of a Futures Contract, for hedging purposes
in the case of a portfolio holding long-term debt securities, is to protect the
Fund from fluctuations in interest rates without actually buying or selling
long-term debt securities. For example, if the Fund owned long-term bonds and
interest rates were expected to increase, the Fund might enter into Futures
Contracts for the sale of debt securities. If interest rates did increase, the
value of the debt securities in the portfolio would decline, but the value of
the Fund's Futures Contracts should increase at approximately the same rate,
thereby keeping the net asset value of the Fund from declining as much as it
otherwise would have. The Fund could accomplish similar results by selling bonds
with long maturities and investing in bonds with short maturities when interest
rates are expected to increase or by buying bonds with long maturities and
selling bonds with short maturities when interest rates are expected to decline.
However, since the futures market is more liquid than the cash market, the use
of Futures Contracts as an investment technique allows the Fund to maintain a
defensive position without having to sell its portfolio securities. Transactions
entered into for non-hedging purposes have greater risk, including the risk of
losses which are not offset by gains on other portfolio assets.

Similarly, when it is expected that interest rates may decline, Futures
Contracts may be purchased to hedge against anticipated purchases of long-term
bonds at higher prices. Since the fluctuations in the value of Futures Contracts
should be similar to that of long-term bonds, the Fund could take advantage of
the anticipated rise in the value of long-term bonds without actually buying
them until the market had stabilized. At that time, the Futures Contracts could
be liquidated and the Fund could buy long-term bonds on the cash market.
Purchases of Futures Contracts would be particularly appropriate when the cash
flow from the sale of new shares of the Fund could have the effect of diluting
dividend earnings. To the extent a Fund enters into Futures Contracts for this
purpose, the assets in the segregated asset account maintained to cover the
Fund's obligations with respect to such Futures Contracts will consist of liquid
assets from the portfolio of the Fund in an amount equal to the difference
between the fluctuating market value of such Futures Contracts and the aggregate
value of the initial and variation margin payments made by the Fund with respect
to such Futures Contracts, thereby assuring that the transactions are
unleveraged.

Futures Contracts on foreign currencies may be used in a similar manner, in
order to protect against declines in the dollar value of portfolio securities
denominated in foreign

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currencies, or increases in the dollar value of securities to be acquired.

A Futures Contract on an index of securities provides for the making and
acceptance of a cash settlement based on changes in value of the underlying
index. The index underlying a Futures Contract is a broad based index of fixed-
income securities designed to reflect movements in the relevant market as a
whole.

OPTIONS ON FUTURES CONTRACTS: The Fund may write and purchase Options to buy or
sell Futures Contracts ("Options on Futures Contracts") for hedging purposes.
The Fund may also enter into transactions in Options on Futures Contracts for
non-hedging purposes to the extent permitted by applicable law. The purchase of
a call Option on a Futures Contract is similar in some respects to the purchase
of a call option on an individual security. Depending on the pricing of the
option compared to either the price of the Futures Contract upon which it is
based or the price of the underlying debt securities, it may or may not be less
risky than ownership of the Futures Contract or underlying securities. As with
the purchase of Futures Contracts, when the Fund is not fully invested it may
purchase a call Option on a Futures Contract to hedge against a market advance
due to declining interest rates.

The writing of a call Option on a Futures Contract constitutes a partial hedge
against declining prices of the security underlying the Futures Contract. If the
futures price at expiration of the option is below the exercise price, the Fund
will retain the full amount of the option premium, less related transaction
costs, which provides a partial hedge against any decline that may have occurred
in the Fund's portfolio holdings. The writing of a put Option on a Futures
Contract constitutes a partial hedge against increasing prices of the security
underlying the Futures Contract. If the futures price at expiration of the
option is higher than the exercise price, the Fund will retain the full amount
of the option premium, less related transaction costs, which provides a partial
hedge against any increase in the price of securities which the Fund intends to
purchase. If a put or call option the Fund has written is exercised, the Fund
will incur a loss which will be reduced by the amount of the premium it
receives. Depending on the degree of correlation between changes in the value of
its portfolio securities and changes in the value of its futures positions, the
Fund's losses from existing Options on Futures Contracts may to some extent be
reduced or increased by changes in the value of portfolio securities.

The Fund may purchase Options on Futures Contracts for hedging purposes as an
alternative to purchasing or selling the underlying Futures Contracts. For
example, where a decrease in the value of portfolio securities is anticipated as
a result of a projected market-wide decline, or a decline in the dollar value of
foreign currencies in which portfolio securities are denominated, the Fund may,
in lieu of selling Futures Contracts, purchase put options thereon. In the event
that such decrease in portfolio value occurs, it may be offset, in whole or
part, by a profit on the option. Conversely, where it is projected that the
value of securities to be acquired by the Fund will increase prior to
acquisition, due to a market advance or a rise in the dollar value of foreign
currencies in which securities to be acquired are denominated, the Fund may
purchase call Options on Futures Contracts, rather than purchasing the
underlying Futures Contracts. As in the case of Options, the writing of Options
on Futures Contracts may require the Fund to forego all or a portion of the
benefits of favorable movements in the price of portfolio securities, and the
purchase of Options on Futures Contracts may require the Fund to forego all or a
portion of such benefits up to the amount of the premium paid and related
transaction costs.

The amount of risk the Fund assumes when it purchases an Option on a Futures
Contract is the premium paid for the option plus related transaction costs. In
addition to the correlation risks discussed above, the purchase of an option
also entails the risk that changes in the value of the underlying Futures
Contract will not be fully reflected in the value of the option purchased.

The Fund's ability to engage in the options and futures strategies described
above will depend on the availability of liquid markets in such instruments. It
is impossible to predict the amount of trading interest that may exist in
various types of options or futures. Therefore, no assurance can be given that
the Fund will be able to utilize these instruments effectively for the purposes
set forth above. Furthermore, the Fund's ability to engage in options and
futures transactions may be limited by tax considerations.

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<PAGE> 80

by the Fund, the Fund will be required to sell the underlying Futures Contract
which, if the Fund has covered its obligation through the purchase of such
Contract, will serve to liquidate its futures position. Similarly, where a put
Option on a Futures Contract written by the Fund is exercised, the Fund will be
required to purchase the underlying Futures Contract which, if the Fund has
covered its obligation through the sale of such contract, will close out its
futures position. An Option on a Futures Contract is traded on the same contract
market as the underlying Futures Contact, subject to regulation by the CFTC and
the performance guarantee of the exchange clearing house. Options on Futures
Contracts, as noted in the Prospectus, are also traded on foreign exchanges.

FORWARD CONTRACTS: The Fund may enter into forward foreign currency exchange
contracts for the purchase or sale of a specific currency at a future date at a
price set at the time of the contract (a "Forward Contract"). The Fund may also
enter into Forward Contracts for "cross-hedging" as noted in the Prospectus. The
Fund may enter into Forward Contracts for hedging purposes as well as for
non-hedging purposes. Transactions in Forward Contracts entered into for hedging
purposes will include forward purchases or sales of foreign currencies for the
purpose of protecting the dollar value of fixed income securities denominated in
a foreign currency or protecting the dollar equivalent of interest or dividends
to be paid on such securities. By entering into such transactions, however, the
Fund may be required to forego the benefits of advantageous changes in exchange
rates. The Fund may also enter into transactions in Forward Contracts for other
than hedging purposes which presents greater profit potential but also involves
increased risk. For example, if the Adviser or the Sub-Adviser believes that the
value of a particular foreign currency will increase or decrease relative to the
value of the U.S. dollar, the Fund may purchase or sell such currency,
respectively, through a Forward Contract. If the expected changes in the value
of the currency occur, the Fund will realize profits which will increase its
gross income. Where exchange rates do not move in the direction or to the extent
anticipated, however, the Fund may sustain losses which will reduce its gross
income. Such transactions, therefore, could be considered speculative.

The Fund has established procedures which require the use of segregated assets
or "cover" in connection with the purchase and sale of such contracts. In those
instances in which the Fund satisfies this requirement through segregation of
assets, it will segregate liquid assets in an amount equal to the value of its
commitments under Forward Contracts. While these contracts are not presently
regulated by the Commodity Futures Trading Commission (the "CFTC"), the CFTC may
in the future assert authority to regulate Forward Contracts. In such event, the
Fund's ability to utilize Forward Contracts in the manner set forth above may be
restricted.

OPTIONS ON FOREIGN CURRENCIES: The Fund may purchase and write put and call
options on foreign currencies ("Options on Foreign Currencies") for the purpose
of protecting against declines in the dollar value of foreign portfolio
securities and against increases in the dollar cost of foreign securities to be
acquired. For example, a decline in the dollar value of a foreign currency in
which portfolio securities are denominated will reduce the dollar value of such
securities, even if their value in the foreign currency remains constant. In
order to protect against such diminutions in the value of portfolio securities,
the Fund may purchase put options on the foreign currency. If the value of the
currency did decline, the Fund would have the right to sell such currency for a
fixed amount in dollars and would thereby offset, in whole or in part, the
adverse effect on its portfolio which otherwise would have resulted.

Conversely, where a rise in the dollar value of a currency in which securities
to be acquired are denominated is projected, thereby increasing the cost of such
securities, the Fund may purchase call options thereon. The purchase of such
options could offset, at least partially, the effects of the adverse movements
in exchange rates. As in the case of other types of options, however, the
benefit to the Fund deriving from purchases of foreign currency options would be
reduced by the amount of the premium and related transaction costs. In addition,
where currency exchange rates do not move in the direction or to the extent
anticipated, the Fund could sustain losses on transactions in foreign currency
options, which would require it to forego a portion or all of the benefits of
advantageous changes in such rates.

The Fund may write Options on Foreign Currencies for hedging purposes in a
manner similar to the way Forward Contracts will be utilized. For example, where
the Fund anticipates a decline in the dollar value of foreign-denominated
securities due to adverse fluctuations in exchange rates it may, instead of
purchasing a put option, write a call option on the relevant currency. If the
expected decline occurred, the option would most likely not be exercised, and
the diminution in value of portfolio securities would be offset by the amount of
the premium received less related transaction costs.

Similarly, instead of purchasing a call option to hedge against an anticipated
increase in the dollar cost of securities to be acquired, the Fund could write a
put option on the relevant currency which, if rates move in the manner
projected, will expire unexercised and allow the Fund to hedge such increased
cost up to the amount of the premium. As in the case of other types of options,
however, the writing of a foreign currency option will constitute only a partial
hedge up to the amount of the premium, less transaction costs, and only if rates
move in the expected direction. If this does not occur, the option may be
exercised and the Fund would be required to purchase or sell the underlying
currency at a loss which may not be offset by the amount of the premium. Through
the writing of Options on Foreign Currencies, the Fund also may be required to
forego all or a portion of the
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<PAGE> 81

benefits which might otherwise have been obtained from favorable movements in
exchange rates.

All call and put options written on foreign currencies will be covered. A call
option written on foreign currencies by the Fund is "covered" if the Fund owns
the underlying foreign currency covered by the call or has an absolute and
immediate right to acquire that foreign currency without additional cash
consideration (or for additional cash consideration segregated by the Fund) upon
conversion or exchange of other foreign currency held in its portfolio. A call
option is also covered if the Fund has a call on the same foreign currency and
in the same principal amount as the call written where the exercise price of the
call held (a) is equal to or less than the exercise price of the call written or
(b) is greater than the exercise price of the call written if liquid assets
representing the difference are segregated by the Fund. A put option written by
the Fund is "covered" if the Fund segregates liquid assets, or else holds a put
on the same security and in the same principal amount as the put written where
the exercise price of the put held (a) is equal to or greater than the exercise
price of the put written or (b) is less than the exercise price of the put
written if liquid assets representing the difference are segregated by the Fund.
Call and put options on foreign currencies may also be covered in such other
manner as may be in accordance with the requirements of the exchange on which,
or the counterparty with which, the option is traded and applicable rules and
regulations.

ADDITIONAL RISKS OF INVESTING IN OPTIONS ON SECURITIES, OPTIONS ON STOCK
INDICES, FUTURES CONTRACTS, OPTIONS ON FUTURES CONTRACTS, FORWARD CONTRACTS AND
OPTIONS ON FOREIGN CURRENCIES: Unlike transactions entered into by the Fund in
Futures Contracts, Options on Foreign Currencies and Forward Contracts are not
traded on contract markets regulated by the CFTC or (with the exception of
certain foreign currency options) by the SEC. To the contrary, such instruments
are traded through financial institutions acting as market-makers, although
foreign currency options are also traded on certain national securities
exchanges, such as the Philadelphia Stock Exchange and the Chicago Board Options
Exchange, subject to SEC regulation. Similarly, options on securities and on
stock indices may be traded over-the-counter. In an over-the-counter trading
environment, many of the protections afforded to exchange participants will not
be available. For example, there are no daily price fluctuation limits, and
adverse market movements could therefore continue to an unlimited extent over a
period of time. Although the purchaser of an option cannot lose more than the
amount of the premium plus related transaction costs, this entire amount could
be lost. Moreover, the option writer and a trader of Forward Contracts could
lose amounts substantially in excess of their initial investments, due to the
margin and collateral requirements associated with such positions.

A Fund's ability effectively to hedge all or a portion of its portfolio through
transactions in options, Futures Contracts, and Forward Contracts will depend on
the degree to which price movements in the underlying instruments correlate with
price movements in the relevant portion of the Fund's portfolio. If the values
of fixed income portfolio securities being hedged do not move in the same amount
or direction as the instruments underlying options, Futures Contracts or Forward
Contracts traded, the Fund's hedging strategy may not be successful and the Fund
could sustain losses on its hedging strategy which would not be offset by gains
on its portfolio. It is also possible that there may be a negative correlation
between the instrument underlying an Option, Futures Contract or Forward
Contract traded and the portfolio securities being hedged, which could result in
losses both on the hedging transaction and the portfolio securities. In such
instances, the Fund's overall return could be less than if the hedging
transaction had not been undertaken. In the case of futures and Options on fixed
income securities, the portfolio securities which are being hedged may not be
the same type of obligation underlying such contract. As a result, the
correlation probably will not be exact. Consequently, the Fund bears the risk
that the price of the fixed income portfolio securities being hedged will not
move in the same amount or direction as the underlying index or obligation.
Where the Fund enters into Forward Contracts as a "cross hedge" (i.e., the
purchase or sale of a Forward Contract on one currency to hedge against risk of
loss arising from changes in value of a second currency), the Fund incurs the
risk of imperfect correlation between changes in the values of the two
currencies, which could result in losses.

The correlation between prices of securities and prices of Options, Futures
Contracts or Forward Contracts may be distorted due to differences in the nature
of the markets, such as differences in margin requirements, the liquidity of
such markets and the participation of speculators in the Option, Futures
Contract and Forward Contract markets. The trading of Options on Futures
Contracts also entails the risk that changes in the value of the underlying
Futures Contract will not be fully reflected in the value of the option. The
risk of imperfect correlation, however, generally tends to diminish as the
maturity or termination date of the Option, Futures Contract or Forward Contract
approaches.

The trading of Options, Futures Contracts and Forward Contracts also entails the
risk that, if the Adviser's or the Sub-Adviser's judgment as to the general
direction of exchange rates is incorrect, the Fund's overall performance may be
poorer than if it had not entered into any such contract.

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<PAGE> 82

result, the Fund will incur the risk that losses on such transactions will not
be offset by corresponding increases in the value of portfolio securities or
decreases in the cost of securities to be acquired.

POTENTIAL LACK OF A LIQUID SECONDARY MARKET -- Prior to exercise or
expiration, a position in an exchange-traded Option, Futures Contract, Option on
a Futures Contract or Option on a Foreign Currency can only be terminated by
entering into a closing purchase or sale transaction, which requires a secondary
market for such instruments on the exchange on which the initial transaction was
entered into. If no such market exists, it may not be possible to close out a
position, and the Fund could be required to purchase or sell the underlying
instrument or meet ongoing variation margin requirements. The inability to close
out option or futures positions also could have an adverse effect on the Fund's
ability effectively to hedge its portfolio.

The liquidity of a secondary market in an Option or Futures Contract may be
adversely affected by "daily price fluctuation limits," established by the
exchanges, which limit the amount of fluctuation in the price of a contract
during a single trading day and prohibit trading beyond such limits once they
have been reached. Such limits could prevent the Fund from liquidating open
positions, which could render its hedging strategy unsuccessful and result in
trading losses. The exchanges on which Options and Futures Contracts are traded
have also established a number of limitations governing the maximum number of
positions which may be traded by a trader, whether acting alone or in concert
with others. Further, the purchase and sale of exchange-traded Options and
Futures Contracts is subject to the risk of trading halts, suspensions, exchange
or clearing corporation equipment failures, government intervention, insolvency
of a brokerage firm, intervening broker or clearing corporation or other
disruptions of normal trading activity, which could make it difficult or
impossible to liquidate existing positions or to recover excess variation margin
payments.

OPTIONS ON FUTURES CONTRACTS -- In order to profit from the purchase of an
Option on a Futures Contract, it may be necessary to exercise the option and
liquidate the underlying Futures Contract, subject to all of the risks of
futures trading. The writer of an Option on a Futures Contract is subject to the
risks of futures trading, including the requirement of initial and variation
margin deposits.

ADDITIONAL RISKS OF TRANSACTIONS RELATED TO FOREIGN CURRENCIES AND TRANSACTIONS
NOT CONDUCTED ON U.S. EXCHANGES: The available information on which the Fund
will make trading decisions concerning transactions related to foreign
currencies or foreign securities may not be as complete as the comparable data
on which the Fund makes investment and trading decisions in connection with
other transactions. Moreover, because the foreign currency market is a global,
24-hour market, and the markets for foreign securities as well as markets in
foreign countries may be operating during non-business hours in the U.S., events
could occur in such markets which would not be reflected until the following
day, thereby rendering it more difficult for the Fund to respond in a timely
manner.

In addition, over-the-counter transactions can only be entered into with a
financial institution willing to take the opposite side, as principal, of the
Fund's position, unless the institution acts as broker and is able to find
another counterparty willing to enter into the transaction with the Fund. This
could make it difficult or impossible to enter into a desired transaction or
liquidate open positions, and could therefore result in trading losses. Further,
over-the-counter transactions are not subject to the performance guarantee of an
exchange clearing house and the Fund will therefore be subject to the risk of
default by, or the bankruptcy of, a financial institution or other counterparty.

Transactions on exchanges located in foreign countries may not be conducted in
the same manner as those entered into on U.S. exchanges, and may be subject to
different margin, exercise, settlement or expiration procedures.

As a result, many of the risks of over-the-counter trading may be present in
connection with such transactions. Moreover, the SEC or CFTC has jurisdiction
over the trading in the U.S. of many types of over-the-counter and foreign
instruments, and such agencies could adopt regulations or interpretations which
would make it difficult or impossible for the Fund to enter into the trading
strategies identified herein or to liquidate existing positions.

As a result of its investments in foreign securities, the Fund may receive
interest or dividend payments, or the proceeds of the sale or redemption of such
securities, in the foreign currencies in which such securities are denominated.
The Fund may also be required to receive delivery of the foreign currencies
underlying Options on Foreign Currencies or Forward Contracts it has entered
into. This could occur, for example, if an option written by the Fund is
exercised or the Fund is unable to close out a Forward Contract it has entered
into. In addition, the Fund may elect to take delivery of such currencies. Under
certain circumstances, such as where the Adviser or the Sub-Adviser believes
that the applicable exchange rate is unfavorable at the time the currencies are
received or the Adviser or the Sub-Adviser anticipates, for any other reason,
that the exchange rate will improve, the Fund may hold such currencies for an
indefinite period of time. While the holding of currencies will permit the Fund
to take advantage of favorable movements in the applicable exchange rate, such
strategy also exposes the Fund to risk of loss if exchange rates move in a
direction adverse to the Fund's position. Such losses could reduce any profits
or increase any losses sustained by the Fund from the sale or redemption of
securities and could reduce the dollar value of interest or dividend payments
received.

RESTRICTIONS ON THE USE OF OPTIONS AND FUTURES: In order to assure that the Fund
will not be deemed to be a "commodity pool" for purposes of the Commodity
Exchange

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<PAGE> 83

Act, regulations of the CFTC require that the Fund enter into transactions in
Futures Contracts and Options on Futures Contracts and Options on Foreign
Currencies traded on a CFTC-regulated exchange only (i) for bona fide hedging
purposes (as defined in CFTC regulations), or (ii) for non-hedging purposes,
provided that the aggregate initial margin and premiums required to establish
such non-bona fide hedging positions does not exceed 5% of the liquidation value
of the Fund's assets, after taking into account unrealized profits and
unrealized losses on any such contracts the Fund has entered into, and
excluding, in computing such 5%, the in-the-money amount with respect to an
option that is in-the-money at the time of purchase.

INDEXED SECURITIES: The Fund may purchase securities whose prices are indexed to
the prices of other securities, indices, currencies, or other financial
indicators. Indexed securities typically, but not always, are debt securities or
deposits whose value at maturity (i.e., principal value) or coupon rate is
determined by reference to a specific instrument or statistic. Currency-indexed
securities typically are short-term to intermediate-term debt securities whose
maturity values or interest rates are determined by reference to the values of
one or more specified foreign currencies, and may offer higher yields than U.S.
dollar-denominated securities of equivalent issuers. Currency-indexed securities
may be positively or negatively indexed; that is, their maturity value may
increase when the specified currency value increases, resulting in a security
that performs similarly to a foreign-denominated instrument, or their maturity
value may decline when foreign currencies increase, resulting in a security
whose price characteristics are similar to a put on the underlying currency.
Currency-indexed securities may also have prices that depend on the values of a
number of different foreign currencies relative to each other.

The performance of indexed securities depends to a great extent on the
performance of the security, currency, or other instrument to which they are
indexed, and may also be influenced by interest rate changes in the U.S. and
abroad. At the same time, indexed securities are subject to the credit risks
associated with the issuer of the security, and their value may decline
substantially if the issuer's creditworthiness deteriorates.

SWAPS AND RELATED TRANSACTIONS: The Fund may enter into interest rate swaps,
currency swaps and other types of available swap agreements, such as caps,
collars and floors.

Swap agreements may be individually negotiated and structured to include
exposure to a variety of different types of investments or market factors.
Depending on their structure, swap agreements may increase or decrease the
Fund's exposure to long or short-term interest rates (in the U.S. or abroad),
foreign currency values, mortgage securities, corporate borrowing rates, or
other factors such as securities prices or inflation rates. Swap agreements can
take many different forms and are known by a variety of names. The Fund is not
limited to any particular form or variety of swap agreement if MFS determines it
is consistent with the Fund's investment objective and policies.

The Fund will segregate liquid assets to cover its current obligations under
swap transactions. If the Fund enters into a swap agreement on a net basis
(i.e., the two payment streams are netted out, with the Fund receiving or
paying, as the case may be, only the net amount of the two payments), the Fund
will segregate liquid assets with a daily value at least equal to the excess, if
any, of the Fund's accrued obligations under the swap agreement over the accrued
amount the Fund is entitled to receive under the agreement. If the Fund enters
into a swap agreement on other than a net basis, it will segregate liquid assets
with a value equal to the full amount of the Fund's accrued obligations under
the agreement.

The most significant factor in the performance of swaps, caps, floors and
collars is the change in the specific interest rate, currency or other factor
that determines the amount of payments to be made under the arrangement. If the
Adviser or the Sub-Adviser is incorrect in its forecasts of such factors, the
investment performance of the Fund would be less than what it would have been if
these investment techniques had not been used. If a swap agreement calls for
payments by the Fund, the Fund must be prepared to make such payments when due.
In addition, if the counter-party's creditworthiness declined, the value of the
swap agreement would be likely to decline, potentially resulting in losses. If
the counterparty defaults, the Fund's risk of loss consists of the net amount of
payments that the Fund is contractually entitled to receive. The Fund
anticipates that it will be able to eliminate or reduce its exposure under these
arrangements by assignment or other disposition or by entering into an
offsetting agreement with the same or another counterparty.
------------------------------------

The policies stated above are not fundamental and may be changed without
shareholder approval, as may the Fund's investment objective.

INVESTMENT RESTRICTIONS: The Fund has adopted the following restrictions which
cannot be changed without the approval of the holders of a majority of the
Fund's shares (which, as used in this SAI, means the lesser of (i) more than 50%
of the outstanding shares of the Trust or the Fund or class, as applicable, or
(ii) 67% or more of the outstanding shares of the Trust or the Fund or class, as
applicable, present at a meeting at which holders of more than 50% of the
outstanding shares of the Trust or the Fund or class, as applicable, are
represented in person or by proxy). Except with respect to the Fund's policy on
borrowing and investing in illiquid securities, these investment restrictions
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.

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<PAGE> 84

The Fund may not:

(1) borrow amounts in excess of 33 1/3% of its assets including amounts
borrowed;

(2) underwrite securities issued by other persons except insofar as the Fund
may technically be deemed an underwriter under the Securities Act of 1933 in
selling a portfolio security;

(3) purchase or sell real estate (including limited partnership interests
but excluding securities secured by real estate or interests therein and
securities of companies, such as real estate investment trusts, which deal in
real estate or interests therein), interests in oil, gas or mineral leases,
commodities or commodity contracts (excluding Options, Options on Futures
Contracts, Options on Stock Indices, Options on Foreign Currency and any other
type of option, Futures Contracts, any other type of futures contract, and
Forward Contracts) in the ordinary course of its business. The Fund reserves
the freedom of action to hold and to sell real estate, mineral leases,
commodities or commodity contracts (including Options, Options on Futures
Contracts, Options on Stock Indices, Options on Foreign Currency and any other
type of option, Futures Contracts, any other type of futures contract, and
Forward Contracts) acquired as a result of the ownership of securities;

(4) issue any senior securities except as permitted by the 1940 Act. For
purposes of this restriction, collateral arrangements with respect to any type
of option (including Options on Futures Contracts, Options, Options on Stock
Indices and Options on Foreign Currencies), any type of swap agreement,
Forward Contracts, Futures Contracts, any other type of futures contract, and
collateral arrangements with respect to initial and variation margin are not
deemed to be the issuance of a senior security;

(5) make loans to other persons. For these purposes, the purchase of
short-term commercial paper, the purchase of a portion or all of an issue of
debt securities, the lending of portfolio securities, or the investment of the
Fund's assets in repurchase agreements, shall not be considered the making of
a loan; or

(6) purchase any securities of an issuer of a particular industry, if as a
result, more than 25% of its assets would be invested in securities of issuers
whose principal business activities are in the same industry (except
obligations issued or guaranteed by the U.S. Government or its agencies and
instrumentalities and repurchase agreements collateralized by such
obligations).

In addition, the Fund has the following nonfundamental policies which may be
changed without shareholder approval. The Fund will not:

(1) invest in illiquid investments, including securities subject to legal or
contractual restrictions on resale or for which there is no readily available
market (e.g., trading in the security is suspended, or, in the case of
unlisted securities, where no market exists), if more than 15% of the Fund's
net assets (taken at market value) would be invested in such securities.
Repurchase agreements maturing in more than seven days will be deemed to be
illiquid for purposes of the Fund's limitation on investment in illiquid
securities. Securities that are not registered under the Securities Act of
1933, as amended, and sold in reliance on Rule 144A thereunder, but are
determined to be liquid by the Trust's Board of Trustees (or its delegate),
will not be subject to this 15% limitation;

(2) invest more than 10% of the value of the Fund's net assets, valued at
the lower of cost or market, in warrants. Included within such amount may be
warrants which are not listed on the New York or American Stock Exchange.
Warrants acquired by the Fund in units or attached to securities may be deemed
to be without value;

(3) invest for the purpose of exercising control or management;

(4) purchase securities issued by any other investment company in excess of
the amount permitted by the 1940 Act, except when such purchase is part of a
plan of merger or consolidation;

(5) purchase or retain securities of an issuer any of whose officers,
directors, trustees or security holders is an officer or Trustee of the Fund,
or is an officer or a director of the investment adviser or a sub-adviser of
the Fund, if one or more of such persons also owns beneficially more than 0.5%
of the securities of such issuer, and such persons owning more than 0.5% of
such securities together own beneficially more than 5% of such securities;

(6) purchase any securities or evidences of interest therein on margin,
except that the Fund may obtain such short-term credit as may be necessary for
the clearance of any transaction and except that the Fund may make margin
deposits in connection with any type of option (including Options on Futures
Contracts, Options, Options on Stock Indices and Options on Foreign
Currencies), any type of swap agreement, any type of futures contract
(including Futures Contracts) and Forward Contracts;

(7) sell any security which the Fund does not own unless by virtue of its
ownership of other securities the Fund has at the time of sale a right to
obtain securities without payment of further consideration equivalent in kind
and amount to the securities sold and provided that if such right is
conditional, the sale is made upon the same conditions;

(8) invest more than 5% of its gross assets in companies which, including
predecessors, controlling persons, sponsoring entities, general partners and
guarantors, have a record of less than three years' continuous operation or
relevant business experience;

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<PAGE> 85

(9) pledge, mortgage or hypothecate in excess of 33 1/3% of its gross
assets. For purposes of this restriction, collateral arrangements with respect
to any type of option, (including Options on Futures Contracts, Options,
Options on Stock Indices and Options on Foreign Currencies), any type of swap
agreement, any type of futures contract (including Futures Contracts), Forward
Contracts and payments of initial and variation margin in connection
therewith, are not considered a pledge of assets;

(10) borrow, except as a temporary measure for extraordinary or emergency
purposes;

(11) purchase or sell any put or call option or any combination thereof,
provided that this shall not prevent (a) the purchase, ownership, holding or
sale of (i) warrants where the grantor of the warrants is the issuer of the
underlying securities, (ii) put or call options or combinations thereof with
respect to securities or indexes of securities or (iii) Options on Foreign
Currencies, any type of swap agreement or any type of futures contract
(including Futures Contracts) or (b) the purchase, ownership, holding or sale
of contracts for the future delivery of securities or currencies; or

(12) Invest 25% or more of the market value of its total assets in
securities of issuers in any one industry.

3. MANAGEMENT OF THE FUND

The Trust's Board of Trustees provides broad supervision over the affairs of
each Fund. The Adviser is responsible for the investment management of the
Fund's assets, and the officers of the Trust are responsible for its operations.
The Trustees and officers are listed below, together with their principal
occupations during the past five years. (Their titles may have varied during
that period.)

TRUSTEES

RICHARD B. BAILEY* (born 9/14/26)

Private investor; Massachusetts Financial Services Company, former Chairman and
Director (prior to September 30, 1991); Cambridge Bancorp, Director; Cambridge
Trust Company, Director

PETER G. HARWOOD (born 4/3/26)
Private Investor
Address: 211 Lindsay Pond Road, Concord, Massachusetts

J. ATWOOD IVES (born 5/1/36)

Eastern Enterprises (diversified services company), Chairman, Trustee and Chief
Executive Officer

Address: 9 Riverside Road, Weston, Massachusetts

LAWRENCE T. PERERA (born 6/23/35)
Hemenway & Barnes (attorneys), Partner
Address: 60 State Street, Boston, Massachusetts

WILLIAM J. POORVU (born 4/10/35)
Harvard University Graduate School of Business Administration, Adjunct
Professor; CBL & Associates Properties, Inc. (a real estate investment trust),
Director; The Baupost Fund (a registered investment company), Vice Chairman
(since November 1993), Chairman and Trustee (prior to November 1993)
Address: Harvard Business School, Soldiers Field Road, Cambridge, Massachusetts

CHARLES W. SCHMIDT (born 3/18/28)

Private Investor; International Technology Corporation, Director; Mohawk Paper
Company, Director

Address: 30 Colpitts Road, Weston, Massachusetts

ARNOLD D. SCOTT* (born 12/16/42)
Massachusetts Financial Services Company, Senior Executive Vice President and
Secretary

JEFFREY L. SHAMES* (born 6/2/55)

Massachusetts Financial Services Company, Chairman and Chief Executive Officer

ELAINE R. SMITH (born 4/25/46)

Independent Consultant

Address: Weston, Massachusetts

DAVID B. STONE (born 9/2/27)
North American Management Corp. (investment adviser), Chairman and Director;
Eastern Enterprises, Trustee
Address: Ten Post Office Square, Suite 300, Boston, Massachusetts

OFFICERS

W. THOMAS LONDON,* Treasurer (born 3/1/44)
Massachusetts Financial Services Company, Senior Vice President

STEPHEN E. CAVAN,* Secretary and Clerk (born 11/6/53)
Massachusetts Financial Services Company, Senior Vice President, General Counsel
and Assistant Secretary

JAMES O. YOST,* Assistant Treasurer; (born 6/12/60)
Massachusetts Financial Services Company, Vice President

ELLEN MOYNIHAN,* Assistant Treasurer (born 11/13/57)

Massachusetts Financial Services Company, Vice President (since September 1996);
Deloitte & Touche LLP, Senior Manager (until September 1996)

MARK E. BRADLEY,* Assistant Treasurer (born 11/23/59)
Massachusetts Financial Services Company, Vice President (since March 1997);
Putnam Investments, Vice President (from September 1994 until March 1997);
Ernst & Young, Senior Tax Manager (until September 1994)

JAMES R. BORDEWICK, JR.,* Assistant Secretary (born 3/6/59)
Massachusetts Financial Services Company, Senior Vice President and Associate
General Counsel
- ---------------

* "Interested persons" (as defined in the 1940 Act) of the Adviser, whose
address is 500 Boylston Street, Boston, Massachusetts 02116.

Each Trustee and officer holds comparable positions with certain affiliates of
MFS or with certain other funds of which MFS or a subsidiary is the investment
adviser or distributor. Messrs. Shames and Scott, Directors of MFD, and Mr.
Cavan, the Secretary of MFD, hold similar positions with certain other MFS
affiliates. Mr. Bailey is a Director of Sun Life Assurance Company of Canada
(U.S.), a subsidiary of Sun Life Assurance Company of Canada ("Sun Life").

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<PAGE> 86

The Fund pays the compensation of the non-interested Trustees and Mr. Bailey
(who currently receive a fee per Fund of $1,000 per year plus $65 per meeting
and $50 per committee meeting attended, together with such Trustee's
out-of-pocket expenses), and has adopted a retirement plan for non-interested
Trustees and Mr. Bailey. Under this plan, a Trustee will retire upon reaching
age 73 and if the Trustee has completed at least 5 years of service, he would be
entitled to annual payments during his lifetime of up to 50% of such Trustee's
average annual compensation (based on the three years prior to his retirement)
depending on his length of service. A Trustee may also retire prior to age 73
and receive reduced payments if he has completed at least 5 years of service.
Under the plan, a Trustee (or his beneficiaries) will also receive benefits for
a period of time in the event the Trustee is disabled or dies. These benefits
will also be based on the Trustee's average annual compensation and length of
service. There is no retirement plan provided by the Trust for Messrs. Scott and
Shames. The Fund will accrue its allocable portion of compensation expenses
under the retirement plan each year to cover the current year's service and
amortize past service cost.

Set forth below is certain information concerning the cash compensation
estimated to be paid by the Fund to the Trustees, and benefits accrued and
estimated benefits payable, under the retirement plan.

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<PAGE> 87

TRUSTEE COMPENSATION TABLE

<TABLE>
<CAPTION>
RETIREMENT ESTIMATED TOTAL TRUSTEE
TRUSTEE BENEFIT CREDITED FEES
FEES ACCRUED AS YEARS FROM FUND AND
FROM THE PART OF FUND OF FUND
TRUSTEE FUND(1) EXPENSE(1) SERVICE(2) COMPLEX(3)
- --------------------------------------------------- -------- ------------ ---------- -------------
<S> <C> <C> <C> <C>
Richard B. Bailey.................................. $1,945 $ 0 4 $283,647
Peter G. Harwood................................... 2,160 0 3 121,105
J. Atwood Ives..................................... 1,880 185 13 108,720
Lawrence T. Perera................................. 1,995 208 12 127,055
William J. Poorvu.................................. 2,160 204 12 121,105
Charles W. Schmidt................................. 2,095 205 5 121,105
Arnold D. Scott.................................... N/A N/A N/A N/A
Jeffrey L. Shames.................................. N/A N/A N/A N/A
Elaine R. Smith.................................... 2,145 218 23 132,035
David B. Stone..................................... 2,260 214 5 132,055
</TABLE>

ESTIMATED ANNUAL BENEFITS PAYABLE BY FUND UPON RETIREMENT(4)

<TABLE>
<CAPTION>
YEARS OF SERVICE
AVERAGE -------------------------------
TRUSTEE FEES 3 5 7 10 OR MORE
- ------------ ---- ---- ---- ----------
<S> <C> <C> <C> <C>
$1,692 $254 $423 $592 $ 846
1,851 278 463 648 925
2,010 301 502 703 1,005
2,168 325 542 759 1,084
2,327 349 582 815 1,164
2,486 373 622 870 1,243
</TABLE>

- ---------------

(1) For the fiscal year ending May 31, 1998.

(2) Based upon normal retirement age (73). See the table below for the estimated
annual benefits payable upon retirement by the Fund to a Trustee based on
his or her estimated credited years of service.

(3) Information provided is for calendar year 1997. All Trustees receiving
compensation served as Trustees of 27 funds within the MFS fund complex
(having aggregate net assets at December 31, 1997 of approximately $28.9
billion) except Mr. Bailey, who served as Trustee of 69 funds within the MFS
fund complex (having aggregate net assets at December 31, 1997, of
approximately $47.8 billion).

(4) Other funds in the MFS fund complex provide similar retirement benefits to
the Trustees.

As of August 31, 1998, the Trustees and officers as a group owned less than 1%
of the Fund's shares outstanding on that date.

As of August 31, 1998, Merrill Lynch Pierce Fenner & Smith Inc., 4800 Deer Lake
Drive, East, 3rd Floor, Jacksonville, Florida 32246-6484 was the record owner of
approximately 5.32%, 12.07% and 5.12%, respectively, of the outstanding Class A,
Class B and Class C shares of the Fund. As of August 31, 1998, MFS Defined
Contribution Plan, c/o Mark Leary, Massachusetts Financial Services, 500
Boylston Street, Boston, MA 02116-3740 was the record owner of approximately
99.90% of Class I shares of the Fund.

The Declaration of Trust provides that the Trust will indemnify its Trustees and
officers against liabilities and expenses incurred in connection with litigation
in which they may be involved because of their offices with the Trust, unless as
to liability to the Trust or its shareholders, it is determined that they
engaged in willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in their offices, or with respect to any
matter, unless it is adjudicated that they did not act in good faith in the
reasonable belief that their actions were in the best interests of the Trust. In
the case of settlement, such indemnification will not be provided unless it has
been determined pursuant to the Trust's Declaration of Trust that they have not
engaged in willful misfeasance, bad faith, gross negligence or reckless
disregard of their duties.

INVESTMENT ADVISER -- MFS and its predecessor organizations have a history of
money management dating from 1924. MFS is a subsidiary of Sun Life of Canada
(U.S.) Financial Services Holdings, Inc., which in turn is an indirect wholly
owned subsidiary of Sun Life.

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<PAGE> 88

administrative fee up to 0.015% per annum of the Fund's average daily net
assets. This fee reimburses MFS for a portion of the costs it incurs to provide
such services. For the period from March 1, 1997 through May 31, 1997 and the
fiscal year ended May 31, 1998, MFS received fees under the Administrative
Services Agreement of $4,467 and $17,268, respectively.

INVESTMENT ADVISORY AGREEMENT -- The Adviser manages the Fund pursuant to an
Investment Advisory Agreement, dated as of September 1, 1995 (the "Advisory
Agreement"). Under the Advisory Agreement, the Adviser provides the Fund with
overall investment advisory services. Subject to such policies as the Trustees
may determine, the Adviser makes investment decisions for the Fund. For these
services and facilities, the Adviser receives an annual management fee, computed
and paid monthly, in an amount equal to 0.975% of the first $500 million of the
average daily net assets of the Fund and 0.925% thereafter.

For the period from commencement of investment operation, October 24, 1995, to
May 31, 1996, MFS received management fees under the Advisory Agreement of
$313,570 (equivalent on an annualized basis to 0.975% of the Fund's average
daily net assets). For the fiscal year ended May 31, 1997, MFS received
management fees under the Advisory Agreement of $1,049,705 (equivalent on an
annualized basis to 0.975% of the Fund's average daily net assets) for the Fund.
For the fiscal year ended May 31, 1998, MFS received management fees under the
Advisory Agreements of $1,187,777 (equivalent on annualized basis to 0.975% of
the Fund's average daily net assets) for the Fund.

The Adviser pays the compensation of the Trust's officers and of any Trustee who
is an officer of the Adviser. The Adviser also furnishes at its own expense all
necessary administrative services, including office space, equipment, clerical
personnel, investment advisory facilities, and all executive and supervisory
personnel necessary for managing the Fund's investments, effecting its portfolio
transactions.

The Advisory Agreement with the Fund will remain in effect until August 1, 1999
and will continue in effect thereafter only if such continuance is specifically
approved at least annually by the Board of Trustees or by vote of a majority of
the Fund's shares (as defined in "Investment Policies and Restrictions") and, in
either case, by a majority of the Trustees who are not parties to the Advisory
Agreement or interested persons of any such party. The Advisory Agreement
terminates automatically if it is assigned and may be terminated without penalty
by vote of a majority of the Fund's shares (as defined in "Investment Policies
and Restrictions"), or by either party on not more than 60 days' nor less than
30 days' written notice. The Advisory Agreement provides that if MFS ceases to
serve as the Adviser to the Fund, the Fund will change its name so as to delete
the initials "MFS" and that MFS may render services to others and may permit
other fund clients to use the initials "MFS" in their names. The Advisory
Agreement also provides that neither the Adviser nor its personnel shall be
liable for any error of judgment or mistake of law or for any loss arising out
of any investment or for any act or omission in the execution and management of
the Fund, except for willful misfeasance, bad faith or gross negligence in the
performance of its or their duties or by reason of reckless disregard of its or
their obligations and duties under the Advisory Agreement.

FCM -- FCM serves as the Fund's sub-adviser pursuant to a separate Sub-Advisory
Agreement, dated September 1, 1995 between the Adviser and FCM (the "FCM
Sub-Advisory Agreement"). The FCM Sub-Advisory Agreement provides that the
Adviser may delegate to FCM the authority to make investment decisions for the
Fund. It is presently intended that FCM will provide portfolio management
services for the Fund. For these services, the Adviser pays FCM an annual fee
computed and paid monthly in an amount equal to 0.80% of the average daily net
assets of the Fund. Effective September 8, 1997 with respect to the Fund, FCM
has voluntarily agreed to waive for an indefinite period of time, a portion of
the sub-investment advisory fee it receives from the Adviser from 0.80% to 0.65%
of the average daily net assets of the Fund managed by FCM, on an annualized
basis.

FCEM -- FCEM serves as the Fund's sub-adviser pursuant to a Sub-Advisory
Agreement, dated September 1, 1995 between FCM and FCEM (the "FCEM Sub-Advisory
Agreement" and together with the FCM Sub-Advisory Agreement, the "Sub-Advisory
Agreements"). The FCEM Sub-Advisory Agreement provides that FCM may delegate to
FCEM the authority to make investment decisions for the Fund. It is presently
intended that FCEM will provide portfolio management services for the portion of
the assets invested in emerging markets securities with respect to the Fund. For
these services, FCM pays FCEM an annual fee computed and paid monthly in an
amount equal to 0.80% of the average daily net assets of the Fund managed by
FCEM. Effective September 8, 1997 with respect to the Fund, FCEM has voluntarily
agreed to waive for an indefinite period of time, a portion of the
sub-investment advisory fee it receives from the Adviser from 0.80% to 0.65% of
the average daily net assets of the Fund managed by FCEM on an annualized basis.

SUB-ADVISORY AGREEMENT -- Each Sub-Advisory Agreement will remain in effect
until August 1, 1999, and will continue in effect thereafter only if such
continuance is specifically approved at least annually by the Board of Trustees
or by the vote of a majority of the Fund's outstanding shares, and, in either
case, by a majority of the Trustees who are not parties to the Sub-Advisory
Agreement or interested persons of any such party. The FCM Sub-Advisory
Agreement terminates automatically if it is assigned and may be terminated
without penalty by the Trustees, by vote of a majority of the Fund's outstanding
shares, by the Adviser on not less than 30 days' nor more than 60 days' written
notice or by FCM, on not less than 60 days' nor

18
<PAGE> 89

more than 90 days' written notice. The FCEM Sub-Advisory Agreement terminates
automatically if it is assigned and may be terminated without penalty by the
Trustees, by vote of a majority of the Fund's outstanding shares, by the Adviser
or FCM on not less than 30 days' nor more than 60 days' written notice or by
FCEM on not less than 60 days' nor more than 90 days' written notice.

The FCM Sub-Advisory Agreement specifically provides that neither FCM or FCEM,
as the case may be, nor its personnel shall be liable for any error of judgment
or mistake of law or for any loss arising out of any investment or for any act
or omission in the execution and management of the Fund, except for willful
misfeasance, bad faith or gross negligence in the performance of its or their
duties or by reason of reckless disregard of its or their obligations and duties
under the Sub-Advisory Agreement.

For the period from commencement of investment operations, October 24, 1995, to
May 31, 1996, the Adviser paid the Sub-Adviser fees under the Sub-Advisory
Agreement of $255,468 in connection with its services for the Fund. For the
fiscal year ended May 31, 1997, the Adviser paid the Sub-Adviser fees under the
Sub-Advisory Agreement of $857,738 in connection with its services for the Fund.
For the fiscal year ended May 31, 1998, the Adviser paid the Sub-adviser fees
under the Sub-Advisory Agreement of $7,910 in connection with its services for
the Fund.

CUSTODIAN

State Street Bank and Trust Company (the "Custodian") is the custodian of the
Fund's assets. The Custodian's responsibilities include safekeeping and
controlling each Fund's cash and securities, handling the receipt and delivery
of securities, determining income and collecting interest and dividends on the
Fund's investments, maintaining books of original entry for portfolio and fund
accounting and other required books and accounts, and calculating the daily net
asset value of each class of shares of the Fund. The Custodian does not
determine the investment policies of the Fund or decide which securities the
Fund will buy or sell. The Fund may, however, invest in securities of the
Custodian and may deal with the Custodian as principal in securities
transactions. The Custodian also acts as the dividend disbursing agent of the
Fund.

SHAREHOLDER SERVICING AGENT

MFS Service Center, Inc. (the "Shareholder Servicing Agent"), a wholly owned
subsidiary of MFS, is the Fund's shareholder servicing agent, pursuant to a
Shareholder Servicing Agreement dated December 19, 1985, as modified, (the
"Agency Agreement") with the Trust. The Shareholder Servicing Agent's
responsibilities under the Agency Agreement include administering and performing
transfer agent functions and the keeping of records in connection with the
issuance, transfer and redemption of each class of shares of the Fund. For these
services, the Shareholder Servicing Agent will receive a fee calculated as a
percentage of the average daily net assets of the Fund at an effective annual
rate of 0.1125%. In addition, the Shareholder Servicing Agent will be reimbursed
by the Fund for certain expenses incurred by the Shareholder Servicing Agent on
behalf of the Fund. State Street Bank and Trust Company, the dividend and
distribution disbursing agent of the Fund, has contracted with the Shareholder
Servicing Agent to administer and perform certain dividend disbursing agent
functions for the Fund.

DISTRIBUTOR

MFD, a wholly owned subsidiary of MFS, serves as distributor for the continuous
offering of shares of the Fund pursuant to a Distribution Agreement with the
Trust dated as of September 1, 1995.

CLASS A SHARES: MFD acts as agent in selling Class A shares of the Fund to
dealers. The public offering price of Class A shares of the Fund is their net
asset value next computed after the sale plus a sales charge which varies based
upon the quantity purchased. The public offering price of a Class A share of
each Fund is calculated by dividing the net asset value of a Class A share by
the difference (expressed as a decimal) between 100% and the sales charge
percentage of offering price applicable to the purchase (see "Purchases" in the
Prospectus). The sales charge scale set forth in the Prospectus applies to
purchases of Class A shares of the Fund alone or in combination with shares of
all classes of certain other funds in the MFS Family of Funds (the "MFS Funds")
and other funds (as noted under Right of Accumulation) by any person, including
members of a family unit (e.g., husband, wife and minor children) and bona fide
trustees, and also applies to purchases made under the Right of Accumulation or
a Letter of Intent (see "Investment and Withdrawal Programs" below). A group
might qualify to obtain quantity sales charge discounts (see "Investment and
Withdrawal Programs" in this SAI).

Class A shares of the Fund may be sold at their net asset value to certain
persons and in certain instances, as described in the Prospectus. Such sales are
made without a sales charge to promote good will with employees and others with
whom MFS, MFD and/or the Fund have business relationships, and because the sales
effort, if any, involved in making such sales is negligible.

19
<PAGE> 90

calculated using the sales charge expressed as a percentage of the offering
price or as a percentage of the net amount invested as listed in the Prospectus.
In the case of the maximum sales charge, the dealer retains 4.00% and MFD
retains approximately 3/4 of 1% of the public offering price. MFD, on behalf of
the Fund, pays a commission to dealers who initiate and are responsible for
purchases of $1 million or more as described in the Prospectus.

CLASS B SHARES AND CLASS C SHARES: MFD acts as agent in selling Class B shares,
Class C shares and Class I shares of the Fund. The public offering price of
Class B, Class C and Class I shares is their net asset value next computed after
the sale (see "Purchases" in the Prospectus and the Prospectus Supplement to
which Class I shares are offered).

GENERAL: Neither MFD nor dealers are permitted to delay placing orders to
benefit themselves by a price change. On occasion, MFD may obtain brokers loans
from various banks, including the custodian banks for the MFS Funds, to
facilitate the settlement of sales of shares of the Fund to dealers. MFD may
benefit from its temporary holding of funds paid to it by investment dealers for
the purchase of Fund shares.

During the period from the commencement of operations, October 24, 1995, to May
31, 1996 and the fiscal year ended May 31, 1997, for the Fund, MFD and dealers
and certain other financial institutions received sales charges of $66,057 and
$685,593, and $79,525 and $437,735, respectively, (as their concession on gross
sales charges of $751,650 and $517,260, respectively) for selling Class A
shares. The Fund received $24,853,732 and $19,720,949, respectively,
representing the aggregate net asset value of such shares. During the fiscal
year ended May 31, 1998, MFD and dealers and certain other financial
institutions received sales charges of $36,124 and $215,170, respectively (as
their concession on gross sales charges of $251,294) for selling Class A shares.
The Fund received $11,514,246, representing the aggregate net asset value of
such shares.

During the fiscal year ended May 31, 1997 and 1998, the CDSC paid on Class A
shares for the Fund were $1,254 and $1,732, respectively. During the period from
the commencement of operations, October 24, 1995, to May 31, 1996 and the fiscal
years ended May 31, 1997 and 1998, the CDSC paid on Class B shares for the Fund
were $9,530, $103,091 and $266,113, respectively. During the fiscal years ended
May 31, 1997 and 1998, the CDSC paid on Class C shares for the Fund were $3,733
and $2,154, respectively. (During the period from the commencement of
operations, October 24, 1995 to May 31, 1996, there were no CDSC paid on Class A
shares for the Fund.)

The Distribution Agreement will remain in effect until September 1, 1999 and
will continue in effect thereafter only if such continuance is specifically
approved at least annually by the Board of Trustees or by vote of a majority of
the Trust's shares (as defined in "Investment Policies and
Restrictions -- Investment Restrictions") and in either case, by a majority of
the Trustees who are not parties to the Distribution Agreement or interested
persons of any such party. The Distribution Agreement terminates automatically
if it is assigned and may be terminated without penalty by either party on not
more than 60 days' nor less than 30 days' notice.

4. PORTFOLIO TRANSACTIONS AND
BROKERAGE COMMISSIONS

Specific decisions to purchase or sell securities for the Fund are made by
persons affiliated with the Adviser or the Sub-Adviser. Any such person may
serve other clients of the Adviser or the Sub-Adviser, or any subsidiary of the
Adviser or the Sub-Adviser in a similar capacity. Changes in the Fund's
investments are reviewed by the Board of Trustees.

The primary consideration in placing portfolio security transactions is
execution at the most favorable prices. The Adviser or the Sub-Adviser has
complete freedom as to the markets in and broker-dealers through which it seeks
this result. In the U.S. and in some other countries debt securities are traded
principally in the over-the-counter market on a net basis through dealers acting
for their own account and not as brokers. In other countries both debt and
equity securities are traded on exchanges at fixed commission rates. The cost of
securities purchased from underwriters includes an underwriter's commission or
concession, and the prices at which securities are purchased and sold from and
to dealers include a dealer's mark-up or mark-down. The Adviser or the
Sub-Adviser normally seeks to deal directly with the primary market makers or on
major exchanges unless, in its opinion, better prices are available elsewhere.
Subject to the requirement of seeking execution at the best available price,
securities may, as authorized by an Advisory Agreement or a Sub-Advisory
Agreement, be bought from or sold to dealers who have furnished statistical,
research and other information or services to the Adviser or the Sub-Adviser. At
present no arrangements for the recapture of commission payments are in effect.

Consistent with the foregoing primary consideration, the Conduct Rules of the
National Association of Securities Dealers (the "NASD") and such other policies
as the Trustees may determine, the Adviser or the Sub-Adviser may consider sales
of shares of the Fund and of the other investment company clients of MFD as a
factor in the selection of broker-dealers to execute the Fund's portfolio
transactions.

Under an Advisory Agreement or a Sub-Advisory Agreement and as permitted by
Section 28(e) of the Securities Exchange Act of 1934, the Adviser may cause a
Fund to pay a broker-dealer which provides brokerage and research services to
the Adviser or the Sub-Adviser, an amount of commission for effecting a
securities transaction for the Fund in excess of the amount other broker-dealers
would have charged for the transaction, if the Adviser or the Sub-Adviser
determines in good faith that the greater commission is reasonable in relation
to the value of the brokerage and research services
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<PAGE> 91

provided by the executing broker-dealer viewed in terms of either a particular
transaction or their respective overall responsibilities to the Fund or to their
other clients. Not all of such services are useful or of value in advising the
Fund.

The term "brokerage and research services" includes advice as to the value of
securities, the advisability of investing in, purchasing or selling securities,
and the availability of securities or of purchasers or sellers of securities;
furnishing analyses and reports concerning issues, industries, securities,
economic factors and trends, portfolio strategy and the performance of accounts;
and effecting securities transactions and performing functions incidental
thereto, such as clearance and settlement.

Although commissions paid on every transaction will, in the judgment of the
Adviser or the Sub-Adviser, be reasonable in relation to the value of the
brokerage services provided, commissions exceeding those which another broker
might charge may be paid to broker-dealers who were selected to execute
transactions on behalf of the Fund and the Adviser's or the Sub-Adviser's other
clients in part for providing advice as to the availability of securities or of
purchasers or sellers of securities and services in effecting securities
transactions and performing functions incidental thereto, such as clearance and
settlement.

Broker-dealers may be willing to furnish statistical, research and other factual
information or services ("Research") to the Adviser or the Sub-Adviser for no
consideration other than brokerage or underwriting commissions. Securities may
be bought or sold from time to time through such broker-dealers, on behalf of
the Fund. The Trustees (together with the Trustees of the other MFS Funds) have
directed the Adviser to allocate a total of $54,160 of commission business from
the MFS Funds to the Pershing Division of Donaldson Lufkin & Jenrette as
consideration for the annual renewal of certain publications provided by Lipper
Analytical Securities Corporation (which provides information useful to the
Trustees in reviewing the relationship between the Fund and the Adviser and the
Sub-Adviser).

The Adviser's and the Sub-Adviser's investment management personnel attempt to
evaluate the quality of Research provided by brokers. The Adviser or the
Sub-Adviser sometimes uses evaluations resulting from this effort as a
consideration in the selection of brokers to execute portfolio transactions.

The management fee of the Adviser or the Sub-Adviser will not be reduced as a
consequence of the Adviser's receipt of brokerage and research service. To the
extent the Fund's portfolio transactions are used to obtain brokerage and
research services, the brokerage commissions paid by the Fund will exceed those
that might otherwise be paid for such portfolio transactions, or for such
portfolio transactions and research, by an amount which cannot be presently
determined. Such services would be useful and of value to the Adviser or the
Sub-Adviser in serving both the Fund and other clients and, conversely, such
services obtained by the placement of brokerage business of other clients would
be useful to the Adviser or the Sub-Adviser in carrying out its obligations to
the Fund. While such services are not expected to reduce the expenses of the
Adviser or the Sub-Adviser, the Adviser or the Sub-Adviser would, through use of
the services, avoid the additional expenses which would be incurred if it should
attempt to develop comparable information through its own staff.

In certain instances there may be securities which are suitable for the Fund's
portfolio as well as for that of one or more of the other clients of the
Adviser, any subsidiary of the Adviser or the Sub-Adviser. Investment decisions
for the Fund and for such other clients are made with a view to achieving their
respective investment objectives. It may develop that a particular security is
bought or sold for only one client even though it might be held by, or bought or
sold for, other clients. Likewise, a particular security may be bought for one
or more clients when one or more other clients are selling that same security.
Some simultaneous transactions are inevitable when several clients receive
investment advice from the same investment adviser, particularly when the same
security is suitable for the investment objectives of more than one client. When
two or more clients are simultaneously engaged in the purchase or sale of the
same security, the securities are allocated among clients in a manner believed
by the Adviser to be equitable to each. It is recognized that in some cases this
system could have a detrimental effect on the price or volume of the security as
far as the Fund is concerned. In other cases, however, the Fund believes that
its ability to participate in volume transactions will produce better executions
for the Fund.

For the fiscal years ended May 31, 1996, 1997 and 1998, the Fund paid brokerage
commissions of $110,176, $325,190 and $900,446, respectively, on total
transactions of $1,031,871,320, $117,499,906 and $324,261,431, respectively.

During the fiscal year ended May 31, 1998, the Fund did not acquire or own
securities issued by broker-dealers of the Fund.

5. SHAREHOLDER SERVICES

INVESTMENT AND WITHDRAWAL PROGRAMS -- The Fund makes available the following
programs designed to enable shareholders to add to their investment or withdraw
from it with a minimum of paper work. These are described below and, in certain
cases, in the Prospectus. The programs involve no extra charge to shareholders
(other than a sales charge in the case of certain Class A share purchases) and
may be changed or discontinued at any time by a shareholder or a Fund.

period (or 36-month period, in the case of purchases of $1 million or more), the
shareholder may obtain Class A shares of the Fund at the same reduced sales
charge as though the total quantity were invested in one lump sum by completing
the Letter of Intent section of the Account Application or filing a separate
Letter of Intent application (available from the Shareholder Servicing Agent)
within 90 days of the commencement of purchases. Subject to acceptance by MFD
and the conditions mentioned below, each purchase will be made at a public
offering price applicable to a single transaction of the dollar amount specified
in the Letter of Intent application. The shareholder or his dealer must inform
MFD that the Letter of Intent is in effect each time shares are purchased. The
shareholder makes no commitment to purchase additional shares, but if his
purchases within 13 months (or 36 months in the case of purchases of $1 million
or more) plus the value of shares credited toward completion of the Letter of
Intent do not total the sum specified, he will pay the increased amount of the
sales charge as described below. Instructions for issuance of shares in the name
of a person other than the person signing the Letter of Intent application must
be accompanied by a written statement from the dealer stating that the shares
were paid for by the person signing such Letter. Neither income dividends nor
capital gain distributions taken in additional shares will apply toward the
completion of the Letter of Intent. Dividends and distributions of other MFS
Funds automatically reinvested in shares of the Fund pursuant to the
Distribution Investment Program will also not apply toward completion of the
Letter of Intent.

Out of the shareholder's initial purchase (or subsequent purchases if
necessary), 5% of the dollar amount specified in the Letter of Intent
application shall be held in escrow by the Shareholder Servicing Agent in the
form of shares registered in the shareholder's name. All income dividends and
capital gain distributions on escrowed shares will be paid to the shareholder or
to his order. When the minimum investment so specified is completed (either
prior to or by the end of the 13-month period or 36-month period, as
applicable), the shareholder will be notified and the escrowed shares will be
released.

If the intended investment is not completed, the Shareholder Servicing Agent
will redeem an appropriate number of the escrowed shares in order to realize
such difference. Shares remaining after any such redemption will be released by
the Shareholder Servicing Agent. By completing and signing the Account
Application or separate Letter of Intent application, the shareholder
irrevocably appoints the Shareholder Servicing Agent his attorney to surrender
for redemption any or all escrowed shares with full power of substitution in the
premises.

RIGHT OF ACCUMULATION -- A shareholder qualifies for cumulative quantity
discounts on the purchase of Class A shares when his new investment, together
with the current offering price value of all holdings of Class A, B and C shares
of that shareholder in the MFS Funds or MFS Fixed Fund (a bank collective
investment fund) reaches a discount level. See "Purchases" in the Prospectus for
the sales charges on quantity discounts. For example, if a shareholder owns
shares with a current offering price value of $75,000 and purchases an
additional $25,000 of Class A shares of a Fund, the sales charge for the $25,000
purchase would be at the rate of 4% (the rate applicable to single transactions
of $100,000). A shareholder must provide the Shareholder Servicing Agent (or his
investment dealer must provide MFD) with information to verify that the quantity
sales charge discount is applicable at the time the investment is made.

SUBSEQUENT INVESTMENT BY TELEPHONE -- Each shareholder may purchase additional
shares of any MFS Fund by telephoning the Shareholder Servicing Agent toll-free
at (800) 225-2606. The minimum purchase amount is $50 and the maximum purchase
amount is $100,000. Shareholders wishing to avail themselves of this telephone
purchase privilege must so elect on their Account Application and designate
thereon a bank and account number from which purchases will be made. If a
telephone purchase request is received by the Shareholder Servicing Agent on any
business day prior to the close of regular trading on the Exchange (generally,
4:00 p.m., Eastern time), the purchase will occur at the closing net asset value
of the shares purchased on that day. The Shareholder Servicing Agent may be
liable for any losses resulting from unauthorized telephone transactions if it
does not follow reasonable procedures designed to verify the identity of the
caller. The Shareholder Servicing Agent will request personal or other
information from the caller, and will normally also record calls. Shareholders
should verify the accuracy of confirmation statements immediately after their
receipt.

DISTRIBUTION INVESTMENT PROGRAM -- Distributions of dividends and capital gains
made by the Fund with respect to a particular class of shares may be
automatically invested in shares of the same class of one of the other MFS
Funds, if shares of the fund are available for sale. Such investments will be
subject to additional purchase minimums. Distributions will be invested at net
asset value (exclusive of any sales charge) and will not be subject to any CDSC.
Distributions will be invested at the close of business on the payable date for
the distribution. A shareholder considering the Distribution Investment Program
should obtain and read the prospectus of the other fund and consider the
differences in objectives and policies before making any investment.

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<PAGE> 93

establishment of the SWP. SWP payments are drawn from the proceeds of share
redemptions (which would be a return of principal and, if reflecting a gain,
would be taxable). Redemptions of Class B and Class C shares will be made in the
following order: (i) any "Reinvested Shares"; (ii) to the extent necessary, any
"Free Amount"; and (iii) to the extent necessary, the "Direct Purchase" subject
to the lowest CDSC (as such terms are defined under "Information Concerning
Shares of the Fund -- Contingent Deferred Sales Charge" in the Prospectus). The
CDSC will be waived in the case of redemptions of Class B and Class C shares
pursuant to a SWP, but will not be waived in the case of SWP redemptions of
Class A shares which are subject to a CDSC. To the extent that redemptions for
such periodic withdrawals exceed dividend income reinvested in the account, such
redemptions will reduce and may eventually exhaust the number of shares in the
shareholder's account. All dividend and capital gain distributions for an
account with a SWP will be received in full and fractional shares of the Fund at
the net asset value in effect at the close of business on the record date for
such distributions. To initiate this service, shares generally having an
aggregate value of at least $5,000 either must be held on deposit by, or
certificates for such shares must be deposited with, the Shareholder Servicing
Agent. With respect to Class A shares, maintaining a withdrawal plan
concurrently with an investment program would be disadvantageous because of the
sales charges included in share purchases and the imposition of a CDSC on
certain redemptions. The shareholder may deposit into the account additional
shares of the Fund, change the payee or change the dollar amount of each
payment. The Shareholder Servicing Agent may charge the account for services
rendered and expenses incurred beyond those normally assumed by a Fund with
respect to the liquidation of shares. No charge is currently assessed against
the account, but one could be instituted by the Shareholder Servicing Agent on
60 days' notice in writing to the shareholder in the event that a Fund ceases to
assume the cost of these services. The Fund may terminate any SWP for an account
if the value of the account falls below $5,000 as a result of share redemptions
(other than as a result of a SWP) or an exchange of shares of the Fund for
shares of another MFS Fund. Any SWP may be terminated at any time by either the
shareholder or the Fund.

INVEST BY MAIL: Additional investments of $50 or more may be made at any time by
mailing a check payable to the Fund directly to the Shareholder Servicing Agent.
The shareholder's account number and the name of his investment dealer must be
included with each investment.

GROUP PURCHASES: A bona fide group and all its members may be treated as a
single purchaser and, under the Right of Accumulation (but not the Letter of
Intent) obtain quantity sales charge discounts on the purchase of Class A shares
if the group (1) gives its endorsement or authorization to the investment
program so it may be used by the investment dealer to facilitate solicitation of
the membership, thus effecting economies of sales effort; (2) has been in
existence for at least six months and has a legitimate purpose other than to
purchase mutual fund shares at a discount; (3) is not a group of individuals
whose sole organizational nexus is as credit cardholders of a company,
policyholders of an insurance company, customers of a bank or broker-dealer,
clients of an investment adviser or other similar groups; and (4) agrees to
provide certification of membership of those members investing money in the MFS
Funds upon the request of MFD.

AUTOMATIC EXCHANGE PLAN: Shareholders having account balances of at least $5,000
in any MFS Fund may participate in the Automatic Exchange Plan. The Automatic
Exchange Plan provides for automatic exchanges of funds from the shareholder's
account in an MFS Fund for investment in the same class of shares of other MFS
Funds selected by the shareholder if such MFS Fund is available for sale. Under
the Automatic Exchange Plan, transfers of at least $50 each may be made to up to
six different funds effective on the seventh day of each month or of every third
month, depending whether monthly or quarterly exchanges are elected by the
shareholder. If the seventh day of the month is not a business day, the
transaction will be processed on the next business day. Generally, the initial
exchange will occur after receipt and processing by the Shareholder Servicing
Agent of an application in good order. Exchanges will continue to be made from a
shareholder's account in any MFS Fund, as long as the balance of the account is
sufficient to complete the exchanges. Additional payments made to a
shareholder's account will extend the period that exchanges will continue to be
made under the Automatic Exchange Plan. However, if additional payments are
added to an account subject to the Automatic Exchange Plan shortly before an
exchange is scheduled, such funds may not be available for exchanges until the
following month; therefore, care should be used to avoid inadvertently
terminating the Automatic Exchange Plan through exhaustion of the account
balance.

No transaction fee for exchanges will be charged in connection with the
Automatic Exchange Plan. However, exchanges of shares of MFS Money Market Fund,
MFS Government Money Market Fund and Class A shares of MFS Cash Reserve Fund
will be subject to any applicable sales charge. Changes in amounts to be
exchanged to each fund, the funds to which exchanges are to be made and the
timing of exchanges (monthly or quarterly), or termination of a shareholder's
participation in the Automatic Exchange Plan will be made after instructions in
writing or by telephone (an "Exchange Change Request") are received by the
Shareholder Servicing Agent in proper form (i.e., if in writing -- signed by the
record owner(s) exactly as shares are registered; if by telephone -- proper
account identification is given by the dealer or shareholder of record). Each
Exchange Change Request (other than termination of participation in the program)
must involve at least $50. Generally, if an Exchange Change Request is received
by telephone or in writing before the close of business on the last business day
of a month, the Exchange Change Request will be effective for the following
month's exchange.

23
<PAGE> 94

A shareholder's right to make additional investments in any of the MFS Funds, to
make exchanges of shares from one MFS Fund to another and to withdraw from an
MFS Fund, as well as a shareholder's other rights and privileges are not
affected by a shareholder's participation in the Automatic Exchange Plan.

The Automatic Exchange Plan is part of the Exchange Privilege. For additional
information regarding the Automatic Exchange Plan, including the treatment of
any CDSC, see "Exchange Privilege" below.

REINSTATEMENT PRIVILEGE: Shareholders of the Fund and shareholders of the other
MFS Funds (except MFS Money Market Fund, MFS Government Money Market Fund and
holders of Class A shares of MFS Cash Reserve Fund in the case where shares of
such funds are acquired through direct purchase or reinvested dividends) who
have redeemed their shares have a one-time right to reinvest the redemption
proceeds in the same class of shares of any of the MFS Funds (if shares of the
fund are available for sale) at net asset value (without a sales charge) and, if
applicable, with credit for any CDSC paid. In the case of proceeds reinvested in
MFS Money Market Fund, MFS Government Money Market Fund and Class A shares of
MFS Cash Reserve Fund, the shareholder has the right to exchange the acquired
shares for shares of another MFS Fund at net asset value pursuant to the
exchange privilege described below. Such a reinvestment must be made within 90
days of the redemption and is limited to the amount of the redemption proceeds.
If the shares credited for any CDSC paid are then redeemed within six years of
the initial purchase in the case of Class B shares or within 12 months of the
initial purchase in the case of Class C shares and certain Class A shares, a
CDSC will be imposed upon redemption. Although redemptions and repurchases of
shares are taxable events, a reinvestment within a certain period of time in the
same fund may be considered a "wash sale" and may result in the inability to
recognize currently all or a portion of a loss realized on the original
redemption for federal income tax purposes. Please see your tax adviser for
further information.

EXCHANGE PRIVILEGE -- Subject to the requirements set forth below, some or all
of the shares of the same class in an account with the Fund for which payment
has been received by the Fund (i.e. an established account) may be exchanged for
shares of the same class of any of the other MFS Funds (if available for sale
and if the purchaser is eligible to purchase the class of shares) at net asset
value. Exchanges will be made only after instructions in writing or by telephone
(an "Exchange Request") are received for an established account by the
Shareholder Servicing Agent.

Each Exchange Request must be in proper form (i.e., if in writing -- signed by
the record owner(s) exactly as the shares are registered; if by
telephone -- proper account identification is given by the dealer or shareholder
of record), and each exchange must involve either shares having an aggregate
value of at least $1,000 ($50 in the case of retirement plan participants whose
sponsoring organizations subscribe to MFS Fundamental 401(k) Plan or another
similar 401(k) recordkeeping system made available by the Shareholder Servicing
Agent) or all the shares in the account. Each exchange involves the redemption
of the shares of the Fund to be exchanged and the purchase at net asset value
(i.e., without a sales charge) of shares of the same class of the other MFS
Fund. Any gain or loss on the redemption of the shares exchanged is reportable
on the shareholder's federal income tax return, unless both the shares received
and the shares surrendered in the exchange are held in a tax-deferred retirement
plan or other tax-exempt account. No more than five exchanges may be made in any
one Exchange Request by telephone. If the Exchange Request is received by the
Shareholder Servicing Agent prior to the close of regular trading on the
Exchange, the exchange usually will occur on that day if all the requirements
set forth above have been complied with at that time. However, payment of the
redemption proceeds by the Fund, and thus the purchase of shares of the other
MFS Fund, may be delayed for up to seven days if the Fund determines that such a
delay would be in the best interest of all its shareholders. Investment dealers
which have satisfied criteria established by MFD may also communicate a
shareholder's Exchange Request to MFD by facsimile subject to the requirements
set forth above.

No CDSC is imposed on exchanges among the MFS Funds, although liability for the
CDSC is carried forward to the exchanged shares. For purposes of calculating the
CDSC upon redemption of shares acquired in an exchange, the purchase of shares
acquired in one or more exchanges is deemed to have occurred at the time of the
original purchase of the exchanged shares.

Additional information with respect to any of the MFS Funds, including a copy of
its current prospectus, may be obtained from investment dealers or the
Shareholder Servicing Agent. A shareholder considering an exchange should obtain
and read the prospectus of the other fund and consider the differences in
objectives and policies before making any exchange. Shareholders of the other
MFS Funds (except MFS Money Market Fund, MFS Government Money Market Fund and
Class A Shares of MFS Cash Reserve Fund for shares acquired through direct
purchase and dividends reinvested prior to June 1, 1992) have the right to
exchange their shares for shares of the Fund, subject to the conditions, if any,
set forth in their respective prospectuses. In addition, unitholders of the MFS
Fixed Fund (a bank collective investment fund) have the right to exchange their
units (except units acquired through direct purchases) for shares of the Fund,
subject to the conditions, if any, imposed upon such unitholders by the MFS
Fixed Fund.

Any state income tax advantages for investment in shares of each state-specific
series of MFS Municipal Series Trust may only benefit residents of such states.
Investors should consult with their own tax advisers to be sure this is an
appropriate investment, based on their residency and each state's income tax
laws.

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<PAGE> 95

The exchange privilege (or any aspect of it) may be changed or discontinued and
is subject to certain limitations (see "Purchases" in the Prospectus).

TAX-DEFERRED RETIREMENT PLANS -- Shares of the Fund may be purchased by all
types of tax-deferred retirement plans. MFD makes available, through investment
dealers, plans and/or custody agreements, the following:

Traditional Individual Retirement Accounts (IRAs) (for individuals who
desire to make limited contributions to a tax-deferred retirement program
and, if eligible, to receive a federal income tax deduction for amounts
contributed);

Roth Individual Retirement Accounts (Roth IRAs) (for individuals who desire
to make limited contributions to a tax-favored retirement program);

Simplified Employee Pension (SEP-IRA) Plans;

Retirement Plans Qualified under Section 401(k) of the Internal Revenue
Code of 1986, as amended;

403(b) Plans (deferred compensation arrangements for employees of public
school systems and certain non-profit organizations); and

Certain other qualified pension and profit-sharing plans.

The plan documents provided by MFD designate a trustee or custodian (unless
another trustee or custodian is designated by the individual or group
establishing the plan) and contain specific information about the plans. Each
plan provides that dividends and distributions will be reinvested automatically.
For further details with respect to any plan, including fees charged by the
trustee, custodian or MFD, tax consequences and redemption information, see the
specific documents for that plan. Plan documents other than those provided by
MFD may be used to establish any of the plans described above. Third party
administrative services, available for some corporate plans, may limit or delay
the processing of transactions.

An investor should consult with his tax adviser before establishing any of the
tax-deferred retirement plans described above.

6. TAX STATUS

The Fund has elected to be treated and intends to qualify each year as a
"regulated investment company" under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code"), by meeting all applicable requirements of
Subchapter M, including requirements as to the nature of the Fund's gross
income, the amount of Fund distributions, and the composition of the Fund's
portfolio assets. Because the Fund intends to distribute all of its net
investment income and net realized capital gains to shareholders in accordance
with the timing requirements imposed by the Code, it is not expected that the
Fund will be required to pay any federal income or excise taxes, although the
Fund's foreign-source income may be subject to foreign withholding taxes. If the
Fund should fail to qualify as a "regulated investment company" in any year, the
Fund would incur a regular corporate federal income tax upon its taxable income
and Fund distributions would generally be taxable as ordinary dividend income to
the shareholders.

Shareholders of the Fund normally will have to pay federal income taxes, and any
state or local taxes, on the dividends and capital gain distributions they
receive from the Fund. Dividends from ordinary income and any distributions from
net short-term capital gains are taxable to the Fund's shareholders as ordinary
income for federal income tax purposes, whether the distributions are paid in
cash or reinvested in additional shares. Distributions of net capital gains
(i.e., the excess of net long-term capital gains over net short-term capital
losses), whether paid in cash or reinvested in additional shares, are taxable to
the Fund's shareholders as long-term capital gains for federal income tax
purposes without regard to the length of time the shareholders have held their
shares. Any Fund dividend that is declared in October, November or December of
any calendar year, that is payable to shareholders of record in such a month,
and that is paid the following January will be treated as if received by
shareholders on December 31 of the year in which the dividend is declared. The
Fund will notify shareholders regarding the federal tax status of its
distributions after the end of each calendar year.

Any Fund distribution will have the effect of reducing the per share net asset
value of shares in the Fund by the amount of the distribution. Shareholders
purchasing shares shortly before the record date of any distribution may thus
pay the full price for the shares and then effectively receive a portion of the
purchase price back as a taxable distribution.

In general, any gain or loss realized upon a taxable disposition of shares of
the Fund by a shareholder that holds such shares as a capital asset will be
treated as a long-term capital gain or loss if the shares have been held for
more than twelve months and otherwise as a short-term capital gain or loss.
However, any loss realized upon a disposition of shares in the Fund held for six
months or less will be treated as a long-term capital loss to the extent of any
distributions of net capital gain made with respect to those shares. Any loss
realized upon a disposition of shares may also be disallowed under rules
relating to wash sales. Gain may be increased (or loss reduced) upon a
redemption of Class A shares of the Fund within 90 days after their purchase
followed by any purchase (including purchases by exchange or by reinvestment)
without payment of an additional sales charge of Class A shares of the Fund or
of another MFS Fund (or any other shares of an MFS Fund generally sold subject
to a sales charge).

25
<PAGE> 96

investment in zero coupon bonds, deferred interest bonds, payment in kind bonds,
and certain securities purchased at a market discount will cause the Fund to
recognize income prior to the receipt of cash payments with respect to those
securities. In order to distribute this income and avoid a tax on the Fund, the
Fund may be required to liquidate portfolio securities that it might otherwise
have continued to hold, potentially resulting in additional taxable gain or loss
to the Fund.

The Fund's transactions in options, Futures Contracts, Forward Contracts and
swaps and related transactions will be subject to special tax rules that may
affect the amount, timing and character of Fund income and distributions to
shareholders. For example, certain positions held by the Fund on the last
business day of each taxable year will be marked to market (i.e., treated as if
closed out) on that day, and any gain or loss associated with the positions will
be treated as 60% long-term and 40% short term capital gain or loss. Certain
positions held by the Fund that substantially diminish its risk of loss with
respect to other positions in its portfolio may constitute "straddles," and may
be subject to special tax rules that would cause deferral of Fund losses,
adjustments in the holding periods of Fund securities, and conversion of short-
term into long-term capital losses. Certain tax elections exist for straddles
that may alter the effects of these rules. The Fund will limit its activities in
options, Futures Contracts, Forward Contracts and swaps and related transactions
to the extent necessary to meet the requirements of Subchapter M of the Code.

Special tax considerations apply with respect to foreign investments of the
Fund. Foreign exchange gains and losses realized by the Fund will generally be
treated as ordinary income and losses. Use of foreign currencies for non-hedging
purposes and investment by the Fund in certain "passive foreign investment
companies" may be limited in order to avoid a tax on the Fund. The Fund may
elect to mark to market any investments in "passive foreign investment
companies" on the last day of each year. This election may cause the Fund to
recognize income prior to the receipt of cash payments with respect to those
investments; in order to distribute this income and avoid a tax on the Fund, the
Fund may be required to liquidate portfolio securities that it might otherwise
have continued to hold.

Investment income received by the Fund from foreign securities may be subject to
foreign income taxes withheld at the source. The United States has entered into
tax treaties with many foreign countries that may entitle the Fund to a reduced
rate of tax or an exemption from tax on such income; the Fund intends to qualify
for treaty reduced rates where available. It is not possible, however, to
determine the Fund's effective rate of foreign tax in advance since the amount
of the Fund's assets to be invested within various countries is not known. If
the Fund holds more than 50% of its assets in foreign stock and securities at
the close of its taxable year, the Fund may elect to "pass through" to the
Fund's shareholders foreign income taxes paid. If the Fund so elects,
shareholders will be required to treat their pro-rata portion of the foreign
income taxes paid by the Fund as part of the amounts distributed to them by the
Fund and thus includable in their gross income for federal income tax purposes.
Shareholders who itemize deductions would then be allowed to claim a deduction
or credit (but not both) on their federal income tax returns for such amounts,
subject to certain limitations. Shareholders who do not itemize deductions would
be able (subject to such limitations) to claim a credit but not a deduction. No
deductions will be permitted to individuals in computing their alternative
minimum tax liability. If the Fund does not qualify or elect to "pass through"
to its shareholders foreign income taxes paid by it, shareholders will not be
able to claim any deduction or credit for any part of the foreign taxes paid by
the Fund.

Dividends and certain other payments to persons who are not citizens or
residents of the United States or U.S. entities ("Non-U.S. Persons") are
generally subject to U.S. tax withholding at the rate of 30%. The Fund intends
to withhold U.S. federal income tax at the rate of 30% (or any lower rate
permitted under an applicable treaty) on taxable dividends and other payments to
Non-U.S. Persons that are subject to such withholding. Any amounts overwithheld
may be recovered by such persons by filing a claim for refund with the U.S.
Internal Revenue Service within the time period appropriate to such claims.
Distributions received from the Fund by Non-U.S. Persons also may be subject to
tax under the laws of their own jurisdictions. The Fund is also required in
certain circumstances to apply backup withholding at the rate of 31% on taxable
dividends and redemption proceeds paid to any shareholder (including a Non-U.S.
Person) who does not furnish to the Fund certain information and certifications
or who is otherwise subject to backup withholding. Backup withholding will not,
however, be applied to payments that have been subject to 30% withholding.

As long as it qualifies as a regulated investment company under the Code, the
Fund will not be required to pay Massachusetts income or excise taxes.

7. DISTRIBUTION PLAN

The Trustees have adopted a Distribution Plan for Class A, Class B and Class C
shares of the Fund (the "Distribution Plan") pursuant to Section 12(b) of the
1940 Act and Rule 12b-1 thereunder (the "Rule") after having concluded that
there is a reasonable likelihood that the Distribution Plan would benefit the
Fund and each respective class of shareholders. The provisions of the
Distribution Plan are severable with respect to the Fund and each class of
shares offered by the Fund. The Distribution Plan is designed to promote sales,
thereby increasing the net assets of the Fund. Such an increase may reduce the
expense ratio to the extent a Fund's fixed costs are spread over a larger net
asset base. Also, an increase in net assets may lessen the adverse effects that
could result were the Fund required to liquidate portfolio securities to meet
redemptions. There is, however, no assurance that the net assets of the Fund
26
<PAGE> 97

will increase or that the other benefits referred to above will be realized.

The Distribution Plan is described in the Prospectus under the caption
"Distribution Plan," which is incorporated herein by reference. The following
information supplements this Prospectus discussion.

SERVICE FEES: With respect to Class A shares, no service fees will be paid to
any insurance company which has entered into an agreement with the Fund and MFD
that permits such insurance company to purchase Class A shares from the Fund at
their net asset value in connection with annuity agreements issued in connection
with the insurance company's separate accounts. Dealers may from time to time be
required to meet certain other criteria in order to receive service fees.

MFD or its affiliates shall be entitled to receive any service fee payable under
the Distribution Plan for which there is no dealer of record or for which
qualification standards have not been met as partial consideration for personal
services and/or account maintenance services performed by MFD or its affiliates
for shareholder accounts.

DISTRIBUTION FEES: The purpose of distribution payments to MFD under the
Distribution Plan is to compensate MFD for its distribution services to the
Fund. MFD pays commissions to dealers as well as expenses of printing
prospectuses and reports used for sales purposes, expenses with respect to the
preparation and printing of sales literature and other distribution related
expenses, including, without limitation, the cost necessary to provide
distribution-related services, or personnel, travel, office expenses and
equipment.

DISTRIBUTION AND SERVICE FEES PAID DURING THE FUND'S LAST FISCAL PERIOD: During
the fiscal year ended May 31, 1998, the Fund paid the following Distribution
Plan expenses:

<TABLE>
<CAPTION>
AMOUNT OF AMOUNT OF
AMOUNT OF DISTRIBUTION DISTRIBUTION
DISTRIBUTION AND SERVICE AND SERVICE
AND SERVICE FEES FEES
FEES PAID RETAINED RECEIVED
CLASSES OF SHARES BY FUND BY MFD BY DEALERS
- --------------------- ------------ ------------- -------------
<S> <C> <C> <C>
Class A Shares $280,324 $165,802 $114,522
Class B Shares $625,561 $488,640 $136,921
Class C Shares $ 31,028 $ 186 $ 30,842
</TABLE>

GENERAL: The Distribution Plan will remain in effect until August 1, 1999, and
will continue in effect thereafter only if such continuance is specifically
approved at least annually by vote of both the Trustees and a majority of the
Trustees who are not "interested persons" or financially interested parties to
such Plan ("Distribution Plan Qualified Trustees"). The Distribution Plan also
requires that the Fund and MFD each shall provide to the Trustees, and the
Trustees shall review, at least quarterly, a written report of the amounts
expended (and purposes therefor) under such Plan. The Distribution Plan may be
terminated at any time by a vote of a majority of the Distribution Plan
Qualified Trustees or by vote of the holders of a majority of the respective
class of the Fund's shares (as defined in "Investment Restrictions"). All
agreements relating to the Distribution Plan entered into between the Fund or
MFD and other organizations must be approved by the Board of Trustees, including
a majority of the Distribution Plan Qualified Trustees. Agreements under the
Distribution Plan must be in writing, will be terminated automatically if
assigned, and may be terminated at any time without payment of any penalty, by
vote of a majority of the Distribution Plan Qualified Trustees or by vote of the
holders of a majority of the respective class of the Fund's shares. The
Distribution Plan may not be amended to increase materially the amount of
permitted distribution expenses without the approval of a majority of the
respective class of the applicable Fund's shares (as defined in "Investment
Restrictions") or may not be materially amended in any case without a vote of
the Trustees and a majority of the Distribution Plan Qualified Trustees. The
selection and nomination of Distribution Plan Qualified Trustees shall be
committed to the discretion of the non-interested Trustees then in office. No
Trustee who is not an "interested person" has any financial interest in the
Distribution Plan or in any related agreement.

8. DETERMINATION OF NET ASSET VALUE AND PERFORMANCE

NET ASSET VALUE: The net asset value per share of each class of each Fund is
determined each day during which the Exchange is open for trading. (As of the
date of this SAI, the Exchange is open for trading every weekday except for the
following holidays (or the days on which they are observed): New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.)

27
<PAGE> 98

accurately the fair value of such securities. Forward Contracts will be valued
using a pricing model taking into consideration market data from an external
pricing source. Use of the pricing services has been approved by the Board of
Trustees. All other securities, futures contracts and options in the Fund's
portfolio (other than short-term obligations) for which the principal market is
one or more securities or commodities exchanges (whether domestic or foreign)
will be valued at the last reported sale price or at the settlement price prior
to the determination (or if there has been no current sale, at the closing bid
price) on the primary exchange on which such securities, futures contracts or
options are traded; but if a securities exchange is not the principal market for
securities, such securities will, if market quotations are readily available, be
valued at current bid prices, unless such securities are reported on the Nasdaq
system, in which case they are valued at the last sale price or, if no sales
occurred during the day, at the last quoted bid price. Short-term obligations in
the Fund's portfolio are valued at amortized cost, which constitutes fair value
as determined by the Board of Trustees. Short-term obligations with a remaining
maturity in excess of 60 days will be valued upon dealer supplied valuations.
Portfolio investments for which there are no such quotations or valuations are
valued at fair value as determined in good faith by or at the direction of the
Board of Trustees.

Generally, trading in foreign securities is substantially completed each day at
various times prior to the close of regular trading on the Exchange.
Occasionally, events affecting the values of such securities may occur between
the times at which they are determined and the close of regular trading on the
Exchange which will not be reflected in the computation of the Fund's net asset
value unless the Trustees deem that such event would materially affect the net
asset value in which case an adjustment would be made.

All investments and assets are expressed in U.S. dollars based upon current
currency exchange rates. A share's net asset value is effective for orders
received by the dealer prior to its calculation and received by MFD or its
agent, the Shareholder Servicing Agent, prior to the close of that business day.

PERFORMANCE INFORMATION

TOTAL RATE OF RETURN: The Fund will calculate its total rate of return for each
class of shares for certain periods by determining the average annual compounded
rates of return over those periods that would cause an investment of $1,000
(made with all distributions reinvested and reflecting the CDSC or the maximum
public offering price) to reach the value of that investment at the end of the
periods. The Fund may also calculate (i) a total rate of return, which is not
reduced by the CDSC (4% maximum for Class B shares and 1% maximum for Class C
shares) and therefore may result in a higher rate of return, (ii) a total rate
of return assuming an initial account value of $1,000, which will result in a
higher rate of return since the value of the initial account will not be reduced
by the sales charge applicable to Class A shares (4.75% maximum) and/or (iii)
total rates of return which represent aggregate performance over a period or
year-by-year performance, and which may or may not reflect the effect of the
maximum or other sales charge or CDSC. The Fund offers multiple classes of
shares which were initially offered for sale to, and purchased by, the public on
different dates (the class "inception date"). The calculation of total rate of
return for a class of shares which has a later class inception date than another
class of shares of the Fund is based both on (i) the Performance of the Fund's
newer class from its inception date and (ii) the performance of the Fund's
oldest class from its inception date up to the class inception date of the newer
class.

As discussed in the Prospectus, the sales charges, expenses and expense ratios,
and therefore the performance, of each Fund's classes of shares differ. In
calculating total rate of return for a newer class of shares in accordance with
certain formulas required by the SEC, the performance will be adjusted to take
into account the fact that the newer class is subject to a different sales
charge than the oldest class (e.g., if the newer class is Class A shares, the
total rate of return quoted will reflect the deduction of the initial sales
charge applicable to Class A shares; if the newer class is Class B shares, the
total rate of return quoted will reflect the deduction of the CDSC applicable to
Class B shares). However, the performance will not be adjusted to take into
account the fact that the newer class of shares bears different class specific
expenses than the oldest class of shares (e.g., Rule 12b-1 fees). Therefore, the
total rate of return quoted for a newer class of shares will differ from the
return that would be quoted had the newer class of shares been outstanding for
the entire period over which the calculation is based (i.e., the total rate of
return quoted for the newer class will be higher than the return that would have
been quoted had the newer class of shares been outstanding for the entire period
over which the calculation is based if the class specific expenses for the newer
class are higher than the class specific expenses of the oldest class, and the
total rate of return quoted for the newer class will be lower than the return
that would be quoted had the newer class of shares been outstanding for this
entire period if the class specific expenses for the newer class are lower than
the class specific expenses of the oldest class).

Total rate of return quotations for each class are presented in Appendix A
attached hereto.

Any yield or total rate of return quotation provided by the Fund, should not be
considered as representative of the performance of the Fund in the future since
the net asset value and public offering price of shares of the Fund will vary
based not only on the type, quality and maturities of the securities held in the
Fund's portfolio, but also on changes in the current value of such securities
and on changes in the expenses of the Fund. These factors and possible
differences in the methods used to calculate yields and total rates of return
should be considered when compar-

28
<PAGE> 99

ing the yield and total rate of return of the Fund to yields and total rates of
return published for other investment companies or other investment vehicles.
Total rate of return reflects the performance of both principal and income. The
current net asset value of shares and account balance information may be
obtained by calling 1-800-MFS-TALK (637-8355).

CURRENT DISTRIBUTION RATE: Yield, which is calculated according to a formula
prescribed by the SEC, is not indicative of the amounts which were or will be
paid to the Fund's shareholders. Amounts paid or expected to be paid to
shareholders of each class are reflected in the quoted "current distribution
rate" for that class. The current distribution rate for a class is computed by
(i) annualizing the distributions (excluding short-term capital gains) of the
class for a stated period; (ii) adding any short-term capital gains paid within
the immediately preceding twelve-month period; and (iii) dividing the result by
the maximum offering price or net asset value per share on the last day of the
period. The current distribution rate differs from the yield computation because
it may include distributions to shareholders from sources other than dividends
and interest, such as premium income for option writing, short-term capital
gains and return of invested capital, and may be calculated over a different
period of time. The Fund's current distribution rate calculation for Class B and
Class C shares assumes no CDSC is paid.

The current distribution rate calculation for each Class of shares of the Fund
are presented in Appendix A attached hereto.

GENERAL: From time to time the Fund may, as appropriate, quote Fund rankings or
reprint all or a portion of evaluations of fund performance and operations
appearing in various independent publications, including but not limited to the
following: Money, Fortune, U.S. News and World Report, Kiplinger's Personal
Finance, The Wall Street Journal, Barron's, Investors Business Daily, Newsweek,
Financial World, Financial Planning, Investment Advisor, USA Today, Pensions and
Investments, SmartMoney, Forbes, Global Finance, Registered Representative,
Institutional Investor, the Investment Company Institute, Johnson's Charts,
Morningstar, Lipper Analytical Securities Corporation, CDA Wiesenberger,
Shearson Lehman and Salomon Bros. Indices, Ibbotson, Business Week, Lowry
Associates, Media General, Investment Company Data, The New York Times, Your
Money, Strangers Investment Advisor, Financial Planning on Wall Street, Standard
and Poor's, Individual Investor, The 100 Best Mutual Funds You Can Buy, by
Gordon K. Williamson, Consumer Price Index, and Sanford C. Bernstein & Co. Fund
performance may also be compared to the performance of other mutual funds
tracked by financial or business publications or periodicals. The Fund may also
quote evaluations mentioned in independent radio or television broadcasts and
use charts and graphs to illustrate the past performance of various indices such
as those mentioned above and illustrations using hypothetical rates of return to
illustrate the effects of compounding and tax-deferral. The Fund may advertise
examples of the effects of periodic investment plans, including the principle of
dollar cost averaging. In such a program, an investor invests a fixed dollar
amount in a fund at periodic intervals, thereby purchasing fewer shares when
prices are high and more shares when prices are low. While such a strategy does
not assure a profit or guard against a loss in a declining market, the
investor's average cost per share can be lower than if fixed numbers of shares
are purchased at the same intervals.

From time to time, the Fund and MFD may discuss or quote a Fund's current
portfolio manager(s) as well as other investment personnel, including such
persons' views on: various foreign and emerging market economies; securities
markets; portfolio securities and their issuers; investment philosophies,
strategies, techniques and criteria used in the selection of securities to be
purchased or sold for the Fund; the Fund's portfolio holdings; the investment
research and analysis process; the formulation and evaluation of investment
recommendations; the assessment and evaluation of credit, interest rate, market
and economic risks; and similar and related matters. In addition, from time to
time the Fund and MFD may discuss the Fund's current or anticipated allocations
of the Fund's securities by country or region. Any such allocations are subject
to change.

The Fund may also use charts, graphs or other presentation formats to illustrate
the historical correlation of its performance to fund categories established by
Morningstar (or other nationally recognized statistical ratings organizations)
and to other MFS Funds.

From time to time the Fund may also discuss or quote the views of its
distributor, its investment adviser and other financial planning, legal, tax,
accounting, insurance, estate planning and other professionals, or from surveys,
regarding individual and family financial planning. Such views may include
information regarding: retirement planning; tax management strategies; estate
planning; general investment techniques (e.g., asset allocation and disciplined
saving and investing); business succession; ideas and information provided
through the MFS Heritage Planning(sm) program, an intergenerational financial
planning assistance program; issues with respect to insurance (e.g., disability
and life insurance and Medicare supplemental insurance); and issues regarding
financial and health care management for elderly. From time to time, the Fund
may also advertise annual returns showing the cumulative value of an initial
investment in the Fund in various amounts over specified periods with capital
gain and dividend distributions invested in additional shares or taken in cash,
and with no adjustment for any income taxes (if applicable) payable by
shareholders.

MFS FIRSTS: MFS has a long history of innovations.

<TABLE>
<C> <S>
-- 1924 -- Massachusetts Investors Trust is
established as the first open-end mutual fund
in America.
</TABLE>

29
<PAGE> 100

<TABLE>
<C> <S>
-- 1924 -- Massachusetts Investors Trust is the
first mutual fund to make full public
disclosure of its operations in shareholder
reports.

-- 1932 -- One of the first internal research
departments is established to provide
in-house analytical capability for an
investment management firm.

-- 1933 -- Massachusetts Investors Trust is the
first mutual fund to register under the
Securities Act of 1933 (the "Truth in
Securities Act" or the "Full Disclosure
Act").

-- 1936 -- Massachusetts Investors Trust is the
first mutual fund to allow shareholders to
take capital gain distributions either in
additional shares or in cash.

-- 1976 -- MFS(R) Municipal Bond Fund is among
the first municipal bond funds established.

-- 1979 -- Spectrum becomes the first
combination fixed/variable annuity with no
initial sales charge.

-- 1981 -- MFS(R) World Governments Fund is
established as America's first globally
diversified fixed-income mutual fund.

-- 1984 -- MFS(R) Municipal High Income Fund is
the first open-end mutual fund to seek high
tax-free income from lower-rated municipal
securities.

-- 1986 -- MFS(R) Managed Sectors Fund becomes
the first mutual fund to target and shift
investments among industry sectors for
shareholders.

-- 1986 -- MFS(R) Municipal Income Trust is the
first closed-end, high-yield municipal bond
fund traded on the New York Stock Exchange.

-- 1987 -- MFS(R) Multimarket Income Trust is
the first closed-end, multimarket high income
fund listed on the New York Stock Exchange.

-- 1989 -- MFS(R) Regatta becomes America's
first non-qualified market-value-adjusted
fixed/variable annuity.

-- 1990 -- MFS(R) World Total Return Fund is the
first global balanced fund.

-- 1993 -- MFS(R) World Growth Fund is the first
global emerging markets fund to offer the
expertise of two sub-advisers.

-- 1993 -- MFS(R) Union Standard(R) Equity Fund,
the first fund to invest solely in companies
deemed to be union-friendly by an advisory
board of senior labor officials, senior
managers of companies with significant labor
contracts, academics and other national labor
leaders or experts.
</TABLE>

FCM AND FCEM ACHIEVEMENTS: FCM & FCEM have a history of achievements and
innovations.

<TABLE>
<C> <S>
-- 1868 -- Established the world's oldest
investment trust.

-- 1882 -- Invested in Japanese bonds.

-- 1884 -- Invested in the Hong Kong bond
market.

-- 1930 -- Invested in the U.S.

-- 1961 -- Invested in the Japanese stock
market.

-- 1972 -- Launched the first European
investment trust when the UK joined the EEC.

-- 1980's -- Invested in the emerging markets of
Thailand and Korea.

-- 1987 -- Launched the first Latin America fund
in the UK.

-- 1994 -- Launched The Foreign & Colonial
Emerging Middle East Fund (a closed-end fund,
shares of which are listed on the New York
Stock Exchange).
</TABLE>

9. DESCRIPTION OF SHARES, VOTING
RIGHTS AND LIABILITIES

The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional Shares of Beneficial Interest (without par value) of one or
more separate series and to divide or combine the shares of any series into a
greater or lesser number of shares without thereby changing the proportionate
beneficial interests in that series. The Trustees have currently authorized
shares of the Fund and six other series. The Declaration of Trust further
authorizes the Trustees to classify or reclassify any series of shares into one
or more classes. Pursuant thereto, the Trustees have authorized the issuance of
four classes of shares of each of the seven series of the Trust (Class A, Class
B, Class C and Class I shares) with the exception of one of the Trust's series
which has Class A, B and I shares only. Each share of a class of the Fund
represents an equal proportionate interest in the assets of the Fund allocable
to that class. Upon liquidation of the Fund, shareholders of each class of the
Fund are entitled to share pro rata in the Fund's net assets allocable to such
class available for distribution to shareholders. The Trust reserves the right
to create and issue a number of series and additional classes of shares, in
which case the shares of each class of a series would participate equally in the
earnings, dividends and assets allocable to that class of the particular series.

30
<PAGE> 101

affected series' outstanding shares voting as a single class, or of the affected
series of the Trust, except that if the Trustees recommend such merger,
consolidation or sale, the approval by vote of the holders of a majority of the
Trust's or the affected series' outstanding shares will be sufficient, or (ii)
upon liquidation and distribution of the assets of a Fund, if approved by the
vote of the holders of two-thirds of its outstanding shares of the Trust, or
(iii) by the Trustees by written notice to its shareholders. If not so
terminated, the Trust will continue indefinitely.

The Trust 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 Declaration of Trust contains an express disclaimer of shareholder
liability for acts or obligations of the Trust and provides for indemnification
and reimbursement of expenses out of Trust property for any shareholder held
personally liable for the obligations of the Trust. The Declaration of Trust
also provides that the Trust shall maintain appropriate insurance (for example,
fidelity bonding and errors and omissions insurance) for the protection of the
Trust and its shareholders and the Trustees, officers, employees and agents of
the Trust covering possible tort and other liabilities. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which both inadequate insurance existed and the
Trust itself was unable to meet its obligations.

The Declaration of Trust further provides that obligations of the Trust are not
binding upon the Trustees individually but only upon the property of the Trust
and that the Trustees will not be liable for any action or failure to act, but
nothing in the Declaration of Trust protects a Trustee against any liability to
which he would otherwise be subject by reason of his willful misfeasance, bad
faith, gross negligence, or reckless disregard of the duties involved in the
conduct of his office.

10. INDEPENDENT AUDITORS AND
FINANCIAL STATEMENTS

Ernst & Young LLP are the Fund's independent auditors, providing audit services,
tax services, and assistance and consultation with respect to the preparation of
filings with the SEC.

The Portfolios of Investments and the Statements of Assets and Liabilities at
May 31, 1998, the Statements of Operations for the fiscal year ended May 31,
1998, the Statements of Changes in Net Assets for the fiscal years ended May 31,
1998 and May 31, 1997, the Notes to Financial Statements and the Report of
Independent Auditors, each of which is included in the Annual Report to
shareholders of the Fund, are incorporated by reference into this SAI in
reliance upon the report of Ernst & Young LLP, independent auditors, given upon
their authority as experts in accounting and auditing. A copy of the Annual
Report accompanies this SAI.

31
<PAGE> 102

APPENDIX A

PERFORMANCE INFORMATION

The performance results and quotations below should not be considered as
representative of the performance of the Fund in the future since the net asset
value and public offering price of shares of the Fund will vary. See
"Determination of Net Asset Value and Performance" in the SAI.

All performance quotations are as of May 31, 1998.

<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS CURRENT
----------------------------- 30-DAY DISTRIBUTION
1 YEAR LIFE OF FUND(3) YIELD RATE
------ --------------- ------ ------------
<S> <C> <C> <C> <C>
Class A shares with sales charge......................... 2.00% 5.89% N/A 1.18%
Class A shares without sales charge...................... 7.08% 7.89% N/A N/A
Class B shares with CDSC................................. 2.59% 6.30% N/A N/A
Class B shares without CDSC.............................. 6.59% 7.33% N/A 1.13%
Class C shares with CDSC................................. 5.62% 7.48%(1) N/A N/A
Class C shares without CDSC.............................. 6.62% 7.48%(1) N/A 1.31%
Class I shares........................................... 7.65% 8.24%(2) N/A 2.13%
</TABLE>

(1) Class C share performance includes the performance of the Fund's Class B
shares for periods prior to the inception of Class C shares on July 1, 1996
for The Fund. Sales charges, expenses and expense ratios, and therefore
performance, for Class B and Class C shares differ. Class C share
performance has been adjusted to reflect that Class C shares generally are
subject to a lower CDSC (unless the performance quotation does not give
effect to the CDSC) than Class B shares. Class C share performance has not,
however, been adjusted to reflect differences in operating expenses, which
generally are not significantly different from Class B shares.

(2) Class I share performance includes the performance of the Fund's Class A
shares for the periods prior to the inception of Class I shares on January
2, 1997. Sales charges, expenses and expense ratios, and therefore
performance for Class I and A shares differ. Class I share performance has
been adjusted to reflect that Class I shares are not subject to an initial
sales charge, whereas Class A shares generally are subject to an initial
sales charge. Class I share performance has not, however, been adjusted to
reflect differences in operating expenses (e.g., Rule 12b-1 fees), which
generally are lower for Class I shares.

(3) Start of investment operations was October 24, 1995.

A-1
<PAGE> 103

INVESTMENT ADVISER
Massachusetts Financial Services Company
500 Boylston Street, Boston, MA 02116
(617) 954-5000

SUB-ADVISER
Foreign & Colonial Management Ltd.
Exchange House
Primrose Street
London EC2A 2NY, United Kingdom

DISTRIBUTOR
MFS Fund Distributors, Inc.
500 Boylston Street, Boston, MA 02116
(617) 954-5000

CUSTODIAN AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company
225 Franklin Street, Boston, MA 02110

SHAREHOLDER SERVICING AGENT
MFS Service Center, Inc.
500 Boylston Street, Boston, MA 02116
Toll free: (800) 225-2606
Mailing Address:
P.O. Box 2281, Boston, MA 02107-9906

INDEPENDENT AUDITORS
Ernst & Young LLP
200 Clarendon Street, Boston, MA 02116

MFS(R) INTERNATIONAL GROWTH FUND

500 BOYLSTON STREET
BOSTON, MA 02116

[MFS LOGO]

MIF-13-9/98/.5M 86/286/386/886

<PAGE> 104

MFS INTERNATIONAL GROWTH AND INCOME FUND

Supplement to the October 1, 1998 Prospectus and Statement of Additional
Information

Class I shares are available for purchase only by certain investors as
described under the caption "Eligible Purchasers" below.

EXPENSE SUMMARY

CLASS I SHARES
--------------

SHAREHOLDER TRANSACTION EXPENSES:
Maximum Initial Sales Charge Imposed on Purchases of
Fund Shares (as a percentage of offering price)........... None
Maximum Contingent Deferred Sales Charge (as a percentage
of original purchase price or redemption proceeds, as
applicable)............................................... None

ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE DAILY
NET ASSETS)(1):
Management Fees........................................... 0.975%
Rule 12b-1 Fees........................................... None
Other Expenses(2)......................................... 0.73%
Total Operating Expenses ................................. 1.71%

- -----------------------
(1) All expenses, other than "Management Fees," are rounded to two decimal
places.
(2) The Fund has an expense offset arrangement which reduces the Fund's
custodian fee based upon the amount of cash maintained by the Fund with its
custodian and dividend disbursing agent, and may enter into other such
arrangements and directed brokerage arrangements (which would also have the
effect of reducing the Fund's expenses). Any such fee reductions are not
reflected under "Other Expenses."

EXAMPLE OF EXPENSES

PERIOD CLASS I SHARES
------ --------------

1 year................................. $ 17
3 years................................ 54
5 years................................ 93
10 years............................... 202

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.

CONDENSED FINANCIAL INFORMATION

Financial Highlights

-1-

<PAGE> 105

<TABLE>
<CAPTION>
1998 1997*
------ ------
<S> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $16.32 $15.71
------ ------
Income from investment operations# -
Net investment income $ 0.06 $ 0.16
Net realized and unrealized gain
on investments and foreign currency transactions $ 3.37 0.45
------ ------
Total from investment operations $ 3.43 $ 0.61
------ ------
Less distributions declared to shareholders -
From net realized gain on
investments and foreign currency transactions $(0.59) $ --
In excess of net investment income (0.21) --
------ ------
Total distributions declared to shareholders $(0.80) $ --
------ ------
Net asset value - end of period $18.95 $16.32
------ ------
Total return 22.08% 3.88%####
Ratios (to average net assets)/Supplemental data:
Expenses## 1.64% 1.89%###
Net investment income 0.33% 2.33%###

Portfolio turnover 1.58% 0.89%
Net assets at end of period (000 omitted) $ 6 $ --
</TABLE>

- --------------------------

* For the period from the inception of Class I shares, January 2, 1997 to
May 31, 1997.

# Per share data is based on average shares outstanding.
## The Fund's expenses are calculated without reduction for fees paid
indirectly.
### Annualized.
#### Not annualized.

ELIGIBLE PURCHASERS

Class I shares of the Fund are available for purchase only by the following
purchasers ("Eligible Purchasers"):

(i) certain retirement plans established for the benefit of employees of
Massachusetts Financial Services Company ("MFS"), the Fund's investment
adviser, and employees of MFS' affiliates;

(iv) bank trust departments or law firms acting as trustee or manager for
trust accounts which initially invest, on behalf of their trust clients,
at least $100,000 in Class I shares of the Fund (additional investments
may be made in any amount); provided that MFD may accept smaller initial
purchases if it believes, in its sole discretion, that the bank trust
department or law firm will make additional investments, on behalf of its
trust clients, which will cause its total investment to equal or exceed
$100,000 within a reasonable period of time; and

(v) certain retirement plans offered, administered or sponsored by insurance
companies, provided that these plans and insurance companies meet certain
criteria established by MFD from time to time.

SHARE CLASSES OFFERED BY THE FUND

-2-

<PAGE> 106

OTHER INFORMATION

THE DATE OF THIS SUPPLEMENT IS OCTOBER 1, 1998

-3-

<PAGE> 107

[MFS(R)
INTERNATIONAL
GROWTH AND
INCOME FUND
LOGO
OCTOBER 1, 1998]
PROSPECTUS

OCTOBER 1, 1998

CLASS A SHARES OF BENEFICIAL INTEREST
CLASS B SHARES OF BENEFICIAL INTEREST
CLASS C SHARES OF BENEFICIAL INTEREST
- -------------------------------------------------------------

MFS INTERNATIONAL GROWTH AND INCOME FUND
500 Boylston Street, Boston, Massachusetts 02116 (617)
954-5000

MFS INTERNATIONAL GROWTH AND INCOME FUND (the "Fund") -- The
investment objective of the Fund is capital appreciation and
current income. The Fund seeks to achieve its investment
objective by investing, under normal market conditions, at
least 65% of its total assets in equity securities of foreign
"blue chip" companies and foreign growth companies. No
assurance can be given that the Fund will achieve its
investment objective. The Fund is a diversified series of MFS
Series Trust X (the "Trust"), an open-end management
investment company. The minimum initial investment generally
is $1,000 per account (see "Purchases"). THE FUND IS INTENDED
FOR INVESTORS WHO UNDERSTAND AND ARE WILLING TO ACCEPT THE
RISKS ENTAILED IN SEEKING CAPITAL APPRECIATION AND IN
INVESTING IN FOREIGN SECURITIES. The Fund's investment
adviser and distributor are Massachusetts Financial Services
Company ("MFS" or the "Adviser") and MFS Fund Distributors,
Inc. ("MFD"), respectively, both of which are located at 500
Boylston Street, Boston, Massachusetts 02116.

INVESTORS SHOULD READ THIS PROSPECTUS AND RETAIN IT FOR
FUTURE REFERENCE.
<PAGE> 108

This Prospectus sets forth concisely the information concerning the Fund and the
Trust that a prospective investor ought to know before investing. The Trust, on
behalf of the Fund, has filed with the Securities and Exchange Commission (the
"SEC") a Statement of Additional Information, dated October 1, 1998, as amended
or supplemented from time to time (the "SAI"), which contains more detailed
information about the Trust and the Fund and is incorporated into this
Prospectus by reference. See page 43 for a further description of the
information set forth in the SAI. A copy of the SAI may be obtained without
charge by contacting the Shareholder Servicing Agent (see back cover for address
and phone number). The SEC maintains an Internet World Wide Web site
(http://www.sec.gov) that contains the SAI, materials that are incorporated by
reference into the Prospectus and the SAI, and other information regarding the
Fund. This Prospectus is available on the Adviser's Internet World Wide Web site
at http://www.mfs.com.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
<S> <C>
1. Expense Summary......................................... 3
2. Condensed Financial Information......................... 4
3. The Fund................................................ 7
4. Investment Objective and Policies....................... 7
5. Certain Securities and Investment Techniques............ 8
6. Risk Factors............................................ 17
7. Management of the Fund.................................. 22
8. Information Concerning Shares of the Fund............... 23
Purchases............................................ 23
Exchanges............................................ 30
Redemptions and Repurchases.......................... 32
Distribution Plan.................................... 35
Distributions........................................ 37
Tax Status........................................... 37
Net Asset Value...................................... 38
Description of Shares, Voting Rights and
Liabilities....................................... 39
Performance Information.............................. 39
Expenses............................................. 40
Provision of Annual and Semiannual Reports........... 41
9. Shareholder Services.................................... 41
Appendix A -- Waivers of Sales Charges.................. A-1
Appendix B -- Description of Bond Ratings............... B-1
</TABLE>

2
<PAGE> 109

1. EXPENSE SUMMARY

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHAREHOLDER TRANSACTION EXPENSES: ------- ------- -------
<S> <C> <C> <C>
Maximum Initial Sales Charge
Imposed on Purchases of Fund
Shares (as a percentage of
offering price)................ 4.75% 0.00% 0.00%
Maximum Contingent Deferred Sales
Charge (as a percentage of
original purchase price or
redemption proceeds, as
applicable).................... See Below(1) 4.00% 1.00%
ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE DAILY NET
ASSETS)(2):
Management Fees.................. 0.975% 0.975% 0.975%
Rule 12b-1 Fees(3)............... 0.50 % 1.00 %(5) 1.00 %(5)
Other Expenses(4)................ 0.73 % 0.73 % 0.73 %
------ ------- -------
Total Operating Expenses......... 2.21 % 2.71 % 2.71 %
</TABLE>

(2)

All expenses, other than "Management Fees," are rounded to two decimal places.

3
<PAGE> 110

EXAMPLE OF EXPENSES

<TABLE>
<CAPTION>
PERIOD CLASS A CLASS B CLASS C
------ ------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
(1) (1)
1 year........................ $ 69 $ 67 $ 27 $ 37 $ 27
3 years....................... 113 114 84 84 84
5 years....................... 160 163 143 143 143
10 years....................... 290 292(2) 292(2) 304 304
</TABLE>

- ---------------
(1)
Assumes no redemption.

(2)
Class B shares convert to Class A shares approximately 8 years after purchase;
therefore, years nine and ten reflect Class A expenses.

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.

4
<PAGE> 111

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
---------------------------------------------------------
1998 1997 1996* 1998 1997 1996*
------- ------- ------- ------- ------- -------
CLASS A CLASS B
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD):
Net asset value - beginning of
period........................... $ 16.32 $ 15.98 $ 15.00 $ 16.27 $ 15.94 $ 15.00
------- ------- ------- ------- ------- -------
Income from investment operations#-
Net investment income (loss)..... $ (0.05) $ 0.11 $ 0.11 $ (0.14) $ 0.03 $ 0.05
Net realized and unrealized gain
on investments and foreign
currency transactions.......... 3.45 0.35 0.90 3.47 0.34 0.90
------- ------- ------- ------- ------- -------
Total from investment
operations............... $ 3.40 $ 0.46 $ 1.01 $ 3.33 $ 0.37 $ 0.95
------- ------- ------- ------- ------- -------
Less distributions declared to
shareholders -
From net investment income....... $ -- $ (0.08) $ (0.03) $ -- $ -- $ (0.01)
From net realized gain on
investments and foreign
currency transactions.......... (0.59) (0.04) -- (0.59) (0.04) --
In excess of net investment
income......................... (0.12) -- -- (0.05) -- --
------- ------- ------- ------- ------- -------
Total distributions
declared to
shareholders............. $ (0.71) $ (0.12) $ (0.03) $ (0.64) $ (0.04) $ (0.01)
------- ------- ------- ------- ------- -------
Net asset value - end of period.... $ 19.01 $ 16.32 $ 15.98 $ 18.96 $ 16.27 $ 15.94
======= ======= ======= ======= ======= =======
Total return+++.................... 21.77% 2.88% 6.71%++ 21.26% 2.33% 6.37%++
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA:
Expenses##....................... 2.22% 2.39% 2.52%+ 2.72% 2.94% 3.11%+
Net investment income............ (0.28)% 0.72% 1.04%+ (0.79)% 0.18% 0.49%+
PORTFOLIO TURNOVER................. 158% 89% 29% 158% 89% 29%
NET ASSETS AT END OF PERIOD (000
OMITTED)......................... $15,087 $13,425 $11,950 $18,987 $15,749 $13,641
</TABLE>

*For the period from the commencement of the Fund's investment operations,
October 24, 1995, through May 31, 1996.

+Annualized.

++Not annualized.

#Per share data are based on average shares outstanding.

##The Fund's expenses are calculated without reduction for fees paid
indirectly.

+++Total returns for Class A shares do not include the applicable sales charge.
If the sales charge had been included, the results would have been lower.

5
<PAGE> 112

FINANCIAL HIGHLIGHTS -- CONTINUED

<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
------------------
1998 1997**
------- -------
CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD):
Net asset value - beginning of period....................... $ 16.19 $ 16.02
------- -------
Income from investment operations# -
Net investment income (loss).............................. $ (0.10) $ 0.12
Net realized and unrealized gain on investments and
foreign currency transactions........................... 3.39 0.21
------- -------
Total from investment operations.................... $ 3.29 $ 0.33
------- -------
Less distributions declared to shareholders -
From net investment income................................ $ -- $ (0.12)
From net realized gain on investments and foreign currency
transactions............................................ (0.59) (0.04)
In excess of net investment income........................ (0.09) --
------- -------
Total distributions declared to shareholders........ $ (0.68) $ (0.16)
------- -------
Net asset value - end of period............................. $ 18.80 $ 16.19
======= =======
Total return................................................ 21.15% 2.09%++
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA:
Expenses##................................................ 2.71% 2.64%+
Net investment income..................................... (0.61)% 0.80%+
PORTFOLIO TURNOVER.......................................... 158% 89%
NET ASSETS AT END OF PERIOD (000 OMITTED)................... $ 824 $ 235
</TABLE>

**For the period from the inception of Class C, July 1, 1996, through May 31,
1997.

+Annualized.

++Not annualized.

#Per share data are based on average shares outstanding.

##The Fund's expenses are calculated without reduction for fees paid
indirectly.

6
<PAGE> 113

3. THE FUND

The Fund is a diversified series of the Trust, an open-end management investment
company which was organized as a business trust under the laws of The
Commonwealth of Massachusetts in 1985. The Trust presently consists of seven
series, each of which represents a portfolio with separate investment objectives
and policies. This Prospectus relates to the Fund. Shares of the Fund are sold
continuously to the public and the Fund then uses the proceeds to buy securities
for its portfolio. Three 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 up to a maximum of 4.75% of the offering price (or a CDSC
of 1.00% upon redemption during the first year in the case of certain purchases
of $1 million or more and certain purchases by retirement plans) and are subject
to an annual distribution fee and service fee up to a maximum of 0.50% per
annum. Class B shares are offered at net asset value without an initial sales
charge but are subject to a CDSC upon redemption (declining from 4.00% during
the first year to 0% after six years) and an annual distribution fee and service
fee up to a maximum of 1.00% per annum; Class B shares will convert to Class A
shares approximately eight years after purchase. Class C shares are offered at
net asset value without an initial sales charge but are subject to a CDSC upon
redemption of 1.00% during the first year and an annual distribution fee and
service fee up to a maximum of 1.00% per annum. Class C shares do not convert to
any other class of shares of a Fund. In addition, the Fund offers an additional
class of shares, Class I shares, exclusively to certain institutional investors.
Class I shares are made available by means of a separate Prospectus Supplement
provided to institutional investors eligible to purchase Class I shares and are
offered at net asset value without an initial sales charge or CDSC upon
redemption and without an annual distribution and service fee.

The Trust's Board of Trustees provides broad supervision over the affairs of the
Fund. The Adviser is responsible for the management of the Fund's assets and the
officers of the Trust are responsible for the operations of each Fund. The
Adviser manages the Fund's 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 Trust also offers to buy back (redeem) shares
of the Fund from shareholders at any time at net asset value, less any
applicable CDSC.

4. INVESTMENT OBJECTIVE AND POLICIES

The Fund has an investment objective which it pursues through its investment
policies, as described below. The objectives and policies of the Fund can be
expected to affect the market and financial risk to which the Fund is subject
and the performance of the Fund. The investment objective and policies of the
Fund may, unless otherwise specifically stated, be changed by the Trustees of
the Trust without a vote of the shareholders. A change in the Fund's objective
may result in the Fund having an investment objective different from the
objective which the shareholder considered appropriate at the time of investment
in the Fund. Any investment involves risk and there is no assurance that the
investment objective of the Fund will be achieved.

7
<PAGE> 114

The Fund's investment objective is to seek capital appreciation and current
income. The Fund seeks to achieve its objective by investing primarily in equity
securities of issuers whose principal activities are outside the U.S.

The Fund will invest, under normal market conditions, at least 65% of its total
assets (and generally expects to invest a substantial portion of its total
assets) in equity securities of foreign "blue chip" companies and foreign growth
companies. See "Certain Securities and Investment Techniques -- Foreign Growth
Securities" below. The Fund considers a security to be "blue chip" if the total
equity market capitalization of the issuer is at least U.S. $5 billion. It is
expected that the Fund's equity securities will include income producing
securities.

The Fund may invest up to 10% of its net assets in securities of issuers whose
principal activities are located in emerging market countries. See "Certain
Securities and Investment Techniques -- Emerging Market Securities" below.

The Fund does not intend to emphasize any particular country or region in making
its investments, but under normal market conditions, the Fund will be invested
in at least three countries (outside the U.S.) and will not invest more than 50%
of its net assets in issuers whose principal activities are located in a single
country. See "Risk Factors -- Investments in One or a Limited Number of
Countries" below. Currently, the Fund does not expect to invest more than 25% of
its net assets in issuers whose principal activities are located in a single
country. The Fund will seek to reduce risk by investing its assets in a number
of markets and issuers, performing credit analyses of potential investments and
monitoring current developments and trends in both the international economy and
financial markets.

5. CERTAIN SECURITIES AND INVESTMENT TECHNIQUES

Consistent with the Fund's investment objective and policies, the Fund may
engage in the following securities transactions and investment techniques, many
of which are described more fully in the SAI. See "Investment Policies and
Restrictions" in the SAI.

EQUITY SECURITIES: The Fund may invest in all types of equity securities,
including the following: common stocks, preferred stocks and preference stocks;
securities such as bonds, warrants or rights that are convertible into stocks;
and depositary receipts for those securities. These securities may be listed on
securities exchanges, traded in various over-the-counter markets or have no
organized markets.

8
<PAGE> 115

changes in consumer demand, or basic changes in the economic environment or
which otherwise represent opportunities for long-term growth. See "Risk Factors"
below. It is anticipated that these companies will primarily be in nations with
more developed securities markets, such as Japan, Australia, Canada, New Zealand
and most Western European countries, including Great Britain.

EMERGING MARKET SECURITIES: Consistent with the Fund's objective and policies,
the Fund may invest in securities of issuers whose principal activities are
located in emerging market countries. Emerging market countries include any
country determined by the Adviser to have an emerging market economy, taking
into account a number of factors, including whether the country has a low- to
middle-income economy according to the International Bank for Reconstruction and
Development, the country's foreign currency debt rating, its political and
economic stability and the development of its financial and capital markets. The
Adviser determines whether an issuer's principal activities are located in an
emerging market country by considering such factors as its country of
organization, the principal trading market for its securities and the source of
its revenues and location of its assets. The issuer's principal activities
generally are deemed to be located in a particular country if: (a) the security
is issued or guaranteed by the government of that country or any of its
agencies, authorities or instrumentalities; (b) the issuer is organized under
the laws of, and maintains a principal office in, that country; (c) the issuer
has its principal securities trading market in that country; (d) the issuer
derives 50% or more of its total revenues from goods sold or services performed
in that country; or (e) the issuer has 50% or more of its assets in that
country. See "Risk Factors -- Emerging Markets" below.

FIXED INCOME SECURITIES: Fixed income securities in which the Fund may invest
include all types of long- or short-term debt obligations, such as bonds, notes,
bills, debentures, loans, loan assignments and commercial paper. The Fund may
invest in emerging market fixed income securities, which, in addition to the
securities identified above, may take the form of interests issued by entities
organized and operated for the purpose of restructuring the investment
characteristics of instruments issued by emerging market country issuers. Fixed
income securities in which the Fund may invest include securities in the lower
rating categories of recognized rating agencies and comparable unrated
securities. See "Risk Factors" below. The Fund will not invest more than 25% of
its net assets in fixed income securities rated Ba or lower by Moody's Investors
Service, Inc. ("Moody's") or BB or lower by Standard & Poor's Ratings Services
("S&P"), Fitch IBCA ("Fitch") or Duff & Phelps Credit Rating Co. ("Duff &
Phelps") and comparable unrated securities. See "Risk Factors -- Lower Rated
Fixed Income Securities" below. However, because most foreign fixed income
securities are not rated, the Fund will invest in foreign fixed income
securities primarily based on the Adviser's credit analysis without relying on
published ratings.

9
<PAGE> 116

10
<PAGE> 117

invest in a class of Structured Securities that is either subordinated or
unsubordinated to the right of payment of another class. Subordinated Structured
Securities typically have higher yields and present greater risks than
unsubordinated Structured Securities. Structured Securities are typically sold
in private placement transactions, and there currently is no active trading
market for Structured Securities.

REPURCHASE AGREEMENTS: The Fund may enter into repurchase agreements in order to
earn income on available cash or as a temporary defensive measure. Under a
repurchase agreement, a Fund acquires securities subject to the seller's
agreement to repurchase at a specified time and price. If the seller becomes
subject to a proceeding under the bankruptcy laws or its assets are otherwise
subject to a stay order, the Fund's right to liquidate the securities may be
restricted (during which time the value of the securities could decline). As
discussed in the SAI, the Fund has adopted certain procedures intended to
minimize risk. Foreign repurchase agreements may be less well secured than U.S.
repurchase agreements, and may be denominated in foreign currencies. They may
also involve greater risk of loss if the counterparty defaults. Some
counterparties in these transactions may be less creditworthy than those in U.S.
markets.

instrument. Indexed securities may be more volatile than the underlying
instrument itself and could involve the loss of all or a portion of the
principal amount of or interest on the instrument.

RESTRICTED SECURITIES: The Fund may purchase securities that are not registered
under the Securities Act of 1933 (the "1933 Act") ("restricted securities"),
including those that can be offered and sold to "qualified institutional buyers"
under Rule 144A under the 1933 Act ("Rule 144A securities"). A determination is
made based upon a continuing review of the trading markets for a specific Rule
144A security, whether such security is illiquid and thus subject to the Fund's
limitations on investing not more than 15% of its net assets in illiquid
investments. The Board of Trustees has adopted guidelines and delegated to the
Adviser the daily function of determining and monitoring liquidity of restricted
securities. The Board, however, retains oversight of the liquidity
determinations, focusing on factors, such as valuation, liquidity and
availability of information. Investing in Rule 144A securities could have the
effect of decreasing the level of liquidity in the Fund's portfolio to the
extent that qualified institutional buyers become for a time uninterested in
purchasing Rule 144A securities held in the Fund's portfolio. Subject to the
Fund's 15% limitation on investments in illiquid investments, the Fund may also
invest in restricted securities that may not be sold under Rule 144A, which
presents certain risks. As a result, the Fund might not be able to sell these
securities when the Adviser wishes to do so, or might have to sell them at less
than fair value. In addition, market quotations are less readily available.
Therefore, judgment may at times play a greater role in valuing these securities
than in the case of unrestricted securities.

12
<PAGE> 119

WHEN-ISSUED OR FORWARD DELIVERY SECURITIES: Securities may be purchased on a
"when-issued" or on a "forward delivery" basis, which means that the obligations
will be delivered to the Fund at a future date usually beyond customary
settlement time. The commitment to purchase a security for which payment will be
made on a future date may be deemed a separate security. Although the Fund is
not limited to the amount of securities for which it may have commitments to
purchase on such basis, it is expected that under normal circumstances, the Fund
will not commit more than 10% of its assets to such purchases. The Fund does not
pay for the securities until received or start earning interest on them until
the contractual settlement date. While awaiting delivery of securities purchased
on such basis, the Fund will segregate liquid assets sufficient to cover its
commitments. Although the Fund does not intend to make such purchases for
speculative purposes, purchases of securities on such bases may involve more
risk than other types of purchases. For additional information concerning these
securities, see the SAI.

13
<PAGE> 120

FUTURES CONTRACTS: The Fund may enter into contracts for the purchase or sale
for future delivery of contracts based on indices of securities as such
instruments become available for trading or fixed income securities or foreign
currencies ("Futures Contracts"). Such transactions will be entered into for
hedging purposes, in order to protect the Fund's current or intended investments
from the effects of changes in interest or exchange rates, or for non-hedging
purposes to the extent permitted by applicable law. For example, in the event
that an anticipated decrease in the value of portfolio securities occurs as a
result of a decline in the dollar value of foreign currencies in which portfolio
securities are denominated or a general increase in interest rates, the adverse
effects of such changes may be offset, in whole or in part, by gains on Futures
Contracts sold by the Fund. Conversely, the adverse effects of an increase in
the cost of portfolio securities to be acquired, occurring as a result of a rise
in the dollar value of securities denominated in foreign currencies or a decline
in interest rates, may be offset, in whole or in part, by gains on Futures
Contracts purchased by the Fund. The Fund will incur brokerage fees when it
purchases and sells Futures Contracts, and will be required to maintain margin
deposits. In addition, Futures Contracts entail risks. Although the Fund
believes that use of such contracts will benefit the Fund, if its investment
judgment about the general direction of interest or exchange rates is
14
<PAGE> 121

incorrect, the Fund's overall performance may be poorer than if it had not
entered into any such contract and the Fund may realize a loss. Transactions
entered into for non-hedging purposes involve greater risk including the risk of
losses which are not offset by gains on other portfolio assets.

the judgment of the Adviser, a reasonable degree of correlation can be expected
between movements in the values of the two currencies. The Fund has established
procedures which require the use of segregated assets or "cover" in connection
with the purchase and sale of such contracts.

SWAPS AND RELATED TRANSACTIONS: As one way of managing its exposure to different
types of investments, the Fund may enter into interest rate swaps, currency
swaps and other types of available swap agreements, such as caps, collars and
floors. Swaps involve the exchange by a Fund with another party of cash payments
based upon different interest rate indices, currencies 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 notional principal
amount determined by the parties.

Swaps, caps, floors and collars are highly specialized activities which involve
certain risks. See the SAI for more information on, and the risks involved in,
these activities.

distributor, as a factor in the selection of broker-dealers to execute the
Fund's portfolio transactions.

From time to time, the Adviser may direct certain portfolio transactions to
broker-dealer firms which, in turn, have agreed to pay a portion of the Fund's
operating expenses (e.g., fees charged by the custodian of the Fund's assets).
For a further discussion of portfolio trading, see the SAI.

While it is not generally the Fund's policy to invest or trade for short-term
profits, the Fund may dispose of a portfolio security whenever the Adviser is of
the opinion that such security no longer has an appropriate appreciation
potential or when another security appears to offer relatively greater
appreciation potential. Portfolio changes are made without regard to the length
of time a security has been held, or whether a sale would result in a profit or
loss. Therefore, the rate of portfolio turnover is not a limiting factor when a
change in the portfolio is otherwise appropriate. For the fiscal year ended May
31, 1998, the Fund had a portfolio turnover rate in excess of 100%. Transaction
costs incurred by the Fund and realized capital gains and losses of the Fund may
be greater than that of a fund with a lesser portfolio turnover rate.

17
<PAGE> 124

decrease in the level of liquidity in the Fund's portfolio, or, if the Fund has
entered into a contract to sell the security, in possible liability to the
purchaser. Certain markets may require payment for securities before delivery,
and in such markets the Fund bears the risk that the securities will not be
delivered and that the Fund's payments will not be returned. Securities prices
in emerging markets can be significantly more volatile than in the more
developed nations of the world, reflecting the greater uncertainties of
investing in less established markets and economies. In particular, countries
with emerging markets may have relatively unstable governments, present the risk
of nationalization of businesses, restrictions on foreign ownership, or
prohibitions against repatriation of assets, and may have less protection of
property rights than more developed countries. The economies of countries with
emerging markets may be predominantly based on only a few industries, may be
highly vulnerable to changes in local or global trade conditions, and may suffer
from extreme and volatile debt burdens or inflation rates. Local securities
markets may trade a small number of securities and may be unable to respond
effectively to increases in trading volume, potentially making prompt
liquidation of substantial holdings difficult or impossible at times. Securities
of issuers located in countries with emerging markets may have limited
marketability and may be subject to more abrupt or erratic price movements.

ALLOCATION AMONG EMERGING MARKETS: The Fund may allocate all or a portion of its
investments in emerging market securities among the emerging markets of Latin
America, Asia, Africa, the Middle East and the developing countries of Europe,
primarily in Eastern Europe. The Fund will allocate its investments among these
emerging markets in accordance with the Adviser's determination as to the
allocation most appropriate with respect to the Fund's investment objective and
policies. The Fund may invest its assets allocated to investment in emerging
markets without limitation in any particular region, and, in accordance with the
Adviser's investment discretion, at times may invest all of its assets allocated
to investment in emerging markets in securities of emerging market issuers
located in a single region (e.g., Latin America). To the extent that the Fund's
investments are concentrated in one or a few emerging market regions, the Fund's
investment performance correspondingly will be more dependent upon the economic,
political and social conditions and changes in those regions. The ability of the
Fund to allocate its investments

18
<PAGE> 125

among emerging market regions without restriction may have the effect of
increasing the volatility of the Fund, as compared to a fund which limits such
allocations.

FOREIGN CURRENCIES: Because the Fund may invest up to 100% of its asset in
securities denominated in currencies other than the U.S. dollar, and because the
Fund may hold foreign currencies, the value of the Fund's investments, and the
value of dividends and interest earned by the Fund, may be significantly
affected by changes in currency exchange rates. Some foreign currency values may
be volatile, and there is the possibility of governmental controls on currency
exchange or governmental intervention in currency markets, which could adversely
affect the Fund. Although the Adviser may attempt to manage currency exchange
rate risks, there is no assurance that the Adviser will do so at an appropriate
time or that the Adviser will be able to predict exchange rates accurately. For
example, if the Adviser hedges the Fund's exposure to a foreign currency, and
that currency's value rises, the Fund will lose the opportunity to participate
in the currency's appreciation. The Fund may hold foreign currency received in
connection with investments in foreign securities, and enter into Forward
Contracts, Futures Contracts and Options on Foreign Currencies when, in the
judgment of the Adviser, it would be beneficial to convert such currency into
U.S. dollars at a later date, based on anticipated changes in the relevant
exchange rates. While the holding of foreign currencies will permit the Fund to
take advantage of favorable movements in the applicable exchange rate, it also
exposes the Fund to risk of loss if such rates move in a direction adverse to
the Fund's position. Such losses could also adversely affect the Fund's hedging
strategies. See the SAI for further discussion of the holding of foreign
currencies as well as the associated risks.

19
<PAGE> 126

The Fund may also invest in fixed income securities rated Ba or lower by Moody's
or BB or lower by S&P, Fitch or Duff & Phelps (and comparable unrated
securities). No minimum rating standard is required by the Fund. These
securities are considered speculative and, while generally providing greater
yield than investments in higher rated securities, will involve greater risk of
principal and income (including the possibility of default or bankruptcy of the
issuers of such securities) and may involve greater volatility of price
(especially during periods of economic uncertainty or change) than securities in
the higher rating categories and because yields vary over time, no specific
level of income can ever be assured. These lower rated high yielding fixed
income securities generally tend to be affected by economic changes (and the
outlook for economic growth), short-term corporate and industry developments and
the market's perception of their credit quality (especially during times of
adverse publicity) to a greater extent than higher rated securities, which react
primarily to fluctuations in the general level of interest rates (although these
lower rated securities are also affected by changes in interest rates as
described below). In the past, economic downturns or an increase in interest
rates have, under certain circumstances, caused a higher incidence of default by
the issuers of these securities and may do so in the future, especially in the
case of highly leveraged issuers. During certain periods, the higher yields on
the Fund's lower rated high yielding fixed income securities are paid primarily
because of the increased risk of loss of principal and income, arising from such
factors as the heightened possibility of default or bankruptcy of the issuers of
such securities. Due to the fixed income payments of these securities, the Fund
may continue to earn the same level of interest income while its net asset value
declines due to portfolio losses, which could result in an increase in the
Fund's yield despite the actual loss of principal. The prices for these
securities may be affected by legislative and regulatory developments. The
market for these lower rated fixed income securities may be less liquid than the
market for investment grade fixed income securities. Furthermore, the liquidity
of these lower rated securities may be affected by the market's perception of
their credit quality. Therefore, the Adviser's judgment may at times play a
greater role in valuing these securities than in the case of investment grade
fixed income securities, and it also may be more difficult during times of
certain

20
<PAGE> 127

adverse market conditions to sell these lower rated securities to meet
redemption requests or to respond to changes in the market.

While the Adviser may refer to ratings issued by established credit rating
agencies, it is not the Fund's policy to rely exclusively on ratings issued by
these rating agencies, but rather to supplement such ratings with the Adviser's
own independent and ongoing review of credit quality. The Fund's achievement of
its investment objective may be more dependent on the Adviser's own credit
analysis than in the case of an investment company primarily investing in higher
quality fixed income securities.

TRANSACTIONS IN OPTIONS, FUTURES CONTRACTS AND FORWARD CONTRACTS: Although the
Fund may enter into transactions in Options, Options on Stock Indices, Forward
Contracts, Futures Contracts, Options on Futures Contracts and Options on
Foreign Currencies for hedging purposes, such transactions nevertheless involve
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 Options, Options on Stock Indices, Forward Contracts, Futures
Contracts and Options on Futures Contracts for other than 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 SAI contains a
description of the nature and trading mechanics of Options, Options on Stock
Indices, Futures Contracts, Options on Futures Contracts, Forward Contracts and
Options on Foreign Currencies, and includes a discussion of the risks related to
transactions therein.

Transactions in Forward Contracts may be entered into only in the
over-the-counter market. Futures Contracts and Options on Futures Contracts may
be entered into on U.S. exchanges regulated by the Commodity Futures Trading
Commission and on foreign exchanges. In addition, the securities underlying
Options and Futures Contracts traded by a Fund will include U.S. Government
securities as well as foreign securities.
------------------------

Except with respect to the Fund's policy on borrowing and investing in illiquid
securities, the Fund's investment limitations, policies and rating standards are
adhered to at the time of

21
<PAGE> 128

purchase or utilization of assets; a subsequent change in circumstances will not
be considered to result in a violation of policy.

For the fiscal year ended May 31, 1998, MFS received a management fee under the
Advisory Agreement of $300,817 (equivalent on an annualized basis to 0.975% of
the Fund's average daily net assets).

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 U.S., Massachusetts Investors Trust.
Net assets under the management of the MFS organization were approximately $78.1
billion on behalf of approximately 3.4 million investor accounts as of August
31, 1998. As of such date, the MFS organization managed approximately $51.0
billion of assets in equity securities, approximately $20.6 billion of assets
invested in fixed income funds and fixed income portfolios and approximately
$4.4 billion of assets in foreign securities. MFS is a subsidiary of Sun Life of
Canada (U.S.) Financial Services Holdings, Inc., which in turn is an indirect
wholly owned subsidiary of Sun Life. The Directors of MFS are John W. Ballen,
Thomas J. Cashman, Joseph Dello Russo, John D. McNeil, Kevin R. Parke, Arnold D.
Scott, William W. Scott, Jr., Jeffrey L. Shames and Donald A. Stewart. Mr.
Shames is the Chairman and Chief Executive Officer of MFS, Mr. Ballen is the
President and the Chief Investment Officer of MFS, Mr. Cashman is the President
of MFS Institutional Advisors, Inc., MFS' institutional investment management
subsidiary, Mr. Dello Russo is the Chief Financial Officer and an Executive Vice
President of MFS, Mr. Parke is the Chief Equity Officer, Director of Equity
Research and an Executive Vice President of MFS, Mr. Arnold Scott is the
Secretary and a Senior Executive Vice President of MFS and Mr. William Scott is
the President of MFS Fund Distributors Inc., the distributor

22
<PAGE> 129

of MFS Funds. Messrs. McNeil and Stewart 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.

In certain instances there may be securities which are suitable for the Fund's
portfolio as well as for portfolios of other clients of MFS. Some simultaneous
transactions are inevitable when several clients receive investment advice from
MFS, particularly when the same security is suitable for more than one client.
While in some cases this arrangement could have a detrimental effect on the
price or availability of the security as far as the Fund is concerned, in other
cases it may produce increased investment opportunities for the Fund.

PORTFOLIO MANAGER -- Frederick J. Simmons, a Senior Vice President of MFS, has
been a portfolio manager of the Fund since September, 1997. Mr. Simmons has been
employed by MFS as a portfolio manager since 1988.

DISTRIBUTOR -- MFD, a wholly owned subsidiary of MFS, is the distributor of
shares of the Fund and also serves as distributor of 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
and certain other services for the Fund.

8. INFORMATION CONCERNING SHARES OF THE FUND

PURCHASES
Shares of the Fund may be purchased at the public offering price through any
dealer. As used in the Prospectus and any appendices thereto the term "dealer"
includes any broker, dealer, bank (including bank trust departments), registered
investment adviser, financial planner and any other financial institutions
having a selling agreement or other similar agreement with MFD. Dealers may also
charge their customers fees relating to investments in the Fund.

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<PAGE> 130

PURCHASES SUBJECT TO INITIAL SALES CHARGE. Class A shares of the Fund are
offered at net asset value plus an initial sales charge as follows:

<TABLE>
<CAPTION>
SALES CHARGE* AS PERCENTAGE OF: DEALER
-------------------------------- ALLOWANCE AS A
OFFERING NET AMOUNT PERCENTAGE OF
AMOUNT OF PURCHASE PRICE INVESTED OFFERING PRICE
------------------ -------- ---------- --------------
<S> <C> <C> <C>
Less than $100,000................. 4.75% 4.99% 4.00%
$100,000 but less than $250,000.... 4.0% 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**
- ---------------------------------------------------------------------------------------
</TABLE>

*Because of rounding in the calculation of offering price, actual sales
charges may be more or less than those calculated using the percentages above
(see the SAI).

** A CDSC will apply to such purchases, as discussed below.

(i) on investments of $1 million or more in Class A shares;

24
<PAGE> 131

aggregate amount of at least $250,000 within a reasonable period of time,
as determined by MFD in its sole discretion;

(iii) on investments in Class A shares by certain retirement plans subject to
ERISA, if: (a) the retirement plan and/or sponsoring organization
subscribes to the MFS FUNDamental 401(k) Program or any similar
recordkeeping system made available by the Shareholder Servicing Agent
(the "MFS Participant Recordkeeping System"); (b) the plan establishes an
account with the Shareholder Servicing Agent on or after July 1, 1996; and
(c) the aggregate purchases by the retirement plan of Class A shares of
the MFS Funds will be in an aggregate amount of at least $500,000 within a
reasonable period of time, as determined by MFD in its sole discretion;

(v) on investments in Class A shares by certain retirement plans subject to
ERISA if: (a) the plan establishes an account with the Shareholder Servicing
Agent on or after July 1, 1997; (b) such plan's records are maintained on a
pooled basis by the Shareholder Servicing Agent; and (c) the sponsoring
organization demonstrates to the satisfaction of MFD that, at the time of
purchase, the employer has at least 200 eligible employees and the plan has
aggregate assets of at least $2,000,000.

In the case of such purchases, MFD will pay commissions to dealers on new
investments in Class A shares made through such dealers, as follows:

<TABLE>
<CAPTION>
COMMISSION PAID
BY MFD TO DEALERS CUMULATIVE PURCHASE AMOUNT
----------------- --------------------------
<S> <C>
1.00%............................... On the first $2,000,000, plus
0.80%............................... Over $2,000,000 to $3,000,000, plus
0.50%............................... Over $3,000,000 to $50,000,000, plus
0.25%............................... Over $50,000,000
</TABLE>

See "Redemptions and Repurchases -- Contingent Deferred Sales Charge" for
further discussion of the CDSC.

25
<PAGE> 132

(i) the retirement plan and/or sponsoring organization does not subscribe to
the MFS Participant Recordkeeping System; and

CLASS B SHARES: Class B shares of the Fund are offered at net asset value
without an initial sales charge but subject to a CDSC upon redemption as
follows:

26
<PAGE> 133

amount paid to a dealer upon the sale of Class B shares is 4% of the purchase
price of the shares (commission rate of 3.75% plus a service fee equal to 0.25%
of the purchase price).

See "Redemptions and Repurchases -- Contingent Deferred Sales Charge" for
further discussion of the CDSC.

27
<PAGE> 134

determined by the ratio that the shareholder's Class B shares not acquired
through reinvestment of dividends and distributions that are converting to Class
A shares bear to the shareholder's total Class B shares not acquired through
reinvestment. The conversion of Class B shares to Class A shares is subject to
the continuing availability of a ruling from the Internal Revenue Service or an
opinion of counsel that such conversion will not constitute a taxable event for
federal tax purposes. There can be no assurance that such ruling or opinion will
be available, and the conversion of Class B shares to Class A shares will not
occur if such ruling or opinion is not available. In such event, Class B shares
would continue to be subject to higher expenses than Class A shares for an
indefinite period.

WAIVERS OF CDSC. In certain circumstances, the CDSC imposed upon redemption of
Class C shares is waived. These circumstances are described in Appendix A to
this Prospectus.

GENERAL: The following information applies to purchases of each class of the
Fund's shares.

28
<PAGE> 135

any time at the discretion of MFD. The Fund reserves the right to cease offering
its shares at any time.

29
<PAGE> 136

by such dealer during a specified sales period. In addition, MFD or its
affiliates may, from time to time, pay dealers an additional commission equal to
0.50% of the net asset value of all of the Class B and/or Class C shares of
certain specified MFS Funds sold by such dealer during a specified sales period.
In addition, from time to time, MFD, at its expense, may provide additional
commissions, compensation or promotional incentives ("concessions") to dealers
which sell or arrange for the sale of shares of the Fund. Such concessions
provided by MFD may include financial assistance to dealers in connection with
preapproved conferences or seminars, sales or training programs for invited
registered representatives and other employees, payment for travel expenses,
including lodging, incurred by registered representatives and other employees
for such seminars or training programs, seminars for the public, advertising and
sales campaigns regarding one or more MFS Funds, and/or other dealer-sponsored
events. From time to time, MFD may make expense reimbursements for special
training of a dealer's registered representatives and other employees in group
meetings or to help pay the expenses of sales contests. Other concessions may be
offered to the extent not prohibited by state laws or any self-regulatory
agency, such as the NASD.

RESTRICTIONS ON ACTIVITIES OF NATIONAL BANKS. The Glass-Steagall Act prohibits
national banks from engaging in the business of underwriting, selling or
distributing securities. Although the scope of the prohibition has not been
clearly defined, MFD believes that such Act should not preclude banks from
entering into agency agreements with MFD. If, however, a bank were prohibited
from so acting, the Trustees would consider what actions, if any, would be
necessary to continue to provide efficient and effective shareholder services in
respect of shareholders who invested in a Fund through a national bank. It is
not expected that shareholders would suffer any adverse financial consequence as
a result of these occurrences. In addition, state securities laws on this issue
may differ from the interpretation of federal law expressed herein and banks and
financial institutions may be required to register as broker-dealers pursuant to
state law.
------------------------

EXCHANGES AMONG MFS FUNDS (EXCLUDING EXCHANGES FROM MFS MONEY MARKET FUNDS): No
initial sales charges or CDSC will be imposed in connection with an exchange

30
<PAGE> 137

from shares of an MFS Fund to shares of any other MFS Fund, except with respect
to exchanges from an MFS money market fund to another MFS Fund which is not an
MFS money market fund (discussed below). With respect to an exchange involving
shares subject to a CDSC, the CDSC will be unaffected by the exchange and the
holding period for purposes of calculating the CDSC will carry over to the
acquired shares.

Shareholder Servicing Agent. For federal and (generally) state income tax
purposes, an exchange is treated as a sale of the shares exchanged and,
therefore, an exchange could result in a gain or loss to the shareholder making
the exchange. Exchanges by telephone are automatically available to most
non-retirement plan accounts and certain retirement plan accounts. For further
information regarding exchanges by telephone, see "Redemptions by Telephone."
The exchange privilege (or any aspect of it) may be changed or discontinued and
is subject to certain limitations, including certain restrictions on purchases
by market timers.

32
<PAGE> 139

Account Application, designate thereon a bank and account number to receive the
proceeds of such redemption, and sign the Account Application Form with the
signature(s) guaranteed in the manner set forth below under the caption
"Signature Guarantee." The proceeds of such a redemption, reduced by the amount
of any applicable CDSC and the amount of any income tax required to be withheld,
are mailed by check to the designated account, without charge, if the redemption
proceeds do not exceed $1,000, and are wired in federal funds to the designated
account if the redemption proceeds exceed $1,000. If a telephone redemption
request is received by the Shareholder Servicing Agent by the close of regular
trading on the Exchange on any business day, shares will be redeemed at the
closing net asset value of the Fund on that day. Subject to the conditions
described in this section, proceeds of a redemption are normally mailed or wired
on the next business day following the date of receipt of the order for
redemption. The Shareholder Servicing Agent may be responsible for any losses
resulting from unauthorized telephone transactions if it does not follow
reasonable procedures designed to verify the identity of the caller. The
Shareholder Servicing Agent will request personal or other information from the
caller, and will normally also record calls. Shareholders should verify the
accuracy of confirmation statements immediately after their receipt.

of Class A shares) of Direct Purchases may be redeemed without charge ("Free
Amount"). Moreover, no CDSC is ever assessed on additional shares acquired
through the automatic reinvestment of dividends or capital gain distributions
("Reinvested Shares"). Therefore, at the time of redemption of a particular
class, (i) any Free Amount is not subject to the CDSC and (ii) the amount of the
redemption equal to the then-current value of Reinvested Shares is not subject
to the CDSC, but (iii) any amount of the redemption in excess of the aggregate
of the then-current value of Reinvested Shares and the Free Amount is subject to
a CDSC. The CDSC will first be applied against the amount of Direct Purchases
which will result in any such charge being imposed at the lowest possible rate.
The CDSC to be imposed upon redemptions of shares will be calculated as set
forth in "Purchases" above.

The applicability of a CDSC will be unaffected by exchanges or transfers of
registration, except as described in Appendix A hereto.

GENERAL: The following information applies to redemptions and repurchases of
each class of the Fund's shares.

INVOLUNTARY REDEMPTIONS / SMALL ACCOUNTS. Due to the relatively high cost of
maintaining small accounts, the Fund reserves the right to redeem shares in any
account for their

34
<PAGE> 141

then-current value if at any time the total investment in such account drops
below $500 because of redemptions or exchanges, except in the case of accounts
being established for monthly automatic investments and certain payroll savings
programs, Automatic Exchange Plan accounts and tax-deferred retirement plans,
for which there is a lower minimum investment requirement. See
"Purchases -- General -- Minimum Investment." Shareholders will be notified that
the value of their account is less than the minimum investment requirement and
allowed 60 days to make an additional investment before the redemption is
processed.

FEATURES COMMON TO EACH CLASS OF SHARES: There are certain features of the
Distribution Plan that are common to each class of Shares, as described below.

SERVICE FEES. The Distribution Plan provides that the Fund may pay MFD a service
fee of up to 0.25% of the average daily net assets attributable to the class of
shares to which the Distribution Plan relates (i.e., Class A, Class B or Class C
shares, as appropriate) (the "Designated Class") annually in order that MFD may
pay expenses on behalf of the Fund relating to the servicing of shares of the
Designated Class. The service fee is used by MFD to compensate dealers which
enter into a sales agreement with MFD in consideration for all personal services
and/or account maintenance services rendered by the dealer with respect to
shares of the Designated Class owned by investors for whom such dealer is the
dealer or holder of record. MFD may from time to time reduce the amount of the
service fees paid for shares sold prior to a certain date. Service fees may be
reduced for a dealer that is the holder or dealer of record for an investor who
owns shares of the Fund having an aggregate net asset value at or above a
certain dollar level. Dealers may from time to time be required to meet certain
criteria in order to receive service fees. MFD or its affiliates are entitled to
retain all service fees payable under the Distribution Plan for which there is
no dealer of record or for which qualification standards have not been met as
partial consideration for personal services and/or account maintenance services
performed by MFD or its affiliates to shareholder accounts.

compensation received by MFD in the form of distribution fees during any year
may be more or less than the expenses incurred by MFD under its distribution
agreement with the Fund, the Fund is not liable to MFD for any losses MFD may
incur in performing services under its distribution agreement with the Fund.

FEATURES UNIQUE TO EACH CLASS OF SHARES: There are certain features of the
Distribution Plan that are unique to each class of shares, as described below.

The distribution fee paid to MFD under the Distribution Plan is equal, on an
annual basis, to 0.25% of the Fund's average daily net assets attributable to
Class A shares. As noted above, MFD may use the distribution fee to cover
distribution-related expenses incurred by it under its distribution agreement
with the Fund (e.g., MFD pays commissions to dealers with respect to purchases
of $1 million or more and purchases by certain retirement plans of Class A
shares which are sold at net asset value but which are subject to a 1% CDSC for
one year after purchase). Distribution fee payments under the Distribution Plan
may be used by MFD to pay securities dealers a distribution fee in an amount
equal on an annual basis to 0.25% per annum of the Fund's average daily net
assets attributable to Class A shares (other than Class A shares that have
converted from Class B shares) owned by investors for whom that securities
dealer is the holder or dealer of record. See "Purchases -- Class A Shares"
above. In addition, to the extent that the aggregate service and distribution
fees paid under the Distribution Plan does not exceed 0.50% per annum of the
average daily net assets of the Fund attributable to Class A shares, the Fund is
permitted to pay such distribution-related expenses or other
distribution-related expenses.

36
<PAGE> 143

dealers upon purchase of Class B shares, as described under "Purchases -- Class
B Shares" above).

CURRENT LEVEL OF DISTRIBUTION AND SERVICE FEES: The Fund's distribution/service
fee for its current fiscal year is equal to 0.50%, 1.00% and 1.00% per annum of
the average daily net assets attributable to the Fund's Class A shares, Class B
shares and Class C shares, respectively.

TAX STATUS
The Fund is treated as an entity separate from the other series of the Trust for
federal income tax purposes. 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 Internal Revenue Code
of 1986, as amended (the "Code"). Because the Fund intends to distribute all of
its net investment income and net realized capital gains to its shareholders in
accordance with the timing requirements imposed by the Code, it is not

37
<PAGE> 144

expected that the Fund will be required to pay entity level federal income or
excise taxes, although the Fund's foreign-source income may be subject to
foreign withholding taxes.

received by the dealer prior to its calculation and received by MFD prior to the
close of that business day.

DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Fund has three classes of shares which it offers to the general public,
entitled Class A, Class B and Class C shares of Beneficial Interest (without par
value). Each Fund also has a class of shares which it offers exclusively to
certain institutional investors entitled Class I Shares. The Trust 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 that particular series.
Shareholders are entitled to one vote for each share held and shares of each
series are entitled to vote separately to approve investment advisory agreements
or changes in investment restrictions, but shares of all series 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 the Distribution Plan or on any other matter that affects solely that
class of shares, but will otherwise vote together with all other classes of
shares of the series on all other matters. The Trust does not intend to hold
annual shareholder meetings. The Trust's Declaration of Trust provides that a
Trustee may be removed from office in certain instances. See "Description of
Shares, Voting Rights and Liabilities" in the SAI.

PERFORMANCE INFORMATION

From time to time, the Fund may 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 Lipper
Analytical Services, Inc., and Wiesenberger Investment Companies Service. Yield
quotations are based on the annualized net investment income per share allocated
to each class of the Fund over a 30-day period stated as a percent of the
maximum public offering price of that class on the last day of that period.
Yield calculations for Class B and Class C shares assume no CDSC is paid. The
current distribution rate for each class is calculated by (i) annualizing the
distributions (excluding short-term capital gains) of the class for a stated
period; (ii) adding any short-term

39
<PAGE> 146

capital gains paid within the immediately preceding twelve-month period; and
(iii) dividing the result by the maximum offering price or net asset value per
share on the last day of the period. Current distribution rate calculations for
Class B and Class C shares assumes 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 may be 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 each class of shares of the Fund made
at the maximum public offering price of the shares of that class with all
distributions reinvested and which will give effect to the imposition of any
applicable CDSC assessed upon redemptions of the Fund's Class B and Class C
shares. Such total rate of return quotations may be accompanied by quotations
which do not reflect the reduction in value of the initial investment due to
sales charge or the deduction of the CDSC, and which will therefore be higher.

The Fund offers multiple classes of shares which were initially offered for sale
to, and purchased by, the public on different dates (the class "inception
date"). The calculation of total rate of return for a class of shares which has
a later class inception date than another class of shares of the Fund is based
both on (i) the performance of the Fund's newer class from its inception date
and (ii) the performance of the Fund's oldest class from its inception date up
to the class inception date of the newer class. See the SAI for further
information on the calculation of total rate of return for share classes with
different class inception dates.

All performance quotations are based on historical performance and are not
intended to indicate future performance. Yield reflects only annualized net
portfolio income as of a stated period of time and current distribution rate
reflects only the annualized rate of distributions paid by the Fund over a
stated period of time while total rate of return reflects all components of
investment return. 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 total rate of
return, yield and current distribution rate see the SAI. For further information
about the Fund's performance for the fiscal year ended May 31, 1998, please see
the Fund's annual report. A copy of the Funds' Annual Report may be obtained
without charge by contacting the Shareholder Servicing Agent (see back cover for
address and phone number). In addition to information provided in shareholder
reports, the Fund may, in its discretion, from time to time make a list of all
or a portion of its holdings available to investors upon request.

EXPENSES

40
<PAGE> 147

reports, notices and proxy statements to shareholders and to governmental
officers and commissions; brokerage and other expenses connected with the
execution, recording and settlement of portfolio security transactions;
insurance premiums; fees and expenses of State Street Bank and Trust Company,
the Trust's Custodian, for all services to the Fund, including safekeeping of
funds and securities and maintaining required books and accounts; expenses of
calculating the net asset value of shares of the Fund; and expenses of
shareholder meetings. Expenses relating to the issuance, registration and
qualification of shares of a Fund and the preparation, printing and mailing of
prospectuses are borne by the Fund except that the Distribution Agreement with
MFD requires MFD to pay for prospectuses that are to be used for sales purposes.
Expenses of the Trust which are not attributable to a specific series of the
Trust are allocated among the series in a manner believed by management of the
Trust to be fair and equitable.

PROVISION OF ANNUAL AND SEMIANNUAL REPORTS

-- Dividends and capital gain distributions reinvested in additional
shares; this option will be assigned if no other option is specified.

-- Dividends in cash; capital gain distributions reinvested in additional
shares.

-- Dividends and capital gain distributions in cash.

41
<PAGE> 148

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.

DISTRIBUTION INVESTMENT PROGRAM: Shares of a particular class of the Fund
may be sold at net asset value (and not subject to any CDSC) through the
automatic reinvestment of dividend and capital gain distributions from the same
class of another MFS Fund. Furthermore, distributions made by the Fund may be
automatically invested at net asset value (and not subject to any CDSC) in
shares of the same class of another MFS Fund, if shares of such MFS Fund are
available for sale.

DOLLAR COST AVERAGING PROGRAMS
AUTOMATIC INVESTMENT PLAN: Cash investments of $50 or more may be made
through a shareholder's checking account on any day of the month. If the
shareholder does not specify a date, the investment will automatically occur on
the first business day of the

42
<PAGE> 149

month. Required forms are available from the Shareholder Servicing Agent or
investment dealers.

The Fund's SAI, dated October 1, 1998, as amended or supplemented from time to
time, contains more detailed information about the Fund, including information
related to (i) the Fund's investment policies and restrictions, including the
purchase and sale of Options, Options on Stock Indices, Futures Contracts,
Options on Futures Contracts, Forward Contracts and Options on Foreign
Currencies; (ii) the Trustees, officers and Investment Adviser; (iii) portfolio
trading; (iv) the shares, including rights and liabilities of shareholders; (v)
tax status of dividends and distributions; (vi) the Distribution Plan; and (vii)
various services and privileges provided by the Fund for the benefit of its
shareholders, including additional information with respect to the exchange
privilege.

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<PAGE> 150

APPENDIX A

WAIVERS OF SALES CHARGES

I. WAIVERS OF ALL APPLICABLE SALES CHARGES

In the following circumstances, the initial sales charge imposed on
purchases of Class A shares and the CDSC imposed on certain redemptions of
Class A shares and on redemptions of Class B shares and Class C shares, as
applicable, are waived:

1. DIVIDEND REINVESTMENT

- Shares acquired through dividend or capital gain reinvestment; and

- Shares acquired by automatic reinvestment of distributions of dividends
and capital gains of any MFS Fund in the MFS Family of Funds ("MFS
Funds") pursuant to the Distribution Investment Program.

2. CERTAIN ACQUISITIONS/LIQUIDATIONS

- Shares acquired on account of the acquisition or liquidation of assets
of other investment companies or personal holding companies.

3. AFFILIATES OF AN MFS FUND/CERTAIN DEALERS. SHARES ACQUIRED BY:

- Officers, eligible directors, employees (including retired employees)
and agents of Massachusetts Financial Services Company ("MFS"), Sun
Life Assurance Company of America ("Sun Life") or any of their
subsidiary companies;

- Trustees and retired trustees of any investment company for which MFD
serves as distributor;

- Employees, directors, partners, officers and trustees of any
sub-adviser to any MFS Fund;

- Employees or registered representatives of dealers;

- Institutional Clients of MFS or MFS Institutional Advisors, Inc.
("MFSI")

A-1
<PAGE> 151

4. INVOLUNTARY REDEMPTIONS (CDSC WAIVER ONLY)

5. RETIREMENT PLANS (CDSC WAIVER ONLY). Shares redeemed on account of
distributions made under the following circumstances:

INDIVIDUAL RETIREMENT ACCOUNTS ("IRA'S")

- Death or disability of the IRA owner.

SECTION 401(a) PLANS ("401(a) PLANS") AND SECTION 403(b) EMPLOYER
SPONSORED PLANS ("ESP PLANS")

- Death, disability or retirement of 401(a) or ESP Plan participant;
- Loan from 401(a) or ESP Plan (repayment of loans, however, will
constitute new sales for purposes of assessing sales charges);
- Financial hardship (as defined in Treasury Regulation Section
1.401(k)-1(d)(2), as amended from time to time);
- Termination of employment of 401(a) or ESP Plan participant (excluding,
however, a partial or other termination of the Plan);
- Tax-free return of excess 401(a) or ESP Plan contributions;
- To the extent that redemption proceeds are used to pay expenses (or
certain participant expenses) of the 401(a) or ESP Plan (e.g.,
participant account fees), provided that the Plan sponsor subscribes to
the MFS FUNDamental 401(k) Plan or another similar recordkeeping system
made available by the Shareholder Servicing Agent; and
- Distributions from a 401(a) or ESP Plan that has invested its assets in
one or more of the MFS Funds for more than 10 years from the later to
occur of: (i) January 1, 1993 or (ii) the date such 401(a) or ESP Plan
first invests its assets in one or more of the MFS Funds. The sales
charges will be waived in the case of a redemption of all of the 401(a)
or ESP Plan's shares in all MFS Funds (i.e., all the assets of the
401(a) or ESP Plan invested in the MFS Funds are withdrawn), unless
immediately prior to the redemption, the aggregate amount invested by
the 401(a) or ESP Plan in shares of the MFS Funds (excluding the
reinvestment of distributions) during the prior four years equals 50%
or more of the total value of the 401(a) or ESP Plan's assets in the
MFS Funds, in which case the sales charges will not be waived.

SECTION 403(b) SALARY REDUCTION ONLY PLANS ("SRO PLANS")

- Death or disability of SRO Plan participant.

6. CERTAIN TRANSFERS OF REGISTRATION (CDSC WAIVER ONLY). Shares transferred:

- To an IRA rollover account where any sales charges with respect to the
shares being reregistered would have been waived had they been
redeemed; and

A-2
<PAGE> 152

7. LOAN REPAYMENTS

II. WAIVERS OF CLASS A SALES CHARGES

1. WRAP ACCOUNT INVESTMENTS AND FUND "SUPERMARKET" INVESTMENTS

2. INVESTMENT BY INSURANCE COMPANY SEPARATE ACCOUNTS

- Shares acquired by insurance company separate accounts.

3. RETIREMENT PLANS

ADMINISTRATIVE SERVICES ARRANGEMENTS

REINVESTMENT OF DISTRIBUTIONS FROM QUALIFIED RETIREMENT PLANS

- Shares acquired through the automatic reinvestment in Class A shares of
Class A or Class B distributions which constitute required withdrawals
from qualified retirement plans.

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<PAGE> 153

SHARES REDEEMED ON ACCOUNT OF DISTRIBUTIONS MADE UNDER THE FOLLOWING
CIRCUMSTANCES:

IRA'S

- Distributions made on or after the IRA owner has attained the age of
59 1/2 years old; and
- Tax-free returns of excess IRA contributions.

401(a) PLANS

- Distributions made on or after the 401(a) Plan participant has attained
the age of 59 1/2 years old; and
- Certain involuntary redemptions and redemptions in connection with
certain automatic withdrawals from a 401(a) Plan.

ESP PLANS AND SRO PLANS

- Distributions made on or after the ESP or SRO Plan participant has
attained the age of 59 1/2 years old.

4. PURCHASES OF AT LEAST $5 MILLION (CDSC WAIVER ONLY)

5. BANK TRUST DEPARTMENTS AND LAW FIRMS

6. INVESTMENT OF PROCEEDS FROM CERTAIN REDEMPTIONS OF CLASS I SHARES

- The initial sales charge imposed on purchases of Class A shares, and
the contingent deferred sales charge imposed on certain redemptions of
Class A

A-4
<PAGE> 154

shares, are waived with respect to Class A shares acquired of any of
the MFS Funds through the immediate reinvestment of the proceeds of a
redemption of Class I shares of any of the MFS Funds.

III. WAIVERS OF CLASS B AND CLASS C SALES CHARGES

In addition to the waivers set forth in Section I above, in the following
circumstances the CDSC imposed on redemptions of Class B shares and Class
C shares is waived:

1. SYSTEMATIC WITHDRAWAL PLAN

2. DEATH OF OWNER

- Shares redeemed on account of the death of the account owner if the
shares are held solely in the deceased individual's name or in a living
trust for the benefit of the deceased individual.

3. DISABILITY OF OWNER

4. RETIREMENT PLANS. Shares redeemed on account of distributions made under
the following circumstances:

IRA'S, 401(a) PLANS, ESP PLANS AND SRO PLANS

SALARY REDUCTION SIMPLIFIED EMPLOYEE PENSION PLANS ("SAR-SEP PLANS")

- Distributions made on or after the SAR-SEP Plan participant has
attained the age of 70 1/2 years old, but only with respect to the
minimum distribution under applicable Code rules;

- Death or disability of a SAR-SEP Plan participant.

A-5
<PAGE> 155

APPENDIX B

DESCRIPTION OF BOND RATINGS

MOODY'S INVESTORS SERVICE, INC.

Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.

Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.

C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.

ABSENCE OF RATING: Where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.

B-1
<PAGE> 156

Should no rating be assigned, the reason may be one of the following:

1. An application for rating was not received or accepted.

2. The issue or issuer belongs to a group of securities or companies
that are not rated as a matter of policy.

3. There is a lack of essential data pertaining to the issue or issuer.

4. The issue was privately placed, in which case the rating is not
published in Moody's publications.

STANDARD & POOR'S RATINGS SERVICES

AAA: An obligation rated AAA has the highest rating assigned by S&P. The
obligor's capacity to meet its financial commitment on the obligation is
EXTREMELY STRONG.

AA: An obligation rated AA differs from the highest rated obligations only in
small degree. The obligor's capacity to meet its financial commitment on the
obligation is VERY STRONG.

B-2
<PAGE> 157

CC: An obligation rated CC is CURRENTLY HIGHLY VULNERABLE to nonpayment.

C: The C rating may be used to cover a situation where a bankruptcy petition has
been filed or similar action has been taken, but payments on this obligation are
being continued.

PLUS (+) OR MINUS (-) The ratings from AA to CCC may be modified by the addition
of a plus or minus sign to show relative standing within the major rating
categories.

FITCH IBCA

Speculative Grade

B-3
<PAGE> 158

DUFF & PHELPS CREDIT RATING CO.

AAA: Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.

AA+, AA, AA-: High credit quality. Protection factors are strong. Risk is modest
but may vary slightly from time to time because of economic conditions.

A+, A, A-: Protection factors are average but adequate. However, risk factors
are more variable and greater in periods of economic stress.

BBB+, BBB, BBB-: Below-average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk during
economic cycles.

DD: Defaulted debt-obligations. Issuer failed to meet scheduled principal and/or
interest payments.

DP: Preferred stock with dividend arrearages.

DUFF & PHELPS SHORT-TERM RATINGS

B-4
<PAGE> 159

D-1: Very high certainty of timely payment. Liquidity factors are excellent and
supported by good fundamental protection factors. Risk factors are minor.

D-1-: High certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are very small.

D-3: Satisfactory liquidity and other protection factors qualify issues as to
investment grade. Risk factors are larger and subject to more variation.
Nevertheless, timely payment is expected.

D-5: Issuer failed to meet scheduled principal and/or interest payments.

B-5
<PAGE> 160
Investment Adviser
Massachusetts Financial
Services Company
500 Boylston Street
Boston, MA 02116
(617)954-5000

Distributor
MFS Fund Distributors, Inc.
500 Boylston Street
Boston, MA 02116
(617)954-5000

Custodian and Dividend
Disbursing Agent
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110

Shareholder Servicing Agent
MFS Service Center
500 Boylston Street
Boston, MA 02116
Toll-free:(800)225-2606

Mailing Address
P.O. Box 2281
Boston, MA 02107-9906

Independent Auditors
Ernst & Young LLP
200 Clarendon Street
Boston, MA 02116

MGI-1-10/98/77M 876/287/387/887

<PAGE> 161

[MFS INVESTMENT MANAGEMENT LOGO]

STATEMENT OF
MFS(R)INTERNATIONAL GROWTH ADDITIONAL INFORMATION
AND INCOME FUND

October 1, 1998
(Members of the MFS Family of Funds(R))
</TABLE>

- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
1. Definitions................................................. 2
2. Investment Policies and Restrictions........................ 2
3. Management of the Fund...................................... 15
Trustees.................................................... 15
Officers.................................................... 15
Trustee Compensation Table.................................. 16
Investment Adviser.......................................... 17
Administrator............................................... 17
Custodian................................................... 17
Shareholder Servicing Agent................................. 17
Distributor................................................. 18
4. Portfolio Transactions and Brokerage Commissions............ 19
5. Shareholder Services........................................ 20
Investment and Withdrawal Programs.......................... 20
Exchange Privilege.......................................... 22
Tax-Deferred Retirement Plans............................... 23
6. Tax Status.................................................. 23
7. Distribution Plan........................................... 25
8. Determination of Net Asset Value and Performance............ 26
9. Description of Shares, Voting Rights and Liabilities........ 29
10. Independent Auditors and Financial Statements............... 29
Appendix A -- Performance Information....................... A-1
</TABLE>

MFS(R) INTERNATIONAL GROWTH AND INCOME FUND
A series of MFS Series Trust X
500 Boylston Street, Boston, MA 02116
(617) 954-5000

THIS SAI IS NOT A PROSPECTUS AND IS AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE
INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS.
<PAGE> 162

1. DEFINITIONS

<TABLE>
<S> <C> <C>
"Fund" -- MFS International Growth
and Income Fund, a
diversified series of the
Trust. The Fund was known
as MFS/Foreign & Colonial
International Growth and
Income Fund prior to
September 8, 1997
"MFS" or the "Adviser" -- Massachusetts Financial
Services Company, a
Delaware corporation.
"MFD" -- MFS Fund Distributors,
Inc., a Delaware
corporation.
"Prospectus" -- The Prospectus of the Fund,
dated October 1, 1998, as
amended or supplemented
from time to time.
"Trust" -- MFS Series Trust X, a
Massachusetts business
trust. The Trust has
changed its name several
times during the past five
years. The Trust was
previously known as MFS
Government Mortgage Fund
(prior to June 2, 1995),
MFS Government Income Plus
Fund (prior to March 1,
1993), MFS Government
Income Plus Trust (prior to
August 3, 1992) and MFS
Government Securities Trust
(after December 7, 1990).
</TABLE>

2. INVESTMENT POLICIES AND
RESTRICTIONS

2
<PAGE> 163

There is no bankruptcy proceeding by which sovereign debt on which governmental
entities have defaulted may be collected in whole or in part.

3
<PAGE> 164

effects on the economies and securities markets of certain emerging market
countries. In an attempt to control inflation, wage and price controls have been
imposed in certain countries. Of these countries, some, in recent years, have
begun to control inflation through prudent economic policies.

WITHHOLDING -- Income from securities held by the Fund could be reduced by
a withholding tax on the source or other taxes imposed by the emerging market
countries in which the Fund makes its investments. The Fund's net asset value
may also be affected by changes in the rates or methods of taxation applicable
to the Fund or to entities in which the Fund has invested. The Adviser will
consider the cost of any taxes in determining whether to acquire any particular
investments, but can provide no assurance that the taxes will not be subject to
change.

REPURCHASE AGREEMENTS: The Fund may enter into repurchase agreements with
sellers who are member firms (or a subsidiary thereof) of the New York Stock
Exchange (the "Exchange"), members of the Federal Reserve System, recognized
domestic or foreign securities dealers or institutions which the Adviser has
determined to be of comparable creditworthiness. The securities that the Fund
purchases and holds have values which are equal to or greater than the
repurchase price agreed to be paid by the seller. The repurchase price may be
higher than the purchase price, the difference being income to the Fund, or the
purchase and repurchase prices may be the same, with interest at a standard rate
due to the Fund together with the repurchase price on repurchase.

The repurchase agreement provides that in the event the seller fails to pay the
amount agreed upon on the agreed upon delivery date or upon demand, as the case
may be, the Fund will have the right to liquidate the securities. If at the time
the Fund is contractually entitled to exercise its right to liquidate the
securities, the seller is subject to a proceeding under the bankruptcy laws or
its assets are otherwise subject to a stay order, the Fund's exercise of its
right to liquidate the securities may be delayed and result in certain losses
and costs to the Fund. The Fund has adopted and follows procedures which are
intended to minimize the risks of repurchase agreements. For example, the Fund
only enters into repurchase agreements after the Adviser has determined that the
seller is creditworthy, and the Adviser monitors that seller's creditworthiness
on an ongoing basis. Moreover, under such agreements, the value of the
securities (which are marked to market every business day) is required to be
greater than the repurchase price, and the Fund has the right to make margin
calls at any time if the value of the securities falls below the agreed upon
collateral.

evidence ownership of underlying securities issued by either a foreign or U.S.
company.

The Fund's ability to receive payments of principal, interest and other amounts
due in connection with these investments will depend primarily on the financial
condition of the borrower. Direct indebtedness of developing countries involves
the risk that the governmental entities responsible for the repayment of the
note may be unable, or unwilling, to pay interest and repay principal where due.
In selecting the loans and other direct investments which the Fund will
purchase, the Adviser will rely upon its (and not that of the original lending
institution's) own credit analysis of the borrower. As the Fund may be required
to rely upon another lending institution to collect and pass on to the Fund
amounts payable with respect to the loan and to enforce the Fund's rights under
the loan, an insolvency, bankruptcy or reorganization of the lending institution
may delay or prevent the Fund from receiving such amounts. In such cases, the
Fund will evaluate as well the creditworthiness of the lending institution and
will treat both the borrower and the lending institution as an "issuer" of the
loan for purposes of certain investment restrictions pertaining to the
diversification of the Fund's portfolio investments. The highly leveraged nature
of many such loans may make such loans especially vulnerable to adverse changes
in economic or market conditions. Investments in such loans may involve
additional risks to the Fund.

WHEN-ISSUED OR FORWARD DELIVERY SECURITIES: When the Fund commits to purchase a
security on a "when-issued" or "forward delivery" basis, it will set up
procedures consistent with the General Statement of Policy of the SEC concerning
such purchases. Since that policy currently recommends that an amount of the
Fund's assets equal to the amount of the purchase be held aside or segregated to
be used to pay for the commitment, the Fund will always have liquid assets
sufficient to cover any commitments or to limit any potential risk. However,
although the Fund does not intend to make such purchases for speculative
purposes and intends to adhere to the provisions of the SEC policy, purchases of
securities on such basis may involve more risk than other types of purchases.
For example, the Fund may have to sell assets which have been set aside in order
to meet redemptions. Also, if the Fund determines it necessary to sell the
"when-issued" or "forward delivery" securities before delivery, it may incur a
loss because of market fluctuations since the time the commitment to purchase
such securities was made.

LENDING OF SECURITIES: The Fund may seek to increase its income by lending
portfolio securities to entities deemed creditworthy by the Adviser. Such loans
would be required to be secured continuously by collateral in cash, irrevocable
letters of credit or U.S. Government securities maintained on a current basis at
an amount at least equal to the market value of the securities loaned. The Fund
would have the right to call a loan and obtain the securities loaned at any time
on customary industry settlement notice (which will usually not exceed five
days). During the existence of a loan, the Fund would continue to receive the
equivalent of the interest or dividends paid by the issuer on the securities
loaned. The Fund would also receive a fee from the borrower or compensation from
the investment of cash collateral less a fee paid to the borrower, if the
collateral is in the form of cash. The Fund would not, however, have the right
to vote any securities having voting rights during the existence of the loan,
but would call the loan in anticipation of an important vote to be taken among
holders of the securities or of the giving or withholding of their consent on a
material matter affecting the investment. As with other extensions of credit
there are risks of delay in recovery or even loss of rights in the collateral
should the borrower of the securities fail financially. However, the loans would
be made only to firms deemed by the Adviser to be of good standing, and when, in
the judgment of the Adviser, the consideration which could be earned currently
from securities loans of this type justifies the attendant risk. If the Adviser
determines to make securities loans, it is not intended that the value of the
securities loaned would exceed 30% of the value of the Fund's total assets.

5
<PAGE> 166

lying securities and may offer greater potential for capital appreciation as
well as capital loss.

OPTIONS ON SECURITIES: The Fund may write (sell) covered call and put options on
securities ("Options") and purchase call and put Options. An Option provides the
purchaser, or "holder", with the right, but not the obligation, to purchase, in
the case of a "call" Option, or sell, in the case of a "put" Option, the
security or securities in connection with which the Option was written, for a
fixed exercise price up to a stated expiration date or, in the case of certain
options, on such date. The holder pays a non-refundable purchase price for the
Option, known as the "premium." The maximum amount of risk the purchaser of the
Option assumes is equal to the premium plus related transaction costs, although
this entire amount may be lost. The risk of the seller, or "writer", however, is
potentially unlimited, unless the Option is "covered." A call option written by
the Fund is "covered" if the Fund owns the security underlying the call or has
an absolute and immediate right to acquire that security without additional cash
consideration (or for additional cash consideration segregated by the Fund) upon
conversion or exchange of other securities held in its portfolio. A call option
is also covered if the Fund holds a call on the same security and in the same
principal amount as the call written where the exercise price of the call held
(a) is equal to or less than the exercise price of the call written or (b) is
greater than the exercise price of the call written if liquid assets
representing the difference are segregated by the Fund. A put option written by
the Fund is "covered" if the Fund segregates liquid assets with a value equal to
the exercise price, or else holds a put on the same security and in the same
principal amount as the put written where the exercise price of the put held is
(a) equal to or greater than the exercise price of the put written or (b) is
less than the exercise price of the put written if liquid assets representing
the difference are segregated by the Fund. Put and call options written by the
Fund may also be covered in such other manner as may be in accordance with the
requirements of the exchange on which, or the counter party with which the
option is traded, and applicable laws and regulations. If the writer's
obligation is not so covered, it is subject to the risk of the full change in
value of the underlying security from the time the option is written until
exercise.

By writing a call Option on a portfolio security, the Fund limits its
opportunity to profit from any increase in the market value of the underlying
security above the exercise price of the Option. By writing a put Option, the
Fund assumes the risk that it may be required to purchase the underlying
security for an exercise price above its then current market value, resulting in
a loss unless the security subsequently appreciates in value. The writing of
Options will not be undertaken by the Fund solely for hedging purposes, and may
involve certain risks which are not present in the case of hedging transactions.
Moreover, even where Options are written for hedging purposes, such transactions
will constitute only a partial hedge against declines in the value of portfolio
securities or against increases in the
6
<PAGE> 167

value of securities to be acquired, up to the amount of the premium.

OPTIONS ON STOCK INDICES: As noted in the Prospectus, the Fund may write (sell)
covered call and put options and purchase call and put options on stock indices
("Options on Stock Indices"). The Fund may cover call Options on Stock Indices
by owning securities whose price changes, in the opinion of the Adviser are
expected to be similar to those of the underlying index, or by having an
absolute and immediate right to acquire such securities without additional cash
consideration (or for additional cash consideration segregated by the Fund) upon
conversion or exchange of other securities in its portfolio. Where the Fund
covers a call option on a stock index through ownership of securities, such
securities may not match the composition of the index and, in that event, the
Fund will not be fully covered and could be subject to risk of loss in the event
of adverse changes in the value of the index. The Fund may also cover call
options on stock indices by holding a call on the same index and in the same
principal amount as the call written where the exercise price of the call held
(a) is equal to or less than the exercise price of the call written or (b) is
greater than the exercise price of the call written if liquid assets
representing the difference are segregated by the Fund. The Fund may cover put
options on stock indices by segregating liquid assets, or else by holding a put
on the same security and in the same principal amount as the put written where
the exercise price of the put held (a) is equal to or greater than the exercise
price of the put written or (b) is less than the exercise price of the put
written if liquid assets representing the difference are segregated by the Fund.
Put and call options on stock indices may also be covered in such other manner
as may be in accordance with the rules of the exchange on which, or the
counterparty with which, the option is traded and applicable laws and
regulations.

The Fund will receive a premium from writing a put or call option on a stock
index, which increases the Fund's gross income in the event the option expires
unexercised or is closed out at a profit. If the value of an index on which the
Fund has written a call option falls or remains the same, the Fund will realize
a profit in the form of the premium received (less transaction costs) that could
offset all or a portion of any decline in the value of the securities it owns.
If the value of the index rises, however, the Fund will realize a loss in its
call option position, which will reduce the benefit of any unrealized
appreciation in the Fund's stock investments. By writing a put option, the Fund
assumes the risk of a decline in the index. To the extent that the price changes
of securities owned by the Fund correlate with changes in the value of the
index, writing covered put options on indices will increase the Fund's losses in
the event of a market decline, although such losses will be offset in part by
the premium received for writing the option.

7
<PAGE> 168

investments does not decline as anticipated, or if the value of the option does
not increase, the Fund's loss will be limited to the premium paid for the option
plus related transaction costs. The success of this strategy will largely depend
on the accuracy of the correlation between the changes in value of the index and
the changes in value of the Fund's security holdings.

Similarly, when it is expected that interest rates may decline, Futures
Contracts may be purchased to hedge against anticipated purchases of long-term
bonds at higher prices. Since the fluctuations in the value of Futures Contracts
should be similar to that of long-term bonds, the Fund could take advantage of
the anticipated rise in the value of long-term bonds without actually buying
them until the market had stabilized. At that time, the Futures Contracts could
be liquidated and the Fund could buy long-term bonds on the cash market.
Purchases of Futures Contracts would be particularly appropriate when the cash
flow from the sale of new shares of the Fund could have the effect of diluting
dividend earnings. To the extent the Fund enters into Futures Contracts for this
purpose, the assets in the segregated asset account maintained to cover the
Fund's obligations with respect to such Futures Contracts will consist of liquid
assets from the portfolio of the Fund in an amount equal to the difference
between the fluctuating market value of such Futures Contracts and the aggregate
value of the initial and variation margin payments made by the Fund with respect
to such Futures Contracts, thereby assuring that the transactions are
unleveraged.

Futures Contracts on foreign currencies may be used in a similar manner, in
order to protect against declines in the dollar value of portfolio securities
denominated in foreign currencies, or increases in the dollar value of
securities to be acquired.

OPTIONS ON FUTURES CONTRACTS: The Fund may write and purchase Options to buy or
sell Futures Contracts ("Options

8
<PAGE> 169

on Futures Contracts") for hedging purposes. The Fund may also enter into
transactions in Options on Futures Contracts for non-hedging purposes to the
extent permitted by applicable law. The purchase of a call Option on a Futures
Contract is similar in some respects to the purchase of a call option on an
individual security. Depending on the pricing of the option compared to either
the price of the Futures Contract upon which it is based or the price of the
underlying debt securities, it may or may not be less risky than ownership of
the Futures Contract or underlying securities. As with the purchase of Futures
Contracts, when the Fund is not fully invested it may purchase a call Option on
a Futures Contract to hedge against a market advance due to declining interest
rates.

A Fund's ability to engage in the options and futures strategies described above
will depend on the availability of liquid markets in such instruments. It is
impossible to predict the amount of trading interest that may exist in various
types of options or futures. Therefore, no assurance can be given that the Fund
will be able to utilize these instruments effectively for the purposes set forth
above. Furthermore, the Fund's ability to engage in options and futures
transactions may be limited by tax considerations.

The Fund may cover the writing of call Options on Futures Contracts (a) through
purchases of the underlying Futures Contract, (b) through ownership of the
instrument, or instruments included in the index, underlying the Futures
Contract, or (c) through the holding of a call on the same Futures Contract and
in the same principal amount as the call written where the exercise price of the
call held (i) is equal to or less than the exercise price of the call written or
(ii) is greater than the exercise price of the call written if liquid assets
representing the difference are segregated by the Fund. The Fund may cover the
writing of put Options on Futures Contracts (a) through sales of the underlying
Futures Contract, (b) through segregation of liquid assets in an amount equal to
the value of the security or index underlying the Futures Contract, or (c)
through the holding of a put on the same Futures Contract and in the same
principal amount as the put written where the exercise price of the put held is
equal to or greater than the exercise price of the put written, or is less than
the exercise price of the put written if liquid assets representing the
difference are segregated by the Fund. Put and call Options on Futures Contracts
may also be covered in such other manner as may be in accordance with the rules
of the exchange on which the option is traded and applicable laws and
regulations. Upon the exercise of a call Option on a Futures Contract written by
the Fund, the Fund will be required to sell the underlying Futures Contract
which, if the Fund has covered its obligation through the purchase of such
Contract, will serve to liquidate its futures position. Similarly, where a put
Option on a Futures Contract written by the Fund is exercised, the Fund will be
required to purchase the underlying Futures Contract which, if the Fund has
covered its obligation through the sale of such contract, will close out its
futures position. An Option on a Futures Contract is traded on the same contract
market as the underlying Futures Contact, subject to regulation by the CFTC and
the performance

9
<PAGE> 170

guarantee of the exchange clearing house. Options on Futures Contracts, as noted
in the Prospectus, are also traded on foreign exchanges.

FORWARD CONTRACTS: The Fund may enter into forward foreign currency exchange
contracts for the purchase or sale of a specific currency at a future date at a
price set at the time of the contract (a "Forward Contract"). The Fund may also
enter into Forward Contracts for "cross-hedging" as noted in the Prospectus. The
Fund may enter into Forward Contracts for hedging purposes as well as for
non-hedging purposes. Transactions in Forward Contracts entered into for hedging
purposes will include forward purchases or sales of foreign currencies for the
purpose of protecting the dollar value of fixed income securities denominated in
a foreign currency or protecting the dollar equivalent of interest or dividends
to be paid on such securities. By entering into such transactions, however, the
Fund may be required to forego the benefits of advantageous changes in exchange
rates. The Fund may also enter into transactions in Forward Contracts for other
than hedging purposes which presents greater profit potential but also involves
increased risk. For example, if the Adviser believes that the value of a
particular foreign currency will increase or decrease relative to the value of
the U.S. dollar, the Fund may purchase or sell such currency, respectively,
through a Forward Contract. If the expected changes in the value of the currency
occur, the Fund will realize profits which will increase its gross income. Where
exchange rates do not move in the direction or to the extent anticipated,
however, the Fund may sustain losses which will reduce its gross income. Such
transactions, therefore, could be considered speculative.

10
<PAGE> 171

written where the exercise price of the call held (a) is equal to or less than
the exercise price of the call written or (b) is greater than the exercise price
of the call written if liquid assets representing the difference are segregated
by the Fund. A put option written by the Fund is "covered" if the Fund
segregates liquid assets, or else holds a put on the same security and in the
same principal amount as the put written where the exercise price of the put
held (a) is equal to or greater than the exercise price of the put written or
(b) is less than the exercise price of the put written if liquid assets
representing the difference are segregated by the Fund. Call and put options on
foreign currencies may also be covered in such other manner as may be in
accordance with the requirements of the exchange on which, or the counterparty
with which, the option is traded and applicable rules and regulations.

The Fund's ability effectively to hedge all or a portion of its portfolio
through transactions in options, Futures Contracts, and Forward Contracts will
depend on the degree to which price movements in the underlying instruments
correlate with price movements in the relevant portion of the Fund's portfolio.
If the values of fixed income portfolio securities being hedged do not move in
the same amount or direction as the instruments underlying options, Futures
Contracts or Forward Contracts traded, the Fund's hedging strategy may not be
successful and the Fund could sustain losses on its hedging strategy which would
not be offset by gains on its portfolio. It is also possible that there may be a
negative correlation between the instrument underlying an Option, Futures
Contract or Forward Contract traded and the portfolio securities being hedged,
which could result in losses both on the hedging transaction and the portfolio
securities. In such instances, the Fund's overall return could be less than if
the hedging transaction had not been undertaken. In the case of futures and
Options on fixed income securities, the portfolio securities which are being
hedged may not be the same type of obligation underlying such contract. As a
result, the correlation probably will not be exact. Consequently, the Fund bears
the risk that the price of the fixed income portfolio securities being hedged
will not move in the same amount or direction as the underlying index or
obligation. Where the Fund enters into Forward Contracts as a "cross hedge"
(i.e., the purchase or sale of a Forward Contract on one currency to hedge
against risk of loss arising from changes in value of a second currency), the
Fund incurs the risk of imperfect correlation between changes in the values of
the two currencies, which could result in losses.

The trading of Options, Futures Contracts and Forward Contracts also entails the
risk that, if the Adviser's judgment as to the general direction of exchange
rates is incorrect, a Fund's overall performance may be poorer than if it had
not entered into any such contract.

It should be noted that the Fund may purchase and write Options, Futures
Contracts, Options on Futures Contracts and Forward Contracts not only for
hedging purposes, but also for non-hedging purposes to the extent permitted by
applicable law for the purpose of increasing its return. As a result, the Fund
will incur the risk that losses on such transactions will not be offset by
corresponding increases in the value of portfolio securities or decreases in the
cost of securities to be acquired.

11
<PAGE> 172

futures positions also could have an adverse effect on the Fund's ability
effectively to hedge its portfolio.

As a result of its investments in foreign securities, the Fund may receive
interest or dividend payments, or the proceeds of the sale or redemption of such
securities, in the foreign currencies in which such securities are denominated.
The Fund may also be required to receive delivery of the foreign currencies
underlying Options on Foreign Currencies or Forward Contracts it has entered
into. This could occur, for example, if an option written by the Fund is
exercised or the Fund is unable to close out a Forward Contract it has entered
into. In addition, the Fund may elect to take delivery of such currencies. Under
certain circumstances, such as where the Adviser believes that the applicable
exchange rate is unfavorable at the time the currencies are received or the
Adviser anticipates, for any other reason, that the exchange rate will improve,
the Fund may hold such currencies for an indefinite period of time. While the
holding of currencies will permit a Fund to take advantage of favorable
movements in the applicable exchange rate, such strategy also exposes the Fund
to risk of loss if exchange rates move in a direction adverse to the Fund's
position. Such losses could reduce any profits or increase any losses sustained
by the Fund from the sale or redemption of securities and could reduce the
dollar value of interest or dividend payments received.

RESTRICTIONS ON THE USE OF OPTIONS AND FUTURES: In order to assure that the Fund
will not be deemed to be a "commodity pool" for purposes of the Commodity
Exchange Act, regulations of the CFTC require that the Fund enter into
transactions in Futures Contracts and Options on Foreign Currencies traded on a
CFTC-regulated exchange only (i) for bona fide hedging purposes (as defined in
CFTC regulations), or (ii) for non-hedging purposes, provided that the aggregate
initial margin and premiums required to establish such non-bona fide hedging
positions does not exceed 5% of the liquidation value of the Fund's assets after
taking into account unrealized profits and unrealized losses on any such
contracts the Fund has entered into, and excluding, in computing such 5%, the
in-the-money amount with respect to an option that is in-the-money at the time
of purchase.

INDEXED SECURITIES: The Fund may purchase securities whose prices are indexed to
the prices of other securities,

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<PAGE> 173

indices, currencies, or other financial indicators. Indexed securities
typically, but not always, are debt securities or deposits whose value at
maturity (i.e., principal value) or coupon rate is determined by reference to a
specific instrument or statistic. Currency-indexed securities typically are
short-term to intermediate-term debt securities whose maturity values or
interest rates are determined by reference to the values of one or more
specified foreign currencies, and may offer higher yields than U.S.
dollar-denominated securities of equivalent issuers. Currency-indexed securities
may be positively or negatively indexed; that is, their maturity value may
increase when the specified currency value increases, resulting in a security
that performs similarly to a foreign-denominated instrument, or their maturity
value may decline when foreign currencies increase, resulting in a security
whose price characteristics are similar to a put on the underlying currency.
Currency-indexed securities may also have prices that depend on the values of a
number of different foreign currencies relative to each other.

SWAPS AND RELATED TRANSACTIONS: The Fund may enter into interest rate swaps,
currency swaps and other types of available swap agreements, such as caps,
collars and floors.

The Fund will segregate liquid assets to cover its current obligations under
swap transactions. If the Fund enters into a swap agreement on a net basis
(i.e., the two payment streams are netted out, with the Fund receiving or
paying, as the case may be, only the net amount of the two payments), the Fund
will segregate liquid assets with a daily value at least equal to the excess, if
any, of the Fund's accrued obligations under the swap agreement over the accrued
amount the Fund is entitled to receive under the agreement. If the Fund enters
into a swap agreement on other than a net basis, it will maintain cash or liquid
assets with a value equal to the full amount of the Fund's accrued obligations
under the agreement.

The most significant factor in the performance of swaps, caps, floors and
collars is the change in the specific interest rate, currency or other factor
that determines the amount of payments to be made under the arrangement. If the
Adviser is incorrect in its forecasts of such factors, the investment
performance of the Fund would be less than what it would have been if these
investment techniques had not been used. If a swap agreement calls for payments
by the Fund, the Fund must be prepared to make such payments when due. In
addition, if the counter-party's creditworthiness declined, the value of the
swap agreement would be likely to decline, potentially resulting in losses. If
the counterparty defaults, the Fund's risk of loss consists of the net amount of
payments that the Fund is contractually entitled to receive. The Fund
anticipates that it will be able to eliminate or reduce its exposure under these
arrangements by assignment or other disposition or by entering into an
offsetting agreement with the same or another counterparty.

------------------------------------

The policies stated above are not fundamental and may be changed without
shareholder approval, as may the Fund's investment objective.

INVESTMENT RESTRICTIONS: The Fund has adopted the following restrictions which
cannot be changed without the approval of the holders of a majority of the
Fund's shares (which, as used in this SAI, means the lesser of (i) more than 50%
of the outstanding shares of the Trust or the Fund or class, as applicable, or
(ii) 67% or more of the outstanding shares of the Trust or the Fund or class, as
applicable, present at a meeting at which holders of more than 50% of the
outstanding shares of the Trust or the Fund or class, as applicable, are
represented in person or by proxy). Except for investment policy(1) and
nonfundamental investment policy(1), these investment restrictions 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.

The Fund may not:

(1) borrow amounts in excess of 33 1/3% of its assets including amounts
borrowed;

(2) underwrite securities issued by other persons except insofar as the Fund
may technically be deemed an underwriter under the Securities Act of 1933 in
selling a portfolio security;

13
<PAGE> 174

of its business. The Fund reserves the freedom of action to hold and to sell
real estate, mineral leases, commodities or commodity contracts (including
Options, Options on Futures Contracts, Options on Stock Indices, Options on
Foreign Currency and any other type of option, Futures Contracts, any other
type of futures contract, and Forward Contracts) acquired as a result of the
ownership of securities;

In addition, the Fund has the following nonfundamental policies which may be
changed without shareholder approval. The Fund will not:

(3) invest for the purpose of exercising control or management;

(4) purchase securities issued by any other investment company in excess of
the amount permitted by the 1940 Act, except when such purchase is part of a
plan of merger or consolidation;

(5) purchase or retain securities of an issuer any of whose officers,
directors, trustees or security holders is an officer or Trustee of the Fund,
or is an officer or a director of the investment adviser of the Fund, if one
or more of such persons also owns beneficially more than 0.5% of the
securities of such issuer, and such persons owning more than 0.5% of such
securities together own beneficially more than 5% of such securities;

(10) borrow, except as a temporary measure for extraordinary or emergency
purposes;

14
<PAGE> 175

combinations thereof with respect to securities or indexes of securities or
(iii) Options on Foreign Currencies, any type of swap agreement or any type of
futures contract (including Futures Contracts) or (b) the purchase, ownership,
holding or sale of contracts for the future delivery of securities or
currencies; or

(12) Invest 25% or more of the market value of its total assets in
securities of issuers in any one industry.

3. MANAGEMENT OF THE FUND

TRUSTEES

RICHARD B. BAILEY* (born 9/14/26)

Private investor; Massachusetts Financial Services Company, former Chairman and
Director (prior to September 30, 1991); Cambridge Bancorp, Director; Cambridge
Trust Company, Director

PETER G. HARWOOD (born 4/3/26)
Private Investor
Address: 211 Lindsay Pond Road, Concord, Massachusetts

J. ATWOOD IVES (born 5/1/36)

Eastern Enterprises (diversified services company), Chairman, Trustee and Chief
Executive Officer

Address: 9 Riverside Road, Weston, Massachusetts

LAWRENCE T. PERERA (born 6/23/35)
Hemenway & Barnes (attorneys), Partner
Address: 60 State Street, Boston, Massachusetts

CHARLES W. SCHMIDT (born 3/18/28)

Private Investor; International Technology Corporation, Director; Mohawk Paper
Company, Director

Address: 30 Colpitts Road, Weston, Massachusetts

ARNOLD D. SCOTT* (born 12/16/42)
Massachusetts Financial Services Company, Senior Executive Vice President and
Secretary

JEFFREY L. SHAMES* (born 6/2/55)

Massachusetts Financial Services Company, Chairman and Chief Executive Officer

ELAINE R. SMITH (born 4/25/46)

Independent Consultant

Address: Weston, Massachusetts

OFFICERS

W. THOMAS LONDON,* Treasurer (born 3/1/44)
Massachusetts Financial Services Company, Senior Vice President

STEPHEN E. CAVAN,* Secretary and Clerk (born 11/6/53)
Massachusetts Financial Services Company, Senior Vice President, General Counsel
and Assistant Secretary

JAMES O. YOST,* Assistant Treasurer; (born 6/12/60)
Massachusetts Financial Services Company, Vice President

ELLEN MOYNIHAN,* Assistant Treasurer (born 11/13/57)

Massachusetts Financial Services Company, Vice President (since September 1996);
Deloitte & Touche LLP, Senior Manager (until September 1996)

JAMES R. BORDEWICK, JR.,* Assistant Secretary (born 3/6/59)
Massachusetts Financial Services Company, Senior Vice President and Associate
General Counsel
- ---------------

* "Interested persons" (as defined in the 1940 Act) of the Adviser, whose
address is 500 Boylston Street, Boston, Massachusetts 02116.

The Fund pays the compensation of the non-interested Trustees and Mr. Bailey
(who currently receive a fee per Fund of $6,596 per year plus $25 per meeting
and $20 per committee meeting attended, together with such Trustee's
out-of-pocket expenses), and has adopted a retirement plan for non-interested
Trustees and Mr. Bailey. Under this plan, a Trustee will retire upon reaching
age 73 and if the Trustee has completed at least 5 years of service, he would be
entitled to annual payments during his lifetime of up to 50% of such Trustee's
average annual compensation (based on the three years prior to his retirement)
depending on his length of service. A Trustee may also retire prior to age 73
and receive reduced payments if he has completed at least 5 years of service.
Under the plan, a Trustee (or his beneficiaries) will also receive benefits for
a period of time in the event the Trustee is disabled or dies. These benefits
will also be based on the Trustee's average annual compensation and length of
service. There is no retirement plan provided by the Trust for Messrs. Scott and
Shames. The Fund will accrue its allocable portion of compensation expenses
under

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<PAGE> 176

the retirement plan each year to cover the current year's service and amortize
past service cost.

Set forth below is certain information concerning the cash compensation
estimated to be paid by the Fund to the Trustees, and benefits accrued and
estimated benefits pay-able, under the retirement plan.

TRUSTEE COMPENSATION TABLE

<TABLE>
<CAPTION>
RETIREMENT BENEFIT ESTIMATED
TRUSTEE FEES ACCRUED AS CREDITED TOTAL TRUSTEE FEES
FROM THE PART OF FUND YEARS FROM FUND AND
TRUSTEE FUND(1) EXPENSE(1) OF SERVICE(2) FUND COMPLEX(3)
- ------------------------------------------------ ------------ ------------------ ------------- ------------------
<S> <C> <C> <C> <C>
Richard B. Bailey............................... $615 $ 0 4 $283,647
Peter G. Harwood................................ 700 0 3 121,105
J. Atwood Ives.................................. 590 185 13 108,720
Lawrence T. Perera.............................. 635 208 12 127,055
William J. Poorvu............................... 700 204 12 121,105
Charles W. Schmidt.............................. 675 205 5 121,105
Arnold D. Scott................................. N/A N/A N/A N/A
Jeffrey L. Shames............................... N/A N/A N/A N/A
Elaine R. Smith................................. 695 218 23 132,035
David B. Stone.................................. 740 214 5 127,055
</TABLE>

ESTIMATED ANNUAL BENEFITS PAYABLE BY FUND UPON RETIREMENT(4)

<TABLE>
<CAPTION>
YEARS OF SERVICE
AVERAGE -------------------------------
TRUSTEE 10 OR
FEES 3 5 7 MORE
------- ---- ---- ---- ----------
<S> <C> <C> <C> <C>
$531 $ 80 $133 $186 $265
588 88 147 206 294
644 97 161 225 322
701 105 175 245 350
757 114 189 265 379
814 122 203 285 407
</TABLE>

- ---------------

(1) For the fiscal year ending May 31, 1998.

(4) Other funds in the MFS fund complex provide similar retirement benefits to
the Trustees.

As of August 31, 1998, the Trustees and officers as a group owned less than 1%
of the Fund's shares outstanding on that date.

As of August 31, 1998, Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake
Drive, East, 3rd Floor, Jacksonville, Florida 32246-6484 was the record owner of
approximately 8.56% and 6.43%, respectively, of the outstanding Class B and
Class C shares of the Fund. As of August 31, 1998, MFS Defined Contribution
Plan, c/o Mark Leary, Massachusetts Financial Services, 500 Boylston Street,
Boston, MA 02116-3740, were the record owners of approximately 98.17% of Class I
shares of the Fund.

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<PAGE> 177

willful misfeasance, bad faith, gross negligence or reckless disregard of their
duties.

ADMINISTRATOR -- MFS provides the Fund with certain financial, legal,
compliance, shareholder communications and other administrative services
pursuant to a Master Administrative Services Agreement dated March 1, 1997 as
amended. Under this Agreement, the Fund pays MFS an administrative fee up to
0.015% per annum of the Fund's average daily net assets. This fee reimburses MFS
for a portion of the costs it incurs to provide such services. For the period
from March 1, 1997 through May 31, 1997 and the fiscal year ended May 31, 1998,
MFS received fees under the Administrative Services Agreement of $1,100 and
$4,379, respectively.

INVESTMENT ADVISORY AGREEMENT -- The Adviser manages the Fund pursuant to an
Investment Advisory Agreements, dated as of September 1, 1995 (the "Advisory
Agreement"). Under the Advisory Agreement, the Adviser provides the Fund with
overall investment advisory services. Subject to such policies as the Trustees
may determine, the Adviser makes investment decisions for the Fund. For these
services and facilities, the Adviser receives an annual management fee, computed
and paid monthly, in an amount equal to 0.975% of the first $500 million of the
average daily net assets of the Fund and 0.925% thereafter.

For the period from commencement of investment operation, October 24, 1995, to
May 31, 1996, MFS received management fees under the Advisory Agreement of
$103,167 (equivalent on an annualized basis to 0.975% of the Fund's average
daily net assets). For the fiscal year ended May 31, 1997, MFS received
management fees under the Advisory Agreement of $277,086 (equivalent on an
annualized basis to 0.975% of the Fund's average daily net assets). For the
fiscal year ended May 31, 1998, MFS received management fees under the Advisory
Agreement of $300,817 (equivalent on annualized basis to 0.975% of the Fund's
average daily net assets) for the Fund.

CUSTODIAN

State Street Bank and Trust Company (the "Custodian") is the custodian of the
Fund's assets. The Custodian's responsibilities include safekeeping and
controlling the Fund's cash and securities, handling the receipt and delivery of
securities, determining income and collecting interest and dividends on the
Fund's investments, maintaining books of original entry for portfolio and fund
accounting and other required books and accounts, and calculating the daily net
asset value of each class of shares of the Fund. The Custodian does not
determine the investment policies of each Fund or decide which securities the
Fund will buy or sell. The Fund may, however, invest in securities of the
Custodian and may deal with the Custodian as principal in securities
transactions. The Custodian also acts as the dividend disbursing agent of the
Fund.

SHAREHOLDER SERVICING AGENT

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<PAGE> 178

tracted with the Shareholder Servicing Agent to administer and perform certain
dividend disbursing agent functions for the Fund.

DISTRIBUTOR

MFD, a wholly owned subsidiary of MFS, serves as distributor for the continuous
offering of shares of the Fund pursuant to a Distribution Agreement with the
Trust dated as of September 1, 1995.

CLASS A SHARES: MFD acts as agent in selling Class A shares of the Fund to
dealers. The public offering price of Class A shares of the Fund is their net
asset value next computed after the sale plus a sales charge which varies based
upon the quantity purchased. The public offering price of a Class A share of the
Fund is calculated by dividing the net asset value of a Class A share by the
difference (expressed as a decimal) between 100% and the sales charge percentage
of offering price applicable to the purchase (see "Purchases" in the
Prospectus). The sales charge scale set forth in the Prospectus applies to
purchases of Class A shares of the Fund alone or in combination with shares of
all classes of certain other funds in the MFS Family of Funds (the "MFS Funds")
and other funds (as noted under Right of Accumulation) by any person, including
members of a family unit (e.g., husband, wife and minor children) and bona fide
trustees, and also applies to purchases made under the Right of Accumulation or
a Letter of Intent (see "Investment and Withdrawal Programs" below). A group
might qualify to obtain quantity sales charge discounts (see "Investment and
Withdrawal Programs" in this SAI).

MFD allows discounts to dealers (which are alike for all dealers) from the
applicable public offering price of the Class A shares. Dealer allowances
expressed as a percentage of offering price for all offering prices are set
forth in the Prospectus (see "Purchases" in the Prospectus). The difference
between the total amount invested and the sum of (a) the net proceeds to the
Fund and (b) the dealer commission, is the commission paid to the distributor.
Because of rounding in the computation of offering price, the portion of the
sales charge paid to the distributor may vary and the total sales charge may be
more or less than the sales charge calculated using the sales charge expressed
as a percentage of the offering price or as a percentage of the net amount
invested as listed in the Prospectus. In the case of the maximum sales charge,
the dealer retains 4.00% and MFD retains approximately 3/4 of 1% of the public
offering price. MFD, on behalf of the Fund, pays a commission to dealers who
initiate and are responsible for purchases of $1 million or more as described in
the Prospectus.

CLASS B SHARES AND CLASS C SHARES: MFD acts as agent in selling Class B shares,
Class C shares and Class I shares of each Fund. The public offering price of
Class B, Class C and Class I shares is their net asset value next computed after
the sale (see "Purchases" in the Prospectus and the Prospectus Supplement to
which Class I shares are offered).

During the period from the commencement of operations, October 24, 1995, to May
31, 1996, and the fiscal year ended May 31, 1997 for the Fund, MFD and dealers
and certain other financial institutions received sales charges of $17,609 and
$233,028 and $18,575 and $92,100, respectively (as their concession on gross
sales charges of $250,637 and $110,675, respectively), for selling Class A
shares. The Fund received $8,330,330 and $3,420,373, respectively, representing
the aggregate net asset value of such shares. During the fiscal year ended May
31, 1998, MFD and dealers and certain other financial institutions received
sales charges of $14,643 and $336,325, respectively (as their concession on
gross sales charges of $350,968) for selling Class A shares. The Fund received
$3,220,218, representing the aggregate net asset value of such shares.

During the fiscal year ended May 31, 1997 and 1998, the CDSC paid on Class A
shares for the Fund were $11 and $59, respectively. During the period from the
commencement of operations, October 24, 1995, to May 31, 1996 and the fiscal
years ended May 31, 1997 and 1998, the CDSC paid on Class B shares for the Fund
were $7,513, $32,134 and $53,488, respectively. During the fiscal years ended
May 31, 1997 and 1998, the CDSC paid on Class C shares for the Fund were $213
and $229, respectively. (During the period from the commencement of operations,
October 24, 1995 to May 31, 1996, there were no CDSC paid on Class A shares for
the Fund.)

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<PAGE> 179

Distribution Agreement or interested persons of any such party. The Distribution
Agreement terminates automatically if it is assigned and may be terminated
without penalty by either party on not more than 60 days' nor less than 30 days'
notice.

4. PORTFOLIO TRANSACTIONS AND
BROKERAGE COMMISSIONS

Specific decisions to purchase or sell securities for the Fund are made by
persons affiliated with the Adviser. Any such person may serve other clients of
the Adviser, or any subsidiary of the Adviser in a similar capacity. Changes in
the Fund's investments are reviewed by the Board of Trustees.

The primary consideration in placing portfolio security transactions is
execution at the most favorable prices. The Adviser has complete freedom as to
the markets in and broker-dealers through which it seeks this result. In the
U.S. and in some other countries debt securities are traded principally in the
over-the-counter market on a net basis through dealers acting for their own
account and not as brokers. In other countries both debt and equity securities
are traded on exchanges at fixed commission rates. The cost of securities
purchased from underwriters includes an underwriter's commission or concession,
and the prices at which securities are purchased and sold from and to dealers
include a dealer's mark-up or mark-down. The Adviser normally seeks to deal
directly with the primary market makers or on major exchanges unless, in its
opinion, better prices are available elsewhere. Subject to the requirement of
seeking execution at the best available price, securities may, as authorized by
an Advisory Agreement, be bought from or sold to dealers who have furnished
statistical, research and other information or services to the Adviser. At
present no arrangements for the recapture of commission payments are in effect.

Consistent with the foregoing primary consideration, the Conduct Rules of the
National Association of Securities Dealers (the "NASD") and such other policies
as the Trustees may determine, the Adviser may consider sales of shares of the
Fund and of the other investment company clients of MFD as a factor in the
selection of broker-dealers to execute the Fund's portfolio transactions.

Under an Advisory Agreement and as permitted by Section 28(e) of the Securities
Exchange Act of 1934, the Adviser may cause the Fund to pay a broker-dealer
which provides brokerage and research services to the Adviser, an amount of
commission for effecting a securities transaction for the Fund in excess of the
amount other broker-dealers would have charged for the transaction, if the
Adviser determines in good faith that the greater commission is reasonable in
relation to the value of the brokerage and research services provided by the
executing broker-dealer viewed in terms of either a particular transaction or
their respective overall responsibilities to the Fund or to their other clients.
Not all of such services are useful or of value in advising the Fund.

Although commissions paid on every transaction will, in the judgment of the
Adviser, be reasonable in relation to the value of the brokerage services
provided, commissions exceeding those which another broker might charge may be
paid to broker-dealers who were selected to execute transactions on behalf of
the Fund and the Adviser's other clients in part for providing advice as to the
availability of securities or of purchasers or sellers of securities and
services in effecting securities transactions and performing functions
incidental thereto, such as clearance and settlement.

Broker-dealers may be willing to furnish statistical, research and other factual
information or services ("Research") to the Adviser for no consideration other
than brokerage or underwriting commissions. Securities may be bought or sold
from time to time through such broker-dealers, on behalf of the Fund. The
Trustees (together with the Trustees of the other MFS Funds) have directed the
Adviser to allocate a total of $54,160 of commission business from the MFS Funds
to the Pershing Division of Donaldson Lufkin & Jenrette as consideration for the
annual renewal of certain publications provided by Lipper Analytical Securities
Corporation (which provides information useful to the Trustees in reviewing the
relationship between the Fund and the Adviser).

The Adviser's investment management personnel attempt to evaluate the quality of
Research provided by brokers. The Adviser sometimes uses evaluations resulting
from this effort as a consideration in the selection of brokers to execute
portfolio transactions.

The management fee of the Adviser will not be reduced as a consequence of the
Adviser's receipt of brokerage and research service. To the extent the Fund's
portfolio transactions are used to obtain brokerage and research services, the
brokerage commissions paid by the Fund will exceed those that might otherwise be
paid for such portfolio transactions, or for such portfolio transactions and
research, by an amount which cannot be presently determined. Such services would
be useful and of value to the Adviser in serving both the Fund and other clients
and, conversely, such services obtained by the placement of brokerage business
of other clients would be useful to the Adviser in carrying out its obligations
to the Fund. While such services are not expected to reduce the expenses of the
Adviser, the Adviser would, through use of the services, avoid the additional

19
<PAGE> 180

expenses which would be incurred if it should attempt to develop comparable
information through its own staff.

In certain instances there may be securities which are suitable for the Fund's
portfolio as well as for that of one or more of the other clients of the
Adviser, any subsidiary of the Adviser. Investment decisions for a Fund and for
such other clients are made with a view to achieving their respective investment
objectives. It may develop that a particular security is bought or sold for only
one client even though it might be held by, or bought or sold for, other
clients. Likewise, a particular security may be bought for one or more clients
when one or more other clients are selling that same security. Some simultaneous
transactions are inevitable when several clients receive investment advice from
the same investment adviser, particularly when the same security is suitable for
the investment objectives of more than one client. When two or more clients are
simultaneously engaged in the purchase or sale of the same security, the
securities are allocated among clients in a manner believed by the Adviser to be
equitable to each. It is recognized that in some cases this system could have a
detrimental effect on the price or volume of the security as far as the Fund is
concerned. In other cases, however, a Fund believes that its ability to
participate in volume transactions will produce better executions for the Fund.

For the fiscal year ended May 31, 1996, 1997 and 1998, the Fund paid brokerage
commissions of $19,927, $32,101 and $693,400, respectively on total transactions
of $387,430,280, $14,083,274 and $921,374,231, respectively.

During the fiscal year ended May 31, 1998, the Fund did not acquire or own
securities issued by broker-dealers of this Fund.

5. SHAREHOLDER SERVICES

LETTER OF INTENT -- If a shareholder (other than a group purchaser described
below) anticipates purchasing $100,000 or more of Class A shares of the Fund
alone or in combination with all classes of shares of other MFS Funds or MFS
Fixed Fund (a bank collective investment fund) within a 13-month period (or
36-month period, in the case of purchases of $1 million or more), the
shareholder may obtain Class A shares of the Fund at the same reduced sales
charge as though the total quantity were invested in one lump sum by completing
the Letter of Intent section of the Account Application or filing a separate
Letter of Intent application (available from the Shareholder Servicing Agent)
within 90 days of the commencement of purchases. Subject to acceptance by MFD
and the conditions mentioned below, each purchase will be made at a public
offering price applicable to a single transaction of the dollar amount specified
in the Letter of Intent application. The shareholder or his dealer must inform
MFD that the Letter of Intent is in effect each time shares are purchased. The
shareholder makes no commitment to purchase additional shares, but if his
purchases within 13 months (or 36 months in the case of purchases of $1 million
or more) plus the value of shares credited toward completion of the Letter of
Intent do not total the sum specified, he will pay the increased amount of the
sales charge as described below. Instructions for issuance of shares in the name
of a person other than the person signing the Letter of Intent application must
be accompanied by a written statement from the dealer stating that the shares
were paid for by the person signing such Letter. Neither income dividends nor
capital gain distributions taken in additional shares will apply toward the
completion of the Letter of Intent. Dividends and distributions of other MFS
Funds automatically reinvested in shares of the Fund pursuant to the
Distribution Investment Program will also not apply toward completion of the
Letter of Intent.

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<PAGE> 181

rate of 4% (the rate applicable to single transactions of $100,000). A
shareholder must provide the Shareholder Servicing Agent (or his investment
dealer must provide MFD) with information to verify that the quantity sales
charge discount is applicable at the time the investment is made.

SYSTEMATIC WITHDRAWAL PLAN: A shareholder may direct the Shareholder Servicing
Agent to send him (or anyone he designates) regular periodic payments based upon
the value of his account. Each payment under a Systematic Withdrawal Plan
("SWP") must be at least $100, except in certain limited circumstances. The
aggregate withdrawals of Class B and Class C shares in any year pursuant to a
SWP generally are limited to 10% of the value of the account at the time of
establishment of the SWP. SWP payments are drawn from the proceeds of share
redemptions (which would be a return of principal and, if reflecting a gain,
would be taxable). Redemptions of Class B and Class C shares will be made in the
following order: (i) any "Reinvested Shares"; (ii) to the extent necessary, any
"Free Amount"; and (iii) to the extent necessary, the "Direct Purchase" subject
to the lowest CDSC (as such terms are defined under "Information Concerning
Shares of the Funds -- Contingent Deferred Sales Charge" in the Prospectus). The
CDSC will be waived in the case of redemptions of Class B and Class C shares
pursuant to a SWP, but will not be waived in the case of SWP redemptions of
Class A shares which are subject to a CDSC. To the extent that redemptions for
such periodic withdrawals exceed dividend income reinvested in the account, such
redemptions will reduce and may eventually exhaust the number of shares in the
shareholder's account. All dividend and capital gain distributions for an
account with a SWP will be received in full and fractional shares of a Fund at
the net asset value in effect at the close of business on the record date for
such distributions. To initiate this service, shares generally having an
aggregate value of at least $5,000 either must be held on deposit by, or
certificates for such shares must be deposited with, the Shareholder Servicing
Agent. With respect to Class A shares, maintaining a withdrawal plan
concurrently with an investment program would be disadvantageous because of the
sales charges included in share purchases and the imposition of a CDSC on
certain redemptions. The shareholder may deposit into the account additional
shares of the Fund, change the payee or change the dollar amount of each
payment. The Shareholder Servicing Agent may charge the account for services
rendered and expenses incurred beyond those normally assumed by a Fund with
respect to the liquidation of shares. No charge is currently assessed against
the account, but one could be instituted by the Shareholder Servicing Agent on
60 days' notice in writing to the shareholder in the event that a Fund ceases to
assume the cost of these services. The Fund may terminate any SWP for an account
if the value of the account falls below $5,000 as a result of share redemptions
(other than as a result of a SWP) or an exchange of shares of the Fund for
shares of another MFS Fund. Any SWP may be terminated at any time by either the
shareholder or the Fund.

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<PAGE> 182

of an investment adviser or other similar groups; and (4) agrees to provide
certification of membership of those members investing money in the MFS Funds
upon the request of MFD.

The Automatic Exchange Plan is part of the Exchange Privilege. For additional
information regarding the Automatic Exchange Plan, including the treatment of
any CDSC, see "Exchange Privilege" below.

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<PAGE> 183

count. Each exchange involves the redemption of the shares of the Fund to be
exchanged and the purchase at net asset value (i.e., without a sales charge) of
shares of the same class of the other MFS Fund. Any gain or loss on the
redemption of the shares exchanged is reportable on the shareholder's federal
income tax return, unless both the shares received and the shares surrendered in
the exchange are held in a tax-deferred retirement plan or other tax-exempt
account. No more than five exchanges may be made in any one Exchange Request by
telephone. If the Exchange Request is received by the Shareholder Servicing
Agent prior to the close of regular trading on the Exchange, the exchange
usually will occur on that day if all the requirements set forth above have been
complied with at that time. However, payment of the redemption proceeds by the
Fund, and thus the purchase of shares of the other MFS Fund, may be delayed for
up to seven days if the Fund determines that such a delay would be in the best
interest of all its shareholders. Investment dealers which have satisfied
criteria established by MFD may also communicate a shareholder's Exchange
Request to MFD by facsimile subject to the requirements set forth above.

The exchange privilege (or any aspect of it) may be changed or discontinued and
is subject to certain limitations (see "Purchases" in the Prospectus).

Roth Individual Retirement Accounts (Roth IRAs) (for individuals who desire
to make limited contributions to a tax-favored retirement program);

Simplified Employee Pension (SEP-IRA) Plans;

Retirement Plans Qualified under Section 401(k) of the Internal Revenue
Code of 1986, as amended;

403(b) Plans (deferred compensation arrangements for employees of public
school systems and certain non-profit organizations); and

Certain other qualified pension and profit-sharing plans.

An investor should consult with his tax adviser before establishing any of the
tax-deferred retirement plans described above.

6. TAX STATUS

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<PAGE> 184

"regulated investment company" in any year, the Fund would incur a regular
corporate federal income tax upon its taxable income and Fund distributions
would generally be taxable as ordinary dividend income to the shareholders.

Shareholders of the Fund normally will have to pay federal income taxes, and any
state or local taxes, on the dividends and capital gain distributions they
receive from the Fund. Dividends from ordinary income and any distributions from
net short-term capital gains are taxable to the Fund's shareholders as ordinary
income for federal income tax purposes, whether the distributions are paid in
cash or reinvested in additional shares. Distributions of net capital gains
(i.e., the excess of net long-term capital gains over net short-term capital
losses), whether paid in cash or reinvested in additional shares, are taxable to
shareholders as long-term capital gains for federal income tax purposes without
regard to the length of time the shareholders have held their shares. Any Fund
dividend that is declared in October, November or December of any calendar year
that is payable to shareholders of record in such a month, and that is paid the
following January will be treated as if received by shareholders on December 31
of the year in which the dividend is declared. The Fund will notify shareholders
regarding the federal tax status of its distributions after the end of each
calendar year.

The Fund's current dividend and accounting policies will affect the amount,
timing and character of distributions to shareholders, and may, under certain
circumstances, make an economic return of capital taxable to shareholders. Any
investment in zero coupon bonds, deferred interest bonds, payment-in-kind bonds,
and certain securities purchased at a market discount will cause the Fund to
recognize income prior to the receipt of cash payments with respect to those
securities. In order to distribute this income and avoid a tax on the Fund, the
Fund may be required to liquidate portfolio securities that it might otherwise
have continued to hold, potentially resulting in additional taxable gain or loss
to the Fund.

The Fund's transactions in options, Futures Contracts, Forward Contracts, and
swaps and related transactions will be subject to special tax rules that may
affect the amount, timing and character of Fund income and distributions to
shareholders. For example, certain positions held by the Fund on the last
business day of each taxable year will be marked to market (i.e., treated as if
closed out) on that day, and any gain or loss associated with the positions will
be treated as 60% long-term and 40% short term capital gain or loss. Certain
positions held by the Fund that substantially diminish its risk of loss with
respect to other positions in its portfolio may constitute "straddles," and may
be subject to special tax rules that would cause deferral of Fund losses,
adjustments in the holding periods of Fund securities, and conversion of short-
term into long-term capital losses. Certain tax elections exist for straddles
that may alter the effects of these rules. The Fund will limit its activities in
options, Futures Contracts, Forward Contracts and swaps and related transactions
to the extent necessary to meet the requirements of Subchapter M of the Code.

24
<PAGE> 185

of the amounts distributed to them by the Fund and thus includable in their
gross income for federal income tax purposes. Shareholders who itemize
deductions would then be allowed to claim a deduction or credit (but not both)
on their federal income tax returns for such amounts, subject to certain
limitations. Shareholders who do not itemize deductions would be able (subject
to such limitations) to claim a credit but not a deduction. No deduction will be
permitted to individuals in computing their alternative minimum tax liability.
If the Fund does not qualify or elect to "pass through" to its shareholders
foreign income taxes paid by it, shareholders will not be able to claim any
deduction or credit for any part of the foreign taxes paid by the Fund.

Dividends and certain other payments to persons who are not citizens or
residents of the United States or U.S. entities ("Non-U.S. Persons") are
generally subject to U.S. tax withholding at the rate of 30% (or any lower rate
permitted under an applicable treaty) on taxable dividends and other payments to
Non-U.S. Persons that are subject to such withholding. Any amounts overwithheld
may be recovered by such persons by filing a claim for refund with the U.S.
Internal Revenue Service within the time period appropriate to such claims.
Distributions received from the Fund by Non-U.S. Persons also may be subject to
tax under the laws of their own jurisdictions. The Fund is also required in
certain circumstances to apply backup withholding at the rate of 31% on taxable
dividends and redemption proceeds paid to any shareholder (including a Non-U.S.
Person) who does not furnish to the Fund certain information and certifications
or who is otherwise subject to backup withholding. Backup withholding will not,
however, be applied to payments that have been subject to 30% withholding.

As long as it qualifies as a regulated investment company under the Code, the
Fund will not be required to pay Massachusetts income or excise tax.

7. DISTRIBUTION PLAN
The Trustees have adopted a Distribution Plan for each of the Class A, Class B
and Class C shares of the Fund (the "Distribution Plan") pursuant to Section
12(b) of the 1940 Act and Rule 12b-1 thereunder (the "Rule") after having
concluded that there is a reasonable likelihood that the Distribution Plan would
benefit the Fund and each respective class of shareholders. The provisions of
the Distribution Plan are severable with respect to the Fund and each class of
shares offered by the Fund. The Distribution Plan is designed to promote sales,
thereby increasing the net assets of the Fund. Such an increase may reduce the
expense ratio to the extent a Fund's fixed costs are spread over a larger net
asset base. Also, an increase in net assets may lessen the adverse effects that
could result were the Fund required to liquidate portfolio securities to meet
redemptions. There is, however, no assurance that the net assets of the Fund
will increase or that the other benefits referred to above will be realized.

DISTRIBUTION AND SERVICE FEES PAID DURING THE FUND'S LAST FISCAL PERIOD: During
the fiscal year ended May 31, 1998, the Fund paid the following Distribution
Plan expenses:

<TABLE>
<CAPTION>
AMOUNT OF AMOUNT OF
AMOUNT OF DISTRIBUTION DISTRIBUTION
DISTRIBUTION AND SERVICE AND SERVICE
AND SERVICE FEES FEES
FEES PAID RETAINED RECEIVED
CLASSES OF SHARES BY FUND BY MFD BY DEALERS
- --------------------- ------------ ------------- -------------
<S> <C> <C> <C>
Class A Shares $ 67,779 $5,886 $ 61,893
Class B Shares $169,076 $3,829 $165,247
Class C Shares $ 3,880 $ 51 $ 3,829
</TABLE>

25
<PAGE> 186

agreements relating to the Distribution Plan entered into between the Fund or
MFD and other organizations must be approved by the Board of Trustees, including
a majority of the Distribution Plan Qualified Trustees. Agreements under the
Distribution Plan must be in writing, will be terminated automatically if
assigned, and may be terminated at any time without payment of any penalty, by
vote of a majority of the Distribution Plan Qualified Trustees or by vote of the
holders of a majority of the respective class of the Fund's shares. The
Distribution Plan may not be amended to increase materially the amount of
permitted distribution expenses without the approval of a majority of the
respective class of the Fund's shares (as defined in "Investment Restrictions")
or may not be materially amended in any case without a vote of the Trustees and
a majority of the Distribution Plan Qualified Trustees. The selection and
nomination of Distribution Plan Qualified Trustees shall be committed to the
discretion of the non-interested Trustees then in office. No Trustee who is not
an "interested person" has any financial interest in the Distribution Plan or in
any related agreement.

8. DETERMINATION OF NET ASSET VALUE AND PERFORMANCE

NET ASSET VALUE: The net asset value per share of each class of the Fund is
determined each day during which the Exchange is open for trading. (As of the
date of this SAI, the Exchange is open for trading every weekday except for the
following holidays (or the days on which they are observed): New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.)

This determination is made once each day as of the close of regular trading on
the Exchange by deducting the amount of the liabilities attributable to the
class from the value of the assets attributable to the class and dividing the
difference by the number of shares of the class outstanding. Equity securities
in the Fund's portfolio are valued at the last sale price on the exchange on
which they are primarily traded or on the Nasdaq system for unlisted national
market issues, or at the last quoted bid price for listed securities in which
there were no sales during the day or for unlisted securities not reported on
the Nasdaq system. Bonds and other fixed income securities (other than
short-term obligations) of U.S. issuers in the Fund's portfolio are valued on
the basis of valuations furnished by a pricing service which utilizes both
dealer-supplied valuations and electronic data processing techniques which take
into account appropriate factors such as institutional-size trading in similar
groups of securities, yield, quality, coupon rate, maturity, type of issue,
trading characteristics and other market data without exclusive reliance upon
quoted prices or exchange or over-the-counter prices, since such valuations are
believed to reflect more accurately the fair value of such securities. Forward
Contracts will be valued using a pricing model taking into consideration market
data from an external pricing source. Use of the pricing services has been
approved by the Board of Trustees. All other securities, futures contracts and
options in the Fund's portfolio (other than short-term obligations) for which
the principal market is one or more securities or commodities exchanges (whether
domestic or foreign) will be valued at the last reported sale price or at the
settlement price prior to the determination (or if there has been no current
sale, at the closing bid price) on the primary exchange on which such
securities, futures contracts or options are traded; but if a securities
exchange is not the principal market for securities, such securities will, if
market quotations are readily available, be valued at current bid prices, unless
such securities are reported on the Nasdaq system, in which case they are valued
at the last sale price or, if no sales occurred during the day, at the last
quoted bid price. Short-term obligations in the Fund's portfolio are valued at
amortized cost, which constitutes fair value as determined by the Board of
Trustees. Short-term obligations with a remaining maturity in excess of 60 days
will be valued upon dealer supplied valuations. Portfolio investments for which
there are no such quotations or valuations are valued at fair value as
determined in good faith by or at the direction of the Board of Trustees.

PERFORMANCE INFORMATION

26
<PAGE> 187

the maximum or other sales charge or CDSC. The Fund offers multiple classes of
shares which were initially offered for sale to, and purchased by, the public on
different dates (the class "inception date"). The calculation of total rate of
return for a class of shares which has a later class inception date than another
class of shares of the Fund is based both on (i) the Performance of the Fund's
newer class from its inception date and (ii) the performance of the Fund's
oldest class from its inception date up to the class inception date of the newer
class.

Total rate of return quotations for each class are presented in Appendix A
attached hereto.

These yield or total rate of return quotations provided by the Fund, should not
be considered as representative of the performance of the Fund in the future
since the net asset value and public offering price of shares of the Fund will
vary based not only on the type, quality and maturities of the securities held
in each of the Fund's portfolio, but also on changes in the current value of
such securities and on changes in the expenses of the Fund. These factors and
possible differences in the methods used to calculate yields and total rates of
return should be considered when comparing the yield and total rate of return of
the Fund to yields and total rates of return published for other investment
companies or other investment vehicles. Total rate of return reflects the
performance of both principal and income. The current net asset value of shares
and account balance information may be obtained by calling 1-800-MFS-TALK
(637-8355).

YIELD: Any yield quotation for a class of shares of the Fund is based on the
annualized net investment income per share of that class over a 30-day period.
The yield is calculated by dividing the net investment income per share
allocated to a particular class of the Fund earned during the period by the
maximum offering price per share of such class on the last day of that period.
The resulting figure is then annualized. Net investment income per share of a
class is determined by dividing (i) the dividends and interest earned by the
Fund allocated to the class during the period, minus accrued expenses of such
class for the period, by (ii) the average number of shares of such class
entitled to receive dividends during the period multiplied by the maximum
offering price per share of such class on the last day of the period. The Fund's
yield calculations assume a maximum sales charge of 4.75% in the case of Class A
shares and no payment of any CDSC in the case of Class B and Class C shares.

The yield quotations for the Fund for each class are presented in Appendix A
attached hereto.

CURRENT DISTRIBUTION RATE: Yield, which is calculated according to a formula
prescribed by the SEC, is not indicative of the amounts which were or will be
paid to the International Growth and Income Fund shareholders. Amounts paid or
expected to be paid to shareholders of each class are reflected in the quoted
"current distribution rate" for that class. The current distribution rate for a
class is computed by (i) annualizing the distributions (excluding short-term
capital gains) of the class for a stated period; (ii) adding any short-term
capital gains paid within the immediately preceding twelve-month period; and
(iii) dividing the result by the maximum offering price or net asset value per
share on the last day of the period. The current distribution rate differs from
the yield computation because it may include distributions to shareholders from
sources other than dividends and interest, such as premium income for option
writing, short-term capital gains and return of invested capital, and may be
calculated over a different period of time. The Fund's current distribution rate
calculation for Class B and Class C shares assumes no CDSC is paid.

The current distribution rate calculation for each Class of shares of the Fund
are presented in Appendix A attached hereto.

Investment Company Institute, Johnson's Charts, Morningstar, Lipper Analytical
Securities Corporation, CDA Wiesenberger, Shearson Lehman and Salomon Bros.
Indices, Ibbotson, Business Week, Lowry Associates, Media General, Investment
Company Data, The New York Times, Your Money, Strangers Investment Advisor,
Financial Planning on Wall Street, Standard and Poor's, Individual Investor, The
100 Best Mutual Funds You Can Buy, by Gordon K. Williamson, Consumer Price
Index, and Sanford C. Bernstein & Co. Fund performance may also be compared to
the performance of other mutual funds tracked by financial or business
publications or periodicals. The Fund may also quote evaluations mentioned in
independent radio or television broadcasts and use charts and graphs to
illustrate the past performance of various indices such as those mentioned above
and illustrations using hypothetical rates of return to illustrate the effects
of compounding and tax-deferral. Each Fund may advertise examples of the effects
of periodic investment plans, including the principle of dollar cost averaging.
In such a program, an investor invests a fixed dollar amount in a fund at
periodic intervals, thereby purchasing fewer shares when prices are high and
more shares when prices are low. While such a strategy does not assure a profit
or guard against a loss in a declining market, the investor's average cost per
share can be lower than if fixed numbers of shares are purchased at the same
intervals.

From time to time, the Fund may also advertise annual returns showing the
cumulative value of an initial investment in the Fund in various amounts over
specified periods with capital gain and dividend distributions invested in
additional shares or taken in cash, and with no adjustment for any income taxes
(if applicable) payable by shareholders.

MFS FIRSTS: MFS has a long history of innovations.

<TABLE>
<C> <S>
-- 1924 -- Massachusetts Investors Trust is
established as the first open-end mutual fund
in America.

-- 1924 -- Massachusetts Investors Trust is the
first mutual fund to make full public
disclosure of its operations in shareholder
reports.